As filed with the Securities and Exchange Commission on November 5, 1997
Registration Statement No. 333-27119
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
OVM INTERNATIONAL HOLDING CORP.
(Name of Small Business Issuer in its Charter)
_______________
Nevada 3531 88-0344135
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation Code Number)
_______________
West 516 Sprague Avenue No. 3 Longguan Road, Liuzhou City,
Spokane, Washington 99204 Guangxi Zhuang Autonomous Region,
(509) 747-8590 People's Republic of China
(Address and telephone (Address of principal place
number of principal of business or intended principal
executive offices) place of business)
_______________
Ching Lung Po
OVM International Holding Corp.
West 516 Sprague Avenue
Spokane, Washington 99204
(509) 747-8590
(Name, address and telephone number of agent for service)
_______________
With copies to:
James M. Schneider, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33331
(954) 763-1200
_______________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
_______________
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering.
| |
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
Each Class Maximum Maximum
of Securities Amount Offering Aggregate Amount of
to be to be price Offering Registra-
Registered Registered per Unit(1) Price(1) tion Fee
- --------------------------------------------------------------------------------
Common Stock
(par value
$.0001 per
share) 50,000 $1.50(2) $75,000 $25.86
Common Stock
issuable under
Warrants 4,000,000(3) $3.00(3) $12,000,000 $3,636.36
Total..................................... $3,662.22
=========
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(b).
(2) The price as estimated based on the average of the closing bid and asked
prices on May 9, 1997.
(3) Represents shares of Common Stock issuable upon exercise of Common Stock
Purchase Warrants exercisable at $3.00 per share on or prior to December
23, 1998. Also includes such additional indeterminate number of shares as
may be issued under such Warrants by reason of the anti-dilution
provisions contained therein.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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OVM INTERNATIONAL HOLDING CORP.
_______________
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; High Risk
Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page
Price
6. Dilution Not Applicable
7. Selling Security-Holders Sales by Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Sales by Selling
Security Holders
9. Legal Proceedings Business
10. Directors, Executive Offi- Management
cers, Promoters and Control
Persons
11. Security Ownership of Cer- Principal Shareholders
tain Beneficial Owners and
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Matters
and Counsel
14. Disclosure of Commission Undertakings
Position on Indemnifica-
tion for Securities Act
Liabilities
15. Organization within Last Not Applicable
Five Years
16. Description of Business Business
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<PAGE>
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis or Plan of Operations
Operation
18. Description of Property Business - Properties
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities
Matters
21. Executive Compensation Management - Executive Compen-
sation
22. Financial Statements Financial Statements
23. Changes in and Disagree- Not Applicable
ments with Accountants on
Accounting and Financial
Disclosure
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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<PAGE>
Preliminary Prospectus Dated November 5, 1997
Subject to Completion
PROSPECTUS
----------
OVM INTERNATIONAL HOLDING CORP.
4,050,000 Shares of Common Stock
There are 4,050,000 shares of Common Stock (the "Shares"), par value
$.0001 per share ("Common Stock") of OVM International Holding Corp. (the
"Company" or "OVM") being offered by certain shareholders of the Company (the
"Selling Security Holders"), if at all, on a delayed basis, including 4,000,000
shares (the "Warrant Shares") issuable upon the exercise of Common Stock
Purchase Warrants issued by the Company (collectively the "Warrants"). All costs
relating to the processing of the Registration Statement of which this
Prospectus is a part, estimated to be $65,000, will be borne by the Company. See
"Sales by Selling Security Holders" and "Description of Securities."
The Company's Common Stock is traded on a highly limited basis on the OTC
Bulletin Board under the symbol "OVMI." The Company intends to apply for
inclusion of its Common Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") at such time as the Company satisfies
NASDAQ minimum listing requirements. However, there can be no assurances that
the Company's Common Stock will be accepted for inclusion in the NASDAQ System.
Furthermore, there can be no assurances that a substantial trading market for
its Common Stock will develop or be sustained in the future. At June 30, 1997,
the net tangible book value of the Company's Common Stock was approximately Rmb
4.46 (US$0.54) per share. Accordingly, it is likely that the purchasers in this
offering will incur an immediate and substantial dilution from the purchase
price of their shares of Common Stock. See "Price Range of Common Stock" and
"Description of Securities."
________________________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this Prospectus is _______________, 1997
<PAGE>
The Company has been advised by the Selling Security Holders that they may
sell all or a portion of the Shares offered hereby from time to time in the
over-the-counter market, in negotiated transactions, directly or through brokers
or otherwise, and that such shares will be sold at market prices prevailing at
the time of such sales or at negotiated prices. The Company will not receive any
of the proceeds from the sale of the Shares offered hereby except upon exercise
of the Warrants. In connection with such sales, the Selling Security Holders and
any brokers participating in such sales may be deemed to be underwriters within
the meaning of the Securities Act of 1933. See "Use of Proceeds" and "Sales by
Selling Security Holders."
All costs, expenses and fees in connection with the registration of the
shares of Common Stock offered hereby will be borne by the Company. Brokerage
commissions, if any, directly attributable to the sale of the Shares will be
borne by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules and regulations under the Securities Exchange Act of
1934, including Regulation M thereunder, may apply to their sales in the market
and has furnished each of the Selling Security Holders with a copy thereof. The
Company has also informed the Selling Security Holders of the need for delivery
of copies of this Prospectus in connection with any sale of Shares registered
hereunder.
________________________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS
DATE.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
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<PAGE>
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center New York, New York
10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
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<PAGE>
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information. Except as otherwise specifically
described in the Registration Statement, of which this Prospectus is a part, all
information gives effect to a one-for-five (1:5) reverse stock split of the
Company's Common Stock, effective August 22, 1996.
Other than historical and factual statements, the matters and items
discussed in this Prospectus are forward-looking statements that involve risks
and uncertainties. Actual results may differ materially from the results
discussed in the forward-looking statements. Certain factors that could
contribute to such differences are discussed with the forward-looking statements
throughout this Prospectus and are summarized in Sections "High Risk Factors"
and "Management's Discussion and Analysis or Plan of Operations."
THE COMPANY
OVM International Holding Corporation (the "Company") was organized under
the laws of the State of Nevada on October 18, 1971 under the name of Mr.
Nevada, Inc., and, following the completion of a limited public offering in
April 1972, commenced limited operations which were discontinued in 1990.
Thereafter, the Company engaged in a reorganization and on several occasions
sought to merge with or acquire certain active private companies or operations,
all of which were terminated or resulted in discontinued negotiations. On
October 20, 1995, the Company changed its name to Intermark Development
Corporation. On November 4, 1996, the Company acquired all of the capital stock
of OVM Development Limited ("ODL"), a British Virgin Islands corporation,
formerly known as Kolcari Investments Limited and changed its name to OVM
International Holding Corporation. ODL owns a 70 percent equity interest in
Liuzhou OVM Construction Machinery Company Limited ("Liuzhou OVM"), a
Sino-foreign equity joint venture incorporated in the People's Republic of China
("PRC" or "China") on May 10, 1995. The PRC venture partner is Liuzhou
Construction Machinery General Factory (the "Factory"), which was a PRC State-
owned enterprise. The Factory was subsequently reorganized into a limited
liability share capital company on January 10, 1995 known as Liuzhou OVM Joint
Stock Company Limited (the "Stock Company"). As used herein, the "Company" or
"OVM" refers to OVM International Holding Corporation and includes, unless the
context otherwise requires, the prior or current operations of ODL, Liuzhou OVM,
the Stock Company, or, if prior to its establishment, the Factory.
Liuzhou OVM has assumed substantially all the businesses originally
carried out by the Factory since January 1, 1995, which principally includes the
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<PAGE>
manufacture, production, sale and distribution of prestressing equipment,
components and hardware used in the construction of motorways, bridges,
railroads, buildings, hydroelectric dams and power stations in the PRC. The
products include anchorage systems, jacks, electric high-pressure oil pumps,
steel cables, direct display sensors, unbonded prestressing tendons and
ancillary equipment widely used in the construction industry. Liuzhou OVM is the
successor to the manufacturing business originally conducted by the Factory.
Accordingly, the following discussion is principally a description of the
business of Liuzhou OVM or that of its predecessor, the Factory.
OVM's products are distributed throughout the PRC to a diversified
customer base, with a small proportion sold overseas. OVM's PRC customers
include construction and engineering companies and provincial, municipal and
regional construction bureaus across the PRC. Currently, demand in the PRC for
prestressed products is expanding rapidly as the number of infrastructure
construction projects increases.
While the Company's indirect participation in the joint venture originated
in 1995, Liuzhou OVM (inclusive of the operations of the Factory), has
approximately 30 years of operating history in manufacturing prestressing
equipment and related components. Management believes that Liuzhou OVM is the
largest manufacturer of prestressing equipment and related components in the PRC
in terms of total sales and profit before taxation for each of the two years
ended December 31, 1995 and 1996. Liuzhou OVM's products have an estimated
overall market share of approximately 60% in the PRC (Statistics from China Rock
Anchoring and Engineering Association).
The Company's operating offices are located at 1611 B, Kailey Industrial
Centre, 12 Fung Yip Street, Chai Wan, Hong Kong (Telephone No. (852) 25225215;
Facsimile No. (852) 25220634).
THE OFFERING AND OUTSTANDING SECURITIES
Common Stock Outstanding.............. 12,050,000 shares of Common Stock
Common Stock Offered
by Selling Security Holders......... 4,050,000 shares of Common Stock(1)
Proceeds to be received upon
exercise of Warrants................ $12,000,000(2)
Risk Factors........................... Investment in these securities
involves a high degree of risk.
See "High Risk Factors."
OTC Bulletin Board Symbol.............. "OVMI"(3)
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<PAGE>
____________________
1 Includes 4,000,000 shares issuable upon the exercise of the Warrants.
2 Under the terms of the Warrants, such Warrants are exercisable at $3.00
per Warrant Share on or prior to December 23, 1998.
3 The Company intends to apply for inclusion of its Common Stock on the
NASDAQ SmallCap Market at such time as the Company satisfies NASDAQ
listing requirements. However, there can be no assurances that the Common
Stock will qualify for inclusion at any time in the future. Inclusion on
NASDAQ does not imply that an established trading market will develop or
be sustained for the Common Stock. See "Description of Securities."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Not covered by Accountant's Report)
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth the selected historical consolidated
statement of income data for each of the six month periods ended June 30, 1996
and 1997 and each of the years in the two year period ended December 31, 1996,
and the consolidated balance sheet data as of December 31, 1996 and June 30,
1997. The selected historical consolidated financial data of the Company for the
two years ended December 31, 1996 are derived from the audited consolidated
financial statements of the Company for the two years ended December 31, 1996.
The selected historical unaudited consolidated financial data of the Company for
the six month periods ended June 30, 1996 and 1997 are derived from the
unaudited consolidated financial statements of the Company for the six month
periods ended June 30, 1996 and 1997.
The selected historical consolidated financial data should be read in
conjunction with, and qualified in their entirety by reference to, the
respective financial statements and their accompanying notes thereto.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL CONSOLIDATED STATEMENT OF INCOME DATA
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1996 1997 1997 1995 1996 1996
---- ---- ---- ---- ---- ----
Rmb Rmb *US$ Rmb Rmb *US$
(Unaudited) (Audited)
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales 61,123 54,882 6,612 135,761 161,492 19,457
Cost of sales (35,709) (31,705) (3,820) (81,331) (101,007) (12,170)
------ ------ ------ ------ ------ ------
Gross profit 25,414 23,177 2,792 54,430 60,485 7,287
Selling & administrative
expenses (13,666) (16,020) (1,930) (26,472) (31,342) (3,776)
Provision for bad debt
expenses (2,875) (3,875) (467) - (4,329) (521)
Interest expenses (3,681) (3,454) (416) (7,612) (6,140) (740)
Other income 2,551 4,204 507 662 3,536 426
Foreign exchange
gain/(loss) (34) - - 864 (24) (3)
**Reorganization expenses - - - - (2,547) (307)
------ ------ ------ ------ ------ ------
Income before income
taxes 7,709 4,032 486 21,872 19,639 2,366
Income taxes - - - - - -
------ ------ ------ ------ ------ ------
Net income after income
taxes 7,709 4,032 486 21,872 19,639 2,366
Share of profits of an
associated company - 58 7 - 157 19
------ ------ ------ ------ ------ ------
Net income before
minority interests 7,709 4,090 493 21,872 19,796 2,385
Minority interests (2,482) (1,748) (211) (7,496) (7,030) (847)
------ ------ ------ ------ ------ ------
Net income 5,227 2,342 282 14,376 12,766 1,538
Earnings per share 0.44 0.19 0.02 1.51 1.06 0.13
SELECTED HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
As of December 31, As of June 30
------------------ ------------------
1996 1996 1997 1997
---- ---- ---- ----
Rmb *US$ Rmb *US$
(Audited) (Amounts in
(Unaudited) thousands)
<S> <C> <C> <C> <C>
Current assets 233,222 28,099 235,919 28,424
Working capital 62,349 7,512 67,251 8,103
Total Assets 257,369 31,008 259,843 31,306
Current liabilities 170,873 20,587 168,668 20,321
Long term loan from a
related party 3,442 415 4,031 486
Minority interests 24,726 2,979 26,474 3,190
Total liabilities and
minority interests 199,041 23,981 199,173 23,997
Shareholders' equity 58,328 7,027 60,670 7,309
_____________________
</TABLE>
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* For convenience, amounts have been converted from Renminbi to US$ at Rmb
8.30 = US$1.00, which represents the single rate of exchange as quoted by the
People's Bank of China on June 30, 1997. No representation is made that Renminbi
amounts could have been, or could be, converted into US$ at that rate or any
other rate.
** Reorganization expenses were incurred in connection with the acquisition
of ODL by the Company which reduced net income for the year ended December 31,
1996 by Rmb 2.5 million (US$307,000), primarily consisting of professional and
consulting fees.
This is a one time expense in connection with the acquisition of ODL by
the Company. Management does not expect the acquisition would have any
significant impact on the future results of operations, liquidity and sources
and uses of capital resources of the Company.
Excluding the reorganization expenses, the Company's net income and
earnings per share for the year ended December 31, 1996 would be Rmb 15.3
million (US$1,845,000) and Rmb 1.28 (US$.15) per share, respectively.
HIGH RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk
and is speculative in nature. Prospective investors should carefully consider
the following risks and speculative factors, among others, inherent in and
affecting both the business of the Company and the value of the Common Stock,
including, among other matters, the following risk factors:
LIMITED OPERATING HISTORY
The Company was organized in the State of Nevada on October 18, 1971 and,
as a result of the acquisition of ODL, has acquired a 70% interest in an active
operating company conducting operations in the PRC. Prior to the acquisition of
ODL, the Company had only limited and sporadic operations. The Company and its
operations are subject to all the risks inherent in the establishment and
operation of a new publicly traded business enterprise as described hereafter.
Accordingly, the Shares offered hereby are speculative and involve a high degree
of risk. Inasmuch as the Company has only recently become a public traded
company, there can be no assurance that it will be profitable in the future, at
what price the Shares will trade, or if a listing on an exchange can be secured.
An investment should be made only by persons who can afford to risk of loss of
their investment and only after careful consideration of those significant risk
factors which may affect the Company.
Results of operations in the future will be influenced by numerous
business factors including technological developments, regulatory costs and
impediments, increases in expenses associated with sales growth, market
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acceptance of the Company's products, the capacity of the Company to expand and
maintain the quality of its products, competition and the ability of the Company
to control costs. There can be no assurance that revenue growth or profitability
on a quarterly or annual basis can be obtained. Additionally, the Company will
be subject to all the risks incident to a rapidly developing business in a
highly regulated society such as the PRC currently undergoing a political
succession. Prospective investors should consider the frequency with which
relatively newly developed and/or expanding businesses encounter unforeseen
expenses, difficulties, complications and delays, as well as other factors such
as the possibility of competition with larger companies. See "Management's
Discussion and Analysis or Plan of Operations."
BUSINESS DEPENDENT UPON KEY EMPLOYEES
The business of the Company is specialized. The continued employment of
Messrs. Ching Lung Po and Wu Guosen is critical to the Company's business and
the conduct of the Company's operations. There can be no assurance that the
Company will be able to retain Messrs. Ching Lung Po and/or Wu Guosen, who are
not restricted should they depart the Company, or other equally qualified
individ- uals to run the operations of the Company. No insurance has been
obtained on the lives of such principals. See "Management."
RISK ASSOCIATED WITH EXPANSION AND ACQUISITIONS
The Company has recently acquired ODL and through it acquired its 70%
interest in Liuzhou OVM, and may expand into other areas of product development
that augment Liuzhou OVM's operating capacity. Any acquisitions, joint ventures
or expansion of operations the Company may undertake will entail substantial
risks since they may involve specific operations which may be unfamiliar to the
Company's management. Consequently, shareholders must assume the risks that the
Company (i) may acquire or develop operations for which the Company may not
possess adequate or sufficient managerial background to administer effectively,
(ii) such acquisitions and expansion may ultimately involve expenditure of funds
beyond the resources that will be available to the Company at that time, and
(iii) management of such new or expanded operations may divert management's
attention and resources away from its existing operations. All of these factors
may have a substantial adverse affect on the Company's present and prospective
business activities.
DEPENDENT ON SUPPLIERS; CREDIT ARRANGEMENTS
The major raw materials and components required by Liuzhou OVM include
rubber, steel and mechanical and electrical components such as bearings and
motors. All of the raw materials and components used by Liuzhou OVM are sourced
from PRC suppliers. For each of the two years ended December 31, 1995 and 1996,
the cost of raw materials and components accounted for approximately 77% and
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84%, respectively of Liuzhou OVM's total cost of production. It is the policy of
Liuzhou OVM to maintain more than one supplier for certain major raw materials
in order to avoid over reliance on a single source of supply. Liuzhou OVM has
not to date experienced any significant difficulties, nor does management
anticipate any difficulties, in the sourcing or supply of its raw materials and
components. For each of the two years ended December 31, 1995 and 1996 and the
six months ended June 30, 1997, the largest ten suppliers of raw materials and
components to Liuzhou OVM accounted for approximately 22%, 64% and 23%,
respectively, of Liuzhou OVM's total purchases. The single largest supplier
accounted for approximately 9%, 50%, and 8%, respectively, for the same periods.
All purchases by Liuzhou OVM are settled in Renminbi. Liuzhou OVM has formulated
a material supply management policy in respect to raw materials and components
used in Liuzhou OVM's production operations. Under this policy, the stock level
of raw materials and components is determined by reference to planned annual
consumption and predetermined stock level for different types of raw materials
and components. The average stock level of Liuzhou OVM's raw materials and
components is approximately two months. See "Business - Raw Materials and
Components."
SUPPLY AND PRICES OF RAW MATERIALS
Steel and rubber account for a substantial portion of Liuzhou OVM's total
raw materials and components consumption (57%, 59% and 72%, respectively, for
each of the two years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997). Steel and rubber are in great demand in the PRC and as a result,
demand has exceeded domestic supply in recent years. The excess demand over
domestic supply was resolved by imports. A shortage of steel and rubber supply
in the PRC market may affect Liuzhou OVM's production and escalate raw material
costs and impact the future profit margins of Liuzhou OVM and the Company. See
"Business - Raw Materials and Components."
POSSIBLE DEFAULT IN PAYMENT OF CAPITAL CONTRIBUTION
The Company, through its wholly owned subsidiary, OVM Development Limited
[formerly known as Kolcari Investments Limited ("Kolcari")], owns a 70% equity
interest in Liuzhou OVM (the "joint venture"). Kolcari is obligated to make the
final installment payment of its capital contribution to the joint venture on
December 31, 1997. In the event Kolcari defaults in the payment of its
installment obligation, and such default continues for 30 days following written
notice of default from the Stock Company (the PRC joint venture partner), the
Stock Company may apply for revocation of the joint venture. However, if both
parties to the joint venture agree to a further extension of the payment date,
it can generally be expected that such extension will be approved by the
governing regulatory authority. Management is advised that the Company's
shareholders have agreed to fund Kolcari's installment obligation to the joint
venture, but there can be no assurance that such will occur. See "Certain
Transactions."
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COMPETITION
The markets for the Liuzhou OVM's products are highly competitive,
involving several other producers. The principal competitive factors with
respect to Liuzhou OVM's products are pricing, product range and quality,
technical advantages and distribution capabilities with varying emphasis on
these factors depending on the market and product. To the extent that Liuzhou
OVM's competitors become more successful with respect to key competitive factors
mentioned herein, Liuzhou OVM's business could be adversely affected. During
1996, the PRC engaged in extensive negotiations to join the World Trade
Organization ("WTO"), which regulates trading and tariffs among its signatory
states. Although such negotiations are currently stalled, it is expected that
negotiations will restart at some point and that the PRC will eventually assume
a position as a member of the WTO. In such event, it will be required to reduce
further some of its import tariffs to conform with the uniform tariffs under the
WTO. Furthermore, in order to facilitate its re-entry to the WTO, the PRC has
already begun, and is expected to continue, lowering some import tariffs and
reducing certain other restrictions on imports. The PRC's entry into the WTO and
the current policy of lowering import barriers may result in increased
competition in the domestic market by foreign competitors who manufacture and
sell similar products. See "Business - Competition."
POLITICAL CONSIDERATIONS
Since 1978, the PRC government under its current leadership has been
reforming, and is expected to continue to reform, the PRC's economic and
political systems despite the recent death of Deng Ziaoping. Such reforms have
resulted in significant economic growth and social progress. Many of the reforms
are unprecedented or experimental and are expected to be refined, and improved
upon. Other political, economic and social factors can also lead to further
readjustment of the reform measures. This refinement and readjustment process
may not always have a positive effect on the operations of Liuzhou OVM. Liuzhou
OVM's results at times may also be adversely affected by changes in the PRC's
political, economic and social conditions and by changes in policies of the PRC
government, such as changes in laws and regulations (or the interpretation
thereof), the introduction of measures to control inflation, changes in the rate
or method of taxation and imposition of additional restrictions on currency
conversion and remittances abroad. Although historically there have been periods
of political instability, such as during the "Cultural Revolution," and certain
of the reform measures have from time-to-time been readjusted, because of the
broad support for the reform process and because the economic system in the PRC
has already undergone extensive changes as a result of the success of such
11
<PAGE>
reforms, management believes that the basic principles underlying the reforms
will continue to provide the framework for the PRC's political and economic
system. See "Discussion Pertaining to Certain Conditions Relating to the
People's Republic of China - Political Considerations."
THE PRC'S ECONOMY, ECONOMIC REFORM AND INFLATION
The economy of the PRC differs from the economies of most countries
belonging to the Organization for Economic Cooperation and Development in such
respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, self-sufficiency, rate of
inflation and balance of payments position, among others. In the past, the
economy of the PRC has been primarily a planned economy subject to State plans.
The PRC government has recently adopted a policy to transform its economy to a
more market oriented one. Although the majority of productive assets in the PRC
is still owned by the PRC government, the portion of the PRC economy subject to
State plans has been gradually diminishing. There can be no assurance, however,
that the PRC government's policies for economic reforms will be consistent or
effective.
The PRC economy has experienced significant growth in the past decade, but
such growth has been uneven geographically and among various sectors of the
economy. Economic growth has also, at times, been accompanied by rising
inflation, with the national retail inflation rate reaching 21.7% per annum in
1994. The PRC government has implemented various policies from time to time,
such as during 1989-1991 to restrain the rate of such economic growth and
control inflation and otherwise regulate economic expansion. In response to
increasing inflationary pressures and concern over the accelerating rate of
economic growth, the People's Bank of China announced in May 1993 the first
increase in interest rates since April 1991. In July 1993, the PRC government
adopted a number of additional measures to strengthen the "macroeconomic
control" of the economy and to combat inflation, including, among others,
increasing interest rates on bank loans and deposits, and postponing certain
planned price reforms. These measures had the temporary effect of causing the
Renminbi to appreciate against foreign currencies at the foreign exchange
centers, reducing speculative activities, increasing individual bank deposits
and reducing the prices of certain commodities. While inflation has since
moderated, with the national retail inflation rate falling to 14.8%, 6.1% and
1.8% per annum in 1995, 1996 and the first six months of 1997, respectively,
there can be no assurance that inflation will not increase in the future or that
further measures to combat inflation and speculative activities will not be
implemented in a manner that may adversely affect the profitability of Liuzhou
OVM over time.
