SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of December 2002
LJ International Inc.
-----------------------------------------------
(Translation of registrant's name into English)
Unit #12, 12/F, Block A
Focal Industrial Centre
21 Man Lok Street, Hung Hom, Hong Kong
----------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
--- ---
[If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LJ International Inc.
-----------------------------
(Registrant)
Date: December 16, 2002 By: /s/ NG HON TAK RINGO
----------------- -------------------------
NG HON TAK RINGO,
Chief Financial Officer
LJ INTERNATIONAL INC
INDEX
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets,
October 31, 2002 (Unaudited) and April 30, 2002, 2
Condensed Consolidated Statements of Operations,
For the Three Months And Six Months Ended
October 31, 2002 and October 31, 2001(Unaudited) 4
Condensed Consolidated Statements of Changes in Stockholders' Equity,
For the Six Months Ended
October 31, 2002 and October 31, 2001 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows,
For the Six Months Ended
October 31, 2002 and October 31, 2001 (Unaudited) 7
Notes to the Condensed Consolidated Financial
Statements 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION:
Item 1 Through Item 6 16
LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
As of As of
October 31 April 30
2002 2002
---------- --------
(Unaudited)
US$ US$
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 829 722
Restricted cash 5,663 5,643
Trade receivables, net of allowance for doubtful
accounts (US$225 as of October 31 and April 30, 2002) 11,782 8,013
Inventories 17,187 15,802
Prepayments and other current assets 1,650 1,203
------ ------
37,111 31,383
TOTAL CURRENT ASSETS
Property, plant and equipment, net 6,573 6,251
Due from related parties 513 521
Goodwill, net of accumulated amortization and impairment loss 2,121 2,121
Investment securities 2,660 2,684
Other investments 1 1
------ ------
TOTAL ASSETS 48,979 42,961
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts 3,546 2,607
Notes payable, current portion 58 282
Letters of credit, gold and other loans 13,759 11,343
Trade payables 5,897 3,310
Accrued expenses and other payables 1,942 1,677
Capitalized lease obligations, current 31 46
Income taxes payable 3 3
------ ------
TOTAL CURRENT LIABILITIES 25,236 19,268
Capitalized leased obligations, non-current -- 8
------ ------
TOTAL LIABILITIES 25,236 19,276
------ ------
MINORITY INTEREST 12 128
1
As of As of
October 31 April 30
2002 2002
---------- --------
(Unaudited)
US$ US$
STOCKHOLDERS' EQUITY
Common stocks, par value US$0.01 each,
Authorized - 100 million shares,
Issued and outstanding -
8,671,615 shares as of October 31 and April 30, 2002 87 87
Additional paid-in capital 17,410 17,464
Treasury stock (369) --
Accumulated other comprehensive loss (151) --
Retained earnings 6,754 6,006
------ ------
TOTAL STOCKHOLDERS' EQUITY 23,731 23,557
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 48,979 42,961
====== ======
See accompanying notes to the condensed consolidated financial statements.
2
LJ INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three months ended Six months ended
October 31 October 31
2002 2001 2002 2001
US$ US$ US$ US$
OPERATING REVENUE 14,907 10,423 23,676 18,768
Costs of goods sold (10,533) (7,307) (16,652) (12,441)
---------- ---------- ---------- ----------
Gross profit 4,374 3,116 7,024 6,327
Selling, general and administrative expenses (3,177) (3,327) (6,104) (6,317)
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 1,197 (211) 920 10
Finance costs, net (145) (160) (287) (247)
Minority interests 52 -- 116 --
---------- ---------- ---------- ----------
1,104 (371) 749 (237)
INCOME (LOSS) BEFORE INCOME TAXES
Income taxes -- -- (1) (39)
---------- ---------- ---------- ----------
NET INCOME (LOSS) 1,104 (371) 748 (276)
========== ========== ========== ==========
Numerator:
Net income (loss) used in computing basic
and diluted earnings (loss) per share 1,104 (371) 748 (276)
========== ========== ========== ==========
Denominator:
Weighted average number of shares used in
calculating basic earnings (loss) per
share 8,671,615 8,671,615 8,671,615 8,671,615
Effect of dilutive potential ordinary shares:
Warrants & stock options -- -- -- --
---------- ---------- ---------- ----------
Weighted average number of shares used
in calculating diluted earnings (loss)
per share 8,671,615 8,671,615 8,671,615 8,671,615
========== ========== ========== ==========
Earnings (loss) per share:
Basic 0.13 (0.04) 0.09 (0.03)
========== ========== ========== ==========
Diluted 0.13 (0.04) 0.09 (0.03)
========== ========== ========== ==========
See accompanying notes to the consolidated condensed financial statements.
