10-Q 1 0001.txt 10-Q 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. 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 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (US$,000) (Unaudited) March 31, September 30, ASSETS 2000 2000 ----------- ---------------- 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 $19,671 ========= ========
The accompanying notes are an integral part of these consolidated financial statements 1 S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (US$,000, except per share data) (Unaudited) Three Months Ended Six Months Ended September 30, September 30, ------------------------ ------------------------ 1999 2000 1999 2000 ------ ------- ------ ------ 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 $(0.59) =========== ========== ========== ========== Weighted average shares outstanding 12,800,000 12,800,000 12,800,000 12,800,000 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements 2 S.W. LAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (US$,000) (Unaudited) Six Months Ended September 30, ------------------------------ 1999 2000 ------- ------- 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 ======== =========
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) 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 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 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 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 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. Three Months Ended Six Months Ended September 30, September 30, ------------------------- -------------------------- 1999 2000 1999 2000 ------ ------ ------ ------ 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)
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 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 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 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 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 12 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 13 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 14