DSWL Deswell Industries Inc

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the first six months ended September 30, 2017.

Net sales for the first six months ended September 30, 2017 were $29.8 million, an increase of 44.2% compared to net sales of $20.6 million for the six months ended September 30, 2016. Net sales increased by 30.6% to $13.8 million in the plastic segment and increased by 58.4% to $16.0 million in the Company’s electronic segment.

Total gross margin increased to 19.6% of net sales during the six months ended September 30, 2017, as compared to 14.3% of net sales in the same period last year. Gross profit margin in the plastic segment increased to 24.3% of net sales for the first half of fiscal 2018, compared to 17.9% of net sales for the corresponding period of last fiscal year. The increase in gross profit and margin in the plastic segment was mainly due to lower factory overhead, offsetting a slight increase in raw material and labor costs, as a percentage of sales. Gross profit margin in the electronic segment increased to 15.5% of net sales for the first half of fiscal 2018, compared to 10.5% of net sales for the corresponding period of last fiscal year. The increase in gross profit and margin in the electronic segment was mainly attributable to a decrease in labor cost and factory overhead, as a percentage of net sales. The operating income in the first half of fiscal 2018 was $1.6 million, compared to an operating loss of $1.8 million for the same period of fiscal 2017.

The Company reported net income of $3.7 million for the six months ended September 30, 2017, compared to net income of $0.7 million for the six months ended September 30, 2016. This was primarily due to an increase in gross profit and decrease in SG&A expense, as a percentage of sales, for the six months ended September 30, 2017. Deswell reported basic and diluted income per share of $0.23 for the first half of fiscal 2018 (based on 15,885,000 weighted average shares outstanding), compared to basic and diluted income per share of $0.04 (based on 16,056,000 weighted average shares outstanding), for the six months ended September 30, 2016.

The Company's financial position remained strong, with $11.7 million in cash and cash equivalents and working capital totaled $42.7 million as of September 30, 2017. Furthermore, the Company has no long-term or short-term borrowings as of September 30, 2017.

Mr. Edward So, Chief Executive Officer, commented, “Our strong operating performance in the first half of 2018 is a result of the strategic initiatives we have focused on over the past few years. The top line growth reflects our efforts to drive revenue by expanding business with existing customers and adding new customers; both our plastic and electronic assembly segments saw strong growth in the period. Furthermore, we have continued to reduce costs, enabling us to achieve enhanced margins and considerable growth in earnings per share. Our pipeline is healthy, and we remain diligently focused on aligning with the right customers and products.”

First Half Dividend

The Company also announces that its board of directors today decided no cash dividend will be paid for the first half of the fiscal year ended September 30, 2017. The Company expects the distribution of dividend will be resumed no later than March 31, 2019.

About Deswell

Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic molds and accessory parts for original equipment manufacturers (“OEMs”) and contract manufacturers at its factories in the People’s Republic of China. The Company produces a wide variety of plastic parts and components used in the manufacture of consumer and industrial products; printed circuit board assemblies using surface mount (“SMT”) and finished products such as telephones, telephone answering machines, sophisticated studio-quality audio equipment and computer peripherals.

To learn more about Deswell Industries, Inc., please visit the Company’s website at www.deswell.com.

Forward-Looking StatementsStatements in this press release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. For example, our statements regarding our expected growth in sales from the electronic division in the coming year and our efforts to reduce overhead costs in our plastic division are forward-looking statements. Actual results could differ materially because of the following factors, among others, which may cause revenues and income to fall short of anticipated levels or our overhead expenses to increase: our dependence on a few major customers; vigorous competition forcing product price reductions or discounts; the timing and amount of significant orders from our relatively few significant customers; continuing increases in resin prices that cannot be passed on to customers; unexpected production delays; obsolete inventory or product returns; losses resulting from fraudulent activity of our customers or employees; labor shortages that increase labor and costs; changes in the mix of product products we manufacture and sell; adverse currency fluctuations in the renminbi and Hong Kong dollar when translated to US dollars; potential new accounting pronouncements; and the effects of travel restrictions and quarantines associated with major health problems, such as the Severe Acute Respiratory Syndrome, on general economic activity.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” section of Company’s Annual Report on Form 20-F, copies of which may be obtained from the Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

All information in this release is made as of the date of this press release. Deswell undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Deswell’s expectations.