3
LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
SIX MONTHS ENDED OCTOBER 31, 2002
Common Stock Treasury Stock Accumulated
------------ Additional -------------- Other
Paid-in Purchase Comprehensive Retained
Shares Par Value Capital Share Cost Loss Earnings Total
--------- --------- ---------- --------- --------- ------------- --------- ---------
US$ US$ US$ US$ US$ US$
Balance as of April 30, 2002 8,671,615 87 17,464 -- -- -- 6,006 23,557
Purchase of treasury stock -- -- -- 301,400 (369) -- -- (369)
Net loss -- -- (54) -- -- -- 748 694
Cumulative translation adjustment -- -- -- -- -- (151) -- (151)
---------
Comprehensive loss 543
--------- --------- --------- --------- --------- --------- --------- ---------
Balance as of October 31, 2002 8,671,615 87 17,410 301,400 (369) (151) 6,754 23,731
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements.
4
LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
SIX MONTHS ENDED OCTOBER 31, 2001
Common Stock Treasury Stock Accumulated
------------ Additional -------------- Other
Paid-in Purchase Comprehensive Retained
Shares Par Value Capital Share Cost Loss Earnings Total
--------- --------- ---------- --------- --------- ------------- --------- ---------
US$ US$ US$ US$ US$ US$
Balance as of April 30, 2001 8,671,615 87 17,166 - - - 13,908 31,161
Stock-based transactions - - 147 - - - - 147
Comprehensive income: net income - - - - - - (276) (276)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance as of October 31, 2001 8,671,615 87 17,313 - - - 13,632 31,032
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements.
5
LJ INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six months ended
October 31
---------------------
2002 2001
------ ------
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 748 (276)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 625 465
Non-cash stock based transactions (54) 147
Minority interests (116) --
Changes in operating assets and liabilities:
Trade receivables (3,769) (711)
Inventories (1,385) (1,847)
Prepayments and other current assets (447) (1,847)
Due from related parties 8 (656)
Trade payables 2,587 62
Accrued expenses and other payables 265 599
Due to director -- (247)
Letters of credit 2,442 2,354
------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 904 (1,957)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,009) (367)
Increase in restricted cash (20) 11
------ ------
NET CASH USED IN INVESTING ACTIVITIES (1,029) (356)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (369) --
Loans acquired 622 1,435
Repayment of loans (872) (244)
Repayment of capitalized leases (23) (12)
Increase in bank overdraft 939 525
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 297 1,704
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 172 (609)
CASH AND CASH EQUIVALENTS, AS OF BEGINNING OF PERIOD 722 1,706
Effect of foreign exchange rate changes (65) --
------ ------
CASH AND CASH EQUIVALENTS, AS OF END OF PERIOD 829 1,097
====== ======
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest 318 331
Taxes 1 --
See accompanying notes to the condensed consolidated financial statements.
6
LJ INTERNATIONAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO APRIL 30, 2002 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements included the
accounts of LJ International Inc. (the "Company") and its subsidiaries.
All material intercompany accounts and transactions have been eliminated
on consolidation.
The accompanying unaudited condensed consolidated financial statements as
of October 31, 2002 and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles in the United States have been omitted
pursuant to such rules and regulations. The accompanying unaudited
interim condensed consolidated financial statements and related notes
should be read in conjunction with the financial statements and related
notes included in the 2002 Annual Report to Stockholders of LJ
International Inc.
Effective May 1, 2002, the Company has determined that reporting currency
is U.S. dollar and local currency will continue to be the functional
currency for the Company's foreign subsidiaries. This change was adopted
in order to assist the readers in understanding the financial statements.
The financial statements of periods prior the change have been
comprehensively recast as if the new reporting currency had been used.
