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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, 2002 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)
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)
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 $1,549,470 as of June 18, 2002, 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.
4,815,960 shares of Common Stock Issued and Outstanding as of June 18, 2002.
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.
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 15
ITEM 6. SELECTED FINANCIAL DATA 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 28
ITEM 11. EXECUTIVE COMPENSATION 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS 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 44
SUPPLEMENTAL REPORTS TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-
REPORTING ISSUERS 45
INDEX TO EXHIBITS 46
FINANCIAL STATEMENTS
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"). The structure of the Company as of the date of
this annual report on Form 10-K is as follows:-
-1-
[ORGANIZATIONAL CHART OF MAN SANG GROUP]
HISTORY OF THE COMPANY
The Company was incorporated in the State of Nevada in November 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 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 US 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 $6.76 million. All 6,760 shares of Series B Preferred Stock were converted
into 5,223,838 shares of Common Stock, of which 5,219,448 shares were issued in
fiscal 1997 before a 1-for-4 reverse stock split which the Company effected in
October 1996, and the balance of 4,390 shares of Common Stock issuable upon
conversion of Series B Preferred Stock were issued as 1,098 shares of Common
Stock (post reverse stock split) during fiscal 1998.
On July 30, 1997, Man Sang International Limited ("MSIL") was incorporated as an
exempted company under the Companies Act 1981 of Bermuda. On September 8, 1997,
Man Sang BVI acquired MSIL and underwent a corporate reorganization. Thereafter,
MSIL held directly or indirectly the interests of various operating subsidiaries
in Hong Kong and the PRC.
- --------
*Unless otherwise indicated as Hong Kong dollars or HK$, 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$7.80 for US$1, the approximate free rate of
exchange at March 31, 2002. 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$7.80 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$7.80 to US$1.
-2-
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 ("IPO") of 127,500,000 shares ("Shares") of HK$0.1 each at HK$1.08 per
share with warrants (each an "IPO Warrant") in the proportion of 1 IPO Warrant
for every 5 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 ("Scrip Shares") with a cash option ("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 1 Bonus Warrant for every 5 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. 45,603
Shares were issued in fiscal 2000 upon exercise of Bonus Warrants; all other
Bonus Warrants expired without exercise.
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
Shares of MSIL at a price of HK$0.33 per Share. 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.
On August 2, 2000, at the 2000 Annual General Meeting of MSIL, MSIL's
shareholders approved a bonus issue of Shares to MSIL's shareholders on the
basis of 1 bonus Share for every 5 Shares of MSIL held on August 2, 2000 (the
"Bonus Issue"). Based on the 526,559,109 MSIL 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, were allotted on August
3, 2000. The bonus Shares rank pari passu in all respects with the existing
issued Shares of MSIL. After the Bonus Issue, and the placement of Shares in
1999 and exercise of Bonus Warrants referred to above, Man Sang BVI legally and
beneficially owned approximately 67.42% of the issued and outstanding Shares of
MSIL.
-3-
On November 26, 2001, MSIL issued 120,000,000 Shares through a private
placement, which constituted approximately 18.99% of the issued share capital of
MSIL immediately before, and approximately 15.96% of the issued share capital of
MSIL immediately after, said placement. Said placement in 2001 (i) increased the
number of issued and outstanding Shares of MSIL from 631,870,930 to 751,870,930,
and therefore (ii) decreased Man Sang BVI's legal and beneficial ownership in
MSIL from 67.42% to 56.66%.
On June 7, 2002, the Company issued in aggregate 410,000 shares of Common Stock,
par value $0.001 per share, to 2 business consultants pursuant to 2 separate
business consulting agreements dated June 1, 2002.
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 ("MSJ")
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. ("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.
-4-
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.
The PRC is a major supplier of freshwater pearls. In addition to the traditional
smaller freshwater pearls ranging in size from 5mm to 7mm, since 1999 there was
a supply of high quality freshwater pearls ranging in size from 8mm to 10mm, or
even sometimes up to 15mm. These larger freshwater pearls contribute a higher
gross profit margin than the traditional smaller freshwater pearls. In fiscal
2001, and continuing into fiscal 2002, there was an overall increase in the
supply of freshwater pearls.
The PRC has emerged as a major supplier of cultured pearls, ranging in size from
5mm to 8mm. Since 1996, Japan has been losing its long held dominance in the
cultured pearl industry because Japanese cultured pearls have been in poor
harvests. Meanwhile, Chinese cultured pearls have been improving in quality and
competitively priced. As a result, the Company has been shifting its cultured
pearls product mix from Japanese to Chinese cultured pearls.
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.
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 $1,000 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 $70,000 per 16-inch strand.
The following table illustrates by pearl category the typical range of size and
wholesale price of cultured pearls the Company sells, with price variations
within each category reflecting size and qualitative differences:
-5-
SIZE PRICE/16 INCH STRAND
mm US$
Freshwater pearls 2 - 13 2 - 1,000
Chinese cultured pearls 5 - 7.5 13 - 300
Japanese cultured pearls 7 - 10 100 - 2,000
Tahitian pearls 8 - 16 300 - 25,000
South Sea pearls 8 - 18 300 - 70,000
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, 2002,
freshwater and cultured pearls sales as a percentage of the Company's sales of
pearls and assembled pearl products were as follows:
Loose and Assembled
Year Strands Pearls Pearl Jewelry
---- -------------------------- ---------------------------
Freshwater Cultured Freshwater Cultured
% % % %
2002 66 92 34 8
2001 53 92 47 8
2000 68 90 32 10
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, Hong Kong, Philippines and Tahiti, 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
-6-
experienced any difficulty in purchasing raw materials.
In fiscal 2002, the five largest suppliers of the Company accounted for
approximately 34.1% (2001: 40.4%) of the Company's total purchases, with the
largest supplier accounting for approximately 9.5% (2001: 12.1%) of the
Company's total purchases.
In fiscal 2002, approximately 35.3% of the Company's purchases were made in
Renminbi, with the remaining amount settled in Japanese Yen, French Polynesian
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 2002. 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 33,260 square feet and employ 275 workers while cultured
pearl processing and assembly operations occupy approximately 23,788 square feet
and employ 260 workers. The average compensation per factory worker is US$80 per
month while average supervisory compensation is US$188 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, 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 25,000 kg (2001: 20,000 kg) of freshwater pearls and 10,600 kg
(2001: 10,400 kg) of cultured pearls annually. Fiscal 2002 production totaled
approximately 13,367 kg of freshwater pearls and 6,761 kg of cultured pearls,
compared to the production of 8,907 kg of freshwater pearls and 8,432 kg of
cultured pearls in fiscal 2001. The Company presently also has adequate assembly
and finishing personnel and facilities to produce approximately 1.2
-7-
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.
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 Internet web pages (www.mspearl.com and
www.4376zone.com) to market the Company and its 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 2002, no customer accounted for more than 10% of the Company's sales,
and the five largest customers of the Company accounted for approximately 20.2%
(2001: 25.3%), with the largest customers accounting for approximately 9.3%
(2001: 7.5%) of the Company's sales. As of March 31, 2002, the Company had
approximately 800 customers. The Company has no long-term contract with any
customer. Most of the Company's customers have been in business with the Company
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 predominantly all its sales in either US
dollars or Hong Kong dollars. Since Hong Kong dollar remained "pegged" to the US
dollar throughout fiscal 2002, the Company's sales proceeds have thus far had
minimal exposure to foreign exchange fluctuations. See "Item 7A - Quantitative
and Qualitative Disclosures about Market Risk".
-8-
The following table sets forth by region and by product the net sales of the
Company for the years ended March 31, 2002, 2001 and 2000:
2002 2001 2000
---- ---- ----
US$'000 % US$'000 % US$'000 %
Cultured Pearls
North America 7,692 21.2 6,922 17.2 5,358 14.9
Europe 5,384 14.9 4,074 10.2 4,944 13.7
Hong Kong 6,392 17.6 5,474 13.6 3,526 9.8
Other Asian countries 7,023 19.4 9,067 22.6 4,741 13.1
Others 952 2.6 1,146 2.9 861 2.4
------ ----- ------ ----- ------ -----
Sub-total 27,443 75.7 26,683 66.5 19,430 53.9
------ ----- ------ ----- ------ -----
Freshwater Pearls
North America 861 2.4 2,155 5.4 3,048 8.5
Europe 1,049 2.9 1,846 4.6 3,695 10.3
Hong Kong 311 0.9 615 1.5 1,253 3.5
Other Asian countries 1,867 5.1 1,188 2.9 2,350 6.5
Others 158 0.4 116 0.3 481 1.3
------ ----- ------ ----- ------ -----
Sub-total 4,246 11.7 5,920 14.7 10,827 30.1
------ ----- ------ ----- ------ -----
Assembled Pearl
Jewelry 4,557 12.6 7,540 18.8 5,780 16.0
------ ----- ------ ----- ------ -----
Total 36,246 100.0 40,143 100.0 36,037 100.0
====== ===== ====== ===== ====== =====
A majority of sales (by dollar amount) in Hong Kong is 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:-
Fiscal Year Ended March 31,
2002 2001 2000
---- ---- ----
US$'000 % US$'000 % US$'000 %
First Quarter 9,397 25.9 10,511 26.2 8,779 24.4
Second Quarter 9,313 25.7 12,333 30.7 9,252 25.7
Third Quarter 7,324 20.2 8,529 21.3 8,192 22.7
Fourth Quarter 10,212 28.2 8,770 21.8 9,814 27.2
------ ----- ------ ----- ------ -----
Total 36,246 100.0 40,143 100.0 36,037 100.0
====== ===== ====== ===== ====== =====
-9-
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 50 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 $3.4 million.
As of March 31, 2002, Man Sang Industrial City consisted of 24 buildings
encompassing a total gross floor area of approximately 559,356 square feet. 19
of the buildings in Man Sang Industrial City are factory buildings and 5 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.
-10-
Leasing and Management
The Company presently utilizes 5 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 26 persons to provide required management,
leasing, maintenance and security for Man Sang Industrial City.
As of March 31, 2002, the 19 buildings in Man Sang Industrial City, other than
the 5 buildings utilized for the Company's pearl operations, were leased to
third party industrial users. Such facilities are typically offered under leases
ranging in duration from 1 year to 3 years. The gross rental income from Man
Sang Industrial City for fiscal 2002 was approximately $574,000 compared to
approximately $601,000 for fiscal 2001. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Year Ended March
31, 2002 Compared to Year Ended March 31, 2001 - 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. 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 was made on December 29, 2000 for a term of 3 years starting from
February 1, 2001. The rental income totaled approximately $33,846 for fiscal
2002 and approximately $24,946 for fiscal 2001. See "Item 2 - Properties - Hong
Kong";
b. 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 was entered
into during fiscal 2002 at a monthly rental of $1,626 for a term of 2 years
starting from May 12, 2001. The rental income totaled approximately $19,783 for
fiscal 2002 and approximately $22,088 for fiscal 2001. See "Item 2 - Properties
- - Hong Kong";
c. Parking space No. L-30 on the Ground Floor of Block A, Focal Industrial
Centre, 21 Man Lok Street, Kowloon, Hong Kong. A tenancy agreement was made at a
monthly rental of $619 for a term of 2 years starting from September 1, 2000.
The rental income totaled approximately $7,385 for each of fiscal 2002 and for
fiscal 2001. See "Item 2 - Properties - Hong Kong";
d. Parking space No. 3 on Floor L3 of Valverde, 11 May Road, Hong Kong. A
tenancy agreement on this property and property (e) below was made during the
year. See "Item 2 - Properties - Hong Kong".
e. 1,063 square feet at Flat A on 33rd Floor, Valverde, 11 May Road, Hong Kong.
