<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission File No. 0-20877
MAN SANG HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 13-3165967
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14/F SANDS BUILDING, 17 HANKOW ROAD
TSIMSHATSUI, KOWLOON, HONG KONG
(Address of principal executive offices)
(852) 2317 5300
(Issuer's telephone number)
--------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of August 1, 1996, 12,426,263 shares of Common Stock of the issuer were
outstanding.
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MAN SANG HOLDINGS, INC.
INDEX
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Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 and March 31, 1996........... 1
Consolidated Statements of Income - For the three months
ended June 30, 1996 and 1995............................................ 2
Consolidated Statements of Cash Flows - For the three months ended
June 30, 1996 and 1995.................................................. 3
Notes to Consolidated Financial Statements............................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 5
PART II - OTHER INFORMATION........................................................ 6
SIGNATURES......................................................................... 7
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
(Amounts expressed in thousands)
<TABLE>
June 30, 1996 March 31, 1996
----------------- --------------
US$ HK$ HK$
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash 4,300 33,241 9,602
Accounts receivable, net 5,629 43,513 33,809
Advances to related parties - 1 50
Inventories 13,712 105,998 85,941
Prepaid expenses 750 5,796 1,194
Other current assets 1 7 6,749
Income taxes receivable 135 1,042 -
------ ------- -------
Total current assets 24,527 189,598 137,345
Property, plant and equipment, net 1,378 10,653 9,697
Real estate investment, net 3,385 26,168 26,199
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Total assets 29,290 226,419 173,241
------ ------- -------
------ ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 6,670 51,557 56,625
Current portion of long-term debt 36 276 363
Accounts payable 2,727 21,080 22,429
Advances from related companies 262 2,028 2,815
Accrued payroll and employee benefits 276 2,134 1,248
Other accrued liabilities 1,784 13,791 10,130
Income taxes payable - - 21
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Total current liabilities 11,755 90,866 93,631
Long-term debt 15 121 178
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Shareholders' equity:
Common stock, par value $0.001 12 93 93
Preferred stock, par value $0.001
Series A - 1 1
Series B convertible and redeemable - - -
Additional paid-in capital 5,760 44,530 1,907
Retained earnings 11,623 89,845 77,205
Cumulative translation adjustments 125 963 226
------ ------- -------
Total shareholders' equity 17,520 135,432 79,432
------ ------- -------
Total liabilities and shareholders' equity 29,290 226,419 173,241
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</TABLE>
See accompanying notes to condensed consolidated financial statements
1
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30
(Amounts expressed in thousands except share data)
<TABLE>
Three Months Ended June 30,
------------------------------------------
1996 1995
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US$ HK$ HK$
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<S> <C> <C> <C>
Net sales 7,224 55,847 43,922
Cost of goods sold 4,387 33,912 30,979
----------- ---------- ----------
Gross profit 2,837 21,935 12,943
Rental income, gross 147 1,137 765
Selling, general and administrative expenses
Pearls 1,175 9,086 6,051
Real estate investment 74 574 695
----------- ---------- ----------
Operating income 1,735 13,412 6,962
Interest expense 213 1,642 1,348
Interest income 12 89 -
Other income 31 242 371
----------- ---------- ----------
Income before income taxes 1,565 12,101 5,985
Provision for income taxes 125 969 219
----------- ---------- ----------
Net income 1,440 11,132 5,766
----------- ---------- ----------
----------- ---------- ----------
Earnings per common share 0.11 0.86 0.52
----------- ---------- ----------
----------- ---------- ----------
Weighted average common and common 12,915,594 12,915,594 11,000,000
equivalent shares outstanding ----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30,
(Amounts expressed in thousands)
<TABLE>
Three Months Ended June 30,
------------------------------
1996 1995
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US$ HK$ HK$
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,440 11,132 5,766
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 67 515 327
Gain on sale of property, plant and equipment - - (21)
Changes in operating assets and liabilities