Assets and liabilities denominated in foreign functional currencies are
translated at the exchange rate as of the balance sheet date. Revenues,
costs and expenses denominated in foreign functional currencies are
translated at the weighted average exchange rate for the period. The
effects of foreign currencies translation adjustments are included in a
separate component of accumulated other comprehensive income (loss).
The information furnished reflects, in the opinion of the management of
the Company, all adjustments, consisting of normal recurring accruals,
which are necessary to present a fair statement of the results for the
interim periods presented.
The interim figures are not necessarily indicative of the results to be
expected for the fiscal year due to the seasonal nature of the business.
2. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146 "Accounting for costs
associated with Exit or Disposal Activities". This statement requires
that a liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. An entity's commitment to
plan, by itself, does not create a present obligation to others that
meets the definition of a liability. This Statement is effective for exit
or disposal activities that are initiated after December 31, 2002. The
Company does not believe that the adoption of the Statement will have
material impact on its financial position or result of operations.
3. INVENTORIES
Inventories consist of:
As of As of
Oct 31 April 30
2002 2002
------- --------
US$'000 US$'000
Raw materials 11,816 10,691
Work-in-progress 461 533
Finished goods 4,910 4,578
------ ------
17,187 15,802
====== ======
7
4. STOCK REPURCHASE PROGRAM
In September 2001, the Company announced a Common Stock repurchase program
pursuant to which the Company may repurchase up to 1,000,000 shares of
Common Stock.
As of October 31, 2002, the Company purchased, through open market
purchases 301,400 shares of common stock of the Company at an aggregate
consideration of approximately US$369,000.
5 STOCK BASED COMPENSATION
Effective June 1, 1998, the Company adopted and approved the 1998 Stock
Compensation Plan. The purpose of the plan is to:
o encourage ownership of the common stock by the Company's officers,
directors, employees and advisors;
o provide additional incentive for them to promote the Company's
success and the Company's business; and
o encourage them to remain in employment by providing them an
opportunity to benefit from any appreciation of the Company's
common stock through the issuance of stock options.
Options constitute either incentive stock options within the meaning of
Section 422 of the United States Internal Revenue Code of 1986, as
amended, or options which constitute nonqualified options at the time of
issuance of such options. The plan provides that incentive stock options
and/or nonqualified stock options may be granted to the officers,
directors, employees and advisors selected by the compensation committee.
A total of 4,000,000 shares of common stock are authorized and reserved
for issuance during the term of the plan which expires in June 2008. The
compensation committee has the sole authority to interpret the plan and
make all determinations necessary or advisable for administering the
plan. The exercise price for any incentive option must be at least equal
to the fair market value of the shares as of the date of grant. Upon the
exercise of the option, the exercise price must be paid in full either in
cash, shares of the Company's stock or a combination. If any option is
not exercised for any reason, such shares shall again become available
for the purposes of the plan.
On October 17, 2000, the Company offered each option holder the
opportunity to cancel all or some of the stock options previously granted
in exchange for the granting on April 30, 2001 of options to acquire an
equal number of shares with an exercise price equal to the then last sale
price of the stock on April 30, 2001 for a new term of seven years
expiring April 30, 2008.
As of October 31, 2002, no options had been exercised and the following
exchanged options to purchase shares of our common stock under the Plan
remained outstanding:
o stock options to purchase 2,918,000 shares at $2.00 per share
through April 30, 2008, of which 1,181,000 are held by our
directors and officers as a group.
The Company adopted the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" in respect of options granted to employees. As
permitted by SFAS No. 123, the Company has chosen to account for
stock-based compensation using the intrinsic value method. Accordingly,
because the exercise price of the Company's incentive stock options is
same as or higher than the market price of the underlying stock on the
date of grant, no compensation expense has been recognized for its
stock-based compensation plan.
8
LJ INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO APRIL 30, 2002 IS UNAUDITED)
We are a totally vertically integrated company that designs, brands, markets and
distributes a complete range of fine jewelry. While we specialize in the
semi-precious jewelry segment, we also offer high-end pieces set in yellow gold,
white gold, platinum or sterling silver and adorned with semi-precious stones,
diamonds, pearls and precious stones. We distribute mainly to fine jewelers,
department stores, national jewelry chains and electronic and specialty
retailers throughout North America and Western Europe. Our product lines
incorporate all major categories sought by major retailers, including earrings,
necklaces, pendants, rings and bracelets.