A tenancy agreement on this property and property (d) above was made at a total
monthly rental of $4,872 for a term of 2 years starting from March 15, 2002. The
rental income on this property and property (d) above totaled approximately
$55,732 for fiscal 2002, approximately $26,452 for fiscal 2001. See "Item 2 -
Properties - Hong Kong".
f. 10,880 square feet at 19th Floor, Railway Plaza, 39 Chatham Road South,
-11-
Tsimshatsui, Kowloon, Hong Kong. A tenancy agreement was made at a monthly
rental of $19,528 for a term of 1 year from March 15, 2002. The rental income
totaled approximately $273,978 for fiscal 2002, compared to approximately
$24,950 for fiscal 2001. See "Item 2 - Properties - Hong Kong".
Competition
Competition among facilities such as Man Sang Industrial City is intense in the
Shenzhen Special Economic Zone. Because of economic incentives available for
businesses operating in the Shenzhen Special Economic Zone, numerous facilities
have been constructed to house such businesses. While a number of competing
facilities may offer greater amenities and may be operated by companies having
greater resources, and additional facilities may be constructed, the Company
believes that Man Sang Industrial City is competitive with other similar
facilities in the Shenzhen Special Economic Zone based on both the quality of
facilities and lease rates.
EMPLOYEES
As of May 31, 2002, the Group had 716 employees. No employee is governed by
collective bargaining agreements and the Company considers its relations with
its employees to be satisfactory. A breakdown of employees by function is as
follows:-
Hong Kong PRC Total
Senior management 6 -- 6
Marketing and sales 24 6 30
Purchasing 2 4 6
Finance and accounting 11 7 18
Processing and logistics 14 571 585
Human resources and administration 10 29 39
Real estate leasing -- 26 26
Information technology 6 -- 6
--- --- ---
Total 73 643 716
=== === ===
-12-
SEGMENT INFORMATION
Reportable segment income or loss, and segment assets are as follows:
Reportable Segment Income or Loss, and Segment Assets
2002 2001
------- -------
US$'000 US$'000
Revenues from external customers
Pearls 36,246 40,143
Real estate investment 965 713
------- -------
37,211 40,856
======= =======
Interest expenses
Pearls 240 374
Real estate investment 315 306
Corporate assets 71 222
------- -------
626 902
======= =======
Depreciation and amortization
Pearls 773 851
Real estate investment 234 133
Corporate assets 179 198
------- -------
1,186 1,182
======= =======
Operating income (loss)
Pearls 3,915 (7,825)
Real estate investment 179 (64)
------- -------
4,094 (7,889)
======= =======
Capital expenditure for segment assets
Pearls 277 828
Real estate investment -- 4,831
Corporate assets 6 571
------- -------
283 6,230
======= =======
Segment assets
Pearls 42,894 45,881
Real estate investment 10,511 10,886
Corporate assets 9,296 9,344
------- -------
62,701 66,111
======= =======
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 entered into a tenancy agreement for 3 years
commencing from July 1, 1999 and ending on June 30, 2002, with another optional
renewal term of 3 years upon expiry of the tenancy.
On April 1, 2000, the Company commenced leasing the premises at 27th Floor,
Railway Plaza, 39 Chatham Road South, Tsimshatsui, Kowloon, Hong Kong. The
premises has a gross floor area of approximately 10,880 square feet for the
trading of pearl jewelry and the retailing of jewelry and accessories through
its e-commerce website, www.4376zone.com. The lease has a term of 3 years
commencing from April 1, 2000 and ending on March 31, 2003, with an option to
renew for a further term of 3 years upon expiry of the tenancy.
The Company owns the 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. In fiscal 2002, the Company used the property
to house its operation in system integration consultancy.
-13-
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 had been using as the
Chairman's residence until February 5, 2002, when the Chairman moved to Flat B,
20th Floor, The Mayfair, 1 May Road, Hong Kong (see below). The Company is
considering leasing out the property.
The Company owns two residential flats with a gross floor area of approximately
1,784 square feet on Flat C and Flat D on 15th Floor, Windsor Mansion, 29-31
Chatham Road South, Tsimshatsui, Kowloon, Hong Kong, which the Company uses as
quarters for PRC employees on business trips to Hong Kong.
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. It was leased to an 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 Flat B, 20th Floor, The Mayfair, 1 May Road, Hong Kong,
which it had used as the Vice-Chairman's residence until January 13, 2002 when
the Vice Chairman moved out. The Chairman then moved in on February 6, 2002. The
Company currently pays for the Vice Chairman's stay at a hotel.
The Company owns an investment property with a gross floor area of approximately
10,880 square feet at 19th Floor, Railway Plaza, 39 Chatham Road South,
Tsimshatsui, Kowloon, Hong Kong, which the Company has leased to an independent
third party. See "Item 1 - Business - Real Estate Leasing Operations - Leasing
and Management" above.
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, 2002, Man Sang Industrial City consisted of 24 buildings
encompassing a total gross floor area of approximately 559,356 square feet. The
Company presently utilizes most of the units in 5 buildings for pearl
processing, administration and staff accommodation. The remaining 19 buildings,
amounting to approximately 490,564 square feet of floor space and representing
approximately 87.7% 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.
-14-
ITEM 3. LEGAL PROCEEDINGS
On November 1, 2001, MSJ filed an action in the High Court of Hong Kong against
a customer, World Wide Imports, Inc. to claim approximately $119,182 (for which
the Company has made full provision) plus interests and costs. Up to May 31,
2002, the Company has recovered $28,800 and the Company estimates that
non-recoverable costs in addition to the amount claimed, if any, will be
immaterial.
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, 2002.
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:-
Period Over the quarter On the last day of quarter
- ------ ---------------------- --------------------------
High Low High Low
---- ---- ---- ---
$ $ $ $
2002
June 30, 2001 1.39 0.75 0.82 0.75
September 30, 2001 1.14 0.71 0.95 0.95
December 31, 2001 2.00 0.75 1.80 1.70
March 31, 2002 2.10 1.10 1.16 1.16
2001
June 30, 2000 2.375 1.187 2.312 1.75
September 30, 2000 2.031 1.062 1.25 1.218
December 31, 2000 1.375 0.75 1.00 0.843
March 31, 2001 1.312 0.906 0.906 0.906
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.
-15-
HOLDERS
The number of record holders of the Company's Common Stock as of May 31, 2002,
was approximately 200. 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, 2002, 2001, 2000,
1999 and 1998, 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, 7A and 8 respectively, of this Report on Form
10-K.
(Amounts expressed in thousands except share data)
FOR THE FISCAL YEAR 2002 2001 2000 1999 1998
US$ US$ US$ US$ US$
Net sales 36,246 40,143 36,037 29,795 33,827
Gross profit 12,364 2,120 11,759 10,000 13,516
Rental income - gross 965 713 596 555 703
SG & A expenses
- for net sales 8,449 9,945 8,366 8,069 6,947
- for rental 786 777 504 538 453
Operating income (loss) 4,094 (7,889) 3,485 1,949 6,818
Interest expenses 626 902 701 581 475
Interest income 357 748 647 518 430
Non-operating income 240 866 849 268 2,786
Income (loss) before
income taxes (N1) 4,065 (7,177) 4,280 2,155 9,560
Income taxes expenses (benefits) 155 (428) 621 301 457
Minority interests 1,819 (2,337) 1,101 716 1,494
Net income (loss) (N1) 2,091 (4,412) 2,559 1,137 7,609
Net income (loss)
- per share 0.47 (1.00) 0.59 0.26 1.77
Depreciation and amortization 1,186 1,182 864 725 523
Gross profit margin (%) 34.11 5.28 32.63 33.56 39.96
-16-
AT MARCH 31 2002 2001 2000 1999 1998
US$ US$ US$ US$ US$
Working capital 34,459 28,376 39,256 34,212 37,713
Property, plant and
equipment, net 10,299 10,945 12,569 12,998 6,543
Real estate investments, net 10,511 10,886 4,262 3,851 3,882
Total assets 62,701 66,111 70,798 59,349 50,045
% Return on total assets 3.33 (6.67) 3.61 1.92 14.62
Long-term debts 2,822 3,781 2,695 3,292 2,496
Total liabilities (excluding
minority interests) 9,546 18,297 16,589 10,879 5,702
Minority interests 21,822 14,482 16,460 11,970 11,477
Stockholders' equity 31,333 33,332 37,748 36,500 34,866
Net book value per share 7.11 7.56 8.75 8.48 8.10
% Return on
stockholders' equity 6.67 (13.24) 6.78 3.12 21.82
Gearing ratio (N2) 0.93 0.90 0.78 0.53 0.42
Weighted average shares
outstanding 4,405,960 4,405,960 4,316,069 4,305,960 4,305,458
N1: Income before income taxes and net income is from continuing
operations.
N2: "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 are, by their nature, subject to risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
(a) future supplies, demands, and purchase and sale prices of pearl and pearl
jewelry in the international pearl and jewelry markets, and real estate in Hong
Kong and the PRC; (b) sales and profitability of the Company's products and its
future product mix; (c) the amount and nature of, and potential for, future
developments and competitions; (d) expansion, consolidation and other trends in
the pearl and jewelry industry; (e) the Company's business strategy; (f) the
Company's estimated financial information regarding its business; (g) tax
exemptions and tax rates; and (h) exchange rates. These forward looking
statements are based on assumptions and analyses made by the Company in light of
its experience and perception of historical trends, current conditions and
expected future developments, as well as other factors the Company believes to
be appropriate in particular circumstances. However, whether actual results and
developments will meet the Company's expectations and predictions depends on a
number of known and unknown risks and uncertainties and other factors, any or
all of which could cause actual results, performance or achievements to differ
materially from the Company's expectations, whether expressed or implied by such
forward-looking statements (which may relate to, among other things, the
Company's sales, costs and expenses, income, inventory performance, and
receivables). Primarily engaged in the processing and trading of pearls and
pearl jewelry products, and in real estate investment, the Company's ability to
achieve its
-17-
objectives and expectations are derived at least in part from assumptions
regarding economic conditions, consumer tastes, and developments in its
competitive environment. The following assumptions, among others, could
materially affect the likelihood that the Company will achieve its objectives
and expectations communicated through these forward-looking statements: (i) that
low or negative growth in the economies or the financial markets of our
customers, particularly in the United States and in Europe, will not occur and
reduce discretionary spending on good that might be perceived as "luxuries";
(ii) that the Hong Kong dollar will remain pegged to the US dollar at US$1 to
HK$7.8; (iii) that customer's choice of pearls vis-a-vis other precious stones
and metals will not change adversely; (iv) that the Company will continue to
obtain a stable supply of pearls in the quantities, of the quality and on terms
required by the Company; (v) that there will not be a substantial adverse change
in the exchange relationship between RMB and the Hong Kong or US dollar; (vi)
that there will not be substantial increase in tax burden of subsidiaries of the
Company operating in the PRC; (vii) that there will not be substantial change in
climate and environmental conditions at the source regions of pearls that could
have material effect on the supply and pricing of pearls; and (viii) that there
will not be substantial adverse change in the real estate market conditions in
the PRC and in Hong Kong. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of results of operations and financial
condition are based upon the Company's consolidated financial statements. These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. These principles require management to
make certain estimates and assumptions that affect amounts reported and
disclosed in the financial statements and related notes. Some of the most
significant estimates and assumptions include estimates of sales returns,
valuation of inventories, provisions for income taxes and uncollectible
accounts, the recoverability of non-consolidated investments and long-lived
assets. Actual results could differ from these estimates. Periodically, the
Company reviews all significant estimates and assumptions affecting the
financial statements and records the effect of any necessary adjustments.
