SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________.
Commission File No. 0-22049
S.W. LAM, INC.
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(Exact name of registrant as specified in its charter)
Nevada 62-1563911
- -------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Unit 25-32, 2nd Floor, Block B, Focal Industrial Centre
Man Lok Street, Hunghom, Hong Kong
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(Address of principal executive offices)
(852) 2766 3688
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(Registrant's telephone number, including area code)
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
As of June 1, 1998, 12,800,000 shares of Common Stock of the issuer were
outstanding.
S.W. LAM, INC. AND SUBSIDIARIES
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 and
March 31, 1998......................................... 1
Consolidated Statements of Operations - For the
three months ended June 30, 1998 and June 30, 1997..... 2
Consolidated Statements of Cash Flows - For the
three months ended June 30, 1998 and June 30, 1997..... 3
Notes to Consolidated Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 5
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 7
SIGNATURES............................................................... 8
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US$,000)
(Unaudited)
March 31, June 30,
ASSETS 1998 1998
-------- --------
Current assets:
Cash and cash equivalents $ 2,094 $ 4,608
Accounts receivable, net 10,248 10,101
Inventory 13,077 13,834
Prepayments and other current assets 395 1,255
------ ------
Total current assets 25,814 29,798
Property, plant and equipment, and capital leases, net 19,853 20,337
------ ------
Total assets $45,667 $50,135
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 5,618 $ 9,017
Long-term bank loans, current portion 293 359
Capital lease obligations, current portion 1,106 1,073
Accounts payable 2,880 2,523
Deposits from customers - 191
Accrued liabilities 4,880 4,631
Convertible short term loan 10,000 0
Income tax payable 1,173 1,585
Due to director 1,034 580
------ ------
Total current liabilities 26,984 19,959
Long-term bank loans, non-current portion 1,189 1,104
Capital lease obligations, non current portion 1,933 1,622
Deferred taxation 1,283 1,283
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Total liabilities 31,389 23,968
------ ------
Stockholders' Equity:
Preferred stock 0 0
Common stock 13 13
Additional paid-in capital 511 511
Minority interest 0 10,000
Retained earnings 13,628 15,491
Cumulative translation adjustments 126 152
------ ------
Total stockholders' equity 14,278 26,167
------ ------
Total liabilities and stockholders' equity $45,667 $50,135
====== ======
The accompanying notes are an integral part of these consolidated
financial statements
1
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US$,000, except per share data)
(Unaudited)
Three Months Ended June 30,
---------------------------
1997 1998
---------- ----------
Revenues:
Net sales $ 12,352 $ 16,003
Subcontracting fees 1,575 479
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Total revenues 13,927 16,482
Cost of sales and services (10,327) (12,600)
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Gross profit 3,600 3,882
Selling, general and administrative expenses (1,409) (1,354)
------- -------
Operating income 2,191 2,528
------- -------
Other income (expense), net:
Interest expenses (529) (338)
Interest income 7 66
Other income 61 20
------- -------
Total other income (expense), net (461) (252)
------- -------
Income before income taxes 1,730 2,276
Provision for income taxes (142) (413)
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Net income $ 1,588 $ 1,863
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Basic income per share $ 0.12 $ 0.15
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Weighted average shares outstanding 12,800,000 12,800,000
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements
2
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$,000)
(Unaudited)
Three Months Ended June 30,
---------------------------
1997 1998
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Cash flows from operating activities:
- ------------------------------------
Net income 1,588 1,863
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation of property, plant and equipment 614 290
(Increase) Decrease in operating assets -
Accounts receivable, net 1 147
Inventories (2,417) (757)
Prepayments and other current assets (892) (860)
Due from a director (204) (454)
(Decrease) Increase in operating liabilities -
Accounts payable 609 (357)
Deposits from customers (925) 191
Accrued liabilities 26 (249)
Income taxes payable 142 412
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Net cash provided by operating activities (1,458) 226
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Cash flows from investing activities:
- -------------------------------------
Additions to property, plant and equipment (3,748) (774)
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Net cash used in investing activities (3,748) (774)
-------- --------
Cash flows from financing activities:
- -------------------------------------
Net proceeds from issuance of preference share by a subsidiary - 10,000
Net (decrease) increase in short-term bank borrowings (49) 3,399
Net (decrease) increase in convertible short-term loan 10,000 (10,000)
Additions of capital lease obligations 204 2,138
Repayment of capital element of capital lease obligations (285) (2,482)
Additions of long-term bank loans 388 -
Repayment of long-term bank loans (61) (19)
