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 September 30, 2000
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
----------------------------------------------------------
(Address of principal executive offices)
(852) 2766 3688
-----------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------
(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 September 30, 2000, 12,800,000 shares of Common Stock of the issuer
were outstanding.
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
INDEX
Page
Number
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 and September
30, 2000............................................................1
Consolidated Statements of Operations - For the three months
and six months ended September 30, 1999 and 2000....................2
Consolidated Statements of Cash Flows - For the six months ended
September 30, 1999 and 2000.........................................3
Notes to Consolidated Financial Statements..........................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................13
SIGNATURES...................................................................14
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US$,000)
(Unaudited)
<TABLE>
March 31, September 30,
ASSETS 2000 2000
----------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,562 $ 91
Accounts receivable, net 19,450 0
Inventories 26,604 0
Prepayments and other current assets 391 0
--------- --------
Total current assets 66,007 91
Property, plant and equipment, and capital leases, net 29,158 0
Interest in associates 0 19,580
--------- --------
Total assets $95,165 $19,671
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 28,485 0
Long-term bank loans, current portion 273 0
Capital lease obligations, current portion 1,636 0
Accounts payable 3,668 0
Accrued liabilities 1,240 0
Income tax payable 5,177 0
Due to a director 568 356
--------- --------
Total current liabilities 41,047 356
Long-term bank loans, non-current portion 805 0
Capital lease obligations, non-current portion 898 0
Deferred taxation 1,719 0
--------- --------
Total liabilities 44,469 356
--------- --------
Minority Interest 23,885 0
--------- --------
Stockholders' Equity:
Preferred stock 0 0
Common stock 13 13
Additional paid-in capital 508 508
Retained earnings 26,290 18,794
--------- --------
Total stockholders' equity 26,811 19,315
--------- --------
Total liabilities and stockholders' equity $95,165 $19,671
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
1
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US$,000, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ ------------------------
1999 2000 1999 2000
------ ------- ------ ------
<S> <C> <C> <C> <C>
Total revenues $ 29,041 $ 16,291 $ 53,565 $ 43,502
Cost of sales and services (22,787) (12,105) (40,545) (32,276)
----------- ---------- ---------- ----------
Gross profit 6,254 4,186 13,020 11,226
Selling, general and
administrative expenses (3,515) (2,542) (6,826) (6,707)
----------- ---------- ---------- ----------
Operating income 2,739 1,644 6,194 4,519
----------- ---------- ---------- ----------
Other income (expense), net:
Interest expense (569) (310) (1,025) (915)
Interest income 157 167 314 407
Other income (expense) 26 27 32 80
Share of profit of associates 0 149 0 149
Gain on dilution of equity interest
of associates 0 479 0 479
Loss on disposal of subsidiaries-
dilution of interest 0 (10,090) 0 (10,090)
----------- ---------- ---------- ----------
Total other (expense), net (386) (9,578) (679) (9,890)
----------- ---------- ---------- ----------
Income (Loss) before income taxes 2,353 (7,934) 5,515 (5,371)
Provision for income taxes
Group (355) (115) (877) (320)
Associates 0 (20) 0 (20)
----------- ---------- ---------- ----------
Income before minority interest 1,998 (8,069) 4,638 (5,711)
Minority interest (946) (680) (2,183) (1,785)
----------- ---------- ---------- ----------
Net income (Loss) $1,052 $(8,749) $2,455 $(7,496)
=========== ========== ========== ==========
Basic income (loss) per share $0.08 $(0.68) $0.19 $(0.59)
=========== ========== ========== ==========
Weighted average shares outstanding 12,800,000 12,800,000 12,800,000 12,800,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$,000)
(Unaudited)
<TABLE>
Six Months Ended September 30,
------------------------------
1999 2000
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,455 $ (7,496)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of property, plant and equipment 3,373 3,549
Gain on dilution of equity interest of associates 0 (479)
Loss on disposal of subsidiaries-dilution of interest 0 10,090
Minority interest 2,183 1,785
Share of profit of associates 0 (129)
(Increase) Decrease in operating assets:
Accounts receivable, net (1,691) (3,741)
