<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2000 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. 33-10639-NY
MAN SANG HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
NEVADA 87-0539570
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
21st Floor, Railway Plaza, 39 Chatham Road South
Tsimshatsui, Kowloon, Hong Kong
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDE AREA CODE: (852) 2317 5300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock $0.001 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes [x] No [ ]
Indicate by check if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $2,431,188 as of June 1, 2000, based upon the
closing price on the NASD Electronic Bulletin Board reported for such date.
Shares of Common Stock held by each executive officer and director and by each
person who beneficially owns more than 5% of the outstanding Common Stock have
been excluded in that such persons may under certain circumstances be deemed to
be affiliates. This determination of executive officer of affiliate status is
not necessarily a conclusive determination for other purposes.
4,405,960 shares of Common Stock Issued and Outstanding as of June 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
No annual reports to security holders, proxy or information statements,
or prospectuses filed pursuant to Rule 424(b) or (c) are incorporated by
reference in this report.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 16
ITEM 6. SELECTED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 18
ITEM 7A QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 24
ITEM 8. FINANCIAL STATEMENTS 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTIONS
AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT 26
ITEM 11. EXECUTIVE COMPENSATION 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 40
SIGNATURES 43
FINANCIAL STATEMENTS
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL AND ORGANIZATION CHART
Man Sang Holdings, Inc. (the "Company"), through its subsidiaries, is primarily
engaged in (i) the purchasing, processing, assembling, merchandising, and
wholesale distribution of pearls and pearl jewelry products; and (ii) the
management and leasing of a commercial real estate complex in Shenzhen, People's
Republic of China (the "PRC"). In fiscal 2000, and continuing into fiscal 2001,
the Company (together with its subsidiaries and affiliates, (the "Group") is
exploring sale and distribution of jewelry products via the Internet. See "Item
1. Business-Business Strategy". The structure of the Company as of the date of
this annual report on Form 10-K is as follows:-
ORGANIZATIONAL CHART OF MAN SANG GROUP
<TABLE>
<S> <C> <C> <C> <C> <C>
MAN SANG
HOLDINGS, INC.
(Nevada)
|
| (Investment holding)
| 100%
|
Man Sang International
(B.V.I.) Limitd
(B.V.I.)
|
| (Investment holding)
-------------------------
| |
67.60% 100%
| |
MAN SANG M.S. Electronic
INTERNATIONAL Emporium Limited
LIMITED (B.V.I.)
(Bermuda)
| (Internet Sales)
(Holding Company)
|
--------------------------------------------------------------------------------------------------------------
| | |
100% 100% 100%
| | |
Market Man San Man Sang
Leader Enterprise Ltd. Innovations
Technology (B.V.I) Limited
Limited | (Hong
(B.V.I) | Kong)
| | |
| (Investment) | (Investment (Licensing)
| holding) | holding) |
| ----------------------------------------------------------- ------
79% 100% 100% 100% 100% 60%
| | | | | |
Cyber Man Sang Sokeen Hong Golden Bejing
Bizport Jewellery Limited Kong Concord Sai Long
Limited Company (Hong Man Sang (Asia) Jewellery
(Hong Kong) Limited Kong) Investments Limited Co., Ltd.
| (Hong Limited (Hong (PRC)
| Kong) Hong Kong) |
| | (Kong) | |
| | | | |
| (Investment (Trading & (Dormant) (Investment (Investment (Assembling
| holding) investment) holding) holding) of
| | | | jewellery
| | | | &
| | | | ornaments)
--------------------------------- ----------------------------------------- --------- ---------------
100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
| | | | | | | | | _
WiserU.com Intimex Wet Wet Asean Gold Arcadia Man Hing Tangzhu Peking Excel Wealth-In
Limited Business Cyber Limited Jewellery Industry Jewellery Pearls Access Investment
(Hong Kong) Solutions Company (B.V.I.) Limited Development Goods Company Limited Limited
Company Limited (Hong Kong) (Shenzhen) (Shenzhen) Limited (Hong (Hong Kong)
Limited (Hong Kong) Co. Ltd. Co. Ltd. (Hong Kong)
(Hong | (P.R.C.) (P.R.C.) Kong)
Kong) | |
| |
(Internet (Business (E-Commerce) (Entitlement (Trading) (Real (Purchasing |(Trading
Technology) Solutions) | of estate & processing | 100%
| membership) leasing & of freshwater |
| pearl pearls & Damien
| products of larger Pearls
| assembly) size Jewellery
| saltwater Goods
| cultured (Schenzhen
| pearls) Co. Ltd.
| (P.R.C.)
------------------
100% 100% (Purchasing
| | &
4376zone.com Multi-Talent processing
Limited Limited of smaller
(Hong Kong) (Hong Kong) size
saltwater
(Dormant) (Dormant) culture
pearls)
</TABLE>
HISTORY OF THE COMPANY
<PAGE> 4
The Company was incorporated in the State of Nevada in November of 1986 under
the name of SBH Ventures, Inc. The Company was originally incorporated as a
"blind pool" company for the purpose of acquiring an operating business. In
March of 1987, the Company completed a public offering of 20,000,000 shares of
common stock raising net proceeds of approximately $171,000.* Subsequently, in
November 1991, the Company, in connection with a merger with an operating
company, changed its name to UNIX Source America, Inc. and effected a 1-for-20
reverse stock split of its common stock. The operations of the merged companies
proved unsuccessful and the Company ceased such business operations in 1992. In
January 1996, the Company again effected a reverse split of its common stock on
approximately a 1-for-14 basis and, following such reverse split, issued
11,000,000 shares of common stock, par value $0.001 per share ("Common Stock")
and 100,000 shares of Series A Preferred Stock, par value $0.001 per share
("Series A Preferred Stock") in exchange (the "Exchange") for all of the
outstanding securities of Man Sang International (B.V.I.) Limited, a British
Virgin Islands company ("Man Sang BVI"). Pursuant to the terms of the Exchange,
the Company changed its name to Man Sang Holdings, Inc. and assumed the
operations of Man Sang BVI. The management of Man Sang BVI then assumed control
of the Company.
During the period from April to July 1996, the Company, in reliance on
Regulation S promulgated under the U.S. Securities Act of 1933, as amended, sold
and issued 6,760 shares of Series B Convertible Preferred Stock, par value
$0.001 per share ("Series B Preferred Stock"), for an aggregate purchasing price
of $6.76 million. All 6,760 shares of Series B Preferred Stock were converted
into 5,223,838 shares of Common Stock, of which 5,219,448 shares were issued in
fiscal 1997 before a 1-for-4 reverse stock split which the Company effected in
October 1996, and the balance of 4,390 shares of Common Stock issuable upon
conversion of Series B Preferred Stock were issued as 1,098 shares of Common
Stock (post reverse stock split) during fiscal 1998.
On July 30, 1997, Man Sang International Limited ("MSIL") was incorporated as an
exempted company under the Companies Act 1981 of Bermuda. On September 8, 1997,
Man Sang BVI acquired MSIL and underwent a corporate reorganization. Thereafter,
MSIL held directly or indirectly the interests of various operating subsidiaries
in Hong Kong and the PRC.
On September 26, 1997, MSIL successfully listed on The Stock Exchange of Hong
Kong Limited ("The Hong Kong Stock Exchange") and completed an initial public
offering
-------------------------
*Unless otherwise indicated as Hong Kong dollars or HK$, all financial
information contained herein is presented in US dollars. The translations of
Hong Kong dollar amounts into US dollars are for reference purpose only and have
been made at the exchange rate of HK$7.74 for US$1, the approximate free rate of
exchange at March 31, 2000. The Hong Kong dollar has been "pegged" to the US
dollar since October 1983. The so-called "peg" is the Linked Exchange Rate
System under which certificates of indebtedness issued by the Hong Kong Exchange
Fund, which the three banks that issue the Hong Kong currency are required to
hold as backing for the issue of Hong Kong dollar notes, are issued and redeemed
against US dollars at a fixed exchange rate of HK$7.8 to US$1. In practice,
therefore, any increase in note circulation is matched by a US dollar payment to
the Exchange Fund, and any decrease in note circulation is matched by US dollar
payment from the Exchange Fund. In the foreign exchange market, the exchange
rate of Hong Kong dollar continues to be determined by forces of supply and
demand. Against the fixed exchange rate for the issue and redemption of
certificates of indebtedness, the market exchange rate generally stays close to
the rate of HK$7.74 to US$1.
-2-
<PAGE> 5
("IPO") of 127,500,000 shares (the "Shares") of HK$0.1 each at HK$1.08
per share with warrants (each an "IPO Warrant") in the proportion of one IPO
Warrant for every five Shares raising net proceeds of approximately HK$123.6
million. Every IPO Warrant entitled the holder thereof to subscribe for one
Share at an exercise price of HK$1.3 from the date of issue up to and including
March 31, 1999. After MSIL's IPO, Man Sang BVI held 73.02% or 345 million
Shares. As of March 31, 1999, the Company had issued 50 Shares upon exercise of
the IPO warrants related to such Shares and on such date, the subscription
rights attaching to the remaining IPO Warrants expired.
On August 12, 1998, at the 1998 Annual General Meeting of MSIL, MSIL's
shareholders approved a final dividend for the year ended March 31, 1998 of
HK$0.03 per Share, settled by way of allotment of fully paid shares in the
capital of MSIL (the "Scrip Shares") with a cash option (the "Scrip Dividend
Scheme"). Man Sang BVI elected to receive part of its final dividend in cash and
part of it in 10,000,000 Scrip Shares. As some of MSIL's shareholders elected to
receive cash dividend and some elected Scrip Shares, a total of 11,963,456 Scrip
shares were allotted on October 8, 1998. After the allotment, Man Sang BVI
legally and beneficially owns approximately 73.28% or 355 million Shares.
On August 2, 1999, at the 1999 Annual General Meeting of MSIL, MSIL's
shareholders approved (i) a final dividend for the year ended March 31, 1999 in
the amount of HK$0.01 per share; and (ii) a "Bonus Issue of Warrants" (i.e. a
distribution of warrants (each a "Bonus Warrant")) to MSIL's shareholders on the
basis of one Bonus Warrant for every five Shares of MSIL held on August 2, 1999.
Pursuant to such shareholder approval, MSIL paid a cash dividend of
HK$4,844,635.06 to its shareholders on September 7, 1999. Each Bonus Warrant
entitles the holder thereof to subscribe in cash at an initial subscription
price of HK$0.40 per Share (subject to adjustment), and is exercisable at any
time from September 14, 1999 to September 13, 2001, both dates inclusive. The
closing price of MSIL's Shares on August 2, 1999, as quoted on The Hong Kong
Stock Exchange, was HK$0.37 per share.
On August 6, 1999, MSIL appointed Kingsway SW Securities Limited as placing
agent on a fully underwritten basis in respect of the placing of 40,000,000 new
MSIL Shares (the "Placing Shares") at a price of HK$0.33 per Share. The Placing
Shares represented approximately 8.26% of MSIL's total issued and outstanding
shares as of August 6, 1999, and approximately 7.63% of MSIL's issued and
outstanding shares as diluted by the placement. After the placement, MSIL had
524,463,506 shares issued and outstanding. The legal and beneficial ownership of
Man Sang BVI reduced from 73.28% to 67.69% of the issued and outstanding shares
of MSIL.
The foundation of the group of companies comprising the Company and its
subsidiaries (the "Group") was laid in early 1980's when Cheng Chung Hing, Ricky
formed Man Sang Trading Hong, a freshwater pearl trading company and Cheng Tai
Po formed Peking Pearls Company, a Japanese cultured pearl trading company. As
the business of the Group developed, Man Sang Jewellery Company Limited and
Peking Pearls Company Limited were formed in Hong Kong in 1988 and 1991
respectively to continue the trading operations of the Group. Subsequently, the
Group expanded its operations to include pearl processing with the establishment
of Man Hing Industry Development (Shenzhen) Co., Ltd. (formerly known as Man
Hing Jewellery Goods
-3-
<PAGE> 6
(Shenzhen) Co., Ltd.) ("Man Hing") in 1992 to process and
assemble freshwater pearls and Chinese cultured pearls, and Damei Pearls
Jewellery Goods (Shenzhen) Co., Ltd. ("Damei") in 1995 to assume and expand the
Chinese cultured pearl processing operations of Man Hing. In view of the
continuous expansion of Chinese cultured pearls business, in December 1996, the
Group set up a subsidiary, Tangzhu Jewellery Goods (Shenzhen) Co., Ltd.
("Tangzhu") in the PRC to specialize in purchasing and processing Chinese
cultured pearls of larger sizes with diameter from 6mm and above and, to a
lesser extent, in processing other cultured pearls. As a result, Damei started
to concentrate on the purchasing and processing of cultured pearls of smaller
size with diameter below 6mm. The business of purchasing and processing of
Chinese freshwater pearls was also transferred from Man Hing to Tangzhu whilst
Man Hing started to concentrate on the pearl jewelry assembling business.
In order to facilitate the growth in existing operations and expansion into
processing operations, and to diversify its revenues, in 1991, the Group
commenced construction of a 24 building industrial facility in Shenzhen, the PRC
("Man Sang Industrial City") for use in pearl processing and corporate
administration (5 buildings) and for lease to third party industrial users (19
buildings). See "Item 1 - Business - Real Estate Leasing Operations" and "Item 2
- Properties".
PEARL OPERATIONS
Pearl Industry
The use of pearls in jewelry dates back over 1,500 years in the PRC. Large scale
commercial pearl production began in Japan in the late 19th century. The
farming, production and trading of pearls to meet demand for pearl jewelry is a
mature industry. Today's pearl industry and its growth are affected by consumer
preferences, worldwide economic conditions and availability of supply.
In today's pearl market, pearls are divided into two categories, i.e. freshwater
pearls and saltwater cultured pearls. Saltwater cultured pearls are, in turn,
divided into Japanese cultured pearls, Chinese cultured pearls, Tahitian pearls
and South Sea pearls.
In the Company's opinion, in recent years and especially since late 1996, Japan
is losing its long held dominance in the cultured pearl industry to the PRC as
(i) Japanese cultured pearls have been in poor harvests and have become more
expensive than they were previously, although such increase in prices may have
been partially offset by the depreciation of the Japanese yen; (ii) customers
increasingly regard Chinese cultured pearls to be close substitutes to Japanese
cultured pearls; (iii) increasingly cultured pearls are cultivated and processed
in the PRC; and (iv) Chinese cultured pearls are competitively priced. In
addition, Japan does not appear to be in a position to increase its supply of
cultured pearls and Chinese cultured pearls may eventually replace Japanese
cultured pearls of comparable qualities and sizes. This would be the case as
long as the PRC cultured pearl industry continues to maintain competitive
prices, improve pearl quality and expand its product lines. The Company expects
the supply of Chinese cultured pearls ranging in size from 5mm to 8mm to be
generally available and reliable. However, strong demand from the United States
and Europe for pearls, together with supply shortage of Japanese cultured
pearls, may lead to an increase in the prices of Chinese cultured pearls in the
future.
-4-
<PAGE> 7
Tahitian pearls are sourced from French Polynesia and the Cook Islands, while
South Sea pearls are sourced mainly from Australia, Papua New Guinea, Indonesia
and the Philippines. These pearls are generally more expensive and are
considered superior in quality when compared to either Japanese or Chinese
cultured pearls, and cannot be easily substituted by the latter. Due to the
relative scarcity of and growing demand for South Sea pearls, their prices have
been increasing steadily in the past years.
The PRC is a major supplier of freshwater pearls. The Company's processing plant
in Shenzhen has since 1996 increased the supply and improved the quality of
freshwater pearls while holding the prices stable. The Company anticipates the
supply of freshwater pearls ranging in size from 5mm to 7mm to be generally
available and reliable, and that the stable supply of high quality freshwater
pearls ranging in size from 8mm to 10mm, or even sometimes up to 15mm, will
narrow the traditional price differences between freshwater pearls and Chinese
or Japanese saltwater cultured pearls and drive up demand. These larger
freshwater pearls contribute a higher gross profit margin than the traditional
smaller freshwater pearls.
Products
The Company presently offers six product lines including pearl jewelry,
freshwater pearls, Chinese cultured pearls, Japanese cultured pearls, South Sea
pearls and Tahitian pearls. Freshwater pearls are available in a variety of
shapes and sizes. The most commonly available sizes range from 2mm to 8mm, and
the price are generally less expensive than cultured pearls with wholesale
prices typically ranging from $2 to $300 per 16 inch strand depending on size,
grade and shape. However, since 1998, larger size freshwater pearls are
available in the market ranging from 8mm to 10mm, or even sometimes up to 15mm,
and the price for the larger size freshwater pearls can reach up to $2,000 per
16 inch strand depending on size, grade and shape. Saltwater cultured pearls
generally are round in shape and range in size from 5mm to 18mm. South Sea and
Tahitian pearls are considered to be the highest quality saltwater cultured
pearls and typically the largest and most expensive followed by Japanese
cultured pearls and Chinese cultured pearls. Wholesale prices of cultured pearls
typically range from $13 to $85,000 per 16 inch strand.
The following table illustrates by pearl category the typical range of size and
wholesale price of cultured pearls the Company sells, with price variations
within each category reflecting size and qualitative differences:
<TABLE>
<CAPTION>
SIZE PRICE/16 INCH STRAND
mm US$
<S> <C> <C>
Freshwater Pearls 2-13 2 - 2,000
Chinese cultured pearls 5-7.5 3 - 500
Japanese cultured pearls 7-10 100 - 3,000
Tahitian pearls 8-16 400 - 30,000
South Sea pearls 8-18 1,000 - 85,000
</TABLE>
-5-
<PAGE> 8
The Company also offers fully assembled pearl jewelry, including necklaces,
earrings, rings, pendants, broaches, bracelets, watches, cufflinks, and similar
miscellaneous pearl products. For the three years ended March 31, 2000,
freshwater and cultured pearls sales as a percentage of the Company's sales of
pearls and assembled pearl products were as follows:
<TABLE>
<CAPTION>
Loose Assembled
Year and Strands Pearls Pearl Jewelry
---- ------------------ -------------
Freshwater Cultured Freshwater Cultured
% % % %
<S> <C> <C> <C> <C>
2000 68 90 32 10
1999 75 92 25 8
1998 57 96 43 4
</TABLE>
Purchasing
The Company purchases (i) Chinese cultured pearls from pearl farms and other
suppliers in the coastal areas of the southern part of the PRC, including
Guangdong and Guangxi Provinces, (ii) Japanese cultured pearls from pearl farms
and other suppliers in Japan, (iii) South Sea pearls from pearl farms and
suppliers in Hong Kong, Australia, the Philippines, and Japan; (iv) Tahitian
pearls from pearl farms and suppliers in French Polynesia; and (v) freshwater
pearls from pearl farms and other suppliers in the eastern part of the PRC,
including Jiangsu and Zhejiang Provinces.
