424B3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-160777
Man Sang Holdings,
Inc.
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Dear
Stockholder:
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August 3, 2009
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You are cordially invited to join us at a special meeting of
stockholders of Man Sang Holdings, Inc., or Man Sang Nevada, to
be held at 10:00 a.m. (Hong Kong time) on August 25,
2009. The meeting will be held at Man Sang Holdings, Inc.,
located at
Suite 2208-14,
22/F, Sun Life Tower, The Gateway, 15 Canton Road, Tsimshatsui,
Kowloon, Hong Kong.
We are pleased to present for your approval a proposal for the
dissolution and liquidation of Man Sang Nevada pursuant to the
terms of an agreement and plan of liquidation entered into with
Man Sang International (B.V.I.) Limited, or Man Sang BVI, a
wholly owned subsidiary of Man Sang Nevada, on July 24,
2009, that will effectively change our place of incorporation
from Nevada to the British Virgin Islands by dissolving and
liquidating Man Sang Nevada. At the effective time of the
dissolution and liquidation, Man Sang Nevada will distribute, on
a share-for-share basis, 6,382,582 ordinary shares and 100,000
preferred shares of Man Sang BVI to its existing stockholders.
The dissolution and liquidation of Man Sang Nevada will result
in the elimination of Man Sang Nevada as the holding company of
our group, the number of Man Sang BVI ordinary shares and
preferred shares that you will own will be the same as the
number of shares of Man Sang Nevada common stock and preferred
stock you own immediately prior to the completion of the
liquidation, and your relative economic ownership and voting
rights in our company will remain unchanged.
The accompanying proxy statement/prospectus contains detailed
information about the dissolution and liquidation of Man Sang
Nevada and the special meeting. This document is also a
prospectus for the Man Sang BVI ordinary and preferred shares
that will be delivered in connection with the liquidation.
We encourage you to read this
proxy statement/prospectus carefully before voting, including
the section entitled Risk Factors beginning on
page 14.
The board of directors of Man Sang Nevada, after careful
consideration, has unanimously approved the dissolution and
liquidation of Man Sang Nevada and the agreement and plan of
liquidation and related matters and recommends that you vote
FOR the dissolution and liquidation of Man Sang
Nevada and the adoption of the agreement and plan of
liquidation. A copy of the agreement and plan of liquidation is
attached to this proxy statement/prospectus as Annex A.
Under Nevada law, at a meeting of stockholders at which a quorum
is present, in person or by proxy, the affirmative vote of
holders representing a majority of voting power of the
outstanding shares of common stock and Series A preferred stock
entitled to vote is required to approve the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation. On August 3, 2009, Cheng Chung
Hing, Ricky, Cheng Tai Po and entities affiliated with them,
which are our principal stockholders, owned approximately
3,437,501 outstanding shares of Man Sang Nevada common stock and
100,000 outstanding shares of Man Sang Nevada preferred stock,
which together represent the votes of 6,628,726 shares of Man
Sang Nevada common stock, or 69.2% of the total voting power of
Man Sang Nevada common stock and Series A preferred stock. The
principal stockholders have agreed to vote their shares in favor
of the dissolution and liquidation of Man Sang Nevada and the
adoption of the agreement and plan of liquidation. The principal
stockholders own sufficient numbers of shares of our common
stock and preferred stock to approve the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation.
Man Sang Nevada common stock is currently traded on the NYSE
Amex under the symbol MHJ. There is currently no
public market for the Man Sang BVI ordinary shares. We intend to
apply to list Man Sang BVI ordinary shares on the NYSE Amex
under the same symbol, effective upon the dissolution and
liquidation of Man Sang Nevada. The preferred shares of
Man Sang BVI will remain unlisted.
Holders of Man Sang Nevada common stock will not be entitled to
dissenters or appraisal rights under Nevada law in
connection with the dissolution and liquidation of Man Sang
Nevada.
Please vote your proxy by completing, signing and dating the
enclosed proxy card and returning it promptly, whether or not
you expect to attend the special meeting. You may revoke your
proxy and vote in person if you decide to attend the meeting.
By order of the board of directors,
Sincerely,
/s/
Cheng
Chung Hing, Ricky
Cheng Chung Hing, Ricky
Chairman
Man Sang Holdings, Inc.
Neither the Securities and Exchange Commission nor any
non-U.S. or
state securities commission has approved or disapproved of the
securities to be issued under this proxy statement/prospectus or
has passed upon the adequacy or accuracy of the disclosure in
this proxy statement/prospectus. Any representation to the
contrary is a criminal offense.
This proxy statement/prospectus is dated August 3, 2009 and
is first being mailed to Man Sang Nevada stockholders on or
about August 4, 2009.
Man Sang
Holdings, Inc.
Suite 2208-14,
22/F, Sun Life Tower, The Gateway
15 Canton Road, Tsimshatsui, Kowloon, Hong Kong
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On August 25, 2009
To the Stockholders of Man Sang Holdings, Inc.:
Notice is hereby given that a special meeting of the
stockholders of Man Sang Holdings, Inc., a Nevada corporation
(Man Sang Nevada), will be held at 10:00 a.m.
(Hong Kong time) on August 25, 2009 at Man Sang Holdings,
Inc.,
Suite 2208-14,
22/F, Sun Life Tower, The Gateway, 15 Canton Road, Tsimshatsui,
Kowloon, Hong Kong for the following purposes:
1. To approve the dissolution and liquidation of Man Sang
Nevada and the adoption of the agreement and plan of
liquidation, a conformed copy of which is attached to and
described in the accompanying proxy statement/prospectus as
Annex A, among Man Sang Nevada and Man Sang International
(B.V.I.) Limited, an international business company incorporated
under the International Business Companies Act of the British
Virgin Islands and automatically re-registered under the BVI
Business Companies Act, 2004 (Man Sang BVI), whereby
Man Sang Nevada will effectively change its place of
incorporation from Nevada to the British Virgin Islands by
dissolving Man Sang Nevada and distributing to all of its
stockholders, pro rata, all of Man Sang Nevadas property
and assets, which consist entirely of Man Sang BVI ordinary
shares and preferred shares, on a share-for-share basis,
following which (1) Man Sang BVI and its subsidiaries will
continue to conduct the business conducted by Man Sang Nevada
and its subsidiaries, (2) Man Sang BVI ordinary shares will
replace Man Sang Nevada common stock on the NYSE Amex stock
exchange (NYSE Amex, formerly known as The American
Stock Exchange), (3) all current officers and directors of
Man Sang Nevada will maintain equivalent positions in Man Sang
BVI and (4) Man Sang BVI will contractually assume all
rights, title, obligations and liabilities of Man Sang Nevada.
Although the dissolution and liquidation of Man Sang Nevada will
result in the elimination of Man Sang Nevada as the holding
company of our group, the number of Man Sang BVI ordinary shares
and preferred shares you will own will be the same as the number
of shares of Man Sang Nevada common stock and preferred stock
you own immediately prior to the completion of the liquidation,
and your relative economic ownership and voting rights will
remain unchanged.
2. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The terms of the proposed dissolution and liquidation of Man
Sang Nevada and the related agreement and plan of liquidation
are more fully described in the accompanying proxy
statement/prospectus. We encourage you to read this entire
document carefully.
The board of directors of Man Sang Nevada, on behalf of Man Sang
Nevada, is soliciting proxies from the Man Sang Nevada
stockholders. The board of directors of Man Sang Nevada has
fixed the close of business on July 27, 2009 as the record
date for determination of stockholders entitled to notice of,
and to vote at, the special meeting and any adjournments or
postponements thereof.
To ensure that your shares of common and preferred stock are
represented at the meeting, you should vote your proxy by
completing, signing and dating the enclosed proxy card and
returning it promptly in the enclosed envelope, whether or not
you expect to attend the special meeting. You may revoke your
proxy and vote in person if you decide to attend the meeting.
By Order of the Board of Directors,
/s/
Cheng
Chung Hing, Ricky
Cheng Chung Hing, Ricky
Chairman
Kowloon, Hong Kong August 3, 2009
TABLE OF
CONTENTS
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136
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F-1
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ANNEXES
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A-1
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B-1
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C-1
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iv
ADDITIONAL
INFORMATION
Man Sang Nevada files annual, quarterly and other reports and
other information with the Securities and Exchange Commission,
or SEC. You can obtain this information by accessing the
SECs website at
http://www.sec.gov.
For a listing of the documents available from the SEC and for
information as to how to otherwise obtain this information from
the SEC, see the section entitled Where You Can Find More
Information beginning on page 136.
Man Sang Nevada will provide you with copies of the information
relating to Man Sang Nevada or Man Sang BVI, without charge,
upon written or oral request to Martin Pak, Chief Financial
Officer, Man Sang Holdings, Inc,
Suite 2208-14,
22/F, Sun Life Tower, The Gateway, 15 Canton Road, Kowloon, Hong
Kong or at +852 2317 9888
(e-mail:
martinpak@man-sang.com). In order to receive timely delivery
of the documents in advance of the Man Sang Nevada special
meeting, we should receive your request on August 17,
2009.
Man Sang BVI has filed with the SEC a registration statement on
Form F-4
(which, together with all amendments and exhibits, we refer to
as the Registration Statement) under the Securities Act of 1933,
as amended, or the Securities Act. This proxy
statement/prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information
set forth in the Registration Statement, certain parts of which
are omitted as permitted by the rules and regulations of the
SEC. For further information, reference is hereby made to the
Registration Statement.
This proxy statement/prospectus does not constitute an offer to
sell or a solicitation of an offer to buy securities other than
those specifically offered hereby or of any securities offered
hereby in any jurisdiction where, or to any person to whom, it
is unlawful to make such offer or solicitation.
ENFORCEABILITY
OF CIVIL LIABILITIES
Man Sang BVI is incorporated in the British Virgin Islands to
take advantage of certain benefits associated with being a
British Virgin Islands company, such as political and economic
stability, an effective judicial system, a favorable tax system,
the absence of exchange control or currency restrictions and the
availability of professional and support services. However,
certain disadvantages accompany incorporation in the British
Virgin Islands. These disadvantages include that the British
Virgin Islands has a less developed body of securities laws as
compared to the United States and provides significantly less
protection to investors and British Virgin Islands companies do
not have standing to sue before the federal courts of the United
States. Our constituent documents do not contain provisions
requiring that disputes be submitted to arbitration, including
those arising under the securities laws of the United States,
between Man Sang BVI, its officers, directors and shareholders.
Substantially all of our operations are conducted in Hong Kong
and the PRC. Most of our directors and officers and the experts
named herein reside outside the United States (principally in
Hong Kong and the PRC). All or a substantial portion of our
assets and of such persons assets are or may be located
outside the United States. As a result, it may not be possible
for shareholders of Man Sang BVI to effect service of process
within the United States upon us or such persons, or to enforce
against us or such persons judgments obtained in United States
courts, including judgments predicated upon the civil liability
provisions of the federal securities laws of the United States
or any state of the United States.
We have been informed by Conyers Dill & Pearman, our
British Virgin Islands legal counsel, that the United States and
the British Virgin Islands do not have a treaty providing for
reciprocal recognition and enforcement of judgments of
U.S. courts in civil and commercial matters and that a
final judgment for the payment of money rendered by any general
or state court in the United States based on civil liability,
whether or not predicated solely upon the U.S. federal
securities laws, would not be automatically enforceable in the
British Virgin Islands. We have also been advised by Conyers
Dill & Pearman that a final and conclusive judgment
obtained in U.S. federal or state courts under which a sum
of money is payable as compensatory damages (i.e., not being a
sum claimed by a revenue authority for taxes or other charges of
a similar nature by a governmental authority, or in respect of a
fine or penalty or multiple or punitive damages) may be the
subject of an action on a debt in the Supreme Court of the
British Virgin
v
Islands under the common law doctrine of obligation. This type
of action should be successful upon proof that the sum of money
is due and payable, without having to prove the facts supporting
the underlying judgment, as long as:
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the court that gave the judgment was competent to hear the
action in accordance with private international law principles
as applied by the courts in the British Virgin Islands; and
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the judgment was not contrary to public policy in the British
Virgin Islands, was not obtained by fraud or in proceedings
contrary to the natural justice of the British Virgin Islands,
and was not based on an error in British Virgin Islands law.
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A British Virgin Islands court may impose civil liability on us
or our directors or officers in a suit brought in the Supreme
Court of the British Virgin Islands against us or these persons
with respect to a violation of U.S. federal securities
laws, provided that the facts surrounding any violation
constitute or give rise to a cause of action under British
Virgin Islands law.
ABOUT
THIS DOCUMENT
This document, which forms part of a registration statement on
Form F-4
filed with the SEC, by Man Sang International (B.V.I.) Limited
(File
No. 333-160777),
constitutes a proxy statement/prospectus of Man Sang
International (B.V.I.) Limited under Section 5 of the
Securities Act with respect to the Man Sang BVI ordinary shares
and preferred shares to be distributed to Man Sang Nevada
stockholders pursuant to the dissolution and liquidation. This
document also constitutes a proxy statement under
Section 14(a) of the U.S. Securities Exchange Act of
1934, as amended, or the Exchange Act.
CURRENCIES
In this proxy statement/prospectus, unless otherwise specified
or the context otherwise requires, all references to
U.S. dollars, dollars or
US$ are to the legal currency of the United States
and all references to H.K. dollars or
HK$ are to the legal currency of Hong Kong.
This proxy statement/prospectus contains translations of H.K.
dollar amounts into U.S. dollars at specified rates solely
for the convenience of the reader. Unless otherwise noted, all
translations from H.K. dollars to U.S. dollars were made at
the rate of HK$7.80 to US$1.00. On July 24, 2009, the noon
buying rate in The City of New York for cable transfers in H.K.
dollars per U.S. dollar as certified for customs purposes
by the Federal Reserve Bank of New York, or the noon buying
rate, was HK$7.75 to US$1.00. We make no representation that the
H.K. dollar or U.S. dollar amounts referred to in this
proxy statement/prospectus could have been or could be converted
into U.S. dollars or H.K. dollars, as the case may be, at
any particular rate or at all.
CONVENTIONS
Unless stated otherwise, all references in this proxy
statement/prospectus to:
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Assets are to all of Man Sang Nevadas property
and assets, which consists of Man Sang BVI ordinary shares and
Man Sang BVI preferred shares;
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the Internal Revenue Code are to the U.S. Internal
Revenue Code of 1986, as amended;
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Man Sang BVI are to Man Sang International (B.V.I.)
Limited, a company incorporated in the British Virgin Islands;
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Man Sang Nevada are to Man Sang Holdings, Inc., a
Nevada corporation;
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the PRC are to the Peoples Republic of China;
and
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the principal stockholders are to Cheng Chung Hing,
Ricky, Cheng Tai Po and entities affiliated with them, which, as
of the record date, owned approximately 3,437,501 outstanding
shares of Man Sang Nevada common stock and 100,000 outstanding
shares of Man Sang Nevada Series A preferred stock, which
together represent the votes of 6,628,726 shares of Man Sang
Nevada common stock, or 69.2% of the total voting power of Man
Sang Nevada common stock and Series A preferred stock.
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vi
Except where indicated otherwise, we refer to Man Sang Nevada
and Man Sang BVI, which will be Man Sang Nevadas successor
following the liquidation, as our company,
we, us or our, as the
context requires.
Man Sang BVI was Man Sang Nevadas wholly owned subsidiary
during each of the years or periods presented in this proxy
statement/prospectus. Man Sang BVI is a holding company with no
operations or assets, other than its equity interests in our
subsidiaries. Therefore, we have not included consolidated
historical financial and operating data for Man Sang BVI because
this data is the same as that of Man Sang Nevada.
vii
QUESTIONS
AND ANSWERS ABOUT THE LIQUIDATION
The following questions and answers are intended to address
briefly questions regarding the dissolution and liquidation. We
urge you to read carefully the remainder of this proxy
statement/prospectus because the information in this section
does not provide all the information that might be important to
you. Additional important information also is contained in the
annexes to this proxy statement/prospectus.
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Q:
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Why am I receiving this proxy statement/prospectus?
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A:
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Pursuant to applicable Nevada law and relevant securities
regulations, we are providing you with this proxy
statement/prospectus to inform you of the dissolution and
liquidation of Man Sang Nevada, a Nevada corporation, listed on
the NYSE Amex, and to request your approval of the dissolution
and liquidation of Man Sang Nevada and the adoption of the
agreement and plan of liquidation.
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Q:
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What am I being asked to vote on?
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A:
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You are being asked to approve the dissolution and liquidation
of Man Sang Nevada and the adoption of the agreement and plan of
liquidation. The dissolution and the liquidation of Man Sang
Nevada will effectively change our place of incorporation from
Nevada to the British Virgin Islands.
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Q:
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Who is entitled to vote on the dissolution and
liquidation?
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A:
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All stockholders of record at the close of business on
July 27, 2009, as shown in our records, will be entitled to
vote, or to grant proxies to vote, at the special meeting. At
the close of business on the Man Sang Nevada record date, there
were 6,382,582 shares of Man Sang Nevada common stock
outstanding and 100,000 shares of preferred stock
outstanding (which, as a class, are entitled to the votes of
3,191,225 shares of common stock) entitled to vote at the
special meeting, held by approximately stockholders of record.
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Q:
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When and where will the vote on the dissolution and
liquidation take place?
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A:
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A special meeting of stockholders will be held at 10 a.m.,
local time, on August 25, 2009, at the offices of Man Sang
Holdings, Inc.,
Suite 2208-14,
22/F., Sun Life Tower, The Gateway, 15 Canton Road, Tsimshatsui,
Kowloon, Hong Kong.
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Q:
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What is required to constitute a quorum?
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A:
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The presence at the special meeting, in person or by proxy, of
the holders representing a majority of the outstanding shares of
the common stock and Series A preferred stock entitled to
vote at the special meeting is required to constitute a quorum.
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Q:
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If the dissolution and liquidation is completed, what will I
receive?
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A:
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At the effective time of the liquidation, Man Sang Nevada will
distribute the Assets to its stockholders on a share-for-share
basis. The number and class of Man Sang BVI ordinary and
preferred shares you will own as a result of the completion of
the liquidation will be the same as the number and class of
shares of Man Sang Nevada common and preferred stock you owned
immediately prior to the completion of the liquidation.
Shareholders proportionate ownership and relative voting
rights will remain unchanged.
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In the liquidation, holders of shares of Man Sang Nevada common
stock will receive Man Sang BVI ordinary shares and holders of
shares of Man Sang Nevada preferred stock will receive Man Sang
BVI preferred shares, on a share-for-share basis in cancellation
of the Man Sang Nevada common stock and preferred stock. The
liquidation preference of the Man Sang BVI preferred shares will
be equivalent to the liquidation preference of the Man Sang
Nevada preferred stock. For a more complete description of what
Man Sang Nevada stockholders will be entitled to receive
pursuant to the liquidation, see The
Liquidation The Agreement and Plan of
Liquidation.
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Q:
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Will the Man Sang BVI ordinary shares be listed and publicly
traded on the NYSE Amex?
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A:
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Yes. Upon the effective time of the liquidation, we expect the
Man Sang BVI ordinary shares to be listed and publicly traded on
the NYSE Amex under the trading symbol MHJ. Man Sang
Nevadas common stock will be cancelled and de-listed from
the NYSE Amex and will no longer be publicly traded. However,
upon the effective time of the liquidation, the Man Sang BVI
preferred shares will remain unlisted.
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1
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Q:
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What vote is required to approve the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation, and are there any stockholders already
committed to voting in favor of the liquidation?
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A:
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The dissolution and liquidation requires at a meeting of
stockholders at which a quorum is present, in person or by
proxy, the affirmative vote of holders representing a majority
of the outstanding shares of common stock and Series A preferred
stock entitled to vote. On the record date, the principal
stockholders owned approximately 3,437,501 outstanding shares of
Man Sang Nevada common stock and 100,000 outstanding shares of
Man Sang Nevada preferred stock, which together represent the
votes of 6,628,726 shares of Man Sang Nevada common
stock, or 69.2% of the total voting power of Man Sang
Nevada common stock and Series A preferred stock. The principal
stockholders have agreed to vote their shares to approve the
dissolution and liquidation of Man Sang Nevada and the adoption
of the agreement and plan of liquidation. The principal
stockholders own sufficient number of shares of Man Sang
Nevadas common stock and preferred stock to approve the
dissolution and liquidation of Man Sang Nevada and the adoption
of the agreement and plan of liquidation. See The Special
Meeting Vote Required.
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Q:
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How do I vote if my shares are registered in my name?
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A:
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By completing, signing and returning your proxy card in the
enclosed postage-prepaid envelope, you will authorize the
persons named on the proxy card to vote your shares according to
your instructions.
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Q:
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How do I vote if my broker holds my shares in street
name?
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A:
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If you hold your shares in street name through a
stockbroker, bank or other nominee rather than directly in your
own name, you are considered the beneficial owner of shares, and
the proxy materials are being forwarded to you by your
stockbroker, bank or other nominee together with a voting
instruction card. Please carefully consider the information
contained in this proxy statement/prospectus and, whether or not
you plan to attend the special meeting. Please follow the
instructions provided to you by your stockbroker, bank or other
nominee so that your shares may be voted in accordance with your
wishes. To vote at the special meeting, beneficial owners will
need to contact the broker, bank, or other nominee that holds
their shares to obtain a proxy issued in your name to bring to
the meeting.
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Q:
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What if I dont vote or abstain?
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A:
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Shares for which no votes are cast will effectively be treated
as shares present for quorum purposes, but not entitled to vote,
so they will have no effect on the outcome of the vote for the
dissolution and liquidation of Man Sang Nevada and the agreement
and plan of liquidation. Abstentions will be treated as shares
present for quorum purposes and entitled to vote, so they will
have the same effect as votes against the dissolution and
liquidation of Man Sang Nevada and the agreement and plan of
liquidation.
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Q:
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Can I change my vote after I have delivered my proxy?
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A:
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Yes. You may revoke your proxy at any time before its exercise.
Proxies may be revoked by (1) sending a written notice of
revocation dated later than the proxy to the Secretary of Man
Sang Nevada at Man Sang Nevadas principal executive
offices, before the special meeting, (2) duly executing a
subsequent proxy relating to the same shares and delivering it
to American Stock Transfer & Trust Company before
the special meeting, or (3) attending the special meeting
and voting in person (although attendance at the special meeting
will not in and of itself constitute revocation of a proxy). Any
written notice revoking a proxy should be delivered to American
Stock Transfer & Trust Company before the special
meeting. If you are a beneficial stockholder, you must contact
your broker, bank or other nominee to change your vote or obtain
a proxy to vote your shares if you wish to cast your vote in
person at the meeting.
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Q:
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When do you expect the liquidation to be completed?
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A:
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We are working to complete the dissolution and liquidation as
quickly as practicable. We currently expect the liquidation to
be completed by July 31, 2009. However, we cannot predict
the exact effective time of the liquidation because it is
subject to certain conditions both within and outside our
control. See The Liquidation The Agreement and
Plan of Liquidation Conditions to Complete the
Liquidation beginning on page 39.
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Q:
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Are Man Sang Nevada stockholders entitled to dissenters
rights?
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A:
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No. Under Nevada law, Man Sang Nevada stockholders are not
entitled to dissenters rights because (a) the Nevada
Revised Statutes do not provide for dissenters rights for
this corporate action; and (b) neither Man Sang
Nevadas restated articles of incorporation, as amended,
the restated bylaws, nor a resolution of its board of directors
grant shareholders dissenters rights.
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Q:
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Are Man Sang Nevada stockholders entitled to appraisal
rights?
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A:
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No. Under Nevada law, there are no appraisal rights unless
there are dissenters rights.
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Q:
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Do I have to change my stock certificates?
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A:
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Yes. The distribution agent will send you a letter of
transmittal, which will instruct you how to surrender your
certificates of common stock and preferred stock of Man Sang
Nevada. Upon surrender of the certificate with a duly executed
letter of transmittal, you will be entitled to receive in
exchange the whole number of Man Sang BVI ordinary shares or
preferred shares that you have the right to receive pursuant to
the agreement and plan of liquidation. If you surrender a Man
Sang Nevada stock certificate and request the new Man Sang BVI
ordinary shares or preferred shares in dematerialized form to be
issued in a name other than the one appearing on the surrendered
certificate, you must endorse the stock certificate or otherwise
prepare it to be in proper form for transfer. Man Sang Nevada
certificates that are surrendered will be cancelled. No interest
will be paid or accrued on any amount payable upon surrender of
stock certificates. No holder of unsurrendered certificates will
receive any dividends or other distributions with respect to Man
Sang BVI ordinary shares or preferred shares to which the holder
is entitled under the agreement and plan of liquidation until
the Man Sang Nevada certificate registered to the holder is
surrendered to the distribution agent. For further information,
see The Liquidation The Agreement and Plan of
Liquidation Share Conversion on page 41.
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YOU SHOULD NOT SEND YOUR MAN SANG NEVADA STOCK CERTIFICATES TO
THE DISTRIBUTION AGENT UNTIL YOU HAVE RECEIVED TRANSMITTAL
MATERIALS FROM THE DISTRIBUTION AGENT.
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Q:
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Will I be able to trade my shares during the time it takes to
complete the liquidation?
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A:
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Yes.
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Q:
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Who will bear the cost for soliciting votes for the special
meeting?
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A:
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Man Sang Nevada will bear all expenses in conjunction with the
solicitation of the enclosed proxy, including the charges of
brokerage houses and other custodians, nominees or fiduciaries
for forwarding documents to security owners. In addition,
proxies may be solicited by mail, in person, or by telephone or
fax by certain officers, directors and employees of Man Sang
Nevada.
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Q:
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Where can I find more information about Man Sang Nevada?
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A:
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You can find more information about Man Sang Nevada in the
section entitled Where You Can Find More Information
on page 136 of this proxy statement/prospectus.
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Q:
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Will the proposal affect current or future operations?
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A:
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The dissolution and liquidation of Man Sang Nevada will have no
immediate major impact on how we conduct day-to-day operations.
The location of future operations will depend on the needs of
our business, independent of our place of incorporation.
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Q:
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Who can answer my questions?
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A:
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If you have any questions about the liquidation, or if you need
additional copies of this proxy statement/prospectus, please
contact:
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Martin Pak
Man Sang Holdings, Inc.,
Suite 2208-14,
22/F., Sun Life Tower, The Gateway,
15 Canton Road, Tsimshatsui, Kowloon, Hong Kong
(852) 2317 9888
martinpak@man-sang.com
3
SUMMARY
This summary, together with the section titled
Questions and Answers About the Liquidation
immediately preceding this summary, provides a summary of the
material terms of the liquidation. These sections highlight
selected information contained in this proxy
statement/prospectus and may not include all the information
that is important to you. To better understand the proposed
liquidation, and the risks associated with the transactions, and
for a more complete description of the legal terms of the
liquidation, you should read this entire proxy
statement/prospectus carefully, as well as those additional
documents to which we refer you. We have included page
references at various points in this summary to direct you to a
more detailed description of the topics presented. In addition,
see Where You Can Find More Information beginning on
page 136.
This document constitutes a proxy statement/prospectus for use
in providing information about the proposed dissolution and
liquidation of Man Sang Nevada and the distribution of Man Sang
BVI ordinary shares and preferred shares in connection with the
liquidation.
Parties
to the Agreement and Plan of Liquidation
Man Sang International (B.V.I.) Limited. Man
Sang BVI was incorporated as an international business company
under the International Business Companies Act of the British
Virgin Islands, or BVI International Business Companies Act, on
August 14, 1995, and automatically re-registered as a
business company on January 1, 2007 pursuant to the British
Virgin Islands Business Companies Act 2004, or the BVI Companies
Act. Immediately prior to the completion of the dissolution and
liquidation, Man Sang BVI elected to disapply Part IV of
the BVI Companies Act (which applies to former international
business companies which have been automatically re-registered
as a business company) and is now governed by the BVI Companies
Act. As a result of the liquidation, Man Sang BVI will become
the holding company of our group.
Man Sang Holdings, Inc. Man Sang Nevada is
organized under the laws of the State of Nevada and is
principally engaged through subsidiaries in the purchasing,
processing, assembling, merchandising and wholesale distribution
of pearls, pearl jewelry products and jewelry products. In
addition, Man Sang Nevada, through its subsidiaries, owns and
operates commercial real estate for lease and sale in Hong Kong
and the PRC.
Man Sang Nevada common stock is quoted on the NYSE Amex under
the symbol MHJ.
The principal executive office of all parties to the liquidation
is located at
Suite 2208-14,
22/F., Sun Life Tower, The Gateway, 15 Canton Road, Tsimshatsui,
Kowloon, Hong Kong, telephone: (852) 2317 9888
Structure
of the Liquidation (see page 34)
The board of directors of Man Sang Nevada has unanimously
approved and recommends that you approve the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation, which will effectively change our place
of incorporation from Nevada to the British Virgin Islands by
dissolving and liquidating Man Sang Nevada. The terms and
conditions of the dissolution and liquidation are set forth in
the agreement and plan of liquidation attached as Annex A
to this proxy statement/prospectus.
In the dissolution and liquidation, following payment of its
obligations and liabilities, Man Sang Nevada will distribute the
Assets to its stockholders on a share-for-share basis. Man Sang
Nevada is a holding company without any operations. As of the
date of this proxy statement/prospectus, its assets consist of
its shareholdings in Man Sang BVI and its liabilities and
obligations consist of (1) the costs incurred in connection
with the dissolution and liquidation, which we estimate will be
approximately US$800,000, and (2) U.S. federal income tax
arising from the deemed disposal of its shareholdings in Man
Sang BVI.
After the liquidation, Man Sang BVI will remain the holding
company of our subsidiaries, and Man Sang Nevada stockholders
will become Man Sang BVI shareholders.
After completion of the liquidation, Man Sang BVI and its
subsidiaries will continue to conduct the same businesses that
Man Sang Nevada and its subsidiaries now conduct.
The liquidation will involve the following steps:
1. Man Sang Nevada, as sole stockholder of Man Sang BVI,
will approve an amended and restated memorandum and articles of
association of Man Sang BVI, which may differ in certain
material respects from
4
the current restated articles of incorporation, as amended, and
the restated bylaws of Man Sang Nevada, because of differences
in the corporate laws of Nevada and the British Virgin Islands.
2. The existing directors of Man Sang BVI, who currently
also serve as directors of Man Sang Nevada, will appoint the
officers of Man Sang Nevada to serve in equivalent positions
with Man Sang BVI.
3. Man Sang BVI ordinary shares and preferred shares will
be registered under the Securities Act and Man Sang BVI ordinary
shares will register under the Exchange Act, in each case with
the SEC.
4. The officers of Man Sang Nevada will file a Certificate
of Dissolution with the Secretary of State of the State of
Nevada, and Man Sang Nevada will be dissolved pursuant thereto.
5. Upon the filing of the Certificate of Dissolution, Man
Sang Nevada common stock will be de-listed from the NYSE Amex
and de-registered under the Exchange Act with the SEC and Man
Sang BVI ordinary shares will be listed on the NYSE Amex under
the symbol MHJ. The preferred shares of Man Sang BVI
will remain unlisted.
6. In accordance with the Nevada Revised Statutes, the
directors of Man Sang Nevada are required to collect the assets,
settle the affairs and collect the outstanding debts of Man Sang
Nevada, and to pay, or make adequate provision for payment of,
Man Sang Nevadas liabilities and obligations. As of the
date of this proxy statement/prospectus, (1) Man Sang
Nevadas assets consist entirely of its shareholdings in
Man Sang BVI; (2) Man Sang Nevada has no outstanding debts;
(3) Man Sang Nevadas liabilities and obligations
include (a) the costs incurred in connection with the
dissolution and liquidation, which we estimate will be
approximately US$800,000, and (b) provision for U.S.
federal income tax arising from the deemed disposal of its
shareholdings in Man Sang BVI. The settlement of affairs of Man
Sang Nevada, which will be conducted by the directors of Man
Sang Nevada, includes the actions discussed above as well as the
distribution of Man Sang Nevadas assets to its
stockholders in order to complete the dissolution and
liquidation in accordance with the Nevada Revised Statutes.
7. Man Sang Nevada will then distribute its property and
assets, which consist entirely of Man Sang BVI ordinary shares
and preferred shares, to its stockholders on a share-for-share
basis, rendering its stockholders the direct shareholders of Man
Sang BVI.
8. During the final stage of the liquidation, Man Sang BVI
will contractually assume all of Man Sang Nevadas rights,
obligations and liabilities.
Background
and Reasons for the Liquidation
We believe that the dissolution and liquidation of Man Sang
Nevada will allow us to realize a variety of potential business,
financial and strategic benefits. In particular, the board of
directors of Man Sang Nevada is recommending the dissolution and
liquidation of Man Sang Nevada because it should permit us to:
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simplify our corporate structure. Man Sang Nevada has no
meaningful business or assets other than its equity interest in
Man Sang BVI, which is also a holding company. The board of
directors of Man Sang Nevada believes that the elimination of
the two-tiered holding company structure will reduce
administrative expenses by eliminating duplicative costs
associated with maintaining both Man Sang Nevada and Man Sang
BVI;
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reduce our SEC reporting requirements and related expenses
because Man Sang BVI would be a foreign private issuer;
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enhance our cash flow by reducing our worldwide effective tax
rate. Any improvement in our cash flow should help us to
implement our business strategy more effectively;
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facilitate tax savings through a more flexible corporate
structure. However, the amount of taxes we will pay will depend
in part on our treatment by the taxing authorities in the
jurisdictions in which we operate;
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enhance our business growth prospects by attracting investment
from
non-U.S. investors.
Based on our experience, certain PRC investors and potential
strategic partners are less willing to invest in Man Sang Nevada
primarily as a result of our status as a United States
incorporated company and the attendant tax
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implications associated with such an investment, including
primarily withholding taxes payable by such investors under the
United States federal tax regime; and
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better position ourselves for merger and acquisition
opportunities with
non-U.S. strategic
partners.
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Negative
Effects of the Liquidation
There are a number of negative effects of the dissolution and
liquidation. Examples of such negative effects include:
Taxable
Nature of the Transaction
We expect that the dissolution and liquidation of Man Sang
Nevada will have the following negative tax consequences:
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For U.S. federal income tax purposes, as a result of the
liquidation, U.S. shareholders will recognize gain or loss
equal to the difference, if any, between the fair market value
of the Man Sang BVI shares received in the liquidation and the
holders adjusted tax basis in the holders shares of
Man Sang Nevada exchanged therefor.
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Man Sang Nevada will recognize gain for U.S. federal income
tax purposes on the distribution of the shares of Man Sang BVI
to its shareholders as if the shares had been sold to the
distributee at fair market value.
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Expenses
of the Transaction
Costs incurred in connection with the dissolution and
liquidation of Man Sang Nevada are estimated to be approximately
US$800,000 and will be expensed as incurred.
Reduced
Reporting Requirements
As a foreign private issuer, Man Sang BVIs reporting
requirements will be limited to filing or furnishing with the
SEC (1) an annual report on
Form 20-F
within six months after the end of each fiscal year prior to its
fiscal year ending March 31, 2012, and within four months
after the end of each fiscal year thereafter and
(2) reports on
Form 6-K
with respect to any material information which is required to be
publicly disclosed in the British Virgin Islands or regarding
information distributed or required to be distributed by Man
Sang BVI to its shareholders. In addition, Man Sang BVI will
also furnish reports to the SEC on Form 6-K with respect to
the interim reports filed by Man Sang International Limited for
the first six months of Man Sang International Limiteds
financial year, not later than three months after the end of
this six-month period, as required by the listing rules of the
Stock Exchange of Hong Kong Limited. For further information on
the reduced requirements of Man Sang BVI, see Comparison
of Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders Reporting Requirements.
Certain
Differences between Nevada and British Virgin Islands Corporate
Law
Significant differences between the provisions of the BVI
Companies Act applicable to Man Sang BVI and the Nevada Revised
Statutes applicable to Man Sang Nevada include limitations under
British Virgin Islands law on the ability to bring
shareholders suits, including class action and shareholder
derivative actions, and reduced protections under British Virgin
Islands law of the interests of minority shareholders.
For further information on the differences between Nevada and
British Virgin Islands corporate law, see Comparison of
Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders Reporting Requirements and for
further information on the risks relating to ownership of Man
Sang BVI Shares, see, Risk Factors Risks
Relating to Ownership of Man Sang BVI Ordinary
Shares Man Sang BVI is a British Virgin Islands
company and, because legal precedent regarding the rights of
shareholders is more limited under British Virgin Islands law
than under United States law, following the liquidation our
shareholders may have less protection for their shareholder
rights than they currently do under Nevada law.
6
Conditions
to Complete the Liquidation
The liquidation will not be completed unless, among other
things, the following conditions are satisfied or, if allowed by
law, waived:
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Shareholder Approvals Obtained. Approval by
the shareholders of Man Sang Nevada stockholders and Man Sang
BVI shareholders has been obtained;
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Registration Statement Declared
Effective. This proxy statement/prospectus has
been declared effective by the SEC under the Securities Act and
the Exchange Act and is not the subject of any stop order or
proceedings or similar actions threatened or initiated by the
SEC and not concluded or withdrawn;
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NYSE Amex Approval. The NYSE Amex has
confirmed that Man Sang BVI ordinary shares to be distributed
pursuant to the liquidation in connection with the transactions
contemplated thereto have been approved for listing on the NYSE
Amex, subject to official notice of issuance and other customary
conditions, and may trade on the NYSE Amex and succeed to the
ticker symbol MHJ;
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Hart-Scott-Rodino
Act. Any applicable waiting period under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder relating to the
Liquidation have expired or been terminated.
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Receipt of Tax Opinion. Man Sang Nevada and
Man Sang BVI have received an opinion from
PricewaterhouseCoopers Limited to the effect that the
liquidation constitutes a complete liquidation for
federal income tax purposes within the meaning of
Section 331 of the Internal Revenue Code;
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Covenants and Other Agreements. Man Sang
Nevada and Man Sang BVI each have performed in all material
respects their respective covenants and agreements contained in
the agreement and plan of liquidation required to be performed
at or prior to the effective time of the liquidation;
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Governmental, Regulatory and Other Material Third-Party
Consents. All filings required to be made with, and all
material consents, approvals, permits and authorizations
required to be obtained prior to the effective time of the
liquidation from, any court or governmental or regulatory
authority, or other person, have been made or obtained and are
in force; and
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No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of
the liquidation have been entered or enforced or continue to be
in effect.
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For additional factors, see The Liquidation
The Agreement and Plan of Liquidation Conditions to
Complete the Liquidation on page 39.
Effective
Time
The effective time of the liquidation, which we refer to in this
proxy statement/prospectus as the effective time, will occur
when Man Sang Nevada distributes the Assets to the stockholders
of Man Sang Nevada or at such other time and date as Man Sang
Nevada and Man Sang BVI shall agree.