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<PAGE>
A significant portion of the economic activity in the PRC is related to
exports and may therefore be affected by developments in the economies of the
PRC's principal trading partners. The United States annually reconsiders the
renewal of "Most Favored Nation" ("MFN") trading status for the PRC, which
provides the PRC with certain trading privileges available generally to trading
partners of the United States. Although in June 1996, the PRC's MFN Status was
renewed for a further year without restrictions, there can be no assurance that
the continuation of such status will be obtained in the future. In the event
that the PRC's MFN status were not renewed in any given year, exports of
products to the United States would be affected. See "Discussion Pertaining to
Certain Conditions Relating to the People's Republic of China - The PRC's
Economy and Economic Reform."
GOVERNMENT CONTROL OF CURRENCY CONVERSION AND EXCHANGE RATE RISKS
All of Liuzhou OVM's domestic sales are denominated in Renminbi, the
official currency of the PRC. Export sales are denominated in U.S. dollars and
account for only 16% percent of total sales by volume respectively for each of
the two years ended December 31, 1995 and 1996 and 10% for the six months ended
June 30, 1997. The PRC government imposes control over the convertability of
Renminbi into foreign currencies. Prior to January 1, 1994, all foreign exchange
transactions involving Renminbi in the PRC had to take place either through the
authorized financial institutions at the official exchange rate set by the State
Administration for Exchange Control ("SAEC"), the PRC government agency
responsible for matters relating to foreign exchange administration, or at local
foreign exchange swap centers at exchange rates largely determined by supply and
demand. However, transactions effected through swap centers required the prior
approval of the SAEC.
On January 1, 1994, the PRC government abolished its two-tier exchange
rate system and replaced it with a unified managed floating exchange rate system
largely based on market supply and demand. Under the new system, the People's
Bank of China publishes a daily exchange rate of Renminbi (the "PBOC Exchange
Rate") based on the previous day's dealings in the inter-bank foreign exchange
market. Financial institutions authorized to deal in foreign currency may enter
into foreign exchange transactions at exchange rates within an authorized range
above or below the PBOC Exchange Rate according to market conditions. Currently,
foreign investment enterprises ("FIEs") (including Sino-foreign joint ventures
such as Liuzhou OVM) are required to apply to the SAEC for "Foreign exchange
registration certificates" ("FERCs"). With such FERC (which are granted to FIEs
upon fulfilling certain specified conditions and which are reviewed annually by
the SAEC) and authorization from the SAEC (which is obtained on a
transaction-by- transaction basis), FIEs may enter into transactions at the swap
centers to obtain foreign exchange for their needs.
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During the period between 1990 and the end of 1993, the value of the
Renminbi against the U.S. dollar declined steadily. Although the Renminbi has
revalued against the U.S. dollar moderately since January 1, 1994 and the PRC
government has stated its intention to intervene in the future to support the
value of the Renminbi, there can be no assurance that exchange rates will not
become volatile or that the Renminbi will not devalue again against the U.S.
dollar. Exchange rate fluctuations may adversely affect Liuzhou OVM's financial
performance. See "Discussion Pertaining to Certain Conditions Relating to the
People's Republic of China - Government Control of Currency Conversion and
Exchange Rate Risks."
LEGAL SYSTEM
Since 1979, many laws and regulations dealing with economic matters in
general have been promulgated in the PRC. Despite this activity in developing
the legal system, the PRC does not have a comprehensive system of laws. In
addition, enforcement of existing laws may be uncertain and sporadic, and
implementation and interpretation thereof inconsistent. The PRC judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in the PRC, it may be difficult to obtain swift and
equitable enforcement of such law, or to obtain enforcement of a judgment by a
court of another jurisdiction. The PRC's legal system is based on written
statutes and, therefore, decided legal cases are without binding legal effect,
although they are often followed by judges as guidance. The interpretation of
PRC laws may be subject to policy changes reflecting domestic political changes.
As the PRC legal system develops, the promulgation of new laws, changes to
existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign investors. The trend of legislation over the past 18
years has, however, significantly enhanced the protection afforded foreign
investors in enterprises in the PRC. However, there can be no assurance that
changes in such legislation or interpretation thereof will not have an adverse
effect upon the business and prospects of the Company and its operating
division, Liuzhou OVM.
Liuzhou OVM's activities in the PRC are by law subject, in some particular
cases, to administrative review and approval by various national and local
agencies of the PRC government. In particular, part of the Liuzhou OVM's current
operations and the realization of its future expansion programs in the PRC will
be subject to PRC government approvals. See "Discussion Pertaining to Certain
Conditions Relating to the People's Republic of China Legal System."
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NO ASSURANCE OF PROTECTION FOR PROPRIETARY RIGHTS; RELIANCE ON TRADE SECRETS AND
PATENTS
Liuzhou OVM's method of operations will have only limited proprietary
protection as it is unlikely that it will be able to secure meaningful
proprietary protection relevant to its methods of business operations. There are
no unique barriers for others to emulate the Liuzhou OVM's methods of operations
except for those barriers and limitations confronting anyone engaged in
undertaking innovative activities and obtaining credibility in an emerging
industry. Liuzhou OVM, as an alternative strategy, will seek to maintain its
proprietary rights by trade secret protection and by the use of non-disclosure
agreements with its employees. There can be no assurance that meaningful
proprietary protection can be obtained, Liuzhou OVM will be able to enter into
or enforce agreements which restrict competitive activities of its employees, or
that various individuals trained by Liuzhou OVM may not seek to engage in
competitive activities subsequent to their employment by the Liuzhou OVM. See
"Business - Intellectual Property Rights."
ASSETS OUTSIDE OF THE U.S.; ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN
PERSONS
While the Company is a U.S. corporation with executive offices in the
State of Nevada, it is a holding company for entities which are domiciled
outside the U.S. The Company's statutory agent for the receipt of any process
within the United States is Nevada Agency and Trust Company, 50 West Liberty
Street, Suite 880, Reno, Nevada 89501. Nevada Agency and Trust Company is not
affiliated with the Company, and there is no affiliated representative of the
Company located in the United States that is authorized to accept service of
process on behalf of the Company. For the foreseeable future, a substantial
portion of the Company's assets will be held or used outside the U.S.
Enforcement by investors of civil liabilities under the Federal securities laws
may also be affected by the fact that while the Company is located in the U.S.,
its principal subsidiary and operations will be located outside the U.S., none
of the Company's contemplated executive officers or directors will be U.S.
residents, and all or a substantial portion of the assets of the Company will be
located outside the U.S.
MARKET ACCEPTANCE
There can be no assurance that Liuzhou OVM's products can be successfully
marketed on a continued basis, or that any or all of the products will be
commercially accepted outside the PRC. Even if commercial acceptance is
achieved, the appeal of Liuzhou OVM's products may be limited given the wide
range of competitive products and systems available. Management has not
conducted any marketing or feasibility studies or surveys relating to the
marketability of Liuzhou OVM's products. See "Business - Sales and Marketing."
15
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VOTING CONTROL OF THE COMPANY
The Company's management and their affiliates will own a substantial
majority of the Company's outstanding Common Stock following the offering as a
consequence of the recent acquisition of ODL by the Company, and thus will be
able to elect all of the Company's directors and control the Company. The
Company's Articles of Incorporation do not provide for cumulative voting. Thus,
investors in this Offering will have only a minority interest in the Company and
no ability to control or readily influence the conduct of affairs of the
Company. See "Principal Shareholders."
LIMITED TERM OF JOINT VENTURE
Liuzhou OVM, the Company's operating subsidiary in the PRC, is governed by
the PRC Joint Venture Laws, its Joint Venture Agreement and Articles of
Association. The Joint Venture Agreement and the Articles of Association of
Liuzhou OVM have been approved by the requisite government authorities. In
accordance with the government approvals granted for the joint ventures, its
term is initially restricted to expire on May 10, 2025. Its initial term may be
extended upon the mutual agreement of the parties to the joint venture and the
approval of the applicable PRC government agencies. There can be no assurance
that Liuzhou OVM will continue following the expiration of its initial term. The
existence of Liuzhou OVM may also be terminated in certain limited circumstances
under the PRC Joint Venture Laws including, inability to continue operations due
to severe losses, failure of a party to honor its obligations under the Joint
Venture Agreement or Articles of Association in such a manner as to impair the
operation of the joint venture company. See "Business - History and Development
of Liuzhou OVM."
RELIABILITY OF INFORMATION
The information contained herein regarding the PRC has been sourced from a
variety of government and private publications and is based on various
discussions between representatives of the Company and certain PRC government
officials. In some cases, independent verification of this information is not
available and there can be no assurance that the source from which it is taken
or on which it is based are wholly reliable. Official statistics in relation to
the PRC may also be produced on a basis different from that used in more
developed countries. If such official statistics are materially inaccurate, the
present and future economic prospects of the PRC could be materially different
from those which currently appear to be the case. Accordingly, no assurance can
be given as to the completeness or reliability of available official and public
information.
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<PAGE>
REPATRIATION OF EARNINGS FROM PRC
Pursuant to the relevant laws and regulations for Sino-foreign joint
venture enterprises, earnings of the Company's operating subsidiary, Liuzhou
OVM, a Sino-foreign equity joint venture enterprise, is available for
distribution in the form of cash dividends to each of the joint venture partners
after Liuzhou OVM (1) satisfies all tax liabilities; (2) provides for losses in
previous years; and (3) makes appropriation to reserve funds, as determined at
the discretion of the board of directors. These appropriations include general
reserve fund, enterprise expansion fund and staff bonus and welfare fund. The
Company has been advised that Liuzhou OVM intends to allocate as appropriations
of up to 10-15% of the net income as reflected in its statutory financial
statements.
Earnings reflected in the financial statements prepared in accordance with
United States GAAP differ from those reflected in the statutory financial
statements of Liuzhou OVM. In accordance with the relevant laws and regulations
for Sino-foreign joint venture enterprises, profit available for distribution by
Liuzhou OVM is based on the statutory financial statements. Consequently, a
portion of the earnings included in the retained earnings of the Company is not
available for distribution to the Company and therefore is not available for
distribution as dividends to the shareholders of the Company.
Profit distribution of Liuzhou OVM is declared and payable in Renminbi. If
Liuzhou OVM has foreign currency available after meeting its operational needs,
the Company may receive its share of any distributions to the joint venture
partners in foreign currency to the extent available. The amount of foreign
currency remitted to the Company will be determined with reference to the then
prevailing PBOC Exchange Rate. Only if foreign currency is not available and
only if the Company desires to obtain the foreign currency equivalent of
Renminbi distributions will it be necessary to convert such distributions at a
swap center. However, there can be no assurance that shortages of foreign
currency at the swap centers will not restrict Liuzhou OVM to obtain sufficient
foreign currency to pay distributable profits in foreign currency. If such a
shortage occurs, the Company may accept Renminbi payments which can be held or
reinvested in other projects. In such circumstances, this may affect the
Company's ability to pay dividends in U.S. dollars. See "Discussion Pertaining
to Certain Conditions Relating to the People's Republic of China Repatriation of
Earnings from PRC."
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent upon future
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<PAGE>
earnings of the Company, the capital requirements of the Company, its financial
requirements and other factors to be determined by the Company's Board of
Directors. For the foreseeable future, it is anticipated that earnings, if any,
which may be generated from the Company's operations will be used to finance the
growth of the Company, and that cash dividends will not be paid to common stock
shareholders. See "Dividend Policy."
IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING
Initial purchasers of the Common Stock of the Company offered hereby will
incur an immediate and substantial dilution from the purchase price of their
shares. As of June 30, 1997, the net tangible book value of the Company's Common
Stock was approximately Rmb 4.46(US$0.54).
POSSIBLE RESALES OF SECURITIES BY CURRENT SHAREHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
There are currently 8,850,000 shares of the Company's Common Stock
outstanding which were "restricted securities" as that term is defined by Rule
144 under the Securities Act of 1933 as amended, (the "Securities Act"),
inclusive of shares being registered pursuant to this Registration Statement of
which this Prospectus is a part. Certain of such shares will be eligible for
public sale only if registered under the Securities Act or if sold in accordance
with Rule 144. Under Rule 144, a person who has held restricted securities for a
period of one year may sell a limited number of shares to the public in ordinary
brokerage transactions. Sales under Rule 144 may have a depressive effect on the
market price of the Company's Common Stock due to the potential increased number
of publicly held securities. The timing and amount of sales of Common Stock
covered by the Registration Statement of which this Prospectus is a part, as
well as such subsequently filed registration statement, could also have a
depressive effect on the market price of the Company's Common Stock. See "Shares
Eligible for Future Sales."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF SECURITIES
PRICES
There is currently only a limited trading market for the Common Stock of
the Company. The Common Stock of the Company trades on the OTC Bulletin Board
under the symbol "OVMI" which is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ System. There can be no
assurance that a substantial trading market will develop (or be sustained, if
developed) for the Common Stock upon completion of this offering, or that
purchasers will be able to resell their securities or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to the
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market prices of newly public or recently listed companies indicates that, from
time to time, there may be significant volatility in the market price of the
Company's securities because of factors unrelated, as well as related, to the
Company's operating performance. There can be no assurances that the Company's
Common Stock will ever qualify for inclusion within the NASDAQ System or that
more than a limited market will ever develop for its Common Stock. See "Price
Range of Common Stock."
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY
The Company's Common Stock is not presently included for trading on the
NASDAQ System, and while the Company intends to apply in the near term, there
can be no assurances that the Company will ultimately qualify for inclusion
within that system. The Nasdaq Stock Market, Inc. has recently adopted certain
changes to the entry and maintenance criteria for listing eligibility on The
Nasdaq SmallCap Market. The entry standards now require at least $4 million in
net tangible assets or $750,000 in net income in two of the last three years.
The entry standards also require a public float of at least 1 million shares, a
$5 million market value of public float, a minimum bid price of $4.00 per share,
at least three market makers, and at least 300 round lot shareholders. The newly
enacted maintenance standards (as opposed to entry standards) require at least
$2 million in net tangible assets or $500,000 in net income in two of the last
three years, a public float of at least 500,000 shares, a $1 million market
value of public float, a minimum bid price of $1.00 per share, at least two
market makers, and at least 300 round lot shareholders. The Company currently
does not meet the minimum NASDAQ (SmallCap) financial criteria, and no assurance
can be given that the Common Stock of the Company will ever qualify for
inclusion on the NASDAQ System. Until the Company's shares are approved for
inclusion in the NASDAQ system, the Company's Common Stock will be traded in the
over-the-counter markets on the OTC Bulletin Board. As a result, the Company's
Common Stock is covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and may also affect the ability of shareholders to sell
their shares in the secondary market. See "Description of Securities."
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PENNY STOCK RULES
Any shares which trade under $5.00 per share are considered Penny Stocks.
The Shares offered hereby are being sold for under $5.00 per share and will be
considered Penny Stock. There is no assurance a market for the Common Stock of
the Company will develop. In the event that the share price does not reach $5.00
per share, these shares will be subject to the Penny Stock Rules promulgated
under the Securities Exchange Act of 1934. These rules regulate broker-dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
Penny Stock Rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the broker dealer
and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the
customer in writing before or with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction in
a penny stock not otherwise exempt from such rules, the broker and/or dealer
must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of purchases in the instant offering and trading activity in the
secondary market for the Company's Common Stock. If the Company's Shares are, or
become, subject to the Penny Stock Rules, investors in this offering may find it
more difficult to sell such securities.
PRICE RANGE OF COMMON STOCK
There is currently only a highly limited trading market for the Common
Stock of the Company. The Common Stock of the Company trades on the OTC Bulletin
Board under the symbol "OVMI" which is a limited market and subject to
substantial restrictions and limitations in comparison to the NASDAQ System.
Since the time the Company's Common Stock was included on the OTC Bulletin Board
on April 21, 1997, the price of the Common Stock has generally been quoted in
the range of $1.25 bid and $1.50 asked based on sporadic trading. Currently,
there are only three market makers for the Company's Common Stock. There can be
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no assurance that a substantial trading market will develop (or be sustained, if
developed) for the Common Stock upon completion of this offering, or that
purchasers will be able to resell their securities or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to the
market prices of newly public or recently listed companies indicates that, from
time to time, there may be significant volatility in the market price of the
Company's securities because of factors unrelated, as well as related, to the
Company's operating performance. There can be no assurances that the Company's
Common Stock will ever qualify for inclusion within the NASDAQ System or that
more than a limited market will ever develop for its Common Stock.
As of September 30, 1997, the approximate number of record holders of the
Company's Common Stock was 530.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
incorporation. As the Company has significant capital requirements in the
future, it is not anticipated that funds will be available for the issuance of
dividends in the foreseeable future. The Company presently intends to retain
future earnings, if any, to finance the expansion of its business, and its
future dividend policy will depend on the Company's earnings, if any, capital
requirements, expansion plans, financial condition and other relevant factors.
Payment of dividends are also restricted based on the commercial laws of the
PRC. See "Discussion Pertaining to Certain Conditions Relating to the People's
Republic of China - Repatriation of Earnings from PRC."
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997. No effect is given to the exercise of the Warrants which are
exercisable at $3.00 per share on or prior to December 23, 1998.
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June 30, 1997
-------------
Actual
------
(Amounts in Thousands)
Rmb US$(*)
Short term debt.............................. 40,924 4,930
Long term debt............................... - -
Shareholders' equity:
Common stock, $.0001 par value per share;
40,000,000 shares authorized; 12,050,000
shares issued and outstanding............. 10 1
Additional paid-in capital................... 30,795 3,710
Retained earnings............................ 29,460 3,549
Reserves..................................... 405 49
------ -----
Total shareholders' equity................ 60,670 7,309
------ -----
Total capitalization...................... 101,594 12,239
___________________________
(*) The data under the "US $" column has been translated from Renminbi solely
for convenience at US$1.00 = Rmb 8.30 which represents the single rate of
exchange as quoted by the People's Bank of China on June 30, 1997.
See "Description of Securities" included elsewhere herein for a
description of the terms of the Warrants.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
for the accounts of the Selling Security Holders. There is included in the
Registration Statement of which this Prospectus is a part, 4,000,000 shares of
Common Stock underlying Warrants issued in connection with the Company's
previous private placement. If all of the Warrants were exercised in their
entirety, the Company would receive total proceeds, before expenses, of
approximately $12,000,000. Inasmuch as the holders of all of the Warrants have
no obligation to exercise such Warrants, the Company is not in a position to
evaluate when and if such derivative securities will ever be exercised and the
amount of proceeds that may be realized therefrom. Accordingly, the Company is
not able to allocate specifically at this time the proceeds that may be received
from the exercise of the Warrants, and any proceeds realized will be utilized
for the purchase of production facilities and technical equipment, expanding the
production capacity and existing product range, enhancing the Company's research
and development and for general working capital purposes. To the extent the
proceeds of such exercise are not used immediately, they will be invested in
certificates of deposit, savings deposits, other interest bearing instruments or
will be left in the checking accounts of the Company.
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SUMMARY OF FINANCIAL INFORMATION
The following table sets forth the selected historical consolidated
statement of operations data for each of the six month periods ended June 30,
1996 and 1997 and each of the years in the two year period ended December 31,
1996, and the consolidated balance sheet data as of June 30, 1997 and December
31, 1996. The selected historical consolidated financial data of the Company for
the two years ended December 31, 1996 are derived from the audited consolidated
financial statements of the Company for the two years ended December 31, 1996.
The selected historical consolidated financial data of the Company for the six
month periods ended June 30, 1996 and 1997 are derived from the unaudited
consolidated financial statements of the Company for the six month periods ended
June 30, 1996 and 1997. The selected historical consolidated financial data
should be read in conjunction with, and qualified in their entirety by reference
to, the respective financial statements and their accompanying notes thereto.
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SELECTED HISTORICAL CONSOLIDATED STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1996 1997 1997 1995 1996 1996
---- ---- ---- ---- ---- ----
Rmb Rmb *US$ Rmb Rmb *US$
(Unaudited) (Audited)
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales 61,123 54,882 6,612 135,761 161,492 19,457
Cost of sales (35,709) (31,705) (3,820) (81,331) (101,007) (12,170)
------ ------ ------ ------ ------ ------
Gross profit 25,414 23,177 2,792 54,430 60,485 7,287
Selling & administrative
expenses (13,666) (16,020) (1,930) (26,472) (31,342) (3,776)
Provision for bad debt
expenses (2,875) (3,875) (467) - (4,329) (521)
Interest expenses (3,681) (3,454) (416) (7,612) (6,140) (740)
Other income 2,551 4,204 507 662 3,536 426
Foreign exchange
gain/(loss) (34) - - 864 (24) (3)
**Reorganization expenses - - - - (2,547) (307)
------ ------ ------ ------ ------ ------
Income before income
taxes 7,709 4,032 486 21,872 19,639 2,366
Income taxes - - - - - -
------ ------ ------ ------ ------ ------
Net income after income
taxes 7,709 4,032 486 21,872 19,639 2,366
Share of profits of an
associated company - 58 7 - 157 19
------ ------ ------ ------ ------ ------
Net income before
minority interests 7,709 4,090 493 21,872 19,796 2,385
Minority interests (2,482) (1,748) (211) (7,496) (7,030) (847)
------- ------- ----- ------- ------- -----
Net income 5,227 2,342 282 14,376 12,766 1,538
Earnings per share 0.44 0.19 0.02 1.51 1.06 0.13
</TABLE>
SELECTED HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of December 31, As of June 30
------------------ ------------------
1996 1996 1997 1997
---- ---- ---- ----
Rmb *US$ Rmb *US$
(Audited) (Amounts in
(Unaudited) thousands)
<S> <C> <C> <C> <C>
Current assets 233,222 28,099 235,919 28,424
Working capital 62,349 7,512 67,251 8,103
Total Assets 257,369 31,008 259,843 31,306
Current liabilities 170,873 20,587 168,668 20,321
Long term loan from a
related party 3,442 415 4,031 486
Minority interests 24,726 2,979 26,474 3,190
Total liabilities and
minority interests 199,041 23,981 199,173 23,997
Shareholders' equity 58,328 7,027 60,670 7,309
_____________________
</TABLE>
24
<PAGE>
* For convenience, amounts have been converted from Renminbi to US$ at Rmb
8.30 = US$1.00, which represents the single rate of exchange as quoted by the
People's Bank of China on June 30, 1997. No representation is made that Renminbi
amounts could have been, or could be, converted into US$ at that rate or any
other rate.
** Reorganization expenses were incurred in connection with the acquisition
of ODL by the Company which reduced net income for the year ended December 31,
1996 by Rmb 2.5 million (US$307,000) primarily consisting of professional and
consulting fees.
This is a one time expense in connection with the acquisition of ODL by the
Company. Management does not expect the acquisition would have any significant
impact on the future results of operations, liquidity and sources and uses of
capital resources of the Company.
Excluding the reorganization expenses, the Company's net income and
earnings per share for the year ended December 31, 1996 would be Rmb 15.3
million (US$1,845,000) and Rmb 1.28 (US$.15) per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
OVERVIEW
THE COMPANY
The Company is a Nevada holding company whose only significant asset is a
wholly-owned British Virgin Islands subsidiary, OVM Development Limited, which
owns a 70% interest in Liuzhou OVM, a Sino-foreign equity joint venture company
established under the laws of the PRC which is principally engaged in the
manufacture and sale of prestressing equipment, components and hardware used in
the construction of motorways, bridges, railroads, buildings, hydroelectric dams
and power stations in the PRC. Accordingly, the Company will derive its revenues
from the distributions paid to the Company by ODL resulting from distributions
paid by Liuzhou OVM. Liuzhou OVM pays distributions to its joint venture
partners in accordance with their percentage interests as follows: ODL (70%) and
the Stock Company (30%).
The Company's Financial Statements appearing elsewhere in this Prospectus
consist of the unaudited consolidated financial statements of the Company for
the six month periods ended June 30, 1996 and 1997 and the audited consolidated
financial statements of the Company for two years ended December 31, 1995 and
1996.
The discussions below is presented in the Company's primary operating
currency which is the Renminbi Yuan ("Rmb"). For information purposes these
amounts have been translated into U.S. dollars at an exchange rate of $1.00 =
Rmb 8.30 which represents the single rate of exchange as quoted by the People's
Bank of China on June 30, 1997. This U.S. dollars information is presented for
convenience only. No representation is made that Renminbi amounts could have
been, or could be, converted into U.S. dollars at that rate throughout the
periods presented.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Statement of Operations expressed as a percentage of the
Company's net sales.