The Company's purchase of pearls is conducted by its full-time, well-trained and
experienced purchasing staff from the Company's offices in Hong Kong and
Shenzhen in the PRC, and a special purchasing office in Zhangjiang in the PRC,
the site of the largest Chinese cultured pearl farm. The purchasing staff
maintains regular contacts with pearl farms and other suppliers in the PRC,
Japan and Hong Kong, enabling the Company to buy directly from farmers whenever
possible, to secure the best prices available for pearls and to gain access to a
larger quantity of pearls. Management and the purchasing staff meet regularly to
assess existing and anticipated pearl demand. The purchasing staff in turn
inspects and purchases pearls in the quantities and of the quality and nature
necessary to meet existing and estimated demand.
The Company has no long term purchase contracts, and instead negotiates the
purchase of pearls on an as needed basis to correspond with expected demand.
While the Company constantly seeks to capitalize on its volume purchasing and
relationship with farmers and suppliers to secure the best pricing and quality
when purchasing pearls and other jewelry raw materials, the Company generally
purchases raw materials from suppliers at approximately prevailing market
prices. The Company believes that there are numerous alternate supply sources
and that the termination of the Company's relationship with any of its existing
sources would not materially adversely affect the Company. To date, the Company
has not experienced any difficulty in purchasing raw materials.
In fiscal 2000, the five largest suppliers of the Company accounted for
approximately 37.5% (1999: 47.9%) of the Company's total purchases, with the
largest supplier accounting for approximately 10.5% (1999: 23.9%) of the
Company's total purchases.
-6-
<PAGE> 9
In fiscal 2000, approximately 51.8% of the Company's purchases were made in
Renminbi, with the remaining amount settled in Japanese Yen, French francs, Hong
Kong dollars or US dollars. It is the Company's policy not to enter into
derivative contracts such as forward contracts and options, unless the Company
considers it necessary to hedge against foreign exchange fluctuations. No such
derivative contract was entered into during fiscal 2000. See "Item 7A -
Quantitative and Qualitative Disclosures about Market Risk".
Processing and Assembly
Pearl processing and assembly are conducted at the Company's facilities in
Shenzhen, PRC. Freshwater pearl processing and assembly operations presently
occupy approximately 24,542 square feet and employ 222 workers while cultured
pearl processing and assembly operations occupy approximately 18,084 square feet
and employ 219 workers. The average compensation per factory worker is US$77 per
month while average supervisory compensation is US$183 per month.
The Company, with the assistance of specialists from Japan, has trained its work
force to implement advanced Japanese bleaching technology. Each worker performs
a specific function and is supervised by an officer and technical assistants who
are university graduates with chemical technology training and also specialized
training by industry specialists from Japan. Prior to participation in pearl
processing operations, each worker is required to participate in an extensive
on-the-job training program utilizing poor quality pearls for demonstration and
training purposes.
Pearl processing occurs in batches or production cycles. Raw pearls and other
materials transported to the Company's processing facilities in Shenzhen PRC are
first sorted, medically bleached and, if necessary, drilled. This process,
excluding drilling, takes approximately 21 days for freshwater pearls and
approximately 70 days for saltwater cultured pearls. Drilling takes
approximately 10 days. Next, the pearls are cleaned, dried, waxed, graded,
sorted, strung, and if necessary, packaged. The entire production cycle takes
approximately 30 days for freshwater pearls and approximately 100 days for
saltwater cultured pearls.
Where appropriate, processed pearls are then incorporated into finished jewelry
products. Assembly and finishing may include the addition of clasps, decorative
jewelry pieces, or other specialty work requested by the customers to produce
finished jewelry pieces.
The Company presently has facilities and pearl processing personnel to produce
approximately 20,000 kg of freshwater pearls and 10,400 kg of cultured pearls
annually, same as fiscal 1999. Fiscal 2000 production totaled approximately
16,388 kg of freshwater pearls and 5,416 kg of cultured pearls, compared to the
production of 18,726 kg of freshwater pearls and 6,778 kg of cultured pearls in
fiscal 1999. The Company presently also has adequate assembly and finishing
personnel and facilities to produce approximately 1.2 million pieces of finished
jewelry annually.
Upon completion of processing, pearls are shipped to the Company's offices in
Hong Kong where they are stored for inspection by potential buyers.
-7-
<PAGE> 10
Marketing
The Company markets its products from its facilities in Hong Kong. The Company's
sales staff, which is divided into groups organized by geographic regions,
presently markets freshwater pearls, Chinese cultured pearls, Japanese cultured
pearls, Tahitian pearls, South Sea pearls, and jewelry products.
The Company's marketing and sales staff maintains on-going communications with a
broad range of jewelry distributors, manufacturers and retailers worldwide to
assure that customers' pearl requirements are fully satisfied. The Company's
marketing and sales staff regularly visits all major pearl markets and jewelry
trade shows to display products, establish contacts with potential customers and
evaluate market trends. Apart from attending trade shows and servicing
customers, the Company's marketing and sales force principally operates from the
Company's headquarters in Hong Kong, where buyers personally visit and inspect
the Company's products and place orders. As part of its marketing efforts, the
Company has established an Internet web page (www.mspearl.com) to introduce the
Company and to advertise the Company's products. In addition, the Company has
increased its efforts to market pearls and jewelry products to customers in
Europe and North America.
Customers
The Company's customers consist principally of wholesale distributors and mass
merchandisers in Europe, the United States, Hong Kong and other Asian countries.
For fiscal 2000, no customer accounted for more than 10 percent of the Company's
sales, and the five largest customers of the Company accounted for approximately
20.1% (1999: 18.6%), with the largest customers accounting for approximately
6.1% (1999: 4.4%) of the Company's sales. As of March 31, 2000, the Company had
approximately 600 customers. The Company has no long-term contract with any
customer. Most of the Company's customers have been its customers for a number
of years. The Company does not believe that the loss of any one customer will
have a material adverse effect on its financial condition or results of
operations.
The Company's policy is to denominate all its sales in either US dollars or Hong
Kong dollars. Since Hong Kong dollar remained "pegged" to the U.S. dollar
throughout fiscal 2000, the Company's sales proceeds have thus far had very
minimal exposure to foreign exchange fluctuations. See "Item 7A - Quantitative
and Qualitative Disclosures about Market Risk".
-8-
<PAGE> 11
The following table sets forth by region and by product the net sales of the
Company for the years ended March 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
US$'000 % US$'000 % US$'000 %
Cultured Pearls
---------------
North America 5,365 14.9 5,863 19.6 6,923 20.5
Europe 4,951 13.7 6,442 21.6 8,480 25.0
Hong Kong 3,530 9.8 2,946 9.9 4,104 12.1
Other Asian countries 4,747 13.1 2,313 7.7 5,118 15.1
Others 862 2.4 884 3.0 1,093 3.2
------ ----- ------ ------ ------ ------
Sub-total 19,455 53.9 18,448 61.8 25,718 75.9
------ ----- ------ ------ ------ ------
Freshwater Pearls
-----------------
North America 3,053 8.5 2,400 8.0 680 2.0
Europe 3,699 10.3 2,427 8.1 1,516 4.5
Hong Kong 1,255 3.5 556 1.9 478 1.4
Other Asian countries 2,353 6.5 1,692 5.7 1,081 3.2
Others 482 1.3 249 0.8 235 0.7
------ ----- ------ ------ ------ ------
Sub-total 10,842 30.1 7,324 24.5 3,990 11.8
------ ----- ------ ------ ------ ------
Assembled Pearl
---------------
Jewelry 5,787 16.0 4,062 13.7 4,162 12.3
------- ------ ----- ------ ------ ------ ------
Total 36,084 100.0 29,834 100.0 33,870 100.0
====== ===== ====== ===== ====== =====
</TABLE>
A majority of sales (by dollar amount) in Hong Kong are for re-export to North
America and Europe.
Seasonality
The Company's sales are seasonal in nature. The bulk of the Company's sales
occur during the months of March, June and September (during major international
jewelry trade shows held in Hong Kong in these three months). Accordingly, the
results of any interim period are not necessarily indicative of the results that
might be expected during a full year. The following table sets forth the
Company's unaudited net sales for the fiscal years indicated:-
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
2000 1999 1998
------------------ ------------------ ----------------
US$'000 % US$'000 % US$'000 %
<S> <C> <C> <C> <C> <C> <C>
First Quarter 8,791 24.4 6,703 22.5 8,659 25.6
Second Quarter 9,264 25.7 7,403 24.8 9,436 27.9
Third Quarter 8,203 22.7 5,690 19.1 6,962 20.5
Fourth Quarter 9,826 27.2 10,038 33.6 8,813 26.0
------ ----- ------ ----- ------ -----
Total 36,084 100.0 29,834 100.0 33,870 100.0
====== ===== ====== ===== ====== =====
</TABLE>
-9-
<PAGE> 12
Competition
With the exception of several large Japanese cultured pearl and South Sea pearl
suppliers, the pearl business is highly fragmented with limited brand name
recognition or consumer loyalty. Selection is generally a function of design
appeal, perceived value and quality in relationship to price.
Internationally, the Company faces intense competition. The principal historical
competitors of the Company in the Japanese cultured, Tahitian and South Sea
pearl markets are Japanese companies. Firms such as Tasaki, Mikimoto, Tokyo and
K. Otsuki are the largest traders and distributors of such pearls. Nevertheless,
their competitiveness has been impaired by the current weakness in Japan's
economy, and the poor harvest of Japanese cultured pearls.
Locally, the Company competes with approximately 60 companies in Hong Kong that
engage actively in the freshwater pearl and Chinese cultured pearl business.
Most of such local companies are small operators and some are engaged only in
pearl trading. In addition to genuine pearls, the Company must compete with
synthetically produced pearls.
The Company believes that it is competitive in the industry because of its
advanced pearl processing and bleaching techniques, and processing facilities in
the PRC which allow the Company to process pearls at cost that is lower than
many of its competitors and because it is a leading purchaser and distributor of
Chinese cultured pearls. In addition, the Company provides one-stop shop
convenience to customers and has historically maintained a close relationship
with its customers. Therefore, although competition is intense, the Company
believes that it is well positioned in the pearl industry. However, in a highly
competitive industry where many competitors have substantially greater
technical, financial and marketing resources than the Company, new competitors
may enter into the market and customer preferences may change unpredictably, and
there can be no assurance that the Company will remain competitive.
REAL ESTATE LEASING OPERATIONS
Facilities
In connection with its expansion into pearl processing and assembling
operations, the Company acquired land use rights with respect to, and
constructed, an industrial complex ("Man Sang Industrial City") located in Gong
Ming Zhen, Shenzhen Special Economic Zone, PRC in September 1991. The land use
rights with a total site area of approximately 472,291 square feet acquired by
the Company with respect to Man Sang Industrial City have a duration of fifty
years starting from September 1, 1991. The Company acquired the land use rights
relating to Man Sang Industrial City and constructed such facility for
approximately $0.4 million.
On January 19, 1998, the Company approved a capital investment of approximately
$1.1 million to renovate, improve and expand the Company's pearl processing
plant in the Man Sang Industrial City. In February 1998, the Company demolished
one building in Man Sang Industrial City that contained shops and a restaurant
in order to provide a site on which to build a pearl processing plant. The new
plant is a six-story building with total gross floor area of approximately
33,584 square feet. The capital investment is financed by the equity funds
-10-
<PAGE> 13
raised by MSIL during fiscal 1998.
As of March 31, 2000, Man Sang Industrial City consisted of 24 buildings
encompassing a total gross floor area of approximately 549,233 square feet.
Twenty of the buildings in Man Sang Industrial City are factory buildings and
four are living quarters. In addition to factories, dormitories and shops, Man
Sang Industrial City has green zones, playgrounds and other amenities typically
offered in industrial/living complexes in the PRC.
Leasing and Management
The Company presently utilizes five buildings in Man Sang Industrial City for
pearl processing and assembly, administration and to house employees. The
remaining facilities are leased to third party industrial users, primarily
foreign investors and non-polluting light industry.
The Company employs a staff of 31 persons to provide required management,
leasing, maintenance and security for Man Sang Industrial City.
As of March 31, 2000, the 19 buildings in Man Sang Industrial City, other than
the five buildings utilized for the Company's pearl operations, were under lease
to third party industrial users. Such facilities are typically offered under
leases ranging in duration from one year to three years. The gross rental income
from Man Sang Industrial City for fiscal 2000 was approximately $597,000
compared to approximately $556,000 for fiscal 1999. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
Ended March 31, 2000 Compared to Year Ended March 31, 1999 - Rental Income".
In addition to Man Sang Industrial City, the Company owns rental properties in
Hong Kong ("Hong Kong Rental Properties") which were leased to independent third
parties. The Hong Kong Rental Properties consist of the properties as follows:-
a. 957 square feet at Room 407, Wing Tuck Commercial Building, 177 -
183 Wing Lok Street, Hong Kong, leased for a rental income totaled approximately
$14,837 for fiscal 2000, approximately $19,783 for fiscal 1999. See "Item 2 -
Properties - Hong Kong";
b. 3,586 square feet at Unit 14 and half of Unit 15 of the 6th floor,
Block A, Focal Industrial Centre, 21 Man Lok Street, Kowloon, Hong Kong. A
tenancy agreement for Unit 14 and half of Unit 15 was made on March 25, 1998 for
a term of 3 years starting from June 1, 1998. The rental income totaled
approximately $43,411 for fiscal 2000, approximately $36,175 for fiscal 1999.
See "Item 2 - Properties - Hong Kong";
c. 1,585 square feet at Unit 16 of the 6th floor, Block A, Focal
Industrial Centre, 21 Man Lok Street, Kowloon, Hong Kong. A tenancy agreement
for Unit 16 was entered into on May 10, 1999 at a monthly rental of $1,843 for a
term of 2 years starting from May 12, 1999. The rental income totaled
approximately $17,776 for fiscal 2000. See "Item 2 - Properties - Hong Kong";
d. Parking space No. L-30 on the Ground Floor of Block A, Focal
Industrial Centre, 21 Man Lok Street, Kowloon, Hong Kong. A rental agreement was
made at a monthly rental of $620 for a term of one year starting from September
1, 1999. See "Item 2 - Properties - Hong Kong"; and
-11-
<PAGE> 14
e. Parking space No. 3 on Floor L3 of Valverde, 11 May Road, Hong Kong.
A rental agreement was made at a monthly rental of $336 for a term of one year
starting from January 8, 2000. See "Item 2 - Properties - Hong Kong".
Competition
Competition among facilities such as Man Sang Industrial City is intense in the
Shenzhen Special Economic Zone. Because of economic incentives available for
businesses operating in the Shenzhen Special Economic Zone, numerous facilities
have been constructed to house such businesses. While a number of competing
facilities may offer greater amenities and may be operated by companies having
greater resources, and additional facilities may be constructed, the Company
believes that Man Sang Industrial City is competitive with other similar
facilities in the Shenzhen Special Economic Zone based on both the quality of
facilities and lease rates.
Employees
As of May 31, 2000, the Company had 621 employees. No employee is governed by
collective bargaining agreements and the Company considers its relations with
its employees to be satisfactory. A breakdown of employees by function is as
follows:-
<TABLE>
<CAPTION>
Hong Kong PRC Total
<S> <C> <C> <C>
Senior management 7 -- 7
Marketing and sales 20 -- 20
Purchasing 5 4 9
Finance and accounting 12 8 20
Processing and logistics 19 473 492
Human resources and administration 14 25 39
Real estate leasing -- 31 31
Information Technology 3 -- 3
--- --- ---
Total 80 541 621
=== === ===
</TABLE>
BUSINESS STRATEGY
While the Company continues to provide a full range of pearls and pearl jewelry
products to jewelry manufacturers, wholesalers and retailers at competitive
prices, the Company's management team ("Management") has identified larger size
freshwater pearls as offering as high a gross profit margin as saltwater
cultured pearls, and has taken steps to increase freshwater pearls in the
Company's product mix. In fiscal 1998, the Company made an investment of
Renminbi 5.1 million (approximately US$612,000) for a 19.5% stake in a pearl
farm located in the PRC through a cooperative joint venture. The farm has a sea
area of 500 hectares and can cultivate up to 18.5 million oysters. Management
believes the farm can produce cultured pearls of diameter up to 9mm.
In fiscal 2000, the Company continued to increase its marketing efforts in
Europe and North America by making extra trips to visit existing and potential
customers personally to promote the Company's products. The Company anticipates
that it will maintain its focus on freshwater pearls and Tahitian pearls in
fiscal year 2001, and plans to continue to increase its
-12-
<PAGE> 15
market penetration through internal growth, strategic acquisitions, expansion of
existing product lines and introduction of new pearl jewelry product lines.
On November 6, 1999, Arcadia Jewellery Limited ("AJL"), a wholly owned
subsidiary of MSIL, entered into an agreement with Gold Treasure International
Jewellery Company Limited, a company incorporated in Hong Kong ("GTI"), to
invest HK$900,000 (approximately US$116,279) into GTI. Upon said investment, AJL
owned 18% of GTI. The principal business of GTI is the production of accessories
in gold, silver and/or other gems. The Company anticipates that this strategic
investment will support the development of new jewelry product lines for the
retail market.
To create a new marketing and distribution channel, on October 26, 1999, MSIL
established another wholly owned subsidiary, Wet Wet Cyber Company Limited
("WWCC") to launch a new e-commerce web site, www.4376zone.com, to sell
fashionable jewelry and accessories that WWCC may source from the Company's
subsidiaries and affiliates (and therefore serving as an additional sales
channel for the Group), and from other jewelry assemblers. Management intends to
establish 4376zone.com as a new retail brand for the Group which caters
specifically to both male and female customers in the Greater China region. The
web site was launched in Hong Kong on January 24, 2000. The Company expects the
development of its own brand name to improve the Company's image in the retail
market, and that it is more efficient and effective to reach retail customers
electronically.
On April 18, 2000, Cyber Era Company Limited ("Cyber Era"), a wholly owned
subsidiary of MSIL, entered into an agreement with Dr. Alexander Tuntomo, Mr.
Wang Chung and Mr. Chan Chi Chuen who are third parties independent of the
directors, executives, and substantial shareholders of the Company to purchase
all the issued and outstanding shares of Intimex Business Solutions Company
Limited ("IBS") with a consideration of HK$2,100,000 (approximately US$271,318),
which Cyber Era paid on April 18, 2000 by issuing 42,000,000 new shares of
HK$0.05 each, which new shares represented 21% of the enlarged issued share
capital of Cyber Era immediately after the closing of such transaction. IBS is
a provider of business solutions. The Group believes that IBS will be able to
help the Group explore the sale and distribution (whether by wholesale to other
businesses or by retail to customers) of jewelry products whether manufactured
by the Group or sourced from other vendors via the Internet.
