UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, ~~2003~~2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-24999

LOTUSOPTA PACIFIC, INC.CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		52-1947160
(State or other jurisdiction of incorporation or organization)		(I.R.S.Employer Identification Number)
(State or other jurisdiction of		(I.R.S.Employer
incorporation or organization)		Identification Number)

24021350 MichelsonBayshore DriveHighway, Suite 220730, IrvineBurlingame, CA 9261294010

(Address of principal executive offices, Zip code)

Registrant’s telephone number, including area code: ~~949~~650-~~475~~579-~~1880~~3610

Securities registered pursuant to ~~Section~~to Section 12(b) of the Act: None

Securities registered pursuant to ~~Section~~to Section 12(g) of the Act: Common Stock, par value $0.001 per share

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by ~~Section~~ Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such 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 o No ý (2) Yes ý No o

Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Registrant S-K is not contained herein, and will not be contained to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No ý

The aggregate ~~market~~ market value of the registrant’s voting Common Stock held by non-affiliates of ~~the~~ the registrant was approximately $2244,~~329,554~~309 (computed using the adjusted closing sales price of $0.0801 per share of Common Stock on ~~June 30~~January 31, ~~2004~~2005 as reported by the Pink Sheets). Shares of ~~Common~~ Common Stock held by each officer and director and each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of Common ~~Stock~~ Stock outstanding as of ~~August 15~~January 31, ~~2004~~2005 was 50,~~723~~037,~~604~~538.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I

Item 1. Business

Explanatory Note - Delays in Reporting

This Annual Report on Form 10-K ~~for~~ for Opta Corporation (formerly Lotus Pacific, Inc.) (the “Company” or “~~Lotus Pacific~~Opta”) for fiscal year ended ~~June~~ June 30, ~~2003~~2004 is being filed after the required due date as a result of restating financial information included in Form 10-K for the fiscal year ended ~~June~~ June 30, 2002 as previously filed with the Securities and Exchange Commission (“SEC”) on April 16, 2004, and filing the Form 10-K for the fiscal year ended June 30, 2003 with the SEC on August 24, 2004.

As previously reported, on June 29, 2001, a majority of the Company’s stockholders, led by T.C.L. Industries Holdings (H.K.) Limited (“TCL”), were successful in a solicitation to gain control of the Company and to replace prior management of the Company. On June 29, 2001, new directors and ~~officers~~ officers were appointed and the then existing directors and officers were ~~immediately~~ immediately removed from office.

Following the replacement of ~~prior~~ prior management, the new management began an extensive review of various transactions undertaken by and involving old management prior to June 29, 2001. Due to the preliminary results, the Company dismissed its then existing independent accountants and replaced them with new independent accountants. On March 25, 2002, the new independent accountants were engaged to ~~audit~~ audit fiscal 2002. As previously reported, during its preliminary investigation, new management of the Company ~~identified~~ identified various transactions ~~involving Regent Electronics Corporation (“Regent”), a former subsidiary of Lotus Pacific, and other transactions~~ undertaken by prior management which impacted reported financial and operating results with respect to its consolidated financial statements for fiscal 2001, 2000 and 1999 and ultimately concluded that a reaudit of the financial statements for fiscal 2001, 2000 and 1999 was ~~required. On~~ ~~July 24, 2002, the Company engaged its new independent accountants to perform such reaudit and the Company concluded that it would be~~ required ~~to restate these prior periods~~. As previously reported, new management concluded the restatements would include adjustments, among others, to the Company’s previously reported revenues, cost of sales, net loss, earnings per share and related party transactions. The Company completed such restatements in in its Form 10-K for fiscal 2002 filed April 16, 2004. The ~~Additionally,~~subsequent ~~the~~Form ~~Company is~~10-K ~~currently working to complete all required reports~~ for ~~subsequent~~fiscal ~~periods~~2003 was ~~and~~filed ~~will~~August 24, ~~file them as soon as they are available~~2004.

Explanatory Note – Updated Information Subsequent to Fiscal ~~2003~~2004

Because this report relates to ~~fiscal~~ ~~2003~~fiscal 2004, except as otherwise noted herein, this report speaks as of June 30, ~~2003.~~ 2004. The Company has not updated the disclosures in this report to speak as of a a later date, except as specifically referenced in the following sections:

• Item 1. Business; • Item 2. Properties; • Item 3. Legal Proceedings; • Item 5. Market for Registrant’s common equity and related stockholder matters; • Item 8. Financial Statements and Supplementary Data Note 1 – Business and Background and Note18 Subsequent Events. • Item 10. Directors and Executive Officers of the Registrant; • Item 12. Security Ownership of Certain Beneficial Owners and Management; • Item 13. Certain Relationships and Related Transactions; • Item 14. Principal Accounting Fees and Services; and • Item 15. Exhibits

~~Accordingly,~~• Item ~~the disclosure in this report does not contain complete and updated information regarding the Company and its operations as of the date of filing this report~~2. ~~All such information contained in this report~~ ~~therefore is subject to updating and supplementing to be provided by the Company in its reports to be filed with the SEC for periods subsequent to fiscal 2003.~~ Properties;

~~Explanatory~~• Item 3. ~~Note~~Legal ~~– Disclaimer of Audit Opinion~~Proceedings;

As• Item ~~previously reported, the Company sold~~5. ~~its~~Market ~~controlling~~for ~~interest in ARESCOM Inc (“Arescom”). Following such sale, during the reaudit described above, the Company~~Registrant’s ~~independent~~common ~~accountants~~equity ~~were~~and ~~unable~~related tostockholder ~~audit the~~matters;

2• Item 8. Financial Statements and Supplementary Data Note 1 – Business and Background and Note 20 – Subsequent Events.

~~financial~~• Item statements of Arescom, a significant subsidiary, for the year ended June 30, 2001, as the subsidiary would not provide the necessary information to allow the independent accountants to complete the audits10. ~~Due~~ toDirectors ~~Arescom’s~~and ~~lack~~Executive ofOfficers ~~cooperation, the Company’s independent accountants were unable to attain satisfaction about Arescom’s account balances by means~~ of ~~other~~ ~~auditing procedures. As a result,~~ the ~~Company’s independent accountants did not express an opinion on the consolidated financial statements for the year June 30, 2001.~~Registrant;

~~Company~~• Item ~~Overview~~12. Security ~~and~~Ownership ~~Business~~of ~~Strategy~~Certain Beneficial Owners and Management;

On• Item ~~March 7, 2004, the Company’s board of directors adopted resolutions proposing and approving a change of the Company’s name from “Lotus Pacific, Inc~~13.” to “Opta Corporation.” On June 29, 2004, the Company filed a Preliminary Information statement, Schedule 14C, with the SEC to inform all stockholders of the approval of an amendment to the Company’s Certificate of Incorporation providing for the name change. ~~Holders~~Certain ofRelationships a majority of the Company’s outstanding shares consented in writing to the name change. A letter was mailed to all Lotus shareholders on July 12, 2004 informing them of the name change. The name change will become effective upon filing the Definitive Information statement, Schedule 14C, with the SEC. As the name change has not been finalized as of the date of this filing, all references in this Form 10-K will be to Lotus Pacific. And unless otherwise noted, references to “Lotus Pacific,” the “Company,” “we,” “our” or “us” mean Lotus Pacific, Inc., and ~~its~~Related ~~subsidiaries.~~ Transactions;

~~The~~• Item ~~Company incorporated in Delaware on June 25, 1985~~14. ~~Under prior management,~~ ~~the~~Principal ~~Company~~Accounting ~~was~~Fees ~~significantly restructured~~ and ~~changed~~Services; ~~its name to Lotus Pacific, Inc. in September 1994. Lotus Pacific is a holding company that conducts business through its subsidiaries. The Company develops, manages,~~ and operates emerging consumer electronics and communications companies, focusing on developing next generation consumer electronics and communication products. The Company provides its subsidiaries with capital and strategic and infrastructure services.

~~Following~~• Item ~~the takeover of the Board of Directors of the Company on June~~15. ~~29, 2001, new management of the Company~~ ~~began a thorough review of all aspects of the business operations of the Company and its subsidiaries and has engaged in numerous transactions to restructure the Company’s business.~~Exhibits

~~Under new management~~Accordingly, the ~~Company’s~~disclosure in ~~primary~~this ~~strategy~~report ~~for~~does ~~business~~not ~~operations~~contain ~~has~~complete ~~been~~and toupdated ~~restructure~~information orregarding ~~shut down~~the ~~its~~Company ~~unprofitable~~and ~~businesses,~~its ~~acquire~~operations ~~undervalued~~as orof ~~underutilized~~the ~~companies~~date ~~and focus~~of onfiling ~~profitable~~this ~~growth~~report. ~~The~~All ~~Company has~~such ~~moved~~information ~~aggressively~~contained toin ~~sell,~~this ~~restructure or shutdown its businesses which~~report ~~were~~therefore ~~not~~is ~~operating~~subject ~~profitably~~to updating and~~/or~~ ~~which~~supplementing ~~may~~to orbe ~~would~~provided ~~have~~by ~~required significant~~the ~~cash investments. The~~ Company ~~continues to identify market~~ ~~opportunities~~in ~~that will create and accelerate the growth and success of~~ its ~~subsidiary~~ ~~companies~~reports ~~and~~ to ~~implement~~be ~~new~~filed ~~business~~with ~~plans~~the toSEC ~~improve~~for ~~the~~periods ~~returns on~~subsequent ~~these~~to ~~businesses~~fiscal 2004.

Current management intends to focus the Company’s businessOverview onand its newly acquired subsidiary, Opta Systems, LLC (“Opta”) dba GoVideo (see “Significant Business Developments and Subsidiary Activity During Fiscal 2003”), and concentrate future business in the related industries of consumer electronics and telecommunications.Strategy

~~The~~On ~~Company~~March 7, ~~further~~2004, ~~seeks to improve~~ the ~~efficiencies of the~~ Company’s ~~operations~~board ~~and~~of ~~accelerate~~directors ~~growth~~adopted byresolutions ~~utilizing~~proposing ~~its competitive~~and ~~advantages.~~approving ~~The Company believes these competitive advantages~~a ~~include~~change ~~the significant experience~~ of ~~current management in~~ the ~~communications and~~Company’s ~~consumer~~name ~~electronics~~from ~~industry~~“Lotus ~~and~~Pacific, ~~business~~Inc.” ~~opportunities presented~~ to ~~the Company~~“Opta inCorporation.” The ~~China~~name ~~and~~change ~~Asia~~became ~~through~~effective ~~the strength of its relationships with its significant shareholders, including TCL.~~August 25, ~~TCL~~2004 isupon anfiling ~~affiliated~~the ~~company~~Definitive ofInformation ~~TCL International Holdings Limited (HKSE: 1070) (“TCL International”)~~statement, ~~a leading multimedia consumer electronics product manufacturer~~Schedule 14C, with the ~~a strong brand presence in China and Asia~~SEC. ~~TCL~~All ~~International’s~~references ~~core~~to ~~products include~~“Opta ~~televisions~~Corporation,” ~~mobile handsets~~“Opta,” ~~personal computers~~“Company,” ~~audio-visual equipment as well as information technology services. Under its highly recognized and well-established TCL brand~~“we,” it“our” isor ~~one~~“us” ~~of the~~mean ~~strongest~~Opta ~~players~~Corporation ~~in the TV~~ and ~~mobile handset marketplace in China.~~ ~~Headquartered~~its ~~in China, it operates a number of highly efficient manufacturing bases in Asia~~subsidiaries.

~~Business Developments and Subsidiary Activity Prior to Fiscal 2003~~2

InThe ~~April~~Company ~~and~~incorporated ~~May~~in Delaware ~~1997~~on June 25, 1985. Under prior management, the Company ~~acquired~~ ~~70%~~was ofsignificantly ~~the~~restructured ~~common~~in ~~stock~~September 1994. Opta ofis ~~Regent.~~ a holding company that conducts Inbusiness ~~June~~through ~~1997,~~its ~~Regent~~subsidiaries. ~~acquired~~The ~~Amiga-based~~Company develops, ~~multimedia~~manages, ~~technology~~and ~~related~~operates ~~assets~~emerging consumer electronics and ~~rights~~communications ~~from~~companies, ~~Rightiming~~focusing ~~Electronics~~on developing ~~Corporation~~next ~~(“Rightiming”)~~generation consumer electronics and communication products. OnThe ~~June~~Company ~~26,~~provides ~~2001,~~its ~~the~~subsidiaries ~~Company~~with ~~spun-off~~capital ~~Regent~~and tostrategic ~~Regent’s~~and ~~management~~infrastructure services.

3Following the takeover of the Board of Directors of the Company on June 29, 2001, new management of the Company began a thorough review of all aspects of the business operations of the Company and its subsidiaries and has engaged in numerous transactions to restructure the Company’s business.

InUnder ~~February~~new ~~1999~~management, the Company’s ~~acquired 100%~~primary ofstrategy ~~the~~for ~~outstanding~~business ~~shares~~operations ofhas ~~Professional~~been ~~Market~~to ~~Brokerage,~~restructure ~~Inc. (“PMB”),~~or ashut ~~Chicago-based~~down ~~financial~~its ~~trading~~unprofitable ~~firm~~businesses, ~~that~~acquire ~~provided~~undervalued ~~online~~or ~~trading services,~~underutilized companies and ~~100%~~focus ofon ~~the~~profitable ~~outstanding~~growth. The ~~shares~~Company ofhas USmoved ~~Securities~~aggressively &to ~~Futures Corp. (“USSF”)~~sell, arestructure ~~full~~or ~~service~~shutdown ~~brokerage~~its businesses ~~firm~~which inwere ~~New~~not ~~York,~~operating ~~NY.~~profitably Inand/or ~~June~~which ~~1999,~~may ~~the Company~~or ~~created~~would ~~USS~~have required ~~Online,~~significant ~~Inc~~cash investments. ~~(“USS~~The ~~Online”),~~Company acontinues ~~wholly-owned~~to ~~subsidiary,~~identify ~~and~~market ~~transferred~~opportunities ~~all~~that ofwill ~~its~~create ~~ownership~~and ~~interests~~accelerate inthe ~~each~~growth ~~of USSF~~ and ~~PMB~~success toof ~~USS Online~~its tosubsidiary ~~run~~companies ~~those~~and ~~two~~to ~~financial~~implement ~~service~~new ~~subsidiaries.~~business Inplans ~~February~~to ~~2000,~~improve the ~~Company~~returns ~~sold~~on ~~72%~~these ~~of its ownership in USS Online~~businesses.

In ~~March 1999~~April 2003, the Company acquired ~~95% of~~Opta ~~the issued and outstanding common shares of Correlant Communications~~Systems, ~~Inc. (formerly~~LLC ~~TurboNet~~dba ~~Communications,~~“GoVideo” ~~Inc.)~~ (“~~Correlant~~GoVideo”), ~~representing~~(see ~~an 81%~~Significant ~~ownership~~Business ~~interest~~Developments inand ~~Correlant. Based in~~Subsidiary ~~San~~Activity ~~Diego,~~During ~~California,~~the ~~Correlant~~Reporting ~~designed,~~Period). Following ~~developed~~the ~~and~~GoVideo ~~marketed telecommunications products to cable operators~~acquisition, ~~network service providers, and~~the ~~communications~~Company ~~network~~concentrated ~~users~~its business in the ~~United~~related ~~States~~industries ~~and~~of ~~Asian~~consumer electronics ~~countries.~~and telecommunications.

InThe ~~March 1999, the~~ Company’s ~~acquired~~strategy ~~77%~~is to ofincrease ~~the issued and outstanding common shares of Arescom. Based in Fremont~~revenue, ~~California,~~move ~~Arescom designed,~~toward ~~manufactured~~profitability and ~~marketed~~generate acashflow ~~broad range of high quality remote access~~from ~~products,~~operations ~~such~~ as ~~routers~~a ~~and~~result ~~remote~~of ~~managing~~focusing ~~software,~~on ~~and other inter-networking equipment for Internet Service Providers (“ISP”), resellers, and system integrators in~~ the ~~North~~consumer ~~America~~electronics market. InTo ~~December~~achieve ~~2001~~these goals, the Company ~~sold approximately 92% of its~~is ~~investment~~pursuing ~~in Arescom, representing 65% of~~ the ~~outstanding~~following ~~securities of Arescom to an unrelated third party.~~ strategies:

At• Introduce ~~the~~new ~~time~~innovative ~~Correlant~~products ~~and Arescom were acquired, Lotus Pacific’s strategy for growth was~~ to ~~increase its product line and customer base through~~ the ~~acquisition of businesses which provided~~ ~~Internet-related products and services and complemented Lotus Pacific’s existing Internet technology and resources.~~market;

On• Increase ~~April 22, 1999,~~ the ~~Company~~GoVideo ~~organized Lotus~~brand ~~World, Inc. (“Lotus World”) to offer Auction Live, an online auction~~recognition ~~service,~~in toboth ~~international~~the ~~clients~~U. ~~The wholly-owned~~S. ~~subsidiary was incorporated in Delaware in April 1999, and was a private-label Asian language e-commerce service provider, targeting business-to-business and business-to-customer~~ markets, ~~portals~~ and ~~ISP companies. Due~~abroad; ~~to the negative response in general to e-commerce, the operations of Lotus World were suspended by prior management in 2001.~~and

On• Increase ~~November~~product ~~13,~~offerings ~~2000,~~by ~~the Company~~leveraging ~~established~~on aexisting ~~wholly-owned~~strategic ~~subsidiary,~~relationships ~~Acumen~~including ~~Technology,~~our ~~Inc.~~majority ~~(“Acumen”), incorporated~~shareholder in- ~~Delaware~~TCL. In December 2000, the Company transferred all of the capital stock it held in Correlant and Arescom to Acumen. Other than its holdings of the Correlant and Arescom stock, Acumen had no material independent operations. In December 2001, Acumen was merged into Lotus Pacific and all the assets and liabilities of Acumen were assumed by the Company.

InIntroduce ~~June~~new ~~2001,~~innovative ~~Acumen~~products ~~formed Lotus Pacific Communications Technology (Beijing) Co., Ltd. (“Beijing Lotus”), a wholly-owned subsidiary,~~ to ~~support business activity in Beijing. As of~~ the ~~date of this Form 10-K, Beijing Lotus has no material independent operations.~~ market

AsDuring ~~previously~~fiscal ~~reported~~2004, onGoVideo ~~December 11,~~introduced ~~2001,~~its ~~the~~digital ~~Company~~video ~~merged~~disc ~~Acumen~~(“DVD”) ~~into~~Recorder ~~the~~+ ~~Company. As~~VCR, awhich ~~result~~experienced exceptional ofmarket ~~the merger~~acceptance. Additionally, ~~the~~GoVideo ~~Company assumed~~began ~~all~~distributing the ~~rights~~MP3 ~~and~~Rave ~~obligations~~MP ofbranded ~~Acumen and acquired the assets of~~product ~~Acumen~~in ~~that~~September 2004. GoVideo ~~included, without limitation, shares of stock of Correlant and~~intends ~~Arescom.~~to ~~Acumen~~keep ~~had~~researching nomarket ~~operations~~demand ~~other than serving as a holding company~~ for ~~the~~ ~~shares~~new ofconsumer ~~stock~~electronic ofproducts ~~Correlant and Arescom~~to distribute.

AsIncrease ~~previously reported, on December 11, 2001,~~ the ~~Company~~GoVideo ~~sold~~brand torecognition Solomon Extreme International Ltd. (BVI), 24,234,738 shares of common stock of the Company’s subsidiary, Arescom, representing approximately 70% of the outstanding shares of Arescom, for $10,000,000 in ~~cash. The~~ ~~Company~~both ~~determined that Arescom would not generate consistent cash flow from operations in~~ the ~~foreseeable~~ ~~future, and decided to sell its interests for cash to pursue other business opportunities~~U.S. ~~The~~markets ~~Company retained approximately 6% of the outstanding common shares~~ and ~~11,048 shares of subordinated preferred stock of~~ ~~Arescom.~~abroad

~~Pursuant~~Opta toapproved the ~~terms~~formation of ~~the Company’s~~ ~~acquisition~~a ofnew ~~Arescom~~wholly-owned subsidiary in ~~March 1999~~China, anwhich ~~aggregate~~will ofmarket ~~3,885,856 shares of the Company~~GoVideo’s ~~common~~MP3 ~~stock~~players under ~~issued to~~ the ~~former~~GoVideo ~~shareholders~~brand ofname. See ~~Arescom~~“Business ~~in exchange~~Developments ~~for their shares of Arescom were restricted~~ and ~~could~~Subsidiary ~~not be sold~~Activity ~~until~~Subsequent ~~Arescom’s~~to ~~annual~~the ~~gross~~Reporting ~~revenue and net income before taxes reached certain levels~~Period.” ~~As previously reported, in~~The ~~connection~~Company ~~with~~will ~~the~~continue ~~transaction~~to ~~involving~~seek ~~the~~other ~~sale~~business ofopportunities ~~the~~to ~~Company~~expand where GoVideo’s ~~controlling interest~~products inare ~~Arescom,~~likely ~~the Company agreed~~ to ~~release~~be ~~the~~market ~~restrictions previously imposed on the shares of common stock of the Company held by the former shareholders of Arescom~~leaders.

4Increase product offerings by leveraging on existing strategic relationships including our majority shareholder - TCL

As The ~~previously~~Company ~~reported,~~further onseeks ~~March~~to ~~12,~~improve the ~~2002,~~efficiencies of the Company’s operations and ~~Lotus~~accelerate ~~World~~growth ~~entered~~by ~~into~~utilizing anits competitive ~~Asset~~advantages. ~~Purchase~~The Company believes these competitive advantages include the significant experience of current management in the communications and ~~Assignment~~consumer electronics industry and business opportunities presented to the Company in China and ~~Assumption~~Asia ~~Agreement~~through the strength of its relationships with ~~Avtech~~its significant ~~Technology~~shareholders, ~~whereby~~including TCL. At January 31, 2004, TCL beneficially owned 51.2% of the ~~Company~~shares ~~assigned~~of ~~its~~common ~~rights~~stock toof ~~certain~~the ~~contracts~~Company and ~~related~~is ~~intangibles~~an toaffiliated ~~Avtech~~company inof ~~exchange~~TCL International ~~for~~Holdings ~~Avtech’s~~Limited ~~assumption~~(HKSE: of1070) ~~all~~(“TCL ofInternational”), ~~the~~a ~~Lotus~~leading ~~World~~multimedia consumer electronics product manufacturer, with a strong brand presence in China and Asia. TCL International’s ~~obligations~~core products ~~under~~include ~~the~~televisions, mobile handsets, personal computers, audio-visual ~~contracts~~equipment ~~assigned~~as well as information technology services. ~~Subsequent~~Under toits ~~the~~highly recognized and ~~completion~~well-established TCL brand, it is one of the ~~transaction,~~strongest players in the TV and mobile handset marketplace in China. Headquartered in China, it operates a number of highly efficient manufacturing bases in Asia. The Company ~~dissolved~~plans ~~Lotus~~to ~~World~~increase market share by introducing TCL products into the U.S. using our

~~Significant Business Developments and Subsidiary Activity During Fiscal 2003~~3

~~Acquisition~~subsidiary of– ~~New~~GoVideo’s ~~Subsidiary~~ – existing Godistribution ~~Video~~channels.

~~As previously reported, in April 2003~~Significant ~~the~~Business ~~Company~~Developments ~~loaned $5,986,000 to Opta, which was used, in addition to a deposit of $250,000 paid by Opta to complete its purchase of substantially all assets~~ and ~~assumption~~Subsidiary ofActivity ~~certain~~During liabilities of a product line known as “GoVideo” from SONICblue Incorporated, a Delaware corporation (NASDAQ: SBLU), and Sensory Science Corporation, a Delaware corporation and wholly-owned subsidiary of SONICblue, pursuant to a purchase agreement and an order issued by the ~~United~~Reporting ~~States Bankruptcy Court, Northern District of California, San Jose Division overseeing SONICblue’s bankruptcy case.~~ Period

~~Immediately~~During ~~subsequent to Opta’s purchase of~~ the ~~GoVideo~~reporting ~~product line~~period, ~~the Company purchased 100% of the~~ ~~outstanding membership interests of~~ Opta ~~from~~had ~~Carmco~~two ~~Investments,~~significant ~~LLC~~subsidiaries, ~~a Connecticut~~presented ~~limited liability company, for $420,000, representing the return of the $250,000 deposit used~~ in ~~the~~order ~~acquisition~~ of ~~the GoVideo product line and~~significance ~~related~~during ~~transaction~~fiscal ~~fees~~2004: GoVideo and ~~expenses. Subsequent to the closing, the Company~~ ~~paid~~Correlant ~~an additional $294~~Communications,~~000~~ inInc ~~connection with these items~~(“Correlant”). ~~In connection with this agreement, the~~ ~~$5,986,000~~As ~~originally loaned to Opta Systems was converted to a capital contribution, resulting in a total purchase price, including actual out-~~of~~-pocket~~ ~~expenses of approximately $6~~March 31,~~770,000. In~~ ~~October 2003~~2004, ~~the~~Correlant’s ~~purchase~~operations ~~price~~were ~~was reduced by $962,000 based on a settlement with SONICblue concerning the purchase price of certain assets acquired, resulting in an adjusted purchase price of $5,808,000 for GoVideo~~discontinued.

GoVideo Business Strategy. GoVideo’s strategy is to develop, market, and distribute innovative, high performance consumer electronic products that incorporate advanced technology, ease of use, and superior industrial design. We believe there is a significant segment of the consumer electronics market that desires high-performance products that offer value to the consumer and profit opportunities to dealers. Because many of GoVideo’s competitors are focused on higher volume, lower priced product lines where product and service differentiation is difficult to sustain, we believe GoVideo can capitalize on its technology, engineering and industry know-how, product distribution network and reputation for bringing innovative products to the electronics marketplace to pursue our objectives and increase our revenues and earnings.

~~GoVideo~~As ~~Products.~~previously reported, in April 2003 ~~The~~the ~~GoVideo~~Company ~~product~~loaned ~~line~~$5,986,000 ~~originally established~~to inOpta ~~1984~~Systems, ~~designs~~which ~~and~~was ~~manufactures~~used, ~~product lines~~ in ~~the~~addition ~~consumer~~to a ~~electronics~~deposit ~~industry~~of $250,000 ~~including~~paid ~~digital~~by ~~video~~Opta ~~disc~~Systems ~~(“DVD”)~~to ~~players,~~complete ~~portable~~its purchase of ~~DVDs,~~substantially ~~DVD-Video~~all ~~Cassette~~assets ~~Recorder~~and ~~Combos~~assumption ~~(“DVR”),~~of ~~Dual-Deck~~certain ~~VCRs,~~liabilities ~~DVD~~of a product ~~Recorders,~~line ~~DVD~~known ~~Recorder~~as +“GoVideo” ~~VCR,~~from ~~and~~SONICblue ~~liquid~~Incorporated, ~~crystal~~a ~~display~~Delaware corporation (~~“LCD”~~NASDAQ: SBLU), ~~TVs.~~and ~~GoVideo holds~~Sensory ~~various~~Science ~~patents~~Corporation, ~~covering~~a ~~Dual~~Delaware corporation and wholly-~~Deck~~owned ~~technology~~subsidiary asof ~~well~~SONICblue, asfor ~~other electronics~~an ~~products~~adjusted ~~and~~purchase ~~systems~~price of $5,808,000.

~~The~~GoVideo Business ~~principal~~Strategy. GoVideo’s ~~consumer~~strategy ~~electronic~~is to ~~product~~develop, ~~offered~~market, byand ~~GoVideo~~distribute ~~during~~innovative, ~~fiscal~~high ~~2003~~performance ~~was~~consumer electronic ~~the~~products ~~DVR~~that incorporate advanced technology, ease of use, and superior industrial design. ~~GoVideo~~ ~~offers~~We ~~several~~believe ~~models~~there is a significant segment of the ~~DVR~~ consumer electronics market that ~~vary~~desires ~~from~~high-performance ~~one~~products ~~another~~that byoffer value ~~features~~to the consumer and ~~configurations~~profit opportunities to dealers. ~~This~~ Because many of GoVideo’s competitors are focused on higher volume, lower priced product ~~has~~lines where product and service differentiation is difficult to sustain, we believe GoVideo can capitalize on its technology, engineering and industry know-how, product distribution network and reputation for bringing innovative products to the ~~ability~~electronics marketplace to: pursue our objectives and increase our revenues and earnings.

~~• Play~~Historically, the GoVideo product line has been known for innovation and was the first company to bring the dual deck VCR and DVD/VCR ~~discs~~combination to market as well as the first networked DVD player. The consumer electronics industry has been marked by an increase in what were traditionally contract manufacturers creating their own brand name and ~~VHS~~competing ~~tapes;~~in the marketplace. Under Opta’s ownership, GoVideo is continuing this innovation as well as enhancing its competitive position by purchasing and distributing more products from Opta’s parent company, TCL.

~~• One~~GoVideo Products. During ~~touch~~fiscal ~~copy~~2004 ~~transfer~~and fiscal 2003, GoVideo accounted for nearly 100% and 48% of the Company’s consolidated net revenues, respectively. The GoVideo product line, originally established in 1984, designs and manufactures product lines in the consumer electronics industry, including DVD toplayers, ~~VHS~~portable DVDs, DVD-Video ~~tapes;~~Cassette Recorder Combos (“DVR”), Dual-Deck VCRs, DVD Recorders, DVD Recorder + VCR, and liquid crystal display (“LCD”) TVs. GoVideo holds various patents covering Dual-Deck technology as well as other electronics products and systems.

~~• Progressive~~The ~~Scan~~principal ~~delivers~~consumer electronic ~~the~~products ~~highest quality~~offered ~~DVD-Video~~by onGoVideo aduring ~~digital~~fiscal ~~TV;~~2004 and 2003 were the DVR and the DVD Recorder + VCR.

~~• Schedule~~DVR. GoVideo ~~recordings~~offers inseveral ~~advance~~models of the DVR that vary from one another by features and configurations. This product has the ability to:

~~Total~~• Play ~~net~~DVD ~~revenues~~discs ~~attributed to the DVR from April 18, 2003, the purchase date of GoVideo, through June 30, 2003 were $7,471,000 or approximately 80% of GoVideo’s total net revenues~~ and ~~38%~~VHS ~~of the Company’s consolidated net revenues.~~ tapes;

~~GoVideo~~• One ~~Revenue~~touch tocopy ~~Significant~~transfer ~~Countries. During~~DVD ~~fiscal~~to ~~2003, all GoVideo’s revenues were generated in the United~~VHS ~~States.~~ tapes;

~~GoVideo~~• Progressive ~~Customers. GoVideo~~Scan ~~had~~delivers ~~one~~the ~~customer that accounted for more than 10% of net~~highest ~~revenues. Costco~~quality ~~Wholesale~~DVD-Video ~~Corporation accounted~~on ~~for~~a ~~64%~~digital ofTV; ~~GoVideo’s net revenues~~ and ~~31% of the Company’s consolidated net revenues during fiscal 2003.~~

5• Schedule recordings in advance.

~~GoVideo~~The ~~Seasonality. General economic~~following ~~conditions~~table ~~have an impact on GoVideo’s business and financial results.~~shows ~~And~~revenues asattributable ato ~~result of competing in the consumer electronic industry,~~ GoVideo’s ~~quarterly~~ ~~results~~DVR ~~reflect distinct seasonality~~ (in ~~the sale of products. Revenues are typically highest from September through December.~~ thousands):

GoVideo Product Development and Manufacturing. Product development activities consist of hardware, firmware, and software design and engineering as well as co-development and engineering of products with manufacturers and technology partners. Research has been focused on the development of lower-cost consumer electronics and evaluation of potential new products, acquisitions, or joint ventures. Company-sponsored research and development expenses are neither material nor meaningful to an understanding of our business.

	Revenue		Percentage of Consolidated Total Net Revenue
Year Ended June 30, 2004	$	71,601	57	%
April 18, 2003, the purchase date of GoVideo, through June 30, 2003	7,471		38	%

Independent companies manufacture most of GoVideo’s products. At any one time, GoVideo has multiple contract manufacturers. Additionally, these manufacturers are constantly evaluated in order to minimize the risks associated with outsourcing the manufacturing process.4

~~GoVideo~~DVD ~~Sales~~Recorder ~~and~~+ ~~Marketing~~VCR. ~~GoVideo’s~~ The ~~current~~DVD ~~marketing~~Recorder ~~strategy~~+ isVCR towas ~~sell~~introduced ~~products~~during the ~~with~~second ~~the support~~quarter of ~~independent~~fiscal ~~sales~~2004. GoVideo ~~representatives~~offers ~~specific~~several tomodels ~~certain~~of ~~geographic territories throughout~~ the USDVD ~~and~~Recorder ~~who~~+ ~~also~~VCR ~~represent~~that ~~many~~vary ~~other brand name~~from ~~consumer~~one ~~electronic~~another ~~products. GoVideo currently~~by ~~sells~~features ~~its product lines directly to retailers nationwide including numerous national~~ and ~~regional chains, catalog accounts, specialty stores,~~configurations. ~~warehouse~~This ~~clubs~~product ~~and~~has ~~home~~the ~~shopping~~following ~~channels.~~ features:

~~GoVideo~~• Records ~~Backlog~~on ~~and~~DVD-R ~~Inventory. GoVideo~~or ~~purchases~~rewritable ~~completed units from contract manufacturers. As such, GoVideo does not carry a raw~~DVD-RW ~~materials~~discs ~~inventory. GoVideo’s~~or ~~practice is~~VHS to maintain sufficient finished goods inventory to fill orders promptly and not carry a backlog of orders. Accordingly, backlog information is not meaningful to an understanding of its business and may not be indicative of actual shipments made to customers in ~~any~~one ~~period. GoVideo~~easy ~~seeks~~ to ~~manage and~~use maintain inventory in a way that will allow it to meet all expected product demand while maintaining flexibility to reallocate manufacturing capacity to improve efficiency and respond to changes in supply and demand.unit;

~~GoVideo~~• One ~~Intellectual~~touch ~~Property.~~copy ~~GoVideo~~transfer ~~developed~~DVD ~~and owns the proprietary operating system software used by most of its products including its Dual-Deck technology. Intellectual property rights that apply~~ to ~~various~~VHS ~~products~~tapes or ~~include~~VHS ~~patents,~~tapes ~~trademarks and the GoVideo tradename. GoVideo maintains an active program~~ to protect its investment in technology by enforcing intellectual property rights. GoVideo has filed and obtained a number of patents in the US. While patents are an important element of GoVideo’s success, business as a whole is not materially dependent on any one patent. GoVideo believes the duration of the applicable patents granted is adequate relative to the expected lives of products. Because of the fast pace of innovation and product development, consumer electronics are often obsolete before the patents related to them expire.DVD;

To• All ~~distinguish~~Sources, ~~GoVideo~~All ~~products~~Outputs ~~from~~– ~~competitors’~~Plays ~~products~~VHS or DVD through RF, ~~GoVideo~~Composite, ~~obtained~~S-Video, ~~certain~~or ~~trademarks~~Component ~~and~~out ~~tradenames~~with ~~for~~one ~~products.~~connection convenience;

~~GoVideo’s~~• AutoPlay™ ~~ability~~– toSkips ~~enforce~~ads ~~patents, trademarks~~ and ~~tradename~~menus ~~is subject to general litigation risks. Patents, trademarks, tradenames,~~ and ~~proprietary~~ ~~rights, once established, are very important in the consumer~~goes ~~electronics~~to ~~market,~~right ~~and~~to the ~~loss,~~start ~~denial, or infringement~~ of ~~such~~the ~~patents,~~DVD ~~trademarks, tradenames, and proprietary rights could hurt sales and profitability.~~ movie;

~~GoVideo~~• Versatile ~~Competition.~~Entertainment ~~The~~– ~~market~~Plays ~~for~~VHS Tape, ~~consumer electronics is extremely competitive and is characterized by rapid technological change. GoVideo’s main competitors during fiscal 2003 included Sony~~DVDs, ~~Samsung~~DVD-R/RW, ~~Mustek~~DVD+R/RW, ~~Mintek~~Music CDs, LGKodak ~~Electronics~~Picture CDs, ~~Daewoo~~MP3 ~~Electronics~~audio and JPEG ~~JVC.~~image files on CD-R/RW;

~~GoVideo’s~~• Progressive ~~principal~~Scan ~~competitive~~delivers ~~factors~~the ~~included:~~highest quality DVD-Video on a digital TV; and

• ~~Price;~~Schedule recordings in advance.

