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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of October 2000
LJ International Inc.
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(Translation of registrant's name into English)
Unit #12, 12/F, Block A
Focal Industrial Centre
21 Man Lok Street, Hung Hom, Hong Kong
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(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
----- -----
[If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LJ International Inc.
-----------------------------------
(Registrant)
Date: October 16, 2000 By: /s/ NG HON TAK RINGO
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NG HON TAK RINGO,
Chief Financial Officer
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FINANCIAL INFORMATION
---------------------
LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(US GAAP - Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended July 31
2000 1999
US$ US$
(unaudited) (unaudited)
<S> <C> <C>
OPERATING REVENUE 10,748 7,538
Costs of goods sold 6,619 4,244
--------------- ---------------
Gross profit 4,129 3,294
Selling, general and administrative
expenses 2,814 2,097
--------------- ---------------
OPERATING INCOME 1,315 1,197
Other expenses 60 144
--------------- ---------------
INCOME BEFORE INCOME TAXES 1,255 1,053
Income taxes 39 103
--------------- ---------------
NET INCOME 1,216 950
=============== ===============
Numerator:
Net income used in computing basic
earnings per share 1,216 950
Interest on 3% convertible debentures (16) -
--------------- ---------------
Adjusted net income used in computing
diluted earnings per share 1,200 950
=============== ===============
Denominator:
Weighted average number of shares
used in calculating basic earnings
per share 8,258,013 6,347,046
Effect of dilutive potential ordinary
shares:
3% convertible debentures 214,600 -
Warrants and Stock options - 514
--------------- ---------------
Weighted average number of shares
used in calculating diluted earnings
per share 8,472,613 6,347,560
=============== ===============
Earnings per share:
Basic 0.15 0.15
=============== ===============
Diluted 0.14 0.15
=============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US GAAP - Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
As of July 31 As of April 30
2000 2000
US$ US$
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash 6,118 5,031
Trade receivables, net of allowance for doubtful
accounts (1999: $248, 2000: $323) 7,176 5,522
Inventories 20,062 19,203
Prepayments and other current assets 2,852 2,868
------------ ------------
TOTAL CURRENT ASSETS 36,208 32,624
Property, plant and equipment, net 4,785 4,648
Investment properties, net 1,712 1,726
Organization costs, net of accumulated amortization 13 56
Goodwill, net of accumulated amortization 263 270
------------ ------------
TOTAL ASSETS 42,981 39,324
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft 2,440 1,731
Notes payable, current portion 517 527
Letters of credit, gold and other loans 6,011 3,773
Trade payables 2,816 3,493
Accrued expenses and other payables 1,887 1,333
Trade deposits received 747 1,025
Capitalized lease obligations, current 76 77
Income taxes payable 97 58
------------ ------------
TOTAL CURRENT LIABILITIES 14,591 12,017
Notes payable, non-current portion 654 785
Capitalized leased obligations, non-current 9 28
3% convertible debentures - 3,000
------------ ------------
TOTAL LIABILITIES 15,254 15,830
------------ ------------
SHAREHOLDERS' EQUITY
Common stocks, par value US$0.01 each,
Authorized - 100 million shares, Issued and outstanding
- 7,438,058 shares as of April 30, 2000
8,671,615 shares as of July 31, 2000 87 74
Additional paid-in capital 14,448 11,444
Warrant reserve 339 339
Retained earnings 12,853 11,637
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 27,727 23,494
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 42,981 39,324
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended July 31
2000 1999
US$ US$
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 1,216 950
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 240 186
Minority interest in net income of subsidiary - (4)
Other non-cash items 17 -
Changes in operating account:
Increase in operating assets (2,497) (1,454)
Increase in operating liabilities 1,865 777
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NET CASH PROVIDED BY OPERATING ACTIVITIES 841 455
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INVESTING ACTIVITIES:
Purchase of property and equipment (313) (128)
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FINANCING ACTIVITIES:
Payment of long-term debt and other obligations (150) (356)
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INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 378 (29)
CASH AND CASH EQUIVALENTS, AS OF BEGINNING OF PERIOD 3,300 (894)
------------- -------------
CASH AND CASH EQUIVALENTS, AS OF END OF PERIOD 3,678 (923)
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest 240 266
============= =============
Income taxes - 135
============= =============
</TABLE>
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LJ INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of the Company for
the three-month periods ended July 31, 2000 and July 31, 1999 have been prepared
by the Company without audit by the Company's independent auditors. In the
opinion of the Company's management, all adjustments necessary to present fairly
the financial position, results of operations, and cash flows of the Company as
of July 31, 2000 and for the period then ended have been made. The condensed
consolidated balance sheet of the Company as of April 30, 2000 has been derived
from the audited consolidated balance sheet of the Company at that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with a reading
of the financial statements and notes thereto included in the Company's Form
20-F annual report for the year ended April 30, 2000.
The results of operations for the three-month period ended July 31, 2000 is not
necessarily indicative of the results to be expected for the full year.
NOTE 2: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LJ International,
Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
NOTE 3: NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for derivative
instruments and hedging activities" which delayed the effective date of SFAS No.
133 "Accounting for derivative instruments and hedging activities" for one year.
