<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 NUMBER: 33-10639-NY
MAN SANG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
NEVADA 87-0539570
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
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21/F RAILWAY PLAZA, 39 CHATHAM ROAD SOUTH, TSIMSHATSUI, KOWLOON, HONG KONG
(Address of principal executive officers)
(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 JUNE 30, 1997, 4,304,862 SHARES OF COMMON STOCK OF THE REGISTRANT
WERE OUTSTANDING.
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MAN SANG HOLDINGS, INC.
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
-----------
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Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997 and
March 31, 1997 .................................. F-1
Consolidated Statements of Income - For the three months
ended June 30, 1997 and 1996 .................... F-3
Consolidated Statements of Cash Flows - For the three months
ended June 30, 1997 and 1996 .................... F-4
Notes to Consolidated Financial Statements ................ F-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 1
PART II - OTHER INFORMATION .............................................. 3
SIGNATURES ............................................................... 4
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts expressed in thousands except share data)
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<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
----------------------------------
US$ HK$ HK$
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 1,853 14,327 16,928
Accounts receivable, net of allowance for doubtful 6,531 50,485 47,505
accounts of HK$1,136 at June 30, 1997 and
HK$1,000 at March 31, 1997
Inventories
Raw materials 1,535 11,864 12,432
Work in progress 5,369 41,500 39,531
Finished goods 13,361 103,284 87,600
-------- -------- --------
20,265 156,648 139,563
Prepaid expenses 199 1,538 1,357
Other current assets 666 5,148 3,795
Income taxes receivable 54 421 437
-------- -------- --------
Total current assets 29,568 228,567 209,585
Property, plant and equipment 4,979 38,489 41,086
Accumulated depreciation (1,127) (8,714) (8,224)
-------- -------- --------
3,852 29,775 32,862
Real estate investment 3,622 27,996 28,009
Accumulated depreciation (275) (2,127) (1,981)
-------- -------- --------
3,347 25,869 26,028
-------- -------- --------
Total assets 36,767 284,211 268,475
======== ======== ========
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F-1
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - CONTINUED
(Amounts expressed in thousands except share data)
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<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
----------------------------
US$ HK$ HK$
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings 6,201 47,936 51,596
Current portion of long-term debt 134 1,034 1,498
Accounts payable 2,728 21,087 23,882
Accrued payroll and employee benefits 1,145 8,852 7,832
Other accrued liabilities 1,304 10,079 9,375
Income taxes payable 111 859 395
------- ------- -------
Total current liabilities 11,623 89,847 94,578
Long-term debt 1,097 8,477 8,502
Stockholders' equity:
Common stock, par value US$0.001 4 33 33
- authorized: 25,000,000 shares;
issued and outstanding: 4,304,862 shares
Series A preferred stock, par value US$0.001 0 1 1
- authorized, issued and outstanding: 100,000 shares;
(entitled in liquidation to US$2,500 (HK$19,325))
Series B convertible preferred stock, par value US$0.001 -- -- --
- authorized: 100,000 shares; 6,760 issued shares
were converted into 5,219,448 shares of common
stock in fiscal 1997 and no shares outstanding
at the period and year end
Additional paid-in capital 5,958 46,059 46,059
Retained earnings 17,904 138,399 117,840
Cumulative translation adjustments 181 1,395 1,462
------- ------- -------
Total stockholders' equity 24,047 185,887 165,395
------- ------- -------
Total liabilities and stockholders' equity 36,767 284,211 268,475
======= ======= =======
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See accompanying notes to condensed consolidated financial statements
F-2
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30
(Amounts expressed in thousands except share data)
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<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
-----------------------------------------------
US$ HK$ HK$
<S> <C> <C> <C>
Net sales 8,670 67,021 55,847
Cost of sales 5,225 40,391 33,912
