<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 JUNE 30, 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 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 JUNE 30, 2000, 4,405,960 SHARES OF COMMON STOCK OF THE REGISTRANT
WERE OUTSTANDING.
<PAGE> 2
MAN SANG HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as at
June 30, 2000 and March 31, 2000 F-1
Consolidated Statements of Income and
Comprehensive Income for the three months
ended June 30, 2000 and 1999 F-3
Consolidated Statements of Cash Flows for
the three months ended June 30, 2000 and 1999. F-4
Notes to Condensed Consolidated Financial Statements. F-5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 4
PART II - OTHER INFORMATION
SIGNATURES
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
----------------------- --------------
US$ HK$ HK$
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 7,538 58,420 88,900
Restricted cash 8,070 62,541 62,330
Accounts receivable, net of allowance for doubtful 8,591 66,582 55,524
accounts of HK$5,000 as of June 30, 2000 and
HK$5,000 as of March 31, 2000
Inventories
Raw materials 618 4,788 1,781
Work in progress 6,425 49,797 33,987
Finished goods 20,578 159,481 152,198
-------- -------- --------
27,621 214,066 187,966
Prepaid expenses 469 3,637 3,876
Other current assets 2,247 17,414 13,316
-------- -------- --------
Total current assets 54,536 422,660 411,912
Long-term investments 817 6,330 6,330
Available-for-sale securities 2,240 17,357 0
Property, plant and equipment 15,082 116,889 117,643
Accumulated depreciation (2,753) (21,339) (20,231)
-------- -------- --------
12,329 95,550 97,412
Real estate investment 4,792 37,137 37,136
Accumulated depreciation (556) (4,308) (4,109)
-------- -------- --------
4,236 32,829 33,027
-------- -------- --------
Total assets 74,158 574,726 548,681
======== ======== ========
</TABLE>
F-1
<PAGE> 4
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - CONTINUED
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
-------------------- --------------
US$ HK$ HK$
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 9,500 73,627 73,835
Current portion of long-term debt
Secured bank loans 571 4,429 4,429
Capital lease obligations 26 198 192
------- ------- -------
597 4,627 4,621
Accounts payable 3,736 28,957 8,396
Amount due to affiliate 36 278 604
Accrued payroll and employee benefits 599 4,646 4,026
Other accrued liabilities 1,363 10,558 12,006
Income taxes payable 526 4,077 4,190
------- ------- -------
Total current liabilities 16,357 126,770 107,678
Long-term debt
Secured bank loans 2,537 19,659 20,767
Capital lease obligations 9 71 123
------- ------- -------
2,546 19,730 20,890
Minority interests 16,890 130,896 127,566
Stockholders' equity:
Common stock, par value US$0.001 4 34 34
- authorized: 25,000,000 shares;
issued and outstanding: 4,405,960 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$19,375))
Series B convertible preferred stock, par value US$0.001 -- -- --
- authorized: 100,000 shares; no shares outstanding
Additional paid-in capital 11,027 85,453 85,636
Retained earnings 27,038 209,549 205,454
Accumulated other comprehensive income 296 2,293 1,422
------- ------- -------
Total stockholders' equity 38,365 297,330 292,547
======= ======= =======
Total liabilities and stockholders' equity 74,158 574,726 548,681
======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 5
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30
(Amounts expressed in thousands except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
2000 1999
------------------------- ----------
US$ HK$ HK$
<S> <C> <C> <C>
Net sales 10,511 81,461 68,040
Cost of goods sold (7,251) (56,194) (46,534)
---------- ---------- ----------
Gross profit 3,260 25,267 21,506
Rental income, gross 160 1,242 1,155
---------- ---------- ----------
3,420 26,509 22,661
Selling, general and administrative expenses
- Pearls (2,378) (18,430) (13,440)
- Real estate investment (175) (1,356) (777)
---------- ---------- ----------
Operating income 867 6,723 8,444
Non-operating items
- Interest expense (215) (1,664) (1,165)
- Interest income 194 1,505 948
- Other income 112 871 103
- Gain on disposal of subsidiaries 112 864 0
---------- ---------- ----------
Income before income taxes and minority interest 1,070 8,299 8,330
Provision for income taxes (320) (2,483) (2,844)
---------- ---------- ----------
Income before minority interest 750 5,816 5,486
Minority interest (222) (1,721) (1,805)
---------- ---------- ----------
Net income 528 4,095 3,681
Other comprehensive income, before tax
- Foreign currency translation adjustments 22 169 77
- Unrealized holding gain on available-for-sale
securities 134 1,038 0
- Income tax expense 0 0 0
---------- ---------- ----------
Other comprehensive income, net of tax 156 1,207 77
---------- ---------- ----------
Comprehensive income 684 5,302 3,758
========== ========== ==========