Termination
of the Agreement and Plan of Liquidation
The agreement and plan of liquidation may be terminated and the
liquidation abandoned at any time prior to the filing of a
Certificate of Dissolution with the Secretary of State of the
State of Nevada by Man Sang Nevada, whether before or after the
approval of stockholders, by action of the board of directors of
Man Sang Nevada or Man Sang BVI, as follows: (1) by Man
Sang Nevada or Man Sang BVI if the transaction has not been
consummated by December 31, 2009 or (2) by either Man
Sang Nevada or Man Sang BVI if any material change in
(i)(a) the price of Man Sang Nevadas common stock on
the NYSE Amex; (b) the value of Man Sang BVIs
ordinary shares; or (c) the price of Man Sang International
Limiteds ordinary shares on the Stock Exchange of Hong
Kong Limited or (ii) any new or amended regulation, order,
decree, judgment, interpretation or ruling issued by a
governmental entity would render the transaction unadvisable or
otherwise impracticable in the judgment of the directors of Man
Sang Nevada or Man Sang BVI.
7
In the event of termination of the agreement and plan of
liquidation, the agreement and plan of liquidation will become
void and have no effect, without any liability or obligation on
the part of Man Sang Nevada or Man Sang BVI, except as otherwise
provided for in the agreement.
Termination
Fees
Man Sang Nevada and Man Sang BVI have agreed that there will be
no termination fee in the event that the agreement and plan of
liquidation is terminated.
Differences
Between British Virgin Islands and Nevada Corporate Law (see
page 110)
There are a number of significant differences between the rights
you would have as a holder of Man Sang Nevada common and
preferred stock and the rights you would have as a holder of Man
Sang BVI ordinary and preferred shares. Such differences relate
to shareholders suits, including class actions and
shareholder derivative actions, and protections of the interests
of minority shareholders.
The amended and restated memorandum and articles of association
of Man Sang BVI are designed to replicate, to the extent
reasonably practicable and legally permissible, the rights
currently attendant to Man Sang Nevada common stock and
preferred stock. However, the rights of the holders Man Sang BVI
ordinary shares and preferred shares may be less favorable than
the rights of holders of Man Sang Nevada common stock and
preferred stock.
In addition, as a foreign private issuer, Man Sang BVI is
subject to requirements under the Securities Act and the
Exchange Act that are different from the requirements applicable
to Man Sang Nevada prior to the liquidation. For additional
information regarding the rights of holders of Man Sang BVI
ordinary and preferred shares and a summary of certain material
differences between the rights of holders of Man Sang BVI
ordinary and preferred shares and holders of Man Sang Nevada
common and preferred stock, see Description of Man Sang
BVI Share Capital beginning on page 95. See also
Risk Factors Risks Relating to Ownership of
Man Sang BVI Ordinary Shares beginning on page 25.
For a discussion comparing the rights of Man Sang BVI
shareholders with Man Sang Nevada stockholders and for
information on the different reporting and other requirements
that would otherwise apply to Man Sang BVI if it were a company
incorporated in Nevada, see the section titled Comparison
of Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders on page 110.
Recommendation
of the Man Sang Nevada Board of Directors (see
page 38)
The Man Sang Nevada board of directors has unanimously
determined that the dissolution and liquidation of Man Sang
Nevada and the agreement and plan of liquidation is advisable
and the transactions contemplated by the agreement and plan of
liquidation are in the best interests of Man Sang Nevada and its
shareholders, and has unanimously approved by written consent
the dissolution and liquidation of Man Sang Nevada and the
adoption of the agreement and plan of liquidation and the
transactions contemplated by the agreement and plan of
liquidation.
Prior to providing its unanimous written consent, the board of
directors of Man Sang Nevada considered a proposal to dissolve
and liquidate our company and discussed the rationale and
potential benefits of the liquidation, which have been
summarized above under Background and Reasons for the
Liquidation. The board of directors also noted potential
disadvantages with respect to the liquidation. For further
information, see The Liquidation Negative
Effects of the Liquidation.
Having considered the above factors, the board of directors has
determined that the potential medium- and
long-term
advantages of the liquidation outweigh potential tax
liabilities, and the reduced reporting and corporate and other
disadvantages to shareholders as a result of owning shares of a
foreign private issuer incorporated in the British Virgin
Islands. Accordingly, the board of directors of Man Sang Nevada
unanimously approved the dissolution and liquidation of Man Sang
Nevada and the adoption of the agreement and plan of liquidation
and recommends that you vote FOR the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation.
Share
Ownership of Directors and Executive Officers (see
page 92)
At the close of business on the record date, 2009, the directors
and executive officers of Man Sang Nevada and their affiliates
beneficially owned approximately 3,437,501 outstanding shares of
Man Sang Nevada common stock
8
and 100,000 outstanding shares of Man Sang Nevada preferred
stock, which together represent the votes of
6,628,726 shares of Man Sang Nevada common stock, or 69.2%,
of Man Sang Nevada common stock, including such number of votes
of common stock to which the holders of preferred stock, as a
class, are entitled, outstanding and entitled to vote on that
date. The holdings of Man Sang Nevadas directors and
executive officers are detailed in Securities Ownership of
Certain Beneficial Owners and Management.
Interests
of the Directors and Executive Officers of Man Sang Nevada in
the Liquidation (see page 42)
In considering the recommendation of the Man Sang Nevada board
of directors with respect to the agreement and plan of
liquidation and the other matters related to the liquidation,
you should be aware that certain members of the Man Sang Nevada
board of directors and certain of Man Sang Nevadas
executive officers have interests in the transactions
contemplated by the agreement and plan of liquidation. These
interests may be different from, in conflict with, or in
addition to, the interests of Man Sang Nevada stockholders
generally. These interests include, among other things, the
following:
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all of Man Sang Nevadas current board of directors
comprise the current board of directors of Man Sang BVI. The
existing directors of Man Sang BVI will appoint the officers of
Man Sang Nevada to serve in equivalent positions with Man Sang
BVI after the effective time of the liquidation;
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all of Man Sang Nevadas current executive officers will be
offered equivalent positions with Man Sang BVI after the
effective time of the liquidation;
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Mr. Cheng Chung Hing, Ricky, President, Chief Executive
Officer and Chairman of the board of directors, and
Mr. Cheng Tai Po, Vice Chairman of the board of directors,
each a member of Man Sang Nevadas board of directors, and
entities affiliated with them, who together owned approximately
3,437,501 outstanding shares of Man Sang Nevada common stock and
100,000 outstanding shares of Man Sang Nevada preferred stock,
which together represent the votes of 6,628,726 shares of
Man Sang Nevada common stock, or 69.2% of the total voting
power of Man Sang Nevada common stock and Series A preferred
stock as of the date of the agreement and plan of liquidation,
executed a voting agreement agreeing to vote in favor of the
dissolution and liquidation of Man Sang Nevada, and the
agreement and plan of liquidation at the special meeting;
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Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po, and
other directors and executive officers of Man Sang Nevada,
participated in the preparation of the agreement and plan of
liquidation, this proxy statement/prospectus and other documents
relating to the liquidation;
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the continued indemnification of the current directors and
officers of Man Sang Nevada under the agreement and plan of
liquidation and the continuation of directors and
officers liability insurance after the effective time of
the liquidation;
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each of Man Sang Nevadas current board of directors and
executive officers is not a resident or a citizen of the United
States, and, as a result, will experience a reduction in
dividend withholding tax with respect to any future issuance of
dividends by Man Sang BVI on shares of Man Sang BVI owned by
such directors and officers following the liquidation of Man
Sang Nevada.
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The Man Sang Nevada board of directors was aware of these
interests and considered them, among other matters, in making
its recommendation. See The Liquidation
Background and Reasons for the Liquidation beginning on
page 35.
Restrictions
on the Ability to Sell Man Sang BVI Shares
All shares of Man Sang BVI ordinary shares and preferred shares
to be received by Man Sang Nevada stockholders in connection
with the liquidation will be freely transferable unless the
holder is an affiliate of Man Sang Nevada prior to the
liquidation. In this regard, the principal stockholders of Man
Sang Nevada are affiliates and will be subject to restrictions
on the resale of Man Sang BVI shares.
Market
Price (see page 43)
On July 23, 2009, the last trading day before the public
announcement of the liquidation, the closing price per Man Sang
Nevada share on the NYSE Amex was US$2.13, and the high and low
sales prices were US$2.43 and US$2.13.
9
Material
Tax Consequences (see page 101)
Generally, for U.S. federal income tax purposes,
U.S. shareholders will recognize gain or loss as a result
of the liquidation. Such a holder will generally recognize gain
or loss equal to the difference, if any, between the fair market
value of the Man Sang BVI shares received in the liquidation and
the holders adjusted tax basis in the holders shares
of Man Sang Nevada exchanged therefor. Generally, any such gain
will be capital gain if the Man Sang Nevada shares surrendered
constitute capital assets.
A
Non-U.S. shareholder
generally will not be subject to U.S. federal income tax on
any gain realized on the exchange of Man Sang Nevada common
stock as a result of the liquidation.
Man Sang Nevada will recognize gain or loss for
U.S. federal income tax purposes on the distribution of the
shares of Man Sang BVI to its shareholders as if the shares had
been sold to the distributee at fair market value. The amount of
gain or loss will equal the difference between the adjusted
basis that Man Sang Nevada has in the Man Sang BVI ordinary and
preferred shares and their fair market value on the date of
distribution.
WE ENCOURAGE YOU TO READ THE SECTION ENTITLED
MATERIAL TAX CONSEQUENCES ON PAGE 101 FOR A
MORE DETAILED DESCRIPTION OF THESE TAX CONSEQUENCES. WE ALSO
URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING YOUR
PARTICULAR TAX CONSEQUENCES.
In connection with the closing of the liquidation, Man Sang
Nevada and Man Sang BVI have received a tax opinion from
PricewaterhouseCoopers Limited that the liquidation constitutes
a complete liquidation of Man Sang Nevada for U.S. federal
income tax purposes under Section 331 and Section 336
of the Internal Revenue Code. In addition, it is a condition to
the closing of the liquidation that Man Sang Nevada and Man Sang
BVI receive this opinion from PricewaterhouseCoopers Limited and
that the tax opinion must not have been withdrawn or modified in
any material respect prior to the liquidation.
Accounting
Treatment of the Liquidation (see page 43)
Upon completion of the dissolution and liquidation of Man Sang
Nevada, Man Sang Nevada will distribute the Assets, which
consist of Man Sang BVI ordinary shares and Man Sang BVI
preferred shares, to its stockholders on a share-for-share
basis. Subject to material tax considerations, the liquidation
will not result in changes in our historical consolidated
carrying amount of assets, liabilities and shareholders
equity.
Voting
Agreement (see page 44)
Concurrently with the execution of the agreement and plan of
liquidation, the principal stockholders entered into a voting
agreement with Man Sang Nevada and agreed, among other things,
to take specified actions in furtherance of the dissolution and
liquidation of Man Sang Nevada. A copy of the Voting Agreement
is attached to this proxy statement/prospectus as Annex B.
The principal stockholders own sufficient shares of Man Sang
Nevada common stock and preferred stock to approve the
dissolution and liquidation of Man Sang Nevada and the adoption
of the agreement and plan of liquidation.
Regulatory
Matters (see page 44)
We do not expect that the dissolution and liquidation of Man
Sang Nevada will be subject to any United States or foreign
regulatory requirements other than the filing of the
registration statement on
Form F-4,
of which this proxy statement/prospectus forms a part, with the
SEC, and the filing of certain documents with the Secretary of
State of the State of Nevada.
Risk
Factors (see page 14)
The liquidation will expose us and you to some risks. For a
discussion of risk factors associated with the liquidation,
please see the discussion under Risk Factors on
page 14.
10
SUMMARY
OF SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data of Man Sang
Nevada presented in the table below was derived from Man Sang
Nevadas audited consolidated financial statements as of
and for the five years ended March 31, 2009. This data
should be read in conjunction with Man Sang Nevadas
audited consolidated financial statements, including the notes
to the financial statements, for the years ended March 31,
2009, 2008 and 2007, which are included in this proxy
statement/prospectus, beginning on
page F-1.
We have not included data for Man Sang BVI, since each of Man
Sang Nevada and Man Sang BVI is a holding company with no
operations or assets, other than its equity interests in
subsidiaries. In addition, Man Sang BVI was Man Sang
Nevadas wholly owned subsidiary during each of the years
presented. Therefore its consolidated historical financial data
is the same as that of Man Sang Nevada.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
US$(1)
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
42,710
|
|
|
|
333,138
|
|
|
|
633,691
|
|
|
|
398,279
|
|
|
|
378,297
|
|
|
|
412,262
|
|
Cost of sales
|
|
|
(27,952
|
)
|
|
|
(218,030
|
)
|
|
|
(352,195
|
)
|
|
|
(285,580
|
)
|
|
|
(272,443
|
)
|
|
|
(295,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,758
|
|
|
|
115,108
|
|
|
|
281,496
|
|
|
|
112,699
|
|
|
|
105,854
|
|
|
|
117,248
|
|
Rental income, gross
|
|
|
3,410
|
|
|
|
26,596
|
|
|
|
6,802
|
|
|
|
4,225
|
|
|
|
3,362
|
|
|
|
4,646
|
|
Expenses from rentals
|
|
|
(3,218
|
)
|
|
|
(25,097
|
)
|
|
|
(5,956
|
)
|
|
|
(5,888
|
)
|
|
|
(6,802
|
)
|
|
|
(11,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
1,499
|
|
|
|
846
|
|
|
|
(1,663
|
)
|
|
|
(3,440
|
)
|
|
|
(6,381
|
)
|
Selling, general and administrative expenses
|
|
|
(19,091
|
)
|
|
|
(148,905
|
)
|
|
|
(118,430
|
)
|
|
|
(84,134
|
)
|
|
|
(70,411
|
)
|
|
|
(81,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(4,141
|
)
|
|
|
(32,298
|
)
|
|
|
163,912
|
|
|
|
26,902
|
|
|
|
32,003
|
|
|
|
29,005
|
|
Equity in loss of an affiliate
|
|
|
(7
|
)
|
|
|
(54
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Interest income
|
|
|
1,288
|
|
|
|
10,043
|
|
|
|
17,872
|
|
|
|
9,394
|
|
|
|
7,140
|
|
|
|
1,067
|
|
Gain on sales of a real estate investment
|
|
|
109
|
|
|
|
854
|
|
|
|
10,485
|
|
|
|
|
|
|
|
|
|
|
|
34,248
|
|
Other income
|
|
|
606
|
|
|
|
4,724
|
|
|
|
3,693
|
|
|
|
28,981
|
|
|
|
2,312
|
|
|
|
1,617
|
|
Other than temporary decline in fair value of marketable
securities
|
|
|
(660
|
)
|
|
|
(5,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes and minority interests
|
|
|
(2,805
|
)
|
|
|
(21,879
|
)
|
|
|
195,955
|
|
|
|
65,277
|
|
|
|
41,455
|
|
|
|
65,837
|
|
Income taxes expense
|
|
|
401
|
|
|
|
3,132
|
|
|
|
(75,267
|
)
|
|
|
(6,776
|
)
|
|
|
(4,095
|
)
|
|
|
(6,129
|
)
|
Minority interests
|
|
|
987
|
|
|
|
7,694
|
|
|
|
(80,753
|
)
|
|
|
(30,536
|
)
|
|
|
(19,748
|
)
|
|
|
(32,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(1,417
|
)
|
|
|
(11,053
|
)
|
|
|
39,935
|
|
|
|
27,965
|
|
|
|
17,612
|
|
|
|
26,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
(0.20
|
)
|
|
|
(1.71
|
)
|
|
|
6.16
|
|
|
|
4.31
|
|
|
|
2.90
|
|
|
|
4.80
|
|
Diluted earnings per common share
|
|
|
(0.20
|
)
|
|
|
(1.71
|
)
|
|
|
5.94
|
|
|
|
4.23
|
|
|
|
2.74
|
|
|
|
4.24
|
|
Weighted average number of shares of common stock outstanding :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
5,980,870
|
|
|
|
5,509,847
|
|
Diluted
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
6,382,582
|
|
|
|
6,323,848
|
|
|
|
6,231,653
|
|
Weighted average number of shares of preferred stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Diluted
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Dividend per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per preferred share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Translations of Hong Kong dollars
into U.S. dollars were made at the rate of HK$7.80 =
US$1.00.
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
US$(1)
|
|
HK$
|
|
HK$
|
|
HK$
|
|
HK$
|
|
HK$
|
|
|
(Dollars in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
97,699
|
|
|
|
762,056
|
|
|
|
705,367
|
|
|
|
252,491
|
|
|
|
167,847
|
|
|
|
166,463
|
|
Current assets
|
|
|
122,252
|
|
|
|
953,573
|
|
|
|
1,076,270
|
|
|
|
426,618
|
|
|
|
440,928
|
|
|
|
392,778
|
|
Total assets
|
|
|
219,951
|
|
|
|
1,715,629
|
|
|
|
1,781,637
|
|
|
|
679,109
|
|
|
|
608,775
|
|
|
|
559,241
|
|
Total current liabilities (including current portion of
long-term debt)
|
|
|
(77,431
|
)
|
|
|
(603,963
|
)
|
|
|
(567,402
|
)
|
|
|
(42,600
|
)
|
|
|
(35,859
|
)
|
|
|
(35,750
|
)
|
Long-term debt
|
|
|
(13,038
|
)
|
|
|
(101,700
|
)
|
|
|
(166,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities (including minority interests)
|
|
|
(77,566
|
)
|
|
|
(605,016
|
)
|
|
|
(631,758
|
)
|
|
|
(316,150
|
)
|
|
|
(282,020
|
)
|
|
|
(258,775
|
)
|
Total liabilities
|
|
|
(168,035
|
)
|
|
|
(1,310,679
|
)
|
|
|
(1,365,660
|
)
|
|
|
(358,750
|
)
|
|
|
(317,879
|
)
|
|
|
(294,525
|
)
|
Shareholders equity
|
|
|
(51,916
|
)
|
|
|
(404,950
|
)
|
|
|
(415,977
|
)
|
|
|
(320,359
|
)
|
|
|
(290,896
|
)
|
|
|
(264,716
|
)
|
|
|
|
(1)
|
|
Translations of Hong Kong dollars
into U.S. dollars were made at the rate of HK$7.80 =
US$1.00.
|
12
SUMMARY
PRO FORMA FINANCIAL DATA
A pro forma condensed consolidated balance sheet for Man Sang
BVI is not presented in this proxy statement/prospectus because
there would be no significant pro forma adjustments required to
be made to the historical consolidated balance sheet of Man Sang
Nevada as of March 31, 2009 and 2008.
A pro forma condensed consolidated income statement for Man Sang
BVI is not presented in this proxy statement/prospectus because
there would be no significant pro forma adjustments required to
be made to income from operations in the historical consolidated
income statements of Man Sang Nevada for the years ended
March 31, 2009 and 2008.
Reference is made to the consolidated financial statements of
Man Sang Nevada, beginning with the index thereto on
page F-1.
Costs incurred in connection with the dissolution and
liquidation of Man Sang Nevada are estimated to be approximately
US$800,000 and will be expensed as incurred. Although the
dissolution and liquidation will result in the elimination of
Man Sang Nevada as the holding company of our group, the
dissolution and liquidation should have no material impact on
our financial condition or operating results, other than the
costs incurred in connection with the dissolution and
liquidation and U.S. federal income tax arising from the deemed
disposal of its shareholdings in Man Sang BVI.
13
RISK
FACTORS
In addition to the other information included in this proxy
statement/prospectus, you should carefully consider the
following risks that could materially affect the trading price
of Man Sang Nevadas common stock and the ordinary shares
of Man Sang BVI, your interests as a shareholder, and our future
performance, cash flows and financial condition.
Risks
Relating to the Liquidation
The
IRS may challenge the position taken by Man Sang Nevada with
respect to the adjusted basis and valuation of its
assets
Man Sang Nevada will be required to pay taxes in the United
States as a result of the liquidation. We cannot assure you that
the IRS will not challenge the position taken by Man Sang Nevada
with respect to the adjusted basis and the valuation of its
assets. If the IRS were to successfully challenge the adjusted
basis and the valuation of Man Sang Nevadas assets, Man
Sang BVI, as a successor to Man Sang Nevada, could incur a
material amount of United States federal income tax liability as
a result of the liquidation. A more detailed discussion of the
material United States federal income tax consequences of the
reorganization to Man Sang Nevada and Man Sang BVI is set forth
under the heading Material Tax Consequences
Material United States Federal Income Tax Consequences on
page 101.
There
is a risk that Man Sang BVI could be treated as a U.S. domestic
corporation for U.S. federal income tax purposes after the
liquidation, which could result in significantly greater U.S.
federal income tax liability to us
Section 7874(b) of the Internal Revenue Code, or
Section 7874(b), generally provides that a corporation
organized outside the United States which acquires, directly or
indirectly, pursuant to a plan or series of related transactions
substantially all of the assets of a corporation organized in
the United States will be treated as a domestic corporation for
U.S. federal income tax purposes if shareholders of the
acquired corporation own at least 80% (of either the voting
power or the value) of the stock of the acquiring corporation
after the acquisition. If Section 7874(b) were to apply to
the liquidation, then we would be subject to U.S. federal
income tax on our worldwide taxable income following the change
of our place of incorporation as if we were a domestic
corporation.
We believe that under Section 7874(b), Man Sang BVI will
not be treated as a domestic corporation for U.S. federal
income tax purposes. However, there is no assurance that the IRS
would not seek to assert that Man Sang BVI is subject to
U.S. federal income tax on its worldwide income after the
liquidation, although we believe that such an assertion should
not be successful. As such, shareholders are urged to consult
their own tax advisors on this issue.
The
liquidation may not allow us to maintain a competitive worldwide
effective corporate tax rate
We believe that the liquidation will help enhance our cash flow
and reduce our worldwide effective tax rate. However, we cannot
give any assurance as to the amount of taxes we will pay as a
result of or after the liquidation. The amount of taxes we will
pay will depend in part on our treatment by the taxing
authorities in the jurisdictions in which we operate.
Additionally, the tax laws of the British Virgin Islands and
other jurisdictions could change in the future, and such changes
could cause a material change in our effective tax rate.
Tax
law changes could adversely affect Man Sang BVI, its
subsidiaries and its shareholders
Changes in tax laws, treaties or regulations or the
interpretation or enforcement thereof could adversely affect the
tax consequences of the liquidation. In addition, if the IRS or
other taxing authorities do not agree with our assessment of the
effects of such laws, treaties and regulations, this could have
a material adverse effect on the tax consequences of the
liquidation.
WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISORS REGARDING YOUR
PARTICULAR TAX CONSEQUENCES OF THE CHANGE OF OUR INCORPORATION.
The
liquidation could result in adverse tax consequences for
you
Depending on your circumstances, you may be required to make a
filing with the IRS as a result of the liquidation. If you fail
to make this filing on a timely basis you could owe taxes as a
result of the liquidation, even
14
though you will not have realized any income or liquidity as a
result. For a more detailed description of the tax consequences
associated with this transaction, see Material Tax
Consequences Material United States Federal Income
Tax Consequences.
Man
Sang BVI may be classified as a passive foreign investment
company, which could result in adverse U.S. federal income tax
consequences to U.S. holders of its ordinary and preferred
shares
We do not expect for Man Sang BVI to be considered a
passive foreign investment company, or PFIC, for
U.S. federal income tax purposes for our current taxable
year ending March 31, 2010, and we expect that Man Sang BVI
will conduct its operations in such a manner so as not to become
a PFIC in future taxable years. However, we must make a separate
determination each year as to whether we are a PFIC (after the
close of each taxable year). Accordingly, we cannot assure you
that we will not be a PFIC for our current taxable year ending
March 31, 2010 or any future taxable year. A
non-U.S. corporation
will be considered a PFIC for any taxable year if either
(1) at least 75% of its gross income (looking through to
certain corporate subsidiaries) is passive income or (2) at
least 50% of the average value of its assets (looking through
certain corporate subsidiaries) is attributable to assets that
produce, or are held for the production of, passive income. The
market value of Man Sang BVIs assets may be determined in
large part by the market value of the shares of Man Sang
International Limited, which is likely to fluctuate. If Man Sang
BVI were treated as a PFIC for any taxable year during which a
U.S. person held an ordinary or preferred share, certain
adverse U.S. federal income tax consequences could apply to
such U.S. person.
We urge U.S. shareholders to consult their own tax advisors
regarding the possible application of the PFIC rules. For a more
detailed discussion of the PFIC rules, see Material Tax
Consequences Material United States Federal Income
Tax Consequences Tax Consequences to
U.S. Holders of Man Sang BVI Shares Passive
Foreign Investment Company Rules.
We may
not realize the expected cost savings and other benefits from
the liquidation
We expect that we will realize cost savings and other financial
and operating benefits as a result of the liquidation and the
change of our place of incorporation. For a description of the
anticipated benefits cost savings and benefits we expect to
realize from the liquidation and change in place of our
incorporation, see The Liquidation Background
and Reasons for the Liquidation. However, we cannot
predict with certainty if or when these cost savings and
benefits will occur, or the extent to which they actually will
be achieved. Many factors could affect our ability to realize
the anticipated benefits of the liquidation. The anticipated
reduction of SEC reporting requirements and related expenses may
not be achieved in the event of changes to the SEC rules
applicable to foreign private issuers. In addition, if
opportunities for us to engage in merger and acquisition
activities with, or attract investment from,
non-U.S. parties
do not materialize, the liquidation may not prove useful for
this purpose as we anticipate. With regard to simplification of
our tax position, since we have not paid United States corporate
income or dividend taxes in the last three fiscal years,
primarily because Man Sang Nevada has no operations in the
United States and paid no dividends in the last three fiscal
years, and assuming no change in our dividend practices, we may
find that our overall tax position does not materially improve
as a result of the liquidation. In addition, changes in existing
or proposed tax laws in the places of incorporation of Man Sang
BVI and its subsidiaries, which are the British Virgin Islands,
Bermuda, Hong Kong and China, may result in the liquidation not
achieving some or all of our anticipated benefits. In
particular, if we are considered as a PRC tax resident
enterprise under the new PRC Enterprise Income Tax Law, then our
global income will be subject to PRC enterprise income tax at
the rate of 25%. Further, any dividends paid by our PRC
subsidiaries to our offshore intermediate holding companies will
be subject to 10% withholding tax, unless there are applicable
tax treaties to reduce this rate. See Risks
Relating to Our Business The implementation of new
tax laws may significantly increase our income tax
liability. Other factors that may affect our ability to
realize the anticipated benefits of the liquidation include a
number of other macroeconomic factors beyond our control, such
as general economic and market conditions, increased operating
costs and regulatory developments.
15
Man
Sang Nevada did not receive an opinion as to the fairness of the
terms and conditions of the liquidation. Accordingly, you will
not be able to rely on a third party opinion in determining the
fairness of the transaction
Man Sang Nevada did not receive an opinion from an independent
third party with respect to whether the terms and conditions of
the liquidation are fair to shareholders from a financial
perspective. In making the determination that the liquidation is
fair and in the interest of the stockholders, Man Sang
Nevadas board of directors relied on, among other things,
its analysis that the financial value of the ordinary and
preferred shares of Man Sang BVI immediately after the
liquidation would be effectively the same as the financial value
of the common and preferred stock of Man Sang Nevada immediately
before the liquidation.
We may
prepare our financial statements in accordance with IFRS
following the liquidation, which could have a significant effect
on our reported financial results
The SEC permits foreign private issuers to file financial
statements in accordance with International Financial Reporting
Standards or IFRS, as issued by the International Accounting
Standards Board, or IASB. At any time in the future, as a
foreign private issuer, we may decide to prepare our financial
statements in accordance with IFRS as issued by the IASB. If we
decide to prepare our financial statements in accordance with
IFRS as issued by IASB, we may choose to recognize fair value
gains or losses on our investment properties as of the balance
sheet date. The annual revaluation of our investment properties
will be based on market conditions and other factors that are
uncertain and beyond our control and could result in significant
fluctuations in our results of operations. Any application by us
of different accounting standards, a change in the rules of IFRS
as issued by the IASB, or in the SECs acceptance of such
rules, could have a significant effect on our reported financial
results.
Risks
Relating to Our Business
We
face a number of risks related to the recent financial crisis
and severe tightening in the global credit markets
The ongoing global financial crisis affecting the banking system
and financial markets has resulted in a severe tightening in
credit markets, a low level of liquidity in many financial
markets, and extreme volatility in credit and equity markets. If
these conditions continue or worsen, our cost of borrowing may
increase, the terms of borrowings may become onerous and it may
become more difficult to obtain financing for our operations or
investments. The financial crisis could also impact our business
in other ways, including:
Economic Downturns in the Markets in Which We
Operate. Sustained downturns in the Asia, United
States and Europe markets in which we operate may result in a
continued decline in demand for our products and have a negative
impact on our financial condition and results of operations over
the next several fiscal quarters and possibly beyond.
Potential Reduction or Delay of Purchases and Orders by
Customers. Recessionary conditions and depressed
levels of consumer and commercial spending have caused and may
continue to cause customers to reduce, modify, delay or cancel
plans to purchase our products in response to tighter credit,
decreased cash availability and declining consumer confidence.
Accordingly, future demand for our products could differ
materially from our current expectations, which could have a
negative result on our financial condition and results of
operations.
Liquidity Issues with Our Customers. Because
we generally grant credit to our customers, we have a
significant amount of accounts receivables. In January 2009, one
of our existing customers in the United States filed for
Chapter 11 bankruptcy protection. If other customers
encounter liquidity issues or are forced to seek bankruptcy
protection, then we could encounter delays or defaults in
payments owed to us which could adversely impact our financial
condition and results of operations. Our allowance for doubtful
accounts increased by HK$27.1 million, or 158.1%, from
HK$17.1 million as of March 31, 2008 to
HK$44.2 million as of March 31, 2009. Allowance for
doubtful accounts as a percentage of gross accounts receivable
increased from 10.4% as of March 31, 2008 to 30.9% as of
March 31, 2009.
Negative Impact from Increased Financial Pressures on Key
Suppliers. Our ability to meet customers
demands depends, in part, on our ability to obtain timely and
adequate delivery of materials from our suppliers. If certain
key suppliers were to become capacity constrained or insolvent
as a result of the financial crisis, it could
16
result in a reduction or interruption in supplies or a
significant increase in the price of supplies, or otherwise
materially change the terms of sale, and adversely impact our
financial condition and results of operations. In addition,
credit constraints of key suppliers could result in accelerated
payment of accounts payable by us, impacting our cash flow.
Reduction of Discretionary Spending by Retail
Customers. Our results of operations are impacted
by the discretionary spending of retail customers, both of our
pearl and jewelry products and the products of our tenants.
Discretionary spending is affected by many factors, including,
among others, general business conditions, interest rates,
inflation, consumer debt levels, the availability of consumer
credit, currency exchange rates, taxation, electricity power
rates, gasoline prices, unemployment trends and other matters
that influence consumer confidence and spending. Many of these
factors are outside of our control. Retail customers
purchases of discretionary items, including our products, could
decline during periods when disposable income is lower or in
periods of actual or perceived unfavorable economic conditions,
which could adversely impact our financial condition and results
of operations.
A few
large suppliers account for a significant percentage of our
pearl supplies, and we may be unable to purchase adequate
supplies of pearls
Our principal raw materials are pearls. As pearls are
commodities and their value is subject to prevailing market
conditions, buyers and sellers of pearls do not customarily
enter into any long-term contracts. We purchase different types
of pearls from different sources around the world but do not
currently have any fixed term purchase contracts with any pearl
farmers or suppliers. Rather, we negotiate the purchase of
pearls on an as needed basis at prevailing market prices. In
addition, a few large suppliers account for a significant
percentage of our pearl supplies. In fiscal years 2009, 2008 and
2007, our five largest suppliers accounted for approximately
50.0%, 47.1% and 51.9% of our total purchases, with the largest
supplier accounting for approximately 21.3%, 16.2% and 16.3% of
our total purchases.
If the availability or cost of pearls is adversely affected (for
example, due to a decrease in one of our significant suppliers
or in the number of suppliers, or a reduction in the overall
availability, whether due to a lack of supply, the loss of a
supply contract, or increased demand from our competitors), we
may have to bear greater expenses for, or be unable to acquire,
adequate supplies of pearls of the quality or on the terms
required by us. Any such adverse changes may require us to
increase prices or stop producing certain products and could
adversely affect our business, results of operations, financial
condition and future prospects.
We
have significant outstanding bank borrowings, and we may not be
able to arrange adequate financing when they
mature
As of March 31, 2009, we had HK$493.1 million in cash
and cash equivalents and HK$192.1 million in outstanding
borrowings (denominated in Renminbi), of which approximately
HK$90.4 million was due within one year. We might not be
able to obtain extensions of these borrowings in the future as
they mature. In the event we are unable to obtain extensions of
these borrowings, or if we are unable to obtain sufficient
alternative funding at reasonable terms to make repayments, we
will have to repay these borrowings with cash generated by our
operating activities. Our business might not generate sufficient
cash flow from operations to repay these borrowings, some of
which are secured by significant amounts of our assets. In
addition, repaying these borrowings with cash generated by our
operating activities will divert our financial resources from
the requirements of our ongoing operations and future growth,
and would have a material adverse effect on our business,
financial condition and future prospects.
Disruptions
in the financial market may adversely affect the availability
and cost of credit to us
Our ability to make scheduled payments or refinance our
obligations with respect to indebtedness will depend on our
operating and financial performance, which in turn is subject to
prevailing economic conditions and financial, business and other
factors beyond our control. Recent disruptions in the financial
markets, including the bankruptcy or restructuring of a number
of financial institutions in the United States and Europe,
reduced lending activity, decreased liquidity and higher costs
in the credit markets, may adversely affect the availability and
cost of credit that we have already arranged, and the
availability, terms and cost of credit in the future, including
any financing necessary to complete China Pearls and Jewellery
City, our pearl market center under development in the PRC. In
this regard, as a consequence of the on-going global financial
crisis affecting the banking system and
17
financial markets, the PRC has also recently experienced a
tightening in credit markets. We cannot assure you that recent
PRC government fiscal stimulus measures in response to
disruptions in the financial markets will stabilize the markets
in general or increase liquidity and the availability of credit
to us.
We
operate in a highly competitive industry
The pearl and jewelry industry is highly competitive. We compete
with a large number of local and international pearl and jewelry
manufacturers and wholesalers. Because of the breadth and depth
of this competition, we are constantly under competitive
pressure that both constrains pricing and requires extensive
merchandising efforts in order for us to remain competitive. We
compete primarily on the basis of our reputation for high
quality products, brand recognition and distinctive merchandise.
Our success is also dependent on our ability to both react to
and create customer demand for our pearl and jewelry products.
Certain of our competitors, especially jewelry retailers, are
larger, have been in existence for a longer period of time, have
achieved greater brand recognition and a greater market share in
the markets in which we operate and have substantially greater
financial, distribution and other resources than we do. Due to
the above factors, we cannot assure you that we can continue to
compete favorably in this highly competitive industry.
Changes
in climate or environmental conditions may lead to fluctuations
in pearl prices
Any adverse change in the climate or environmental conditions in
the areas where we obtain our source of supply of pearls may
have an adverse effect on pearl harvesting, the supply of pearls
and our business.
Over the years, we have developed relationships with a network
of suppliers in an attempt to ensure a steady supply of
different varieties of pearls. In order to reduce the impact of
fluctuations in pearl prices, we have adopted policies aimed at
both diversifying our product range as well as the sources and
suppliers from which we purchase pearls. In so doing, we believe
we are less susceptible to fluctuations in pearl supplies due to
changes in climate or environmental conditions in any particular
region of supply. However, pearls remain our primary product.
Any adverse change in the climate or environmental conditions in
any region of supply of pearls may have an adverse effect on the
prices of pearls in the entire market and may adversely affect
our profitability.
Changes
in the purchasing decisions of our customers may affect our
future operating results
Our customer network consists principally of wholesale
distributors and mass merchandisers in Europe, the United
States, Hong Kong and other Asian countries. In accordance with
industry practice, we generally do not have long-term sales
arrangements with our customers. As a result, short-term changes
to these customers purchasing decisions could affect our
year-to-year sales volumes. In addition, our customers
purchase orders may vary significantly from period to period. As
a result, it may be difficult for us to forecast our revenues in
future periods. Because our current expense levels are based in
part on our expectations for future revenues, we may be unable
to adjust our purchases of supplies, and as a result reduce our
expenses, in a timely manner in response to unexpected
disruptions in purchase orders from customers. This could have a
material and adverse effect on our business, results of
operations and financial condition.
Our
sales could be negatively impacted by the actions or
circumstances of one or more key customers leading to material
fluctuations in revenues or a substantial reduction in orders
for our products
We currently sell a substantial portion of our pearls and
jewelry products to a limited number of customers. In fiscal
years 2009, 2008 and 2007, sales to our top five customers
accounted for approximately 47.4%, 41.9% and 41.1%,
respectively, of our total sales, and our largest customer
accounted for approximately 15.1%, 10.4% and 16.0%,
respectively, of our total sales. Dependence on a limited number
of customers exposes us to the risks that one of the following
events may cause material fluctuations or declines in our
revenues:
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reduction, delay or cancellation of orders from one or more of
our significant customers;
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loss of one or more of our significant customers due to
disputes, dissatisfaction with our products or otherwise, and
our failure to attract additional or replacement
customers; and
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failure of any of our significant customers to make timely
payment for our products.
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Our
business could be harmed if we fail to maintain proper inventory
levels
Recently, we have decreased inventory purchases in response to a
decrease in demand in the United States and Asia markets. We may
be unable to sell the products that we have in our inventory.
The current economic environment has made accurate projecting of
inventory levels increasingly challenging. Inventory levels in
excess of customer demand may result in inventory write-downs,
or the sale of excess inventory at discounted prices, all of
which could adversely affect our gross margins. Conversely, if
we underestimate consumer demand for our pearls and jewelry
products or if our suppliers fail to supply pearls in a timely
manner, we may experience inventory shortages. Inventory
shortages might result in unfilled orders, negatively impact
customer relationships and result in lost revenues, any of which
could harm our business.
Global
or regional recessions may adversely affect consumer purchases
of our products
Our revenues are dependent on cycles in general global and
regional economic conditions and macroeconomic factors such as
employment levels, salary levels, business conditions, tax rates
and credit availability, all of which affect consumer spending
on discretionary items such as jewelry, which are perceived as
luxuries. Volumes and values of sales of jewelry tend to
decrease faster than sales and values of essential goods during
economic downturns. Declining confidence in the global economy
or regional economies where we are active could therefore
adversely affect consumers ability and willingness to
purchase our products. Regionally, purchases made by our
customers in North America, Europe and Hong Kong and other Asian
countries accounted for approximately 22.1%, 48.3% and 21.5% of
our total revenues in fiscal year 2009. Should any of these
economies suffer a serious economic downturn, it could have a
material and adverse effect on our business, results of
operations and financial condition.