We believe that our vertically integrated structure provides significant
advantages over our competitors. All profits from value added processes are
captured internally, rather than shared with third party manufacturers. This
results in very competitive pricing for the retailer and enhanced profits for
us. Innovative processes in stone cutting and manufacturing further enhance our
competitive position.
We employ an international design team and all of our designs and merchandising
strategies are proprietary. Our exclusive and innovative concepts that we create
offer brand potential. Our primary marketing focus has been in North America
where we have sold directly to certain high volume customers who need
specialized product development services and through a marketing relationship
with International Jewelry Connection (IJC) for those customers that need higher
levels of service and training.
We organize our marketing and distribution strategies by retail distribution
channels. Concepts are developed for the specific needs of different market
segments. We have identified the following as prime retail targets:
- fine jewelers;
- national jewelry chains;
- department stores;
- electronic retailers; and
- specialty retailers.
We start a new segment of business in relation to jewelry giftware and other
products, which is at the development stage. The continuing role of the
"giftware" and "point of sale" segment product lines will be evaluated prior to
April 30, 2003 as pointed out in the Company's guidance.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
October 31, 2002 AND October 31, 2001
Net sales for the three months ended October 31, 2002 were approximately
$14,907,000, an increase of 43% from net sales of approximately $10,423,000 for
the comparable period last year. The increase in sales was primarily due to the
acceptance of new products, the addition of new customers and the large increase
in orders from existing customers.
Gross profit margin decreased to approximately 29.3% of net sales for the three
months ended October 31, 2002 compared to approximately 29.9% for the comparable
period last year, primarily due to company's efforts to increase market
penetrations and market shares through its pricing strategy.
Selling, general and administrative expenses for the three months ended October
31, 2002 were approximately $3,177,000, consisting of three main business
segments expenses of marketing & distributing of jewelry, point of sales of
jewelry and trading of giftware with $2,698,000, $352,000 and $127,000
respectively. For marketing & distributing of jewelry expenses, there was a
decrease of $629,000 or 18.9% from approximately $3,327,000 for the comparable
period last year. There was severance payment as one of our overall cost cutting
exercises in the light of post 911 event in the US in comparable period last
year.
Interest expenses for the three months ended October 31, 2002 were approximately
$160,000, a slight decrease of $5,000 or 3% from approximately $165,000 for the
comparable period last year.
As a result of the above factors, the Company had a net income for the three
months ended October 31, 2002 of $1,104,000 compared to a net loss of $371,000
for the comparable period last year.
Basic and diluted earnings per share for the three months ended October 31, 2002
was $0.13 compared to basic and diluted loss per share of $0.04 for the
comparable period last year.
9
Segment information
Marketing & Point of
distributing sales of Trading of
of Jewelry Jewelry giftware Total
------------ -------- ---------- -------
USD'000 USD'000 USD'000 USD'000
Three Months Ended October 31,2001
Net sales 10,423 - - 10,423
EBITDA 35 - - 35
Depreciation & amortization (246) - - (246)
Finance cost, net (160) - - (160)
Net income (loss) (371) - - (371)
Capital expenditures 207 - - 207
Segment assets 50,368 - - 50,368
Three Months Ended October 31,2002
Net sales 14,820 41 46 14,907
EBITDA 1,855 (194) (140) 1,521
Depreciation & amortization (210) (113) (1) (324)
Finance cost, net (142) (2) (1) (145)
Net income (loss) 1,503 (265) (134) 1,104
Capital expenditures 677 48 6 731
Segment assets 47,579 1,269 131 48,979
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
October 31, 2002 AND October 31, 2001
Net sales for the six months ended October 31, 2002 were approximately
$23,676,000, an increase of 26.2% from net sales of approximately $18,768,000
for the comparable period last year. The increase in sales was primarily due to
the acceptance of new products, the addition of new customers and the large
increase in orders from existing customers.
Gross profit margin decreased to approximately 29.7% of net sales for the six
months ended October 31, 2002 compared to approximately 33.7% for the comparable
period last year, primarily due to a change in the product and customer mix, and
discount given on certain sales programs to increase market share.