Six months ended Year ended
June 30 December 31
---------------- -------------
1996 1997 1995 1996
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.4 57.8 59.9 62.5
Gross profit 41.6 42.2 40.1 37.5
Selling and administrative
expenses 22.4 29.2 19.5 19.4
Provision for bad debt expenses 4.7 7.1 - 2.7
Interest expenses 6.0 6.3 5.6 3.8
Other income 4.2 7.7 0.5 2.2
Foreign exchange gain(loss) (0.1) - 0.6 -
Reorganizational expenses - - - 1.6
Income before income taxes 12.6 7.3 16.1 12.1
Income taxes - - - -
Net income after income taxes 12.6 7.3 16.1 12.1
Share of profit of an associated
company - 0.1 - 0.1
Net income before minority
interests 12.6 7.5 16.1 12.3
Minority interests 4.1 3.2 5.5 4.4
Net income 8.5 4.3 10.6 7.9
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
NET SALES AND GROSS PROFIT. Net sales decreased by Rmb 6,241,000
(US$752,000) or 10% to Rmb 54,882,000 (US$6,612,000) in the six months ended
June 30 1997 from Rmb 61,123,000 (US$7,364,000) in the corresponding period of
the prior year. Sales revenues are recognized upon delivery of goods to
customers. The decrease in net sales revenue was primarily due to the different
delivery schedule of individual contracts between the two periods. More
contracts required delivery within the prior period as compared to the current
period. Net sales represent the invoiced value of goods sold net of sales tax
and returns. Sales returns for each of the six month periods ended June 30, 1997
and 1996 were immaterial. The inventory level of raw materials and components as
of the period ended June 30, 1997 was approximately two months usage. The
inventory level of finished goods and work in progress as of the period end will
vary according to the sales order on hand.
26
<PAGE>
Sales of the Company's products are seasonal. In general, sales in the
first half year are less than the second half. This is because the major
customers of the Company are construction bureaus and contractors. Construction
works in the PRC will normally be suspended during the Lunar Chinese New Year
holiday with the result that sales for the first quarter are usually lower than
that of the other quarters. In addition, customers in the southern and eastern
part of the PRC tend to make orders after August of each year in order to
prevent the over-accumulation of construction materials during the rainy and
typhoon season, which lasts from May to August each year.
Gross profits decreased by Rmb 2,237,000 (US$270,000) or 8.8% to Rmb
23,177,000 (US$2,792,000) for the six months ended June 30, 1997 compared to Rmb
25,414,000 (US$3,062,000) in the corresponding period of the prior year. The
decrease in gross profit was primarily due to the reduction in net sales. The
gross profit margin for the six months ended June 30, 1997 was similar to that
in the corresponding period of the prior year.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased by Rmb 2,354,000 (US$284,000) or 17% to Rmb 16,020,000 (US$1,930,000)
for the six months ended June 30, 1997 as compared to Rmb 13,666,000
(US$1,647,000) in the corresponding period in 1996. The increase was primarily
related to the increased costs associated with the Company's effort to promote
overseas sales and to collect debts. In addition, more legal and professional
fees were incurred by the Company during the current period as compared to the
prior period following the completion of the reverse merger of the Company in
November 1996. Selling and administrative expenses as a percentage of sales were
29.2% for the six months ended June 30, 1997 compared to 22.4% for six months
ended June 30, 1996 due to the aforementioned reasons.
PROVISION FOR BAD DEBT EXPENSES. The provision for bad debt expenses
increased by Rmb 1,000,000 (US$120,000) or 35% to Rmb 3,875,000 (US$467,000) for
the six months ended June 30, 1997 as compared to Rmb 2,875,000 (US$346,000) in
the corresponding period of the prior year. The Company has adopted a general
provision policy on accounts receivable and other receivables which is
calculated based on 50% of those outstanding balances with age over one year and
10% of those balances with age of six months but not exceeding twelve months.
Increase in provision was due to certain accounts receivable which were
originally with age of less than six months, in which no provision was made
under the general provision policy as of December 31, 1996, and were
subsequently classified as aged between six months to a year as of June 30,
1997.
As of June 30, 1997, the net amounts of accounts receivable aged between
six months and twelve months, and over twelve months, were Rmb 78,983,000
(US$9,516,000) and Rmb 5,572,000 (US$671,000), respectively. Most of these
balances are attributable to products sold to contractors of infrastructure
construction projects which are generally completed in stages and extend for a
27
<PAGE>
relatively long period of time. As a result, the average outstanding period of
the Company's accounts receivable are typically longer than those of other
industries in the PRC. However, management believes that, based upon past
experience, the risk of not recovering these outstanding balances is low because
most of the debtors are well established local construction bureaus and the
relevant projects are government funded.
As of June 30, 1997, the net amounts of related party accounts receivable
aged between six months and twelve months, and over twelve months, were Rmb
7,794,000 (US$939,000) and Rmb 24,967,000 (US$3,008,000), respectively. The
recoverability of these balances is guaranteed by the PRC joint venture partner.
INTEREST EXPENSES. Interest expenses decreased by Rmb 227,000 (US$27,000)
or 6% to Rmb 3,454,000 (US$416,000) for six months ended June 30, 1997 as
compared to Rmb 3,681,000 (US$443,000) in the corresponding period in 1996. The
decrease was primarily due to a reduction in the amount of average bank loan
outstanding during the period as compared to the prior period.
Other Income. Other income increased significantly by 65% from Rmb
2,551,000 (US$307,000) for the six months ended June 30, 1996 to Rmb 4,204,000
(US$507,000) for the six months ended June 30, 1997. The increase was primarily
related to interest income of Rmb 3,224,000 (US$388,000) charged against amounts
due from the related companies and the joint venture partner at a rate of 12.6%
per annum commencing January 1, 1997. Such increase was partially offset by the
reduction in rental income received from leasing of certain plant and machinery
to outsiders.
INCOME TAXES. According to an approval issued by the State Tax Bureau of
the Liuzhou City dated July 22, 1996, the income of Liuzhou OVM is fully
exempted from corporate income tax for three years commencing from the first
profitable year of operations followed by a 50% exemption for the next four
years, after which income will be taxable at the full rate of 30%. No income tax
was provided for the six month periods ended June 30, 1997 and 1996 as they were
within the second and third profitable years of operations, respectively.
SHARE OF PROFITS OF AN ASSOCIATED COMPANY. The share of profit of an
associated company arose from the 50% ownership interest held by Liuzhou OVM in
OVM Prestress Co. Pte Ltd., a company incorporated in the Republic of Singapore.
MINORITY INTERESTS. Minority interests represent the 30% equity interest
in Liuzhou OVM, owned by the Stock Company, the joint venture partner.
28
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
NET SALES AND GROSS PROFIT. Net sales for the year ended December 31, 1996
increased by Rmb 25,731,000 (US$3,100,000) or 19% to Rmb 161,492,000
(US$19,457,000) compared to Rmb 135,761,000 (US$16,357,000) of the corresponding
period of the prior year. The increase was mainly due to an indent sales (a
sales directly matched by a purchase) of steel wire, amounting to approximately
Rmb 48,363,000 (US$5,827,000) and accounted for approximately 30% of the total
sales for the year ended December 31, 1996. Net sales represent the invoiced
value of goods sold net of sales tax and returns. Sales returns for each of the
two years ended December 31, 1995 and 1996 were immaterial. The inventory level
of raw materials and components as of the year ended December 31, 1996 was
approximately two months usage. The inventory level of finished goods and work
in progress as of the end of any period shall vary according to the sales order
on hand.
Sales of the Company's products are seasonal. In general, sales in the
first half year are less than the second half. This is because the major
customers of the Company are construction bureaus and contractors. Construction
works in the PRC will normally be suspended during the Lunar Chinese New Year
holiday with the result that sales for the first quarter are usually lower than
the other quarters. In addition, customers in the southern and eastern part of
the PRC tend to make orders after August of each year in order to prevent the
over-accumulation of construction materials during the rainy and typhoon season,
which last from May to August each year. No export sales to the United States
are anticipated for the foreseeable future.
Gross profits increased by Rmb 6,055,000 (US$730,000) or 11% to Rmb
60,485,000 (US$7,287,000) for the year ended December 31, 1996 compared to Rmb
54,430,000 (US$6,558,000) for the corresponding period in 1995. The increase in
gross profits was mainly due to the increase in net sales for the year ended
December 31, 1996 as compared to that of the corresponding period in prior year.
The gross profit margin reduced by 3% points to 37% for the year ended December
31, 1996 from 40% for the corresponding period in 1995. This was due primarily
to the lower profit margin earned of less than 20% from the indent sales of
steel wire, as previously mentioned, compared to an average of 40% for the sales
of other products.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased by Rmb 4,870,000 (US$587,000) or 18% to Rmb 31,342,000 (US$3,776,000)
for the year ended December 31, 1996 as compared to Rmb 26,472,000
(US$3,189,000) in the corresponding period in 1995. Such increase was primarily
related to the increase in salaries and bonus, traveling and rental expenses.
Salaries and bonus, traveling and rental expenses increased by Rmb 1,240,000
(US$149,000), Rmb 1,557,000 (US$188,000) and Rmb 441,000 (US$53,000),
respectively, as compared to that of the corresponding period in 1995. Selling
and administrative expenses as a percentage of sales in 1996 of 19.4% was
similar to that of 19.5% in 1995.
29
<PAGE>
PROVISION FOR BAD DEBT EXPENSES. Provision for bad debt expenses amounted
to Rmb 4,329,000 (US$521,000) for the year ended December 31, 1996. No such bad
debt expenses was provided for the year ended December 31, 1995. For the year
ended December 31, 1996, a general provision of 50% was made on those accounts
receivable and other receivables with age over one year and 10% on such
receivables with age over six months but not exceeding twelve months. This
general doubtful debt provision policy was formulated by the Company with
reference to (i) the norm of the construction industry in the PRC; (ii) the
credit history of the Company's customers and (ii) the actual write-off incurred
by the Company in the past. Accordingly, the provision for bad debt expenses in
1996 may not be indicative of customary annual operating charges. An amount
totalling Rmb 17,691,000 (US$ 2,131,000) was subsequently collected in cash from
these receivables during the six months ended June 30, 1997. No provision for
bad debt expenses was made in 1995 as the recoverability on all such receivables
aged over one year (which were originally injected by the Stock Company), was
guaranteed by the Stock Company.
INTEREST EXPENSE. Interest expenses decreased by Rmb 1,472,000
(US$177,000), or 19% to Rmb 6,140,000 (US$740,000) for the year ended December
31, 1996 from Rmb 7,612,000 (US$917,000) for the corresponding period in 1995.
The average borrowing rate during the year ended December 31, 1996 was 12.6%,
which is comparable to that of the corresponding period last year. The decrease
in interest expense is due principally to the reduction in the average bank
loans outstanding during the year ended December 31, 1996 compared to that of
the comparable period in 1995.
OTHER INCOME. Other income increased significantly by 434% from Rmb
662,000 (US$80,000) for the year ended December 31, 1995 to Rmb 3,536,000
(US$426,000) for the year ended December 31, 1996. This change is principally
resulted from rental income of Rmb 849,000 (US$102,000) received from a customer
for leasing of certain prestressing equipment of the Company. No such rental
income was earned for the corresponding period in 1995. In addition, pursuant to
an agreement dated October 18, 1996, between Liuzhou OVM and the Stock Company,
a service fee of Rmb 1,305,000 (US$157,000) was charged to the Stock Company in
1996 in connection with the debt collecting services rendered by Liuzhou OVM
with respect to those accounts receivable and other receivables originally
injected by the Stock Company into Liuzhou OVM. No such fee was charged in 1995.
REORGANIZATION EXPENSES. Reorganization expenses were incurred in
connection with the acquisition of ODL by the Company which reduced net income
for the year ended December 31, 1996 by Rmb 2.5 million, primarily consisting of
professional and consulting fees.
30
<PAGE>
This is a one time expense in connection with the acquisition of ODL by
the Company. Management does not expect the acquisition would have any
significant impact on the future results of operations, liquidity and sources
and uses of capital resources of the Company.
Excluding the reorganization expenses, the Company's net income and
earnings per share for the year ended December 31, 1996 would be Rmb 15.3
million and Rmb 1.28 per share.
INCOME TAXES. According to an approval issued by the State Tax Bureau of
the Liuzhou City dated July 22, 1996, the income of Liuzhou OVM is fully
exempted from corporate income tax for three years commencing from the first
profitable year of operations followed by a 50% exemption for the next four
years, after which income will be taxable at the full rate of 30%. No income tax
is provided for the two years ended December 31, 1996 and 1995 as they are the
first and second profitable years of operation, respectively.
SHARE OF PROFIT OF AN ASSOCIATED COMPANY. The share of profit of an
associated company arose from the 50% ownership interest in OVM Prestress Co Pte
Ltd, a company incorporated in the Republic of Singapore.
MINORITY INTERESTS. Minority interests represent the 30% equity interest
in Liuzhou OVM, owned by the Stock Company, the joint venture partner.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, accounts
receivable and capital expenditures. The Company has financed its working
capital requirements through a combination of internally generated cash, short
term bank loans and advances from affiliates.
The Company has a working capital surplus of Rmb 62,349,000 (US$7,512,000)
and Rmb 67,251,000 (US$8,103,000), as of December 31, 1996 and June 30, 1997,
respectively. Net cash provided by operating activities for the year ended
December 31, 1996 was Rmb 35,293,000 (US$4,252,000). Net cash used in operating
activities was Rmb 6,874,000 (US$828,000) for the six months ended June 30, 1997
and Rmb 14,615,000 (US$1,761,000) for the year ended December 31, 1996. Net cash
flows from the Company's operating activities are attributable to the Company's
income and changes in operating assets and liabilities.
Net cash flows provided by investing activities of Rmb 13,287,000
(US$1,601,000) are principally in relation to the acquisition of a 50% ownership
interest in an associated company established under the laws of the Republic of
Singapore for the year ended December 31, 1995. For the six months ended June
30, 1997 and the year ended December 31, 1996, the cash flow used in investing
activities related principally to the acquisition of property, machinery and
equipment.
31
<PAGE>
Capital expenditures for the two years ended December 31, 1995 and 1996
and the six months ended June 30, 1997 were Rmb 701,000 (US$84,000), Rmb
1,152,000 (US$139,000) and Rmb 476,000 (US$57,000), respectively.
The Company's capital expenditure have been principally funded to date by
a combination of short-term bank loans and advances from the Stock Company's
affiliates. As at December 31, 1996 and June 30, 1997, the Company had
outstanding short term bank loans of Rmb 41,424,000 (US$4,991,000) and Rmb
40,924,000 (US$4,930,000), respectively and advances from the Stock Company's
affiliates of Rmb 4,786,000 (US$577,000) and Rmb 3,755,000 (US$452,000),
respectively.
The Company estimates that the expansion program of the Company will be
funded partially by the retained profits and by additional indebtedness.
Management believes that it is and will continue to be able to secure the
external debt financing it requires to complete the program on schedule. In
addition, management anticipates continuing to utilize cash on hand and cash
flows from operations to mitigate its external financing requirements over the
next two years.
IMPACT OF INFLATION ON RESULTS OF OPERATIONS, LIABILITIES AND ASSETS
The PRC economy has experienced rapid growth which has led to a
significant growth in money supply and rising inflation, with the national
retail inflation rate reaching 21.7% per annum in 1994. In September 1993, total
money supply had grown by 34% on an annual basis. If revenues generated by
Liuzhou OVM do not rise sufficiently to compensate for the rate of inflation,
profitability may be adversely affected.
In order to control inflation, the PRC government has reinstated controls
on bank credits, limits on loans for fixed assets and restrictions on state bank
lending. This austerity plan, first announced in June 1993, seems to have been
relaxed during the first half of 1996. There is no assurance that the austerity
program will be completed in the proximate future, nor any assurance that if it
were terminated it might not be later reinstated. While inflation has moderated
since 1994, with the national retail inflation rate falling to 14.8%, 6.1% and
1.8% per annum in 1995, 1996 and the first six months of 1997, respectively,
there can be no assurance that inflation will not increase in the future or that
further measures to combat inflation and speculative activities will not be
implemented in a manner that may adversely affect the profitability of Liuzhou
OVM over time.
32
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December 15,
1995. The Company believes that the adopting of SFAS 121 will not have a
material impact on its financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes a fair value based method of accounting for stock-based employee
compensation plans; however, it also allows companies to continue to measure
costs for such plans using the method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Companies that elect to continue with the accounting under APB 25
must provide certain pro forma disclosures of net income, as if SFAS 123 had
been applied. The accounting and disclosure requirements of SFAS 123 are
effective for the Company for transactions entered into during the year ended
December 31, 1996. The Company is currently evaluating its alternatives under
SFAS 123, and its impact on operating results is not presently known.
DISCUSSION PERTAINING TO CERTAIN CONDITIONS
RELATING TO THE PEOPLE'S REPUBLIC OF CHINA
World Trade Organization
- ------------------------
During 1996, the PRC engaged in extensive negotiations to join the World
Trade Organization ("WTO"), which regulates trading and tariffs among its
signatory states. Although such negotiations are currently stalled, it is
expected that negotiations will restart at some point and that the PRC will
eventually assume a position as a member of the WTO. In such event, it will be
required to reduce further some of its import tariffs to conform with the
uniform tariffs under the WTO. Furthermore, in order to facilitate its reentry
to the WTO, the PRC has already begun, and is expected to continue, lowering
some import tariffs and reducing certain other restrictions on imports. The
PRC's entry into the WTO and the current policy of lowering import barriers may
result in increased competition in the domestic market by foreign competitors
who manufacture and sell similar products.
POLITICAL CONSIDERATIONS
Since 1978, the PRC government under its current leadership has been
reforming, and is expected to continue to reform, the PRC's economic and
political systems. Such reforms have resulted in economic growth and certain
33
<PAGE>
social progress. Many of the reforms are unprecedented or experimental and are
expected to be refined and improved upon. Other political, economic and social
factors can also lead to further readjustment of the reform measures. This
refinement and readjustment process may not always have a positive effect on the
operations of the Company. The Company's results at times may also be adversely
affected by changes in the PRC's political, economic and social conditions and
by changes in policies of the PRC government, such as changes in laws and
regulations (or the interpretation thereof), the introduction of measures to
control inflation, changes in the rate of method of taxation and imposition of
additional restrictions on currency conversion and remittances abroad. Although
historically there have been periods of political instability, such as during
the "Cultural Revolution," and certain of the reform measures have from
time-to-time been readjusted, because of the broad support for the reform
process, the economic system in the PRC has already undergone extensive changes
as a result of the success of such reforms. Management believes that the basic
principles underlying the reforms will continue to provide the framework for the
PRC's political and economic system.
THE PRC'S ECONOMY AND ECONOMIC REFORM
The economy of the PRC differs from the economies of most countries
belonging to the Organization for Economic Cooperation and Development in such
respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, self-sufficiency, rate of
inflation and balance of payments position, among others. In the past, the
economy of the PRC has been primarily a planned economy subject to State plans.
The PRC government has recently adopted a policy to transform its economy to a
more market oriented one. Although the majority of productive assets in the PRC
is still owned by the PRC government, the portion of the PRC economy subject to
State plans has been gradually diminishing. There can be no assurance, however,
that the PRC government's policies for economic reforms will be consistent or
effective.
The PRC economy has experienced significant growth in the past decade, but
such growth has been uneven geographically and among various sectors of the
economy. The PRC government has implemented various policies from time to time,
such as during 1989-1991 to restrain the rate of such economic growth and
control inflation and otherwise regulate economic expansion. In response to
increasing inflationary pressures and concern over the accelerating rate of
economic growth, the People's Bank of China announced in May 1993 the first
increase in interest rates since April 1991. In July 1993, the PRC government
adopted a number of additional measures to strengthen the "macroeconomic
control" of the economy and to combat inflation, including, among others,
increasing interest rates on bank loans and deposits, and postponing certain
34
<PAGE>
planned price reforms. These measures had the temporary effect of causing the
Renminbi to appreciate against foreign currencies at the foreign exchange
centers, reducing speculative activities, increasing individual bank deposits
and reducing the prices of certain commodities. Although inflation has eased
since the second half of 1995, no assurance can be given that inflation will not
increase in the future or that further measures to combat inflation and
speculative activities will not be implemented in a manner that may adversely
affect the profitability of the Company over time.
GOVERNMENT CONTROL OF CURRENCY CONVERSION AND EXCHANGE RATE RISKS
All the Company's domestic sales are denominated in Renminbi, the official
currency of the PRC. Export sales are denominated in U.S. dollars and account
for only 16% of total sales by value respectively for each of the two years
ended December 31, 1996.
Since Liuzhou OVM's products are sold in the PRC primarily in Renminbi
transactions, its revenues and profits are predominantly in Renminbi, and will
have to be converted to pay dividends to the Company in hard currency. The PRC
government imposes control over the convertability of Renminbi into foreign
currencies. Prior to January 1, 1994, all foreign exchange transactions
involving Renminbi in the PRC had to take place either through the authorized
financial institutions at the official exchange rates set by the State
Administration for Exchange Control ("SAEC"), the PRC government agency
responsible for matters relating to foreign exchange administration, or at local
foreign exchange swap centers at exchange rates largely determined by supply and
demand. However, transactions effected through swap centers required the prior
approval of the SAEC.
On January 1, 1994, the PRC government abolished its two-tier exchange
rate system and replaced it with a unified managed floating exchange rate system
largely based on market supply and demand. Under the new system, the People's
Bank of China publishes a daily exchange rate of Renminbi (the "PBOC Exchange
Rate") based on the previous day's dealings in the inter-bank foreign exchange
market. Financial institutions authorized to deal in foreign currency may enter
into foreign exchange transactions at exchange rates within an authorized range
above or below the PBOC Exchange Rate according to market conditions.
Currently, foreign investment enterprises ("FIEs") (including Sino-foreign
joint ventures such as Liuzhou OVM) are required to apply to the SAEC for
"Foreign exchange registration certificates" ("FERCs"). With such FERCs (which
are granted to FIEs upon fulfilling certain specified conditions and which are
reviewed annually by the SAEC) and authorization from the SAEC (which is
obtained on a transaction-by-transaction basis), FIEs may enter into
transactions at the swap centers to obtain foreign exchange for their needs.
35
<PAGE>
REPATRIATION OF EARNINGS FROM PRC
Pursuant to the relevant laws and regulations for Sino-foreign joint
venture enterprises, earnings of the Company's operating subsidiary, Liuzhou
OVM, a Sino-foreign equity joint venture enterprise, is available for
distribution in the form of cash dividends to each of the joint venture partners
after Liuzhou OVM (i) satisfies all tax liabilities; (ii) provides for losses in
previous years; and (iii) makes appropriation to reserve funds, as determined at
the discretion of the board of directors. These appropriations include general
reserve fund, enterprise expansion fund and staff bonus and welfare fund. The
Company has been advised that Liuzhou OVM intends to allocate as appropriations
of up to 10-15% of the net income as reflected in its statutory financial
statements.
Earnings reflected in the financial statements prepared in accordance with
US GAAP differ from those reflected in the statutory statements of Liuzhou OVM.
In accordance with the relevant laws and regulations for Sino-foreign joint
venture enterprises, profit available for distribution by Liuzhou OVM is based
on the statutory financial statements. Consequently, a portion of the earnings
included in the retained earnings of the Company is not available for
distribution to the Company and therefore is not available for distribution as
dividends to the shareholders of the Company.
Profit distribution of Liuzhou OVM is declared and payable in Renminbi. If
Liuzhou OVM has foreign currency available after meeting its operational needs,
the Company may receive its share of any distributions to the joint venture
partners in foreign currency to the extent available. The amount of foreign
currency remitted to the Company will be determined with reference to the then
prevailing PBOC Exchange Rate. Only if foreign currency is not available and
only if the Company desires to obtain the foreign currency equivalent of
Renminbi distributions will it be necessary to convert such distributions at a
swap center. However, there can be no assurance that shortages of foreign
currency at the swap centers will not restrict Liuzhou OVM to obtain sufficient
foreign currency. If such a shortfall occurs, the Company may accept Renminbi
payments which can be held or reinvested in other projects. In such
circumstances, this may affect the Company's ability to pay dividends in U.S.
dollars.