Inventories (4,253) (10,131)
Prepayments and other current assets 108 (621)
(Decrease) Increase in operating liabilities:
Accounts payable (1,183) 597
Accrued liabilities 318 9
Due to associates 0 61
Due to a director (41) 414
Income taxes payable 892 321
-------- ---------
Net cash (used in) provided by operating activities 2,161 (5,771)
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (6,468) (5,281)
Net cash outflow from disposal of subsidiaries 0 (17,867)
-------- ---------
Net cash used in investing activities (6,468) (23,148)
-------- ---------
Cash flows from financing activities:
Payment of dividends (1,849) 0
Net increase in short-term bank borrowings 4,554 10,294
Increase in capital lease obligations 861 0
Repayment of capital element of capital lease obligations (693) (736)
Additions of long-term bank loans 258 0
Decrease in long-term bank loans (179) (110)
-------- ---------
Net cash provided by financing activities 2,952 9,448
-------- ---------
Net decrease in cash and cash equivalents (1,355) (19,471)
Cash and cash equivalents, as of beginning of period 16,702 19,562
-------- ---------
Cash and cash equivalents, as of end of period $ 15,347 $91
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
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"), all of its wholly owned and
majority owned subsidiary companies (together the "Group"), and change of
majority owned subsidiary companies to associates of the Company. The March
31, 2000 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, 2000. 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, 2001.
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.
3. DILUTION OF INTEREST IN OPERATING SUBSIDIARY
On August 23, 2000, the Company's principal operating subsidiary, Hang Fung
Gold Technology Limited ("HFGTL") issued 1,632 million shares to New ePoch
Holdings International Limited ("NEH") in exchange for a 49.9% interest in
New ePoch Information (BVI) Limited ("NEI")(the "New ePoch Transaction").
On August 28, 2000, HFGTL placed 550 million shares to independent
investors for HK$62.7 million (the "HFGTL Placement").
As a result of the New ePoch Transaction and the HFGTL Placement:
a. the Company's indirect ownership interest in HFGTL decreased from
53.145% to 35% and from 35% to 31.4%;
b. HFGTL and its subsidiaries (including associated company) are
classified as associates following the New ePoch Transaction;
c. the Company's consolidated statements of operations reflect the
Company's pre-transaction interest and post-transaction proportionate
interest in HFGTL;
4
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Unaudited)
September 30, 2000
3. DILUTION OF INTEREST IN OPERATING SUBSIDIARY (Cont'd)
d. the Company's investment in HFGTL is reported on the balance sheet
under the equity method of accounting;
e. the Company reported a loss on disposal of subsidiaries relating to
the decrease in the Company's ownership percentage in HFGTL based on
the difference in the Company's interest in the net assets value of
HFGTL prior to the New ePoch Transaction and the Company's interest in
the net assets value of HFGTL after the New ePoch Transaction,
computed as follows:
US$000
-----------
Net assets value of HFGTL at August 23, 2000 54,793
Less: Minority interest (25,670)
-----------
Net assets value of the Company's interest
in HFGTL at August 23, 2000 29,123
Less: the Company's interest retained in
HFGTL after New ePoch Transaction (19,033)
-----------
Loss on disposal - dilution of interest 10,090
===========
f. the Company reported a gain on dilution of equity interest relating to
the HFGTL Placement based on the difference in the Company's interest
in the net assets value of HFGTL prior to the HFGTL Placement and the
Company's interest in the net assets value of HFGTL after the HFGTL
Placement, computed as follows
US$000
----------
Interest in associates after HFGTL
Placement 19,530
Interest in associates prior to HFGTL
Placement (19,051)
-----------
Gain on dilution of equity interest 479
===========
5
<PAGE>
S.W. LAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Unaudited)
September 30, 2000
4. PRO FORMA INFORMATION
In connection with the New ePoch Transaction and the HFGTL Placement, the
Company has presented the following condensed pro forma financial
statements reflecting the New ePoch Transaction and the HFGTL Placement, as
if both transactions had occurred at April 1, 1999.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1999
US $000
(Unaudited)
Share of profit of associates $ 1,738
Loss on disposal of subsidiaries
- dilution of interest (5,840)
--------
Loss before income taxes (4,102)
Provision for income taxes:
Group 0
Associates (277)
--------
Net loss (4,379)
========
6
<PAGE>
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.
