-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OzWOjuA56roEIhvToyPFYet5KflGDsl2xhADF+ru6HwVD6FpviOSFWphRf8ryJeG 76hpr6s+TR2yQa/G4KLy7w== 0001026700-98-000071.txt : 19980821 0001026700-98-000071.hdr.sgml : 19980821 ACCESSION NUMBER: 0001026700-98-000071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980820 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAM SW INC CENTRAL INDEX KEY: 0001030860 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 621563911 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22049 FILM NUMBER: 98694815 BUSINESS ADDRESS: STREET 1: UNIT 302-303A, 3RD FL, FU HANG BUILDING STREET 2: NO 1 HOK YUEN ST EAST CITY: KOWLOON, HONG KONG STATE: K3 BUSINESS PHONE: 01185227663688 MAIL ADDRESS: STREET 1: UNIT 302-303A, 3RD FL, FU HANG IND. BLDG STREET 2: NO 1 HOK YUEN STREET EAST CITY: KOWLOON, HONG KONG STATE: K3 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 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 Man Lok St., 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 No As of August 1, 1998, 12,800,000 shares of Common Stock of the issuer were outstanding. S.W. LAM, INC. AND SUBSIDIARIES ------------------------------- INDEX Page Number -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1997 and March 31, 1997...................................... 1 Consolidated Statements of Operations - For the three and nine month periods ended December 31, 1997 and December 31, 1996 ....................................... 2 Consolidated Statements of Cash Flows - For the nine months ended December 31, 1997 and December 31, 1996..... 3 Notes to Consolidated Financial Statements.................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 6 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................ 8 SIGNATURES.............................................................. 8 PART I - FINANCIAL INFORMATION Item I - Financial Statements S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (US$,000) (Unaudited) December 31, March 31, ASSETS 1997 1997 ------------------ --------------- Current Assets: Cash and cash equivalents $2,187 $94 Accounts receivable, net of allowance for doubtful accounts 10,471 5,106 Inventory 11,946 8,509 Prepayments and other current assets 1,824 142 Due from a Director 701 475 --------------- ------------- Total Current Assets 27,129 14,326 Property, plant and equipment, and capital leases, net 14,297 7,083 --------------- ------------- Total Assets $41,426 $21,409 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term bank borrowings $5,569 $2,275 Long-term bank loans, current portion 351 197 Capital lease obligations, current portion 171 229 Accounts payable 4,565 1,619 Deposits from customers 34 1,125 Accrued liabilities 336 267 Convertible short-term loan 10,000 0 Income tax payable 6,448 5,846 --------------- ------------- Total Current Liabilities 27,474 11,558 Long-term Liabilities Long-term bank loans, non-current portion 1,290 1,291 Capital lease obligations, non current portion 117 260 Deferred taxation 284 284 --------------- ------------- Total Liabilities 29,166 13,392 --------------- ------------- Stockholders' Equity: Preferred stock, authorized 25,000,000 shares $.001 par value, issued and outstanding 100,000 shares - Series A Preferred Stock 0 0 Common stock, authorized 25,000,000 shares $.001 par value, issued and outstanding 12,800,000 at March 31, 1997 and December 31, 1997 13 13 Additional paid-in capital 847 846 Retained Earnings 11,246 7,008 Cumulative translation adjustments 154 150 --------------- ------------- Total Stockholders' Equity 12,260 8,017 =============== ============= Total Liabilities and Stockholders' Equity $41,426 $21,409 =============== =============
The accompanying notes are an integral part of these financial statements. 1 S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (US$,000, except per share data) (Unaudited) Three Months Ended Nine Months Ended December 31, December 31, ------------------------------ ----------------------------------- 1997 1996 1997 1996 ----------- ------------ --------------- ---------------- Revenue: 17,707 12,665 47,093 29,545 Cost of sales and services: (13,833) (9,612) (36,142) (22,350) ----------- ------------- ------------ ------------- Gross Profit 3,874 3,053 10,951 7,195 Operating Expenses: Selling, general and administrative expenses (1,591) (1,388) (4,750) (3,072) ----------- ------------- ------------ ------------- Income from Operations 2,283 1,665 6,201 4,123 Other Income (Expense): (795) 3 (1,381) (59) ----------- ------------- ------------ ------------- Income before Provision for Income Taxes 1,488 1,668 4,820 4,064 Provision for Income Taxes (306) (640) (582) (1,413) ----------- ------------- ------------ ------------- Net Income $1,182 $1,028 $4,238 $2,651 =========== ============= ============ ============= Earnings per share: Primary earning per share $.09 $.09 $.33 $.22 ------------ ------------- ------------- -------------- Primary common shares outstanding 12,800,000 12,000,000 12,800,000 12,000,000 ------------ ------------- ------------- --------------