The following critical accounting policies rely upon assumptions and estimates
and were used in the preparation of the Company's consolidated financial
statements:
Sales returns: Sales are recognized at the time products are shipped to
customers and collectibility for such sales is reasonably assured. Sales are
reported net of returns. The Company maintains a reserve for potential product
returns and it records, as a reduction to sales, its provision for estimated
product returns, which is based on historical experience.
Allowance for doubtful accounts: The Company maintains an allowance for doubtful
accounts based on estimates of the credit-worthiness of the Company's customers.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventories write-downs: The Company writes down the amount by which the cost of
inventories (determined by the weighted average method) exceeds their estimated
market values based on assumptions about future demand and market conditions. If
actual market
-18-
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Long-lived assets: The Company periodically evaluates the carrying value of
long-lived assets held or 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 value of the assets.
Non-consolidated investments: An adverse change in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments, thereby possibly
requiring an impairment charge.
Income taxes: Provisions for deferred income taxes are made using the asset and
liability method, under which deferred income taxes are recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities, and are 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, or all, of the deferred tax asset will not be realized.
OVERVIEW
Net sales in fiscal 2002 decreased by $3.9 million to $36.2 million,
representing a 9.7% drop when compared to net sales of $40.1 million in fiscal
2001. The decrease in sales was mainly attributable to a decrease in demand,
which was in turn mainly attributable to a general slow down of the economies
of, and weakened business and consumer confidence in, many of the Company's
major markets, especially immediately after September 11, 2001. Net sales in the
fourth quarter of fiscal 2002, however, was $10.2 million, compared to $8.8
million for the same period in fiscal 2001; such strong rebound was attributable
in part to increased marketing efforts of the Company, and in part to
improvement in the market sentiments.
Net income for fiscal 2002 was $2.1 million, compared to a net loss of $4.4
million for fiscal 2001. The results in fiscal 2001 were adversely affected by
the inventories write-down of $8.4 million, excluding which the net income would
have been $4.0 million.
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:
-19-
Year Ended March 31,
--------------------
2002 2001 2000
----- ----- -----
% % %
Net sales 100.0 100.0 100.0
Cost of sales 65.9 94.7 67.4
----- ----- -----
Gross profit 34.1 5.3 32.6
Rental income, gross 2.7 1.8 1.7
----- ----- -----
36.8 7.1 34.3
Selling, general and administrative expenses (25.5) (26.7) (24.6)
----- ----- -----
Operating income (loss) 11.3 (19.6) 9.7
Interest expenses (1.7) (2.3) (1.9)
Interest income 1.0 1.9 1.8
Other income 0.6 2.1 2.3
----- ----- -----
Income (loss) before income taxes
and minority interests 11.2 (17.9) 11.9
Income taxes (expenses) benefits (0.4) 1.1 (1.7)
----- ----- -----
Net income (loss) before minority interests 10.8 (16.8) 10.2
Minority interests (5.0) 5.8 (3.1)
----- ----- -----
Net income (loss) 5.8 (11.0) 7.1
===== ===== =====
YEAR ENDED MARCH 31, 2002 COMPARED TO YEAR ENDED MARCH 31, 2001
Net Sales and Gross Profit
Net sales in fiscal 2002 decreased by $3.9 million to $36.2 million,
representing a 9.7% drop when compared to net sales of $40.1 million in fiscal
2001. The decrease in sales was mainly attributable to a decrease in demand,
which was in turn mainly attributable to a general slow down of the economies
of, and weakened business and consumer confidence in, many of the Company's
major markets, especially immediately after September 11, 2001. Net sales in the
fourth quarter of fiscal 2002, however, was $10.2 million, compared to $8.8
million for the same period in fiscal 2001; such strong rebound was attributable
in part to increased marketing efforts of the Company, and in part to
improvement in the market sentiments.
Gross profit for the fiscal 2002, on the other hand, improved by $10.3 million
from $2.1 million for fiscal 2001 to $12.4 million. Gross profit in fiscal 2001
was adversely affected by a write-down of the Company's inventories in the
amount of $8.4 million.
Rental Income
Gross rental income increased by $252K**, or 35.3%, from $713K for fiscal 2001
to $965K for fiscal 2002. The increase in gross rental income was mainly
attributable to the rental income from 19th Floor, Railway Plaza, 39 Chatham
Road South, Tsimshatsui, Hong Kong, acquired in February 2001.
- -----
**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-
Selling, General and Administrative Expenses ("SG & A expenses")
SG & A expenses for fiscal 2002 were $9.2 million, consisting of $8.4 million
attributable to pearl operations and $0.8 million attributable to real estate
operations. This is a decrease of approximately $1.5 million, or 14.0%, from
$10.7 million, consisting of $9.9 million attributable to pearl operations and
$0.8 million attributable to real estate operations, during fiscal 2001.
Included in the SG&A expenses for fiscal 2002 were impairment loss on goodwill
of $76K and impairment loss on non-consolidated investments of $385K.
The decrease in SG&A expenses was partly due to a decrease in compensation
expenses as no stock options were granted by the Company or MSIL for fiscal 2002
(compared to fiscal 2001 when MSIL granted options to purchase 33,000,000 shares
at HK$0.297 per share), and partly due to a decrease in compensation, marketing
and other operating expenses under the Company's cost savings program. In
addition, the Company's investments in new marketing and distribution channels
were fully expensed in fiscal 2001.
As a percentage of net sales, SG & A expenses for pearl operations decreased
from 24.8% in fiscal 2001 to 23.3% in fiscal 2002.
Interest Income
Interest income for fiscal 2002 decreased by $391K to $357K from $748K in fiscal
2001. The decrease in interest income was principally due to lower interest
rates for fiscal 2002 as compared to interest rates for fiscal 2001 and the
withdrawal of bank deposits to pay down the Company's bank debts. See "Item 3.
Quantitative and Qualitative Disclosures About Market Risk".
Interest Expenses
Interest expenses for fiscal 2002 decreased by $276K to $626K from $902K in
fiscal 2001 as a result of drops in interest rates and the use by the Company of
bank deposits to pay down its bank debts.
Income Taxes Expenses (Benefits)
The Company's income taxes expenses for fiscal 2002 were $155K. This is in
contrast to income taxes benefits of $428K for fiscal 2001. The income taxes
benefits in fiscal 2001 were mainly attributable to a deferred tax asset of
$470K which arose from the inventories write-down in fiscal 2001.
Net Income (Loss)
Net income for fiscal 2002 was $2.1 million, compared to a net loss of $4.4
million for fiscal 2001. The net loss of fiscal 2001 was mainly attributable to
the inventories write-down of $8.4 million. Excluding inventories write-down,
income taxes and minority interests, operating income for fiscal 2002 was $4.1
million, compared to operating income of $1.2 million for fiscal 2001.
-21-
YEAR ENDED MARCH 31, 2001 COMPARED TO YEAR ENDED MARCH 31, 2000
Net Sales and Gross Profit
Net sales increased by $4.1 million, or 11.4%, from $36.0 million in fiscal 2000
to $40.1 million in fiscal 2001. The growth was mainly attributable to the
increase by 81.6% in the net sales of South Sea and Tahitian pearls as a result
of Company's sales efforts and its shift in product mix towards South Sea and
Tahitian pearls. South Sea pearls represented 41.5% of net sales in fiscal 2001
as compared to 25.4% of net sales in fiscal 2000.
Gross profit decreased by $9.6 million, or 81.9%, to $2.1 million for fiscal
2001 compared to $11.7 million for fiscal 2000. As a percentage of sales, gross
profit decreased from 32.6% to 5.3%. The significant drop in gross profit and
gross profit margin was in part due to a write-down of the Company's inventories
by $8.4 million, in part due to the shift of the Company's product mix from
Chinese freshwater pearls towards higher priced South Sea and Tahitian pearls
that yield lower margins, and in part due to the overall drop in margins for all
type of pearls.
Rental Income
Gross rental income increased by $117K, or 19.6%, to $713K for fiscal 2001
compared to $596K for fiscal 2000. The increase in gross rental income was
attributable to an increase in occupancy rate from 80.3% to 93.4% in the Man
Sang Industrial City facility located in the PRC. The rental income from the
Hong Kong properties totaled approximately $112K and $81K for fiscal 2001 and
2000, respectively.
SG & A expenses
SG & A expenses for fiscal 2001 were $10.7 million, consisting of $9.9 million
attributable to pearl operations and $0.8 million attributable to real estate
operations. This is an increase of approximately $1.8 million, or 20.9%, from
$8.9 million, consisting of $8.4 million attributable to pearl operations and
$0.5 million attributable to real estate operations, during fiscal 2000.
In fiscal 2001, in addition to an increase in compensation expenses, marketing
and other operating expenses all increased as net sales increased and the
Company continued to develop new product lines (such as jewelry and accessories)
and marketing and distribution channels (such as retail sales through
e-commerce). Other increases in SG & A expenses were due to increased
depreciation and repair and maintenance expenses for certain real estate
investments which were previously leasehold land and buildings.
As a percentage of net sales, SG & A expenses for pearl operations increased
from 23.2% in fiscal 2000 to 24.8% in fiscal 2001.
Interest Income
Interest income for fiscal 2001 increased by $101K to $748K from $647K in fiscal
2000, principally due to more time deposits placed in banks during fiscal 2001.
-22-
Interest Expenses
Interest expenses increased by $201K, or 28.9%, to $902K for fiscal 2001, from
$701K for fiscal 2000. The increase in interest expenses was due principally to
an increase in short-term bank borrowings by the Company's subsidiaries in PRC
to minimize the impact of a possible fluctuation of the Renminbi. The Company's
average borrowing rate fell to 6.0% per annum for fiscal 2001 as compared to
6.1% for the prior year.
Income Taxes (Expenses) Benefits
The Company has income taxes benefits of $428K for fiscal 2001. This is in
contrast to income taxes expenses of $621K for fiscal 2000. The income taxes
benefits were mainly attributable to a deferred tax asset of $470K because of
the inventories write-down. The income tax benefits would be used to offset
future income tax liabilities.
Net Income (Loss)
The Company has suffered a net loss of $4.4 million for fiscal 2001. This is in
contrast to a net income of $2.6 million for fiscal 2000. The loss was mainly
attributable to the inventories write-down, the softness of the market price of
the pearls and an increase in SG & A expenses for fiscal 2001.
Excluding income taxes and minority interests, the operating loss for fiscal
2001 was $7.2 million, compared to an operating income of $4.3 million for
fiscal 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
that, among other things, all business combinations entered into subsequent to
June 30, 2001, be accounted for using the purchase method of accounting. SFAS
No. 142 provides that goodwill and other intangible assets with indefinite lives
not be amortized, but will be tested for impairment on an annual basis. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 141 during the year ended March 31, 2002 and it did not impact
the Company's financial statements. The Company has adopted SFAS No. 142 on
April 1, 2002. There was no significant impact on the Company's financial
position and results of operations.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This statement addresses the diverse accounting practices for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company will be required to adopt this
standard on January 1, 2003. Management is assessing, but has not yet
determined, the impact that SFAS No. 143 will have on its financial position and
results of operations.
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The FASB also recently issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001. The FASB's new rules on
assets impairment supersede SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and portions of
APB Opinion 30 "Reporting the Results of Operations". The statement provides a
single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. The statement also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement dates as
presently required. Management is assessing, but has not yet determined, the
impact that SFAS No. 144 will have on its financial position and results of
operations.
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, 2002, the Company had working capital of $34.5 million, which included a
cash balance of $12.6 million (including restricted cash), compared to working
capital of $28.4 million, which included a cash balance of $16.8 million, at
March 31, 2001. The current ratio was 6.2 to 1 in fiscal 2002 as compared with
that of 3.0 to 1 in fiscal 2001. Net cash provided by operating activities was
$2.9 million and $2.3 million for fiscal 2002 and fiscal 2001, respectively. The
increase in cash and cash equivalents by $2.1 million was mainly generated by
operating activities.