-13-
<PAGE> 16
SEGMENT INFORMATION
Reportable segment profit or loss, and segment assets are as follows:
Reportable Segment Profit or Loss, and Segment Assets
-----------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
US$'000 US$'000
<S> <C> <C>
Revenues from external customers
Pearls 36,084 29,834
Real Estate investment 597 556
------ ------
36,681 30,390
====== ======
Interest expenses
Pearls 286 127
Real Estate investment 128 27
Corporate Assets 287 427
------ ------
701 581
====== ======
Depreciation and amortization
Pearls 568 439
Real Estate investment 97 88
Corporate Assets 200 199
------ ------
865 726
====== ======
Segment profit
Pearls 3,397 2,119
Real Estate investment 92 18
------ ------
3,489 2,137
====== ======
Capital expenditure for segment assets
Pearls 846 1,669
Real Estate investment -- --
Corporate Assets -- 4,252
------ ------
846 5,921
====== ======
Segment assets
Pearls 56,979 45,609
Real Estate investment 4,267 3,856
Corporate Assets 9,643 9,958
------ ------
70,889 59,423
====== ======
</TABLE>
YEAR 2000 COMPLIANCE
During the transition from December 31, 1999 to January 1, 2000, the Company
experienced no abnormality relating to the Year 2000 problem with respect to
either its own computer system or the computer systems of third parties with
whom the Company does business. The Company has not incurred material expenses
in networks and systems improvements in connection with Year 2000 compliance.
-14-
<PAGE> 17
ITEM 2. PROPERTIES
HONG KONG
The head office of the Group at 21st Floor, Railway Plaza, 39 Chatham Road
South, Tsimshatsui, Kowloon, Hong Kong has a gross floor area of approximately
10,880 square feet. The Company renewed the tenancy for a further term of three
years commencing from July 1, 1999 and ending on June 30, 2002, with another
optional renewal term of three years upon expiry of the tenancy.
On March 9, 1999, the Company commenced leasing the premises at Unit 801 and
802, 8th Floor, Multifield Plaza, 3 Prat Avenue, Tsimshatsui, Kowloon, Hong Kong
for the trading pearls and pearl products. The premises has a gross floor area
of approximately 1,899 square feet. The lease has a term from March 9, 1999 to
March 8, 2002.
The Company owns an investment property at Room 407, Wing Tuck Commercial
Centre, 177 - 183 Wing Lok Street, Sheung Wan, Hong Kong. The gross floor area
of the premises is approximately 957 square feet. It was rented to an
independent third party at a monthly rental of $1,236 with tenancy expiring on
January 31, 2001, with an optional renewal term of two years upon expiry of the
tenancy. See "Item 1 - Business - Real Estate Leasing Operations - Leasing and
Management" above.
The Company owns Units 14, 15 and 16 on 6th Floor and a car-parking space at No.
L30 on the Ground Floor of Block A, Focal Industrial Centre, 21, Man Lok Street,
Kowloon, Hong Kong. The floor areas of the units are 2,412 square feet, 2,349
square feet and 1,585 square feet respectively. The Group uses half of Unit 15
as warehouse. The rest of the units are leased out to independent third parties.
See "Item 1 - Business - Real Estate Leasing Operations - Leasing and
Management" above.
The Company owns a residential flat with a gross floor area of approximately
2,643 square feet on the 17th Floor, and a parking space on 2nd Floor, at
Silvercrest, 24 MacDonnell Road, Hong Kong, which it uses as the Chairman's
residence.
The Company owns a residential flat with a gross floor area of approximately
1,063 square feet on 33rd Floor, and a parking space at No.3 on L3 Floor of
Valverde, 11 May Road, Hong Kong. The Group uses the residential flat as
accommodation for senior executives. The parking space is leased out to
independent third party. See "Item 1 - Business - Real Estate Leasing Operations
- Leasing and Management" above.
The Company owns a residential flat with a gross floor area of approximately
2,838 square feet on 20th Floor, The Mayfair, 1 May Road, Hong Kong, which it
uses as the Vice-Chairman's residence.
PEOPLE'S REPUBLIC OF CHINA
As noted above, the Company owns the land use rights to the site of Man Sang
Industrial City for a term of 50 years from September 1, 1991 to September 1,
2041. On March 31, 2000, Man Sang Industrial City consisted of 24 buildings
encompassing a total gross floor
-15-
<PAGE> 18
area of approximately 549,233 square feet. The Company presently utilizes most
of the units in five buildings for pearl processing, administration and staff
accommodation. The remaining 19 buildings, amounting to approximately 451,248
square feet of floor space and representing approximately 82.2% of the total
gross floor space of Man Sang Industrial City, are leased to independent third
parties and industrial users not connected with the Company.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its property is subject to any pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders through the
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended March 31, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock has been quoted on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board since 1987 and is traded
under the symbol "MSHI". However, the market for these securities has
historically been extremely limited and sporadic, particularly during the period
prior to the Exchange.
The high and low bid prices for the Company's Common Stock for each quarter, and
on the last day of each quarter, during the Company's last two fiscal years were
as follows:-
<TABLE>
<CAPTION>
Period Over the quarter On the last day of quarter
------ ---------------- --------------------------
High Low High Low
$ $ $ $
<S> <C> <C> <C> <C>
2000
June 30, 1999 2.125 1.312 1.75 1.625
September 30, 1999 1.75 1.187 1.187 1.187
December 31, 1999 2.25 1.00 1.125 1.125
March 31, 2000 5.125 1.125 2.25 2.00
1999
June 30, 1998 5.00 1.00 1.875 1.875
September 30, 1998 3.00 1.531 1.625 1.531
December 31, 1998 1.531 0.937 0.937 0.937
March 31, 1999 2.187 0.875 1.75 1.75
</TABLE>
-16-
<PAGE> 19
The above bid information is provided by Bloomberg LP, and reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
HOLDERS
The number of record holders of the Company's Common Stock as of May 31, 2000,
was 206. This number does not include an indeterminate number of stockholders
whose shares are held by brokers in street name.
DIVIDENDS
The Company has not paid any dividends with respect to its Common Stock during
the two preceding fiscal years, and does not intend to pay dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial data for the Company
and its subsidiaries covering the fiscal years ended March 31, 2000, 1999, 1998,
1997 and 1996, and the selected balance sheet data at March 31 of each such
year. This summary should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements provided in Item 7 and 8 respectively, of this Report on Form 10-K.
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
FOR THE YEAR 2000 1999 1998 1997 1996 (N1)
US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
Net sales 36,084 29,834 33,870 32,073 26,734
Gross profit 11,774 10,013 13,532 12,464 9,049
Rental income-Gross 597 556 704 722 489
SG & A
- for net sales 8,377 7,894 6,956 6,750 4,338
- for rental 505 538 453 427 292
Operating income 3,489 2,137 6,827 6,008 4,909
Interest expense 701 581 476 817 730
Interest income 648 519 430 96 56
Non-operating income 850 83 2,790 109 31
Income before
- income taxes (N2) 4,286 2,158 9,572 5,396 4,265
Income taxes 622 302 457 146 185
Minority interests 1,102 717 1,496 -- --
Net income (N2) 2,562 1,139 7,618 5,250 4,081
Net income
- per share (N3) 0.59 0.27 1.77 1.40 1.45
Depreciation and
amortization 865 726 524 401 419
Gross profit margin(%) 32.63 33.56 39.96 38.9 33.9
</TABLE>
-17-
<PAGE> 20
<TABLE>
<CAPTION>
AT MARCH 31 2000 1999 1998 1997 1996 (N1)
US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
Working capital 39,308 34,256 37,761 14,859 5,649
Property, plant
and equipment, net 12,585 13,014 6,552 4,246 1,252
Real estate
investment, net 4,267 3,855 3,887 3,363 3,385
Total Assets 70,889 59,423 52,111 34,686 22,382
% Return on Total Assets 3.61 1.92 14.62 15.14 18.23
Long-term Debt 2,699 3,296 2,499 1,099 23
Total Liabilities (excluding
minority interests) 16,610 10,893 5,709 13,318 12,119
Minority interests 16,482 11,984 11,491 -- --
Shareholders' equity 37,797 36,546 34,911 21,368 10,263
Net book value
per share (N3) 8.76 8.49 8.11 5.68 3.65
% Return on
shareholders' equity 6.78 3.12 21.82 24.57 39.76
Gearing Ratio (N4) 0.78 0.53 0.42 0.37 0.72
Weighted average shares
outstanding (N3) 4,316,069 4,305,960 4,305,458 3,766,454 2,812,500
</TABLE>
N1: The financial data for the year ended March 31, 1996 is proforma, and
has been prepared as if the Group structure resulting from Man Sang
BVI's merger in January 1996 with UNIX Source America, Inc. was in
existence from April 1, 1994 through March 31, 1996. See "Item 1 -
Business - History of the Company."
N2: Income before income taxes and net income is from continuing
operations.
N3: Per share data and weighted average shares outstanding have been
retroactively restated to give effect to the 1-for-4 reverse split in
1997.
N4: "Gearing ratio" represents the ratio of the Company's total debts and
minority interests to shareholders' equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section and other parts of this Form 10-K 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. The following discussion of results of operation, liquidity and
capital resources, derivative instruments, seasonality and inflation should be
read in conjunction with the financial statements and the notes thereto included
elsewhere herein.
-18-
<PAGE> 21
OVERVIEW
In fiscal 2000, net sales totaled $36.1 million, representing a 21.0% increase,
compared to net sales of $29.8 million in fiscal 1999. The increase in net sales
was mainly attributable to (i) an increase by 46.0% and 157.7%, respectively, in
the net sales of Chinese freshwater pearls and South Sea pearls (including such
pearls used in assembled pearl jewelry); and (ii) an 30.1% and 83.8% increase in
net sales in Hong Kong and Asian countries excluding Hong Kong for the year
ended March 31, 2000 when compared to the same period in 1999. The Company
attributes such increases in net sales in part to its increased sales efforts
and its shift in product mix toward Chinese freshwater pearls and South Sea
pearls, in part to more stabilized currency and average economic performance of
countries in the Asia-Pacific region, and in part to improve private
consumption in fiscal 2000 when compared to fiscal 1999.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal years indicated certain items from
the Consolidated Statements of Income expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
2000 1999 1998
---- ---- ----
% % %
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of Sales 67.4 66.4 60.0
----- ----- -----
Gross Profit 32.6 33.6 40.0
Rental Income, Gross 1.7 1.9 2.1
----- ----- -----
34.3 35.5 42.1
Selling, General and Administrative Expenses 24.6 28.3 21.9
----- ----- -----
Operating Income 9.7 7.2 20.2
Interest Expense (1.9) (2.0) (1.4)
Interest Income 1.8 1.7 1.3
Non-operating Income 2.3 0.3 8.2
----- ----- -----
Income Before Income Taxes 11.9 7.2 28.3
Provision for Income Taxes 1.7 1.0 1.4
----- ----- -----
Net Income before minority interests 10.2 6.2 26.9
Minority Interests 3.1 2.4 4.4
----- ----- -----
Net Income 7.1 3.8 22.5
===== ===== =====
</TABLE>
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
Net Sales and Gross Profit
Net sales increased by $6.3 million, or 21.0%, to $36.1 million in fiscal 2000
from $29.8 million in the prior year. The increase in net sales was attributable
to the implementation of the Company's emphasis on increasing sales of Chinese
freshwater pearls and South Sea pearls in its product mix. Chinese freshwater
pearls represented 38.2% of net sales in fiscal 2000 as compared to 31.6% of net
sales in the prior year; whereas South Sea Pearls represented 25.4% of net sales
in fiscal 2000 as compared to 11.9% of net sales in the prior
-19-
<PAGE> 22
year.
Gross profit increased by $1.8 million, or 17.6%, to $11.8 million for fiscal
2000 compared to $10.0 million for the prior year. As a percentage of sales,
gross profit decreased from 33.6% to 32.6%. The increase in gross profit
resulted mainly from the overall increase in sales, while the slight decrease in
gross profit margin resulted mainly from the increase of South Sea and Tahitian
pearls in the Company's product mix. Generally, South Sea and Tahitian pearls,
although higher priced, yield lower margins.
Rental Income
Gross rental income increased by $41K**, or 7.4%, to $597K for fiscal 2000
compared to $556K for the prior year. The increase in gross rental income was
attributable to an increase in occupancy rate from 72.8% to 80.3% in the Man
Sang Industrial City facility located in the PRC.
Selling, General and Administrative Expenses ("SG & A")
SG & A expenses were $8.9 million, consisting of $8.4 million attributable to
pearl operations and $0.5 million attributable to real estate operations, for
fiscal 2000, an increase of approximately $0.5 million, or 5.1%, from $8.4
million, consisting of $7.9 million attributable to pearl operations and $0.5
million attributable to real estate operations, during fiscal 1999.
The increase in SG & A was primarily due to an increase of the marketing and
promotion costs by $0.4 million or 171.7% to $0.7 million from $0.3 million in
the prior year. The increase was mainly attributable to the marketing and
advertising cost for the launch of the web site www.4376zone.com in January
2000. As a percentage of net sales, SG & A from pearl operations decreased from
26.5% in fiscal 1999 to 23.2% in fiscal 2000, while SG & A from real estate
operations decreased from 1.8% in fiscal 1999 to 1.4% in fiscal 2000.
Interest Income
Interest income for fiscal 2000 increased by $129K to $648K from $519K in fiscal
1999, principally due to interest income from the increased working capital
raised from the placement of 40,000,000 new shares in the capital of MSIL at a
price of HK$0.33 per share; and an increase in net sales during the year.
Interest Expense
Interest expense increased by $120K, or 20.6%, to $701K for fiscal 2000, from
$581K for fiscal 1999. The increase in interest expense was due principally to
an increase short-term bank borrowings by the Company's subsidiaries in PRC to
minimize the impact of a possible devaluation of the Renminbi. The Company's
average borrowing rate fell to 6.1% per annum for fiscal 2000 as compared to
7.6% for the prior year.
** As used in this 10-K, the letter "K" appearing immediately after a
dollar amount denotes rounding to the nearest $1,000; as an example,
$250,499 may be rounded to "$250K".
-20-
<PAGE> 23
Income Taxes
Income taxes and provision therefor for fiscal 2000 increased by $320K to $622K,
representing a 106.2% increase from the income tax of $302K for the same period
in fiscal 1999. Such significant increase was principally due to:-
- increase in operating income arisen from an increase in net sales and
gross profit;
- a PRC subsidiary, which was exempted from PRC income taxes in calendar
year of 1998, started paying income tax at a rate of approximately 7.5%
during calendar year 1999 under the Income Tax Law of the PRC;
- Another PRC subsidiary, which was entitled for a 50% relief from PRC
income taxes, in calendar year of 1998, started paying income tax at a
rate of 15% during calendar year of 1999 under the Income Tax Law of
the PRC.
Under the Income Tax Law of the PRC, three operating subsidiaries of the
Company, namely Man Hing Industry development (Shenzhen) Co. Ltd., Damei Pearls
Jewellery Goods (Shenzhen) Co. Ltd., and Tangzhu Jewellery Goods (Shenzhen) Co.
Ltd., all of which are located in the Shenzhen Special economic Zone of the PRC,
are (i) exempt from PRC income taxes on income derived from pearls processing
operations (but not on any rental income) for two years, beginning with the
first profitable year of operation, and (ii) entitled to a 50% relief from PRC
income taxes on income derived from pearls processing operations (but not on any
rental income) for the three years after the expiration of the two-year tax
exemption. Since the three subsidiaries first became profitable in the years
1994, 1995 and 1997, the exemptions expired in the years 1996, 1997 and 1999;
and the 50% relief expires in the years 1999, 2000, and 2002, respectively.
Net Income
Net income for the year increased by $1.5 million to $2.6 million representing
125.0% increase from $1.1 million in fiscal year 1999. The increase was
attributable to, among other things:
(i) an increase in net sales (See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview) for the year;
(ii) an income on sales by Man Sang International (B.V.I.) Limited on December
10, 1999 of warrants issued by MSIL to purchase 45 million ordinary shares of
MSIL.
Excluding income taxes, minority interests and non-recurrent items, the
operating profit from the pearls and real estate businesses during the year was
$3.9 million, representing a 82.9% increase, compared to that of $2.2 million in
fiscal 1999.
-21-
<PAGE> 24
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Net Sales and Gross Profit
Net sales decreased by $4.0 million, or 11.8%, to $29.8 million in fiscal 1999
from $33.8 million in the prior year. The decrease in net sales was attributable
at least in part to the weakness of most economies in Asia. In response, the
Company has among other things shifted its product mix to lower priced
freshwater pearls. Freshwater pearls represented 31.6% of net sales in fiscal
1999 as compared to 21.1% of net sales in the prior year.
Gross profit decreased by $3.5 million, or 26.0%, to $10.0 million for fiscal
1999 compared to $13.5 million for the prior year. As a percentage of sales,
gross profit decreased from 39.9% to 33.6%. The decrease in gross profit and
gross profit margins resulted from the overall decrease in sales, an increase in
sales discount to customers, and an increase of freshwater pearls in the
Company's product mix.
Rental Income
Gross rental income decreased by $148K, or 20.9%, to $556K for fiscal 1999
compared to $704K for the prior year. 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 PRC. The
occupancy rate was 72.8% as at March 31, 1999.
Selling, General and Administrative Expenses
SG & A expenses were $8.4 million, consisting of $7.9 million attributable to
pearl operations and $0.5 million attributable to real estate operations, for
fiscal 1999, an increase of approximately $1 million, or 13.5%, from $7.4
million, consisting of $7.0 million attributable to pearl operations and $0.4
million attributable to real estate operations, during 1998. The increase in SG
& A was primarily attributable to the termination pay of $102K to Ng Hak Yee,
Patrick, an increase of depreciation expense of $193K, and an increase in the
provision for doubtful debt of $267K. As a percentage of net sales, SG & A from
pearl operations increased from 20.5% in fiscal 1998 to 26.5% in fiscal 1999,
while SG & A from real estate operations increased from 1.3% in fiscal 1998 to
1.8% in fiscal 1999.
Interest Income
Interest income for fiscal 1999 increased by $89K to $520K from $430K in fiscal
1998, principally due to cash raised from MSIL's IPO in September 1997.
Income In Respect of Subscription Monies Received On Subsidiary's Public
Offering
The income in respect of subscription monies for MSIL's IPO, in the amount of
$1.5 million, arose in fiscal 1998 and is non-recurring.
Interest Expense
Interest expense increased by $105K, or 22.0%, to $581K for fiscal 1999, from
$476K for fiscal 1998. The increase in interest expense was due principally to
an increase in long-term
-22-
<PAGE> 25
bank borrowings for acquisition of a leasehold property in Hong Kong, and
short-term bank borrowings by the Company's subsidiaries in PRC to minimize the
impact of a possible devaluation of the Renminbi. The Company's average
borrowing rate fell to 7.6% per annum for fiscal 1999 as compared to 10.3% for
the prior year.
Income Taxes
Income taxes and provision therefor for fiscal 1999 decreased by $155K to $302K,
representing a 34.1% decrease from the income tax of $457K for the same period
in 1998. Such significant decrease was principally due to decrease in operating
income.
Net Income
Net income for the year decreased by $6.5 million to $1.1 million representing
85.5% decrease from $7.6 million in fiscal year 1998. The decrease was
attributable to, among other things:
(i) a decrease in net sales (See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview) and gross profit
margin (in part due to an increase of freshwater pearls in the Company's product
mix) for the year;
(ii) a gain on sales of property, plant and equipment of $1.1 million, and an
income of $1.5 million on subscription monies for MSIL's IPO in fiscal 1998,
both of which is not recurrent in fiscal 1999.
