U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition Report Under Section 13 or 15(d) of
the Exchange Act
For the transition period from ___________ to _____________
OVM INTERNATIONAL HOLDING CORP.
---------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 88-0344135
------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
West 516 Sprague Avenue
Spokane, Washington 99204
------------------------------------------------
(Address of Principal Executive Office)
(509) 747-8590
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes No x
----- ------ ----- ------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 12,050,000 shares of common stock,
$0.0001 par value, as of December 29, 1997.
Traditional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months ended
September 30, September 30,
1997 1996 1997 1997 1996 1997
RMB RMB USD RMB RMB USD
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SALES 76,096 61,424 9,168 130,978 122,547 15,780
COST OF SALES (46,893) (44,745) (5,650) (78,598) (80,454) (9,469)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 29,203 16,679 3,518 52,380 42,093 6,311
SELLING AND ADMIN-
ISTRATIVE EXPENSES (11,102) (6,546) (1,338) (27,122) (20,212) (3,268)
PROVISION FOR BAD
DEBTS EXPENSES - - - (3,875) (2,875) (467)
INTEREST EXPENSES (1,871) (2,456) (225) (5,325) (6,137) (641)
OTHER INCOME, NET 1,608 (1,669) 194 5,812 882 700
FOREIGN EXCHANGE GAIN - 96 - - 62
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 17,838 6,104 2,149 21,870 13,813 2,635
INCOME TAXES - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME AFTER
INCOME TAXES 17,838 6,104 2,149 21,870 13,813 2,635
SHARE OF PROFIT OF
AN ASSOCIATED
COMPANY 11 925 1 69 925 8
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE
MINORITY INTERESTS 17,849 7,029 2,150 21,939 14,738 2,643
MINORITY INTERESTS (5,413) (2,164) (652) (7,161) (4,646) (863)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME 12,436 4,865 1,498 14,778 10,092 1,780
====== ====== ====== ====== ====== ======
EARNINGS PER SHARE 1.03 0.40 0.12 1.23 0.84 0.15
====== ====== ====== ====== ====== ======
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 12,050,000 12,000,000 12,050,000 12,050,000 12,000,000 12,050,000
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1997
RMB RMB USD
Notes (unaudited) (audited) (unaudited)
----- ----------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 11,301 22,526 1,362
Accounts receivable 119,888 104,924 14,444
Inventories 2 41,651 35,980 5,018
Prepayments, deposits and other
receivables 19,378 10,954 2,335
Due from related parties 63,458 58,838 7,645
---------- ---------- ----------
Total current assets 255,676 233,222 30,804
Interest in an associated company 4,935 4,866 595
Property, machinery and equipment, net 3 9,906 10,443 1,193
Deferred asset 1,945 1,833 234
Goodwill 3,656 3,757 441
Intangible assets 3,163 3,248 381
---------- ---------- ----------
Total assets 279,281 257,369 33,648
========== ========== ==========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans 40,924 41,424 4,931
Accounts payable 80,551 78,246 9,704
Advance payments by customers 16,018 11,547 1,930
Other payables and accrued liabilities 16,120 22,949 1,942
Due to related parties 4,540 5,755 547
Sales taxes payable 12,104 10,952 1,459
---------- ---------- ----------
Total current liabilities 170,257 170,873 20,513
Long term loan from a related party 4,031 3,442 486
Minority interests 31,887 24,726 3,841
---------- ---------- ----------
Total liabilities and minority interests 206,175 199,041 24,840
---------- ---------- ----------
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 41,896 27,118 5,048
---------- ---------- ----------
Total stockholders' equity 73,106 58,328 8,808
---------- ---------- ----------
Total liabilities, minority interests and
Stockholders' equity 279,281 257,369 33,648
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS SEPTEMBER 30, 1997 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996 1997
RMB RMB USD
(unaudited)
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 14,778 10,092 1,780
Adjustments to reconcile net income to
net cash provided by operating activities:
Share of profit of an associated company (69) (925) (8)
Minority interests 7,161 4,646 863
Depreciation 1,124 1,035 135
Amortization of goodwill 101 101 12
Amortization of intangible assets 85 87 10
Decrease/(increase) in assets:
Accounts receivable (14,964) (60,426) (1,803)