The accompanying notes are an integral part of these financial statements. 2 S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (US$,000) (Unaudited) For the Nine Months Ended December 31, 1997 December 31, 1996 ------------------- -------------------- Cash Flows from Operating Activities: Net Income $4,238 $2,651 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment 1,764 660 Decrease (Increase) In Operating Assets: Accounts receivable (5,364) (1,863) Inventory (3,437) 227 Prepayments and other current assets (1,682) (37) Due from a Director (226) 401 Increase (Decrease) In Operating Liabilities: Accounts payable 2,946 423 Deposits from customers (1,091) (1,998) Accrued liabilities 69 (161) Income taxes payable 602 1,406 ------------- ------------ Net cash provided by operating activities (2,181) 1,709 ------------- ------------ Cash Flows from Investing Activities: Additions to property, plant and equipment (8,977) (2,960) ------------- ------------ Net cash used in investing activities (8,977) (2,960) ------------- ------------ Cash Flows from Financing Activities: Net proceeds from issuance of common stock 0 524 Net (decrease) increase in short term bank borrowings 3,294 471 Net (decrease) increase in convertible short term loans 10,000 0 Additions of capital lease obligations 92 331 Repayment of capital element of capital lease obligations (293) (85) Additions of long term bank loans 388 945 Repayment of long term bank loans (233) (519) ------------- ------------ Net cash provided by (used in) financing activities 13,248 1,667 ------------- ------------ Effect of exchange rate changes on cash 3 (34) ------------- ------------ Net increase (decrease) in cash 2,093 382 Cash and Cash Equivalents, beginning of period 94 244 ------------- ------------- Cash and Cash Equivalents, end of period $2,187 $626 ============= =============
The accompanying notes are an integral part of these financial statements. 3 S.W. LAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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, 1997 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, 1997. 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, 1998. 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. SIGNIFICANT EVENTS a. Note Payable In consideration for a loan of $10,000,000 from Phenomenal Limited, the Company's wholly owned subsidiary Quality Prince Limited executed a Convertible Note ("Note") in the principal amount of $10,000,000 with a maturity of March 20, 1998. The Note may be converted into 2914 shares or such other number of shares as will constitute not less than 29.14% of Quality Prince Limited, and bears interest at the rate of three percent compounded monthly, provided that if the Company is not in Default with respect to any repayment obligation thereunder, then the rate shall be reduced to 1.5% compounded monthly. b. Warrants As additional consideration for the loan of $10,000,000, the Company issued Phenomenal Limited, warrants ("Warrants") to purchase 5,263,158 shares of the Company's common stock, $.001 par value, at a purchase price of $2.19, exercisable for a period commencing upon the date of the grant of the Warrants and ending on the earlier of (i) May 31, 1998 or (ii) the closing of a consolidation or merger of the Company (other than with its wholly-owned subsidiary), or the transfer of all or substantially all of the Company's assets to, another corporation (unless the owners of the capital stock of the Company, prior to such transaction, continue to own a majority of the capital stock of the surviving corporation). The Warrants may only be exercised in the event that the Note is not converted pursuant to its terms. 4. SUBSEQUENT EVENTS On June 4, 1998, the Company (and its subsidiaries) and Phenomenal Limited executed an agreement ("Deed Amendment") to modify the terms of the Note and the Warrants. Pursuant to the Deed Amendment, Phenomenal Limited agreed to an investment in the Company's subsidiary, Hang Fung Jewellery Company Limited ("Hang Fung Jewellery") in the form of 5,263,788 redeemable preference shares (the "Preferred Shares"), $.01 par value issued at a premium of $1.8897726 as a substitution for the Note. The Preferred Shares shall have no voting rights except with respect to matters which affect their rights, matters of dissolution or the issuance of additional shares. 