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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 September 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 .
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Commission File No. 0-20877
MAN SANG HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 13-3165967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21/F Railway Plaza, 39 Chatham Road South
Tsimshatsui, Kowloon, Hong Kong
(Address of principal executive offices)
(852) 2317 5300
(Issuer's telephone number)
14 F Sands Building, 17 Hankow Road
Tsimshatsui, Kowloon, Hong Kong
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(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
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As of November 1, 1996, 4,304,699 shares of Common Stock of the issuer
were outstanding.
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MAN SANG HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. - Financial Statements Number
Consolidated Balance Sheets - March 31, 1996 and
September 30, 1996...............................................1
Consolidated Statements of Income - For the three
and six months ended September 30, 1996 and 1995. . . . . . . . .2
Consolidated Statements of Cash Flows - For the
six months ended September 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
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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>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
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US$ HK$ HK$
<S> <C> <C> <C>
ASSETS
Current assets:
Cash 2,523 19,501 9,602
Accounts receivable, net 6,201 47,931 33,809
Advances to related parties - - 50
Inventories 14,478 111,914 85,941
Prepaid expenses 248 1,917 1,194
Other current assets 592 4,580 6,749
------- ------- -------
Total current assets 24,042 185,843 137,345
Property, plant and equipment, net 1,702 13,161 9,697
Real estate investment, net 3,381 26,134 26,199
------- ------- -------
Total assets 29,125 225,138 173,241
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 6,567 50,767 56,625
Current portion of long-term debt 28 216 363
Accounts payable 2,314 17,891 22,429
Advances from related companies - - 2,815
Accrued payroll and employee benefits 316 2,441 1,248
Other accrued liabilities 1,260 9,738 10,130
Income taxes payable 37 285 21
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Total current liabilities 10,522 81,338 93,631
Long-term debt 8 62 178
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Shareholders' equity:
Common stock, par value $0.001 17 133 93
Preferred stock, par value $0.001
Series A - 1 1
Series B convertible and redeemable - - -
Additional paid-in capital 5,398 41,720 1,907
Retained earnings 12,995 100,452 77,205
Cumulative translation adjustments 185 1,432 226
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Total shareholders' equity 18,595 143,738 79,432
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Total liabilities and
shareholders' equity 29,125 225,138 173,241
====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 1
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
1996 1995 1996 1995
---------------- ------------ ------------------- -------
US$ HK$ HK$ US$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Net sales 8,203 63,403 73,050 15,427 119,250 116,972
Cost of goods sold 5,350 41,356 48,244 9,737 75,268 79,223
----- --------- --------- ------ --------- -------
Gross profit 2,853 22,047 24,806 5,690 43,982 37,749
Rental income, gross 153 1,186 873 300 2,323 1,638
Selling, general and
administrative expenses:
Pearls 1,237 9,557 9,792 2,412 18,643 15,843
Real estate investment 134 1,037 242 208 1,611 937
----- -------- --------- ------ --------- ------
Operating income 1,635 12,639 15,645 3,370 26,051 22,607
Interest expense 178 1,378 1,460 391 3,020 2,808
Interest income 23 179 223 35 268 223
Other income 79 609 364 110 851 735
----- --------- --------- ------ --------- ------
Income before income taxes 1,559 12,049 14,772 3,124 24,150 20,757
Provision for income taxes (8) (66) 777 117 903 996
----- --------- --------- ------ --------- ------
Net income 1,567 12,115 13,995 3,007 23,247 19,761
===== ========= ========= ====== ========= =======
Earnings per common share 0.49 3.75 5.09 0.93 7.19 7.18
===== ========= ========= ====== ========= =======
Weighted average common
and common equivalent
shares outstanding 3,231,150 2,750,000 3,231,150 2,750,000
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 2
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(Amounts expressed in thousands)
<TABLE>
<CAPTION>
Six Months Ended September 30,
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1996 1995
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US$ HK$ HK$
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 3,007 23,247 19,761
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 163 1,263 1,670
Loss (gain) on sale of property, plant and equipment 29 222 (11)
Changes in operating assets and liabilities
Accounts receivable (1,705) (13,183) (9,564)
Inventories (3,304) (25,546) 6,108
Prepaid expenses 94 723 (2,052)
Other current assets 94 731 -
Income taxes receivable - - 235
Accounts payable (642) (4,961) (15,243)
Accrued payroll and employee benefits 154 1,190 1,358
Other accrued liabilities (56) (435) 796
Income taxes payable 34 64 25
------- ------ -------
Net cash (used in) provided by operating activities (2,132) (16,485) 3,083
------- ------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (606) (4,685) (958)
Proceeds from sale of property, plant and equipment 26 199 241
------- ------ -------
Net cash (used in) investing activities (580) (4,486) (717)
------- ------ --------
Cash flows from financing activities:
Repayment of long-term debt (34) (263) (258)
Increase in short-term borrowings 7,152 55,286 123,423
Repayment of short-term borrowings (7,451) (57,595) (128,211)
Increase in bank overdrafts 21,885 169,174 48,238
Repayment of bank overdrafts (22,358) (172,828) (40,626)
Advances from related parties 18 139 2,743
Repayments to related parties (376) (2,904) (4,578)
Net proceeds from issuance of Series B preferred stock 5,156 39,853 -
------- ------- --------
Net cash provided by financing activities 3,992 30,862 731
------- ------- --------
Net increase in cash 1,280 9,891 3,097
Exchange adjustments 1 8 558
Cash at beginning of period 1,242 9,602 4,783
------- ------- --------
Cash at end of period 2,523 19,501 8,438
======= ======= ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period for:
Interest and finance charges 391 3,020 3,186
======= ======= ========
Income taxes 83 639 731
======= ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 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 for the year ended 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.