We are
exposed to currency exchange fluctuations
We make the majority of our purchases in U.S. dollars, Hong
Kong dollars, Japanese Yen and Renminbi, and denominate our
sales in either U.S. dollars or Hong Kong dollars.
Accordingly, changes in currency exchange rates (including
revaluation of the Renminbi) and costs of conversion between
U.S. dollars, Hong Kong dollars and such other currencies
may have an adverse effect on our business. These exposures may
change over time as business practices evolve and could result
in increased costs or reduced revenue that could impact our cash
flow and operating results. Currency devaluations and
unfavorable changes in international monetary and tax policies
could also have a material adverse effect on our profitability.
The
implementation of new tax laws may significantly increase our
income tax liability
Man Sang Nevada is a holding company incorporated in Nevada and
Man Sang BVI is a holding company incorporated in the British
Virgin Islands. We also have intermediate holding companies
incorporated in Bermuda and Hong Kong, and subsidiaries that
operate in the PRC. As a result, any change in the policies or
regulations regarding taxation in the British Virgin Islands,
Bermuda, Hong Kong or the PRC may have a material adverse effect
on our profitability. On March 16, 2007, the PRC National
Peoples Congress, the PRC legislature, adopted a new tax
law, the Enterprise Income Tax Law of the Peoples Republic
of China, or the Enterprise Income Tax Law, which became
effective January 1, 2008. On December 6, 2007, the
State Council promulgated the Implementation Regulations of the
Enterprise Income Tax Law, or the Implementation Regulations,
which also became effective January 1, 2008. The Enterprise
Income Tax Law imposes a uniform tax rate of 25% for all
enterprises incorporated or resident in China, including foreign
investment enterprises, and eliminates many tax exemptions,
reductions and preferential treatments formerly applicable to
foreign investment enterprises. Man Hing Industry Development
(Shenzhen) Co., Ltd., our primary manufacturing subsidiary in
China, enjoyed a preferential enterprise income tax rate of 20%
on its taxable income prior to and during fiscal year 2009.
Under the Enterprise Income Tax Law and the Implementation
Regulations, Man Hing Industry Development (Shenzhen) Co.,
Ltd.s income tax rates will increase gradually over a
period of five years until it pays income tax at a rate of 25%.
Under the Income Tax Law for Enterprises with Foreign Investment
and Foreign Enterprises, effective prior to January 1,
2008, any dividends payable by foreign-invested enterprises to
their non-PRC investors were exempt from any PRC withholding
income tax. Under the new Enterprise Income Tax Law,
China-sourced income of foreign enterprises, such as dividends
paid by a PRC subsidiary to its overseas parent, will normally
be subject to PRC withholding tax at a rate of 10%, unless there
are applicable treaties that reduce such rate. Neither the
British
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Virgin Islands nor Bermuda has a tax treaty with China entitling
us to any withholding tax lower than 10%. Hong Kong, where some
of our intermediate holding companies are incorporated, has an
arrangement with China under which the dividend withholding tax
rate is reduced to 5% if a Hong Kong resident enterprise owns
over 25% of the PRC company distributing the dividends. If the
applicable Hong Kong intermediate holding company is regarded as
a non-resident enterprise and owns at least a 25% share in the
relevant PRC subsidiary, dividends paid by such PRC subsidiary
would be subject to a withholding tax at the rate of 5%,
provided that the Hong Kong subsidiary and we are not considered
to be a PRC tax resident enterprise, as described below.
The new Enterprise Income Tax Law, however, also provides that
enterprises established outside China whose de facto
management bodies are located in China are considered
resident enterprises and will generally be subject
to the uniform 25% enterprise income tax rate on their global
income. Under the Implementation Regulations, de facto
management bodies is defined as the bodies that have, in
substance, overall management control over such aspects as the
production and business, personnel, accounts and properties of
an enterprise. Pursuant to this definition, we believe our
de facto management bodies are located in Hong Kong.
However, if we are considered as a PRC tax resident enterprise
under the above definition, then our global income will be
subject to PRC enterprise income tax at the rate of 25%.
Dividends
payable by us to our foreign investors and gain on the sale of
our shares may become subject to withholding taxes under PRC tax
laws
Under the new Enterprise Income Tax Law and the Implementation
Regulations, PRC income tax at the rate of 10% applies to
dividends payable to investors that are non-resident
enterprises (and that do not have an establishment or
place of business in China, or that have such establishment or
place of business but the relevant income is not effectively
connected with such establishment or place of business) to the
extent such dividends are sourced within China and the
enterprise that distributes dividends is considered a
resident enterprise in China. Therefore, if we are
considered as a PRC tax resident enterprise for tax purposes,
any dividends we pay to our overseas shareholders as well as
gains realized by such shareholders from the transfer of our
shares may be regarded as China-sourced income and as a result
be subject to 10% PRC withholding tax. We intend to take the
position that any dividends we pay to our overseas shareholders
will not be subject to a withholding tax in the PRC.
As the new Enterprise Income Tax Law and the Implementation
Rules have only recently taken effect, it is uncertain how they
will be implemented by the relevant PRC tax authorities. In
addition, a number of detailed implementation regulations are
still in the process of promulgation. If dividend payments from
our PRC operating subsidiaries to our overseas intermediate
holding companies, and from our overseas intermediate holding
companies to us are subject to PRC withholding tax, our
financial condition, results of operations and the amount of
dividends available to pay our shareholders may be adversely
affected. If dividends we pay to our overseas shareholders or
gains realized by such shareholders from the transfer of our
shares are subject to PRC withholding tax, it may materially and
adversely affect your investment return and the value of your
investment in us.
We are
exposed to general real estate investment risks
We own certain real estate investments. Real estate investments,
like many other types of long-term investments, have
historically experienced significant fluctuations in value, and
specific market conditions and cycles may result in occasional
or permanent reductions in the value of our investments.
Property cash flows and the marketability and value of real
property will depend on many factors beyond our control,
including, without limitation:
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adverse changes in international, national, regional and local
economic and market conditions;
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changes in interest rates or financial markets;
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fluctuating local real estate conditions and changes in local
laws and regulations;
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changes or promulgation and enforcement of governmental
regulations relating to land use and zoning, environmental,
occupational and safety matters;
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changes in real estate tax rates and other operating expenses;
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existence of uninsured or uninsurable risks; and
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natural disasters, acts of war or terrorism.
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We may
not be able to complete China Pearls and Jewellery City or
commence or complete our properties planned for future real
estate projects on time or within budget
Our real estate projects involve acquiring land-use rights for
large plots of land, many of which have existing structures and
residents, from municipal and provincial governments of the PRC.
Other properties we may develop in the future may also involve
similar circumstances. Acquiring these development rights,
converting them into land-use rights and committing the
financial and managerial resources to develop the land involves
significant risks. Before a real estate development project
generates any revenue, we must make a variety of material
expenditures, including to acquire the development rights and to
construct the required infrastructure. As of March 31,
2009, China Pearls and Jewellery City Holdings Limited, a
subsidiary of Man Sang Nevada, had incurred approximately
HK$793 million in development costs, primarily for the
construction of phase one of China Pearls and Jewellery City.
It generally takes several years for a planned real estate
project to generate revenue, and we cannot assure you that our
real estate projects will achieve positive cash flow. As a
result, our current and future real estate development
activities may be exposed to the following risks:
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we may lease or sell developed properties at below expected
rental rates or sales prices, and we may experience delays in
the sale or leasing of developed properties;
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we may be unable to complete construction of our real estate
projects on schedule, or on budget, due to a variety of factors
including shortages of materials, equipment, technical skills
and labor, adverse weather conditions, natural disasters, labor
disputes, disputes with contractors and sub-contractors,
accidents, changes in government priorities and policies,
changes in market conditions, delays in the relocation process,
delays in obtaining the requisite licenses, permits and
approvals from the relevant authorities and other problems and
circumstances, resulting in increased debt service expense and
construction costs;
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occupancy rates, rents and sales prices at our real estate
properties may fluctuate depending on a number of factors,
including market and economic conditions, and may result in our
investments being less profitable than we expected or not
profitable at all;
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the services rendered by our contractors may not always meet our
quality requirements, and negligence or poor work quality by any
contractors may result in defects in our buildings or trade
center units, which could in turn cause us to suffer financial
losses, harm our reputation or expose us to third-party claims;
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since it normally takes several years for us to complete a real
estate project, we expect that we will be affected by increases
in the costs of construction materials and the costs of other
goods and services, most significantly labor costs.
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we may delay, or change the structure of, real estate projects
and as a result we may lose deposits paid to participate in the
land tender process or fail to recover expenses already incurred;
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we may be unable to obtain, or face delays in obtaining,
required zoning, land-use, building, occupancy, and other
governmental permits, rights and authorizations, which could
result in increased costs with respect to a project;
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The occurrence of any of these circumstances, most of which are
beyond our control, could delay the completion of our real
estate projects, which could adversely affect our business,
financial condition and results of operations, which in turn
could cause the market value of our securities to decline.
We may
not be able to generate sufficient cash flow or obtain financing
to complete China Pearls and Jewellery City or implement our
business strategies
We intend to invest approximately HK$88.6 million and
HK$28.5 million for capital expenditures in fiscal years
2010 and 2011, respectively, nearly all of which will be
dedicated to the construction of the phase one pearl market
center for China Pearls and Jewellery City. We intend to finance
these capital expenditures with cash reserves, cash flows from
operations, dividend payments from subsidiaries and, if
required, borrowings. We may not generate sufficient cash flows
from operations to fully fund our capital expenditures for China
Pearls and
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Jewellery City or other projects we may undertake. We may need
additional funding to implement our business strategy. If we are
unable to generate enough cash to pay for these projects we may
need to raise additional funds. We may not be able to raise any
additional funds on commercially acceptable terms, if at all. If
we can not generate enough cash, or find alternative sources of
funding to complete these projects, our business, cash flows,
financial condition, results of operations and prospects could
be materially and adversely affected.
The
cyclical nature of the real estate industry could adversely
affect our results of operations
The results of our real estate operations are affected by the
cyclical nature of the real estate industry in the PRC. Property
values and rents are affected by, among other factors, supply
and demand of comparable properties, interest rates,
unemployment rates, inflation, the rate of economic growth, tax
laws and political and economic developments in the PRC. We
cannot assure you that property values and rents will not
decline in the future. In addition, increased competition from
other pearl processing and pearl market centers could adversely
affect our rents and occupancy rates at Man Sang Industrial City
and China Pearls and Jewellery City as well as sales prices for
our units at China Pearls and Jewellery City. Furthermore, a
significant downturn in demand for pearl and jewelry products
could adversely affect demand for our units at Man Sang
Industrial City and China Pearls and Jewellery City. A
significant downturn in demand for our units would result in a
material adverse effect on our business, financial condition and
results of operations.
If we
fail to obtain the necessary land-use rights, we will not be
able to continue the development of China Pearls and Jewellery
City
We entered into a master agreement with the Zhuji Shanxiahu
Peoples Government in January 2006 for the development of
China Pearls and Jewellery City. Pursuant to this master
agreement, the Zhuji Shanxiahu Peoples Government has
identified land which is suitable for the development of China
Pearls and Jewellery City. However, the signing of the master
agreement does not guarantee that we will obtain all of the land
identified therein, which is transferred by public tender,
auction or listing for sale. As of March 31, 2009, we had
obtained the land-use rights for approximately
300,000 square meters of land for the development of China
Pearls and Jewellery City, including substantially all of the
land-use rights for our phase one pearl market center.
We cannot assure you that land administration authorities will
grant us the remaining 900,000 square meters of land
corresponding to the land identified in our master agreement for
the development of the remaining phases of China Pearls and
Jewellery City in a timely manner, or at all. Moreover, we
cannot assure you that we will be able to obtain the land at our
desired price. If we are not successful in obtaining the
land-use rights for the development of the remaining phases of
China Pearls and Jewellery City, we will not be able to develop
China Pearls and Jewellery City as planned, which may result in
a material adverse effect on our business, financial condition
and results of operations.
Our
results of operations may fluctuate from period to period due to
variations in the proceeds received from sales of pearl market
center units in China Pearls and Jewellery City
Our policy will be to maintain an optimal mix between pearl
market center units for sale and pearl market center units held
as investment properties at China Pearls and Jewellery City.
Accordingly, our results of operations may fluctuate from period
to period depending upon the proportion and gross floor area of
pearl market center units that are sold or leased, as well as
when construction of pearl market center units is completed. In
addition, because China Pearls and Jewellery City is a
large-scale, multi-phase project to be developed over the course
of several years, the selling prices of pearl market center
units are also subject to fluctuation, which may result in a
material adverse effect on our business, financial condition and
results of operations.
Our
operations are subject to extensive governmental regulation, and
we are susceptible to changes in policies related to the real
estate market in the PRC
In order to develop and operate China Pearls and Jewellery City,
we must obtain various permits, licenses, certificates and other
approvals from the relevant administrative authorities at
various stages of development, including land-use rights
documents, planning permits, construction permits, and
certificates or confirmation of completion and acceptance. Each
approval is dependent on the satisfaction of certain
pre-conditions. We cannot assure you that we will be able to
fulfill the pre-conditions necessary to obtain required
governmental approvals, or that we will be able to adapt to new
laws, regulations or policies that may come into effect from
time to time with
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respect to the real estate market in general or the particular
processes with respect to the grant of approvals in China. There
may also be delays on the part of relevant administrative bodies
in reviewing our applications and granting approvals. If we fail
to obtain, or experience material delays in obtaining, the
requisite governmental approvals, the development, sale and
lease of China Pearls and Jewellery City pearl market center
units could be substantially disrupted, which would result in a
material adverse effect on our business, financial condition and
results of operations.
Demand
for our units at China Pearls and Jewellery City and Man Sang
Industrial City has been and may continue to be negatively
affected by the recent financial market and economic crisis,
which would have a material adverse effect on our business,
results of operations and financial condition
The recent global financial crisis has adversely affected the
United States and other world economies. Although the PRC
government has adopted increasingly flexible macroeconomic
policies, including an announced fiscal stimulus package, aimed
at offsetting the slowdown brought about by the financial
crisis, as the financial crisis has broadened and intensified,
the growth of Chinas economy has been negatively impacted.
The financial crisis has had a negative impact on the
manufacturing activities and exports by manufacturers, including
manufacturers and suppliers of pearl and jewelry products, which
are our principal tenants. Current and potential tenants and
purchasers of our units at China Pearls and Jewellery City and
current and potential tenants of our units at Man Sang
Industrial City may be increasingly affected by the economic
crisis and, as a result, may be unable to sustain their business
operations or make agreed upon rental or purchase payments for
our units, all of which could lead to a reduction in demand and
profit margins and delay in rental and purchase payments.
Although, as of March 31, 2009 we had not experienced any
material defaults or delinquencies by tenants of China Pearls
and Jewellery City or Man Sang Industrial City, we cannot assure
you that we will not experience material tenant defaults or
delinquencies in the future.
PRC
tax authorities may challenge the basis on which we pay our land
appreciation tax obligations and our results of operations and
cash flows may be affected.
Under PRC laws and regulations, PRC enterprises engaging in
property development are subject to land appreciation tax, or
LAT, which is levied by the local tax authorities. All taxable
gains from the sale or transfer of land use rights, buildings
and their attached facilities in the PRC are subject to LAT at
progressive rates ranging from 30% to 60%. Provisioning for LAT
requires our management to use a significant amount of judgment
with respect to, among other things, the anticipated total
proceeds to be derived from the sale or transfer of land use
rights and buildings, the total appreciation of land value and
various deductions to the LAT. If the LAT provisions we make are
substantially lower than the actual LAT amounts assessed by the
tax authorities in the future, our results of operations and
cash flows will be materially and adversely affected.
Our
principal stockholders have substantial control over Man Sang
Nevada and can affect decisions made by our stockholders and,
following the liquidation, will continue to have substantial
control over Man Sang BVI
As of the record date, our principal stockholders,
Mr. Cheng Chung Hing, Ricky, our President, Chairman and
Chief Executive Officer and Mr. Cheng Tai Po, our Vice
Chairman, beneficially owned approximately 3,437,501 outstanding
shares of Man Sang Nevada common stock and 100,000 outstanding
shares of Man Sang Nevada preferred stock, which together
represent the votes of 6,628,726 shares of Man Sang Nevada
common stock, or 69.2% of the total voting power of Man
Sang Nevada common stock and Series A preferred stock. As a
result, Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai
Po have the requisite voting power to exert substantial
influence over actions which require stockholder approval and
generally to direct our affairs, including decisions regarding
the election of directors, mergers, consolidations and the sale
of all or substantially all of our assets and other significant
corporate actions. This concentration of ownership may
discourage, delay or prevent a change in control of our company,
which could deprive our shareholders of an opportunity to
receive a premium for their shares as part of a sale of our
company and might reduce the price of our shares. These actions
may be taken even if they are opposed by our other shareholders.
Following the liquidation, the principal stockholders will
continue to have the same level of control over Man Sang BVI and
will be able to similarly affect decisions made by Man Sang
BVIs shareholders. In addition, our principal stockholders
have substantial interests in other market and trade centers in
the PRC, although these market and trade centers are unrelated
to the pearl and jewelery industry and therefore do
23
not compete with our business. As a result of the above, the
interests of our principal stockholders may differ with those of
our other shareholders.
We
rely on the experience, expertise and managerial and technical
skills of our core management team
Our past success is largely attributable to the experience,
expertise and managerial and technical skills of our core
management team. In particular, Mr. Cheng Chung Hing,
Ricky, our President, Chairman and Chief Executive Officer, and
Mr. Cheng Tai Po, our Vice Chairman, each have over
25 years of experience in management and knowledge in the
pearl and jewelry industry and over 10 years of experience
in the property investment and development industry.
Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po are
responsible for our overall management and the formulation of
our corporate policies and business strategies. Our other
executive officers and key personnel also possess substantial
experience in business management and operations and in-depth
industry knowledge and understanding and have made significant
contributions to our business development. If one or more of the
members of our core management team or our executive officers
are unable or unwilling to continue in their present positions,
we may not be able to replace them readily, if at all.
Therefore, our business may be severely disrupted, and we may
incur additional expenses to recruit and retain new members of
our core management team or executive officers, in particular
those with the in-depth industry knowledge and experience
possessed by our current team. In addition, if any of our
executive join a competitor or forms a competing company, we may
lose some of our customers.
The
price of our common stock may fluctuate significantly, which may
result in losses for investors
The market price for the common stock has been volatile and the
market price for the common stock may continue to be volatile.
For example, during the period from April 1, 2008 to
March 31, 2009, the closing prices of the common stock as
reported on the NYSE Amex (formerly known as The American Stock
Exchange) ranged from a high of US$8.2 per share on May 16,
2008 to a low of US$1.0 per share on March 9, 2009. We
expect our stock price to be subject to fluctuations as a result
of a variety of factors, including factors beyond our control.
These factors include and are not necessarily limited to:
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actual or anticipated variations in operating results from
guidance provided by us;
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announcements relating to strategic relationships or
acquisitions;
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changes in financial estimates or other statements by securities
analysts or research firms;
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changes in general economic conditions; and
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changes in the economic performance
and/or
market valuations of other competitors.
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Because of this volatility, we may fail to meet the expectations
of our stockholders or of securities analysts in the future, and
our stock price could decline as a result.
A lack
of effective internal control over financial reporting could
result in an inability to accurately report our financial
results, which could lead to a loss of investor confidence in
our financial reports and have an adverse effect on our stock
price
Effective internal controls are necessary for us to provide
reliable financial reports. If we cannot provide reliable
financial reports, our business and operating results could be
harmed. We have in the past discovered deficiencies in our
internal controls and, based on our evaluation of the
effectiveness of our internal control over financial reporting
as of the end of the fiscal year 2009, we identified a material
weakness in our internal control over financial reporting as of
March 31, 2009. For a description of this material
weakness, see Managements Discussion and Analysis of
Financial Condition and Results of Operations
Internal Control Over Financial Reporting. In addition, we
may in the future discover deficiencies in our internal
controls. Evaluations of the effectiveness of our internal
controls in the future may lead our management to determine that
internal control over financial reporting is no longer
effective. Such conclusions may result from our failure to
implement controls for changes in our business, or deterioration
in the degree of compliance with our policies or procedures. A
failure to maintain effective internal control over financial
reporting, including a failure to implement effective new
controls to address changes in our business could result in a
material misstatement of our consolidated financial statements
or otherwise cause us to fail to meet our financial reporting
obligations. This, in turn, could result in a loss of
24
investor confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on our
stock price.
Risks
Relating to Ownership of Man Sang BVI Ordinary Shares
Man
Sang BVI is a British Virgin Islands company and, because legal
precedent regarding the rights of shareholders is more limited
under British Virgin Islands law than under United States law,
following the liquidation our shareholders may have less
protection for their shareholder rights than they currently do
under Nevada law
Man Sang BVIs corporate affairs are governed by its
amended and restated memorandum and articles of association, the
BVI Companies Act and the common law of the British Virgin
Islands. The rights of shareholders to take action against Man
Sang BVIs directors, actions by minority shareholders and
the fiduciary responsibilities of Man Sang BVIs directors
to our company under British Virgin Islands law are to a large
extent governed by the common law of the British Virgin Islands.
The common law of the British Virgin Islands is derived in part
from comparatively limited judicial precedent in the British
Virgin Islands as well as that from English common law, which
has persuasive, but not binding, authority on a court in the
British Virgin Islands. The rights of Man Sang BVI shareholders
and the fiduciary responsibilities of Man Sang BVIs
directors under British Virgin Islands law are not as clearly
established as they would be under statutes or judicial
precedent in some jurisdictions in the United States, including
Nevada. In particular, the British Virgin Islands has a less
developed body of securities laws than the United States. In
addition, Nevada, and other states of the United States, have
more fully developed and judicially interpreted bodies of
corporate law than the British Virgin Islands.
Examples of the significant differences between the provisions
of the BVI Companies Act applicable to Man Sang BVI and the laws
applicable to companies incorporated in Nevada and their
shareholders include limitations under British Virgin Islands
law on the ability to bring shareholders suits, including
class actions and shareholder derivative actions, and reduced
protections under British Virgin Islands law of the interests of
minority shareholders.
As a result of all of the above, shareholders of Man Sang BVI,
as shareholders of a British Virgin Islands company, may have
more difficulty in protecting their interests in the face of
actions taken by management, members of the board of directors
or our principal stockholders than they would as shareholders of
Man Sang Nevada, a Nevada incorporated company. For further
information regarding the rights of Man Sang BVI shareholders
and Man Sang Nevada common stockholders, see Comparison of
Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders beginning on page 110.
The
enforcement of judgments in shareholder suits against Man Sang
BVI may be more difficult
Because Man Sang BVI is a British Virgin Islands corporation,
investors could experience more difficulty enforcing judgments
obtained against Man Sang BVI in U.S. courts than would
currently be the case for U.S. judgments obtained against
Man Sang Nevada. In addition, it may be more difficult to bring
some claims against Man Sang BVI in British Virgin Islands
courts than it would be to bring similar claims against a
U.S. company in a U.S. court.
The
price of Man Sang BVI ordinary shares may fluctuate
significantly, which may result in losses for
investors
The market price for Man Sang Nevada common stock has been
volatile and the market price for Man Sang BVI ordinary shares
may continue to be volatile. We expect our stock price to be
subject to fluctuations as a result of a variety of factors,
including factors beyond our control. These factors include but
are not necessarily limited to:
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actual or anticipated variations in operating results from
guidance provided by us;
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announcements relating to strategic relationships or
acquisitions;
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changes in financial estimates or other statements by securities
analysts or research firms;
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changes in general economic conditions; and
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changes in the economic performance
and/or
market valuations of other competitors.
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Because of this volatility, we may fail to meet the expectations
of our shareholders or of securities analysts in the future, and
our stock price could decline as a result.
Man
Sang BVIs amended and restated articles of association
contain anti-takeover provisions that could have a material
adverse effect on the rights of its ordinary
shares
Man Sang BVIs amended and restated articles of association
will become effective following their filing and registration
with the BVI Registrar of Corporate Affairs and the filing of a
Certificate of Dissolution with the Secretary of State of the
State of Nevada by Man Sang Nevada. The new articles of
association limit the ability of others to acquire control of
our company or cause us to engage in change-of-control
transactions. These provisions could have the effect of
depriving our shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by
discouraging third parties from seeking to obtain control of our
company in a tender offer or similar transaction. For example,
Man Sang BVIs board of directors has the authority,
without further action by our shareholders, to issue additional
preferred shares. If Man Sang BVIs board of directors
decides to issues additional preferred shares within the number
of the existing authorized preferred shares, the price of our
ordinary shares may fall and the voting and other rights of the
holders of Man Sang BVI ordinary shares may be materially
adversely affected. The new articles of association also include
a business combination provision, which is
consistent with the provisions of the Nevada Revised Statutes
governing interested shareholder transactions, and a provision
requiring a supermajority vote of shareholders to remove
directors without cause.
Risks
Relating to the PRC and Hong Kong
Previous
macroeconomic measures taken by the PRC government could have
adverse economic consequences, and recent fiscal stimulus
measures may not offset the decline in the rate of economic
growth in the PRC
A portion of our assets are located in China and Hong Kong and a
portion of our revenue is sourced from China and Hong Kong.
Accordingly, our results of operations, financial condition and
prospects are to a significant degree subject to economic,
political and legal developments in China and Hong Kong.
Previous macroeconomic measures taken by the PRC government to
manage economic growth could have adverse economic consequences,
and recent fiscal stimulus measures may not be successful in
offsetting a decline in the rate of economic growth in the PRC.
In previous years, the PRC government has periodically taken
measures to slow economic growth to a more manageable level, in
response to concerns about Chinas historical high growth
rate in industrial production, bank credit, fixed investment and
money supply. These measures have included macroeconomic
measures to control perceived overinvestment in the real
property market. More recently, along with a decline in economic
growth worldwide, the rate of growth of the PRC economy has
slowed down. In 2008, Chinas real GDP grew by a rate of an
estimated 9.8% as compared to a rate of 11.9% in 2007. In
response to the global economic downturn, and a resulting
slowdown in the PRC economy, the PRC government has adopted
increasingly flexible macroeconomic policies, including an
announced fiscal stimulus package, aimed at offsetting the
slowdown brought by the financial crisis.
These policies include measures specifically designed to
encourage development of the domestic real property market,
which represents a reversal on policies implemented since 2003
designed to tighten control on the real property market.
However, we cannot assure you that the PRC governments
fiscal stimulus package will be successful in offsetting the
slowdown brought by the economic downturn and deterioration in
the global credit markets, or that restrictive measures already
in place will not adversely affect our business.
Introduction
of new laws or changes to existing laws by the PRC government
may adversely affect our business
Our business and operations in the PRC are governed by the PRC
legal system. The PRC legal system is a codified system with
written laws, regulations, circulars, administrative directives
and internal guidelines. The PRC government is still in the
process of developing its legal system. As the PRC economy has
traditionally developed at a faster pace than its legal system,
a certain degree of uncertainty exists in connection with
whether and how existing laws and regulations will apply to
certain events or circumstances. Some of the laws and
regulations, and the interpretation, implementation and
enforcement thereof, are still at an experimental stage and are
therefore subject to policy changes.
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Further, precedents on the interpretation, implementation and
enforcement of the PRC laws and regulations are limited, and
court decisions in the PRC do not have any binding effect on
lower courts. Accordingly, the outcome of dispute resolution may
not be as consistent or predictable as in other more developed
jurisdictions and it may be difficult to obtain swift and
equitable enforcement of the laws in the PRC, or to obtain
enforcement of a judgment by a court or another jurisdiction.
Adverse
changes in political and economic policies of the PRC government
could have a material adverse effect on the overall economic
growth of China, which could reduce the demand for our products
and materially and adversely affect our competitive
position
Our real estate operations are conducted in the PRC and some of
our sales are made in China. Accordingly, our business,
financial condition, results of operations and prospects are
affected by economic, political and legal developments in the
PRC. The Chinese economy differs from the economies of most
developed countries in many respects, including:
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the amount of government involvement;
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the level of development;
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the growth rate;
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the control of foreign exchange; and
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the allocation of resources.
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While the Chinese economy has grown significantly in the past
20 years, the growth has been uneven, both geographically
and among various sectors of the economy. The PRC government has
implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures
benefit the overall Chinese economy, but may also have a
negative effect on us. For example, our financial condition and
results of operations may be adversely affected by government
control over capital investments or changes in tax regulations
that are applicable to us.
The Chinese economy has been transitioning from a planned
economy to a more market-oriented economy. Although in recent
years the PRC government has implemented measures emphasizing
the utilization of market forces for economic reform, the
reduction of state ownership of productive assets and the
establishment of sound corporate governance in business
enterprises, a substantial portion of the productive assets in
China is still owned by the PRC government. The PRC government
also exercises significant control over Chinese economic growth
through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary
policy and providing preferential treatment to particular
industries or companies.
Fluctuation
in the value of the Renminbi may have a material adverse effect
on your investment
The change in value of the Renminbi against the
U.S. dollar, Euro and other currencies is affected by,
among other things, changes in Chinas political and
economic conditions. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the
Renminbi to the U.S. dollar. Under the new policy, the
Renminbi is permitted to fluctuate within a narrow and managed
band against a basket of certain foreign currencies. On
May 18, 2007, Chinas central bank announced that it
would allow Renminbi to fluctuate more during each days
foreign exchange rate trading. These changes in policy have
resulted in an approximately 15.8% appreciation of Renminbi
against the U.S. dollar between July 22, 2005 and
July 24, 2009. While the international reaction to the
Renminbi revaluation has generally been positive, there remains
significant international pressure on the PRC government to
adopt an even more flexible currency policy, which could result
in a further and more significant appreciation of the Renminbi
against the U.S. dollar. As a portion of our costs and
expenses is denominated in Renminbi, the revaluation in July
2005 and potential future adjustment or revaluation have
increased and could further increase our costs in
U.S. dollar terms. In addition, as we rely partially on
dividends paid to us by certain of our subsidiaries in the PRC,
any significant adjustment or revaluation of the Renminbi may
have a material adverse effect on our revenues and financial
condition, and the value of, and any dividends payable on, our
ordinary shares. For example, to the extent that we need to
convert U.S. dollars we receive from our overseas sales
into Renminbi for our operations in the PRC, appreciation of the
Renminbi against the U.S. dollar would have an adverse
effect on the Renminbi amount we receive from the conversion.
Conversely, if we decide to convert our Renminbi into
U.S. dollars for the
27
purpose of making payments for dividends on our ordinary shares
or for other business purposes, appreciation of the
U.S. dollar against the Renminbi would have a negative
effect on the U.S. dollar amount available to us.
Restrictions
on currency exchange may limit our ability to receive and use
our revenues effectively
Certain portions of our revenues and expenses are denominated in
Renminbi. If our revenues denominated in Renminbi increase or
expenses denominated in Renminbi decrease in the future, we may
need to convert a portion of our revenues into other currencies
to meet our foreign currency obligations, including, among
others, payment of dividends declared, if any, in respect of our
ordinary shares. Under Chinas existing foreign exchange
regulations, our PRC subsidiaries are able to pay dividends in
foreign currencies without prior approval from the State
Administration of Foreign Exchange by complying with certain
procedural requirements. However, the PRC government could take
further measures in the future to restrict access to foreign
currencies for current account transactions.
Foreign exchange transactions by our PRC subsidiaries under
capital accounts continue to be subject to significant foreign
exchange controls and require the approval of, or registration
with, PRC governmental authorities. In particular, if our PRC
subsidiaries borrow foreign currency loans from us or other
foreign lenders, these loans must be registered with the State
Administration of Foreign Exchange, and if we finance our PRC
subsidiaries by means of additional capital contributions, these
capital contributions must be approved by certain government
authorities including the Ministry of Commerce or its local
counterparts. These limitations could affect the ability of our
PRC subsidiaries to obtain foreign exchange through debt or
equity financing.
We are
a holding company and rely on dividends paid by our subsidiaries
for our funding requirements
We conduct all of our operations through our operating
subsidiaries. Most of our assets are held by, and substantially
all of our earnings and cash flows are attributable to our
operating subsidiaries. The ability of our operating
subsidiaries to pay dividends depends on business considerations
and regulatory restrictions, including cash flow, articles of
association of these companies and shareholders agreements
to which they are parties. We cannot assure you that our
operating subsidiaries will generate sufficient earnings and
cash flows to pay dividends or otherwise distribute sufficient
funds to enable us to declare dividends.
In addition, the ability of our subsidiaries in the PRC to pay
dividends to their shareholders is subject to the requirements
of PRC law. PRC regulations permit payment of dividends out of
accumulated profits as determined in accordance with PRC
accounting standards and regulations. Dividends may not be paid
until cumulative prior years losses are made up. As a
result, if our subsidiaries in the PRC incur losses, such losses
may impair their ability to pay dividends or other distributions
to us, which would restrict our ability to distribute dividends
and to service our indebtedness. Our PRC subsidiaries are
required to make monthly contributions to the social security
plan maintained for their employees, consisting of pension
benefits, personal injury insurance and medical and unemployment
benefits. In addition, each of our PRC subsidiaries is also
required to set aside at least 10% of its after-tax profits
based on PRC accounting standards each year to its statutory
surplus reserve fund until the cumulative amount of such fund
reaches 50% of its registered capital.
Any
future outbreak of Severe Acute Respiratory Syndrome, avian
influenza, influenza A H1N1 or any other epidemic may
adversely affect our operational results
In the first half of 2003, certain regions of Asia, including
China, encountered an outbreak of Severe Acute Respiratory
Syndrome, or SARS, a highly contagious form of atypical
pneumonia. There have also been media reports regarding the
spread of the H5N1 virus, or avian influenza, among birds and in
particular poultry, as well as some isolated cases in countries
outside Hong Kong and China of transmission of the virus to
humans. Further, the World Health Organization in June 2009
raised its pandemic alert level to phase 6, its highest
level, in response to an outbreak of influenza A caused by
the H1N1 virus that originated in Mexico, which resulted in a
number of confirmed cases worldwide. If an outbreak of SARS,
avian influenza, influenza A H1N1 or any other epidemic
occurs in the future and any of our employees or customers are
suspected of having contracted SARS, avian influenza,
influenza A H1N1 or any other epidemic, we may be required
to quarantine certain employees suspected of infection, as well
as others that have come into contact with these employees.
Furthermore, such an outbreak would likely restrict the level of
economic activity in affected areas, which would also adversely
affect our business operations.
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain
forward-looking statements. Generally, the words
expects, anticipates,
targets, goals, projects,
intends, plans, believes,
seeks, estimates, variations of such
words and similar expressions identify forward-looking
statements and any statements regarding the benefits of the
liquidation, or Man Sang BVIs or Man Sang Nevadas
future financial condition, results of operations and business
are also forward-looking statements. The forward-looking
statements are contained principally in the sections entitled
Risk Factors, The Liquidation,
Business Description and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
These forward-looking statements involve a number of risks and
uncertainties, many of which are beyond our control, and reflect
business decisions that are subject to change. Factors that
could cause actual results to differ materially from those
contemplated by the forward-looking statements include, among
others, the following factors:
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our ability to consummate the liquidation;
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our ability to realize the expected benefits of the liquidation
and the change of our place of incorporation within the expected
time frame, or at all;
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costs or difficulties related to the liquidation, the change of
our place of incorporation and related transactions, which could
be greater than expected;
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the availability, terms and cost of funding for our operations
and development projects;
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difficulties and delays in obtaining regulatory approvals for
the liquidation;
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potential difficulties in meeting conditions set forth in the
agreement and plan of liquidation;
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the tax treatment of the liquidation;
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the accounting treatment of the liquidation;
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materially adverse changes in international economic, market and
political conditions, especially in Europe and the United
States and elsewhere where our customers are located, which
would reduce discretionary spending on luxury goods;
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exposure to the credit risk of our customers;
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our ability to attract and retain employees;
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the level and volatility of equity prices, commodity prices and
interest rates, currency values (especially any change to the
current pegging of the Hong Kong dollar to the U.S. dollar
at the rate of US$1.00 to HK$7.8, or any substantial adverse
change in the exchange rate between the Renminbi and the Hong
Kong dollar or U.S. dollar), investments and other market
indices;
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materially adverse changes in customer preferences for pearls as
against other gems and other precious stones and metals;
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our ability to obtain a stable supply of pearls in the
quantities, of the quality, and on the terms required by us;
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materially adverse changes in the taxes imposed on our operating
subsidiaries in the PRC;
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materially adverse changes in climate and environmental
conditions in the regions where we source pearls;
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materially adverse changes in the real estate markets in the PRC
and Hong Kong;
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the actions and initiatives of current and potential competitors;
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the impact of current, pending and future legislation,
regulation and regulatory and legal actions;
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unforeseen catastrophic events;
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existing and future litigation; and
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compliance with applicable laws, including environmental, health
and safety laws.
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29
Your should consider these important factors in evaluating any
forward-looking statements in this proxy statement/prospectus or
otherwise made by us or on our behalf. We urge you to read the
entire proxy statement/prospectus for a more complete discussion
of the factors that could affect the liquidation, the change of
our place of incorporation and our future performance. In light
of these risks, uncertainties and assumptions, the events
described or suggested by the forward-looking statements in this
proxy statement/prospectus may not occur.
Except as required by law or applicable stock exchange rules or
regulations, we undertake no obligation to update or revise
publicly any forward-looking statement, whether as a result of
new information, future events or otherwise.
30
EXCHANGE
RATE INFORMATION
The Hong Kong dollar is freely convertible into other
currencies, including the U.S. dollar. Since 1983, the Hong
Kong dollar has been generally linked to the U.S. dollar at
the rate of HK$7.80 to US$1.00. Under existing Hong Kong law,
(1) there are no foreign exchange controls or other laws,
decrees or regulations that affect the remittance of dividend
payments to U.S. residents and (2) there are no
limitations on the rights of non-residents or foreign owners to
hold Man Sang BVI ordinary or preferred shares. The Basic Law of
Hong Kong, or the Basic Law, which came into effect on
July 1, 1997, provides that no foreign exchange control
policies shall be applied in Hong Kong.
The market exchange rate of the Hong Kong dollar against the
U.S. dollar continues to be determined by supply and demand
in the foreign exchange market. However, against the background
of the fixed rate system which applies to the issuance and
withdrawal of Hong Kong currency in circulation, the market
exchange rate has not deviated significantly from the level of
HK$7.80 to US$1.00. The Hong Kong government has indicated its
intention to maintain the link at that rate. Under the Basic
Law, the Hong Kong dollar will continue to circulate and remain
freely convertible. The Hong Kong government has also stated
that it has no intention of imposing exchange controls in Hong
Kong and that the Hong Kong dollar will remain freely
convertible into other currencies, including the
U.S. dollar.