Inventories increased by $0.9 million from $14.3 million at March 31, 2001 to
$15.2 at March 31, 2002 and the inventory turns in terms of months increased
from 6.1 months in
-24-
fiscal 2001 to 7.4 months in this fiscal year. Inventories was increased mainly
to cater to improved market sentiments as reflected in the growth in sales
during the fourth quarter when compared to the same period last year.
Long-term debts (including current portion of long-term debts) decreased from
$5.9 million at March 31, 2001 to $3.5 million. The decrease was attributable to
repayment of installment loans. The gearing ratio was 0.93 at March 31, 2002, as
compared with 0.90 at March 31, 2001. The increase was mainly attributable to
the increase in minority interests balance from $14.5 million at March 31, 2001
to $22.0 million at March 31, 2002 following the increase of minority
shareholdings in MSIL from 32.58% to 43.34% as a result of MSIL's private
placement of 120 million shares in November 2001.
The Company had available working capital facilities of $7.3 million in total
with various banks at March 31, 2002. Such banking facilities include letter of
credit arrangements, import loans, overdraft 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, 2002, the Company did not utilize such 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 2002, the Company made approximately 35.3% of its purchases in RMB,
with the remaining amounts mainly settled in Hong Kong dollars, US dollars and
Japanese Yen (11.2% of total purchase). The RMB is not a fully convertible
currency and the PRC government determines its exchange rate against other
currencies. There are conflicting speculations in the foreign exchange market
for either a devaluation of the RMB as an attempt of the PRC government to make
PRC exports more competitive, or a revaluation of the RMB following the PRC's
entry into the World Trade Organization. As the PRC has not declared any
intention to either devalue or revalue its currency, the management believes
that the imminent risk of a substantial fluctuation of the RMB exchange rate
remains low. However, to further minimize any exposure to any RMB fluctuations,
the Company borrows most of the cash it needs in the PRC through short-term
loans from PRC banks. At March 31, 2002, the Company had short-term RMB bank
borrowings of about $3.8 million, the weighted average interest rate was 5.6%
per annum.
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 minimal
exposure to foreign exchange fluctuations.
Therefore, since most of the Company's purchases are made in currencies that the
Company believes have low risk of appreciation or devaluation, and sales are
made in US dollars, the Company's management determined that the Company's
currency risk in the foreseeable future should not be material, and that no
derivative contracts such as forward contracts or options to hedge against
foreign exchange fluctuations were necessary during fiscal 2002.
-25-
In addition, the Company's interest expense is sensitive to fluctuations in the
general level of Hong Kong interest rates determined on the basis of Hong Kong
Inter-bank Offer Rate ("HIBOR"). As the Hong Kong dollar is pegged to the US
dollar, which in turn correlates Hong Kong interest rates to US interest rates,
any movement in US dollar interest rates is expected to have a corresponding
bearing on Hong Kong dollar interest rates. Since US interest rates have been
falling since June 30, 2000, three-month HIBOR has decreased by 4.2% from 6.5%
as at June 30, 2000 to 2.3% as at March 31, 2002, largely in line with changes
in US dollar rates. During fiscal 2002, the Company did not expect risks of a
material rise in Hong Kong interest rates, and did not enter into derivate
contracts or other arrangements to hedge against such risks. At March 31, 2002,
the Company had Hong Kong dollar bank borrowings of about $3.5 million, and the
weighted average interest rate was 3.3% per annum.
-26-
ITEM 8. FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Consolidated Statements of Income and Comprehensive Income for the years
ended March 31, 2002, 2001 and 2000 F-2
Consolidated Balance Sheets as of March 31, 2002 and 2001 F-3
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the years
ended March 31, 2002, 2001 and 2000 F-6
Notes to Consolidated Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
-27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 28, 2002, 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).
NAME AGE POSITION(S) HELD TERM OF OFFICE
- ---- --- ---------------- --------------
Cheng Chung Hing, Ricky 41 President and
Chairman of the Board 1/96 - present
Chief Executive Officer 1/98 - present
Chief Financial Officer 2/99 - 8/99
and 8/00 - present
Cheng Tai Po 50 Vice Chairman of the Board 1/96 - present
Yan Sau Man, Amy 39 Vice President and Director 1/96 - present
Lai Chau Ming, Matthew 49 Director 11/96 - present
Yuen Ka Lok, Ernest 39 Director 11/96 - present
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.
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NAME AGE POSITION HELD
- ---- --- -------------
Cheng Chung Hing, Ricky 41 President, Chairman,
Chief Executive Officer,
Chief Financial Officer
Cheng Tai Po 50 Vice Chairman
Yan Sau Man, Amy 39 Vice President
Ho Suk Han, Sophia 33 Secretary
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 Chief Executive Officer of
the Company on January 2, 1998. 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 again appointed Chief
Financial Officer on August 2, 2000. Mr. Cheng was appointed Chairman and a
Director of MSIL, an indirect subsidiary listed on The Hong Kong Stock Exchange,
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.
-29-
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 Sales Associate Director
of DBS Vickers (Hong Kong) Limited ("DBS Vickers"). Prior to his joining DBS
Vickers 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 nearly 30 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 PriceWaterhouse Coopers),
an international accounting firm. Mr. Yuen is experienced in civil and criminal
litigations as well as general commercial transactions.
HO Suk Han, Sophia, has served as Secretary of the Company since January 1998.
Miss Ho has over 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 and Yan Sau Man, Amy were granted non-qualified stock options to
-30-
purchase Common Stock on September 16, 1997 and such individuals filed Forms 4
in respect thereof on April 9, 1998. See "Item 11 - Executive Compensation."
COMMITTEES AND ATTENDANCE OF THE BOARD OF DIRECTORS
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 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 Hong Kong Stock Exchange. With his extensive experience, the Company
invited him to act as Chairman of the Audit Committee. All the committee members
are independent as defined in the applicable standards of the National
Association of Securities Dealers.
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 conducts any other duties as the Board of Directors may
delegate. The Board of Directors has adopted a charter for the Committee to set
forth its authority and responsibilities.
During the year ended March 31, 2002, 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, 2002, the Compensation Committee met two times 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.
ATTENDANCE OF THE BOARD OF DIRECTORS
During the year ended March 31, 2002, the Board of Directors held seven
meetings. Each of Mr. Cheng Chung Hing, Ricky, Mr. Yuen Ka Lok, Ernest and Mr.
Lai Chau Ming, Matthew attended less than 75% of the meetings of the Board of
Directors. However, Mr. Yuen Ka Lok, Ernest and Mr. Lai Chau Ming, Matthew
attended all the meetings of the committees of the Board of Directors on which
they served.
-31-
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 2001 Annual General Meeting of MSIL held in August 2001, 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 2002.
As at June 28, 2002, the Company via its subsidiary, Man Sang BVI, holds
426,000,000 shares, or 56.66% 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 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 2002, all executive officers received their salaries from MSIL and
each of Cheng Chung Hing, Ricky and Cheng Tai Po received a bonus from the
Company.
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
During fiscal 2002, other than its Chief Executive Officer, the Company had two
executive officers whose annual compensation exceeded $100,000. The following
table sets forth information concerning cash and non-cash compensation paid to
such persons during fiscal 2002.
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LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(4) OPTIONS GRANTED
- --------------------------- ---- ------ ----- --------------- ---------------
($) ($) ($) (#)
Cheng Chung Hing, Ricky 2002 384,615 128,205(1) 87,840(5) -
Chairman of the Board, 2001 387,097 129,032(1) 66,968(5) 12,000,000(7)
President, CEO & CFO 2000 387,097 290,322(2) 76,469(5) 1,560,243(7)
Cheng Tai Po 2002 384,615 128,205(1) 138,934(6) -
Vice Chairman 2001 387,097 129,032(1) 152,981(6) 12,000,000(7)
2000 387,097 290,322(2) 156,185(6) 1,560,243(7)
Yan Sau Man, Amy 2002 153,846 - - -
Vice President and Director 2001 144,086 10,753(3) - 6,000,000(7)
2000 129,032 25,806(3) - 2,400,375(7)
(1) Each of Cheng Chung Hing, Ricky and Cheng Tai Po received a bonus of
$128,205 and $129,032 from the Company for fiscal 2002 and 2001
respectively. MSIL paid no bonus in fiscal 2002 and 2001.
(2) Each of Cheng Chung Hing, Ricky and Cheng Tai Po received a bonus of
$129,032 and $161,290 from each of the Company and MSIL respectively for
fiscal 2000.
(3) Yan Sau Man, Amy received a bonus of $10,753 and $25,806 from MSIL for
fiscal 2001 and 2000 respectively.
(4) Although the officers receive certain perquisites such as company provided
life insurance, medical insurance and mandatory provident fund, the value of
such perquisites did not exceed the lesser of $50,000 or 10% of the
officer's salary and bonus.
(5) In addition to the amounts referred to in note (1) and (2) 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 $87,840, $66,968 and $76,469 for fiscal
2002, 2001 and 2000 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.
(6) In addition to the amounts referred to in note (1) and (2) above, Cheng Tai
Po is provided the right to use a leasehold property of the Company at no
cost as his personal residence till January 13, 2002. The estimated fair
rental value of such leasehold property was $135,351, $152,981 and $156,185
for fiscal 2002, 2001 and 2000 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. From January 14, 2002, Cheng Tai Po stays in a hotel
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when he is in Hong Kong at the Company's expenses. The hotel charge for
fiscal 2002 was $3,583.
(7) Cheng Chung Hing, Ricky, Cheng Tai Po and Yan Sau Man, Amy each received
options from MSIL in fiscal 2001 and 2000.
OPTION GRANTS IN FISCAL 2002
In fiscal 2002, neither the Company nor MSIL granted any option to any of its
directors or executive officers.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END OPTION/SAR
VALUES
No executive officer exercised his/her options to purchase Common Stock of the
Company or shares of MSIL in fiscal 2002.
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, 2002, the Company's 2002
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,
2002.
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[LINE GRAPH]
6/19/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02
------- ------- ------- ------- ------- ------- -------
The Company's Common Stock $100 $15.57 $8.93 $12.50 $16.07 $6.47 $8.28
IWI's Common Stock $100 $46.67 $8.32 $3.73 $21.33 $3.73 $16.00
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.
EMPLOYMENT AGREEMENTS
The Company itself has no employment agreement with any of its officers or
employees but in fiscal 2002, the Company paid bonus of $128,205 to each Cheng
Chung Hing, Ricky and Cheng Tai Po. Moreover, 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 September 1, 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 and renewed for another term of 3 years commencing on September 1,
2000. Each service agreement may be terminated by either party by giving
the other written notice of not less than 3 months;
-35-
- - the annual basic salary payable to each of Cheng Chung Hing, Ricky, Cheng
Tai Po and Yan Sau Man, Amy shall be HK$3 million, HK$3 million and HK$1.2
million respectively, subject to annual review by the Board of MSIL every
year; and
- - each of Cheng Chung Hing, Ricky, Cheng Tai Po and Yan Sau Man, Amy 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 income (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 Company paid each of Lai Chau Ming, Matthew and Yuen Ka Lok,
Ernest $12,821 for their services as non-employee directors of the Company in
fiscal 2002. MSIL paid $12,281 and $25,641 to Yuen Ka Lok, Ernest and Alexander
Reid Hamilton (who is not a director of the Company) respectively for their
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.