LEGAL SYSTEM
Since 1979, many laws and regulations dealing with economic matters in
general have been promulgated in the PRC. Despite this activity in developing
the legal system, the PRC does not have a comprehensive system of laws. In
addition, enforcement of existing laws may be uncertain and sporadic, and
implementation and interpretation thereof inconsistent. The PRC judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
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adequate law exists in the PRC, it may be difficult to obtain swift and
equitable enforcement of such law, or to obtain enforcement of a judgment by a
court of another jurisdiction. The PRC's legal system is based on written
statutes and, therefore, decided legal cases are without binding legal effect,
although they are often followed by judges as guidance. The interpretation of
PRC laws may be subject to policy changes reflecting domestic political changes.
As the PRC legal system develops, the promulgation of new laws, changes to
existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign investors. The trend of legislation over the past 18
years has, however, significantly enhanced the protection afforded foreign
investors in enterprises in the PRC. However, there can be no assurance that
changes in such legislation or interpretation thereof will not have an adverse
effect upon the business and prospects of the Company.
The Company's activities in the PRC are by law subject, in some particular
cases, to administrative review and approval by various national and local
agencies of the PRC government. In particular, part of the Company's current
operations and the realization of its future expansion programs in the PRC will
be subject to PRC government approvals.
BUSINESS
INTRODUCTION
OVM International Holding Corporation (the "Company") was organized under
the laws of the State of Nevada on October 18, 1971 under the name of Mr.
Nevada, Inc., and, following the completion of a limited public offering in
April 1972, commenced limited operations which were discontinued in 1990.
Thereafter, the Company engaged in a reorganization and on several occasions
sought to merge with or acquire certain active private companies or operations,
all of which were terminated or resulted in discontinued negotiations. On
October 20, 1995, the Company changed its name to Intermark Development
Corporation. On November 4, 1996, the Company acquired all of the capital stock
of OVM Development Limited, formerly known as Kolcari Investments Limited
("ODL"), a British Virgin Islands corporation, and changed its name to OVM
International Holding Corporation.
ODL owns a 70 percent equity interest in Liuzhou OVM Construction
Machinery Company Limited "(Liuzhou OVM"), a Sino-foreign equity joint venture
incorporated in the People's Republic of China on May 10, 1995. The PRC venture
partner is Liuzhou Construction Machinery General Factory (the "Factory"), which
was a PRC State-owned enterprise. The Factory was subsequently reorganized into
a limited liability share capital company on January 10, 1995 known as Liuzhou
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OVM Joint Stock Company Limited (the "Stock Company"). ODL and the Stock Company
are parties to the Articles of Association and Joint Venture Contract dated
April 18, 1995 which establishes the basis of their relationship. The joint
venture contract is for a 30-year term which may be terminated under certain
limited circumstances as agreed upon by the parties. These Articles establish a
board of directors consisting of seven persons, a majority of which are to be
designated by ODL. The board of directors has a responsibility for all major
decisions relating to the activities of the venture, although all major
decisions affecting the joint venture require unanimous approval of the
directors. The regular operations of the joint venture are to be overseen by the
general manager and other deputy general managers, and the Stock Company is
responsible for the nomination for the appointment by the board of directors of
the initial general manager whose term expires in April 1998. ODL, in addition
to providing initial cash contributions to the joint venture, is responsible to
assist in the purchase of machinery and equipment outside the PRC, to promote
products and assist in obtaining contracts outside the PRC and to assist in
certain training, personnel and procurement functions. As used herein, the
"Company" or "OVM" refers to OVM International Holding Corporation and includes,
unless the context otherwise requires, the prior or current operations of ODL,
Liuzhou OVM, the Stock Company, or, if prior to its establishment, the Factory.
Liuzhou OVM has assumed substantially all the businesses originally
carried out by the Factory since January 1, 1995 which principally includes the
manufacture, production, sale and distribution of prestressing equipment,
components and hardware used in the construction of motorways, bridges,
railroads, buildings, hydroelectric dams and power stations in the PRC. The
products include anchorage systems, jacks, electric high-pressure oil pumps,
steel cables, direct display sensors, unbonded prestressing tendons and
ancillary equipment widely used in the construction industry. Liuzhou OVM is the
successor to the manufacturing business originally conducted by the Factory.
Accordingly, the following discussion is principally a description of the
business of Liuzhou OVM or that of its predecessor, the Factory.
OVM's products are distributed throughout the PRC to a diversified
customer base, with a minority proportion sold overseas. OVM's PRC customers
include construction and engineering companies and provincial, municipal and
regional construction bureaus across the PRC. Currently, demand in the PRC for
prestressed products is expanding rapidly as the number of infrastructure
construction projects increases.
OVM's head office and production facilities are located in Liuzhou
Municipality, the industrial city of Guangxi Zhuang Autonomous Region
("Guangxi"), with a site area of approximately 12 acres (equals 60,000 square
meters) and production and related facilities comprising buildings and
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structures with a total gross floor area of approximately 9,463 sq. meters
(101,807 sq. ft.). Long term land use rights for the land and the buildings on
which these facilities are situated are held by the Stock Company and leased to
Liuzhou OVM for a period equal to the term of duration of Liuzhou OVM.
Guangxi has substantial mineral resources and is well known as a base of
non-ferrous metals such as manganese, tin, arsenic and bentonite. According to
China Statistical Yearbook 1996, the regional gross domestic product in Guangxi
amounted to approximately Rmb 161 billion (US$19 billion), ranking it 15th in
the PRC in 1996. The Company's primary operating currency is the Renminbi Yuan
("Rmb"). For information purposes these amounts have been translated into U.S.
dollars at an exchange rate of US$1.00 = Rmb 8.30, which represents the single
rate of exchange as quoted by the People's Bank of China on June 30, 1997.
While the Company's indirect participation in the joint venture originated
in 1995, Liuzhou OVM (inclusive of the operations of the Factory), has
approximately 30 years of operating history in manufacturing prestressing
equipment and related components. Management believes that Liuzhou OVM is the
largest manufacturer of prestressing equipment and related components in the PRC
in terms of total sales and profit before taxation for each of the two years
ended December 31, 1995 and 1996. Given the well recognized "OVM" brand name in
the PRC, the quality of Liuzhou OVM's product line and Liuzhou OVM's after sales
and customer support systems, management believes that Liuzhou OVM has
established and will continue to maintain a significant competitive position in
the PRC prestressing equipment industry. Liuzhou OVM's products have an
estimated overall market share of approximately 60% in China (Statistics from
China Rock Anchoring and Engineering Association).
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STRUCTURE
The following diagram depicts the corporate structure of the Company.
-----------------------------
| OVM International Holding |
| Corporation (Nevada) |
-----------------------------
|
100%
|
-------------------------------
| OVM Development Limited |
| (British Virgin Islands) |
-------------------------------
|
| -------------------------------
| | Liuzhou OVM Joint Stock |
| | Company Limited (formerly |
| | known as Liuzhou |
| | Construction Machinery |
| | General Factory (People's |
| | Republic of China) |
| -------------------------------
70% |
| 30%
| |
------------------------------- |
| Liuzhou OVM Construction | |
| Machinery Company Limited |---------------
|(People's Republic of China) |
-------------------------------
|
50%
|
-------------------------------
| OVM Prestress Co. Pte Ltd. |
| (Republic of Singapore) |
-------------------------------
OVM DEVELOPMENT LIMITED ("ODL"), formerly known as Kolcari Investments
Limited is a private limited company incorporated in the British Virgin Islands
on May 3, 1994.
LIUZHOU CONSTRUCTION MACHINERY GENERAL FACTORY (the "Factory"), located in
Liuzhou City, Guangxi Zhuang Autonomous Region, the PRC, was the largest
State-owned manufacturer of prestressing equipment in China. The Factory has
been operating in the PRC since 1967. The Factory was subsequently reorganized
into a limited liability share capital company on January 10, 1995 under the
name of Liuzhou OVM Joint Stock Company Limited (the "Stock Company").
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LIUZHOU OVM CONSTRUCTION MACHINERY COMPANY LIMITED. ("Liuzhou OVM") is a
Sino-foreign equity joint venture established under the laws of PRC on May 10,
1995 and owned 70% by ODL and 30% by the Stock Company. The registered capital
of Liuzhou OVM is US$4 million.
OVM PRESTRESS CO. PTE LTD is a private limited company incorporated in the
Republic of Singapore on December 11, 1993 that is 50% owned by Liuzhou OVM and
50% owned by Wee Poh Construction Co. (Pte) Ltd., an independent third party,
and is principally engaged in the provision of prestressing and related
engineering services.
SUMMARY OF BUSINESSES
The Company is principally engaged in the manufacture and sale of
prestressing equipment and ancillary products. Prior to the establishment of
Liuzhou OVM in May 1995, which took over the Stock Company's business effective
at January 1, 1995, the business was carried out by the Factory (and
subsequently the Stock Company, which is the largest manufacturer of
prestressing equipment and related components in the PRC).
Liuzhou OVM supplies a wide range of prestressing equipment and ancillary
products which are essential for the production of prestressed concrete and are
widely used in infrastructure projects such as highways, railroads, bridges,
buildings and power stations. Management believes that Liuzhou OVM's products
have an estimated overall market share of approximately 60% in China (Statistics
from China Rock Anchoring and Engineering Association).
The Company manufactures a wide array of prestressing equipment and
ancillary products including prestressing anchorage, stressing and lifting
jacks, electric high-pressure oil pumps, unbonded prestressing strand, stay
cable, soil anchor drillers, pipe pullers, steel ducts and ancillary products.
The Company's PRC customers include construction and engineering companies, and
provincial, municipal and regional construction bureaus throughout the PRC. At
present the Company manufactures a range of products which serve various
applications including the construction of bridges and buildings, structural
strengthening and repairs, anchoring in rock and soil, lifting and sliding of
heavy loads, and many other applications. The Company also offers a
comprehensive range of professional engineering consulting services including
feasibility studies, structural design and construction assistance.
The Company has supplied products and provided technical support for more
than 100 major projects in the PRC including Shanghai Yangpu Bridge, one of the
largest cable-stayed bridges in the world, and the lifting of the antenna
masterpole of the Shanghai East Pearl TV and Broadcasting Tower, the tallest
television broadcasting tower in the PRC. The Company's products were also used
in SouthEast Asia projects, such as New Macau-Taipa Bridge in Macau, Mei Bridge
in Vietnam and Serangon Bridge in Singapore.
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Liuzhou OVM is one of the several companies designated by the Ministry of
construction of the PRC as the manufacturers of prestressing equipment. The
following are some of the major projects in the PRC as well as other countries
in Asia in which products of Liuzhou OVM or its predecessors were used:
o Yangpu Bridge in Shanghai
o Nanpu Bridge in Shanghai
o Acdang Bridge in Macau
o Reconstruction Engineering of Beijing International Airport
o Beijing-Shenzhen Expressway
o Shuikou Hydropower Station in Fujian Province
o The Dongming Yellow River Bridge
o The Huangshi Yangtze River Bridge
o The New Railway Station in Beijing
o Friendship Gate in Vietnam
o Bridge over Sungei Serangonn, part of Tampines Expressway
o Phase III, in Singapore
o East Pearl TV and Broadcasting Tower in Shanghai
STRATEGIC PLAN
Management attributes the success of Liuzhou OVM's operations to the
following principal factors:
o its history of manufacturing prestressing equipment, a significant
part of the infrastructure industry of the PRC economy;
o the established "OVM" brand name in the PRC;
o product design and development capabilities predicated on
experienced technicians with technical expertise in prestressing
equipment manufacturing;
o strict quality and cost control policies;
o reliable products marketed at competitive prices; and
o its providing of after sales services to customers.
The Company will seek to increase demand for its products by:
o developing new products;
o increasing production capacity through the construction of new
plants and upgrading its existing production facilities;
o improving production technology;
o rationalizing and improving its sales office network and marketing
strategies generally; and
o actively exploring the overseas markets.
OVERVIEW OF PRESTRESSED CONCRETE
Modern structural engineering tends to progress toward more economic
structures through gradually improved methods of design and the use of higher
strength materials. This results in a reduction of cross-sectional dimensions
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and consequent weight savings. Significant savings can be achieved by the use of
high strength concrete and steel in conjunction with present-day design methods,
which permit an accurate appraisal of member strength. However, there are
limitations to this development, due mainly to the interrelated problems of
cracking and deflection at service loads.
The undesirable characteristics of ordinary reinforced concrete and steel
have been overcome by the development of prestressed concrete which use steels
and concrete of very high strength. The steel, usually in the form of wires or
strands, is embedded in the concrete under high tension that is held in
equilibrium by compressive stresses in the concrete after hardening.
A prestressed concrete member can be defined as one in which there have
been introduced internal stresses of such magnitude and distribution that the
stresses resulting from the given external loading are counteracted to a desired
degree. A prestressed concrete member include anchorage, jacks and its ancillary
equipment. Concrete is basically a compressive material, with its strength in
tension a low and unreliable value. Prestressing applies a precompression to the
member which reduces or eliminates undesirable tensile stresses that would
otherwise be present. Cracking under service loads can be minimized or even
avoided entirely. Deflections may be limited to an acceptable value. In fact,
members can be designed to have zero deflection under the combined effects of
service load and prestress force. Deflection and crack control, achieved through
prestressing, permit the engineer to make use of efficient and economical high
strength steels in the form of strands, wires or bars, in conjunction with
concrete of much higher strength than normal. Thus prestressing results in
overall improvement in performance of structural concrete used for ordinary
loads and spans, and extends the range of application far beyond old limits,
leading not only to much longer spans than previously thought possible, but
permitting innovative new structural forms to be employed.
Prestressed concrete is particularly well suited for use in bridges of all
kinds because of its durability, rigidity, and economy, as well as the
comparative ease with which an aesthetic appearance can be achieved. Prestressed
concrete bridges frequently make use of composite action. Commonly the beams are
precast and placed in position by crane, eliminating the need for obstructing
traffic. The deck slab is then cast in place and locked to the precast units by
stirrups that project upward into the slab. The long-span concrete bridges
require the development of segmentally cast-in-place hollow prestressed concrete
box girders by post- tensioning.
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HISTORY AND DEVELOPMENT OF LIUZHOU OVM
The predecessor of Liuzhou OVM, is Liuzhou Construction Machinery General
Factory, which was founded in 1987 under the supervision of Liuzhou Municipal
Mechanical and Electrical Industrial Bureau. The Factory evolved out of the
former Liuzhou Construction and Machinery Plant founded in 1967. The major
products of the Factory included anchorage systems, electric high-pressure oil
pumps, jacks and other ancillary products which were widely used in
infrastructure projects such as the construction of highways, railroads, bridges
and hydro-power stations.
In 1993, the Factory was granted independent import and export rights by
the Ministry of Foreign Trade and Economic Co-operation of the PRC, which
entitled the Factory to handle import and export transactions directly without
going through various independent import and export corporations. Thereafter,
the Factory was actively involved in exploring the overseas prestressing
equipment market, and its products have been sold for use in Hong Kong, Macau,
Vietnam and Singapore. In the same year, upon the approval of the Commission for
Restructuring the Economic System of Guangxi Zhuang Autonomous Region, the
Factory established Orient Prestress Company Ltd ("Orient"), a joint stock
limited liability company, in conjunction with eight other institutional
shareholders which are mainly technical and research institutes in the PRC. The
Stock Company, being the successor of the Factory (see below), owns
approximately 41% equity interest in Orient and is the largest shareholder.
In December 1994, the Factory was ranked 29th by the State Council
Research and Development Center within the 500 PRC Special Machinery
Manufacturing Enterprises in terms of economic achievement, i.e., sales and
pre-tax profit. On January 10, 1995, upon the approval of the Commission for
Restructuring the Economic System of Guangxi Zhuang Autonomous Region, the
Factory was reorganized into a limited liability share capital company known as
Liuzhou OVM Joint Stock Company Limited.
On May 10, 1995, Liuzhou OVM was established as a Sino-foreign equity
joint venture enterprise. Pursuant to its establishment, Liuzhou OVM took over,
effective from January 1, 1995, certain assets and liabilities together with the
business of the Stock Company which related to the manufacture and sale of
prestressing equipment and ancillary products and certain ancillary functions
including research and development, quality control, sales and marketing,
sourcing and other business support functions. The Stock Company retained
certain assets and liabilities that were not assumed by Liuzhou OVM,
representing mainly investments in various joint ventures and wholly-owned
subsidiaries which are engaged in trading and other businesses that are not
competing with the business of Liuzhou OVM as well as certain other
non-production-related facilities such as welfare facilities, education and
training facilities, recreational, catering, heat, water and electricity
facilities.
44
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PRODUCTS
The Company produces a wide range of products which are mainly used in
prestressed concrete construction, using the pretensioning and post-tensioning
method, which are widely used in the infrastructure projects including
motorways, railroads, bridges, buildings and hydro-power stations. These
products include prestressing anchorage systems, jacks, electric high-pressure
oil pumps, unbonded prestressing tendons, digital display sensors and the
ancillary components. The Company's products are summarized as follows:
PRESTRESSING ANCHORAGE SYSTEMS AND ANCILLARY PRODUCTS. The main
prestressing anchorage system manufactured by the Company include tensile end
anchorage, fixed end anchorage and connectors. Prestressing anchorage systems
are used for prestressed concrete construction and construction units using
pretensioning and postensioning methods, as well as rock and soil anchorage,
external cable and stay cable construction.
JACKS. The Company produces various types of jacks including platform,
pushing and cold-drawn jacks which are used for tensioning of strand, lifting
and pushing of engineering structures and cold drawing of reinforced steel with
different parameters such as nominal oil pressure (MPa), jacking/stressing force
(kN) and/or jacking stroke (mm).
ELECTRIC HIGH-PRESSURE OIL PUMPS. The Company produces several types of
electric high-pressure oil pumps and hydraulic pressure stations. The oil pumps
and stations are always used with various jacks for lifting the heavy objects or
for anchoring the objects.
DIGITAL DISPLAY SENSORS. Model SC sensor is equipped with a special device
and mainly used for digitally displaying technical parameters of various jacks
and in checking the degree of stress in a short period of time.
UNBONDED PRESTRESSING TENDONS. The Company produces two types of unbonded
prestressing tendons with single or double layer of plastic sheaths, which are
used in construction of prestressed concrete under the post-tensioning system.
SCREW THREAD STEEL PIPE FOR PRESTRESSED COMPONENTS. The pipe is made of
low carbon steel band, some are zinc coated, and then rolled up spirally. The
pipe is used for forming a hole in the prestressed concrete using the
post-tensioning method.
OTHERS. The Company produces machinery and equipment for its site test
facilities used in the concrete or rock shear test and rock shear elasticity
test in the construction or survey of a dam for a hydraulic power station, and
soil anchor driller for drilling holes in various texture of soils and strong
decayed rock. In the process of dry drilling, the soil is taken off with the
blades of the spiral drill. This drilling method is used under good soil
conditions where no collapse will occur.
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SALES AND MARKETING
The following table sets forth the Company's aggregate net sales revenue
by product category for each of the two years ended December 31, 1996.
Six Months Ended June 30 Year Ended December 31
1997 1996 1995
---- ---- ----
(Amounts in Thousands)
Product Rmb % Rmb % Rmb %
OVM anchorage system 27,859 50.8 45,205 28.0 73,241 54.0
Jack 10,287 18.7 29,697 18.4 25,694 18.9
High-pressure oil pump 3,336 6.1 5,996 3.7 5,295 3.9
Cable, tendon and steel wire 4,675 8.5 51,797 32.1 2,757 2.0
Other equipment and parts 7,009 12.8 18,901 11.7 23,040 17.0
*Others 1,716 3.1 8,896 6.1 5,734 4.2
------ ---- ------ ---- ------ ----
Total 54,882 100.0 161,492 100.0 135,761 100.0
*Others include rubber engineering products, corrugation pipes and digital
display sensors.
For each of the two years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, the largest ten customers of the Company, which are
mainly construction and engineering companies and provincial, municipal and
regional construction bureaus throughout the PRC, accounted for approximately
34.8%, 54.9% and 37.4%, respectively, of the Company's total sales by value. The
foregoing amounts do not include sales made to Orient Prestress Company, Ltd, a
related party (see discussion below), for resale. Following the commencement of
operations by Liuzhou OVM, sales to Orient have been significantly reduced. The
largest customer of the Company for each of the two years ended December 31,
1995 and 1996 and the six months ended June 30, 1997 accounted for approximately
7.2% and 20.0% and 7.4%, respectively, of the Company's total sales by value.
The single largest customer which accounted for more than 10% of the Company's
total sales in 1996 was Kunming Futong Trading Company which accounted for
20.0%, of the total sales for the year ended December 31, 1996. No single
customer accounted for more than 10% in 1995 and the six months ended June 30,
1997.
The significant increase in the percentage in 1996 as compared to 1995 was
mainly due to an indent sale (a sale directly matched by a purchase) of
approximately Rmb 48,363,000 (US$5,827,000) in 1996.
For each of the two years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, approximately 84%, 84% and 90%, respectively of the
Company's total sales was derived from products sold in the PRC with the balance
attributable to products exported to overseas customers (mainly arranged through
an import and export company wholly-owned by the Stock Company).
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The Company also sells its products directly to end-users through its in
house sales and marketing and after sales staff, consisting of 51 full-time
employees, of which 10 are after sales technicians. These personnel are
responsible for conducting marketing research, sales planning, marketing
strategy, order consultation with customers, sales coordination and control, and
payment collection. The Company maintains sales offices in major cities
including Liuzhou, Guangzhou, Xiamen, Shanghai, Beijing, Xian, Wuhan, Chengdu,
Chongqing, Yichang, Kunming and the site of the Three Gorges Dam project. The
Company also maintains overseas offices in Hong Kong, Singapore, and Malaysia.
The Company's marketing efforts include visits to existing and prospective
customers and participation in various exhibitions and trade fairs held in the
PRC at which the Company's products are marketed to local and overseas
customers.
In order to maximize the sales distribution network for the Company's
products, the Company has entered into a sales and purchase agreement with
Orient Prestress Company Ltd. ("Orient"), a company which is owned approximately
41% by the Stock Company. For each of the two years ended December 31, 1995 and
1996 and the six months ended June 30, 1997, the Company's sales to Orient
accounted for 49%, 2% and nil, respectively, of its total sales (see "Certain
Transactions"). Pursuant to the formal establishment of Liuzhou OVM and
commencing January 1996, most of the sales were conducted on a direct basis
instead of to Orient. This accounts for the significant reduction in the
percentage of sales made to Orient for the year ended December 31, 1996. The
Company has also entered into other non-exclusive agency agreements with other
companies. However, sales through these agency arrangements were not significant
and accounted for less than 1% of the Company's total sales for each of the two
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997.
The Company has been actively expanding overseas markets. Its products
have been exported from the PRC and sold in Pakistan, Singapore, Japan, Hong
Kong, Sudan and Vietnam. The export sales (mainly arranged through an import and
export company wholly-owned by the Stock Company) accounted for approximately
16% of the Company's total sales for each of the two years ended December 31,
1996. All export sales are denominated in U.S. dollars.
As most of the infrastructure construction projects are capital intensive
and extend for a relatively long time, most of the equipment and products
manufactured by the Company are sold under fixed price contracts. The production
cycle of the Company's products varies from two months to six months. For
certain large contracts, customers are usually required to pay a cash deposit
(the amount of which differs from customer to customer as each contract is
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individually negotiated) upon signing of the relevant sales and purchase
contracts, with the remaining balance payable after delivery or on-site
installation by way of bank collection. All of the contracts concluded with
domestic customers are dominated in Renminbi. For export sales, customers are
required to pay a deposit of at least 30% upon signing of a sales contract, and
the balance is payable after delivery of products by way of telegraphic transfer
or bank collection. Depending on the credit standing of the customers and the
contract sum involved, the Company usually allows credit of up to 90 days to
customers.
AFTER SALES SERVICE
The Company's after sales service forms an integral part of its policy.
The Company provides a wide range of after sales service to customers located
both in the PRC and overseas. These services include: providing on-site
installation services upon the request of the customer; organizing training
seminars in the PRC for customers from time to time regarding the operations and
technical attributes of the Company's products; responding to customers' request
to modify and assist in the technical operations of the Company's products;
processing of inquiries and feedback from customers and prompt provision of
parts and components; and conducting visits on a regular basis to customers in
order to identify customers' specific needs and level of satisfaction in respect
of the Company's products.