4 The Deed Amendment evidences the Company's intent to form a new holding company for the shares of Hang Fung Jewellery and Kai Hang Jewellery Company Limited, (the "Restructuring") currently owned by Quality Prince Limited; and to list the shares of the new holding company on The Stock Exchange of Hong Kong Limited (the "Listing"). If the Restructuring and Listing occur before March 20, 1999, the Preferred Shares must be redeemed and the redemption amount of $10,000,000 plus any amount of dividend must be used to subscribe for shares in the newly listed holding company. If the Restructuring and Listing have not occurred by March 20, 1999, the Preferred Shares must be redeemed as follows: (1) for the redemption amount of $10,000,000 plus a dividend (the "Aggregate Redemption Amount") without any obligation to subscribe for shares in the new holding company; or (2) if the Restructuring occurs before March 31, 1999, then for the Aggregate Redemption Amount, however all or part of the Aggregate Redemption Amount must be used to subscribe for shares in the new holding company. If the Restructuring has not occurred before March 31, 1999, then the Preferred Shares may not be redeemed until the Restructuring is completed not later than June 30, 1999, and all or part of the Aggregate Redemption Amount must be used for subscription shares in the new holding company. Regardless of whether the Restructuring has occurred, the Preferred Shares may be redeemed at any time after June 30, 1999, provided that all, part or none of the Aggregate Redemption Amount is used for such subscription shares. The Warrants, originally issued for an exercise period expired on May 31, 1998 have been extended by the Deed Amendment to May 31, 1999 or the date of the Listing, whichever is earlier and the number of warrant shares was increased. The Warrants may only be exercised as an alternative to subscription shares in the new holding company; and likewise subscription to shares in the new holding company is forfeited in the event that the Warrants are exercised. 5. OTHER EXPENSE Other expense included interest provision for a convertible note of approximately $146,000 and $1,076,000 for the three and nine months ended December 31, 1997. Pursuant to the Deed Amendment, the convertible note holder agreed to waive all interest relating to the convertible note. 5 Item 2. Management's Discussion and Analysis Of Financial Condition And Results Of Operations. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements. Material Changes in Results Of Operations (US$,000) Three Months Ended December 31, 1997 Compared to the Three Months Ended December 31, 1996 The Company's total revenues increased $5,042 or 39.8%, to $17,707 for the three months ended December 31, 1997 from $12,665 for the three months ended December 31, 1996. This increase consisted of an increase in sales of $4,669 and subcontract service income of $373. The increase in sales revenues is attributable to increased marketing; and the increase in subcontract service income is attributable to a slight increase in the number of supply contracts. The cost of sales and services increased $4,221 or 43.9%, to $13,833 for the three months ended December 31, 1997 from $9,612 for the three months ended December 31, 1996. The increase resulted from an increase in revenues. The cost of sales and services as a percentage of revenue increased to 78.1% for the three months ended December 31, 1997 from 75.9% for the three months ended December 31, 1996. Selling, general and administrative expenses increased $203 or 14.6%, to $1,591 for the three months ended December 31, 1997 from $1,388 for the three months ended December 31, 1996. The increase in expenses is attributable to increased sales and marketing efforts of the Company. Other expense increased $798 to $795 for the three months ended December 31, 1997 compared to other income of $3 for the three months ended December 31, 1996. This increase is attributable to a decrease in other income of $89, and an increase of $731 in interest expense which was partially offset by an increase of $22 in interest income. The increase in interest expense is attributable to a loan from Phenomenal Limited. The provision for income taxes decreased by $334 to $306 for the three months ended December 31, 1997 from $640 for the three months ended December 31, 1996. The tax provisions as a percent of pre-tax income decreased to 20.6% for the three months ended December 31, 1997 from 38.4% for the three months ended December 30, 1996. The decrease resulted from an increase in revenue derived from jurisdictions with lower tax rates. Nine Months Ended