~~• Quality;~~The following table shows revenues attributable to GoVideo’s DVD Recorder + VCR (in thousands):

• Product features;

	Revenue		Percentage of Consolidated Total Net Revenue
Year Ended June 30, 2004	$	23,164	18	%
April 18, 2003, the purchase date of GoVideo, through June 30, 2003	—		—	%

~~• Product~~GoVideo Revenue ~~support;~~to Significant Countries. During fiscal 2004 and 2003, all GoVideo’s revenues were generated in the U.S.

~~• Product~~GoVideo Customers. A ~~innovation~~relatively ~~including~~small ~~the~~number of customers ~~patented~~account ~~Dual~~for ~~Deck~~a ~~technology~~significant percentage of GoVideo’s revenues. The percentage revenues derived from significant customers is detailed as follows:

	Year Ended June 30, 2004				April 18, 2003, the purchase date of GoVideo, Through June 30, 2003
	Percentage of GoVideo’s revenues		Percentage of Consolidated Revenues		Percentage of GoVideo’s revenues		Percentage of Consolidated Revenues
Costco Wholesale Corporation	41	%	41	%	64	%	31	%
QVC	14	%	14	%	—	%	—	%

~~New~~GoVideo Seasonality. General ~~Joint~~economic ~~Venture~~conditions have an impact on GoVideo’s business and financial results. And as a result of competing in the consumer electronic industry, GoVideo’s quarterly results reflect distinct seasonality in the sale of products. Revenues are typically highest from September through December. However, GoVideo is only a “spot supplier” to some of its customers, i.e. GoVideo sells to certain customers only when these customers go out to bid for specific products. GoVideo doesn’t supply a constant stream of product to these customers. Revenues with these customers can differ from the traditional seasonality in the consumer electronics industry depending on various circumstances including product availability and pricing.

AsGoVideo previouslyProduct reported,Development in January 2003, the Company finalized an agreement to form a joint venture with Beijing Youbang Online Electronics Technology Co., Ltd. (“Youbang”), TCL Computer Technology Co., Ltd. and all the equity holders of Youbang, pursuant to which the Company acquired a 50% interest in a new joint venture to own substantially all of Youbang’s operationsManufacturing. PursuantProduct todevelopment theactivities agreement,consist all of Youbang’s assetshardware, other than real estatefirmware, wereand transferredsoftware todesign aand newlyengineering formedas Beijing,well Chinaas joint ventureco-development namedand TCLengineering Digital Technologies, Ltd. (“TCL Digital”), for the purpose of manufacturingproducts computerwith notebooksmanufacturers in China. The Company agreed to contribute approximately $5,240,000, payable in three installments and representingtechnology 50%partners. of theResearch totalhas investmentbeen amount. Atfocused the time,on the investmentdevelopment was part of thelower-cost Company’sconsumer businesselectronics strategyand toevaluation seek businessesof to maximize the Company’s growth potential basednew onproducts, itsacquisitions, assets.or The Companyjoint sold its 50% interest in TCL Digitalventures. See “Significant Business Developments and Subsidiary Activity Subsequent to Fiscal 2003.”

~~Correlant~~The ~~Communications~~following table shows GoVideo-sponsored research and development expenses (in thousands):

Correlant was incorporated in California on February 13, 1996 under the name TurboNet Communications, Inc. and reincorporated in Delaware on October 4, 2000 as Correlant Communications, Inc. Correlant is a significant subsidiary of Lotus Pacific and during fiscal 2002 and 2001 represented essentially 100% of the Company’s consolidated revenues, cost of revenues and research and development expense included in continuing operations. Correlant was much less significant in fiscal 2003 as a result of purchasing GoVideo.

Year ended June 30,	Dollars		Percentage of GoVideo’s Total Revenues
2004	$	1,089	1	%
2003	607		7	%

From inception through March 1999, Correlant was a development stage company whose operating activities related primarily to establishing a research and development organization, testing prototype designs, developing a Media Access Control (“MAC”) chip, developing production-ready cable modems including the complete software application, developing cable modem termination system (“CMTS”) infrastructure equipment, commencing the staffing of general and administrative, marketing and technical support organizations and establishing manufacturing relationships. 5

FromIndependent 1996companies throughmanufacture Marchmost 1999, the major domestic cable operators collaborated through the Multimedia Cable Network Systems consortium, of whichGoVideo’s Correlantproducts. wasAt aany contributingone membertime, toGoVideo develop thehas Data-Over-Cablemultiple Systemcontract Interface Specification (“DOCSIS”) standardmanufacturers. Correlant wasThese ablemanufacturers toare beginconstantly commercialevaluated distributionin oforder itsto productsminimize in the US asrisks aassociated resultwith ofoutsourcing being awarded the DOCSISmanufacturing certificationprocess. forThese itsmanufacturers cableare modem technologylocated in March 1999. Correlant continued to designKorea, develop,Taiwan and market DOCSIS certified high-speed data-over-cable technology, including cable modems and CMTS units for resale to corporate telecommuters, small office/home office, and residential users domestically and internationally through December 23, 2003China. See “Significant Business Developments and Subsidiary Activity Subsequent to Fiscal 2003.”

~~Prior to February 2002, Correlant sold~~GoVideo ~~DOCSIS~~Sales ~~certified cable modems~~ and ~~in certain instances, the MAC bundled with Correlant~~Marketing. GoVideo’s ~~cable~~current ~~modem software (“MAC+software”), both key components of the~~marketing ~~completed~~strategy ~~cable~~is ~~modem. Correlant developed~~to ~~and~~sell ~~owns~~products ~~the~~with ~~proprietary software used in~~ the ~~cable~~support ~~modem. Effective~~of ~~February~~independent ~~2002, Correlant changed~~sales ~~its~~representatives ~~business~~specific ~~model~~to ~~whereby~~certain itgeographic ~~primarily~~territories ~~sold~~throughout the ~~MAC+software~~ U.S. and ~~only~~who ~~sold~~also ~~the completed~~represent ~~cable~~many ~~modem~~other inbrand ~~specific~~name ~~circumstances. Instead~~consumer ofelectronic ~~focusing on selling the completed cable modem, Correlant concentrated efforts toward selling only the MAC+software~~products. ~~The~~GoVideo ~~new~~currently ~~business~~sells ~~model~~its ~~was~~product ~~a result of~~lines ~~Correlant’s~~directly ~~attempt~~ to ~~increase~~retailers ~~gross~~nationwide ~~profit~~including ~~percentage,~~numerous ~~streamline~~national ~~business operations~~ and ~~reduce operating expenses. However, this business model~~regional ~~ultimately proved unsuccessful~~chains, ascatalog ~~gross margins continued to decrease as a result of increased competition in the cable modem market and more broadly~~accounts, ~~the high-speed~~specialty ~~Internet market. In addition~~stores, ~~many~~warehouse ofclubs ~~Correlant’s major customers chose to either design~~ and ~~manufacture~~ ~~their~~home ~~own DOCSIS cable modems or to utilize competitors’ platforms~~shopping ~~which were incompatible with Correlant’s products~~channels.

~~During~~GoVideo Backlog ~~this~~and ~~period,~~Inventory. GoVideo ~~Correlant~~purchases ~~faced competition~~completed units from contract ~~other~~manufacturers. As ~~technologies~~such, ~~that~~GoVideo does ~~enabled~~not ~~high-speed~~carry ~~Internet~~a ~~access~~raw materials inventory. ~~services~~GoVideo’s ~~such~~practice asis ~~technologies~~to ~~that~~maintain ~~increase~~sufficient ~~the~~finished ~~efficiency~~goods ofinventory ~~digital~~to ~~transmission~~fill ~~over~~orders ~~telephone~~promptly ~~companies’~~and ~~existing~~not ~~copper~~carry ~~infrastructure~~a backlog of orders. Accordingly, backlog information is not ~~high-speed~~meaningful ~~Internet~~to ~~access~~an ~~service~~understanding ~~deployed~~of ~~over~~its abusiness ~~number~~and may not be indicative of actual ~~other~~shipments ~~media,~~made to customers in any period. GoVideo seeks to manage and maintain ~~including~~inventory ~~fiber~~in ~~optic~~a ~~cable,~~way ~~digital~~that ~~subscriber~~will ~~lines~~allow ~~(“DSL”),~~it ~~direct~~to ~~broadcast~~meet all expected product demand while ~~satellite~~maintaining ~~(“DBS”)~~flexibility to reallocate manufacturing capacity to improve efficiency and ~~other~~respond ~~wireless~~to ~~technologies~~changes in supply and demand. GoVideo’s Aspractice ~~high-speed~~is ~~Internet access~~to ~~services~~purchase inventory based on ~~competing~~customer ~~technologies~~orders ~~became~~or ~~more~~forecasts ~~readily~~to ~~available,~~mitigate the inherent dangers of price decreases in the ~~market~~volatile ~~for~~consumer ~~cable~~electronics ~~modem-based~~market. There ~~services~~is ~~was~~still ~~materially~~risk ~~and~~with ~~adversely~~this practice as ~~affected~~customers may cancel orders or forecasts.

7GoVideo Intellectual Property. GoVideo developed and owns the proprietary operating system software used by most of its products including its Dual-Deck technology. Intellectual property rights that apply to various products include patents, trademarks and the GoVideo trade name. GoVideo maintains an active program to protect its investment in technology by enforcing intellectual property rights. GoVideo has filed and obtained a number of patents in the United States. While patents are an important element of GoVideo’s success, business as a whole is not materially dependent on any one patent. GoVideo believes the duration of the applicable patents granted is adequate relative to the expected lives of products. Because of the fast pace of innovation and product development, consumer electronics are often obsolete before the patents related to them expire.

CorrelantTo Products. Correlantdistinguish GoVideo products from competitors’s products, were dividedGoVideo intoobtained twocertain categories: trademarks and tradenames for products. These trademarks and tradenames include GoVideo, AmeriChrome, California Audio Labs, Rave MP, Cinevision, Cal Audio and California Audio.

~~• Cable~~GoVideo’s ~~modems~~ability to enforce patents, trademarks and tradename is subject to general litigation risks. ~~Cable~~Patents, ~~modems~~trademarks, ~~installed~~trade atnames, ~~the~~and proprietary ~~end~~rights, ~~user’s~~once ~~premises~~established, ~~allowed~~are very important in the consumer ~~access~~electronics tomarket, ~~data-over-cable~~and ~~services;~~the loss, denial, or infringement of such patents, trademarks, trade names, and proprietary rights could hurt revenues.

• InfrastructureGoVideo equipmentCompetition and market analysis. Correlant’s CMTSThe wasmarket infrastructure equipmentfor installedconsumer atelectronics is extremely competitive and is characterized by rapid technological change. In the serviceDVR providercategory, GoVideo’s premisesmain competitors include: Cyberhome, whichSony, enabledToshiba, service providersSamsung, toMemorex, provideMagnavox, high-speedApex, two-wayPanasonic, dataDaewoo, servicesand JVC. GoVideo is currently not in the top 10 companies in terms of market share. GoVideo plans to theirhave customerssingle deck DVD product available for distribution throughout calendar 2005, which management believes should help secure a better market position.

CableIn Modems. Correlantthe DVD Recorder + VCR category, GoVideo’s cablemain modemscompetitors receivedinclude bothPanasonic, theLG DOCSISElectronics, 1.0Hitatchi, Sharp, Sansui, Sylvania, JVC, Broksonic, Samsung, and 1Zenith.1 certifications GoVideo has maintained a strong market position since its introduction of this product. The cableIn modems connectterms toof units, GoVideo held the endnumber user’sone computermarket viashare position for a standardportion Ethernetof orthe Universalyear. Serial BusSome (“USB”)product connector,introductions andby strong Japanese brands caused GoVideo to drop to the cablenumber networkthree viaposition aat standardcertain TVpoints. coaxialIn cable connectorterms of dollars, GoVideo held the top market position for approximately one half of the year, and was consistently in the top three market positions.

The following table shows revenues attributable to CorrelantGoVideo’s DOCSISprincipal 1.0/1.1competitive cablefactors modems (in thousands)included:

Year Ended June 30,	Revenue		Percentage of Consolidated Total Net Revenue
2003	$	133	1	%
2002	34,713		62	%
2001	253,548		96	%

• Price;

~~MAC+Software. As~~• Flexibility part of the aforementioned change in business model, Correlant began selling a key component of the completed cable modem, MAC+software, rather than the completed cable modem effective February, 2002. The following table shows revenue attributable to ~~MAC+Software~~move ~~(in~~with ~~thousands):~~ market demands;

Year Ended June 30,	Revenue		Percentage of Consolidated Total Net Revenue
2003	$	8,161	42	%
2002	19,672		35	%
2001	7,055		3	%

• Quality;

~~Infrastructure~~• Brand Equipment. During fiscal 2002, Correlant completed initial development of a CMTS to complement its cable modems. Its CMTS was designed to enable cable operators to provide a complete solution for two-way data transfer between the Internet and the end-user, utilizing its cable modem at one end and its head-end equipment at the other. CMTS sales were limited during fiscal 2003 and 2002.recognition;

~~Correlant Revenue to Significant Countries. The following table shows revenue to significant countries (in thousands):~~6

	Year Ended June 30,
	2003		2002		2001
Japan	$	54	$	30,033	$	175,893
Taiwan	9,446		20,757		9,178
United States	201		5,090		78,121
Europe and other	476		—		—
	$	10,177	$	55,880	$	263,192

• Product features;

~~Segment~~• Product ~~disclosures~~support ~~and~~including ~~geographical~~consumer ~~information~~customer ~~for~~service ~~fiscal 2003, 2002~~ and ~~2001~~timely ~~are~~delivery ~~presented~~per inforecast; ~~“Item 8 Financial Statements~~ and ~~Supplementary Data Note 16 – Segment and Geographic Information.”~~

8• Product innovation including the patented Dual Deck technology.

~~Correlant~~Because ~~Research~~GoVideo ~~and~~doesn’t ~~Development~~have manufacturing capabilities, GoVideo has the competitive advantage of being able to respond to market demands extremely quickly. The ~~following~~disadvantage ~~table~~to ~~shows~~this situation is the fact that GoVideo has less ~~Correlant-sponsored~~leverage ~~research~~when ~~and~~negotiating ~~development~~the ~~expenses~~purchase ~~(in~~price ~~thousands):~~with contract manufacturers. Another negative aspect of not having manufacturing capabilities is that GoVideo’s customers can go straight to the manufacturers and purchase the product.

	Research and development including amortization of deferred stock compensation				Research and development excluding amortization of deferred stock compensation
Year ended June 30,	Dollars		Percentage of Correlant’s Total Revenues		Dollars		Percentage of Correlant’s Total Revenues
2003	$	6,906	68	%	$	6,430	63	%
2002	9,392		17	%	8,105		15	%
2001	16,214		6	%	9,089		3	%

Correlant Communications

~~Correlant~~In ~~Customers.~~March 1999, the Company ~~Correlant~~acquired ~~sold~~95% ~~its~~of ~~data-over-cable~~the ~~products to~~issued ~~vendors~~and ~~who~~outstanding ~~then~~common ~~sold~~shares ~~the~~of ~~equipment~~Correlant ~~under~~(formerly TurboNet ~~their~~Communications, ~~brand~~Inc.) ~~name~~representing toan ~~cable~~81% ownership interest in ~~operators~~Correlant. ABased ~~relatively~~in ~~small~~San ~~number of~~Diego, ~~customers~~California, ~~accounted~~Correlant ~~for~~designed, adeveloped ~~significant~~and ~~percentage~~marketed oftelecommunications products ~~Correlant’s~~to ~~revenues. The~~cable ~~percentage~~operators, ofnetwork ~~Correlant’s~~service ~~revenues~~providers, and communications ~~derived~~network ~~from~~users ~~significant~~in ~~customers~~the isUnited ~~detailed~~States asand ~~follows:~~Asian countries.

	Year Ended June 30,
	2003		2002		2001
Toshiba, a related party	—	%	54	%	67	%
TurboComm Technologies, Inc. (“TurboComm”), a related party	93	%	37	%	3	%
Terayon	—	%	8	%	13	%
COM21	—	%	—	%	11	%

Correlant was incorporated in California on February 13, 1996 under the name TurboNet Communications, Inc. and reincorporated in Delaware on October 4, 2000 as Correlant Communications, Inc. Correlant is a significant subsidiary of Opta and during fiscal 2002 and 2001 represented essentially 100% of the Company’s consolidated revenues, cost of revenues and research and development expense included in continuing operations. Correlant was much less significant to the Company’s consolidated results of operations during fiscal 2004 and fiscal 2003 as a result of the cessation of Correlant’s operations and purchasing GoVideo.

~~During~~Prior ~~fiscal~~to ~~years~~ February 2002, Correlant sold Data-Over-Cable System Interface Specification (“DOCSIS”) certified cable modems and ~~2001~~in certain instances, the MAC bundled with Correlant’s cable ~~revenues~~modem ~~accounted~~software ~~for~~(“MAC+software”), ~~100%~~both key components of the ~~Company’s~~completed cable ~~consolidated~~modem. Correlant ~~revenues~~developed and owns the proprietary software used in the cable modem. Effective ~~However~~February 2002, ~~due~~Correlant changed toits business model whereby it primarily sold the ~~purchase~~MAC+software and only sold the completed cable modem in specific circumstances. Instead of ~~GoVideo~~focusing ~~during~~on ~~fiscal~~selling ~~2003~~the completed cable modem, Correlant’s ~~revenues~~concentrated ~~represented~~efforts ~~52%~~toward ofselling only the MAC+software. The ~~Company~~new business model was a result of Correlant’s ~~consolidated~~attempt ~~revenues~~to increase gross profit percentage, streamline business operations and reduce operating expenses. ~~TurboComm~~However, ~~accounted~~this ~~for~~business ~~48%~~model ultimately proved unsuccessful, as gross margins continued to decrease as a result of increased competition in the ~~Company~~cable modem market and more broadly, the high-speed Internet market. In addition, many of Correlant’s ~~consolidated~~major ~~revenues~~customers ~~during~~chose ~~fiscal~~to ~~2003~~either design and manufacture their own DOCSIS cable modems or to utilize competitors’ platforms which were incompatible with Correlant’s products.

AtDuring ~~June~~this 30period, ~~2004 TurboComm owed~~ Correlant faced ~~$2,253,000.~~competition Onfrom ~~April~~other ~~14,~~technologies ~~2004,~~that ~~Correlant~~enabled ~~filed~~high-speed ~~a lawsuit against~~Internet ~~TurboComm~~access inservices ~~the~~such ~~District~~as ~~Court~~technologies ofthat ~~Taiwan~~increase ~~seeking~~the toefficiency ~~collect~~of ~~TurboComm’s~~digital ~~outstanding~~transmission ~~debt~~over astelephone ~~a result of TurboComm~~companies’s ~~unwillingness~~existing tocopper ~~pay. On~~infrastructure, high-speed ~~July~~Internet ~~30,~~access ~~2004,~~service ~~Correlant~~deployed ~~reached~~over a ~~settlement~~ ~~agreement~~number ~~with~~of ~~TurboComm.~~other ~~Under the agreement~~media, ~~Correlant agreed to~~ ~~withdraw~~including ~~its~~fiber ~~lawsuit~~optic ~~against~~cable, ~~TurboComm~~digital insubscriber ~~exchange~~lines ~~for~~(“DSL”), ~~the~~direct ~~transfer of 700,000~~broadcast ~~Series~~satellite A(“DBS”) and ~~300,000~~other ~~Series~~wireless Ctechnologies. ~~shares~~As ofhigh-speed ~~Correlant Preferred Stock owned by~~Internet ~~TurboComm.~~access ~~Both~~services ~~parties~~based ~~mutually~~on ~~agreed~~competing totechnologies ~~release~~became ~~and~~more ~~discharge~~readily ~~any~~available, the ~~and~~market ~~all claims~~for ~~that~~cable ~~each~~modem-based ~~may~~services ~~have~~was ~~against~~materially ~~the~~and ~~other~~adversely ~~party~~affected.

~~Correlant~~In ~~Manufacturing~~February 2003, ~~and~~Opta, ~~Distribution.~~as majority ~~During~~stockholder ~~fiscal~~of ~~2003~~Correlant, ~~Correlant~~appointed ~~had~~four ~~limited~~new ~~in-house~~members ~~manufacturing~~to ~~capability~~Correlant’s Board atof ~~its~~Directors, ~~facility~~effectively intaking ~~San~~control ~~Diego,~~of ~~California~~the Board. Prior ~~This~~to ~~facility~~this, ~~was~~Opta ~~used~~had ~~for~~only ~~design,~~one representative ~~assembly~~on ~~and~~Correlant’s ~~testing~~Board of ~~prototypes~~Directors and did not control Correlant’s Board or its operations. Immediately thereafter, ~~pilot~~the ~~production~~Board of Directors created a new ~~modem~~Executive ~~designs,~~Committee ~~sample~~of ~~testing~~the Board, comprised of ~~products~~two ~~received~~members ~~from~~who ~~other~~are ~~manufacturers~~Opta employees, ~~developing~~to ~~the~~act ~~manufacturing~~on ~~process~~behalf ~~and~~of ~~documentation~~the Board ~~for~~of ~~new~~Directors ~~products~~and inoversee ~~preparation~~the ~~for~~Correlant’s ~~outsourcing~~management and operations.

~~Correlant~~As ~~had~~previously ~~an established~~reported, ~~relationship~~effective ~~and~~July 31, ~~manufacturing~~2003, ~~contract~~Correlant’s ~~with TurboComm~~President, aChief ~~company~~Executive ~~located in~~Officer ~~Taiwan~~and ~~that~~co-founder ~~manufactured~~of ~~the~~Correlant ~~high-speed~~resigned ~~data-over-cable~~as ~~technology products~~a director of Correlant. From ~~the~~that ~~early~~date ~~stages~~forward ofhe no longer served as ~~design~~President and ~~development,~~CEO of Correlant. As ~~worked~~part ~~closely~~of ~~with~~the ~~TurboComm’s~~separation, Opta ~~engineers~~entered ~~to ensure~~an ~~optimal~~agreement ~~and~~in ~~cost~~February 2004 ~~effective~~to ~~manufacturing.~~repurchase ~~Correlant’s~~all ~~manufacturing~~shares of ~~agreement~~Opta ~~with~~common ~~TurboComm~~stock ~~provided~~owned ~~TurboComm~~by ~~would~~Correlant’s ~~supply~~former ~~all~~President. As of June 30, 2004, Correlant’s former ~~forecasted~~President ~~orders~~no ~~for~~longer ~~cable~~owns ~~modems~~any atOpta ~~prices~~stock. In toconnection bewith ~~agreed~~the toresignation, by Correlant ~~and~~ ~~TurboComm~~entered oninto aan ~~quarterly~~Employment ~~basis. While manufacturing~~Separation ~~Correlant’s~~Agreement ~~products,~~with ~~TurboComm~~the ~~was~~former ~~obligated~~President. Under tothe ~~repair~~terms orof the agreement, Correlant ~~replace~~agreed ~~any~~to ~~defective~~repurchase ~~cable~~327,000 ~~modems~~Correlant ~~and~~shares ~~CMTS~~held ~~units. Although~~by the ~~term~~former ofPresident ~~the~~for ~~original~~$0.07 per ~~contract~~share ~~went~~for ~~through~~a ~~May~~total ~~2003~~of $23,000. To ~~both~~date, ~~Correlant~~this ~~and~~transaction ~~TurboComm~~has ~~mutually~~not ~~agreed~~been tofinalized. From ~~continue~~July 31, ~~the~~2003 ~~relationship beyond~~until ~~that~~December 23, ~~date.~~ 2003, Correlant worked to

~~Correlant~~find ~~sold~~a ~~its~~permanent ~~data-over-cable~~CEO and ~~products~~retained tooutside ~~vendors~~consultants ~~who~~to ~~sold~~advise ~~equipment~~and ~~under~~assist ~~their~~during ~~brand~~the ~~name to cable~~transition ~~operators~~period. ~~This~~Such ~~market~~consultants ~~had,~~were ~~and still~~charged ~~has,~~with aevaluating ~~limited number of existing and potential customers.~~ Correlant’s ~~already~~business ~~had~~operations, ~~established relationships~~its ~~with~~products ~~several~~and ~~existing~~demand ~~vendors.~~ for Asits ~~a result~~products, ~~Correlant~~and ~~required~~future ~~only~~business ~~a limited sales and marketing infrastructure~~prospects.

~~Correlant~~Upon ~~Backlog. Correlant’s general~~recommendation ~~practice~~of ~~was to contract with TurboComm and fill orders within delivery~~its ~~dates required by customers~~consultants, ~~with some adjustments based on~~ Correlant~~’s forecast.~~ ~~During~~began ~~fiscal~~a ~~2003,~~substantial ~~substantially~~reduction ~~all Correlant’s products were produced~~ in ~~accordance~~its ~~with~~workforce ~~specifications~~ and ~~production schedules determined by~~ ~~Correlant~~operations ~~based~~to onreduce ~~orders~~operating ~~placed~~expenses, byreducing ~~its~~the ~~primary customers. The amount of unfilled orders at any particular time could be affected by a~~ number of ~~factors~~Correlant ~~including,~~employees ~~but~~from ~~not~~34 ~~limited~~as ~~to, the availability~~ of ~~cable modem components~~August 1, ~~and the~~2003 ~~manufacturing~~to ~~and~~18 ~~assembly~~employees ~~capacity~~as of ~~Correlant’s third party manufacturer. Accordingly~~December 23, ~~Correlant’s backlog information is not meaningful to~~ an2003 ~~understanding of its business~~ and ~~may~~one ~~not~~employee beas ~~indicative~~ of ~~actual~~June 30, ~~shipments made to customers in any period~~2004.

~~Correlant~~As ~~Working~~previously ~~Capital~~reported, ~~and~~as ~~Raw Materials. As~~ a result of ~~Correlant~~declining ~~producing~~margins ~~products~~and indemand ~~accordance~~for ~~with~~its ~~customer~~products, ~~orders~~Correlant’s ~~and~~Board ~~its~~of Directors ~~third~~approved ~~party~~the ~~manufacturer~~wind ~~procuring~~down aand ~~large~~cessation ~~portion~~ of ~~cable modem components,~~ Correlant’s ~~was~~historical operations ~~not~~in ~~required~~the tocable ~~carry~~modem ~~finished~~and ~~goods~~cable ~~inventory.~~modem ~~Occasionally,~~termination ~~when~~system ~~Correlant~~(“CMTS”) business ~~did~~effective ~~carry~~December 23, a2003. ~~raw~~As ~~materials~~part ~~inventory,~~of the ~~amount~~wind ~~was~~down, ~~not~~Correlant licensed ~~material.~~part ~~Accordingly,~~of ~~inventory~~its ~~requirements~~technology, and ~~the~~could ~~impact~~potentially oflicense ~~inventory~~other technology. The ~~requirements~~wind ondown ~~working~~of ~~capital,~~Correlant’s ~~are~~operations was ~~not~~substantially ~~meaningful~~completed toby anMarch 31, ~~understanding of Correlant’s business~~2004.

~~Correlant~~Concurrent ~~Intellectual~~with ~~Property. Although Correlant developed and owns~~ the ~~proprietary~~wind ~~software used in its cable modem products~~down, Correlant ~~never~~and ~~held~~Opta ~~any~~have been ~~patents~~exploring oropportunities ~~copyrights on its technology. Due~~ to ~~the~~acquire ~~rapid~~or ~~change~~invest in ~~technology~~other ~~and~~businesses ~~the~~or technologies. The ~~high~~Company ~~cost~~currently expects ~~associated~~that ~~with obtaining and defending a patent~~together, Correlant ~~management never applied for a patent. Instead, Correlant entered into confidentiality~~ and ~~invention~~Opta ~~assignment~~will ~~agreements~~identify ~~with~~market ~~employees,~~opportunities and implement ~~entered~~a ~~into~~new ~~non-disclosure~~business ~~agreements~~plan complementary with ~~key~~the suppliers, distributors and customers to limit access to and disclosure of proprietary information. However, these contractual arrangements may not prove sufficient to prevent misappropriation of CorrelantCompany’s ~~technology~~business ~~or deter independent third~~and long-~~party~~term ~~development of similar technologies~~strategies. ~~In addition, the laws of some foreign countries may not protect Correlant’s intellectual property rights to the same extent as do the laws of the US.~~

Correlant Competition. Correlant sold its data-over-cable products to vendors who sold equipment under their brand names to cable operators. During fiscal 2003,years although2002 Correlantand concentrated on selling the MAC+Software2001, Correlant’s stillrevenues competedaccounted infor the100% cableof modem industry as the MAC+SoftwareCompany’s couldconsolidated onlyrevenues. beHowever, useddue into the productionpurchase of cableGoVideo, modems. Correlant’s primaryrevenues competitorsrepresented forless thethan sale1% of cable modems included Askey, Ambit Microsystems and Motorola.52% Primary competitors during fiscal 2003 for the sale of the CMTSCompany’s includedconsolidated ADC,revenues Arris,during Cisco,fiscal Com21,2004 Motorola and Terayon. Other potential competitors included2003, among others, Alcatel, Best Data, Dassault, Ericcson, Future Networks, NEC, NetGear, Nortel, Pace, Phasecom, Samsung, Scientific-Atlanta, Riverstone, Sony, Thomson Consumer Electronics and Zoom Telephonicsrespectively.

Correlant Products. Correlant’s ~~principal~~products ~~competitive~~were ~~factors~~divided ~~included~~into two categories:

• ~~The~~Cable ~~other~~modems. Cable ~~technologies~~modems, ~~described~~installed ~~above~~at the end user’s premises, allowed access to data-over-cable services; and

• ~~The~~Infrastructure ~~ability~~equipment. Correlant’s toCMTS ~~receive~~was infrastructure equipment installed at the ~~DOCSIS~~service provider’s premises, which enabled service providers ~~certification;~~to provide high-speed two-way data services to their customers.

~~• Price;~~Cable Modems. Correlant’s cable modems received both the DOCSIS 1.0 and 1.1 certifications. The cable modems connect to the end user’s computer via a standard Ethernet or Universal Serial Bus (“USB”) connector, and to the cable network via a standard TV coaxial cable connector.

~~• Quality;~~The following table shows revenues attributable to Correlant’s DOCSIS 1.0/1.1 cable modems (in thousands):

• Ensuring product availability through effective planning and procurement of key components; and

Year Ended June 30,	Revenue		Percentage of Consolidated Total Net Revenue
2004	$	—	—	%
2003	133		1	%
2002	34,713		62	%

~~• Product~~MAC+Software. As ~~support~~part of the aforementioned change in business model, Correlant began selling a key component of the completed cable modem, MAC+software, rather than the completed cable modem effective February, 2002. The following table shows revenue attributable to MAC+Software (in thousands):

Significant Business Developments and Subsidiary Activity Subsequent to Fiscal 2003

Year Ended June 30,	Revenue		Percentage of Consolidated Total Net Revenue
2004	$	39	—	%
2003	8,161		42	%
2002	19,672		35	%

~~Significant~~Infrastructure ~~business~~Equipment. During ~~developments~~fiscal 2002, ~~other~~Correlant completed ~~than~~initial ~~the~~development ~~legal~~of ~~proceedings~~a ~~described~~CMTS into ~~“Item 3~~complement its cable modems. Its ~~Legal~~CMTS ~~Proceedings,”~~was ~~subsequent~~designed to ~~fiscal~~enable ~~2003~~cable operators to provide a complete solution for two-way data transfer between the Internet and the end-user, ~~but~~utilizing ~~before~~its cable modem at one end and its head-end equipment at the other. CMTS ~~filing~~sales were less than 1% of ~~this~~consolidated ~~report~~total ~~are~~net ~~summarized~~revenue ~~below:~~during fiscal 2004, 2003 and 2002.

~~Cessation of Correlant’s Historical Operations~~ 8

~~In February 2003, Lotus Pacific, as majority stockholder of~~ Correlant, ~~appointed~~Revenue ~~four new members~~ to ~~Correlant’s~~Significant ~~Board of Directors, effectively taking control of the Board~~Countries. ~~Prior~~ The ~~to this,~~following ~~Lotus~~table ~~Pacific~~shows ~~had~~revenue only one representative on Correlant’s Board of Directors and did not control Correlant’s Board or its operations. Immediately thereafter, the Board of Directors created a new Executive Committee of the Board, comprised of two members who are Lotus Pacific employees, to ~~act on behalf of the Board of~~ ~~Directors~~significant ~~and~~countries ~~oversee~~(in ~~the Correlant’s management and operations.~~ thousands):

	Year Ended June 30,
	2004		2003		2002
Japan	$	215	$	54	$		30,033
Taiwan	163		9,446		20,757
United States	116		201		5,090
Europe and other	127		476		—
	$	622	$	10,177	$	55,880

AsSegment ~~previously~~disclosures ~~reported, effective July 31, 2003, Correlant’s President, Chief Executive Officer~~ and ~~co-founder of~~ ~~Correlant~~geographical ~~resigned~~information asfor afiscal ~~director~~2004, of2003 ~~Correlant. From that date forward he no longer served as President~~ and ~~CEO~~2002 ~~of Correlant. As~~are ~~part~~presented ~~of the separation, Lotus entered an agreement~~ in ~~February 2004 to repurchase all shares of Lotus~~“Item ~~common stock owned by Correlant’s former President~~8. AsFinancial ofStatements June 30, 2004, Correlant’s former President no longer owns any Lotus stock. In connection with the resignation, Correlant entered into an Employment Separation Agreement with the former President. Under the terms of the agreement, Correlant agreed to repurchase 327,000 Correlant shares held by the former President for $0.07 per share for a total of $23,000. To date, this transaction has not been finalized. From July 31, 2003 until December 23, 2003, Correlant worked to find a permanent CEO and ~~retained outside consultants to~~ ~~advise~~Supplementary ~~and~~Data ~~assist~~Note ~~during~~18 ~~the~~– ~~transition~~Segment ~~period. Such consultants were charged with evaluating Correlant’s business operations, its products~~ and ~~demand~~Geographic ~~for its products, and future business prospects~~Information. ”

~~Upon recommendation of its consultants,~~ Correlant Research ~~began a substantial reduction in its workforce~~ and ~~operations~~Development. The ~~to reduce~~following ~~operating~~table ~~expenses, reducing the number of~~ shows Correlant-sponsored ~~employees~~research ~~from 34 as of August 1, 2003 to 18 employees as of December 23, 2003~~ and ~~one~~development ~~employee as~~expenses of(in ~~June 30, 2004.~~ thousands):

As previously reported, as a result of declining margins and demand for its products, Correlant’s Board of Directors approved the wind down and cessation of Correlant’s historical operations in the cable modem and CMTS business effective December 23, 2003. As part of the wind down, Correlant licensed part of its technology, and could potentially license other technology. The wind down of Correlant’s operations was substantially completed by March 31, 2004.

