<PAGE> 1
MAN SANG HOLDINGS, INC.
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 September 30, 1998
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)
Nevada 87-0539570
(State or other jurisdiction
of incorporation or organization) (IRS Employer No.)
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 September 30, 1998, 4,305,960 shares of common stock of the
registrant were outstanding.
<PAGE> 2
MAN SANG HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as at
September 30, 1998 and March 31, 1998........................... F-1
Consolidated Statements of Income and Comprehensive
Income for the three months ended September 30,
1998 and 1997 and six months ended September 30,
1998 and 1997................................................... F-3
Consolidated Statements of Cash Flows for
the six months ended September 30, 1998
and 1997........................................................ 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................................................ 5
</TABLE>
SIGNATURES
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
US$ HK$ HK$
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 11,365 87,848 83,918
Restricted cash 1,624 12,556 9,525
Accounts receivable, net of allowance for doubtful 6,778 52,394 52,195
accounts of HK$3,500 as of September 30, 1998 and
HK$1,977 as of March 31, 1998
Inventories
Raw materials 187 1,441 1,421
Work in progress 5,127 39,633 43,876
Finished goods 14,131 109,233 109,198
-------- -------- --------
19,445 150,307 154,495
Prepaid expenses 204 1,578 2,429
Other current assets 966 7,469 14,563
-------- -------- --------
Total current assets 40,382 312,152 317,125
Long-term investments 702 5,430 5,430
Property, plant and equipment 13,712 105,990 61,853
Accumulated depreciation (1,685) (13,022) (11,142)
-------- -------- --------
12,027 92,968 50,711
Real estate investment 4,222 32,638 32,638
Accumulated depreciation (367) (2,841) (2,554)
-------- -------- --------
3,855 29,797 30,084
-------- -------- --------
Total assets 56,966 440,347 403,350
======== ======== ========
</TABLE>
F-1
<PAGE> 4
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited) - continued
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
US$ HK$ HK$
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 2,401 18,557 2,084
Current portion of long-term debt
Secured bank loans 573 4,429 3,179
Capital lease obligations 35 269 255
------- -------- --------
608 4,698 3,434
Accounts payable 650 5,021 3,887
Accrued payroll and employee benefits 750 5,795 2,922
Other accrued liabilities 1,490 11,525 8,937
Income taxes payable 532 4,114 3,586
------- -------- --------
Total current liabilities 6,431 49,710 24,850
Long-term debt
Secured bank loans 3,546 27,410 18,791
Capital lease obligations 53 413 551
------- -------- --------
3,599 27,823 19,342
Minority interests 11,776 91,030 88,944
Stockholders' equity:
Common stock, par value US$0.001 4 33 33
- authorized: 25,000,000 shares;
issued and outstanding: 4,305,960 shares
Series A preferred stock, par value US$0.001 -- 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$0.001 -- -- --
- authorized: 100,000 shares; no shares outstanding
Additional paid-in capital 12,274 94,880 93,627
Retained earnings 23,978 185,351 176,808
Foreign currency translation adjustments (1,096) (8,481) (255)
------- -------- --------
Total stockholders' equity 35,160 271,784 270,214
======= ======== ========
Total liabilities and stockholders' equity 56,966 440,347 403,350
======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-2
<PAGE> 5
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
1998 1997 1998 1997
------------------- -------- -------------------- --------
US$ HK$ HK$ US$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Net sales 7,413 57,304 73,034 14,125 109,191 140,055
Cost of goods sold (4,902) (37,893) (44,119) (9,214) (71,226) (84,510)
------- ------- ------- -------- -------- -------
Gross profit 2,511 19,411 28,915 4,911 37,965 55,545
Rental income, gross 141 1,088 1,475 290 2,238 2,934
------- ------- ------- -------- -------- -------
2,652 20,499 30,390 5,201 40,203 58,479
Selling, general and administrative expenses
-- Pearls (1,405) (10,865) (14,243) (3,195) (24,698) (27,537)
-- Real estate (209) (1,615) (864) (319) (2,463) (1,636)
------- ------- ------- -------- -------- -------
Operating income 1,038 8,019 15,283 1,687 13,042 29,306
Interest expense (169) (1,307) (1,155) (306) (2,369) (2,484)
Income in respect of subscription monies received
on subsidiary's public offering 0 0 11,391 0 0 11,391
Interest income 228 1,758 363 302 2,333 523
Gain on sales of property, plant and equipment 0 0 0 0 0 8,421
Other income 21 169 272 42 329 437
