<PAGE> 1
MAN SANG HOLDINGS, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
COMMISSION FILE NUMBER: 33-10639-NY
MAN SANG HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0539570
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER NO.)
21/F RAILWAY PLAZA, 39 CHATHAM ROAD SOUTH, TSIMSHATSUI, KOWLOON, HONG KONG
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS)
(852) 2317 5300
(ISSUER'S TELEPHONE NUMBER)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO __
AS OF DECEMBER 31, 1999, 4,305,960 SHARES OF COMMON STOCK OF THE
REGISTRANT WERE OUTSTANDING.
<PAGE> 2
MAN SANG HOLDINGS, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as at
December 31, 1999 and March 31, 1999 F-1
Consolidated Statements of Income and
Comprehensive Income for the three months
ended December 31, 1999 and 1998 and nine
months ended December 31, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for
the nine months ended December 31, 1999 and 1998 F-4
Notes to Consolidated Financial Statements F-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
PART II - OTHER INFORMATION 6
SIGNATURES
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
--------------------------------- -------------------
US$ HK$ HK$
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents 12,136 93,814 66,196
Restricted cash 6,371 49,246 18,831
Accounts receivable, net of allowance 6,055 46,807 54,922
for doubtful accounts of HK$5,000 as of
December 31, 1999 and HK$5,000 as of
March 31, 1999
Inventories
Raw materials 534 4,125 1,489
Work in progress 2,812 21,735 49,712
Finished goods 20,271 156,697 120,116
-------------- -------------- ----------------
23,617 182,557 171,317
Prepaid expenses 260 2,013 1,523
Other current assets 1,789 13,832 11,158
-------------- -------------- ----------------
Total current assets 50,228 388,269 323,947
Long-term investments 819 6,330 5,430
Property, plant and equipment 15,262 117,973 116,603
Accumulated depreciation (2,570) (19,867) (15,869)
-------------- -------------- ----------------
12,692 98,106 100,734
Real estate investment 4,692 36,270 33,193
Accumulated depreciation (521) (4,026) (3,351)
-------------- -------------- ----------------
4,171 32,244 29,842
-------------- -------------- ----------------
Total assets 67,910 524,949 459,953
============== ============== ================
</TABLE>
F-1
<PAGE> 4
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)- continued
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
--------------------------------- -------------------
US$ HK$ HK$
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term borrowings 7,130 55,111 26,554
Current portion of long-term debt
Secured bank loans 573 4,429 4,429
Capital lease obligations 24 187 236
------------- ------------ ----------------
597 4,616 4,665
Accounts payable 902 6,976 8,781
Accrued payroll and employee benefits 873 6,749 4,725
Other accrued liabilities 1,268 9,799 10,093
Income taxes payable 711 5,496 3,984
-------------- ------------ ----------------
Total current liabilities 11,481 88,747 58,802
Long-term debt
Secured bank loans 2,830 21,874 25,196
Capital lease obligations 22 173 315
------------- ------------ ----------------
2,852 22,047 25,511
Minority interests 16,354 126,417 92,766
Stockholders' equity
Common stock, par value US$0.001 4 33 33
-authorized: 25,000,000 shares:
issued and outstanding: 4,305,960 shares
Series A preferred stock, par value US$0.001 - 1 1
-authorized, issued and outstanding: 100,000
shares:(entitled in liquidation to
US$$2,500 (HK$ 19,325))
Series B convertible preferred stock, par
value US$0.001 - - -
-authorized: 100,000 shares, no shares
outstanding
Additional paid-in capital 11,072 85,581 95,429
Retained earnings 25,950 200,600 185,623
Foreign currency translation adjustments 197 1,523 1,788
-------------- ----------- ---------------
Total stockholders' equity 37,223 287,738 282,874
-------------- ----------- ---------------
Total liabilities and
stockholders' equity 67,910 524,949 459,953
============== =========== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-2
<PAGE> 5
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31
(Amounts expressed in thousands except share data)
<TABLE>
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------- ------------------------------
1999 1998 1999 1998
------------------------- ---------- ----------------------------- ----------
US$ HK$ HK$ US$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Net sales 8,213 63,492 44,031 26,291 203,232 153,222
Cost of goods sold (5,432) (41,992) (31,706) (17,514) (135,382) (102,932)
------------- ---------- ---------- ---------- ---------- ----------
Gross profit 2,781 21,500 12,325 8,777 67,850 50,290