Selling, general and administrative expenses for the six months ended October
31, 2002 were approximately $6,104,000, consisting of three main business
segments expenses of marketing & distributing of jewelry, point of sales of
jewelry and trading of giftware with $5,022,000, $710,000 and $372,000
respectively. For marketing & distributing of jewelry expenses, there was a
decrease of $1,295,000 or 20.5% from approximately $6,317,000 for the comparable
period last year. The decrease was primarily attributable to the change of
commission structure to salesmen and agents, and redundancy payment as one of
our overall cost cutting exercises in the light of post 911 event in the US in
comparable period last year.
Interest expenses for the six months ended October 31, 2002 were approximately
$318,000, a slight decrease of $13,000 or 3.9% from approximately $331,000 for
the comparable period last year. The decrease was primarily attributable to the
drop of consecutive cuts of interest rates.
As a result of the above factors, the Company had a net income for the six
months ended October 31, 2002 of $748,000 compared to a net loss of $276,000 for
the comparable period last year.
Basic and diluted earnings per share for the six months ended October 31, 2002
was $0.09 compared to basic and diluted loss per share of $0.03 for the
comparable period last year.
10
Segment information
Marketing & Point of
distributing sales of Trading of
of Jewelry Jewelry giftware Total
------------ -------- ---------- -------
USD'000 USD'000 USD'000 USD'000
Six Months Ended October 31,2001
Net sales 18,768 - - 18,768
EBITDA 475 - - 475
Depreciation & amortization (465) - - (465)
Finance cost, net (247) - - (247)
Net income (loss) (276) - - (276)
Capital expenditures 367 - - 367
Segment assets 50,368 - - 50,368
Six Months Ended October 31,2002
Net sales 23,553 77 46 23,676
EBITDA 2,380 (450) (385) 1,545
Depreciation & amortization (409) (215) (1) (625)
Finance cost, net (283) (3) (1) (287)
Net income (loss) 1,688 (572) (368) 748
Capital expenditures 807 191 11 1,009
Segment assets 47,579 1,269 131 48,979
LIQUIDITY AND CAPITAL RESOURCES
We have no direct business operations other than the ownership of our
subsidiaries and investment securities. Our ability to pay dividends and meet
other obligations depends upon our receipt of dividends or other payments from
our operating subsidiaries and investment securities. There are currently no
known restrictions on our subsidiaries and investment securities to pay
dividends to us; however, we do not currently intend to pay dividends to our
shareholders.
Cash:
During the six months ended October 31, 2002, as a result of $904,000 provided
by operating activities, and $1,029,000 used in investing activities and
$297,000 provided by financing activities, cash and cash equivalents increased
by $172,000.
Net cash provided by operating activities during the six-month period ended
October 31,2002 was $904,000, compared to $1,957,000 used in operating
activities in the comparable period last year.
Net cash used by investing activities during the six-month period ended October
31, 2002 was $1,029,000, compared to $356,000 in the comparable period last
year.
Net cash provided by financing activities during the six-month period ended
October 31, 2002 was $297,000, compared to $1,704,000 in the comparable period
last year. It was primarily due to the net settlement of $26,000 of gold loan
compared to $1,435,000 received in respect of new gold loan arrangement in
comparable period last year.
Accounts Receivable:
As of October 31, 2002, net accounts receivable increased by $3,769,000 to
$11,782,000 from $8,013,000 as of April 30, 2002.
Inventory
As of October 31, 2002, inventory increased by $1,385,000 to $17,187,000 from
$15,802,000 as of April 30, 2002. It was primarily due to increased purchase of
diamond to meet diamond sales orders.
Letters of Credit:
As of October 31, 2002, we had various letters of credit under banking
facilities which totaled $9,615,000. We had $8,088,000 and $5,646,000
outstanding under letters of credit as of October 31, 2002 and Apr 30, 2002.
Under the
11
banking facilities arrangement, we are required to maintain certain cash
balances which totaled $5,256,000 as of October 31, 2002 and April 30, 2002.