------- ------- ------- -------- -------- -------
Income before income taxes and minority interest 1,118 8,639 26,154 1,725 13,335 47,594
Provision for income taxes (90) (700) (4,266) (101) (782) (5,147)
------- ------- ------- -------- -------- -------
Income before minority interest 1,028 7,939 21,888 1,624 12,553 42,447
Minority interest (328) (2,530) (3,550) (519) (4,010) (3,550)
------- ------- ------- -------- -------- -------
Net income 700 5,409 18,338 1,105 8,543 38,897
Other comprehensive income, before tax
- Foreign currency translation adjustments (1,026) (7,933) (611) (1,064) (8,226) (678)
- Income tax expense 0 0 0 0 0 0
------- ------- ------- -------- -------- -------
Other comprehensive income, net of tax (1,026) (7,933) (611) (1,064) (8,226) (678)
------- ------- ------- -------- -------- -------
Comprehensive income (326) (2,524) 17,727 41 317 38,219
======= ======= ======= ======== ======== =======
Basic earnings per common share 0.16 1.26 4.26 0.26 1.98 9.03
======= ======= ======= ======== ======== =======
Diluted earnings per common share 0.15 1.15 4.23 0.23 1.81 9.00
======= ======= ======= ======== ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-3
<PAGE> 6
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,
------------------------------
1998 1997
------------------ ---------
US$ HK$ HK$
<S> <C> <C> <C>
Cash flow from operating activities:
Net income 1,105 8,543 38,897
Adjustments to reconcile net income to net cash
provided by operating activities:
provision for doubtful debts 197 1,523 266
Compensation expense 306 2,366 0
Depreciation and amortization 355 2,745 1,967
Gain on sale of property, plant and equipment 0 (1) (8,415)
Minority interests 519 4,010 3,550
Changes in operating assets and liabilities:
Accounts receivable (223) (1,721) (8,518)
Inventories 225 1,736 (18,435)
Prepaid expenses 109 841 (1,153)
Other current assets (342) (2,645) (14,245)
Income taxes receivable 0 0 402
Accounts payable 148 1,146 3,660
Accrued payroll and employee benefits 376 2,905 (1,912)
Other accrued liabilities 355 2,748 12,950
Income taxes payable 70 540 4,322
------- ------- --------
Net cash provided by operating activities 3,200 24,736 13,336
------- ------- --------
Cash flow from investing activities:
Purchase of property, plant and equipment (4,588) (35,465) (5,935)
Expenditure on real estate investment 0 0 (3,257)
Increase in restricted cash (392) (3,031) (224)
Proceeds from sale of property, plant and equipment 1 11 11,025
------- ------- --------
Net cash (used in) provided by in investing activities (4,979) (38,485) 1,609
------- ------- --------
Cash flow from financing activities:
Repayment of bank overdrafts (350) (2,702) (206,468)
Repayment of short-term borrowings (1,215) (9,396) (71,146)
Repayment of long-term debt (1,326) (10,255) (931)
Increase in bank overdrafts 350 2,702 202,107
Increase in short-term borrowings 3,346 25,868 69,783
Increase in long-term debt 2,587 20,000 4,450
Net proceeds from issuance of shares by a subsidiary 0 0 123,621
------- ------- --------
Net cash provided by financing activities 3,392 26,217 121,416
------- ------- --------
Net increase in cash and cash equivalents 1,613 12,468 136,361
Cash and cash equivalents at beginning of period 10,856 83,918 7,792
Exchange adjustments (1,104) (8,538) (307)
------- ------- --------
Cash and cash equivalents at end of period 11,365 87,848 143,846
======= ======= ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest and financing charges 255 1,970 2,145
------- ------- --------
Income taxes 33 254 423
------- ------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-4
<PAGE> 7
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-Q. The March 31, 1998 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-K for the fiscal year ended March 31, 1998. 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.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued two
new disclosure standards, i.e. Statement of Financial Accounting Standards
("SFAS") No. 130 and No. 131. Both of these new standards are effective for
financial statements for periods beginning after December 15, 1997 and required
comparative information for earlier years to be restated. Results of operations
and financial position are not affected by implementation of these new
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, 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, Disclosure 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.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which amends the disclosure
requirements for pensions and other postretirement benefits. Adoption of the
standard does not significantly change the Company's financial statement
disclosures.