Basic earnings per common share 0.12 0.93 0.85
========== ========== ==========
Diluted earnings per common share 0.11 0.88 0.82
========== ========== ==========
Weighted average number of shares of
of common stock
- for basic earnings per share 4,405,960 4,405,960 4,305,960
========== ========== ==========
- for diluted earnings per share 4,550,870 4,550,870 4,482,359
========== ========== ==========
</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 THREE MONTHS ENDED JUNE 30
(Amounts expressed in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
2000 1999
--------------------- -------
US$ HK$ HK$
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income 528 4,095 3,681
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Compensation expense 199 1,540 157
Depreciation and amortization 265 2,054 1,489
Loss on sale of property, plant and equipment 14 111 2
Minority interests 222 1,721 1,805
Changes in operating assets and liabilities:
Accounts receivable (1,427) (11,057) 5,848
Inventories (3,361) (26,053) (17,979)
Prepaid expenses 31 239 (274)
Other current assets (527) (4,087) (1,548)
Accounts payable 2,652 20,555 16,124
Amount due to affiliate (42) (325) 0
Accrued payroll and employee benefits 80 619 (1,398)
Other accrued liabilities (188) (1,454) 5
Income taxes payable (14) (113) 926
------- ------- -------
Net cash (used in) provided by operating activities (1,568) (12,155) 8,838
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (19) (151) (2,416)
Purchase of available-for-sale securities (2,106) (16,319) 0
Increase in restricted cash (27) (211) (7,767)
Proceeds from sale of property, plant and equipment 8 64 0
------- ------- -------
Net cash used in investing activities (2,144) (16,617) (10,183)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings (3,148) (24,397) (5,752)
Repayment of long-term debt (149) (1,153) (1,176)
Increase in short-term borrowings 3,097 23,999 12,199
Dividend paid to minority shareholders of a subsidiary 0 (1) 0
Investment from minority shareholder 0 0 3,092
Net proceeds from issuance of shares by a subsidiary 21 167 0
------- ------- -------
Net cash (used in) provided by financing activities (179) (1,385) 8,363
------- ------- -------
Net (decrease) increase in cash and cash equivalents (3,891) (30,157) 7,018
Cash and cash equivalents at beginning of period 11,471 88,900 66,196
Exchange adjustments (42) (323) 37
------- ------- -------
Cash and cash equivalents at end of period 7,538 58,420 73,251
======= ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest and financing charges 215 1,665 1,264
------- ------- -------
Income taxes 335 2,595 1,918
------- ------- -------
</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
JUNE 30, 2000
(UNAUDITED)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-Q. The March 31, 2000 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, 2000. 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$7.75 to US$1, the approximate free rate of exchange
at June 30, 2000. Such translations should not be construed as representations
that Hong Kong dollars amounts could be converted into United States dollars at
that rate or any other rate.
3. Investments
Investments in debt securities and equity securities with readily determinable
market values are classified into categories based on the Company's intent.
Investments held to maturity, which the Company has the intent and ability to
hold to maturity, are carried at cost. Investments available for sale are
carried at an estimated fair value. Unrealized holding gains and losses are
excluded from earnings and reported, net of income taxes, as a separate
component of stockholders' equity until realized. For all investment securities,
unrealized losses that are other than temporary are recognized in net income.
Realized gains and losses are determined on the specific identification method
and are reflected in net income.
F-5
<PAGE> 8
4. EARNINGS PER SHARE ("EPS")
EPS is calculated in accordance with SFAS No. 128. Per share data is calculated
using the weighted average number of shares of common stock outstanding during
the period.
The reconciliation of the basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30, 2000
-----------------------------------
Earnings No. of shares EPS
US$ US$
<S> <C> <C> <C>
Basic EPS
Net income available
to common stockholders 528,445 4,405,960 0.12
=====
Effect of dilutive stock
options granted by the Company - 144,910
Effect of dilutive stock
options and warrants granted
by MSIL (9,161) -
--------- ---------
Diluted EPS
Net income available to
common stockholders,
including conversion 519,284 4,550,870 0.11
========= ========= =====
</TABLE>
Man Sang International Ltd. ("MSIL"), a subsidiary of the Company whose shares
are listed on The Stock Exchange of Hong Kong Limited ("The Hong Kong Stock
Exchange"), 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.