On May 18, 2005, the Hong Kong Monetary Authority announced
the introduction of certain refinements to the operation of the
linked exchange rate system. These refinements effectively set
the market exchange rate of the Hong Kong dollar against the
U.S. dollar within a fixed trading range from HK$7.75 to
HK$7.85 against US$1.00. However, we cannot assure you that the
Hong Kong government will maintain the linked exchange rate
system within the range of HK$7.75 to HK$7.85, or at all.
The following table sets forth the exchange rate for
U.S. dollars in New York City for cable transfers in Hong
Kong dollars as certified for customs purposes by the Federal
Reserve Bank of New York for the periods indicated:
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Exchange Rate
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Period End
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High
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Average(1)
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Low
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(HK$ per US$)
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Last Five Fiscal Years
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Fiscal Year Ended March 31, 2005
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7.7990
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7.8010
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7.7935
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7.7698
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Fiscal Year Ended March 31, 2006
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7.7597
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7.7995
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7.7652
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7.7506
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Fiscal Year Ended March 31, 2007
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7.8137
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7.8177
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7.7817
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7.7510
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Fiscal Year Ended March 31, 2008
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7.7819
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7.8289
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7.7946
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7.7497
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Fiscal Year Ended March 31, 2009
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7.7500
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7.8159
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7.7731
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7.7497
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Last Six Months
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January 2009
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7.7544
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7.7618
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7.7563
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7.7504
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February 2009
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7.7551
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7.7551
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7.7534
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7.7511
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March 2009
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7.7500
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7.7593
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7.7530
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7.7497
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April 2009
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7.7500
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7.7508
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7.7501
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7.7495
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May 2009
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7.7519
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7.7526
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7.7510
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7.7500
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June 2009
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7.7500
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7.7516
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7.7505
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7.7499
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July 2009 (through July 24)
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7.7500
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7.7505
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7.7500
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7.7495
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(1) |
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For the years indicated, the average exchange rates are
determined by averaging the exchange rates on the last business
day of each month during the relevant period. For the months
indicated, the average exchange rates are determined by
averaging the exchange rates on each day of the month. |
31
MARKET
PRICE FOR MAN SANG NEVADA COMMON STOCK, DIVIDENDS
AND OTHER MATTERS
Market
Price
Man Sang Nevadas common stock has been listed on the NYSE
Amex under the symbol MHJ since August 8, 2005.
Man Sang Nevadas common stock was previously reported on
the Over-The-Counter (OTC) Electronic Bulletin Board from
1987 to 2005 under the symbol MSHI.OB.
There is currently no public market for the Man Sang BVI
ordinary shares. We intend to apply to list the Man Sang BVI
ordinary shares on the NYSE Amex under the same symbol used by
Man Sang Nevada, MHJ, effective upon the
liquidation. The preferred shares of Man Sang BVI will remain
unlisted.
The following table sets forth, for the periods indicated, the
high and low sales prices for Man Sang Nevadas common
stock on the NYSE Amex.
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Over the Quarter
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On the Last Day of Quarter
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High
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Low
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High
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Low
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US$
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2009
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First Quarter (April-June, 2008)
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8.35
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5.50
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6.90
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6.17
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Second Quarter (July-September, 2008)
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6.50
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2.62
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3.49
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2.80
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Third Quarter (October-December, 2008)
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3.48
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1.10
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1.46
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1.43
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Fourth Quarter (January-March, 2009)
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1.92
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0.96
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1.92
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1.68
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2008
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First Quarter (April-June, 2007)
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9.34
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5.62
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8.88
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8.38
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Second Quarter (July-September, 2007)
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15.95
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6.92
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12.91
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12.05
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Third Quarter (October-December, 2007)
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16.46
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8.06
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9.83
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8.80
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Fourth Quarter (January-March, 2008)
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9.00
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5.30
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6.90
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5.90
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2007
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First Quarter (April-June, 2006)
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5.89
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4.75
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5.08
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4.85
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Second Quarter (July-September, 2006)
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5.10
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3.52
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4.24
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3.91
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Third Quarter (October-December, 2006)
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5.45
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3.95
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4.90
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4.80
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Fourth Quarter (January-March, 2007)
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6.93
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4.50
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6.19
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5.95
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On July 23, 2009, the last trading day before the public
announcement of the liquidation, the closing price per Man Sang
Nevada share on the NYSE Amex was US$2.13, and the high and low
sales prices were US$2.43 and US$2.13. On July 31, 2009,
the closing sale price on the NYSE Amex was US$2.31.
Dividends
On June 28, 2007, we declared a return of capital in the
amount of US$1,595,642 (US$0.25 per share of Man Sang Nevada
common stock) to our stockholders of record on July 24,
2007. We did not pay cash dividends in fiscal years 2007 and
2008. Any future determination to pay cash dividends will be at
the discretion of our board of directors and will depend upon
our financial condition, operating results, capital
requirements, any applicable contractual restrictions and such
other factors as our board of directors deems relevant. Cash
dividends, if any, on the ordinary shares of Man Sang BVI will
be paid in U.S. dollars.
Man Sang BVI is a holding company incorporated in the British
Virgin Islands, and will rely principally on dividends, loans or
advances paid to it by its subsidiaries incorporated in China
for its cash requirements, including the funds necessary to pay
dividends and other cash distributions to its shareholders,
service any debt it may incur and pay its operating expenses.
PRC law restricts the ability of our subsidiaries incorporated
in the PRC to transfer funds to us in the form of cash
dividends, loans or advances. PRC regulations currently permit
payment of dividends only out of accumulated profits as
determined in accordance with PRC accounting standards and
regulations. In addition, under current PRC laws, regulations
and accounting standards, each PRC subsidiary is required to
allocate at least 10% of its after-tax profit based on PRC
accounting standards to its general reserves each year until the
cumulative amount of these reserves reaches 50% of its
registered capital. These reserves are not distributable as
32
cash dividends. As of March 31, 2009, these general
reserves amounted to RMB10,555,000 (HK$12,057,000). Further, at
the discretion of their boards of directors, the PRC
subsidiaries may allocate a portion of their after-tax profits
to their employee welfare and bonus funds, which may not be
distributed to us. These restrictions have not historically had,
and are not expected in the future to have, a material impact on
our ability to meet our financial requirements.
Any dividends paid by a PRC subsidiary to an immediate holding
company that is incorporated in Hong Kong will be subject to a
withholding tax at the rate of 5%, provided the Hong Kong
incorporated subsidiary is not considered to be a PRC tax
resident enterprise.
If we are considered a PRC tax resident enterprise for tax
purposes, any dividends we pay to our overseas shareholders may
be regarded as China-sourced income and as a result may be
subject to PRC withholding tax at a rate of up to 10%.
Stockholders
The number of record holders of Man Sang Nevadas common
stock as of July 27, 2009 was approximately 166. This
number does not include an indeterminate number of stockholders
whose shares are held by brokers in street name.
Common
Stock
Man Sang Nevada has 6,382,582 shares of common stock issued
at US$0.001 par value per share, all of which were issued
and outstanding as of the date of this proxy
statement/prospectus.
Preferred
Stock
Man Sang Nevada has 100,000 shares of Series A
preferred stock at US$0.001 par value per share with a
liquidation preference of US$25.00 per share, all of which were
issued and outstanding as of the date of this proxy
statement/prospectus.
33
THE
LIQUIDATION
The following is a description of the material aspects of the
liquidation. While we believe that the following description
covers the material terms of the liquidation, the description
may not contain all of the information that is important to you.
We encourage you to carefully read this entire proxy
statement/prospectus, including the agreement and plan of
liquidation attached to this proxy statement/prospectus as
Annex A for a more complete understanding of the
liquidation.
Structure
of the Liquidation
The board of directors of Man Sang Nevada has unanimously
approved and recommends that you approve the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation which will effectively change our place
of incorporation from Nevada to the British Virgin Islands by
dissolving and liquidating Man Sang Nevada. The terms and
conditions of the liquidation are set forth in the agreement and
plan of liquidation attached as Annex A to this proxy
statement/prospectus.
In the liquidation, following payment of, or providing for the
payment of its liabilities and obligations, Man Sang Nevada will
distribute the Assets to its stockholders on a share-for-share
basis. Man Sang Nevada is a holding company without any
operations. As of the date of this proxy statement/prospectus,
its assets consist of its shareholdings in Man Sang BVI and its
liabilities and obligations consist of (1) the costs incurred in
connection with the dissolution and liquidation, which we
estimate will be approximately US$800,000, and (2) U.S.
federal income tax arising from the deemed disposal of its
shareholdings in Man Sang BVI.
The Man Sang BVI ordinary shares to be received in the
liquidation will be quoted on the NYSE Amex under the symbol
MHJ. The Man Sang BVI preferred shares to be
received in the liquidation will not be quoted on the NYSE Amex.
After completion of the liquidation, (1) Man Sang BVI and
its subsidiaries will continue to conduct the business conducted
by Man Sang Nevada and its subsidiaries, (2) Man Sang BVI
ordinary shares will replace Man Sang Nevada common stock on the
NYSE Amex, (3) all current officers and directors of Man
Sang Nevada will maintain equivalent positions within Man Sang
BVI and (4) Man Sang BVI will contractually assume all
rights, title, obligations and liabilities of Man Sang Nevada.
Although the liquidation will result in the elimination of Man
Sang Nevada as the holding company of our group, the number of
Man Sang BVI ordinary shares and preferred shares that you will
own will be the same as the number of shares of Man Sang Nevada
common stock and preferred stock you own immediately prior to
the completion of the liquidation, and your relative economic
ownership and voting rights in our company will remain unchanged.
The liquidation will involve the following steps:
1. Man Sang Nevada, as sole stockholder of Man Sang BVI,
will approve an amended and restated memorandum and articles of
association of Man Sang BVI, which may differ in certain
material respects from the current restated certificate of
incorporation, as amended, and the restated bylaws of Man Sang
Nevada, because of differences in the corporate laws of Nevada
and the British Virgin Islands.
2. The existing directors of Man Sang BVI, who currently
also serve as directors of Man Sang Nevada, will appoint the
officers of Man Sang Nevada to serve in equivalent positions
with Man Sang BVI.
3. Man Sang BVI ordinary shares and preferred shares will
register under the Securities Act and Man Sang BVI ordinary
shares will register under the Exchange Act, in each case with
the SEC.
4. The officers of Man Sang Nevada will file a Certificate
of Dissolution with the Secretary of State of the State of
Nevada, and Man Sang Nevada will be dissolved pursuant thereto.
5. Upon the filing of the Certificate of Dissolution, Man
Sang Nevada common stock will be de-listed from the NYSE Amex
and de-registered under the Exchange Act with the SEC and Man
Sang BVI ordinary shares will be listed on the NYSE Amex under
the symbol MHJ. The preferred shares of Man Sang BVI
will remained unlisted.
34
6. In accordance with the Nevada Revised Statutes, the
directors of Man Sang Nevada are required to collect the assets,
settle the affairs and collect the outstanding debts of Man Sang
Nevada, and to pay or make adequate provision for payment of,
Man Sang Nevadas liabilities and obligations. As of the
date of this proxy statement/prospectus, (1) Man Sang
Nevadas assets consist entirely of its shareholdings in
Man Sang BVI; (2) Man Sang Nevada has no outstanding debts; (3)
Man Sang Nevadas liabilities and obligations include (a)
the costs incurred in connection with the dissolution and
liquidation, which we estimate will be approximately US$800,000,
and (b) provision for U.S. federal income tax arising from the
deemed disposal of its shareholdings in Man Sang BVI. The
settlement of affairs of Man Sang Nevada, which will be
conducted by the directors of Man Sang Nevada, includes the
actions discussed above as well as the distribution of Man Sang
Nevadas assets to its stockholders in order to complete
the dissolution and liquidation in accordance with the Nevada
Revised Statutes.
7. Man Sang Nevada will then distribute its property and
assets, which consist entirely of Man Sang BVI ordinary shares
and preferred shares, to its stockholders on a share-for-share
basis, rendering its stockholders the direct shareholders of Man
Sang BVI.
8. During the final stage of the liquidation, Man Sang BVI
will contractually assume all of Man Sang Nevadas rights,
obligations and liabilities.
Background
and Reasons for the Liquidation
General
Our business operations, assets and employees are located
exclusively outside of the United States. As a result, we have
decided to change our place of incorporation from Nevada to the
British Virgin Islands through the dissolution and liquidation
of Man Sang Nevada. Our board of directors considered two
primary alternatives to effect the change of our place of
incorporation. One alternative was a reverse triangular merger
with a Nevada subsidiary of a newly established Hong Kong
company. This alternative would have resulted in Man Sang Nevada
changing its domicile from Nevada to Hong Kong with Man Sang
Nevada surviving and continuing to exist as a subsidiary of the
newly established Hong Kong company. The other alternative,
being the dissolution and liquidation of Man Sang Nevada, was
selected because the dissolution and liquidation structure was
easier to implement, more cost-effective and provided greater
certainty with respect to U.S. federal income tax
consequences. For further information on U.S. federal tax
consequences of the dissolution and liquidation, see
Material Tax Consequences Material United
States Federal Income Tax Consequences.
We believe that the dissolution and liquidation of Man Sang
Nevada will allow us to realize a variety of potential business,
financial and strategic benefits. In particular, the board of
directors of Man Sang Nevada is recommending the dissolution and
liquidation of Man Sang Nevada because it should permit us to:
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simplify our corporate structure. Man Sang Nevada has no
meaningful business or assets other than its equity interest in
Man Sang BVI, which is also a holding company. The board of
directors of Man Sang Nevada believes that the elimination of
the two-tiered holding company structure will reduce
administrative expenses by eliminating duplicative costs
associated with maintaining both Man Sang Nevada and Man Sang
BVI;
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reduce our SEC reporting requirements and related expenses
because Man Sang BVI would be a foreign private issuer;
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enhance our cash flow by reducing our worldwide effective tax
rate. Any improvement in our cash flow should help us to
implement our business strategy more effectively;
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facilitate tax savings through a more flexible corporate
structure. However, the amount of taxes we will pay will depend
in part on our treatment by the taxing authorities in the
jurisdictions in which we operate;
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enhance our business growth prospects by attracting investment
from
non-U.S. investors.
Based on our experience, certain PRC investors and potential
strategic partners are less willing to invest in Man Sang Nevada
primarily as a result of our status as a United States
incorporated company and the attendant tax
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35
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implications associated with such an investment, including
primarily withholding taxes payable by such investors under the
United States federal tax regime; and
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better position ourselves for merger and acquisition
opportunities with non-U.S. strategic partners.
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In addition, the British Virgin Islands:
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is a business center, which exhibits political, economic and
regulatory stability;
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has an effective judicial system with a tradition of respecting
the rule of law;
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has a well-developed financial and regulatory environment;
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has a favorable tax system and is party to reliable tax treaties;
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does not have exchange control or currency restrictions; and
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has wide availability of professional and support services.
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We believe these benefits should enhance shareholder value.
Accordingly, the boards of directors of Man Sang Nevada and Man
Sang BVI approved the dissolution and liquidation of Man Sang
Nevada and the adoption of the agreement and plan of
liquidation. However, we cannot predict what impact, if any, the
change of our place of incorporation will have in the long term
since the achievement of our objectives depends on many factors,
including, among other factors, future tax and other laws and
regulations, as well as the development of our business, some of
which are outside our control. We discuss some of these expected
benefits in greater detail below.
Expected
Tax Benefits
Because our business operations are located exclusively outside
of the United States, the dissolution and liquidation of Man
Sang Nevada is expected to reduce or eliminate our income tax
liability in the United States and to align our income tax
liabilities with the location of our business activities. We
believe that the liquidation may improve our ability to maintain
a competitive worldwide effective corporate tax rate and permit
greater flexibility in structuring acquisitions or creating
subsidiaries in China and other countries as our business
expands.
Effect
on Business Strategy
The liquidation should help enhance our cash flow and investor
base. We believe that the liquidation should improve our cash
flow position to enable us to implement our business strategy
more effectively, including developing higher-growth product
lines and acquiring higher-growth businesses as well as
attracting
non-U.S. investors,
particularly in the PRC.
Potential
Expansion of Investor Base
We believe that the liquidation may increase Man Sang BVIs
attractiveness to
non-U.S. investors.
Distributions with respect to stock in a U.S. corporation
to non-resident aliens can be subject to withholding taxes under
the Internal Revenue Code. In addition, estate taxes are payable
in some cases in respect of the value of shares in a
U.S. corporation owned by a
non-U.S. investor.
As Man Sang BVI should be a
non-U.S. corporation
following the liquidation, these taxes will generally not apply
to
non-U.S. investors.
As a result,
non-U.S. investors
may be more receptive to an investment in Man Sang BVI ordinary
shares.
SECTION 7874 OF THE INTERNAL REVENUE CODE, IF APPLICABLE TO
THE LIQUIDATION, COULD LIMIT THE ABOVE BENEFITS. WE ENCOURAGE
YOU TO READ THE SECTION ENTITLED MATERIAL TAX
CONSEQUENCES ON PAGE 101 FOR A MORE DETAILED
DESCRIPTION OF THE TAX CONSEQUENCES OF THE LIQUIDATION.
36
Negative
Effects of the Liquidation
There are a number of negative effects of the dissolution and
liquidation. Examples of such negative effects include:
Taxable
Nature of the Transaction
We expect that the dissolution and liquidation of Man Sang
Nevada will have the following negative tax consequences:
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For U.S. federal income tax purposes, as a result of the
liquidation, U.S. shareholders will recognize gain or loss
equal to the difference, if any, between the fair market value
of the Man Sang BVI shares received in the liquidation and the
holders adjusted tax basis in the holders shares of
Man Sang Nevada exchanged therefor.
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Man Sang Nevada will recognize gain for U.S. federal income
tax purposes on the distribution of the shares of Man Sang BVI
to its shareholders as if the shares had been sold to the
distributee at fair market value.
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Expenses
of the Transaction
Costs incurred in connection with the dissolution and
liquidation of Man Sang Nevada are estimated to be approximately
US$800,000 and will be expensed as incurred.
Reduced
Reporting Requirements
As a foreign private issuer, Man Sang BVIs reporting
requirements will be limited to filing or furnishing with the
SEC (1) an annual report on
Form 20-F
within six months after the end of each fiscal year prior to its
fiscal year ending March 31, 2012, and within four months
after the end of each fiscal year thereafter and
(2) reports on
Form 6-K
with respect to any material information which is required to be
publicly disclosed in the British Virgin Islands or regarding
information distributed or required to be distributed by Man
Sang BVI to its shareholders. In addition, Man Sang BVI will
also furnish reports to the SEC on Form 6-K with respect to the
interim reports filed by Man Sang International Limited for the
first six months of Man Sang International Limiteds
financial year, not later than three months after the end of
this six-month period, as required by the listing rules of The
Stock Exchange of Hong Kong Limited. For further information on
the reduced requirements of Man Sang BVI, see Comparison
of Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders Reporting Requirements.
Certain
Differences between Nevada and British Virgin Islands Corporate
Law
Significant differences between the provisions of the BVI
Companies Act applicable to Man Sang BVI and the Nevada Revised
Statutes applicable to Man Sang Nevada include limitations under
British Virgin Islands law on the ability to bring
shareholders suits, including class action and shareholder
derivative actions, and reduced protections under British Virgin
Islands law of the interests of minority shareholders.
For further information on the differences between Nevada and
British Virgin Islands corporate law, see Comparison of
Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders Reporting Requirements and for
further information on the risks relating to ownership of Man
Sang BVI Shares, see, Risk Factors Risks
Relating to Ownership of Man Sang BVI Ordinary
Shares Man Sang BVI is a British Virgin Islands
company and, because legal precedent regarding the rights of
shareholders is more limited under British Virgin Islands law
than under United States law, following the liquidation our
shareholders may have less protection for their shareholder
rights than they currently do under Nevada law.
Potential
Risks
The liquidation will expose us and you to certain risks. For a
discussion of risk factors associated with the liquidation,
please see the discussion under Risk Factors. There
are also differences between Nevada law and British Virgin
Islands law and the organizational documents of Man Sang Nevada
and Man Sang BVI. For a
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discussion of the major differences, please see Comparison
of Rights of Man Sang Nevada Stockholders and Man Sang BVI
Shareholders.
Recommendation
of the Man Sang Nevada Board of Directors
The Man Sang Nevada board of directors has unanimously
determined that the dissolution and liquidation of Man Sang
Nevada and the agreement and plan of liquidation is advisable
and the transactions contemplated by the agreement and plan of
liquidation are in the best interests of Man Sang Nevada and its
shareholders, and has unanimously approved by written consent
the dissolution and liquidation of Man Sang Nevada and the
adoption of the agreement and plan of liquidation and the
transactions contemplated by the agreement and plan of
liquidation.
The board of directors has considered the potential risks of the
dissolution and liquidation of Man Sang Nevada and the
differences between Nevada and British Virgin Islands corporate
law that may affect the rights of shareholders. For example,
under British Virgin Islands law, a shareholder may face greater
difficulty in bringing a derivative action on behalf of the
company to enforce the rights of the company, as compared with
Nevada law. Furthermore, British Virgin Islands law does not
regulate transactions between a company and its significant
shareholders (other than to provide that such transactions must
be entered into bona fide in the best interests of the company),
removing a statutory layer of protection otherwise available to
minority shareholders under Nevada law.
The amended and restated memorandum and articles of association
of Man Sang BVI have been designed to replicate, to the extent
reasonably practicable and legally permissible, the rights
currently attendant to Man Sang Nevada common stock and
preferred stock. For further discussion of the differences
between Nevada and British Virgin Islands corporate law and a
comparison of rights of Man Sang Nevada stockholders and Man
Sang BVI shareholders, see Comparison of Rights of Man
Sang Nevada Stockholders and Man Sang BVI Shareholders on
page 110.
The board of directors also considered the reporting
requirements of Man Sang BVI as a foreign private issuer. In
particular, Man Sang BVI will not be required to file quarterly
financial statements on
Form 10-Q
under the Exchange Act, will be exempt from the SECs proxy
rules, which impose certain disclosure and procedural
requirements for proxy solicitations and will not be required to
comply with Regulation FD, which addresses certain
restrictions on the selective disclosure of material
information. However, Man Sang BVI will file an annual report on
Form 20-F
and will be subject to the mandates of the Sarbanes-Oxley Act
applicable to foreign private issuers as well as the disclosure
requirements of NYSE Amex. See Comparison of Rights of Man
Sang Nevada Stockholders and Man Sang BVI
Shareholders Reporting Requirements on
page 130.
The board of directors also considered that the directors of Man
Sang Nevada have interests in the liquidation and have
arrangements that are different from, or in addition to, those
of Man Sang Nevada stockholders generally. These interests
include: (1) continuation of service as directors of Man
Sang BVI; and (2) a reduction in dividend withholding tax
with respect to any future issuance of dividends by Man Sang BVI
on shares of Man Sang BVI owned by such directors and executive
officers after the liquidation of Man Sang Nevada. For further
discussion of the interests of directors of Man Sang Nevada in
the Liquidation, see Interests of the
Directors and Executive Officers of Man Sang Nevada in the
Liquidation on page 42.
The board of directors of Man Sang Nevada has considered each of
the potential risks, negative effects and potential conflicts of
interest associated with the dissolution and liquidation of Man
Sang Nevada and balanced these against the potential advantages,
which primarily include (1) the reduction of administrative
expenses associated with maintaining both Man Sang Nevada and
Man Sang BVI, including higher SEC compliance costs applicable
to Man Sang Nevada as a domestic issuer; and (2) the increased
attractiveness of Man Sang BVI, as a British Virgin Islands
incorporated entity, as opposed to Man Sang Nevada, as a Nevada
incorporated entity, to certain PRC investors and potential
strategic partners.
Having determined that the potential advantages of the
liquidation outweigh the risks and differences outlined above,
the board of directors of Man Sang Nevada has unanimously
approved the dissolution and liquidation of Man Sang Nevada and
the adoption of the agreement and plan of liquidation and
recommends that stockholders vote FOR the
dissolution and liquidation of Man Sang Nevada and the adoption
of the agreement and plan of liquidation. However, no assurances
can be given that the anticipated benefits of the liquidation
will be realized.
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The
Agreement and Plan of Liquidation
Man Sang Nevada and Man Sang BVI have entered into the agreement
and plan of liquidation, which is the legal document that
governs the liquidation. We recommend that you carefully read
the complete agreement and plan of liquidation for the precise
legal terms of the liquidation and other information that may be
important to you. The agreement and plan of liquidation is
attached to this proxy statement/prospectus as Annex A and
is incorporated into this document by reference.
Conditions
to Complete the Liquidation
The liquidation will not be completed unless, among other
things, the following conditions are satisfied or, if allowed by
law, waived:
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Shareholder Approvals Obtained. Approval by
the shareholders of Man Sang Nevada stockholders and Man Sang
BVI shareholders have been obtained;
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Registration Statement Declared
Effective. This proxy statement/prospectus filed
has been declared effective by the SEC under the Securities Act
and the Exchange Act and is not the subject of any stop order or
proceedings or similar actions threatened or initiated by the
SEC and not concluded or withdrawn;
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NYSE Amex Approval. The NYSE Amex has
confirmed that Man Sang BVI ordinary shares to be distributed
pursuant to the liquidation in connection with the transactions
contemplated thereto have been approved for listing on the NYSE
Amex, subject to official notice of issuance and other customary
conditions, and may trade on the NYSE Amex and succeed to the
ticker symbol MHJ;
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Hart-Scott-Rodino
Act. Any applicable waiting period under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder relating to the
Liquidation have expired or been terminated.
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Receipt of Tax Opinion. Man Sang Nevada and
Man Sang BVI have received an opinion from
PricewaterhouseCoopers Limited to the effect that the
liquidation constitutes a complete liquidation for
federal income tax purposes within the meaning of
Section 331 of the Internal Revenue Code;
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Covenants and Other Agreements. Man Sang
Nevada and Man Sang BVI each have performed in all material
respects their respective covenants and agreements contained in
the agreement and plan of liquidation required to be performed
at or prior to the effective time of the liquidation;
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Governmental, Regulatory and Other Material Third-Party
Consents. All filings required to be made with,
and all material consents, approvals, permits and authorizations
required to be obtained prior to the effective time of the
liquidation from, any court or governmental or regulatory
authority, or other person, have been made or obtained and are
in force; and
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No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of
the liquidation have been entered or enforced or continue to be
in effect.
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We are parties to certain agreements that may require the
consent of third parties prior to the implementation of the
liquidation. We believe that we will obtain all material
consents required prior to the completion of the liquidation and
that the failure to obtain any other consents will not have a
material impact on our business or our ability to complete the
liquidation.
Effective
Time
The effective time of the liquidation, which we refer to in this
proxy statement/prospectus as the effective time, will occur
when Man Sang Nevada distributes the Assets to the stockholders
of Man Sang Nevada or at such other time and date as Man Sang
Nevada and Man Sang BVI shall agree.
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Termination
of the Agreement and Plan of Liquidation
The agreement and plan of liquidation may be terminated and the
liquidation abandoned at any time prior to the filing of a
Certificate of Dissolution with the Secretary of State of the
State of Nevada, whether before or after the approval of
stockholders, by action of the board of directors of Man Sang
Nevada or Man Sang BVI, as follows: (1) by Man Sang Nevada or
Man Sang BVI if the transaction has not been consummated by
December 31, 2009, or (2) by either Man Sang Nevada or Man
Sang BVI if any material change in (i)(a) the price of Man
Sang Nevadas common stock on the NYSE Amex; (b) the
value of Man Sang BVIs ordinary shares; or (c) the
price of Man Sang International Limiteds ordinary shares
on the Stock Exchange of Hong Kong Limited or (ii) any new
or amended regulation, order, decree, judgment, interpretation
or ruling issued by a governmental entity would render the
transaction unadvisable or otherwise impracticable in the
judgment of the directors of Man Sang Nevada or Man Sang BVI.
In the event of termination of the agreement and plan of
liquidation, the agreement and plan of liquidation will become
void and have no effect, without any liability or obligation on
the part of Man Sang Nevada or Man Sang BVI, except as otherwise
provided for in the agreement.
The agreement and plan of liquidation may be amended by Man Sang
Nevada or Man Sang BVI at any time before or after the approval
of stockholders/shareholders of Man Sang Nevada and Man Sang BVI
and before the filing of the Certificate of Dissolution with the
Secretary of State of the State of Nevada; provided,
however, that after any such approvals and absent the additional
approval of stockholders of Man Sang Nevada and Man Sang BVI,
there may be no amendment that alters or changes any terms or
conditions of the agreement and plan of liquidation if the
alterations or changes would adversely affect the stockholders
of Man Sang Nevada or Man Sang BVI.
At any time prior to the effective time of the liquidation, Man
Sang Nevada and Man Sang BVI may waive compliance by the other
party with respect to any of the agreements or conditions
contained in the agreement and plan of liquidation, other than
shareholder approval. Any agreement on the part of Man Sang
Nevada or Man Sang BVI to any waiver will be valid only if set
forth in an instrument in writing signed on behalf of such
party. The failure of either Man Sang Nevada or Man Sang BVI to
assert their rights under the agreement and plan of liquidation
shall not constitute a waiver of these rights.
In order to be effective, the termination of the agreement and
plan of liquidation and abandonment of the liquidation requires
action by the board of directors of Man Sang Nevada or Man Sang
BVI. In order to be effective, an amendment of the agreement and
plan of liquidation requires action by the boards of directors
of Man Sang Nevada and Man Sang BVI and, if applicable,
stockholder approval. In order to be effective, a waiver by
either party requires action by the board of directors of the
other party approving the waiver.
Liquidation
Preference
Pursuant to a liquidation preference set forth in Man Sang
Nevadas restated certificate of incorporation, amended and
restated bylaws and amended Certificate of Designation,
Preferences and Rights of the Man Sang Nevada Series A
Preferred Stock, in the event of any dissolution, liquidation or
winding up of the affairs of Man Sang Nevada, whether voluntary
or involuntary, Man Sang Nevada preferred stockholders are
entitled to be paid first out of the assets of Man Sang Nevada
available for distribution to holders of Man Sang Nevadas
capital stock of all classes a liquidation preference in an
amount equal to US$25 per share of Man Sang Nevada preferred
stock before any distribution of assets. If the assets of Man
Sang Nevada are insufficient to permit the payment in full to
Man Sang Nevada preferred stockholders of these amounts, then
the entire assets of Man Sang Nevada available for distribution
to holders of Man Sang Nevadas capital stock will be
distributed ratably among the Man Sang Nevada preferred
stockholders in proportion to the full preferential amount to
which each preferred stockholder is otherwise entitled.
In this regard, Man Sang Nevada preferred stockholders have
entered into a letter agreement with Man Sang Nevada pursuant to
which they have agreed that their receipt of a pro-rata portion
of the Man Sang BVI preferred shares with an equivalent
liquidation preference constitutes payment in full of their
rights to the assets of Man Sang Nevada in the liquidation and
they have agreed to waive any and all other rights and
preferences in relation to the
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assets of Man Sang Nevada to which they are otherwise entitled.
The terms and conditions of the agreement between Man Sang
Nevada and the Man Sang Nevada preferred shareholders are set
forth in the letter agreement attached as Annex C to this
proxy statement/prospectus.
Share
Conversion
Prior to the liquidation, a distribution agent will be appointed
by us for the purpose of exchanging Man Sang Nevada common and
preferred stock for Man Sang BVI ordinary and preferred shares.
The distribution agent will mail to each holder of record of Man
Sang Nevada common and preferred stock a letter of transmittal
for use in effecting delivery of certificates representing these
shares to the distribution agent.
Upon surrender of a certificate representing Man Sang Nevada
common and preferred stock for cancellation to the distribution
agent together with a duly executed letter of transmittal, the
holder will be entitled to receive in exchange the whole number
of Man Sang BVI ordinary and preferred shares that the Man Sang
Nevada stockholder has the right to receive pursuant to the
agreement and plan of liquidation. Pursuant to the agreement and
plan of liquidation, holders of shares of Man Sang Nevada common
stock will receive 6,382,582 Man Sang BVI ordinary shares and
holders of shares of Man Sang Nevada preferred stock will
receive 100,000 Man Sang BVI preferred shares, on a
share-for-share basis in cancellation of the Man Sang Nevada
common stock and preferred stock. If you surrender a Man Sang
Nevada stock certificate and request the new Man Sang BVI
securities to be issued in a name other than the one appearing
on the surrendered certificate, you must endorse the stock
certificate or otherwise prepare it to be in proper form for
transfer.
Man Sang Nevada certificates that are surrendered will be
cancelled. No interest will be paid or accrued on any amount
payable upon surrender of stock certificates. No holder of
unsurrendered certificates will receive any dividends or other
distributions with respect Man Sang BVI ordinary shares to which
the holder is entitled under the liquidation agreement until the
Man Sang Nevada certificate registered to the holder is
surrendered to the distribution agent.
You should not send your Man Sang Nevada Stock Certificates
to the distribution agent until you have received transmittal
materials from the distribution agent. Do not return Man Sang
Nevada Stock Certificates with the enclosed proxy
statement/prospectus.
Management
of Man Sang BVI
When the liquidation is completed, all of the directors and all
of the executive officers of Man Sang Nevada will become
directors and executive officers of Man Sang BVI and the current
directors of Man Sang Nevada will carry over their remaining
terms of office to Man Sang BVI.
Required
Corporate Approval of the Liquidation
Under Section 78.580 of the Nevada Revised Statutes, approval of
Man Sang Nevadas board of directors and the affirmative
vote of a majority of the outstanding shares of Man Sang Nevada
capital stock entitled to vote voting at a meeting at which a
quorum is present, in person or by proxy, is required to approve
the dissolution and liquidation of Man Sang Nevada and the
adoption of the agreement and plan of liquidation.
Vote
Required
The dissolution and the liquidation requires the affirmative
vote of holders representing a majority of the outstanding
shares of common stock and Series A preferred stock
entitled to vote. On the record date, the principal stockholders
owned 3,437,501 outstanding shares of Man Sang Nevada common
stock and 100,000 outstanding shares of Man Sang Nevada
preferred stock, which together represent the votes of
6,628,726 shares of Man Sang Nevada common stock, or
69.2% of the total voting power of Man Sang Nevada common stock
and Series A preferred stock. The principal stockholders have
agreed to vote their shares in favor of the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation. The principal stockholders own
sufficient shares of our common stock and preferred stock to
approve the dissolution and liquidation of Man Sang Nevada and
the adoption of the agreement and plan of liquidation. We do not
believe that
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the interests of the principal stockholders, or their affiliates
differ from those of other stockholders or our company in
connection with the change of our place of incorporation.
However, we cannot anticipate whether, or in what form, any
differing interests may arise in the future. Conflicts between
the principal stockholders and minority stockholders may arise
with respect to, among other things, Man Sang BVIs
strategic direction and significant corporate transactions,
conflicts related to corporate opportunities that could be
pursued by our company on the one hand, or by the principal
stockholders, on the other hand, or other contractual
relationships between us and the principal stockholders or their
affiliates.
Rights of
Dissenting Shareholders
Under Nevada law, you will not have dissenters
rights in connection with the dissolution and liquidation
because, among other reasons, neither the Nevada Revised
Statutes, the articles of incorporation, the bylaws, nor a
resolution of the board of directors grants dissenters rights
for this corporate action.
Interests
of the Directors and Executive Officers of Man Sang Nevada in
the Liquidation
When considering the recommendation of the Man Sang Nevada board
of directors, Man Sang Nevada stockholders should be aware that
the directors and officers of Man Sang Nevada have interests in
the liquidation and have arrangements that are different from,
or in addition to, those of Man Sang Nevada stockholders
generally. The Man Sang Nevada board of directors were aware of
these interests and considered them, among other factors, in
approving the dissolution and liquidation of Man Sang Nevada,
the adoption of the agreement and plan of liquidation and the
transactions contemplated by the agreement and plan of
liquidation.
Continuation
as Directors and Executive Officers of Man Sang
BVI
All of Man Sang Nevadas current board of directors
comprise the current board of directors of Man Sang BVI. The
existing directors of Man Sang BVI will appoint the officers of
Man Sang Nevada to serve in equivalent positions with Man Sang
BVI after the effective time of the liquidation.
Man
Sang Nevada Stock Beneficially Owned by Executive Officers and
Directors.
At the close of business on the record date, Mr. Cheng
Chung Hing, Ricky, the President, Chief Executive and Chairman
of the board of directors, and Mr. Cheng Tai Po, Vice
Chairman of the board of directors beneficially owned in the
aggregate approximately 3,437,501 of the outstanding shares of
Man Sang Nevada common stock and 100,000 of the outstanding
shares of Man Sang Nevada Series A preferred stock,
collectively representing the votes of 6,628,726 shares of
Man Sang Nevada common stock, or 69.2% of the total
outstanding voting power of Man Sang Nevada on that date.
Mr. Cheng Chung Hing, Ricky, and Mr. Cheng Tai Po have
agreed to vote all of the shares of Man Sang Nevada common and
preferred stock owned of record by them at the Man Sang Nevada
special meeting in favor of the approval of the dissolution and
liquidation of Man Sang Nevada and the adoption of the agreement
and plan of liquidation.
Employment
Agreements with Executive Officers
Each of our executive officers, with the exception of Mr. Pak
Wai Keung, Martin, has entered into a fixed-term three year
service agreement with our Hong Kong Stock Exchange listed
subsidiary, Man Sang International Limited. Mr. Pak Wai Keung,
Martin has entered into an open term service agreement with our
subsidiary Man Sang Jewellery Company Limited. Pursuant to our
executive officers service agreements in fiscal year 2008,
our executive officers were entitled to total annual
compensation of between HK$1,846,104 and HK$5,322,564
(approximately US$236,680 to US$682,380). Under their service
agreements, our executive officers are also entitled to an
annual discretionary bonus based on their respective performance
and the performance of our company. Certain executive officers
are also entitled to other benefits, including but not limited
to the use of residential property and motor vehicles owned by
us, as well as membership in local clubs and associations.
Either party may terminate these service agreements without
cause upon two to three months notice (two months
notice with respect to Mr. Pak Wai Keung, Martins
service agreement) or payment in lieu of notice. In the event of
such termination, our executive officers will not be entitled to
claim any other compensation from us or our subsidiary
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Man Sang International Limited in respect of such termination
except where the board of directors otherwise agrees. In
addition, pursuant to these service agreements, our executive
officers have undertaken not to disclose any trade secrets or
confidential information concerning our business, finances or
transactions to outside parties and not to compete with us or
solicit our employees, suppliers or customers.
Participation
in Preparation of Transaction Documents
Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po, and
other directors and executive officers of Man Sang Nevada,
participated in the preparation of the agreement and plan of
liquidation, this proxy statement/prospectus and other documents
relating to the liquidation.