An amount of $500 is paid to each non-employee director and to Alexander Reid
Hamilton for his participation in each Audit Committee meeting. In fiscal 2002,
the Audit Committee members were compensated as follows:-
Amount Paid
----------------------
Audit Committee Members The Company MSIL
----------------------- ----------- ----
($) ($)
Lai Chau Ming, Matthew 2,000 N/A
Yuen Ka Lok, Ernest 2,000 2,000
Alexander Reid Hamilton 2,000 2,000
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are not executives of the Company or
any of its subsidiaries, save as disclosed in "Item 13 - Certain Relationships
and Related Transactions".
Except as described herein, 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.
-36-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
COMMON STOCK
The information furnished in the following table indicates beneficial ownership
of shares of the Company's Common Stock, as of June 28, 2002, 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.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- ------------------- ------------------------ ----------------
Cafoong Limited (2) (4) 2,750,000 52%
Cheng Chung Hing, Ricky (2) (3) (4) 2,850,000 54%
Cheng Tai Po (2) (3) (4) 2,850,000 54%
Yan Sau Man, Amy (3) (4) 100,000 2%
Lai Chau Ming, Matthew (4) - 0 - *
Yuen Ka Lok, Ernest (4) - 0 - *
Ho Suk Han, Sophia (4) - 0 - *
All executive officers and
directors as a group (6 persons) 3,050,000 58%
- -------------
* 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 Hing, Ricky, Cheng Tai Po and 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.
-37-
PREFERRED STOCK
The following table is furnished as of June 28, 2002, 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.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- ------------------- ------------------------ ----------------
Cafoong Limited (1) (2) 100,000 100%
- -----------
(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.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth (i) the number of securities to be issued upon
exercise of outstanding options, (ii) the weighted average of exercise price of
such outstanding options, and (iii) the number of securities remaining available
for future issuance, under (a) equity compensation plans that have been approved
by security holders and (b) equity compensation plans that have not been
approved by security holders of the Company.
(a) (b) (c)
Number of securities remaining
available for
future issuance under equity
Number of securities to be issued Weighed average compensation plans
upon exercise of outstanding exercise price (excluding securities reflected
Plan Category options outstanding options in column (a)(3))
- ------------- --------------------------------- ------------------- -------------------------------
Equity compensation plans
approved by security holders (1) 450,000 $1.22 1,450,000
Equity compensation plans not
approved by security holders (2) 43,261,319 HK$0.2408 29,670,774
---------- ----------
Total 43,711,319 31,120,774
(1) Shares indicated are those issuable upon exercise of options granted or
to be granted under the Company's 1996 Stock Option Plan.
-38-
(2) Shares indicated are those issuable upon exercise of options granted or
to be granted under MSIL's share option scheme adopted on September 8,
1997 (the "Share Option Scheme"). The Share Option Scheme has been
approved by the shareholders of MSIL, but not the shareholders of the
Company.
Under the Share Option Scheme, the MSIL Board of Directors may grant
options to executive directors, officers and employees of MSIL or its
subsidiaries (the "Group") to purchase MSIL shares, the per share
exercise price of which must be the greater of (i) 80% of the average
per share closing prices of MSIL shares on The Hong Kong Stock Exchange
for the five trading days immediately preceding the date of offer of the
relevant options or (ii) HK$0.10.
The maximum number of shares in respect of which options may be granted
(together with options exercised and options then outstanding) under the
Share Option Scheme will not, when aggregated with any shares subject to
any other schemes or plans involving the issue or grant of options over
shares or other securities of MSIL to, or for the benefit of, directors,
executives and/or employees of the Group, 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 options granted
pursuant to the Share Option Scheme and any other schemes or plans
involving the issue or grant of options over shares or other securities
of MSIL. The number of shares subject to options and to the Share Option
Scheme may be adjusted, in such manner as the independent accountants
shall certify in writing to the MSIL Board of Directors to be fair and
reasonable, in the event of any alteration in the capital structure of
MSIL whether by way of capitalization of profits or reserves, rights
issue, consolidation, subdivision or reduction of the share capital of
MSIL provided that no such adjustment shall be made in the event of an
issuance of shares as consideration in respect of a transaction to which
MSIL is a party.
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.
(3) The "securities remaining available for future issuance" under each of
the Company's 1996 Stock Option Plan and MSIL's Share Option Scheme are
shares of each respective company issuable upon the exercise of
authorized options under each respective plan that have not been
granted.
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 $53,792 respectively. During fiscal 2002,
the Company advanced $56,153 to Cheng Chung Hing, Ricky and $42,594 to Cheng Tai
Po respectively. Both of them repaid the amount before March 31, 2002. All such
advances were made on an interest free basis
-39
and without definitive repayment terms. 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. Cheng Chung Hing, Ricky has utilized a leasehold property of the Company
as his personal residence at no cost to him. Cheng Tai Po had also utilized a
leasehold property of the Company as his personal residence at no cost to him
from October 11, 1998 to January 13, 2002. See "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.
Lai Chau Ming, Matthew, a director of the Company, a member of the Compensation
Committee and the Audit Committee of the Board of Directors of the Company, is
Sales Associate Director at DBS Vickers. MSIL holds certain securities that are
quoted on The Hong Kong Stock Exchange, and maintains a securities account with
DBS Vickers. Mr. Lai is in charge of such account. MSIL pays standard brokerage
fees to DBS Vickers when transaction occurs. Mr. Lai has advised the Company
that he receives basic monthly salary and a year end performance bonus from DBS
Vickers, that he receives no commission from MSIL's securities transactions, and
that his performance on MSIL account is insignificant towards the calculation of
his year end performance bonus.
Alexander Reid Hamilton, Chairman of the Audit Committee of the Board of
Directors of the Company, is a director of MSIL.
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. 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.
-40-
(c) EXHIBITS
Exhibit No. Description
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)
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)
-41-
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 (8)
10.14 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Cheng Chung Hing (8)
10.15 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Cheng Tai Po (8)
10.16 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Yan Sau Man, Amy (8)
13.1 Annual report to security holders (4)
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on page 44)
99.1 Share Option Scheme of Man Sang International Limited, a
subsidiary of the Company (6)
- ----------
(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
-42-
(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
(8) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2000
-43-
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 28th day of June,
2002.
MAN SANG HOLDINGS, INC.
By: /s/ CHENG Chung Hing, Ricky
____________________________
CHENG Chung Hing, Ricky
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial 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:
NAME TITLE DATE
- ---- ----- ----
/s/ CHENG Chung Hing, Ricky
___________________________ Chairman of the Board, President, June 28, 2002
CHENG Chung Hing, Ricky Chief Executive Officer and
Chief Financial Officer
/s/ CHENG Tai Po
___________________________ Vice Chairman of the Board June 28, 2002
CHENG Tai Po
/s/ YAN Sau Man, Amy
___________________________ Vice President and Director June 28, 2002
YAN Sau Man, Amy
-44-
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 2002; 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 2002, a copy of any such annual
report or proxy materials shall be forwarded to the Commission when it is
forwarded to security holders.
-45-
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.
Exhibit No. Description
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)
-46-
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 (8)
10.14 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Cheng Chung Hing (8)
10.15 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Cheng Tai Po (8)
10.16 Service Agreement, dated August 31, 2000, between Man Sang
International Limited and Yan Sau Man, Amy (8)
13.1 Annual report to security holders (4)
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on page 44)
99.1 Share Option Scheme of Man Sang International Limited, a
subsidiary of the Company (6)
- ----------
(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
-47-
(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
(8) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2000
-48-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MAN SANG HOLDINGS, INC.
Independent Auditors' Report............................................ F-1
Consolidated Statements of Income and Comprehensive Income
for the years ended March 31, 2002, 2001 and 2000..................... F-2
Consolidated Balance Sheets as of March 31, 2002 and 2001............... F-3
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2002, 2001 and 2000............................. F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001 and 2000......................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
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, 2002 and 2001, 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, 2002, 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, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
Our audits also comprehended the translation of Hong Kong dollar amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2. Such U.S. dollar amounts are
presented solely for the convenience of readers in the United States of America.
/s/ DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Hong Kong
June 28, 2002
F-1
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands except share data)
Year ended March 31,
2002 2002 2001 2000
US$ HK$ HK$ HK$
Net sales................................................. 36,246 282,715 311,109 279,289
Cost of sales............................................. 23,882 186,276 294,676 188,153
------- ------- ------- -------
Gross profit.............................................. 12,364 96,439 16,433 91,136
Rental income, gross...................................... 965 7,526 5,526 4,620
------- ------- ------- -------
13,329 103,965 21,959 95,756
Selling, general and administrative expenses:
Pearls.................................................. (8,449) (65,901) (77,076) (64,836)
Real estate investment.................................. (786) (6,129) (6,022) (3,908)
------- ------- ------- -------
Operating income (loss)................................... 4,094 31,935 (61,139) 27,012
Interest expenses......................................... (626) (4,886) (6,990) (5,429)
Interest income........................................... 357 2,785 5,799 5,014
Gain on sale of warrants of a listed subsidiary........... - - - 2,629
Other income.............................................. 240 1,870 6,705 3,947
------- ------- ------- -------
Income (loss) before income taxes and
minority interests...................................... 4,065 31,704 (55,625) 33,173
Income tax (expenses) benefits............................ (155) (1,206) 3,320 (4,811)
Minority interests........................................ (1,819) (14,189) 18,112 (8,531)
------- ------- ------- -------
Net income (loss)......................................... 2,091 16,309 (34,193) 19,831
------- ------- ------- -------
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments................ 92 719 488 (366)
Unrealized holding loss on marketable
securities............................................ (174) (1,363) (2,929) -
------- ------- ------- -------
Other comprehensive loss, net of taxes and
minority interests...................................... (82) (644) (2,441) (366)
------- ------- ------- -------
Comprehensive income (loss)............................... 2,009 15,665 (36,634) 19,465
======= ======= ======= =======
Basic earnings (loss) per common share.................... $0.47 $3.70 $(7.76) $4.59
======= ======= ======= =======
Diluted earnings (loss) per common share.................. $0.47 $3.70 $(7.76) $4.12
======= ======= ======= =======
Weighted average number of shares of common stock outstanding:
- basic................................................. 4,405,960 4,405,960 4,405,960 4,316,069
- diluted............................................... 4,405,960 4,405,960 4,405,960 4,783,625
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-2
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
March 31,
2002 2002 2001
US$ HK$ HK$
Current assets:
Cash and cash equivalents............................................ 10,532 82,152 65,294
Restricted cash...................................................... 2,073 16,169 64,879
Marketable securities................................................ 1,741 13,584 11,734
Accounts receivable, net of allowance
for doubtful accounts of HK$10,054 and HK$5,214
in 2002 and 2001, respectively..................................... 7,797 60,814 62,620
Inventories.......................................................... 15,194 118,511 111,045
Prepaid expenses..................................................... 346 2,702 1,889
Deposits and other receivables....................................... 1,451 11,317 4,610
Other current assets................................................. 2,049 15,983 8,636
Income taxes receivable.............................................. - - 1,725
------- ------- -------
Total current assets............................................... 41,183 321,232 332,432
Property, plant and equipment, net................................... 10,299 80,333 84,821
Real estate investment, net.......................................... 10,511 81,986 84,369
Long-term investments, net of impairment loss of
HK$3,000 in 2002................................................... 427 3,330 6,330
Goodwill, net of amortization of HK$588 and
HK$393 in 2002 and 2001, respectively and
net of impairment loss of HK$591 in 2002........................... - - 786
Deferred tax assets.................................................. 281 2,188 3,643
------- ------- -------
Total assets....................................................... 62,701 489,069 512,381
======= ======= =======
F-3
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
(Dollars in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
2002 2002 2001
US$ HK$ HK$
Current liabilities:
Short-term borrowings................................................ 3,775 29,445 75,718
Current portion of long-term debts................................... 715 5,575 16,427
Accounts payable..................................................... 477 3,726 3,465
Amount due to affiliate.............................................. - - 184
Accrued payroll and employee benefits................................ 597 4,658 4,640
Other accrued liabilities............................................ 1,112 8,674 11,306
Income taxes payable................................................. 48 373 763
------- ------- -------
Total current liabilities.......................................... 6,724 52,451 112,503
------- ------- -------
Long-term debts........................................................ 2,822 22,010 29,306
------- ------- -------
Minority interests..................................................... 21,822 170,208 112,234
------- ------- -------
Commitments and contingencies (note 12)
Stockholders' equity:
Series A preferred stock US$0.001 par value
- authorized, issued and outstanding 100,000
shares in 2002 and 2001 (entitled in liquidation
to US$2,500 (HK$19,500))....................................... - 1 1
Series B preferred stock US$0.001 par value
- authorized 100,000 shares; no shares outstanding................. - - -
Common stock of par value US$0.001
- authorized 25,000,000 shares; issued and outstanding,
4,405,960 shares in 2002 and 2001.............................. 4 34 34
Additional paid-in capital........................................... 7,495 58,458 88,061
Retained earnings.................................................... 24,047 187,570 171,261
Accumulated other comprehensive loss................................. (213) (1,663) (1,019)
------- ------- -------
Total stockholders' equity......................................... 31,333 244,400 258,338
------- ------- -------
Total liabilities and stockholders' equity......................... 62,701 489,069 512,381
======= ======= =======
See accompanying notes to consolidated financial statements.