F-5
<PAGE> 8
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 translations 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$1, the
approximate free rate of exchange at September 30, 1998. Such translations
should not be construed as representations that Hong Kong dollar amounts could
be converted into United States dollars at that rate or any other rate.
3. EARNINGS PER SHARE ("EPS")
EPS is calculated in accordance with SFAS No. 128. Per share data is calculated
using the weighted average number of shares of common stock outstanding during
the period.
The reconciliation of the basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended September 30, 1998
----------------------------------------
Earnings No. of shares EPS
HK$ HK$
<S> <C> <C> <C>
Basic EPS
Net income available
to common stockholders 5,409,179 4,305,960 1.26
====
Effect of dilutive
stock options granted
by the Company -- 382,825
Effect of dilutive
stock options and warrants
granted by MSIL (defined
in Note 6 below) -- --
--------- ---------
Diluted EPS
Net income available to
common stockholders,
including conversion 5,409,179 4,688,785 1.15
========= ========= ====
</TABLE>
F-6
<PAGE> 9
<TABLE>
<CAPTION>
For the Six months ended September 30, 1998
-------------------------------------------
Earnings No. of shares EPS
HK$ HK$
<S> <C> <C> <C>
Basic EPS
Net income available
to common stockholders 8,543,257 4,305,960 1.98
====
Effect of dilutive
stock options granted
by the Company -- 406,144
Effect of dilutive stock
options and warrants
granted by MSIL -- --
--------- ---------
Diluted EPS
Net income available to
common stockholders,
including conversion 8,543,257 4,712,104 1.81
========= ========= ====
</TABLE>
4. DISCLOSURE OF GEOGRAPHIC INFORMATION
All of the Company's sales of pearls are coordinated through its Hong Kong
subsidiaries and an analysis by destination is as follows:
<TABLE>
<CAPTION>
For the quarter For the six months
ended September 30 ended September 30
1998 1997 1998 1997
HK$'000 HK$'000 HK$'000 HK$'000
<S> <C> <C> <C> <C>
Net sales:
Hong Kong** 7,735 26,256 19,396 39,313
Export:
Asian countries
excluding Hong Kong 8,441 10,081 16,161 27,052
North America 16,617 14,706 29,614 29,958
Europe 21,009 20,008 38,761 38,036
Others 3,502 1,983 5,259 5,696
------ ------ ------- -------
57,304 73,034 109,191 140,055
====== ====== ======= =======
</TABLE>
** A majority of sales (by dollar amount) in Hong Kong are for re-export to
North America and Europe.
F-7
<PAGE> 10
The company operates in only one geographic area. The location of the Company's
identifiable assets is as follows:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
HK$'000 HK$'000
<S> <C> <C>
Hong Kong 346,736 319,191
Other regions of China 93,611 84,159
------- -------
440,347 403,350
======= =======
</TABLE>
5. DISCLOSURE OF MAJOR CUSTOMERS
During the six months ended September 30, 1998, a substantial percentage of the
Company's sales is made to a small number of customers and is typically on an
open account basis.
In no periods did sales to any one customer account for 10% or more of total
sales.
6. SIGNIFICANT EVENTS
On September 2, 1998, Man Sang Innovations Limited, a wholly owned subsidiary of
Man Sang International Limited ("MSIL," which is in turn a subsidiary of the
Company), entered into an agreement with a state-owned company of the People's
Republic of China ("PRC") to establish an equity joint venture company in China.