--------- --------- ---------
Gross profit 3,445 26,630 21,935
Rental income, gross 189 1,459 1,137
Business tax 8 63 60
--------- --------- ---------
181 1,396 1,077
Selling, general and administrative expenses
- Pearls 1,720 13,294 9,086
- Real estate investment 92 709 514
--------- --------- ---------
Operating income 1,814 14,023 13,412
Non-operating income 1,089 8,421 --
Interest income 21 160 89
Sundry income 22 165 242
Interest expense 172 1,329 1,642
--------- --------- ---------
Income before income taxes 2,774 21,440 12,101
Income taxes 114 881 969
--------- --------- ---------
Net income 2,660 20,559 11,132
========= ========= =========
Basic earnings per share of common stock 0.62 4.78 3.71
========= ========= =========
Diluted earnings per share of common stock 0.62 4.78 3.33
========= ========= =========
Weighted average number of shares of common stock
- for basic earnings per share 4,304,862 4,304,862 3,000,000
========= ========= =========
- for diluted earnings per share 4,304,862 4,304,862 3,344,369
========= ========= =========
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See accompanying notes to condensed consolidated financial statements
F-3
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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)
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<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
-------------------------------------------
US$ HK$ HK$
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income 2,660 20,559 11,132
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 132 1,024 515
Gain on sale of property, plant and equipment (1,090) (8,423) 0
Provision for doubtful debts 18 136 0
Changes in operating assets and liabilities:
Accounts receivable (403) (3,117) (8,975)
Inventories (2,213) (17,109) (19,785)
Prepaid expenses (23) (181) 1,619
Other current assets (175) (1,352) 525
Income taxes receivable 2 15 0
Accounts payable (360) (2,785) (1,741)
Accrued payroll and employee benefits 132 1,020 883
Other accrued liabilities 91 705 3,633
Income taxes payable 60 464 445
------- ------- -------
Net cash used in operating activities (1,169) (9,044) (11,749)
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (49) (377) (1,186)
Proceeds from sale of property, plant and equipment 1,424 11,007 0
------- ------- -------
Net cash provided by (used in) investing activities 1,375 10,630 (1,186)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of long-term debt (63) (489) (144)
Increase in short-term borrowings 5,620 43,447 20,554
Repayment of short-term borrowings (5,566) (43,027) (21,996)
Increase in bank overdrafts 11,565 89,402 71,496
Repayment of bank overdrafts (12,093) (93,480) (75,227)
Advances from related parties 0 0 139
Repayments to related parties 0 0 (876)
Proceeds from issuance of convertible preferred stock 0 0 42,623
------- ------- -------
Net cash (used in) provided by financing activities (537) (4,147) 36,569
------- ------- -------
Net (decrease) increase in cash and cash equivalents (331) (2,561) 23,634
Cash and cash equivalents at beginning of period 2,190 16,928 9,602
Exchange adjustments (6) (40) 5
------- ------- -------
Cash and cash equivalents at end of period 1,853 14,327 33,241
======= ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest and financing charges 165 1,276 1,642
------- ------- -------
Income taxes 52 401 2,032
------- ------- -------
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See accompanying notes to condensed consolidated financial statements
F-4
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MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-Q. The March 31, 1997 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 annual
report of Man Sang Holdings, Inc. (the "Company") on Form 10-KSB for the
fiscal year ended March 31, 1997. 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
components 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 Hong Kong dollar amounts into United States dollars
are for convenience only and have been made at the rate of HK$7.73 to
US$1, the approximate free rate of exchange at June 30, 1997. Such
translations should not be construed as representations that the Hong Kong
dollar amounts could be converted into United States dollars at that rate
or any other rate.
3. EARNINGS PER SHARE
Per share data is calculated using the weighted average number of shares of
common stock outstanding during the period.
In February 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No.128, "Earnings Per Share".