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Net cash provided by financing activities 10,197 3,036
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Effect of exchange rate changes in cash 3 26
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Net increase in cash 4,994 2,514
Cash and cash equivalents, as of beginning of period 94 2,094
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Cash and cash equivalents, as of end of period $ 5,088 $ 4,608
======== ========
The accompanying notes are an integral part of these consolidated
financial statements
3
S.W. LAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
1. INTERIM PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These statements include the
accounts of S.W. Lam, Inc. and all of its wholly owned and majority owned
subsidiary companies. The March 31, 1998 balance sheet data was derived
from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The interim financial
statements and notes thereto should be read in conjunction with the
financial statements and notes included in the Company's Form 10-K for the
year ended March 31, 1998. In the opinion of management, the interim
financial statements reflect all adjustments of a normal recurring nature
necessary for a fair statement of the results for the interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full year
ending March 31, 1999.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
The translation of the financial statements of group companies into United
States Dollars is performed for balance sheet accounts using closing
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using average exchange rate during each reporting period.
The gains or losses resulting from translation are included in shareholders
equity separately as cumulative translation adjustments.
4
Item 2. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of Securities Exchange
Act of 1934. Statements contained herein which are not historical facts are
forward-looking statements that involve risks and uncertainties. All phases of
the Company's operations are subject to a number of uncertainties, risks and
other influences. Therefore, the actual results of the future events described
in such forward-looking statements in this Form 10-Q could differ materially
from those stated in such forward-looking statements. Among the factors which
could cause the actual results to differ materially are the risks and
uncertainties described both in this Form 10-Q and the risks, uncertainties and
other factors set forth from time to time in the Company's other public reports,
filings and public statements. Many of these factors are beyond the control of
the Company, any of which, or a combination of which, could materially affect
the results of the Company's operations and whether the forward-looking
statements made by the company ultimately prove to be accurate.
Results Of Operations
The following table sets forth, for the periods indicated, certain items
from the Consolidated Statements of Operations expressed as a percentage of
total revenues.
Three Months Ended June 30,
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1997 1998
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Net sales 88.7% 97.1%
Subcontracting fees 11.3 2.9
Total revenues 100.0 100.0
Cost of sales 74.2 76.4
Gross profit 25.8 23.6
Operating expenses 10.1 8.2
Income from operations 15.7 15.3
Other income (expense), net 3.3 1.5
Income before income taxes 12.4 13.8
Income taxes 1.0 2.5
Net income 11.4 11.3
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues and Gross Profit. Total revenues increased $2.6 million, or 18.3%,
to $16.5 million for the three months ended June 30, 1998 from $13.9 million for
the three months ended June 30, 1997. Sales of Company products were up 29.6% to
$16 million during the current period compared to $12.4 million during the same
period in the prior fiscal year. Subcontracting fees decreased by 69.6% to $0.5
million in the current period from $1.6 million during the same period in the
prior fiscal year.
The increase in sales for the period was attributable to the introduction
of new products and increased marketing efforts. The decrease in subcontracting
fees for the period was attributable to increased concentration on the
manufacturing of products designed by the Group as opposed to products
manufactured on a subcontract basis in order to raise the Group's brand name
recognition.
5
Geographically, within Southeast Asia (including Hong Kong and the PRC) the
Company's sales increased 8% to $8 million during the three months ended June
30, 1998 from $7.4 million during the same period in the prior year. Sales
within Southeast Asia accounted for 50% of total sales during the current period
as compared to 60% during the same period in the prior year. Sales within the
region were adversely impacted by continuing economic weakness in Southeast Asia
during the period, which weakness was offset by increased marketing efforts.
Sales in Hong Kong declined approximately 31% to $1.4 million for the three
months ended June 30, 1998 from $2.1 million for the same period of the prior
year. Sales in the PRC were up during the three months ended June 30, 1998 due
to stable economic conditions relative to the region, increasing approximately
30% to $3.7 million for the three months ended June 30, 1998 from $2.8 million
in the same period of the prior year. Sales in Southeast Asia (not including
Hong Kong and the PRC) during the three months ended June 30, 1998 were also up
due to increases in orders by existing customers, increasing 16% to $2.9 million
for the three months ended June 30, 1998 from $2.5 million in the same period of
the prior year.