The name of the joint venture shall be Sino Jewellery Company Limited ("SJC")
with its office at Beijing. Man Sang Innovations Limited shall own 60% of SJC.
The total investment and registered capital of SJC shall be US$2 million and
US$1 million respectively.
On September 24, 1998, Man Sang Innovations Limited entered into a License
Agreement (the "License Agreement") with The Walt Disney Company Asia Pacific
Limited, pursuant to which Man Sang Innovations Limited and/or its affiliated
companies are allowed to produce jewellery articles bearing the "Winnie The
Pooh" trademark (the "Trademark") and sell the articles in the PRC for a term of
one year from September 1, 1998 to August 31, 1999.
The principal business activities of SJC shall be manufacturing and production
of, and dealing in, all kinds of accessories in gold, silver and/or other gems,
and jewellery and accessories with or without the Trademark. The goods without
the Trademark are for both sales in the PRC and exports, while under the License
Agreement the goods under the Trademark are solely for the sales in the PRC.
F-8
<PAGE> 11
7. SEGMENT INFORMATION
Reportable segment profit or loss, and segment assets are disclosed as follows:
Reportable Segment Profit or Loss, and Segment Assets
<TABLE>
<CAPTION>
For the three months For the six months
ended September 30 ended September 30
1998 1997 1998 1997
HK$'000 HK$'000 HK$'000 HK'000
<S> <C> <C> <C> <C>
Revenues from external customers
Pearls 57,304 73,034 109,191 140,055
Real estate investment 1,088 1,475 2,238 2,934
-------- ------- -------- -------
58,392 74,509 111,429 142,989
======== ======= ======== =======
Interest expense
Pearls 282 746 517 1,693
Real estate investment -- 185 -- 368
-------- ------- -------- -------
282 931 517 2,061
======== ======= ======== =======
Depreciation and amortization
Pearls 814 703 1,648 1,487
Real estate investment 163 146 330 293
-------- ------- -------- -------
977 849 1,978 1,780
======== ======= ======== =======
Segment profit
Pearls 9,058 14,019 13,517 26,501
Real estate investment (527) 426 (225) 930
-------- ------- -------- -------
8,531 14,445 13,292 27,431
======== ======= ======== =======
Capital expenditure for segment assets
Pearls 1,497 5,558 2,547 5,935
Real estate investment -- 3,257 -- 3,257
-------- ------- -------- -------
1,497 8,815 2,547 9,192
======== ======= ======== =======
Segment assets
Pearls 332,591 398,130
Real estate investment 29,797 28,997
-------- -------
362,388 427,127
======== =======
</TABLE>
F-9
<PAGE> 12
ITEMS 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements.
RESULTS OF OPERATIONS
Net sales during the six-month period ended September 30, 1998 totaled HK$109.2
million, representing a 22.0% decrease, compared to net sales of HK$140.1
million during the same period in 1997. The decrease in net sales was
attributable at least in part to the following reasons:
- - During the six-month period ended September 30, 1998, the economic
performance and prospects of, and consumer confidence in, the Asia Pacific
region, has declined significantly. Demand decreased, especially from Asian
customers, during the six- month period ended September 30, 1998, partly
because the weakness in the Asian economies has reduced purchaser
confidence, and partly because the Company's sales are denominated in U.S.
dollars and hence its products are more expensive in local currency terms
to almost all its Asian customers; by comparison during the six-month
period ended September 30, 1997, the average economic performance of the
countries in the Asian Pacific region and private consumption was
comparatively strong;
- - It appears to the Company that the weak Asian economies may have caused the
North American and European buyers to become more conservative in their
purchases, and net sales in these two regions for the six months ended
September 30, 1998, showed only minimal growth when compared to those for
the six months ended September 30, 1997. Nevertheless, the Company
continued its marketing efforts in North America and Europe, and net sales
in these two regions during the quarter ended September 30, 1998 increased
by 8.4% when compared to those in the same period in 1997, which
demonstrates an improvement in sales in these two regions from the quarter
ended June 30, 1998 to the quarter ended September 30, 1998.
