<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[/X/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________.
Commission File No. 33-10639-NY
MAN SANG HOLDINGS, INC.
(Name of small business issuer in its charter)
NEVADA 13-3165967
(State or other jurisdiction (I.R.S.Employer Identification Number)
of incorporation or organization)
14/F SANDS BUILDING, 17 HANKOW ROAD, TSIMSHATSUI, KOWLOON, HONG KONG
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: 852 2317 5300
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 twelve (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
ninety (90) days. Yes /X/ No
----- -----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [/X/]
The issuer's revenues for its most recent fiscal year were $26,768,974.
As of May 31, 1996, 12,000,000 shares of common stock of the Registrant
were outstanding. As of such date, the aggregate market value of the common
stock held by non-affiliates, based on the average bid and asked price on the
NASD Electronic Bulletin Board, was approximately $3.50.
DOCUMENTS INCORPORATED BY REFERENCE
No annual reports to security holders, proxy or information statements,
or prospectuses filed pursuant to Rule 424(b) or (c) are incorporated by
reference in this report.
Transitional Small Business Disclosure Format: Yes No /X/
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . 1
ITEM 2. DESCRIPTION OF PROPERTIES . . . . . . . . . . . . . . 7
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . 7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION. . . . . . . . . . . . . . . . . 9
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT . . . . . . . . . . 14
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . 17
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K. . . . . . . . . . . 18
SIGNATURES 19
FINANCIAL STATEMENTS F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Man Sang Holdings, Inc. (the "Company"), through its wholly-owned
subsidiaries, is engaged in (i) the purchasing, processing, assembling,
merchandising, and wholesale distribution of pearls and pearl products; and
(ii) the management and leasing of a commercial real estate complex in
Shenzhen, People's Republic of China ("PRC").
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in the State of Nevada in November of 1986
under the name SBH Ventures, Inc. The Company was originally incorporated as
a "blind pool" company for the purpose of acquiring an operating business.
In March of 1987, the Company completed a public offering of 20,000,000
shares of common stock raising net proceeds of approximately $171,000.
Subsequently, in November of 1991, the Company, in connection with a merger
with an operating company, changed its name to UNIX Source America, Inc. and
declared a 1-for-20 reverse stock split. The operations of the merged
companies proved unsuccessful and the Company ceased such business operations
in 1992. In January of 1996, the Company again reverse split its common
shares on approximately a 1-for-14 basis and, following such reverse split,
issued 11,000,000 shares of common stock and 100,000 shares of preferred
stock in exchange (the "Exchange") for all of the outstanding securities of
Man Sang International (B.V.I.) Limited (the "Man Sang Group"). Pursuant to
the terms of the Exchange, the Company changed its name to Man Sang Holdings,
Inc., assumed the operations of the Man Sang Group and management of the Man
Sang Group assumed control of the Company.
The Man Sang Group consists of Man Sang International (B.V.I.) Limited,
a British Virgin Islands company, and its various operating subsidiaries in
Hong Kong and the PRC. The foundation of the Man Sang Group was laid in 1980
when CHENG Chung Hing, Ricky formed Man Sang Trading Hong, a fresh water
pearl trading company. In 1981, CHENG Tai Po formed Peking Pearls Company to
trade in Japanese cultured pearls and South Sea pearls. As the business of
the Man Sang Group developed, Man Sang Jewellery Co. Ltd. and Peking Pearl
Co., Ltd. were incorporated in Hong Kong in 1988 and 1991, respectively, to
continue the trading operations of the group. Subsequently, the Man Sang
Group expanded its operations to include pearl manufacturing with the
establishment of Man Hing Jewellery Goods (Shenzhen) Co. Ltd. in 1992 to
process and assemble freshwater pearls and Chinese cultured pearls and Damei
Pearls Jewellery Goods (Shenzhen) Co., Ltd. in 1995 to assume and expand the
Chinese cultured pearl manufacturing operations of Man Hing. In order to
facilitate the growth in operations and expansion into manufacturing
operations, and to diversify its revenues, in 1991, the group began
constructing a 25 building industrial facility in Shenzhen, PRC ("Man Sang
Industrial City") for use in pearl manufacturing and corporate administration
(5 buildings) and for lease to third party industrial users. See
"Description of Business - Real Estate Leasing Operations" and "Description
of Property." Finally, in 1995, the various companies comprising the Man
Sang Group were reorganized (the "Group Reorganization") in a holding company
structure with each of such companies becoming direct or indirect
wholly-owned subsidiaries of Man Sang International (B.V.I.) Limited.
ORGANIZATION CHART
Following the Group Reorganization and the Exchange, the structure of
the Company is as follows:
1
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(Organizational chart reflecting (1) Man Sang Holdings, Inc. [Nevada]
ownership of 100% of Man Sang International (B.V.I.) Limited
[British Virgin Islands]; (2) Man Sang International (B.V.I.) Limited
ownership of 100% of Man Sang Jewellery Company Limited [Hong Kong] and
100% of Hong Kong Man Sang Investments Limited [Hong Kong]; (3) Man Sang
Jewellery Company Limited ownership of 100% of Overseas South Pearls
Limited [Hong Kong] and 100% of Man Hing Jewellery Goods (Shenshen) Co
Ltd [PRC]; (4) Hong Kong Man Sang Investments Limited ownership of 100% of
Peking Pearls Company Limited [Hong Kong]; and (5) Peking Pearls Company
Limited ownership of 100% of Damei Pearls Jewellery Goods (Shenzhen) Co Ltd
[PRC].)
PEARL OPERATIONS
PEARL INDUSTRY. The use of pearls in jewelry dates back over fifteen
hundred years in China to the Tang Dynasty. Large scale commercial pearl
production began in Japan in the late 19th century. The farming, production
and trading of pearls to meet demand for pearl jewelry is, thus, a mature
industry.
In recent years, the pearl industry has undergone fundamental changes.
On the supply side, Japan is losing its long held dominance as, increasingly,
pearls are being cultivated and manufactured in the PRC. On the demand side,
the sale of pearls steadily declined from 1991 to 1994, principally because
of the strong Japanese yen, but rebounded in 1995 as lower priced Chinese
products gained an increasingly large percentage of the market. Because
Chinese cultured pearls are priced lower than Japanese cultured pearls, and
South Sea pearls are being offered at more affordable prices, demand is
slowly increasing. Most of the increased demand has come from the United
States, whose economy has improved, and from the growing economies of
Southeast Asia. Approximately one third of all pearl products are used in
necklaces, eighteen percent in earrings, fifteen
2
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percent in rings, thirteen percent in pendants and ten percent in broaches,
with the balance being used in a variety of other products. Industry growth
is affected by consumer taste and worldwide economic conditions as well as
availability of supply.
BUSINESS STRATEGY. The Company's business strategy is to provide a full
range of pearls and pearl products to jewelry manufacturers, wholesalers and
retailers at competitive prices with an emphasis on more affordable
freshwater and Chinese cultured pearls.
To meet its objectives, the Company is developing strategies to increase
market penetration through internal growth, strategic acquisitions and
expansion of existing product lines. Because the Company has been able to
sell and distribute pearl products in excess of its current manufacturing
capacity, it is planning to expand its manufacturing facilities and personnel
in the PRC and to acquire additional raw pearl inventories to support added
manufacturing capacity. The Company also plans to add personnel to assist in
the marketing of Japanese cultured pearls and South Sea pearls and to broaden
its base of local and export markets. Finally, the Company plans to evaluate
and, if appropriate, acquire one or more businesses which compliment or
expand its existing product lines if such businesses can be acquired on
acceptable terms. The Company has not, as yet, commenced the evaluation of
businesses to acquire and has no potential acquisition candidates under
consideration.
PRODUCTS. The Company presently offers four products lines in varying
states of assembly. The Company's pearl products are generally categorized
as freshwater pearls and three varieties of cultured pearls (Chinese cultured
pearls, Japanese cultured pearls, and South Sea pearls). Freshwater pearls
are available in a variety of shapes (e.g., round, potato and rice shaped)
with sizes generally ranging from 2mm to 9mm. Freshwater pearls are
generally considered of lesser quality, and are less expensive, than cultured
pearls with wholesale prices typically ranging from $2 to $300 per sixteen
inch strand depending upon size, grade and shape. Cultured pearls are
generally considered to be of higher quality than freshwater pearls, are
generally round in shape and generally range in size from 4mm to 18mm. South
Sea pearls are considered to be the highest quality cultured pearl and
typically the largest and most expensive followed by Japanese cultured pearls
and Chinese cultured pearls. Wholesale prices of cultured pearls typically
range from $20 to $50,000 per sixteen inch strand.
The following table illustrates the typical range of size and wholesale
price of cultured pearls sold by the Company by category:
<TABLE>
<CAPTION>
CHINESE CULTURED PEARLS JAPANESE CULTURED PEARLS SOUTH SEA PEARLS
----------------------- ------------------------ ----------------
<S> <C> <C> <C>
Size . . . . . . . 4 - 7mm 6.5 - 9.5mm 8 - 18mm
Price (16 inch strand) $20 - $400 $100 - $5,000 $3,000 - $50,000
</TABLE>
The Company also offers fully assembled necklaces, earrings, rings,
pendants, broaches, bracelets, watches, cufflinks, and similar miscellaneous
pearl products. The bulk of the Company's sales currently consist of
freshwater pearls sold loose or in strands. The average wholesale price of
the Company's products is $76 for strand pearls and $50 for fully assembled
products with wholesale prices ranging from approximately $2 to $150 for
strands and $.50 to $100 for fully assembled products.
For the two years ended March 31, 1996, as a percentage of sales, sales
of pearls and assembled pearl products by category were as follows:
1996 1995
---------------------- ----------------------
FRESHWATER CULTURED FRESHWATER CULTURED
---------- -------- ---------- --------
Loose and strands. . . . . 70% 99% 74% 100%
Necklaces. . . . . . . . . 14 1 11 -
Watches. . . . . . . . . . 4 - - -
Chokers. . . . . . . . . . 2 - 6 -
Bangles. . . . . . . . . . 2 - 4 -
Bracelets. . . . . . . . . 2 - - -
Earrings . . . . . . . . . 2 - 2 -
Other. . . . . . . . . . . 4 - 3 -
3
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PURCHASING. The Company purchases freshwater pearls and Chinese
cultured pearls from various pearl farms in the PRC while Japanese cultured
pearls are purchased, in a processed state, from pearl suppliers in Japan.
South Sea pearls are generally purchased, fully processed, from suppliers and
distributors in Hong Kong and Japan.