Director
and Officer Indemnification
The agreement and plan of liquidation provides that Man Sang BVI
will continue to indemnify and hold harmless all of our officers
and directors to the extent allowed under applicable law and in
accordance with its amended and restated articles of association
in respect of acts or omissions of such officers and directors
occurring at or prior to the effective time of the liquidation.
In addition, Man Sang BVI will obtain and maintain in effect for
each of the these officers and directors, for six years from the
effective time of the liquidation, policies of directors
and officers liability insurance of at least the same
coverage as the current policies of directors and
officers liability insurance maintained by Man Sang Nevada
with respect to claims arising from facts or events that
occurred on or before the effective time of the liquidation.
Reduction
in Dividend Withholding Tax
Each of Man Sang Nevadas current board of directors and
executive officers is not a resident or a citizen of the United
States, and, as a result, will experience a reduction in
dividend withholding tax with respect to any future issuance of
dividends by Man Sang BVI on shares of Man Sang BVI owned by
such directors and executive officers after the liquidation of
Man Sang Nevada.
Stock
Compensation Plans
At or promptly after the effective time of the liquidation, Man
Sang BVI intends to adopt a new stock option plan to replace a
2007 stock option plan adopted by Man Sang Nevada. As of the
date of this proxy statement/prospectus, no options have been
issued under this plan. The new stock option plan will be
subject to the approval by the shareholders of Man Sang BVI at
an extraordinary general meeting. The terms and conditions of
the new stock option plan will be substantially similar to the
terms and conditions of the Man Sang Nevada 2007 stock option
plan.
The Man Sang Nevada 2007 stock option plan will be terminated as
of the effective time of the liquidation.
Stock
Exchange Listing
We have made application so that, immediately following the
liquidation, Man Sang BVI ordinary shares will be listed on the
NYSE Amex under the symbol MHJ, the symbol under
which Man Sang Nevada common stock is currently listed. Man Sang
BVI preferred shares, which are held only by Cafoong Limited,
which is owned by Cheng Chung Hing, Ricky and Cheng Tai Po, will
be registered with the Securities and Exchange Commission but
will not be publicly traded.
Market
Price
On July 23, 2009, the last trading day before the public
announcement of the liquidation, the closing price per Man Sang
Nevada share on the NYSE Amex was US$2.13, and the high and low
sales prices were US$2.43 and US$2.13.
Accounting
Treatment of the Liquidation
Upon completion of the dissolution and liquidation, Man Sang
Nevada will distribute the Assets, which consist of Man Sang BVI
ordinary shares and Man Sang BVI preferred shares, to its
stockholders on a share-for-share basis.
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Subject to material tax considerations, the liquidation will not
result in changes in our historical consolidated carrying amount
of assets, liabilities and shareholders equity.
Voting
Agreement
Concurrently with the execution of the agreement and plan of
liquidation, the principal stockholders, who, as of the date of
execution of the agreement and plan of liquidation, owned
approximately 3,437,501 outstanding shares of Man Sang Nevada
common stock and 100,000 outstanding shares of Man Sang Nevada
preferred stock, which together represent the votes of
6,628,726 shares of Man Sang Nevada common stock, or
69.2% of the total voting power of Man Sang Nevada common stock
and Series A preferred stock entered into a voting
agreement with Man Sang Nevada and agreed, among other things,
to take specified actions in furtherance of the liquidation.
A copy of the voting agreement is attached to this proxy
statement/prospectus as Annex B. The principal stockholders
own sufficient shares of Man Sang Nevada common stock and
preferred stock to approve the dissolution and liquidation of
Man Sang Nevada and the adoption of the agreement and plan of
liquidation. If the agreement and plan of liquidation is
terminated, in accordance with its terms (other than a
termination resulting from a breach of the voting agreement),
the voting agreement will automatically terminate.
Regulatory
Matters
We do not expect that the dissolution and liquidation of Man
Sang Nevada will be subject to any United States or foreign
regulatory requirements other than the filing of the
registration statement on Form F-4, of which this proxy
statement/prospectus forms a part, with the SEC, and the filing
of certain documents with the Secretary of State of the State of
Nevada.
Letter
Agreement and Waiver
The Man Sang Nevada preferred stockholders have entered into a
letter agreement with Man Sang Nevada pursuant to which they
have agreed that their receipt of a pro rata portion of the Man
Sang BVI preferred shares with an equivalent liquidation
preference constitutes payment in full of their rights to the
assets of Man Sang Nevada in the liquidation and they agreed to
waive any and all other rights and preferences in relation to
the assets of Man Sang Nevada to which they are otherwise
entitled. The terms and conditions of the agreement between Man
Sang Nevada and the Man Sang Nevada preferred shareholders are
set forth in the letter agreement attached as Annex C to
this proxy statement/prospectus.
Restrictions
on Sales of Man Sang BVI Shares Received in the Liquidation and
the Affiliate Letter
The Man Sang BVI ordinary shares and preferred shares to be
distributed in connection with the liquidation will be
registered under the Securities Act and will be freely
transferable, except for Man Sang BVI ordinary shares and
preferred shares distributed to any person who is deemed to be
an affiliate of Man Sang Nevada prior to the
liquidation. Persons who may be deemed affiliates of
Man Sang Nevada prior to the liquidation include individuals or
entities that control, are controlled by, or are under common
control of Man Sang Nevada prior to the liquidation, and may
include officers and directors, as well as principal
stockholders of Man Sang Nevada prior to the liquidation.
Persons who may be deemed to be affiliates of Man Sang Nevada
prior to the liquidation may not sell any of the Man Sang BVI
ordinary shares or preferred shares received by them in
connection with the liquidation except pursuant to:
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an effective registration statement under the Securities Act
covering the resale of those shares;
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an exemption under the volume and other limitations of
Rule 144 or 145 under the Securities Act; or
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any other applicable exemption under the Securities Act.
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Man Sang BVIs registration statement on
Form F-4,
of which this proxy statement/prospectus forms a part, does not
cover the resale of Man Sang BVI ordinary shares and preferred
shares to be received in connection with the liquidation by
persons who may be deemed to be affiliates of Man Sang BVI prior
to the liquidation.
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Man Sang Nevada has agreed, as promptly as practicable on or
following the date of the signing of the agreement and plan of
liquidation, to provide to Man Sang BVI a list of names and
addresses of all persons who were in the reasonable judgment of
Man Sang Nevada, affiliates (within the meaning of Rule 145
of the rules and regulations promulgated under the Securities
Act) of Man Sang Nevada. Man Sang Nevada has further agreed to
use its reasonable best efforts to deliver to Man Sang BVI,
prior to the effective time, an affiliate letter executed by
each of the persons identified as possible affiliates and any
person who will, to the knowledge of Man Sang Nevada, become an
affiliate of Man Sang Nevada subsequent to the delivery of the
initial list to Man Sang BVI from each such person agreeing,
among other things to abide by certain transfer restrictions
pursuant to Rule 145. Under the affiliate letters, such
persons acknowledge the resale restrictions on the Man Sang BVI
shares to be received by them in the liquidation imposed by
Rule 145 under the Securities Act. In accordance with the
affiliate letters, Man Sang BVI will be entitled to place
appropriate legends on any share certificates evidencing the Man
Sang BVI shares received by these Man Sang Nevada stockholders
in the liquidation. The form of affiliate letter is attached as
Exhibit A to the agreement and plan of liquidation, which
is attached to this proxy statement/prospectus as Annex A
and you are urged to read it in its entirety.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, the words we, us and
our generally refer to Man Sang Nevada and its
subsidiaries, which include Man Sang BVI.
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our audited consolidated financial statements
and related notes included elsewhere in this proxy
statement/prospectus. Some of the information contained in this
discussion and analysis constitutes forward-looking statements
that involve risks and uncertainties. Actual results could
differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed
below and elsewhere in this proxy statement/prospectus,
particular those under Cautionary Statement Concerning
Forward-Looking Statements and Risk
Factors.
Unless otherwise specified, references to Notes to the
audited consolidated financial statements are to the Notes to
our audited consolidated financial statements as of and for the
years ended March 31, 2009, 2008 and 2007.
Overview
We have two main business segments. One business segment is
engaged in the purchase, processing, assembling, merchandising
and wholesale distribution of pearls and jewelry products and
the other is engaged in real estate development and real estate
leasing. Net sales in fiscal year 2009 decreased by
HK$300.6 million, or 47.4% from HK$633.7 million for
fiscal year 2008, consisting of HK$405.4 million
attributable to pearl operations and HK$228.2 million
attributable to real estate sales, to net sales of
HK$333.1 million in fiscal year 2009, consisting of
HK$316.7 million attributable to pearl operations and
HK$16.4 million attributable to real estate sales.
Gross profit decreased by HK$166.4 million, or 59.1% from
HK$281.5 million for fiscal year 2008, consisting of
HK$124.5 million attributable to pearl operations and
HK$157.0 million attributable to real estate sales, to
HK$115.1 million for fiscal year 2009, consisting of
HK$102.8 million attributable to pearl operations and
HK$12.3 million attributable to real estate operations.
We incurred a net loss of HK$11.1 million for fiscal year
2009, as compared to net income of HK$39.9 million for
fiscal year 2008.
The dissolution and liquidation of Man Sang Nevada and the
adoption of the agreement and plan of liquidation will
effectively change our place of incorporation from Nevada to the
British Virgin Islands. Upon the dissolution and liquidation,
Man Sang BVI and its subsidiaries will continue to conduct the
business conducted by Man Sang Nevada and its subsidiaries.
Although the dissolution and liquidation will result in the
elimination of Man Sang Nevada as the holding company of our
group, the dissolution and liquidation should have no material
impact on our financial condition or operating results, other
than the costs incurred in connection with the dissolution and
liquidation and U.S. federal income tax arising from the deemed
disposal of its shareholdings in Man Sang BVI.
Pearl
Operations
Economic conditions have recently deteriorated significantly in
many countries and regions, including the markets in which we
conduct our pearl operations, and may remain depressed for the
foreseeable future. If unfavorable economic conditions continue
to challenge the consumer environment, our business, results of
operations, financial condition and cash flows could be
adversely affected. Our pearl operations in Europe have
exhibited a relatively strong performance during the fiscal year
ended 2009. However, we do not expect to maintain these
performance levels in the short-term due to the recent
deterioration of economic conditions. As a result, we are in the
process of adopting more conservative policies, including
shortening the credit terms we provide to our customers and
closely monitoring our customers payment history, to
ensure that we maintain adequate liquidity to fund our
operations. Our pearl operations are geographically diverse and
we believe we are well-positioned to react to deteriorating
global market conditions.
46
Real
Estate Operations
Conditions in the PRC real estate market have deteriorated
significantly. The deterioration was largely due to
macroeconomic policies and austerity measures implemented by the
PRC government with respect to the PRC real estate market, as
well as a material downturn in the global financial market,
which has resulted in tightened monetary policy in the PRC and
worldwide. As the economic crisis deepened in the United States
and Europe, the PRC government launched and announced various
financial stimulus plans to limit the impact on the domestic
economy. These plans include: elimination of barriers to access
credit for businesses; support for small and medium-sized
enterprises; the promotion of additional lending by Chinas
three policy banks (China Development Bank, China Export and
Import Bank and China Agricultural Development Bank); reductions
in housing down payment requirements and cuts in mortgage rates
to promote the residential property market; and exemptions on
real estate sales tax to certain homeowners. We believe that the
property industry as a whole will benefit from such plans.
Our management remains optimistic about the medium- and
long-term development of the property market in China. While we
recognize that an unbalanced supply-demand relationship may
persist in the property market, we believe that demand in the
property market is driven by several long term trends in the
PRC, such as increasing incomes, a growing population, a growing
middle class, continued urbanization and a desire for improved
living conditions. We believe that challenges to the property
market in China are cyclical in nature and that such challenges
can be met with sound management and appropriate business and
marketing strategies. We have attempted to meet these challenges
with a continued emphasis on enhancing operating efficiency,
improving the quality of our products and strictly controlling
the development costs associated with China Pearls and Jewellery
City.
Future
Trends
The PRC economy continued its growth in 2008, continuing a
pattern of double-digit or near double-digit growth in gross
domestic product, or GDP, over the past five years. According to
the National Bureau of Statistics of China, the growth of the
PRCs GDP decreased by 4%, from 13% in 2007 to 9% in 2008.
The growth of the PRCs GDP decreased further, to 6.1%, for
the first quarter of 2009, as, among other factors, the
spreading financial crisis lowered foreign demand for Chinese
goods. The financial crisis, if it continues, may further slow
future economic growth in the PRC.
Recent disruptions in global financial markets and banking
systems due to the financial crisis have also made credit and
capital markets more difficult for companies to access.
Continuing volatility in the credit and capital markets could
potentially impair our and our customers ability to access
these markets and increase associated costs. In addition, the
recent turmoil in the financial markets may have an adverse
effect on customer spending patterns. A recessionary economic
cycle, higher interest rates, higher fuel and other energy
costs, inflation, increases in commodity prices, higher levels
of unemployment, higher consumer debt levels, higher tax rates
and other changes in tax laws or other economic factors could
adversely affect consumer demand for the products we sell and
properties we sell and lease, which could adversely affect our
results of operations.
We believe that the majority of markets where we operate will be
negatively affected by the financial crisis through the first
half of fiscal year 2010. We will continue to monitor the
effects of the financial crisis in the markets where we operate
and to adopt the appropriate business and financial management
policies to ensure that we are able to further develop our
market share in our core markets.
According to the National Bureau of Statistics of China,
Chinas overall national inflation rate, as represented by
the general consumer price index, was approximately 5.9%, 4.8%
and 1.5% in 2008, 2007 and 2006, respectively. Increases in
inflation affect our financial performance by increasing certain
of our operating expenses including labor costs, leases, and
selling and general administrative expenses. Although increases
in inflation have not had a material impact on our operations in
the past, if such increases continue, they may have an adverse
effect on our operations in the future. However, the latest
inflation rate announced in March 2009 for the first quarter of
2009, as compared to the same period of 2008, was negative 0.6%.
A period of prolonged deflationary pressures could have a
negative effect on our net sales, the price of our goods and the
gross profit margin of our products, which could adversely
affect our results of operations.
47
State
Council Fiscal Stimulus Measures
In response to the current global economic downturn and
corresponding decline in the rate of growth of the PRC economy,
the PRC government has adopted increasingly flexible
macroeconomic policies, including an announced fiscal stimulus
package, aimed at offsetting the slowdown brought on by the
global economic downturn and deterioration in the global credit
markets. These policies include measures specifically designed
to encourage development of the domestic property market. This
represents a reversal of policies implemented since 2003 which
were designed to control perceived overinvestment in the real
property market. Beginning in November 2008, the State Council
has announced a series of measures to stimulate the economy.
These include the following:
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On November 9, 2008, the State Council announced a RMB4
trillion (US$584 billion) economic stimulus plan,
RMB120 billion (US$17.5 billion) of which was to be
spent by year-end. On November 10, 2008, the State Council
announced a value-added tax reform, shifting the basis from
production to consumption, and effectively reducing the
value-added tax rates, effective January 1, 2009.
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On November 26, 2008, the State Council announced six
policies for economic stimulus, including plans to support the
rail, auto, shipbuilding, logistics, petrochemical, light
industry, textile, nonferrous metals, equipment manufacturing,
and electronics and information technology industries.
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On December 3, 2008, the State Council announced an
additional RMB100 billion (US$14.6 billion) of lending
by PRC policy banks prior to year-end.
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On December 13, 2008, the State Council announced 30
measures to support the financial industry, including raising
Chinas total money supply by 17% in 2009.
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On December 21, 2008, the State Council announced an
exemption on real estate sales taxes to homeowners selling homes
after an ownership period of two years, lowered from a previous
minimum of five years.
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In March 2009, the State Council and the Central Committee of
the Communist Party of China announced a healthcare reform plan
to increase the accessibility of healthcare, healthcare coverage
and the availability of medicines, and to spend an additional
RMB850 billion (US$124 billion) from 2009 to 2011 on
the healthcare industry.
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Critical
Accounting Policies and Estimates
Managements discussion and analysis of results of
operations and financial condition are based upon our
consolidated financial statements. These statements have been
prepared in accordance with U.S. GAAP. These principles
require management to make certain estimates and assumptions
that affect amounts reported and disclosed in the financial
statements and related notes. The most significant estimates and
assumptions include 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, we
review 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 that were used in the preparation of our
consolidated financial statements:
Allowance
for doubtful accounts
We maintain an allowance for doubtful accounts based on
estimates of the credit-worthiness of our customers and probable
losses inherent in the account receivable balance. We determine
the allowance based on our knowledge of troubled accounts,
historical experience and other currently available sources of
information. If the financial condition of our customers
deteriorates, resulting in an impairment of their ability to
make payments, additional allowances may be required. If the
troubled accounts are collected or there is evidence that
indicates the conditions leading to an impairment of their
ability to make payments no longer exists, the allowance
required is then reduced. Accordingly, the resulting change in
the allowance for doubtful accounts is recognized in the income
statement.
48
Inventories
write-downs
We write 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 conditions are less
favorable than those projected by management, additional
inventory write-downs may be required.
Goodwill
Impairment Policy
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), we review the
carrying amount of our recorded goodwill annually or in interim
periods if circumstances indicate a potential impairment. The
impairment review is performed at the reporting unit level,
which is one level below an operating segment. The goodwill
impairment test is a two-step process and requires management to
make certain judgments in determining what assumptions to use in
the calculation. The first step in the process consists of
estimating the fair value of each reporting unit based on a
discounted cash flow model using revenue and profit forecasts.
Management then compares its estimate of the fair value of the
reporting unit with the reporting units carrying amount,
which includes goodwill. If the estimated fair value is less
than the carrying amount, an additional step is performed that
compares the implied fair value of the reporting units
goodwill with the carrying amount of the goodwill. The
determination of a reporting units implied fair value of
the goodwill requires management to allocate the estimated fair
value of the reporting unit to the assets and liabilities of the
reporting unit. Any unallocated fair value represents the
implied fair value of the goodwill. To the extent that the
carrying amount of the goodwill exceeds its implied fair value,
an impairment loss is recorded in the period of identification
Long-lived
assets
We periodically evaluate the carrying value of long-lived assets
to be held and used, including real estate investment, 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.
Real
estate investment
Leasehold land and buildings held for investment are stated at
cost. Costs include the costs 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
underlying lease of the land on which the buildings are located
up to a maximum of 50 years.
Completed
properties held for sale
Completed properties held for sale are inventories of real
estate held for sale. Completed properties held for sale are
stated at the lower of cost or market value.
Revenue
recognition
We recognize revenue at the time products are shipped to
customers and collectability for sales is reasonably assured. We
recognize gains on sales of real estate pursuant to the
provisions of Statement of Financial Accounting Standards, or
SFAS, No. 66 Accounting for Sales of Real
Estate. The specific timing of a sale is measured against
various criteria in SFAS No. 66 related to the terms
of the transaction and any continuing involvement in the form of
management or financial assistance associated with the property.
Profit on real estate sales transactions are not recognized by
the full accrual method until all of the following criteria are
met: (a) a sale is consummated; (b) the buyers
initial and continuing investments are adequate to demonstrate a
commitment to pay for the property; (c) the sellers
receivable is not subject to future subordination and
(d) the seller has transferred to the buyer the usual risks
and rewards of ownership in a transaction that is in substance a
sale and does not have a substantial continuing involvement with
the property. If the sales criteria are not met, we defer gain
recognition and accounts for the continued operations of the
property by applying the deposit, finance, installment or cost
recovery methods, as
49
appropriate. Property rental income is recognized on a
straight-line basis over the term of the lease, and is stated at
the gross amount.
Sales
with leaseback transactions
During the year ended March 31, 2008, we sold a total of
209 properties from phase one of China Pearls and Jewellery City
to independent third parties. Net proceeds from these sales were
HK$228.2 million. Concurrent with these sales, we entered
into an arrangement to lease the properties back from the
independent third parties over lease terms of three to five
years. We accounted for these leases as operating leases. No
gain on the sales of the properties was deferred as the
transactions met the criteria for a minor leaseback in
accordance with SFAS No. 28 Accounting for Sales
with Leasebacks.
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 (which we
determine by referring to the operating results of, and the
return generated from, such investments), thereby possibly
requiring an impairment charge.
Marketable
securities
We classify marketable securities as available-for-sale and
carry 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. We review
marketable securities impairments in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, and related guidance issued by the
Financial Accounting Standards Board, or FASB, and SEC in order
to determine the classification of the impairment as
temporary or other-than-temporary. A temporary
impairment charge results in an unrealized loss being recorded
in the other comprehensive income (loss) component of
stockholders equity. Such an unrealized loss does not
affect net income (loss) for the applicable accounting period.
An other-than-temporary impairment charge is recorded as a
realized loss in the statement of operations and reduces net
income (loss) for the applicable accounting period. In
evaluating the impairment of marketable securities, we
classified such impairment as temporary. If our assessment of
the fair value in future periods is other than temporary, we
will record an impairment charge through our income statement.
Allowances
for Deferred Income Tax Assets
Tax benefits arising from deductible temporary differences,
unused tax credits and net operating loss carry forwards are
recognized as deferred tax assets. We record a valuation
allowance to reduce our deferred income tax assets to an amount
that we believe will more likely than not be realized. We have
considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need and
amount for the valuation allowance. In the event we were to
determine that we would be able to realize our deferred income
tax assets in the future in excess of our net recorded amount,
an adjustment to our deferred income tax assets would increase
income in the period such determination was made. Alternatively,
should we determine that we would not be able to realize all or
part of our net deferred income tax assets in the future, an
adjustment to our deferred income tax assets would decrease
income in the period such determination was made.
Recent
Accounting Pronouncements
In January 2009, the FASB, issued FASB Staff Position, or FSP,
No. EITF 99-20-1,
Amendments to the Impairment Guidance of EITF Issue
No. 99-20
(FSP No. EITF 99-20-1).
This FSP provides additional guidance with respect to how
entities determine whether an other-than-temporary
impairment (OTTI) exists for certain beneficial interests
in a securitized transaction, such as asset-backed securities
and mortgage-backed securities, that (1) do not have a high
quality rating or (2) can be contractually prepaid or
otherwise settled such that the holder would not recover
substantially all of its investment. FSP
No. EITF 99-20-1
amended EITF Issue
No. 99-20
to more closely align its OTTI guidance with that of
SFAS No. 115, Accounting for Certain Investment
in Debt and Equity Securities. This FSP had no material
impact on such classifications.
50
In December 2008, the FASB issued FSP
FAS 140-4
and Financial Interpretations 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial
Assets and Interest is in Variable Interest Entities. This
disclosure-only FSP improves the transparency of transfers of
financial assets and an enterprises involvement with
variable interest entities, including qualifying special-purpose
entities. This FSP is effective for the first reporting period
(interim or annual) ending after December 15, 2008, with
earlier application encouraged. The adoption of FSP
FAS 140-4
and FIN 46(R)-8 did not have a material impact on our
condensed consolidated financial statements.
In October 2008, the FASB issued FSP
No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active. FSP
No. FAS 157-3
provides examples to illustrate key considerations in
determining the fair value of a financial asset when the market
for that financial asset is not active.
FSP No. FAS 157-3
was effective upon issuance and did not have a material impact
on our companys consolidated financial statements.
In June 2008, the FASB issued FSP Emerging Issues Task Force
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. This new
standard requires that non-vested share-based payment awards
that contain non-forfeitable rights to dividends or dividend
equivalents be treated as participating securities in the
computation of earnings per share pursuant to the two-class
method.
FSP EITF 03-6-1
will be applied retrospectively to all periods presented for
fiscal years beginning after December 15, 2008. Our company
is currently assessing the impact that FSP Emerging Issues Task
Force
No. 03-6-1
will have on our consolidated financial statements and results
of operations for the share-based payment programs currently in
place.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles, which
is intended to improve financial reporting by identifying a
consistent framework or hierarchy for selecting accounting
principles to be used in preparing financial statements that are
presented in conformity with GAAP for nongovernmental entities.
SFAS No. 162 is effective 60 days following the
SECs approval of the Public Company Accounting Oversight
Board amendment to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. We do not expect adoption of
SFAS No. 162 to have a material impact on our
consolidated financial statements.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets.
This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. This FSP allows us to use our historical experience
in renewing or extending the useful life of intangible assets.
This FSP is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years and shall be applied prospectively to intangible assets
acquired after the effective date. We do not expect the
application of this FSP to have a material impact on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,
which requires enhanced disclosures for derivative and hedging
activities. SFAS 161 will become effective beginning with
our first quarter of 2009. Early adoption is permitted. We have
not adopted the standard and do not expect the adoption of
SFAS No. 161 to have a material impact on our
consolidated financial statements.
Internal
Control Over Financial Reporting
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of the end of the fiscal year 2009 based on the framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) using the criteria in
Internal-Control Integrated Framework. In order to assist
our management to evaluate the effectiveness of our internal
control over financial reporting, we engaged an independent
registered public accounting firm to perform our internal
control review and assessment. Based on this evaluation, we
identified a material weakness in our internal control over
financial reporting as of March 31, 2009.
51
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of a companys annual or interim financial
statements will not be prevented or detected on a timely basis.
As of March 31, 2009, we identified a material weakness
related to the policies and procedures that we had put in place
for the review of our goodwill impairment test.
During fiscal year 2009, we performed a goodwill impairment test
to assess any impairment on the carrying amount of our recorded
goodwill. Due to an oversight in our policies and procedures for
the review of the calculations and results of our goodwill
impairment test, we were unable to detect certain clerical
errors in our calculations. Although this oversight did not
affect our conclusion based on the results of our goodwill
impairment test, it did create a reasonable possibility that a
material misstatement of our annual or interim financial
statements resulting from inaccurate calculations and results of
our goodwill impairment test would not be prevented or detected
on a timely basis. Accordingly, we determined that this control
deficiency constituted a material weakness.
During the preparation of our annual report on
Form 10-K,
the underlying circumstances of this material weakness were
fully communicated to and considered by our independent
registered public accounting firm to ensure that an accurate and
proper goodwill impairment test was performed and that the
appropriate accounting treatment was recorded in the financial
statements included in our annual report on
Form 10-K.
We have developed the following remediation plan to address this
material weakness and we are proceeding expeditiously with the
following measures to enhance our internal control over
financial reporting:
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We will strengthen and formalize our existing procedures for the
review of the calculations and results of our goodwill
impairment test to ensure that the material weakness does not
impair our ability to produce accurate and timely financial
statements. These policies and procedures will require that our
test of goodwill impairment be subject to an independent review.
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Our Audit Committee will monitor these remediation efforts and
may direct additional measures as deemed appropriate.
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Accordingly, our management believes that the accounting for
goodwill impairment included in our financial statements fairly
presents in all material respects our financial position,
results of operations and cash flows for the periods presented.
Changes
in Internal Control over Financial Reporting
No change was made in our internal control over financial
reporting during fiscal year 2009 that has materially affected,
or is reasonably likely to materially affect, our internal
control over financial reporting, other than under the heading
Internal Control over Financial Reporting and
immediately below under the heading Remediation of Past
Material Control Weaknesses.
Remediation
of Past Material Control Weaknesses
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of the end of the fiscal year covered by our
Form 10-K
filed on June 27, 2008. This evaluation was based on the
framework issued by COSO. Based on this evaluation, we
identified a material weakness in our internal control over
financial reporting prior to the filing of our
Form 10-K
on June 27, 2008.
During fiscal year 2008, we significantly expanded our property
development operations, which involve property development and
sales of new properties. Accounting for these transactions
involves complex accounting principles and requires specialized
personnel with specific U.S. GAAP knowledge and experience.
During fiscal year 2008 we accounted for portions of our new
property sales as liabilities, which is not in accordance with
U.S. GAAP principles. In addition, we accounted for
portions of our new property sales as revenues without reference
to U.S. GAAP principles, which set specific initial
investment thresholds to account for such transactions as sales.
As a result of this practice, we were required to make
adjustments in our financial statements to properly reflect
U.S. GAAP principles.
52
In order to rectify this material weakness, we have implemented
additional procedures to ensure that our accounting for property
development and sales of new properties is presented fairly in
all material respects in accordance with U.S. GAAP
principles. These procedures include the following:
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We have instituted monthly business reviews led by our Chief
Executive Officer and monthly operating and financial statement
reviews by various levels of our management team, including our
executive officers;
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We are taking steps to create a new disclosure review group in
order to further formalize our internal review processes related
to preparation of our reports filed with the SEC and other
public disclosures, which will include directors, executive
management, senior financial management and senior operating
personnel; and
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We are expanding our educational assistance to all our
accounting staff to ensure a thorough and consistent
understanding of changes in accounting principles and
modifications and enhancement in our internal controls and
procedures.
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In addition, we will consult external accounting professionals
when encountering new and complex accounting transactions and
will continue to refine and enhance our internal control
procedures. Accordingly, management believes that the accounting
for property development and sales of new properties included in
our financial statements fairly presents in all material
respects our financial position, results of operations and cash
flows for the periods presented.
Results
of Operations
The following discussion of our results of operations is based
on the financial information derived from our consolidated
financial statements prepared in accordance with U.S. GAAP.
In the following discussion, references to increases or
decreases in any year are made by comparison with the
corresponding prior year, as applicable, except as the context
otherwise indicates.
The following table sets forth for fiscal years 2009, 2008 and
2007 certain items from the Consolidated Statement of Income,
and these items as a percentage of net sales:
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Fiscal Year Ended March 31,
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2009
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2008
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2007
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HK$
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%
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HK$
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%
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HK$
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%
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(HK$ in thousands, except for percentages)
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Net sales
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333,138
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100.0
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633,691
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100.0
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398,279
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100.0
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Cost of sales
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(218,030
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(65.5
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(352,195
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(55.6
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)
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(285,580
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)
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(71.7
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|
|
|
|
|
|
|
|
Gross profit
|
|
|
115,108
|
|
|
|
34.5
|
|
|
|
281,496
|
|
|
|
44.4
|
|
|
|
112,699
|
|
|
|
28.3
|
|
Rental income, gross
|
|
|
26,596
|
|
|
|
8.0
|
|
|
|
6,802
|
|
|
|
1.1
|
|
|
|
4,225
|
|
|
|
1.1
|
|
Expenses from rentals
|
|
|
(25,097
|
)
|
|
|
(7.5
|
)
|
|
|
(5,956
|
)
|
|
|
(0.9
|
)
|
|
|
(5,888
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,499
|
|
|
|
0.5
|
|
|
|
846
|
|
|
|
0.2
|
|
|
|
(1,663
|
)
|
|
|
(0.4
|
)
|
Selling, general and administrative expenses
|
|
|
(148,905
|
)
|
|
|
(44.7
|
)
|
|
|
(118,430
|
)
|
|
|
(18.7
|
)
|
|
|
(84,134
|
)
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(32,298
|
)
|
|
|
(9.7
|
)
|
|
|
163,912
|
|
|
|
25.9
|
|
|
|
26,902
|
|
|
|
6.8
|
|
Interest income
|
|
|
10,043
|
|
|
|
3.0
|
|
|
|
17,872
|
|
|
|
2.8
|
|
|
|
9,394
|
|
|
|
2.3
|
|
Non-operating income
|
|
|
376
|
|
|
|
0.1
|
|
|
|
14,171
|
|
|
|
2.2
|
|
|
|
28,981
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes and minority interests
|
|
|
(21,879
|
)
|
|
|
(6.6
|
)
|
|
|
195,955
|
|
|
|
30.9
|
|
|
|
65,277
|
|
|
|
16.4
|
|
Income tax expenses
|
|
|
3,132
|
|
|
|
1.0
|
|
|
|
(75,267
|
)
|
|
|
(11.9
|
)
|
|
|
(6,776
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before minority interests
|
|
|
(18,747
|
)
|
|
|
(5.6
|
)
|
|
|
120,688
|
|
|
|
19.0
|
|
|
|
58,501
|
|
|
|
14.7
|
|
Minority interests
|
|
|
7,694
|
|
|
|
2.3
|
|
|
|
(80,753
|
)
|
|
|
(12.7
|
)
|
|
|
(30,536
|
)
|
|
|
(7.7
|
)
|
Net (loss) income
|
|
|
(11,053
|
)
|
|
|
(3.3
|
)
|
|
|
39,935
|
|
|
|
6.3
|
|
|
|
27,965
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
Year
Ended March 31, 2009 Compared to Year Ended March 31,
2008
Net
Sales and Gross Profit
Net sales for fiscal year 2009 decreased by
HK$300.6 million, or 47.4%, from HK$633.7 million for
fiscal year 2008, consisting of HK$405.4 million
attributable to our pearl operation and HK$228.2 million
attributable to our real estate operations, to
HK$333.1 million for fiscal year 2009, consisting of
HK$316.7 million attributable to our pearl operations and
HK$16.4 million attributable to our real estate operations.
Gross profit decreased by HK$166.4 million, or 59.1%, from
HK$281.5 million for fiscal year 2008, consisting of
HK$124.5 million attributable to our pearl operations and
HK$157.0 million attributable to our real estate
operations, to HK$115.1 million for fiscal year 2009,
consisting of HK$102.8 million attributable to our pearl
operations and HK$12.3 million attributable to our real
estate operations.
Net sales for our pearl operations and real estate operations
accounted for approximately 95.1% and 4.9%, respectively, of our
total net sales in fiscal year 2009, as compared to 64.0% and
36.0%, respectively, in fiscal year 2008.
Pearl
Operations
Net sales attributable to our pearl operations decreased by
HK$88.7 million, or 21.9%, from HK$405.4 million for
fiscal year 2008 to HK$316.7 million for fiscal year 2009.
Net sales of assembled jewelry decreased by
HK$20.9 million, or 9.2%, from HK$226.2 million for
fiscal year 2008 to HK$205.3 million for fiscal year 2009.
Net sales of South Sea pearls decreased by HK$55.8 million,
or 37.3%, from HK$149.5 million for fiscal year 2008 to
HK$93.7 million for fiscal year 2009. Net sales of
freshwater pearls decreased by HK$10.2 million, or 42.1%,
from HK$24.2 million for fiscal year 2008 to
HK$14.0 million for fiscal year 2009. Decreases in net
sales attributable to our pearl operations were primarily due to
a decrease in market demand worldwide, particularly in the
United States and Asian countries, including Hong Kong, due to
the continued global financial and credit crisis and the
contraction of economic activities around the world.
Net sales to the United States and Asia markets decreased for
fiscal year 2009 due to the continued weakness of the domestic
economies in these markets. Net sales to the United States
market decreased by HK$34.2 million, or 32.9%, from
HK$104.2 million for fiscal year 2008 to
HK$70.0 million for fiscal year 2009. Net sales to the Asia
market, including Hong Kong, decreased by HK$37.6 million,
or 35.6%, from HK$105.8 million for fiscal year 2008 to
HK$68.2 million for fiscal year 2009.
Net sales to the Europe market decreased for fiscal year 2009
due to the weakness of the domestic economies following the
financial and credit crises triggered by defaults in the
U.S. sub-prime mortgage market. Net sales to the Europe
market decreased by HK$15.6 million, or 9.3%, from
HK$168.6 million for fiscal year 2008 to
HK$153.0 million for fiscal year 2009.
Gross profit attributable to our pearl operations decreased by
HK$22.3 million, or 17.9%, from HK$124.5 million for
fiscal year 2008 to HK$102.2 million for fiscal year 2009.
The decrease was primarily due to a decrease of
HK$88.7 million in net sales mainly as a result of a
decrease in demand in the United States and the Asia markets.
Gross profit margin attributable to our pearl operations
increased from 30.7% for fiscal year 2008 to 32.3% for fiscal
year 2009. The increase in gross profit margin was primarily due
to our continued (a) implementation of effective cost
controls, (b) enhancement of production efficiency due to
the acquisition of new machinery and (c) shift in our focus
to sales of higher value products.
Real
Estate Operations
We commenced presales of phase one market center units in China
Pearls and Jewellery City in the fourth quarter of fiscal year
2008. As of March 31, 2009, we had sold approximately 31%
of the planned saleable area of China Pearls and Jewellery City.
54
Net sales attributable to our real estate operations decreased
by HK$211.8 million, or 92.8%, from HK$228.2 million
for fiscal year 2008 to HK$16.4 million for fiscal year
2009. The decrease was primarily due to continued
credit-tightening measures implemented by the PRC government and
a material downturn in the global financial and credit markets
which has had the effect of discouraging investment in the PRC
real estate market.
Gross profit attributable to our real estate operations
decreased by HK$144.7 million, or 92.2%, from
HK$157.0 million for fiscal year 2008 to
HK$12.3 million for fiscal year 2009. The decrease was
primarily due to a decrease of HK$211.8 million in net
sales of real estate.
Gross profit margin attributable to our real estate operations
increased from 68.8% for fiscal year 2008 to 74.8% for fiscal
year 2009. The increase in gross profit margin was primarily due
to a higher price for more centrally located shop and booth
units at China Pearls and Jewellery City. These centrally
located shop and booth units accounted for 56% of our sales at
China Pearls and Jewellery City in fiscal year 2009, as compared
to 46% in fiscal year 2008.
Rental
Income and Rental Expenses
Gross rental income increased by HK$19.8 million, or
291.0%, from HK$6.8 million, consisting of
HK$1.3 million attributable to China Pearls and Jewellery
City and HK$5.5 million attributable to Man Sang Industrial
City for fiscal year 2008 to HK$26.6 million, consisting of
HK$19.8 million attributable to China Pearls and Jewellery
City and HK$6.8 million attributable to Man Sang Industrial
City for fiscal year 2009. As of March 31, 2009, the
occupancy rates, representing the percentage of leasable gross
floor area leased, of China Pearls and Jewellery City and Man
Sang Industrial City were approximately 18% (2008: 20%) and 72%
(2008: 72%), respectively. The increase in rental income was
primarily due to the recognition of rental income for China
Pearls and Jewellery City for the full fiscal year 2009 as
compared to one month for fiscal year 2008.
Rental expenses increased by HK$19.2 million from
HK$5.9 million for fiscal year 2008 to HK$25.1 million
for fiscal year 2009. The increase was primarily due to an
increase of HK$9.3 million in depreciation on our leasable
properties and an increase of HK$7.8 million in
rental-related taxes in the PRC, due to the recognition of
rental-related expenses for the operation of China Pearls and
Jewellery City for the full fiscal year 2009 as compared to one
month for fiscal year 2008.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased by
HK$30.5 million, or 25.7%, from HK$118.4 million for
fiscal year 2008 to HK$148.9 million for fiscal year 2009.
The increase was primarily due to an increase of
HK$32.8 million in provision for doubtful debts, consisting
of HK$20.8 million attributable to our real estate
operations and HK$12.0 million attributable to our pearl
operations, due to an increase in default risk on receivables
due from customers, primarily as a result of deteriorating
economic conditions.
Interest
Income
Interest income decreased by HK$7.9 million from
HK$17.9 million for fiscal year 2008 to
HK$10.0 million for fiscal year 2009. The decrease was
primarily due to a decrease in interest rates during fiscal year
2009 as compared to fiscal year 2008.