Rental income, gross 154 1,184 921 444 3,429 3,159
------------- ---------- ---------- ---------- ---------- ----------
2,935 22,684 13,246 9,221 71,279 53,449
Selling, general and administrative expenses
- Pearls (2,100) (16,233) (15,150) (5,676) (43,875) (39,848)
- Real estate investment (132) (1,017) (1,178) (335) (2,589) (3,641)
------------- ---------- ---------- ---------- ---------- ----------
Operating income 703 5,434 (3,082) 3,210 24,815 9,960
Non-operating items
- Interest expense (184) (1,426) (1,209) (505) (3,903) (3,578)
- Interest income 199 1,539 1,034 440 3,404 3,367
- Other income 367 2,838 114 394 3,045 443
------------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and minority
interest 1,085 8,385 (3,143) 3,539 27,361 10,192
Provision for income taxes (30) (231) (193) (544) (4,208) (975)
------------- --------- ---------- ---------- ---------- ----------
Income before minority interest 1,055 8,154 (3,336) 2,995 23,153 9,217
Minority interest (359) (2,769) (115) (1,058) (8,176) (4,125)
------------- --------- ---------- ---------- ---------- ----------
Net income 696 5,385 (3,451) 1,937 14,977 5,092
Other comprehensive income before tax
- Foreign currency translation adjustments (8) (67) 196 (34) (265) (8,030)
- Income tax expense 0 0 0 0 0 0
------------- --------- ---------- ---------- ---------- ----------
Other comprehensive income, net of tax (8) (67) 196 (34) (265) (8,030)
------------- --------- ---------- ---------- ---------- ----------
Comprehensive income 688 5,318 (3,255) 1,903 14,712 (2,938)
============= ========= ========== ========== ========== ==========
Basic earnings per common share 0.16 1.25 (0.80) 0.45 3.48 1.18
============= ========= ========== ========== ========== ==========
Diluted earnings per common share 0.16 1.25 (0.80) 0.44 3.39 1.08
============= ========= ========== ========== ========== ==========
Weighted average number of shares
of common stock
- for basic earnings per share 4,305,960 4,305,960 4,305,960 4,305,960 4,305,960 4,305,960
============= ========= ========== ========== ========== =========
- for diluted earnings per share 4,323,621 4,323,621 4,305,960 4,419,134 4,419,134 4,702,405
============= ========= ========== ========== ========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-3
<PAGE> 6
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31
(Amounts expressed in thousands)
<TABLE>
<CAPTION>
Nine Months Ended December 31
-----------------------------
1999 1998
------------------------------- -----------
US$ HK$ HK$
<S> <C> <C> <C>
Cash flow from operating activities:
Net income 1,937 14,977 5,092
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful debts 0 0 2,023
Compensation expense 146 1,127 3,551
Depreciation and amortization 622 4,806 4,132
Loss (gain) on sale of property, plant and equipment 0 4 (1)
Minority interests 1,058 8,176 4,125
Changes in operating assets and liabilities:
Accounts receivable 1,049 8,114 7,701
Inventories (1,433) (11,079) (12,514)
Prepaid expenses (63) (489) 165
Other current assets (344) (2,657) (4,197)
Accounts payable (236) (1,827) 487
Accrued payroll and employee benefits 262 2,023 877
Other accrued liabilities (39) (304) 3,168
Income taxes payable 195 1,512 775
------------- ------------- -------------
Net cash provided by operating activities 3,154 24,383 15,384
------------- ------------- -------------
Cash flow from investing activities:
Purchase of property, plant and equipment (594) (4,588) (41,704)
Increase in restricted cash (3,935) (30,415) (3,080)
Purchase of a subsidiary (600) (4,638) 0
Purchase of long-term investment (116) (900) 0
Proceeds from sale of property, plant and equipment 2 18 11
------------- ------------- -------------
Net cash used in investing activities (5,243) (40,523) (44,773)
------------- ------------- -------------
Cash flow from financing activities:
Repayment of bank overdrafts 0 0 (2,702)
Repayment of short-term borrowings (2,416) (18,679) (13,648)
Repayment of long-term debt (454) (3,513) (11,427)
Increase in bank overdrafts 0 0 (2,896)
Increase in short-term borrowings 6,110 47,235 30,560
Increase in long-term debt 0 0 20,000
Dividend paid to minority shareholders of a subsidiary (167) (1,294) (3,320)
Net proceeds from issuance of shares by a subsidiary 1,000 7,730 0
Net proceeds from placing of shares by a subsidiary 1,649 12,751 0
------------- ------------- -------------
Net cash provided by financing activities 5,722 44,230 22,359
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 3,633 28,090 (7,030)
Cash and cash equivalents at beginning of period 8,564 66,196 83,918
Exchange adjustments (61) (472) (7,600)
------------- ------------- -------------