Inventories (5,671) 98 (684)
Prepayments, deposits and other receivables (8,424) (20,282) (1,015)
Due from related parties (4,620) 6,192 (557)
Deferred asset (112) 868 (13)
Increase/(decrease) in liabilities:
Accounts payable 2,305 51,599 278
Advance payments by customers 4,471 14,129 539
Other payables and accrued liabilities (6,829) 7,183 (822)
Due to related parties (1,215) (1,123) (146)
Sales taxes payable 1,152 3,754 139
---------- ---------- ----------
Net cash provided by/(used in) operating activities (10,727) 17,028 (1,292)
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (587) (1,007) (71)
Acquisition of an associated company - (4,709) -
---------- ---------- ----------
Net cash provided by/(used in) financing activities (587) (5,716) (71)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of bank loans (500) (2,946) (60)
Advance/(repayments) of long term loan from a
related party 589 (6,431) 71
---------- ---------- ----------
Net cash provided by/(used in) financing activities 89 (9,377) 11
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalent (11,225) 1,935 (1,352)
Cash and cash equivalent, at beginning of period 22,526 17,803 2,714
---------- ---------- ----------
Cash and cash equivalent, at end of period 11,301 19,738 1,362
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months period ended
September 30, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.30 quoted by the People's Bank of China as at September
30, 1997. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate.
2. INVENTORIES
September 30, December 31,
1997 1996
RMB RMB
(unaudited) (audited)
Raw materials 14,593 11,917
Work in progress 12,946 11,891
Finished goods 14,112 12,172
---------- ----------
41,651 35,980
=========== ==========
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
September 30, December 31,
1997 1996
RMB RMB
(unaudited) (audited)
At cost:
Buildings 4,221 4,221
Plant and machinery 10,317 9,730
---------- ----------
14,538 13,951
---------- ----------
Accumulated depreciation:
Buildings 722 571
Plant and machinery 3,910 2,937
---------- ----------
4,632 3,508
---------- ----------
Property, machinery and equipment, net 9,906 10,443
=========== ==========
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
NET SALES AND GROSS PROFIT. Net sales increased by RMB8,431,000
(US$1,016,000) or 6.9% to RMB130,978,000 (US$15,780,000) in the nine months
ended September 30, 1997 from RMB122,547,000 (US$14,765,000) in the
corresponding period of the prior year. Sales revenues are recognized upon
delivery of goods to customers. The increase in net sales revenue was primarily
due to more sales contracts received and completed during the period.
Gross profits increased by RMB10,287,000 (US$1,239,000) or 24.4% to
RMB52,380,000 (US$6,311,000) for the nine months ended September 30, 1997
compared to RMB42,093,000 (US$5,071,000) in the corresponding period of the
prior year. The increase in gross profit was primarily due to the increase in
net sales and the higher average gross profit margin earned during the period.
The average gross profit margin increased by approximately 6 percentage points
to approximately 40% for the nine months ended September 30, 1997 from
approximately 34% for the corresponding period in 1996. This was due primarily
to the lower profit margin earned of less than 20% from the sale of steel wire
in the prior period, compared to an average of 40% for the sales of other
products.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB6,910,000 (US$833,000) or 34.2% to RMB27,122,000
(US$3,268,000) for the nine months ended September 30, 1997 as compared to
RMB20,212,000 (US$2,435,000) in the corresponding period in 1996. The increase
was primarily related to the increased costs associated with the Company's
effort to promote sales. 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.
PROVISION FOR BAD DEBT EXPENSES. The provision for bad debt expenses
increased by RMB1,000,000 (US$120,000) or 35% to RMB3,875,000 (US$467,000) for
the nine months ended September 30, 1997 as compared to RMB2,875,000
(US$346,000) in the corresponding period in 1996. The Company has adopted a
general provision policy on accounts receivable and other receivables which is
calculated by applying a fixed percentage to the amounts of receivables aged
over a certain period. The increase was due to more aged accounts receivable
outstanding as at the end of the current period as compared to the prior period.