	Research and development including amortization of deferred stock compensation				Research and development excluding amortization of deferred stock Compensation
Year ended June 30,	Dollars		Percentage of Correlant’s Total Revenues		Dollars		Percentage of Correlant’s Total Revenues
2004	$	1,547	249	%	$	1,543	248	%
2003	7,340		72	%	6,864		67	%
2002	9,392		17	%	8,105		15	%

~~Concurrently,~~ Correlant Customers. Correlant ~~and~~sold ~~Lotus~~its ~~have~~data-over-cable products to ~~been~~vendors ~~exploring~~who ~~opportunities~~then tosold ~~acquire~~the orequipment ~~invest~~under intheir ~~other~~brand ~~businesses~~name orto cable ~~technologies~~operators. ~~The~~A ~~Company~~relatively ~~currently expects~~small ~~that~~number ~~together,~~of customers ~~Lotus~~accounted ~~and~~for ~~Correlant~~a ~~will~~significant ~~identify~~percentage ~~market~~of ~~opportunities and~~Correlant’s ~~implement~~revenues. The apercentage ~~new~~of ~~business~~Correlant’s ~~plan~~revenues derived ~~complementary~~from ~~with~~significant ~~the~~customers ~~Company’s~~is ~~business~~detailed ~~and long-term~~as ~~strategies.~~follows:

Settlement with Arescom

	Year Ended June 30,
	2004		2003		2002
Synclayer	35	%	1	%	—	%
TurboComm Technologies, Inc(“TurboComm,” a related party)	26	%	93	%	37	%
Toshiba, a related party	—	%	—	%	54	%
Terayon	—	%	—	%	8	%

AsOn ~~previously~~April 14, ~~reported~~2004, Correlant ~~effective~~filed a lawsuit against TurboComm in the District Court of Taiwan ~~September~~seeking 10to collect TurboComm’s outstanding debt of approximately $2,300,000 ~~2003~~as a result of TurboComm’s unwillingness to pay. On July 30, ~~Lotus~~2004, ~~Pacific~~Correlant ~~divested~~reached a settlement agreement with TurboComm. Under the agreement, Correlant dismissed its ~~remaining~~lawsuit 6%against ~~ownership~~TurboComm in exchange for the transfer ~~Arescom~~of 700,000 Series A and 300,000 Series C shares of Correlant preferred stock owned by ~~settling~~TurboComm. ~~all~~Both ~~legal~~parties mutually agreed to release and discharge any and all claims that each may have against ~~Arescom.~~the other party.

SaleCorrelant Manufacturing and Distribution. Correlant had limited in-house manufacturing capability at its facility in San Diego, California. This facility was used for design, assembly and testing of Jointprototypes, Venturepilot production of new modem designs, sample testing of products received from other manufacturers, developing the manufacturing process and documentation for new products in preparation for outsourcing.

~~Shortly~~Correlant ~~after~~had ~~the~~an ~~Company began running~~established ~~the~~relationship ~~joint~~and ~~venture,~~manufacturing ~~TCL~~contract ~~Digital~~with TurboComm, ~~the~~a ~~Company~~company ~~determined~~located ~~the joint venture’s~~in ~~business~~Taiwan ~~model~~that ~~did~~manufactured ~~not fit with~~ the ~~Company’s~~high-speed ~~long~~data-~~term~~over-cable ~~business strategy, and~~technology ~~diverted management resources from the operations of other subsidiaries~~products. AsFrom ~~previously~~the ~~reported,~~early instages ~~September 2003,~~of ~~the~~design ~~Company~~and ~~entered~~development, ~~into~~Correlant anworked ~~agreement~~closely with ~~TCL~~TurboComm’s ~~Information~~engineers ~~Technology~~to ~~Industrial~~ensure ~~(Group)~~optimal ~~Ltd.~~and ~~(“TCL~~cost ~~Information”),~~effective ~~whereby the Company sold its 50% interest in TCL Digital for approximately $5,600,000 cash~~manufacturing. ~~The~~ ~~transaction~~Correlant’s ~~was completed in December~~manufacturing ~~2003. TCL~~agreement ~~Information~~with isTurboComm anprovided ~~affiliate of~~TurboComm ~~TCL,~~would asupply ~~significant stockholder of the Company.~~ all

~~New Subsidiary~~9

Onof ~~July~~Correlant’s 7,forecasted orders ~~2004,~~for ~~the~~cable ~~Company’s~~modems ~~Board~~at ~~of Directors~~prices ~~approved~~to ~~the~~be ~~commencement~~agreed ofto aby ~~new~~Correlant ~~wholly-owned~~and ~~subsidiary,~~TurboComm ~~GoVideo~~on ~~DigiTech~~a ~~(Huizhou)~~quarterly Cobasis., While ~~Ltd.~~manufacturing Correlant’s ~~(“DigiTech”)~~products, ~~which~~TurboComm ~~will~~was beobligated ~~located~~to inrepair ~~Guangdong, China. DigiTech~~or ~~will~~replace ~~market MP3~~any ~~players.~~defective ~~The~~cable ~~Company~~modems ~~plans~~and toCMTS ~~invest~~units. Although ~~$500,000 in~~ the ~~new~~term ~~subsidiary.~~of ~~TCL Multimedia~~the ~~Electronics~~original ~~R&D~~contract ~~Center~~went ~~(“TCL~~through ~~Multimedia”)~~May 2003, ~~an affiliate company~~both ofCorrelant ~~TCL,~~and isTurboComm ~~currently~~mutually ~~expending~~agreed ~~some~~to ~~resources~~continue ~~during~~ the ~~start~~relationship ~~up phase of~~beyond ~~DigiTech.~~that date.

~~Employees~~Correlant sold its data-over-cable products to vendors who sold equipment under their brand name to cable operators. This market had, and still has, a limited number of existing and potential customers. Correlant already had established relationships with several existing vendors. As a result, Correlant required only a limited sales and marketing infrastructure.

AsCorrelant Backlog. Correlant’s ofgeneral ~~June~~practice ~~30,~~was ~~2003~~to contract with TurboComm and fill orders within delivery dates required by customers, ~~Lotus~~with ~~Pacific~~some ~~had~~adjustments based ~~nine~~on Correlant’s forecast. During fiscal 2004, substantially all Correlant’s ~~employees~~products were produced in ~~sales,~~accordance ~~general~~with specifications and ~~administration.~~ production schedules determined by Correlant ~~had~~based 43on ~~full-~~orders placed by its primary customers. The amount of unfilled orders at any particular time ~~employees,~~could be affected by a number of factors including, 33but innot ~~research~~limited to, the availability of cable modem components, and ~~development~~the manufacturing and ~~ten~~assembly incapacity ~~sales~~of Correlant’s third party manufacturer. Accordingly, ~~general~~Correlant’s backlog information is not meaningful to an understanding of its business and ~~administration~~may not be indicative of actual shipments made to customers in any period.

Correlant Working Capital and Raw Materials. As result of JuneCorrelant 30,producing 2004,products Lotusin Pacificaccordance had ninewith employees,customer includingorders eightand inits salesthird party manufacturer procuring a large portion of cable modem components, generalCorrelant andwas administrationnot andrequired oneto in researchcarry andfinished developmentgoods inventory. Occasionally, when Correlant had onedid employeecarry ina salesraw materials inventory, generalthe amount was not material. Accordingly, inventory requirements, and administrationthe impact of inventory requirements on working capital, are not meaningful to an understanding of Correlant’s business. See

11Correlant Intellectual Property. Although Correlant developed and owns the proprietary software used in its cable modem products, Correlant never held any patents or copyrights on its technology. Due to the rapid change in technology and the high cost associated with obtaining and defending a patent, Correlant management never applied for a patent. Instead, Correlant entered into confidentiality and invention assignment agreements with employees, and entered into non-disclosure agreements with key suppliers, distributors and customers to limit access to and disclosure of proprietary information. However, these contractual arrangements may not prove sufficient to prevent misappropriation of Correlant’s technology or deter independent third-party development of similar technologies. In addition, the laws of some foreign countries may not protect Correlant’s intellectual property rights to the same extent as do the laws of the United States.

“SignificantCorrelant BusinessCompetition. DevelopmentsDuring andfiscal Subsidiary2004, Activity90% Subsequentof to FiscalCorrelant’s 2003revenue was generated from the sales of CMTS units.” GoVideo had 60Primary full-timecompetitors employees,during includingfiscal six2004 infor productthe managementsale andof 54the in salesCMTS included ADC, generalArris, Cisco, Com21, Motorola and administrationTerayon. No employees areOther representedpotential bycompetitors anyincluded, collectiveamong bargainingothers, organizationAlcatel, andBest the CompanyData, hasDassault, neverEriccson, experiencedFuture aNetworks, workNEC, stoppage.NetGear, Nortel, Pace, Phasecom, Samsung, Scientific-Atlanta, Riverstone, Sony, Thomson Consumer Electronics and Zoom Telephonics.

Available InformationCorrelant’s principal competitive factors included:

~~All~~• The ~~SEC~~other ~~reports~~technologies ~~and~~described amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our Investor Relations web site at www.lpfc.com/sec as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.above;

~~Item 2. Properties~~• The ability to receive the DOCSIS certification;

At June 30, 2003, Lotus Pacific’s executive offices were located at 18200 Von Karman, Avenue, Suite 730, Irvine, California and consisted of approximately 2,250 square feet. The lease expired in July 2003. Currently, Lotus Pacific’s executive offices are located at 2402 Michelson Drive, Suite 220, Irvine, California and consist of approximately 2,100 square feet under a month-to-month lease. Correlant leases approximately 26,000 square feet of office space in San Diego, California, which expires November 2007. • Price;

Due to the shut down of operations, Correlant’s interim management has moved out of the San Diego facility to reduce expenses while attempting to either sublease the San Diego facility or negotiate a lease buy out with the landlord. Currently, Correlant operates from Lotus Pacific’s office. Due to the weak commercial real estate market in San Diego, interim management has not been successful subleasing the building. Additionally, there can be no guarantees that interim management will successfully sublease the building or buy out the lease in the future. After Correlant’s facilities closure, the Company believes its facilities will be suitable for their respective uses and adequate for the Company’s needs. • Quality;

~~GoVideo~~• Ensuring ~~leases~~product ~~two~~availability ~~facilities in~~through ~~Scottsdale,~~effective ~~Arizona. One~~planning ~~facility, used for warehousing, is approximately 13,100 square feet. The lease expires October 2009, with a five year renewal option. The other facility, used for administration, warehousing~~ and ~~distribution,~~procurement isof ~~approximately~~key ~~33,000~~components; ~~square feet. The lease expires February 2006, with a three year renewal option. The leased space is suitable for GoVideo’s current needs.~~ and

~~Item 3. Legal~~• Product ~~Proceedings~~ support.

~~Legal proceedings, other than ordinary~~Other ~~routine~~Business ~~litigation~~Developments ~~incidental~~and toSubsidiary ~~the~~Activity ~~Company’s~~During ~~business, to which~~ the ~~Company became,~~Reporting ~~or was, a party during fiscal 2003 or subsequent thereto, but before the filing of this report are summarized below:~~Period

~~Lotus~~In ~~Pacific~~April and vMay 1997, the Company acquired 70% of the common stock of Regent. In ~~William~~June 1997, HuRegent acquired Amiga-based, multimedia technology related assets and ~~Lotus~~rights ~~Pacific~~from vRightiming Electronics Corporation (“Rightiming”).~~USS~~ On June 26, 2001, the Company ~~Online~~spun-off etRegent alto Regent’s management.

OnIn ~~January 3~~February 1999, ~~2002, Lotus Pacific filed~~the aCompany ~~lawsuit~~acquired in100% of the ~~United~~outstanding ~~District~~shares ~~Court Eastern District~~ of ~~New~~Professional ~~York against~~Market ~~William Hu~~Brokerage, ~~and~~Inc. ~~subsequently~~(“PMB”), ~~amended~~a ~~the~~Chicago-based ~~complaint~~financial ~~July~~trading ~~30,~~firm ~~2002. In~~that ~~the~~provided online ~~amended~~trading ~~complaint~~services, ~~Lotus~~and ~~Pacific brought~~100% ~~claims~~of ~~for~~the ~~breach~~outstanding shares of ~~fiduciary~~US ~~duty,~~Securities ~~professional~~& Futures ~~negligence~~Corp. (“USSF”), ~~accounting~~ ~~and~~a ~~conversion~~full ~~relating~~service tobrokerage ~~transfers~~firm in ~~December~~New ~~2000 of approximately $3~~York,~~600,000~~ ~~from Mr~~NY. ~~Hu’s~~In ~~attorney trust account. Mr. Hu was alleged to be~~ June 1999, the Company~~’s counsel~~ ~~from~~created ~~January~~USS ~~1998~~Online, ~~and~~Inc. ~~later~~(“USS ~~its~~Online”), ~~CEO~~a ~~from~~wholly-owned ~~January 2001 to June 29~~subsidiary, ~~2001.~~ and

On January 16, 2002, Lotus Pacific filed a lawsuit in the Supreme Court of the State of New York, New York County against USS Online, Travelway International Ltd. (“TIL”), and Huaya Lu Tung, seeking to recover approximately $1,800,000 in principal and interest due on loans made to USS Online, and seeking to pierce the corporate veil and recover such amounts from defendants TIL and Huaya Lu Tung. The Company asserted that Ms. Tung was the Chairperson and sole owner of TIL and the Chairperson of USS Online and the former Treasurer of Lotus Pacific.10

Intransferred ~~order~~all ~~to avoid the costs~~ of ~~litigation,~~ ~~after evaluation of the Company’s likelihood of recovering any~~its ~~assets~~ownership ~~from~~interests ~~the defendants~~ in ~~the~~each ~~two~~of ~~cases~~USSF ~~cited above~~ and ~~the~~PMB ~~defendants’ ability~~ to ~~pay any judgment secured against them, if any, in February 2003, the Company entered into a settlement agreement with~~ USS Online, ~~TIL,~~to ~~Mr.~~run ~~Hu,~~those ~~Ms.~~two ~~Tung,~~financial ~~Lotus~~service ~~International Holdings Corp~~subsidiaries. aIn ~~shareholder~~February 2000, of the Company ~~(“LIH”), and~~sold ~~three~~72% ~~individuals~~of its toownership ~~settle all claims against the defendants~~ in ~~the~~USS ~~two cases cited above, subject to a number of conditions~~Online. ~~In entering into the settlement agreement, none of the defendants~~The ~~admitted~~remaining or28% ~~conceded~~ownership ~~any~~has ~~liability~~no inimpact ~~connection~~on ~~with~~Opta’s ~~the~~business ~~claims asserted in the cases~~operations. AsThe ~~conditions~~investment towas ~~the settlement~~deemed ~~agreement,~~impaired ~~the~~and written ~~Company~~off ~~was~~during ~~required~~fiscal to2000.

12In March 1999, the Company acquired 77% of the issued and outstanding common shares of Arescom. Based in Fremont, California, Arescom designed, manufactured and marketed a broad range of high quality remote access products, such as routers and remote managing software, and other inter-networking equipment for Internet Service Providers (“ISP”), resellers, and system integrators in the North America market. In December 2001, the Company sold approximately 92% of its investment in Arescom, representing 65% of the outstanding securities of Arescom to an unrelated third party.

~~receive:~~As ~~(a)~~previously 3reported,~~000,000~~ ~~shares~~on ofDecember 11, 2001, the Company’s ~~common~~sold ~~stock;~~to ~~(b)~~Solomon aExtreme ~~promissory~~International Ltd. ~~note~~(BVI), 24,234,738 shares of ~~LIH~~common instock ~~the principal amount~~ of ~~$4,000,000,~~ ~~payable~~the onCompany’s ~~February 19~~subsidiary, ~~2008~~Arescom, representing ~~with~~approximately ~~interest~~70% ~~accruing at a rate~~ of 3% ~~per annum (~~the ~~“Note”);~~outstanding ~~(c)~~shares aof ~~stock~~Arescom, ~~pledge agreement~~for $10,000,000 ~~granting~~in tocash. The ~~the~~ Company determined athat ~~first~~Arescom ~~priority~~would ~~security~~not ~~agreement~~generate inconsistent ~~1,000,000~~cash ~~shares~~flow offrom ~~the~~operations ~~Company’s~~in ~~common~~the ~~stock~~foreseeable asfuture, ~~partial~~and ~~security~~decided ~~for~~to ~~the~~sell ~~Note~~its ~~(the~~interests ~~“Pledged~~for ~~Shares”); (d)~~cash ~~original~~to ~~stock~~pursue other ~~certificates~~business ~~representing~~opportunities. ~~the~~The ~~Pledged~~Company ~~Shares;~~retained ~~(e)~~approximately ~~personal guaranty~~6% of the outstanding ~~Note;~~common shares and ~~(f)~~11,048 ~~all~~shares of ~~the~~subordinated ~~assets~~preferred ofstock ~~USSF~~of Arescom. The Company ~~received~~determined that ~~3,000,896~~there ~~shares~~was ~~but~~no ~~has~~value ~~not~~associated ~~received~~with the ~~Pledged~~11,048 ~~Shares~~shares orof ~~the~~subordinated ~~assets~~preferred stock of ~~USSF~~ Arescom. ~~The~~Immediately ~~Company has made demand on~~following the ~~other~~sale ~~parties~~of ~~for~~its ~~fulfillment~~majority ofinterest ~~the~~in ~~conditions~~Arescom, to the ~~settlement~~Company ~~and~~determined ~~has~~that the ~~entered~~value ~~into~~of ~~negotiations~~its ~~with~~remaining ~~the~~6% ~~other~~interest ~~parties~~in toArescom ~~settle~~was ~~these demands~~impaired. To ~~date,~~As nopreviously ~~settlement~~reported, ~~has~~effective ~~been~~September 10, ~~achieved. The~~2003, ~~Company~~Opta ~~has~~divested ~~reserved~~its ~~the right~~remaining to6% ~~take~~ownership ~~all~~in ~~actions~~Arescom ~~for~~by settling ~~breach~~all oflegal ~~the~~claims ~~settlement,~~against ~~including reinstituting the original actions~~Arescom.

~~Item~~On 4April 22, 1999, the Company organized Lotus World, Inc. ~~Submission~~(“Lotus ofWorld”) ~~Matters~~to offer Auction Live, an online auction service, to international clients. The wholly-owned subsidiary was incorporated in Delaware in April 1999, and was a ~~Vote~~private-label Asian language e-commerce service provider, targeting business-to-business and business-to-customer markets, portals and ISP companies. Due to the negative response in general to e-commerce, the operations of ~~Security~~Lotus ~~Holders~~World were suspended by prior management in 2001. As previously reported, on March 12, 2002, the Company and Lotus World entered into an Asset Purchase and Assignment and Assumption Agreement with Avtech Technology, whereby the Company assigned its rights to certain contracts and related intangibles to Avtech in exchange for Avtech’s assumption of all of the Lotus World’s obligations under the contracts assigned. Subsequent to the completion of the transaction, the Company dissolved Lotus World.

NoOn ~~matters~~November 13, ~~were~~2000, ~~submitted~~the Company toestablished a ~~vote~~wholly-owned subsidiary, Acumen Technology, Inc. (“Acumen”), incorporated in Delaware and in December 2000, the Company transferred all of the capital stock it held in Correlant and Arescom to Acumen. Other than its ~~security~~holdings ~~holders~~of ~~during~~the Correlant and Arescom stock, Acumen had no material independent operations. In December 2001, Acumen was merged into Opta. As a result of the ~~fourth~~merger, ~~quarter~~the Company assumed all the rights and obligations of ~~fiscal~~Acumen ~~2003~~and acquired the assets of Acumen that included, without limitation, shares of stock of Correlant and Arescom. Acumen had no operations other than serving as a holding company for the shares of stock of Correlant and Arescom.

~~PART~~In IIJune 2001, Acumen formed Lotus Pacific Communications Technology (Beijing) Co., Ltd. (“Beijing Lotus”), a wholly-owned subsidiary, to support business activity in Beijing. See “Business Developments and Subsidiary Activity Subsequent to the Reporting Period.”

~~Item~~As 5previously reported, in January 2003, the Company finalized an agreement to form a joint venture with Beijing Youbang Online Electronics Technology Co. ~~Market~~, ~~for~~Ltd. (“Youbang”), TCL Computer Technology ~~Registrant’s~~Co., ~~common~~Ltd. and all the equity ~~and~~holders ~~related~~of ~~stockholder~~Youbang, ~~matters~~pursuant to which the Company acquired a 50% interest in a new joint venture to own substantially all of Youbang’s operations. Pursuant to the agreement, all of Youbang’s assets, other than real estate, were transferred to a newly formed Beijing, China joint venture named TCL Digital

Lotus Pacific’s common stock began trading on the over-the-counter (“OTC”) Bulletin Board under the symbol “LPFC” on December 1, 1994. As previously reported, on November 5, 2002, the Company’s shares of common stock were removed from the OTC Bulletin Board for failure to comply with NASD Rule 6530, as a result of the Company’s inability to timely file its Form 10-K for fiscal 2002. Although Lotus filed its Form 10-K for fiscal 2002 on April 16, 2004, Lotus is not eligible to trade on the OTC Bulletin Board until Lotus becomes current in all its required filings or files a Form 10 and clears all comments with the SEC. The Company is working to complete such reports for subsequent periods and will file them as soon as they are available. Effective November 5, 2002, the Company’s shares of common stock are quoted on the National Quotation Bureau’s “Pink Sheets,” under the symbol “LPFC.PK.” Trading in the Company’s common stock has been minimal with limited or sporadic quotations and there is no established public trading market for the Company’s common stock. The high and low common stock prices per share were as follows:11

	High		Low
Fiscal 2004:
1st Quarter	$	0.09	$	0.01
2nd Quarter	0.09		0.02
3rd Quarter	0.05		0.01
4th Quarter	0.1		0.01
Fiscal 2003:
1st Quarter	$	0.13	$	0.03
2nd Quarter	0.1		0.01
3rd Quarter	0.1		0.05
4th Quarter	0.1		0.05
Fiscal 2002:
1st Quarter	$	1.25	$	0.75
2nd Quarter	0.85		0.05
3rd Quarter	0.45		0.07
4th Quarter	0.45		0.05

Technologies, Ltd. (“TCL Digital”), for the purpose of manufacturing computer notebooks in China. The Company agreed to contribute approximately $5,240,000, payable in three installments and representing 50% of the total investment amount. At the time, the investment was part of the Company’s business strategy to seek businesses to maximize the Company’s growth potential based on its assets.

13Shortly after the Company began running the joint venture, TCL Digital, the Company determined the joint venture’s business model did not fit with the Company’s long-term business strategy, and diverted management resources from the operations of other subsidiaries. As previously reported, in September 2003, the Company entered into an agreement with TCL Information Technology Industrial (Group) Ltd. (“TCL Information”), whereby the Company sold its 50% interest in TCL Digital for approximately $5,600,000 cash. The transaction was completed in December 2003. TCL Information is an affiliate of TCL, the majority stockholder of the Company.

~~These OTC market quotations reflect~~Business ~~inter-dealer~~Developments ~~prices,~~and ~~without~~Subsidiary ~~retail~~Activity ~~mark-up,~~Subsequent ~~mark~~to ~~down~~the orReporting ~~commission and may not necessarily represent actual transactions.~~Period

AsSignificant ~~of August 15, 2004, there were~~business ~~50,723,604~~developments ~~shares~~subsequent ofto ~~Common~~fiscal ~~Stock~~2004 ~~issued~~but ~~and~~before ~~outstanding, held by approximately 800 shareholders of record as indicated on~~ the ~~records~~filing of ~~the~~this ~~Company’s~~report are ~~transfer~~summarized ~~agent.~~below:

ToAfter ~~date,~~commencing ~~the~~a ~~Company~~project ~~has not declared or~~to ~~paid~~reintroduce ~~any~~the ~~cash~~Rave ~~dividends~~MP onbranded ~~its~~line ~~common~~of ~~stock.~~MP3 ~~The~~players ~~Company~~in ~~anticipates~~April, ~~that~~2004, itGoVideo ~~will~~began ~~retain~~distributing ~~all~~MP3 ~~available~~Rave ~~funds~~MP ~~for~~branded ~~use~~product in ~~operation~~September 2004. The ~~and~~Company ~~expansion~~expects ofrevenue ~~its business,~~from ~~and~~this nonew product ~~cash~~to ~~dividends~~be ~~are~~approximately ~~expected~~20% toof beGoVideo’s ~~paid~~total onrevenues ~~the~~with ~~common~~similar ~~stock in~~gross ~~the~~margins ~~foreseeable~~as ~~future.~~other GoVideo products.

~~There~~On ~~were~~July 7, no2004, ~~sales~~the Company’s Board of ~~unregistered~~Directors approved the commencement of a new wholly-owned ~~securities~~subsidiary, byGo Video DigiTech (Huizhou) Co., Ltd. (“DigiTech”), which will be located in Guangdong, China. DigiTech will market GoVideo’s MP3 players under the GoVideo brand name. The Company ~~during~~plans ~~fiscal~~to ~~2003~~invest approximately $500,000 in the new subsidiary. TCL Multimedia Electronics R&D Center (“TCL Multimedia”), an affiliate company of TCL, is currently expending some resources during the start up phase of GoVideo DigiTech.

~~The~~As ~~Company~~Beijing ~~received~~Lotus ~~3,000,896~~had ~~shares of~~no ~~our~~material ~~common~~operations ~~stock~~since asits ~~part~~inception, the Company’s Board of Directors approved the ~~settlement~~closure ~~with~~of ~~USS~~Beijing ~~Online,~~Lotus ~~Travelway International~~on ~~Ltd~~July 7, 2004. All ~~and~~assets ~~Huaya~~of LuBeijing ~~Tung.~~ Lotus were transferred ~~See~~to ~~“Item~~DigiTech 3.during ~~Legal~~September, ~~Proceedings~~2004.”

Employees

As of June 30, 2004, Opta had nine employees, including eight in sales, general and administration and one in research and development. Correlant had one employee in sales, general and administration. GoVideo had 60 full-time employees, including six in product management and 54 in sales, general and administration.

As of December 31, 2004, Opta had six employees in sales, general and administration. Correlant had two part-time employees, who are also Opta employees, in sales, general and administration. GoVideo had 61 full-time employees, including 8 in product management and 53 in sales, general and administration.

No employees are represented by any collective bargaining organization, and the Company has never experienced a work stoppage.

Available Information

All SEC reports and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our Investor Relations web site at WWW.optaco.com/sec as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 2. Properties

At June 30, 2004, Opta’s executive offices were located at 2402 Michelson Drive, Suite 220, Irvine, California and consisted of approximately 2,100 square feet under a month-to-month lease. Effective November 1, 2004, Opta moved its executive offices to 1350 Bayshore Highway, Suite 730, Burlingame, California, a 3,196 square foot office under a month-to-month lease. At June 30, 2004, Correlant leased approximately 26,000 square feet of office space in San Diego, California, which originally expired November 2007. Due to the shut down of

operations, the remaining Correlant employees moved out of the San Diego facility and into Opta’s facility to reduce expenses. On November 4, 2004 Correlant entered into a lease termination agreement for its San Diego facility. After Correlant’s facilities closure in San Diego, the Company believes its facilities are suitable for its uses and adequate for the Company’s needs.

GoVideo leases two facilities in Scottsdale, Arizona. One facility, used for warehousing, is approximately 13,100 square feet. The other facility, used for administration, warehousing and distribution, is approximately 33,000 square feet. Both leases expire January 2006 with no option to extend the lease term. The leased space is currently suitable for GoVideo’s current needs.

Item 3. Legal Proceedings

From time to time we may be involved in various disputes and litigation matters arising in the normal course of business. As of Janauary 31, 2005, we are not involved in any legal proceedings that are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our results of operations of the period in which the ruling occurs. Our estimate of the potential impact on our financial position or overall results of operations for new legal proceedings could change in the future.

Item 4. Submission of Matters to a Vote of Security Holders

As permitted under Section 228 of the Delaware General Corporation Law, by written consent dated June 10, 2004, 55.42% of the stockholders of the Company adopted Opta’s Certificate of Amendment to our Certificate of Incorporation to effect the proposed name change from “Lotus Pacific, Inc.” to “Opta Corporation.” The board of directors of the Company approved this name change at a meeting of the board of directors held on March 7, 2004.

PART II

Opta’s common stock began trading on the over-the-counter (“OTC”) Bulletin Board under the symbol “LPFC” on December 1, 1994. As previously reported, on November 5, 2002, the Company’s shares of common stock were removed from the OTC for failure to comply with NASD Rule 6530, as a result of the Company’s inability to timely file its Form 10-K for fiscal 2002. Although Opta filed its Form 10-K for fiscal 2002 on April 16, 2004 and its Form 10-K for fiscal 2003 on August 24, 2004, Opta is not eligible to trade on the OTC Bulletin Board until Opta becomes current in all its required filings or files a Form 10 and clears all comments with the SEC. The Company is working to complete such reports for subsequent periods and will file them as soon as they are available. From November 5, 2002 through October 12, 2004, the Company’s shares of common stock were quoted on the National Quotation Bureau’s “Pink Sheets,” under the symbol “LPFC.” Effective October 13, 2004, in connection with the name change from “Lotus Pacific, Inc.” to “Opta Corporation,” the Company’s shares of common stock are quoted under the symbol “OPTP.” Trading in the Company’s common stock has been minimal with limited or sporadic quotations and there is no established public trading market for the Company’s common stock. The high and low common stock prices per share were as follows:

	High		Low

Fiscal 2005:

1st Quarter	$	0.15	$	0.08
2nd Quarter	0.10		0.03

Fiscal 2004:

1st Quarter	$	0.09	$	0.01
2nd Quarter	0.09		0.02
3rd Quarter	0.05		0.01
4th Quarter	0.10		0.01

Fiscal 2003:

1st Quarter	$	0.13	$	0.03
2nd Quarter	0.10		0.01
3rd Quarter	0.10		0.05
4th Quarter	0.10		0.05

These OTC market quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not necessarily represent actual transactions.

As of January 31, 2005, there were 50,037,538 shares of Common Stock issued and outstanding, held by approximately 800 holders of record as indicated on the records of the Company’s transfer agent.

To date, the Company has not declared or paid any cash dividends on its common stock. The Company anticipates that it will retain all available funds for use in operation and expansion of its business, and no cash dividends are expected to be paid on the common stock in the foreseeable future.

Equity Compensation Plan Information

Information regarding Opta’s equity compensation plans is set forth in “Item 12. Security Ownership of Certain Beneficial Owners and Management.” As of the date of this report, there are no outstanding options or warrants to purchase securities of the Company.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities by the Company during fiscal 2004, 2003 or 2002.

Issuer Purchases of Equity Securities

Date of Purchase	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs
April 1 through April 30, 2004	None	—		None	None
May 1 through May 31, 2004	None	—		None	None
June 1 through June 30, 2004	249,270	$	0.30	None	None

The Company has not publicly announced any plans to purchase Opta stock. In the past, the Board of Directors reviewed and approved repurchases of its common stock on a case by case basis. In addition, the Company has no plans in the future to publicly announce any stock repurchase plans. The Board of Directors plans to continue to review potential repurchases of its common stock and will continue to approve the repurchase transactions on a case by case basis.

Item 6. Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements of the Company and related notes included elsewhere in this Annual Report on Form 10-K.

	As of or for the Fiscal Year Ended June 30,
(in thousands, except per share amounts)	~~2003 (1)~~2004			~~2002~~2003 (21)			~~2001~~2002 (2)			~~2000 (3)~~2001			~~1999~~2000 (43)
Results of Operations
Net revenues	$	19125,~~503~~324		$	5519,~~880~~454		$	~~263~~55,~~192~~880		$	71263,~~839~~192		$	371,~~733~~839
Loss from continuing operations	$	(67,~~366~~722	)	$	(366,~~529~~366	)	$	(736,~~433~~529	)	$	(27,~~249~~433	)	$	(62,~~606~~249	)
Net income (loss) per common share – basic and diluted:
Loss from continuing operations	$	(0.1014	)	$	(0.5710	)	$	(0.1257	)	$	(0.0412	)	$	(0.1304	)
Total gain (loss) from discontinued operations	$	—		$	~~0.27~~—		$	(0.4527	)	$	(0.1945	)	$	(0.0519	)
Net income (loss)	$	(0.1014	)	$	(0.3010	)	$	(0.5730	)	$	(0.2357	)	$	(0.1823	)
Cash dividends per share	$	—		$	—		$	—		$	—		$	—
Financial Position
Total assets from continuing operations	$	5271,~~987~~120		$	5352,~~342~~987		$	~~117~~53,~~214~~342		$	~~121~~117,~~737~~214		$	~~158~~121,~~624~~737
Long-term obligations, less current portion	$	—		$	—		$	—		$	—		$	—
Total stockholders’ equity	$	3020,~~565~~349		$	3630,~~560~~565		$	5436,~~328~~560		$	8354,~~730~~328		$	9483,~~801~~730

(1) The results of operations for fiscal 2003 included GoVideo’s activity since the April 18, 2003 purchase date.

(2) Fiscal 2002 included: (a) $20,071,000 asset impairment and (b) $17,554,000 total gain from discontinued operations, net of related taxes, as a result of selling our former subsidiary, Arescom, on December 18, 2001.

(3) Fiscal 2000 included a $50,512,000 gain related to the sale of our subsidiary’s common stock.

~~(4) The results of operations for fiscal 1999 included Correlant’s activity since the March 31, 1999 purchase date.~~ 16

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this report.

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) with a an executive overview and description of ~~Lotus~~our ~~Pacific’s~~ business. This is followed by a discussion of why we were unable to timely file our Form 10-K for the year ended June 30, ~~2003~~ 2004. The next discussion relates to material acquisitions and dispositions and a comparison of our results of operations as follows:

• Fiscal ~~2003~~2004 compared to fiscal ~~2002~~2003;

• Fiscal ~~2002~~2003 compared to fiscal ~~2001~~2002; and

• Fiscal ~~2001~~2002 compared to fiscal ~~2000~~2001.

These comparisons are provided ~~solely~~ solely for readers to understand the historical results of our operations during the time periods covered. However, due to the strategic change in direction of ~~Lotus~~Opta ~~Pacific~~ discussed in “Item 1. Business,” and throughout the MD&A section, these results are not indicative of future results.

After the results of operations, we analyze the changes in our cash flows, and discuss our financial commitments in the section entitled “Liquidity and Capital Resources.” We then address our “Business Outlook” from June 30, 2004. We conclude this MD&A with (I) a discussion of the Critical Accounting Estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results; and (II) Recently Issued Accounting Standards and the impact they had or will have on our results of operations.

This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K including:

• Item 1. Business;

• Item 6. Selected Financial Data; and

• Item 8. Financial Statements and Supplementary Data.

The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Business Outlook” section. Our actual results may differ materially from these forward-looking statements.

Executive Overview and Description of Business

~~Lotus~~Opta ~~Pacific~~Corporation (“Opta”), a Delaware corporation, is a holding company and we conduct our business through our subsidiaries. We presently develop, manage, and operate emerging consumer electronics and communications companies, focusing on developing next generation consumer electronics and communication products. We provide our subsidiaries with capital and strategic and infrastructure services. Currently, GoVideo is our sole operating subsidiary. GoVideo’s strategy is to develop, market, and distribute innovative, high performance consumer electronic products that incorporate advanced technology, ease of use, and superior industrial design. Main products include consumer electronic products such as the digital video disc (“DVD”)-Video Cassette Recorder Combos (“DVR”), Dual-Deck VCRs, DVD Recorders, DVD Recorder + VCR, A further description of the Company’s products may be found in Part I, Item 1 of this document under the heading “Business.” GoVideo’s current marketing strategy is to sell products with the support of independent sales representatives specific to certain geographic territories throughout the United States and who also represent many other brand name consumer electronic products. GoVideo currently sells its product lines directly to retailers nationwide including numerous national and regional chains, catalog accounts, specialty stores, warehouse clubs and home shopping channels.

~~Explanatory~~Our business strategy in the consumer electronics segment is to ~~Note~~leverage -our ~~Delays~~significant experience in ~~Reporting~~the consumer electronics market, increase the GoVideo brand recognition by introducing products in Asia, and continue our product development to bring to our customers compelling new products with superior quality and ease-of-use.