Dilution of Interest in Operating Subsidiary
On August 23, 2000, the Company's principal operating subsidiary, Hang Fung
Gold Technology Limited ("HFGTL") issued 1,632 million shares to New ePoch
Holdings International Limited ("NEH") in exchange for a 49.9% interest in New
ePoch Information (BVI) Limited ("NEI")(the "New ePoch Transaction"). On August
28, 2000, HFGTL placed 550 million shares to individual investors for HK$62.7
million (the "HFGTL Placement").
As a result of the New ePoch Transaction and the HFGTL Placement, the
Company's indirect ownership interest in HFGTL decreased from 53.145% to 35% and
from 35% to 31.4%; HFGTL and its subsidiary (including associated company) are
classified as associates following the New ePoch Transaction; the Company's
consolidated statements of operations reflect the Company's pre-transaction
interest and post-transaction proportionate interest in HFGTL; the Company's
investment in HFGTL is reported on the balance sheet under the equity method of
accounting; the Company reported a loss on disposal of subsidiaries relating to
the decrease in the Company's ownership percentage in HFGTL based on the
difference in the Company's interest in the net assets value of HFGTL prior to
the New ePoch Transaction and the Company's interest in the net assets value of
HFGTL after the New ePoch Transaction; and the Company reported a gain on
dilution of equity interest relating to the HFGTL Placement based on the
difference in the Company's interest in the net assets value of HFGTL prior to
the HFGTL Placement and the Company's interest in the net assets value of HFGTL
after the HFGTL Placement.
Comparability of Financial Data
HFGTL was the principal operating subsidiary of the Company during the
three and six month periods ended September 30, 1999. After the New ePoch
Transaction and the HFGTL Placement, the Company's effective percentage of
ownership of HFGTL was reduced from 53.145% to 31.4% in August 2000, the
accounting treatment of HFGTL and its subsidiaries (including associated
company) changed from subsidiaries to associates of the Company.
7
<PAGE>
Because the three and six month periods ended September 30, 2000 account
for HFGTL and its subsidiaries (including associated company) as associates of
the Company, prior year comparative financial information may be of limited
value.
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.
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- --------------------------
1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.5 74.3 75.7 74.2
Gross profit 21.5 25.7 24.3 25.8
Operating expenses 12.1 15.6 12.7 15.4
Income from operations 9.4 10.1 11.6 10.4
Loss on disposal of a subsidiary-
dilution of interest 0 61.9 0 23.2
Income (loss) before income taxes
and minority interest 8.1 (48.7) 10.3 (12.3)
Income taxes 1.2 0.8 1.6 0.8
Minority interests 3.3 4.2 4.1 4.1
Net income (loss) 3.6 (53.7) 4.6 (17.2)
</TABLE>
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Comparative pro forma figures referred to in this section are based on
relevant pro forma financial statements prepared as if the New ePoch Transaction
and the HFGTL Placement had happened on August 23, 1999 and August 28, 1999,
respectively.
Revenues and Gross Profit. Total revenues decreased $12,750,000, or 43.9%,
to $16,291,000 for the three months ended September 30, 2000 from $29,041,000
for the three months ended September 30, 1999. Giving effect to the Company's
dilution of interest of HFGTL as if it had occurred during the quarter ended
September 30, 1999, revenues decreased $1,334,000 or 7.6% to $16,291,000 for the
three months ended September 30, 2000 from pro forma revenues of $17,625,000 for
the three months ended September 30 ,1999. The decrease in revenues, on a pro
forma basis, for the period was attributable to extra non-recurring business in
last year brought by memorable and corporate gift items pertaining to the
Millennium.