INTEREST EXPENSES. Interest expenses decreased by RMB812,000
(US$98,000) or 13.2% to RMB5,325,000 (US$641,000) for the nine months ended
September 30 ,1997 as compared to RMB6,137,000 (US$739,000) 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 by RMB4,930,000 (US$594,000) or
559% from RMB882,000 (US$106,000) for the nine months ended September 30, 1996
to RMB5,812,000 (US$700,000) for the corresponding period in current year. The
increase was primarily related to interest income charged against amounts due
from related companies and the joint venture partner commencing January 1, 1997.
6
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
NET SALES AND GROSS PROFIT. Net sales increased by RMB14,672,000
(US$1,768,000) or 23.9% to RMB76,096,000 (US$9,168,000) in the three months
ended September 30, 1997 from RMB61,424,000 (US$7,400,000) in the corresponding
period of the prior year. The increase in net sales revenue was primarily due to
more sales contracts received and completed during the year especially during
the second half of fiscal year 1997.
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 half year are usually lower
than that of the second half year. This phenomenon is more significant in this
year as more contracts were completed approaching the second half year.
Gross profits increased by RMB12,524,000 (US$1,509,000) or 75.1% to
RMB29,203,000 (US$3,518,000) for the three months ended September 30, 1997
compared to RMB16,679,000 (US$2,010,000) in the corresponding period of the
prior year. The increase in gross profit were primarily due to the increase in
net sales and the higher average gross margin earned during the current period
as compared to the prior period
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB4,556,000 (US$549,000) or 69.6% to RMB11,102,000
(US$1,338,000) for the three months ended September 30, 1997 as compared to
RMB6,546,000 (US$789,000) in the corresponding period in 1996. The increase was
primarily related to the increased costs associated with the Company's effort to
promote sales. 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.
INTEREST EXPENSES. Interest expenses decreased by RMB585,000
(US$70,000) or 23.8% to RMB1,871,000 (US$225,000) for the three months ended
September 30 ,1997 as compared to RMB2,456,000 (US$296,000) 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 by RMB3,277,000 (US$395,000) from
a net loss of RMB1,669,000 (US$201,000) for the three months ended September 30,
1996 to a net income of RMB1,608,000 (US$194,000) for the corresponding period
in current year. The increase was primarily related to interest income charged
against amounts due from related companies and the joint venture partner
commencing January 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, accounts
receivable and capital expenditure. The Company has financed its working capital
requirements through a combination of internally generated cash, short term bank
loans and advance from affiliates.
The Company has a working capital surplus of RMB85,419,000
(US$10,291,000) as of September 30, 1997 compared to that of RMB62,349,000
(US$7,512,000) as of December 31, 1996. Net cash used in operating activities
for the nine months ended September 30, 1997 was RMB10,727,000 (US$1,292,000).
Net cash provided by operating activities was RMB17,028,000 (US$2,052,000) for
the nine months ended September 30, 1996. Net cash flows from the Company's
operating activities are attributable to the Company's income and changes in
operating assets and liabilities.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1996. The Company believes
that internally generated funds together with available bank credit, will be
sufficient to satisfy its anticipated working capital needs for at least the
next twelve months.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
NONE
ITEM 2. CHANGES IN SECURITIES:
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) During the three months ended September 30, 1997, the Company filed no
current Reports on Form 8-K.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OVM INTERNATIONAL HOLDING CORP.
December 29, 1997 By: /s/ Ching Lung Po
---------------------------------
Ching Lung Po, President
By: /s/ Kwok Kwan Hung
---------------------------------
Kwok Kwan Hung,
Principal Fianancial
and Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB REPORT OF OVM INTERNATIONAL HOLDING CORP FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI YUAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 8.30
<CASH> 11,301
<SECURITIES> 0
<RECEIVABLES> 119,888
<ALLOWANCES> 6,771
<INVENTORY> 41,851
<CURRENT-ASSETS> 255,676
<PP&E> 14,538
<DEPRECIATION> 4,632
<TOTAL-ASSETS> 279,281
<CURRENT-LIABILITIES> 170,257
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 73,096
<TOTAL-LIABILITY-AND-EQUITY> 279,281
<SALES> 130,978
<TOTAL-REVENUES> 136,859
<CGS> 78,598
<TOTAL-COSTS> 114,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,875
<INTEREST-EXPENSE> 5,325
<INCOME-PRETAX> 21,870
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,778
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