There can be no assurance that the weakness in the Asian economies will not
spread to other parts of the world, or that demand from North America and Europe
will not weaken. Therefore, the results of any interim period are not
necessarily indicative of the results that might be expected during a full year.
The Management's Discussion and Analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto included elsewhere
in this Form 10-Q and in the Company's annual report on Form 10-K for the year
ended March 31, 1998.
Gross profit for the six-month period ended September 30, 1998 decreased by
HK$17.6 million, representing a 31.7% decrease over the gross profit of HK$55.5
million for the same period in 1997. As a percentage of net sales, gross profit
decreased from 39.7% for the six-month period ended September 30, 1997 to 34.8%
for the same period in 1998. The drop in gross profit margin was principally
attributable to increased sales discount to customers.
1
<PAGE> 13
Gross rental income for the six-month period ended September 30, 1998 decreased
by HK$0.7 million or 23.7% from HK$2.9 million for the same period in 1997. The
decrease in gross rental income was due to economic weakness in Asia which in
turn adversely affected the occupancy rate in the Man Sang Industrial City
facility located in Shenzhen, the People's Republic of China. The occupancy rate
decreased from 93.0% for the six-month period ended September 30, 1997 to 76.0%
for the same period in 1998.
Selling, general and administrative expenses ("SG&A") during the six-month
period ended September 30, 1998 totaled HK$27.2 million, consisting of HK$24.7
million attributable to pearl operations and HK$2.5 million attributable to real
estate operations, compared with HK$29.2 million, consisting of HK$27.5 million
attributable to pearl operations and HK$1.6 million attributable to real estate
operations, during the same period in 1997, a decrease of HK$2.0 million, or
6.9%. The movement of SG&A was due in part to increased provision for doubtful
debts, decreased legal and professional fees, an exchange gain, and compensation
expenses in the amount of HK$2.4 million in connection with the Company's 1996
Stock Option Plan and MSIL's Share Option Scheme (there being no such item in
the same period last year).
As a percentage of net sales, SG&A for pearl operations increased from 19.7% for
the six-month period ended September 30, 1997 to 22.6% for the same period in
1998, while SG&A for real estate operations increased from 1.2% for the six
month period ended June 30, 1997 to 2.3% for the same period in 1998. This was
principally attributable to the decrease in net sales during the six-month
period ended September 30, 1998 as compared with the same period in 1997.
A gain on sale of property, plant and equipment for the six month period ended
September 30, 1997 was HK$8.4 million which was principally derived from the
sale of a leasehold property for HK$11.0 million during the quarter ended June
30, 1997.
Interest income for the six months ended September 30, 1998, increased by HK$1.8
million, or 346.1%, to HK$2.3 million. The increase in interest income was
primarily due to an increased working capital sourced from the funds generated
internally and that raised from MSIL's initial public offering ("IPO") in
September 1997.
Interest expense for the six months ended September 30, 1998, decreased by
HK$0.1 million, or 4.6%, to HK$2.4 million from the comparable period in the
prior year. The decrease in interest expense was due principally to a decrease
in average bank borrowings.
The income in respect of subscription monies for the six-month period ended
September 30, 1997, in the amount of HK$11.4 million, was income earned from
subscription monies received on MSIL's IPO in September 1997, and is
non-recurring.
Net income for the six month period ended September 30, 1998 decreased by
HK$30.4 million to HK$8.5 million representing 78.0% decrease from HK$38.9
million for the same period in 1997. The decrease was attributable to, among
other things:
2
<PAGE> 14
(i) a decrease in net sales and gross profit margin during the six month
period ended September 30, 1998;
(ii) the non-recurrent items of a gain on sales of property, plant and
equipment of HK$8.4 million, and an income on subscription monies of
HK$11.4 million for the six month period ended September 30, 1997.
Excluding income taxes and minority interest, and non-recurrent items, the
operating profit from pearls and real estate investment during the six month
period ended September 30, 1998 was HK$13.0 million, representing a 55.5%
decrease, compared to that of HK$29.3 million during the same period in 1997.