Excluding income taxes, minority interests and non-recurrent items, the
operating profit from the pearls and real estate businesses during the year was
$2.2 million, representing a 68.6% decrease, compared to that of $7.0 million in
fiscal year 1998.
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 March
31, 2000, the Company had working capital of $39.3 million and a cash balance of
$19.5 million compared to working capital of $34.3 million and a cash balance of
$11.0 million at March 31, 1999. The current ratio was 3.8 in fiscal 2000 as
compared with that of 5.5 in fiscal 1999. The increase in working capital is
mainly due to a net increase in cash and cash equivalents by $3.0 million, a net
increase in inventories of $2.1 million, and an increase of short-term borrowing
in the subsidiaries in PRC of approximately $6.1 million to a total of $9.5
million. The loans are secured by deposit of $7.5 million and the mortgage of 5
buildings in Man Sang Industrial City. The borrowing was used to purchase pearls
and finance daily operations of the PRC subsidiaries. The main purpose of the
borrowings is to minimize the impact of a possible devaluation of the Renminbi.
Net cash provided by operating activities was $2.1 million and $0.9 million for
fiscal 2000 and fiscal 1999, respectively. Net cash flows from the Company's
operating activities were attributable to the Company's income and changes in
operating assets and liabilities.
Inventories increased by $2.2 million to $24.3 million at March 31, 2000 and the
inventory turns in terms of month decreased from 12.7 months in fiscal 1999 to
11.5 months this fiscal.
-23-
<PAGE> 26
The increase in inventories was attributable to higher purchasing and production
to meet increased demand for the freshwater pearls and South Sea pearls.
Long-term debt (including current portion of long-term debt) was $3.3 million at
March 31, 2000, an decrease of $0.6 million compared with the prior year. The
decrease was attributable to the repayment of installment loan in fiscal 2000.
The interest rates of the installment loan ranged from HIBOR + 2.5% to HIBOR +
3.0%, where HIBOR represents Hong Kong Interbank Offered Rate. The gearing ratio
was 0.78 at March 31, 2000, as compared with 0.53 at March 31, 1999, the
increase was mainly due to the increase of short term borrowing in the
subsidiaries in PRC as mentioned above.
The Company had available working capital facilities of $8.4 million in total
with various banks at March 31, 2000. Such banking facilities include letter of
credit arrangements, import loans, overdraft protection and other facilities
commonly used in the jewelry business. All such banking facilities bear interest
at floating rates generally based on prime lending rates, and are subject to
periodic review. At March 31, 2000, the Company utilized only approximately $51K
of its credit facilities.
The Company believes that funds to be generated from internal operations and the
existing banking facilities will enable the Company to meet anticipated future
cash flow requirements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In fiscal 2000, the Company made approximately 51.8% of its purchases in
Renminbi (the currency of the PRC), with the remaining amounts mainly settled in
Hong Kong dollars, US Dollars and Japanese Yen (only 10.2% of total purchase).
The Company's policy is to denominate all its sales in either US dollar or Hong
Kong dollars. Since Hong Kong dollars remained "pegged" to the US dollar
throughout fiscal 2000, the Company's sales proceeds have thus far had very
minimal exposure to foreign exchange fluctuations. However, if the US dollar
remains relatively stronger than most of the Asian currencies, it will be more
expensive for Asian customers to purchase pearls from the Company, and demand
may fall.
The Management determined that its currency risk in fiscal 2000 was immaterial
and therefore no derivative contracts such as forward contracts and options to
hedge against foreign exchange fluctuations were necessary.
Currencies whose fluctuations are most likely to have the most significant
impact on the Company's operating results include the Renminbi and Japanese Yen.
The Company estimates that a 10% change in foreign exchange rates, assuming
everything else being equal, would impact reported operating income by less than
$400,000. The Company believes that this quantitative measure has inherent
limitations because it does not take into account any changes in either the
customers' purchasing pattern, or the Company's purchasing, financing and
operating strategies.
-24-
<PAGE> 27
In addition, the Company's interest expense is sensitive to fluctuations in the
general level of Hong Kong interest rates. The interest rates of the installment
loans, with principal amount of approximately $2.8 million, ranged from
HIBOR+2.5% to HIBOR+3.0% in fiscal 2000 (where HIBOR represents Hong Kong
Interbank Offered Rate). All other installment loans and banking facilities of
the Company bear interest at floating rates generally based on prime lending
rates, which are subject to periodic review.
The Company does not expect significant changes in Hong Kong interest rates in
the foreseeable future. As at March 31, 2000, the aggregate amount outstanding
under all banking facilities and the installment loans was approximately $3.3
million. Therefore, even a change of 0.5% in HIBOR and prime lending rates will
lead to an increase in interest expense of only approximately $16,500 per annum.
As a result, the Company believes that the risk associated with fluctuations in
interest rate is immaterial, and no derivative contracts are necessary.
ITEM 8. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-1
Consolidated Statements of Income and Comprehensive Income for the years
ended March 31, 2000, 1999 and 1998 F-2
Consolidated Balance Sheets as of March 31, 2000 and 1999 F-3
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years
ended March 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
-25-
<PAGE> 28
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTIONS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 15, 2000, the name and age, position
held with the Company and term of office, of each director of the Company and
the period or periods during which he or she has served in his or her respective
position(s).
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD TERM OF OFFICE
---- --- ---------------- --------------
<S> <C> <C> <C>
Cheng Chung Hing, Ricky 39 President and
Chairman of the Board 1/96 - present
Chief Executive
Officer 1/98 - present
Chief Financial Officer 2/99 - 8/99
Cheng Tai Po 48 Vice Chairman of the Board 1/96 - present
Yan Sau Man, Amy 37 Vice President and Director 1/96 - present
Wong Ka Ming 48 Vice President and Director 2/00 - present
Hung Kwok Wing, Sonny 36 Director 11/96 - present
Vice President 11/96 - 2/00
Lai Chau Ming, Matthew 47 Director 11/96 - present
Yuen Ka Lok, Ernest 37 Director 11/96 - present
</TABLE>
TERM OF OFFICE
Each of the directors of the Company serves until his or her successor is duly
elected at the next annual meeting of shareholders or until his or her earlier
resignation or removal.
INFORMATION REGARDING EXECUTIVE OFFICERS
The following table sets forth the names, ages and offices of the present
executive officers of the Company. The periods during which such persons have
served in such capacities and information with respect to non-employee directors
are indicated in the description of business experience of such persons below.
-26-
<PAGE> 29
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Cheng Chung Hing, Ricky 39 President, Chairman,
Chief Executive Officer
Cheng Tai Po 48 Vice Chairman
Yan Sau Man, Amy 37 Vice President
Wong Ka Ming 48 Vice President
Sun Kam Fai, Zacky 38 Chief Financial Officer
Ho Suk Han, Sophia 31 Secretary
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
CHENG Chung Hing, Ricky, co-founder of the Group, has served as Chairman of the
Board of Directors and President of the Company since January 8, 1996, and of
Man Sang BVI since December 1995. He was appointed a member of the Compensation
Committee of the Board of Directors on September 8, 1997 and Chief Financial
Officer of the Company on February 27, 1999 but resigned from the two offices on
September 18, 1998 and August 2, 1999 respectively. He was appointed Chief
Executive Officer of the Company on January 2, 1998. Mr. Cheng was appointed
Chairman and a Director of MSIL, an indirect subsidiary listed on The Stock
Exchange of Hong Kong Limited, on August 8, 1997 and August 4, 1997,
respectively. Prior to the reorganization of the Group in late 1995 which
culminated in the Company's issuance of Common Stock and Series A Preferred
Stock in exchange for all the outstanding securities of Man Sang BVI in January
1996 (the "Group Reorganization"), he had served as chairman and president of
various companies within the Group. Mr. Cheng has nearly 20 years' experience in
the pearl business and is responsible for overall planning, strategic
formulation and business development of the Company.
CHENG Tai Po, co-founder of the Group, has served as Vice Chairman of the
Company since January 8, 1996 and of Man Sang BVI since December 1995. He was
appointed Deputy Chairman and a Director of MSIL on August 8 and August 4, 1997,
respectively. Prior to the Group Reorganization, he had served as vice-chairman
of various companies within the Group. Mr. Cheng has nearly 20 years' experience
in the pearl business and is responsible for purchasing and processing of pearls
as well as overall planning, strategic formulation and business development of
the Company.
YAN Sau Man, Amy, has served as Vice President and a Director of the Company
since January 8, 1996 and of Man Sang BVI since December 1995. She was appointed
as a Director of MSIL on August 12, 1997. Ms. Yan joined the Group in 1984 and
has been responsible for overall marketing and sales activities of the Company.
WONG Ka Ming, has served as Vice President and a Director of the Company since
February 21, 2000. He was also appointed as a Director of MSIL on the same date.
Mr. Wong obtained his B.S. Sc. and M.B.A. from the Chinese University of Hong
Kong and has over 20 years' experience in investment banking and corporate
finance. Before joining the
- 27 -
<PAGE> 30
Group, Mr. Wong was a director of Fidelity Communication Company, an investors
and corporate relations firm, since 1999. From 1997 to 1999, he was a director
of Regal Financial Services Ltd ("Regal") specializing in investments and fund
management. Before joining Regal, he acquired extensive experience in securities
brokering and marketing. He was the Managing Director of YF Securities Co. Ltd
(1995 to 1997), the Dealing Director of Jih Sun Securities (HK) Ltd. (1993 to
1995) and a director of Seapower Securities Ltd. (1991 to 1993). Mr. Wong was
employed as Senior Manager in Dao Heng Securities Ltd. from 1987 to 1991 and in
Far East Bank Ltd. from 1986 to 1987. From 1984 to 1986, Mr. Wong was the
Operations Manager in Engelhard Metals AG ("Engelhard"). Before joining
Engelhard, he was the Marketing Manager of Sun Hung Kai Securities Ltd. from
1978 to 1984. Mr. Wong is responsible for the corporate development and
investors relationship of the Company.
HUNG Kwok Wing, Sonny, has served as Vice President and a Director of the
Company since November 1, 1996. He resigned as Vice President on February 29,
2000. He was appointed a Director of MSIL on August 12, 1997. Prior to joining
the Company, Mr. Hung was employed as Deputy Manager of Dah Sing Bank from
February 1996 to October 1996 and as Branch Manager of The Hong Kong and
Shanghai Banking Corporation Limited from 1991 to February 1996. Mr. Hung
received his bachelor's degree in Finance and Banking from San Francisco State
University and master's degree in Business Administration from the University of
Strathclyde, U.K. and the Baptist University of Hong Kong.
LAI Chau Ming, Matthew, has served as a Director of the Company since November
1996. He was appointed a member of the Compensation Committee and a member of
the Audit Committee of the Board of Directors on September 8, 1997 and September
18, 1998 respectively. Mr. Lai is currently employed as Senior Manager of
Vickers Ballas Hong Kong Limited ("Vickers Ballas"). Prior to his joining
Vickers Ballas in July 1996, Mr. Lai served from 1972 to 1996 as a Senior
Manager of Sun Hung Kai Investment Company Limited, one of the biggest
investment companies in Hong Kong. Mr. Lai has over 27 years' experience in
investment. He is experienced in the areas of financial management and planning.
YUEN Ka Lok, Ernest, has served as a Director of the Company since November
1996. He was appointed Chairman of the Compensation Committee and a member of
the Audit Committee of the Board of Directors on September 8, 1997 and September
18, 1998 respectively. Mr. Yuen was also appointed a Director of MSIL on August
12, 1997. Mr. Yuen is a solicitor and is currently a Partner in the law firm of
Messrs. Yuen & Partners. Mr. Yuen joined Messrs. Ivan Tang & Co. ("ITC") as a
Consultant in August 1994 and became a Partner in January 1996. Mr. Yuen retired
from ITC as partner and started his own practice in the name of Yuen & Partners
in August, 1997. Prior to his joining ITC, from March 1992 to August 1994, Mr.
Yuen was employed as Assistant Solicitor at Messrs. Van Langenbery & Lau ("VLL")
and Messrs. AB Nasir, respectively. Prior to his joining VLL, Mr. Yuen was an
Articled Clerk at Messrs. Robin Bridge & John Liu. From 1985 to 1987, Mr. Yuen
was an audit trainee at Price Waterhouse (now known as PriceWaterhouseCoopers),
an international accounting firm. Mr. Yuen is experienced in civil and criminal
litigations as well as the general commercial transactions.
SUN Kam Fai, Zacky, joined the Company in March 1999 and has served as Vice
President of the Company since May 3, 1999 but resigned on August 2, 1999. On
the same date, he was appointed Chief Financial Officer of the Company. He is
responsible for financial management and participates in formulation and
execution of corporate policies. Mr. Sun
- 28 -
<PAGE> 31
was the Financial Controller of CCT Communication Group Limited in Hong Kong
from December 1997 to February 1999 and of Synergy Power Corporation Pty Ltd in
Australia from May 1995 to June 1997. In June 1992, he established an
independent accounting firm in Hong Kong, which he managed until October 1994.
From April 1987 to June 1992, Mr. Sun served as Project Manager of Toplus
Development Limited to explore investment opportunities. From 1984 to 1987, Mr.
Sun was an audit trainee at Ernst & Whinney (now known as Ernst & Young), an
international accounting firm. He is a Certified Public Accountant, a fellow of
the Association of the Chartered Certified Accountants, an associate of the
Australian Society of Certified Public Accountants and an associate of the Hong
Kong Society of Accountants.
HO Suk Han, Sophia, has served as Secretary of the Company since January 1998.
Miss Ho has nearly 10 years' experience in company secretarial work in an
international accounting firm and several listed companies in Hong Kong. She is
an associate of The Hong Kong Institute of Company Secretaries and The Institute
of Chartered Secretaries and Administrators in Hong Kong Limited.
FAMILY RELATIONSHIPS
Cheng Chung Hing, Ricky and Cheng Tai Po are brothers. Other than the foregoing,
there are no family relationships among the above-named directors and executive
officers of the Company.
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Based solely on a review of copies of the forms provided to the Company, or
written representations that no other filing of forms was required, the Company
has found that: (i) Cafoong Limited became the beneficial owner of more than 10%
of the Common Stock on January 8, 1996 and such company filed Form 3 in respect
thereof in February 1997; (ii) Cheng Chung Hing, Ricky and Cheng Tai Po became
the indirect beneficial owners of more than 10% of the Company's Common Stock on
January 8, 1996 by virtue of their respective holding of 60% and 40% of all the
issued and outstanding stock of Cafoong Limited and such individuals filed Forms
3 in respect thereof on February 20, 1997; (iii) Cheng Chung Hing, Ricky; Cheng
Tai Po; Yan Sau Man, Amy and Hung Kwok Wing, Sonny were granted non-qualified
stock options to purchase Common Stock on September 16, 1997 and such
individuals filed Forms 4 in respect thereof on April 9, 1998; and (iv) Hung
Kwok Wing, Sonny exercised all his stock options to purchase 100,000 shares of
Common Stock on February 24, 2000 and filed Form 4 in respect thereof on March
6, 2000. See "Item 11 - Executive Compensation."
COMMITTEES
AUDIT COMMITTEE
The Board of Directors established an Audit Committee on September 18, 1998 with
Alexander Reid Hamilton as Chairman, and Yuen Ka Lok, Ernest and Lai Chau Ming,
Matthew as Committee members. Mr. Hamilton is a Director and Chairman of the
Audit
- 29 -
<PAGE> 32
Committee of MSIL. He was a partner in an international accounting firm for 16
years and has over 22 years of audit and accounting experience. Mr. Hamilton
serves as audit committee member of several companies which are listed on The
Stock Exchange of Hong Kong Limited. With his rich experience, the Company
invited him to act as Chairman of the Audit Committee.
The Committee makes such examinations as are necessary to monitor the corporate
financial reporting and the internal and external audits of the Company. Besides
the monitoring function, the Committee also makes recommendations on
improvements and conduct any other duties as the Board of Directors may
delegate. During the year ended March 31, 2000, the Audit Committee held four
meetings to review the financial results of the Company before presentation to
the Board of Directors for approval and release.
COMPENSATION COMMITTEE
The Board of Directors established a Compensation Committee on September 8, 1997
with Yuen Ka Lok, Ernest as Chairman, and Cheng Chung Hing, Ricky and Lai Chau
Ming, Matthew as Committee members. To promote the Committee's independence,
Cheng Chung Hing, Ricky resigned as Compensation Committee member on September
18, 1998.
The Compensation Committee deliberates and stipulates the compensation policy
for the Company and to administer the 1996 Stock Option Plan. During the year
ended March 31, 2000, the Compensation Committee met ten times (four of which
were via full board meetings) to discuss and review the compensation policies of
the Company.
Besides the Audit and Compensation Committee, the Board of Directors presently
maintains no other committees.
ITEM 11. EXECUTIVE COMPENSATION
OVERVIEW; AND THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
While for convenience of reference this annual report on Form 10-K has used "the
Company" when referring to the overall business of the Group, the Company itself
actually has no employees. The employee directors of the Company have entered
into Services Agreement with MSIL. See "Item 11 - Executive Compensation -
Employment Agreements". Other executive officers in the management team were
employed by a subsidiary of MSIL.
In the 1999 Annual General Meeting of MSIL held in August 1999, the shareholders
of MSIL passed a resolution to authorize its Board of Directors to fix
remuneration of all directors (which for MSIL would include all its executives)
for the year. The MSIL Board determined that the compensation packages of its
directors were generally competitive. Hence, the compensation packages remained
unchanged for fiscal 2000. As an acknowledgment to the contribution of Yan Sau
Man, Amy in increasing net sales for fiscal 2000 by 21.0%, the MSIL Board
granted a bonus of $25,840 to her.
As at June 15, 2000, the Company via its subsidiary, Man Sang BVI, holds
355,000,000 shares, or 67.60% of the issued capital, of MSIL. Since the overall
compensation of the executive officers of the Company is determined by the Board
of Directors of MSIL, the
- 30 -
<PAGE> 33
Company's Compensation Committee takes up a monitoring function. The Committee
reviews the decisions of the MSIL Board in relation to this issue. Should the
Committee disagree with the decisions of the MSIL Board, the Committee may
advise the Company's Board of Directors to vote in any general meeting of MSIL
against authorizing the MSIL Board to fix compensation for MSIL's directors and
executives.
For fiscal 2000, all executive officers received their salaries and all or part
of their bonus (if applicable) from MSIL.
With respect to the Chairman and the Vice Chairman, the Compensation Committee
members acknowledged that they have brought to the Company not only their
expertise and personal relationships in the pearl industry, but also their
vision, foresight and efforts to steer the Company towards more profitable and
diversified business in the past year. The Committee members also took into
account the need to retain such highly qualified officers by providing
competitive compensation packages, and granted a bonus to each of Cheng Chung
Hing, Ricky, Chairman of the Board and Cheng Tai Po, Vice Chairman.