Purchasing is conducted by the Company's full time trained purchasing
staff. The Company's purchasing is conducted from its offices in Hong Kong
and a purchasing office in Zhangjiang, PRC, the site of the largest cultured
pearl farm in the PRC. The Company's purchasing staff maintains regular
contacts with pearl farmers and suppliers in the PRC, Japan and Hong Kong,
enabling the Company to buy directly from farmers whenever possible, secure
the best prices available for pearls and gain access to a larger quantity of
pearls. Management and the Company's purchasing staff meet regularly to
assess existing and anticipated pearl demand. The Company's purchasing
staff, in turn, inspects and purchases pearls in the quantities and of the
quality and nature necessary to meet existing and estimated demand.
The Company has no long term purchase contracts, choosing, instead, to
negotiate the purchase of pearls on an as needed basis to satisfy expected
demand. While the Company constantly seeks to capitalize on its volume
purchasing and relationships with farmers and suppliers to secure the best
pricing and quality when purchasing pearls and other jewelry raw materials,
the Company generally purchases raw materials from a small number of
suppliers at prices approximating prevailing market prices. The Company
believes that there are numerous alternate supply sources and that the
termination of the Company's relationship with any of its existing sources
would not materially adversely affect the Company. To date, the Company has
not experienced difficulty in securing raw materials.
MANUFACTURING AND ASSEMBLY. Pearl manufacturing is conducted at the
Company's facilities in Shenzhen, PRC. Freshwater pearl manufacturing
operations presently occupy approximately 20,000 square feet and employ 136
workers while cultured pearl manufacturing operations occupy approximately
20,000 square feet and employ 338 workers. Average compensation per factory
worker is $72 per month while average supervisory compensation is $168 per
month.
The Company, with the assistance of specialists from Japan, has trained
its work force and implemented advanced Japanese bleaching technology. Each
manufacturing worker performs a specific function and is supervised by an
officer and technical assistants who are university graduates with chemical
technology training in addition to specialized training by industry
specialists from Japan. Prior to participation in pearl manufacturing
operations, each manufacturing worker participates in an extensive on-the-job
training program utilizing poor quality pearls for demonstration and training
purposes.
Manufacturing of pearls occurs in batches or production cycles. Raw
pearls and other materials transported to the Company's manufacturing
facilities in Shenzhen, PRC are first sorted, medically bleached and dyed
and, if necessary, drilled. This process, excluding drilling, takes
approximately twenty one (21) days for freshwater pearls and approximately
seventy (70) days for cultured pearls. Drilling takes approximately ten
days. Next, the pearls are cleaned, dried, waxed, graded, sorted, strung, if
necessary, and packaged. For freshwater pearls the entire production cycle
takes approximately thirty days while cultured pearls takes approximately one
hundred days.
Where appropriate, processed pearls are then incorporated into finished
jewelry products. Assembly and finishing may include the addition of clasps,
decorative jewelry pieces, or other specialty work requested by the customers
to produce finished jewelry pieces.
The Company presently has facilities and manufacturing personnel to
produce approximately 22,500 kg of freshwater pearls and 4,000 kg of cultured
pearls annually. Fiscal year 1996 production totaled approximately 21,876 kg
of freshwater pearls and 2,576 kg of cultured pearls. Subject to the
availability of funding, the Company plans to increase production capacity to
approximately 25,000 kg of freshwater pearls and 8,000 kg of cultured pearls
annually with the acquisition of manufacturing equipment, expansion of
facilities and hiring of additional personnel. The Company presently also
has adequate assembly and finishing personnel and facilities to produce
approximately 1 million pieces of finished jewelry annually.
4
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Upon completion of manufacturing, pearls are shipped to the Company's
offices in Hong Kong where they are stored for inspection by potential buyers.
MARKETING. The Company markets its products from its facilities in Hong
Kong. The Company's sales staff presently markets both freshwater pearls and
Chinese cultured pearls and is divided into groups which specialize by
region. In addition to selling goods produced by the Company, these sales
groups also sell Japanese cultured pearls and South Sea pearls which have
been processed by other entities and purchased for resale by the Company.
The Company's marketing and sales staff maintains ongoing communications
with a broad array of jewelry distributors, manufacturers and retailers
world-wide to assure that customers' pearl requirements are fully satisfied.
The Company regularly attends major jewelry trade shows to display products,
establish contacts with potential customers and evaluate market trends.
Apart from attending trade shows and servicing customers, the Company's sales
force principally operates from its location in Hong Kong where buyers
personally visit and inspect the Company's products and place orders. To
date, the Company has not found it necessary to establish sales offices in
locations other than in Hong Kong, nor does the Company have future plans to
establish any non-Hong Kong based sales operations.
CUSTOMERS. The Company's customers consist principally of wholesale
distributors and mass merchandisers in Europe, Japan, the United States and
Asia. While the Company sells to a large number of customers, KJM Company
Limited accounted for 11.4% of sales during fiscal year 1996. No other
customer accounted for more than ten percent of the Company's sales in fiscal
1996. At March 31, 1996, the Company had approximately 600 regular
customers. While the Company has no long term contract with any customer,
most of its customers have been customers of the Company for a number of
years.
The following table sets forth by region and by product the sales of the
Company for the year ended March 31, 1996:
<TABLE>
<CAPTION>
FRESHWATER PEARLS CULTURED PEARLS WATCHES
------------------------- ------------------------- --------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
COUNTRY AMOUNT TOTAL SALES AMOUNT TOTAL SALES AMOUNT TOTAL SALES
- ------- -------- ------------- -------- ------------- -------- -------------
USD '000 USD '000 USD '000
<S> <C> <C> <C> <C> <C> <C>
Hong Kong $ 1,731 14.5% $ 4,455 31.1% $ 16 3.4%
Japan 3,069 25.6 230 1.6 410 87.0
Thailand 1,014 8.5 1,878 13.1 - -
Korea 194 1.6 116 0.8 - -
Other Asian countries 435 3.6 565 3.9 4 0.8
North America 694 5.8 2,360 16.5 7 1.5
France 1,018 8.5 811 5.7 13 2.8
Germany 990 8.3 498 3.5 - -
Spain 717 6.0 880 6.1 - -
Italy 751 6.3 556 3.9 - -
Other European countries 312 2.6 1,088 7.6 - -
Other 1,039 8.7 897 6.2 21 4.5
------- ------- ----
$11,964 $14,334 $471
------- ------- ----
------- ------- ----
</TABLE>
SEASONALITY. The company's sales are seasonal in nature. The bulk of
the Company's sales occur during the months of March, June and September (due
to major international jewellry trade shows held in Hong Kong in these three
months). Accordingly, the Company's results of operations for the first half
of the year are not proportionate to those expected for the balance of the
year.
5
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COMPETITION. With the exception of several large Japanese suppliers, the
pearl business is highly fragmented with limited brand name recognition or
consumer loyalty. Selection is generally a function of design appeal,
perceived value, and quality in relationship to price. The principal
competitors of the Company in the Japanese cultured pearls and South Sea
pearl markets have historically been Japanese companies with firms such as
Tasaki, Mikimoto, Tokyo, and K. Otsuki being the largest traders and
distributors of such pearls. With respect to freshwater pearls and Chinese
cultured pearls, the Company competes with numerous local traders and
marketers of such pearls in Hong Kong. In addition to genuine pearls, the
Company must compete with synthetically produced pearls.
While many competitors may have a wider selection of products or greater
financial resources, the Company believes that it is competitive in the
industry because of its processing facilities in the PRC which allow the
Company to manufacture pearls at lower costs than many of its competitors and
because it is a leading purchaser and distributor of lower priced Chinese
cultured pearls. In addition, the Company has historically maintained a
close relationship with its customers. Therefore, although competition is
intense, the Company believes it is well positioned in the pearl industry.
REAL ESTATE LEASING OPERATIONS
FACILITIES. In connection with its expansion into pearl manufacturing
operations, the Company, in September of 1991, acquired land use rights with
respect to, and constructed, an industrial complex ("Man Sang Industrial
City") located in Gong Ming Zhen, Shenzhen Special Economic Zone, PRC. The
land use rights with respect to Man Sang Industrial City have a duration of
fifty years. The Company acquired the land use rights relating to Man Sang
Industrial City and constructed such facility for approximately $3.4 million.
Man Sang Industrial City consists of 25 buildings encompassing
approximately 520,000 square feet. Nineteen of the buildings in Man Sang
Industrial City are factory buildings, five are living quarters and one
contains shops and restaurants. In addition to factories, dormitories and
shops, Man Sang Industrial City has green zones, playgrounds and other
amenities typically offered in industrial/living complexes in the PRC.
LEASING AND MANAGEMENT. The Company presently utilizes five buildings in
Man Sang Industrial City for pearl manufacturing operations, administration
and to house employees. The remaining facilities are leased to third party
industrial users; primarily foreign investors and non-polluting light
industry.
The Company employs a staff of 21 persons to provide required management,
leasing, maintenance and security for Man Sang Industrial City.
As of March 31, 1996, all buildings in Man Sang Industrial City, other
than those utilized in the Company's pearl operations, were under lease to
third party industrial users. Such facilities are typically offered under
leases ranging in duration from one year to three years. As of March 31,
1996, the annualized gross rental income from Man Sang Industrial City was
approximately $475,000.
In addition to Man Sang Industrial City, the Company owns an office unit
in Hong Kong (the "Hong Kong Rental Office") which it leases to a third
party. The Hong Kong Rental Office consists of 1,000 square feet at Wing
Tuck Comm Building, Rm 407, 177-183 Wing Lok Street and is leased for annual
rental income totaling approximately $15,000.
COMPETITION. Competition for facilities such as Man Sang Industrial City
is intense in the Shenzhen Special Economic Zone. Because of economic
incentives available for businesses operating in the Special Economic Zone,
numerous facilities have been constructed to house such businesses. While a
number of competing facilities may offer greater amenities and may be
operated by companies having greater resources and additional facilities may
be constructed, the Company believes that Man Sang Industrial City is
competitive with other similar facilities in the Special Economic Zone based
on both the quality of facilities and lease rates.
6
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EMPLOYEES
As of May 31, 1996, the Company had 571 employees including 5 executive
officers, 7 persons in pearl purchasing, 14 persons in pearl sales and
merchandising, 474 persons in pearl manufacturing, 21 persons in real estate
leasing, maintenance and administration, and 50 persons in administrative and
support functions. None of the employees is governed by collective
bargaining agreements and the Company considers its relations with its
employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases two facilities in Hong Kong and owns the Hong Kong
Rental Flat and Man Sang Industrial City in Shenzhen, PRC. The Company's
administrative offices in Hong Kong, located at 14/F and Room 905-7, Sands
Building, 17 Hankow Road, Tsimshatsui, Kowloon, Hong Kong, consists of
approximately 6,000 square feet of space and houses 38 employees. The
Company's administrative offices are held pursuant to a three year lease
which commenced in October of 1993 and a two year lease which commenced in
September of 1994 and which provide, in the aggregate, for future annual
lease payments of approximately $147,000. In addition, the Company leases a
second facility of approximately 990 square feet which houses 3 employees at
Office A, 5th Floor, Eastern Flower Centre, Nos. 22 and 24 Cameron Road,
Kowloon, Hong Kong. This facility is used principally as a sales office.