Cash and cash equivalents at end of period 12,136 93,814 69,288
============= ============= =============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest and financing charges 515 3,983 3,255
------------- ------------- -------------
Income taxes 349 2,696 214
------------- ------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-4
<PAGE> 7
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-Q. The March 31, 1999 balance sheet data was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the financial statements and
notes included in the annual report of Man Sang Holdings, Inc. (the "Company")
on Form 10-K for the fiscal year ended March 31, 1999. In the opinion of
management, the interim financial statements reflect all adjustments of a normal
recurring nature necessary for a fair presentation of the results for the
interim periods presented.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at period end
exchange rates, while revenues and expenses are translated at average exchange
rates during the period. Adjustments arising from translating foreign currency
financial statements are reported as a separate component of stockholders'
equity. Gains or losses from foreign currency translations are included in
income. Aggregate net foreign currency gains or losses were immaterial for all
periods.
The consolidated financial statements of the Company are maintained, and its
consolidated financial statements are expressed, in Hong Kong dollars. Unless
otherwise indicated as Hong Kong dollars or HK$, all financial information
contained herein is presented in United States dollars. The translations of Hong
Kong dollar amounts into United States dollars are for convenience only and have
been made at the rate of HK$7.73 to US$1, the approximate free rate of exchange
at December 31, 1999. Such translations should not be construed as
representations that Hong Kong dollar amounts could be converted into United
States dollars at that rate or any other rate. As used in this 10-Q, the letter
"K" appearing immediately after a dollar amount denotes rounding to the nearest
$1,000; as an example, $250,449 may be rounded to "$250K".
F-5
<PAGE> 8
3. EARNINGS PER SHARE ("EPS")
EPS is calculated in accordance with SFAS No. 128. Per share data is calculated
using the weighted average number of shares of common stock outstanding during
the period.
The reconciliation of the basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended December 31, 1999
---------------------------------------
Earnings No. of shares EPS
US$ US$
<S> <C> <C> <C>
Basic EPS
Net income available
to common stockholders 696,708 4,305,960 0.16
=======
Effect of dilutive stock
options granted by the Company - 17,661
Effect of dilutive stock
options and warrants granted by MSIL - -
Diluted EPS
Net income available
to common stockholders,
including conversion 696,708 4,323,621 0.16
======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the Nine months ended December 31, 1999
-------------------------------------------
Earnings No. of shares EPS
US$ US$
<S> <C> <C> <C>
Basic EPS
Net income available
to common stockholders 1,937,517 4,305,960 0.45
====
Effect of dilutive stock
options granted by the Company - 113,174
Effect of dilutive stock
options and warrants granted by MSIL - -
Diluted EPS
Net income available
to common stockholders,
including conversion 1,937,517 4,419,134 0.44
========= ========= ====
</TABLE>
Man Sang International Ltd. ("MSIL"), a subsidiary of the Company whose shares
are listed on The Stock Exchange of Hong Kong Limited, 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.
F-6
<PAGE> 9
Options to subscribe for 11,600,000 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$0.256 per share. The subscription price
represented 80% of the average closing price of each share as stated in the
daily quotation sheets of The Stock Exchange of Hong Kong Limited for the five
trading days immediately preceding the date on which the options were offered.
The options can be exercised in a period of two years commencing on the expiry
of six months after the options were accepted in accordance with the Share
Option Scheme, and expiring on the last day of such two-year period.
The effect on consolidated EPS of dilutive stock options granted and issued by
MSIL was not included in the computation of diluted EPS because as at December
31, 1999 the exercise prices of such options were greater than their average
market prices.
At the annual meeting of the Company's shareholders held on August 2, 1999, the
shareholders approved the reservation of an additional 1,000,000 shares of
Common Stock for issuance under the Company's 1996 Stock Option Plan.