EXECUTIVE COMPENSATION
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to the Company and
its subsidiaries during the three years ended March 31, 2000 of the Company's
Chief Executive Officer and each of its other most highly compensated executive
officers whose compensation exceeded $100,000 (the "Named Officers") during
fiscal 2000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(5) OPTIONS GRANTED
--------------------------- ---- ------ ----- --------------- ---------------
($) ($) ($) (#)
<S> <C> <C> <C> <C> <C>
Cheng Chung Hing, Ricky 2000 387,597 290,698 (1) 76,667 (6) 1,300,000 (9)
Chairman of the Board, 1999 387,597 290,698 (2) 92,016 (6) 0
President and CEO 1998 387,597 322,997 (3) 92,016 (6) 100,000 &
11,800,000 (10)
Cheng Tai Po 2000 387,597 290,698 (1) 156,589 (7) 1,300,000 (9)
Vice Chairman 1999 387,597 290,698 (2) 93,589 (7) 0
1998 387,597 322,997 (3) - 100,000 &
11,800,000 (10)
Yan Sau Man, Amy 2000 129,199 25,840 (4) - 2,000,000 (9)
Vice President and Director 1999 129,199 - 0 5,000,000
1998 129,199 - - 100,000 &
5,000,000 (10)
Hung Kwok Wing, Sonny 2000 121,248 - - 1,800,000 (9)&(11)
Director (resigned as Vice 1999 129,199 - - 0
President on February 29, 2000) 1998 129,199 - - 100,000 (12) &
4,000,000 (10) & (11)
Sun Kam Fai, Zacky (8) 2000 114,126 - - 650,000 (9)
Chief Financial Officer
</TABLE>
------
(1) Cheng Chung Hing, Ricky and Cheng Tai Po received bonus of $129,200 and
$161,498 from each of the Company and MSIL respectively for fiscal
2000.
- 31 -
<PAGE> 34
(2) Cheng Chung Hing, Ricky and Cheng Tai Po received bonus of $161,498 and
$129,200 from each of the Company and MSIL respectively for fiscal
1999.
(3) Half of the bonus of each of Cheng Chung Hing, Ricky and Cheng Tai Po
for fiscal 1998 was paid by the Company, and half of which was paid by
MSIL.
(4) Yan Sau Man, Amy received bonus of $25,840 from MSIL for fiscal 2000.
(5) Although the officers receive certain perquisites such as company
provided life insurance and medical insurance, the value of such
perquisites did not exceed the lesser of $50,000 or 10% of the
officer's salary and bonus.
(6) In addition to the amounts referred to in note (1) to (3) above, Cheng
Chung Hing, Ricky is provided the right to use a leasehold property of
the Company at no cost as his personal residence. The estimated fair
rental value of such leasehold property was $76,667 for fiscal 2000 and
$92,016 for fiscal 1999 and 1998.
The estimated fair rental value is based on the "rateable value"
assessed by the Rating and Valuation Department of The Government of
Hong Kong Special Administrative Region. According to the Hong Kong
Rating Ordinance (Cap. 116), rateable value is an estimate of the
annual rental of the relevant premises at a designated valuation
reference date. When assessing a rateable value, all factors which
would affect rental value, such as age and size of the premises,
quality of finishes, location, transport facilities, amenities and open
market rents, are considered.
(7) In addition to the amounts referred to in note (1) to (3) above, Cheng
Tai Po is provided the right to use a leasehold property of the Company
at no cost as his personal residence. The estimated fair rental value
of such leasehold property was $156,589 and $93,589 for fiscal 2000 and
1999 respectively. The estimated fair rental value is based on the
"rateable value" assessed by the Rating and Valuation Department of The
Government of Hong Kong Special Administrative Region. According to the
Hong Kong Rating Ordinance (Cap. 116), rateable value is an estimate of
the annual rental of the relevant premises at a designated valuation
reference date. When assessing a rateable value, all factors which
would affect rental value, such as age and size of the premises,
quality of finishes, location, transport facilities, amenities and open
market rents, are considered.
(8) In fiscal 2000, Sun Kam Fai, Zacky became, for the first time, a person
whose compensation is to be reported in this table. Therefore, his
compensation in prior year is not reported.
(9) Each named executive received options from MSIL. See "Executive
Compensation - Option Grants in Fiscal 2000".
(10) Save for Sun Kam Fai, Zacky, each named executive received options from
both the Company and MSIL in fiscal 1998.
(11) Following the resignation of Hung Kwok Wing, Sonny as executive
director of MSIL, the options granted to him by MSIL expired on March
31, 2000. Mr. Hung remains as non-executive director of MSIL.
- 32 -
<PAGE> 35
(12) In February 2000, Hung Kwok Wing, Sonny exercised all his options to
purchase 100,000 shares of the Common Stock of the Company. See
"Executive Compensation - Option Exercises in Fiscal 2000".
OPTION GRANTS IN FISCAL 2000
The Company
In fiscal 2000, the Company did not grant any option to any of its directors or
executive officers.
MSIL
MSIL adopted a share option scheme (the "Share Option Scheme") on September 8,
1997. The Share Option Scheme is administered by the MSIL Board of Directors,
whose decisions are final and binding on all parties. The Compensation Committee
of the Company takes up a monitoring function.
Options to subscribe for MSIL shares of nominal value of HK$0.10 were granted to
the directors and certain senior employees of MSIL on November 16, 1999 at a
subscription price of HK$0.256 per share. The subscription price represented 80%
of the average closing prices of the shares on The Stock Exchange of Hong Kong
Limited as stated in such exchange's daily quotation sheets for the five trading
days immediately preceding the date on which the options were offered to the
directors and employees. The options can be exercised in a period of two years
commencing on the expiry of six months after the options are accepted in
accordance with the Share Option Scheme, and expiring on the last day of such
two-year period.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------- ------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL MSIL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATE OF
NAME AND UNDERLYING GRANTED TO STOCK PRICE
PRINCIPAL OPTIONS EMPLOYEES EXERCISE EXPIRATION APPRECIATION
POSITION GRANTED IN 2000 PRICE DATE FOR OPTION TERM
------------------------
5% 10%
------------------------ ------------- ------------- -------------- --------------- ----------- ------------
(#) (%) (HK$/SHARE) (HK$) (HK$)
<S> <C> <C> <C> <C> <C> <C>
Cheng Chung Hing, Ricky 1,300,000 11.21 0.256 5/15/2002 137,306 195,728
Chairman of the Board
Cheng Tai Po 1,300,000 11.21 0.256 5/15/2002 137,306 195,728
Vice Chairman
Yan Sau Man, Amy 2,000,000 17.24 0.256 5/15/2002 211,240 301,120
Director
</TABLE>
- 33 -
<PAGE> 36
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------- ------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL MSIL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATE OF
NAME AND UNDERLYING GRANTED TO STOCK PRICE
PRINCIPAL OPTIONS EMPLOYEES EXERCISE EXPIRATION APPRECIATION
POSITION GRANTED IN 2000 PRICE DATE FOR OPTION TERM
------------------------
5% 10%
------------------------ ------------- ------------- -------------- --------------- ----------- ------------
(#) (%) (HK$/SHARE) (HK$) (HK$)
<S> <C> <C> <C> <C> <C> <C>
Hung Kwok Wing, Sonny* 1,800,000 15.52 0.256 5/15/2002 190,116 271,008
Director
Sun Kam Fai, Zacky 650,000 5.60 0.256 6/13/2002 68,653 97,864
Group Financial
Controller
Ho Suk Han, Sophia 450,000 3.88 0.256 5/15/2002 47,529 67,752
Secretary
</TABLE>
------
* Following the resignation of Hung Kwok Wing, Sonny as executive
director of MSIL, the options granted to him expired on March 31, 2000.
Mr. Hung remains as non-executive director of MSIL.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION/SAR
VALUES
The Company
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS ON OPTIONS/SARS ON MARCH
SHARES VALUE MARCH 31, 2000 (#) 31, 2000 ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
------------------------------- ---------------- ------------ ---------------------- ------------------------
<S> <C> <C> <C> <C>
Cheng Chung Hing, Ricky 0 0 100,000/0 96,700/0
Chairman of the Board,
President
and CEO
Cheng Tai Po 0 0 100,000/0 96,700/0
Vice Chairman
Yan Sau Man, Amy 0 0 100,000/0 96,700/0
Vice President
Hung Kwok Wing, Sonny 100,000 203,000 0/0 0/0
(Vice President, resigned
on Feb 29, 2000)
</TABLE>
- 34 -
<PAGE> 37
MSIL
No executive officer exercised his/her options to purchase shares of MSIL in
Fiscal 2000.
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return (assuming
reinvestment of dividends) on the Common Stock of the Company and IWI Holding
Limited ("IWI"), a peer issuer selected by the Company. The Company's Common
Stock was first registered under Section 12(g) of the Securities Exchange Act of
1934, as amended, on June 17, 1996. As there was no trading of the Company's
Common Stock on June 17 and June 18, 1996, the trading price of the Common Stock
of the Company was not available. Therefore, the measurement period hereto
commenced on June 19, 1996 and ended on March 31, 2000, the Company's 2000
fiscal year end date. The graph assumes that $100 was invested on June 19, 1996.
The comparisons in this graph are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of future stock
price performance or the financial performance of the Company. Shareholders are
encouraged to review the Financial Statements of the Company contained in the
accompanying annual report on Form 10-K for the fiscal year ended March 31,
2000.
<TABLE>
<CAPTION>
6/19/96 3/31/97 3/31/98 3/31//99 3/31/00
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
The Company's Common Stock $100 $15.57 $8.93 $12.50 $16.07
IWI's Common Stock $100 $46.67 $8.32 $3.73 $21.33
</TABLE>
- 35 -
<PAGE> 38
As there is no broad equity market index for the OTC Bulletin Board where
the Company's Common Stock is traded and there is no published industry or
line-of-business index for the pearl or jewelry business in which the
Company is engaged, the Company has selected IWI as a peer issuer for
comparison. IWI is engaged primarily in the design, assembly,
merchandising and wholesale distribution of jewelry and whose shares are
traded on NASDAQ.
EMPLOYMENT AGREEMENTS
The Company itself has no employment agreement with any of its officers or
employees. However, MSIL entered into Service Agreements with each of Cheng
Chung Hing, Ricky; Cheng Tai Po; and Yan Sau Man, Amy on September 8, 1997; and
with Wong Ka Ming on February 10, 2000. The major terms of these agreements are
as follows:-
- the service agreement of each of Cheng Chung Hing, Ricky, Cheng Tai Po
and Yan Sau Man, Amy is for an initial term of 3 years commencing on
September 1, 1997. The service agreement of Wong Ka Ming is for an
initial term of 2 years commencing on February 21, 2000. Each service
agreement may be terminated by either party by giving the other written
notice of not less than 3 months;
- the annual basic salary payable to each of Cheng Chung Hing, Ricky,
Cheng Tai Po, Yan Sau Man, Amy, and Wong Ka Ming shall be HK$3 million,
HK$3 million, HK$1 million and HK$1 million respectively, subject to
annual review by the Board of MSIL every year; and
- each of Cheng Chung Hing, Ricky, Cheng Tai Po, Yan Sau Man, Amy, and
Wong Ka Ming is also entitled to a discretionary bonus in respect of
each financial year. The amount of such discretionary bonuses shall be
determined by the MSIL Board each year, provided that the aggregate of
all discretionary bonuses payable by MSIL to its executive directors in
any financial year shall not exceed 10% of the net profits (after tax
and after extraordinary items) of MSIL for such year as shown in its
audited accounts.
COMPENSATION OF DIRECTORS
No employee of the Company receives any compensation for his or her service as a
Director. The non-employee directors of the Company were compensated for their
services as directors in fiscal 2000 as follows:-
<TABLE>
<CAPTION>
Non-employee Directors Directors' Fee
---------------------- --------------
$
<S> <C>
Lai Chau Ming, Matthew 12,920
Yuen Ka Lok, Ernest 25,840
</TABLE>
MSIL paid $25,840 to Alexander Reid Hamilton (who is not a director of the
Company) for his services as a director of MSIL. No additional
compensation of any nature was paid to any non-employee director of the
Company for their services as directors.
- 36 -
<PAGE> 39
An amount of $500 is paid to each non-employee director and to Alexander
Reid Hamilton for his participation in each Audit Committee meeting. In
fiscal 2000, the Audit Committee members were compensated as follows:-
<TABLE>
<CAPTION>
Amount Received
---------------
Audit Committee Members The Company MSIL
----------------------- ----------- ----
($) ($)
<S> <C> <C>
Lai Chau Ming, Matthew 1,500 N/A
Yuen Ka Lok, Ernest 2,000 2,000
Alexander Reid Hamilton 2,000 2,000
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are not executives of the Company or
any of its subsidiaries, but Yuen Ka Lok, Ernest, is a partner of Messrs. Yuen &
Partners, one of the legal advisors to the Company and its subsidiaries. Messrs.
Yuen & Partners receives its standard professional fees in the provision of
legal services to the Company and its subsidiaries.
Except as described in this and the immediately preceding paragraph, no
executive officer of the Company, (i) served as a member of the compensation
committee (or other board committee performing similar functions or, in the
absence of any such committee, the board of directors) of another entity outside
the Group, one of whose executive officers served on the Company's Compensation
Committee, (ii) served as a director of another entity outside the Group, one of
whose executive officers served on the Company's Compensation Committee, or
(iii) served as a member of the compensation committee (or other board committee
performing similar functions or, in the absence of any such committee, the board
of directors) of another entity outside the Group, one of whose executive
officers served as a director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
The information furnished in the following table indicates beneficial ownership
of shares of the Company's Common Stock, as of June 15, 2000, by (i) each
shareholder of the Company who is known by the Company to be beneficial owner of
more than 5% of the Company's Common Stock, (ii) each director, nominee for
director and officer of the Company, individually, and (iii) all officers and
directors of the Company as a group.
- 37 -
<PAGE> 40
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------- ------------------------ ----------------
<S> <C> <C>
Cafoong Limited (2) (4) 2,750,000 55%
Cheng Chung Hing, Ricky (2) (3) (4) 2,850,000 57%
Cheng Tai Po (2) (3) (4) 2,850,000 57%
Yan Sau Man, Amy (3) (4) 100,000 2%
Wong Ka Ming (4) - 0 - *
Hung Kwok Wing, Sonny (4) 100,000 2%
Lai Chau Ming, Matthew (4) - 0 - *
Yuen Ka Lok, Ernest (4) - 0 - *
Sun Kam Fai, Zacky (4) - 0 - *
Ho Suk Han, Sophia (4) - 0 - *
All executive officers and
directors as a group (9 persons) 3,150,000 63%
</TABLE>
------
* Less than 1%
(1) This disclosure is made pursuant to certain rules and regulations
promulgated by the Securities and Exchange Commission and the number of
shares shown as beneficially owned by any person may not be deemed to be
beneficially owned for other purposes. Unless otherwise indicated in these
footnotes, each named individual has sole voting and investment power with
respect to such shares of Common Stock, subject to community property
laws, where applicable.
(2) Cafoong Limited owns directly 1,357,875 shares of Common Stock of the
Company. Cafoong Limited also owns indirectly 1,392,125 shares of Common
Stock of the Company by virtue of holding all issued and outstanding
shares of certain British Virgin Islands companies which own such shares
of Common Stock of the Company. Because Cheng Chung Hing, Ricky and Cheng
Tai Po own 60% and 40%, respectively, of all issued and outstanding stock,
and are directors, of Cafoong Limited, they may be deemed to be the
beneficial owners of the shares of Common Stock of the Company which are
owned, directly or indirectly, by Cafoong Limited.
(3) Each of Cheng Chung Hung, Ricky, Cheng Tai Po, Yan Sau Man, Amy has the
right, within 60 days, to exercise non-qualified options granted under the
1996 Stock Option Plan to purchase 100,000 shares of Common Stock of the
Company .
(4) Address is 21st Floor, Railway Plaza, 39 Chatham Road South, Tsimshatsui,
Kowloon, Hong Kong.
PREFERRED STOCK
The following table is furnished as of June 15, 2000, to indicate beneficial
ownership of the Company's Series A Preferred Shares by each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's Series A Preferred Shares.
- 38 -
<PAGE> 41
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------- ------------------------ ----------------
<S> <C> <C>
Cafoong Limited (1) (2) 100,000 100%
</TABLE>
-----------
(1) Cheng Chung Hing, Ricky and Cheng Tai Po own 60% and 40%, respectively, of
all issued and outstanding stock, and are directors, of Cafoong Limited
and, accordingly, are deemed to be the beneficial owners of the shares of
Series A Preferred Stock of the Company owned by Cafoong Limited.
(2) Address is 21st Floor, Railway Plaza, 39 Chatham Road South, Tsimshatsui,
Kowloon, Hong Kong.
CHANGES IN CONTROL
To the knowledge of management, there are no present arrangements or pledges of
securities of the Company which may result in a change in control of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past three years, the Company has loaned funds to Cheng Chung Hing,
Ricky and Cheng Tai Po, the founders and principal shareholders of the Company.
The maximum amount advanced to Cheng Chung Hing, Ricky and Cheng Tai Po during
the past three years was $70,091 and $106,223 respectively. During fiscal 2000,
the Company advanced $70,091 to Cheng Chung Hing, Ricky and $45,857 to Cheng Tai
Po respectively. Both of them repaid the amount before March 31, 2000. All such
advances were made on an interest free basis and without definitive repayment
terms.
During the same period, the Company has not received advances from any director,
executive officer or shareholder of the Company who is known by the Company to
be beneficial owner of more than 5% of the Company's Common Stock.
Finally, during the past three years, Cheng Chung Hing, Ricky has utilized a
leasehold property of the Company as his personal residence at no cost to him.
Since October 11, 1998, Cheng Tai Po has utilized a leasehold property of the
Company as his personal residence at no cost to him. See "Item 11- Executive
Compensation".
Yuen Ka Lok, Ernest, a director of both the Company and MSIL, the Chairman of
the Compensation Committee and a member of the Audit Committee of the Board of
Directors of the Company, is a partner of Messrs. Yuen & Partners, one of the
legal advisors to the Company. Messrs. Yuen & Partners receives its standard
professional fees in the provision of legal services to the Company.
Alexander Reid Hamilton, Chairman of the Audit Committee of the Board of
Directors of the Company, is a director of MSIL.
- 39 -
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) ITEMS FILED AS PART OF REPORT:
1. FINANCIAL STATEMENTS
The financial statements of the Company as set forth in the Index to
Consolidated Financial Statements under Part II, Item 8 of this Form 10-K are
hereby incorporated by reference.
2. FINANCIAL STATEMENT SCHEDULE
The financial statement schedule of the Company as set forth in Exhibit 27.1 to
this Form 10-K is hereby incorporated by reference.
3. EXHIBITS
The exhibits listed under Item 14(c) are filed as part of this Form 10-K.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated September 12, 1997, and a Current Report on
Form 8-K/A, were filed by the Registrant with the Securities and Exchange
Commission to report under Item 5 thereof the initial public offering of Man
Sang International Limited.