RAW MATERIALS AND COMPONENTS
The major raw materials and components required by the Company include
metallurgical products including steel and rubber products such as high-pressure
rubber pipes as well as mechanical and electrical components such as bearings
and motors. All of the raw materials and components used by the Company are
sourced from PRC suppliers and/or through the manufacture of various components
at its own facility. All the Company's purchases are settled in Rmb. For each of
the two years ended December 31, 1995 and 1996 and the six months ended June 30,
1997, the cost of raw materials and components accounted for approximately 77%,
84% and 69%, respectively, of the Company's total production costs.
The Company has formulated a material supply management policy in respect
of the raw materials and components used in the Company's production operations.
Under this policy, the stock level of raw materials and components is determined
by reference to planned annual consumption and a predetermined inventory level
for different kinds of raw materials and components. The average inventory level
of the Company's raw materials and components is approximately two months usage.
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It is the policy of the Company to maintain more than one supplier for
certain major materials in order to avoid over reliance on a single source of
supply. The Company has long standing relationships with major suppliers and has
not experienced any significant difficulties in sourcing raw materials and
components. The Company has not entered into any long-term purchase arrangements
with any supplier. However, the Company does not anticipate that it will face
any difficulties in the sourcing of its raw materials and components.
For each of the two years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, the largest ten suppliers of raw materials and
components of the Company accounted for approximately 22.3%, 64.3% and 22.7%,
respectively, of the Company's total cost of purchases, while the largest
supplier accounted for approximately 9.0%, 45.8% and 8.1% of the Company's total
cost of purchases, respectively, for the same periods. The significant increase
in the percentage in 1996 was due to an indent purchase (purchase directly
matched by a sale) of steel wire of approximately Rmb 38,861,000 (US$4,682,000),
which accounted for 50.0% of total purchases, from Jiangyin Huaxin Steel Cable
Company Ltd. for the year ended December 31, 1996.
PRODUCTION FACILITIES AND PROCESS
PRODUCTION FACILITIES
The Company's head office and production facilities are located in Liuzhou
Municipality, the industrial city of Guangxi Zhuang Autonomous Region, the PRC,
with a site area of approximately 645,000 square feet and 101,807 sq. ft. of
production workshops and premises. Guangxi has substantial mineral resources and
is recognized as a base of non-ferrous metals such as manganese, tin, arsenic,
and bentonite. According to the China Statistical Yearbook 1996, the regional
gross domestic product of Guangxi amounted to approximately Rmb 161 billion in
1995 (approximately US$19 billion, based on an exchange rate of US$1 = Rmb
8.30), ranking it 15th in the PRC.
Long term land use rights for the land and buildings on which these
facilities are situated are held by the Stock Company and leased to Liuzhou OVM
for a period equal to the duration of Liuzhou OVM which has an initial term of
30 years commencing May 10, 1995. The Company's production facilities and
equipment include lathe machines, planers, milling machines, boring machines,
drilling machines and other ancillary production machines such as forklifts, air
compressors, welding machines, shearing machines, jigs, dies, tools and
hardening furnaces.
PRODUCTION PROCESS
The production process can be divided into three stages. The first stage
is the production of various parts and components, which involves milling,
grinding, boring, heat treatment, welding, refining and painting and coating.
The second stage is the in-house assembly and testing of the products
manufactured. The final stage is the on-site installation and test run.
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PRODUCTION CAPACITY
The Company currently manufactures a wide range of prestressing equipment
and ancillary products. The production capacity of the Company is mainly
dependent on the product mix of the Company, which is subject to adjustment from
time to time, the production floor area available for operation, the quantity of
production equipment and the number and working hours of the Company's
workforce. The Company's product mix and the production output for each product
in a given period are determined by the Company's management after considering
several factors including the number of orders received by the Company for each
product, the forecast of future market demand for different products and the
estimated gross profit margins of different products. The majority of the
Company's production facilities can be used, with or without adaptation, for the
manufacture of different products, though certain facilities can be used for
certain components and special parts only.
The following table summarizes the capital expenditure on the purchase of
production equipment for each of the two years ended December 31, 1996:
Six Months Ended Year Ended
June 30 December 31
---------------- ------------------
1997 1996 1995
---- ---- ----
Rmb Rmb Rmb
Capital expenditure on
production equipment 680,000 1,152,000 701,000
COMPETITION
The Company, through its indirect ownership of Liuzhou OVM, has
approximately 30 years' history of manufacturing prestressing equipment and
ancillary components and was the largest manufacturer in the PRC of these
specialized products in terms of sales revenue and profit before taxation for
each of the two years ended December 31, 1995 and 1996. The Company believes
that Liuzhou OVM has established and should continue to maintain a strong
competitive position in the PRC prestressing equipment industry. There are only
several companies designated by the Ministry of Construction of the PRC as the
manufacturers of these specialized products. The Company believes that the
prestressing market in the PRC is dominated by six major domestic manufacturers.
The names of these manufacturers and their respective market shares for the year
ended December 31, 1994 are as follows:
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Estimated
Name Market Share (%)
- ---- ----------------
Liuzhou Construction Machinery General
Factory (predecessor of Liuzhou OVM) 62.4
Zhongyuan Prestress Machinery Company 13.4
Bridge sub-administrations of the Ministry of Railway 6.3
Siping Construction and Machinery Factory 6.3
Hefei Sifong Group Company 5.9
Xinjin Road Construction and Machinery Factory 4.6
Others 1.1
-----
100.0
(Statistics provided by China Rock Anchoring and Engineering Association)
Although Liuzhou OVM's competitive advantage over imported products in
terms of pricing may be partially undermined with the PRC's entry into the World
Trade Organization, management believes the Company can still maintain its
competitiveness due to the significant pricing differential between the
Company's products and imports, the accessibility and efficiency of after sales
services and the timely availability of components and special parts.
The major export markets of the Company are developing countries in Asia
where infrastructure activities are expected to sharply increase. Management
believes that the demand for the Company's products in these countries should be
strong because Liuzhou OVM's products are less costly than these of the overseas
manufacturers and the quality is readily comparable.
In respect of the domestic market, management believes that the Company has
a competitive advantage over other domestic manufacturers in terms of product
technology and product quality. In addition, the Company's capability to
continuously manufacture and supply parts and components for its products and
after sales services serve to strengthen its compititiveness.
QUALITY CONTROL
The Company is committed to manufacturing high quality products and to
providing a high level of after sales service to its customers. Management
believes that product quality is vital to enhancing the Company's
competitiveness, market position and reputation. In order to maintain and
improve the quality of its products and production standards, the Company has
adopted a comprehensive quality control system which conforms with the
internationally recognized ISO 9001 standards.
The Company has established a quality control team consisting of 58
full-time employees to ensure that the quality products is consistently
maintained. The major responsibilities of the quality control department
include: (i) devising, implementing and improving quality control procedures in
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order to comply with ISO 9001; (ii) conducting inspection of raw materials,
work-in-progress and finished products on a sampling basis; (iii) examining of
parts and components manufactured at each stage of the production process; and
(iv) reviewing and improving quality testing procedures and carrying out
stringent testing of the Company's products.
RESEARCH AND DEVELOPMENT
The Company has set up a technical process design and control department
and a research and development department. The technical process design and
control department is responsible for developing new production skills and
designing new production processes. The research and development department is
responsible for development of new products and the technological improvement of
products. These two departments of Liuzhou OVM employed at September 30, 1996,
98 full-time employees including 10 senior engineers and 32 engineers. Since
1989, the Company has developed 26 new products, of which 11 have obtained
scientific awards from the State, provincial and municipal governmental
authorities.
Most of the research and products development programs undertaken by the
company are in cooperation with universities and research institutions in the
PRC. The Company has worked over 200 universities, testing facilities, research
institutes and local provincial and municipal construction bureaus in developing
its product line.
The Company's annual research and development expenditure accounts for
less than 1% of total sales for each of the two years ended December 31, 1995
and 1996 and the six months ended June 30, 1997. For each of the two years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997, the aggregate
research and development expenses incurred by the Company amounted to
approximately Rmb 777,000 (US$94,000), Rmb 453,000 (US$55,000) and Rmb 320,000
(US$39,000), respectively.
ENVIRONMENTAL PROTECTION
The Company has adopted measures to reduce the level of pollution caused
by its operation and has continuously complied with the PRC's environmental
protection law and regulations. Environmental protection measures adopted by the
Company include the treatment of emulsified effluent and smoke and dust emitted
from boilers of the Company's production facilities. The Company has never been
fined for violation of environmental laws in the PRC.
INTELLECTUAL PROPERTY RIGHTS
The Company's products are currently marketed under the "OVM" trademark
registered in the PRC. Management believes that since inception, Liuzhou OVM has
developed considerable goodwill within the PRC prestressing equipment
manufacturing industry.
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The Company has an exclusive license for a term equivalent to the period
of validity (including such extended period as may be permitted under the law of
the relevant jurisdiction) to use the following trademark which is owned by and
registered in the PRC in the name of the Stock Company.
Registration Registration Date of
Trademark Class Number Date Expiry
- --------- ----- ------------ ------------- -------
OVM 6 784409 October 21, 1995 October 21, 2005
The Company has an exclusive license for a term equivalent to the period
of validity (including such extended period as may be permitted under the law of
the relevant jurisdiction) to use the following utility model patents which are
registered in the PRC in the name of the Stock Company:
Registration Date of
Patent Number Application Date of expiry
- ------ ------ ----------- --------------
Stay cable multi-anchorage 90224483.2 November 27, 1990 November 27,1998
Hydraulic-automatic force
inspecting device 89202440.2 March 3, 1989 March 3, 1997
Automatic-continuous
lifting and pressing device 90220583.8 September 15, 1990 September 15,1998
Long-diameter high-strength
steel wire cone anchorage 90208621.9 June 11, 1990 June 11, 1998
Stranded wire & bunched
steel wires prestressed
tensioning anchorage 90208622 June 11, 1990 June 11, 1998
Heavy-tonnage cable force
inspecting long-distance
sensor 92204510 March 14, 1992 March 14, 2000
Prestressed ductile anchor
strut 88220725 November 30, 1988 November 30, 1996
Liuzhou OVM entered into an agreement with the Stock Company on June 5,
1995 and a supplementary agreement dated December 18, 1995 pursuant to which the
Stock Company granted to Liuzhou OVM an exclusive and assignable right to use
the "OVM" trademark and various patents in connection with the manufacturing
operations assumed by the Company following the establishment of the Liuzhou OVM
in the PRC and any territory outside the PRC for a term equivalent to the period
of validity (including such extended period as may be permitted under the law of
the relevant jurisdiction) of the trademark or the relevant patent in
consideration of the sum of Rmb 8 million (approximately US$964,000).
Under these agreements, the Stock Company has undertaken to apply for any
renewal of the registration of the "OVM" trademark and the relevant patents
promptly upon the expiration of the registration of the same and to procure the
registration of the trademark and patents in any territory outside the PRC as
the Company may require, all such renewals and registrations to be made at the
cost of the Company.
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EMPLOYEES
As at June 30, 1997, the Company had a total of 965 full-time employees,
958 of which were employed by Liuzhou OVM, with the balance being employed in
administrative positions by the Company (5 employees) and ODL (2 employees).
These employees are employed as follows:
Production 638
Administration and management 87
Quality control 58
Technical process design and control 47
Research and development 51
Sales, marketing and after sales service 51
Raw materials supply 30
Others 3
---
965
===
OVM Prestress Co. Pte. Ltd., a company 50% owned by Liuzhou OVM, employs a total
of 16 full-time employees.
PROPERTY
All of the Company's operations are conducted from its 101,807 square foot
facility located in the Liuzhou Municipality, PRC. The facility is leased for a
term ending May 10, 2025 at an initial rental of Rmb 300,000 (US$36,000). See
preceding discussion in "Production Facilities and Process."
MANAGEMENT
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company and Liuzhou OVM.
Directors of the Company will be elected at the Company's annual meeting of
shareholders and serve for one year or until their successors are elected and
qualify. Officers are elected by the Board and their terms of office are, except
to the extent governed by employment contract, at the discretion of the Board.
Name Age Position
- ---- --- --------
Ching Lung Po 50 Chairman of the Board of Directors,
President and CEO of the Company and
Vice Chairman of the Board of
Directors of Liuzhou OVM
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Wu Guosen 62 Vice Chairman of the Board of
Directors of the Company and Chairman
of the Board of Directors and General
Manager of Liuzhou OVM
Wan Ying Lin 48 Director of the Company
Kwok Kwan Hung 30 Director and Chief Financial Officer
of the Company
Peng Fang 35 Vice President of the Company and
Deputy General Manager of Liuzhou OVM
Tang Xiaoping 35 Vice President of the Company and
Deputy General Manager of Liuzhou OVM
Cheung Lai 42 Treasurer of the Company and Director
of Liuzhou OVM
Wan Wai On 23 Director and Corporate Secretary of
the Company
MR. CHING LUNG PO, aged 50, the Chairman of the Board of Directors and
President of the Company and Vice Chairman of the Board of Directors of Liuzhou
OVM. Mr. Ching has been involved in more than 20 years in the management of
production and technology of industrial enterprises in PRC. He worked in
Heilongjiang Suihua Electronic Factory as an engineer from 1969 to 1976 and was
the Head of the Heilongjiang Suihua Industrial Science & Technology Research
Institute from 1975 to 1976. Mr. Ching joined the Heilongjiang Qingan Factory in
1976 and became the General Manager since 1976. In 1988, Mr. Ching started his
own business and established the Shenzhen Hongda Science & Technology Company
Limited in Shenzhen which manufactures electronic products. Mr. Ching is
graduated from the Harbin Military and Engineering Institute and holds the title
of Senior Engineer. Mr. Ching is responsible for the overall corporate policy
and development strategy of the Company. Mr. Ching devotes approximately 50% of
his time to the affairs of the Company and its subsidiaries.
MR. WU GUOSEN, aged 62, senior economist, is the Vice Chairman of the
Board of Directors of the Company and Chairman of the Board of Directors and
General Manager of Liuzhou OVM. Mr. Wu graduated from the China Huatung Military
University specializing in civil engineering and enterprise management. He
joined the Factory in late 1984 as the Director and secretary of the Communist
Party of the Factory. He has been closely involved in the research and
development of the anchoring system and jacks and has over 30 years of technical
and enterprise management experience of the prestressing engineering industry.
He has won such titles and awards as "National Machinery Industry Labour Model"
awarded by the Ministry of Machinery in 1994 and "Labour Model of Guangxi
55
<PAGE>
Electronic Industry System" in 1995. He also held the position as the Deputy
General Manager of the China Rock Anchoring and Engineering Association since
late 1988. He is responsible for the overall management of Liuzhou OVM. Mr. Wu
devotes all of his time to the affairs of the Company and its subsidiaries.
MR. WAN YING LIN, aged 48, is a Director of the Company and Director of
Liuzhou OVM. Mr. Wan is graduated from the Guangxi Liuzhou Institute of Medical
Specialty specializing in administration and management. From January 1986
through December 1987, he was the manager of Lam Ko Mould Company in charge of
the China marketing and development division in Hong Kong. Then in January 1988
through February 1993, he worked as the marketing manager in Wai Tong Trading
Company in Hong Kong. In 1993, he joined the Hong Kong Prestressing Concrete
Engineering Company Limited and has been working as manager until now. Mr. Wan
devotes approximately 50% of his time to the affairs of the Company and its
subsidiaries.
MR. PENG FANG, aged 35, is a Director of the Company and Director and
Deputy General Manager of Liuzhou OVM. He graduated from Dilian Polytechnic
Institute specializing in structuring engineering and obtained the title of
senior engineer in 1993. He also obtained a master degree and Ph.D. degree from
the institute. He completed his master degree in December 1986 and then his
Ph.D. degree in December 1990. In December 1990 through June 1994, he worked as
senior engineer in the Foreign Office of the Ministry of Communications. He
joined the Factory in February 1994 and worked as the Deputy General Manager. He
has considerable knowledge about the government planning on transportation and
communication. He is responsible for development of the overseas market of
Liuzhou OVM. Mr. Peng devotes all of his time to the affairs of the Company and
its subsidiaries.
MS. CHEUNG LAI, aged 42, Treasurer of the Company and Director of Liuzhou
OVM. Ms. Cheung graduated from Heilongjiang Broadcasting Television University
specializing in English language. In September 1982 through September 1988, she
worked as the sales manager of Heilongjiang Qingan Steel & Iron Factory. In
October 1988 through August 1992, he worked as sales manager of the Shenzhen
Zhenbao Enterprise Company. In September 1992, she joined Shenzhen Hongda
Science & Technology Enterprise Company Limited as the finance manager. Ms.
Cheung devotes approximately 50% of her time to the affairs of the Company and
its subsidiaries.
MS. TANG XIAOPING, aged 35, is the Vice President of the Company and
Deputy General Manager of Liuzhou OVM. She graduated from Guangxi Broadcasting
Television University specializing in machinery manufacturing. She obtained the
title of engineer in 1992. She joined the Factory in 1985 and became the Deputy
General Manager of the Factory in December 1993. She has many years experience
in sales and marketing. She was awarded the "Ten Most Outstanding Sales Person"
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<PAGE>
by the Liuzhou Mechanical and Electrical Industry Bureau in 1993. She is also
the council member of Huadong Prestressing Technology United Development Center.
She is responsible for the sales of Liuzhou OVM's products. Ms. Tang devotes all
of her time to the affairs of the Company and its subsidiaries.
MR. KWOK KWAN HUNG, aged 30, is the Director and Chief Financial Officer
of the Company and is responsible for the Company's finance and taxation
matters, as well as the overall accounting operations of the Company. Mr. Kwok
obtained a bachelor's degree in Economics from the University of London and is
an associate member of the Chartered Association of Certified Accountants. He
joined Ernst & Young after graduation and worked as senior auditor until late
1992. From October 1992 to April 1996, he held the position of Finance Manager
and Financial Controller for two Hong Kong listed companies. In April 1996, he
joined Mascotte Industrial Associates (Hong Kong) Limited, a private company in
Hong Kong, as the Finance Director. Mr. Kwok devotes approximately 40% of his
time to the affairs of the Company and its subsidiaries.
MR. WAN WAI ON, aged 23, is the Director and Corporate Secretary of the
Company. Mr. Wan is a graduate of Rutgers University, New Brunswick, New Jersey
where he received a Bachelors of Arts degree. Since graduation in May 1996, he
has been employed as a general manager of a computer company based in Hong Kong.
Mr. Wan devotes approximately 50% of his time to the affairs of the Company.
Executive Compensation
- ----------------------
No director or executive officer has received compensation in excess of
US$100,000 per year for each of the two years ended December 31, 1995 and 1996.
Effective September 30, 1996, the Company entered into an Employment
Agreement with Kwok Kwan Hung pursuant to which Mr. Kwok will serve as the
Company's Chief Financial Officer. The contract is not for any specified term
and Mr. Kwok is obligated to provide not less than 16 hours on a weekly basis to
the Company. Mr. Kwok is being compensated at the rate of HK$10,000 (US$1,292)
per month. The Company, except for Mr. Kwok, currently has no employment
contracts with any of its officers and directors and maintains no retirement,
fringe benefits or similar plans for the benefit of its officers and directors.
Mr. Wu Guosen, Mr. Peng Fang and Ms. Tang Ziaoping, being officers of Liuzhou
OVM, are eligible to participate in the retirement and pension fund established
by Liuzhou OVM in the PRC. See following discussion under "Retirement and
Pension Fund."
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Cash Compensation
- -----------------
The following table shows, for each of the two years ended December 31,
1996, the cash and other compensation paid by the Company to its President and
Chief Executive Officer. None of the executive officers of the Company had
annual compensation in excess of US$100,000.
SUMMARY COMPENSATION TABLE
Name and Other All
Principal Annual Other
Position Year Salary Bonus Compensation(1) Compensation(2)
- -------- ---- ------ ----- ------------ ------------
Ching Lung Po, 1996 $62,016 -0- $ -0- $ -0-
Chairman, 1995 $62,016 -0- $ -0- $ -0-
President, and
CEO
Option Grants in Last Fiscal Year
- ---------------------------------
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended December
31, 1996 to each person named in the Summary Compensation Table.
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Shares) Date
- ---- ---------- ----------- ---------- ----------
Ching Lung Po -0- -0- -0- -0-
Option Exercises and Holdings
- -----------------------------
The following table sets forth information with respect to the exercise of
options to purchase shares of Common Stock during the fiscal year ended December
31, 1996 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 1996 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised in-the-Money
Acquired Options/SARs Options/SARs
on Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Ching Lung Po -0- -0- -0- -0-
President, Chief
Executive Officer
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Incentive and Non-qualified Stock Option Plan
- ---------------------------------------------
The Board of Directors and a majority of the Company's shareholders
adopted the Company's 1996 Stock Option Plan (the "Plan") on September 5, 1996.
Under the Plan, the Company has reserved an aggregate of 1,000,000 shares
of Common Stock for issuance pursuant to options granted under the Plan ("Plan
Options"). The Board of Directors or a Committee of the Board of Directors (the
"Committee") of the Company will administer the Plan including, without
limitation, the selection of the persons who will be granted Plan Options under
the Plan, the type of Plan Options to be granted, the number of shares subject
to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). Any Incentive Option granted under the Plan must
provide for an exercise price of not less than 100% of the fair market value of
the underlying shares on the date of such grant, but the exercise price of any
Incentive Option granted to an eligible employee owning more than 10% of the
Company's Common Stock must be at least 110% of such fair market value as
determined on the date of the grant. The term of each Plan Option and the manner
in which it may be exercised is determined by the Board of the Directors or the
Committee, provided that no Plan Option may be exercisable more than 10 years
after the date of its grant and, in the case of an Incentive Option granted to
an eligible employee owning more than 10% of the Company's Common Stock, no more
than five years after the date of the grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per Share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and its
subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only officers, directors and employees of
the Company who are employed by the Company or by any subsidiary thereof are
eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
59
<PAGE>
any reason, other than death or disability, the Plan Option granted to him shall
lapse to the extent unexercised on the earlier of the expiration date or three
months following the date of termination. If the optionee dies during the term
of his employment, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date of the Plan Option or the date
one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate on September 4, 2006. Any such termination of the Plan
shall not affect the validity of any Plan Options previously granted thereunder.
As of October 1, 1997, no incentive stock options had been granted.
RETIREMENT AND PENSION FUND
The Company does not currently have any retirement and pension fund
program at the level of the parent Company, However, in accordance with the
relevant government regulations in the PRC, Liuzhou OVM has participated in a
central retirement and pension fund scheme. Mr. Wu Guosen, Mr. Peng Fang and Ms.
Tang Ziaoping, being officers of Liuzhou OVM, are eligible to participate in the
retirement and pension fund established by Liuzhou OVM in the PRC. The Company
currently makes an annual contribution representing 19% of the total wages of
employees to the retirement and pension fund out of which the pensions of the
Company's retired workers are paid. Effective from January 1, 1993, Liuzhou OVM
has internally implemented an additional retirement plan for its staff. Under
this additional plan, the Company is required to contribute 5% of the total
wages of the employees to the retirement plan. The aggregate pension costs
incurred by the Company for each of the two years ended December 31, 1995 and
1996 and the six months ended June 30, 1997 amounted to Rmb 1,870,000
(US$225,000), Rmb 1,894,000 (US$228,000) and Rmb 1,254,476 (US$151,000),
respectively.
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CERTAIN TRANSACTIONS
On April 18, 1995, Kolcari Investments Limited (predecessor of ODL) and
the Stock Company entered into a Joint Venture Contract (the "Contract"),
pursuant to which such parties agreed to establish Liuzhou OVM as a joint
venture limited liability company in accordance with the Laws of the PRC on
Sino-Foreign Equity Joint Venture. The Contract provided that Liuzhou OVM's
total initial registered capital of $4 million was to be contributed in assets
and/or cash as follows: the Stock Company (30%) and Kolcari (70%).