Geographically, within Southeast Asia (including Hong Kong and the PRC)
sales by HFGTL increased 26.7% to $20,341,000 during the three months ended
September 30, 2000 from $16,056,000 during the same period in the prior year.
Sales within Southeast Asia accounted for 73.2% of total sales during the
current period as compared to 55.3% during the same period in the prior year.
Sales within the region increased due to improving economic conditions and extra
marketing effort in particular in the PRC during the period following an
extended period of weakness from late 1997 to early 1999 which was partially
offset by pricing competition and additional sales during the 1999 period
relating to the Millennium. Sales in Hong Kong increased approximately 102.2% to
$5,873,000 for the three months ended September 30, 2000 from $2,904,000 for the
same period of the prior year. Sales in the PRC increased approximately 75.5% to
$11,403,000 for the three months ended September 30, 2000 from $6,498,000 for
the same period of the prior year. Sales in Southeast Asia (not including Hong
Kong and the PRC) during the three months ended September 30, 2000 decreased
53.9% to $3,066,000 from $6,654,000 for the same period in the prior year.
8
<PAGE>
Outside of Asia (in the United States, Europe and the Middle East), HFGTL
experienced a 42.5% decrease in sales with these sales accounting for 26.8% of
total sales in the three months ended September 30, 2000 as compared to 44.7% of
total sales in the same period of the prior year. The decrease in sales outside
of Asia was attributable to increased marketing efforts and strong product
demand which accompanied improved economic conditions in Southeast Asia regions.
Sales in Europe decreased approximately 44.3% to $2,580,000 for the three months
ended September 30, 2000 from $4,627,000 in the same period of the prior year.
Sales in the Middle East were down during the three months ended September 30,
2000, decreasing approximately 38.9% to $2,075,000 from $3,395,000 in the same
period of the prior year. Sales in the United States decreased approximately 27%
to $2,808,000 during the three months ended September 30, 2000 from $3,846,000
in the same period of the prior year.
Gross profits decreased by 33.1% to $4.2 million during the current period
from $6.2 million during the same period in the prior fiscal year. The decrease
in gross profits was mainly attributable to a decrease in net sales. Gross
margins increased to 25.7% in the current period from 21.5% in the prior fiscal
year period. The increase in gross profit percentage during the current period
was primarily attributable to enhanced production control and decrease in
material cost. On a pro forma basis, gross profits were up by 2% from a pro
forma gross profit of $4.1 million during the 1999 period.
Operating Expenses. Operating expenses totaled $2,542,000 during the
current period, a decrease of 27.7% from $3,515,000 during the same period in
the prior fiscal year. Giving effect to the Company's dilution of interest of
HFGTL as if it had occurred during the quarter ended September 30, 1999,
operating expenses decreased slightly by $130,000 or, 4.9%, from $2,672,000 for
the 1999 period on a pro forma basis.
Interest Expense, Net. Net interest expense decreased during the current
period to $143,000 from $412,000 in the same period during the prior year.
Giving effect to the Company's dilution of interest of HFGTL as if it had
occurred during the 1999 period, pro forma net interest expense decreased by
$118,000 or, 45.2%, from $261,000 for the three months ended September 30, 1999.
The decrease in interest expense, net, was attributable to more favorable
interest rates from bankers and increased interest income from improved bank
balances..
Gain on Dilution of Equity Interest of Associates. The Company reported a
gain during the period in the amount of $479,000 on the dilution of equity
interest of HFGTL as a result of the HFGTL Placement.
9
<PAGE>
Loss on Disposal of Subsidiaries-Dilution of Interest. The Company reported
a loss during the period in the amount of $10,090,000 on the dilution of the
Company's effective ownership interest in HFGTL from 53.14% to 35% as a result
of the New ePoch Transaction.
Income Taxes. Income taxes decreased by 62% to $135,000 during the current
period from $355,000 during the same period in the prior year. The decrease in
income taxes during the period was primarily attributable to decreased income
and the provision of tax at a rate of 8% during the current period as compared
to the rate of 16% during the corresponding period in last year. Giving effect
to the Company's dilution of interest of HFGTL as if it had occurred during the
quarter ended September 30, 1999, pro forma income taxes decreased $93,000 or
40.8% from $228,000 for the three months ended September 30, 1999.