4. DISCLOSURE OF GEOGRAPHIC INFORMATION
All of the Company's sales of pearls are coordinated through its Hong Kong
subsidiaries and an analysis by destination is as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE NINE MONTHS
ENDED DECEMBER 31 ENDED DECEMBER 31
1999 1998 1999 1998
US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
NET SALES:
Hong Kong** 1,973 1,258 5,024 3,767
EXPORT:
Asian countries excluding Hong Kong 1,879 771 5,520 2,862
North America 1,971 1,797 7,118 5,628
Europe 2,175 1,743 7,502 6,757
Others 215 127 1,127 807
-------- ----- ------ ------
8,213 5,696 26,291 19,821
======== ===== ====== ======
</TABLE>
** A majority of sales (by dollar amount) in Hong Kong are for re-export
to North America and Europe.
The Company operates in only one geographic area. The location of the Company's
identifiable assets is as follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
US$'000 US$'000
<S> <C> <C>
Hong Kong 51,462 44,641
Other regions of The People's
Republic of China 16,448 14,859
-------- -------
67,910 59,500
======== ======
</TABLE>
F-7
<PAGE> 10
5. DISCLOSURE OF MAJOR CUSTOMERS
During the nine months ended December 31, 1999, no single customer accounts for
10% or more of total sales. A substantial percentage of the Company's sales is
made to a small number of customers and is on an open account basis.
6. SIGNIFICANT EVENTS
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$116,429) 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. AJL has also agreed to place orders with GTI
for not less than HK$8,000,000 (approximately US$1,034,929) of products per
annum for a period of 3 years.
On October 26, 1999, MSIL established a subsidiary Wet Wet Cyber Company Limited
("WWCC"). MSIL has budgeted an investment of approximately HK$30 million
(approximately US$3.88 million) in WWCC to launch a new e-commerce web site,
www.4376zone.com, to sell fashionable jewelry and accessories that WWCC may
source from the Company's subsidiaries and affiliates (and therefore serving as
an additional sales channel for the Group), and from other jewelry assemblers.
Management intends to establish 4376zone.com as a new retail brand for the Group
which caters specifically to male and female customers in the Greater China
region.
F-8
<PAGE> 11
7. SEGMENT INFORMATION
Reportable segment profit or loss, and segment assets are disclosed as follows:
Reportable Segment Profit or Loss, and Segment Assets
<TABLE>
<CAPTION>
For the three months For the nine months
ended December 31 ended December 31
1999 1998 1999 1998
US$'000 US$'000 US$'000 US'000
<S> <C> <C> <C> <C>
Revenues from external customers
Pearls 8,213 5,696 26,291 19,822
Real estate investment 154 119 444 409
-------- ------- ------- ------
8,367 5,815 26,735 20,231
===== ====== ======= ======
Interest expense
Pearls 79 60 235 127
Real estate investment 34 - 47 -
-------- ------- ------- -----
113 60 282 127
======== ======= ======= =====
Depreciation and amortization
Pearls 157 109 399 322
Real estate investment 24 21 72 63
------ ------ ----- ---
181 130 471 385
====== ====== === ===
Segment profit
Pearls 523 (376) 3,017 1,373
Real estate investment (12) (33) 62 (62)
------ ------- ----- -------
511 (409) 3,079 1,311
=== ======= ===== =====
Capital expenditure for segment assets
Pearls 202 807 593 1,137
Real estate investment 0 - 0 -
-------- ------- ----- -----
202 807 593 1,137
===== ====== ===== =====
Segment assets
Pearls 54,033 42,104
Real estate investment 4,171 3,839
------- ------
58,204 45,943
======= ======
</TABLE>
F-9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. This Management's Discussion and Analysis and should be read in
conjunction with the condensed consolidated financial statements and notes
thereto included elsewhere in this Form 10-Q and in the Company's annual report
on Form 10-K for the year ended March 31, 1999.
RESULTS OF OPERATIONS
Net Sales and Gross Profits
Net sales during the nine-month period ended December 31, 1999 totaled $26.3
million, representing a 32.6% increase, compared to net sales of $19.8 million
during the same period in 1998. The increase in net sales was mainly
attributable to (i) an increase by 100.9% and 181.8%, respectively, in the net
sales of Chinese freshwater pearls and South Sea pearls; and (ii) an 11.0%,
26.5% and 92.9% increase in net sales in Europe, North America, and Asian
countries excluding Hong Kong, during the nine months ended December 31, 1999
when compared to the same period in 1998. 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 private consumption that was comparatively
stronger than the same period in 1998.