Pursuant to an agreement dated June 5, 1995 between Liuzhou OVM and the
Stock Company (successor in interest to the Factory), operating assets and
production facilities of the Factory valued at US$1,423,324, according to a
valuation performed by the PRC State- approved assets valuer, were transferred
to Liuzhou OVM. Of the total value of assets transferred into Liuzhou OVM,
US$1,200,000 represented a capital contribution by the Stock Company for its 30%
equity interest in Liuzhou OVM and the balance of US$223,325 was recorded as a
loan to Liuzhou OVM. The remaining 70% of the issued capital is being provided
by Kolcari through the contribution of cash in the approximate amount of
US$2,800,000, of which US$1,960,000 had been paid as at December 31, 1996 with
the balance to be due on March 31, 1997. Pursuant to a supplementary agreement
entered into among ODL and the Stock Company on March 28, 1997, the due date for
the last installment of US$840,000, representing 30% of Kolcari's share of
capital was extended to December 31, 1997. The extension of the installment due
date was requested by Kolcari (the Company's wholly-owned subsidiary, now known
as ODL) because it was determined by the joint venture partners that the joint
venture did not yet require the balance of Kolcari's capital contribution for
the joint venture's operating requirements. In the event Kolcari defaults in the
payment of its installment obligation, and such default continues for 30 days
following written notice of default from the Stock Company (the PRC joint
venture partner), the Stock Company may apply for revocation of the joint
venture. However, if both parties to the joint venture agree to a further
extension of the payment date, it can generally be expected that such extension
will be approved by the governing regulatory authority. Management believes that
Kolcari has sufficient funds available to it to permit it to meet its final
installment obligation to the joint venture.
Following the establishment of Liuzhou OVM, a series of comprehensive
services, leases and assets transfer agreements were entered into between
Liuzhou OVM and the Stock Company and its affiliates. A description of these
agreements are set out below.
A lease agreement dated June 5, 1995 between Liuzhou OVM and the Stock
Company was commenced, pursuant to which the Stock Company agreed to lease land
use rights with gross area of approximately 60,000 sq. meters, production plants
and premises with a gross area of approximately 9,463 sq. meters and 22
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<PAGE>
transportation vehicles, to Liuzhou OVM. The lease regarding the land use
rights, production plants and premises is for a term equal to the period of
duration of Liuzhou OVM. The rental rate is renewable every three years with
each increment capped below 10%. With respect to the leasing of the
transportation vehicles, the initial lease term is for a period of three years
from the date of the agreement. Pursuant to a supplementary agreement dated
September 28, 1995, the aggregate cost of such rentals for each of the two years
ended December 31, 1995 and 1996 was Rmb 300,000 (US$36,000). The rental rate
and lease term for the year ended December 31, 1997 and subsequent years will be
subject to further negotiation between the parties. The original agreement dated
June 5, 1995 with respect to the rental rate and lease term is superseded by the
supplementary agreement.
Pursuant to a service agreement dated June 5, 1995, the Stock Company has
agreed to provide Liuzhou OVM with water and electricity services. The service
charge will depend on actual consumption by Liuzhou OVM and at a rate equal to
that actually payable by the Stock Company. In addition, Liuzhou OVM has agreed
that the Stock Company will provide Liuzhou OVM services including the provision
of workers' dormitories, medical, recreational facilities and certain social and
related services. The service charge for the provision of such social services
will be adjusted for every three years with each increment capped below 10%.
As provided under an agreement dated June 5, 1995 among Liuzhou OVM, the
Stock Company and the heat treatment plant (the "Plant") wholly owned by the
Stock Company, the Plant agreed to provide Liuzhou OVM heat treatment
subcontracting services at a discount of 3-5% from the prevailing market rate.
The aggregate subcontracting charges for each of the two years ended December
31, 1995 and 1996 and the six months ended June 30, 1997 amounted to Rmb
3,958,000 (US$477,000) and Rmb 6,884,000 (US$829,000) and Rmb 2,809,000
(US$338,000), respectively.
In accordance with an agreement dated June 5, 1995 and a supplementary
agreement dated December 18, 1995 between Liuzhou OVM and the Stock Company, the
Stock Company agreed to transfer its intangible assets including trademarks,
patents, technology and know-how related to existing products and products under
development to Liuzhou OVM at a total consideration of Rmb 8,000,000
(US$964,000) (the "Transfer Fee"). An annual royalty equal to 0.6% of the net
sales (after deducting VAT) will be payable by Liuzhou OVM until the full
Transfer Fee is settled. The royalty will be payable by Liuzhou OVM each year
commencing January 1, 1997.
In accordance with an agreement dated June 8, 1995 between Liuzhou OVM and
the Stock Company, certain assets and liabilities and the business of the Stock
Company were transferred to Liuzhou OVM commencing January 1, 1995. Under this
agreement, Liuzhou OVM assumed the business of the Stock Company effective
January 1, 1995.
62
<PAGE>
On November 4, 1996, the Company completed the acquisition of all of the
capital stock interests of Kolcari Investments Limited (which thereafter changed
its name to OVM Development Limited) in exchange for 8,800,000 shares of Common
Stock of the Company. The shareholders of ODL, Hoi Wai Investments, Ltd., NJI
No. 1 (A) Investment Fund, NJI No. 1 (B) Investment Fund, Nomura/Jarco East Asia
Growth Fund, received 6,512,000 shares, 572,000 shares, 572,000 shares and
1,144,000 shares, respectively, of the Company pursuant to such acquisition.
Such shareholders acquired their capital stock interests in ODL on August 17,
1995 for an aggregate cash consideration of US$2,000,000.
In accordance with a supplementary agreement dated October 18, 1996
between Liuzhou OVM and the Stock Company, the Stock Company agreed to pay an
annual service fee to Liuzhou OVM for the collection of the accounts receivable
and other receivables (the "Receivables") injected into Liuzhou OVM by the Stock
Company. The annual fee is calculated at 6.3% on the actual amount collected
from the Receivables in any particular year.
In addition, Liuzhou OVM undertakes a significant portion of its business
with the Stock Company and its affiliate. For each of the two years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997, Liuzhou OVM
had sales amounting to approximately Rmb 2,292,000 (US$276,000), Rmb 33,000
(US$4,000) and nil, respectively, to Hong Kong Prestressed Engineering Limited,
a company incorporated in Hong Kong, of which two of the Company's directors,
Mr. Wan Ying Ling, and Mr. Wu Guo Sen, have a beneficial interest. In addition,
Liuzhou OVM purchases and sells a significant portion of its raw materials to
the Stock Company's affiliates. The amount of such sales and purchases were Rmb
2,192,000 (US$264,000) and Rmb 5,313,000 (US$640,000), respectively for the year
ended December 31, 1995 and Rmb 5,335,000 (US$643,000) and Rmb 3,640,000
(US$439,000), respectively, for the year ended December 31, 1996 and Rmb
4,703,000 (US$577,000) and Rmb 533,000 (US$64,000), respectively for the six
months ended June 30, 1997. In addition, during each of the two years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997, Liuzhou OVM
had sales of finished goods amounting to Rmb 66,093,000 (US$7,963,000), Rmb
2,903,000 (US$350,000) and nil, respectively, to Orient Prestress Company, Ltd.,
a company in which the Stock Company owns a 41% equity interest.
Liuzhou OVM also leases certain plant and machinery to the Stock Company's
affiliates, and for each of the two years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997, a rental income of Rmb 924,000 (US$111,000),
Rmb 684,000 (US$82,000) and nil, respectively, was received by Liuzhou OVM. At
the same time, the Stock Company's affiliates also lease certain plant and
machinery to Liuzhou OVM and a rental expense of Rmb 1,328,000 (US$160,000) and
Rmb 964,000 (US$116,000) and Rmb 458,000 (US$55,000), respectively, was incurred
by Liuzhou OVM for each of the two years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997.
63
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date hereof, certain information
regarding the Company's Common Stock beneficially owned by (i) each shareholder
known by the Company to be the beneficial owner of five (5%) percent or more of
the Company's outstanding Common Stock, (ii) each of the Company's directors,
and (iii) all executive officers and directors as a group. In general, a person
is deemed to be a "beneficial owner" of a security if that person has or shares
the power to vote or direct the voting of such security, or the power to dispose
or to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within sixty (60) days. As of the date hereof, there are
12,050,000 shares of Common Stock outstanding.
Name and Address or Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class
---------------- ----------------------- --------
Hoi Wai Investments Limited 5,512,000(2) 45.7%
P.O. Box 116, Road Town
Tortola, British Virgin Islands
NJI No. 1 (A) Investment Fund 572,000(3) 4.8%
6 Battery Road #42-01 Singapore
049909, Republic of Singapore
NJI No. 1(B) Investment Fund 572,000(3) 4.8%
6 Battery Road #42-01n Singapore
049909, Republic of Singapore
Nomura/Jafco East Asia Growth Fund 1,144,000 9.5%
6 Battery Road #42-01 Singapore
049909, Republic of Singapore
Mr. Ching Lung Po 6,512,000(2) 54.0%
Room 1015, Blck M. Telford Garden
Kowloon Bay, Hong Kong(4)
Mr. Wan Ying Lin -0-(2) -
Flat A, 26/F., Wing Po Mansion, 33
Fort Street, North Point, Hong Kong(5)
Li Kin Hang 1,215,000(6) 9.2%
20/F King Jnin Mansion,
13-15 Yik Yam Street
Happy Valley, Hong Kong
Law Shun Ping 826,200(7) 6.4%
86 Shun Ling Street
3/F San Po Kong,
Kowloon, Hong Kong
Officers and Directors as a group 6,512,000 54.0%
(8 persons)
______________________
64
<PAGE>
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Includes 1,000,000 shares of capital stock directly owned by Mr. Ching
Lung Po. The balance of 5,512,000 shares of capital stock indicated as
held by Mr. Ching Lung Po and Mr. Wan Ying Lin are held on record by Hoi
Wai Investments Limited. Mr. Ching has a 71.43% controlling interest in
Hoi Wai Investments Limited and, accordingly, all of its shares have been
attributed to Mr. Ching.
(3) All shares of capital stock held by NJI No. 1(A) Investment Fund and NJI
No. 2(B) Investment Fund are held on record by Nomura International (Hong
Kong) Limited, a nominee shareholder for NJI No. 1(A) Investment Fund and
NJI No. 2(B) Investment Fund.
(4) Mr. Ching Lung Po is Chairman of the Board and President of the Company.
(5) Mr. Wan Ying Lin is a Director of the Company.
(6) Includes 1,200,000 Warrant Shares.
(7) Includes 816,000 Warrant Shares.
SALES BY SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security Holder,
the amount of shares of Common Stock held directly or indirectly by each holder
as of the date hereof, the amount of shares of Common Stock to be offered by
each such holder, the amount of Common Stock to be owned by each such holder
following sale of such shares of Common Stock and the percentage of shares of
Common Stock to be owned by each such holder following completion of such
offering. As of the date of this Prospectus, there are 12,050,000 shares of
Common Stock of the Company outstanding.
Percentage Shares
Number Shares be Owned to be
Name of Selling of Shares to be After Owned After
Security Holder Owned Offered Offering Offering
- --------------- --------- ------- ---------- -----------
Cheng Ming Chuan 267,300 (1) 267,300 (1) -0- --
Feng Yun 259,200 (2) 259,200 (2) -0- --
Wu Li Qing 243,000 (3) 243,000 (3) -0- --
Luo Jian Yue 226,800 (4) 226,800 (4) -0- --
Li Jian Jiang 267,300 (5) 267,300 (5) -0- --
Xia Man Xin 251,100 (6) 251,100 (6) -0- --
Tian Yuan 234,900 (7) 234,900 (7) -0- --
Wu Qing Hua 259,200 (8) 259,200 (8) -0- --
Li Kin Hang 1,215,000 (9) 1,215,000 (9) -0- --
Lau Shun Ping 826,200(10) 826,200(10) -0- --
________________________
65
<PAGE>
(1) Includes 264,000 Warrant Shares underlying the Warrants.
(2) Includes 256,000 Warrant Shares underlying the Warrants.
(3) Includes 240,000 Warrant Shares underlying the Warrants.
(4) Includes 224,000 Warrant Shares underlying the Warrants.
(5) Includes 264,000 Warrant Shares underlying the Warrants.
(6) Includes 248,000 Warrant Shares underlying the Warrants.
(7) Includes 232,000 Warrant Shares underlying the Warrants.
(8) Includes 256,000 Warrant Shares underlying the Warrants.
(9) Includes 1,200,000 Warrant Shares underlying the Warrants.
(10) Includes 816,000 Warrant Shares underlying the Warrants.
In December 1996, the Company issued an aggregate of 50,000 shares of
Common Stock for an aggregate consideration of $75,000 and Warrants to purchase
4,000,000 shares of Common Stock to the aforementioned investors in a private
placement. The Warrants are exercisable at $3.00 per Warrant Share on or prior
to December 23, 1998.
The Company has undertaken to maintain the Registration Statement current
for a period of not less than nine months from the effective date of the
Registration Statement of which this Prospectus is a part in order that sales of
shares of Common Stock may be made by the Selling Security Holders. The Company
has agreed to pay for all costs and expenses incident to the issuance, offer,
sale and delivery of the Common Stock, including, but not limited to, all
expenses and fees of preparing, filing and printing the Registration Statement
and Prospectus and related exhibits, amendments and supplements thereto and
mailing of such items. The Company will not pay selling commissions and expenses
associated with any such sales by the Selling Security Holders. The Company has
agreed to indemnify the Selling Security Holders against civil liabilities
including liabilities under the Securities Act of 1933. The Selling Security
Holders have advised the Company that sales of shares of their Common Stock may
be made from time to time by or for the accounts of the Selling Security Holders
in one or more transactions in the over-the-counter market, in negotiated
transactions or otherwise, at prices related to the prevailing market prices or
at negotiated prices.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 40,000,000 shares of
Common Stock, $.0001 par value, of which 12,050,000 shares were outstanding as
of the date of this Prospectus. No shares of Preferred Stock are presently
authorized.
Common Stock
- ------------
The Company is authorized to issue up to 40,000,000 shares of Common
Stock, $.0001 par value per Share. Holders of shares of Common Stock are
entitled to share, on a ratable basis, such dividends as may be declared by the
Board of Directors out of funds legally available therefor. Upon liquidation,
dissolution or winding up of the Company, after payment to creditors and holders
of any outstanding shares of Preferred Stock, the assets of the Company will be
divided pro rata on a per Share basis among the holders of the Common Stock.
66
<PAGE>
Each share of Common Stock entitles the holders thereof, to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. The
By-Laws of the Company require that only a majority of the issued and
outstanding shares of Common Stock of the Company need be represented to
constitute a quorum and to transact business at a shareholders' meeting. The
Common Stock has no preemptive, subscription or conversion rights and is not
redeemable by the Company.
Transfer Agent
- --------------
The Transfer Agent for the shares of Common Stock is CJB Transfer
Services, 6312 South Fiddler's Green Circle, Suite 200-N, Englewood, Colorado
80111.
CERTAIN MARKET INFORMATION
As of the date of this Prospectus, 12,050,000 shares of the Company's
Common Stock are outstanding of which 8,850,000 shares will be "restricted
securities," as such term is defined under the Securities Act of 1933, exclusive
of the Common Stock to be sold pursuant to the Registration Statement of which
this Prospectus is a part.
In general, Rule 144 (as presently in effect), promulgated under the Act,
permits a shareholder of the Company who has beneficially owned restricted
shares of Common Stock for at least one year to sell without registration,
within any three-month period, such number of shares not exceeding the greater
of 1% of the then outstanding shares of Common Stock or, if the Common Stock is
quoted on NASDAQ, the average weekly trading volume over a defined period of
time, assuming compliance by the Company with certain reporting requirements of
Rule 144. Furthermore, if the restricted shares of Common Stock are held for at
least two years by a person not affiliated with the Company (in general, a
person who is not an executive officer, director or principal shareholder of the
Company during the three-month period prior to resale), such restricted shares
can be sold without any volume limitation. Any sales of shares by shareholders
pursuant to Rule 144 may have a depressive effect on the price of the Company's
Common Stock.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby will
be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., 200
East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301.
67
<PAGE>
EXPERTS
The audited consolidated financial statements of the Company as of
December 31, 1996 and for each of the two years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young, certified public accountants, as set forth in their report
thereon and included therein in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits filed as a part thereof. The statements contained
in this Prospectus as to the contents of any contracts or other documents
identified as exhibits in this Prospectus are not necessarily complete, and in
each instance, reference is made to a copy of such contract or document filed as
an exhibit to the Registration Statement. The Registration Statement, including
exhibits, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
68
<PAGE>
Consolidated Financial Statements
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
December 31, 1996
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
Report of Independent Auditors F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flows F-4
Consolidated Statements of Changes in Shareholders' Equity F-5
Notes to Consolidated Financial Statements F-6 - F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders,
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
We have audited the accompanying consolidated balance sheet of OVM
International Holding Corporation (the "Company") and its subsidiaries (the
"Group") as of December 31, 1996, and the related consolidated statements of
income, cash flows and changes in shareholders' equity for each of the two years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
OVM International Holding Corporation as of December 31, 1996 and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996 in conformity with accounting
principles generally accepted in the United States of America.
ERNST & YOUNG
Hong Kong
April 18, 1997
F-1
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
December 31,
1996 1996
Notes RMB US$
(Audited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 22,526 2,714
Accounts receivable, net of allowance of RMB3,076 4 104,924 12,641
Inventories 5 35,980 4,335
Prepayments, deposits and other receivables,
net of allowance of RMB1,253 6 10,954 1,320
Due from related parties 20 58,838 7,089
------- -------
Total current assets 233,222 28,099
Property, machinery and equipment, net 7 10,443 1,258
Deferred asset 8 1,833 221
Goodwill 9 3,757 453
Intangible assets 10 3,248 391
Interest in an associated company 11 4,866 586
------- -------
Total assets 257,369 31,008
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans 12 41,424 4,991
Accounts payable 78,246 9,427
Advance payments by customers 11,547 1,391
Other payables and accrued liabilities 22,949 2,765
Due to related parties 20 5,755 693
Sales taxes payable 10,952 1,320
-------- -------
Total current liabilities 170,873 20,587
Long term loan from a related party 3,442 415
Minority interests 24,726 2,979
-------- -------
Total liabilities and minority interests 199,041 23,981
-------- -------
Commitments and contingencies 14
Stockholders' equity:
Common stock 15 10 1
Authorized:
40,000,000 shares, par value of US$0.0001 each
Issued and fully paid:
12,050,000 shares, par value of US$0.0001 each
Additional paid-in capital 15 30,795 3,710
Reserves 405 49
Retained earnings 27,118 3,267
-------- -------
Total stockholders' equity 58,328 7,027
-------- -------
Total liabilities and stockholders' equity 257,369 31,008
======== =======
</TABLE>
The accompanying notes form an integral part of
these consolidated financial statements.
F-2
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Year ended December 31,
Notes 1995 1996 1996
RMB RMB US$
<S> <C> <C> <C>
Sales:
Related parties 70,577 9,477 1,142
Others 65,734 152,015 18,315
Sales tax ( 550) - -
--------- --------- --------
Net sales 135,761 161,492 19,457
Cost of sales, including raw materials purchased
from related parties of RMB 5,313 and RMB
4,203; subcontracting charges paid to related
parties of RMB 3,958 and RMB 6,884; rental
expenses for leasing of plant and machinery
from related parties of RMB 2,538 and RMB 2,673
in 1995 and 1996, respectively ( 81,331) ( 101,007) ( 12,170)
--------- --------- --------
Gross profit 54,430 60,485 7,287
Selling and administrative expenses ( 26,472) ( 31,342) ( 3,776)
Provision for bad debt expense - ( 4,329) ( 521)
Interest expense ( 7,612) ( 6,140) ( 740)
Other income 662 3,536 426
Foreign exchange gains/(losses), net 864 ( 24) ( 3)
Reorganization expenses 17 - ( 2,547) ( 307)
--------- --------- --------
Income before income taxes 21,872 19,639 2,366
Income taxes 13 - - -
--------- --------- --------
21,872 19,639 2,366
Share of profit of an associated company - 157 19
--------- --------- --------
Net income before minority interests 21,872 19,796 2,385
Minority interests ( 7,496) ( 7,030) ( 847)
--------- --------- --------
Net income 14,376 12,766 1,538
========= ========= ========
Earnings per share 3(j) 1.51 1.06 0.13
========= ========= ========
</TABLE>
The accompanying notes form an integral part of
these consolidated financial statements.
F-3
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1995 1996 1996
RMB RMB US$
(Audited) (Audited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 14,376 12,766 1,538
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interests 7,496 7,030 847
Share of profit from an associated company -- (157) (19)
Depreciation 2,107 1,401 169
Amortization of goodwill 135 135 16
Amortization of intangible assets 116 116 14
Interest expense 437 494 60
Currency translation adjustments -- 405 49
Decrease/(increase) in assets:
Accounts receivable (16,508) (77,070) (9,286)
Inventories 4,269 8,297 1,000
Prepayments, deposits and other receivables (12,059) 8,920 1,075
Due from related parties (16,596) 7,617 918
Deferred asset 1,149 2,153 259
Increase/(decrease) in liabilities:
Accounts payable 12,623 43,694 5,264
Advance payments by customers 998 7,996 963
Other payables and accrued liabilities (8,772) 4,423 533
Due to related parties (4,748) (3,517) (424)
Sales taxes payable 362 10,590 1,276
------- ------- -------
Net cash provided by/(used in) operating activities (14,615) 35,293 4,252
------- ------- -------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (701) (1,152) (139)
Net cash acquired on acquisition of a subsidiary 13,988 -- --
------- ------- -------
Net cash provided by/(used in) investing activities 13,287 (1,152) (139)
------- ------- -------
Cash flows from financing activities:
Repayment of bank loans (9,040) (12,546) (1,512)
Proceeds from issue of shares 29,762 621 75
Repayment of long term loan from a related party (3,202) (16,280) (1,961)
------- ------- -------
Net cash provided by/(used in) financing activities 17,520 (28,205) (3,398)
------- ------- -------
Net increase in cash and cash equivalents 16,192 5,936 715
Cash and cash equivalents, at beginning of year 398 16,590 1,999
------- ------- -------
Cash and cash equivalents, at end of year 16,590 22,526 2,714
======= ======= =======
</TABLE>
The accompanying notes form an integral part of
these consolidated financial statements.
F-4
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Number Retained
of shares of Additional Currency earnings/
common stock Common paid-in translation (accumulated
outstanding stock capital adjustments losses) Total
(Note 1) RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 5,866,667 5 414 - ( 24) 395
Issue of 2,933,333 shares of
common stock 2,933,333 2 29,760 - - 29,762
Net income - - - - 14,376 14,376
---------- -- ------ --- ------ ------
Balance at December 31, 1995 8,800,000 7 30,174 - 14,352 44,533
Shares of common stock owned
by the then existing shareholders
of the Company at the date of
Reverse Acquisition 3,200,000 3 - - - 3
Issue of 50,000 shares of common
stock, par value US$0.0001 per
share, at US$1.50 per share 50,000 - 621 - - 621
Net income - - - - 12,766 12,766
Currency translation adjustments - - - 405 - 405
---------- -- ------ --- ------ ------
Balance at December 31, 1996 12,050,000 10 30,795 405 27,118 58,328
========== == ====== === ====== ======
</TABLE>
The accompanying notes form an integral part of
these consolidated financial statements.
F-5
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
OVM International Holding Corporation (the "Company") was formerly
known as Intermark Development Corporation ("IDC") which was incorporated
in the State of Nevada, the United State of America.
OVM Development Limited ("ODL") was formerly known as Kolcari
Investments Limited ("Kolcari") which was incorporated in the British
Virgin Islands on May 3, 1994 with limited liability.
In 1995, Kolcari entered into an agreement with Liuzhou OVM Joint
Stock Company Limited (the "JV Partner"), which was incorporated in the
People's Republic of China (the "PRC") and was principally engaged in the
manufacture and sale of prestress products used in the construction of
motorways, bridges and buildings, to set up a Sino-foreign equity joint
venture (the "JV") in the PRC under the name of Liuzhou OVM Construction
Machinery Company Limited.
As provided in the joint venture agreement, the total investment for
the JV is US$6,000 (RMB51,000) which includes a registered capital of
US$4,000 (RMB34,000). The JV Partner transferred part of its property,
machinery and equipment, valued at US$1,423 (RMB12,098) by a PRC valuer as
at January 31, 1995, to the JV as contribution of 30% of the issued
capital and a loan of US$223 (RMB1,898). The remaining assets and
liabilities of the JV Partner as at December 31, 1994, other than
investments in subsidiaries, joint ventures and the remaining property,
machinery and equipment, were also transferred to the JV as a loan by the
JV Partner. In addition, the business operations of the JV Partner were
taken up by the JV. The remaining 70% of the issued capital were provided
by Kolcari by the contribution of cash of US$2,800 (RMB23,800).
Accordingly, Kolcari has a controlling interest in the JV through a
majority voting interest of 70%.