Income
Tax Credits / Expenses
We had an income tax credit of HK$3.1 million for fiscal
year 2009 compared to income tax expenses of
HK$75.3 million for fiscal year 2008. The increase in
income tax credits of HK$5.2 million in fiscal year 2009
was due to a reversal of provisions of income taxes in
connection with sales of real estate in China Pearls and
Jewellery City. The decrease in income tax expenses in fiscal
year 2009 compared to fiscal year 2008 was due to a decrease of
HK$211.8 million in net sales of real estate in China
Pearls and Jewellery City, resulting in a decrease of
HK$14.6 million in income tax provisions and a decrease of
HK$50.0 million in land appreciation tax for fiscal year
2009.
55
With the implementation of the new Enterprise Income Tax Law in
the PRC, we expect the enterprise income tax levied on our
subsidiaries engaged in our pearl operations in the PRC to
increase by 1% to 2% on an annual basis from 20% in 2009 to 25%
in 2012. The impact of the increased enterprise income tax rate
on our PRC subsidiaries has, to date, been minimal as the
taxable income of our PRC subsidiaries that are subject to the
increased enterprise income tax rate was insignificant in fiscal
year 2009.
Net
Loss / Income
As a result of the foregoing, we incurred a net loss of
HK$11.1 million for fiscal year 2009, compared to receipt
of net income of HK$39.9 million for fiscal year 2008. The
net loss was also due to net realized loss of
HK$3.5 million from the sale of marketable securities and
an other than temporary decline of HK$5.1 million in fair
value of marketable securities.
Year
Ended March 31, 2008 Compared to Year Ended March 31,
2007
Net
Sales and Gross Profit
Net sales increased by approximately HK$235.4 million, or
59.1%, from approximately HK$398.3 million in fiscal year
2007 to approximately HK$633.7 million in fiscal year 2008,
primarily due to presales of approximately HK$228.2 million
of phase one pearl market center units prior to the grand
opening of China Pearls and Jewellery City in the fourth quarter
of fiscal year 2008.
Gross profit increased by approximately HK$168.8 million,
or 149.8%, from approximately HK$112.7 million in fiscal
year 2007 to approximately HK$281.5 million in fiscal year
2008, primarily due to gross profits of approximately
HK$157.0 million attributable to presales of phase one
pearl market center units prior to the grand opening of China
Pearls and Jewellery City in the fourth quarter of fiscal year
2008. Gross profit margin increased from 28.3% in fiscal year
2007 to 44.4% in fiscal year 2008. The increase in gross profit
margin was primarily due to higher gross profits associated with
our increased real estate sales.
The presales of phase one pearl market center units of China
Pearls and Jewellery City accounted for approximately 36.0% of
our total sales in fiscal year 2008. The sale of assembled pearl
and jewelry products accounted for approximately 36.4% and 51.6%
of our total sales in fiscal years 2008 and 2007, respectively.
Pearl
Operations
Net sales for our pearl operations increased by approximately
HK$7.1 million, or 1.8%, from approximately
HK$398.3 million in fiscal year 2007 to approximately
HK$405.4 million in fiscal year 2008. The increase in net
sales for pearl operations was primarily due to an increase of
approximately HK$13.6 million, or 8.8% in net sales in
Europe, which was attributable to increased sales of our higher
value pearl products in the region. The increase in net sales
for pearl operations was partially offset by a decrease of
approximately HK$9.9 million, or 8.7%, in net sales in the
United States, which was primarily due to decreased sales of our
higher value pearl products in the region. Net sales of
assembled jewelry products increased by approximately
HK$17.5 million, or 8.5%, from approximately
HK$205.5 million for fiscal year 2007 to approximately
HK$223.0 million for fiscal year 2008, primarily due to
increased sales of our higher value assembled jewelry products.
Gross profit for our pearl operations increased by approximately
HK$11.8 million, or 10.5%, from approximately
HK$112.7 million in fiscal year 2007 to approximately
HK$124.5 million in fiscal year 2008. The gross profit
margin of our pearl operations increased from 28.3% to 30.7%,
primarily due to cost reductions on the production lines of our
assembled jewelry sectors following the implementation of
effective cost controls and the enhancement of production
efficiency.
Real
Estate Operations
We commenced presales of phase one pearl market center units in
China Pearls and Jewellery City in the fourth quarter of fiscal
year 2008. As of March 31, 2008, we had sold approximately
32% of the planned saleable area of China Pearls and Jewellery
City with net sales of approximately HK$228.2 million.
56
Gross profit for the presale of phase one pearl market center
units in China Pearls and Jewellery City was approximately
HK$162.6 million. The gross profit margin for the presale
of phase one pearl market center units in China Pearls and
Jewellery City was approximately 68.8%. As we commenced real
estate sales activity with the presales of phase one pearl
market center units in China Pearls and Jewellery City in the
fourth quarter of fiscal year 2008, we do not have comparable
figures for fiscal year 2007.
Rental
Income and Rental Expenses
Rental income increased by approximately HK$2.6 million, or
61.0%, from approximately HK$4.2 million for fiscal year
2007 to approximately HK$6.8 million for fiscal year 2008.
The increase in rental income was primarily due to the increase
in rental rates for units leased at Man Hing Industry
Development (Shenzhen) Co., Ltd. and the commencement of
property leasing at China Pearls and Jewellery City. During
fiscal year 2008, property leases at Man Hing Industry
Development (Shenzhen) Co., Ltd. and China Pearls and Jewellery
City accounted for rental income of approximately
HK$5.5 million and HK$1.3 million, respectively.
Rental expenses remained at approximately HK$5.9 million
for fiscal years 2008 and 2007.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately HK$34.3 million, or 40.8%, from approximately
HK$84.1 million for fiscal year 2007 to approximately
HK$118.4 million for fiscal year 2008. Selling, general and
administrative expenses for fiscal year 2008 consisted of
approximately HK$84.7 million attributable to pearl
operations and approximately HK$33.7 million attributable
to real estate sales.
Selling, general and administrative expenses attributable to
pearl operations increased by approximately HK$0.5 million
from fiscal year 2007 to fiscal year 2008, primarily due to an
increase in staff costs of approximately HK$6.2 million, an
increase in selling expenses of approximately
HK$2.0 million and an increase in foreign exchange costs of
approximately HK$4.1 million. These increases were
partially offset by a reduction of allowance for doubtful
accounts of approximately HK$5.3 million and a reduction in
stock compensation expenses of approximately HK$3.9 million.
Selling, general and administrative expenses as a percentage of
net sales decreased from approximately 21.1% in fiscal year 2007
to approximately 18.7% in fiscal year 2008, primarily due to an
increase in our real estate operations, which have lower
selling, general and administrative expenses as a percentage of
net sales than our pearl operations. Selling, general and
administrative expenses attributable to pearl operations as a
percentage of net sales decreased from approximately 21.1% for
fiscal year 2007 to approximately 20.9% for fiscal year 2008,
primarily due to a reduction of allowance for doubtful accounts
of approximately HK$5.3 million included in selling,
general and administrative expenses in fiscal year 2008.
Interest
Income
Interest income increased by approximately HK$8.5 million,
or 90.4%, from approximately HK$9.4 million in fiscal year
2007 to approximately HK$17.9 million for fiscal year 2008.
The increase in interest income was primarily due to increased
bank deposits during fiscal year 2008 as compared to fiscal year
2007.
Income
Tax Expenses
Income tax expenses increased by approximately
HK$68.5 million, or 1,010.9%, from approximately
HK$6.8 million for fiscal year 2007 to approximately
HK$75.3 million for fiscal year 2008. The increase was
primarily due to an increase in income before income taxes and
higher tax rates applied to real estate sales. This increase was
partially offset by overprovision of approximately
HK$2.7 million for capital gains during fiscal year 2004.
Net
Income
Net income for fiscal year 2008 increased by approximately
HK$11.9 million, or 42.8%, from approximately
HK$28.0 million for fiscal year 2007 to approximately
HK$39.9 million for fiscal year 2008. The increase was
57
primarily due to an increase in gross profit of approximately
HK$157.0 million attributable to the sale of units at China
Pearls and Jewellery City, an increase in gross profit of
approximately HK$11.8 million attributable to our pearl
operations and an increase of approximately HK$8.5 million
in interest income, as well as profit of approximately
HK$10.5 million attributable to the sale of a separate real
estate investment.
Liquidity
and Capital Resources
We operate in a capital intensive industry. Our liquidity
requirements relate primarily to investing in real estate
development, capital expenditures, payments on bank borrowings
and servicing our working capital. Our liquidity resources
include
cash-on-hand,
banking facilities, funds generated from internal operations,
disposition of properties and proceeds from the issuance of
common stock.
Our liquidity position is primarily affected by our inventory
levels of raw materials such as pearls and diamonds, the amount
of completed properties held for sale, the level of our accounts
payables and receivables and our ability to obtain external
financing to meet our debt obligations and to finance our
capital expenditures. As of March 31, 2009, we had accounts
payable of HK$110.0 million and significant capital
commitments of HK$117.2 million during the next two years
related to the continued development of China Pearls and
Jewellery City. We expect to meet these payables and capital
commitments primarily through the use of our internal resources
and debt financing.
Our liquidity has not been materially impacted by the recent
financial crisis. In particular, the financial crisis has not
had an impact on our access to short-term borrowings,
relationship with financial institutions and lenders or lending
practices employed by our lenders, nor has it increased
difficulties in complying with covenants under existing credit
arrangements.
We do not expect that our liquidity will be materially impacted
in the near future by the recent financial crisis. However,
because of the severity of the ongoing financial crisis, we
cannot predict with certainty the ultimate impact of these
events on us. We will therefore continue to closely monitor our
liquidity and capital resources.
If the capital and credit markets continue to experience
volatility, it is possible that our ability to access these
markets may be limited, which could have an impact on our
ability to react to changing economic and business conditions.
Working
Capital
Working capital, which represents our total current assets minus
our total current liabilities, increased by
HK$124.9 million, or 32.5%, from HK$384.0 million as
of March 31, 2007 to HK$508.9 million as of
March 31, 2008. This increase was primarily due to an
increase of HK$306.7 million in cash and cash equivalents,
an increase of HK$108.5 million in accounts receivable and
an increase of HK$158.1 million in completed properties
held for sale. This increase was partially offset by an increase
in accounts payable of HK$104.2 million, an increase in
receipts in advance of HK$181.9 million and an increase in
loans from minority interests of HK$114.3 million arising
as a result of the consolidation of China Pearls and Jewellery
City in fiscal year 2008.
Working capital decreased by HK$159.3 million, or 31.0%,
from HK$508.9 million as of March 31, 2008 to
HK$349.6 million as of March 31, 2009. This decrease
was primarily due to a decrease of HK$110.5 million in cash
and cash equivalents and a decrease of HK$66.8 million in
accounts receivable. This decrease was partially offset by an
increase of HK$39.6 million in receivables from sale of
financial assets contracts.
Cash
Balances
Cash balances increased by HK$306.7 million, or 103.3%,
from HK$297.0 million as of March 31, 2007 to
HK$603.7 million as of March 31, 2008. This increase
was primarily due to an increase in net cash of
HK$322.3 million resulting from operating activities and
net cash of HK$336.1 million from financing activities.
This increase was partially offset by an increase of
HK$368.5 million in net cash used in investing activities,
primarily used for construction payments for the development of
China Pearls and Jewellery City.
58
Cash balances decreased by HK$110.6 million, or 18.3%, from
HK$603.7 million as of March 31, 2008 to
HK$493.1 million as of March 31, 2009. This decrease
was primarily due to cash outflows of HK$76.8 million for
capital expenditures in relation to China Pearls and Jewellery
City and cash outflows of HK$22.0 in the investment in
marketable securities.
Current
Ratio
Our current ratio, which represents the ratio of total current
assets to total current liabilities, decreased from 10.0 as of
March 31, 2007 to 1.9 as of March 31, 2008. This
decrease was primarily due to increased costs associated with
the construction of China Pearls and Jewellery City. Our current
assets less current liabilities increased by
HK$124.9 million, but the ratio of current assets to
current liabilities decreased to 1.9.
Our current ratio decreased from 1.9 as of March 31, 2008
to 1.6 as of March 31, 2009. The decrease was primarily due
to a decrease of HK$122.7 million in current assets and an
increase of HK$36.6 million in current liabilities.
Cash
Flows
Net cash
provided by operating activities
Net cash provided by operating activities increased by
HK$247.1 million, or 328.4%, from HK$75.2 million for
fiscal year 2007 to HK$322.3 million for fiscal year 2008.
This increase was primarily due to an increase in operating
income of HK$137.0 million, and an increase of
HK$202.5 million in accounts payable and receipt in
advance. This increase was partially offset by an increase in
accounts receivable of HK$59.0 million. The increase in
total accounts receivable was primarily due to an increase of
accounts receivable associated with the sales of market center
units in China Pearls and Jewellery City in the fourth quarter
of fiscal year 2008. In addition, the increase in total accounts
receivable was due to an increase in net sales made to the
customers of our Pearl Operations on credit terms as opposed to
cash settlement.
Net cash provided by operating activities decreased by
HK$256.7 million, or 79.7%, from HK$322.3 million for
fiscal year 2008 to HK$65.6 million for fiscal year 2009.
The decrease was primarily due to the receipt of approximately
HK$181.9 million in advance payments for pearl market
center units following the grand opening of the phase one China
Pearls and Jewellery City market center in fiscal year 2008
which we did not receive in fiscal year 2009. The decrease was
also due to an increase in cash of HK$38.9 million paid to
suppliers for payments for goods received in fiscal year 2008
but for which payment of cash was not due until fiscal year
2009, resulting in a decrease in accounts payable from
HK$123.9 million in fiscal year 2008 to
HK$110.0 million in fiscal year 2009.
Net cash
used in investing activities
Net cash used in investing activities increased by
HK$284.4 million, or 338.1%, from HK$84.1 million for
fiscal year 2007 to HK$368.5 million for fiscal year 2008.
This increase was primarily due to cash outflow of
HK$465.7 million for construction payments for the
development of China Pearls and Jewellery City. This increase
was partially offset by proceeds HK$25 million from sales
of real estate investments and cash of HK$75.4 million
acquired as part of the acquisition of a 6% controlling interest
in China Pearls and Jewellery International City Co. Ltd.
Net cash used in investing activities decreased by
HK$223.8 million, or 60%, from HK$368.5 million for
fiscal year 2008 to HK$144.7 million for fiscal year 2009.
The decrease was primarily due to a decrease in cash payments of
HK$388.9 million for the construction of China Pearls and
Jewellery City. The decrease was partially offset by an increase
of HK$22.0 million for investment in marketable securities
and an increase of HK$39.6 million in held-to-maturity
investments.
Net Cash
provided by financing activities
Net cash used in financing activities was HK$33.2 million
in fiscal year 2009, as compared to net cash provided by
financing activities of HK$336.1 million in fiscal year
2008, primarily as a result of dividends of HK$21.9 million
paid by a listed subsidiary and net cash repayments of secured
debts of HK$11.3 million in fiscal
59
year 2009, as compared to a cash inflow of HK$290.4 million
from issuance of common stock of a listed subsidiary and cash
inflow of HK$66.6 million from secured debt in fiscal year
2008.
Restrictions
on Cash Transfers to Man Sang Nevada or Man Sang
BVI
Each of Man Sang Nevada and Man Sang BVI is a holding company
that must rely principally on dividends, loans or advances paid
to it by its subsidiaries incorporated in the PRC for its cash
requirements, including the funds necessary to pay dividends and
other cash distributions to its shareholders, service any debt
it may incur and pay its operating expenses. PRC law restricts
the ability of our subsidiaries incorporated in the PRC to
transfer funds to us in the form of cash dividends, loans or
advances. For a description of these restrictions, see
Market Price for Man Sang Nevada Common Stock, Dividends
and Other Matters Dividends.
Furthermore, under regulations of the State Administration of
Foreign Exchange, the Renminbi is not convertible into foreign
currencies for capital account items, such as loans,
repatriation of investments and investments outside the PRC,
unless the prior approval of the State Administration of Foreign
Exchange is obtained and prior registration with the State
Administration of Foreign Exchange is made.
We do not expect any of such restrictions to have a material
impact on our ability to meet our cash obligations.
Share
Placement
In July 2007, our subsidiary, Man Sang International Limited,
privately placed 200 million of its existing shares with
institutional investors at a price of HK$1.48 per share, for
gross proceeds of approximately HK$296.0 million. In August
2007, we received HK$285.3 million in cash after deducting
fees and expenses incurred in connection with the placing.
Inventories
for our Pearl Operations
Inventories for our pearl operations increased by
HK$3.2 million, or 6.9%, from HK$46.2 million as of
March 31, 2007 to HK$49.4 million as of March 31,
2008. This increase in inventories was in response to an
increase of inventory purchases in response to an increase in
from our customers and an increase in the range and quantity of
products that we offer.
Inventories for our pearl operations decreased by
HK$7.5 million, or 15.1%, from HK$49.4 million as of
March 31, 2008 to HK$41.9 million as of March 31,
2009. The decrease in inventories was primarily attributable to
a decrease of inventory purchases in response to a decrease in
demand in the United States and Asia markets.
Inventory turnover period, which represents the ratio of average
stock to cost of sales multiplied by 12 months, increased
by 0.7 months, from 2.0 months for the fiscal year
2008 to 2.7 months for fiscal year 2009. The increase was
primarily due to a decrease in sales turnover for fiscal year
2009.
Accounts
Receivable for Pearl Operations
Accounts receivable for our pearl operations increased by
HK$28.7 million, or 50.5%, from HK$56.9 million as of
March 31, 2007 to HK$85.7 million as of March 31,
2008. This increase was primarily due to an increase in net
sales made to the customers on credit as opposed to cash and a
decrease of HK$5.3 million in allowance for doubtful
accounts. The reduction of allowance for doubtful accounts of
HK$5.3 million related to a reserve of accounts receivable
from specific customers that we believed was uncollectible in
prior years. This receivable was collected during the fiscal
year ended March 31, 2008. The average debtor turnover
period, which represents the ratio of accounts receivable to net
sales multiplied by 12 months, increased by approximately
one month, from 1.5 months in fiscal year 2007 to
2.5 months in fiscal year 2008. We have a good and
long-standing relationship with our customers, most of whom are
well-known global companies. We regularly review their credit
standing and keep their credit within our approved limits. We
believe no additional allowances are required, and the net
balances are fully collectable.
Accounts receivable for our pearl operations decreased by
HK$17.6 million, or 20.5%, from HK$85.7 million as of
March 31, 2008 to HK$68.1 million as of March 31,
2009. The average debtor turnover period was 2.5 months
60
for fiscal year 2008 and 2009, respectively. The decrease in
accounts receivable for pearl operations was primarily due to
our tightened credit controls and additional efforts on
collection of accounts receivable.
Secured
Debt
Secured debt consists primarily of long-term and short-term bank
borrowings in Renminbi for the development of China Pearls and
Jewellery City and is secured primarily by the land of China
Pearls and Jewellery City.
Secured debt decreased by HK$7.7 million, or 3.9%, from
HK$199.8 million as of March 31, 2008 to
HK$192.1 million as of March 31, 2009. Secured debt
consisted primarily of long-term and short-term bank borrowings
in Renminbi for the development of China Pearls and Jewellery
City, which were secured primarily by the land comprising China
Pearls and Jewellery City.
As of March 31, 2008, our banking facilities were secured
by mortgages of our leasehold land and buildings of
approximately HK$281.9 million and real estate investments
of approximately HK$12.6 million. As of March 31,
2009, our banking facilities were secured by mortgages of our
leasehold land and buildings of approximately
HK$138.6 million and real estate investments in the amount
of approximately HK$123.5 million.
Secured debt generally requires monthly interest payments and
repayment of principal when due. During the year ended
March 31, 2008, HK$66.6 million of secured debt was
obtained and HK$22.2 million of secured debt was settled.
As of March 31, 2008, the total gross book value of land
securing the debt was HK$153.9 million. During the year
ended March 31, 2008, interest of HK$13.0 million was
capitalized.
During the year ended March 31, 2009, HK$22.6 million
of secured debt was obtained and HK$21.9 million of secured
debt was settled. As of March 31, 2009, the total gross
book value of land securing the debt was HK$230.7 million.
During the year ended March 31, 2009, interest of
HK$16.7 million was capitalized.
Indebtedness
As of March 31, 2008, we had total outstanding bank
borrowings of approximately HK$199.8 million, consisting of
long-term borrowings of HK$166.5 million and short-term
borrowings, which also include the current portion of long-term
borrowings, of HK$33.3 million. As of March 31, 2009,
we had total outstanding bank borrowings of approximately
HK$192.1 million (denominated in Renminbi), consisting of
long-term borrowings of HK$101.7 million and short-term
borrowings, which also include the current portion of long-term
borrowings, of HK$90.4 million.
The terms of our long-term bank borrowings range between one and
three years, and are payable between one and three years. Of our
long-term bank borrowings, almost all are variable interest rate
loans. As of March 31, 2008, the average interest rate of
our long-term bank borrowings was approximately 7.77% per annum.
As of March 31, 2009, the average interest rate of our
long-term bank borrowings was approximately 6.64% per annum.
All of our short-term bank borrowings are variable interest rate
loans. As of March 31, 2008, the average interest rate of
our short-term bank borrowings was approximately 7.77%. As of
March 31, 2009, the average interest rate of our short-term
bank borrowings was approximately 6.64%.
Certain of the credit facilities obtained by our operating
subsidiaries require Man Sang International Limited, as
guarantor, to maintain, in accordance with Hong Kong generally
accepted accounting principles: (1) a tangible net worth of
not less than HK$600 million; (2) a gearing ratio
(defined as the ratio of consolidated borrowings to consolidated
tangible net worth) of 0.8; and (3) a current ratio
(defined as the ratio of total current assets to total current
liabilities) of 2.0.
Because all of our banking facilities are at our operating
subsidiary level, neither Man Sang Nevada nor Man Sang BVI has
any outstanding banking facilities. Therefore we do not believe
that the dissolution and liquidation of Man Sang Nevada will
affect our access to banking facilities.
61
Working
Capital Facilities
Available working capital facilities decreased by
HK$22.7 million, or 5.5%, from HK$414.8 million as of
March 31, 2008 to HK$392.1 million as of
March 31, 2009. The decrease was primarily due to the
expiration of one of our bank facility lines. Available working
capital facilities include letter of credit arrangements, import
loans, overdraft and other facilities. All such banking
facilities bear interest at floating rates generally offered by
banks in Hong Kong and the PRC, and are subject to periodic
review. Unutilized working capital facilities decreased by
HK$15.0 million, or 7.0%, from HK$215.0 million as of
March 31, 2008 to HK$200.0 million as of
March 31, 2009.
We expect to require additional cash in order to fund our
ongoing business needs and expand our operations. We have not
encountered any difficulties in meeting our current cash
obligations and expect to continue meeting our liquidity and
cash needs through
cash-on-hand,
funds generated from internal operations and bank borrowings. In
this regard, we believe that our existing cash, cash
equivalents, banking facilities and funds to be generated from
internal operations will be sufficient to meet our anticipated
future liquidity requirements for the next 12 months. We
believe that our sources of working capital, specifically our
cash flow from operations, available banking facilities and
accessible private and public offerings of debt and equity
securities, are adequate for us to meet our anticipated future
liquidity requirements.
Capital
Expenditures
Capital expenditures in fiscal years 2009, 2008 and 2007 were
approximately HK$85.4, HK$473.0 million and
HK$8.9 million, respectively, representing approximately
27.0%, 74.6% and 2.2% of net sales, respectively. Capital
expenditures during fiscal year 2007 were focused primarily on
enhancing existing manufacturing facilities. Capital
expenditures during fiscal year 2008 and 2009 were focused
primarily on the construction of the phase one pearl market
center for China Pearls and Jewellery City. Despite the current
global economic downturn, and in light of recent improvements in
the PRC economic environment as a result of recent fiscal
stimulus measures taken by the PRC government in late 2008, we
expect to invest approximately HK$89.0 million and
HK$29.0 million for capital expenditures in fiscal years
2010 and 2011, respectively, nearly all of which will be
dedicated to the construction of the phase one pearl market
center for China Pearls and Jewellery City. However, if economic
conditions worsen or our cost of borrowing increases to a level
which make it more difficult to obtain financing for our
investments, we may re-evaluate our schedule for capital
expenditures. For further information, please see Risk
Factors Risks Relating to Our Business
We may not be able to generate sufficient cash flow
or obtain financing to complete China Pearls and Jewellery City
or implement our business strategies.
Research
and Development, Patents and Licenses
During each of the last three fiscal years, we did not spend any
significant amounts on company sponsored research and
development activities.
Off-Balance
Sheet Arrangements
In August 2007, we entered into a mortgage collaboration
agreement with a PRC bank pursuant to which we agreed to
indemnify the bank for any failure on the part of purchasers of
property at China Pearls and Jewellery City to repay outstanding
loans on properties for which we had not yet obtained
certificates of title and delivered such certificates to the
bank as collateral. In February 2009, we obtained all
certificates of title for the purchased property subject to the
mortgage collaboration agreement, which we will deliver to the
bank following the completion of certain administrative
procedures to formally transfer title to purchasers of these
properties. As of March 31, 2009, the loans for which we
had provided such indemnification totaled HK$52.2 million.
Contractual
Obligations
We are subject to various financial obligations and commitments
in the normal course of operations. These contractual
obligations represent known future cash payments that we are
required to make and relate primarily to long-term debt, capital
commitment obligations with respect to property under
development and operating leases.
62
The following table summarizes our contractual obligations as of
March 31, 2009.
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Less Than
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|
More Than
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Contractual Obligations
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|
Total
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1 Year
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1-3 Year
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3-5 Year
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|
5 Years
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|
|
(HK$ in thousands)
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|
Long-term
debt(1)
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|
|
192,100
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|
|
|
90,400
|
|
|
|
101,700
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|
|
|
|
|
|
|
|
|
Capital commitment obligations
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|
|
117,173
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|
|
|
88,604
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|
|
|
28,567
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|
|
|
|
|
|
|
|
|
Operating lease obligations
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|
|
27,791
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|
|
|
14,365
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|
|
|
13,426
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Total contractual obligations
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337,064
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|
|
193,369
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|
|
143,693
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(1) |
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Excluding interest on long-term bank loans. |
Inflation
Historically, inflation has not had a significant effect on our
business. According to the National Bureau of Statistics of
China, Chinas overall national inflation rate, as
represented by the general consumer price index, was
approximately 4.8% and 5.9% in 2007 and 2008, respectively. The
latest inflation rate announced in March 2009 for the first
quarter of 2009, as compared to the same period of 2008, was
negative 0.6%. Although neither inflation nor deflation in the
past has had any material adverse impact on our results of
operations, increases in the national inflation rate of the
Chinese economy in the future may materially and adversely
affect our financial condition and results of operations.
Quantitative
and Qualitative Disclosure of Market Risks
As of March 31, 2009, we had no derivative contracts, such
as forward contracts and options to hedge against exchange
fluctuations.
We denominate our sales in either U.S. dollars or Hong Kong
dollars. In fiscal year 2009, we made approximately 45.4% of our
purchases in U.S. dollars, approximately 38.0% of our
purchases in Hong Kong dollars and approximately 9.2% of our
purchases in Renminbi. Since the Hong Kong dollar remains
pegged to the U.S. dollar at a consistent rate,
we believe that the exposure of our sales proceeds to foreign
exchange fluctuations is minimal. Furthermore, we do not
consider the potential revaluation of the Renminbi to be
significant to our operations as we believe that the risk of a
substantial fluctuation of the Renminbi exchange rate remains
low. As of March 31, 2009, we had bank borrowings of
HK$192.1 million denominated in Renminbi.
Because the majority of our purchases are made in currencies
which we believe present a low risk of appreciation or
devaluation and our sales are made in U.S. dollars, we
believe that our currency risk for the foreseeable future should
not be material. As a result, we have not entered into any
derivative contracts, such as forward contracts and options, to
hedge against foreign exchange fluctuations during fiscal year
2009.
We are exposed to interest rate risk resulting from fluctuations
in interest rates. As of March 31, 2009, we had borrowed
approximately HK$192.1 million (denominated in Renminbi)
under floating rate credit facilities. All such banking
facilities bear interest at floating rates generally offered by
banks in Hong Kong and the PRC and are subject to periodic
review. Fluctuations in interest rates can lead to significant
fluctuations in the fair value of our debt obligations. We
closely monitor interest rate risk and consider using
appropriate financial instruments to hedge any exposure.
However, we do not currently use any derivative instruments to
manage our interest rate risk.
Given the relative price stability associated with the raw
materials used in our products, we believe our commodity price
risk should not be material.
63
BUSINESS
DESCRIPTION
In this section, the words we, us and
our generally refer to Man Sang Nevada and its
operating subsidiaries, which include Man Sang BVI.
History
and Development
Man Sang Holdings, Inc., or Man Sang Nevada, was incorporated in
the State of Nevada under the Nevada Revised Statutes on
November 14, 1986 under the name of SBH Ventures, Inc. SBH
Ventures, Inc. was originally incorporated as a blind
pool company for the purpose of acquiring an operating
business. In March 1987, SBH Ventures, Inc. completed a public
offering of 20,000,000 shares of its common stock, raising
net proceeds of approximately US$171,000. Subsequently, in
November 1991, in connection with a merger with an operating
company, SBH Ventures, Inc. changed its name to UNIX Source
America, Inc. and effected a
1-for-20
reverse stock split of its common stock. The operations of UNIX
Source America, Inc. proved unsuccessful and it ceased business
operations in 1992. In January 1996, UNIX Source America, Inc.
effected a
1-for-14
reverse stock split of its common stock and issued
11,000,000 shares of its common stock, par value $0.001 per
share and 100,000 shares of Series A preferred stock,
par value $0.001 per share to the controlling shareholders of
Man Sang BVI, in exchange for all of the outstanding securities
of Man Sang BVI. As a result, Man Sang Nevada became the holding
company of, and assumed the operations of, Man Sang BVI.
Pursuant to the terms of the exchange, Unix Source America, Inc.
changed its name to Man Sang Holdings, Inc. and assumed the
operations of Man Sang BVI. Following the share exchange, the
controlling shareholders of Man Sang BVI became the controlling
shareholders and directors of Man Sang Nevada.
Man Sang International (B.V.I.) Limited, or Man Sang BVI, was
incorporated in the British Virgin Islands as an international
business company under the BVI International Business Companies
Act on August 14, 1995, and automatically re-registered as
a business company on January 1, 2007 pursuant to the BVI
Companies Act. As a result of the liquidation, Man Sang BVI will
become the listed holding company of our group.
Our principal place of business and our executive office is
located at
Suite 2208-14,
22/F, Sun Life Tower, The Gateway, 15 Canton Road, Tsimshatsui,
Kowloon, Hong Kong, telephone:
852-2317-9888.
We have designated National Registered Agents, Inc., 875 Avenue
of the Americas, Suite 501, New York, New York, 10001, as
our agent for service of process in the United States.
The foundation of the group of companies comprising Man Sang
Nevada and its subsidiaries, including Man Sang BVI, was laid in
the early 1980s 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 our business developed, Man Sang Jewellery
Company Limited and Peking Pearls Company Limited were formed in
Hong Kong in 1988 and 1991, respectively, to continue our
trading operations. Subsequently, we expanded our operations to
include pearl processing with the establishment of Man Hing
Industry Development (Shenzhen) Co., Ltd. in 1992 to process and
assemble freshwater pearls and Chinese cultured pearls, and
Damei Pearls Jewellery Goods (Shenzhen) Co., Ltd. in 1995 to
assume and expand the Chinese cultured pearl processing
operations of Man Hing Industry Development (Shenzhen) Co., Ltd.
In view of the continuous expansion of the Chinese cultured
pearls business, in December 1996, we established a subsidiary,
Tangzhu Jewellery Goods (Shenzhen) Co., Ltd. in the PRC to
specialize in the purchasing and processing of Chinese cultured
pearls of larger sizes with diameters from six millimeters and
above and, to a lesser extent, in processing other cultured
pearls. As a result, Damei Pearls Jewellery Goods (Shenzhen)
Co., Ltd. started to concentrate on the purchasing and
processing of cultured pearls of smaller sizes with diameters
below six millimeters. The business of purchasing and processing
of Chinese freshwater pearls was also transferred from Man Hing
Industry Development (Shenzhen) Co., Ltd. to Tangzhu Jewellery
Goods (Shenzhen) Co., Ltd. while Man Hing Industry Development
(Shenzhen) Co., Ltd. started to concentrate on the pearl jewelry
assembling business.
In order to facilitate growth in existing operations and
expansion into processing operations, and to diversify our
revenues, in 1991, we commenced construction of 24 buildings in
an industrial facility in Shenzhen, the PRC, or Man Sang
Industrial City, for use in pearl processing and corporate
administration (five buildings) and for lease to third party
industrial users (19 buildings).
64
In October 2003, Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai
Po purchased from Man Sang BVI 36 million shares and
24 million shares, respectively of Man Sang International
Limited. After such transaction, through Man Sang BVI, Man Sang
Nevada held 49.4% of the shares issued of Man Sang International
Limited, and remained the principal shareholder of Man Sang
International Limited. The purchase price per share was the
arithmetic average of the closing price of Man Sang
International Limited shares for each of the five trading days
immediately preceding and including October 6, 2003.
In March 2006, Man Sang International Limited, a subsidiary of
our company which is listed on The Stock Exchange of Hong Kong
Limited, indirectly acquired a 49% interest in a project located
in Zhuji, Zhejiang province, PRC through its subsidiary. In
April 2007, Man Sang International Limited acquired a majority
interest in China Pearls and Jewellery City Holdings Limited,
which is the parent of China Pearls and Jewellery International
City Co., Ltd., a wholly owned subsidiary which is the project
company of the China Pearls and Jewellery City project. The
China Pearls and Jewellery City project consists of the
development of a pearl market center to be located in Shanxiahu,
Zhuji, Zhejiang Province, PRC.
We completed the phase one pearl market center of the China
Pearls and Jewellery Citys project in April 2008. We will
continue to develop the China Pearls and Jewellery City project
in phases in response to market demand and the prevailing
economic conditions in the PRC. Upon completion, we expect the
China Pearls and Jewellery City project to consist of two pearl
market trade centers, with various supporting facilities,
including manufacturing, processing, exhibition and residential
facilities, and to have a total gross site area of approximately
1.2 million square meters.
Capital expenditures in fiscal years 2009, 2008 and 2007 were
approximately HK$8.5 million, HK$473.0 million and
HK$8.9 million, respectively, representing approximately
2.5%, 74.6% and 2.2%, of our net sales, respectively. Capital
expenditures during fiscal year 2007 were focused primarily on
enhancing existing manufacturing facilities. Capital
expenditures during fiscal years 2008 and 2009 were focused
primarily on the construction of the phase one pearl market
center for the China Pearls and Jewellery City project. We have
relied on both internal and external methods of financing for
our capital expenditures, including cash generated from accounts
receivable and sales of inventories, as well as bank borrowings
and placements of equity securities by our subsidiaries.
In July 2007, Man Sang International Limited privately placed
200 million of its existing shares with institutional
investors at a price of HK$1.48 per share, for gross proceeds of
approximately HK$296.0 million. In August 2007, we received
HK$285.3 million in cash after deducting fees and expenses
incurred in connection with the placing.
During the year ended March 31, 2008, Mr. Hung Kwok
Wing, Sonny exercised 8,000,000 share options and two other
employees, who are not among our named executive officers,
exercised 13,000,000 share options under Man Sang International
Limiteds existing stock option plan to acquire equivalent
numbers of shares of Man Sang International Limited at prices of
HK$0.253 and HK$0.233, respectively.
65
Organization
Structure
The following chart shows our simplified corporate structure and
represents the anticipated structure of the organization after
completion of the liquidation plan, including all of our
significant subsidiaries, with the shareholding percentage and
jurisdiction of incorporation of each company:
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(1)
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The shares of Man Sang
International Limited are listed on The Stock Exchange of Hong
Kong Limited. Mr. Cheng Chung Hing, Ricky and
Mr. Cheng Tai Po indirectly control the 40.368% ownership
interest of Man Sang International (B.V.I.) Limited in Man Sang
International Limited through their controlling interest in Man
Sang International (B.V.I.) Limited. In addition, Mr. Cheng
Chung Hing, Ricky and Mr. Cheng Tai Po directly hold a
17.318% ownership interest in Man Sang International Limited. As
a result, we account for Man Sang International Limited as a
consolidated subsidiary because we continue to have control over
the operating and financial decisions of Man Sang International
Limited through the direct and indirect aggregate interest of
57.686% held by Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po
in Man Sang International Limited. The remaining interests of
Man Sang International Limited are held by public shareholders.
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66
Business
Overview
Through our subsidiaries, we are principally engaged in the
purchasing, processing, assembling, merchandising, and wholesale
distribution of pearls, pearl jewelry products and jewelry
products. In addition, we own and operate real estate
development and investment businesses in the PRC. Net sales for
our pearl operations were HK$398.3 million for the fiscal
year ended March 31, 2007, HK$405.4 million for the
fiscal year ended March 31, 2008 and HK$316.7 million
for the fiscal year ended March 31, 2009. The real estate
development and investment business began to generate revenue in
the fourth quarter of fiscal year 2008. Net sales for our real
estate development and investment business, generated primarily
from the presale and sale of phase one pearl market center units
in China Pearls and Jewellery City, were HK$16.4 million
for the fiscal year ended March 31, 2009 and
HK$228.2 million for the fiscal year ended March 31,
2008. Net sales from the presale and sale of phase one pearl
market center units in China Pearls and Jewellery City accounted
for approximately 4.9% of our total revenues for the fiscal year
ended March 31, 2009 and approximately 36.0% of our total
revenues for the fiscal years ended March 31, 2008.
Pearl
Operations
Pearl
Industry
The use of pearls in jewelry dates back over 1,500 years in
China. 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.
Todays pearl industry and its growth are affected by
consumer preferences, worldwide economic conditions and
availability of supply.
In todays pearl market, pearls are divided into two
categories: 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
five millimeters to seven millimeters, there is a supply of high
quality freshwater pearls ranging in size from eight millimeters
to 15 millimeters. These larger freshwater pearls have a higher
gross profit margin than the traditional smaller freshwater
pearls because larger freshwater pearls take longer to
cultivate, are in shorter supply than the traditional smaller
freshwater pearls and may therefore be sold at higher prices.
The PRC has emerged as a major supplier of cultured pearls,
ranging in size from five millimeters to eight millimeters.
Since 1996, Japan has been losing its long held dominance in the
cultured pearl industry due to poor harvests of Japanese
cultured pearls. Meanwhile, Chinese cultured pearls have been
improving in quality and have been competitively priced.