Under a two year lease which commenced in December of 1995, annual lease
payments with respect to such facility are approximately $35,000.
As noted above, the Company also has a long term lease of fifty years on
Man Sang Industrial City, a manufacturing facility on an industrial estate
consisting of twenty-five buildings in Shenzhen, PRC. See "Description of
Business - Real Estate Leasing Operations." The Company presently uses three
buildings at this facility for manufacturing operations and two of the
buildings for dormitories for its workers. The remaining twenty buildings
are leased to various third parties. The company anticipates expanding its
manufacturing operations at this facility, but will also retain a portion of
the facility for long term rental. Also, as noted above, the Company owns
the Hong Kong Rental Flat which it leases to third parties. See "Description
of Business - Real Estate Leasing Operations."
Management believes that the Company's existing facilities are adequate
to meet its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not the subject of any pending legal proceedings; and to
the knowledge of management, no proceedings are presently contemplated
against the Company by any federal, state or local governmental agency.
Further, to the knowledge of management, no director or executive officer
is party to any action which any has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders through
the solicitation of proxies or otherwise, during the fourth quarter of the
Company's fiscal year ended March 31, 1996.
7
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock has been listed on the OTC Bulletin Board since
1987. However, the market for these securities has historically been extremely
limited and sporadic.
During the quarters ended December 31, 1995 and March 31, 1996,
respectively, the high bid prices for shares of common stock of the Company
were $0.02 and $3.00 per share. For the two years prior to such quarter there
was no active public market for the shares of the Company.
At May 31, 1996, the closing bid price of the Common Stock was $3.00.
The Company has applied for listing of its Common Stock on the Nasdaq
Small-Cap Market under the symbol "PURL" and anticipates that the Common
Stock will be approved for listing and commence trading on Nasdaq in the near
future.
HOLDERS
The number of record holders of the Company's common stock as of May 31,
1996 was 12. This number does not include an indeterminate number of
stockholders whose shares are held by brokers in street name.
DIVIDENDS
The Company has not paid any dividends with respect to its common stock,
and does not intend to pay dividends in the foreseeable future.
8
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company through its wholly-owned subsidiaries is engaged in (i) the
purchasing, processing, assembling, merchandising, and wholesale distribution of
pearls and pearl products and (ii) the management and leasing of a commercial
real estate complex in Shenzhen, PRC.
The principal cost of the Company's pearl business is the cost of raw
pearls, processed pearls and other materials used in processing and assembling
pearls and pearl products. The Company purchases raw pearls (freshwater pearls
and Chinese cultured pearls) in the PRC while Japanese cultured pearls, South
Sea pearls and other materials are purchased primarily in Hong Kong, Japan and
through international trade auctions. Other significant costs of the Company's
pearl business are labor costs associated with pearl production, marketing costs
and corporate overhead.
The Company plans to expand its operations through internal growth as
demand for its products exceeds its existing production capacity. The principal
barrier to increasing the Company's production capacity has been a lack of
sufficient working capital and other credit facilities. With adequate capital
resources, the Company believes that it can substantially increase its
production, and its sales.
The following discussion of results of operations, liquidity and capital
resources, seasonality and inflation should be read in conjunction with the
financial statements and the notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from
the Consolidated Statements of Income expressed as a percentage of net sales:
Year Ended March 31,
----------------------
1996 1995
---- ----
Net Sales. . . . . . . . . . . . 100.0% 100.0%
Cost of Sales. . . . . . . . . . 66.1 73.5
----- -----
Gross Profit . . . . . . . . . . 33.9 26.5
Rental Income, Gross . . . . . . 1.8 2.4
----- -----
35.7 28.9
Selling, General and
Administrative Expenses . . . . 17.3 13.7
----- -----
Operating Income . . . . . . . . 18.4 15.2
Interest Expense . . . . . . . . (2.7) (2.0)
Interest Income. . . . . . . . . 0.2 0.2
Other Income . . . . . . . . . . 0.1 -
----- -----
Income Before Income Taxes . . . 16.0 13.4
Provision for Income Taxes . . . 0.7 0.9
----- -----
Net Income . . . . . . . . . . . 15.3% 12.5%
----- -----
----- -----
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
NET SALES AND GROSS PROFIT. Net sales increased by HK$48.2 million, or
30.2%, to HK$206.9 million in fiscal 1996 from HK$158.8 million in the prior
year. The increase in net sales is attributable to (i) a 92.2% increase in
sales of Chinese cultured pearls and (ii) a 132.4% increase in sales of higher
priced Japanese and South Sea cultured pearls.
Gross profits increased by HK$27.9 million, or 66.2%, to HK$70.0 million
for fiscal 1996 compared to HK$42.1 million for 1995. As a percentage of sales,
gross profits increased from 26.5% to 33.9%. The increase in gross profits and
gross profit margins resulted from the increase in sales and an increase in the
percentage of sales of higher margin cultured pearls.
9
<PAGE>
RENTAL INCOME. Gross rental income increased by HK$86,000, or 2.3%, to
HK$3.8 million for fiscal 1996 compared to HK$3.7 million for 1995. The
increase in gross rental income was attributable to a 2% increase in occupancy
rates in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") were HK$35.8 million, consisting of HK$33.6
million attributable to pearl operations and HK$2.2 million attributable to real
estate operations, for fiscal 1996, an increase of approximately HK$14.1
million, or 64.3%, from HK$21.8 million, consisting of HK$19.7 million
attributable to pearl operations and HK$2.1 million attributable to real estate
operations, during 1995. The increase in SG&A was primarily due to increased
marketing expenses associated with the higher sales volume, including hiring
additional marketing personnel and a 10% salary increase for all marketing
personnel, combined with an increase in management salaries, expansion of the
Company's executive offices and the impact of inflation which increased certain
operating expenses in the PRC. As a percentage of net sales, SG&A from pearl
operations increased from 12.4% to 16.2%.
INTEREST EXPENSE, NET. Net interest expense increased by HK$2.4 million,
or 85.7%, to HK$5.2 million for fiscal 1996, from HK$2.8 million for the
comparable period in 1995. The increase in net interest expense is due
principally to an increase in the amount of borrowings during the period to
finance inventory holding costs associated with higher production and sales as
well as an increase in the Company's borrowing rate to an average of 12.2% for
the period as compared to 11.4% for 1995.
INCOME TAXES. Income taxes for fiscal 1996 were HK$1.4 million as compared
to HK$1.5 million for 1995. The reduction in income taxes is attributable to a
tax holiday available to the Company in the PRC. Pursuant to the existing tax
laws in the PRC, the Company's two operating subsidiaries in the PRC, which
operate in the Shenzhen Special Economic Zone, are eligible for an exemption
from PRC income taxes on their manufacturing operations for two years beginning
with the first profitable year of such operations. Thereafter, for the next
three years profits from such operations are eligible for a 50% exemption from
PRC taxation. In 1995, one subsidiary applied for the full exemption and the
other subsidiary will apply for exemption during 1996. The exemptions
applicable to these companies will expire in 1999 and 2000, respectively. The
exemption does not apply to rental income.
YEAR ENDED MARCH 31, 1995 COMPARED TO YEAR ENDED MARCH 31, 1994
NET SALES AND GROSS PROFIT. Net sales increased by HK$8.3 million, or
5.5%, to HK$158.8 million in fiscal 1995 from HK$150.5 million in the prior
year. The increase in net sales resulted from a change in product mix, with
higher priced cultured pearls accounting for HK$56.0 million of sales in 1995 as
compared to HK$46.4 million in 1994, and a 5% average price increase.
Gross profits increased by HK$5.1 million, or 14%, to HK$42.1 million for
fiscal 1995 from HK$37.0 million for fiscal 1994. As a percentage of sales,
gross profits increased from 24.5% to 26.5%. The increase in gross profits and
gross profit margins was attributable to the overall increase in sales and
increased sales of higher profit margin cultured pearls.
RENTAL INCOME. Gross rental income increased by HK$2.8 million, or 311.1%,
to HK$3.7 million for fiscal 1995 compared to HK$0.9 in fiscal 1994. The
increase in gross rental income was attributable to the completion of
construction on thirteen blocks in phase II of Man Sang Industrial City and the
availability of such units for rent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expense increased by
HK$3.0 million, or 16.1%, to HK$21.8 million, consisting of HK$19.7 million
attributable to pearl operations and HK$2.1 million attributable to real estate
operations, in fiscal 1995 from HK$18.7 million, consisting of HK$17.1 million
attributable to pearl operations and HK$1.6 million attributable to real estate
operations, in the prior year. The increase is primarily due to increased
marketing expenses associated with the higher sales volume, including salaries
and other expenses associated with the operation of the Company's Overseas South
Pearl trading subsidiary for two and one-half months during fiscal 1994,
combined with inflation which increased certain
10
<PAGE>
operating expenses within the PRC. As a percentage of sales, SG&A from pearl
operations increased from 11.4% to 12.4%.
INTEREST EXPENSE, NET. Net interest expense increased by HK$1.9 million,
or 211.1%, to HK$2.8 million in fiscal 1995 from HK$0.9 million in the prior
year. The increase in interest expense is principally due to an increase in the
amount of borrowings to finance inventory purchases and construction of Man Sang
Industrial City as well as an increase in the Company's borrowing rate to an
average of 11.41% in fiscal 1995 as compared to 9.23% in fiscal 1994.
INCOME TAXES. Income taxes decreased by HK$2.0 million, or 57.1%, to
HK$1.5 million in fiscal 1995 from HK$3.5 in the prior year. The decline in
income taxes is attributable to the Company's tax holiday in the PRC and more
effective tax planning by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund accounts receivable and
inventories and, to a lesser extent, to expand its business operations. The
Company has historically financed its working capital requirements through a
combination of internally generated cash, bank borrowings, and borrowings from
related parties. Working capital at March 31, 1996 stood at HK$43.7 million
compared to HK$10.3 million at March 31, 1995. The improvement in working
capital is primarily attributable to the growth in net income over such periods.