Outside of Asia (in the United States, Europe and the Middle East), the
Company experienced a 61.9% increase in sales with these sales accounting for
50% of total sales in the three months ended June 30, 1998 as compared to 40% of
total sales in the same period of the prior year. The increase in sales outside
of Asia was driven by increased marketing efforts and strong product demand
which accompanied strong economic conditions in those regions. Sales in Europe
increased approximately 245.5% to $3.8 million for the three months ended June
30, 1998 from $1.1 million in the same period of the prior year. Sales in the
Middle East were down during the three months ended June 30, 1998, decreasing
approximately 5% to $1.8 million from $1.9 million in the same period of the
prior year. Sales in the United States increased approximately 20% to $2.4
million during the three months ended June 30, 1998 from $2 million in the same
period of the prior year.
Gross profits increased by 7.8% to $3.9 million during the current period
from $3.6 million during the same period in the prior fiscal year. The increase
in gross profits was mainly attributable to the increase in net sales.
Operating Expenses. Operating expenses totaled $1.35 million during the
current period, down marginally from $1.4 million during the same period in the
prior fiscal year. The decline in operating expenses during the period was
primarily attributable to tight cost control exercised by management.
Other Income (Expense), Net. Other expenses, net of other income, decreased
during the current period to $252,000 from $461,000 in the same period during
the prior year. The decrease in net other expenses was attributable to a
decrease in interest expense of $191,000 and an increase in interest income of
$59,000, which was partially offset by a decease in other income of $41,000. The
decrease in interest expense is attributable to the maturity of a convertible
loan on March 19, 1998.
Income Taxes. Income taxes increased by 191% to $413,000 during the current
period from $142,000 during the same period in the prior year. The increase in
income taxes during the period was primarily attributable to increased income
and provision for a higher effective tax rate for the current period in Hong
Kong pending the resolution of the Company's offshore claims with respect to
prior periods.
6
Financial Condition, Liquidity and Capital Resources
The Company had a cash balance of $4.6 million and working capital of $9.8
at June 30, 1998 compared to a cash balance of $2.1 million and a deficit in
working capital of $1.2 million at March 31, 1998. The increase in cash is
attributable to a combination of the income during the period and increases in
short-term bank borrowing. The increase in working capital was attributable to
restructuring and capitalization of the convertible note into redeemable
preferred share capital of a subsidiary of the Company.
For the three months ended June 30, 1998 net cash provided in operating
activities amounted to $0.2 million as compared to net cash used by operating
activities of $1.5 million for the corresponding period of the prior year. This
change resulted from a combination of increased net income and a smaller
increase in inventories during the current period and an increase in customer
deposits which was partially offset by reductions in accounts payable and
accrued liabilities.
Net cash used in investing activities decreased to $0.8 million during the
three months ended June 30, 1998 from $3.7 million during the three months ended
June 30, 1997. This decrease was attributable to a decrease in acquisition of
machinery and equipment during the current period.
Net cash provided by financing activities decreased to $3 million during
the three months ended June 30, 1998 from $10.2 million during the three months
ended June 30, 1997. This decrease was attributable to the contribution of the
convertible loan of $USD 10 million during prior year while such loan does not
reoccur during the three months ended June 30, 1998.
At June 30, 1998, the Company had long term debt totaling $4 million
compared to long term debt at March 31, 1998 of $4.4 million. The decrease in
long term debt was primarily attributable to the repayment of the principal of
the loan while no new long term bank loan was acquired during the three months
ended June 30, 1998 .
Management believes that based on its current financial condition, the
Company's cash and working capital is sufficient to meet the Company's
anticipated needs for at least the next twelve months.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
7
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
S.W. LAM, INC.
Dated: January 27, 1999 By: /s/ Lam Sai Wing
----------------------------
Lam Sai Wing, President and
Chief Executive Officer
Dated: January 27, 1999 By: /s/ Chan Yam Fai, Jane
-----------------------------
Chan Yam Fai, Jane
Chief Financial Officer
8