On April 28, 2000, MSIL granted to its directors and certain of its senior
employees options to subscribe for 33,000,000 MSIL shares of nominal value of
HK$0.10 at an exercise price of HK$0.297 per share. The exercise price
represented approximately 80% of the average closing price of each MSIL share as
stated in the daily quotation sheets of The Hong Kong Stock Exchange for the
five trading days immediately preceding the date on which the options were
granted. The options can be exercised in a period of two years commencing on the
expiry of six months after the options are accepted in accordance with the Share
Option Scheme, and expiring on the last day of such two-year period.
The effect on consolidated EPS of dilutive stock options granted and issued by
MSIL was included in the computation of diluted EPS because as at June 30, 2000
the average market prices were greater than the exercise prices of such options.
F-6
<PAGE> 9
5. DISCLOSURE OF GEOGRAPHIC INFORMATION
All of the Company's sales of pearls are co-ordinated through its Hong Kong
subsidiaries and an analysis by destination is as follows:
<TABLE>
<CAPTION>
Quarter ended June 30
2000 1999
US$'000 US$'000
<S> <C> <C>
Net sales:
Hong Kong ** 2,081 1,415
Export:
Asian countries excluding Hong Kong 3,083 1,958
North America 2,689 2,428
Europe 2,339 2,697
Others 319 281
------ ------
10,511 8,779
====== ======
</TABLE>
** A majority of sales (by dollar amount) in Hong Kong are for re-export to
North America and Europe.
The Company operates in only one geographic area. The location of the Company's
identifiable assets is as follows:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
US$'000 US$'000
<S> <C> <C>
Hong Kong 51,871 50,942
Other regions of The People's
Republic of China ("PRC") 22,287 19,856
------ ------
74,158 70,798
====== ======
</TABLE>
6. DISCLOSURE OF MAJOR CUSTOMERS
During the three months ended June 30, 2000, no single customer accounts for 10%
or more of total sales. A substantial percentage of the Company's sales is made
to a small number of customers and is typically on an open account basis.
F-7
<PAGE> 10
7. SEGMENT INFORMATION
Reportable segment profit or loss, and segment assets are disclosed as follows:
Reportable Segment Profit or Loss, and Segment Assets
<TABLE>
<CAPTION>
Quarter ended June 30
2000 1999
US$'000 US$'000
<S> <C> <C>
Revenues from external customers
Pearls 10,511 8,779
Real estate investment 160 149
------- -------
10,671 8,928
======= =======
Interest expense
Pearls 84 72
Real estate investment 73 0
------- -------
157 72
======= =======
Depreciation and amortization
Pearls 190 119
Real estate investment 25 23
------- -------
215 142
======= =======
Segment profit
Pearls 783 1,077
Real estate investment (88) 49
------- -------
695 1,126
======= =======
Segment assets
Pearls 58,093 49,204
Real estate investment 4,236 4,088
Corporate assets 11,829 9,900
------- -------
74,158 63,192
======= =======
Capital expenditure for segment assets
Pearls 13 312
Real estate investment 0 0
------- -------
13 312
======= =======
</TABLE>
F-8
<PAGE> 11
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 should be read in
conjunction with the condensed consolidated financial statements and notes
thereto included elsewhere in this Form 10-Q and with the Company's annual
report on Form 10-K for the year ended March 31, 2000.
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 2000 increased by $1.7 million to $10.5
million, representing a 19.7% growth when compared to net sales of $8.8 million
during the same period in 1999. The increase in net sales was mainly
attributable to the increase by 90.9% in the net sales of South Sea and Tahitian
pearls. The Company attributes such increases in net sales in part to its
increased sales efforts and its shift in product mix towards South Sea and
Tahitian pearls, and in part to private consumption that was comparatively
stronger than the same period in 1999.
Gross profit for the quarter ended June 30, 2000 increased by $0.5 million, or
17.5%, to $3.3 million, compared to $2.8 million for the same period in 1999. As
a percentage of net sales, gross profit decreased slightly from 31.6% for the
quarter ended June 30, 1999 to 31.0% for the same period in 2000. The increase
in gross profit resulted mainly from the overall increase in sales, while the
slight decrease in gross profit margin resulted, at least in part, from the
shift of the Company's product mix from Chinese Cultured pearls towards higher
priced South Sea and Tahitian pearls that yield lower margins. South Sea and
Tahitian pearls represented 39.8% of net sales during the quarter ended
June 30, 2000, compared to 24.9% of net sales in the quarter ended June 30,
1999. Chinese Cultured pearls constituted 23.8% of net sales for the quarter
ended June 30, 2000, as compared to 30.3% of net sales for the same period in
1999.