F-4
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except share data)
Accumulated Total
Series A Series B Additional other stock-
preferred stock preferred stock Common stock paid-in Retained comprehensive holders'
Shares Amount Shares Amount Shares Amount capital earnings income (loss) equity
HK$ HK$ HK$ HK$ HK$ HK$ HK$
Balance at April 1, 1999.. 100,000 1 - - 4,305,960 33 95,429 185,623 1,788 282,874
Issuance of common stock on
exercise of stock options - - - - 100,000 1 942 - - 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. 100,000 1 - - 4,405,960 34 85,636 205,454 1,422 292,547
Issuance of common shares
by subsidiary........... - - - - - - (696) - - (696)
Stock compensation expense - - - - - 3,121 - - 3,121
Translation adjustment.... - - - - - - - - 488 488
Unrealized holding loss on
marketable securities... - - - - - - - - (2,929) (2,929)
Net loss.................. - - - - - - - (34,193) - (34,193)
------- ------- ------- ------- --------- ------- ---------- ---------- ------- ----------
Balance at March 31, 2001. 100,000 1 - - 4,405,960 34 88,061 171,261 (1,019) 258,338
Issuance of common shares
by subsidiary........... - - - - - - (29,603) - - (29,603)
Translation adjustment.... - - - - - - - - 719 719
Unrealized holding loss on
marketable securities... - - - - - - - - (1,363) (1,363)
Net income................ - - - - - - - 16,309 - 16,309
------- ------- ------- ------- --------- ------- ---------- ---------- ------- ----------
Balance at March 31, 2002 100,000 1 - - 4,405,960 34 58,458 187,570 (1,663) 244,400
======= ======= ======= ======= ========= ======= ========== ========== ======= ==========
- - US$4 US$7,495 US$24,047 US$(213) US$31,333
======= ======= ======= ========== ========== ======= ==========
See accompanying notes to consolidated financial statements.
F-5
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year ended March 31,
2002 2002 2001 2000
US$ HK$ HK$ HK$
Cash flow from operating activities
Net income (loss)......................................... 2,091 16,309 (34,193) 19,831
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt provision...................................... 648 5,054 214 278
Provision for impairment loss of goodwill............... 76 591 - -
Provision for impairment loss of long-term
investments........................................... 385 3,000 - -
Depreciation and amortization .......................... 1,186 9,252 9,162 6,698
(Gain) loss on sale of property, plant and
equipment............................................. (7) (55) 733 (146)
Minority interests...................................... 1,819 14,189 (18,112) 8,531
Realised gain on sale of marketable securities.......... - - (2,027) -
Stock compensation expense.............................. - - 4,620 1,127
Changes in operating assets and liabilities:
Accounts receivable................................... (425) (3,315) (7,136) (856)
Inventories........................................... (958) (7,471) 77,021 (16,409)
Prepaid expenses ..................................... (104) (813) 1,987 (2,353)
Deposits and other receivables........................ (860) (6,707) 955 -
Other current assets.................................. (942) (7,347) (768) (2,158)
Income taxes receivable............................... 221 1,725 (1,741) -
Deferred tax assets................................... 187 1,455 (3,643) -
Accounts payable...................................... 33 261 (4,931) (433)
Amount due to affiliate............................... (24) (184) (420) 604
Accrued payroll and employee benefits................. 2 18 614 (698)
Other accrued liabilities............................. (338) (2,632) (1,039) 1,913
Income taxes payable.................................. (50) (390) (3,432) 206
------- ------- ------- -------
Net cash provided by operating activities................. 2,940 22,940 17,864 16,135
------- ------- ------- -------
Cash flow from investing activities
Expenditure on real estate investment..................... - - (37,439) -
Purchase of marketable securities......................... (459) (3,578) (23,486) -
Purchase of property, plant and equipment................. (283) (2,207) (10,845) (6,550)
Decrease (increase) in restricted cash.................... 6,245 48,710 (2,422) (43,499)
Proceeds from sale of marketable securities............... - - 9,430 -
Acquisition of subsidiaries............................... - - 89 -
Proceeds from sale of property, plant
and equipment........................................... 9 73 67 171
Purchase of long-term investments......................... - - - (900)
------- ------- ------- -------
Net cash provided by (used in) investing
activities.............................................. 5,512 42,998 (64,606) (50,778)
------- ------- ------- -------
Cash flow from financing activities
Increase in short-term borrowings......................... 2,073 16,170 87,352 88,115
Increase in long-term debts............................... - - 25,000 -
Investment from minority shareholder...................... - - 525 3,092
Repayment of short-term borrowings........................ (7,869) (61,378) (85,469) (40,835)
Repayment of long-term debts.............................. (2,327) (18,148) (4,778) (4,665)
Net proceeds from issuance of common shares
by a subsidiary......................................... 1,799 14,030 - 12,769
Net proceeds from issuance of common stock................ - - - 943
Dividend paid to minority shareholders.................... - - - (1,294)
------- ------- ------- -------
F-6
Net cash (used in) provided by financing activities....... (6,324) (49,326) 22,630 58,125
------- ------- ------- -------
F-7
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Dollars in thousands)
Year ended March 31,
2002 2002 2001 2000
US$ HK$ HK$ HK$
Net increase (decrease) in cash and cash
equivalents............................................. 2,128 16,612 (24,112) 23,482
Cash and cash equivalents at beginning
of year................................................. 8,371 65,294 88,900 66,196
Exchange adjustments...................................... 33 246 506 (778)
------- -------- ------- --------
Cash and cash equivalents at end of year.................. 10,532 82,152 65,294 88,900
======= ======== ======= ========
Supplementary disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest and finance charges............................ 618 4,821 7,101 5,530
Income taxes (refunded) paid............................ (203) (1,584) 5,475 4,605
See accompanying notes to consolidated financial statements.
F-8
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 ("the PRC"). The
Company also derives rental income from real estate located at its pearl
processing facility in the PRC and from offices in Hong Kong. The
Company's activities are principally conducted by its majority held
publicly traded subsidiary, Man Sang International Limited ("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
the PRC 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 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.
In April, 2000, MSIL acquired all the issued share capital of Intimex
Business Solutions Company Limited ("IBS") at a consideration of HK$2,100
which was satisfied by an issue of 42,000,000 new shares of HK$0.05 each
in Cyber Bizport Limited, a wholly owned subsidiary of MSIL, representing
21% of the enlarged issued share capital of Cyber Bizport Limited. The
principal business of IBS is the provision of computer consultancy
services.
The acquisition was accounted for as a purchase and the results of IBS and
its subsidiary have been included in the accompanying consolidated
financial statements since the date of acquisition. The excess of the
purchase consideration over the fair value of the net assets acquired was
HK$1,179 and has been recorded as goodwill which is being amortized on a
straight-line basis over three years. In view of the unsatisfactory
financial performance of IBS, the remaining unamortized amount of HK$591
has been fully provided for impairment loss in 2002 accordingly.
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-9
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 40,000,000 shares for a cash consideration of
HK$13,200 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%
During the year ended March 31, 2001, MSIL issued 105,312,000 shares of
HK$0.10 each as a result of the bonus issue of shares in MSIL on the basis
of one bonus share for every five shares held on August 2, 2000. At March
31, 2001, the Company held approximately 67.42% of the issued share
capital of MSIL.
In November 2001, MSIL issued 120,000,000 shares for a cash consideration
of HK$14,400 representing approximately 15.96% of MSIL's issued and
outstanding shares after the issue to unrelated parties. As a consequence,
the Company's holding in MSIL was reduced to 56.66%. The difference
between the issue price and the Company's carrying value per share after
completion of the issuance amounted to HK$29,603 and has been deducted
from additional paid-in capital in accordance with policy adopted by the
Company. At March 31, 2002, the Company held approximately 56.66% of the
issued share capital of MSIL.
F-10
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, 2002, over 88% of the Company's
purchases were pearls. As a 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, 2002 the largest supplier of the Company accounted for
approximately 9.5%, 12.1% and 10.5% of the Company's total purchases,
respectively.
Of the Company's purchases, approximately 35% in 2002, 39% in 2001 and 52%
in 2000 was settled in Renminbi ("RMB"), the currency of the PRC.
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 the PRC 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 the PRC 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-11
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 properties held for real estate investment,
which is not amortized for local statutory reporting, the restatement of
properties included in real estate investment and property, plant and
equipment at cost, which is stated at open market value estimated by
external professional valuers for local statutory reporting, the
recognition of compensation cost over the vesting period for the stock
options granted by the Company and MSIL, which is not required for local
statutory reporting and the recognition of deferred tax asset, which is
not recognized for local statutory reporting unless its recoverability is
assured beyond reasonable doubt. At March 31, 2002, there was no material
difference between the retained earnings computed under U.S. 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.
Goodwill - The excess of the purchase price over the fair value of net
assets acquired is recorded on the consolidated balance sheet as goodwill.
Goodwill is amortized to expense on a straight-line basis over three
years. Amortization expense was HK$195 in 2002. Periodically, the Company
reviews the recoverability of goodwill. The measurement of possible
impairment is based primarily on the ability to recover the balance of the
goodwill from expected future operating cash flows on an undiscounted
basis. In management's opinion, there has been an impairment on goodwill
and an impairment loss of HK$591 has been recognized during the year ended
March 31, 2002.
Cash and cash equivalents - Cash and cash equivalents include cash on
hand, demand deposits, interest bearing savings accounts, and time
certificates of deposit with an original maturity of three months or less.
Inventories - Inventories are stated at the lower of cost determined by
the weighted average method, or market value. Finished goods inventories
consist of raw materials, direct labor and overhead associated with the
processing of pearls.
F-12
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Marketable securities - The Company classifies its marketable securities
as available-for-sale and carries them at market value with a
corresponding recognition of net unrealized holding gain or loss (net of
tax) as a separate component of stockholders' equity until realized. Gains
and losses on sales of securities are computed on a specific
identification basis. Marketable securities comprise:
March 31,
2002 2001
------- -------
HK$ HK$
Securities listed in Hong Kong:
Cost 19,661 16,083
Gross unrealized losses, including minority interests'
share of a loss of HK$1,785 in 2002 and
HK$1,420 in 2001 (6,077) (4,349)
------- -------
13,584 11,734
======= =======
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:
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
Long-term investments - The Company's long-term investments are accounted
for under the cost method.