Net cash used in operating activities was HK$4.9 million and HK$16.3
million for the fiscals year ended March 31, 1996 and 1995 respectively. Net
cash flows from the Company's operating activities are attributable to the
Company's income and changes in operating assets and liabilities.
Cash flows used in investing activities were HK$1.2 million and HK$7.6
million for fiscal 1996 and fiscal 1995, respectively. Cash flows used in
investing activities are for the normal ongoing acquisition of property, plant
and equipment to support and expand pearl manufacturing operations and for
construction of Man Sang Industrial City.
Cash flows provided by financing activities were HK$10.6 million and
HK$18.0 million for fiscal 1996 and fiscal 1995, respectively as described in
the following paragraphs.
Inventories increased by HK$5.9 million to HK$85.9 million at March 31,
1996 from HK$80.1 million at March 31, 1995. The increase in inventories was
attributable to higher purchasing and production to meet increased demand for
the Company's products and because of a change in the mix of the inventory to a
higher percentage of more expensive cultured pearls. The increase in inventory
has been primarily financed with short-term bank borrowings.
Accounts receivable also increased to HK$33.8 million at March 31, 1996 as
compared to HK$28.4 million at March 31, 1995. As a percentage of sales, fiscal
year-end accounts receivable balances represented 16.3% of fiscal 1996 sales as
compared to 17.9% of fiscal 1995 sales. The increase in accounts receivable
during the periods was attributable to increased sales levels and extension of
more favorable payment terms to newly developed high potential markets due to
their trade practices.
At March 31, 1996, the Company had available banking facilities totaling
HK$57.4 million with various banks. Such banking facilities include letter of
credit arrangements, overdraft protection and other facilities commonly utilized
in the jewelry business. All such bank facilities bear interest at floating
rates generally based on the banks' prime lending rates and are subject to
annual review. At March 31, 1996, the Company had utilized approximately
HK$53.9 million of its credit facilities leaving available bank credit
facilities of HK$3.5 million.
In addition to its short-term bank credit facilities, the Company, at
March 31, 1996, had long term debt consisting of a bank loan and capital lease
obligations totaling HK$541,000, of which HK$363,000 is due within
11
<PAGE>
twelve months with the balance (HK$178,000) being due in periodic
installments through March 31, 1998. Such long-term debt was utilized by the
Company to acquire leasehold property.
In order to finance future growth plans, in March of 1996, the Company
commenced an offering (the "Offering") for sale to certain non-residents of the
United States of a combination of (i) such number of shares of common stock at a
price per share qual to 75% of the average closing bid price of the common stock
for the five business days preceding the date of the subscription agreement
relating to such subscription; and (ii) such number of shares of Series B
convertible preferred stock, at a price of $1,000 per share which, when (i) and
(ii) are taken together, will result in aggregate gross proceeds of up to $6.0
million. As of May 31, 1996, the Company had received net proceeds of
approximately $2.8 million from the Offering.
The Company plans to use the net proceeds of the Offering to purchase
additional pearl inventories to support expanded sales, purchase additional
equipment and facilities and hire additional personnel as needed to expand
production, to evaluate and acquire businesses whose operations or products
lines are compatible with or complimentary to those of the Company and to meet
its general corporate and working capital needs.
Historically, currency fluctuations have had little, if any, impact on the
Company, and the Company does not believe that they will have any significant
impact in the future. However, in the event any currency fluctuation becomes
material, the Company would likely engage in hedging transactions in order to
minimize risk.
The Company believes that the net proceeds from the Offering, together with
available trade credit, bank credit and internally generated funds, will be
sufficient to satisfy its anticipated working capital needs for at least the
next 12 months.
SEASONALITY
The pearl business is highly seasonal, with the first three fiscal quarters
(the last three calendar quarters), historically contributing the highest sales
during the year. Accordingly, the results of any interim period are not
necessarily indicative of the results that might be expected during a full
fiscal year.
The following table sets forth the Company's unaudited net sales for the
periods indicated (dollar amounts are in thousands):
YEAR ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
AMOUNT % AMOUNT %
------ -- ------ --
First Quarter. . . . . $ 5,715 21.4 $ 4,865 23.7
Second Quarter . . . . 9,187 34.3 5,687 27.7
Third Quarter. . . . . 5,549 20.7 4,558 22.2
Fourth Quarter . . . . 6,318 23.6 5,420 26.4
------- ----- ------- -----
Total. . . . . . . . . $26,769 100.0 $20,530 100.0
------- ----- ------- -----
------- ----- ------- -----
INFLATION
The PRC economy has experienced periods of strong growth and high inflation
in recent years. While certain costs of operating in the PRC have increased as
a result of such inflation, inflation has historically not had a material effect
on the Company's operations. When the price of pearls has increased, these
costs historically have been passed on to the customer. Furthermore, because
the Company does not have either long-term supply contracts or long-term
contracts with customers, prices are quoted based on the prevailing prices for
pearls or pearl products. Accordingly, the Company does not believe inflation
will have a material effect on its future operations.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Income for the years ended March 31, 1996,
1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995 . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1996,
1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . F-8
</TABLE>
13
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Following the acquisition of Man Sang International (B.V.I.) Limited by the
Company, on March 21, 1996, the Company's Board of Directors selected Deloitte
Touche Tohmatsu to serve as its new independent accountants and dismissed
Mantyla, McReynolds & Associates, Certified Public Accountants, of Salt Lake
City, Utah which previously served as the independent accountants for the
Company.
Mantyla, McReynolds & Associates' reports on the financial statements of
the Company for the fiscal years ended December 31, 1994 and 1995 contain no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles. In connection with its
audits for fiscal years 1994 and 1995 and through March 21, 1996, there were no
disagreements with Mantyla, McReynolds & Associates on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Mantyla,
McReynolds & Associates would have caused them to make reference thereto in its
reports on the financial statements for such years.
Deloitte Touche Tohmatsu served as the principal accounting firm for Man
Sang International (B.V.I.) Limited with respect to the financial statements of
such company for fiscal years 1994 and 1995.
The information described above regarding the Company's decision to dismiss
Mantyla, McReynolds & Associates as its independent accountants and select
Deloitte Touche Tohmatsu as its new independent accountants, along with a letter
from Mantyla, McReynolds & Associates stating that it agrees with the above
information regarding the Company's change of accountants, was fully disclosed
in a Form 8-K filed with the SEC on March 28, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, nature of all positions and
offices held by all directors and executive officers of the Company at June 1,
1996 and the period or periods during which each such director or executive
officer has served in his or her respective positions.
<TABLE>
<CAPTION>
NAME POSITION(S) HELD TERM OF OFFICE
---- ---------------- --------------
<S> <C> <C>
CHENG Chung Hing, Ricky . . . President and Chairman of the Board 1/96 to Present
CHENG Tai Po. . . . . . . . . Vice Chairman of the Board 1/96 to Present
SIO Kam Seng, Sam . . . . . . Chief Executive Officer and Director 1/96 to Present
YAN Sau Man, Amy. . . . . . . Vice President and Director 1/96 to Present
CHENG Hok Kai, Frederick. . . Vice President and Chief Financial
Officer 2/96 to Present
</TABLE>
TERM OF OFFICE
Each of the present officers, with the exception of CHENG Hok Kai,
Frederick, was appointed, and the prior officers resigned, upon consummation of
the Acquisition Agreement between the Company and Man Sang Limited on January 8,
1996. The terms of office of the current officers and directors shall continue
until the next annual meeting of stockholders.
14
<PAGE>
BUSINESS EXPERIENCE
CHENG CHUNG HING, RICKY, age 35, co-founded the Man Sang Group and has
served as Chairman of the Board of Directors and President of the Company since
January 8, 1996 and of Man Sang Group since inception in 1980. Mr. Cheng has
over 15 years experience in the pearl business and is responsible for overall
planning, strategic formulation and business development of the Company.
CHENG TAI PO, age 43, co-founded the Man Sang Group and has served as Vice-
Chairman of the Company since January 8, 1996 and of Man Sang Group since
inception. Mr. Cheng has over 12 years experience in the pearl business and is
responsible for purchasing and production of Chinese cultured pearls as well as
overall planning, strategic formulation and business planning of the Company.
SIO KAM SENG, SAM, age 37, has served as Chief Executive Officer and a
Director of the Company since January 8, 1996 and of the Man Sang Group since
December of 1995. Mr. Sio also served as Chief Financial Officer up to June 1,
1996. Mr. Sio joined Man Sang Limited in 1995 and has served as group chief
executive officer responsible for overall planning, strategic formulation,
business development and daily operations. Mr. Sio has over 15 years experience
in sales, marketing and administrative management. Prior to joining the
Company, from 1992 to 1995, Mr. Sio served as Assistant General Manager of Sime
Insurance Brokers Group, a publicly traded Malaysia based insurance brokerage
company. From 1989 to 1992, Mr. Sio served as Area Manager for Hong Kong Bank
Insurance Group. Mr. Sio is an associate of the Institute of Administrative
Management of the United Kingdom.
YAN SAU MAN, AMY, age 33, has served as Vice President and a Director of
the Company since January 8, 1996 and of the Man Sang Group since December of
1995. Ms. Yan joined Man Sang Limited in 1984 and is responsible for overall
marketing and sales activities of the Company.
CHENG HOK KAI, FREDERICK, age 32, has served as Vice President and Deputy
Chief Financial Officer of the Company since February of 1996. In June of 1996,
Mr. Cheng assumed the position of Chief Financial Officer. From 1992 until
joining the Company, Mr. Cheng served as Finance Manager, and as Deputy General
Manager since 1993, of Sum Tat Holdings Ltd., a construction and property
development company in Hong Kong. Previously, Mr. Cheng served as a senior
accountant with Price Waterhouse for 3 years. Mr. Cheng received a bachelor's
degree of science in Finance and Accounting from the University of Salford,
U.K., and a master's degree of Commerce in Accounting from the University of New
South Wales, Australia. He is an associate of the Australian Society of
Certified Practicing Accountants, an associate of the Hong Kong Society of
Accountants, an associate of the Australian Institute of Corporate Managers,
Secretaries and Administrators and also an associate of the Chartered Institute
of Company Secretaries.
FAMILY RELATIONSHIPS
CHENG Chung Hing, Ricky and CHENG Tai Po are brothers. Other than the
foregoing, there are no family relationships between the above-named directors
and executive officers of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
No securities of the Company are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, and the Company files reports under Section
15(d) of such Act; accordingly, directors, executive officers and 10%
stockholders are not required to make filings under Section 16 of such Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to the Company
during the three years ended March 31, 1996 of the Company's Chief Executive
Officer and each of its other officers whose compensation exceeded $100,000
during fiscal year 1996.