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Articles of Incorporation of Man Sang Holdings, Inc., including the Certificate of
Designation, Preferences and Rights of a Series of 100,000 Shares of Preferred Stock, $.001 Par
Value, Designated "Series A Preferred Stock", filed on January 12, 1996 (1)
3.2 Certificate of Designation, Preferences and Rights of a Series of 100,000 Shares of Preferred
Stock, $.001 Par Value, Designated "Series B Preferred Stock", dated April 1, 1996 (2)
3.3 Amended Bylaws of Man Sang Holdings, Inc., effective as of January 10, 1996 (1)
10.1 Acquisition Agreement, Dated December __, 1995, between UNIX Source America, Inc. and the
Shareholders of Man Sang International (B.V.I.) Limited (1)
10.2 Tenancy Agreement, dated June 24, 1996, between Same Fast Limited and Man Sang Jewellery Company
Limited (3)
</TABLE>
- 40 -
<PAGE> 43
<TABLE>
<S> <C>
10.3 Man Sang Holding, Inc. 1996 Stock Option Plan (3)
10.4 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Cheng
Chung Hing (5)
10.5 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Cheng Tai
Po (5)
10.6 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Hung Kwok
Wing (5)
10.7 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Sio Kam
Seng (5)
10.8 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Ng Hak Yee
(5)
10.9 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Yan Sau
Man Amy (5)
10.10 Contract dated November 8, 1997, between Nan'ao Shaohe Pearl Seawater Culture Co., Ltd. of
Guangdong Province, People's Republic of China, Man Sang Jewellery Co., Ltd. of Hong Kong and
Chung Yuen Company o/b Golden Wheel Jewellery Mfr. Ltd. of Hong Kong to establish a cooperative
joint venture in Nan'ao County, Guangdong Province, People's Republic of China (6)
10.11 Agreement dated January 2, 1998, between Overlord Investment Company Limited and Excel Access
Limited, a subsidiary of the Company, pursuant to which Excel Access Limited will purchase
certain real property located at Flat A, 33rd Floor, of Valverde, 11 May Road, Hong Kong for
HK$15,050,000 (6)
10.12 Agreement for Sale and Purchase dated February 24, 1998, between City Empire Limited and
Wealth-In Investment Limited, a subsidiary of the Company, pursuant to which Wealth-In
Investment Limited purchased certain real property located at Flat B on the 20th Floor of The
Mayfair, One May Road, Hong Kong, at a purchase price of HK$39,732,200 (7)
10.13 Service Agreement, dated February 10, 2000, between Man Sang International Limited and Wong Ka
Ming
13.1 Annual report to security holders (4)
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on page 43).
</TABLE>
- 41 -
<PAGE> 44
<TABLE>
<S> <C>
27.1 Financial data schedule
99.1 Share Option Scheme of Man Sang International Limited, a subsidiary of the Company (6)
</TABLE>
-------------------------------------
(1) Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K dated January 8, 1996
(2) Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form 8-A dated June 17, 1996
(3) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended December
31, 1996
(4) Incorporated by reference to the Form 10-KSB/A for the fiscal year
ended March 31, 1997
(5) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1997
(6) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 1997
(7) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998
(d) FINANCIAL STATEMENT SCHEDULE
See Item 14(a)(2) of this Form 10-K.
- 42 -
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 29th day of June,
2000.
MAN SANG HOLDINGS, INC.
By:/s/CHENG Chung Hing, Ricky
----------------------------
CHENG Chung Hing, Ricky
Chairman of the Board, President,
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Cheng Chung Hing, Ricky, his attorney-in-fact,
each with the power of substitution, for him in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/CHENG Chung Hing, Ricky Chairman of the Board, President June 29, 2000
--------------------------
CHENG Chung Hing, Ricky and Chief Executive Officer
/s/CHENG Tai Po
-------------------------- Vice Chairman of the Board June 29, 2000
CHENG Tai Po
/s/YAN Sau Man, Amy
-------------------------- Vice President and Director June 29, 2000
YAN Sau Man, Amy
/s/WONG Ka Ming
-------------------------- Vice President and Director June 29, 2000
WONG Ka Ming
SUN Kam Fai, Zacky
-------------------------- Chief Financial Officer June 29, 2000
SUN Kam Fai, Zacky
</TABLE>
- 43 -
<PAGE> 46
SUPPLEMENTAL REPORTS TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been forwarded to securities holders of
the Registrant covering the Registrant's fiscal 2000; however, if any annual
report or proxy material is furnished to security holders in connection with the
annual meeting of stockholders to be held in 2000, a copy of any such annual
report or proxy materials shall be forwarded to the Commission when it is
forwarded to security holders.
- 44 -
<PAGE> 47
MAN SANG HOLDINGS, INC.
Consolidated Financial Statements
Years ended March 31, 2000, 1999 and 1998
and Independent Auditors' Report
<PAGE> 48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC.
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report............................................................................F-1
Consolidated Statements of Income and Comprehensive Income
for the years ended March 31, 2000, 1999 and 1998.....................................................F-2
Consolidated Balance Sheets as of March 31, 2000 and 1999...............................................F-3
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2000, 1999 and 1998.............................................................F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998.........................................................................F-6
Notes to Consolidated Financial Statements..............................................................F-8
</TABLE>
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Man Sang Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Man
Sang Holdings, Inc. and its subsidiaries as of March 31, 2000 and 1999,
and the related consolidated statements of income and comprehensive
income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 2000, all expressed in Hong Kong
dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of Man
Sang Holdings, Inc. and its subsidiaries as of March 31, 2000 and 1999,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended March 31, 2000 in
conformity with accounting principles generally accepted in the United
States of America.
DELOITTE TOUCHE TOHMATSU
Hong Kong
June 29, 2000
F-1
<PAGE> 50
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------------------
2000 2000 1999 1998
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Net sales .................................................... 36,084 279,289 230,915 262,158
Cost of sales ................................................ 24,310 188,153 153,415 157,412
---------- ---------- ---------- ----------
Gross profit ................................................. 11,774 91,136 77,500 104,746
Rental income, gross ......................................... 597 4,620 4,304 5,446
---------- ---------- ---------- ----------
12,371 95,756 81,804 110,192
Selling, general and administrative expenses:
Pearls ..................................................... (8,377) (64,836) (61,101) (53,841)
Real estate investment ..................................... (505) (3,908) (4,167) (3,509)
---------- ---------- ---------- ----------
Operating income ............................................. 3,489 27,012 16,536 52,842
Gain on sale of property, plant and equipment ................ -- -- -- 8,221
Interest expense ............................................. (701) (5,429) (4,500) (3,685)
Interest income .............................................. 648 5,014 4,018 3,335
Income in respect of subscription monies
received on subsidiary's public offering ................... -- -- -- 11,391
Gain on sale of warrants of a listed subsidiary .............. 340 2,629 -- --
Other income ................................................. 510 3,947 645 1,983
---------- ---------- ---------- ----------
Income before income taxes and minority
interests .................................................. 4,286 33,173 16,699 74,087
Provision for income taxes ................................... (622) (4,811) (2,333) (3,543)
Minority interests ........................................... (1,102) (8,531) (5,551) (11,576)
---------- ---------- ---------- ----------
Net income ................................................... 2,562 19,831 8,815 58,968
Other comprehensive income, net of tax:
Foreign currency translation adjustments ................... (47) (366) 2,043 (1,717)
---------- ---------- ---------- ----------
Comprehensive income ......................................... 2,515 19,465 10,858 57,251
========== ========== ========== ==========
Basic earnings per common share .............................. $ 0.59 $ 4.59 $ 2.05 $ 13.70
========== ========== ========== ==========
Diluted earnings per common share ............................ $ 0.53 $ 4.12 $ 1.89 $ 13.42
========== ========== ========== ==========
Weighted average number of shares of common stock outstanding:
- basic .................................................... 4,316,069 4,316,069 4,305,960 4,305,458
- diluted .................................................. 4,783,625 4,783,625 4,665,172 4,390,097
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 51
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------
2000 2000 1999
---- ---- ----
US$ HK$ HK$
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................. 11,486 88,900 66,196
Restricted cash ....................................... 8,053 62,330 18,831
Accounts receivable, net of allowance
for doubtful accounts of HK$5,000 in 2000 and 1999... 7,174 55,524 54,922
Inventories ........................................... 24,285 187,966 171,317
Prepaid expenses ...................................... 501 3,876 1,523
Other current assets .................................. 1,720 13,316 11,158
------- ------- -------
Total current assets ................................ 53,219 411,912 323,947
Property, plant and equipment, net .................... 12,585 97,412 100,734
Real estate investment, net ........................... 4,267 33,027 29,842
Long-term investments ................................. 818 6,330 5,430
------- ------- -------
Total assets ........................................ 70,889 548,681 459,953
======= ======= =======
</TABLE>
F-3
<PAGE> 52
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
(Dollars in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------
2000 2000 1999
---- ---- ----
US$ HK$ HK$
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings ................................... 9,539 73,835 26,554
Current portion of long-term debt ....................... 597 4,621 4,665
Accounts payable ........................................ 1,085 8,396 8,781
Amount due to affiliate ................................. 78 604 --
Accrued payroll and employee benefits ................... 520 4,026 4,725
Other accrued liabilities ............................... 1,551 12,006 10,093
Income taxes payable .................................... 541 4,190 3,984
------- ------- -------
Total current liabilities ............................. 13,911 107,678 58,802
------- ------- -------
Long-term debt ............................................ 2,699 20,890 25,511
------- ------- -------
Minority interests ........................................ 16,482 127,566 92,766
------- ------- -------
Commitments and contingencies (note 9)
Stockholders' equity:
Series A preferred stock US$0.001 par value
- authorized, issued and outstanding 100,000
shares in 2000 and 1999 (entitled in liquidation
to US$2,500 (HK$19,325)) .......................... -- 1 1
Series B preferred stock US$0.001 par value
- authorized 100,000 shares; no shares outstanding .... -- -- --
Common stock of par value US$0.001
- authorized 25,000,000 shares; issued and outstanding,
4,405,960 shares in 2000 and 4,305,960 shares in
1999 .............................................. 4 34 33
Additional paid-in capital .............................. 11,064 85,636 95,429
Retained earnings ....................................... 26,545 205,454 185,623
Accumulated other comprehensive income .................. 184 1,422 1,788
------- ------- -------
Total stockholders' equity ............................ 37,797 292,547 282,874
------- ------- -------
Total liabilities and stockholders' equity ............ 70,889 548,681 459,953
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 53
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Series A Series B
preferred stock preferred stock Common stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 ..... 100,000 1 -- -- 4,304,862 33
Issuance of common stock on
exercise of stock options.... -- -- -- -- 1,098 --
Public offering of common
shares by subsidiary ........ -- -- -- -- -- --
Stock compensation expense .... -- -- -- -- -- --
Translation adjustment ........ -- -- -- -- -- --
Net income .................... -- -- -- -- -- --
---------- ---------- ------ ------ --------- ----
Balance at March 31, 1998 ..... 100,000 1 -- -- 4,305,960 33
Stock compensation expense .... -- -- -- -- -- --
Translation adjustment ........ -- -- -- -- -- --
Net income .................... -- -- -- -- -- --
---------- ---------- ------ ------ --------- ----
Balance at March 31, 1999 ..... 100,000 1 -- -- 4,305,960 33
Issuance of common stock on
exercise of stock options.... -- -- -- -- 100,000 1
Issuance of common shares
by subsidiary ............... -- -- -- -- -- --
Stock compensation expense .... -- -- -- -- -- --
Translation adjustment ........ -- -- -- -- -- --
Net income .................... -- -- -- -- -- --
---------- ---------- ------ ------ --------- ----
Balance at March 31, 2000 ..... 100,000 1 -- -- 4,405,960 34
========== ========== ====== ====== ========= ====
-- US$4
========== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other Total
Additional comprehensive stock-
paid-in Retained income holders'
capital earnings (loss) equity
------- -------- ------ ------
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Balance at March 31, 1997 ...... 46,059 117,840 1,462 165,395
Issuance of common stock on
exercise of stock options .... -- -- -- --
Public offering of common
shares by subsidiary ......... 45,533 -- -- 45,533
Stock compensation expense...... 2,035 -- -- 2,035
Translation adjustment ......... -- -- (1,717) (1,717)
Net income ..................... -- 58,968 -- 58,968
--------- --------- ------ ---------
Balance at March 31, 1998 ...... 93,627 176,808 (255) 270,214
Stock compensation expense...... 1,802 -- -- 1,802
Translation adjustment ......... -- -- 2,043 2,043
Net income ..................... -- 8,815 -- 8,815
--------- --------- ------ ---------
Balance at March 31, 1999 ...... 95,429 185,623 1,788 282,874
Issuance of common stock on
exercise of stock options..... 942 -- -- 943
Issuance of common shares
by subsidiary ................ (11,598) -- -- (11,598)
Stock compensation expense...... 863 -- -- 863
Translation adjustment ......... -- -- (366) (366)
Net income ..................... -- 19,831 -- 19,831
--------- --------- ------ ---------
Balance at March 31, 2000 ...... 85,636 205,454 1,422 292,547
========= ========= ====== =========
US$11,064 US$26,545 US$184 US$37,797
========= ========= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 54
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------------
2000 2000 1999 1998
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Cash flow from operating activities
Net income ...................................... 2,562 19,831 8,815 58,968
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt provision ............................ 36 278 3,023 977
Stock compensation expense .................... 146 1,127 2,641 2,035
Depreciation and amortization ................. 865 6,698 5,622 4,056
Gain on sale of property, plant and equipment.. (19) (146) (45) (8,221)
Minority interests ............................ 1,102 8,531 5,551 11,576
Changes in operating assets and liabilities:
Accounts receivable ......................... (111) (856) (5,749) (5,674)
Inventories ................................. (2,120) (16,409) (15,945) (15,897)
Prepaid expenses ............................ (304) (2,353) 910 (1,074)
Other current assets ........................ (279) (2,158) (6,067) (1,354)
Income taxes receivable ..................... -- -- -- 437
Accounts payable ............................ (56) (433) 4,889 (19,604)
Amount due to affiliate ..................... 78 604 -- --
Accrued payroll and employee benefits ....... (90) (698) 1,792 (4,904)
Other accrued liabilities ................... 247 1,913 1,099 (386)
Income taxes payable ........................ 27 206 394 3,193
-------- -------- -------- --------
Net cash provided by operating activities ....... 2,084 16,135 6,930 24,128
-------- -------- -------- --------
Cash flow from investing activities
Increase in restricted cash ..................... (5,620) (43,499) (9,306) (465)
Purchase of property, plant and equipment ....... (846) (6,550) (45,833) (32,785)
Purchase of long-term investments ............... (116) (900) -- (5,430)
Proceeds from sale of property, plant
and equipment ................................. 22 171 123 11,047
Expenditure on real estate investment ........... -- -- -- (4,842)
-------- -------- -------- --------
Net cash used in investing activities ........... (6,560) (50,778) (55,016) (32,475)
-------- -------- -------- --------
Cash flow from financing activities
Increase in short-term borrowings ............... 11,384 88,115 42,210 78,040
Net proceeds from issuance of common stock
by a subsidiary ............................... 1,650 12,769 -- 123,413
Investment from minority shareholder ............ 399 3,092 -- --
Net proceeds from issuance of common stock ...... 122 943 -- --
Repayment of short-term borrowings .............. (5,276) (40,835) (17,740) (113,920)
Repayment of long-term debt ..................... (603) (4,665) (12,601) (2,020)
Dividend paid to minority shareholders .......... (167) (1,294) (3,320) --
Increase in long-term debt ...................... -- -- 20,000 14,100
Increase in bank overdrafts ..................... -- -- 2,896 239,114
Repayment of bank overdrafts .................... -- -- (2,896) (252,746)
-------- -------- -------- --------
Net cash provided by financing activities ....... 7,509 58,125 28,549 85,981
-------- -------- -------- --------
</TABLE>
F-6
<PAGE> 55
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------
2000 2000 1999 1998
---- ---- ---- ----
US$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents ..................................... 3,033 23,482 (19,537) 77,634
Cash and cash equivalents at beginning
of year ......................................... 8,564 66,196 83,918 7,868
Exchange adjustments .............................. (111) (778) 1,815 (1,584)
------- ------- ------- -------
Cash and cash equivalents at end of year .......... 11,486 88,900 66,196 83,918
======= ======= ======= =======
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest and finance charges .................... 714 5,530 4,525 3,751
Income taxes paid ............................... 595 4,605 1,935 606
</TABLE>
Capital lease obligations were incurred to acquire motor vehicles of HK$696 in
1998.
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 56
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
ACTIVITIES AND ORGANIZATION
Man Sang Holdings, Inc. (the "Company") was incorporated in the State
of Nevada, the United States of America on November 14, 1986.
The principal activities of the Company comprise the processing and
sale of fresh water and cultured pearls and pearl jewelry products. The
selling and administrative activities are performed in the Hong Kong
Special Administrative Region of the People's Republic of China ("Hong
Kong") and the processing activities are conducted by subsidiaries
operating in Guangdong Province, the People's Republic of China
("China"). The Company also derives rental income from real estate
located at its pearl processing facility in China and from offices in
Hong Kong. The Company's activities are principally conducted by its
majority held publicly traded subsidiary, Man Sang International Ltd.
("MSIL").
The Company has also made a number of investments in companies that
supply the Company or distribute its products. On November 8, 1997, the
Company made an investment of Renminbi 5.1 million (HK$4.7 million) for
a 19.5% stake in a pearl farm located in Nan'ao County in Guangdong
Province in China through a cooperative joint venture which has a
duration of 11 years. In case of termination or liquidation of the
joint venture, the Company is entitled to receive 19.5% of the net
assets of the joint venture.
On November 6, 1999 a wholly owned subsidiary of MSIL acquired for cash
of HK$900,000 an 18% equity interest in Gold Treasure International
Jewellery Company Limited ("GTI"). The principal business of GTI is the
production of accessories in gold, silver and/or other gems.
MAN SANG INTERNATIONAL LIMITED ("MSIL")
On September 26, 1997, MSIL, an indirectly owned subsidiary of the
Company and a company incorporated in Bermuda, completed a public
offering of new shares and warrants and listed its shares and warrants
to purchase shares of MSIL (in the proportion of one warrant for every
five shares) on The Stock Exchange of Hong Kong Limited. Each warrant
entitled the holder to subscribe for one share in MSIL at an exercise
price of HK$1.30 each. On March 31, 1999, the warrants expired.
F-8
<PAGE> 57
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS - continued
On completion of the initial public offering, the Company's holding was
reduced from 100% to 73.02% of the capital stock of MSIL. In connection
with the initial public offering, net proceeds of approximately
HK$123,400 were raised by MSIL and a fee of approximately HK$11,391 was
received by the Company. The Company has not recognized any gain
arising on the amount in excess of the Company's carrying value of its
interest in MSIL and such an amount has been included in the
stockholders' equity as part of the additional paid-in capital.