OnOne ~~June 29, 2001, a majority~~ of ~~our stockholders,~~the ~~led~~major bychallenges ~~TCL,~~facing ~~were~~Opta ~~successful~~is inmanaging ~~a solicitation to gain control of Lotus Pacific and replace prior management of the Company~~liquidity. On Liquidity ~~June~~has 29been, ~~2001, new directors~~ and ~~officers~~ ~~were~~will ~~appointed~~continue ~~and~~to ~~the then existing directors and officers were~~be, ~~immediately~~an ~~removed~~issue ~~from~~for ~~office. Following~~us ~~the~~as ~~termination~~we ofhave grown our ~~relationship~~subsidiary, ~~with prior independent accountants~~GoVideo, ~~new~~out ~~management concluded that a reaudit~~ of ~~the~~bankruptcy. Our ~~financial~~majority ~~statements for fiscal 2001~~shareholder, ~~2000~~TCL ~~and~~Industries ~~1999~~Holdings ~~was required~~(H. ~~Effective~~K) ~~July~~Limited 24(“TCL”), ~~2002,~~has ~~we engaged our new~~been ~~independent~~instrumental ~~accountants to reaudit and restate these prior periods. The Company completed such restatements~~ in ~~its~~ ~~Form~~assisting ~~10-K~~GoVideo ~~for~~obtain ~~fiscal~~credit ~~2002 filed April 16, 2004.~~ from

~~Acquisitions and Dispositions~~17

~~During fiscal 2003~~vendors, which ~~2002~~has ~~and~~helped ~~2001,~~us ~~we engaged~~work inthrough ~~multiple~~some ~~acquisitions~~liquidity ~~and dispositions~~issues. ~~The~~We ~~details~~plan ofto ~~these~~continue ~~transactions~~to ~~are~~utilize ~~described in detail in “Item 8. Financial Statements and Supplementary Data~~the ~~Note~~relationship 3with –our ~~Acquisitions~~majority ~~and~~stockholder ~~Dispositions~~by –sourcing ~~Majority~~more ~~Owned~~products ~~Subsidiaries, Note 4 –~~from ~~Acquisitions and Dispositions – Equity Method Investees and Note 5 – Acquisitions and Dispositions – Cost Method Investees~~them.” ~~However,~~This ~~unless~~will ~~specifically~~be ~~addressed~~a ~~in MD&A,~~challenging ~~these acquisitions~~ and ~~dispositions were not material to our results~~ ofimportant ~~operations~~part ~~and the understanding~~ of ~~our~~GoVideo’s ~~business. As~~strategy ~~such,~~to ~~the~~manage ~~details have been omitted from MD&A~~liquidity.

15The consumer electronics industry is constantly facing new trends and challenges, the most prominent of which is severe price competition. We expect competition to intensify in the future. Our strategy to combat the price competition is to continue to focus on the development of lower-cost consumer electronics, continue the evaluation of potential new products and work with our contract manufacturers to reduce the purchase price of our products.

~~Regent~~Explanatory Note ~~Electronics~~– ~~Corporation~~Changes in Management and Delays in Reporting

InOn ~~April~~June 29, ~~and~~2001, ~~May~~a majority ~~1997~~of our stockholders, weled ~~acquired~~by ~~70%~~TCL, were successful in a solicitation to gain control of ~~the~~Opta ~~common~~and ~~stock~~replace ofprior ~~Regent~~management ~~Electronics~~of ~~Corporation~~the ~~(“Regent”)~~Company. ~~Regent~~ On ~~designed~~June 29, ~~developed~~2001, ~~manufactured~~new directors and ~~marketed~~officers ~~Internet-related~~were ~~products~~appointed ~~that~~and ~~offered~~the ~~Internet~~then ~~access~~existing ~~through telephone~~directors ~~lines~~ and ~~cable~~officers ~~television~~were immediately ~~lines~~removed from office. InFollowing ~~June~~the ~~1997,~~termination ~~Regent~~of ~~acquired~~our ~~Amiga-based~~relationship with prior independent accountants, ~~multimedia~~new ~~technology~~management ~~related~~concluded that a reaudit of the financial ~~assets~~statements for fiscal 2001, 2000 and ~~rights~~1999 ~~from~~was ~~Rightiming~~required. ~~On June~~Effective 26July 24, ~~2001~~2002, we ~~spun-off~~engaged ~~Regent~~our new independent accountants to ~~Regent’s~~reaudit ~~management~~and restate these prior periods. The Company completed such restatements in its Form 10-K for fiscal 2002 filed April 16, 2004. The late filing of our Form 10-K for fiscal 2002 caused our Form 10-K for fiscal 2003, which was filed August 24, 2004, to also be late.

~~Correlant~~Acquisitions and ~~Communications, Inc~~Dispositions

~~Correlant~~During ~~Communications~~fiscal 2004, ~~Inc~~2003 and ~~(“Correlant”)~~2002, iswe aengaged ~~major~~in ~~subsidiary~~multiple ofacquisitions ~~Lotus~~and dispositions. ~~However,~~ The ~~due~~details toof ~~the~~these ~~purchase~~transactions ofare described ain ~~new~~detail ~~subsidiary~~in “Item 8. Financial Statements and ~~the~~Supplementary ~~strategic~~Data ~~change~~Note in4 ~~direction~~– Acquisitions ofand ~~Lotus~~Dispositions ~~Pacific~~– ~~discussed~~Majority inOwned ~~“Item~~Subsidiaries 1.and ~~Business,”~~Note 5 – Acquisitions and ~~throughout~~Dispositions ~~the~~– Equity Method Investees.” However, unless specifically addressed in MD&A ~~section~~, ~~Correlant~~ ~~was~~these ~~much~~acquisitions ~~less~~and ~~significant~~dispositions were not material to our results of operations ~~during~~and ~~fiscal 2003~~the asunderstanding ~~compared~~of toour ~~fiscal~~business. As ~~2002~~such, ~~and~~the ~~2001. During~~details ~~fiscal~~have ~~2003,~~been ~~Correlant~~omitted ~~accounted~~from MD&A. The ~~for~~following ~~52%~~is a discussion of our ~~consolidated~~acquisitions ~~revenues as~~and ~~compared~~dispositions toin ~~essentially~~order ~~100%~~of insignificance ~~fiscal~~to ~~2002~~our ~~and 2001~~current business.

On March 31, 1999, we entered into a share exchange agreement which provided for the acquisition of 94.5% of the issued and outstanding common shares of Correlant, representing an 81% ownership interest in Correlant in consideration for the issuance of 9,657,000 common shares of the Company valued at $7.21 per share plus contingently issuable shares of up to 1,435,000. The contingent shares were issuable as Correlant options specified in the agreement were exercised. For each option exercised, 81% of such shares were to be transferred to us in exchange for 0.5364 shares of Lotus Pacific common stock for each share of Correlant stock transferred. At the acquisition date, the excess of the purchase price and related costs over the value assigned to the net tangible assets acquired was $74,545,000 and was assigned to goodwill. During fiscal 2003, we recorded $21,000 as additional goodwill, and subsequently expensed as an impairment of assets, as a result of issuing 3,000 of the contingently issuable shares. During fiscal 2001 and 2000, we recorded an additional $18,000 and $554,000, respectively as additional goodwill as a result of issuing 79,000 of the contingently issuable shares. As of August 15, 2004 there were only 3,000 contingently issuable shares outstanding. GoVideo

~~During~~In ~~March 2000~~April 2003, we ~~sold~~loaned $5,986,000 to ~~unrelated parties~~Opta Systems, 3which was used,~~657~~ in addition to a deposit of $250,000 ~~shares~~paid by Opta Systems to complete its purchase of ~~Correlant~~substantially ~~stock,~~all assets ~~which~~and ~~reduced~~assumption ~~our~~of ~~ownership~~certain toliabilities of a product line known as “GoVideo” ~~65%. During~~from ~~September~~SONICblue ~~2000~~Incorporated, wea ~~sold~~Delaware ~~to unrelated~~corporation ~~parties~~(NASDAQ: SBLU), ~~656~~and Sensory Science Corporation,~~000~~ ~~shares~~a Delaware corporation and wholly-owned subsidiary of SONICblue, ~~Correlant~~pursuant ~~stock~~to a purchase agreement and an order issued by the United States Bankruptcy Court, ~~which~~Northern ~~further~~District ~~reduced~~of ~~our~~California, San Jose Division ~~ownership~~overseeing toSONICblue’s ~~62%.~~bankruptcy case.

~~Change~~Immediately insubsequent ~~Correlant~~to Opta System’s ~~Business~~purchase ~~Model~~of the GoVideo product line, we purchased 100% of Opta Systems for an adjusted purchase price of $5,808,000 for GoVideo.

~~Prior~~The toGoVideo ~~January~~product 31line, ~~2002, Correlant~~ ~~sold~~established ~~Data-Over-Cable~~in ~~System~~1984, ~~Interface~~designs ~~Specification~~and ~~(“DOCSIS”)~~manufactures ~~certified~~product ~~cable modems~~lines ~~and~~ in ~~certain~~the ~~instances~~consumer electronics industry, ~~the~~including ~~Media~~digital ~~Access~~video ~~Controller~~disc (“~~MAC~~DVD”) ~~bundled~~players, portable ~~with~~DVDs, ~~cable~~DVD-Video ~~modem~~Cassette ~~software~~Recorder (“~~MAC+software~~VCR”) Combos, ~~which~~Dual-Deck ~~were both key components of the completed cable modem. Correlant developed and owns the proprietary software used in the cable modem. Effective January 31~~VCRs, ~~2002~~DVD ~~Correlant changed~~Recorders, ~~its~~DVD ~~business~~Recorder ~~model~~+ ~~whereby they only sold the completed cable modem in certain circumstances. Instead of focusing on selling the completed cable modem~~VCRs, ~~Correlant~~and ~~concentrated~~liquid ~~efforts~~crystal ~~toward selling~~display ~~only~~(“LCD”) ~~the MAC+software~~TVs. ~~The~~ ~~new business~~GoVideo ~~model was a result of Correlant’s attempt to increase gross profit~~holds ~~percentage,~~various ~~streamline~~patents ~~business~~covering ~~operations~~Dual-Deck ~~and~~technology ~~reduce~~as ~~operating~~well ~~expenses. This~~as ~~change~~other ~~had the following impacts to our~~electronics ~~results~~products ~~of operations, cash flows~~ and ~~financial position:~~systems.

~~• Decreased~~Current ~~revenues~~management ~~cost~~intends ofto rebuild ~~revenues,~~the ~~inventory,~~Company’s ~~accounts receivable~~business ~~and~~based ~~accounts~~on ~~payable. Because~~its ~~the~~newly ~~sales~~acquired ~~price~~subsidiary, ~~and~~GoVideo, ~~the~~and ~~related~~concentrate ~~cost~~its offuture ~~the~~business ~~MAC+software~~in ~~were substantially lower than~~ the ~~completed~~ ~~cable~~related ~~modems,~~industries ~~our revenues, cost~~ of ~~revenues, inventory, accounts~~consumer ~~receivable~~electronics and ~~accounts payable all decreased~~telecommunications.

~~• Unchanged gross profit dollars. Previous to the change in~~ Correlant~~’s business model, all the profit~~ ~~realized from selling the completed cable modem was attributable to the MAC+software. Therefore on a per unit basis~~Communications, ~~gross profit dollars remained unchanged.~~Inc

~~• Increased~~Correlant ~~gross~~Communications, ~~profit~~Inc ~~percentage~~(“Correlant”) is a major subsidiary of Opta. However, due to the purchase of a new ~~Because~~subsidiary ~~gross~~and ~~profit~~the ~~dollars~~strategic ~~remained~~change ~~unchanged~~in ~~while~~direction of Opta discussed in “Item 1. Business,” and throughout the ~~sales~~MD&A ~~price~~section, Correlant was much less ~~decreased~~significant to our results of operations during fiscal 2004 and fiscal 2003 as compared to fiscal 2002 and 2001. Correlant accounted for less than 1% and 52% of our consolidated revenues in fiscal 2004 and 2003, ~~gross~~respectively, ~~profit~~as ~~percentage~~compared ~~increased~~to essentially 100% of our consolidated revenues in fiscal 2002 and 2001.

~~• Decreased selling, general and administrative expense. As a result of the change in business model, Correlant closed its Taiwan branch.~~ 18

~~Demand~~On March 31, 1999, we entered into a share exchange agreement which provided for the acquisition of 94.5% of the issued and outstanding common shares of Correlant’s, ~~products~~representing an 81% ownership interest in Correlant in consideration for the issuance of 9,657,000 common shares of the Company valued at $7.21 per share plus contingently issuable shares of up to 1,435,000. The contingent shares were issuable as Correlant options specified in the agreement were exercised. For each option exercised, 81% of such shares were to be transferred to us in exchange for 0.5364 shares of Opta common stock for each share of Correlant stock transferred. At the acquisition date, the excess of the purchase price and related costs over the value assigned to the net tangible assets acquired was $74,545,000 and was assigned to goodwill. During fiscal 2004 and 2003, we recorded $36,000 and $21,000, respectively, as additional goodwill as a result of issuing 5,000 and 3,000 of the contingently issuable shares, respectively. The additional goodwill was subsequently expensed as an impairment of assets. During fiscal 2001 and 2000, we recorded an additional $18,000 and $554,000, respectively as additional goodwill as a result of issuing 79,000 of the contingently issuable shares. As of December 31, 2004 there were no contingently issuable shares outstanding.

During ~~the~~March 2000, ~~first~~we sold, ~~half~~to ofunrelated ~~calendar~~parties, ~~year 2000~~3,657,000 ~~cable~~shares ~~modem~~of ~~manufacturers~~Correlant ~~experienced~~stock, ~~shortages~~which ~~and~~reduced our ~~long~~ownership ~~lead~~to ~~times~~65%. During ~~for~~September 2000, ~~component~~we ~~materials~~sold ~~such~~to asunrelated ~~flash~~parties, ~~memory~~656,000 ~~and~~shares ~~capacitors. Due~~of toCorrelant ~~these shortages~~stock, ~~the~~which ~~production~~further reduced ofour ownership to 62%.

16Change in Correlant’s Business Model

~~cable~~Prior ~~modems~~to ~~was~~January 31, ~~constrained and our~~2002, ~~customers~~Correlant ~~placed~~sold ~~substantial~~Data-Over-Cable ~~orders~~System ~~for~~Interface ~~our~~Specification (“DOCSIS”) certified cable modems~~. We~~ ~~believe~~and ~~cable~~in ~~operators~~certain ~~also~~instances, ~~overbought in~~ the ~~second~~Media ~~half~~Access ofController ~~calendar~~(“MAC”) bundled ~~year~~with ~~2000~~cable tomodem ~~ensure~~software ~~they~~(“MAC+software”), ~~had~~which ~~sufficient~~were ~~product~~both key tocomponents ~~meet~~of ~~subscriber~~the ~~demand. As~~completed acable ~~result,~~modem. weCorrelant ~~believe~~developed ~~there~~and ~~was~~owns anthe ~~inflated~~proprietary ~~demand~~software ~~for~~used in the cable modem. Effective ~~modems~~January 31, ~~for~~2002 Correlant ~~the~~changed ~~first~~its ~~six months~~business ofmodel ~~fiscal~~whereby ~~2001,~~they ~~June~~only ~~2000~~sold ~~through~~the ~~December~~completed ~~2000~~cable modem in certain circumstances. ~~Starting~~Instead of infocusing ~~January~~on ~~2001~~selling the completed cable modem, ~~our~~Correlant ~~customer~~concentrated ~~orders~~efforts ~~began~~toward ~~dropping~~selling ~~sharply~~only ~~resulting~~the inMAC+software. The ~~lower~~new ~~demand~~business asmodel ~~end~~was ~~customers started~~a result of Correlant’s attempt to ~~work~~increase gross ~~through~~profit ~~their~~percentage, ~~inventory~~streamline ~~levels~~business operations and reduce operating expenses. This ~~lower~~change ~~demand~~had ~~continued~~the ~~until~~following impacts ~~the~~to ~~cessation~~our results of ~~Correlant’s historical~~ operations, ~~discussed~~cash ~~below.~~flows and financial position:

~~The~~• Decreased ~~extremely~~revenues ~~competitive~~cost ~~nature~~ of ~~the~~ ~~market~~revenues, ~~for~~inventory, ~~broadband~~accounts ~~access~~receivable ~~systems~~and ~~resulted~~accounts ~~in significant price erosion over time~~payable. ~~We experienced downward pressure~~ onBecause ~~our~~the ~~completed~~sales ~~cable modem average selling~~ price ~~per~~and ~~unit. This downward pressure on~~ the ~~completed cable~~related ~~modem~~cost ~~selling~~of ~~price places downward pressure on cable modem components, including~~ the MAC+software~~. Therefore,~~ were ~~Correlant~~substantially ~~experienced~~lower ~~continued~~than ~~price~~the ~~erosion~~completed ~~under~~cable ~~its~~modems, ~~new~~our ~~business~~revenues, ~~model. This~~cost ~~price erosion continued until Correlant~~of ~~discontinued~~revenues, ~~selling~~inventory, ~~cable~~accounts ~~modem~~receivable and ~~cable~~accounts ~~modem-related~~payable ~~products~~all ~~as discussed below~~decreased.

~~Cessation~~• Unchanged ofgross profit dollars. Previous to the change in Correlant’s ~~Historical~~business ~~Operations~~model, all the profit realized from selling the completed cable modem was attributable to the MAC+software. Therefore on a per unit basis, gross profit dollars remained unchanged.

~~Effective~~• Increased ~~July~~gross ~~31,~~profit ~~2003, Correlant’s President, Chief Executive Officer and co-founder resigned as a director of Correlant~~percentage. ~~From that date forward, he~~ noBecause ~~longer~~gross ~~served~~profit asdollars ~~President~~remained ~~and~~unchanged ~~CEO~~while ~~of Correlant. From August 1, 2003 until December 23, 2003, Correlant worked to find a permanent CEO and retained outside consultants to advise and assist during~~ the ~~transition~~sales ~~period. Such consultants were charged with~~price ~~evaluating Correlant’s business operations~~decreased, ~~its~~gross ~~products~~profit ~~and~~percentage ~~demand for its products, and future business prospects~~increased.

~~Upon~~• Decreased ~~recommendation of its consultants~~selling, ~~Correlant~~ ~~began~~general ~~a substantial reduction in its workforce~~ and ~~operations to~~ ~~reduce~~administrative ~~operating~~expense. As ~~expenses,~~a ~~reducing~~result ~~the number~~ of ~~Correlant~~the ~~employees~~change ~~from~~in ~~34 as~~business ~~of August 1~~model, Correlant ~~2003~~closed toits 18Taiwan ~~employees as of December 23, 2003~~branch.

OnDemand ~~December 23, 2003, upon recommendation of its consultants,~~for Correlant’s Board of Directors approved the wind down and cessation of Correlant’s historical operations in the cable modem and cable modem software business. The wind down was substantially complete by March 31, 2004. As of June 30, 2004, Correlant has one employee to maintain corporate records and to comply with statutory reporting requirements. products

~~Concurrently~~During the first half of calendar year 2000, ~~Correlant~~cable ~~has~~modem ~~been~~manufacturers experienced shortages and long ~~exploring~~lead ~~opportunities~~times for component materials such as flash memory and capacitors. Due to ~~acquire~~these orshortages, ~~invest~~the inproduction ~~other~~of cable ~~businesses~~modems orwas constrained and our customers placed substantial orders for ~~technologies~~our cable modems. We ~~expect~~believe ~~Correlant~~cable operators also overbought in the second half of calendar year 2000 to ensure ~~identify~~they ~~market~~had ~~opportunities~~sufficient ~~and~~product ~~implement~~to meet subscriber demand. As a ~~new~~result, ~~business~~we ~~plan~~believe ~~complementary~~there was an inflated ~~with~~demand ~~our~~for ~~business~~cable ~~and~~modems ~~long-term~~for ~~strategies~~the first six months of fiscal 2001, June 2000 through December 2000. Starting in January 2001, ~~See~~our ~~“Business~~customer ~~Outlook~~orders began dropping sharply resulting in lower demand as end customers started to work through their inventory levels.” This lower demand continued until the cessation of Correlant’s historical operations discussed below.

The ~~decline~~extremely incompetitive nature ~~demand~~of the market for ~~Correlant’s product~~broadband ~~and~~access ~~the~~systems ~~change~~resulted in ~~Correlant’s~~significant ~~business~~price erosion ~~model~~over ~~had~~time. We aexperienced downward ~~material~~pressure ~~impact~~on to our ~~results~~completed ofcable ~~operations,~~modem ~~financial~~average ~~position~~selling ~~and~~price ~~cash~~per ~~flows~~unit. This asdownward ofpressure oron ~~for~~ the completed cable ~~years~~modem ~~ended~~selling ~~June~~price ~~30,~~places ~~2003,~~downward ~~2002~~pressure on cable modem components, including ~~and~~the ~~2001~~MAC+software. Therefore, ~~Due~~Correlant toexperienced ~~the~~continued ~~cessation~~price oferosion ~~Correlant’s~~under ~~historical~~its ~~operations,~~new ~~future~~business ~~financial~~model. This ~~statements~~price ~~will~~erosion ~~not~~continued until beCorrelant ~~comparable~~discontinued toselling ~~our~~cable ~~historical financial statements.~~modem

~~Lotus World, Inc.~~19

~~On April 22, 1999, we organized Lotus World to offer Auction Live, an online auction service, to international clients. The wholly-owned subsidiary was incorporated in Delaware in April 1999,~~ and ~~was~~cable ~~a private~~modem-label Asian language e-commerce service provider, targeting business-to-business and business-to-customer markets, portals and Internet Service Provider (“ISP”) companies. Due to the negative response in general to e-commerce, the operations of Lotus World were suspended in 2001. On March 12, 2002, we entered into an Asset Purchase and Assignment and Assumption Agreement with Avtech Technology, whereby we assigned our rights to certain contracts and related ~~intangibles to~~ ~~Avtech~~products inas ~~exchange~~discussed ~~for Avtech’s assumption of all of Lotus World’s obligations under the contracts assigned~~below. ~~Subsequent to the completion of the transaction, we dissolved Lotus World.~~

~~GoVideo~~Cessation of Correlant’s Historical Operations

InEffective ~~April~~July 31, 2003, ~~we loaned $5,986,000 to~~ ~~Opta~~Correlant’s ~~Systems~~President, ~~which~~Chief ~~was~~Executive ~~used,~~Officer inand ~~addition~~co-founder toresigned as a director ~~deposit~~ of ~~$250,000~~Correlant. From ~~paid~~that ~~by Opta~~date ~~Systems~~forward, tohe ~~complete~~no ~~its~~longer ~~purchase~~served ofas ~~substantially~~President ~~all assets~~ and ~~assumption~~CEO of ~~certain~~ ~~liabilities~~Correlant. ofFrom aAugust 1, 2003 ~~product~~until ~~line~~December 23, ~~known~~2003, asCorrelant ~~“GoVideo”~~worked ~~from~~to ~~SONICblue Incorporated,~~find a ~~Delaware~~permanent ~~corporation~~CEO ~~(NASDAQ: SBLU),~~ and ~~Sensory Science~~ ~~Corporation,~~retained aoutside ~~Delaware~~consultants ~~corporation~~to advise and ~~wholly-owned~~assist ~~subsidiary~~during ofthe ~~SONICblue,~~transition ~~pursuant~~period. Such toconsultants awere ~~purchase~~charged with ~~agreement~~evaluating ~~and~~Correlant’s anbusiness ~~order~~operations, ~~issued~~its byproducts ~~the~~and ~~United~~demand ~~States~~for ~~Bankruptcy~~its ~~Court~~products, ~~Northern~~and ~~District~~future ofbusiness ~~California, San Jose Division overseeing SONICblue’s bankruptcy case~~prospects.

17Upon recommendation of its consultants, Correlant began a substantial reduction in its workforce and operations to reduce operating expenses, reducing the number of Correlant employees from 34 as of August 1, 2003 to 18 employees as of December 23, 2003.

~~Immediately~~On ~~subsequent~~December 23, ~~to Opta System’s purchase of the GoVideo product line~~2003, weupon ~~purchased~~recommendation ~~100%~~ of ~~the~~its ~~outstanding~~consultants, ~~membership~~Correlant’s ~~interests~~Board of ~~Opta~~Directors ~~Systems~~approved ~~from~~the ~~Carmco~~wind ~~Investments,~~down ~~LLC,~~and ~~a Connecticut~~cessation ~~limited liability company, for $420,000, representing the return~~ of ~~the~~Correlant’s ~~$250,000~~historical ~~deposit~~operations ~~used~~ in the ~~acquisition~~cable ofmodem ~~the~~and ~~GoVideo~~cable ~~product~~modem ~~line~~software business. The ~~and~~wind down was ~~related~~substantially ~~transaction~~complete ~~fees~~by ~~and~~March 31, ~~expenses~~2004. As ~~Subsequent~~of toJune 30, ~~the closing~~2004, weCorrelant ~~paid~~had anone employee to maintain ~~additional~~corporate ~~$294,000~~records inand ~~connection~~to comply with ~~these~~statutory ~~items~~reporting requirements. InCorrelant ~~connection~~had ~~with~~two ~~this~~part-time ~~agreement~~employees, ~~the $5,986,000 originally~~who ~~loaned~~are toalso Opta ~~Systems~~employees, ~~was~~to ~~converted~~explore opportunities to aacquire ~~capital~~or ~~contribution,~~invest ~~resulting~~ in ~~a total~~other ~~purchase~~businesses ~~price, including actual out-of-pocket expenses of approximately~~or ~~$6,770,000~~technologies. InWe ~~October~~expect ~~2003,~~Correlant ~~the~~to ~~purchase~~identify ~~price~~market ~~was~~opportunities ~~reduced~~and byimplement ~~$962,000 based on~~ a ~~purchase~~new ~~price~~business ~~adjustment,~~plan complementary ~~resulting~~with inour anbusiness ~~adjusted~~and ~~purchase~~long-term ~~price~~strategies. See of“Business ~~$5,808,000 for GoVideo~~Outlook.”

The ~~GoVideo~~cessation ~~product~~of ~~line~~Correlant’s historical operations, ~~established~~decline in ~~1984,~~ ~~designs~~demand ~~and~~for ~~manufactures~~Correlant’s product ~~lines~~and the change in ~~the~~Correlant’s ~~consumer~~business ~~electronics~~model had a material impact to our results of ~~industry~~operations, ~~including~~financial ~~digital~~position ~~video~~and ~~disc~~cash ~~(“DVD”)~~flows ~~players,~~as ~~portable~~of ~~DVDs, DVD-Video~~or ~~Cassette~~for ~~Recorder~~the ~~(“VCR”)~~years ~~Combos~~ended June 30, 2004, ~~Dual-Deck VCRs~~2003, ~~DVD~~2002 ~~Recorders,~~and ~~DVD Recorder~~2001. As +a ~~VCRs~~result, year ~~and~~over ~~liquid~~year ~~crystal~~comparisons ~~display~~may ~~(“LCD”)~~not ~~TVs.~~be ~~GoVideo~~meaningful ~~holds~~and ~~various~~future financial ~~patents~~statements ~~covering~~will ~~Dual-Deck~~not ~~technology~~be ascomparable ~~well~~to asour ~~other~~historical ~~electronics~~financial ~~products and systems~~statements.

~~Current~~TCL ~~management~~Digital ~~intends to rebuild the Company’s business based on its newly acquired subsidiary~~Technologies, ~~GoVideo, and concentrate its future business in the related industries of consumer electronics and telecommunications~~Ltd.

In January 2003, the Company entered into an agreement to form a joint venture with Beijing Youbang Online Electronics Technology Co., Ltd. (“Youbang”), TCL Computer Technology Co., Ltd. (“TCL Computer”), an affiliate of TCL Industries and all the equity holders of Youbang, pursuant to which the Company acquired a 50% interest in a new joint venture to own substantially all of Youbang’s operations. Pursuant to the agreement, all of Youbang’s assets, other than real estate, were transferred to a newly formed Beijing, China joint venture named TCL Digital Technologies, Ltd. (“TCL Digital”), and operates as a computer notebook manufacturing company in China. The Company contributed 50% of the total investment amount or approximately $5,240,000, payable in three installments. At the time, the investment was part of the Company’s business strategy to seek businesses to maximize the Company’s growth potential based on its assets. However, shortly after completing its investment, the Company deemed the joint venture’s business model did not fit with the Company’s long-term business strategy, and diverted management resources from the operations of other subsidiaries, notably GoVideo, as discussed above. In September 2003, the Company entered into an agreement with TCL Information Technology Industrial (Group) Ltd, an affiliate of TCL Industries whereby the Company sold its 50% interest in TCL Digital for an aggregate amount of $5,604,000. $1,842,000 was applied to repay the sum payable under the promissory note dated August 18, 2003 issued by the Company in favor of TCL International Holdings Limited (“TCL Holdings”), TCL Industries’ parent company. The balance of $3,762,000 was paid to the Company resulting in a gain of $1,053,000 included with Gain on sale of investments in the Company’s statement of operations during fiscal 2004.

Lotus World, Inc.

On April 22, 1999, we organized Lotus World Inc. (“Lotus World”) to offer Auction Live, an online auction service, to international clients. The wholly-owned subsidiary was incorporated in Delaware in April 1999, and was a private-label Asian language e-commerce service provider, targeting business-to-business and business-to-customer markets, portals and ISP companies. Due to the negative response in general to e-commerce, the operations of Lotus World were suspended in 2001. On March 12, 2002, we entered into an Asset Purchase and Assignment and Assumption Agreement with Avtech Technology, whereby we assigned our rights to certain contracts and related intangibles to Avtech in exchange for Avtech’s assumption of all of Lotus World’s obligations under the contracts assigned. Subsequent to the completion of the transaction, we dissolved Lotus World.

Regent Electronics Corporation

In April and May 1997, we acquired 70% of the common stock of Regent Electronics Corporation (“Regent”). Regent designed, developed, manufactured and marketed Internet-related products that offered Internet access through telephone lines and cable television lines. In June 1997, Regent acquired Amiga-based, multimedia technology related assets and rights from Rightiming. On June 26, 2001, we spun-off Regent to Regent’s management.

Results of Operations

Comparison of Fiscal 2004 to Fiscal 2003

The following table summarizes certain aspects of our results of operations for fiscal 2004 compared to fiscal 2003 (in thousands):

	June 30,
	2004			2003			$ Change			% Change

Revenues	$	125,324		$	19,454		$	105,870		544	%

Gross profit	10,125			4,022			6,103			152	%
As a percentage of revenues	8		%	21		%

General and administrative	8,199			7,838			361			5	%
Sales and marketing	4,604			652			3,952			606	%
Restructuring charges	1,845			—			1,845			NA
Depreciation and amortization	215			486			(271		)	(56	)%
Research and development	2,637			7,513			(4,876		)	(65	)%
Impairment of assets	1,831			498			1,333			268	%

Total other income (expense), net	(78		)	4,117			(4,195		)	(102	)%

Revenues

The significant increase in overall revenues for fiscal 2004 as compared to fiscal 2003 was primarily attributable to the following factors:

• Fiscal 2004 included GoVideo’s revenue for the entire year as compared to fiscal 2003, which only included GoVideo’s revenues from April 18, 2003 through June 30, 2003.

• GoVideo’s revenues increased in fiscal 2004 as compared to 2003 as a result of GoVideo coming out of bankruptcy, with liquidated assets and liabilities, and moving toward a company with growing operations.

• GoVideo introduced a new product, the DVD Recorder + VCR, during the second quarter of fiscal 2004. Revenues attributable to the new DVD Recorder + VCR totaled $23,164,000 during fiscal 2004.

The positive impact of GoVideo was somewhat offset by the cessation of Correlant’s historical operations in the cable modem industry in December 2003. Correlant contributed revenues of $622,000 during fiscal 2004 as compared to $10,178,000 during fiscal 2003.

Revenues generated by international sales as a percentage of total revenues decreased to less than 1% in fiscal 2004 from 51% in fiscal 2003 as a result of the purchase of GoVideo. GoVideo’s revenues during fiscal 2004 as well as from April 18, 2003, the date of purchase through June 30, 2003 were all generated from sales to domestic customers.

Gross Profit

The increase in gross profit dollars for fiscal 2004 compared to fiscal 2003 was a direct result of increased

revenues attributed to GoVideo as discussed above.

Although the gross profit dollars increased, the overall gross profit percentage dramatically decreased as a result of the following:

• The products offerings by GoVideo during fiscal 2003 were extremely limited compared to fiscal 2004 as GoVideo was coming out of bankruptcy during fiscal 2003.

• GoVideo introduced several new products during fiscal 2004. With the introduction of these new products, GoVideo’s pricing was aggressive as an attempt to gain market share.

• The change in revenue mix between GoVideo and Correlant products sold. Historically, consumer electronics bear a lower gross margin than cable modem related products.

• $272,000 increase in the reserve for GoVideo’s obsolete and lower of cost or market reserve for inventory to $510,000 in fiscal 2004 from $238,000 in fiscal 2003. The fiscal 2004 reserve was directly attributable to some of the newer products GoVideo brought to market in 2004.

Operating Expenses

General and administrative (“G&A”). G&A expense consists primarily of personnel costs for our administrative and support staff, allowance for doubtful accounts, and legal and accounting fees. The increase in G&A expense for fiscal 2004 as compared to fiscal 2003 was primarily a result of including GoVideo for the entire year in fiscal 2004 as compared to fiscal 2003, which only included GoVideo from April 18, 2003 through June 30, 2003.

The increase in G&A was somewhat offset by the following:

• $1,498,000 decrease in allowance for doubtful accounts to $481,000 in fiscal 2004 from $1,979,000 in fiscal 2003. The fiscal 2004 allowance related to GoVideo’s slow paying customers. For 2003 details, see “Comparison of Fiscal 2003 to Fiscal 2002.”

• The shut down of Correlant’s historical operations.

Sales and marketing (“S&M”). S&M expense consists primarily of personnel costs for our sales staff, advertising and product promotional expenses. The increase in S&M expense for fiscal 2004 as compared to fiscal 2003 was primarily due to the following factors:

• Fiscal 2004 included GoVideo for the entire year as compared to fiscal 2003, which only included GoVideo from April 18, 2003 through June 30, 2003;

• GoVideo’s business model has a higher operational cost structure to promote and support the various product offerings than Correlant’s OEM business model; and

• The introduction and marketing of several new GoVideo products during fiscal 2004 as discussed above.

Restructuring Charges. During the second quarter of fiscal 2004, the Company’s board of directors approved the wind down and cessation of Correlant’s historical operations in the cable modem and CMTS business. In connection with the shut down, the Company recorded a restructuring charge of $1,845,000 during fiscal 2004. The following table summarizes the activity in the Company’s reserves associated with its shut down of historical operations (in thousands):

	Separation costs for terminated employees and contractors			Facilities closing			Other			Total restructuring charges
Balance at June 30, 2003	$	—		$	—		$	—		$	—
Fiscal 2004 restructuring charges	890			583			372			1,845
Cash payments	(628		)	(49		)	(372		)	(1,049		)
Balance at June 30, 2004	$	262		$	534		$	—		$	796

Depreciation and amortization (“D&A”). D&A expense consists of depreciation of property and

goodwill amortization related to the purchase of Correlant. The decrease in D&A expense was due to the shut down of Correlant’s historical operations. Depreciation expense attributable to Correlant decreased $418,000 during fiscal 2004 as compared to fiscal 2003 as a result of Correlant’s assets being impaired and written off as of June 30, 2003. The decrease in D&A was somewhat offset by the inclusion of GoVideo for the entire year as compared to fiscal 2003, which only included GoVideo from April 18, 2003 through June 30, 2003.

Research and development (“R&D”). R&D expense consists primarily of personnel costs, including amortization of deferred stock compensation of employees engaged in research, design and development activities and, to a lesser extent, design prototype material expenditures and expensed equipment and supplies required to develop new products and enhance existing products. The majority of R&D expenses during fiscal 2004 and 2003 were attributable to Correlant. Therefore, the decrease in R&D expense for fiscal 2004 as compared to fiscal 2003 was directly related to the shut down of Correlant’s historical operations. The decrease was somewhat offset by the inclusion of GoVideo for the entire year in fiscal 2004 as compared to fiscal 2003, which only included GoVideo from April 18, 2003 through June 30, 2003.

Impairment of assets. The impairment of assets during fiscal 2004 was mainly attributable to the $1,795,000 write off of GoVideo’s goodwill. As part of our annual review of financial results, we noted indicators that the carrying value of GoVideo’s goodwill may not be recoverable. Based on the annual testing performed, we wrote off the entire balance of GoVideo’s goodwill. For 2003 details, see “Comparison of Fiscal 2003 to Fiscal 2002.”