Gross profit for the nine-month period ended December 31, 1999 increased by $2.3
million, or 34.9%, to $8.8 million, compared to $6.5 million for the same period
in 1998. As a percentage of net sales, gross profit increased slightly from
32.8% for the nine-month period ended December 31, 1998 to 33.4% for the same
period in 1999. The increase in gross profit margin resulted from, at least in
part, the shift in the Company's product mix from saltwater cultured pearls
toward lower priced freshwater pearls of comparable size and quality; and the
much higher priced South Sea Pearls. Chinese freshwater pearls represented 39.6%
of net sales for the nine-month period ended December 31, 1999 as compared to
26.2% of net sales for the same period in 1998; South Sea pearls represented
22.6% of net sales for the nine-month period ended December 31, 1999 as compared
to 10.7% of net sales for the same period in 1998; while the sales of Chinese
cultured pearls reduced to 33.7% of net sales for the nine-month period ended
December 31, 1999 as compared to 55.0% of net sales for the same period in 1998.
Rental Income
Gross rental income for the nine-month period ended December 31, 1999 was
approximately $444K representing an increase of approximately $35K, or 8.6%, as
compared to the same period in 1998. The occupancy rate in the Man Sang
Industrial City facility located in Shenzhen, the PRC was 79.0% as at December
31, 1999, compared to 73.6% as at December 31, 1998.
1
<PAGE> 13
Selling, General and Administrative Expenses ("SG&A")
SG&A were $6.0 million, consisting of $5.7 million attributable to pearl
operations and $0.3 million attributable to real estate operations, for the
nine-month period ended December 31, 1999, an increase of approximately $385K,
or 6.8%, from $5.6 million, consisting of $5.2 million attributable to pearl
operations and $0.4 million attributable to real estate operations, for the same
period in 1998. As a percentage of net sales, SG&A for pearl operations
decreased from 26.0% for the nine-month period ended December 31, 1998 to 21.6%
for the same period in 1999, while SG&A for real estate operations decreased
from 2.4% for the nine-month period ended December 31, 1998 to 1.3% for the same
period in 1999. Such decrease is primarily attributable to an increase in net
sales.
Net Interest Expense
Net interest expenses for the nine-month period ended December 31, 1999,
increased by $38K to $65K when compared to the same period in the prior year.
The increase in net interest expense was due principally to the Company's
obtaining approximately Renminbi 30.8 million of short-term loans during the
nine-month period ended December 31, 1999. See "Liquidity and Capital
Resources." The Company's weighted average interest rate for the nine-month
period ended December 31, 1999 was approximately 6.5%.
Other Income
Other income during the nine-month period ended December 31, 1999 increased by
$337K to $394K as compared to $57K during the same period in 1998. The increase
in other income was mainly attributable to the 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.
Income Taxes
Income taxes and provision therefor for the nine-month period ended December 31,
1999 increased by $418K to $544K as compared to $126K for the same period in
1998. Such significant increase was principally due to:-
- - Increase in operating income arisen from the increase in net sales and
gross profit;
- - A PRC subsidiary, which was exempted from PRC income taxes in the calendar
year of 1998, started paying income tax at a rate of 7.5% during calendar
year of 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 the 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
2
<PAGE> 14
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 nine-month period ended December 31, 1999 increased by $1.3
million to $1.9 million, representing an 194.1% increase from $659K for the same
period in 1998. The increase was attributable to, among other things, an
increase in net sales during the nine-month period ended December 31, 1999.
Excluding income taxes and minority interests, the operating profit during the
nine-month period ended December 31, 1999 was $3.5 million, representing a
168.5% increase, compared to that of $1.3 million during the same period in
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
December 31, 1999, the Company had working capital of $38.7 million and a cash
balance of $18.5 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 4.4 as at
December 31, 1999 as compared with that of 5.5 as at March 31, 1999. Net cash
provided by operating activities was $3.2 million for the nine-month period
ended December 31, 1999, approximately the same as that for the same period in
1998. The increase in working capital is mainly due to a net increase in cash
and cash equivalents by $7.5 million and an increase in short term borrowing of
$3.7 million.