Gold Loan Facilities:
We have also secured "gold loan" facilities with various banks in Hong Kong,
which typically bear a below-market interest rate. At the close of each
reporting period, the gold loan is "marked to market" with changes reflected on
the income statement. Due to lower interest rates charged for gold loans, our
cost through our gold loan program has been substantially less than the costs
that would have been incurred if we were to finance the purchase of all of our
gold requirements with borrowings under our letter of credit facility or other
credit arrangements. The gold loan, however, does expose us to certain market
risks associated with potential future increases in the price of gold, and we
currently do not hedge against such risks. Under the gold loan arrangements, we
may defer the purchase until such time as we decide appropriate, the price to be
paid being the current market price at time of payment. We had outstanding loans
to purchase 18,350 and 18,450 ounces of gold as of October 31, 2002 and April
30, 2002 with the related balance being $5,670,000 and $5,697,000 respectively.
Interest rates for these loans were 1.5% to 3.4% as of October 31, 2002 (Apr 30,
2002: 1.7% to 3.4%).
Notes Payable:
Long-term mortgage loans on our properties totaled $58,000 and $282,000 as of
October 31, 2002 and April 30, 2002. All of our properties are pledged
substantially as collateral for our banking facilities.
FORWARD LOOKING STATEMENTS
This Interim Report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements include the words "believe," "expect," "plans" or
similar words and are based in part on the Company's reasonable expectations and
are subject to a number of factors and risks, many of which are beyond the
Company's control. Actual results could differ materially from those discussed
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as a result of any of the following factors:
a) general economic conditions and their impact on the retail environment;
b) fluctuations in the price of gold and other metals used to manufacture
the Company's jewelry;
c) risks related to the concentration of the Company's customers,
particularly the operations of any of its top customers;
d) variability of customer requirements and the nature of customers'
commitments on projections and orders; and
e) the extent to which the Company is able to attract and retain key
personnel.
In light of these uncertainties and risks, there can be no assurance that the
forward-looking statements in this Interim Report will occur or continue in the
future. Except for its required, periodic filings under the Securities Exchange
Act of 1934, the Company undertakes no obligations to release publicly any
revisions to these forward looking statements that may reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS.
Effective July 1, 2001, the Company adopted SFAS No. 141 "Business
combinations". In accordance with SFAS No. 141, all business combinations
initiated after June 30, 2001 are to be accounted for using the purchase method,
the pooling of interest method of accounting is prohibited. The acquisition of
the jewelry retail company on March 21, 2002 (see note 17 (a)) was accounted for
by purchase method of accounting.
In July 2001, Financial Accounting Standards board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets". The SFAS No. 142 provides that goodwill
and intangible assets which have indefinite useful lives will not be amortized
but rather will be tested at least annually for impairment. Consequently, the
goodwill arisen from the acquisition of the jewelry retail company on March 21,
2002 is not amortized and subject to
12
impairment test in this financial year. The Company adopted SFAS No. 142
effective on May 1, 2002, the first day of its financial year 2003. Other than
the goodwill arisen from the acquisition on March 21, 2002, the Company have no
other goodwill and intangible assets as of April 30, 2002. The Company does not
believe that the adoption of the statement will have a material impact on its
financial position or result of operations.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". The SFAS No. 143 addresses accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for financial
years beginning after June 15, 2002. The impact of the adoption of SFAS No. 143
on the Group's financial statements is not expected to be material.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121, "Accounting
for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 144 requires long-lived assets be measured at the lower of selling
amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations. SFAS No. 144 also broadens the reporting
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS No. 144 are effective for consolidated
financial statements issued for financial years beginning after December 15,
2001. The Group does not expect that the adoption of SFAS No. 144 will have a
material impact on the Group's financial statements.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statement No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This
statement made revisions to the accounting for gains and losses from the
extinguishment of debt, rescinded SFAS No. 44, and required certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The Group is
required to and will adopt SFAS No. 145 on May 1, 2002. The adoption of SFAS No.
145 is not expected to have a material impact on the Group's financial
statements.
In June 2002, the FASB issued SFAS No. 146 "Accounting for costs associated with
Exit or Disposal Activities". This statement requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. An entity's commitment to plan, by itself, does not
create a present obligation to others that meets the definition of a liability.
This Statement is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company does not believe that the adoption of the
Statement will have material impact on its financial position or result of
operations..
13
LJ INTERNATIONAL INC.
PART II - OTHER INFORMATION
Item 1 and 2
Not applicable.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
Item 4 and 5
Not applicable
Item 6.
(a) Reports On Form 8-K
-------------------------
Not applicable.
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