  DESWELL INDUSTRIES, INC.   CONSOLIDATED BALANCE SHEET ( U.S. dollars in thousands) September, 30 March 31,

2017

2017

ASSETS (Unaudited) (Audited)   Current assets : Cash and cash equivalents $ 11,713 $ 8,078 Fixed deposits maturing over three months 2,116 5,422 Marketable securities (note 2) 15,850 16,327 Accounts receivable, net 15,023 13,159 Inventories (note 3) 13,211 10,688 Prepaid expenses and other current assets   1,976   2,419 Total current assets 59,889 56,093 Property, plant and equipment - net 31,492 31,992 Time deposits maturing over twelve months   4,521   2,902 Total assets $ 95,902 $ 90,987   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable $ 6,995 $ 5,152 Accrued payroll and employee benefits 5,408 4,643 Customer deposits 2,102 2,152 Other accrued liabilities 1,217 1,474 Income taxes payable 530 476 Deferred income tax liabilities   892   889 Total current liabilities   17,144   14,786   Shareholders' equity Common shares nil par value; authorized 30,000,000 shares; 15,885,239 shares issued & outstanding as of September 30, 2017 and March 31, 2017 53,063 53,063 Additional paid-in capital 5,184 5,184 Accumulated other comprehensive income 5,316 5,316 Retained earnings   15,195   12,638 Total shareholders' equity   78,758   76,201 Total liabilities and shareholders' equity $ 95,902 $ 90,987   DESWELL INDUSTRIES, INC.     CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) (UNAUDITED) ( U.S. dollars in thousands, except per share data )     Six months ended September 30,

2017

2016

  Net sales $ 29,759 $ 20,634 Cost of sales   23,938   17,687 Gross profit 5,821 2,947 Selling, general and administrative expenses 4,434 4,526 Other income (expense), net   198   (239) Operating income (loss) 1,585 (1,818) Non-operating income, net (note 3)   2,130   2,616 Income before income taxes 3,715 798 Income taxes   46   87 Net income attributable to Deswell Industries, Inc. $ 3,669 $ 711     Other comprehensive income $ - $ - Comprehensive income (loss) attributable to Deswell Industries, Inc. $ 3,669 $ 711     Net income per share attributable to Deswell Industries, Inc. (note 4) Basic: Net income (loss) per share $ 0.23 $ 0.04 Weighted average common shares outstanding shares (in thousands)   15,885   16,056   Diluted: Net income (loss) per share $ 0.23 $ 0.04 Weighted average number of shares outstanding (in thousands)   15,885   16,056   DESWELL INDUSTRIES, INC.     CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) ( U.S. dollars in thousands ) Six months ended Six months ended   September 30,   September 30,

2017

2016

Cash flows from operating activities : Net income (loss) $ 3,669 $ 711 Adjustments to reconcile net income to net cash provided by operating activities : Depreciation and amortization 1,054 1,118 (Reversal of) provision for doubtful accounts (84) 62 Allowances for obsolete inventories 85 (13) Loss on disposal of property, plant and equipment 17 110 Unrealized holding gain on marketable securities (537) (1,626) Realized holding gain on disposal of marketable securities (340) (69) Realized loss on disposal of available-for-sale securities - 14 Scrip dividend received (139) (58) Deferred tax 3 22 Changes in operating assets and liabilities : Accounts receivable (1,780) (1,911) Inventories (2,608) (1,785) Prepaid expenses and other current assets 443 (263) Accounts payable 1,843 3,051 Accrued payroll and employee benefits 765 575 Customer deposits (50) 899 Other accrued liabilities (257) 45 Income taxes payable   54   39 Net cash provided by (used in) operating activities   2,138   921   Cash flows from investing activities Purchase of property, plant and equipment (577) (397) Proceeds from disposal of property, plant and equipment, 6 875 Purchase of marketable securities (435) (2,951) Proceeds from disposal of marketable securities 1,928 920 Proceeds from disposal of available-for-sale securities - 1,600 Increase in fixed deposits maturing over three months 3,306 (1,598) Decrease in fixed deposits maturing over twelve months   (1,619)   74 Net cash provided by (used in) investing activities   2,609   (1,477)   Cash flows from financing activities Dividends paid   (1,112)   (1,124) Net cash used in financing activities (1,112) (1,124)   Cash effect of exchange rate changes   -   -   Net increase (decrease) in cash and cash equivalents 3,635 (1,680) Cash and cash equivalents, at beginning of period   8,078   11,996 Cash and cash equivalents, at end of period   11,713   10,316   Supplementary disclosures of cashflow information: Cash paid during the period for: Interest - - Income taxes   8   26  

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Investor Relations:Institutional Marketing Services (IMS)John Nesbett/Jennifer Belodeau, 203-972-9200