This statement provides for the calculation of basic and diluted earnings
per share, which is different from the current calculation of primary and
fully diluted earnings per share, and requires restatement of such earnings
per share information for all prior periods presented. In this regard, the
computation of the basic and diluted earnings per share of common stock of
the Company for the quarter ended June 30, 1996 are disclosed as follows:
F - 5
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For the Quarter Ended June 30, 1996
-----------------------------------------------------------
Earnings Shares Earnings per share
(Numerator) (Denominator)
----------- ------------- ------------------
HK$'000 HK$
<S> <C> <C> <C>
Basic earnings per share
Net income available
to common stockholders 11,132 3,000,000 3.71
====
Effect of dilutive securities
Series B Preferred Stock -- 344,369
---------
Diluted earnings per share
Net income available
to common stockholders,
including conversion 11,132 3,344,369 3.33
======= ========= ====
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During the period from April to June 1996, the Company sold and issued
6,660 shares of Series B Convertible Preferred Stock, par value US$.001 per
share ("Series B Preferred stock"), for an aggregate purchasing price of
US$6.66 million. The shares of Series B Preferred Stock were convertible
into shares of common stock commencing on or after 45 days following the
sales of such shares of Series B Preferred Stock. Each share of Series B
Preferred Stock was convertible into the number of shares of common stock
determined by dividing US$1,000 by an amount equal to the lesser of (i) the
market price of the common stock on the closing date of the sale of such
shares of Series B Preferred Stock or (ii) 70% of the average closing bid
price of the common stock for the five trading days preceding the
conversion.
After June 30, 1996, all shares of Series B Preferred Stock issued prior to
such date were converted into shares of common stock resulting in the
issuance of 5,082,560 shares of common stock. The weighted average number
of shares of common stock for the quarter ended June 30, 1996 was
1,377,475. After giving effect of the 1 for 4 reverse split effected in
October 1996, the weighted average number of shares of common stock issued
upon the conversion of Series B Preferred Stock, together with the
12,000,000 shares of common stock outstanding as at April 1, 1996, was
3,344,369.
4. SUBSEQUENT EVENTS
After June 30, 1997, the following subsequent events took place:
a. The Company acquired a leasehold property with one parking space in
Hong Kong in July 1997 for use as the new office of one of its
subsidiaries.
b. The Company also made a real estate investment in Hong Kong in July
1997 for the purpose of earning rental income.
F - 6
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The above acquisitions for the aggregate purchase price of HK$9.2 million
were financed by funds generated from internal operations and mortgage
loans.
5. NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will not be affected by implementation
of these new standards.
Statement of Financial Standards (SFAS) No.130, Reporting Comprehensive
Income, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS No.130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No.131, Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No.14, Financial Reporting for Segments
of a Business Enterprise, establishes standards for the way that public
enterprises report information about operating segments in interim
financial statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas and
major customers. SFAS No.131 defines operating segments as components of
an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Due to the recent issuance
of these standards, management has been unable to fully evaluate the
impact, if any, they may have on future financial statement disclosures.
F - 7
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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 for the quarter ended June 30, 1997 increased by HK$11.2 million
to HK$67.0 million, representing 20.1% growth over net sales of HK$55.8 million
during the same period in 1996. The increase in net sales was mainly
attributable to the increase by 66.4% and 10.8%, respectively, in the sales of
Chinese cultured pearls and South Sea pearls during the quarter ended June 30,
1997 over the same period in 1996.
Gross profit for the quarter ended June 30, 1997 increased by HK$4.7
million to HK$26.6 million, representing a 21.5% increase over the gross profit
of HK$21.9 million for the same period in 1996. As a percentage of net sales,
gross profit increased from 39.3% for the quarter ended June 30, 1996 to 39.7%
for the same period in 1997. The increase in gross profit and gross profit
margin resulted from increased sales and a larger proportion of sales of higher
margin cultured pearls. Cultured pearls, including Chinese cultured pearls,
Japanese cultured pearls and South Sea Pearls, represented 74.9% of net sales
during the quarter ended June 30, 1997, compared with 65.5% during the same
period in 1996.
Gross rental income for the quarter ended June 30, 1997 increased by
HK$0.4 million to HK$1.5 million, representing a 36.4% increase from HK$1.1
million for the same period in 1996. The increase in gross rental income was due
to the improvement of the occupancy rate in the Man Sang Industrial City
facility located in Shenzhen, the People's Republic of China from 81% for the
quarter ended June 30, 1996 to 89% for the same period in 1997.