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. In managements' opinion, there has
been an impairment on long-term investments and an impairment loss of
HK$3,000 has been recognized during the year ended March 21, 2002.
F-13
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
Revenue recognition - The Company recognizes revenue at the time products
are shipped to customers and collectibility for such sales is reasonably
assured. 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 Statement
of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per Share"
issued by the Financial Accounting Standards Board ("FASB").
Reconciliation of the basic and diluted EPS is as follows:
For the year ended For the year ended For the year ended
March 31, 2002 March 31, 2001 March 31, 2000
--------------------------- ------------------------ -----------------------------
Earnings Shares EPS Loss Shares EPS Earnings Shares EPS
-------- ------ --- ---- ------ --- -------- ------ ---
HK$'000 HK$ HK$'000 HK$ HK$'000 HK$
Basic EPS
Net income (loss) available to
common stockholders 16,309 4,405,960 3.70 (34,193) 4,405,960 (7.76) 19,831 4,316,069 4.59
===== ===== =====
Effect of dilutive securities
Stock options granted by the
Company - - - - - 467,556
Stock options and warrants
granted by a listed subsidiary - - - - (139) -
------- --------- ------- --------- ------- ---------
Diluted EPS
Net income (loss) available to
common stockholders,
including conversion 16,309 4,405,960 3.70 (34,193) 4,405,960 (7.76) 19,692 4,783,625 4.12
======= ========= ===== ======= ========= ===== ======= ========= ======
In 2001 and 2002, the effect on consolidated EPS of both warrants
and options issued by MSIL and options issued by the Company were
not included in the computation of diluted earnings per share
because it would have resulted in antidilutive effect.
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.
F-14
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
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.
Staff retirement plan costs - The Company's costs related to the
staff retirement plans are charged to the consolidated statement of
income as incurred.
Translation into United States Dollars - The 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 U.S. dollars are for convenience of
readers in the United States of America only and have been made at
the rate of HK$7.8 to US$1, the approximate free rate of exchange at
March 31, 2002. Such translations should not be construed as
representations that the Hong Kong dollar amounts could be converted
into U.S. 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 reports comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income".
Accumulated other comprehensive income represents translation
adjustments and unrealized holding loss on marketable securities and
is included in the stockholders' equity section of the balance
sheet.
Reclassification - Certain prior year amounts in the accompanying
consolidated financial statements have been reclassified to conform
to the current year's presentation. These reclassifications had no
effect on the net income or financial position for any year
presented.
Derivative instruments - Starting from April 1, 2001, the Company
has adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which 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. There was
no effect on the consolidated financial statements of the Company
upon the adoption of SFAS No. 133.
F-15
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
Recent changes in accounting standards - In June 2001, the FASB
issued SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". These statements, establish
accounting and reporting for business combinations. SFAS No. 141
requires that, among other things, all business combinations entered
into subsequent to June 30, 2001, be accounted for using the
purchase method of accounting. SFAS No. 142 provides that goodwill
and other intangible assets with indefinite lives not be amortized,
but will be tested for impairment on an annual basis. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001. The
Company adopted SFAS No. 141 during the year ended March 31, 2002
and it did not impact the Company's financial statements. The
Company has adopted SFAS No. 142 on April 1, 2002. There was no
significant impact on the Company's financial position and results
of operations.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses the diverse
accounting practices for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement
costs. The Company will be required to adopt this standard on
January 1, 2003. Management is assessing, but has not yet
determined, the impact that SFAS No 143 will have, if any, on its
financial position and results of operations.
The FASB also recently issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", that is applicable to
financial statements issued for fiscal years beginning after
December 15, 2001. The FASB's new rules on asset impairment
supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", and portions of
APB Opinion No. 30, "Reporting the Results for Operations". The
statement requires a single accounting model for long-lived assets
to be disposed of and significantly changes the criteria that would
have to be met to classify an asset as held-for-sale. Classification
as held-for-sale is an important distinction since such assets are
not depreciated and are stated at the lower of fair value and
carrying amount. The statements also requires expected future
operating losses from discontinued operations to be recorded in the
period(s) in which the losses are incurred, rather than as of the
measurement date as previously required. Management is assessing,
but has not yet determined, the impact that SFAS No. 144 will have,
if any, on its financial position and results of operations.
F-16
(This Page Intentionally Left Blank)
F-17
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
3. OTHER INCOME
Other income consists of the following:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Gain on sale of marketable securities -- 2,027 --
Foreign currency exchange gain, net . 378 1,722 2,696
Others .............................. 1,492 2,956 1,251
----- ----- -----
1,870 6,705 3,947
===== ===== =====
4. INCOME TAXES
Income is subject to taxation in the various countries in which the
Company and its subsidiaries operate.
The components of income (loss) before income taxes and minority
interests are as follows:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Hong Kong .............. 2,927 (35,682) 889
Other regions in the PRC 32,159 (16,581) 34,072
Corporate expenses, net (3,382) (3,362) (1,788)
------- ------- -------
31,704 (55,625) 33,173
======= ======= =======
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.
F-18
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
4. INCOME TAXES - continued
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 PRC 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 PRC
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 one of these
companies expire in calendar year 2002 and other two subsidiaries'
exemption expired on December 31, 2000 and 1999, respectively. These
exemptions do not apply to rental income.
The provision for income taxes consists of the following:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Current tax:
United States ................... (598) (212) 928
Subsidiaries operating in:
Hong Kong ..................... 7 (198) 1,196
Other regions in the PRC ...... 342 733 2,687
------ ------ ------
(249) 323 4,811
Deferred tax:
Subsidiary operating in Hong Kong 1,455 (3,643) --
------ ------ ------
Total ........................... 1,206 (3,320) 4,811
====== ====== ======
Had the tax holidays and concessions detailed above not been available, the tax
charge would have been increased by HK$385 in 2002, HK$928 in 2001 and HK$2,258
in 2000. Basic earnings per share in 2002 and 2000 would have been reduced by
HK$0.09 and HK$0.52, respectively, and basic loss per share in 2001 would have
been increased by HK$0.21. Diluted earnings per share in 2002 and 2000 would
have been reduced by HK$0.09 and HK$0.47, respectively, and diluted loss per
share in 2001 would have been increased by HK$0.21.
F-19
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
4. INCOME TAXES - continued
A reconciliation between the provision for income taxes computed by
applying the United States statutory tax rate to income (loss)
before income taxes and minority interests and the actual provision
for income taxes is as follows:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
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 10,779 (18,913) 11,279
(Non-taxable income) non-deductible expenses . (4,099) 9,360 --
Changes in valuation allowance ............... 2,134 5,490 --
International rate difference ................ (7,305) 1,478 (6,434)
Adjustment of estimated tax due .............. (648) (729) 205
Others ....................................... 345 (6) (239)
------- ------- -------
Income tax expenses (benefits) ............... 1,206 (3,320) 4,811
======= ======= =======
Details of deferred tax assets are as follows:
March 31,
2002 2001
---- ----
HK$ HK$
Deferred tax assets:
Operating loss carryforwards 9,812 9,133
Valuation allowance ........ (7,624) (5,490)
------ ------
2,188 3,643
====== ======
At March 31, 2002, subsidiaries of the Company had tax loss
carryforwards for Hong Kong tax purposes, subject to the agreement
of the Hong Kong Inland Revenue Department, amounting to
approximately HK$61,325, which have no expiration date. The loss
carryforwards can only be utilized by the subsidiaries generating
the losses.
Due to the uncertainty of the realization of certain operating loss
carryforwards, the Company has established a valuation allowance
against these carryforward benefits in the amount of HK$7,624.
Except to the extent that valuation allowances have been
established, the Company believes the carryforward benefits will be
realized within two years from March 31, 2002.
U.S. deferred tax liabilities have not been provided on
approximately HK$250,806 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$85,274.
F-20
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
5. INVENTORIES
Inventories by major categories are summarized as follows:
March 31,
2002 2001
------- -------
HK$ HK$
Raw materials .. 1,773 1,618
Work in progress 35,679 31,611
Finished goods . 81,059 77,816
------- -------
118,511 111,045
======= =======
During the year ended March 31, 2001, the Company made a write-down
of inventories, amounting to HK$65,000. No provision for write-down
of inventories was made for the year ended March 31, 2002.
6. STAFF RETIREMENT PLAN
According to the Mandatory Provident Fund ("MPF") legislation
regulated by the Mandatory Provident Fund Scheme Authority in Hong
Kong, with effect from December 1, 2000, the Company is required to
participate in an MPF scheme operated by approved trustees in Hong
Kong and to make contributions for its eligible employees. The
contributions borne by the Company are calculated at 5% of the
salaries and wages (monthly contribution is limited to 5% of HK$20
for each eligible employee) as calculated under the MPF legislation.
The contributions made for the year ended March 31, 2002 and 2001
amounted to HK$622, and HK$248, respectively.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
March 31,
2002 2001
---- ----
HK$ HK$
Leasehold land and buildings . 92,293 90,777
Plant and machinery .......... 6,938 6,839
Furniture and equipment ...... 8,928 8,688
Motor vehicles ............... 4,309 4,487
Less: accumulated depreciation (32,135) (25,970)
------- -------
Net book value ............... 80,333 84,821
======= =======
F-21
(This Page Intentionally Left Blank)
F-22
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
7. PROPERTY, PLANT AND EQUIPMENT - continued
Included in property, plant and equipment are assets acquired under
capital leases with the following net book values:
March 31,
2002 2001
---- ----
HK$ HK$
At cost:
Motor vehicles ............... -- 870
Less: accumulated depreciation -- (753)
---- ----
-- 117
==== ====
Amortization of capital lease assets, which is included in
depreciation expenses in the accompanying consolidated statements of
income, was HK$117 in 2002, HK$217 in 2001 and HK$218 in 2000.
8. REAL ESTATE INVESTMENT
March 31,
2002 2001
---- ----
HK$ HK$
At cost:
Leasehold land and buildings- Hong Kong 62,038 62,752
- Other regions of the PRC ........... 27,631 27,631
Less: accumulated depreciation ........ (7,683) (6,014)
------- -------
81,986 84,369
======= =======
The real estate investment in other regions of the PRC 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 are 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$7,526 in 2002, HK$5,526 in 2001 and HK$4,620 in 2000.
F-23
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
9. SHORT-TERM BORROWINGS
March 31,
2002 2001
---- ----
HK$ HK$
Bank loans ...................... 29,445 75,718
======= =======
Weighted average interest rate on
borrowings at end of year ..... 5.60% 5.97%
======= =======
At end of year:
Bank credit facilities .......... 86,445 176,843
Utilized ........................ 29,445 75,718
------- -------
Bank credit facilities available 57,000 101,125
======= =======
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, 2002, leasehold land and buildings with a net book
value of HK$38,747, real estate investments with a net book value of
HK$71,841 and cash of HK$16,169 were pledged as collateral for the
above facilities and long-term debts described in note 11. Other
than the cash pledged, there is no restriction on the use of the
assets pledged for such facilities and bank loans.