December 31, 1997 Compared to the Nine Months Ended December 31, 1996 The Company's total revenues increased $17,548 or 59.4%, to $47,093 for the nine months ended December 31, 1997 from $29,545 for the nine months ended December 31, 1996. This increase consisted of an increase in sales of $12,498 and subcontract service income of $5,050. The increase in sales revenues was attributable to the introduction of new products and additional marketing. The increase in subcontract service income is attributable to an increase in marketing, new technology and an increase in the number of supply contracts. The cost of sales and services increased $13,792 or 61.7%, to $36,142 for the nine months ended December 31, 1997 from $22,350 for the nine months ended December 31, 1996. The increase resulted from the increase in revenues. The cost of sales and services as a percentage of revenue increased 1.1% to 76.7% for the nine months ended December 31, 1997 from 75.6% for the nine months ended December 31, 1996. Selling, general and administrative expenses increased $1,678 or 54.6%, to $4,750 for the nine months ended December 31, 1997 from $3,072 for the nine months ended December 31, 1996. The increase in expenses is attributable to increased sales and marketing efforts of the Company. Other expense increased $1,322 to $1,381 for the nine months ended December 31, 1997 from expense of $59 for the nine months ended December 31, 1996. This increase is attributable to a decrease in other income of $87 and an increase of $1,329 in interest expense which was partially offset by an increase of $94 in interest income. The increase in interest expense is attributable to a loan from Phenomenal Limited. The provision for income taxes decreased by $831 to $582 for the nine months ended December 31, 1997 from $1,413 for the nine months ended December 31, 1996. The tax provisions as a percent of pre-tax income decreased to 12.1% for the nine months ended December 31, 1997 from 34.8% for the nine months ended December 31, 1996. The decrease resulted from a decrease in revenue derived from jurisdictions with lower tax rates. 6 Material Changes in Financial Condition, Liquidity and Capital Resources ($US,000, except per share data) The Company had a cash balance of $2,187 and a deficit working capital of $345 at December 31, 1997 compared to a cash balance of $94 and working capital of $2,768 at March 31, 1997. The increase in cash is attributable to the receipt of proceeds from a short term loan of $10,000. The decrease in working capital resulted from the increase in short term loans. For the nine months ended December 30, 1997 net cash used in operating activities amounted to $2,181 as compared to net cash provided by operating activities of $1,709 for the corresponding period of the prior year. This change resulted from an increase in accounts receivable, inventory, prepaid expenses and a reduction in deposits from customers, which were partially offset by increased earnings, depreciation and accounts payable. Net cash used in investing activities amounted to $8,977 and $2,960 for the nine months ended December 30, 1997 and 1996 respectively. This increase resulted from substantial additions to property, plant and equipment. Net cash provided by financing activities amounted to $13,248 and $1,667 for the nine months ended December 30, 1997 and 1996, respectively. This increase is attributable to an increase in short-term borrowings and the $10,000 short term loan from Phenomenal Limited. At December 31, 1997, the Company had long term debt totaling $1,692 compared to long term debt at March 31, 1997 of $1,834. This $142, or 7.7% decrease is primarily attributable to repayments which offset additions of the Company's bank loan. In consideration for a loan of $10,000 from Phenomenal Limited, the Company's wholly owned subsidiary Quality Prince Limited executed a Convertible Note ("Note") in the principal amount of $10,000 with a maturity of March 20, 1998. The Note may be converted into 2914 shares or such other number of shares as will constitute not less than 29.14% of Quality Prince Limited, and bears interest at the rate of three percent compounded monthly, provided that if the Company is not in Default with respect to any repayment obligation thereunder, then the rate shall be reduced to 1.5% compounded monthly. As additional consideration for the loan of $10,000 the Company issued Phenomenal Limited, warrants ("Warrants") to purchase 5,263,158 shares of the Company's common stock, $.001 par value, at a purchase price of $2.19, exercisable for a period commencing upon the date of the grant of the Warrants and ending on the earlier of (i) May 31, 1998 or (ii) the closing of