1
<PAGE> 12
Rental Income
Gross rental income for the quarter ended June 30, 2000 was approximately
$160K*, representing an increase of approximately $11K, or 7.6%, as compared
to the same period in 1999. The increase in gross rental income was attributable
to (i) an increase in occupancy rate from 74.0% to 88.7% in the Man Sang
Industrial City facility located in Shenzhen, the People's Republic of China;
(ii) the additional rental income generated from the Company's rental properties
in Hong Kong including (a) car-parking space at No. L30 on the Ground Floor of
Block A, Focal Industrial Centre, 21 Man Lok Street, Kowloon, Hong Kong; (b)
car-parking space at No.3 on L3 Floor of Valverde, 11 May Road, Hong Kong and;
(c ) Unit 16 on 6th Floor, Block A, Focal Industrial Centre, 21 Man Lok Street,
Kowloon, Hong Kong. The rental income from the Hong Kong properties totaled
approximately $8K for the quarter ended June 30, 2000.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $2.6 million, consisting of $2.4 million attributable to
pearl operations and $0.2 million attributable to real estate operations, for
the quarter ended June 30, 2000, an increase of approximately $719K, or 39.2%,
from $1.8 million, consisting of $1.7 million attributable to pearl operations
and $0.1 million attributable to real estate operations, for the same period in
1999. The increase in SG&A was primarily attributable to increase in
compensation expenses, marketing expenses and other operating expenses, as net
sales increased and as the Company continued to develop its Internet business.
As a percentage of net sales, SG&A from pearl operations increased from 19.8%
for the quarter ended June 30, 1999 to 22.6% for the same period in 2000, while
SG&A from real estate operations increased from 1.1% for the quarter ended June
30, 1999 to 1.7% for the same period in 2000.
Interest Income
Interest income increased by $72K, or 58.7%, to $194K from the comparable period
in the prior year. The increase in interest income was due principally to 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 in August 1999; and an
increase in net sales for the quarter ended June 30, 2000.
Interest Expense
Interest expenses increased by $64K, or 42.9%, to $215K from the comparable
period in the prior year. The increase in net 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 weighted average short-term borrowing rate decreased
from 7.0% per annum for the quarter ended June 30, 1999 to 6.0% for the same
period in 2000.
--------
* 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, $250,499 may be
rounded to "$250K".
2
<PAGE> 13
Income Taxes
Income taxes and provision therefor for quarter ended June 30, 2000 decreased by
$47K to $320K as compared to $367K for the same period in 1999. Such decrease
was principally due to the decrease in income before income taxes.
Net Income
Net income for the quarter ended June 30, 2000 increased by $53K to $528K,
representing a 11.2% increase from $475K for the same period in 1999. The
increase was attributable to, among other things, an increase in net sales
during the quarter ended June 30, 2000.
Excluding income taxes and minority interests, the operating profit during the
quarter ended June 30, 2000 was $1.1 million, representing a 0.4% decrease,
compared to that of $1.1 million during the same period in 1999.
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 June
30, 2000, the Company had working capital of $38.2 million and a cash balance of
$15.6 million, compared to working capital of $39.3 million and a cash balance
of $19.5 million at March 31, 2000. The current ratio was 3.3 as at June 30,
2000 as compared with that of 3.8 as at March 31, 2000. Net cash used in
operating activities was $1.6 million for the quarter ended June 30, 2000, while
net cash provided by operating activities was $1.1 million for the same period
in 1999. The decrease in cash and cash equivalents by $3.9 million was mainly
used in financing the increase in inventories and accounts receivable and
purchase of available-for-sale securities.
Inventories increased by $3.4 million to $27.6 million at June 30, 2000 and the
inventory turns improved from 11.5 months as at March 31, 2000 to 10.7 months as
at June 30, 2000. The increase in inventories was attributable to the increase
in purchasing of higher priced South Sea and Tahitian pearls to meet increased
future demand.
Long-term debt (including current portion of long-term debt) was $3.1 million at
June 30, 2000, a decrease of $149K compared to that at March 31, 2000. The
decrease was attributable to repayment of installment loan during the quarter
ended June 30, 2000. The gearing ratio was 0.77 at June 30, 2000, compared to
0.78 at March 31, 2000.
The Company had available working capital facilities of $8.4 million in total
with various banks at June 30, 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 June 30, 2000, the Company only utilized approximately $0.2K
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.