The above capital injection is to be settled by installments. As at
December 31, 1996, 70% of Kolcari's share capital was due and paid. The
last installment of 30% of Kolcari's share of capital was originally due
on March 31, 1997. Pursuant to a supplement agreement entered into among
Kolcari and the JV Partner on March 28, 1997, the due date of the last
installment of 30% of Kolcari's share of capital was extended to December
31, 1997.
The net income of the JV after provision for income taxes and
appropriations to various statutory and discretionary reserves will be
shared by the Company and the JV Partner according to their respective
percentage of equity interests. The term of the JV is 30 years. The JV was
principally engaged in the manufacture and sale of prestress products used
in the construction of motorways, bridges and buildings.
Pursuant to an agreement between Kolcari and the JV Partner, the
assets and liabilities and the business of the JV Partner are deemed to
have been transferred to the JV on January 1, 1995. Such agreement has
been approved by the relevant government authorities in the PRC. The
financial statements have been prepared under the purchase method as if
the business, assets and liabilities of the JV Partner as described above
had been transferred to the JV on January 1, 1995. The goodwill acquired
is amortised over 30 years using the straight line method.
F-6
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
On September 30, 1996, IDC changed its name to OVM International
Holding Corporation.
With effect on November 4, 1996, pursuant to an acquisition
agreement (the "Agreement") among the Company and ODL and the then
shareholders of ODL, the Company issued 8,800,000 shares of its common
stock to the original shareholders of ODL in exchange for all the issued
ordinary shares of ODL.
The above transactions have been treated as a recapitalization of
ODL with ODL as the acquirer (the "Reverse Acquisition"). Accordingly, the
historical financial statements of the Group prior to November 4, 1996 are
those of ODL except for share capital which represents that of the Company
immediately after the Reverse Acquisition.
On August 17, 1995, 25,000 shares were issued for cash by ODL in
addition to the 50,000 shares, then issued and fully paid. Such issue was
reflected in the historical financial statements of the Group and was
presented as if the same portion of shares, i.e. 2,933,333 shares after
the Reverse Acquisition, were issued by the Company. Accordingly, the pro
forma number of shares of common stock at January 1, 1996 was 8,800,000
shares (as adjusted for the Reverse Acquisition), of which 5,866,667
shares and 2,933,333 shares were attributable to the 50,000 shares of ODL
outstanding as at January 1, 1995 and 25,000 shares issued by ODL on
August 17, 1995, respectively.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Group included the
accounts of the Company and its subsidiaries as if the Reverse Acquisition
as set out in note 1 to these consolidated financial statements had been
completed prior to January 1, 1995.
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of
America ("US GAAP"). This basis of accounting differs from that used in
the statutory financial statements of the JV which are prepared in
accordance with the accounting principles and the relevant financial
regulations established by the Ministry of Finance of the PRC.
The principal adjustments made to the statutory financial statements
of the JV to conform to US GAAP include the following:
. Allowance for doubtful accounts and other receivables;
. Depreciation expense for property, machinery and equipment to more
accurately reflect the economic useful lives of these assets;
. Reclassification of certain expense items from equity appropriations
to charges against income; and
. Recognition of sales and cost of sales upon delivery to the
customers.
F-7
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
2. BASIS OF PRESENTATION (continued)
The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The consolidated financial statements include the financial
statements of the Company and the JV. The results of the JV are
consolidated from the deemed acquisition date of January 1, 1995. All
material intercompany balances and transactions have been eliminated on
consolidation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand
deposits with banks with an original maturity of less than three
months.
(b) Inventories
Inventories are stated at the lower of cost and market value.
Cost is determined on the weighted average basis and in the case of
work in progress and finished goods, comprises direct materials,
direct labor and an appropriate proportion of overheads.
(c) Property, machinery and equipment
Property, machinery and equipment are stated at cost less
accumulated depreciation.
Depreciation is calculated on the straight-line method to
write off the cost of each asset over its estimated useful life. The
principal annual rates used for this purpose are as follows:
Buildings 8.4%
Plant and machinery 12 %
(d) Goodwill
Goodwill is amortized over 30 years using the straight-line
method.
(e) Intangible assets
Intangible assets which represent proprietary technology and
trademarks are stated at cost less accumulated amortization which is
calculated on the straight-line basis over the estimated useful life
of 30 years.
F-8
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Associated company
An associated company is a company, not being a subsidiary, in
which the Group exerts significant influence.
The Group's share of the associated company's post-acquisition
results is included in the consolidated statements of income under
the equity method of accounting. The Group's investment in the
associated company is stated at cost plus the Group's share of the
associated company's post-acquisition results and capital
transactions.
(g) Revenue recognition
Sales represent the invoiced value of goods, net of returns
and allowances, recognized upon delivery of goods to customers.
(h) Income taxes
Income taxes are determined under the liability method as
required by Financial Accounting Standards Board Statement No.109,
"Accounting for Income Taxes".
(i) Foreign currency translation
The functional currency of the operations in the PRC is the
RMB. The accounts of foreign operations are prepared in their
functional currency which is their respective local currency and
translated into RMB, using the closing rate method. Under the
closing rate method, the balance sheet of foreign operations is
translated using the rate of exchange at the closing date and the
statement of income is translated at the average rate of the period.
Resulting translation adjustments are reported as a separate
component of equity.
The financial records of the JV are maintained in Renminbi.
In preparing these financial statements, foreign currency
transactions have been translated into Renminbi using the Exchange
Rates. Monetary assets and liabilities denominated in foreign
currencies have been translated into Renminbi using the Exchange
Rates at the balance sheet date. The exchange gains or losses were
credited or charged to the statement of income.
The market risks associated with changes in exchange rates and
the restrictions over the convertibility of Renminbi into foreign
currencies are discussed in note 18.
F-9
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Foreign currency translation (continued)
Translation of amounts from RMB into US$ for the convenience
of the reader has been made at the Exchange Rate as quoted by the
People's Bank of China on June 30, 1997 of US$1.00 = RMB8.30. No
representation is made that the RMB amounts could have been, or
could be, converted into US$ at that rate on December 31, 1996 or at
any other date.
(j) Earnings per share
The computation of primary earnings per share for the year
ended December 31, 1996 is based on the weighted average number of
common stock outstanding of 12,002,186. Common stock equivalents
(stock warrants) outstanding have not been included, as the
computation would not be dilutive.
For the year ended December 31, 1995, primary earnings per
share is based on a weighted average number of 9,512,329 shares of
common stock outstanding as if the Reverse Acquisition had been
completed at the beginning of the year.
4. ACCOUNTS RECEIVABLE, NET
December 31,
1996
RMB
Accounts receivable 108,000
Less allowance for doubtful accounts ( 3,076)
---------
Accounts receivable, net 104,924
=========
Allowance for doubtful accounts of RMB3,076 was provided in 1996 (1995:
nil).
F-10
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
5. INVENTORIES
December 31,
1996
RMB
Raw materials 11,917
Work in progress 11,891
Finished goods 12,172
------
35,980
======
6. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES, NET
December 31,
1996
RMB
Prepayments, deposits and other receivables 12,207
Less allowance for doubtful accounts ( 1,253)
------
Prepayments, deposits and other receivables, net 10,954
======
Allowance for doubtful accounts of RMB1,253 was provided in 1996 (1995:nil).
7. PROPERTY, MACHINERY AND EQUIPMENT, NET
December 31,
1996
RMB
At cost:
Buildings 4,221
Plant and machinery 9,730
13,951
Accumulated depreciation:
Buildings 571
Plant and machinery 2,937
3,508
------
Property, machinery and equipment, net 10,443
======
The buildings are located in the PRC and the land where the buildings are
situated is State-owned.
F-11
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
8. DEFERRED ASSET
This represents the deemed value-added tax ("VAT") recoverable
arising from the introduction of the new PRC sales tax system on July 1,
1993 which was fully implemented from January 1, 1994. Pursuant to a
directive issued by the Ministry of Finance and the State Tax Bureau, the
deferred VAT can be used to offset against the sales tax payable within a
period of five years from January 1, 1995 such that, in general, 20% of
the deferred asset can be utilized each year. The title to the deemed VAT
recoverable was passed by the JV Partner to the JV on January 1, 1995 as
discussed in note 1.
9. GOODWILL
December 31,
1996
RMB
Cost 4,027
Accumulated amortization ( 270)
-----
3,757
=====
10. INTANGIBLE ASSETS
December 31,
1996
RMB
Cost 3,480
Accumulated amortization ( 232)
-----
3,248
=====
11. INTEREST IN AN ASSOCIATED COMPANY
December 31,
1996
RMB
Unlisted shares, at cost 4,709
Share of post-acquisition profits 157
-----
4,866
=====
F-12
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
11. INTEREST IN AN ASSOCIATED COMPANY (continued)
The associated company, OVM Prestress Co. Pte. Ltd, is a limited
company incorporated in the Republic of Singapore with a registered
capital of US$1,000 on December 11, 1993, 50% of which equity shareholding
is held by the Group.
12. BANK LOANS
All bank loans are denominated in Renminbi and are unsecured except
for amounts of RMB30,924 which are secured by the pledge of the land use
right of a certain portion of the land where the factory premises of the
JV are located and by certain plant and machinery held by the JV and the
JV Partner. All bank loans are repayable within one year but are renewable
with the consent of the banks.
Interest on bank loans is payable at the weighted average rate of
12.6% per annum as of December 31, 1996.
13. INCOME TAXES
It is management's intention to reinvest all the income attributable
to the Company earned by its PRC operations as at December 31,1996.
Accordingly, no United States corporate income taxes have been provided in
these financial statements.
Under the current BVI laws, dividends and capital gains arising from
BVI's investment are not subject to income taxes and no withholding tax is
imposed on payments of dividends by the Company.
Pursuant to an approval issued by the State Tax Bureau of the
Liuzhou City dated July 22, 1996, the income of the JV is fully exempted
from income tax for three years commencing from the first profitable year
of operations followed by a 50% exemption for the next four years, after
which the income is taxable at the full rate of 30%. No income tax is
provided, as this is the second profitable year of operation of the JV.
The tax savings resulting from this tax holiday for the year ended
December 31, 1995 and 1996 amounted to RMB 7,336 and RMB 5,785 (RMB0.77
and RMB0.48 per share), respectively.
The Company's share in the undistributed earnings of the Company's
foreign subsidiaries amounted to RMB26,670 at December 31, 1996. Because
those earnings are considered to be indefinitely invested, no provision
for United States corporate income taxes on those earnings has been
provided. Upon distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to United States corporate income
taxes. Unrecognized deferred United States corporate income tax in respect
of these undistributed earnings as at December 31, 1996 was RMB9,068.
No deferred income taxes have been provided as the effect of all
temporary differences is not material.
F-13
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
14. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996, the Group had outstanding capital
commitments for purchases of equipment, land and staff quarters of
approximately RMB1,198.
15. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
As of November 4, 1996, 3,200,000 shares of common stock of
US$0.0001 each were outstanding to the then existing shareholders of the
Company and as of the same day, 8,800,000 shares of common stock of
US$0.0001 were allotted to the then shareholders of ODL pursuant to the
Reverse Acquisition set out in note 1 to the consolidated financial
statements.
On December 16, 1996, 50,000 shares of common stock, par value
US$0.0001, were issued for cash at US$1.50 per share. For each of the
50,000 shares of common stock issued, the subscriber was allotted a total
of 80 stock purchase warrants, each of which is convertible into one share
of common stock, par value US$0.0001 (see note 16).
On August 17, 1995, 25,000 shares were issued for cash by ODL in
addition 50,000 shares, then issued and fully paid. Such issue was
reflected in the financial statements of the Group and was presented as if
the same portion of shares were issued by the Company.
16. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company adopted a stock option plan (the "Plan") as of September
4, 1996. The Plan allows the Board of Directors, or a committee thereof at
the Board's discretion, to grant stock options to officers, directors, key
employees, consultants and affiliates of the Company. The aggregate number
of shares of common stock reserved for issuance upon exercise of the
options granted under the Plan shall be 1,000,000 shares. Pursuant to the
Plan, the exercise price shall in no event be less than the fair market
value of the shares of common stock at the date of grant. As at December
31, 1996, no stock options have been granted under the Plan.
The Company has issued 4,000,000 stock purchase warrants in
connection with the issuance of 50,000 shares of common stock as detailed
in note 15. Each of the warrants is convertible into one share of the
Company's common stock at an exercise price of US$4.00 per warrant on or
prior to December 23, 1997 and US$5.00 per warrant thereafter. All the
stock purchase warrants remained outstanding at the date of preparation of
these financial statements.
17. REORGANIZATION EXPENSES
Concurrent with the Reverse Acquisition set out in note 1 to the
consolidated financial statements, reorganization expenses represented by
professional and consultancy fees were incurred which reduced net income
by RMB2,547.
F-14
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
18. FOREIGN CURRENCY EXCHANGE
The Renminbi is not freely convertible into foreign currencies.
From April 1995, the National Foreign Exchange Trading Center in
Shanghai (the "exchange center") commenced operations. Enterprises
operating in the PRC can enter into exchange transactions at the exchange
center through the Bank of China or other authorized institutions.
Payments for imported materials are subject to the availability of foreign
currency, which is dependent on the foreign currency denominated earnings
of the enterprises, or must be arranged through the exchange center.
Approval for exchange at the exchange center is granted to enterprises in
the PRC for valid reasons such as purchases of imported materials and
remittance of earnings. While conversion of Renminbi into United States
dollars or other foreign currencies can generally be effected at the
exchange center, there is no guarantee that it can be effected at all
times. At December 31, 1996, RMB43,330 of the Group's shareholders' equity
was subject to exchange conversion restriction.
The exchange rates as of December 31, 1995 and 1996 were:
December 31,
1995 1996
United States dollars ("US$") US$1 : RMB8.32 US$1 : RMB8.30
Singapore dollars ("S$") N/A S$1 : RMB5.83
19. RETIREMENT PLANS
The Company does not have any retirement plans while the JV has a
defined contribution retirement plan for its staff. As stipulated by the
PRC government regulations, the JV is required to contribute to PRC
insurance companies organized by the PRC government which are responsible
for the payments of pension benefits to retired staff. The monthly
contribution of the JV was equal to 19% of the basic salaries of the
staff. The pension costs incurred by the JV during the years ended
December 31, 1995 and 1996 amounted to RMB 1,350 and RMB1,410,
respectively.
Moreover, the JV has internally implemented an additional defined
contribution plan for its staff. As a start-up fund for the plan, the JV
contributed an amount for each staff member according to the number of
years of service. In addition, the JV has to contribute 5% of the monthly
basic salaries. On retirement, the staff members are entitled to a lump
sum payment in respect of the previous contributions. The pension costs
incurred by the JV for the additional plan during the years ended December
31, 1995 and 1996 amounted to RMB520 and RMB484, respectively.
The JV has no obligation for the payment of pension benefits beyond
the annual contributions described above.
F-15
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
20. RELATED PARTY TRANSACTIONS
A significant portion of the business undertaken by the Group during
the years has been effected with other State-owned enterprises in the PRC
and on such terms as determined by the relevant PRC authorities. All these
transactions including the transactions summarized in this note represent
realized revenues and expenses to the Group.
After the commencement of operation of the JV in 1995, the JV
partner became an investment holding company and engaged in the trading of
building and construction materials, import and export of construction
equipment, other than prestressing equipment, from China, construction
design and consultation services which are in different segments from the
products and services provided by the JV. The JV partner remains a
State-owned enterprise which is majority owned by the Mechanical and
Electrical Industrial Bureau of the Liuzhou City Government. The
significant transactions of the Group with the JV Partner and its
subsidiaries are summarized below:
Year ended
December 31,
1995 1996
RMB RMB
The JV Partner:
Rental expenses for leasing of land and buildings,
plant and machinery and motor vehicles 1,210 1,709
Debt collecting services income - 1,305
====== ======
The subsidiaries of the JV Partner:
Rental income from leasing of plant and machinery 924 684
Sales of raw materials 2,192 5,335
Purchases of raw materials 5,313 3,640
Sales of finished goods - 1,206
Subcontracting charges 3,958 6,884
====== ======
In addition, the Group had significant transactions with associated
companies of the JV Partner, as summarized below:
Year ended
December 31,
1995 1996
RMB RMB
Purchases of raw materials - 563
Sales of finished goods 66,093 2,903
Rental expenses for leasing of plant and machinery 1,328 964
====== ======
F-16
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
20. RELATED PARTY TRANSACTIONS (continued)
During the years ended December 31, 1995 and 1996, the Group had
sales amounting to RMB2,292 and RMB33 respectively to Hong Kong
Prestressed Engineering Limited ("HK Prestress"), a company incorporated
in Hong Kong, of which two of the Company's directors, Mr. Guo Sen Wu and
Mr. Ying Lin Wan, have a beneficial interest.
The amounts due from/to and loan to related parties are as follows:
December 31,
1996
RMB
Due from related parties:
Subsidiaries of the JV Partner 29,183
Associated companies of the JV Partner 18,932
HK Prestress 2,899
JV Partner 7,824
------
58,838
======
Due to related parties:
Subsidiaries of the JV Partner 4,786
Current portion of long term loan from the JV Partner 969
------
5,755
======
Long term portion of long term loan from JV Partner 3,442
======
All balances with related parties are unsecured, interest-free and
repayable on demand except for the long-term loan from the JV Partner
which is repayable by annual installments calculated at 0.6% of the gross
sales before VAT of each year commencing January 1, 1997 and has been
discounted at an effective annual interest rate of 12.6%.
As at December 31, 1996, the Group's accounts receivable and other
receivables of RMB8,147 and RMB1,003, respectively, which were acquired by
the Group through an acquisition of a subsidiary in 1995, were transferred
back to the JV Partner at book value.
F-17
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
21. SUPPLEMENTAL CASH FLOW INFORMATION
Year ended
December 31,
1995 1996
RMB RMB
Interest paid 9,236 7,336
====== ======
Income taxes paid - -
====== ======
Year ended
December 31,
1995
RMB
ACQUISITION OF A SUBSIDIARY
Fair value of net assets acquired:
Cash 20,000
Accounts receivable, net 19,493
Inventories 48,546
Prepayments, deposits and other receivables 13,527
Due from subsidiaries of the JV Partner 17,556
Due from related parties 28,890
Property, machinery and equipment, net 12,098
Deferred asset 5,135
Intangible assets 3,480
-------
168,725
Short term bank loans 43,650
Accounts payable 21,929
Advance payments by customers 2,553
Other payables and accrued liabilities 27,298
Due to subsidiaries of the JV Partner 8,422
Due to related parties 5,598
Long term bank loans 19,360
Long term loan from the JV Partner 30,790
Minority interests 7,140
-------
1,985
Goodwill 4,027
-------
6,012
=======
Discharged by cash 6,012
=======
F-18
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
21. SUPPLEMENTAL CASH FLOW INFORMATION (continued)
NON-CASH ACTIVITIES
In 1996, a prepayment of RMB4,709 brought forward from 1995 was
reclassified as interest in an associated company on the formal
establishment of the associated company.
As set out in note 1 to these consolidated financial statements,
with effect as of November 4, 1996, the Company issued 8,800,000 shares of
its common stock to the original shareholders of ODL in exchange for all
the issued ordinary shares of ODL.
As at December 31, 1996, the Group's accounts receivable and other
receivables of RMB8,147 and RMB1,003, respectively, which were acquired by
the Group through an acquisition of a subsidiary in 1995, were transferred
back to the JV Partner at book value.
22. FINANCIAL INSTRUMENTS
The carrying amounts reported in the Group's balance sheet for
current assets and current liabilities, except for bank loans, qualifying
as financial instruments approximate their fair values because of the
short maturity of such instruments. The carrying amounts of bank loans
approximate their fair value based on the borrowing rates currently
available for bank loans with similar terms and average maturities.
23. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
The Group manufactures and sells substantially all prestress
products used in the construction of motorways, bridges and buildings in
the PRC. Accordingly, the credit risk arising from accounts receivable of
the JV is concentrated on the PRC government which is usually the
initiator of these large scale capital projects.
The PRC economy has, for many years, been a centrally-planned
economy, operating on the basis of annual, five-year and ten-year state
plans adopted by central PRC governmental authorities which set out
national production and development targets. The PRC government has been
pursuing economic reforms since it first adopted its "open-door" policy in
1978. There is no assurance that the PRC government will continue to
pursue economic reforms or that there will not be any significant change
in its economic or other policies, particularly in the event of any change
in the political leadership of, or the political, economic or social
conditions in, the PRC. There is also no assurance that the Group will not
be adversely affected by any such change in governmental policies or any
unfavourable change in the political, economic or social conditions, the
laws or regulations or the rate or method of taxation in the PRC.
F-19
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share data)
23. NATURE OF OPERATIONS AND CONCENTRATION OF RISK (continued)
As many of the economic reforms which have been or are being
implemented by the PRC government are unprecedented or experimental, they
may be subject to adjustment or refinement which may have adverse effects
on the Group. Further, through state plans and other economic and fiscal
measures, it remains possible for the PRC government to exert significant
influence on the PRC economy.
In 1995 and 1996, the Group sold finished goods of RMB66,093 and
RMB2,903 respectively to Orient Prestress which accounted for 49% and 2%
of the total sales of the Group during the year. Orient Prestress was
formed by the JV Partner with some PRC parties in the industry of
prestress engineering. Contracts for prestress projects are entered into
by Orient Prestress with the ultimate customers. In turn, Orient Prestress
purchases all the required products from the Group. As at December 31,
1996, the Group had a receivable of RMB15,976 from Orient Prestress.
In 1996, the Group made purchases of steel wire of RMB38,861(1995:
nil) from Jiang Yin Huaxin Steel Cable Co. Ltd. representing 50 % of total
purchases for the year and sales of steel wire of RMB32,137 (1995: nil)
and RMB12,756 (1995: nil) to two of its customers, Kunming Futong Trading
Company and Panyu Bridge Development and Construction Group Company,
respectively, representing 20% and 7.9% of total sales for the year,
respectively.
24. DISTRIBUTION OF PROFITS
The Company's ability to pay dividends is primarily dependent on the
Company receiving distributions from its PRC subsidiary, the JV.
Pursuant to the relevant laws and regulations of sino-foreign joint
venture enterprises, and the JV's articles of association, the JV is
required to make appropriations to a general reserve fund, an enterprise
development fund and an employee welfare and incentive fund, in which the
percentage of annual appropriations are subject to the decision of the
JV's board of directors. The appropriations to the employee welfare and
incentive fund have been charged to the statement of income. The other
appropriations, if any, are accounted for as reserve funds in the balance
sheet and are not available for distribution as dividends to the joint
venture partners of the JV. No appropriations to the reserve funds except
for the employee welfare and incentive fund were made by the JV for 1995
and 1996 as determined by its board of directors.
As described in note 2 to the consolidated financial statements, the
net income of the JV as reported in the US GAAP financial statements
differ from those as reported in the JV's statutory financial statements.
In accordance with the relevant laws and regulations in the PRC, the
profits available for distribution are based on the statutory financial
statements of the JV. At December 31, 1996, the Group's share in the JV's
distributable profits amounted approximately to RMB 26,670.
F-20
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
(Formerly Intermark Development Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share data)
25. SUBSEQUENT EVENT (UNAUDITED)
On June 27, 1997, the board of directors reduced the exercise price of the
stock purchase warrants referred in Note 16 to US$3.00 per warrant
exercisable on or prior to December 23, 1998.