On August 12, 1998 at the 1998 annual general meeting of MSIL, MSIL's
shareholders approved a final dividend for the year ended March 31,
1998 of HK$0.03 per share, to be settled by way of allotment of fully
paid shares in the capital of MSIL with a cash option. The Company
elected to receive part of its final dividend in cash and part of it in
shares. As some MSIL shareholders elected to receive cash dividend and
some elected shares, the Company's holding increased to approximately
73.28% of MSIL's issued share capital.
On August 2, 1999, at the 1999 annual general meeting of MSIL, MSIL's
shareholders approved, among other matters, a "bonus issue of warrants"
to MSIL's shareholders on the basis of one bonus warrant for every five
shares of MSIL held on August 2, 1999. Each bonus warrant entitles the
holder to subscribe in cash at an initial subscription price of HK$0.40
per share (subject to adjustment), and is exercisable at any time from
September 14, 1999 to September 13, 2001, both dates inclusive.
In August 1999, MSIL issued for a cash consideration of HK$13,200
shares representing approximately 7.63% of MSIL's issued and
outstanding shares after the issue to an unrelated party. As a
consequence, the Company's holding in MSIL was reduced to 67.69%. The
difference between the issue price and the Company's carrying value per
share after completion of the issuance amounted to HK$11,598 and has
been deducted from additional paid-in capital in accordance with policy
adopted by the Company. At March 31, 2000, the Company held
approximately 67.68% of the issued share capital of MSIL.
During the year ended March 31, 2000, the Company sold part of its
holding in the warrants issued by MSIL resulting in a gain of $2,629.
At March 31, 2000, the exercise by minority shareholders in MSIL of
warrants outstanding at that date would have the effect of reducing the
Company's holding in MSIL from 67.68% to 61.32%.
F-9
<PAGE> 58
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS - continued
BUSINESS RISKS
During the three years ended March 31, 2000, over 95% of the Company's
purchases were pearls. As pearl is a commodity and its value is subject
to prevailing market conditions, it is a customary practice in the
pearl market that buyers and sellers of pearls do not normally enter
into any long-term contracts. The Company currently does not have any
fixed term purchase contracts with any pearl farmers or suppliers. The
Company also considers that any adverse change in climate and
environmental conditions at the source regions of pearls may have an
adverse effect on pearl harvesting and hence the supply of pearls. The
Company has developed relationships with a network of suppliers to
ensure a continuous supply of different types of pearls.
The Company has adopted a policy of diversification of sources under
which pearls are purchased from different suppliers in different
countries or regions so that the Company is less susceptible to changes
in raw materials supply due to the changes in climate and environmental
conditions at any particular source region. The Company negotiates the
purchases of pearls on an as needed basis at prevailing market prices.
The prices of pearls fluctuate according to demand and supply
conditions in the market. Any significant increase in the prices of
pearls may affect the profitability of the Company. The Company has
expanded its product range in recent years in order to reduce the
impact of price fluctuations of any one type of pearl. However, there
can be no assurance that pearls will be available from its suppliers in
the quantities, of the quality and on the terms required by the
Company. For each of the three years ended March 31, 2000 the largest
supplier of the Company accounted for approximately 10.5%, 23.9% and
17.5% of the Company's total purchases, respectively.
Of the Company's purchases, approximately 52% in 2000, 69% in 1999 and
68% in 1998 was settled in Renminbi ("RMB"), the currency of China.
Accordingly, the Company has a direct exposure to the risk of any
adverse exchange rate fluctuation in RMB. Nevertheless, the Company has
not recorded any material foreign currency gain or loss or experienced
any difficulties in obtaining sufficient RMB during the past three
years.
Since January 1, 1994, the government of China has adopted a unified
floating exchange rate system to allow the exchange rate of RMB to be
largely determined by market supply and demand and promulgated a series
of rules and policy to provide a platform for full convertibility of
RMB. Even though the prevailing exchange rate for RMB to Hong Kong
dollars is relatively stable under the current regime as a result of
the above system, there can be no assurance that such exchange rate
will not become volatile or that there will be no deterioration of the
macroeconomic environment in either China or Hong Kong which may lead
to a fluctuation in the exchange rate for RMB to Hong Kong dollars. In
the case of a significant appreciation in RMB, the costs of purchases
of the Company may increase significantly, which will have an adverse
effect on the profitability of the Company.
F-10
<PAGE> 59
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS - continued
BASIS OF PREPARATION
The financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United
States of America ("U.S. GAAP"), which differ from those used in the
statutory accounts of its subsidiaries. The principal adjustments made
by the Company to conform the statutory accounts of the subsidiaries to
U.S. GAAP relate to the amortization of property held for real estate
investment, which is not amortized for local statutory reporting, the
restatement of real estate investment at cost, which is stated at open
market value estimated by external professional valuers for local
statutory reporting, and the recognition of compensation cost over the
vesting period for the stock options granted by the Company, which is
not required for local statutory reporting. At March 31, 2000, there
was no material difference between the retained earnings computed under
US GAAP and the retained earnings available for distribution prepared
in accordance with the accounting principles used in the preparation of
the statutory accounts of the subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements
include the assets, liabilities, revenues and expenses of Man Sang
Holdings, Inc. and all its subsidiaries. All material intra-group
transactions and balances have been eliminated.
Cash and cash equivalents - Cash and cash equivalents include cash on
hand, demand deposits, interest bearing savings accounts, and time
certificates of deposit with an original maturity of three months or
less.
Inventories - Inventories are stated at the lower of cost determined by
the weighted average method, or market. Finished goods inventories
consist of raw materials, direct labor and overhead associated with the
processing of pearls.
Property, plant and equipment - Property, plant and equipment is stated
at cost. Depreciation is provided using the straight-line method based
on the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold land and buildings 50 years, or less if the lease period
is shorter
Plant and machinery 4 years
Furniture and equipment 4 years
Motor vehicles 4 years
</TABLE>
F-11
<PAGE> 60
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Assets under construction are not depreciated until construction is
complete and the assets are ready for their intended use. Interest
capitalized during construction was HK$340 during the year ended March
31, 1999.
Real estate investment - Leasehold land and buildings held for
investment is stated at cost. Cost includes the cost of the purchase of
the land and construction costs, including finance costs incurred
during the construction period. Depreciation of land and buildings is
computed using the straight-line method over the term of the lease
involved up to a maximum of 50 years.
Valuation of long-lived assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including
goodwill and other intangible assets, whenever events and circumstances
indicate that the carrying value of the asset may no longer be
recoverable. An impairment loss, measured based on the fair value of
the asset, is recognized if expected future undiscounted cash flows are
less than the carrying amount of the assets.
Revenue recognition - The Company recognizes revenue at the time
products are shipped to customers. Property rental is recognized on a
straight-line basis over the term of the lease, and is stated at the
gross amount.
Income taxes - Deferred income taxes are provided using the asset and
liability method. Under this method, deferred income taxes are
recognized for all significant temporary differences and classified as
current or non-current based upon the classification of the related
asset or liability in the financial statements. A valuation allowance
is provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all, the
deferred tax asset will not be realized.
Net earnings per share ("EPS") - Basic EPS excludes dilution and is
computed by dividing net income attributable to common shareholders by
the weighted average of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (warrants to
purchase common stock and common stock options) were exercised or
converted into common shares. EPS for all periods presented have been
computed in accordance with SFAS No. 128 "Earnings Per Share".
F-12
<PAGE> 61
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Reconciliation of the basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the year ended March 31, 2000 For the year ended March 31, 1999 For the year ended March 31, 1998
--------------------------------- --------------------------------- ---------------------------------
Earnings Shares EPS Earnings Shares EPS Earnings Shares EPS
HK$000 HK$ HK$000 HK$ HK$000 HK$
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income available to
common stockholders 19,831 4,316,069 4.59 8,815 4,305,960 2.05 58,968 4,305,458 13.70
==== ==== =====
Effect of dilutive
securities Stock
options granted by
the Company - 467,556 - 359,212 - 84,639
Stock options and warrants
granted by a listed
subsidiary (139) - - (46) -
---- --------- ----- --------- ------ ----------
Diluted EPS
Net income available to
common stockholders,
including conversion 19,692 4,783,625 4.12 8,815 4,665,172 1.89 58,922 4,390,097 13.42
====== ========= ==== ===== ========= ==== ====== ========= =====
</TABLE>
In 1998, the effect on consolidated EPS of warrants issued by MSIL,
which enabled its holders to purchase ordinary shares of MSIL, was not
included in the computation of diluted EPS because the exercise price
of the warrants was greater than the average market price of such
ordinary shares. These warrants expired on March 31, 1999.
In 1999, the effect on consolidated EPS of both warrants and options
issued by MSIL were antidilutive because their exercise prices were
greater than the average market price of the ordinary shares of MSIL.
Foreign currency translation - Assets and liabilities of foreign
subsidiaries are translated at year end exchange rates, while revenues
and expenses are translated at average exchange rates during the year.
Adjustments arising from translating foreign currency financial
statements are reported as a separate component of 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.
Stock-based compensation - The Company has elected to account for its
stock option plan using the fair value method in accordance with SFAS
No.123 "Accounting for Stock-Based Compensation". Under the fair value
method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the vesting period.
Employee benefits - The Company does not provide for any retirement or
post-retirement benefits as such benefits, if any, are not significant.
F-13
<PAGE> 62
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Translation into United States Dollars - The consolidated financial
statements of the Company are maintained, and its consolidated
financial statements are expressed, in Hong Kong dollars. The
translations of Hong Kong dollar amounts into US dollars are for
convenience only and have been made at the rate of HK$7.74 to US$1, the
approximate free rate of exchange at March 31, 2000. Such translations
should not be construed as representations that the Hong Kong dollar
amounts could be converted into US dollars, at that rate or any other
rate.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive income - the Company has adopted SFAS No. 130, Reporting
Comprehensive Income, which 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.
New accounting standard not yet adopted - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS No. 133
will be effective for the Company's year ending March 31, 2002. The
Company has not yet determined the impact, if any, on its financial
position, results of operations or cash flows.
F-14
<PAGE> 63
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-continued
(Dollars in thousands except share data)
3. INCOME TAXES
Income is subject to taxation in the various countries in which the
Company and its subsidiaries operate.
The components of income before income taxes and minority interests are
as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------
2000 1999 1998
HK$ HK$ HK$
<S> <C> <C> <C>
Hong Kong .................. 889 8,117 21,867
Other regions in China...... 34,072 14,579 59,350
Corporate expenses, net..... (1,788) (5,997) (7,130)
------- ------- -------
33,173 16,699 74,087
======= ======= =======
</TABLE>
Certain activities conducted by the Company's subsidiaries may result
in current income recognition, for U.S. tax purposes, by the Company
even though no actual distribution is received by the Company from the
subsidiaries. However, such income, when distributed, would generally
be considered previously taxed income to the Company and thus would not
be subject to U.S. federal income tax again.
Hong Kong companies are subject to Hong Kong taxation on their
activities conducted in Hong Kong. Under the current Hong Kong laws,
dividends and capital gains arising from the realization of investments
are not subject to income taxes and no withholding tax is imposed on
payments of dividends by the Hong Kong incorporated subsidiaries to the
Company.
The Company has three subsidiaries which are incorporated in Guangdong
Province, China and operate in the special economic zone of Shenzhen.
These companies are subject to Chinese income taxes at the applicable
tax rate (currently 15%) on taxable income based on income tax laws
applicable to foreign enterprises. Pursuant to the same income tax
laws, the subsidiaries are fully exempt from Chinese income tax on
their manufacturing operations for two years starting from the first
profit-making year, followed by a 50% exemption for the next three
years. The exemptions applicable to two of these companies expire in
calendar years 2000 and 2002, respectively, and other subsidiary's
exemption expired on December 31, 1999. These exemptions do not apply
to rental income.
F-15
<PAGE> 64
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
3. INCOME TAXES - continued
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Current tax:
United States..................................................... 928 287 1,769
Subsidiaries operating in:
Hong Kong....................................................... 1,196 1,941 1,154
Other regions in China.......................................... 2,687 105 620
------- ------- -------
4,811 2,333 3,543
======= ======= =======
</TABLE>
Had the tax holidays and concessions detailed above not been available,
the tax charge would have been increased by HK$2,258 in 2000, HK$2,247
in 1999 and HK$9,282 in 1998 and basic earnings per share would have
been reduced by HK$0.52 in 2000, HK$0.52 in 1999 and HK$2.16 in 1998,
and diluted earnings per share by HK$0.47 in 2000, HK$0.48 in 1999 and
HK$2.11 in 1998.
A reconciliation between the provision for income taxes computed by
applying the United States statutory tax rate to income before taxes
and the actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Applicable U.S. federal tax rate.................................. 34% 34% 34%
------- ------- -------
Provision of income taxes at the applicable
U.S. federal tax rate on income for the year.................... 11,279 5,677 25,190
International rate difference..................................... (6,434) (3,338) (21,824)
Adjustment of estimated tax due................................... 205 (554) (555)
Other............................................................. (239) 548 732
------- ------- -------
Income tax provision.............................................. 4,811 2,333 3,543
======= ======= =======
</TABLE>
U.S. deferred tax liabilities have not been provided on approximately
HK$218,140 in undistributed earnings of foreign subsidiaries because
the Company intends to reinvest those earnings permanently. If such
earnings were paid as dividends to the Company in a single
distribution, the estimated U.S. income tax, net of foreign tax
credits, if allowable, would be approximately HK$61,000.
F-16
<PAGE> 65
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-continued
(Dollars in thousands except share data)
4. INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
Raw materials.................................................................. 1,781 1,489
Work in progress............................................................... 33,987 49,712
Finished goods................................................................. 152,198 120,116
------- -------
187,966 171,317
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
Leasehold land and buildings................................................... 100,399 92,961
Plant and machinery ........................................................... 6,056 3,789
Furniture and equipment........................................................ 6,008 5,113
Motor vehicles................................................................. 4,483 4,211
Less: accumulated depreciation................................................. (20,231) (15,869)
Construction in progress....................................................... 697 10,529
------- -------
Net book value................................................................. 97,412 100,734
======= =======
</TABLE>
Included in property, plant and equipment are assets acquired under
capital leases with the following net book values:
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
At cost:
Motor vehicles................................................................. 870 1,230
Less: accumulated depreciation................................................. (536) (543)
------- -------
334 687
======= =======
</TABLE>
Amortization of capital lease assets, which is included in depreciation
expense in the accompanying consolidated statements of income, was
HK$218 in 2000, HK$307 in 1999 and HK$191 in 1998.
F-17
<PAGE> 66
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
6. REAL ESTATE INVESTMENT
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
At cost:
Leasehold land and buildings - Hong Kong...................................... 9,511 5,568
- Other regions of China ........................ 27,625 27,625
Less: accumulated depreciation................................................. (4,109) (3,351)
------- -------
33,027 29,842
======= =======
</TABLE>
The real estate investment in other regions of China represents the
Company's interest in an industrial complex known as Man Sang
Industrial City located in Gong Ming Zhen, Shenzhen. Part of the
industrial complex is used by the Company and is included in property,
plant and equipment. The remaining leasehold land and buildings are
classified as real estate investment and leased to unaffiliated third
parties under cancelable operating lease agreements. The real estate
investment in Hong Kong principally represents office premises leased
to unaffiliated third parties under non cancelable operating lease
agreements.
Rental income relating to such operating leases is included in gross
rental income in the consolidated statements of income and amounted to
HK$4,620 in 2000, HK$4,304 in 1999 and HK$5,446 in 1998.
F-18
<PAGE> 67
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
7. SHORT-TERM BORROWINGS
Short-term borrowings comprise:
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
Bank borrowings:
Import bank loans............................................................ 400 1,432
Other bank loans............................................................. 73,435 25,122
------- -------
Total bank borrowings.......................................................... 73,835 26,554
======= =======
Weighted average interest rate on
borrowings at end of year.................................................... 6.09% 7.57%
======= =======
At end of year:
Bank credit facilities......................................................... 138,435 80,122
Utilized ...................................................................... 73,835 26,554
------- -------
Bank credit facilities available............................................... 64,600 53,568
======= =======
</TABLE>
Interest rates are generally based on the banks' prime lending rates
and the credit lines are normally subject to periodic review. There are
no significant covenants or other financial restrictions relating to
the Company's short-term borrowings.
At March 31, 2000, leasehold land and buildings with a net book value
of HK$73,812, real estate investments with a net book value of
HK$16,040 and cash of HK$62,330 were pledged as collateral for the
above facilities and bank loans described in note 8. Other than the
cash pledged, there is no restriction on the use of the assets pledged
for such facilities and bank loans.
F-19
<PAGE> 68
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31,
2000 1999
---- ----
HK$ HK$
<S> <C> <C>
Long-term debt consists of:
Bank loan bearing interest at Hong Kong Inter Bank Offer Rate ("HIBOR")
(6.11% at March 31, 2000) plus 2.5%,
repayable by quarterly instalment of HK$625 through 2007..................... 15,417 17,917
Bank loan bearing interest at HIBOR plus 3%, repayable by
quarterly instalments of HK$300 through 2006................................. 6,600 7,800
Bank loan bearing interest at Best Lending Rate (9.0% at
March 31, 2000) plus 0.25%, repayable by monthly instalments
of HK$53 through 2005........................................................ 2,754 3,390
Bank loan bearing interest at Best Lending Rate plus 0.25%,
repayable by monthly instalments of HK$8 through 2005........................ 425 518
Capital lease obligations bearing interest at 9.13% to 11.83%
per annum.................................................................... 315 551
------- -------
Total.......................................................................... 25,511 30,176
Current portion of long-term debt.............................................. 4,621 4,665
------- -------
Long-term debt, less current portion........................................... 20,890 25,511
======= =======
</TABLE>
Maturities of long-term debt as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
HK$
<S> <C>
Year ending March 31,
2001............................................................................................... 4,621
2002............................................................................................... 4,552
2003............................................................................................... 4,429
2004............................................................................................... 4,429
2005............................................................................................... 3,963
After 2005......................................................................................... 3,517
-------
25,511
=======
</TABLE>
There are no significant covenants or financial restrictions relating
to the Company's long-term debt.
Details of assets pledged by the Company as collateral for the above
bank loans are described in note 7.
F-20
<PAGE> 69
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
9. COMMITMENTS AND CONTINGENCIES
The Company leases premises under various operating leases which do not
contain any escalation clauses and all of the leases contain a renewal
option. Rental expense under operating leases was HK$2,315 in 2000,
HK$4,028 in 1999 and HK$4,190 in 1998.
As at March 31, 2000, the Company and its subsidiaries were obligated
under capital leases and non cancelable operating leases requiring
minimum rentals as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------ ------
HK$ HK$
<S> <C> <C>
Year ending March 31,
2001.............................................................................. 219 2,818
2002.............................................................................. 128 2,661
2003.............................................................................. - 543
------- -------
Total minimum lease payments........................................................ 347 6,022
=======
Less: amount representing interest.................................................. 32
-------
Present value of minimum lease payments............................................. 315
=======
</TABLE>
10. CAPITAL STOCK
The Company's capital stock consists of common stock and Series A
preferred stock and Series B convertible preferred stock.