Selling, general and administrative expenses ("SG&A") during the quarter
ended June 30, 1997 totaled HK$14.0 million, consisting of HK$13.3 million
attributable to pearl operations and HK$0.7 million attributable to real estate
operations, compared with HK$9.6 million, consisting of HK$9.1 million
attributable to pearl operations and HK$0.5 million attributable to real estate
operations, during the same period in 1996, an increase of HK$4.4 million, or
45.8%. The increase in SG&A was primarily due to increased salaries for
additional staff to support expanded operations, increased management
compensation for one additional executive officer, increased rental payments for
the current administrative office, increased depreciation expenses in connection
with the depreciation charged for certain fixed assets acquired in October 1996.
As a percentage of net sales, SG&A for pearl operations increased from 16.3% for
the quarter ended June 30, 1996 to 19.8% for the same period in 1997, while SG&A
for real estate operations increased from 0.9% for the quarter ended June 30,
1996 to 1.1% for the same period in 1997.
Non-operating income for the quarter ended June 30, 1997 was HK$8.4
million which was derived from the sale of a leasehold property on May 1, 1997
for HK$11.0 million (the "Leasehold Property"). Property, plant and equipment
decreased by HK$3.1 million to HK$29.8 million at June 30, 1997 from HK$32.9
million at March 31, 1997, due principally to the sale of the Leasehold
Property.
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Interest expense for the quarter ended June 30, 1997 decreased by HK$0.3
million to HK$1.3 million, representing a 18.8% decrease from the interest
expense of HK$1.6 million for the same period in 1996. The decrease was due
principally to the decrease in the short-term bank borrowings. The decrease in
short-term bank borrowings was due to increased cash flow generated from
internal operations and the sale of the Leasehold Property. The Company's
average borrowing rate decreased to 9.8% per annum for the quarter ended June
30, 1997 from 11.8% per annum for the same period in 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of HK$138.8 million and
a cash balance of HK$14.3 million, compared with working capital of HK$115.0
million and a cash balance of HK$16.9 million at March 31, 1997. The improvement
in working capital was attributable to a combination of increased cash flow
generated from internal operations and the proceeds from the sale of the
Leasehold Property during the quarter ended June 30, 1997.
Cash flow provided by investment activities, which was mainly from the
proceeds of the sale of the Leasehold Property, was HK$10.6 million for the
quarter ended June 30, 1997.
Inventory increased by HK$17.1 million to HK$156.6 million at June 30,
1997 from HK$139.5 million at March 31, 1997. The increase in inventory was
attributable to (i) increased purchasing and production to meet the increased
demand for the Company's Chinese cultured pearls as a result of a decrease in
the supply of Japanese cultured pearls, and (ii) maintaining sufficient
inventory of fresh water pearls to meet the anticipated demand in the coming
quarter. Inventory of Chinese cultured pearls and fresh water pearls increased
by HK$8.8 million and HK$6.2 million, respectively, at June 30, 1997. The
increase in inventory has been financed primarily by short-term borrowings and
funds generated from internal operations.
The Company had available working capital facilities totaling HK$88.1
million with various banks at June 30, 1997. Such banking facilities include
letter of credit arrangements, import loans, overdraft protection and other
facilities commonly utilized in jewellery business. All such banking facilities
bear interest at floating rates generally based on prime lending rates and are
subject to annual review. At June 30, 1997, the Company had utilized
approximately HK$47.9 million of its credit facilities with HK$40.2 million
unutilized. The Company believes that funds to be generated from internal
operations and the existing banking credit facilities will enable the Company to
meet the working capital requirements for maintaining its current level of
operations for fiscal 1998.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
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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 28, 1997
/s/ Sam Sio
----------------------------
Sam Sio
Chief Executive Officer
Date: August 28, 1997
/s/ Patrick Ng
----------------------------
Patrick Ng
Chief Financial Officer