Minority Interest. Minority interest decreased $266,000 or 28.1% from
$946,000 during the three months ended September 30, 1999 to $680,000 during the
same period in 2000. The decrease in minority interest was attributable to
reclassification of HFGTL from as subsidiary to become an associate following
the New ePoch Transaction.
Six Months Ended September 30, 2000 Compared to Six Months Ended September 30,
1999
Comparative pro forma figures referred to in this section are based on
relevant pro forma financial statements prepared as if the New ePoch Transaction
and the HFGTL Placement had happened on August 23, 1999 and August 28, 1999,
respectively.
Revenues and Gross Profit. Total revenues decreased $10,063,000, or 18.8%,
to $43,502,000 for the six months ended September 30, 2000 from $53,565,000 for
the six months ended September 30, 1999. Giving effect to the Company's dilution
of interest of HFGTL as if it had occurred during the six months ended September
30, 1999, revenues increased by $1,353,000 or 3.2% from pro forma revenues of
$42,149,000 for the six months ended September 30 ,1999. The increase in
revenues, on a pro forma basis, for the period was attributable to moderate
increase in revenues for the current period.
Geographically, within Southeast Asia (including Hong Kong and the PRC)
sales by HFGTL increased 60.7% to $39,589,000 during the six months ended
September 30, 2000 from $24,640,000 during the same period in the prior year.
Sales within Southeast Asia accounted for 72% of total sales during the current
period as compared to 46% during the same period in the prior year. Sales within
the region increased due to improving economic conditions and extra marketing
effort in particular in the PRC during the period following an extended period
of weakness from late 1997 to early 1999, which was partially offset by pricing
competition and additional sales during the 1999 period relating to the
Millennium. Sales in Hong Kong increased approximately 106.2% to $11,043,000 for
the six months ended September 30, 2000 from $5,356,000 for the same period of
the prior year. Sales in the PRC increased approximately 105.6% to $20,927,000
for the six months ended September 30, 2000 from $10,177,000 for the same period
of the prior year. Sales in Southeast Asia (not including Hong Kong and the PRC)
during the six months ended September 30, 2000 decreased 16.3% to $7,620,000
from $9,106,000 for the same period in the prior year.
10
<PAGE>
Outside of Asia (in the United States, Europe and the Middle East), HFGTL
experienced a 46% decrease in sales with these sales accounting for 28% of total
sales in the six months ended September 30, 2000 as compared to 54% of total
sales in the same period of the prior year. The decrease in sales outside of
Asia was attributable to increased marketing efforts and strong product demand
which accompanied improved economic conditions in the Southeast Asia regions.
Sales in Europe decreased approximately 52.9% to $5,301,000 for the six months
ended September 30, 2000 from $11,249,000 in the same period of the prior year.
Sales in the Middle East were down during the six months ended September 30,
2000, decreasing approximately 20.6% to $4,252,000 from $5,356,000 in the same
period of the prior year. Sales in the United States decreased approximately
50.7% to $6,074,000 during the six months ended September 30, 2000 from
$12,320,000 in the same period of the prior year.
Gross profits decreased by 13.7% to $11.2 million during the current period
from $13 million during the same period in the prior fiscal year. The decrease
in gross profits was mainly attributable to decrease in net sales. Gross margins
increased to 25.8% in the current period from 24.3% in the prior fiscal year
period. The increase in gross profit percentage during the current period was
primarily attributable to enhanced production control and decrease in material
cost. On a pro forma basis, gross profits were up by 3.3% from a pro forma gross
profit of $10.9 million during the 1999 period.
Operating Expenses. Operating expenses totaled $6,707,000 during the
current period, a decrease of 1.7% from $6,826,000 during the same period in the
prior fiscal year. Giving effect to the Company's dilution of interest of HFGTL
as if it had occurred during the six months ended September 30, 1999, operating
expenses increased by $724,000 or, 12.1%, from $5,983,000 for the 1999 period on
a pro forma basis. The increase in pro forma operating expenses during the
period was primarily attributable to increased general and administrative
expenses due to business expansion.