SFAS No. 133 provides guidance for the recognition and measurement of
derivatives and hedging activities. It requires an entity to record, at fair
value, all derivatives as either assets or liabilities in the balance sheet, and
it establishes specific accounting rules for certain types of hedges. SFAS No.
133 is now effective for fiscal years beginning after June 15, 2000 and will be
adopted by the Company when required, if not earlier. The Company currently does
not hold or issue derivative financial instruments in the normal course of
business. Accordingly, adoption of SFAS No. 133 is not expected to affect the
Company's financial statements.
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Also, in December 1999 the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to revenue recognition for certain
transactions. The Company is in the process of analyzing the impact of SAB No.
101 on its Consolidated Financial Statements and related disclosures.
NOTE 4: EARNINGS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share" to calculate its
earnings per share ("EPS"). For the three months ended July 31, 2000,
outstanding warrants and options to purchase shares of Company Common Shares at
option exercise prices ranging from $3.00 to $8.45625 per share were excluded
from the computation of diluted EPS, as the warrants and options' exercise price
were greater than the average market price of the Common Shares. However,
214,600 weighted average shares of the 3% convertible debentures have been
included in the diluted EPS calculation.
All outstanding convertible debentures have been converted to Company Common
Shares during the quarter ended July 31, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
---------------------
Revenue for the first quarter ended July 31, 2000 increased 43% to $10,748,000
from $7,538,000 in the same period last year. The increase in sales is primarily
a result of increased customer base, more sales to existing customers by
cross-selling, as well as new product launches, including the Company's recently
launched Lorenzo-branded line. The first quarter of fiscal 2001 represents the
fifth consecutive quarter-over-quarter revenue gain, and the third consecutive
quarter-over-quarter gain in excess in 40%.
Gross profit margin dropped to 38.4% for the first quarter ended July 31, 2000
from 43.7% for the same period last year, as a result of the change in product
mix with higher value but lower margin product lines, like diamonds, and the
cost of launching other new product lines.
Selling, General and Administrative (SG&A) expenses increased to $2,814,000 for
the quarter ended July 31, 2000 from $2,059,000 in the same period last year. In
term of percentage to sales, SG&A had decreased to 26.1% from 27.3% in the same
period last year. It is mainly attributable to the higher growth in sales and
the result of the cost control measures.
While incurring the cost of launching new product lines, the Company still
achieved net income of $1,216,000, or $0.14 per diluted share on 8.5 million
shares outstanding, an increase of 28% over net income of $950,000, or $0.15 per
diluted share on 6.3 million shares outstanding in the year-ago quarter. The
increased number of outstanding shares is attributable to the conversion of the
Company's convertible debentures.
Capital Resources and Liquidity
-------------------------------
At July 31, 2000 and April 30, 2000, the Company had cash and cash equivalents
totaling of $3,678,000 and $3,300,000 respectively. At July 31, 2000 and April
30, 2000, the Company had working capital of $21,617,000 and $20,607,000
respectively.
The net cash provided by operating activities amounted to $841,000 and $455,000
for the three months ended July 31, 2000 and 1999 respectively. This increase in
the operating cash inflow is mainly attributable to the continuous increase in
sales volume.
The Company anticipates that its cash and working capital will be sufficient to
service its existing debt, outstanding commitments and to maintain Company
operations at current levels for the foreseeable future.
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Impact on Recently Issued Accounting Standards
----------------------------------------------
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for derivative
instruments and hedging activities" which delayed the effective date of SFAS No.
133 "Accounting for derivative instruments and hedging activities" for one year.
SFAS No. 133 provides guidance for the recognition and measurement of
derivatives and hedging activities. It requires an entity to record, at fair
value, all derivatives as either assets or liabilities in the balance sheet, and
it establishes specific accounting rules for certain types of hedges. SFAS No.
133 is now effective for fiscal years beginning after June 15, 2000 and will be
adopted by the Company when required, if not earlier. The Company currently does
not hold or issue derivative financial instruments in the normal course of
business. Accordingly, adoption of SFAS No. 133 is not expected to affect the
Company's financial statements.
Also, in December 1999 the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to revenue recognition for certain
transactions. The Company is in the process of analyzing the impact of SAB No.
101 on its Consolidated Financial Statements and related disclosures.
Forward-Looking Information
---------------------------
Certain statements in this section and elsewhere in this report contain
forward-looking statements, including but not limited to future sales,
geographic expansion, customer diversification, the launch of Lorenzo-branded
jewelry, and the implementation of the Company's expansion strategy. These
forward-looking statements may involve a number of risks and uncertainties.
Actual results may vary significantly based on a number of factors, including,
but not limited to, uncertainties in product demand, the impact of competitive
products and pricing, changing economic conditions around the world, release and
sales of new products, and other risk factors detailed in the Company's most
recent annual report, and other filings with the Securities and Exchange
Commission.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
The Company has outstanding loans to purchase 4,850 ounces of gold as of July
31, 2000 with the related balance of $1,327,000. Security is pledged with the
lenders for gold market price up to $294 per ounce. These loans are due within
next year, however, have been historically renewed. These loans can be repaid in
cash at the current exchange rate of gold any time prior to maturity. As the
Company does not hedge for changes in the future price of gold, the Company is
exposed to certain market risks, which may result from potential future
increases in the price of gold above the secured level of $294 per ounce. The
gold market price as at July 31, 2000 is $277 per ounce.