On October 10, 1996, the Company effected a 1-for-4 reverse stock split.
Accordingly, the reverse stock split has been reflected in the
accompanying financial statements for each period presented and earnings
per share has been computed using this revised equity structure.
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 September 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 six months ended September 30, 1996, the Company sold 6,760
shares of Series B convertible preferred stock, par value $0.001 each,
for $6,760,000. The Series B preferred shares were convertible into
common stock commencing on or after 45 days following the sale of such
shares. Each Series B preferred share was 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 expired on December 31, 1997.
During the six months ended September 30, 1996, all of the Series B
preferred shares were converted into common stock of the Company resulting
in the issuance of 5,218,797 shares of common stock.
4. SUBSEQUENT EVENTS
After September 30, 1996, the following subsequent events took place:
The company declared a 1-for-4 reverse split of its common stock
effective October 10, 1996.
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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 six months ended September 30, 1996 totaled HK$119.3
million, representing a 2.0% increase, compared to net sales of HK$117.0
million during the same period in 1995. The slight increase in net sales was
attributable to implementation of the Company's plan to alter its sales mix
with an emphasis on increased sales of higher margin cultured pearls. Cultured
pearls, including Chinese cultured pearls, Japanese cultured pearls and South
Sea Pearls, represented 68% of net sales during the six months ended September
30, 1996 as compared to 54% of net sales during the same period in 1995.
Gross profits increased by HK$6.3 million, or 16.7%, to HK$44.0 million
for the six months ended September 30, 1996 compared to HK$37.7 million for the
same period in 1995. As a percentage of sales, gross profits increased from
32.3% in 1995 to 36.9% 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$685,000, or 41.8%, to HK$2.3 million for the
six months ended September 30, 1996 compared to HK$1.6 million for the same
period in 1995. The increase in gross rental income was attributable to an
increase in occupancy rate from 57% to 86%, 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 six
months ended September 30, 1996 totaled HK$20.2 million, consisting of HK$18.6
million attributable to pearl operations and HK$1.6 million attributable to
real estate operations, as compared to HK$16.7 million, consisting of HK$15.8
million attributable to pearl operations and HK$0.9 million attributable to
real estate operations, during the same period in 1995, an increase of HK$3.5
million, or 20.9%. 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 13.5% to
15.6%.
Net interest expense increased by HK$167,000, or 6.5%, to HK$2.75 million
for the six months ended September 30, 1996, from HK$2.59 million for the same
period in 1995. The increase in net interest expense was due principally to
an increase in short-term borrowings during the first quarter of the current
fiscal year. 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 10.7% per annum for the six
months ended September 30, 1996 from 12.2% per annum for the year ended March
31, 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of HK$104.5 million
and cash balances of HK$19.5 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$39.9 million of net
proceeds from the sale of convertible preferred stock during the period.
Inventories increased by HK$26 million to HK$111.9 million at September
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$8.6
million and HK$10.1 million, respectively, during the period. The increase in
inventories has been primarily financed with short-term borrowings and proceeds
from the sale of convertible preferred stock.
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Accounts receivable increased to HK$47.9 million at September 30, 1996
from HK$33.8 million at March 31, 1996. The increase in accounts receivable
was attributable to a large increase in net sales in September 1996 as a result
of a very successful trade show appearance and slightly more favorable credit
terms offered to selected customers. The average turnover of accounts
receivable for the six months ended September 30, 1996 was 65 days as compared
to 60 days for the year ended March 31, 1996.
At September 30, 1996, the Company had utilized approximately HK$50.8
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 period.
During the six months ended September 30, 1996, the Company issued
convertible preferred stock raising approximately HK$39.9 million net of
offering costs. At September 30, 1996, all 6,760 shares of Series B
convertible preferred stock issued had been converted to common stock at a
price equal to 70% of the average closing bid price of the common stock for
the five trading days preceding the conversion. As a result of such
conversions, the Company issued approximately 5,218,797 shares of common stock
(prior to giving effect to a 1-for-4 reverse split of the Company's common
stock effective October 10, 1996).
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has relocated its executive office to 21/F, Railway Plaza,
39 Chatham Road South, Tsimshatsui, Kowloon, Hong Kong.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Page 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.
<TABLE>
<S> <C>
(REGISTRANT) MAN SANG HOLDINGS, INC.
BY (SIGNATURE) /S/ Sam Sio
(NAME AND TITLE) Sam Sio,
Chief Executive Officer
(DATE) November 5, 1996
BY (SIGNATURE) /S/ Frederick Cheng
(NAME AND TITLE) Frederick Cheng,
Chief Financial Officer
(DATE) November 5, 1996
</TABLE>
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