Interest Expense, Net. Net interest expense decreased during the current
period to $508,000 from $711,000 in the same period during the prior year.
Giving effect to the Company's dilution of interest of HFGTL as if it had
occurred during the 1999 period, pro forma interest expense, net, decreased by
$52,000 or, 9.3%, from $560,000 for the six months ended September 30, 1999. The
decreased in net interest expenses was attributable to more favorable interest
rates from bankers and increased interest income from improved bank balances.
Gain on Dilution of Equity Interest of Associates. The Company reported a
gain during the period in the amount of $479,000 on the dilution of equity
interest of HFGTL as a result of the HFGTL Placement.
Loss on Disposal of Subsidiaries-Dilution of Interest. The Company reported
a loss during the period in the amount of $10,090,000 on the dilution of the
Company's effective ownership interest in HFGTL from 53.14% to 35% as a result
of the New ePoch Transaction.
11
<PAGE>
Income Taxes. Income taxes decreased by 61.2% to $340,000 during the
current period from $877,000 during the same period in the prior year. The
decrease in income taxes during the period was primarily attributable to
decreased income and the provision of tax at a rate of 8% during the current
period as compare to the rate of 16% during the corresponding period in last
year. Giving effect to the Company's dilution of interest of HFGTL as if it had
occurred during the six months ended September 30, 1999, pro forma income taxes
decreased $410,000 or 54.7% from $750,000 for the six months ended September 30,
1999.
Minority Interest. Minority interest decreased $266,000 or 28.1% from
$946,000 during the six months ended September 30, 1999 to $680,000 during the
same period in 2000. The decrease in minority interest was attributable to
reclassification of HFGTL from a subsidiary to become an associate following the
New ePoch Transaction.
Financial Condition, Liquidity and Capital Resources
The Company had a cash balance of $91,000 and a working capital deficit of
$265,000 at September 30, 2000 compared to a cash balance of $19,562,000 and
working capital of $24,960,000 at March 31, 2000. The decrease in cash and the
working capital deficit are principally due to the change of HFGTL and its
subsidiaries (including associate company) to become associates from
subsidiaries.
For the six months ended September 30, 2000 net cash used in operating
activities amounted to $5,771,000 as compared to net cash provided by operating
activities of $2,161,000 for the corresponding period of the prior year. This
change resulted primarily from a combination of decreased net income before
minority interest whereas instead of 100% of income was taken, only the
attributable proportion share of profit in associates was taken and an increase
in accounts receivable and inventories which was partially set off by loss on
disposal (dilution of interests) of subsidiaries.
Net cash used in investing activities totaled $23,148,000 during the six
months ended September 30, 2000 compared with $6,468,000 during the six months
ended September 30, 1999. This increase was attributable to net cash outflow on
disposal (dilution of interests) of subsidiaries as a result of the New ePoch
Transaction.
Net cash provided by financing activities increased to $9,448,000 during
the six months ended September 30, 2000 from $2,952,000 during the six months
ended September 30, 1999. The increase was primarily attributable to net
variance in short-term and long-term bank borrowings.
At September 30, 2000, the Company had long term debt totaling $356,000
compared to long term debt at March 31, 2000 of $44,469,000. The decrease in
long term debt was primarily attributable to the reclassification of HFGTL and
its subsidiaries (including associate company) from a consolidated subsidiary to
become associates.
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. Certain Factors Affecting
Future Operating Results
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Our operating results in the future will be materially effected by the
reduction of our ownership interest in HFGTL. We will only report our
proportionate interest in the operating results of HFGTL going forward to
reflect thereafter the acquisition by HFGTL of New ePoch Information (BVI)
Limited.
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
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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: November 19, 2000 By: /s/ Lam Sai Wing
---------------------------
Lam Sai Wing, President and
Chief Executive Officer
Dated: November 19, 2000 By: /s/ Chan Yam Fai
---------------------------
Chan Yam Fai, Jane
Chief Financial Officer
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