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, 1999
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.
(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
21 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 X No
As of June 30, 1999, 12,800,000 shares of Common Stock of the issuer were
outstanding.
S.W. LAM, INC. AND SUBSIDIARIES
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INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 and
June 30, 1999 .............................................. 1
Consolidated Statements of Operations - For the three
months ended June 30, 1998 and June 30, 1999................ 2
Consolidated Statements of Cash Flows - For the three
months ended June 30, 1998 and June 30, 1999................ 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............................... 8
SIGNATURES................................................................. 9
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 1999 1999
----------- ---------
Current assets:
Cash and cash equivalents $ 16,702 $ 16,087
Accounts receivable, net 15,655 17,241
Inventory 16,970 19,956
Prepayments and other current assets 599 1,200
------- --------
Total current assets 49,926 54,484
Property, plant and equipment, and capital leases, net 23,772 24,227
------- --------
Total assets $73,698 $78,711
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 16,525 $ 19,336
Long-term bank loans, current portion 363 358
Capital lease obligations, current portion 1,224 1,386
Accounts payable 3,437 3,027
Accrued liabilities 861 1,211
Dividend payable 1,849 971
Income tax payable 7,562 8,099
Due to director 400 400
------- --------
Total current liabilities 32,221 34,788
Long-term bank loans, non-current portion 1,083 999
Capital lease obligations, non current portion 997 887
Deferred taxation 1,283 1,283
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Total liabilities 35,584 37,957
------- -------
Minority interest 17,980 19,217
------- -------
Stockholders' Equity:
Preferred stock 0 0
Common stock 13 13
Additional paid-in capital 511 511
Retained earnings 19,610 21,013
------- -------
Total stockholders' equity 20,134 21,537
------- -------
Total liabilities and stockholders' equity $73,698 $78,711
======= =======
The accompanying notes are an integral part of these financial statements
1
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US$,000, except per share data)
(Unaudited)
Three Months Ended June 30,
---------------------------
1998 1999
----------- ----------
Total revenues $ 16,482 $ 24,524
Cost of sales and services (12,600) (17,758)
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Gross profit 3,882 6,766
Selling, general and administrative expenses (1,354) (3,311)
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Operating income 2,528 3,455
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Other income (expense), net:
Interest expenses (338) (456)
Interest income 66 157
Other income 20 6
--------- ----------
Total other income (expense), net (252) (293)
--------- ----------
Income before income taxes and minority interest 2,276 3,162
Provision for income taxes (413) (522)
--------- ----------
Income before minority interest 1,863 2,640
Minority interest - (1,237)
--------- ----------
Net income $ 1,863 $ 1,403
========= ==========
Basic income per share $ 0.15 $ 0.11
========= ==========
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,
----------------------------
1998 1999
-------- ---------
Cash flows from operating activities:
Net income $ 1,863 $ 1,403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 290 1,410
Minority interest 0 1,237
(Increase) Decrease in operating assets:
Accounts receivable, net 147 (1,586)
Inventories (757) (2,986)
Prepayments and other current assets (860) (601)
Due from a director (454) 0
(Decrease) Increase in operating liabilities:
Accounts payable (357) (410)
Deposits from customers 191 0
Accrued liabilities (249) 350
Income taxes payable 412 537
------ ------
Net cash provided by (used in) operating activities 226 (646)
------ ------
Cash flows from investing activities:
Additions to property, plant and equipment (774) (1,865)
------ ------
Net cash used in investing activities (774) (1,865)
------ ------
Cash flows from financing activities:
Net proceeds from issuance of preference share by a subsidiary 10,000 0
Payment of dividends 0 (878)
Net (decrease) increase in short-term bank borrowings 3,399 2,811
Net (decrease) increase in convertible short-term loan (10,000) 0
Additions of capital lease obligations 2,138 375
Repayment of capital element of capital lease obligations (2,482) (323)
Repayment of long-term bank loans (19) (89)
------ ------
Net cash provided by financing activities 3,036 1,896
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Effect of exchange rate changes in cash 26 0
------ ------
Net increase (decrease) in cash and cash equivalents 2,514 (615)
Cash and cash equivalents, as of beginning of period 2,094 16,702
------ ------
Cash and cash equivalents, as of end of period $ 4,608 $16,087
====== ======
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, 1999
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. (the "Company") and all of its wholly owned and
majority owned subsidiary companies. The March 31, 1999 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, 1999. 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, 2000.
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,
1998 1999
Total revenues 100.0% 100.0%
Cost of sales 76.4 72.4
Gross profit 23.6 27.6
Operating expenses 8.2 13.5
Income from operations 15.3 14.1
Other income (expense), net (1.5) (1.2)
Income before income taxes
and minority interest 13.8 12.9
Income taxes 2.5 2.1
Income before minority interest 11.3 10.8
Minority interest 0.0 5.1
Net income 11.3 5.8
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues and Gross Profit. Total revenues increased $8 million, or 48.8%,
to $24.5 million for the three months ended June 30, 1999 from $16.5 million for
the three months ended June 30, 1998. Sales of Company products were up 53.2% to
$24.5 million during the current period compared to $16 million during the same
period in the prior fiscal year. Subcontracting fees decreased from $0.5 million
during the quarter ended June 30, 1998 to $0 during the quarter ended June 30,
1999.
5
The increase in sales for the period was attributable to expansion of
production facilities to meet increasing demand, new product design and
increased marketing efforts. The decrease in subcontracting fees for the period
was attributable to 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.