Presently, we no longer focus on the Chinese and Japanese
cultured pearl market because we consider its potential growth
and profit margin to be relatively unattractive.
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 compared to either Japanese or Chinese
cultured pearls. As a result, Japanese and Chinese cultured
pearls cannot be easily substituted for Tahitian pearls and
South Sea pearls.
Products
We currently offer six product lines: Freshwater pearls;
Chinese/Japanese cultured pearls; South Sea pearls and Tahitian
pearls; Pearl jewelry; and Other jewelry products. Freshwater
pearls are available in a variety of shapes and sizes. The most
commonly available sizes range from two millimeters to eight
millimeters, which are generally less expensive in price than
cultured pearls with wholesale prices typically ranging from
US$2 to US$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 eight millimeters to 10 millimeters, or even
sometimes up to 15 millimeters, and the price for the larger
size freshwater pearls can reach up to US$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 five
millimeters to 18 millimeters. South Sea and Tahitian pearls are
considered to be the highest quality saltwater cultured pearls
and typically the
67
largest and most expensive followed by Japanese cultured pearls
and Chinese cultured pearls. Wholesale prices of cultured pearls
typically range from US$13 to US$70,000 per
16-inch
strand.
The following table illustrates by pearl category the typical
range of size and wholesale price of cultured pearls we sell,
with price variations within each category reflecting size and
qualitative differences:
|
|
|
|
|
|
|
Size
|
|
Price per 16-Inch Strand
|
|
|
(In millimeters)
|
|
US$
|
|
Freshwater pearls
|
|
2-13
|
|
2-1,000
|
Chinese cultured pearls
|
|
5-7.5
|
|
10-400
|
Japanese cultured pearls
|
|
7-10
|
|
100-2,000
|
Tahitian pearls
|
|
8-16
|
|
120-15,000
|
South Sea pearls
|
|
8-18
|
|
300-70,000
|
We also offer fully assembled pearl and other jewelry, including
necklaces, earrings, rings, pendants, brooches, bracelets,
cufflinks, and similar miscellaneous pearl and other products.
The following table sets forth sales of freshwater pearls,
cultured pearls and non-pearl jewelry products as a percentage
of our net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freshwater
|
|
Cultured
|
|
Non-Pearl
|
|
|
Loose and
|
|
Assembled
|
|
Loose and
|
|
Assembled
|
|
Assembled
|
|
|
Strands
|
|
Pearl Jewelry
|
|
Strands
|
|
Pearl Jewelry
|
|
Jewelry
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
Year Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
4.4
|
|
|
|
35.9
|
|
|
|
30.8
|
|
|
|
20.1
|
|
|
|
8.8
|
|
2008
|
|
|
4.7
|
|
|
|
27.0
|
|
|
|
38.3
|
|
|
|
18.6
|
|
|
|
11.4
|
|
2007
|
|
|
6.7
|
|
|
|
26.0
|
|
|
|
41.7
|
|
|
|
17.4
|
|
|
|
8.2
|
|
Purchasing
We purchase (1) Chinese cultured pearls from pearl farms
and other suppliers in the coastal areas of southern part of the
PRC, including Guangdong and Guangxi Provinces; (2) South
Sea pearls from pearl farms and suppliers in Hong Kong,
Australia, the Philippines, and Japan; (3) Tahitian pearls
from pearl farms and suppliers in French Polynesia; and
(4) freshwater pearls from pearl farms and other suppliers
in the eastern part of the PRC, including Jiangsu and Zhejiang
Provinces.
Our purchases of pearls are conducted by our full-time,
well-trained and experienced purchasing staff from our offices
in Hong Kong and Shenzhen in the PRC. The purchasing staff
maintains regular contacts with pearl farms and other suppliers
in the PRC, Japan, Hong Kong, Philippines and Tahiti, enabling
us 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. Our management and 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.
Due to the relative low volatility of pearl prices, we have no
long-term purchase contracts, and instead negotiate the purchase
of pearls on an as-needed basis to correspond with expected
demand.
While we constantly seek to capitalize on volume purchasing and
relationships with farmers and suppliers to secure the best
pricing and quality when purchasing pearls and other jewelry raw
materials, we generally purchase raw materials from suppliers at
approximately prevailing market prices. We believe that there
are numerous alternate supply sources and that the termination
of our relationship with any of our existing sources would not
materially adversely affect us. To date, we have not experienced
any significant difficulty in purchasing raw materials.
In fiscal year 2008, our five largest suppliers accounted for
approximately 47.1% (2007: 51.9%) of our total purchases, with
the largest supplier accounting for approximately 16.2% (2007:
16.3%) of our total purchases. In
68
fiscal year 2009, our five largest suppliers accounted for
approximately 50.0% (2008: 47.1%) of our total purchases, with
the largest supplier accounting for approximately 21.3% (2008:
16.2%) of our total purchases.
In fiscal year 2008, approximately 27.6% of our purchases were
made in Hong Kong dollars, with the remaining amount settled in
United States dollars, French Polynesian francs, Renminbi or
Japanese Yen. In fiscal year 2009, approximately 38.0% and 45.4%
of our purchases were made in Hong Kong dollars and United
States dollars, respectively, with the remaining amount settled
in Renminbi, Japanese Yen or Euro. It is our policy not to enter
into derivative contracts such as forward contracts and options,
unless we consider it necessary to hedge against foreign
exchange fluctuations. No such derivative contract was entered
into during fiscal year 2008 and 2009.
Processing
and Assembly
Pearl processing and assembly are conducted at our facilities in
Shenzhen, PRC. As of March 31, 2009, our freshwater pearl
processing and assembly operations occupied approximately
17,200 square feet and employed 151 workers while
jewelry production and assembly operations occupied
approximately 52,000 square feet and employed
545 workers. As of March 31, 2009, the average
compensation per factory worker is HK$1,850 per month while
average supervisory compensation is HK$2,900 per month.
We, with the assistance of specialists from Japan, have trained
our 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. Each
worker also receives 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 our processing
facilities in Shenzhen, PRC are first sorted, chemically
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, the 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.
We presently have facilities and pearl processing personnel to
produce approximately 25,000 kilograms (2008: 25,000 kilograms)
of freshwater pearls and 3,000 kilograms (2008: 3,000 kilograms)
of cultured pearls annually. Fiscal year 2009 production totaled
approximately 14,000 kilograms of freshwater pearls,
representing 56% of our processing capacity and 2,490 kilograms
of cultured pearls, representing 83% of our processing capacity,
compared to the production of 18,000 kilograms of freshwater
pearls, representing 72% of our processing capacity, and 2,631
kilograms of cultured pearls, representing 88% of our processing
capacity, in fiscal year 2008. As of March 31, 2009, we had
adequate assembly and finishing personnel and facilities to
produce approximately 1.7 million pieces (2008:
1.6 million pieces) of finished jewelry annually.
Production of finished jewelry in fiscal year 2009 totaled
approximately 0.9 million pieces (2008: 1.3 million
pieces).
Upon completion of processing, pearls are shipped to our offices
in Hong Kong where they are stored for inspection by potential
buyers.
Marketing
We market our products from our facilities in Hong Kong. Our
sales staff, which is divided into groups organized by
geographic regions, currently markets freshwater pearls, Chinese
cultured pearls, Japanese cultured pearls, Tahitian pearls,
South Sea pearls, and jewelry products.
Our marketing and sales staff maintains on-going communications
with a broad range of jewelry distributors, manufacturers and
retailers worldwide to assure that customers pearls and
jewelry requirements are fully satisfied.
69
Our 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, our
marketing and sales force principally operates from our
headquarters in Hong Kong, where buyers personally visit and
inspect our products and place orders. As part of our marketing
efforts, we have established an Internet website
(www.man-sang.com) to market our products. In addition, we have
increased our efforts to market pearls and jewelry products to
customers in Europe and North America.
Customers
Our customers consist principally of wholesale distributors and
mass merchandisers in Europe, the United States, Hong Kong and
other Asian countries. For fiscal years 2009, 2008 and 2007 one
of our customers accounted for more than 10.0% of our total
sales. For fiscal years 2009, 2008 and 2007, our five largest
customers accounted for approximately 47.4%, 41.9% and 41.1%,
respectively, with the largest customer accounting for
approximately 15.1%, 10.4% and 16.0%, respectively, of our total
sales. As of March 31, 2009 and 2008, we had approximately
700 and 900 customers, respectively. We have no long-term
contract with customers. Most of our customers have been in
business with us for a number of years. We do not believe that
the loss of any one customer will have a material adverse effect
on our financial condition or results of operations.
Our policy is to denominate predominantly all our sales in
either U.S. dollars or Hong Kong dollars. Since the Hong
Kong dollar remained pegged to the U.S. dollar
throughout fiscal years 2009 and 2008, our sales proceeds have
thus far had minimal exposure to foreign exchange fluctuations.
70
The following table sets forth by region and by product our net
sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
HK$
|
|
%
|
|
HK$
|
|
%
|
|
HK$
|
|
%
|
|
|
(HK$ in thousands, except for percentages)
|
|
Cultured Pearls
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
18,685
|
|
|
|
6.0
|
|
|
|
39,806
|
|
|
|
9.8
|
|
|
|
47,616
|
|
|
|
12.0
|
|
Europe
|
|
|
26,041
|
|
|
|
8.2
|
|
|
|
26,554
|
|
|
|
6.6
|
|
|
|
28,121
|
|
|
|
7.1
|
|
Hong Kong
|
|
|
12,234
|
|
|
|
3.8
|
|
|
|
22,442
|
|
|
|
5.5
|
|
|
|
22,462
|
|
|
|
5.6
|
|
Other Asian countries
|
|
|
36,473
|
|
|
|
11.5
|
|
|
|
58,032
|
|
|
|
14.3
|
|
|
|
58,681
|
|
|
|
14.7
|
|
Others
|
|
|
4,028
|
|
|
|
1.3
|
|
|
|
8,281
|
|
|
|
2.1
|
|
|
|
6,325
|
|
|
|
1.6
|
|
Sub-total
|
|
|
97,461
|
|
|
|
30.8
|
|
|
|
155,115
|
|
|
|
38.3
|
|
|
|
163,205
|
|
|
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freshwater Pearls
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
2,156
|
|
|
|
0.7
|
|
|
|
3,389
|
|
|
|
0.8
|
|
|
|
3,569
|
|
|
|
0.9
|
|
Europe
|
|
|
3,074
|
|
|
|
1.1
|
|
|
|
4,496
|
|
|
|
1.1
|
|
|
|
7,188
|
|
|
|
1.8
|
|
Hong Kong
|
|
|
932
|
|
|
|
0.3
|
|
|
|
1,639
|
|
|
|
0.4
|
|
|
|
2,296
|
|
|
|
0.6
|
|
Other Asian countries
|
|
|
6,998
|
|
|
|
2.2
|
|
|
|
12,430
|
|
|
|
3.1
|
|
|
|
13,969
|
|
|
|
3.5
|
|
Others
|
|
|
800
|
|
|
|
0.2
|
|
|
|
2,199
|
|
|
|
0.6
|
|
|
|
1,194
|
|
|
|
0.3
|
|
Sub-total
|
|
|
13,960
|
|
|
|
4.5
|
|
|
|
24,153
|
|
|
|
6.0
|
|
|
|
28,216
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assembled Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
49,104
|
|
|
|
15.5
|
|
|
|
60,990
|
|
|
|
15.0
|
|
|
|
62,891
|
|
|
|
15.8
|
|
Europe
|
|
|
123,842
|
|
|
|
39.0
|
|
|
|
137,566
|
|
|
|
33.9
|
|
|
|
119,706
|
|
|
|
30.1
|
|
Hong Kong
|
|
|
2,800
|
|
|
|
0.9
|
|
|
|
2,767
|
|
|
|
0.7
|
|
|
|
5,171
|
|
|
|
1.3
|
|
Other Asian countries
|
|
|
8,723
|
|
|
|
2.7
|
|
|
|
8,453
|
|
|
|
2.1
|
|
|
|
6,653
|
|
|
|
1.6
|
|
Others
|
|
|
20,813
|
|
|
|
6.6
|
|
|
|
16,400
|
|
|
|
4.0
|
|
|
|
12,437
|
|
|
|
3.1
|
|
Sub-total
|
|
|
205,282
|
|
|
|
64.7
|
|
|
|
226,176
|
|
|
|
55.7
|
|
|
|
206,858
|
|
|
|
51.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
316,703
|
|
|
|
100.0
|
|
|
|
405,444
|
|
|
|
100.0
|
|
|
|
398,279
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our purchases are not seasonal in nature
A majority of sales (by dollar amount) in Hong Kong is for
re-export to North America, Europe and other Asian countries.
Seasonality
Our sales are seasonal in nature and past experience indicates
that this seasonality will continue in the future. The bulk of
our 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.
71
The following table sets forth our unaudited net sales by
quarter for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
HK$
|
|
%
|
|
HK$
|
|
%
|
|
HK$
|
|
%
|
|
|
(HK$ in thousands, except for percentages)
|
|
First Quarter
|
|
|
81,831
|
|
|
|
25.8
|
|
|
|
100,652
|
|
|
|
24.8
|
|
|
|
97,937
|
|
|
|
27.5
|
|
Second Quarter
|
|
|
108,610
|
|
|
|
34.3
|
|
|
|
109,407
|
|
|
|
27.0
|
|
|
|
95,395
|
|
|
|
28.5
|
|
Third Quarter
|
|
|
76,404
|
|
|
|
24.1
|
|
|
|
108,616
|
|
|
|
26.8
|
|
|
|
106,780
|
|
|
|
23.8
|
|
Fourth Quarter
|
|
|
49,858
|
|
|
|
15.8
|
|
|
|
86,769
|
|
|
|
21.4
|
|
|
|
98,167
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
316,703
|
|
|
|
100.0
|
|
|
|
405,444
|
|
|
|
100.0
|
|
|
|
398,279
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, we face intense competition. Our principal
historical competitors 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
Japans economy, and the poor harvest of Japanese cultured
pearls.
Locally, we compete 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, we must compete with synthetically
produced pearls.
We believe that we are competitive in the industry because of
our advanced pearl processing and bleaching techniques, and
processing facilities in the PRC which allow us to process
pearls at a cost that is lower than many of our competitors and
because we are a leading purchaser and distributor of Chinese
cultured pearls. In addition, we provide one-stop shopping
convenience to customers and have historically maintained a
close relationship with our customers. Therefore, although
competition is intense, we believe that we are well positioned
in the pearl industry.
However, in a highly competitive industry where many competitors
have substantially greater technical, financial and marketing
resources than us, new competitors may enter into the market and
customer preferences may change unpredictably, and we cannot
assure you that we will remain competitive.
Real
Estate Development and Investment
Our real estate development and investment primarily consists of
the following two projects:
|
|
|
|
|
Man Sang Industrial City, an industrial complex located in Gong
Ming Zhen, Shenzhen Special Economic Zone, PRC with a total site
area of approximately 470,000 square feet; and
|
|
|
|
China Pearls and Jewellery City, a pearl market center located
in Shanxiahu, Zhuji, Zhejiang Province, PRC. As of
March 31, 2009, we had completed construction of our phase
one pearl market center at China Pearls and Jewellery City and
expect to complete construction of the remaining phases of China
Pearls and Jewellery City in phases over the next three to five
years. Upon its completion, we expect China Pearls and Jewellery
City to cover a total gross site area of approximately
1.2 million square meters and to comprise various
supporting facilities, including manufacturing, processing,
exhibition and residential facilities.
|
Real
Estate in Shenzhen
Facilities
In connection with our expansion into pearl processing and
assembling operations, we acquired land use rights with respect
to, and constructed Man Sang Industrial City, an industrial
complex located in Gong Ming Zhen, Shenzhen Special Economic
Zone, PRC in September 1991. The land use rights, for a total
site area of
72
approximately 470,000 square feet, for Man Sang Industrial
City have a duration of 50 years starting from
September 1, 1991. We paid approximately
RMB2.8 million to acquire the land use rights for Man Sang
Industrial City and approximately RMB44.8 million to
construct Man Sang Industrial City.
As of March 31, 2009, Man Sang Industrial City consisted of
27 completed buildings encompassing a total gross floor area of
approximately 813,000 square feet. Of the 27 completed
buildings in Man Sang Industrial City, 20 buildings are rental
properties, and the remaining seven buildings are for our own
use. In addition to factories, dormitories and shops, Man Sang
Industrial City has green zones, playgrounds and other amenities
typically offered in industrial/living complexes in the PRC.
Leasing
and Management
During fiscal year 2009, we utilized seven buildings in Man Sang
Industrial City for pearl processing, pearl and jewelry
assembly, finance and administration, and staff accommodation.
The remaining facilities were leased to third party industrial
users, primarily foreign investors and non-polluting light
industry.
As of March 31, 2009, 20 buildings in Man Sang Industrial
City were used for leasing purposes to independent third parties
and industrial users not connected with us. Such facilities are
typically offered under leases ranging in duration from one to
three years. Rental income from Man Sang Industrial City for
fiscal year 2009 was approximately HK$7.7 million compared
to approximately HK$4.9 million for fiscal year 2008.
During fiscal year 2009, we employed a staff of 20 persons
to provide required management, leasing, maintenance and
security for Man Sang Industrial City.
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
competing facilities may be constructed, we believe 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.
Real
Estate in Hong Kong
We own rental properties in Hong Kong which were leased to
independent third parties. Our Hong Kong rental properties
consist of the following properties:
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957 square feet at Room 407, Wing Tuck Commercial
Centre,
177-183 Wing
Lok Street, Sheung Wan, Hong Kong. We entered into a tenancy
agreement for a term of three years starting from
September 22, 2005 at a rental of HK$7,000 per month. Total
rental income was approximately HK$39,900 for fiscal year 2008
and approximately HK$84,000 for fiscal year 2007. See
Property Hong Kong.
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10,880 square feet at 19th Floor, Railway Plaza, 39
Chatham Road South, Tsimshatsui, Kowloon, Hong Kong. In May
2008, we vacated this property, which was formerly our
headquarters, and changed the holding purpose to rental
property. Commencing from June 20, 2009, we had leased this
property for a two-year term for HK$174,080 per month, exclusive
of a two-month rent free period.
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In March 2009, we sold a 1,063 square feet property at
Flat A on 33rd Floor, Valverde, and parking space
No. 3 on Floor L3, Valverde, 11 May Road, Hong Kong
for consideration of HK$14.0 million.
In December 2007, we sold a 2,643 square feet property on
the 17th Floor and car parking space No. 16 on the
2nd Floor of Silvercrest, No. 24 Macdonnell Road,
Midlevels, Hong Kong for consideration of HK$25.0 million.
Total rental income for this property prior to the date of sale
was approximately HK$545,000 for fiscal year 2008 and
approximately HK$576,000 for fiscal year 2007.
73
Real
Estate in Zhuji
Market
As an extension to our core pearl and jewelry business, we are
in the process of developing a pearl market center in Shanxiahu,
Zhuji, Zhejiang Province, the PRC as a wholesale trade platform
for pearls and jewelry. Zhuji is regarded as one of Chinas
pearl capitals and has a long history in pearl production and
trade. Zhuji is commonly recognized as one of the largest
freshwater raw pearl distribution centers and one of the largest
sources of farmed freshwater pearls, in terms of volume
produced, in the PRC. Recognizing Zhujis status as one of
Chinas centers for pearl production and trade, we are in
the process of developing a pearl market trade center, China
Pearls and Jewellery City, which also will have supporting
facilities. We expect China Pearls and Jewellery City to provide
a one-stop service, including manufacturing,
processing, exhibition, sales and logistics solutions for both
domestic and foreign wholesale pearls and jewelry in the PRC.
Products
and Services
As of March 31, 2009, we had completed construction of our
phase one pearl market center, which includes a total of
2,380 units (including 1,252 shop units and 1,128 booths),
covering a total gross floor area of approximately
130,286 square meters. We expect to complete construction
of phase one of China Pearls and Jewellery City in the second
half of 2009. Upon its completion, we expect phase one of China
Pearls and Jewellery City to comprise a market center, four
blocks of manufacturing and processing areas, offices,
residential areas and multi-function buildings.
We commenced presales of phase one pearl market center units of
China Pearls and Jewellery City in the fourth quarter of fiscal
year 2008. As of March 31, 2009, we had sold shop units
covering a gross floor area of approximately 16,000 square
meters, representing approximately 31% of the total planned
saleable area of the project (51,361 square meters). Net
sales for the phase one pearl market center units of China
Pearls and Jewellery City in fiscal year 2008 and 2009 were
HK$228.2 million and HK$16.4 million, respectively.
As of March 31, 2009, we had leased shop and booth units
covering a gross floor area of approximately 14,319 square
meters, representing approximately 18% of the total leaseable
gross floor area of the project (78,926 square meters).
Rental income for the phase one pearl market center units of
China Pearls and Jewellery City in fiscal year 2008 and 2009 was
HK$1.3 million and HK$19.8 million, respectively.
Tenants of China Pearls and Jewellery City are primarily pearl,
jewelry and jewelry-related product traders from domestic and
foreign countries. As of March 31, 2009, we had incurred
total development costs (including costs to obtain necessary
land use rights, construction costs and capitalized finance
costs) of approximately HK$793 million for the construction
of phase one of China Pearls and Jewellery City. We estimate
that we will incur approximately HK$117.0 million in
additional development costs for completion of phase one of
China Pearls and Jewellery City.
We plan to complete construction of China Pearls and Jewellery
City in a three to five-year time frame. Upon completion, we
expect China Pearls and Jewellery City to have a total site area
of approximately 1.2 million square meters and to be one of
the worlds largest and most up-to-date pearl and jewelry
trading platforms, offering one-stop service, including
manufacturing, processing, exhibition, sales and world-class
logistics solutions in the pearl and jewelry industry.
Competition
Presently, we are not aware of any competitors who offer
comparable services on the size and scale of China Pearls and
Jewellery City. However, smaller regional competitors include
the Weitang Pearl Trade Center in Jiangsu Province.
Research
and Development
Research and development has not historically played an
important role in our operations. We did not have any material
research and development expenditures for fiscal years 2008 and
2009.
74
Marketing
As of March 31, 2009, we had a team of approximately
15 sales and marketing and customer services personnel
located in Zhuji, Shenzhen and Hong Kong who are responsible for
the sales, leasing and marketing of our real estate properties
in Hong Kong and the PRC.
Government
Regulation
We believe that we currently hold all required government
approvals and certifications relating to the products and
services we offer. We are committed to maintaining these
approvals and certifications and apply stringent quality
requirements in this regard.
We are subject to extensive government regulation in the PRC.
These include a variety of regulations applicable to foreign
investment enterprises such as ourselves. The State
Administration for Industry and Commerce, Foreign Trade and
Economic Cooperation Bureau imposes a number of regulations
relating to foreign investment, although the PRC government has
gradually relaxed these regulations since the 1990s. The State
Administration of Taxation imposes a number of tax regulations
applicable to foreign investment enterprises, which, as of 2008,
impose a uniform tax rate of 25% on all enterprises incorporated
or resident in China, which may significantly increase our
income tax liability in the future. For further information on
the effect of PRC taxation on our operations, see Material
Tax Consequences PRC Taxation.
We note that there are no specific risks presented by PRC laws
or regulations in relation to our existing ownership structure
and the business and operations of our subsidiaries other than
as disclosed below.
Property
Development Regulations
Property development projects in the PRC are generally divided
into single projects and large tract development projects. A
single project refers to the construction of buildings on a plot
of land and the subsequent sale of units. Large tract
development projects consist of the comprehensive development of
large area and the construction of necessary infrastructure such
as water, electricity, road and communications facilities. The
developer may either assign the land-use rights of the developed
area or construct buildings on the land itself and sell or lease
the buildings erected on it.
Pursuant to the Regulations of the Peoples Republic of
China Concerning the Interim Current and Assignment of Right to
Use State Land in Urban Areas, or the Urban Land Regulations,
foreign entities may acquire land-use rights in the PRC unless
the law provides otherwise. However, in order to develop the
acquired land, the foreign entities need to establish foreign
investment enterprises in the PRC as the project companies to
develop the property. These project companies may be in the form
of Sino-foreign equity or cooperative joint ventures or wholly
foreign-owned enterprises. The typical scope of business of such
project company includes development, construction, sales,
leasing and property management of commodity properties and
ancillary facilities on the specific land as approved by the
government. The term of the property development company is
usually the same as the term of grant of the land-use rights in
question.
Establishment of a project company is subject to the approval by
the relevant departments of the PRC government in accordance
with the following procedures. First, the PRC party to a joint
venture project or the foreign investor, in the case of a wholly
foreign-owned project, will submit a project application report
to the central or local development and reform commission for
verification and approval. If the development and reform
commission considers the proposed property development project
to be consistent with the prevailing national and local economic
plans and foreign investment regulations, it will grant an
approval to the applicant in respect of the project. The
National Development and Reform Commission and the Ministry of
Commerce have been given the authority to regularly issue
guidelines for direction of foreign investment.
Once the project application report has been verified and
approved, the PRC party and the foreign investor may proceed to
prepare a joint feasibility study report that reflects their
assessment of the overall economic viability of the proposed
project company. At the same time, the parties may proceed to
negotiate and execute the joint venture contract and articles of
association for the establishment of a project company. In the
case of a wholly foreign-owned project, the foreign investor may
then prepare articles of association will then, depending, among
other
75
things, on the industry to which it belongs under the Catalog
for Guiding Foreign Investment in Industry, issued by the
National Development and Reform Commission and the Ministry of
Commerce on October 31, 2007 and effective as of
December 31, 2007, and the amount of total investment, be
submitted to the Ministry of Commerce or its local counterpart,
as the case may be, for approval. If the Ministry of Commerce or
its local counterpart finds the application documents to be in
compliance with PRC law, it will issue an approval certificate
for the establishment of the project company. With this approval
certificate, the foreign investor and/or the PRC party can apply
to the local administration for industry and commerce for a
foreign investment enterprise business license for the project
company.
Once a foreign entity developer has established a project
company and secured the land-use rights to a piece of land for
development, it has to apply for and obtain the requisite
planning permits from the planning departments and have its
design plan approved by, and apply for and obtain construction
permits from, the relevant construction commission for
commencement of construction work on the land. When the
construction work on the land is completed, the completed
buildings and structures must be examined and approved by the
government departments before they can be delivered to
purchasers or lessors for occupancy.
In July 2006, the Ministry of Construction, the Ministry of
Commerce, the National Development and Reform Commission, the
Peoples Bank of China, the State Administration for
Industry and Commerce and the State Administration for Foreign
Exchange issued the Circular on Standardizing the Admittance
and Administration of Foreign Capital in the Real Estate
Market. Under such circular, when a foreign investor
establishes a property development enterprise in China where the
total investment amount is US$10 million or more, such
enterprises registered capital must not be less than 50%
of its total investment amount.
In addition, as a property developer, we are subject to a number
of measures and regulations recently introduced by the PRC
government to tighten control of the real property market. The
measures include:
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tightening lending of bank loans to property developers and
purchasers of developed properties and increasing the reserve
requirements for commercial banks;
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restricting the ability of foreign invested real estate
companies to raise funds offshore for the purpose of funding
such companies either through capital increase or by way of
shareholder loans;
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restricting the conversion and sale of foreign exchange on the
capital account for foreign invested real estate companies that
have not undergone an examination by the local examination and
approval authority;
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imposing strict requirements before commencement of a real
estate project can begin, including the requirement that
proposed projects with a total investment value of at least
RMB50 million establish administration files and receive
relevant approval or permits prior to the commencement of
construction;
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prohibiting the extension of loans to real estate developers
that do not satisfy certain loan conditions, such as those with
a percentage of project capital of less than 35% and those that
are not in possession of necessary certificates and permits
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requiring the payment of an idle land charge for land that is
idle for one year and recovery of such land by the State without
consideration if the land is idle for two years.
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requiring property developers to pay all land grant fees prior
to issuing land-use rights certificates; and
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requiring all industrial and commercial land to be granted
through an invitation of bids or auction.
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Foreign
Currency Exchange
The principal regulations governing foreign currency exchange in
China are the Foreign Exchange Administration Regulations, as
amended in August 2008. Under the Regulations, the Renminbi is
freely convertible for current account items, including the
distribution of dividends, interest payments, trade and
service-related foreign exchange transactions, but not for
capital account items, such as direct investments, loans,
repatriation of investments and investments in securities
outside of China, unless the prior approval of the State
Administration of Foreign Exchange is obtained and prior
registration with the State Administration of Foreign Exchange
is made. August 29, 2008, the State Administration of
Foreign Exchange promulgated a notice,
76
Circular 142, regulating the conversion by a foreign-invested
company of foreign currency into Renminbi by restricting how the
converted Renminbi may be used. The notice requires that the
registered capital of a foreign-invested company settled in
Renminbi converted from foreign currencies may only be used for
purposes within the business scope approved by the applicable
governmental authority and may not be used for equity
investments within the PRC. In addition, the State
Administration of Foreign Exchange strengthened its oversight of
the flow and use of the registered capital of a foreign-invested
company settled in Renminbi converted from foreign currencies.
The use of such Renminbi capital may not be changed without the
State Administration of Foreign Exchanges approval, and
may not in any case be used to repay Renminbi loans if the
proceeds of such loans have not been used. Violations of
Circular 142 will result in severe penalties, such as heavy
fines.
The dividends paid by the subsidiary to its overseas shareholder
are deemed income of the shareholder and are taxable in China.
Pursuant to the Administration Rules of the Settlement, Sale and
Payment of Foreign Exchange (1996), foreign-invested enterprises
in China may purchase or remit foreign currency, subject to a
cap approved by the State Administration of Foreign Exchange,
for settlement of current account transactions without the
approval of the State Administration of Foreign Exchange.
Foreign currency transactions under the capital account are
still subject to limitations and require approvals from or
registration with, the State Administration of Foreign Exchange
and other relevant PRC governmental authorities.
Dividend
Distribution
The principal PRC regulations governing the distribution of
dividends by wholly foreign-owned enterprises are the Law of the
Peoples Republic of China on Wholly Foreign-owned
Enterprises, as amended, issued by the National Peoples
Congress on October 31, 2000, and the Detailed Implementing
Rules for the Law of the Peoples Republic of China on
Foreign Investment Enterprises, as amended, issued by the State
Council on April 12, 2001.
Under these regulations, foreign investment enterprises in China
may pay dividends only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and
regulations. In addition, foreign investment enterprises in
China are required to allocate at least 10% of their respective
accumulated profits each year, if any, to fund certain reserve
funds until these reserves have reached 50% of the registered
capital of the enterprises. These reserves are not distributable
as cash dividends.
Environmental
Matters
We are subject to various environmental laws and regulations set
by the PRC national, provincial and municipal governments with
respect to our manufacturing and property development
businesses. These include regulations on air pollution, noise
emissions, as well as water and waste discharge. We believe we
are in material compliance with all applicable environmental
laws and regulations relating to our businesses, and have
obtained all of the environmental permits necessary to conduct
our business. Our operations are subject to regulation and
periodic monitoring by local environmental protection
authorities. If we fail to comply with present or future
environmental laws and regulations, we could be subject to
fines, suspension of production or a cessation of operations.
We believe our manufacturing processes do not generate excess
levels of noise, wastewater, gaseous wastes or other industrial
wastes and we have adopted internal policies to ensure that our
manufacturing processes are in compliance with relevant
environmental laws and regulations.
With respect to our property development business, our projects
are normally required to undergo an environmental impact
assessment by government-appointed third parties, and a report
of such assessment needs to be submitted to the relevant
environmental authorities in order to obtain their approval
before commencing construction. Upon completion of each project,
the relevant environmental authorities inspect the site to
ensure the applicable environmental standards have complied
with, and the resulting report is presented together with other
specified documents to the relevant construction administration
authorities for their approval and record. Approval from the
environmental authorities on such report is required before
delivery of the properties. In the past, we have not experienced
any difficulties in obtaining those approvals for commencement
of construction and delivery of completed projects. However, we
cannot assure you that we will not experience
77
any difficulties in the future. Our operations have not been
subject to payment of material fines or penalties for violations
of environmental regulations.
Due to the relatively low impact of our operations on the
environment, our environmental compliance costs have not been
substantial. Our environmental compliance costs were
approximately HK$74,000 and HK$168,500 for fiscal years 2008 and
2009, respectively.
Intellectual
Property
As of March 31, 2009, we owned 60 trademarks in 16
jurisdictions. We primarily use our trademarks for our pearl and
jewelry products. We believe our trademarks are important to the
competitiveness of our business. We therefore take all
appropriate actions to register and protect these trademarks in
the jurisdictions in which we are active. As of March 31,
2009, we are not aware of any infringements against our
trademarks. A substantial majority of our trademarks may be
renewed after their expiration dates an indefinite number of
times.
Man Sang Innovations Limited, an indirect subsidiary of our
company, owns 13 registered trademarks in Hong Kong. The
validity periods of these registered trademarks will expire
between September 23, 2016 and March 27, 2019. In
addition, it owns a registered trademark in each of New Zealand,
Macau, Australia, Switzerland, Thailand, Indonesia, South Korea,
Japan, Mexico, Taiwan, Brazil, European Union, the United States
and Canada for its pearl and jewelry products. The validity
periods of these registered trademarks will expire between
August 9, 2009 and June 16, 2021.
Man Sang Jewellery Company Limited, an indirect subsidiary of
our company, owns six registered trademarks in Hong Kong. The
validity periods of these registered trademarks will expire
between August 11, 2014 and December 3, 2018. In
addition, it owns a registered trademark in each of Switzerland,
Thailand, Japan, South Korea, Taiwan, European Union and the
United States for its pearl and jewelry products. The validity
periods of these registered trademarks will expire between
March 6, 2012 and March 23, 2014.
Arcadia Jewellery Limited, an indirect subsidiary of our
company, owns four registered trademarks in Hong Kong. The
validity periods of these registered trademarks will expire
between November 19, 2009 and January 22, 2010.
Man Hing Industry Development (Shenzhen) Co., Ltd., an indirect
subsidiary of our company, owns 16 registered trademarks in the
PRC. The validity periods of these registered trademarks will
expire between January 27, 2013 and March 6, 2017.
Provided they are still in use, we will apply to renew our
trademarks upon their expiration. Currently, we do not
anticipate any difficulties in renewing our trademarks.
Accordingly, we do not expect any adverse effects from the
upcoming expiration of any of our trademarks.
We believe that our business is not dependent, to a significant
extent, on patents or licenses, industrial, commercial or
financial contracts or new manufacturing process, and such
factors are not material to our business or profitability.
Property
Hong
Kong
Headquarters. We have entered into a tenancy
agreement for a property at Suites
2208-14,
22nd floor, Sun Life Tower, The Gateway, 15 Canton Road,
Tsimshatsui, Kowloon, Hong Kong, which is our new head office in
Hong Kong, for a term of three years commencing from
March 17, 2008. The property has a gross floor area of
approximately 19,900 square feet.
Our headquarters was formerly located at 21st floor and
19th floor, Railway Plaza, 39 Chatham Road South,
Tsimshatsui, Kowloon, Hong Kong. We own the premises located on
the 19th floor and in the past, we had rented the
21st floor. We moved out of this office in May 2008 and
have not renewed our tenancy agreement for the premises located
on the 21st floor.
78
Property for lease. We own the property at
Room 407, Wing Tuck Commercial Centre, 177 183
Wing Lok Street, Sheung Wan, Hong Kong, which we operate as a
property for lease. The gross floor area of the premises is
approximately 957 square feet. This property is currently
vacant.
We own property at the 19th floor, Railway Plaza,
39 Chatham Road South, Tsimshatsui, Hong Kong, which we
operate as a property for lease. The gross floor area of the
premises is approximately 10,880 square feet. Commencing from
June 20, 2009, we had leased this property for a two-year
term for HK$174,080 per month, exclusive of a two-month rent
free period.
Residential facilities. We owned two
residential flats with a combined gross floor area of
approximately 1,784 square feet on the 15th floor,
Windsor Mansion,
29-31
Chatham Road South, Tsimshatsui, Kowloon, Hong Kong, which we
used as quarters for PRC employees on business trips to Hong
Kong. The property was sold for a purchase price of
HK$5.2 million in November 2008.
We own a residential flat with a gross floor area of
approximately 2,838 square feet on the 20th floor, The
Mayfair, 1 May Road, Hong Kong, which we have used as our
Chairmans residence since February 6, 2002.
In March 2009, we sold a residential flat on the 33rd floor
and parking space No. 3 on the L3 floor of Valverde,
11 May Road, Hong Kong for a purchase price of
HK$14.0 million. Previously, this property and our former
headquarters in Hong Kong were pledged as collateral for bank
credit facilities. Following the sale of this property, it was
replaced as collateral for bank credit facilities by restricted
cash deposits of HK$17.0 million. There are no restrictions
under these bank facilities on the use of our former
headquarters in Hong Kong.
Peoples
Republic of China
Manufacturing facilities. We own 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 December 31, 2008, Man Sang Industrial City
consisted of 27 completed buildings covering a total gross floor
area of approximately 813,000 square feet. As of
December 31,2008, we used most of the units in seven
buildings covering a gross floor area of approximately
213,000 square feet, and representing approximately 26.2%
of the total gross floor area of Man Sang Industrial City, for
pearl processing, manufacturing, pearl and jewelry assembly,
finance and administration and staff accommodation.
Properties for lease. We have leased units in
20 buildings of Man Sang Industrial City, covering a gross floor
area of approximately 600,000 square feet and representing
approximately 73.8% of the total gross floor area of Man Sang
Industrial City, to independent third parties and industrial
users not connected with us.
In addition, we held a grand opening of the phase one China
Pearls and Jewellery City pearl market center on April 18,
2008. As of March 31, 2009, we had leased approximately 490
shop and booth units, covering a gross floor area of
approximately 16,600 square meters and representing
approximately 21.0% of the total leaseable gross floor area of
the project (78,926 square meters). Tenants of China Pearls
and Jewellery City are primarily pearl, jewelry and
jewelry-related product traders from domestic and foreign
countries.
Insurance
We maintain property insurance policies with reputable insurance
companies for our goods, assets and buildings used in our
business operations. With respect to our self-owned properties
in Hong Kong, we maintain fire insurance for our buildings and
fire, flood and natural disaster insurance for our goods and
assets. With respect to our leased properties in Hong Kong, we
maintain fire, flood and natural disaster insurance for our
goods and assets but do not maintain fire insurance for the
leased premises. With respect to our self-owned property in
Shenzhen, the PRC, we maintain fire, flood and natural disaster
insurance for our buildings, goods and assets. We consider our
insurance coverage to be in line with other companies of similar
size in Hong Kong and China. However, significant damage to any
of our manufacturing facilities or property developments,
whether as a result of fire or other causes, could have a
material adverse effect on our results of operations. We paid an
aggregate of approximately HK$858,000 in the year ended
March 31, 2009, in insurance premiums for insurance
coverage.