Total other income (expense)

Total other income (expense) consists of interest income, interest expense, gain on sale of investments and other non-operating items. The main activities included in other income (expense) during fiscal 2004 were:

• $1,053,000 one time gain as a result of selling our joint venture TCL Digital; and

• $1,166,000 interest expense related to GoVideo’s increased debt.

For 2003 details, see “Comparison of Fiscal 2003 to Fiscal 2002.”

Comparison of Fiscal 2003 to Fiscal 2002

The following table summarizes certain aspects of our results of operations for fiscal 2003 compared to fiscal 2002 (in thousands):

	June 30,
	2003			2002			$ Change			% Change
Revenues	$	19,~~503~~454		$	55,880		$	(36,~~377~~426	)	(65	)%
Gross profit	4,~~071~~022			5,939			(1,~~868~~917		)	(3132	)%
As a percentage of revenues	21		%	11		%
Selling, general and administrative	98,~~097~~490			6,019			32,~~078~~471			5141	%
Depreciation and amortization	486			12,048			(11,562		)	(96	)%
Research and development	67,~~906~~513			9,392			(21,~~486~~879		)	(2620	)%
Impairment of assets	498			20,071			(19,573		)	(98	)%
Total other income (expense), net	4,~~068~~117			638			3,~~430~~479			~~538~~545	%
Provision (benefit) for income taxes	(109		)	(3,181		)	(3,072		)	(97	)%

Revenues

Revenues for fiscal 2003 as compared to fiscal 2002 were positively impacted by the purchase of our subsidiary, GoVideo, on April 18, 2003. Although fiscal 2003 only included GoVideo’s revenues from April 18, 2003 through June 30, 2003, GoVideo accounted for 48% of our consolidated revenues. The majority of GoVideo’s revenues during fiscal 2003 were generated from sales of DVD Recorders, DVD players, portable DVDs, DVD-VCR Combos and to a lesser extent, sales from the Dual-Deck VCRs, DVD Recorder + VCRs, and LCD TVs. We expect GoVideo revenue as a relative percentage of revenue to grow as current management continues to rebuild the Company’s business based on GoVideo and concentrate future business in the related industries of consumer electronics and telecommunications.

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revenues during fiscal 2003 were generated from sales of DVD Recorders, DVD players, portable DVDs, DVD-VCR Combos and to a lesser extent, sales from the Dual-Deck VCRs and LCD TVs. We expect GoVideo revenue as a relative percentage of revenue to grow as current management continues to rebuild the Company’s business based on GoVideo and concentrate future business in the related industries of consumer electronics and telecommunications.

The positive impact of GoVideo was more than offset by the significant economic slowdown in the cable modem industry, both domestic and international. Correlant continued to experience a slowdown in customer orders during fiscal 2003. Additionally, the average sales price of cable modems continued to decline, which in turn placed price pressure on the cable modem components. Ultimately, this significant slowdown and continued pricing pressure resulted in the cessation of Correlant’s historical operations in the cable modem industry in December 2003. The significant decrease in overall revenues for fiscal 2003 as compared to fiscal 2002 was primarily attributable to the following factors:

• Unit sales of DOCSIS cable modems sold by Correlant decreased approximately 99%;

• The average selling price of DOCSIS cable modems decreased approximately 37%;

• Unit sales of MAC+Software sold by Correlant decreased approximately 34%; and

• Average sales price of MAC+Software decreased approximately 54%.

Revenues generated by international sales as a percentage of total revenues decreased to 51% in fiscal 2003 from 91% in fiscal 2002 as a result of the purchase of GoVideo. GoVideo’s revenues from the date of purchase through June 30, 2003 were all generated from sales to domestic customers. We expect international sales as a relative percentage of total revenues to decrease as GoVideo’s revenues as a percentage of total revenues continue to increase.

Gross Profit

The decrease in gross profit dollars for fiscal 2003 compared to fiscal 2002 was a direct result of reduced revenue from declining MAC+Software unit sales and severe price competition. This decrease was somewhat offset by the increase in gross profit dollars attributed to GoVideo.

Although the gross profit dollars decreased, the overall gross profit percentage dramatically increased as a result of the purchase of GoVideo and a higher portion of overall revenues generated from the sale of Correlant’s MAC+software. GoVideo’s products and the MAC+Software both had higher gross profit percentages in fiscal 2003 than cable modems during fiscal 2002.

Operating Expenses

Selling, general and administrative (“SG&A”). SG&A expense consists primarily of personnel costs, including amortization of deferred stock compensation for our administrative and support personnel, allowance for doubtful accounts, and legal and accounting fees. The increase in SG&A expense for fiscal 2003 as compared to fiscal 2002 was primarily due to the following factors:

• $1,935,000 increase in allowance for doubtful accounts to $1,979,000 in fiscal 2003 from $44,000 in fiscal ~~2001~~2002. $1,949,000 of the fiscal 2003 allowance related to Correlant’s main customer TurboComm. On April 14, 2004, Correlant filed a lawsuit against TurboComm in the District Court of Taiwan seeking to collect TurboComm’s outstanding debt as a result of TurboComm’s ~~unwillingness~~ unwillingness to pay. On July 30, 2004, Correlant reached a settlement agreement with TurboComm. Under the agreement, Correlant ~~agreed~~dismissed ~~to withdraw~~ its lawsuit against TurboComm in exchange for the transfer of 700,000 Series A and 300,000 Series C shares of Correlant preferred stock owned by TurboComm. Both parties mutually agreed to release and discharge any and all claims that each may have against the other party. The remaining $30,000 allowance for doubtful accounts in fiscal 2003 related to GoVideo’s slow paying customers. Fiscal 2002 ~~allowance~~ allowance related to Correlant’s smaller customers not being able to pay due to the significant economic slowdown in the downturn in the cable modem industry.

• Purchase of GoVideo, which added $1,144,000 to SG&A;

• $400,000 increased legal and accounting fees resulting from the previously discussed takeover of ~~Lotus Pacific~~ Opta by TCL and the subsequent replacement of prior ~~Lotus~~Opta ~~Pacific~~ management, and the subsequent reaudit and restatement of previously reported financial results; and

• $500,000 settlement of a legal dispute with a Correlant vendor.

The above increases were partially offset by a decrease of $253,000 in amortization of deferred stock compensation as a result of accounting for stock options under the accelerated provisions allowed by Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 44, Accounting for Certain Transactions Involving Stock Compensation – An Interpretation of APB Opinion No. 25.

19Depreciation and amortization (“D&A”). D&A expense consists of depreciation of property and equipment and goodwill amortization related to the purchase of Correlant. The decrease in D&A expense was due to no goodwill amortization during fiscal 2003 as compared to goodwill amortization of $11,453,000 during fiscal 2002. Goodwill was deemed impaired at June 30, 2002 and fully written off. The remaining decrease was a result of the non-renewal of research and development software maintenance due to the shutdown of Correlant’s historical operations.

Depreciation and amortization (“D&A”). D&A expense consists of depreciation of property and equipment and goodwill amortization related to the purchase of Correlant. The decrease in D&A expense was due to no goodwill amortization during fiscal 2003 as compared to goodwill amortization of $11,454,000 during fiscal 2002. Goodwill was deemed impaired at June 30, 2002 and fully written off. The remaining decrease was a result of the non-renewal of research and development software maintenance due to the shutdown of Correlant’s historical operations.

• $811,000 decrease in amortization of deferred stock compensation;

• $533,000 decrease in DOCSIS certification fees associated with Correlant’s decreased product offerings; and

• Decreased salary expense associated with natural attrition without replacing vacant positions.

The above decrease was somewhat offset by the purchase of GoVideo, which added $607,000 to R&D expense.

Impairment of assets. The majority of the impairment of assets during fiscal 2003 related to the cessation of Correlant’s historical operations. As such, $477,000 of Correlant’s fixed assets were deemed impaired and written off. Impairment of assets during fiscal 2002 related to the goodwill associated with the purchase of Correlant. As of June 30, 2002, we deemed the goodwill impaired due to the competitive nature of Correlant’s industry and its significant reduction in revenues. As a result, the $20,071,000 of remaining goodwill was fully written off.

Total other income (expense)

Total other income (expense) consists of interest income, interest expense foreign exchange gain (loss) and other non-operating items. We experienced net other income during fiscal 2003 due to a $3,500,000 dispute settlement with prior auditors. Additionally, we received 3,000,896 shares of our common stock as part of the settlement with USS Online, Travelway International Ltd. and Huaya Lu Tung. See “Item 3. Legal Proceedings.” The shares are accounted for as treasury stock and valued at the adjusted closing sales price of $0.05 per share as reported by the National Quotation Bureau’s “Pink Sheets” on the date the shares were acquired which totaled $150,000. The remaining other income during fiscal 2003 was a result of interest income earned on our cash account and investments, slightly offset by our interest expense. We experienced net other income during fiscal 2002 primarily due to interest income earned on our cash and investments, which was offset slightly by our foreign exchange loss from our Taiwan branch and interest expense.

Provision (benefit) for income taxes

We record an asset or liability for tax assessments based on our estimate of the potential assessments. Among other reasons, new laws and new interpretations of laws and rulings may affect the liability for potential tax assessments by tax authorities. Due to the subjectivity and complex nature of the underlying issues, actual payments or refunds or assessments may differ from our estimates. To the extent our estimates differ from actual payments or refunds or assessments, income tax expense is adjusted. In June 2003, we were notified by the Internal Revenue Service (“IRS”) that it would be reviewing our tax returns for the years ended June 30, 2001, 2000 and 1999. Subsequently, we filed amended returns for the years ended June 30, 2001, 2000 and 1999. The amendments relate to the restatement of our financial statements as well as the deconsolidation of consolidated tax returns and subsequent filing of separate returns by us and each of our subsidiaries. Because we filed tax returns separate from our subsidiaries, we could no longer offset income from its sale of stock in subsidiaries against operating losses within its subsidiaries. However, because we experienced losses in subsequent years these losses were available to carryback against these gains.

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Comparison of Fiscal 2002 to Fiscal 2001

The following table summarizes certain aspects of our results of operations for fiscal 2002 compared to fiscal 2001 (in thousands):

	June 30,
	2002			2001			$ Change			% Change
Revenues	$	55,880		$	263,192		$	(207,312	)	(79	)%
Gross profit	5,939			32,591			(26,652		)	(82	)%
As a percentage of revenues	11		%	12		%
Selling, general and administrative	6,019			14,072			(8,053		)	(57%	)%
Depreciation and amortization	12,048			12,020			28			—	%
Research and development	9,392			16,214			(6,822		)	(42	)%
Impairment of assets	20,071			—			20,071			N/A
Total other income (expense), net	638			(2,937		)	3,575			122	%
Provision (benefit) for income taxes	(3,181		)	(6,434		)	(3,253		)	(51	)%

Revenues

The significant decrease in overall revenues for fiscal 2002 as compared to fiscal 2001 was primarily attributable to the following factors:

• Unit sales of DOCSIS cable modems sold by Correlant decreased approximately 80%;

• An industry-wide downturn in broadband equipment purchase as cable operators, and in turn our customers, worked through their excess inventory;

• Average sales price of our DOCSIS cable modems sold by Correlant declined approximately 9% due to heavy price competition; and

• The aforementioned change in Correlant’s business model.

Revenues generated by international sales as a percentage of total revenues increased to 91% from 70% during fiscal 2002 as compared to fiscal 2001. The large increase was primarily attributable to the loss of Correlant’s significant US customers, as a result of customers developing their own DOCSIS cable modems, and to a lesser extent the aforementioned change in Correlant’s business model.

Due to the significant economic slowdown in the cable modem industry, both domestic and international, we experienced a slowdown in customer orders during fiscal 2002. Subsequent to fiscal 2002, revenues continued to be negatively impacted. Additionally, the average sales price of cable modems continued to decline, which in turn placed price pressure on the cable modem components. Ultimately, this significant slowdown and continued pricing pressure resulted in the cessation of Correlant’s historical operations in the cable modem industry December, 2003.

Gross Profit

The decrease in gross profit dollars for fiscal 2002 compared to fiscal 2001 was a direct result of reduced revenue from declining cable modem unit sales and severe price competition. Cable modem selling prices decreased faster than the associated product cost reductions, which resulted in selling cable modems at negative gross profit in order to keep market share.

Although the gross profit dollars decreased, and the gross profit percentage realized from cable modem sales decreased, the overall gross profit percentage remained fairly constant for fiscal 2002 compared to fiscal 2001. This was due to a higher proportion of overall revenues generated from the sale of Correlant’s MAC+software, which experienced a higher gross profit percentage than cable modems.

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Operating Expenses

Selling, general and administrative (“SG&A”). The decrease in SG&A expense for fiscal 2002 as compared to fiscal 2001 was due to the following factors:

• $4,433,000 decrease in allowance for doubtful accounts to $44,000 in fiscal 2002 from $4,477,000 in fiscal 2001. For 2002 details, see “Comparison of Fiscal 2003 to Fiscal 2002.” Fiscal 2001 allowance related to the forgiveness of $4,098,000 due from our subsidiary, Regent, in connection with the spin off of Regent. The remaining allowance for doubtful accounts in fiscal 2001 was due to a $300,000 cash advance to our former subsidiary PMB, who subsequently defaulted, and $79,000 accrued interest on our loans to USS Online and PMB.

• Decrease of $1,696,000 in amortization of deferred stock compensation;

• Decrease of $1,000,000 legal and accounting fees associated with a contemplated initial public offering (“IPO”) Correlant in 2001, which in 2002 was put on hold indefinitely;

• Closure of Correlant’s Taiwan branch office; and

• Decreased salary expense associated with a reduction in force.

The above decreases were slightly offset by an increase in legal and accounting fees resulting from the previously discussed takeover ofOpta ~~Lotus Pacific~~ by TCL and the subsequent replacement of prior ~~Lotus~~Opta ~~Pacific~~ management.

Depreciation and amortization (“D&A”). Goodwill amortization stayed fairly constant from fiscal 2002 compared to fiscal 2001 as there were no significant business acquisitions or dispositions resulting in a change to goodwill amortization. Depreciation expense increased slightly as capital expenditures increased to support our expanding technology infrastructure during fiscal 2002.

Research and development (“R&D”). The decrease in R&D expense for fiscal 2002 as compared to fiscal 2001 was primarily attributable to the following factors:

• Decrease of $5,838,000 in amortization of deferred stock compensation; and

• Decreased salary expense associated with natural attrition without replacing vacant positions.

The above decreases were partially offset by increased fees related to the DOCSIS cable modem certification process.

Impairment of assets. Impairment of assets during fiscal 2002 related to the goodwill associated with the purchase of Correlant. As of June 30, 2002, we deemed the goodwill impaired due to the competitive nature of Correlant’s industry and its significant reduction in revenues. As a result, the $20,071,000 of remaining goodwill was fully written off.

Total other income (expense)

We experienced net other income during fiscal 2002 primarily due to interest income earned on our cash and investments, which was offset slightly by our foreign exchange loss from our Taiwan branch and interest expense. We experienced net other expense during fiscal 2001 primarily due to the following transactions undertaken by prior management:

• In January 2001, prior management ~~agreed~~ agreed to refund, in exchange for stock, $7,100,000 to several investors who ~~had~~ had purchased a total of 355,000 shares of Correlant common stock during fiscal 2000. Prior management gave $7,100,000 to Hywin Investments Limited (“Hywin”), a shareholder of the Company, who ~~was~~ was to return the funds to the individual investors and return the stock to ~~Lotus Pacific~~Opta. However, the shares were never returned to the Company. In connection with the refund, Hywin refunded to us $1,065,000 of commissions relating to the shares to be returned. The Company investigated the transaction and was unable to recover the funds. As a result, the net amount of $6,035,000 was expensed.

22• In December 2000, prior management agreed to refund, in exchange for stock, $1,500,000 received in connection with Opta’s previous sale of shares of Arescom stock. Opta gave the refund amount to William Hu, the Company’s attorney at that time, to process the refund. However, the refund was never returned to the investors and the shares were never returned to us. We investigated the transaction and have been unable to recover the funds. See “Item 3. Legal Proceedings.” As a

• In December 2000, prior management agreed to refund, in exchange for stock, $1,500,000 received in connection with Lotus Pacific’s previous sale of shares of Arescom stock. Lotus Pacific gave the refund amount to William Hu, the Company’s attorney at that time, to process the refund. However, the refund was never returned to the investors and the shares were never returned to us. We investigated the transaction and have been unable to recover the funds. See “Item 3. Legal Proceedings.” As a result, the $1,500,000 was expensed. 28

result, the $1,500,000 was expensed.

• In October 2000, prior management sold shares of Correlant common stock owned by the Company to various unrelated parties. Although the Correlant shares were transferred to the parties, the Company did not receive any of the proceeds. We investigated the transaction and have been unable to recover the funds, and as a result we expensed $2,266,000.

The above fiscal 2001 expenses were offset by the $3,886,000 gain on the spin off of Regent and interest income earned on our cash and investments.

Comparison of Fiscal 2001 to Fiscal 2000

The following table summarizes certain aspects of our results of operations for fiscal 2001 compared to fiscal 2000 (in thousands):

	Year ended June 30,
	2001			2000			$ Change			% Change
Revenues	$	263,192		$	71,839		$	191,353		266	%
Gross profit	32,591			14,607			17,984			123	%
As a percentage of revenues	12		%	20		%
Selling, general and administrative	14,072			16,618			(2,546		)	(15	)%
Depreciation and amortization	12,020			14,629			(2,609		)	(18	)%
Research and development	16,214			7,126			9,088			128	%
Impairment of assets	—			3,486			(3,486		)	(100	)%
Total other income (expense), net	(2,937		)	46,424			(49,361		)	(106	)%
Provision (benefit) for income taxes	(6,434		)	21,099			(27,533		)	(130	)%

Revenues

The significant increase in overall revenues for fiscal 2001 as compared to fiscal 2000 was primarily attributable to the 333% increase in unit sales of DOCSIS cable modems. The increase in cable modem unit sales was somewhat offset by the decrease in the average selling price of our cable modems as discussed below. Revenues generated by international sales as a percentage of total revenues remained fairly constant with 70% and 72% of revenue generated from international sales for fiscal 2001 and 2000, respectively.

Gross Profit

The increase in gross profit dollars was a result of the increased revenues as discussed above. The decrease in gross profit percentage was due to the following:

• An approximate 41% decrease in the average sales price of our DOCSIS cable modems sold by Correlant as a result of heavy price competition. Selling prices decreased faster than the associated product cost reductions, which reduced approximately 24%;

• Loss on purchase commitments of cable modem components as Correlant adjusted inventories to reflect the decrease in forecasted product demand; and

• Write down of component inventories to market value.

Operating Expenses

SG&A. The decrease in SG&A was due to a decrease in cash transfer and exchanges between entities under common control to $3,000 in fiscal 2001 from $9,260,000 in fiscal 2000. Our subsidiaries, Regent and Lotus World, engaged in extensive transactions with companies owned and managed by prior management. These transactions included advances, lease expense for the use of facilities, payroll expense for the use of employees, consulting expense, and other office expense. This decrease was offset by the following:

• $3,122,000 increase in allowance for doubtful accounts to $4,477,000 in fiscal 2001 from $1,355,000 in fiscal 2000. For 2001 details, see “Comparison of Fiscal 2002 to Fiscal 2001.” Fiscal 2000 allowance related to a promissory note with our former subsidiary USS Online of $1,300,000 principal and $55,000 accrued interest.

• $1,663,000 increased amortization of deferred stock compensation;

• $1,000,000 increase legal and accounting fees associated with Correlant’s contemplated IPO; and

• Increased salary expense associated with an increased staff to support Correlant’s contemplated IPO.

D&A. We sold 656,000 shares of our Correlant stock, which reduced our ownership percentage from 65% to 62%. As a result of the ownership decrease, the associated amortization of goodwill decreased. Depreciation expense increased slightly as capital expenditures increased to support our growing staff and to support Correlant’s contemplated IPO.

R&D. The increase in R&D expense for fiscal 2001 as compared to fiscal 2000 was primarily attributable to the following factors:

• $5,500,000 increase in amortization of deferred stock compensation; and

• Increased salary expense associated with a 52% increase in headcount to support the growing demand for current and anticipated future products.

Impairment of assets. We evaluated our long-lived assets as of June 30, 2001 and concluded the carrying value of all our assets exceeded the expected future cash flows from the use of our assets. Therefore, there was no impairment of assets during fiscal 2001. During fiscal 2000, we incurred an impairment of assets related to the following:

• Our $3,106,000 investment in USS Online. As of June 30, 2000, we determined the investment was impaired and wrote it off; and

• Write off of obsolete property and equipment with a net book value of $380,000.

Total other income (expense)

We experienced net other expense during fiscal 2001 as previously described at “Comparison of Fiscal 2002 to Fiscal 2001.” We experienced net other income during fiscal 2000 primarily due to the $50,512,000 gain realized from the sale of 3,657,000 shares of Correlant stock. This was slightly offset by a loss on the sale of a joint venture. On June 28, 1999 we entered into an agreement with TCL Holdings (BVI) Co., Ltd. (“TCL BVI”)to establish TCL International (US), Inc., a 50-50 joint venture. At June 30, 2003, TCL BVI’s parent company owned 18.9% of our outstanding common stock. During fiscal 2000 we invested $4,814,000 in the joint venture. The purpose of the joint venture was to develop and market a set top box (“STB”) for the China market. The STB accessed the Internet via a television and was marketed to households with no computer Internet access. Once the STB was installed, the joint venture planned to provide Internet access for a monthly fee. However, because technology for computer Internet access was deployed so quickly in China, there was virtually no demand for the STB once the joint venture completed the product development. As such, the joint venture ceased operations. On June 16, 2000 we sold our stock in TCL International to a related party for a note in the amount of $560,000, which was deemed to be the fair value of our portion of the winding down joint venture. We recorded a loss of $4,254,000 on the disposition. The remaining other income (expense) related to interest income earned on our cash and investments and interest expense.

Liquidity and Capital Resources

The Company ~~following~~incurred ~~table~~net ~~summarizes~~losses ~~our~~of $7,722,000, $6,366,000 and $18,975,000 during ~~liquidity~~fiscal ~~position~~2004, 2003 and 2002, respectively. Additionally, cash ~~flows~~used asby ofoperating activities was $27,934,000, $10,597,000, and ~~for~~$5,799,000 ~~the~~during ~~year~~fiscal ~~ended~~2004, 2003 and 2002, respectively. At June 30, 2004, the Company had an accumulated deficit of $105,611,000 and the Company’s sole operating subsidiary, GoVideo, was, and still is, in default under certain debt covenant provisions of its line of credit, discussed in detail below. Subsequent to June 30, 2004, ~~2003~~GoVideo (entered into a forbearance agreement with its lender which is due to expire on February 28, 2005. GoVideo is currently under negotiations with the lender to extend the forbearance agreement through August, 2005. However, there can be no assurance that GoVideo will be successful in ~~thousands):~~this negotiation.

Cash and cash equivalents	$	12,044
Short-term investments	13,964
Working Capital	31,445
Cash used by operating activities	(10,597		)
Cash used by investing activities	(16,289		)
Cash provided by financing activities	6,283

In June 2003, GoVideo borrowed substantial funds from TCL Industries and Asia Focus Industrial Ltd., entities affiliated with TCL, to fund inventory purchases and operating expenses. These advances, which are subordinate to GoVideo’s line of credit, were originally due at various dates during 2004. GoVideo was unable to pay off the loans and extended each of the loan’s due dates three times. The current due date for the loan with TCL Industries is July 24, 2005. The current due date for the loan with Asia Focus Industrial Ltd. is August 11, 2005. Both loans are collateralized by 100% of the Common and Preferred Series D stock of Correlant Communications owned by Opta. There can be no assurance that GoVideo will be able to pay the loans when they mature or that another extension can be successfully negotiated.

AsDuring offiscal ~~June 30~~2004, ~~2003,~~Opta ~~our~~entered ~~principal source~~into ofa ~~liquidity~~financing ~~included~~agreement ~~cash~~with ~~and~~TCL ~~cash~~Industries. Opta ~~equivalents~~ultimately ~~and~~loaned ~~short-term investments~~the offunds ~~$26,008,000. We~~to ~~used~~GoVideo ~~$10,597,000~~ to fund ~~operating~~inventory ~~activities~~purchases ~~during~~and ~~fiscal~~operating ~~2003~~expenses. ~~Cash~~The ~~used~~financing inagreement ~~operating~~has ~~activities~~been ~~was due to~~extended anthree ~~increase~~times inwith ~~both GoVideo’s inventory and accounts receivable. These increases were~~ a ~~result~~new ofmaturity ~~GoVideo~~date ~~coming out~~ of ~~bankruptcy,~~July ~~with liquidated assets and liabilities~~21, ~~and moving toward a company with growing operations~~2005. ~~Other cash~~ ~~used~~The inloan ~~operations included paying vendors according to current payment~~is ~~terms. Cash~~collateralized ~~used in operations was slightly offset~~ by ~~cash~~100% ~~collected on accounts receivable from related parties due to the slowdown~~ of ~~Correlant~~Opta’s ~~operations. We~~Common ~~expect~~and ~~future cash provided (used) by operating activities to~~Preferred ~~fluctuate,~~Series ~~primarily~~D asstock ~~a result~~ of ~~fluctuations~~Correlant inCommunications. See ~~our~~“Item ~~operating~~13. Certain ~~results,~~Relationships ~~the~~and ~~timing~~Related ~~of product shipments, accounts receivable collections, inventory management and the timing of vendor payments~~Transactions.”

~~During~~Although Opta ~~fiscal~~expects ~~2003~~to incur additional losses in fiscal 2005, ~~our~~the ~~principal~~Company believes that it will have sufficient resources to continue ~~investing~~normal ~~activities~~operations. The ~~included:~~Company ~~(1)~~has ~~purchase~~taken steps ofto ~~our~~reorganize ~~joint~~certain ~~venture,~~aspects ~~Youbang;~~of ~~(2)~~its business. GoVideo replaced ~~purchase~~its Chief Executive Officer with the Chief Operating Officer of ~~our~~Opta ~~subsidiary~~on an interim basis to further evaluate the ongoing operations of GoVideo. Additionally, GoVideo; has ~~and~~undertaken ~~(3)~~cost ~~net~~reduction ~~purchases~~efforts, including reducing staff, realigning the roles and responsibilities of ~~short-term~~management and reducing other operating expenses ~~investments. Cash~~in ~~used~~an byattempt ~~investing~~to return to profitability. ~~activities~~If ~~was~~the ~~partially~~Company ~~offset~~is byunable ~~payments~~to ~~received~~return onto ~~notes~~profitability ~~receivable~~as ~~from~~a result of this ~~related~~realignment, ~~parties~~additional steps including, but not limited to, further cost reductions and eliminating some of its current activities, may be necessary.

~~During~~The ~~fiscal~~following ~~2003,~~table ~~our~~summarizes ~~only~~our ~~financing~~liquidity ~~activity~~position ~~was GoVideo’s loan of $6,283,000 from TCL Industries~~ and ~~Asia~~cash ~~Focus~~flows ~~Industrial~~as ~~Ltd., entities affiliated with TCL, to fund inventory purchases and operating expenses. These advances, which accrue interest at annual rates~~ of ~~approximately 4%~~ and ~~are guaranteed~~for bythe ~~Lotus,~~year ~~are~~ended ~~due at various dates during 2004. The advances have not been repaid~~June 30, ~~and~~ ~~GoVideo~~2004 ~~and~~(in ~~TCL Industries are currently negotiating an extension on the due dates for those notes that have matured.~~ thousands):

Cash and cash equivalents	$	3,037
Short-term investments	17,643
Working Capital	25,047
Cash used by operating activities	(27,934		)
Cash used by investing activities	(851		)
Cash provided by financing activities	19,778

As of June 30, 2004, our principal source of liquidity included cash and cash equivalents and short-term investments of $20,680,000. We used $27,934,000 to fund operating activities during fiscal 2004. Cash used in operating activities was due to an increase in both GoVideo’s inventory and accounts receivable. These increases were a result of a substantial increase in GoVideo’s revenues and GoVideo coming out of bankruptcy, with liquidated assets and liabilities, moving toward a company with growing operations. Cash used in operations was slightly offset by the increase in accounts payable as a result of GoVideo’s expanded operations. We expect future cash provided (used) by operating activities to fluctuate, primarily as a result of fluctuations in

our operating results, the timing of product shipments, accounts receivable collections, inventory management and the timing of vendor payments.

During fiscal 2004, our principal investing activities included an increased investment in our joint venture, TCL Digital and net purchases of short-term investments. Cash used by investing activities was partially offset by the sale of our joint venture, TCL Digital.

During fiscal 2004, our financing activities included borrowings on GoVideo’s line of credit and net proceeds from notes payable from related parties as discussed below. Cash provided by financing activities was slightly offset by the purchase of treasury stock.

Cash and Working Capital Requirements

At June 30, ~~2003~~2004, we had working capital of $3125,~~445~~047,000 compared to $4631,~~962~~445,000 at June 30, ~~2002~~ 2003. The decrease in working capital was ~~primarily~~attributable to GoVideo’s increased borrowings, discussed in detail below, to fund ~~our~~operations, ~~consolidated~~the ~~net~~wind ~~loss~~down of Correlant’s historical operations and to ~~purchase~~a ~~GoVideo~~lesser extent to fund our consolidated net loss.

In July 2003, GoVideo entered into a financing agreement last amended and restated in May 2004. The original maximum line of credit available was $40,000,000 (reduced to $30,000,000 on July 15, 2004) limited by a borrowing base determined by specific inventory and receivable balances, and provides for cash loans, letters of credit and acceptances. The financing agreement, as amended, states that the line of credit will mature July 21, 2007. Interest iswas originally charged at prime plus 1/2 percent subject to a minimum of not less than $15,000 per calendar month. GoVideo pays a monthly fee on the unused balance of the line of credit of 0.25 percent ~~per~~ per year. The line of credit is collateralized by all of GoVideo’s assets and up to $5,000,000 of the credit facility is guaranteed by ~~Lotus~~Opta. Under the current credit facility, GoVideo is required to comply with certain financial covenants and conditions including minimum levels of net income. During April and June, 2004 GoVideo did not comply with the financial covenants by not earning the required minimum net income. GoVideo received a waiver letter from the lender for the April 2004 noncompliance. However, the lender will not waive the June 2004 noncompliance. As a result, ~~interest~~ ~~charged~~on ~~could~~June 1, 2004, ~~increase~~interest ~~from~~began ~~prime~~accruing ~~plus~~at ~~1/2~~the ~~percent~~default torate of prime plus ~~three percent~~3 1/2%. ~~GoVideo~~Subsequent ~~is currently attempting~~ to ~~negotiate~~June 30, ~~amendments~~2004, toGoVideo ~~the~~entered ~~credit~~a forbearance agreement towith ~~reduce~~ the ~~thresholds required by the financial covenants~~lender.

~~For~~On ~~the~~November 1, 122004, ~~months~~GoVideo ~~following~~entered ~~the date of~~a ~~this~~forbearance ~~filing,~~agreement ~~our~~(“Agreement”) ~~cash~~with ~~and~~its ~~working~~line ~~capital~~of ~~requirements~~credit ~~will~~lender beas ~~primarily~~a toresult ~~fund~~of ~~operations~~the asnoncompliance ~~well~~with asthe ~~operations~~financial ofcovenants ~~our~~as ~~subsidiary,~~discussed ~~GoVideo~~above. ~~This~~Subsequent ~~may~~to ~~include~~fiscal ~~research and development~~2004, ~~capital~~ ~~expenditures~~GoVideo ~~and~~did ~~cash~~not ~~acquisitions~~comply ~~that~~with wethe ~~may~~financial ~~undertake.~~covenants Weas ~~expect our~~the ~~cash~~required ~~and~~minimum ~~cash~~net ~~equivalents~~income onwas ~~hand~~not ~~and~~achieved ~~cash~~during ~~that may be generated from operations will be sufficient to meet our cash requirements for~~ the 12 months ~~following~~ ~~the~~ended ~~date of this filing. However~~July 31, ~~should our capital requirements~~ ~~exceed~~2004 ~~cash~~and ~~available~~August 31, ~~from~~2004. In ~~operations we cannot assure that additional sources~~the ofAgreement, ~~financing~~GoVideo ~~would~~agreed ~~be available~~ to usthe ~~on commercially favorable terms, or at~~following ~~all.~~ significant conditions:

25• To pay all the lender’s costs and expenses associated with existing default;

• To pay $15,000 by January 15, 2005 as consideration of forbearance and other accommodations provided by the lender under the Agreement, which has since been paid;

• To pay the lender all the accrued interest at the default rate for the period between June 1, 2004 and September 1, 2004 in the amount of $122,000;

• To not pay any subordinate indebtedness or interest; and

• To not incur capital expenditures in excess of $100,000.

The Agreement also called for the following modifications:

• A reduction of the maximum line from $30,000,000 to $25,000,000 effective December 28, 2004;

• A change to the minimum net income per month requirement for the period of October 1, 2004 through December 31, 2004. GoVideo has not met all the amended monthly financial requirements.

• The increase of the minimum interest charge from $15,000 to $22,500 per month; and

• A reduction in the Borrowing Base.

If the Company is successful extending its forbearance agreement, the current forecast shows the Company will have enough working capital to continue as a going concern for the 12 months following the date of this filing. However, if the Company is not successful extending its current forbearance agreement with its lender then the Company will have to take steps towards liquidating significant assets in order to repay its lender. This would likely lead to significant losses on the liquidation of these assets. Additionally, should our capital requirements exceed cash available from operations we cannot assure that additional sources of financing would be available to us on commercially favorable terms, if at all.

Contractual Obligations

The following table summarizes ~~our~~ our contractual obligations at June 30, ~~2003~~2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

Payments Due by Period

Total

Less Than 1 Year

1-3 Years

3-5 Years

More Than 5 Years

Operating lease obligations

31,~~192~~718

~~856~~859

~~1,632~~859

~~493~~—

~~211~~—

Capital lease obligations

—

Inventory purchase obligations

1032,~~738~~575

—

Total contractual cash obligations

1334,~~930~~293

1133,~~594~~434

~~1,632~~859

~~493~~—

~~211~~—

~~Substantially~~All ~~all~~ our operating lease obligations are building leases.

Off-Balance Sheet Arrangements

At June 30, ~~2003~~2004, we did not have any relationship with unconsolidated entities or financial partnerships, which other companies have established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Significant Trends

The following is a description of the most significant recent trends in our consumer electronic business segment:

Traditional consumer electronics continue to be exposed to downward price pressure. We have responded, and will continue to respond to this negative trend through the introduction of new value-added products and models in home entertainment including MP3 players, DVD-related products and LCD displays and by increasing the number of unit sales. The difficulty of this trend is managing through price decreases as we outsource all manufacturing. Generally, we are able to obtain competitive pricing in all product categories. However, managing the timing of future price decreases and obtaining forward pricing to protect our inventory as well as our customer’s inventory has been challenging.

GoVideo, as well as the consumer electronics industry in general, has been subject to substantial price competition. In addition, consumer electronics companies in Asia, particularly those from Korea and China, pose a severe threat through price competition. We anticipate this trend to continue. And as a result, the Company realigned management’s roles and responsibilities to have better control and more closely manage GoVideo’s products which should allow for more efficient responses to market opportunities and threats.

DVD players and recorders. As a result of the dramatic expansion of the DVD market, DVD players have become commodity products and suffer from significant price competition. The DVD Recorder + VCR was one of our fastest growing product areas during fiscal 2004 and 2003, and we believe we are well-positioned to face the competition because of our strategic relationships with manufacturers, our expected reduction of manufacturing costs and our efforts to introduce new innovative, high-end and value-added products.

LCD displays. The large-screen display market for LCD displays has been expanding in recent years. As the market has increased so has the number of companies that compete with our products. Each company is

increasing investment and expanding production. As the number of companies entering this market increases, it is expected that the unit price will continue to decrease due to intensifying competition. As a result of this trend, we have taken a cautious approach to this market and have limited our activity to only a few models until such time as we believe the volatility in this market can be safely managed.