Geographically, within Southeast Asia (including Hong Kong and the PRC) the
Company's sales increased 7.5% to $8.6 million during the three months ended
June 30, 1999 from $8 million during the same period in the prior year. Sales
within Southeast Asia accounted for 35% of total sales during the current period
as compared to 50% during the same period in the prior year. Sales within the
region increased due to improving economic conditions in Southeast Asia during
the period following an extended period of weakness from late 1997 to early
1999. Sales in Hong Kong increased approximately 71.4% to $2.4 million for the
three months ended June 30, 1999 from $1.4 million for the same period of the
prior year. Sales in the PRC were unchanged, at $3.7 million for the three
months ended June 30, 1999 and for the three months ended June 30, 1998. Sales
in Southeast Asia (not including Hong Kong and the PRC) during the three months
ended June 30, 1999 decreased 10.3% to $2.5 million from $2.9 million for the
same period in the prior year. The decrease in sales in Southeast Asia,
excluding Hong Kong and the PRC, was attributable to a decrease in orders from
the region.
Outside of Asia (in the United States, Europe and the Middle East), the
Company experienced a 99.2% increase in sales with these sales accounting for
65% of total sales in the three months ended June 30, 1999 as compared to 50% 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 73.7% to $6.6 million for the three months ended June
30, 1999 from $3.8 million in the same period of the prior year. Sales in the
Middle East were up during the three months ended June 30, 1999, increasing
approximately 11.1% to $2.0 million from $1.8 million in the same period of the
prior year. Sales in the United States increased approximately 187.5% to $6.9
million during the three months ended June 30, 1999 from $2.4 million in the
same period of the prior year.
Gross profits increased by 74.3% to $6.8 million during the current period
from $3.9 million during the same period in the prior fiscal year. The increase
in gross profits was mainly attributable to the increase in net sales. Gross
margins increased to 27.6% in the current period from 23.6% in the prior fiscal
year period. The increase in gross profit percentage during the current period
was primarily attributable to increased sales of higher margin products and
improved economies of scale associated with increased production.
Operating Expenses. Operating expenses totaled $3.3 million during the
current period, an increase of 145% from $1.4 million during the same period in
the prior fiscal year. The increase in operating expenses during the period was
primarily attributable to an increase in staff and depreciation expense to
support increased business operations.
6
Other Income (Expense), Net. Other expenses, net of other income, increased
during the current period to $293,000 from $252,000 in the same period during
the prior year. The increase in net other expenses was attributable to an
increase in interest expense of $118,000 and a decrease in other income of
$14,000 which was partially offset by an increase in interest income of $91,000.
The increase in interest expense is attributable to an increase in trust receipt
bank loans.
Income Taxes. Income taxes increased by 26.4% to $522,000 during the
current period from $413,000 during the same period in the prior year. The
increase in income taxes during the period was primarily attributable to
increased income.
Minority Interest. Minority interest of $1.2 million was reported during
the current period. No minority interest was reported during the prior year
period. Minority interest reflects the group reorganization to accommodate the
listing of shares of the Company's previously indirect wholly-owned subsidiary,
Hang Fung Gold Technology Limited ("Hang Fung Gold") on The Stock Exchange of
Hong Kong Limited in Hong Kong, including the subscription by Phenomenal
Limited, an independent third party, for shares in Hang Fung Gold, and the Hong
Kong public offering pursuant to which additional shares of Hang Fung Gold were
sold. Minority interest reflects the proportionate interest in the earnings of
the Hang Fung Group not owned by the Company.
Financial Condition, Liquidity and Capital Resources
The Company had a cash balance of $16.1 million and working capital of
$19.7 at June 30, 1999 compared to a cash balance of $16.7 million and working
capital of $17.7 million at March 31, 1999. The increase in working capital was
attributable to net income during the period and normal changes in current
assets and liabilities.
For the three months ended June 30, 1999 net cash used in operating
activities amounted to $0.6 million as compared to net cash provided by
operating activities of $0.2 million for the corresponding period of the prior
year. This change resulted primarily from a combination of increased net income
before minority interest of $0.8 million and an increase in depreciation expense
of $1.1 million which was offset by a substantial increase in inventories of
$3.0 million and receivables of $1.6 million.
Net cash used in investing activities totoled $1.8 million during the three
months ended June 30, 1999 compared with $0.8 million during the three months
ended June 30, 1998. This increase was attributable to an increase in
acquisition of machinery and equipment during the current period to support
expanded operations.
Net cash provided by financing activities decreased to $1.9 million during
the three months ended June 30, 1999 from $3 million during the three months
ended June 30, 1998. This decrease was attributable to payment during the three
months ended June 30, 1999 of dividends accrued and payable at March 31, 1999
and a reduction in the amount of short-term bank borrowings incurred during the
current period as compared to the prior year period.
7
At June 30, 1999, the Company had long term debt totaling $3.2 million
compared to long term debt at March 31, 1999 of $3.4 million. The decrease in
long term debt was primarily attributable to the repayment of bank loans and
capital lease obligations while less long term bank loan was acquired during the
three months ended June 30, 1999.
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
8
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: September 24, 1999 By: /s/ Lam Sai Wing
--------------------------------
Lam Sai Wing, President and
Chief Executive Officer
Dated: September 24, 1999 By: /s/ Chan Yam Fai, Jane
--------------------------------
Chan Yam Fai, Jane
Chief Financial Officer
9