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
March 31,
2002 2001
---- ----
HK$ HK$
Accrued expenses . 2,517 3,391
Commission payable 552 517
Deposits received 1,893 1,400
Sundry payables .. 2,473 4,932
Others ........... 1,239 1,066
----- ------
8,674 11,306
===== ======
F-24
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
11. LONG-TERM DEBTS
March 31,
2002 2001
---- ----
HK$ HK$
Long-term debts consist of:
Bank loan bearing interest at Hong Kong Inter-Bank Offered Rate
("HIBOR") (2.27009% at March 31, 2002) plus 1.25%, repayable
by monthly instalments of HK$156 through 2009 .............. 12,969 24,844
Bank loan bearing interest at HIBOR plus 1.1%, repayable by
quarterly instalments of HK$625 through 2007 ............... 10,416 12,916
Bank loan bearing interest at HIBOR plus 1.5%, repayable by
quarterly instalments of HK$300 through 2006 ............... 4,200 5,400
Bank loan bearing interest at Hong Kong Best Lending Rate
(5.125% at March 31, 2002) plus 0.25%, repayable by monthly
instalments of HK$53 and fully repaid in August 2001 ...... -- 2,118
Bank loan bearing interest at Hong Kong Best Lending Rate plus
0.25%, repayable by monthly instalments of HK$8 and fully
repaid in August 2001 ...................................... -- 332
Capital lease obligations bearing interest at 9.13% to 11.83%
per annum and fully repaid in October 2001 ................. -- 123
------ ------
Total ........................................................ 27,585 45,733
Current portion of long-term debt ............................ 5,575 16,427
------ ------
Long-term debts, less current portion ........................ 22,010 29,306
====== ======
Maturities of long-term debts as of March 31, 2002 are as follows:
HK$
Year ending March 31,
2003 ................................................................... 5,575
2004 ................................................................... 5,575
2005 ................................................................... 5,575
2006 ................................................................... 4,975
2007 ................................................................... 2,291
After 2007 ............................................................. 3,594
-------
27,585
=======
There are no significant covenants or other financial restrictions relating to
the Company's long-term debts.
Details of assets pledged by the Company as collateral for the above bank loans
are described in note 9.
F-25
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
12. 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$4,678
in 2002, HK$4,916 in 2001 and HK$2,315 in 2000.
As at March 31, 2002, the Company and its subsidiaries were
obligated under non-cancelable operating leases requiring minimum
rentals as follows:
Operating
leases
HK$
Year ending March 31,
2003 ..................... 2,802
2004 ..................... 6
-----
Total minimum lease payments 2,808
=====
At March 31, 2002, the Company had commitments of HK$188 relating to
the acquisition of property, plant and equipment.
13. 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-26
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
13. 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, 2002, no shares of Series B
preferred stock were outstanding.
14. 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-27
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
14. STOCK OPTION PLANS - continued
Option activity of the Holding Company Options is as follows:
Number Option price per share
of Holding with the weighted average
Company Options option price in parenthesis
--------------- ---------------------------
Outstanding at April 1, 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)
Cancelled (100,000) US$1.5
--------
Outstanding at March 31, 2001 500,000 US$1.22
Cancelled (50,000) US$1.22
--------
Outstanding at March 31, 2002 450,000 US$1.22
========
Total number of options exercisable were 450,000 and 500,000 as of March 31,
2002 and 2001, respectively, at the weighted average exercise price of US$1.22.
Additional information on options outstanding at March 31, 2002 is as follows:
Options outstanding and exercisable as of March 31, 2002
--------------------------------------------------------
Weighted
Number average Weighted
outstanding remaining average
and contractual exercise
Exercise price exercisable life (years) price
- -------------- ----------- ------------ ----------
US$ US$
1.22 450,000 5.55 1.22
======= ===== ====
At March 31, 2002 and 2001, 1,450,000 and 1,400,000 options,
respectively, were available for future grant under the Plan.
F-28
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
14. 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:
Number Option price per share
of MSIL with the weighted average
Options option price in parenthesis
------- ---------------------------
Outstanding at April 1, 1999 41,250,000 HK$0.6208 and HK$0.4460 (HK$0.5841)
Granted 9,800,000 HK$0.2560
Cancelled (4,800,000) 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)
Granted 33,000,000 HK$0.2970
Lapsed (36,450,000) HK$0.6208 and HK$0.446
Exercised (2,050,000) HK$0.2560
Adjusted 8,151,450 (Note)
Cancelled (1,200,000) HK$0.2475
----------
Outstanding at March 31, 2001 47,701,450 HK$0.2133 and HK$0.2475 (HK$0.2408)
Lapsed (4,440,131) HK$0.2133 and HK$0.2475
----------
Outstanding at March 31, 2002 43,261,319 HK$0.2133 and HK$0.2475 (HK$0.2408)
==========
Note: MSIL issued bonus shares to its shareholders on August 3, 2000; the
number and the exercise prices of the MSIL options in issue were
adjusted accordingly pursuant to the Scheme.
F-29
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands except share data)
14. STOCK OPTION PLANS - continued
Total number of options exercisable were 43,261,319 and 47,701,450
as of March 31, 2002 and 2001, respectively, at the weighted average
price of HK$0.2408.
Additional information on options outstanding at March 31, 2002 is
as follows:
Options outstanding and exercisable as of March 31, 2002
--------------------------------------------------------
Weighted
Number average Weighted
outstanding remaining average
Range of and contractual exercise
exercise prices exercisable life (years) price
--------------- ----------- ------------ -----
HK$ HK$
0.2133 8,461,319 0.13 0.2133
0.2475 34,800,000 0.58 0.2475
---------- ---------- ----------
Total 43,261,319 0.49 0.2408
========== ========== ==========
At March 31, 2002 and 2001, 29,670,774 and 13,230,643 options,
respectively, were available for future grant under the Scheme.
COMPENSATION EXPENSES
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, November 16, 1999 and April 28, 2000 were
calculated to be US$0.32, US$0.63, HK$0.13, HK$0.19 and HK$0.07 and
HK$0.14, respectively, using the Black-Scholes option pricing model,
with the following assumptions:
Holding Company MSIL Options
Options granted on granted on
-------------------------------- -------------------------------------------
[October 16,
1997
and
[February 1, September 16, November 16, December 3, April 28,
1999 1997 1999 1997 2000
------------ ------------- ------------ ----------- ---------
Risk-free interest rate per annum 4.75% 5.90% 5.50% 5.25% 6%
Expected life 3 years 2 years 2 years 2 years 2 years
Expected volatility 60% 63% 23% 33% 62%
Expected dividend yield Nil] Nil 5% 5%] 5%
The total compensation expenses of the Holding Company Options and
the MSIL Options recognized in the consolidated statements of income
for the years ended March 31, 2001 and 2000, net of minority
interests' share of HK$1,499 and HK$264, was HK$3,121 and HK$863,
respectively.
F-30
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
15. RELATED PARTY TRANSACTIONS
During the periods presented, leasehold properties were provided
free of charge to Mr. C.H. Cheng and Mr. T.P. Cheng, directors of
the Company, for their residential use.
In addition, the Company advanced HK$770 in 2002, HK$938 in 2001 and
HK$897 in 2000 to certain directors on an interest-free basis
without specific repayment terms. All amounts were repaid during
each year.
The Company also had purchases of HK$5,415 and HK$3,512 in 2001 and
2000, respectively, from GTI, in which the Company holds an equity
interest of 18%.
16. 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, 2002 and 2001 are as
follows:
Percentages of
accounts receivable
March 31,
2002 2001
----- -----
Five largest receivable balances ......................... 36.17% 45.86%
The Company is not aware of any financial difficulties being
experienced by its major customers. Bad debt provisions were
HK$5,054 in 2002, HK$364 in 2001 and HK$278 in 2000. The deductions
from the allowance for doubtful accounts which represented
write-offs of bad debts were HK$214 in 2002 and HK$150 in 2001.
F-31
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS
No.107, "Disclosures about Fair Value of Financial Instruments". The
estimated fair value amounts have been determined by the Company,
using available market information and appropriate valuation
methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current
market exchange.
The carrying amounts of cash, marketable securities, accounts
receivable, accounts payable, short-term borrowings and long-term
debt are reasonable estimates of their fair values. The interest
rates on the Company's short-term borrowings and long-term debts
approximate those which would have been available at March 31, 2002
for debts of the same remaining maturities.
All the financial instruments are for trade purposes.
F-32
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
18. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes annual and
interim reporting standards for enterprise business segments and
related disclosures about its products and services, geographic
areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and
in assessing performance.
Contributions of the major activities, profitability information and
asset information are summarized below:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Revenues from external customers:
Pearls .............................. 282,715 311,109 279,289
Real estate investment .............. 7,526 5,526 4,620
-------- -------- --------
290,241 316,635 283,909
======== ======== ========
Operating income (loss):
Pearls .............................. 30,538 (60,643) 26,300
Real estate investment .............. 1,397 (496) 712
-------- -------- --------
31,935 (61,139) 27,012
======== ======== ========
Interest expenses:
Pearls .............................. 1,873 2,898 2,217
Real estate investment .............. 2,460 2,368 991
Corporate assets .................... 553 1,724 2,221
-------- -------- --------
4,886 6,990 5,429
======== ======== ========
Depreciation and amortization:
Pearls .............................. 6,031 6,597 4,399
Real estate investment .............. 1,827 1,033 749
Corporate assets .................... 1,394 1,532 1,550
-------- -------- --------
9,252 9,162 6,698
======== ======== ========
Capital expenditure for segment assets:
Pearls .............................. 2,162 6,416 7,450
Real estate investment .............. -- 37,439 --
Corporate assets .................... 45 4,429 --
-------- -------- --------
2,207 48,284 7,450
======== ======== ========
F-33
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
18. SEGMENT INFORMATION - continued
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Segment assets:
Pearls ............... 331,249 355,592 441,017
Real estate investment 81,986 84,369 33,027
Corporate assets ..... 75,834 72,420 74,637
------- ------- -------
489,069 512,381 548,681
======= ======= =======
Long-lived assets:
Pearls ............... 22,243 32,556 31,431
Real estate investment 81,986 84,369 33,027
Corporate assets ..... 61,420 59,381 72,311
------- ------- -------
165,649 176,306 136,769
======= ======= =======
All of the Company's sales of pearls are coordinated through the Hong Kong
subsidiaries and an analysis by destination is as follows:
Year ended March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Net sales:
Hong Kong ........... 61,626 68,753 53,278
Export:
Other Asian countries 77,977 89,948 59,862
North America ....... 73,655 78,300 72,089
Europe .............. 58,374 63,080 82,818
Others .............. 11,083 11,028 11,242
------- ------- -------
282,715 311,109 279,289
======= ======= =======
The Company operates in only one geographic area. The location of the Company's
identifiable assets is as follows:
March 31,
2002 2001 2000
---- ---- ----
HK$ HK$ HK$
Hong Kong .............. 371,558 383,268 394,797
Other regions of the PRC 117,511 129,113 153,884
------- ------- -------
489,069 512,381 548,681
======= ======= =======
F-34
MAN SANG HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Dollars in thousands)
19. QUARTERLY DATA (UNAUDITED)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------ ------ ------ ------
HK$ HK$ HK$ HK$
2002
Net sales 73,294 72,645 57,127 79,649
Gross profit 21,244 23,070 18,939 33,186
Operating income 4,948 7,054 4,728 15,205
Net income 2,097 2,953 1,898 9,361
Basic earnings per common share 0.48 0.67 0.43 2.12
Diluted earnings per common share 0.48 0.67 0.43 2.09
2001
Net sales 81,461 95,581 66,102 67,965
Gross profit (loss) 25,267 25,261 (6,003) (28,092)
Operating income (loss) 6,723 3,278 (26,115) (45,025)
Net income (loss) 4,095 453 (16,208) (22,533)
Basic earnings (loss) per common share . 0.93 0.10 (3.68) (5.11)
Diluted earnings (loss) per common share 0.88 0.09 (3.68) (5.11)
Note: Per share amounts do not add to the total for the above years and
are independently calculated.
20. SUBSEQUENT EVENTS
Effective June 1, 2002, the Company entered into agreements with two
business consultants. Under the terms of the agreements, the
consultants will provide service for two years in return for either
cash of HK$270 or 410,000 shares of common stock of the Company.
On June 7, 2002, the Company issued in aggregate 410,000 shares of
common stock, $0.001 par value per share to the consultants pursuant
to the business consulting agreements.
F-35