15
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) COMPENSATION($)
- ------------------ ---- ---------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
CHENG Chung Hing, Ricky (3) . . . . 1996 194,049 - 41,000 (1)(2) -
Chairman of the Board and 1995 51,726 - 48,890 (1)(2) -
President 1994 51,726 - 34,761 (1)(2) -
SIO Kam Seng, Sam (3) . . . . . . . 1996 55,727 - - -
Chief Executive Officer 1995 - - - -
1994 - - - -
CHENG Tai Po . . . . . . . . . . . 1996 194,049 - - -
Vice Chairman 1995 43,967 - - -
1994 39,829 - - -
</TABLE>
- --------------------
(1) Although the officers receive certain perquisites such as Company provided
life insurance and medical insurance, the value of such perquisites did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(2) In addition to the amounts referred to in note (1) above, CHENG Chung Hing,
Ricky is provided the right to use a leasehold property of the Company at
no cost as his personal residence. The estimated fair rental value of such
leasehold property was $41,000.
(3) CHENG Chung Hing, Ricky served as the chief executive officer of the
Company during each of the referenced periods. SIO Kam Seng, Sam joined
the Company and assumed the position of chief executive officer after
fiscal year 1995.
The Company has no employment agreements with any of its officers or
employees. The salaries of the Company's principal officers have been fixed for
the fiscal year ending March 31, 1997 at $285,000 for CHENG Chung Hing, Ricky,
plus a $41,000 housing allowance, $285,000 for CHENG Tai Po, $91,000 for SIO Kam
Seng, Sam, $65,000 for CHENG Hok Kai, Frederick and $65,000 for YAN Sau Man,
Amy, plus a discretionary performance bonus.
Each non-employee director of the Company is paid a fee of $600 for each
Board of Directors meeting or committee meeting attended. The Company also
reimburses each director for all expenses of attending such meetings.
No additional compensation of any nature is paid to employee directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table is furnished as of May 31, 1996, to indicate beneficial
ownership of shares of the Company's Common Stock by (1) each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's Common Stock, (2) each director, nominee for director and Named
Officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information in the following table was provided by such
persons.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------- ------------------------ -----------------
<S> <C> <C>
Cafoong Limited (2)(3) . . . . . . . . . 5,431,500 45.3%
SIO Kam Seng, Sam. . . . . . . . . . . . -0- *
YAN San Man, Amy . . . . . . . . . . . . -0- *
All executive officers and directors
as a group (5 persons). . . . . . . . . 5,431,500 45.3%
</TABLE>
- ----------------
* Less than 1%.
16
<PAGE>
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) CHENG Chung Hing, Ricky and CHENG Tai Po own 60% and 40%, respectively, of
the stock, and are directors, of Cafoong Limited and, accordingly, may be
attributed beneficial ownership of the shares owned by Cafoong Limited.
(3) Address is 14/F, Sands Building, 17 Hankow Road, Tsimshatsui, Kowloon, Hong
Kong.
PREFERRED STOCK
The following table is furnished as of May 31, 1996, to indicate beneficial
ownership of the Company's Series A Preferred Shares by each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's Series A Preferred Shares.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------------- ----------------
Cafoong Limited (1). . . . . . . . 100,000 100.0%
- --------------------
(1) CHENG Chung Hing, Ricky and CHENG Tai Po own 60% and 40%, respectively, of
the stock, and are directors, of Cafoong Limited and, accordingly, may be
attributed beneficial ownership of the shares owned by Cafoong Limited.
CHANGES IN CONTROL
To the knowledge of management, there are no present arrangements or
pledges of securities of the Company which may result in a change in control of
the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past three years, the Company has loaned funds to and received
advances from CHENG Chung Hing, Ricky and CHENG Tai Po, the founders and
principal shareholders of the Company. Advances to CHENG Chung Hing, Ricky
totaled $-0- at March 31, 1996. The maximum amount advanced to CHENG Chung
Hing, Ricky during the past three years was $1,132,500. Advances to CHENG Tai
Po totaled $-0- at March 31, 1996. The maximum amount advanced to CHENG Tai Po
during the past three years was $1,089,000. All such advances were made on a
non-interest bearing basis and without definitive repayment terms.
During the same period, CHENG Chung Hing, Ricky and CHENG Tai Po advanced
funds to the Company on a non-interest bearing basis and repayable on demand.
Advances from CHENG Chung Hing, Ricky totaled $345,000 at March 31, 1996 (this
amount was fully settled on May 30, 1996) and advances from CHENG Tai Po totaled
$-0- at March 31, 1996. The maximum amount owed to CHENG Chung Hing, Ricky and
to CHENG Tai Po during the past three years was $1,104,000 and $459,000,
respectively.
During the year ended March 31, 1994, the Company sold its 25% interest in
New Land Group Limited to CHENG Chung Hing, Ricky at its cost of HK$500,000.
The Company believes that the terms of such sale were at least as favorable as
could have been obtained from nonaffiliated third parties.
Finally, during the past three years, CHENG Chung Hing, Ricky has utilized
a leasehold property of the Company as a personal residence at no cost to
Mr. CHENG. See "Executive Compensation."
17
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ------------
<S> <C> <C>
2.1 Acquisition Agreement dated December __, 1995 between UNIX Source
America, Inc. and the shareholders of Man Sang International (B.V.I.)
Limited - incorporated by reference to the exhibits filed with the
Company's Current Report on Form 8-K dated January 8, 1996 *
3.1 Restated Articles of Incorporation of Man Sang Holdings, Inc. -
incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K dated January 8, 1996 *
3.2 Bylaws of Man Sang Holdings, Inc., as amended - incorporated by
reference to the exhibits filed with the Company's Current Report on
Form 8-K dated January 8, 1996 *
</TABLE>
- --------------------
* Incorporated by reference pursuant to Exchange Act Rule 12b-23.
(B) REPORTS ON FORM 8-K
- Form 8-K dated January 8, 1996 (as amended) reporting under Items 1,
2, 5 and 7, a change in control of the Company, the acquisition of Man
Sang International (B.V.I.) Limited, a reverse stock split, change in
the name and change in the officers and directors of the Company and
filing the required financial statements and pro forma financial
information.
- Form 8-K dated January 10, 1996 reporting under Item 8, a change in
the Company's fiscal year-end from December 31 to March 31.
- Form 8-K dated March 21, 1996 reporting under Item 4, a change in the
Company's certifying accountants.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAN SANG HOLDINGS, INC.
Date: June 13, 1996 By /s/ Cheng Chung Hing, Ricky
------------------------------------
CHENG Chung Hing, Ricky
President and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Cheng Chung Hing, Ricky President and Chairman of the Board June 13, 1996
- ---------------------------- (Principal Executive Officer)
CHENG Chung Hing, Ricky
/s/ Cheng Tai Po Vice Chairman of the Board June 13, 1996
- ----------------------------
CHENG Tai Po
/s/ Sio Kam Seng, Sam Chief Executive Officer and June 13, 1996
- ---------------------------- Director
SIO Kam Seng, Sam
/s/ Yan Sau Man, Amy Vice President and Director June 13, 1996
- ----------------------------
YAN Sau Man, Amy
/s/ Cheng Hok Kai, Frederick Vice President and Chief Financial June 13, 1996
- ---------------------------- Officer (Principal Financial and
CHENG Hok Kai, Frederick Accounting Officer)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
No annual report or proxy material has been forwarded to securities holders
of the Registrant during the period covered by this Report; however, if any
annual report or proxy material is furnished to security holders in connection
with the annual meeting of stockholders to be held in 1996, a copy of any such
annual report or proxy materials shall be forwarded to the Commission when it is
forwarded to security holders.
19
<PAGE>
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and The Directors of
Man Sang Holdings, Inc.
(Formerly known as Unix Source America, Inc.)
We have audited the accompanying consolidated balance sheets of Man Sang
Holdings Inc. (formerly known as Unix Source America, Inc.) and subsidiaries as
of March 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1996, all expressed in Hong Kong dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Man Sang Holdings Inc.