3
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the quarter ended June 30, 2000, the Company made approximately 40.0% of
its purchases in Renminbi, with the remaining amounts mainly settled in Hong
Kong dollars, US dollars and Japanese Yen (only 4.4% of total purchase).
Although Renminbi has not been devalued, the Company's Management believes that
more likely than not (i) the Renminbi will be devalued in the foreseeable
future, and (ii) the Company will be able to purchase its pearls at lower prices
(in US dollar terms).
The Company's policy is to denominate all its sales in either US dollars or Hong
Kong dollars. Since the Hong Kong dollar 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 immaterial, 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 quarter.
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 $3.1 million, was HIBOR+2.5% to
HIBOR+3.0% during the 3-month period (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 June 30, 2000, the aggregate amount outstanding
under all banking facilities and the installment loans was approximately $3.1
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 $15,500 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.
4
<PAGE> 15
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
NEW OFFICE LEASE
On April 1, 2000, Man Sang Jewellery Company Limited, a wholly owned subsidiary
of MSIL, entered into a tenancy agreement to lease the 27th Floor of Railway
Plaza, 39 Chatham Road South, Tsimshatsui, Kowloon, Hong Kong for a term of 3
years, at a monthly rental of approximately $23,200. The Group plans to use such
premises to house its operations in business solutions as carried out by Intimex
Business Solutions Company Limited and its former principals, and its operations
in retail sale of jewellery and accessories as carried out by Arcadia Jewellery
Limited ("Arcadia")(through traditional retail) and Wet Wet Cyber Company
Limited (through its e-commerce website, www.4376zone.com). In connection with
such new tenancy, on July 8, 2000, Arcadia surrendered without compensation the
office space it previously leased at Units 801 and 802, Multifield Plaza, 3 Prat
Avenue, Tsimshatsui, Kowloon, Hong Kong.
PURCHASE OF PUBLICLY TRADED SECURITIES
During the quarter ended June 30, 2000, MSIL, the Company's subsidiary,
purchased approximately $2.1 million of available-for-sale securities listed on
The Hong Kong Stock Exchange.
BONUS ISSUE OF SHARES BY MSIL
The Company is the sole parent of Man Sang International (B.V.I.) Limited, a
company incorporated in the British Virgin Islands ("MSBVI"). As at August 2,
2000, MSBVI legally and beneficially owned approximately 67.42% of the issued
and outstanding shares of MSIL.
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<PAGE> 16
On August 2, 2000, MSIL's shareholders approved a bonus issue of shares to
MSIL's shareholders on the basis of one bonus share for every five shares of
MSIL held on August 2, 2000 (the "Bonus Issue"). Based on 526,559,109 shares
issued and outstanding as at August 2, 2000, 105,311,821 bonus shares, credited
as fully paid by way of capitalization from the share premium account of MSIL,
(the "Bonus Shares") were allotted on August 3, 2000. The Bonus Shares rank
pari passu in all respects with the existing issued shares of MSIL.
No fractional shares were issued; they were aggregated and will be sold in
the public market. The proceeds from such sales will be retained for the
benefit of the Company.
Documents relating to the Bonus Issue have only been registered or filed under
the securities legislation of Hong Kong. As a result, shares were not issued to
shareholders whose addresses as shown on MSIL's register of shareholders on
August 2, 2000 were outside Hong Kong (the "Overseas Shareholders").
Arrangements will be made for the bonus shares that would otherwise be issued
to the Overseas Shareholders to be sold in the public market as soon as
practicable. Any net proceeds of such sales, after deduction of expenses, will
be distributed in Hong Kong dollars to such Overseas Shareholders pro rata to
their respective shareholdings in MSIL, provided that amounts of less than
HK$100 will not be distributed but will be retained for the benefit of MSIL.
MSIL has applied with The Hong Kong Stock Exchange, and The Hong Kong Stock
Exchange has granted its approval for the listing of, and the permission to deal
in, Bonus Shares. Dealings in the Bonus Shares commenced on August 10, 2000.
After the Bonus Issue, MSBVI legally and beneficially owned approximately
67.42% of the issued and outstanding shares of MSIL.
ITEM 6. EXHIBITS
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(B) Reports on Form 8-K
None
6
<PAGE> 17
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, Man Sang Holdings, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MAN SANG HOLDINGS, INC.
Date: August 14, 2000
By: /s/ CHENG Chung Hing, Ricky
---------------------------
CHENG Chung Hing, Ricky
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer
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<PAGE> 18
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>
27.1 Financial Data Schedule
</TABLE>
8