MATERIAL CHANGES IN FINANCIAL CONDITION, 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. At
September 30, 1998, the Company had working capital of HK$262.4 million and
available cash of HK$87.8 million, compared with working capital of HK$292.3
million and available cash of HK$83.9 million at March 31, 1998. The decrease in
working capital was attributable to additions of property, plant and equipment,
and an increase of new short-term bank borrowings of RMB 19.6 million, which was
primarily for hedging the Company's net investment in the PRC's subsidiaries
against the devaluation of Renminbi. The current ratio was 6.3 as at September
30, 1998 as compared with 12.8 as at March 31, 1998.
Long-term debt (including current portion of long-term debt) was HK$32.5 million
at September 30, 1998, an increase of HK$9.7 million compared with that at March
31, 1998. The increase was primarily attributable to an increase of an
installment loan for the acquisition of a real property. The interest rates of
the installment loans ranged from HIBOR + 2.5% to 3.0% where HIBOR represents
Hong Kong Interbank Offered Rate. Part of the risk of interest rate fluctuation
in the installment loans bearing interest at floating rates is hedged by a
one-year interest rate swap agreement ("IRSA") with a notional amount of HK$20
million.
The IRSA maturing on May 11, 1999 converts interest rate exposure from a
floating rate to a fixed rate basis. The gearing ratio was 0.45 at September 30,
1998, as compared with 0.41 at March 31, 1998.
The Company had available working capital facilities of HK$78 million in total
with various banks at September 30, 1998. Such banking facilities include letter
of credit arrangements, import loans, overdraft protection and other facilities
commonly utilized in the jewellery business. All such banking facilities bear
interest at floating rates generally based on prime lending rates which are
subject to periodic review. At September 30, 1998, the Company had utilized
approximately HK$1.5 million of its credit facilities with HK$76.5 million
unutilized.
3
<PAGE> 15
The Daiwa Bank, Limited, one of the Company's bankers, has advised the Company
that it is in the process of significantly curtailing its overseas banking
operations in order to concentrate on its domestic business in Japan, and as a
result will have to withdraw, on November 30, 1998, the working capital
facilities in the amount of HK$20 million that it granted to the Company. The
Daiwa facilities are part of the Company's HK$76.5 million unutilized facilities
as at September 30, 1998.
The Company is in a strong liquidity position, and believes that the withdrawal
of Daiwa's facilities will not have any impact on its existing operations. In
addition, the Company believes that funds to be generated from internal
operations and the available banking facilities will enable the Company to meet
its working capital requirements in the foreseeable future.
4
<PAGE> 16
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 SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
27.1 Financial Data Schedule
5
<PAGE> 17
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, Man Sang Holdings, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAN SANG HOLDINGS, INC.
By: /s/ Cheng Chung Hing
-----------------------------------------
Cheng Chung Hing, Chief Executive Officer
By: /s/ Patrick Ng
------------------------------------------
Patrick Ng, Chief Executive Officer
Date: November 13, 1998
6
<PAGE> 18
INDEX TO EXHIBITS
The following document is filed herewith or has been included as exhibit to
previous filings with the Securities and Exchange Commission and is
incorporated by reference as indicated below.
Exhibit No. Description
27.1 Financial Data Schedule
7
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> HONG KONG DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 7.73
<CASH> 100,404,000
<SECURITIES> 0
<RECEIVABLES> 55,894,000
<ALLOWANCES> 3,500,000
<INVENTORY> 150,307,000
<CURRENT-ASSETS> 312,152,000
<PP&E> 105,990,000
<DEPRECIATION> 13,022,000
<TOTAL-ASSETS> 440,347,000
<CURRENT-LIABILITIES> 49,710,000
<BONDS> 32,521,000
<COMMON> 33,000
0
1,000
<OTHER-SE> 271,750,000
<TOTAL-LIABILITY-AND-EQUITY> 440,347,000
<SALES> 109,191,000
<TOTAL-REVENUES> 111,429,000
<CGS> 71,226,000
<TOTAL-COSTS> 27,161,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,523,000
<INTEREST-EXPENSE> 2,369,000
<INCOME-PRETAX> 13,335,000
<INCOME-TAX> 782,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,543,000
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.81
</TABLE>