and subsidiaries at March 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Hong Kong
May 10, 1996 except notes 10 and 11
as to which the date is May 30, 1996
F-1
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . 26,769 206,924 158,754 150,464
Cost of sales. . . . . . . . . . . . . . . . 17,708 136,879 116,606 113,504
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . . 9,061 70,045 42,148 36,960
Rental income, gross . . . . . . . . . . . . 490 3,785 3,699 893
------- ------- ------- -------
9,551 73,830 45,847 37,853
Selling, general and administrative expenses
Pearls . . . . . . . . . . . . . . . . . . (4,344) (33,577) (19,691) (17,147)
Real estate investment . . . . . . . . . . (292) (2,259) (2,060) (1,592)
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . 4,915 37,994 24,096 19,114
Interest expense . . . . . . . . . . . . . . (731) (5,651) (3,085) (1,071)
Interest income. . . . . . . . . . . . . . . 56 434 270 156
Other income . . . . . . . . . . . . . . . . 31 240 - -
------- ------- ------- -------
Income before income taxes . . . . . . . . . 4,271 33,017 21,281 18,199
Provision for income taxes (note 3). . . . . 185 1,434 1,463 3,453
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . 4,086 31,583 19,818 14,746
------- ------- ------- -------
------- ------- ------- -------
Earnings per share of common stock . . . . . $0.36 $2.81 $1.80 $1.34
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares of
common stock outstanding . . . . . . . . . 11,250,000 11,250,000 11,000,000 11,000,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1996 1996 1995
---- ---- ----
US$ HK$ HK$
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . 1,242 9,602 4,783
Accounts receivable, net of allowance
for doubtful accounts of HK$567 in 1996 and
HK$56 in 1995. . . . . . . . . . . . . . . . . . . 4,374 33,809 28,379
Advances to related parties (note 11). . . . . . . . 6 50 2,743
Inventories (note 4) . . . . . . . . . . . . . . . . 11,118 85,941 80,065
Prepaid expenses . . . . . . . . . . . . . . . . . . 154 1,194 292
Other current assets . . . . . . . . . . . . . . . . 874 6,749 2,305
Income taxes receivable. . . . . . . . . . . . . . . - - 583
------ ------- -------
Total current assets . . . . . . . . . . . . . . . 17,768 137,345 119,150
Property, plant and equipment, net
(note 5) . . . . . . . . . . . . . . . . . . . . . . 1,254 9,697 11,221
Real estate investment, net (note 6) . . . . . . . . . 3,389 26,199 26,355
------ ------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . 22,411 173,241 156,726
------ ------- -------
------ ------- -------
</TABLE>
F-3
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
(Dollars in thousands except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1996 1996 1995
---- ---- ----
US$ HK$ HK$
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings (note 7) . . . . . . . . . . . . 7,325 56,625 45,225
Current portion of long-term debt (note 8) . . . . . . 47 363 548
Accounts payable . . . . . . . . . . . . . . . . . . . 2,902 22,429 50,977
Advances from related parties (note 11). . . . . . . . 364 2,815 5,626
Accrued payroll and employee benefits. . . . . . . . . 161 1,248 717
Other accrued liabilities. . . . . . . . . . . . . . . 1,310 10,130 5,503
Income taxes payable . . . . . . . . . . . . . . . . . 3 21 268
------ ------ -------
Total current liabilities. . . . . . . . . . . . . . 12,112 93,631 108,864
------ ------ -------
Long-term debt (note 8). . . . . . . . . . . . . . . . . 23 178 522
------ ------ -------
Stockholders' equity:
Common stock of par value US$0.001
- authorized 100,000,000 shares; issued and
outstanding, 12,000,000 shares in 1996
(note 10). . . . . . . . . . . . . . . . . . . . 12 93 77
Series A preferred stock US$0.001 par value
- authorized, issued and outstanding 100,000
shares in 1996 (entitled in liquidation to
US$2,500)(HK$19,325)) . . . . . . . . . . . . . . - 1 -
Series B convertible preferred stock US$0.001
par value
- authorized 100,000 shares; unissued in 1996. . . - - -
Additional paid-in capital . . . . . . . . . . . . . . 247 1,907 1,924
Retained earnings. . . . . . . . . . . . . . . . . . . 9,988 77,205 45,622
Cumulative translation adjustments . . . . . . . . . . 29 226 (283)
------ ------ -------
10,276 79,432 47,340
------ ------ -------
Total liabilities and shareholders' equity . . . . . . . 22,411 173,241 156,726
------ ------- -------
------ ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except share data)
<TABLE>
SERIES A TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL CUMULATIVE STOCK-
-------------------- ------------------ PAID-IN RETAINED TRANSLATION HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS EQUITY
---------- ----- ------- ------- ------ -------- ------ ---------
HK$ HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993. . 10,000 77 - - 1,924 11,058 (1,917) 11,142
Translation adjustment . . . - - - - - - 10 10
Net income . . . . . . . . . - - - - - 14,746 - 14,746
---------- ----- ------- ------- ------ -------- ------ ---------
Balance at March 31, 1994. . 10,000 77 - - 1,924 25,804 (1,907) 25,898
Translation adjustment . . . - - - - - - 1,624 1,624
Net income . . . . . . . . . - - - - - 19,818 - 19,818
---------- ----- ------- ------- ------ -------- ------ ---------
Balance at March 31, 1995. . 10,000 77 - - 1,924 45,622 (283) 47,340
Share exchange (note 1). . . (10,000) - - - - - - -
Reverse split (note 1) . . . 1,000,000 - - - - - - -
Issuance of common stock of
US$0.001 par value and
Series A preferred stock
(note 1) . . . . . . . . . 11,000,000 16 100,000 1 (17) - - -
Translation adjustment . . . - - - - - - 509 509
Net income . . . . . . . . . - - - - - 31,583 - 31,583
---------- ----- ------- ------- ------ -------- ------ ---------
Balance at March 31, 1996. . 12,000,000 93 100,000 1 1,907 77,205 226 79,432
---------- ----- ------- ------- ------ -------- ------ ---------
---------- ----- ------- ------- ------ -------- ------ ---------
US$12 - US$247 US$9,988 US$29 US$10,276
----- ------- ------ -------- ------ ---------
----- ------- ------ -------- ------ ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
YEAR ENDED MARCH 31,
-------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . 4,086 31,583 19,818 14,746
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Bad debt provision. . . . . . . . . . . . . . . . 74 575 261 -
Depreciation and amortization . . . . . . . . . . 420 3,247 2,746 2,068
Loss (gain) on sale of property, plant
and equipment . . . . . . . . . . . . . . . . . 7 54 - (177)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (771) (5,956) (10,324) (2,775)
Inventories . . . . . . . . . . . . . . . . . . (711) (5,495) (35,393) (25,093)
Prepaid expenses. . . . . . . . . . . . . . . . (116) (898) 35 (12)
Other current assets. . . . . . . . . . . . . . (573) (4,428) (1099) (1,104)
Income taxes receivable . . . . . . . . . . . . 75 583 (583) -
Accounts payable. . . . . . . . . . . . . . . . (3,763) (29,082) 9,370 17,450
Accrued payroll and employee benefits . . . . . 69 531 304 240
Other accrued liabilities . . . . . . . . . . . 599 4,627 2,777 1,787
Income taxes payable. . . . . . . . . . . . . . (32) (250) (4,259) 3,152
------- ------- ------- -------
Net cash (used in) provided by operating
activities. . . . . . . . . . . . . . . . . . . . (636) (4,909) (16,347) 10,282
------- ------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment . . . . . (179) (1,381) (7,354) (19,535)
Expenditure on real estate investment . . . . . . . (11) (83) (221) -
Proceeds from sale of short-term investment . . . . - - - 500
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . . . . . . . . 30 234 - 2,758
------- ------- ------- -------
Net cash used in investing activities . . . . . . . (160) (1,230) (7,575) (16,277)
------- ------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of long-term debt . . . . . . . . . . . . (68) (529) (482) (431)
Increase in short-term borrowings . . . . . . . . . 14,122 109,166 29,688 11,638
Repayment of short-term borrowings. . . . . . . . . (12,549) (97,006) (11,768) (5,850)
Increase in bank overdrafts . . . . . . . . . . . . 34,841 269,323 15,537 12,950
Repayment of bank overdrafts. . . . . . . . . . . . (34,960) (270,246) (12,950) (5,628)
Advances from related parties . . . . . . . . . . . 4,018 31,058 - 1
Repayments to related parties . . . . . . . . . . . (4,033) (31,176) (1,996) (4,947)
------- ------- ------- -------
Net cash provided by financing activities . . . . . 1,371 10,590 18,029 7,733
------- ------- ------- -------
</TABLE>
F-6
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........... 575 4,451 (5,893) 1,738
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............ 619 4,783 9,045 6,786
EXCHANGE ADJUSTMENTS............. 48 368 1,631 521
----- ----- ----- -----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD............... 1,242 9,602 4,783 9,045
----- ----- ----- -----
----- ----- ----- -----
SUPPLEMENTARY DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest and finance charges... 731 5,651 3,703 1,279
----- ----- ----- -----
----- ----- ----- -----
Income taxes................... 142 1,098 6,305 301
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
Man Sang Holdings, Inc. (formerly known as Unix Source America, Inc.) (the
"Company") was incorporated in the State of Nevada, the United States of
America on November 14, 1986. On January 8, 1996, the outstanding shares
of common stock of the Company of 14,080,650 shares were reduced to
1,000,000 shares by a reverse split on a 14.08065 for 1 basis. On the same
date, the Company undertook a reorganization (the "Reorganization")
pursuant to which 11,000,000 shares of common stock and 100,000 shares of
Series A preferred stock were issued in exchange for the entire outstanding
10,000 ordinary shares of Man Sang International (B.V.I.) Limited, a
British Virgin Islands corporation.
The exchange of shares has been accounted for as reverse acquisition and
the Company, as the continuing legal entity, is assumed to be the acquiree.
The accompanying financial statements include the consolidated results of
operations and financial position of Man Sang Holdings, Inc. and its
subsidiaries for all periods presented. Prior to the Reorganization the
financial information is represented by Man Sang International (B.V.I.)
Limited and its subsidiaries.
The principal activities of the Company comprise of the processing and sale
of fresh water and cultured pearls. The selling and administrative
activities are performed in Hong Kong and the processing activities are
conducted by subsidiaries operating in the People's Republic of China
("China"). The Company also derives rental income from real estate located
at its pearl processing facility in China and from an office in Hong Kong.
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of
America ("U.S. GAAP"), which differ from those used in the statutory
accounts of its subsidiaries. The principal adjustments made by the
Company to conform the statutory accounts of the subsidiaries to U.S. GAAP
relate to the amortization of property held for real estate investment,
which is not amortized for local GAAP. At March 31, 1996, the retained
earnings available for distribution as reflected in the statutory books of
the subsidiaries were HK$97,000 (US$12,500).
F-8
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include
the assets, liabilities, revenues and expenses of all subsidiaries. All
material intra-group transactions and balances have been eliminated.
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
demand deposits, interest bearing savings accounts, and time certificates
of deposit with an original maturity of three months or less.
Inventories - Inventories are stated at the lower of cost determined by the
weighted average method, or market. Finished goods inventories consists of
raw materials, direct labour and overhead associated with the processing of
pearls.
Property, plant and equipment - Property, plant and equipment is stated at
cost. Depreciation and amortization are provided on the straight line
method based on the estimated useful lives of the assets detailed as
follows:
Leasehold land and buildings 50 years, or less if the lease period
is shorter
Plant and machinery 4 years
Furniture and equipment 4 years
Motor vehicles 4 years
Construction in progress is stated at cost which comprises land cost and
the related construction costs. Borrowing costs incurred in connection
with the construction of the property are capitalized until the
construction of the property is completed. Interest capitalized was nil in
1996, HK$617 in 1995 and HK$209 in 1994. No depreciation is provided until
the construction is completed.
Real estate investment - Leasehold land and buildings held for investment
is stated at cost. Cost includes the cost of the purchase of the land and
construction costs, including finance costs incurred during the
construction period. Depreciation of land and buildings is computed using
the straight line method over the term of the lease involved up to a
maximum of 50 years.
The Company has adopted Statement of Financial Accounting Standards No.121
"SFAS 121", "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company has determined that an adjustment to the
carrying amount of its real estate investment was not necessary.
Revenue recognition - The Company recognizes revenue at the time products
are shipped to customers. Property rental is recognized on a straight-line
basis over the term of the lease, and is stated at the gross amount.
F-9
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income taxes - Deferred income taxes are provided at enacted statutory
rates for temporary differences resulting from differences between the book
and tax bases of assets and liabilities. During the periods presented
there were no significant temporary differences. The Company does not
provide United States federal income taxes on undistributed earnings of
foreign subsidiaries as such earnings are intended to be permanently
reinvested in those operations.
Foreign currency translation - Assets and liabilities of foreign
subsidiaries are translated at year end exchange rates, while revenues and
expenses are translated at average exchange rates during the year.
Adjustments arising from translating foreign currency financial statements
are reported as a separate component of shareholders' equity. Gains or
losses from foreign currency transactions are included in net income.