F-20
<PAGE>
Condensed Unaudited Consolidated Financial Statements
OVM INTERNATIONAL HOLDING CORPORATION
June 30, 1997
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
INDEX TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Condensed Consolidated Balance Sheets F-23 - F-24
Condensed Consolidated Statements of Income F-25
Condensed Consolidated Statements of Cash Flows F-26
Notes to Condensed Consolidated Financial Statements F-27 - F-34
F-23
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, June 30, June 30,
Notes 1996 1997 1997
RMB RMB US$
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 22,526 15,265 1,839
Accounts receivable 2 104,924 113,824 13,714
Inventories 3 35,980 34,803 4,193
Prepayments, deposits and other receivables 4 10,954 15,965 1,924
Due from related parties 14 58,838 56,062 6,754
--------- ---------- --------
Total current assets 233,222 235,919 28,424
Interest in an associated company 5 4,866 4,924 593
Property, machinery and equipment, net 6 10,443 10,175 1,226
Deferred asset 7 1,833 1,945 235
Goodwill 8 3,757 3,689 444
Intangible assets 9 3,248 3,191 384
--------- ---------- --------
Total assets 257,369 259,843 31,306
========= ========= ========
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans 10 41,424 40,924 4,930
Accounts payable 78,246 78,143 9,415
Advance payments by customers 11,547 10,384 1,251
Other payables and accrued liabilities 22,949 22,183 2,673
Due to related parties 14 5,755 4,413 532
Sales taxes payable 10,952 12,621 1,520
--------- ---------- --------
Total current liabilities 170,873 168,668 20,321
Long term loan from a related party 14 3,442 4,031 486
Minority interests 24,726 26,474 3,190
--------- ---------- --------
Total liabilities and minority interests 199,041 199,173 23,997
--------- ---------- --------
</TABLE>
F-23
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
December 31, June 30, June 30,
Note 1996 1997 1997
RMB RMB US$
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Commitments and contingencies 13
Stockholders' equity:
Common stock 10 10 1
Authorized:
40,000,000 (1996: 40,000,000) shares, par value
of US$0.0001 each
Issued and fully paid:
12,050,000 (1996: 12,050,000) shares, par value
of US$0.0001 each
Additional paid-in capital 30,795 30,795 3,710
Exchange reserve 405 405 49
Retained earnings 27,118 29,460 3,549
--------- ---------- --------
Total stockholders' equity 58,328 60,670 7,309
--------- ---------- --------
Total liabilities, minority interests and stockholders'
equity 257,369 259,843 31,306
========= ========= ========
</TABLE>
The accompanying notes form an integral part of
these condensed consolidated financial statements.
F-24
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Six months ended June 30,
Notes 1996 1997 1997
RMB RMB US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Sales:
Related parties 3,420 - -
Others 57,703 54,882 6,612
-------- -------- --------
Net sales 61,123 54,882 6,612
Cost of sales ( 35,709) ( 31,705) ( 3,820)
-------- -------- --------
Gross profit 25,414 23,177 2,792
Selling and administrative expenses ( 13,666) ( 16,020) ( 1,930)
Provision for bad debt expenses ( 2,875) ( 3,875) ( 467)
Interest expenses ( 3,681) ( 3,454) ( 416)
Other income 2,551 4,204 507
Foreign exchange loss ( 34) - -
-------- -------- --------
Income before income taxes 7,709 4,032 486
Income taxes 11 - - -
-------- -------- --------
Net income after income taxes 7,709 4,032 486
Share of profit of an associated company - 58 7
-------- -------- --------
Net income before minority interests 7,709 4,090 493
Minority interests ( 2,482) ( 1,748) ( 211)
-------- -------- --------
Net income 5,227 2,342 282
======== ======== ========
Earnings per share 12 0.44 0.19 0.02
======== ======== ========
</TABLE>
The accompanying notes form an integral part of
these condensed consolidated financial statements.
F-25
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1997 1997
RMB RMB US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 5,227 2,342 282
Adjustments to reconcile net income to
net cash provided by operating activities:
Share of profit of an associated company - ( 58) ( 7)
Minority interests 2,482 1,748 211
Depreciation 680 744 90
Amortization of goodwill 67 68 8
Amortization of intangible assets 58 57 7
Decrease/(increase) in assets:
Accounts receivable ( 12,567) ( 8,900) ( 1,072)
Inventories 14,324 1,177 142
Prepayments, deposits and other receivables 7,582 ( 5,011) ( 604)
Due from related parties 8,122 2,776 335
Deferred asset 372 ( 112) ( 14)
Increase/(decrease) in liabilities:
Accounts payable 3,901 ( 103) ( 13)
Advance payments by customers 5,781 ( 1,163) ( 140)
Other payables and accrued liabilities 3,423 ( 766) ( 92)
Due to related parties ( 27,433) ( 1,342) ( 162)
Sales taxes payable 119) 1,669 201
--------- --------- ---------
Net cash provided by/(used in) operating activities 11,900 ( 6,874) ( 828)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of property, machinery and equipment 334) ( 476) ( 58)
Acquisition of an associated company ( 4,709) - -
--------- --------- ---------
Net cash used in investing activities ( 5,043) ( 476) ( 58)
--------- --------- ---------
Cash flows from financing activities:
Advance/(repayment) of long term loan from a related party ( 5,693) 589 71
Repayment of bank loans ( 5,836) ( 500) ( 60)
--------- --------- ---------
Net cash provided by/(used in) financing activities ( 11,529) 89 11
--------- --------- ---------
Net decrease in cash and cash equivalents ( 4,672) ( 7,261) ( 875)
Cash and cash equivalents, at beginning of period 16,590 22,526 2,714
-------- --------- ---------
Cash and cash equivalents, at end of period 11,918 15,265 1,839
======== ========= =========
</TABLE>
The accompanying notes form an integral part of
these condensed consolidated financial statements.
F-26
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
OVM International Holding Corporation (the "Company") was formerly
known as Intermark Development Corporation ("IDC") which was incorporated
in the State of Nevada, the United State of America.
OVM Development Limited ("ODL") was formerly known as Kolcari
Investments Limited ("Kolcari") which was incorporated in the British
Virgin Islands on May 3, 1994 with limited liability.
In 1995, Kolcari entered into an agreement with Liuzhou OVM Joint
Stock Company Limited (the "JV partner"), which was incorporated in the
People's Republic of China (the "PRC") and was principally engaged in the
manufacture and sale of prestress products used in the construction of
motorways, bridges and buildings, to set up a Sino-foreign equity joint
venture (the "JV") in the PRC under the name of Liuzhou OVM Construction
Machinery Company Limited.
With effect on November 4, 1996, pursuant to an acquisition
agreement (the "Agreement") among the Company and ODL and the then
shareholders of ODL, the Company issued 8,800,000 shares of its common
stock to the original shareholders of ODL in exchange for all the issued
ordinary shares of ODL.
The above transactions have been treated as a recapitalization of
ODL with ODL as the acquirer (the "Reverse Acquisition").
The condensed consolidated financial statements are prepared in
accordance with the generally accepted accounting principles in the United
States of America ("US GAAP") for interim financial information and in
compliance with Item 310 of SEC Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
unaudited condensed balance sheet as of June 30, 1997 and the unaudited
statements of income and statements of cash flows for the six months ended
June 30, 1996 and 1997 are presented on the same basis as described in the
audited consolidated financial statements as of December 31, 1996 and for
each of the two years in the period ended December 31, 1996 included
elsewhere in this Registration Statement. The unaudited condensed
consolidated financial statements, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position at such date
and the results of operations and cash flows for those periods. Operating
results for the six months period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997. The condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
and footnotes of the Company for the years ended December 31, 1995 and
1996.
The unified exchange rates as of June 30, 1997 was US$1: RMB8.30
(December 31, 1996: US$1: RMB8.30). For the convenience of the reader,
amounts in Renminbi ("RMB") have been translated into United States
dollars ("US$") at the rate of US$1.00 = RMB8.30 quoted by the People's
Bank of China as at June 30, 1997. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at that rate.
F-27
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
2. ACCOUNTS RECEIVABLE, NET
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Accounts receivable 108,000 120,595
Provision for bad debt expenses:
At the beginning of the year/period - ( 3,076)
Charge for the year/period ( 3,076) ( 3,695)
---------- ----------
At the end of the year/period ( 3,076) ( 6,771)
---------- ----------
Accounts receivable, net 104,924 113,824
========== ==========
3. INVENTORIES
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Raw materials 11,917 12,093
Work in progress 11,891 9,405
Finished goods 12,172 13,305
---------- ----------
35,980 34,803
========== ==========
4. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES, NET
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Prepayments, deposits and other receivables 12,207 17,398
Provision for bad debt expenses:
At the beginning of the year/period - ( 1,253)
Charge for the year/period ( 1,253) ( 180)
--------- ---------
At the end of the year/period ( 1,253) ( 1,433)
--------- ---------
Prepayments, deposits and other receivables, net 10,954 15,965
========= =========
F-28
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
5. INTEREST IN AN ASSOCIATED COMPANY
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Unlisted shares, at cost 4,709 4,709
Share of post-acquisition profits 157 215
------- -------
4,866 4,924
======= =======
Interest in an associated company as at June 30, 1997 represents
the JV's 50% interest in OVM Prestress Co. Pte. Ltd. ("OVM Prestress"),
which was incorporated in the Republic of Singapore. OVM Prestress is
mainly engaged in the business of contractors, specializing in
prestressing and related engineering activities. At June 30, 1997, the
JV had no material contingent liabilities or capital commitments arising
from its interest in the associated company.
6. PROPERTY, MACHINERY AND EQUIPMENT, NET
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
At cost:
Buildings 4,221 4,221
Plant and machinery 9,730 10,206
------- -------
13,951 14,427
------- -------
Accumulated depreciation:
Buildings 571 672
Plant and machinery 2,937 3,580
------- -------
3,508 4,252
------- -------
Property, machinery and equipment, net 10,443 10,175
======= =======
The buildings are located in the PRC and the land where the buildings are
situated is State-owned.
F-29
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
7. DEFERRED ASSET
This represents the deemed value-added tax ("VAT") recoverable
arising from the introduction of the new PRC sales tax system on July 1,
1993 which was fully implemented from January 1, 1994. Pursuant to a
directive issued by the Ministry of Finance and the State Tax Bureau, the
deferred VAT can be used to offset against the sales tax payable within a
period of five years from January 1, 1995 such that, in general, 20% of
the deferred asset can be utilized each year. The title to the deemed VAT
recoverable was passed by the JV Partner to the JV on January 1, 1995.
8. GOODWILL
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Cost 4,027 4,027
Accumulated amortization ( 270) ( 338)
------- -------
3,757 3,689
======= =======
9. INTANGIBLE ASSETS
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Cost 3,480 3,480
Accumulated amortization ( 232) ( 289)
------- -------
3,248 3,191
======= =======
F-30
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
10. BANK LOANS
All short-term bank loans are denominated in RMB and are unsecured
except for amounts of RMB30,924, which are secured by the pledge of the
land use right of a certain portion of the land where the factory premises
of the JV are located and by certain plant and machinery held by the JV
and the JV Partner. All short-term bank loans are repayable within one
year but are renewable with the consent of the banks.
Interest on bank loans is payable at the weighted average rate of
12.6% per annum as of June 30, 1997.
11. INCOME TAXES
It is management's intention to reinvest all the income attributable
to the Company earned by its PRC operations as at June 30, 1997.
Accordingly, no United States corporate income taxes have been provided in
these financial statements.
Under the current BVI laws, dividends and capital gains arising from
BVI's investment are not subject to income taxes and no withholding tax is
imposed on payments of dividends by the Company.
The JV is governed by the Income Tax Law of the PRC concerning
Foreign Investment Enterprises (the "FIE Income Tax Laws"). Pursuant to
the FIE Income Tax Laws, the income of the JV is fully exempted from
income tax for three years commencing from the first profitable year of
operations followed by a 50% exemption for the next four years, after
which the income is taxable at the full rate of 30%. No income tax is
provided for the six months ended June 30, 1996 and 1997 as they are the
second and third profitable years of operations of the JV.
No deferred income taxes have been provided as the effect of all
temporary differences is not material.
12. EARNINGS PER SHARE
The computation of primary earnings per share for the six months
periods ended June 30, 1996 and 1997 is based on the weighted average
number of common stock outstanding. Common stock equivalents (stock
warrants) outstanding have not been included, as the computation would not
be dilutive. The number of shares used in computing the primary earnings
per share and fully diluted earnings per share was 12,050,000 shares
(1996: 12,000,000 shares) for the six months ended June 30, 1997 as if the
Reversed Acquisition had been completed at January 1, 1996.
F-31
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
13. COMMITMENTS AND CONTINGENCIES
As at June 30, 1997, the Group had the following commitments and
contingencies:
(i) The Group had outstanding capital commitments for the purchases of
equipment of approximately RMB680.
(ii) Contingent losses on product defects
The general principles of the Civil Law of China and the Industrial
Products Quality Liability Regulations provide for the liability of
manufacturers and sellers for loss and injury caused by defective
products. The Group does not carry product liability insurance.
However, the laws have seldom been applied. The Group's management
is not aware of any product liability claims brought against the
Group as at the date these financial statements were prepared.
14. RELATED PARTY TRANSACTIONS
A significant portion of the business undertaken by the JV during
the period has been effected with other State-owned enterprises in the PRC
and on such terms as determined by the relevant PRC authorities. All these
transactions including the transactions summarized in this note represent
realized revenues and expenses to the Group.
After the commencement of operation of the JV in 1995, the JV
partner became an investment holding company and engaged in the trading of
building and construction materials, import and export of construction
equipment, other than prestressing equipment, from China, construction
design and consultation services which are in different segments from the
products and services provided by the JV. The JV partner remains a State-
owned enterprise which is majority owned by the Mechanical and Electrical
Industrial Bureau of the Liuzhou City Government. The Significant trans-
actions of the Group with JV partner and its subsidiaries are summarized
below.
Six months
ended June 30,
1996 1997
RMB RMB
(Unaudited) (Unaudited)
The JV Partner:
Rental expenses for leasing of land and buildings,
plant and machinery and motor vehicles 150 659
Debt collecting services income 567 332
Interest income - 19
Interest expenses 247 278
====== ======
The subsidiaries of the JV Partner:
Rental income from leasing of plant and machinery 342 342
Sales of raw materials - 533
Purchases of raw materials - 4,592
Sales of finished goods - 1,142
Subcontracting charges 2,941 2,809
Interest income - 2,916
====== =======
F-32
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
14. RELATED PARTY TRANSACTIONS (continued)
In addition, the Group had significant transactions with associated
companies of the JV Partner, as summarized below:
Six months
ended June 30,
1996 1997
RMB RMB
(Unaudited) (Unaudited)
Purchase of raw materials 85 111
Sales of finished goods 2,710 -
Rental expenses for leasing of plant and machinery 458 408
Interest income - 289
Interest expenses - 253
====== ======
During the six months ended June 30, 1997, no sales (1996: RMB33)
had been made to Hong Kong Prestressed Engineering Limited ("HK
Prestress"), a company incorporated in Hong Kong, of which one of the
directors, Mr. Ying Lin Wan, is also a director of the Company.
During the period ended June 30, 1997, the Group's accounts
receivable and other receivables of RMB7,352 and RMB21,593, respectively,
which were acquired by the Group from the JV Partner through the
acquisition of a subsidiary in 1995, were transferred back to the JV
Partner at book value in accordance with the original JV agreement.
The amounts due from/to and loan from/to related parties were as
follows:
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Due from related parties:
Subsidiaries of the JV Partner 29,183 35,852
Associated companies of JV Partner 18,932 15,022
HK Prestress 2,899 3,314
JV Partner 7,824 1,874
------- -------
58,838 56,062
======= =======
Due to related parties:
Subsidiaries of the JV Partner 4,786 3,755
Current portion of long term loan from JV Partner 969 658
------- -------
5,755 4,413
======= =======
F-33
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
14. RELATED PARTY TRANSACTIONS (continued)
December 31, June 30,
1996 1997
RMB RMB
(Audited) (Unaudited)
Long term portion of long term loan from JV Partner 3,442 4,031
======= =======
The balances with related parties except the JV Partner are
unsecured, bear interest at an annual interest rate of 12.6% (1996:
interest-free) and are repayable on demand.
The amount due from the JV Partner is unsecured, bears interest at
an annual interest rate of 12.6% (1996: interest-free) and is repayable on
demand. The long-term loan from the JV Partner is unsecured and is
repayable by annual installments calculated at 0.6% of the gross sales
before VAT of each year commencing January 1, 1997 and has been discounted
at an effective annual interest rate of 12.6%.
F-34
<PAGE>
No person has been authorized to give
any information or to make any
representations other than those
contained in this Prospectus in
connection with this offering, and any
information or representations not
contained herein must not be relied upon
as having been authorized by the Company
or any other person. This Prospectus
does not constitute an offer to sell or
a solicitation of an offer to buy any
securities other than the securities to
which it relates, or any offer to or
solicitation of any person in any
jurisdiction in which such offer or
solicitation would be unlawful. Neither
the delivery of this Prospectus nor any
offer or sale made hereunder shall,
under any circumstances, create an
implication that information herein is OVM INTERNATIONAL
correct at any time subsequent to the HOLDING CORP.
date hereof.
___________ 4,050,000 SHARES
TABLE OF CONTENTS COMMON STOCK
Page
----
Prospectus Summary......... 4
High Risk Factors.......... 8 ________________________________
Price Range of Common
Stock.................... 20
Dividend Policy............ 21 PROSPECTUS
Capitalization............. 21
Use of Proceeds............ 22 ________________________________
Summary Financial
Information.............. 23
Management's Discussion
and Analysis or Plan of
Operations............... 25 ___________, 1997
Discussion Pertaining to
Certain Conditions
Relating to the People's
Republic of China........ 33
Business................... 37
Management................. 54
Certain Transactions....... 61
Principal Shareholders..... 64
Sales by Selling
Security Holders......... 65
Description of Securities.. 66
Certain Market
Information.............. 67
Legal Matters.............. 67
Experts.................... 68
Additional Information..... 68
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Article VI of the Company's Bylaws provides as follows:
"6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner permitted by the
General Corporation Law of Nevada, indemnify each of its directors and officers
against expenses (including attorneys' fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.1, a "director" or "officer" of
the corporation includes any person (i) who is or was a director or officer of
the corporation, (ii) who is or was serving at the request of the corporation as
a director ore officer of another corporation, partnership, joint venture, trust
or other enterprise, or (iii) who was as director or officer of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the manner
permitted by the General Corporation Law of Nevada, to indemnify each of its
employees and agents (other than directors and officers) against expense
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section an "employee" or "agent" of the corporation (other than
a director or officer includes any person (i) who is or was an employee or agent
of the corporation, (ii) who is or was serving at the request of the corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation of the
corporation or of another enterprise at the request of such predecessor
corporation."
The above indemnification provisions notwithstanding, the Company is aware
that insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy was expressed in the act and is therefore
unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered hereby. The
Company is responsible for the payment of all expenses in connection with the
Offering.
Registration fee under
the Securities Act of 1933.................. $ 2,095.00*
Blue Sky filing fees and expenses............ 1,000.00*
Printing and engraving expenses.............. 10,000.00*
Legal fees and expenses...................... 25,000.00*
Accounting fees and expenses................. 25,000.00*
Miscellaneous................................ 1,905.00*
----------
Total................................... $65,000.00*
________________
*Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
All transactions described hereafter give effect to the Company's
one-for-five (1:5) reverse stock split effective August 22, 1996.
On February 22, 1996, the Company issued 400,000 shares of Common Stock to
four investors located in Germany for an aggregate consideration of $20,000.
This transaction was undertaken following the execution of a letter of intent to
acquire I.Q. Golf, Inc., an operating company, on February 22, 1996. This
acquisition was abandoned when the company to be acquired could not supply the
Company with audited financial statements. All of these investors were
accredited investors within the meaning of Section 501 of the Securities Act of
1933 or were otherwise qualified investors, and were provided with appropriate
information or documentation relevant to the Company. Accordingly, the
transaction was undertaken in accordance with Rule 504 under Regulation D of the
Securities Act of 1933.
On September 4, 1996, the Company issued an aggregate of 2,800,000 shares
of Common Stock to ten non-U.S. citizens (i.e, European and Asian investors) for
an aggregate purchase price of $56,000. This transaction was undertaken
following the execution of a letter of intent between ODL and the Company on
August 21, 1996, and which transaction was ultimately consummated. All of these
investors were accredited investors within the meaning of Section 501 of the
Securities Act of 1933 or were otherwise qualified investors, and were provided
with appropriate information and documentation relevant to the Company.
Accordingly, the transaction was undertaken in accordance with Rule 504 under
Regulation D of the Securities Act of 1933.
II-2
<PAGE>
On November 4, 1996 the Company acquired all of the capital stock of ODL
from four investors based in Hong Kong and Singapore in exchange for 8,800,000
shares of Common Stock of the Company. Inasmuch as each of the investors was an
accredited investor within the meaning of Section 501 of the Securities Act of
1933, as well as being sophisticated investors and having been provided with
various information and documentation concerning the Company, the issuance and
exchange was effected in accordance with Section 4(2) of the Act.
Between December 13 and December 16, 1996 the Company issued 50,000 shares
of its Common Stock and Warrants to purchase 4,000,000 Warrant Shares to a group
of ten investors, all of whom were non-U.S. persons. Inasmuch as each of the
investors was an accredited investor within the meaning of Section 501 of the
Securities Act of 1933, as well as being sophisticated investors and having been
provided with various information and documentation concerning the Company, the
issuance and exchange was effected in accordance with Rule 506 and Section 4(2)
of the Securities Act of 1933.
ITEM 27. EXHIBITS
Exhibits Description of Document
- -------- -----------------------
2.1 Acquisition Agreement dated November 4, 1996(1)
3.1 Articles of Incorporation and Amendments thereto(1)
3.2 Bylaws(1)
4.1 Form of Common Stock Purchase Warrant dated December 16, 1996(1)
5. Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the validity
of securities being registered(1)
10.1 Joint Venture Contract between Liuzhou OVM Joint Stock Co. Ltd. and
Kolcari Investments Limited and Articles of Association for
Sino-Foreign Equity Joint Venture(1)
10.2 Agreement Concerning Entrustment of the Heat Treatment Plant with
Processing Tasks(1)
10.3 Agreement Concerning Transfer of Intangible Assets(1)
10.4 Agreement Concerning the Provision of Power, Water Supply and
Welfare Facilities(1)
10.5 Supplementary Agreement on the Transfer of Intangible Assets(1)
10.6 Agreement Concerning the Leasing of Land, Buildings and Motor
Vehicles(1)
10.7 Supplementary Agreement on the Leasing of Land, Buildings and Motor
Vehicles(1)
10.8 Agreement Concerning Matters Relating to the Establishment of the
Financial Accounts for the Joint Venture(1)
10.9 Agreement concerning the Injection of Assets of three Production
Workshops(1)
10.10 Supplementary Agreement Concerning Collection of Account Receivables
and Allocation of Expenses Incurred on the Collection of Accounts
Receivable(1)
10.11 1996 Stock Option Plan(1)
II-3
<PAGE>
10.12 Employment Agreement with Kwok Kwan Hung(1)
10.13 Agreement to Extend Date of Installment Contribution(1)
21 Subsidiaries of the Registrant(1)
23(i) Consent of Ernst & Young(2)
23(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included
as part of Exhibit 5(1)
27 Financial Data Schedule(1)
________________________
1 Previously filed
2 Filed herewith
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment as a new registration
statement relating to the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
II-4
<PAGE>
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment to its
Registration Statement to be signed on its behalf by the undersigned in Hong
Kong on November 5, 1997.
OVM INTERNATIONAL HOLDING CORP.
By:/s/Ching Lung Po
-----------------------------------
Ching Lung Po, Chairman of
Board and President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Ching Lung Po and Wu Guosen or either of them,
such person's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities (including such persons' capacity as
a director and/or officer of OVM International Holding Corp.) to sign any and
all amendments (including post-effective amendments pursuant to Rule 462(b) or
otherwise) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
Chairman of the
/s/ Ching Lung Po Board of Directors,
- ------------------------- President and Principal
Ching Lung Po Executive Officer November 5, 1997
/s/ Wu Guosen Vice Chairman of the
- -------------------------- Board November 5, 1997
Wu Guosen
<PAGE>
Principal Financial
and Accounting
/s/Kwok Kwan Hung Officer and Director November 5, 1997
- -------------------------
Kwok Kwan Hung
/s/Wan Ying Lin Director November 5, 1997
- -------------------------
Wan Ying Lin
/s/Cheung Lai Treasurer November 5, 1997
- -------------------------
Cheung Lai
/s/Wan Wai On Secretary and Director November 5, 1997
- -------------------------
Wan Wai On
<PAGE>
________________________________________________________________________________
LIST OF EXHIBITS
OF
OVM INTERNATIONAL HOLDING CORP.
FILED WITH
REGISTRATION STATEMENT
FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
________________________________________________________________________________
<PAGE>
EXHIBITS DESCRIPTION OF DOCUMENT
- -------- -----------------------
23 (i) Consent of Ernst & Young
================================================================================
Consent of Ernst & Young
================================================================================
We consent to the reference to our firm under the caption "EXPERTS" and to the
use of our report dated April 18, 1997, in the Registration Statement (Form SB-2
No. 333-27119) of OVM International Holding Corporation for the registration of
50,000 shares of its common stock and 4,000,000 shares of common stock issuable
upon the exercise of common stock purchase warrants issued by the Company.
Ernst & Young
Hong Kong
November 5, 1997