MP3 Players. We continue to capitalize on the increased demand for digital consumer electronics by introducing our Rave MP3 players both domestically and internationally.

We will continue to invest in product development and the manufacturing process as we believe these are both critical to facilitate innovation of new and improved products and technologies. We will also continue the expansion of our distribution network to effectively reach more of our targeted customers.

Business Outlook

Our business outlook has not changed since we completed our Form 10-K for fiscal 2002, filed with the SEC April 16, 2004.

Following the takeover of the Board of Directors of the Company on June 29, 2001, new management of the Company began a thorough review of all aspects of the business operations of the Company and its subsidiaries. Since the takeover, we have engaged in numerous transactions to restructure and refocus our business.

Since the takeover, our primary strategy for business operations has been to restructure our unprofitable businesses, acquire undervalued companies (such as GoVideo) and focus on profitable growth. We aggressively sold, restructured or shutdown our businesses which were either not consistently generating cash from operations or which could have required future significant cash investments to become consistently cashflow positive. As a result of this effort, we currently have one subsidiary with operations (GoVideo) and one subsidiary with no operations (Correlant) but with significant cash and other assets. We seek to identify market opportunities that complement current operations, create and accelerate the growth and success of GoVideo and to implement new business plans to improve the returns on these businesses.

We plan to further improve the efficiencies of our consolidated operations and accelerate growth by utilizing our competitive advantages. We believe our competitive advantages include, but are not limited to, the following:

• Significant experience of current management in the consumer electronics and communications industry;

• Business opportunities in China and Asia through the strength of our relationships with significant shareholders, including TCL who is our majority shareholder. TCL is an ~~affiliated~~ affiliated company of TCL International (HKSE: 1070), a leading multimedia consumer electronics product manufacturer, with a strong brand presence in China and Asia. TCL International’s core products include televisions, mobile handsets, personal computers, audio-visual equipment as well as information technology services. Under its highly recognized and well-established TCL brand, it is one of the strongest players in the TV and mobile handset marketplace in China. Headquartered in China, it operates a number of highly efficient manufacturing bases in Asia. On November 3, 2003, TCL International and Thomson (Euronext Paris: 18453; NYSE: TMS) signed a memorandum of understanding to form a joint venture company named TCL-Thomson Electronics for the development, manufacturing and distribution of television sets and related products and services. The joint venture’s operations commenced August 1, 2004. Its objectives are to consolidate its global TV leader position, offer a complete and high-quality product range from basic to high-end innovative products, address all key markets competitively by leveraging an efficient cost structure, and seize development opportunities in the fast-growing Chinese market.

On November 3, 2003, TCL International and Thomson (Euronext Paris: 18453; NYSE: TMS) signed a memorandum of understanding to form a joint venture company named TCL-Thomson Electronics for the development, manufacturing and distribution of television sets and related products and services. The joint venture’s operations commenced August 1, 2004. Its objectives are to consolidate its global TV leader position, offer a complete and high-quality product range from basic to high-end innovative products, address all key markets competitively by leveraging an efficient cost structure, and seize development opportunities in the fast-growing Chinese market.

• GoVideo brand recognition; and

• The ability to increase market share by introducing TCL products into the USU.S. using our subsidiary – GoVideo’s – existing distribution channels.

As we look to the future, we ~~are~~ are planning for growth in annual revenues as a result of revenues generated ~~from~~ from GoVideo. And although consumer electronics historically have ~~slightly~~ a lower gross margins than our past gross margins realized from MAC+software and cable modem-related products, we expect gross margin dollars to continue to increase as a result of increased revenue. Our strategy will remain within our core competency of consumer electronics and telecommunications as we attempt to gain strength, momentum and market share in the USU.S. and abroad.

Our future results of operations and the other forward-looking statements contained in this filing, including this MD&A, involve a number of risks and uncertainties—in particular, the statements regarding plans to cultivate new businesses that complement existing consumer electronics business, revenue and gross margin. In addition to various factors discussed above, a number of other factors could cause actual results to differ materially from our expectations. 32

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the US. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures.

We believe the following, among others, to be critical accounting policies. That is, they are both important to the portrayal of our financial condition and results of operations, and they require critical management judgments and estimates about matters that are inherently uncertain. Although we believe our judgments and estimates are appropriate and correct, actual future results may differ from our estimates.

• Revenue recognition. We recognize revenue upon passage of title of our product in accordance with SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB 101), as amended by SAB 101A and 101B. At the time revenue is recognized, GoVideo records an allowance for estimated sales returns based on estimates derived from historical trends. Sales returns are recorded with net revenues. GoVideo also establishes an allowance for estimated payment term discounts expected to be taken by customers based on analysis of historical trends. Payment term discounts granted are recorded in other expense.

• Warranty Reserves. Go Video provides limited labor and parts warranties on certain of its products for a maximum of one year. Go Video records a warranty reserve based upon historical experience and an estimate of total exposure associated with products sold to consumers through retail outlets. Correlant did not provide a product warranty. The warranty liability for defective cable modems was the responsibility of the third-party manufacturer.

• Bad debt reserves. We conduct business and extend credit based on an evaluation of our customers’ financial condition generally without requiring collateral. Exposure to losses on trade receivables is expected to vary by customer due to the financial condition of each customer. We monitor exposure to credit losses and maintain allowances for anticipated losses considered necessary under the circumstances. Delinquent notes and trade accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk based on historical trends and an evaluation of the impact of current and projected economic conditions. We evaluate the past-due status of our notes and related parties and trade receivables based on contractual terms of sale. If the financial

condition of our customers were to deteriorate, resulting in an impairment of ability to make payments, additional allowances may be required.

• Related party transactions. We have significant related party transactions and agreements; many of which are complex. We believe such transactions have been accounted for at fair value. We utilized our best estimate of the value of these transactions and agreements. Had alternative assumptions been used, the values obtained may have been different.

• Inventories. GoVideo’s inventory consists of finished goods, which are mostly in transit from its contract manufacturer. Correlant’s inventory consisted primarily of integrated circuits and other components to be used in the manufacture of cable modems. Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out basis. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. Due to the aforementioned change in Correlant’s business model and the timing of Correlant’s product life cycle, the inventory was fully reserved at June 30, 2003. It remained fully reserved until the shutdown of Correlant’s historical operations in the cable modem and cable modem-related market.

• Investments. Our investments consist primarily of debt securities. Investments are stated at fair value based on quoted market prices obtained from an independent banker. Investments are classified as available-for-sale based on management’s intended use. As of June 30, 2003 short-term investments and any difference between the fair market value and the underlying cost of such investment is disclosed at “Item 8. Financial Statements and Supplementary Data Note 2 – Significant Accounting Policies.” Currently we do not have any equity investments in publicly traded companies. During the period covered by this Annual Report, we held noncontrolling interests in private companies with no active market, which required fair values to be estimated. We recorded an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary.

• Valuation of goodwill and other identifiable intangible assets. We actively pursued the acquisition of businesses, which resulted in significant goodwill and other identifiable intangible assets. We assess the impairment of goodwill and other identifiable intangible assets whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors which trigger an impairment review include, but are not limited to, the following: (1) significant negative industry or economic trends; (2) current, historical or projected losses that indicate continuing losses; and (3) a significant decline in our market capitalization relative to net book value. When we determine there is an indicator the carrying value of the goodwill or other identifiable intangible assets may not be recoverable, we measure impairment based on estimates of future cash flow. These estimates include assumptions about future conditions within the Company as well as the entire industry.

• Impairment of other long-lived assets. Other long-lived assets, such as property and equipment, are amortized or depreciated over their estimated useful lives. These assets are reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable, with impairment being based upon an evaluation of the identifiable undiscounted cash flows. If the asset has been impaired, the resulting charge reflects the excess of the asset’s carrying cost over its fair value.

• Income taxes. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized in the future. We considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. If we determine that we will not realize all or part of our net deferred tax assets in the future, we will make an adjustment to the deferred tax assets, which will increase income tax expense in the period of such determination.

Recently Issued Accounting Standards

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”), which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (“EITF”) Issue 94-3, Liability Recognition for

Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (“EITF 94-3”). SFAS 146 requires the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS 146 also states the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. We adopted SFAS 146 during fiscal 2003. The adoption did not have a material effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2003.

In November 2002, the FASB issued FASB Interpretation (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The disclosure requirements of FIN 45 are applicable to the Company’s product warranty liability and other guarantees. We adopted FIN 45 during fiscal 2003. The adoption did not have a material effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2003.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS 148”), which amends SFAS 123. SFAS 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects an entity’s accounting policy decisions with respect to stock-based employee compensation have on reported net income in both annual and interim periods. We adopted SFAS 148 during fiscal 2003. The adoption did not have a material effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2003.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 was revised in December 2003. FIN 46 establishes accounting guidance for consolidation of a variable interest entity (“VIE”), formerly referred to as special purpose entities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity (Primary Beneficiary) should consolidate a VIE that functions to support the activities of the Primary Beneficiary. The application of FIN 46 is required for periods ending after December 15, 2003. The Company has no contractual relationship or other business relationship with a VIE, and therefore the adoption of FIN46 will have no effect on our financial position, results of operations, or cash flows.

In January 2003, the EITF published EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”), which requires companies to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. In applying EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting, if the deliverables in the arrangement meet certain criteria. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. This issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect the adoption of EITF 00-21 to have a material impact on its financial position, results of operations, or cash flows.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect SFAS 149 to have a material impact on its financial position, results of operations, or cash flows.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 represents the first phase of the FASB’s project to clarify the accounting treatment of certain instruments that possess characteristics of both liabilities and equity. SFAS 150 generally requires that freestanding financial instruments that obligate the issuer to redeem the holders’ shares, or are indexed to such an obligation, and are settled in cash or settled with shares meeting certain conditions be treated as liabilities. The provisions of SFAS 150 are effective immediately for instruments

entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, with the exception of mandatorily redeemable instruments of non-public companies, which become subject to SFAS 150 for fiscal periods beginning after December 15, 2003. The Company does not expect SFAS 150 to impact the classification of its outstanding preferred stock instruments upon the Company’s adoption effective July 1, 2003.

Certain Factors That May Affect Future Results

Forward Looking Statements. This Annual Report on Form 10-K contains certain statements that are forward looking within the meaning of Section 27A of the Securities and Exchange Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. Any statements contained herein (including, without limitation, statements to the effect that the Company or management “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,” “continues,” “may,” or “will” or statements concerning “potential” or “opportunity” or variations thereof or comparable terminology or the negative thereof), that are not statements of historical fact should be construed as forward looking statements. All statements that address operating performance, events or developments that our management expects or anticipates to incur in the future, including statements relating to sales and earnings growth or statements expressing general optimism about future operating results, are forward-looking statements. These forward-looking statements are based on our management’s current views and assumptions regarding future events and operating performance. Many factors could cause actual results to differ materially from estimates contained in our management’s forward-looking statements including the factors listed at pages 3033 -32 35. The differences may be caused by a variety of factors, including but not limited to adverse economic conditions, competitive pressures, inadequate capital, unexpected costs, lower revenues, net income and forecasts, the possibility of fluctuation and volatility of our operating results and financial condition, inability to carry out marketing and sales plans and loss of key executives, among other things. Because of these and other factors that may affect our operating results, past performance should not be considered an ~~indicator~~ indicator of future performance and investors should not use historical results to to anticipate results or trends in future periods.

~~The~~GoVideo ~~restatement~~may ~~and reaudit~~need ofadditional ~~our~~capital ~~financial statements and the potential for review of our~~resources. ~~financial~~We ~~disclosure~~believe ~~could~~GoVideo’s ~~materially~~cash ~~impact~~flow ~~our business and results of~~from operations~~. Following the replacement of prior management~~, ~~the~~borrowings ~~new~~under ~~management began reviewing various transactions undertaken by old management prior to June 29, 2001. During~~ its ~~preliminary~~credit ~~investigation,~~facility ~~new~~and ~~management~~related ~~identified~~party ~~certain material~~debt ~~transactions undertaken by prior management that impact reported~~are ~~financial~~sufficient ~~and operating results with respect~~ to ~~its~~fund ~~consolidated~~existing ~~financial statements~~operations for the ~~fiscal~~foreseeable ~~years ended June 30, 2001, 2000 and 1999~~future. ~~Due~~See ~~to the preliminary results, the Company~~“Liquidity ~~dismissed the then existing independent accountants, hired new independent accountants~~ and ~~re-audited~~Capital ~~all periods under investigation~~Resources.” ~~The~~However, ~~Company completed the restatement of~~GoVideo ~~previously~~may ~~reported~~need ~~financial~~additional ~~statement~~capital into ~~its~~operate ~~Form 10-K for fiscal 2002 filed with the SEC April 16, 2004.~~if:

• Market conditions change;

• Business plans or assumptions change;

• Acquisitions are pursued;

• Material increases in capital expenditures or working capital become necessary; or

• GoVideo’s lender calls or accelerates the repayment of its line of credit due to noncompliance with debt covenants as previously discussed.

The Company has experienced a history of recurring operating losses and may not have liquidity necessary to execute its strategy and return to profitability. GoVideo is under a forbearance agreement with its lender on its line of credit due to financial covenant violations with respect to net losses incurred by GoVideo. The Company is negotiating an extension of the forbearance period from the current expiration date of February 28, 2005 to August 31, 2005. This six month extension, if granted, will allow the Company to execute its strategy of returning the Company to profitability. Should the Company be unable to execute both the negotiation of extending its forbearance agreement and the execution of its strategies to return to profitability, the Company may not have the liquidity to continue as a going concern.

The restatement and reaudit of our financial statements and the potential for review of our financial disclosure could materially impact our business and results of operations. Following the replacement of prior management, the new management began reviewing various transactions undertaken by old management prior to June 29, 2001. During its preliminary investigation, new management identified certain material transactions undertaken by prior management that impact reported financial and operating results with respect to its consolidated financial statements for the fiscal years ended June 30, 2001, 2000 and 1999. Due to the preliminary results, the Company dismissed the then existing independent accountants, hired new independent accountants and reaudited all periods under investigation. The Company completed the restatement of previously reported financial statement in its Form 10-K for fiscal 2002 filed April 16, 2004.

As a result of the restatement and reaudit of our financial statements for fiscal 2001, 2000 and 1999 and the resulting delay in filing SEC reports, the SEC or other governmental authorities may choose to review our SEC filings. If we are required to respond to the SEC or other governmental authorities or otherwise take actions in response to, arising out of, or relating to the restatement and reaudit of our financial statements, such actions may require significant attention and resources of management and, regardless of the outcome, could materially impact our business and results of operations.

If we become subject to such heightened scrutiny, this could adversely affect investor confidence, our ability to access the capital markets and cause the trading price for our securities to decline. In addition, we cannot assure you that we will not have to further restate earnings or further revise our reports for prior periods as a result of any SEC review. Any such restatement could further impact investor confidence, our ability to access the capital markets and the trading price of our securities.

~~The~~We ~~Company~~and ~~faces tough~~our ~~competition.~~independent ~~The~~auditors have identified a number of material weaknesses related to ~~Company’s~~our ~~current~~internal ~~subsidiary~~control ~~GoVideo~~over ~~plays~~financial areporting, ~~unique~~which ~~niche~~could incontinue ato ~~highly~~impact ~~competitive~~our ~~industry:~~ability ~~consumer~~to ~~electronics.~~ report our results of operations and financial condition ~~GoVideo~~accurately ~~competes~~and ~~against~~in ~~many~~a ~~well~~timely ~~established~~manner. ~~companies~~The ~~including~~Company ~~many~~has had significant ~~original~~financial ~~equipment~~reporting ~~manufacturers~~issues ~~(“OEM”)~~to ~~who~~address ~~have~~since ~~substantially~~the ~~greater~~restatement of its June 30, ~~financial~~2001, 2000 and ~~other~~1999 ~~resources~~financial ~~than~~statements. As a result, on January 19, 2005, the Company. ’s external auditors ~~Additionally,~~informed the ~~consumer~~board ~~electronics~~of ~~industry~~a is“reportable ~~empirically~~condition” ~~facing~~that constituted a “material weakness” ~~trend~~in ofour ~~declining~~internal ~~gross~~control ~~margin~~over ~~resulted~~financial ~~from~~reporting. While ~~emerging~~we ~~global~~are ~~market~~implementing ~~and~~steps to ensure ~~competition.~~the ~~While~~effectiveness ~~GoVideo~~of ~~was~~our ~~profitable~~internal incontrol ~~fiscal~~over ~~2003~~financial reporting, ~~the~~failure ~~competitive~~to ~~nature~~restore of the ~~industry~~effectiveness ~~may~~of ~~negatively~~our ~~affect~~internal ~~the~~control ~~Company’s~~over ~~earnings~~financial ifreporting ~~GoVideo~~could iscontinue ~~unable~~ to ~~quickly~~negatively ~~adapt~~impact our ability to ~~the~~report ~~technological~~our ~~and~~financial ~~market~~condition ~~changes~~and results of ~~the~~operations accurately and could have a material adverse effect on ~~industry~~our business, results of operations, financial condition and liquidity.

30If the Company is unable to take the necessary corrective action to strengthen its disclosure controls, its ability to report its financial results on a timely and accurate basis may be adversely affected. Based upon the evaluation of our control weaknesses as discussed above, we concluded that our disclosure controls and procedures need to be strengthened and are not sufficiently effective. We have taken various steps to maintain the accuracy of our financial disclosures, and based on these measures and other significant work, management believes there are no material inaccuracies or omissions of material fact in our financial statements and other reports filed with the SEC. However, material weaknesses in our internal controls over financial reporting could further adversely impact our current inability to report timely financial information. If the current inability to report timely is exacerbated by weak disclosure controls, this could result in further accounting restatements or other accounting related problems and we could face greater scrutiny from the SEC.

~~GoVideo~~Additional delays ~~utilizes~~in ~~contract manufacturers~~reporting. Since ~~and~~the arestatement ~~combination~~and reaudit of ~~technologies~~our ~~from~~financial ~~its~~statements ~~own~~discussed ~~intellectual~~above, we ~~property~~have asbeen ~~well~~unable asto ~~third~~become ~~parties.~~current ~~Hence,~~with ~~there~~respect ~~are~~to noall ~~assurances~~SEC ~~GoVideo~~required filings. This ~~can~~compounds ~~continue~~the topotential problems ~~obtain~~associated ~~new~~with the original reaudit of our ~~consumer~~financial ~~electronic~~statements ~~products~~for ~~that~~the ~~will~~fiscal beyears ~~competitive~~ended inJune 30, ~~today’s~~2001, ~~constantly~~2000 and ~~changing~~1999 ~~marketplace~~and the resulting delay in filing our Form 10-K for fiscal 2002, 2003 and 2004.

The Company faces tough competition. The Company’s only operating subsidiary GoVideo plays a unique niche in a highly competitive industry: consumer electronics. GoVideo competes against many well established companies including many original equipment manufacturers (“OEM”) who have substantially greater financial and other resources than the Company. Additionally, the consumer electronics industry is empirically facing a trend of declining gross margin resulted from emerging global market and competition. Although GoVideo was profitable in fiscal 2003, it was not profitable during fiscal 2004. The competitive nature of the industry may further negatively affect the Company’s earnings if GoVideo is unable to quickly adapt to the technological and market changes of the industry.

GoVideo’s customers have the ability to go straight to the contract manufacturer. GoVideo has no manufacturing capabilities. All products are purchased from contract manufacturers. Because of this, there is nothing stopping GoVideo’s customers from purchasing products direct from these contract manufacturers.

We may not be able to produce sufficient quantities of our products as we obtain components from, and depend on, a limited number of key suppliers. All our TV and DVD player products contain one or more components that are available from a single supply source and other components that are available from limited sources. We depend on these sources to meet our production requirements. We do not have any long term supply contracts. Although we do not presently anticipate a disruption in this source of supply, if it is necessary for us to obtain these key components from an alternative supplier, it could take several months before receiving adequate supplies, and during this time we would be unable to satisfy our customers’ demands. In such event, prolonged delays could result in the cancellation of orders and the loss of customers.

GoVideo purchases products from countries in Asia, including China, South Korea and Taiwan, where there are risks associated with the potential change in social, political and regulatory and economic conditions. Significant changes in the social, political and regulatory and economic conditions could adversely affect GoVideo through increased costs, unavailability of goods or increased tariffs. As a result of trade disputes, the US has occasionally imposed tariffs, regulatory procedures and importation bans on certain products. Trade sanctions or regulatory procedures involving a country in which we conduct a substantial amount of business could have a material adverse effect on our operations.

GoVideo through increased costs, unavailability of goods or increased tariffs. As a result of trade disputes, the US has occasionally imposed tariffs, regulatory procedures and importation bans on certain products. Trade sanctions or regulatory procedures involving a country in which we conduct a substantial amount of business could have a material adverse effect on our operations.

GoVideo is responsible for product warranties and defects. Although GoVideo outsources all product manufacturing, it provides limited labor and parts warranties on certain of its products for a maximum of one year. Therefore, GoVideo is highly dependent upon the quality of its suppliers.

Our new products may not be well accepted. Our future success depends on GoVideo’s ability to continue to design and develop and win acceptance of its products and services, which are offered in highly competitive markets characterized by continual product introductions, rapid development in technology, and subjective and changing consumer preferences.

The introduction or expected introduction of new products or technologies may depress sales of existing products and technologies. ~~This may result in declining prices and inventory obsolescence.~~ As GoVideo maintains a substantial investment in product inventory, the introduction of new products may force us to charge less for our existing inventory and cause such existing inventory to become obsolete. Such declining prices and inventory obsolescence could have a material adverse effect on our business and financial results.

We are exposed to the risks associated with the recent decision to cease cable modem-related business by Correlant, our subsidiary. The Company is actively seeking a viable business model for Correlant to maximize our ~~shareholders~~ stockholders’ interest. Even if a viable business model is found that will correspond with Correlant’s available cash size, there is still no guarantee the model will succeed. We successfully reduced Correlant’s cash burn rate by winding down Correlant’s historical operations in the cable modem industry. However, since shutting down the operations, which was substantially completed March 2004, we have been unable to identify and secure a viable business plan that will utilize Correlant’s assets.

Our stock price may not come back. The Company’s stock was removed from OTC Bulletin Board as a result of the Company’s failure to timely submit the Form 10-K for fiscal 2002. Although ~~Lotus~~Opta filed its Form 10-K for fiscal 2002 on ~~April~~ April 16, 2004, ~~Lotus~~Opta is not eligible to trade on the OTC Bulletin Board until ~~Lotus~~ Opta becomes current in all its required filings or files a Form 10 and clears ~~all~~ all comments with the SEC. The current trading of the Company’s stock is sporadic and minimal and there is no established public trading market for our common stock. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of these companies. These factors, as well as general economic and political conditions, may materially adversely affect the market price of our common stock in the future. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees.

Our executive officers and key personnel are critical to our business and the loss of their services could disrupt our operations and our customer relationships. Our success depends to a significant degree upon the continuing contributions of our key management, technical, marketing and sales employees. There can be no assurance that we will be successful in retaining our key employees or that we can attract and retain additional skilled personnel as required. The loss of the services of key personnel could significantly harm our results of operations and business.

GoVideo may need additional capital resources. We believe GoVideo’s cash flow from operations and borrowings under its credit facility are sufficient to fund existing operations for the foreseeable future. See “Liquidity and Capital Resources.” However, GoVideo may need additional capital to operate if:

• Market conditions change;

• Business plans or assumptions change;

• Acquisitions are pursued;

• Material increases in capital expenditures or working capital become necessary; or

• GoVideo’s lender calls or accelerates the repayment of its line of credit due to noncompliance with debt covenants as previously discussed.

Because of these and other factors affecting our operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Critical Accounting Policies

We believe the following, among others, to be critical accounting policies. That is, they are both important to the

portrayal of our financial condition and results of operations, and they require critical management judgments and estimates about matters that are inherently uncertain. Although we believe our judgments and estimates are appropriate and correct, actual future results may differ from our estimates.

• Revenue recognition. We recognize revenue upon passage of title of our product in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (“SAB 101”), as amended by SAB 101A and 101B. At the time revenue is recognized, GoVideo records an allowance for estimated sales returns based on estimates derived from historical trends. Sales returns are recorded with net revenues. GoVideo also establishes an allowance for estimated payment term discounts expected to be taken by customers based on analysis of historical trends. Payment term discounts granted are recorded in other expense.

• Warranty Reserves. Go Video provides limited labor and parts warranties on certain of its products for a maximum of one year. Go Video records a warranty reserve based upon historical experience and an estimate of total exposure associated with products sold to consumers through retail outlets. Correlant did not provide a product warranty. The warranty liability for defective cable modems was the responsibility of the third-party manufacturer.

• Bad debt reserves. We conduct business and extend credit based on an evaluation of our customers’ financial condition generally without requiring collateral. Exposure to losses on trade receivables is expected to vary by customer due to the financial condition of each customer. We monitor exposure to credit losses and maintain allowances for anticipated losses considered necessary under the circumstances. Delinquent notes and trade accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk based on historical trends and an evaluation of the impact of current and projected economic conditions. We evaluate the past-due status of our notes and related parties and trade receivables based on contractual terms of sale. If the financial condition of our customers were to deteriorate, this could result in an impairment of ability to make payments, and additional allowances may be required.

• Related party transactions. We have significant related party transactions and agreements; many of which are complex. We believe such transactions have been accounted for at fair value. We utilized our best estimate of the value of these transactions and agreements. Had alternative assumptions been used, the values obtained may have been different.

• Inventories. GoVideo’s inventory consists of mostly finished goods, some of which are in transit from its contract manufacturer. Correlant’s inventory consisted primarily of integrated circuits and other components to be used in the manufacture of cable modems. Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out basis. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. Due to the aforementioned change in Correlant’s business model and the timing of Correlant’s product life cycle, the inventory was fully reserved at June 30, 2003. It remained fully reserved until the shutdown of Correlant’s historical operations in the cable modem and cable modem-related market.

• Investments. Our investments consist primarily of debt securities. Investments are stated at fair value based on quoted market prices obtained from an independent banker. Investments are classified as available-for-sale based on management’s intended use. As of June 30, 2004 the cost of our investments approximated fair value. Currently we do not have any equity investments in publicly traded companies. During the period covered by this Annual Report, we held noncontrolling interests in private companies with no active market, which required fair values to be estimated. We recorded an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary.

• Valuation of goodwill and other identifiable intangible assets. We actively pursued the acquisition of businesses, which resulted in significant goodwill and other identifiable intangible assets. We assess the impairment of goodwill and other identifiable intangible assets whenever events or changes in

circumstances indicate the carrying value may not be recoverable. Factors which trigger an impairment review include, but are not limited to, the following: (1) significant negative industry or economic trends; (2) current, historical or projected losses that indicate continuing losses; and (3) a significant decline in our market capitalization relative to net book value. When we determine there is an indicator the carrying value of the goodwill or other identifiable intangible assets may not be recoverable, we measure impairment based on estimates of future cash flow. These estimates include assumptions about future conditions within the Company as well as the entire industry.

• Impairment of other long-lived assets. Other long-lived assets, such as property and equipment, are amortized or depreciated over their estimated useful lives. These assets are reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable, with impairment being based upon an evaluation of the identifiable undiscounted cash flows. If the asset has been impaired, the resulting charge reflects the excess of the asset’s carrying cost over its fair value.

Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) FIN 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 was revised in December 2003. FIN 46 establishes accounting guidance for consolidation of a variable interest entity (“VIE”), formerly referred to as special purpose entities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity (“Primary Beneficiary”) should consolidate a VIE that functions to support the activities of the Primary Beneficiary. The application of FIN 46 is required for periods ending after December 15, 2003. We adopted FIN 46 during fiscal 2004. We has no contractual relationship or other business relationship with a VIE, and therefore the adoption of FIN46 had no effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2004.

In January 2003, the Emerging Issues Task Force (“EITF”) published EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”), which requires companies to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. In applying EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting, if the deliverables in the arrangement meet certain criteria. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. This issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We adopted EITF 00-21 during fiscal 2004. The adoption did not have a material effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2004.

In April 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. We adopted SFAS 149 during fiscal 2004. The adoption did not have a material effect on our financial position, results of operations, or cash flows as of or for the year ended June 30, 2004.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 represents the first phase of the FASB’s project to clarify the accounting treatment of certain instruments that possess characteristics of both liabilities and equity. SFAS 150 generally requires that freestanding financial instruments that obligate the issuer to redeem the holders’ shares, or are indexed to such an obligation, and are settled in cash or settled with shares meeting certain conditions be treated as liabilities. The provisions of SFAS 150 are effective immediately for instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, with the exception of mandatorily redeemable instruments of non-public companies, which become subject to SFAS 150 for fiscal periods beginning after December 15, 2003. We do not expect SFAS 150 to impact the classification of its outstanding preferred stock instruments upon our adoption effective July 1, 2004.

In November 2004, the FASB issued SFAS 151, Inventory Costs, which revised ARB No. 43, relating to

inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.

In December 2004, the FASB issued SFAS 123R, Share-Based Payment (“SFAS 123R”) is a revision of SFAS 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is the first reporting period beginning after June 15, 2005. SFAS 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on proforma disclosures made in accordance with SFAS 123.

The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to Employees. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a “lattice” model. The Company has not yet determined which model it will use to measure the fair value of employee stock options upon the adoption of SFAS 123R.

The Company currently expects to adopt SFAS 123R effective July 1, 2005. However, because the Company has not yet determined which of the aforementioned adoption methods it will use, the Company has not yet determined the impact of adopting SFAS 123R.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are averse to principal loss and ensure the safety and preservation of invested funds by limiting default risk, market risk, and reinvestment risk. We minimize our risk by investing in only the safest and highest credit quality securities and by constantly positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. Our portfolio includes only corporate debt ~~securities~~ and ~~municipal~~government ~~bonds~~securities.

Foreign Currency Risk. Until January 31, 2002 a large portion of Correlant’s business was transacted in Taiwan. However, the functional currency of our Taiwan branch was the USU.S. dollar. Only a small number of transactions were denominated in the Taiwan dollar and exposed to foreign currency exchange rate risk. Subsequent to January 31, 2002, as ~~part~~ part of the change in Correlant’s business model, we closed our Taiwan branch. All transactions, with the exception of Beijing Lotus, which has no material independent operations, are now denominated in the US U.S. dollar. Therefore, we do not have any hedging or similar foreign currency contracts. To date, we have not experienced any material foreign currency exchange rate gains or losses associated with transactions denominated in the Taiwan dollar or the Chinese RMB and do not expect any significant changes in foreign currency exposure in the near future.

Item 8. Financial Statements

The information required by Item 8 is included aton pages F-1 to F-3536.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

~~(a)~~ There were no changes in or disagreements with accountants on accounting and financial disclosure during fiscal ~~2003~~2004.

(b) The Company previously reported the dismissal of Larson, Allen, Weishair & Co. as its independent accountants and the appointment of Hein & Associates LLP (“Hein”) as its new independent accountants in current reports on Form 8-K and 8-K/A as filed with the Commission on March 26, March 27 and April 12, 2002. 38

The Company previously reported the dismissal of Ernst & Young LLP as the independent accountant of Correlant, a “significant subsidiary” (as defined in Rule 1-02 of Regulation S-X) of the Company, and the engagement of Hein as the new independent accountant of Correlant on April 23, 2002, in the Company’s current reports on Form 8-K and 8-K/A as filed with the Commission on April 25 and June 4, 2002.

(c) In connection with the change in accountants referenced above, there were no disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountants, would have

caused them to make reference to the subject matter of the disagreement in connection with their reports. In connection with the change in accountants referenced above, there were no “reportable events” of the type described in Item 304(a)(1)(v).

Item 9A. Controls and Procedures

~~Evaluation of disclosure~~Internal ~~controls~~Control ~~and~~over ~~procedures~~Financial Reporting

~~The~~In ~~Company~~connection ~~carried~~with ~~out~~the anaudit ~~evaluation,~~of ~~under~~our financial statements for the ~~supervision~~year ~~and~~ended ~~with~~June 30, ~~the~~2004, ~~participation~~Hein of& Associates ~~the~~LLP ~~Chief~~(“Hein”), ~~Executive~~our ~~Officer~~independent auditors, ~~and~~informed ~~Chief~~the ~~Financial~~Board ~~Officer~~of Directors on January 19, 2005 of a “reportable condition” that constituted a “material weakness” in our internal control over financial reporting under standards established by the ~~effectiveness~~American Institute of Certified Public Accountants, or AICPA. A material weakness was defined for the applicable periods as a reportable condition in which the design ~~and~~or operation of ~~our~~one ~~disclosure~~or ~~controls~~more ~~and~~of ~~procedures~~the ~~pursuant~~internal control components does not reduce to ~~Rule~~a ~~13a-14~~relatively oflow level the ~~Securities~~ ~~Exchange~~risk ~~Act~~that ofmisstatements ~~1934~~caused ~~(the~~by error ~~“Exchange~~or ~~Act”).~~fraud ~~Based~~in ~~upon~~amounts that ~~evaluation,~~ would be material in relation to the ~~Chief~~financial statements ~~Executive~~being ~~Officer~~audited may occur and ~~Chief~~not ~~Financial~~be ~~Officer~~detected ~~concluded~~within ~~that~~a astimely ofperiod ~~June~~by ~~30,~~employees ~~2003,~~in the ~~end~~normal course of ~~the~~performing ~~period~~their ~~covered~~assigned byfunctions. ~~this~~A reportable ~~report,~~condition was defined for the ~~Company’s disclosure~~applicable ~~controls~~periods ~~and~~as ~~procedures~~a ~~were~~matter ~~effective~~that relates atto significant deficiencies in the ~~reasonable~~design ~~assurance~~or operation of internal ~~level~~controls inthat ~~timely~~could ~~alerting~~adversely ~~them~~affect an organization’s ability to ~~material~~record, process, ~~information~~summarize ~~relating~~and toreport financial data consistent with the ~~Company~~assertions of ~~(including~~management ~~its~~in ~~consolidated~~the ~~subsidiaries)~~financial ~~required~~statements. toThe befollowing ~~included~~material weaknesses and/or reportable conditions in our internal controls during the fiscal year ~~Exchange~~ended ~~Act~~June 30, ~~filings.~~2004 were identified:

~~Changes~~• The incurrent organization ~~internal~~of the accounting department does not provide Opta ~~control~~with ~~over~~the ~~financial~~adequate ~~reporting~~skills to accurately account for and disclose significant transactions or disclosures.

~~During~~• Certain ~~fiscal 2003 there were no~~key ~~significant~~managers ~~changes~~ in ~~our~~the ~~internal~~accounting ~~control~~department ~~over~~do ~~financial~~not ~~reporting~~appear ~~that materially affected, or are reasonably likely~~ to ~~materially~~have ~~affect,~~the ~~our~~knowledge and ~~internal~~experience ~~control~~required ~~over~~for ~~financial~~their ~~reporting~~responsibilities.

~~Except as set forth below, during fiscal~~• Substantive ~~2002,~~matters ~~there~~are ~~were~~not nobeing ~~significant~~addressed ~~changes~~appropriately inby ~~our~~the ~~internal~~Board ~~control~~and ~~over~~Audit ~~financial~~Committee ~~reporting~~resulting ~~that~~in ~~materially~~inadequate ~~affected,~~oversight orfrom ~~are~~the ~~reasonably~~Board ~~likely~~and toAudit ~~materially affect, our internal control over financial reporting~~Committee.