During the nine-month period ended December 31, 1999, two subsidiaries of the
Company in the PRC obtained additional short-term loans of Renminbi 30.8 million
(approximately $3.7 million). The proceeds of such loans were used to purchase
pearls and to finance daily operating activities of the Company's PRC
subsidiaries. The main purpose of the loans is to minimize the impact of any
devaluation of the Renminbi. Taking into account of such loans, the total
short-term borrowings by the Company's subsidiaries in the PRC amounted to
approximately $7.1 million. The loans are secured by a deposit of $5.85 million
(in US dollars) and the mortgage of 5 buildings in Man Sang Industrial City.
Inventories increased by $1.5 million to $23.6 million at December 31, 1999 and
the inventory turns decreased to 11.5 months as at December 31, 1999 from 12.7
months as at March 31, 1999. The increase in inventories was attributable to
higher purchasing and production to meet increased demand for freshwater pearls.
Long-term debt (including current portion of long-term debt) was $3.4 million at
December 31, 1999, a decrease of $454K compared to that at March 31, 1999. The
decrease was attributable to paying down of installment loans during the period.
The gearing ratio was 0.72 at December 31, 1999, compared to 0.53 at March 31,
1999. The increase in gearing ratio was mainly due to an increase in short-term
borrowings of Renminbi 30.8 million (approximately $3.7 million) by two
subsidiaries in PRC, such increase is secured by an additional deposit of $3.85
million.
3
<PAGE> 15
The Company had available working capital facilities of $8.4 million in total
with various banks at December, 1999. 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 December 31, 1999, the Company only utilized approximately
$29K 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.
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 systems 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the nine-month period ended December 31, 1999, the Company made
approximately 56% of its purchases in Renminbi, with the remaining amounts
mainly settled in Hong Kong dollars, US dollars and Japanese Yen (only 11% of
total purchase).
The Company's policy is to denominate all its sales in either US dollars or Hong
Kong dollars. Since Hong Kong dollars remained "pegged" to the US dollar
throughout the period, the Company's sales proceeds have thus far had very
minimal exposure to foreign exchange fluctuations.
Therefore, since purchases are made in currencies that have devaluation pressure
and sales are made in US dollars, the currency risk in the foreseeable future
should be minimal, and the Company's Management determined that no derivative
contracts such as forward contracts and options to hedge against foreign
exchange fluctuations were necessary during the period.
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 $3.0 million, was between
HIBOR+2.5% and 3.0% during the period (where HIBOR represents the 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 December 31, 1999, the aggregate amount
outstanding under all banking facilities and the installment loans was
approximately $3.4 million. Therefore, even a change of 0.5% in HIBOR and prime
lending rates will lead to an increase in interest
4
<PAGE> 16
expense of only approximately $17,000 per annum.
As a result, the Company believes that the risk associated with fluctuations in
interest rate is not material, and no derivative contracts are necessary.
5
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
27.1 Financial Data Schedule
6
<PAGE> 18
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, Man Sang Holdings, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MAN SANG HOLDINGS, INC.
By:/s/ Cheng Chung Hing
-------------------------------------------
Cheng Chung Hing, Chief Executive Officer
By:/s/ Zacky Sun
-------------------------------------------
Zacky Sun, Chief Financial Officer
Date: February 14, 2000
<PAGE> 19
INDEX TO EXHIBITS
The following document is filed herewith or has been included as exhibit to
previous filings with the Securities and Exchange Commission and is incorporated
by reference as indicated below.
Exhibit No. Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,507,000
<SECURITIES> 0
<RECEIVABLES> 6,702,000
<ALLOWANCES> 647,000
<INVENTORY> 23,617,000
<CURRENT-ASSETS> 50,228,000
<PP&E> 15,262,000
<DEPRECIATION> 2,570,000
<TOTAL-ASSETS> 67,910,000
<CURRENT-LIABILITIES> 11,481,000
<BONDS> 3,449,000
0
0
<COMMON> 4,000
<OTHER-SE> 37,219,000
<TOTAL-LIABILITY-AND-EQUITY> 67,910,000
<SALES> 26,291,000
<TOTAL-REVENUES> 26,735,000
<CGS> 17,514,000
<TOTAL-COSTS> 6,011,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505,000
<INCOME-PRETAX> 3,539,000
<INCOME-TAX> 544,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,937,000
<EPS-BASIC> .45
<EPS-DILUTED> .44
</TABLE>