79
Employees
We had 987,1,143 and 1,026 employees as of March 31,
2009, March 31, 2008 and March 31, 2007, respectively.
No employee is governed by a collective bargaining agreement and
we consider our relations with our employees to be satisfactory.
The following table sets forth a breakdown of employees by
function and according to geographic region, as of
March 31, 2009.
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Hong Kong
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PRC
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Total
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Senior management
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5
|
|
|
|
5
|
|
|
|
10
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|
Marketing and sales
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|
24
|
|
|
|
32
|
|
|
|
56
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|
Purchasing
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|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
Finance and accounting
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|
|
16
|
|
|
|
22
|
|
|
|
38
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|
Processing and logistics
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|
|
15
|
|
|
|
710
|
|
|
|
725
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|
Human resources and administration
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|
|
13
|
|
|
|
52
|
|
|
|
65
|
|
Real estate leasing
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|
|
|
|
20
|
|
|
|
20
|
|
Property development
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|
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|
|
|
|
50
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|
|
|
50
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|
Information technology
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|
2
|
|
|
|
16
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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78
|
|
|
|
909
|
|
|
|
987
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As required by PRC regulations, we participate in various
employee benefit plans that are organized by municipal and
provincial governments, including housing funds, pension,
medical and unemployment benefit plans. We are required under
PRC law to make contributions to the employee benefit plans at
specified percentages of the salaries, bonuses and certain
allowances of our employees, up to a maximum amount specified by
the respective local government authorities where we operate our
businesses from time to time. Members of the retirement plan are
entitled to a pension equal to a fixed proportion of the salary
prevailing at the members retirement date.
As of March 31, 2009, 78 of our employees were located in
Hong Kong. We operate a defined contribution Mandatory Provident
Fund retirement benefits scheme, or the MPF Scheme, as required
under the Mandatory Provident Fund Schemes Ordinance, for
our eligible employees in Hong Kong. Contributions are made
based on a percentage of the employees basic salaries. The
assets of the MPF Scheme are held separately from our assets in
an independently administered fund, and our employer
contributions vest fully with the employees when contributed
into the MPF Scheme.
The total amount of contributions we made to employee benefit
plans for the years ended March 31, 2009, 2008 and 2007,
was HK$2.1 million, HK$1.5 million and
HK$1.4 million, respectively.
Legal
Proceedings
We are not currently involved in any material litigation, and we
are not aware of any pending or threatened litigation or similar
proceedings which could reasonably be expected to have a
material adverse effect on our financial condition or results of
operations. From time to time, we may be subject to various
claims and legal actions arising in the ordinary course of
business.
80
DIRECTORS
AND EXECUTIVE OFFICERS
Information
Regarding the Directors
The following table sets forth, as of March 31, 2009, the
name, age, and position(s) held with Man Sang Nevada, of each
director of Man Sang Nevada. The information with respect to
each director is set forth in the description of business
experience of such persons below. Upon the effective time of the
liquidation, each of the directors of Man Sang Nevada set forth
below will become the directors of Man Sang BVI.
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Name
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Age
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Position
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Mr. Cheng Chung Hing, Ricky
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48
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|
President and Chairman of the Board
Chief Executive Officer
|
Mr. Cheng Tai Po
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56
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Vice Chairman of the Board
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Mr. Lai Chau Ming, Matthew
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56
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Director
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Mr. Wong Gee Hang, Henry
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73
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Director
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Mr. Tsui King Chung, Francis
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47
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|
Director
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Information
Regarding Executive Officers
The following table sets forth, as of March 31, 2009, the
name, age, and position(s) held with Man Sang Nevada, of
executive officers of Man Sang Nevada. The information with
respect to each executive officer is set forth in the
description of business experience of such persons below. Upon
the effective time of the liquidation, each of the executive
officers of Man Sang Nevada set forth below will become the
executive officers of Man Sang BVI.
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Name
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Age
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Position Held
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Mr. Cheng Chung Hing, Ricky
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48
|
|
|
President and Chairman of the Board
Chief Executive Officer
|
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Mr. Cheng Tai Po
|
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56
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|
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Vice Chairman of the Board
|
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Mr. Pak Wai Keung, Martin
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45
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|
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Chief Financial Officer
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Ms. Yan Sau Man, Amy
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46
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Director of Man Sang International Limited
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Ms. Wong Hung Flavia Yuen Yee
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41
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Director of Man Sang International Limited
|
|
|
|
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(1) |
|
On June 25, 2009, Ms. Wong Hung Flavia Yuen Yee resigned as
director of Man Sang International Limited with effect from
June 26, 2009. |
Business
Experience of Directors and Executive Officers
Mr. CHENG Chung Hing, Ricky, our co-founder, has served as
Chairman of the Board of Directors and President of Man Sang
Nevada since January 8, 1996, and of Man Sang BVI since
September 1995. He was appointed Chief Executive Officer of Man
Sang Nevada on January 2, 1998. He served as Chief
Financial Officer from February to August 1999 and from August
2000 to August 2003. Mr. Cheng was appointed Chairman and a
Director of Man Sang International Limited, an indirect
subsidiary listed on The Stock Exchange of Hong Kong Limited, in
August 1997. Prior to our reorganization in late 1995, which
culminated in Man Sang Nevadas issuance of common stock
and Series A preferred stock in exchange for all the
outstanding securities of Man Sang BVI in January 1996, he had
served as chairman and president of various companies within our
group of companies. Mr. Cheng also serves as an executive
director of a private Hong Kong company with integrated
logistics operations in China. Mr. Cheng has over
25 years experience in the pearl business and is
responsible for our overall planning, strategic formulation and
business development.
Mr. CHENG Tai Po, our co-founder, has served as Vice
Chairman of Man Sang Nevada since January 1996 and of Man Sang
BVI since September 1995. He was appointed Deputy Chairman and a
Director of Man Sang International Limited in August 1997. Prior
to our group reorganization, he served as vice-chairman of
various companies within our group of companies. Mr. Cheng
has over 25 years experience in the pearl business
and is
81
responsible for purchasing and processing of pearls as well as
our overall planning, strategic formulation and business
development.
Mr. LAI Chau Ming, Matthew, has served as a Director of Man
Sang Nevada since November 1996. Mr. Lai has been Sales
Director of DBS Vickers (Hong Kong) Limited since July 1996.
Prior to his joining DBS Vickers, Mr. Lai served from 1972
to 1996 as a Senior Manager of Sun Hung Kai Investment Company
Limited, an investment company in Hong Kong. Mr. Lai has
30 years experience in investment. He is experienced
in the areas of financial management and planning.
Mr. WONG Gee Hang, Henry, has served as a Director of Man
Sang Nevada since April 2005. Mr. Wong has over
30 years of experience in accounting, property investment
and development and general management. Mr. Wong has also
served as the Managing Director of Marspeed Limited, a
consultancy firm of property development, investment and
management. Mr. Wong had been a member of senior management
in a Hong Kong property developer for more than 15 years.
He is a full member of The Hong Kong Management Association.
Mr. TSUI King Chung, Francis, has served as a Director of
Man Sang Nevada since January 2006. Mr. Tsui has over
10 years of experience in financial services and business
development consultancy both in the United States and in Hong
Kong. Since 2000, Mr. Tsui has served as the President of
eBiz Incubation & Investment Co. Ltd., a private
investment company. He holds a PhD degree in History and a
Master of Business Administration degree from the University of
Hawaii.
Mr. PAK Wai Keung, Martin, has been with Man Sang Nevada
since August 2006 and has served as Chief Financial Officer
since September 2006, having previously worked for several
international accounting firms and a bank in Hong Kong. He is
responsible for our financial and accounting management and
corporate governance affairs. Mr. Pak is a fellow member of
Hong Kong Institute of Certified Public Accountants. He has over
20 years of experience in accounting, finance and
management. Prior to joining us, Mr. Pak served as financial
controller for Xinjiang Tianye Water Savings and Irrigation
System Company Limited and COSCO International Holdings Limited,
from July 2005 to August 2006 and January 2001 to July 2005,
respectively.
Ms. YAN Sau Man, Amy has served as a director of Man Sang
International Limited since August 12, 1997. She, in
combination with other members of the boards of directors of Man
Sang International Limited and Man Sang Nevada, is responsible
for our overall management as well as the formulation and
development of our corporate polices and business strategies.
She is also responsible for the formulation and implementation
of our overall sales and marketing strategies. Ms. Yan has
over 20 years of sales and marketing experience in the
pearl business. In addition, Ms. Yan served as Vice
President and a director of Man Sang Nevada from January 8,
1996 to March 15, 2005 and was appointed as a director of
Man Sang BVI in September 1995.
Ms. WONG HUNG Flavia Yuen Yee served as a director of Man
Sang International Limited from August 8, 2008 to
June 26, 2009. She was primarily responsible for our
business development, corporate finance and investor relations
activities. Ms. Wong Hung Flavia Yuen Yee resigned as
director of Man Sang International Limited with effect from
June 26, 2009.
Family
Relationships
Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po are
brothers. Other than the foregoing, there are no family
relationships among the above name directors and executive
officers of our company.
Board
Composition
Our board of directors consists of five members.
We are a controlled company as defined in
Section 801 of the NYSE Amex Company Guide. As a result, we
are exempt from certain corporate governance requirements,
including the requirement that a majority of the board of
directors be independent and the requirement that we have a
nominating/corporate governance committee. We do not have a
nominating committee. However, notwithstanding that we are not
required to have a board of directors comprising a majority of
independent directors, we have determined that three of the
members of the board of directors, Mr. Lai Chau Ming,
Matthew, Mr. Wong Gee Hang, Henry and Mr. Tsui King
Chung, Francis, who
82
together constitute a majority of the board of directors, are
independent within the meaning of Section 803A
of the NYSE Amex Company and
Rule 10A-3
under the Exchange Act.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive
officers, directors and holders of more than 10% of Man Sang
Nevadas common stock to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. The
SEC requires officers, directors and greater than 10% beneficial
owners to furnish Man Sang Nevada with copies of all
Forms 3, 4 and 5 they file. We believe that for fiscal year
2008 and the nine months ended December 31, 2008, all
reports required under Section 16(a) were timely filed.
This is based on our review of copies of Forms 3, 4 and 5
that have been received and of written representations from
certain persons that were not required to file a Form 5.
Upon the effective time of the liquidation, Man Sang BVI will be
a foreign private issuer, as defined in Rule 3b-4 under the
Exchange Act, and our officers, directors and 10% shareholders
will be exempt from the reporting and short swing
profit recovery provisions of Section 16 of the Exchange
Act and the rules of the Exchange Act with respect to their
purchases and sales of our securities.
Committees
and Attendance of the Board of Directors
The below discussion relates to the committees of Man Sang
Nevada, as required by the Exchange Act and NYSE Amex rules.
Upon the effective time of the liquidation, Man Sang BVI will
adopt the same committees currently in place for Man Sang Nevada.
Audit
Committee
The audit committee is a separately-designated standing audit
committee as defined in Section 3(a)(58)(A) of the Exchange
Act. The audit committee oversees matters relating to financial
reporting, internal controls, risk management and compliance.
These responsibilities include appointing and overseeing the
independent auditors, as well as reviewing their independence
and evaluating their fees, reviewing financial information that
is provided to our stockholders and others, reviewing with
management our system of internal controls and financial
reporting process and monitoring our compliance program and
system. The audit committee also makes recommendations on
improvements and conducts other duties as the board of directors
may delegate.
The audit committee operates under a written charter, which sets
forth the functions and responsibilities of the committee. A
copy of our audit committee charter is posted on our website at
www.man-sang.com.
The audit committee held six meetings during the fiscal year
ended March 31, 2008 and six meetings during the fiscal
year ended March 31, 2009. Mr. Wong Gee Hang, Henry
serves as Chairman, and Mr. Lai Chau Ming, Matthew and
Mr. Tsui King Chung, Francis are committee members.
Mr. Wong has served as a director of our company since
April 2005. Mr. Wong has over 30 years of experience
in accounting, property investment and development and general
management. Mr. Wong is the Managing Director of Marspeed
Limited, a consultancy firm of property development, investment
and management. Mr. Wong had been a member of senior
management in a Hong Kong property developer for more than
15 years and is a full member of The Hong Kong Management
Association. All the committee members are independent as
defined in the applicable standards of the NYSE Amex.
The board of directors has, in its reasonable judgment,
(1) determined that all members of the audit committee are
financially literate, (2) determined that Mr. Wong Gee
Hang, Henry, the Chairman of the audit committee, is qualified
as an audit committee financial expert, within the
meaning of SEC regulations, that he has accounting and related
financial management expertise within the meaning of the listing
standards of the NYSE Amex and
Rule 10A-3
under the Exchange Act, and (3) determined that
Mr. Lai, Mr. Wong and Mr. Tsui of the audit
committee satisfy the definition of independent as
established in the NYSE Amex corporate governance listing
standards.
83
With respect to fiscal year 2008, the audit committee has:
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|
|
reviewed and discussed with our independent registered public
accounting firm and with management the audited financial
statements for the year ended March 31, 2008;
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discussed with our independent registered public accounting firm
the matters outlined in the Statement on Auditing Standards
No. 61 (Codification of Auditing Standards
AU §380), as may be modified or supplemented;
|
|
|
|
received the written disclosures and the letter from our
independent registered public accounting firm required by
Independence Standards Board Standard No. 1 (Independence
Standards Board Standards No. 1, Independence Discussions
with Audit Committees); and
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|
|
|
discussed with our independent registered public accounting firm
the independence of our independent registered public accounting
firm.
|
Based on the audit committees review and discussions noted
above, the audit committee recommended to the board of directors
that audited financial statements for the year ended
March 31, 2008 be included in our annual report on
Form 10-K
for the year ended March 31, 2008.
With respect to the fiscal year ended March 31, 2009, the
audit committee has:
|
|
|
|
|
reviewed and discussed with our independent registered public
accounting firm and with management the audited financial
statements for the year ended March 31, 2009;
|
|
|
|
discussed with our independent registered public accounting firm
the matters outlined in the Statement on Auditing Standards
No. 61 (Codification of Auditing Standards AU
§ 380), as may be modified or supplemented;
|
|
|
|
received the written disclosures and the letter from our
independent registered public accounting firm required by
Independence Standards Board Standard No. 1 (Independence
Standards Board Standards No. 1, Independence Discussions
with Audit Committees); and
|
|
|
|
discussed with our independent registered public accounting firm
the independence of our independent registered public accounting
firm.
|
Based on the audit committees review and discussions noted
above, the audit committee recommended to the board of directors
that audited financial statements for the year ended
March 31, 2009 be included in our annual report on
Form 10-K
for the year ended March 31, 2009.
The audit committee consists of:
Mr. Wong Gee Hang, Henry, Chairman;
Mr. Lai Chau Ming, Matthew; and
Mr. Tsui King Chung, Francis
Compensation
Committee
Man Sang Nevadas compensation committee consists of
Mr. Lai Chau Ming, Matthew as Chairman, and Mr. Wong
Gee Hang, Henry and Mr. Tsui King Chung, Francis as
committee members.
The compensation committee deliberates and stipulates the
compensation policy for our company. Each year the compensation
committee directs our company, through an internal committee
consisting of the Chief Financial Officer, the executive
directors and Manager of Human Resources and Administration, to
prepare a compensation philosophy and strategy statement for the
compensation of the executives and a proposed executive
compensation framework for the year. When establishing the
proposed compensation framework, in keeping with our goal of
attracting, motivating, and retaining executives who will
contribute to our long-term success and an increase in the value
of our shares, the internal committee undertakes the review of
comparative compensation offered by peer companies that may
compete with our company for executive talent. The peer group we
used for compensation comparison and analysis purposes includes
companies with workforce sizes, revenues, assets, and market
values within a certain range above and below our levels. The
internal committee periodically reviews the comparative
84
compensation offered by the peer group and makes changes as
appropriate to reflect changes in the market and our industry.
The peer group is not necessarily limited to a particular
industry as we believe we compete for executive talent across a
wider group of entities. In addition, the peer group may not be
the same as the peer group used by us for purposes of the
Performance Index Graph furnished in our annual report on
Form 10-K.
During the year ended March 31, 2008, the compensation
committee met twice and discussed and reviewed the personnel
system and compensation package of our directors and officers.
During the year ended March 31, 2009, the compensation
committee met once and discussed and reviewed the personnel
system and the compensation package of our directors and
officers.
The board of directors has determined that each member of the
compensation committee satisfies the definition of
independent as established in the NYSE Amex
corporate governance listing standards.
The compensation committee does not have a compensation
committee charter.
Nominating
Committee
Man Sang Nevada does not have a nominating committee. The
functions customarily attributable to a nominating committee are
performed by the independent directors (as defined in the
applicable standards of NYSE Amex) of the board of directors. It
is the board of directors view that it is appropriate not
to have a separately designated nominating committee because,
given our size and the number of directors on the board of
directors, the costs of having such a committee outweigh the
benefits.
A current copy of our nomination charter is posted on our
website at www.man-sang.com. The independent directors will
consider recommendations from stockholders holding more than 5%
of our outstanding stock for candidates for the board of
directors. The name of any recommended candidate for director,
together with a brief biographical sketch, a document indicating
the candidates willingness to serve, if elected, and
evidence of the nominating stockholders ownership of our
stock should be sent to the attention of the Secretary of Man
Sang Nevada not less than 120 days nor more than 180 days before
the first anniversary of the date of our proxy statement for our
2009 annual meeting.
Attendance
of the Board of Directors
During the year ended March 31, 2009, the board of directors of
Man Sang Nevada held five meetings and adopted two unanimous
written consents of action. Each incumbent director attended at
least 75% of the aggregate number of board meetings and meetings
of committees on which he or she served. The average director
attendance was approximately 97%.
Five directors of Man Sang Nevada attended the 2008 annual
meeting of our company held at Suite 2208, 22/F, Sun Life Tower,
The Gateway, 15 Canton Road, Tsimshatsui, Kowloon, Hong Kong.
Duties of
Directors
Under British Virgin Islands law, Man Sang BVIs directors
have a duty of loyalty and must act honestly and in good faith
and in our best interests. Our directors also have a duty to
exercise the care, diligence and skills that a reasonably
prudent person would exercise in comparable circumstances. In
fulfilling their duties to our company, our directors must
ensure compliance with the amended and restated memorandum and
articles of association and the class rights vested thereunder
in the holders of the shares. A shareholder may in certain
circumstances have rights to damages if a duty owed by the
directors is breached.
Our board of directors has all the powers necessary for
managing, and for directing and supervising, our business
affairs. The functions and powers of our board of directors
include, among others:
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convening shareholders annual general meetings and
reporting its work to shareholders at such meetings;
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declaring dividends and distributions;
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appointing officers and determining the terms of office of the
officers;
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85
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exercising the borrowing powers of our company and mortgaging
the property of our company; and
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approving the transfer of shares in our company, including the
registering of such shares in our share register.
|
Employment
Agreements
We do not have employment agreements with any of our executive
officers. However, on September 8, 1997, Man Sang
International Limited, our subsidiary which is listed on The
Stock Exchange of Hong Kong Limited, entered into service
agreements with each of Mr. Cheng Chung Hing, Ricky,
Mr. Cheng Tai Po and Ms. Yan Sau Man, Amy, who is an
executive officer of Man Sang International Limited with a
significant decision-making role in our operations.
The major terms of these agreements are as follows:
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the service agreement of each of Mr. Cheng Chung Hing,
Ricky, Mr. Cheng Tai Po and Ms. Yan Sau Man, Amy is
for an initial term of three years commencing on
September 1, 1997, and was renewed for successive three
year terms on September 1, 2000, September 1, 2003 and
September 1, 2006. Each service agreement may be terminated
by either party by giving the other party written notice of not
less than three months;
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the annual base salary payable to each of Mr. Cheng Chung
Hing, Ricky, Mr. Cheng Tai Po and Ms. Yan Sau Man, Amy
in fiscal year 2008 is US$384,615 (HK$3.0 million),
US$461,538 (HK$3.6 million) and US$230,769
(HK$1.80 million), respectively. The annual base salary
payable to each of Mr. Cheng Chung Hing, Ricky,
Mr. Cheng Tai Po and Ms. Yan Sau Man, Amy is subject
to annual review by the board of directors of Man Sang
International Limited;
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each of Mr. Cheng Chung Hing, Ricky, Mr. Cheng Tai Po
and Ms. Yan Sau Man, Amy is also entitled to an annual
discretionary bonus. The amount of the discretionary bonus is
determined by the remuneration committee of the board of
directors of Man Sang International Limited. With respect to
Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai Po, the
discretionary bonus is determined in conjunction with the
compensation committee of the board of directors of Man Sang
Nevada. This determination is made on an annual basis, provided
that the aggregate of all discretionary bonuses payable by Man
Sang International Limited to its executive directors in any
fiscal year may not exceed 10% of Man Sang International
Limiteds net profits for such year (after tax and after
extraordinary items) as shown in its audited accounts.
|
In fiscal year 2009, the annual base salary and discretionary
bonus for each of Mr. Cheng Chung Hing, Ricky and
Mr. Cheng Tai Po and Ms. Yan Sau Man, Amy accounted
for approximately 73.4%, 98.3% and 82.5% of their total
compensation from Man Sang International Limited.
Man Sang Jewellery Company Limited entered into an open-term
service agreement with Mr. Pak Wai Keung, Martin on
August 18, 2006. The annual base salary payable to
Mr. Pak Wai Keung, Martin in fiscal year 2009 was
US$211,538 (HK$1.65 million). He is also entitled to an
annual discretionary bonus, subject to annual review by the
board of directors of Man Sang International Limited. The
service agreement of Mr. Pak Wai Keung, Martin may be
terminated by either party by giving the other party written
notice of not less than two months. In fiscal year 2009,
the annual base salary and discretionary bonus of Mr. Pak
Wai Keung, Martin accounted for all of Mr. Paks
compensation from Man Sang International Limited.
Ms. Wong Hung Flavia Yuen Yee was appointed as a director
of Man Sang International Limited on August 8, 2008.
Ms. Wong Hung Flavia Yuen Yee resigned as director of Man
Sang International Limited as of June 26, 2009.
Ms. Wong Hung Flavia Yuen Yees service agreement was
for an initial term of three years and provided that either
party could terminate the agreement by giving the other party
written notice of not less than two months. The annual base
salary payable to Ms. Wong Hung Flavia Yuen Yee under the
service agreement was US$256,410 (HK$2.0 million), subject
to annual review by the board of directors of Man Sang
International Limited. Pursuant to the service agreement,
Ms. Wong Hung Flavia Yuen Yee was also entitled to five
million options to subscribe for shares of Man Sang
International Limited, which were exercisable upon completion of
her first year of service. Ms. Wong Hung Flavia Yuen Yee
was also entitled to an annual discretionary bonus to be
determined on an annual basis by the remuneration committee of
the board of directors of Man Sang International Limited.
86
Executive
Compensation
During fiscal year 2009, in addition to its principal executive
officer and principal financial officer, Man Sang Nevada had two
executive officers in its management team whose annual
compensation exceeded (or would have exceeded if annualized)
HK$780,000 (approximately US$100,000).
For fiscal year 2009, we paid an aggregate of US$2,116,755 in
total compensation to our directors and executive officers.
Summary
Compensation Table
The following table sets forth information with respect to
compensation of our Chief Executive Officer, Chief Financial
Officer and the three most highly compensated executive officers
other than the Chief Executive Officer and the Chief Financial
Officer during fiscal years 2009, 2008 and 2007.
SUMMARY
COMPENSATION
TABLE(1)
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Non-Qualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus
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Awards
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Awards(5)
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Compensation
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Earnings
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Compensation
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Total
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(US$)
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(US$)
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(US$)
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(US$)
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(US$)
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(US$)
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(US$)
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Mr. Cheng Chung Hing,
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2009
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384,615
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128,205
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(2)
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209,745
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(9)
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722,565
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Ricky (Chairman of the
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2008
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384,615
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128,205
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(2)
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160,307
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673,127
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Board, President and
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2007
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384,615
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128,205
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(2)
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9,253
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(6)
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121,385
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643,458
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Chief Executive Officer)
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Mr. Cheng Tai Po
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2009
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461,538
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128,205
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(2)
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4,407
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594,150
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(Vice Chairman)
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2008
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461,538
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128,205
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(2)
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1,192
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590,935
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2007
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384,615
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128,205
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(2)
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9,253
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(6)
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2,846
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524,919
|
|
Mr. Pak Wai Keung,
|
|
|
2009
|
|
|
|
211,538
|
|
|
|
38,461
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249,999
|
|
Martin (Chief Financial
|
|
|
2008
|
|
|
|
192,307
|
|
|
|
38,461
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,768
|
|
Officer)
|
|
|
2007
|
|
|
|
95,824
|
|
|
|
12,821
|
(3)
|
|
|
|
|
|
|
177,288
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,933
|
|
Ms. Yan Sau Man, Amy
|
|
|
2009
|
|
|
|
230,769
|
|
|
|
153,846
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384,615
|
|
(Director of Man Sang International Limited)
|
|
|
2008
|
|
|
|
230,769
|
|
|
|
205,128
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435,897
|
|
|
|
|
2007
|
|
|
|
211,538
|
|
|
|
205,128
|
(4)
|
|
|
|
|
|
|
92,530
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509,196
|
|
Ms. Wong Hung Flavia Yuen Yee (Director of Man Sang
International Limited)
|
|
|
2009
|
|
|
|
165,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,426
|
|
|
|
|
(1) |
|
All compensation values reported in the Summary Compensation
Table are presented in U.S. dollars. However, the named
executive officers received all compensation in Hong Kong
dollars. The translation of Hong Kong dollar amounts into U.S.
dollars have been made at the rate of HK$7.8 to US$1, the
approximate free rate of exchange as of March 31, 2009.
Such translations should not be construed as representations
that Hong Kong dollar amounts could be converted into U.S.
dollars at that rate or any other rate. |
|
(2) |
|
Each of Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai
Po received a bonus of US$128,205 (HK$1,000,000) from our
company for each of fiscal years 2009, 2008 and 2007. |
|
(3) |
|
Mr. Pak Wai Keung, Martin received a bonus of US$38,461
(HK$300,000), US$38,461 (HK$300,000) and US$12,821 (HK$100,000)
from Man Sang International Limited for fiscal years 2009, 2008
and 2007, respectively. |
|
(4) |
|
Ms. Yan Sau Man, Amy received a bonus of US$153,846
(HK$1,200,000), US$205,128 (HK$1,600,000) and US$205,128
(HK$1,600,000) from Man Sang International Limited for fiscal
years 2009, 2008 and 2007, respectively. |
|
(5) |
|
During the fiscal year 2007, Man Sang International Limited
granted 73,000,000 share options to purchase shares in Man
Sang International Limited at three different times. The
aggregate fair value of all share options granted was US$847,051
(HK$6,607,000), computed in accordance with the Black-Scholes
option pricing model. |
87
|
|
|
(6) |
|
Each of Mr. Cheng Chung Hing, Ricky and Mr. Cheng Tai
Po received 1,000,000 share options from Man Sang
International Limited in fiscal year 2007. The fair value of the
share options to each of them is US$9,253 (HK$72,173). |
|
(7) |
|
Mr. Pak Wai Keung, Martin received 5,000,000 share
options from Man Sang International Limited in fiscal year 2007.
The fair value of these share options is US$177,288
(HK$1,382,846). |
|
(8) |
|
Ms. Yan Sau Man, Amy received 10,000,000 share options
from Man Sang International Limited in fiscal year 2007. The
fair value of these share options is US$92,530 (HK$721,734). |
|
(9) |
|
The 2009 amount listed in this column for Mr. Cheng Chung
Hing, Ricky includes use of our leasehold property as a personal
residence (US$176,308), residential management fees (US$16,968),
residential government fees (US$10,261), use of a residential
parking space (US$4,308), payment of mandatory provident fund
(US$1,538), travel insurance fees (US$203), medical and life
insurance fees (US$96) and employment compensation insurance
fees (US$65). The estimated fair rental value of the leasehold
property is based on the ratable value assessed by
the Rating and Valuation Department of The Government of Hong
Kong Special Administrative Region, being an estimate of the
annual rental of the premises at a designated valuation
reference date based on factors including age, size, location
and quality of the premises. |
Grants of
Plan-Based Awards
There were no grants of plan-based awards to our named executive
officers in fiscal year 2008.
Man Sang Nevada adopted a stock option plan in 2007. Pursuant to
this plan, the board of directors may grant options of Man Sang
Nevada to employees and consultants of Man Sang Nevada. Eligible
employees include persons regularly employed by Man Sang Nevada
or its subsidiaries in a managerial, professional or technical
capacity on a full-time and salaried basis. As of the date of
this proxy statement/prospectus, no options have been issued
under this plan, which will be terminated as of the effective
time of the liquidation.
At or promptly after the effective time of the liquidation, Man
Sang BVI intends to adopt a new stock option plan to replace a
2007 stock option plan adopted by Man Sang Nevada. As of the
date of this proxy statement/prospectus, no options have been
issued under this plan. The new stock option plan will be
subject to the approval by the shareholders of Man Sang BVI at
an extraordinary general meeting. The terms and conditions of
the new stock option plan will be substantially similar to the
terms and conditions of the Man Sang Nevada 2007 stock option
plan.
The Man Sang Nevada 2007 stock option plan will be terminated as
of the effective time of the liquidation.
88
Outstanding
Equity Awards
The following table sets forth information with respect to the
outstanding equity awards as of the end of fiscal year 2009 for
our Chief Executive Officer, Chief Financial Officer, and three
most highly compensated executive officers other than the Chief
Executive Officer and the Chief Financial Officer.
OUTSTANDING
EQUITY AWARDS AT FISCAL
YEAR-END(1)
|
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|
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|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Payout
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Value of
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
Number
|
|
Market
|
|
Unearned
|
|
Unearned
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
of
|
|
Value of
|
|
Shares,
|
|
Shares,
|
|
|
Number of
|
|
Number of
|
|
Awards:
|
|
|
|
|
|
Shares
|
|
Shares
|
|
Units or
|
|
Units or
|
|
|
Securities
|
|
Securities
|
|
Number of
|
|
|
|
|
|
or Units
|
|
or Units
|
|
Other
|
|
Other
|
|
|
Underlying
|
|
Underlying
|
|
Securities
|
|
|
|
|
|
of Stock
|
|
of Stock
|
|
Rights
|
|
Rights
|
|
|
Unexercised
|
|
Unexercised
|
|
Underlying
|
|
|
|
|
|
That
|
|
That
|
|
That
|
|
That
|
|
|
Options
|
|
Options
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Have
|
|
Have
|
|
Have
|
|
Have
|
|
|
(#)
|
|
(#)
|
|
Unearned
|
|
Exercise
|
|
Expiration
|
|
Not
|
|
Not
|
|
Not
|
|
Not
|
Name
|
|
Exercisable(2)
|
|
Unexercisable
|
|
Options
|
|
Price
|
|
Date
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Vested
|
|
|
|
|
|
|
(#)
|
|
(US$)
|
|
|
|
(#)
|
|
(US$)
|
|
(#)
|
|
(#)
|
|
Mr. Cheng Chung Hing, Ricky
|
|
|
1,000,000
|
(3)
|
|
|
|
|
|
|
|
|
|
|
0.0324
|
(6)
|
|
May 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Cheng Tai Po
|
|
|
1,000,000
|
(3)
|
|
|
|
|
|
|
|
|
|
|
0.0324
|
(6)
|
|
May 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Pak Wai Keung, Martin
|
|
|
5,000,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
0.0641
|
(7)
|
|
March 12, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Yan Sau Man, Amy
|
|
|
10,000,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
0.0324
|
(6)
|
|
May 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Wong Hung Flavia Yuen Yee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All values reported in the above Outstanding Equity Awards At
Fiscal Year-End Table are presented in United States dollars.
However, the option exercise price of the option awards is in
Hong Kong dollars. The translation of Hong Kong dollar amounts
into United States dollars has been made at the rate of HK$7.8
to US$1, the approximate free rate of exchange as of
March 31, 2009. Such translations should not be construed
as representations that Hong Kong dollar amounts could be
converted into United States dollars at that rate or any other
rate. |
|
(2) |
|
The shares options granted by Man Sang International Limited to
each of Mr. Cheng Chung Hing, Ricky, Mr. Cheng Tai Po
and Ms. Yan Sau Man, Amy are exercisable immediately on the
grant date. |
|
(3) |
|
Represents 1,000,000 share options granted by Man Sang
International Limited to purchase shares of Man Sang
International Limited to each of Mr. Cheng Chung Hing,
Ricky and Mr. Cheng Tai Po. |
|
(4) |
|
Represents 5,000,000 share options granted by Man Sang
International Limited to purchase shares of Man Sang
International Limited to Mr. Pak Wai Keung, Martin. |
|
(5) |
|
Represents 10,000,000 share options granted by Man Sang
International Limited to purchase shares of Man Sang
International Limited to Ms. Yan Sau Man, Amy. |
|
(6) |
|
The exercise price of each share option is US$0.0324 (HK$0.253),
which is determined by the arithmetic average of the closing
price of Man Sang International Limited shares for each of the
five trading days immediately prior to and including May 2,
2006. |
|
(7) |
|
The exercise price of each share option is US$0.0641 (HK$0.500),
which is determined by the arithmetic average of the closing
price of Man Sang International Limited shares for each of the
five trading days immediately prior to and including
March 13, 2007. |
89
Option
Exercises and Stock Vested
There was no exercise of stock options, stock appreciation
rights or similar instruments, and no vesting of stock,
including restricted stock, restricted stock units or similar
instruments in fiscal year 2009 for any of our named executive
officers. We have, therefore, omitted the Option Exercises and
Stock Vested Table.
Pension
Benefits Table and Nonqualified Deferred Compensation
Table
We do not offer pension benefits and nonqualified deferred
compensations and have, therefore, omitted the Pension Benefits
table and Nonqualified Deferred Compensation table.
Non-Executive
Director Compensation
No employee of our company receives any compensation for his or
her services as a director. We paid US$21,794 (HK$170,000) to
Mr. Lai Chau Ming, Matthew and Mr. Wong Gee Hang, Henry and
US$19,230 (HK$150,000) to Mr. Tsui King Chung, Francis for their
services as a non-executive director of our company in fiscal
year 2009. The following table sets forth information with
respect to the fees paid to Man Sang Nevadas non-executive
directors during fiscal year 2009.
NON-EXECUTIVE
DIRECTOR COMPENSATION FOR FISCAL YEAR
2009(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
or Paid
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name
|
|
in
Cash(2)
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
|
|
(US$)
|
|
(US$)
|
|
(US$)
|
|
(US$)
|
|
|
|
(US$)
|
|
(US$)
|
|
Mr. Lai Chau Ming, Matthew
|
|
|
21,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,794
|
|
Mr. Wong Gee Hang, Henry
|
|
|
21,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,794
|
|
Mr. Tsui King Chung, Francis
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,230
|
|
|
|
|
(1) |
|
All compensation values reported in the above Non-Executive
Director Compensation Table are presented in U.S. dollars.
However, the directors received all compensation in Hong Kong
dollars. The translation of Hong Kong dollar amounts into U.S.
dollars have been made at the rate of HK$7.8 to US$1, the
approximate free rate of exchange as of March 31, 2009.
Such translations should not be construed as representations
that Hong Kong dollar amounts could be converted into U.S.
dollars at that rate or any other rate. |
|
(2) |
|
This column represents the amount of cash compensation earned in
fiscal year 2009 for director and committee service. |
Compensation
Committee Interlocks and Insider Participation
During the last fiscal year, none of the members of the
Compensation Committee were our officers or employees or our
former officers or employees and are not our executives or
executives of any of our subsidiaries, save as disclosed in
Certain Relationships and Related Transactions.
Save as disclosed in Certain Relationships and
Related Transactions and in the above, none of our
executive officers, (1) served as a member of the
compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose
executive officers served on our Compensation Committee (or
other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors),
(2) served as a director of another entity, one of whose
executive officers served on our Compensation Committee (or
other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors),
or (3) served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as our
director.
90
Certain
Relationships and Related Transactions
Our board of directors is responsible for reviewing
relationships and transactions in which we and our directors and
executive officers or their immediate family members are
participants to determine whether such related persons have a
direct or indirect material interest. We review questionnaires
provided by the directors and executive officers at the end of
each fiscal year confirming the nature of their related
transactions with us, if any, during the year. Our board of
directors is primarily responsible for the development and
implementation of processes and controls to obtain information
from the directors and executive officers with respect to
related person transactions and for then determining, based on
the facts and circumstances, whether a related person has a
direct or indirect material interest in the transaction. Our
board of directors reviews and approves or ratifies any related
person transaction that is required to be disclosed. In the
course of its review and approval or ratification of a
disclosable related person transaction, the board of directors
considers:
|
|
|
|
|
the nature of the related persons interest in the
transaction;
|
|
|
|
the material terms of the transaction, including, without
limitation, the amount and type of transaction;
|
|
|
|
the importance of the transaction to the related person;
|
|
|
|
the importance of the transaction to us;
|
|
|
|
whether the transaction would impair the judgment of a director
or executive officer to act in our best interest; and
|
|
|
|
any other matters the board of directors deems appropriate.
|
Any member of the board of directors who is a related person
with respect to a transaction under review may not participate
in the deliberations or vote for approval or ratification of the
transaction, provided, however, that this director may be
counted in determining the presence of a quorum at a meeting of
the board of directors that considers the transaction.
No material related person transactions have occurred since the
beginning of fiscal year 2007 up to and including the date of
this proxy statement/prospectus or are currently proposed, other
than as set forth below:
On July 1, 2008, Man Sang Jewellery Company Limited, an
indirect subsidiary of our company, entered into an agreement to
share office premises with China South City Holdings Limited, an
enterprise controlled by our controlling stockholders, Cheng
Chung Hing, Ricky and Cheng Tai Po, pursuant to which Man Sang
Jewellery Company Limited agreed to share a portion of its
office premises with China South City Holdings Limited for a
term expiring on March 16, 2011. During the fiscal year
ended March 31, 2009, China South City Holdings Limited
paid Man Sang Jewellery Company Limited approximately
HK$1.4 million (inclusive of rental rates, management fees
and government rates) pursuant to the terms of this agreement.
91
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common
Stock
The following table sets forth information with respect to
beneficial ownership of shares of our common stock, as of the
record date, by (1) each shareholder of Man Sang Nevada who
is known to us to be a beneficial owner of more than 5% of our
common stock, (2) each director, nominee for director and
each executive officer of our company, individually, and
(3) all executive officers and directors of Man Sang Nevada
as a group. Except where information was otherwise known by us,
we have relied solely upon filings of Schedules 13D and 13G
to determine the number of shares of our common stock owned by
each person known to us to be the beneficial owner of more than
5% of our common stock as of such date.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of
|
|
|
Name and Address of Beneficial
Owner(1)
|
|
Beneficial
Ownership(2)
|
|
Percent of Class
|
|
|