As• The ~~previously reported, following the~~process ~~replacement~~that ofOpta ~~prior~~is ~~management~~currently onusing ~~June 29, 2001, new management began an extensive undertaking~~ to ~~review~~monitor ~~various transactions undertaken by and involving old management prior to June 29, 2001. As a consequence of its preliminary review, effective March 25, 2002,~~ the ~~Company terminated its audit relationship with~~ongoing ~~its~~quality ~~then existing independent accountants and replaced such firm with new independent accountants. As previously reported, during its preliminary investigation, new management~~ of ~~the~~internal ~~Company~~controls identified various transactions involving a former subsidiary and other transactions undertaken by prior management which impacted reported financial and operating results with respect to its consolidated financial statements for the fiscal years ended June 30performance, ~~2001,~~ ~~2000~~identify ~~and~~deficiencies ~~1999~~ and ~~ultimately concluded that a reaudit of the financial~~trigger ~~statements~~timely ~~for~~corrective ~~the~~action ~~fiscal~~is ~~years~~not ~~ended~~working ~~June 30, 2001, 2000 and 1999 was required~~effectively. Effective July 24, 2002, the Company engaged its new independent accountants, to perform such reaudit and the Company concluded that it must restate these prior periods. During the course of its review and investigation of various transactions undertaken by and involving old management, and its completion of such restatement and reaudit, new management of the Company has established its own systems of internal controls over financial reporting.

~~PART~~• There ~~III~~is no adequate means of accurately capturing and recording certain significant and complex business transactions.

~~Item~~Based upon ~~10. Directors~~the Company’s evaluation, which considered the above findings of Hein, the ~~and~~Company’s management, including the Chief Executive ~~Officers~~Officer, Chief Financial Officer and the Chief Operating Officer concluded that, as of June 30, 2004, the ~~Registrant~~Company’s internal controls over financial reporting were not effective.

~~(A)~~Changes ~~Lotus~~in ~~Pacific Directors~~Internal Control

~~The Company has five Directors elected~~We are in ~~three separate classes. One Director serves as a Class I Director, and will serve for a term which was scheduled to expire at~~ the ~~2002~~process ~~Annual Meeting~~ of ~~stockholders,~~taking ~~or until their successors are duly elected and qualified or until their death, resignation or removal. One director serves as~~ a ~~Class II Director,~~number ~~and~~of ~~will~~steps ~~serve for a term which was scheduled~~ to ~~expire~~improve at the ~~2003 Annual~~effectiveness ~~Meeting~~ of ~~stockholders, or until their successors are duly elected and~~ ~~qualified or until their death, resignation or removal. Three Directors serve as Class III Directors, and each will serve for a term which was scheduled to expire at~~ the ~~2004~~Company’s ~~Annual~~internal ~~Meeting of stockholders~~control, orincluding ~~until their successors are duly elected and qualified or until their death, resignation or removal. The following table sets forth certain information with respect to~~ the ~~directors~~ ~~and executive officers of the Company as of August 15, 2004.~~ following:

33• Locating and hiring an employee, a certified public accountant (“CPA”), with the appropriate level of experience and expertise to take over our financial reporting process. Until such time as a permanent employee can be located and hired, we have engaged an independent consultant, and may increase these resources, to supplement the Company’s finance and accounting functions and to support the preparation of the consolidated financial statements and related information included in this report.

Name	Age	Office
LI, Dongsheng	47	Chairman of the Board and Class III Director
YAN, Vincent Yong	41	President, Chief Executive Officer, Class II Director
LIU, James Jian	48	Class III Director
LIN, Zuoquan	41	Class I Director
LIN, Jih-Ming	52	Class III Director

• Once we hire an internal CPA dedicated to the financial reporting process, we plan to reorganize and restructure our accounting department to ensure that accounting issues are addressed, documented, approved and resolved.

~~Mr. Dongsheng~~At the Lisame ~~was~~time ~~elected~~ as ~~a Class III~~we ~~Director~~continue ofour ~~the~~efforts ~~Company~~to onimprove ~~June 29,~~our ~~2001.~~internal ~~Mr.~~control, management Liof ~~also~~the Company has ~~served~~ asimplemented ~~Chairman~~a number of ~~the~~additional ~~board~~procedures ofand controls, ~~directors~~including oftesting, ~~the~~review ~~Company’s~~and ~~subsidiary~~evaluation, ~~Correlant,~~ ~~since~~to ~~February~~mitigate ~~2003.~~ recognized ~~Mr. Li~~deficiencies ~~has~~specifically ~~been~~for ~~Chairman~~the preparation of the ~~board~~financial ofstatements ~~directors~~for the ~~and~~periods ~~President~~covered ~~of TCL~~by ~~Corporation~~this ~~(formerly~~Annual ~~TCL~~Report ~~Holdings~~on ~~Co.,~~Form ~~Ltd~~10-K.), aManagement believes ~~People’s~~that ~~Republic~~these ~~of China~~procedures ~~company (~~and ~~TCL’s~~controls ~~parent~~were ~~company),~~effective ~~since~~in ~~1996.~~ensuring ~~Mr. Li is also~~ the ~~Chairman~~proper ofcollection, ~~the~~evaluation ~~board~~and ofdisclosure ~~directors~~ of ~~TCL~~the ~~International~~financial ~~Holdings,~~information ~~Ltd. Mr. Li~~for the ~~has~~periods ~~20 years~~covered ofby ~~experience in~~this ~~the~~report ~~telecommunication~~and ~~equipment~~that ~~and~~the ~~consumer~~financial ~~electronics~~statements ~~industry.~~included ~~Mr. Li~~in ~~holds~~this areport ~~Bachelor~~are ~~degree~~fairly stated in ~~Engineering~~all ~~from~~material ~~South China University of Technology~~respects.

Mr. Vincent Yong Yan was elected as a Class II Director of the Company on June 29, 2001. Mr. Yan has been the President, CEO and Secretary of the Company since June 29, 2001. Mr. Yan was the CFO of the Company from June 29, 2001 until November 2002. Mr. Yan also has served as a Vice President, director and member of the Executive Committee of the board of directors of Correlant since February 2003. Mr. Yan has been Executive Director and Chief Financial Officer of TCL International Holdings, Ltd., a publicly traded consumer electronics and information technology company since 1999. Prior to joining TCL, Mr. Yan served as PRC Country Manager of Tulip Computers (Asia) Ltd., a subsidiary of a European computer manufacturer. Mr. Yan has over ten years of experience in the computer and consumer goods industries. Mr. Yan holds an MBA from Stanford University and a Masters degree in Computer Science from Peking University.39

~~Mr. James~~The effectiveness ~~Jian~~of ~~Liu~~the ~~was~~Company’s ~~appointed~~or ~~as a~~any ~~Class III~~system ~~Director~~ of ~~the~~disclosure ~~Company~~controls onand procedures ~~August 6,~~and ~~2001.~~internal ~~Mr.~~control ~~Liu~~over ~~also has~~financial ~~served~~reporting asis asubject ~~director~~to ofcertain limitations, ~~Correlant~~including ~~since~~the ~~February~~exercise ~~2003.~~of ~~Mr. Liu~~judgment ~~served~~in designing, implementing and asevaluating ~~President~~the ofcontrols ~~JBL~~and ~~International Inc.~~procedures, anthe ~~apparel~~assumptions ~~agent~~used in ~~New~~identifying ~~York,~~the likelihood ~~New~~of ~~York~~future events, ~~from~~ ~~January 1996~~and the inability to ~~the~~eliminate ~~present~~misconduct completely. As a result, the Company’s disclosure controls and procedures and Heinternal ~~earned~~control ~~his~~over BAfinancial ~~degree~~reporting ~~from~~may ~~Nanjing~~not ~~University,~~prevent ~~China.~~all errors or improper acts or ensure that all material information will be made known to appropriate management in a timely fashion.

~~Professor~~We ~~Zuoquan~~will ~~Lin~~continue ~~was~~efforts ~~appointed as a~~to ~~Class~~improve Iour ~~Director~~internal oncontrols ~~March~~and ~~25,~~will ~~2002.~~complete ~~Professor~~our ~~Lin~~process ~~also~~of ~~has served as a director~~documentation ofand ~~Correlant~~testing ~~since~~requirements ~~February~~under ~~2003.~~Section 404 ~~He is currently the Dean~~ of the ~~Department~~Sarbanes-Oxley Act of ~~Information~~2002. ~~Science,~~Opta awill ~~position~~be herequired ~~has~~by ~~held since 1998, and is~~ the ~~Director of~~ ~~the~~Sarbanes-Oxley ~~Networking~~Act ~~Research~~to ~~and~~include ~~Development~~an ~~Center~~assessment atof ~~Peking~~its ~~University,~~internal ~~China, having~~control ~~held the position since 1999. His main areas of research include~~over ~~computer~~financial ~~software,~~reporting ~~artificial intelligence, network economy~~ and ~~management information~~attestation ~~system.~~from ~~Professor Lin also is currently~~ an independent ~~consultant in~~registered ~~enterprise strategy and information technology. From 1995 to 1997, he was~~public ~~the~~accounting ~~Director~~firm ofin ~~the~~its ~~Institute~~Annual ofReport ~~Computer~~on ~~Sciences~~Form 10-K atbeginning ~~Shantou~~with ~~University,~~its ~~China. Professor~~filing ~~Lin~~for ~~holds~~its afiscal ~~Ph.D.~~year ~~in computer~~ended ~~science from Bei Hang University in Beijing~~June 30, ~~China~~2006.

~~Mr. Jih-Ming Lin was elected a~~Disclosure ~~Class III~~Controls ~~Director~~and of the Company on June 29, 2001. Mr. Lin has been Vice President of Techlab Tech Inc., a Taiwanese semiconductor manufacturer, since 1998. From 1992 to 1998, Mr. Lin served as Vice President of National Advantages Computer, Inc., a computer products manufacturer. Mr. Lin has 16 years of experience in the semiconductor industry. Mr. Lin is a graduate of Defense Medical Industry in Taiwan.Procedures

~~(B)~~The definition ~~Lotus~~of ~~Pacific~~disclosure control is whether or not material information is recorded, processed, summarized and reported in a timely manner. Although the communication from our independent auditors on January 19, 2005 as discussed above did not specifically mention a weakness with respect to “disclosure controls and procedures,” management, including the Chief Executive ~~Officers~~Officer, Chief Financial Officer and Chief Operating Officer concluded, that as of June 30, 2004, the material weakness conditions noted above also relate to adequate disclosure controls and procedures. The interim and longer term steps listed above under Changes in Internal Control are applicable to improving the effectiveness of our disclosure controls and procedures. In addition to the steps noted above, we created a Disclosure Committee to ensure compliance with the disclosure controls and procedures and to evaluate the effectiveness of those controls and procedures on a regular basis. The goal of the newly formed Disclosure Committee is to strengthen the Company’s disclosure controls and procedures. As part of the Disclosure Committee’s policy, we plan to advise employees that if they become aware that our public disclosures are not accurate, complete and timely, or become aware of a transaction or development they believe may require disclosure, employees should report the matter immediately to a member of the Disclosure Committee. Our Disclosure Committee includes our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Controller.

Name	Age	Office
YAN, Vincent Yong	41	President, Chief Executive Officer, Class II Director
DAVIS, Steve	35	Chief Financial Officer
WANG, Sean Shaojian	40	Chief Operating Officer

Item 9B. Other Matters

~~See discussion related to Mr~~None. ~~Yan above.~~

Mr. Davis was appointed as the Company’s Chief Financial Officer in March 2004 and will serve until his successor is appointed and approved. Mr. Davis previously served as the Company’s Controller since October 2002. Mr. Davis also has served as Vice President of Correlant since March 2003 and Chief Financial Officer of the Company’s subsidiary Opta Systems, LLC, dba GoVideo, since July 2003. Prior to joining the Company, Mr. Davis served as Controller and Chief Financial Officer for a number of start-up or financially distressed companies including BuyGolf.com, iWear Corp and Aviation Distributors, Inc. from July 1998 until October 2002. Prior to this Mr. Davis was with Ernst & Young LLP for eight years, from September 1990 to July 1998, most recently as Senior Manager. 40

~~Sean~~PART ~~Shaojian Wang was appointed as the Company’s Chief Operating Officer in June 2004. Mr. Wang served~~III

34Item 10. Directors and Executive Officers of the Registrant

~~as the Chief Financial Officer, from 2002 to 2004, of PacificNet, Inc., a company in Minneapolis, Minnesota whose shares are traded on NASDAQ~~ (~~Symbol: PACT~~A)~~. PacificNet,~~ ~~Inc.,~~Opta ~~through~~Corporation its subsidiaries, invests, operates and provides value-added telecom services (“VAS”) and products solutions in China. From 1993 to 2002, Mr. Wang served as a managing director of Thian Bing Investments PTE, Ltd. in Singapore, an investment company in oil seeds planting, edible oil processing, packing materials and the other related industries. Mr. Wang graduated from Hamline University in St. Paul, Minnesota with a Bachelor of Science in 1986 and from the University of Minnesota with a Masters of Business Administration in 1989.Directors

~~None~~The ofCompany has five Directors elected in three separate classes. One Director serves as a Class I Director, and will serve for a term which was scheduled to expire at the ~~members~~2002 Annual Meeting of stockholders, or until their successors are duly elected and qualified or until their death, resignation or removal. One director serves as a Class II Director, and will serve for a term which was scheduled to expire at the ~~Board~~2003 Annual Meeting of stockholders, or until their successors are duly elected and qualified or until their death, resignation or removal. Three Directors serve as Class III Directors, and each will serve for a term which was scheduled to expire at the 2004 Annual Meeting of stockholders, or until their successors are duly elected and qualified or until their death, resignation or removal. The following table sets forth certain information with respect to the directors and executive officers of the Company ~~are~~as ~~related~~of toJanuary 31, ~~one another.~~2005:

Name	Age	Office
LI, Dongsheng	47	Chairman of the Board and Class III Director
YAN, Vincent Yong	42	President, Chief Executive Officer, Class II Director
LIU, James Jian	49	Class III Director
LIN, Zuoquan	41	Class I Director
LIN, Jih-Ming	52	Class III Director

~~During~~Mr. Dongsheng Li ~~fiscal~~was ~~2002,~~elected as a Class III Director of the ~~following~~Company on June 29, ~~directors~~2001. ~~had~~Mr. ~~delayed~~Li ~~filings~~also has served as Chairman of ~~Form~~the 3:board of directors of the Company’s subsidiary, Correlant, since February 2003. Mr. Li ~~Dongsheng~~has been Chairman of the board of directors and ~~Vincent~~President ~~Yan~~of TCL Corporation (~~10 days~~formerly TCL Holdings Co., Ltd.), ~~and~~a ~~James~~People’s ~~Jian~~Republic ~~Liu~~of China company (20and ~~days~~TCL’s parent company), since 1996. Mr. Li ~~The~~is ~~delay~~also ~~was~~the ~~due~~Chairman toof the ~~fact~~board ~~that~~of ~~when the~~directors ~~current~~of ~~management~~TCL ~~took~~International ~~over~~Holdings, ~~the~~Ltd. Mr. Li ~~Company~~has 20 years of experience in ~~June~~the ~~2001,~~telecommunication itequipment ~~needed~~and ~~time~~consumer toelectronics industry. ~~contract~~Mr. Li holds a ~~professional~~Bachelor ~~agent~~degree toin doEngineering ~~the~~from ~~filing~~South ~~for~~China ~~the~~University of ~~Company~~Technology.

~~The~~Mr. ~~following~~Vincent ~~four~~Yong ~~directors~~Yan ~~did~~was ~~not~~elected as a Class II Director of the Company on June 29, ~~tender~~2001. ~~their~~Mr. ~~Form~~Yan 4has ~~when~~been ~~their~~the ~~association~~President, ~~with~~CEO and Secretary of the Company since June 29, 2001. Mr. Yan was ~~terminated:~~the CFO of the Company from June 29, 2001 until November 2002. Mr. Yan also has ~~Robert~~served Loas a Vice President, ~~Chris~~director ~~Ching~~and member of the Executive Committee of the board of directors of Correlant since February 2003. Mr. Yan has been Executive Director and Chief Financial Officer of TCL International Holdings, ~~Chung~~Ltd., a publicly traded consumer electronics and information technology company since 1999. Mr. Yan was appointed CFO of TTE Corp., a joint venture between TCL and Thomsom S.A. in 2004. Additionally, he was elected chairman of the board of TTE Corp in 2004 and Chairman of the Board of TCL-IAlcatel ~~Chiang~~in December, 2004. Prior to joining TCL, Mr. Yan served as PRC Country Manager of Tulip Computers (Asia) Ltd., a subsidiary of a European computer manufacturer. Mr. Yan has over ten years of experience in the computer and ~~William~~consumer Hugoods industries. Mr. Yan holds an MBA from Stanford University and a Masters degree in Computer Science from Peking University.

~~(D)~~Mr. James ~~Code~~Jian Liu was appointed as a Class III Director of ~~Ethics~~the Company on August 6, 2001. Mr. Liu also has served as a director of Correlant since February 2003. Mr. Liu served as President of JBL International Inc., an apparel agent in New York, New York, from January 1996 to the present. He earned his BA degree from Nanjing University, China.

~~The~~Professor ~~Company~~Zuoquan Lin was appointed as a Class I Director on March 25, 2002. Professor Lin also has ~~adopted~~served as a ~~code~~director of ~~ethics~~Correlant since February 2003. ~~that~~He ~~applies~~is tocurrently ~~all~~the ~~employees~~Dean of the Department of Information Science, ~~executive~~a ~~officers~~position he has held since 1998, and ~~all~~is ~~members~~the Director of ~~our~~the Networking Research and ~~finance~~Development ~~department~~Center at Peking University, ~~including~~China, having held the ~~principal~~position ~~accounting~~since 1999. ~~officer~~His main areas of research include computer software, artificial intelligence, network economy and management information system. ~~The~~ ~~Company~~Professor ~~will~~Lin also ~~provide~~is acurrently ~~copy~~an ofindependent ~~our~~consultant ~~code~~in enterprise strategy and ofinformation ~~ethics~~technology. toFrom ~~any~~1995 ~~person~~to 1997, ~~free~~he was the Director of ~~charge~~the Institute of Computer Sciences at Shantou University, China. Professor ~~upon~~Lin ~~written~~holds ~~request~~a ~~sent~~Ph.D. toin computer ~~our~~science ~~principal~~from Bei Hang Univerity ~~executive~~in ~~office~~Beijing, China.

~~(E)~~Mr. Jih-Ming ~~Audit~~Lin ~~Committee~~was elected a Class III Director of the Company on June 29, 2001. Mr. Lin has been Vice

The Company has a separately designated standing Audit Committee of the Company’s Board of Directors established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. Jian Liu and Zuoquan Lin are the members of our Audit Committee. The Audit Committee shall represent the Board of Directors in discharging its responsibility relating to the accounting, reporting and financial practices of the Company and its subsidiaries and shall have general responsibility for surveillance of the systems of internal controls, which management and the Board of Directors have established, the performance and selection of independent auditors, and our audit and financial reporting processes.41

President of Techlab Tech Inc., a Taiwanese semiconductor manufacturer, since 1998. From 1992 to 1998, Mr. Lin served as Vice President of National Advantages Computer, Inc., a computer products manufacturer. Mr. Lin has 16 years of experience in the semiconductor industry. Mr. Lin is a graduate of Defense Medical Industry in Taiwan. Mr. Lin did not attend any Opta board meetings during fiscal 2004, nor has he attended any meetings subsequent to fiscal 2004.

There were no changes in procedures for nominating Opta directors during the fiscal year ended June 30, 2004.

After the filing of this Form 10-K, the Company plans to hold an election for all the members of the Board of Directors by written consent.

(B) Opta Corporation Executive Officers

Name	Age	Office
YAN, Vincent Yong	42	President, Chief Executive Officer, Class II Director
DAVIS, Steve	36	Chief Financial Officer
WANG, Sean Shaojian	41	Chief Operating Officer

See discussion related to Mr. Yan above.

Sean Shaojian Wang was appointed as the Company’s Chief Operating Officer in June 2004. Mr. Wang served as the Chief Financial Officer, from 2002 to 2004, of PacificNet, Inc., a company in Minneapolis, Minnesota whose shares are traded on NASDAQ (Symbol: PACT). PacificNet, Inc., through its subsidiaries, invests, operates and provides value-added telecom services (“VAS”) and products solutions in China. From 1993 to 2002, Mr. Wang served as a managing director of Thian Bing Investments PTE, Ltd. in Singapore, an investment company in oil seeds planting, edible oil processing, packing materials and the other related industries. Mr. Wang graduated from Hamline University in St. Paul, Minnesota with a Bachelor of Science in 1986 and from the University of Minnesota with a Masters of Business Administration in 1989.

None of the members of the Board of Directors or executive officers of the Company are related to one another.

During fiscal 2002, the following directors had delayed filings of Form 3: Li Dongsheng and Vincent Yan (10 days), and James Jian Liu (20 days). The delay was due to the fact that when the current management took over the Company in June 2001, it needed time to contract a professional agent to do the filing for the Company.

The following four directors did not tender their Form 4 when their association with the Company was terminated: Robert Lo, Chris Ching, Chung-I Chiang, and William Hu.

(D) Code of Ethics

The Company has adopted a code of ethics that applies to all employees, executive officers and all members of our finance department, including the principal accounting officer. The Company will provide a copy of our code of ethics to any person, free of charge, upon written request sent to our principal executive office.

(E) Audit Committee

and Zuoquan Lin are the members of our Audit Committee. The Audit Committee represents the Board of Directors in discharging its responsibility relating to the accounting, reporting and financial practices of the Company and its subsidiaries and shall have general responsibility for surveillance of the systems of internal controls, which management and the Board of Directors have established, the performance and selection of independent auditors, and our audit and financial reporting processes. Opta has no “audit committee financial expert” as defined in Item 401(h) of Regulation S-K and is currently considering whether to retain a financial expert.

Item 11. Executive Compensation

The following table sets forth for the periods presented the compensation for services in all capacities to ~~the~~ the Company of the persons who were the (i) the chief executive officer of the Company, and (ii) the four most highly compensated ~~executive~~executives officers, other than the chief executive officer, who received over $100,000 in compensation during the fiscal year (collectively, the “Named Officers”).

Summary Compensation Table

	Annual Compensation						Long Term Compensation
Name and Principal Position	Year	Salary		Bonus		Other Annual Compensation	Restricted Stock Awards	Securities Underlying Options	LTIP Payouts	All Other Compensation
Vincent Y Yan (1)	2004	$	180,000	$	150,000	—	—	—	—	—$	39,000
President, Chief Executive	2003	120,000		—		—	—	—	—	—
President, Chief	2003	120,000		—		—	—	—	—	39,000
Officer	2002	120,000		—		—	—	—	—	—
Executive Officer	2002	120,000		—		—	—	—	—	22,000
CFO
Steve Davis (2)	2004	$	124,000	$	34,000	—	—	—	—	—
CFO	2003	120,000		—		—	—	—	—	—
	2002	N/A		—		—	—	—	—	—
Sean Wang (3)	2004	$	160,000	—		—	—	—	—	—
COO	2003	N/A		—		—	—	—	—	—
	2002	N/A		—		—	—	—	—	—
	2001	N/A		—		—	—	—	—	—

(1) Mr. Yan has an employment contract with the Company signed on June 29, 2001. The contract was automatically extended for a year on June 30, 2004.

(2) Mr. Davis’s salary is paid by both ~~Lotus~~ Opta and GoVideo. During fiscal 2003, ~~GoVideo~~ GoVideo paid $80,000 and ~~Lotus~~Opta paid $40,000. During fiscal 2004, GoVideo paid $84,000 and ~~Lotus~~Opta paid $40,000. ~~Lotus~~Opta paid Mr. Davis a bonus of $10,000 and GoVideo paid Mr. Davis a $24,000 bonus in fiscal 2004.

(3) Reflects Mr. Wang’s annual salary at the time he was appointed Chief Operating Officer in June 2004.

Stock Options

No current executive officer or ~~director~~ director of the Company holds any stock options. No stock option grants were made during fiscal ~~2003~~2004. No stock appreciation rights were granted during fiscal ~~2003~~2004.

Option Exercises and Holdings

No current executive officer or ~~director~~ director of the Company holds any option, and no options were exercised during ~~fiscal~~ ~~2003.~~fiscal 2004.

Director Compensation

~~For~~During fiscal ~~2003~~2004, non-employee directors of the Company were each ~~paid~~offered $120,000 ~~for~~per ~~each~~year ~~regular~~to serve ~~meeting~~on ofOpta’s ~~the~~ Board of Directors, ~~which~~plus ~~they~~actual out-of-pocket ~~attended~~expenses ~~and~~for ~~$800~~attendance ~~for~~at each ~~special~~board ~~or committee~~ meeting. During ~~of the~~fiscal ~~Board of Directors which they attended~~2004, ~~plus,~~only inone ~~each~~board ~~case, actual~~member ~~out-of-pocket~~accepted ~~expenses~~the ~~for~~$20,000 ~~attendance~~payment. Although ~~Non~~non-employee directors were eligible to receive an option to purchase 5,000 shares of the Company’s common stock for each fiscal year that they serve as Directors~~. For fiscal 2003~~, no ~~directors~~ Director received ~~cash~~such ~~payments or stock~~ options ~~for~~during ~~their~~fiscal ~~service on the Board of the Directors~~2004.

Directors who are also employees of the Company do not receive cash payments or stock options for ~~their service on the~~ ~~Board of the Directors.~~ their

service on the Board of the Directors.

Employment Contracts, Termination of Employment, and Change in Control Agreements

None of the other employees besides Mr. Yan has any employment or severance agreement with the Company and their employment may be terminated at any time at the discretion of the Board of Directors.

On June 29, 2001, the ~~Company~~ Company entered into a one-year employment agreement with Mr. Yan for the positions of President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company. This agreement may be extended for successive one-year periods by the Company and Mr. Yan. For his services, Mr. Yan is paid an annual salary of $~~180~~120,000, asincreased ofto ~~January 1~~$180,000 in fiscal 2004, and an an annual bonus to be determined in the discretion of the ~~Special~~ Compensation Committee of the Board of Directors of the Company. A copy of the employment contract with Vincent Yan was attached in the Company’s Form 10-K filed on October 12, 2001. During fiscal ~~2003~~2004, the employment agreement entered into between the Company and Vincent Yan, CEO and President of the Company, was extended for one year without any changes.

Compensation Committee Interlocks and Insider Participation

The compensation for executive officers of the Company is reviewed and determined on an annual basis by the Compensation Committee of the Company’s Board; the Compensation Committee was approved by the Board in March 2004. The members of the Compensation Committee, Jian Liu and Zuoquan Lin, are independent directors and are not employees of the Company. Neither of them are or were officers or employees of ~~Lotus~~Opta ~~Pacific~~ or any of its subsidiaries.

Before the Compensation Committee was created, compensation was determined by three members of the Board of Directors, Jian Liu and Zuoquan Lin who are independent directors and are not employees of the Company, and Li Dongsheng, Chairman of the Board.

36Compensation Committee Report on Executive Compensation

The role of the Compensation Committee is to oversee our compensation plans and policies, review and set compensation for the Company’s Executive Officers and perform other duties as assigned from time to time by the Board of Directors of the Company.

Base salaries are evaluated annually for all executive officers, and in particular the Chief Executive Officer. In awarding the fiscal 2004 salary increase to the Chief Executive Officer, the Compensation Committee considered a number of different individual, Company and market factors. Specific factors included:

• The Chief Executive Officer’s 2003 base salary was well below market for similar companies. The Compensation Committee felt it is in the best interest of the Company to ensure the Chief Executive Officer’s retention by paying a base salary that is competitive with the market.

• The Chief Executive Officer’s compensation had not been adjusted since the time he was hired.

• The Company, under the direction of the Chief Executive Officer, met strategic goals set by the Board of Directors.

During fiscal 2004, the Company’s President and Chief Executive Officer received a $150,000 bonus as approved by the Compensation Committee. The Compensation Committee based the Chief Executive Officer’s bonus on the following qualitative performance achievements:

• Reviewing prior management’s transactions, which led to the restatement of Opta’s consolidated financial statements for fiscal 2001, 2000 and 1999;

• Successfully arbitrating a financial settlement with Opta’s previous auditors resulting from the restatement discussed above;

• Restructuring and shutting down Opta’s unprofitable subsidiaries; and

• Identifying and implementing a strategic shift in Opta’s focus to consumer electronics.

Now that the Company’s strategic shift has been completed, the determination of the Chief Executive Officer’s future bonuses will place more emphasis on the financial performance of Opta and more qualitative measures including revenue, profitability and cash flow.

Respectfully Submitted:

Compensation Committee

	/s/ LIU, Jian
	LIU, Jian

	/s/ LIN, Zouquan
	LIN, Zouquan

Stock Price Performance Graph

The line graph below compares the cumulative total shareholder return on our ~~Lotus Pacific~~ Opta common stock with the cumulative total return for the Standard & Poor’s SmallCap 600 Index from June 30, ~~1999~~2000 through June 30, 2004 and a peer group of consumer electronic-related companies beginning June 30, 2003. ~~The~~Due to the dramatic shift in business focus ~~graph~~from cable modems and cable-modem related equipment to consumer electronics during fiscal 2003, we are unable to present any meaningful comparisons to peers prior to June 30, 2003. The graph assumes the value of the investment in our ~~Lotus~~Opta ~~Pacific~~ common stock and the SmallCap 600 Index was $100 at June 30, ~~1999~~2000 and $100 investment in consumer electronic-related peer group at June 30, 2003. It also assumes that all dividends paid by those companies included in the indexes were reinvested. No cash dividends have been declared on our ~~Lotus~~ ~~Pacific~~Opta common stock.

~~Comparison of 5 Year Cumulative Total Return* Lotus Pacific, Inc and Standard & Poor’s SmallCap 600 Index~~45

*Comparison ~~$100~~of ~~invested~~5 onYear ~~June 30, 1998 in stock~~Cumulative orTotal ~~index – including reinvestment of dividends. Fiscal year ending June 30.~~Return*

	June 30,
	1999		2000		2001		2002		2003
Lotus Pacific	$	100.00	$	94.05	$	9.05	$	0.57	$	0.38
S&P SmallCap 600	100.00		390.89		429.78		429.22		409.98

Opta Corporation and Standard & Poor’s SmallCap 600 Index

~~Due to the dramatic shift in business~~* ~~focus~~$100 ~~from~~invested ~~cable~~on ~~modems~~June ~~and cable-modem related equipment to consumer electronics during fiscal 2003~~30, we2000 ~~are~~in ~~unable~~stock toor ~~present~~index ~~any~~– ~~meaningful comparisons~~including toreinvestment ~~peers. Therefore, the~~of ~~above graph and table include the S&P SmallCap 600 index only~~dividends. ~~Stockholder~~Fiscal ~~returns~~year ~~over~~ending ~~the~~June ~~indicated period should not be considered indicative of future stockholder returns~~30.

Item 12. Security Ownership of Certain Beneficial Owners and Management

	June 30,
	2000		2001		2002		2003		2004
Opta Corporation	$	100.00	$	9.62	$	0.61	$	0.41	$	0.81

S&P SmallCap 600	100.00		109.95		109.81		104.88		140.65

Consumer Electronic Peer Group							100.00		120.43

The ~~following~~consumer ~~table~~electronic ~~sets~~peer ~~forth~~group is ~~information~~composed ~~with~~of ~~respect to~~ the ~~number~~publicly-traded ofcommon ~~shares~~stock of ~~Common~~several ~~Stock beneficially~~consumer ~~owned~~electronic-related ~~as of June 30, 2004 by (i) all persons who are beneficial owners of~~companies. We ~~five~~believe ~~percent or more of~~ the ~~Company’s~~consumer ~~Common~~electronic ~~Stock,~~peer ~~(ii) the~~group ~~Company’s executive~~is ~~officers~~representative ~~named in the Summary Compensation Table above, (iii) each director and nominee for director~~ of the ~~Company,~~industry ~~and~~in ~~(iv) all~~which ~~current~~we ~~executive~~have ~~officers~~operated ~~and~~since ~~directors~~fiscal ~~as a group as of August 15, 2004:~~ 2003.

37Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.

	Shares of Stock Beneficially Owned (1)	Percentage of Class (1)
Lotus International Holdings Ltd.(2) Suite 13 First Fl., Oliaji Trade Center Francis Rachel Street Victoria, Mahe Republic Of Seychelle	12,000,000	23.7	%
TCL Industries Holdings (HK) Ltd.(3) 13/F TCL Tower 8 Tai Chung Road Tsuen Wan, Hong Kong	9,606,671	18.9	%
LI, Dongsheng	—	—
YAN, Vincent Yong	—	—
LIU, James Jiam	—	—
LIN, Zuoquan	—	—
LIN, Jih-Ming	—	—
DAVIS, Steve	—	—
WANG, Sean	—	—
All directors and executive officers as a group (consisting of 7 persons)	—	—

~~(1)~~Item ~~All~~12. ~~information~~Security isOwnership as of ~~August~~Certain ~~15, 2004~~Beneficial ~~and~~Owners determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, based solely upon information furnished by the persons listed or contained in filings made by them with the Securities and ~~Exchange~~ ~~Commission.~~ Management

The following table sets forth information with respect to the number of shares of Common Stock beneficially owned as of January 31, 2005 by (2i) all ~~Lotus~~persons who ~~International~~are beneficial owners of five percent or more of the Company’s Common ~~Holdings~~Stock, (ii) ~~Ltd.~~the isCompany’s ~~controlled~~executive byofficers ~~TCL~~named ~~Industries~~in ~~Holdings~~the Summary Compensation Table above, (HKiii) ~~Ltd.~~each director and nominee for director of the Company, and (iv) all current executive officers and directors as a group as of January 31, 2005:

(3) TCL Industries Holdings (HK) Ltd. is an affiliate of TCL Holdings Group.

	Shares of Stock Beneficially Owned (1)	Percentage of Class (1)
Lotus International Holdings Ltd.(2) Suite 13 First Fl., Oliaji Trade Center Francis Rachel Street Victoria, Mahe Republic Of Seychelle	16,000,000	32.0	%
TCL Industries Holdings (HK) Ltd.(3) 13/F TCL Tower 8 Tai Chung Road Tsuen Wan, Hong Kong	9,606,671	19.2	%
LI, Dongsheng	—	—
YAN, Vincent Yong	—	—
LIU, James Jiam	—	—
LIN, Zuoquan	—	—
LIN, Jih-Ming	—	—
DAVIS, Steve	—	—
WANG, Sean	—	—
All directors and executive officers as a group (consisting of 7 persons)	—	—

In(1) All ~~May~~information ~~1997,~~is ~~Lotus~~as ~~Pacific~~of ~~granted 1~~January 31,~~090,000~~ ~~options~~2005 ~~to certain officers~~ and ~~key~~determined ~~employees~~in ~~with~~accordance ~~an exercise price~~with ofRule 13d-3 ~~$6.00~~under ~~per share, which was~~ the ~~market~~Securities ~~price~~Exchange Act of ~~Lotus~~1934, ~~Pacific’s~~as ~~common~~amended, ~~stock~~based atsolely ~~the~~upon ~~time~~information offurnished ~~grant. Options~~by ~~were~~the ~~100% vested~~persons ~~when~~listed ~~granted~~or ~~and~~contained ~~expired~~in ~~five~~filings made ~~years~~by ~~from~~them ~~grant~~with ~~date. All~~the ~~options~~Securities ~~expired during fiscal 2002~~ and as ~~such~~Exchange ~~there were no options outstanding as of June 30, 2003~~Commission.

~~The shareholders approved the 2000 Equity Incentive Plan~~ (~~“Incentive Plan”~~2) ~~on April 28, 2000. The Board of~~ ~~Directors~~Lotus ~~administers~~International ~~the Incentive Plan~~Holdings Ltd. ~~Employees,~~is ~~directors,~~controlled ~~and~~by ~~consultants of~~TCL ~~the~~Industries ~~Company and its affiliates, who in the judgment of the Board render~~Holdings ~~significant service to the Company, are eligible to participate~~(HK) Ltd. The Incentive Plan provides for the award of a broad variety of stock-based compensation alternatives such as nonstatutory stock options, incentive stock options, restricted stock, performance awards and stock appreciation rights. The Incentive Plan provided 11,355,000 shares of common stock to be offered. The vesting provisions of individual options may vary. The exercise price shall not be less than 100% of the fair market value of a common stock on the grant date. No options have been granted since the Incentive Plan’s adoption.