a consolidation or merger of the Company (other than with its wholly-owned subsidiary), or the transfer of all or substantially all of the Company's assets to, another corporation (unless the owners of the capital stock of the Company, prior to such transaction, continue to own a majority of the capital stock of the surviving corporation). The Warrants may only be exercised in the event that the Note is not converted pursuant to its terms. On June 4, 1998, the Company (and its subsidiaries) and Phenomenal Limited executed an agreement ("Deed Amendment") to modify the terms of the Note and the Warrants. Pursuant to the Deed Amendment, Phenomenal Limited agreed to an investment in the Company's subsidiary, Hang Fung Jewellery Company Limited ("Hang Fung Jewellery") in the form of 5,263,788 redeemable preference shares (the "Preferred Shares"), $.01 par value issued at a premium of $1.8897726 as a substitution for the Note. The Preferred Shares shall have no voting rights except with respect to matters which affect their rights, matters of dissolution or the issuance of additional shares. The Deed Amendment evidences the Company's intent to form a new holding company for the shares of Hang Fung Jewellery and Kai Hang Jewellery Company Limited, (the "Restructuring") currently owned by Quality Prince Limited; and to list the shares of the new holding company on The Stock Exchange of Hong Kong Limited (the "Listing"). If the Restructuring and Listing occur before March 20, 1999, the Preferred Shares must be redeemed and the redemption amount of $10,000 plus any amount of dividend must be used to subscribe for shares in the newly listed holding company. If the Restructuring and Listing have not occurred by March 20, 1999, the Preferred Shares must be redeemed as follows: (1) for the redemption amount of $10,000 plus a dividend (the "Aggregate Redemption Amount") without any obligation to subscribe for shares in the new holding company; or (2) if the Restructuring occurs before March 31, 1999, then for the Aggregate Redemption Amount, however all or part of the Aggregate Redemption Amount must be used to subscribe for shares in the new holding company. If the Restructuring has not occurred before March 31, 1999, then the Preferred Shares may not be redeemed until the Restructuring is completed not later than June 30, 1999, and all or part of the Aggregate Redemption Amount must be used for subscription shares in the new holding company. Regardless of whether the Restructuring has occurred, the Preferred Shares may be redeemed at any time after June 30, 1999, provided that all, part or none of the Aggregate Redemption Amount is used for such subscription shares. The Warrants, originally issued for an exercise period expired on May 31, 1998 have been extended by the Deed Amendment to May 31, 1999 or the date of the Listing, whichever is earlier and the number of warrant shares was increased. The Warrants may only be exercised as an alternative to subscription shares in the new holding company; and likewise subscription to shares in the new holding company is forfeited in the event that the Warrants are exercised. 7 Other expense included interest provision for a convertible note of approximately $146,000 and $1,076,000 for the three and nine months ended December 31, 1997. On June 4, 1998 the Company and the convertible note holder agreed to waive all interest relating to the convertible note. Management of the Company believes, based on its current operating agreements, that future operating cash flows will be positive, and that the Company's working capital is sufficient to meet the Company's anticipated needs for at least the following twelve months, including the performance of all existing contracts of the Company. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Warrant Agreement with Phenomenal Limited (1) 10.2 Convertible Note with Phenomenal Limited (1) 27.1 Financial Data Schedule (b) Reports on Form 8-K None -------------------- (1) Incorporated by reference to the respective exhibits filed with the Registrant's Form 10Q for the period ended June 30, 1997. 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: August 20, 1998 By: /s/ Lam Sai Wing ------------------------------ Lam Sai Wing, President and Chief Executive Officer Dated: August 20, 1998 By: /s/ Chan Yam Fai ------------------------------ Chan Yam Fai , Jane Chief Financial Officer 8 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-mos MAR-31-1997 SEP-30-1997 DEC-31-1997 2,187 0 10,471 0 11,946 27,129 14,297 0 41,426 27,474 0 0 0 13 12,247 41,426 47,093 47,093 (36,142) (40,892) (1,381) 0 0 4,820 (582) 4,238 0 0 0 4,238 .33 .33
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