Aggregate net foreign currency gains or losses were immaterial for all
periods.
Earnings per share - Earnings per share is calculated on the basis of
11,000,000 shares of common stock issued in the reverse acquisition for
1994 and 1995 and 11,250,000 weighted average number of common stock in
issue in 1996.
Employee benefits - The Company does not provide any retirement or
postretirement benefits and postemployment benefits, if any, are not
significant.
Translation into United States Dollars - The consolidated financial
statements of the Company are maintained, and its consolidated financial
statements are expressed, in Hong Kong dollars. The translations of HK
dollar amounts into US dollars are for convenience only and have been made
at the rate of HK$7.73 to US$1, the approximate free rate of exchange at
March 31, 1996. Such translations should not be construed as
representations that the Hong Kong dollar amounts could be converted into
US dollars, at that rate or any other rate.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-10
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
3. INCOME TAXES
Income is subject to taxation in the various countries in which the Company
and subsidiaries operate. The components of income before income taxes are
as follows:
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
United States. . . . . . . . . . . . . - - -
Foreign subsidiaries operating in:
Hong Kong. . . . . . . . . . . . . . . 2,870 8,755 17,642
China. . . . . . . . . . . . . . . . . 30,147 12,526 557
------ ------ ------
33,017 21,281 18,199
------ ------ ------
------ ------ ------
As a consequence of the Reorganization on January 8, 1996, certain
activities conducted by the Company's subsidiaries may result in current
income recognition, for U.S. tax purposes, by the Company even though no
actual distribution is received by the Company from the subsidiaries.
However, such income, when distributed, would generally be considered
previously taxed income to the Company and thus would not be subject to
U.S. federal income tax again.
Hong Kong companies are subject to Hong Kong taxation on their activities
conducted in Hong Kong. Under the current Hong Kong laws, dividends and
capital gains arising from the realization of investments are not subject
to income taxes and no withholding tax is imposed on payments of dividends
by the Hong Kong incorporated subsidiaries to the Company.
The Company has two subsidiaries which are incorporated in China and
operate in the special economic zone of Shenzhen. These companies are
subject to Chinese income taxes at the applicable tax rate (currently 15%)
on taxable income based on income tax laws applicable to foreign
enterprises. Pursuant to the same income tax laws, the subsidiaries are
fully exempt from Chinese income tax on their manufacturing operations for
two years starting from the first profit-making year, followed by a 50%
exemption for the next three years. In 1995, one subsidiary applied for
the full exemption and the other subsidiary will apply for exemption during
1996. The exemptions applicable to these companies will expire in 1999 and
2000, respectively. These exemptions do not apply to rental income.
F-11
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
3. INCOME TAXES - continued
The provision for income taxes consists of the following:
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
United States. . . . . . . . . . . . . 195 - -
Foreign subsidiaries operating in:
Hong Kong. . . . . . . . . . . . . . 1,197 1,223 3,453
China. . . . . . . . . . . . . . . . 42 240 -
----- ----- -----
1,434 1,463 3,453
----- ----- -----
----- ----- -----
Had the tax holidays and concessions detailed above not been available, the
tax charge would have been increased by HK$5,412 in 1996, HK$2,398 in 1995
and by HK$686 in 1994.
A reconciliation between the provision for income taxes computed by
applying the United States statutory tax rate to income before taxes and
the actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Applicable U.S. federal tax rate.. . . . . . . . . . 34% 34% 34%
------ ------ ------
Provision of income taxes at the applicable
U.S. federal tax rate on income for the year . . . 11,226 7,236 6,188
International rate difference. . . . . . . . . . . . (1,420) (278) (604)
Income not subject to taxation . . . . . . . . . . . (8,567) (5,516) (2,495)
Other. . . . . . . . . . . . . . . . . . . . . . . . - 21 364
------ ------ ------
Income tax provision . . . . . . . . . . . . . . . . 1,434 1,463 3,453
------ ------ ------
------ ------ ------
</TABLE>
U.S. deferred tax liabilities have not been provided on approximately
HK$97,000 in undistributed earnings of foreign subsidiaries because the
Company intends to reinvest those earnings permanently. If such earnings
were paid as dividends to the Company in a single distribution, the
estimated U.S. income tax, net of foreign tax credits, if allowable,
would be approximately HK$27,000.
F-12
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
4. INVENTORIES
Inventories by major categories are summarized as follows:
MARCH 31,
--------------
1996 1995
---- ----
HK$ HK$
Raw materials. . . . . . . . . . . . . . . . . 13,615 6,237
Work in progress . . . . . . . . . . . . . . . 8,080 21,865
Finished goods . . . . . . . . . . . . . . . . 64,246 51,963
------ ------
85,941 80,065
------ ------
------ ------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
MARCH 31,
--------------
1996 1995
---- ----
HK$ HK$
Leasehold land and buildings . . . . . . . . . 10,076 9,112
Plant and machinery . . . . . . . . . . . . . 2,665 2,264
Furniture and equipment. . . . . . . . . . . . 2,635 2,556
Motor vehicles . . . . . . . . . . . . . . . . 2,487 2,706
Less: accumulated depreciation . . . . . . . . (8,166) (5,704)
Construction in progress . . . . . . . . . . . - 287
------ ------
Net book value . . . . . . . . . . . . . . . . 9,697 11,221
------ ------
------ ------
F-13
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
5. PROPERTY, PLANT AND EQUIPMENT - continued
Included in property, plant and equipment are assets acquired under capital
leases with the following net book values:
MARCH 31,
1996 1995
---- ----
HK$ HK$
At cost:
Furniture and equipment. . . . . . . . . . . . 17 17
Motor vehicles . . . . . . . . . . . . . . . . 1,142 1,142
------- -------
1,159 1,159
Less: accumulated depreciation . . . . . . . . (1,151) (862)
------- -------
8 297
------- -------
------- -------
Amortization of capital lease assets, which is included in depreciation
expense in the accompanying consolidated statements of income, was HK$289
in 1996 and HK$290 in 1995 and HK$287 in 1994.
6. REAL ESTATE INVESTMENT
MARCH 31,
1996 1995
---- ----
HK$ HK$
At cost:
Leasehold land and buildings . . . . . . . . . 27,571 27,122
Less: accumulated depreciation . . . . . . . . (1,372) (767)
------- -------
26,199 26,355
------- -------
------- -------
Leasehold land and buildings principally represent the Company's interest
in an industrial complex known as Man Sang Industrial City located in Gong
Ming Zhen, Shenzhen, People's Republic of China. Part of the industrial
complex is used by the Company and is included in property, plant and
equipment. The remaining leasehold land and buildings are classified as
real estate investment and leased to unaffiliated third parties under
cancellable operating lease agreements. Rental income relating to such
cancellable operating leases is included in gross rental income in the
statements of income and amounted to HK$3,785 in 1996, HK$3,699 in 1995 and
HK$893 in 1994.
F-14
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
7. SHORT-TERM BORROWINGS
Short-term borrowings comprise:
MARCH 31,
1996 1995
---- ----
HK$ HK$
Bank borrowings:
Import bank loans. . . . . . . . . . . . . . 16,510 3,500
Bank overdrafts. . . . . . . . . . . . . . . 14,615 15,537
Other bank loans . . . . . . . . . . . . . . 22,800 21,636
------- -------
Total bank borrowings. . . . . . . . . . . . 53,925 40,673
Other borrowings . . . . . . . . . . . . . . . 2,700 4,552
------- -------
56,625 45,225
------- -------
------- -------
Weighted average interest rate on
borrowings at end of period. . . . . . . . . 12.2% 11.41%
------- -------
------- -------
At end of period:
Bank credit facilities . . . . . . . . . . . . 57,400 42,236
Utilized . . . . . . . . . . . . . . . . . . . 53,925 40,673
------- -------
Bank credit facilities available . . . . . . . 3,475 1,563
------- -------
------- -------
Interest rates are generally based on the banks' prime lending rates and
the credit lines are normally subject to annual review. There are no
significant covenants or other financial restrictions relating to the
Company's short-term borrowings.
At March 31, 1996, leasehold land and buildings with a net book value of
HK$4,131, real estate investments with a net book value of HK$3,471 and
cash of HK$5,861 were pledged as collateral for the above facilities and
bank loan described in note 8. There is no restriction on the use of the
assets pledged for such facilities and bank loans. All bank credit
facilities have been guaranteed, at no cost, by related parties, as
described in note 11. These guarantees continue until released by the
banks or on repayment of the amounts drawn under the facilities.
Other borrowings are from unrelated individuals. These borrowings are
unsecured and at March 31, 1996 the weighted average interest rate was
17.3% per annum.
F-15
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
8. LONG-TERM DEBT
MARCH 31,
1996 1995
---- ----
HK$ HK$
Long-term debt consists of:
Bank loan bearing interest at Hong Kong
Prime rate (8.5% at March 31, 1996) plus
1.25% repayable by monthly instalments
of HK$22 through November 1997 . . . . . . . . . 392 606
Capital lease obligations bearing interest at
7% to 14.5% per annum. . . . . . . . . . . . . . 149 464
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . 541 1,070
Current portion of long-term debt. . . . . . . . . 363 548
------- -------
Long-term debt, less current portion . . . . . . . 178 522
------- -------
------- -------
Maturities of long-term debt as of March 31, 1996 are as follows:
HK$
Year ending March 31
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
-------
541
-------
-------
There are no significant covenants or financial restrictions relating to
the Company's long-term debt.
Details of assets pledged by the Company and guarantees given by related
parties as collateral for the above bank loan are described in note 7.
F-16
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
9. COMMITMENTS AND CONTINGENCIES
The Company leases premises under various operating leases which do not
contain any renewal and escalation clauses. Rental expense under operating
leases was HK$2,739 in 1996, HK$2,344 in 1995 and HK$1,539 in 1994.
As at March 31, 1996, the Company and its subsidiaries were obligated under
capital leases and non-cancellable operating leases requiring minimum
rentals as follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
HK$ HK$
Year ending March 31,
1997 . . . . . . . . . . . . . . . . . . . . . 155 1,412
1998 . . . . . . . . . . . . . . . . . . . . . - 205
------ ------
Total minimum lease payments . . . . . . . . . . 155 1,617
------
------
Less: amount representing interest . . . . . . . 6
------
Present value of minimum lease payments. . . . . 149
------
------
10. CAPITAL STOCK
The Company's capital stock consists of common stock and Series A preferred
stock and Series B convertible preferred stock.
Holders of common stock have one vote per share and are not permitted to
vote their shares cumulatively. The voting rights of the holders of common
stock are subject to the rights of the outstanding Series A preferred
shares which, as a class, is entitled to one-third voting control of the
Company. Accordingly, the holders of common stock and Series A preferred
shares holding, in the aggregate, more than fifty percent (50%) of the
total voting rights can elect all of the directors of the Company.