~~As part of the 1999 acquisitions of~~(3) ~~Correlant~~TCL ~~and~~Industries ~~Arescom,~~Holdings Lotus Pacific entered into share exchange agreements with both Correlant and Arescom. As stipulated by the agreements, Lotus Pacific set aside a total of 1,708,000 of contingently issuable shares of Lotus Pacific common stock.(HK) ~~The contingent shares were to be issued as Correlant and Arescom stock options, specified in the purchase agreements, were exercised~~Ltd. ~~For~~ ~~each~~is option exercised by a Correlant stock option holder, 81% of such shares were to be transferred to Lotus Pacific in exchange for 0.5364 shares of Lotus Pacific common stock for each share of Correlant stock transferred. For each option exercised by an ~~Arescom~~affiliate ~~stock option holder, 81%~~ of ~~such~~TCL ~~shares~~Holdings ~~were to be transferred to Lotus Pacific in exchange for 0~~Group.02915 shares of Lotus Pacific common stock for each share of Arescom stock transferred. There were a total of 1,017,000, 1,134,000 and 1,550,000 Lotus Pacific shares contingently issuable in connection with both share exchange agreements as of June 30, 2003, 2002 and 2001, respectively. Due to the sale of Arescom, there have been no contingently issuable shares with respect to Arescom options since the date of the sale in December 2001. Due to the wind down of Correlant’s historical operations, there were 3,000 Lotus Pacific shares contingently issuable with respect to the Correlant shares as of June 30, 2004.

38In May 1997, Opta granted 1,090,000 options to certain officers and key employees with an exercise price of $6.00 per share, which was the market price of Opta’s common stock at the time of grant. Options were 100% vested when granted and expired five years from grant date. All such options expired during fiscal 2002 and no such options have been granted since that time.

~~Item~~The shareholders 13approved the 2000 Equity Incentive Plan (“Incentive Plan”) on April 28, 2000. ~~Certain~~ ~~Relationships~~The Board of Directors administers the Incentive Plan. Employees, directors, and ~~Related~~consultants of the Company and its affiliates, who in ~~Transactions~~the judgment of the Board render significant service to the Company, are eligible to participate. The Incentive Plan provides for the award of a broad variety of stock-based compensation alternatives such as nonstatutory stock options, incentive stock options, restricted stock, performance awards and stock appreciation rights. The Incentive Plan provided 11,355,000 shares of common stock to be offered. The vesting provisions of individual options may vary. The exercise price shall not be less than 100% of the fair market value of a common stock on the grant date. No options have been granted since the Incentive Plan’s adoption.

InAs part ~~addition~~of tothe ~~employment~~1999 acquisitions of Correlant and Arescom, Opta entered into share exchange agreements with both Correlant and Arescom. As stipulated by the agreements, Opta set ~~discussed~~aside ina ~~Item~~total 11of 1,708,000 ~~Lotus~~of ~~Pacific~~contingently ~~entered~~issuable ~~into~~shares of Opta common stock. The contingent shares were to be issued as Correlant and Arescom stock options, specified in the ~~following~~purchase ~~transactions~~agreements, were ~~during~~exercised. For ~~fiscal~~each ~~2003~~option ~~required~~exercised by a Correlant stock option holder, 81% of such shares were to be ~~reported~~transferred ~~under~~to Opta ~~Item~~in ~~404~~exchange for 0.5364 shares of ~~Regulation~~Opta ~~S-K:~~common stock for each share of Correlant stock transferred. For each option exercised by an Arescom stock option holder, 81% of such shares were to be transferred to Opta in exchange for 0.02915 shares of Opta common stock for each share of Arescom stock transferred. There were a total of 3,000, 1,017,000 and 1,134,000 Opta shares contingently issuable in connection with both share exchange agreements as of June 30, 2004, 2003 and 2002,

Effective January 30, 2003, Lotus Pacific and TCL, a Lotus Pacific stockholder with holdings of greater than 10% of Lotus Pacific’s outstanding shares, settled all disputes with prior independent accountants of the Company concerning their audits of the Company for fiscal 2001 and prior. The prior auditors deny that they are liable for any damages to Lotus Pacific, but consented to the settlement to avoid the costs of litigation. Pursuant to an agreement dated March 24, 2003 between Lotus Pacific and TCL, Lotus Pacific and TCL agreed on the allocation of the settlement funds, whereby TCL Industries received $6,500,000 in cash, Lotus Pacific received $3,500,000 in cash and Lotus Pacific will be entitled to receive up to an additional $3,500,000 in cash held in an escrow account, plus interest accrued therein. In connection with the agreement, Lotus Pacific and TCL agreed to forbear from bringing claims against each other with respect to the allocation of funds or otherwise.47

~~Subsequent~~respectively. Due to ~~fiscal~~the ~~2003~~sale of Arescom, ~~Lotus~~there ~~Pacific~~have been ~~entered~~no ~~into~~contingently ~~the~~issuable ~~following~~shares ~~transactions~~with ~~required~~respect to beArescom ~~reported~~options ~~under~~since ~~Item~~the ~~404~~date of ~~Regulation~~the ~~S-K:~~sale in December 2001. Due to the wind down of Correlant’s historical operations, Opta shares are no longer contingently issuable.

~~On February 17, 2004, the Lotus Pacific~~In ~~Board~~addition ofto ~~Directors~~employment ~~approved~~agreements ~~the~~discussed ~~repurchase~~in ofItem ~~approximately 623~~11,~~000~~ ~~shares~~Opta ~~of Lotus~~entered ~~Pacific~~into ~~common~~the following ~~stock~~transactions atduring ~~$0.30~~fiscal ~~per~~2004 ~~share~~required ~~from~~to ~~Gordon~~be ~~Lum. Mr.~~reported ~~Lum~~under ~~was~~Item ~~appointed as a Class II Director~~404 of ~~the~~Regulation ~~Company on August 6, 2001. In connection with the stock repurchase, Mr. Lum resigned from the Board of Directors.~~ S-K:

On September ~~July 7~~30, ~~2004~~2003, ~~the~~Opta ~~Company’s~~sold ~~Board~~its ~~of Directors~~entire ~~approved~~equity ~~the~~interest ~~commencement~~in ofTCL aDigital ~~new~~to ~~wholly-owned~~TCL Information ~~subsidiary,~~for ~~GoVideo DigiTech~~a ~~(Huizhou)~~cash ~~Co.,~~price ~~Ltd.~~of ~~(“DigiTech”)~~approximately $5,600,000 ~~which~~US ~~will~~dollars. The beCompany ~~located~~invested ~~in Guangdong~~$5,280,000 US dollars ~~China. DigiTech~~to ~~will~~acquire ~~market~~the ~~GoVideo’s MP3~~sold ~~players~~equity in TCL Digital. ~~The~~ ~~Company~~TCL ~~plans~~Information tois ~~invest approximately~~an ~~$500~~affiliate of TCL,~~000~~ ina ~~the~~stockholder ~~new~~of ~~subsidiary~~the Company. Li Dongsheng ~~TCL~~and ~~Multimedia~~Vincent ~~Electronics R&D~~Yan, ~~Center~~directors ~~(“TCL~~of ~~Multimedia”)~~the Company, anare ~~affiliate~~directors ~~company~~and officers of TCL International, isa ~~currently expending~~publicly ~~some~~traded ~~resources~~company ~~during~~on the ~~start~~Hong upKong ~~phase~~Stock Exchange (HKSE: 1070.HK), an affiliate of ~~DigiTech~~TCL.

~~Item 14 —~~On February ~~Principal~~17, ~~Accounting~~2004, ~~Fees~~the Opta Board of Directors approved the repurchase of ~~and~~approximately ~~Services~~623,000 shares of Opta common stock at $0.30 per share from Gordon Lum. Mr. Lum was appointed as a Class II Director of the Company on August 6, 2001. In connection with the stock repurchase, Mr. Lum resigned from the Board of Directors.

~~The~~In ~~following~~June ~~table~~2003, isGoVideo aborrowed ~~summary~~substantial offunds ~~the fees~~from ~~that~~TCL ~~Lotus~~Industries and ~~paid~~Asia orFocus ~~accrued~~Industrial ~~for~~Ltd., ~~the~~entities ~~audit~~affiliated ~~and~~with ~~other~~TCL, ~~services~~to ~~provided~~fund byinventory ~~Hein~~purchases ~~from~~and ~~the~~operating ~~date~~expenses. These advances, ~~Hein~~which ~~was~~are ~~engaged~~subordinate ~~through~~to ~~the~~GoVideo’s ~~date~~line of ~~this~~credit, ~~filing~~were originally due at various dates during 2004. ~~Hein~~ Principal ~~was~~and ~~engaged~~interest ~~March~~payments 25of $282,000 ~~2002~~were tomade ~~audit~~by ~~the~~GoVideo during ~~year~~fiscal ~~ended~~2004. Interest on these loans accrued during fiscal 2004 totaled $240,000. As of June 30, ~~2002~~2004, ~~and~~the ~~July~~balance 24due on these loans totaled $6,241,000. GoVideo ~~2002~~was ~~for~~unable to pay off the ~~reaudit~~loans and extended each of the ~~years~~loan’s ~~ended June~~due ~~30,~~dates ~~2001,~~three ~~2000~~times. The ~~and~~current ~~1999~~due date for the loan with TCL Industries is July 24, 2005. AsThe acurrent due date ~~result~~for the loan with Asia Focus Industrial Ltd. is August 11, ~~fees~~2005. Both ~~included~~loans inare ~~fiscal~~collateralized ~~2002~~by ~~include~~100% of the Common ~~fees~~and Preferred Series D stock of Correlant Communications owned by Opta. There can be no assurance that GoVideo will be able to ~~reaudit~~pay the ~~years ended~~loans ~~June~~when ~~30,~~they ~~2001,~~mature ~~2000~~or ~~and~~that ~~1999~~another extension can be successfully negotiated.

Fee Category	Year ended June 30, 2004		Year ended June 30, 2003		Year ended June 30, 2002
Audit fees	$	—	$	175,000	$	682,000
Audit-related fees	7,000		15,000		7,000
Tax fees	125,000		93,000		—

On October 22, 2003 Opta entered an additional agreement with TCL Industries to borrow $4,500,000 with a maturity date of January 22, 2004 and an interest rate of approximately 3%. Opta ultimately loaned the funds to GoVideo to fund inventory purchases and operating expenses. When the original agreement matured in January 2004, Opta paid the accrued interest of $35,000 and extended the principal six months until August, 2004. As of June 30, 2004 the principal and interest balance due on the note totaled $4,554,000. The original loan agreement has been extended for two additional six month terms. The new maturity date is July 21, 2005. The loan is secured by all of the Common and Series D Preferred Stock of Correlant held by Opta.

~~Audit Fees. Consists of fees billed for~~Subsequent ~~professional~~to services rendered for the audit and restatement of our consolidated financial statements and review of our interim consolidated financial statements included in quarterly reports and services that are normally provided by Hein in connection with statutory and regulatory filings or engagements. Because the fiscal 2004 ~~audit has not commenced as of the date of this filing~~, ~~there~~Opta ~~are~~entered nointo ~~related fees included in~~ the ~~above~~following ~~table. All fees~~transactions ~~associated~~required ~~with~~to ~~the fiscal 2004 audit will~~ be reported ~~included~~under inItem ~~the~~404 ~~Company’s fiscal~~of ~~2004~~Regulation ~~Form 10~~S-K~~, which will be filed upon completion.~~:

~~Audit~~On July 7, 2004, the Company’s Board of Directors approved the commencement of a new wholly-~~Related~~owned ~~Fees~~subsidiary, GoVideo DigiTech (Huizhou) Co., ~~Consists~~Ltd. of(“DigiTech”), which ~~fees~~will ~~billed~~be ~~for~~located ~~assurance~~in Guangdong, China. ~~and~~DigiTech ~~related~~will ~~services~~market ~~that~~GoVideo’s ~~are~~MP3 ~~reasonably~~players. The ~~related~~Company plans to ~~the~~invest ~~performance~~approximately $500,000 ofin the new subsidiary. TCL ~~audit~~Multimedia orElectronics ~~review~~R&D Center (“TCL Multimedia”), an affiliate company of ~~our~~TCL, ~~consolidated~~is ~~financial~~currently ~~statements~~expending ~~and~~some ~~are~~resources ~~not~~during ~~reported under~~the ~~“Audit~~start ~~fees~~up phase of DigiTech.” On ~~These~~July ~~services~~7, ~~include~~2004, ~~employee~~the ~~benefit~~Company’s Board ~~plan~~of ~~audits,~~Directors approved the closure of Beijing Lotus. All assets of Beijing Lotus were transferred ~~accounting~~to ~~consultations~~DigiTech induring ~~connection~~September, ~~with~~2004.

39Item 14 — Principal Accounting Fees and Services

~~acquisitions,~~The following ~~attest~~table ~~services~~is a summary of the fees that ~~are~~Opta paid or accrued for the ~~not~~audit ~~required~~and other services provided by ~~statute~~Hein orfrom ~~regulation,~~the ~~and~~date ~~consultations~~Hein ~~concerning~~was ~~financial~~engaged ~~accounting~~through ~~and~~the ~~reporting~~date ~~standards.~~of this filing.

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, mergers and acquisitions, and international tax planning.

Fee Category	Year ended June 30, 2004		Year ended June 30, 2003

Audit fees	$	221,000	$	175,000

Audit-related fees	7,000		15,000

Tax fees	125,000		93,000

Policy Related to Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. Our Audit Committee’s has a policy of pre-approving all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. 48

~~PART~~Audit IVFees. Consists of fees billed for professional services rendered for the audit and restatement of our consolidated financial statements and review of our interim consolidated financial statements included in quarterly reports and services that are normally provided by Hein in connection with statutory and regulatory filings or engagements.

~~Item~~Audit-Related 15Fees. ~~Exhibits,~~ ~~Financial~~Consists ~~Statement~~of ~~Schedules~~fees billed for assurance and related services that are ~~Reports~~reasonably onrelated ~~Form~~to ~~8-K~~the performance of the audit or review of our consolidated financial statements and are not reported under “Audit fees.” These services include employee benefit plan audits, accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

~~(a) Documents~~Tax ~~filed~~Fees. asConsists ~~part~~ of ~~this~~fees ~~report~~billed for professional services for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, mergers and acquisitions, and international tax planning.

1Other. ~~Financial~~ No other fees have been billed ~~Statements~~for products and services billed by our accountants.

~~(i) Report~~Policy Related to Audit Committee Pre-Approval of ~~Hein~~Audit and Permissible &Non-Audit ~~Associates~~Services ~~LLP,~~ of Independent Auditors. Our Audit Committee’s has a policy of pre-approving all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

~~(ii) Consolidated Balance Sheets~~49

~~(iii) Consolidated Statements~~PART ~~of Operations~~IV

~~(iv) Consolidated Statements~~Item of15. ~~Stockholders’~~Exhibits, ~~Equity~~Financial Statement Schedules and Reports on Form 8-K

(va) ~~Consolidated Statements~~ Documents filed as part of ~~Cash~~this ~~Flows~~report.

~~(vi) Notes to Consolidated~~ 1. Financial Statements

2. (i) Report of Hein & Associates LLP, Independent Auditors (ii) Consolidated Balance Sheets (iii) Consolidated Statements of Operations (iv) Consolidated Statements of Stockholders’ Equity (v) Consolidated Statements of Cash Flows (vi) Notes to Consolidated Financial ~~Statement~~ ~~Schedules~~Statements

~~All schedules~~2. Financial ~~are~~Statement ~~omitted~~Schedules ~~because they are not applicable or the required information is shown in the financial statements or related notes.~~

3All schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes. ~~Exhibits~~

Exhibit Number	Description of Exhibit	Method of Filing
3.1	Certificate of Amendment of Certificate of Incorporation dated as May 25, 1999	Incorporated by reference to Exhibit 3.1 to Form 10/A, filed June 17, 1999
3.2	Certificate of Amendment of Certificate of Incorporation dated as June 15, 1998	Incorporated by reference to Exhibit 3.1 to Form 10, filed October 27, 1998
3.3	Certificate of Incorporation, as amended	Incorporated by reference to Exhibit 3.2 to Form 10, filed October 27, 1998
3.4	Amended and Restated Bylaws	Incorporated by reference to Exhibit 3.3 to Form 10—K, filed October 13, 2000
3.5	Amendment to Bylaws	Incorporated by reference to Exhibit 99.1 to Form 8K, filed July 2, 2001
10.1	2000 Equity Incentive Plan	Incorporated by reference to Exhibit A to Proxy Statement on Schedule 14A filed April 4, 2000
10.2	Agreement dated September 30, 2000, between the registrant and TurboNet Communications (now Correlant Communications, Inc.)	Incorporated by reference to Exhibit 10.10 to Form 10—K, filed October 13, 2000
10.3	Lotus Pacific Inc., Executive Employment Agreement	Incorporated by reference to Exhibit 10.11 to Form 10—K, filed October 15, 2001
10.4	Opta Systems, LLC dba GoVideo Executive Employment Agreement	Incorporated by reference to Exhibit 10.4 to Form 10—K, filed April 16, 2004
10.5	Exchange Agreement between Registrant and ARESCOM Inc. dated December 11, 2001	Incorporated by reference to Exhibit 10.5 to Form 10—K, filed April 16, 2004
10.6	Stock Purchase Agreement between Registrant and Solomon Extreme International Ltd. dated December 11, 2001	Incorporated by reference to Exhibit 10.6 to Form 10—K, filed April 16, 2004

3. Exhibits

Exhibit Number	Description of Exhibit	Method of Filing
3.1	Certificate of Incorporation, as amended	Filed herewith
3.2	Amended and Restated Bylaws	Incorporated by reference to Exhibit 3.2 to Form 10, filed October 27, 1998
3.3	Amendment to Bylaws	Incorporated by reference to Exhibit 99.1 to Form 8-K, filed July 2, 2001
10.1	2000 Equity Incentive Plan	Incorporated by reference to Exhibit A to Proxy Statement on Schedule 14A filed April 4, 2000
10.2	Opta, Executive Employment Agreement	Incorporated by reference to Exhibit 10.11 to Form 10-K, filed October 15, 2001
10.3	Opta Systems, LLC dba GoVideo Executive Employment Agreement	Incorporated by reference to Exhibit 10.4 to Form 10-K, filed April 16, 2004
10.4	Acquisition Agreement of TCL Digital dated January 18, 2003	Incorporated by reference to Exhibit 10.7 to Form 10-K, filed April 16, 2004
10.5	Opta LLC Interest Purchase Agreement between Registrant and Carmco Investment, LLC, dated April 17, 2003	Incorporated by reference to Exhibit 10.8 to Form 10-K, filed April 16, 2004
10.6	Sale agreement of TCL Digital dated December 20, 2003	Incorporated by reference to Exhibit 10.9 to Form 10-K, filed April 16, 2004
10.7	Current Lease – GoVideo Office Lease	Incorporated by reference to Exhibit 10.10 to Form 10-K, filed April 16, 2004
10.8	Current Lease – Go Video Lease for Commercial Space	Incorporated by reference to Exhibit 10.11 to Form 10-K, filed April 16, 2004
10.9	Current Lease – Opta Corporation Executive Office Lease	Filed herewith
10.10	Debt agreement between GoVideo and T.C.L. Industries Holdings (H.K.) Limited, dated June 28, 2003, as amended	Filed herewith
10.11	Debt agreement between GoVideo and Asia Focus Industrial Ltd., dated June 12, 2003, as amended	Filed herewith

10.7	Acquisition Agreement of TCL Digital dated January 18, 2003	Incorporated by reference to Exhibit 10.7 to Form 10—K, filed April 16, 2004
10.8	Opta LLC Interest Purchase Agreement between Registrant and Carmco Investment, LLC, dated April 17, 2003	Incorporated by reference to Exhibit 10.8 to Form 10—K, filed April 16, 2004
10.9	Sale agreement of TCL Digital dated December 20, 2003	Incorporated by reference to Exhibit 10.9 to Form 10—K, filed April 16, 2004
10.10	Current Lease – GoVideo Office Lease	Incorporated by reference to Exhibit 10.10 to Form 10—K, filed April 16, 2004
10.11	Current Lease – Go Video Lease for Commercial Space	Incorporated by reference to Exhibit 10.11 to Form 10—K, filed April 16, 2004
16.1	Letter re Change in Certifying Accountant	Incorporated by reference to Exhibit 16.1 to Form 8—K, filed April 12, 2002
16.2	Letter re Change in Certifying Accountant	Incorporated by reference to Exhibit 16.2 to Form 8—K, filed June 4, 2002
21	List of Subsidiaries	Filed herewith
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Chief Executive Officer Pursuant to Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of Chief Financial Officer Pursuant to Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

(b) Reports on Form 8-K.

10.12	Debt agreement between Opta and T.C.L. Industries Holdings (H.K.) Limited, dated October 21, 2003, as amended	Filed herewith
21	List of Subsidiaries	Filed herewith
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Chief Executive Officer Pursuant to Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of Chief Financial Officer Pursuant to Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

~~During the fourth quarter ended June 30, 2003, the registrant filed the following reports on Form 8-K:~~ 51

Date Filed	Item Number	Description
April 1, 2003	Items 5 and 9	The Company announced that a Special Meeting of the Stockholders of Correlant was held on March 28, 2003. At the meeting, Hein & Associates LLP was selected as independent accountants and auditors of Correlant for the fiscal year ending June 30, 2003. The Company also announced that members of Correlant’s management made a presentation at the meeting regarding Correlant’s past operations and future prospects.
April 25, 2003	Item 5	The Company announced that it purchased 100% of the outstanding membership interests of Opta Systems, LLC, a Delaware limited liability company.

Signatures

41Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signatures

Signature	Title	Date

/s/ YAN, Vincent Yong	President, Chief Executive Officer, Director	February 14, 2005
YAN, Vincent Yong

/s/ DAVIS, Steve	Chief Financial Officer (Principal Accounting Officer)	February 14, 2005
DAVIS, Steve

Pursuant to the requirements of ~~Section 13~~ ~~and 15(d) of~~ the Securities Exchange Act of 1934, ~~the registrant~~this report has been ~~duly~~signed ~~caused~~below ~~this~~by ~~report~~the tofollowing bepersons ~~signed~~in onthe ~~its~~capacities ~~behalf~~and byon the ~~undersigned,~~ ~~thereunto duly authorized~~dates indicated.

Signature	Title	~~Title~~	Date	~~Date~~
/s/ Vincent Yong YAN		President, Chief Executive Officer, Director		August 24, 2004
/s/ LI, Dongsheng	Chairman of the Board		February 14, 2005
Vincent Yong YAN
LI Dongsheng
/s/ Steve DAVIS		Chief Financial Officer (Principal Accounting Officer)		August 24, 2004
/s/ YAN, Vincent Yong	President, Chief Executive Officer, Director		February 14, 2005
Steve DAVIS
YAN, Vincent Yong
/s/ LIU, Jian	Director		February 14, 2005
LIU, Jian
/s/ LIN, Zouquan	Director		February 14, 2005
LIN, Zouquan

~~Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.~~ 52

Signature	Title	Date
/s/ Dongsheng LI	Chairman of the Board	August 24, 2004
Dongsheng LI
/s/ Vincent Yong YAN	President, Chief Executive Officer, Director	August 24, 2004
Vincent Yong YAN
/s/ Jian LIU	Director	August 24, 2004
Jian LIU
/s/ Zouquan LIN	Director	August 24, 2004
Zouquan LIN

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Financial Statements: Report of Independent Auditors. Consolidated Balance Sheets as of June 30, 2003 and 2002 Consolidated Statements of Operations for the years ended June 30, 2003, 2002 and 2001 Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended June 30, 2003, 2002 and 2001. Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002 and 2001. Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of June 30, 2004 and 2003

Consolidated Statements of Operations for the years ended June 30, 2004, 2003 and 2002

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended June 30, 2004, 2003 and 2002.

Consolidated Statements of Cash Flows for the years ended June 30, 2004, 2003 and 2002.

Notes to Consolidated Financial Statements

Financial Statement Schedules:

All schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

~~Lotus Pacific, Inc.~~Opta Corporation

We have audited the accompanying consolidated balance sheets of ~~Lotus~~Opta ~~Pacific, Inc.~~Corporation and subsidiaries as of June 30, 2004 ~~2003~~ and ~~2002~~2003, and the related consolidated statements of operations, stockholders’ equity ~~and comprehensive income~~, and cash flows for each of the three years in the period ended June 30, ~~2003, 2002 and 2001~~2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

~~Except~~We ~~as explained in the following paragraph, we~~ conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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~~ significant estimates made by management, as well as evaluating the overall ~~financial~~ financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

WeIn our ~~were~~opinion, ~~unable~~the consolidated financial statements referred to ~~audit~~above present ~~the~~fairly, ~~financial~~in ~~information~~all ofmaterial ~~one~~respects, of the ~~Company’s~~financial ~~significant~~position ~~subsidiaries~~of ~~that~~Opta Corporation isand ~~consolidated~~subsidiaries inas ~~the~~of June 30, ~~2001~~2004 ~~financial~~and ~~statements~~2003, asand ~~discontinued operations because~~ the ~~subsidiary~~results ~~would~~of ~~not~~their operations ~~provide~~and ~~the~~their ~~necessary~~cash ~~information to~~flows ~~allow~~for useach toof ~~complete~~ the ~~audit. Due to~~three years in the ~~subsidiary’s~~period ~~lack~~ended June of30, ~~cooperation~~2004, wein ~~were~~conformity ~~unable~~with toaccounting ~~satisfy~~principles ~~ourselves about~~generally accepted in the ~~subsidiary’s~~United ~~account~~States ~~balances by means~~ of ~~other auditing procedures~~America.

~~Because~~The ofaccompanying ~~the~~financial ~~matter~~statements have been prepared assuming that the Company will continue as a going concern. As discussed in ~~the~~Note ~~preceding~~2 ~~paragraph~~to the financial statements, the ~~scope~~Company incurred net losses of ~~our~~$7,722,000, ~~work~~$6,366,000 ~~was~~and $18,975,000 ~~not~~during ~~sufficient~~fiscal 2004, 2003 and 2002, respectively, resulting in an toaccumulated ~~enable~~deficit usof to$105,611,000 ~~express~~at June 30, 2004 and wethe doCompany’s ~~not~~sole operating ~~express~~subsidiary, anGoVideo, ~~opinion~~was, onand still is, in default under certain debt covenant provisions of its line of credit. This raises substantial doubt about the ~~consolidated~~Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements ~~for~~do not include any adjustments that might result from the ~~year~~outcome ~~ended~~of ~~June 30,~~this ~~2001~~uncertainty.

In our opinion, the June 30, 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of Lotus Pacific, Inc. and subsidiaries as of June 30, 2003 and 2002, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

HEIN & ASSOCIATES LLP

Orange ~~County~~, California

~~June 15,~~September 24, 2004, except for Notes 2 and 20 which are as of February 9, 2005

~~LOTUS PACIFIC, INC.~~F-2

~~CONSOLIDATED~~OPTA CORPORATION CONSOLIDATED BALANCE SHEETS(in thousands)

(in thousands)

	June 30,
	2004			2003

ASSETS

Current assets:
Cash and cash equivalents	$	3,037		$	12,044
Short-term investments	17,643			13,964
Accounts receivable, net	25,528			6,847
Accounts receivable from related parties, net	—			39
Inventories, net	18,004			6,438
Notes and interest receivable from related parties, net	—			1,592
Income tax receivable	909			2,475
Prepaid expenses and other current assets	2,270			876
Total current assets	67,391			44,275

Property and equipment, net	1,083			1,068
Tradename	2,420			2,420
Goodwill	—			1,795
Investment in joint venture	—			3,378
Other assets	226			51
	$	71,120		$	52,987

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Line of credit	$	15,833		$	—
Notes and interest payable to related parties	10,795			6,283
Accounts payable	12,496			2,903
Accounts payable to related parties	170			73
Accrued restructuring charges	796			—
Accrued expenses	1,739			2,792
Warranty reserve	490			688
Income tax payable	27			91
Total current liabilities	42,346			12,830

Commitments and contingencies (Notes 2 and 16)

Non-controlling interest in subsidiaries	8,425			9,592

Stockholders’ equity:
Preferred stock Series A, $.001 par value: 100 shares authorized, 4 shares issued and outstanding at June 30, 2004 and 2003; $10 per share liquidation preference	—			—
Common stock, $.001 par value: 100,000 shares authorized; 64,241 shares issued and 50,724 outstanding at June 30, 2004 and 64,236 shares issued and 61,233 outstanding at June 30, 2003	64			64
Additional paid-in capital	128,431			128,469
Less: treasury stock at cost, 13,517 shares at June 30, 2004 and 3,003 shares at June 30, 2003	(2,410		)	(150		)
Accumulated deficit	(105,611		)	(97,889		)
Accumulated other comprehensive income	(125		)	71
Total stockholders’ equity	20,349			30,565
	$	71,120		$	52,987

	June 30,
	2003			2002
ASSETS
Current assets:
Cash and cash equivalents	$	12,044		$	32,647
Short-term investments	13,964			4,959
Accounts receivable, net	6,847			281
Accounts receivable from related parties, net	39			7,075
Inventories, net	6,438			—
Notes and interest receivable from related parties, net	1,592			3,522
Income tax receivable	2,475			3,201
Prepaid expenses and other current assets	876			283
Total current assets	44,275			51,968
Property and equipment, net	1,068			1,323
Tradename	2,420			—
Goodwill	1,795			—
Investment in joint venture	3,378			—
Other assets	51			51
	$	52,987		$	53,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable to related parties	$	6,283		$	—
Accounts payable	2,903			4,045
Accounts payable to related parties	73			247
Accrued expenses	2,792			714
Warranty reserve	688			—
Income tax payable	91			—
Total current liabilities	12,830			5,006
Commitments and contingencies (Note 14)
Non-controlling interest in subsidiaries	9,592			11,776
Stockholders’ equity:
Preferred stock Series A, $.001 par value: 100 shares authorized, 4 shares issued and outstanding at June 30, 2003 and 2002; $10 per share liquidation preference and June 30, 2002	—			—
Common stock, $.001 par value: 100,000 shares authorized; 64,236 shares issued and 61,233 outstanding at June 30, 2003 and 64,233 shared issued and outstanding at June 30, 2002	64			64
Additional paid-in capital	128,469			128,019
Less: treasury stock at cost, 3,003 shares at June 30, 2003	(150		)	—
Accumulated deficit	(97,889		)	(91,523		)
Accumulated other comprehensive income	71			—
Total stockholders’ equity	30,565			36,560
	$	52,987		$	53,342

The accompanying notes are an integral part of these consolidated financial statements.

F-3

~~LOTUS~~OPTA CORPORATION ~~PACIFIC~~CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, ~~INC.~~except per share amounts)

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended June 30,
	2004			2003			2002

Net revenues:
Products	$	125,161		$	10,000		$	5,090
Products – related party	163			9,454			50,416
Other – related party	—			—			374
Total net revenues	125,324			19,454			55,880

Cost of net revenues:
Products	114,597			7,936			5,395
Products – related party	92			7,258			44,546
Write down of inventory to lower of cost or market	510			238			—
Total cost of net revenues	115,199			15,432			49,941

Gross profit	10,125			4,022			5,939

Operating expenses:
General and administrative (includes amounts to related parties of $0, $0 and $46, respectively)	8,199			7,838			5,661
Sales and marketing	4,604			652			358
Restructuring charges	1,845			—			—
Research and development	2,637			7,513			9,392
Depreciation and amortization	215			486			12,048
Impairment of assets	1,831			498			20,071
Total operating expenses	19,331			16,987			47,530

Loss from operations	(9,206		)	(12,965		)	(41,591		)

Other income (expense):
Gain on sale of investments	1,053			—			—
Interest income	552			545			851
Interest expense	(1,166		)	(16		)	(65		)
Equity in loss of joint venture	(647		)	(62		)	—
Other	130			3,650			(148		)
Total other income (expense), net	(78		)	4,117			638
Loss from continuing operations before income taxes and non-controlling interest	(9,284		)	(8,848		)	(40,953		)
Benefit for income taxes	(498		)	(109		)	(3,181		)
Loss from continuing operations before non-controlling interest	(8,786		)	(8,739		)	(37,772		)

Non-controlling interest in loss of consolidated subsidiaries	1,064			2,373			1,243

Loss from continuing operations	(7,722		)	(6,366		)	(36,529		)

Discontinued operations, net of tax:
Gain from sale of discontinued operations, including applicable tax benefit of $1,802	—			—			16,765
Gain from discontinued operations, less applicable tax	—			—			789
Total gain from discontinued operations, net of tax	—			—			17,554

Net loss	$	(7,722	)	$	(6,366	)	$	(18,975	)

Net loss per common share – basic and diluted:
Loss from continuing operations	$	(0.14	)	$	(0.10	)	$	(0.57	)
Gain from discontinued operations	—			—			0.27
Net loss	$	(0.14	)	$	(0.10	)	$	(0.30	)

Weighted average common shares outstanding – basic and diluted	53,994			63,144			64,233

(in thousands, except per share amounts)

	Year Ended June 30,
	2003			2002			2001
Net revenues:
Products	$	10,049		$	5,090		$	78,121
Products – related party	9,454			50,416			183,845
Other – related party	—			374			1,226
Total net revenues	19,503			55,880			263,192
Cost of net revenues:
Products	7,936			5,395			62,695
Products – related party	7,258			44,546			164,013
Write down of inventory to lower of cost or market	238			—			3,893
Total cost of net revenues	15,432			49,941			230,601
Gross profit	4,071			5,939			32,591
Operating expenses:
Selling, general and administrative (includes amounts to related parties of $0, $46 and $3, respectively)	9,097			6,019			14,072
Depreciation and amortization	486			12,048			12,020
Research and development	6,906			9,392			16,214
Impairment of assets	498			20,071			—
Total operating expenses	16,987			47,530			42,306
Loss from operations	(12,916		)	(41,591		)	(9,715		)
Other income (expense):
Gain on sale of investments	—			—			3,560
Interest income	545			851			920
Interest expense	—			(65		)	(24		)
Equity in earnings of joint venture	(62		)	—			—
Other	3,585			(148		)	(7,393		)
Total other income (expense), net	4,068			638			(2,937		)
Income (loss) from continuing operations before income taxes and non-controlling interest	(8,848		)	(40,953		)	(12,652		)
Provision (benefit) for income taxes	(109		)	(3,181		)	(6,434		)
Loss from continuing operations before non-controlling interest	(8,739		)	(37,772		)	(6,218		)
Non-controlling interest in (income) loss of consolidated subsidiaries	2,373			1,243			(1,215		)
Loss from continuing operations	(6,366		)	(36,529		)	(7,433		)
Discontinued operations, net of tax:
Gain from sale of discontinued operations, including applicable tax benefit of $1,802	—			16,765			—
Gain (loss) from discontinued operations, less applicable tax	—			789			(28,973		)
Total gain (loss) from discontinued operations, net of tax	—			17,554			(28,973		)
Net loss	$	(6,366	)	$	(18,975	)	$	(36,406	)
Net loss per common share – basic and diluted:
Loss from continuing operations	$	(0.10	)	$	(0.57	)	$	(0.12	)
Gain (loss) on discontinued operations	—			0.27			(0.45		)
Net loss	$	(0.10	)	$	(0.30	)	$	(0.57	)
Weighted average common shares outstanding – basic and diluted	63,144			64,233			64,232

The accompanying notes are an integral part of these consolidated financial statements.

F-4

~~LOTUS~~OPTA CORPORATION ~~PACIFIC~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED JUNE 30, ~~INC.~~2004, 2003 AND 2002(in thousands)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

	Comprehensive Income								Additional Paid-in Capital		Stock Warrants		Treasury Stock		Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Equity

			Preferred Stock			Common Stock
			Shares	Amount		Shares	Amount
Balances at June 30, 2001	$	—	4	$	—	64,233	$	64	$	126,732	$	80	$	—	$	(72,548	)	$	—	$	54,328
Issuance of stock by subsidiary	—		—	—		—	—		4		—		—		—			—		4
Compensation expense recognized by subsidiaries upon issuance of options and warrants	—		—	—		—	—		1,203		—		—		—			—		1,203
Expiration of stock warrants	—		—

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