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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 December 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: December 11, 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 October 31 Six months ended October 31
2000 1999 2000 1999
US$ US$ US$ US$
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUE 12,851 9,820 23,599 17,358
Costs of goods sold 8,225 6,121 14,844 10,365
--------------- --------------- --------------- ---------------
Gross profit 4,626 3,699 8,755 6,993
Selling, general and administrative
expenses 2,891 2,305 5,705 4,402
--------------- --------------- --------------- ---------------
OPERATING INCOME 1,735 1,394 3,050 2,591
Other expenses 97 75 157 219
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 1,638 1,319 2,893 2,372
Income taxes 170 129 209 232
--------------- --------------- --------------- ---------------
NET INCOME 1,468 1,190 2,684 2,140
=============== =============== =============== ===============
Numerator:
Net income used in computing basic
earnings per share 1,468 1,190 2,684 2,140
Interest on 3% convertible debentures - - 16 -
--------------- --------------- --------------- ---------------
Adjusted net income used in computing
diluted earnings per share 1,468 1,190 2,700 2,140
=============== =============== =============== ===============
Denominator:
Weighted average number of shares
used in calculating basic earnings
per share 8,671,615 6,365,646 8,464,813 6,365,646
Effect of dilutive potential ordinary
shares -- 3% convertible debentures - - 105,605 -
--------------- --------------- --------------- ---------------
Weighted average number of shares
used in calculating diluted earnings
per share 8,671,615 6,365,646 8,570,418 6,365,646
=============== =============== =============== ===============
Earnings per share:
Basic $ 0.17 $ 0.19 $ 0.32 $ 0.34
=============== =============== =============== ===============
Diluted $ 0.17 $ 0.19 $ 0.32 $ 0.34
=============== =============== =============== ===============
</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 October 31 As of April 30
2000 2000
US$ US$
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash 6,726 5,031
Trade receivables, net of allowance for doubtful
accounts (1999: $248, 2000: $323) 6,932 5,522
Inventories 20,546 19,203
Prepayments and other current assets 5,048 2,868
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TOTAL CURRENT ASSETS 39,252 32,624
Property, plant and equipment, net 4,812 4,648
Investment properties, net 1,699 1,726
Organization costs, net of accumulated amortization 9 56
Goodwill, net of accumulated amortization 255 270
------------ ------------
TOTAL ASSETS 46,027 39,324
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft 3,025 1,731
Notes payable, current portion 527 527
Letters of credit, gold and other loans 5,518 3,773
Trade payables 3,211 3,493
Accrued expenses and other payables 2,290 1,333
Trade deposits received 1,372 1,025
Capitalized lease obligations, current 70 77
Income taxes payable 317 58
------------ ------------
TOTAL CURRENT LIABILITIES 16,330 12,017
Notes payable, non-current portion 502 785
Capitalized leased obligations, non-current -- 28
3% convertible debentures -- 3,000
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TOTAL LIABILITIES 16,832 15,830
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SHAREHOLDERS' EQUITY
Common stocks, par value US$0.01 each,
Authorized - 100 million shares, Issued and outstanding
- 7,438,058 shares as of April 30, 2000
8,671,615 shares as of October 31, 2000 87 74
Additional paid-in capital 14,448 11,444
Warrant reserve 339 339
Retained earnings 14,321 11,637
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 29,195 23,494
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 46,027 39,324
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six months ended October 31
2000 1999
US$ US$
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 2,684 2,140
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 437 375
Minority interest in net income of subsidiary - (9)
Other non-cash items 17 -
Changes in operating account:
Increase in operating assets (4,933) (2,816)
Increase in operating liabilities 2,455 2
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 660 (308)
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INVESTING ACTIVITIES:
Purchase of property and equipment (512) (173)
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FINANCING ACTIVITIES:
New gold loan 564 -
Payment of long-term debt and other obligations (311) (357)
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253 (357)
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INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 401 (838)
CASH AND CASH EQUIVALENTS, AS OF BEGINNING OF PERIOD 3,300 1,082
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CASH AND CASH EQUIVALENTS, AS OF END OF PERIOD 3,701 244
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest 568 502
============= =============
Income taxes - -
============= =============
</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 and six month periods ended October 31, 2000 and October 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 October 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 and six month periods ended October 31,
2000 are 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: ADOPTION OF NEW ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's view in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.
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NOTE 4: EARNINGS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share" to calculate its
earnings per share ("EPS"). For the three and six month periods ended October
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 prices of the Common Shares
for their respective periods. However, 105,605 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, and hence there is no dilutive
effect for the three-month period ended October 31, 2000 alone.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Second Quarter ended October 31, 2000
Results of Operations
---------------------
Revenue for the second quarter ended October 31, 2000 increased 31% to
$12,851,000 from $9,820,000 in the same period last year. The increase in sales
is primarily a result of increased sales in diamond jewelry to existing
customers by cross-selling, as well as new product launches, including the
Company's recently launched Lorenzo-branded line.
Gross profit margin dropped to 35.9% for the second quarter ended October 31,
2000 from 37.7% 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 $2,891,000 for
the quarter ended October 31, 2000 from $2,305,000 in the same period last year.
In term of percentage to sales, SG&A had decreased to 22.5% from 23.5% 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 $1,468,000 or $0.17 per diluted share on 8.6 million
shares outstanding, an increase of 23.4% over net income of $1,190,000, or $0.19
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.
Six-month period ended October 31, 2000
Results of Operations
---------------------
Revenue for the six-month period ended October 31, 2000 increased 36% to
$23,599,000 from $17,358,000 in the same period last year. The increase in sales
is primarily a result of increased sales in diamond jewelry to existing
customers by cross-selling, as well as new product launches, including the
Company's recently launched Lorenzo-branded line.
Gross profit margin dropped to 37.1% for the six-month period ended October 31,
2000 from 40.3% for the same period last year, as a result of change in product
mix with higher value but lower margin product lines, like diamonds, and the
cost of launching other new product lines. The gross profit margin is expected
to be stable at 34% at the end of fiscal year 2001.
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Selling, General and Administrative (SG&A) expenses increased to $5,705,000 for
the quarter ended October 31, 2000 from $4,402,000 in the same period last year.
In term of percentage to sales, SG&A had decreased to 24.2% from 25.4% 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 $2,684,000 or $0.32 per diluted share on 8.6 million
shares outstanding, an increase of 25.4% over net income of $2,140,000, or $0.34
per diluted share on 6.3 million shares outstanding in the same period last
year. The increased number of outstanding shares is attributable to the
conversion of the Company's convertible debentures.
Capital Resources and Liquidity
-------------------------------
At October 31, 2000 and April 30, 2000, the Company had cash and cash
equivalents totaling of $3,701,000 and $3,300,000 respectively. At October 31,
2000 and April 30, 2000, the Company had working capital of $22,922,000 and
$20,607,000 respectively.
The net cash provided by operating activities amounted to $660,000 for the
six-month period ended October 31, 2000 compared to $308,000 used for operating
activities for the same period last year. Such improvement in the operating cash
inflow is mainly attributable to the continuous increase in sales volume and due
to the fact that there were set-up costs incurred in the diamond jewelry line in
the prior fiscal year. During the period, the Company obtained a new gold loan
equivalent to 2,100 ounces at the prevailing market price amounted to $564,000
for an initial period of six months.
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.
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.
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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.
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's view in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.
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 6,950 ounces of gold as of October
31, 2000 with the related balance of $1,891,000. Security is pledged with the
lenders for a gold market price of up to $294 per ounce. These loans are due
within the 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 October 31, 2000 is $265 per ounce.