The voting rights of the holders of common stock are subject to the
rights of the outstanding Series A preferred shares which, as a class,
is entitled to one-third voting control of the Company. Accordingly,
the holders of common stock and Series A preferred shares hold, in the
aggregate, more than fifty percent of the total voting rights and they
can elect all of the directors of the Company.
Holders of the 100,000 issued and outstanding shares of Series A
preferred stock (the "Series A preferred shares") are entitled, as a
class, to one-third voting control of the Company in all matters voted
on by stockholders and a liquidation preference of US$25 per share.
Except for the foregoing, the holders of the Series A preferred shares
have no preferences or rights in excess of those generally available to
the holders of common stock. The holders of Series A preferred shares
are entitled to participate in any dividends paid ratably with the
holders of common stock.
F-21
<PAGE> 70
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
10. CAPITAL STOCK - continued
The directors have authorized a series of preferred stock designated as
Series B convertible preferred stock (the "Series B preferred shares").
A total of 100,000 Series B preferred shares were authorized. Except to
the extent declared by the directors from time to time, if ever, no
dividends are payable with respect to the Series B preferred shares.
Additionally, the Series B preferred shares have no voting rights
except that the approval of holders of a majority of such shares is
required to (1) authorize, create or issue any shares of any class or
series ranking senior to the Series B preferred shares as to
liquidation preference, (2) amend, alter or repeal, by any means, the
Company's certificate of incorporation if the powers, preferences, or
special rights of the Series B preferred shares would be adversely
affected, or (3) become subject to any restriction on the Series B
preferred shares, other than restrictions arising solely under Nevada
law or existing under the certificate of incorporation as in effect on
December 31, 1995.
The Series B preferred shares are convertible into common stock
commencing on or after 45 days following the sale of such shares. Each
of the Series B preferred shares is convertible into the number of
shares of common stock determined by dividing US$1 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. The Series B preferred shares have a liquidation
preference of US$1,000 per share and are subject, at the election of
the Company, to redemption or conversion at such price after December
31, 1997. At March 31, 2000, no shares of Series B preferred stock were
outstanding.
F-22
<PAGE> 71
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
11. STOCK OPTION PLANS
COMPANY OPTIONS
In October of 1996, the Company approved the establishment of the Man
Sang Holdings, Inc. 1996 Stock Option Plan (the "Plan"), under which
stock options awards ("Holding Company Options") may be made to
employees, directors and consultants of the Company. The Plan will
remain effective until October 2006 unless terminated earlier by the
Board of Directors.
The maximum number of shares of common stock which may be issued or
delivered and as to which awards may be granted under the Plan was
1,000,000 shares, which was subsequently revised to 2,000,000 shares,
as adjusted by the antidilution provisions contained in the Plan. The
exercise price for a stock option must be at least equal to 100% (110%
with respect to incentive stock options granted to persons holding ten
percent or more of the outstanding common stock) of the fair market
value of the common stock on the date of grant of such stock option for
incentive stock options, which are available only to employees of the
Company, and 85% of the fair market value of the common stock on the
date of grant of such stock option for other stock options.
The duration of each option will be determined by the Compensation
Committee, but no option will be exercisable more than ten years from
the date of grant (or, with respect to incentive stock options granted
to persons holding ten percent or more of the outstanding common stock
not more than five years from the date of grant). Unless otherwise
determined by the Compensation Committee and provided in the applicable
option agreement, options will be exercisable within three months of
any termination of employment, including termination due to disability,
death or normal retirement (but no later than the expiration date of
the option).
F-23
<PAGE> 72
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
11. STOCK OPTION PLANS - continued
Option activity of the Holding Company Options is as follows:
<TABLE>
<CAPTION>
Number Option price per share
of Holding with the weighted average
Company Options option price in parenthesis
--------------- ---------------------------
<S> <C> <C>
Outstanding at April 1, 1997 -
Granted 850,000 US$1.22
--------
Outstanding at March 31, 1998 850,000 US$1.22
Granted 350,000 US$1.5, US$3.5, and
US$5 (US$3.429)
Cancelled (350,000) US$1.22, US$3.5 and
US$5 (US$3.0625)
--------
Outstanding at March 31, 1999 850,000 US$1.22 and US$1.5
(US$1.2529)
Cancelled (150,000) US$1.22
Exercised (100,000) US$1.22
--------
Outstanding at March 31, 2000 600,000 US$1.22 and US$1.5
======== (US$1.2667)
</TABLE>
Total number of options exercisable and the weighted average exercise
price were 600,000 and 425,000 and US$1.2667 and US$1.2529 as
of March 31, 2000 and 1999 respectively. No options were exercisable
as of March 31, 1998.
Additional information on options outstanding at March 31, 2000 is as
follows:
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding as of March 31, 2000 as of March 31, 2000
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life (years) price exercisable price
--------------- ----------- ------------ ----- ----------- -----
US$ US$ US$
<S> <C> <C> <C> <C> <C>
1.22 500,000 7.55 1.2200 500,000 1.2200
1.50 100,000 7.55 1.5000 100,000 1.5000
------- ------- ------- ------- -------
Total 600,000 7.55 1.2667 600,000 1.2667
======= ======= ======= ======= =======
</TABLE>
At March 31, 2000 and March 31, 1999, 1,400,000 and 150,000 options,
respectively, were available for future grant under the Plan.
F-24
<PAGE> 73
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
11. STOCK OPTION PLANS - continued
MSIL OPTIONS
On September 8, 1997, MSIL adopted a share option scheme (the "Scheme")
to grant options to purchase MSIL ordinary shares (the "MSIL Options")
to any full-time employee of MSIL or any of MSIL's subsidiaries (an
"MSIL Employee"). Pursuant to the Scheme, MSIL may, at any time until
the end of the day on September 7, 2007, and from time to time, grant
MSIL Options to any MSIL Employee, at an exercise price of not less
than 80% of the average of the closing prices of MSIL ordinary shares
on The Stock Exchange of Hong Kong Limited for the five trading days
immediately preceding the date of grant or the nominal value of MSIL
ordinary shares of HK$0.10 per share, whichever is higher. The maximum
number of shares in respect of which MSIL Options may be granted under
the Scheme may not exceed such number of shares as shall represent 10%
of the issued share capital of MSIL from time to time excluding any
shares issued upon the exercise of MSIL Options granted pursuant to the
Scheme.
Pursuant to the Scheme, the MSIL Options may be exercised by the
grantee at any time during the two-year option period commencing on the
expiry of six months after the date on which such MSIL Option is
accepted and expiring on the last day of the two-year period or the end
of the day on September 7, 2007, whichever is earlier.
Option activity of the MSIL options is as follows:
<TABLE>
<CAPTION>
Number Option price per share
of MSIL with the weighted average
Options option price in parenthesis
------- ---------------------------
<S> <C> <C>
Outstanding at April 1, 1997 -
Granted 47,250,000 HK$0.6208 and HK$0.4460
(HK$0.5888)
Cancelled (2,000,000) HK$0.6208
----------
Outstanding at March 31, 1998 45,250,000 HK$0.6208 and HK$0.4460
(HK$0.5874)
Cancelled (4,000,000) HK$0.6208
----------
Outstanding at March 31, 1999 41,250,000 HK$0.6208 and HK$0.4460
(HK$0.5841)
Granted 11,600,000 HK$0.2560
Cancelled (6,600,000) HK$0.6208 and HK$0.2560
----------
Outstanding at March 31, 2000 46,250,000 HK$0.6208 and HK$0.4460
========== and HK$0.2560 (HK$0.5108)
</TABLE>
F-25
<PAGE> 74
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
11. STOCK OPTION PLANS - continued
Total number of options exercisable and the weighted average exercise
price were 36,450,000 and 41,250,000 and $0.5793 and $0.5841 as of
March 31, 2000 and 1999, respectively. No options were exercisable as
of March 31, 1998.
Additional information on options outstanding at March 31, 2000 is as
follows:
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding as of March 31, 2000 as of March 31, 2000
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life (years) price exercisable price
--------------- ----------- ------------ ----- ----------- -----
HK$ HK$ HK$
<S> <C> <C> <C> <C> <C>
0.6208 27,800,000 0.04 0.6208 27,800,000 0.6208
0.4460 8,650,000 0.18 0.4460 8,650,000 0.4460
0.2560 9,800,000 2.13 0.2560 - -
---------- ------- ------- ---------- -------
Total 46,250,000 0.51 0.5108 36,450,000 0.5793
========== ======= ======= ========== =======
</TABLE>
At March 31, 2000 and March 31, 1999, 6,196,350 and 7,196,350 options,
respectively, were available for future grant under the Scheme.
COMPENSATION EXPENSE
The Company has elected to account for the Holding Company Options and
the MSIL Options using the fair value method. The fair values of each
Holding Company Option granted on February 1, 1999 and September 16,
1997 and of each MSIL Option granted on October 16, 1997, December 3,
1997 and November 16, 1999 were calculated to be US$0.32, US$0.63,
HK$0.13, HK$0.19 and HK$0.07, respectively, using the Black-Scholes
option pricing model, with the following assumptions:
<TABLE>
<CAPTION>
Holding Company MSIL Options
Options granted on granted on
-------------------------------------- -------------------------------------
October 10, 1997
February 1, 1999 September 16, 1997 November 16, 1999 December 3, 1997
---------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Risk-free interest rate per annum 4.75% 5.90% 5.50% 5.25%
Expected life 3 years 2 years 2 years 2 years
Expected volatility 60% 63% 23% 33%
Expected dividend yield Nil Nil 5% 5%
</TABLE>
The total compensation expense of the Holding Company Options and the
MSIL Options recognized in the consolidated statement of income for the
years ended March 31, 2000, 1999 and 1998 was HK$1,127, HK$2,641 and
HK$2,035, respectively.
F-26
<PAGE> 75
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
12. RELATED PARTY TRANSACTIONS
The Company's credit facilities with banks were guaranteed by the
directors who had issued unlimited joint and several guarantees to
secure all the bank facilities set out in note 7. These guarantees were
released following the listing of the Shares and the Warrants of MSIL
on The Stock Exchange of Hong Kong Limited. No charges were made in
respect of these guarantees.
During the periods presented, leasehold properties were provided free
of charge to Mr. C.H. Cheng and Mr. T.P. Cheng for their residential
use.
In addition, the Company advanced HK$897 in 2000, HK$1,084 in 1999 and
HK$508 in 1998 to certain directors on an interest-free basis without
specific repayment terms. All amounts were repaid during each year.
During the year ended March 31, 2000, the Company had sales of HK$3,512
to GTI, in which the Company holds an equity interest of 18%.
13. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
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
period did sales to any one customer account for 10% or more of total
sales.
Details of the amounts receivable from the five customers with the
largest receivable balances at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Percentage of
accounts receivable
March 31,
2000 1999
---- ----
<S> <C> <C>
Five largest receivable balances............................................. 38.98% 35.58%
</TABLE>
The Company has not experienced any significant difficulty in
collecting its accounts receivable in the past and is not aware of any
financial difficulties being experienced by its major customers. Bad
debt provisions were HK$278 in 2000, HK$3,023 in 1999 and HK$977 in
1998. The deductions from the allowance for doubtful accounts which
represented write-offs of bad debts were HK$278 in 2000.
F-27
<PAGE> 76
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.107,
"Disclosures about Fair Value of Financial Instruments". The estimated
fair value amounts have been determined by the Company, using available
market information and appropriate valuation methodologies. The
estimates presented herein are not necessarily indicative of amounts
that the Company could realize in a current market exchange.
The carrying amounts of cash, accounts receivable, accounts payable,
short-term borrowings and long-term debt are reasonable estimates of
their fair values. The interest rates on the Company's short-term
borrowings and long-term debt approximate those which would have been
available at March 31, 2000 for debt of the same remaining maturities.
All the financial instruments are for trade purposes.
F-28
<PAGE> 77
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
15. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes annual and
interim reporting standards for an enterprises business segments and
related disclosures about its 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.
Contributions of the major activities, profitability information and
asset information are summarized below:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Revenues from external customers:
Pearls.......................................................... 279,289 230,915 262,158
Real estate investment.......................................... 4,620 4,304 5,446
------- ------- -------
283,909 235,219 267,604
======= ======= =======
Operating income:
Pearls.......................................................... 26,300 16,399 50,905
Real estate investment.......................................... 712 137 1,937
------- ------- -------
27,012 16,536 52,842
======= ======= =======
Interest expense:
Pearls.......................................................... 2,217 983 2,104
Real estate investment.......................................... 991 207 600
Corporate assets................................................ 2,221 3,310 981
------- ------- -------
5,429 4,500 3,685
======= ======= =======
Depreciation and amortization:
Pearls.......................................................... 4,399 3,405 3,043
Real estate investment.......................................... 749 681 627
Corporate assets................................................ 1,550 1,536 386
------- ------- -------
6,698 5,622 4,056
======= ======= =======
Capital expenditure for segment assets:
Pearls.......................................................... 7,450 12,916 12,984
Real estate investment.......................................... - - 4,842
Corporate assets................................................ - 32,917 25,231
------- ------- -------
7,450 45,833 43,057
======= ======= =======
</TABLE>
F-29
<PAGE> 78
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
15. SEGMENT INFORMATION - continued
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Segment assets:
Pearls.......................................................... 441,017 353,018 333,645
Real estate investment.......................................... 33,027 29,842 30,084
Corporate assets................................................ 74,637 77,093 39,621
------- ------- -------
548,681 459,953 403,350
======= ======= =======
of which
Long-Lived assets:
Pearls.......................................................... 31,431 31,326 22,226
Real estate investment.......................................... 33,027 29,842 30,084
Corporate assets................................................ 72,311 74,838 33,915
------- ------- -------
136,769 136,006 86,225
======= ======= =======
</TABLE>
All of the Company's sales of pearls are coordinated through the Hong
Kong subsidiaries and an analysis by destination is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Net sales:
Hong Kong....................................................... 53,278 40,966 51,070
Export:
Asian countries excluding Hong Kong............................. 59,862 32,573 51,656
North America................................................... 72,089 70,094 61,312
Europe.......................................................... 82,818 77,542 86,738
Others.......................................................... 11,242 9,740 11,382
------- ------- -------
279,289 230,915 262,158
======= ======= =======
</TABLE>
The Company operates in only one geographic area. The location of the
Company's identifiable assets is as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
2000 1999 1998
---- ---- ----
HK$ HK$ HK$
<S> <C> <C> <C>
Hong Kong......................................................... 394,797 345,083 319,191
Other regions of China............................................ 153,884 114,870 84,159
------- ------- --------
548,681 459,953 403,350
======= ======= =======
</TABLE>
F-30
<PAGE> 79
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
16. POST BALANCE SHEET EVENT
On April 18, 2000, a subsidiary of the Company entered into an
agreement to acquire all the issued shares of Intimex Business
Solutions Company Limited at a consideration of HK$2,100.
17. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
2000
Net sales 68,040 71,700 63,492 76,057
Gross profit 21,506 24,844 21,500 23,286
Operating income 8,444 10,937 5,434 2,197
Net income 3,681 5,911 5,385 4,854
Basic earnings per share 0.85 1.37 1.25 1.12
Diluted earnings per share 0.82 1.34 1.25 0.82
1999
Net sales 51,887 57,304 44,031 77,693
Gross profit 18,554 19,411 12,325 27,210
Operating income (loss) 5,023 8,019 (3,082) 6,576
Net income (loss) 3,134 5,409 (3,451) 3,723
Basic earnings per share 0.73 1.26 (0.80) 0.86
Diluted earnings per share 0.66 1.15 (0.80) 0.83
</TABLE>
F-31
<PAGE> 80
INDEX TO EXHIBITS
The following documents are filed herewith or have been included as exhibits to
previous filings with the Securities and Exchange Commission and are
incorporated by reference as indicated below.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of Man Sang Holdings, Inc., including the Certificate of
Designation, Preferences and Rights of a Series of 100,000 Shares of Preferred Stock, $.001 Par
Value, Designated "Series A Preferred Stock", filed on January 12, 1996 (1)
3.2 Certificate of Designation, Preferences and Rights of a Series of 100,000 Shares of Preferred
Stock, $.001 Par Value, Designated "Series B Preferred Stock", dated April 1, 1996 (2)
3.3 Amended Bylaws of Man Sang Holdings, Inc., effective as of January 10, 1996 (1)
10.1 Acquisition Agreement, Dated December __, 1995, between Unix Source America, Inc. and the
Shareholders of Man Sang International (B.V.I.) Limited (1)
10.2 Tenancy Agreement, dated June 24, 1996, between Same Fast Limited and Man Sang Jewellery Company
Limited (3)
10.3 Man Sang Holding, Inc. 1996 Stock Option Plan (3)
10.4 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Cheng
Chung Hing (5)
10.5 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Cheng Tai
Po (5)
10.6 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Hung Kwok
Wing (5)
10.7 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Sio Kam
Seng (5)
10.8 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Ng Hak
Yee (5)
10.9 Service Agreement, dated September 8, 1997, between Man Sang International Limited and Yan Sau
Man Amy (5)
</TABLE>
- 45 -
<PAGE> 81
<TABLE>
<S> <C>
10.10 Contract dated November 8, 1997, between Nan'ao Shaohe Pearl Seawater Culture Co., Ltd. of
Guangdong Province, People's Republic of China, Man Sang Jewellery Co., Ltd. of Hong Kong and
Chung Yuen Company o/b Golden Wheel Jewellery Mfr. Ltd. of Hong Kong to establish a cooperative
joint venture in Nan'ao County, Guangdong Province, People's Republic of China (6)
10.11 Agreement dated January 2, 1998, between Overlord Investment Company Limited and Excel Access
Limited, a subsidiary of the Company, pursuant to which Excel Access Limited will purchase
certain real property located at Flat A, 33rd Floor, of Valverde, 11 May Road, Hong Kong for
HK$15,050,000 (6)
10.12 Agreement for Sale and Purchase dated February 24, 1998, between City Empire Limited and
Wealth-In Investment Limited, a subsidiary of the Company, pursuant to which Wealth-In
Investment Limited purchased certain real property located at Flat B on the 20th Floor of The
Mayfair, One May Road, Hong Kong, at a purchase price of HK$39,732,200 (7)
10.13 Service Agreement, dated February 10, 2000, between Man Sang International Limited and Wong Ka
Ming
13.1 Annual report to security holders (4)
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on page 43).
27.1 Financial data schedule
99.1 Share Option Scheme of Man Sang International Limited, a subsidiary of the Company (6)
</TABLE>
-----------------------------------
(1) Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K dated January 8, 1996
(2) Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form 8-A dated June 17, 1996
(3) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended December
31, 1996
(4) Incorporated by reference to the Form 10-KSB/A for the fiscal year
ended March 31, 1997
- 46 -
<PAGE> 82
(5) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1997
(6) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 1997
(7) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998
- 47 -