Accounts receivable (1,161) (8,975) 4,792
Inventories (2,560) (19,785) (2,551)
Prepaid expenses 209 1,619 (892)
Other current assets 68 525 -
Income taxes receivable - - (225)
Accounts payable (225) (1,741) (1,963)
Accrued payroll and employee benefits 114 883 35
Other accrued liabilities 470 3,633 (1,182)
Income taxes payable 58 445 (268)
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Net cash (used in) provided by operating activities (1,520) (11,749) 3,818
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (153) (1,186) (1,754)
Proceeds from sale of property, plant
and equipment - - 2,871
------ ------- -------
Net cash (used in) provided by investing activities (153) (1,186) 1,117
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (19) (144) (340)
Increase in short-term borrowings 2,659 20,554 27,536
Repayment of short-term borrowings (2,845) (21,996) (24,339)
Increase in bank overdrafts 9,249 71,496 46,044
Repayment of bank overdrafts (9,732) (75,227) (50,214)
Advances from related parties 18 139 731
Repayments to related parties (113) (876) (3,340)
Proceeds from issuance of Series B preferred stock 5,513 42,623 -
------ ------- -------
Net cash provided by (used in) financing activities 4,730 36,569 (3,922)
------ ------- -------
Net increase in cash 3,057 23,634 1,013
Exchange adjustments 1 5 -
Cash at beginning of period 1,242 9,602 4,783
------ ------- -------
Cash at end of period 4,300 33,241 5,796
------ ------- -------
------ ------- -------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest and finance charges 213 1,642 1,348
------ ------- -------
------ ------- -------
Income taxes 263 2,032 712
------ ------- -------
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</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. The March 31, 1996 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-KSB dated March 31, 1996. In the opinion of management,
the interim financial statements reflect all adjustments of a normal
recurring nature necessary for a fair presentation of the results for the
interim periods presented.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at period
end exchange rates, while revenues and expenses are translated at
average exchange rates during the period. Adjustments arising from
translating foreign currency financial statements are reported as a
separate component of stockholders' equity. Gains or losses from
foreign currency transactions are included in income. Aggregate net
foreign currency gains or losses were immaterial for all periods.
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 June 30, 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.
3. SHAREHOLDERS' EQUITY
During the quarter ended June 30, 1996, the Company sold 6,660 shares of
Series B convertible preferred stock, par value $0.001 each, for
$6,660,000. 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 share 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 expires on December 31, 1997.
4. SUBSEQUENT EVENTS
After June 30, 1996, the following subsequent events took place:
a. An additional 100 shares of Series B preferred stock were issued for
$100,000.
b. 738.66 shares of Series B convertible preferred stock were converted
into 426,263 shares of common stock.
c. An additional short-term bank credit facilities, including letter of
credit arrangements and trust receipts of HK$18 million was granted by
Standard Chartered Bank.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES AND RESULTS OF OPERATIONS
Net sales during the three months ended June 30, 1996 totaled HK$55.8
million, representing a 27.1% increase, compared to net sales of HK$43.9 million
during the same period in 1995. The increase in net sales was attributable to
increases in sales volume of HK$2.5 million, HK$3.2 million and HK$9.9 million
in Chinese cultured pearls, Japanese cultured pearls and South Sea cultured
pearls, respectively. Freshwater pearl sales decreased slightly by HK$3.7
million as a result of a change of sales mix.
Gross profits increased by HK$9.0 million, or 69.5%, to HK$21.9 million for
the quarter ended June 30, 1996 compared to HK$12.9 million for the same period
in 1995. As a percentage of sales, gross profits increased from 29.4% in 1995
to 39.3% in 1996. The increase in gross profits and gross profit margins
resulted from the overall increase in sales and an increase in the percentage of
higher margin cultured pearls.
Rental income increased by HK$372,000, or 48.6%, to HK$1.1 million for the
quarter ended June 30, 1996 compared to HK$765,000 for the same period in 1995.
The increase in gross rental income was attributable to an increase in occupancy
rate from 60% to 81%, respectively, in the Man Sang Industrial City facility
located in the People's Republic of China.