Holders of the 100,000 issued and outstanding shares of Series A preferred
stock (the "Series A preferred shares") are entitled, as a class, to one-
third voting control of the Company in all matters voted on by shareholders
and a liquidation preference of US$25.00 per share. Except for the
foregoing, the holders of the Series A preferred shares have no preferences
or rights in excess of those generally available to the holders of common
stock. The holders of Series A preferred shares are entitled to
participate in any dividends paid ratably with the holders of common stock.
F-17
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
10. CAPITAL STOCK - continued
The directors have authorized a series of preferred stock designated as
Series B convertible preferred stock (the "Series B preferred shares"). A
total of 100,000 Series B preferred shares were authorized. At March 31,
1996 no shares have been issued or are outstanding. Except to the extent
declared by the directors from time to time, if ever, no dividends are
payable with respect to the Series B preferred shares. Additionally, the
Series B preferred shares have no voting rights except that the approval
of holders of a majority of such shares is required to (1) authorize,
create or issue any shares of any class or series ranking senior to the
Series B preferred shares as to liquidation preference, (2) amend, alter
or repeal, by any means, the Company's certificate of incorporation if the
powers, preferences, or special rights of the Series B preferred shares
would be adversely affected, or (3) become subject to any restriction on
the Series B preferred shares, other than restrictions arising solely under
Nevada law or existing under the certificate of incorporation as in effect
on December 31, 1995.
The Series B preferred shares are convertible into common stock commencing
on or after 45 days following the sale of such shares. Each Series B
preferred shares is convertible into the number of shares of common stock
determined by dividing US$1,000 by an amount equal to the lesser of (1) the
market price of the common stock on the closing date of the sale of such
shares or (2) 70% of the average closing bid price of the common stock for
the five trading days preceding the conversion. The right of the holders
of Series B preferred shares to convert such shares into common stock
shall expire on December 31, 1997.
The Series B preferred shares have a liquidation preference of US$1,000 per
share and are subject, at the election of the Company, to redemption or
conversion at such price after December 31, 1997.
On March 19, 1996 the Company commenced an offering for sale to certain
non-residents of the United States under Regulations of the Securities Act
of 1933, (i) such number of shares of common stock at a price per share
equal to 75% of the average closing bid price of the common stock as
reported on the National Association of Securities Dealers, Inc. Electronic
Bulletin Board, or on the National Association of Securities Dealers, Inc.
Automated Quotation System if the common stock is quoted thereon, for the
five business days preceding the date of the subscription agreement
relating to such subscription; and (ii) such number of shares of Series B
convertible preferred stock, at a price of US$1,000 per share which, when
(i) and (ii) are taken together, will result in aggregate gross proceeds of
up to US$6,000.
All of the shares are being offered by the Company on a "best efforts, all
or none" basis as to the minimum amount (as defined) and on a "best
efforts" basis for up to the maximum amount (as defined) during an offering
period commencing on March 19, 1996 and expiring on the earlier of (i) the
date the maximum amount is attained; or (ii) April 30, 1996, unless
extended by the Company for up to an additional 60 days. The minimum
amount of aggregate gross proceeds of the offering (the "offering proceeds")
is US$500 (the "minimum amount") in any combination of common stock and
Series B preferred shares, and the maximum amount of the offering proceeds
is US$6,000 (the "maximum amount") in any combination of common stock and
Series B preferred shares; provided, however, that the maximum amount may
be increased, and the minimum amount may be decreased, at the discretion of
the Company. The Company exercised its right to extend the offer period
for a further 60 days and up to the date of this report subscriptions for
a total of 2,810 shares of Series B preferred stock representing gross
proceeds of US$2,810 approximately HK$21,721, have been received.
F-18
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
11. RELATED PARTY TRANSACTIONS
(a) During the period, the Company advanced amounts to, and borrowed
amounts from, directors Mr. T.P. Cheng and Mr. C.H. Cheng, who are
also the beneficial controlling shareholders of the Company, and
companies in which Mr. C.H. Cheng is a shareholder. All balances were
lent on an interest-free basis. The following table summarizes the
balances between the Company, the directors and companies owned by the
directors:
MARCH 31,
1996 1995
---- ----
HK$ HK$
Advances to:
Mr. T.P. Cheng. . . . . . . . . . . . . - 2,742
Mr. C.H. Cheng. . . . . . . . . . . . . - 1
Affiliated companies. . . . . . . . . . 50 -
------- -------
Total advances to related parties . . . . 50 2,743
------- -------
------- -------
Advances from:
Mr. C.H. Cheng. . . . . . . . . . . . . 2,666 5,626
Affilicated companies . . . . . . . . . 149 -
------- -------
Total advances from related parties . . . 2,815 5,626
------- -------
------- -------
All balances were fully settled on May 30, 1996.
(b) The Company's credit facilities with banks have been guaranteed by the
directors who have issued unlimited joint and several guarantees to
secure all the bank facilities set out in note 7. No charges have
been made in respect of these guarantees.
(c) During the periods presented, a leasehold property was provided
without charge to Mr. C.H. Cheng for his residential use.
F-19
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
12. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
A substantial percentage of the Company's sales are made to a small number
of customers and are typically on an open account basis. In the year ended
March 31, 1996 and 1994, the Company had sales of pearls representing 11.4%
and 10.7% of net sales, respectively, to KJM Company Limited. In no other
period did sales to any one customer account for 10% or more of sales.
Details of the amounts receivable from the five customers with the largest
receivable balances at March 31, 1996 and 1995 are as follows:
PERCENTAGE OF
ACCOUNTS RECEIVABLE
MARCH 31,
-------------------
1996 1995
---- ----
Five largest receivable balances . . . . . . 63.32% 37.13%
The Company has not experienced any significant difficulty in collecting
its accounts receivable in the past and is not aware of any financial
difficulties being experienced by its major customers.
Bad debt provisions were HK$575 in 1996, HK$261 in 1995 and nil in 1994.
The deductions from the allowance from doubtful accounts which represented
write-offs of bad debts, were HK$64 in 1996, HK$205 in 1995 and nil in
1994.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No.107, "Disclosures About Fair Value of
Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. The estimates presented herein are
not necessarily indicative of amounts that the Company could realize in a
current market exchange.
The carrying amounts of cash, accounts receivable, accounts payable, short-
term borrowings and long-term debt are reasonable estimates of their fair
value. The interest rates on the Company's short-term borrowings and long-
term debt approximate those which would have been available at March 31,
1996 for debt of the same remaining maturities.
All the financial instruments are for trade purposes.
F-20
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
14. SEGMENT INFORMATION
Contributions of the major activities, profitability information and asset
information are summarized below:
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
Net revenues
Pearls . . . . . . . . . . . . . . . 206,924 158,754 150,464
Real estate investment . . . . . . . 3,785 3,699 893
------- ------- -------
210,709 162,453 151,357
------- ------- -------
------- ------- -------
Operating income (loss)
Pearls . . . . . . . . . . . . . . . 36,468 22,457 19,813
Real estate investment . . . . . . . 1,526 1,639 (699)
------- ------- -------
37,994 24,096 19,114
------- ------- -------
------- ------- -------
Identifiable assets
Pearls . . . . . . . . . . . . . . . 145,803 128,729 81,213
Real estate investment . . . . . . . 26,914 27,710 7,648
Corporate assets . . . . . . . . . . 524 287 17,424
------- ------- -------
173,241 156,726 106,285
------- ------- -------
------- ------- -------
Depreciation and amortization:
Pearls . . . . . . . . . . . . . . . 2,020 1,565 1,315
Real estate investment . . . . . . . 1,227 1,181 753
------- ------- -------
3,247 2,746 2,068
------- ------- -------
------- ------- -------
Capital expenditure
Pearls . . . . . . . . . . . . . . . 1,381 2,716 3,126
Real estate investment . . . . . . . 83 4,572 -
Corporate assets . . . . . . . . . . - 287 16,409
------- ------- -------
1,464 7,575 19,535
------- ------- -------
------- ------- -------
F-21
<PAGE>
MAN SANG HOLDINGS, INC.
(FORMERLY KNOWN AS UNIX SOURCE AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
14. SEGMENT INFORMATION - continued
All of the Company's sales of pearls are coordinated through the Hong Kong
subsidiaries and the analysis by destination is as follows:
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
Net sales:
Hong Kong. . . . . . . . . . . . . . 47,507 33,721 33,667
Export:
Japan. . . . . . . . . . . . . . . . 28,408 17,835 21,958
Thailand . . . . . . . . . . . . . . 22,147 10,098 15,117
Korea. . . . . . . . . . . . . . . . 2,376 8,184 5,047
Other Asian countries. . . . . . . . 8,900 5,629 12,114
North America. . . . . . . . . . . . 23,448 24,254 14,280
France . . . . . . . . . . . . . . . 14,104 7,472 777
Germany. . . . . . . . . . . . . . . 11,395 13,505 9,690
Spain. . . . . . . . . . . . . . . . 12,231 6,741 6,218
Italy. . . . . . . . . . . . . . . . 10,006 9,236 11,783
Other European countries . . . . . . 12,299 9,093 7,793
Others . . . . . . . . . . . . . . . 14,103 12,986 12,020
------- ------- -------
206,924 158,754 150,464
------- ------- -------
------- ------- -------
The Company operates in only one geographic area. The location of the
Company's identifiable assets is as follows:
MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
HK$ HK$ HK$
China. . . . . . . . . . . . . . . . . 71,135 71,923 44,753
Hong Kong. . . . . . . . . . . . . . . 102,106 84,803 61,532
------- ------- -------
173,241 156,726 106,285
------- ------- -------
------- ------- -------
F-22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,242
<SECURITIES> 0
<RECEIVABLES> 4,447
<ALLOWANCES> 73
<INVENTORY> 11,118
<CURRENT-ASSETS> 17,768
<PP&E> 2,310
<DEPRECIATION> 1,056
<TOTAL-ASSETS> 22,411
<CURRENT-LIABILITIES> 12,112
<BONDS> 23
0
0
<COMMON> 12
<OTHER-SE> 10,264
<TOTAL-LIABILITY-AND-EQUITY> 22,411
<SALES> 26,769
<TOTAL-REVENUES> 27,259
<CGS> 17,708
<TOTAL-COSTS> 22,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 73
<INTEREST-EXPENSE> 731
<INCOME-PRETAX> 4,271
<INCOME-TAX> 185
<INCOME-CONTINUING> 4,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,086
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