Selling, general and administrative expenses ("SG&A") during the three
months ended June 30, 1996 totaled HK$9.7 million, consisting of HK$9.1 million
attributable to pearl operations and HK$0.6 million attributable to real estate
operations, as compared to HK$6.7 million, consisting of HK$6.0 million
attributable to pearl operations and HK$0.7 million attributable to real estate
operations, during the same period in 1995, an increase of HK$3.0 million, or
44.8%. The increase in SG&A was primarily due to increased marketing expenses
associated with the higher sales volume, including exhibition expenses and
advertising and promotion expenses for trade shows and increased salaries
attributable to hiring of additional staff to support the expanded scope of
operations and increases in management salaries. As a percentage of net sales,
SG&A from pearl operations increased from 13.8% to 16.3%.
Net interest expense increased by HK$205,000, or 15.2%, to HK$1.55 million
for the quarter ended June 30, 1996, from HK$1.3 million for the same period in
1995. The increase in net interest expense was due principally to the increase
in short-term borrowings of HK$7.3 million from HK$44.2 million at June 30, 1995
to HK$51.5 million at June 30, 1996. The increase in short-term borrowings was
used to finance higher inventory holding costs associated with higher levels of
production and sales. The Company's average borrowing rate decreased to 11.83%
per annum for the quarter ended June 30, 1996 from 12.2% per annum for the year
ended March 31, 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of HK$98.7 million and
cash balances of HK$33.2 million as compared to a working capital balance of
HK$43.7 million and a cash balance of HK$9.6 million at March 31, 1996. The
improvement in working capital was attributable to a combination of (i) cash
flows from profitable operations and (ii) the receipt of HK$42.6 million of net
proceeds from the sale of convertible preferred stock during the quarter.
Inventories increased by HK$20.1 million to HK$106 million at June 30, 1996
from HK$85.9 million at March 31, 1996. The increase in inventories was
attributable to higher purchasing and production to meet increased demand for
the Company's Chinese cultured pearls and because of a change in the mix of the
inventory to a higher percentage of more expensive cultured pearls. Inventories
of Chinese cultured pearls and South Sea pearls increased by HK$14.6 million and
HK$3.6 million, respectively, during the quarter. The increase in inventories
has been primarily financed with short-term borrowings and proceeds from the
sale of convertible preferred stock.
5
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Accounts receivable increased to HK$43.5 million at June 30, 1996 from
HK$33.8 million at March 31, 1996. The increase in accounts receivable was
attributable to the increase in net sales and slightly more favorable credit
terms offered to selected customers. The average turnover of accounts
receivable for the quarter ended June 30, 1996 was 61 days as compared to 60
days for the year ended March 31, 1996.
At June 30, 1996, the Company had utilized approximately HK$49.6 million of
its credit facilities as compared to HK$53.9 million which had been utilized at
March 31, 1996. The decrease in borrowings under the Company's credit
facilities was attributable to the receipt of the net proceeds from the sale of
convertible preferred stock during the quarter.
During the quarter, the Company issued convertible preferred stock raising
approximately HK$42.6 million net of offering costs. At June 30, 1996, all
6,660 shares of Series B convertible preferred stock remained outstanding. 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 share
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 stock to convert
such stock into common stock expires on December 31, 1997.
Subsequent to June 30, 1996, the Company issued an additional 100 shares of
Series B preferred stock for net proceeds of $86,500 and the Company issued
approximately 426,263 shares of common stock pursuant to the conversion of
738.66 shares of outstanding preferred stock.
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
6
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MAN SANG HOLDINGS, INC.
Date: August 12, 1996 /s/ Sam Sio
----------------------------------------
Sam Sio
Chief Executive Officer
Date: August 12, 1996 /s/ Frederick Cheng
----------------------------------------
Frederick Cheng
Chief Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,300
<SECURITIES> 0
<RECEIVABLES> 5,629
<ALLOWANCES> 0
<INVENTORY> 13,712
<CURRENT-ASSETS> 24,527
<PP&E> 1,378
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,290
<CURRENT-LIABILITIES> 11,755
<BONDS> 15
0
0
<COMMON> 12
<OTHER-SE> 17,508
<TOTAL-LIABILITY-AND-EQUITY> 29,290
<SALES> 7,224
<TOTAL-REVENUES> 7,414
<CGS> 4,387
<TOTAL-COSTS> 1,249
<OTHER-EXPENSES> 0
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<INCOME-TAX> 125
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<EPS-PRIMARY> .11
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</TABLE>
