U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter period ended September 30, 1998
------------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
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 (IRS Employer
of incorporation) 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 registrant: (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 requirements for the past 90 days.
(1) Yes X No (2) Yes X No
------ ------ ------ ------
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 12,050,000 shares of common stock,
$0.0001 par value, as of November 13, 1998.
Traditional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1998 1997 1998
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
Note
<S> <C> <C> <C> <C> <C> <C>
SALES 49,155 76,096 5,944 124,381 130,978 15,040
COST OF SALES (38,730) (46,893) (4,683) (92,424) (78,598) (11,176)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 10,425 29,203 1,261 31,957 52,380 3,864
SELLING AND ADMINIST-
RATION EXPENSES (11,656) (11,102) (1,409) (31,015) (27,122) (3,750)
PROVISION FOR
DOUBTFUL ACCOUNTS
AND OTHER
RECEIVABLES - - - - (3,875) -
INTEREST EXPENSES (1,194) (1,871) (144) (3,870) (5,325) (468)
INTEREST INCOME 933 1,622 112 2,321 4,846 281
OTHER INCOME/(LOSS),
NET 1,566 (14) 189 2,283 966 276
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 74 17,838 9 1,676 21,870 203
INCOME TAXES 2 202 - 24 (653) - (79)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME AFTER
INCOME TAXES 276 17,838 33 1,023 21,870 124
SHARE OF PROFIT OF AN
ASSOCIATED COMPANY 17 11 2 18 69 2
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE
MINORITY INTEREST 293 17,849 35 1,041 21,939 126
MINORITY INTERESTS (244) (5,413) (29) (830) (7,161) (100)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME 49 12,436 6 211 14,778 26
========== ========= ========== ========== ========== ==========
BASIC AND DILUTED
EARNINGS PER SHARE 0.004 1.032 0.001 0.018 1.226 0.002
========== ========= ========== ========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000
========== ========= ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
------------- ------------ -------------
1998 1997 1998
---- ---- ----
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 25,377 13,956 3,069
Accounts receivable, net of allowance
of RMB13,076 (1997: RMB13,076) 114,257 113,671 13,816
Inventories 3 26,063 34,745 3,152
Prepayments, deposits and other receivables 25,830 14,026 3,123
Due from related parties 48,864 46,501 5,908
---------- ---------- ----------
Total current assets 240,391 222,899 29,068
Interest in an associated company 4,434 4,416 536
Property, machinery and equipment, net 4 13,400 12,738 1,620
Deferred asset 675 1,833 82
Goodwill 3,521 3,622 426
Intangible assets 3,045 3,132 368
---------- ---------- ----------
Total assets 265,466 248,640 32,100
=== ====== ========== ==========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans 42,320 41,420 5,117
Accounts payable 73,004 70,666 8,828
Advance payments by customers 15,124 10,705 1,829
Other payables and accrued liabilities 22,540 22,334 2,725
Due to related parties 11,205 2,231 1,355
Sales taxes payable 11,124 12,488 1,345
Income taxes payable 409 - 50
---------- ---------- ----------
Total current liabilities 175,726 159,844 21,249
Long term loan from a related party 3,284 3,381 397
Minority interests 27,111 26,281 3,278
---------- ---------- ----------
Total liabilities and minority interests 206,121 189,506 24,924
---------- ---------- ----------
Stockholders' equity:
Common stock 10 10 1
Authorized:
40,000,000 (1997: 40,000,000) shares,
par value of US$0.0001 each
Issued and fully paid:
12,050,000 (1997: 12,050,000) shares,
par value of US$0.0001 each
Additional paid-in capital 30,795 30,795 3,724
Retained earnings 28,474 28,263 3,443
Accumulated other comprehensive income 66 66 8
---------- ---------- ----------
Total stockholders' equity 59,345 59,134 7,176
---------- ---------- ----------
Total liabilities, minority interests and
Stockholders' equity 265,466 248,640 32,100
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
----- ------- -------- ------ -----
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 10 30,795 28,263 66 59,134
Comprehensive income:
Net income for the period - - 211 - 211
-------- ---------- ---------- ---------- ----------
Balance at September 30, 1998 10 30,795 28,474 66 59,345
======== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997 1998
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 211 14,778 26
Adjustments to reconcile net income to
net cash provided by operating activities:
Share of profit of an associated company (18) (69) (2)
Minority interests 830 7,161 100
Depreciation 1,193 1,124 144
Amortization of goodwill 101 101 12
Amortization of intangible assets 87 85 11
Decrease/(increase) in assets:
Accounts receivable (586) (14,964) (71)
Inventories 8,682 (5,671) 1,050
Prepayments, deposits and other receivables (11,804) (8,424) (1,427)
Due from related parties (2,363) (4,620) (286)
Deferred asset 1,158 (112) 140
Increase/(decrease) in liabilities:
Accounts payable 2,338 2,305 283
Advance payments by customers 4,419 4,471 534
Other payables and accrued liabilities 206 (6,829) 25
Due to related parties 8,974 (1,215) 1,085
Sales taxes payable (1,364) 1,152 (165)
Income taxes payable 409 - 50
---------- ---------- ----------
Net cash provided by/(used in) operating activities 12,473 (10,727) 1,509
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (1,855) (587) (224)
---------- ---------- ----------
Net cash used in financing activities (1,855) (587) (224)
---------- ---------- ----------
Cash flows from financing activities:
New bank loans 1,900 - 230
Repayments of bank loans (1,000) (500) (121)
Advance/(repayments) of long term loan from a (97) 589 (12)
related party
---------- ---------- ----------
Net cash provided by financing activities 803 89 97
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalent 11,421 (11,225) 1,382
Cash and cash equivalent, at beginning of period 13,956 22,526 1,687
---------- ---------- ----------
Cash and cash equivalent, at end of period 25,377 11,301 3,069
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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, 1998, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.27 quoted by the People's Bank of China as at September
30, 1998. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate.
2. 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 Construction
Machinery Company Limited ("JV"), a PRC subsidiary of the Company, is
fully exempted from income tax for three years commencing from 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 33%.
No income tax was provided in 1997 as this was the third profitable
year of operations of the JV. Income tax was provided in 1998 at 16.5%
as this was the fourth profitable year of operations of the JV. Another
subsidiary of the Company in the PRC, Liuzhou Trading Co. Ltd., which
was established in 1997 was subject to income tax at the full rate of
33%.
3. INVENTORIES
September 30, December 31,
------------- ------------
1998 1997
---- ----
RMB RMB
Raw materials 12,616 11,411
Work in progress 3,189 5,632
Finished goods 10,258 17,702
---------- ----------
26,063 34,745
========== ==========
6
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
4. PROPERTY, MACHINERY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997
---- ----
RMB RMB
<S> <C> <C>
At cost:
Buildings 4,221 4,221
Plant and machinery 15,984 14,129
---------- ----------
20,205 18,350
---------- ----------
Accumulated depreciation:
Buildings 1,121 969
Plant and machinery 5,684 4,643
---------- ----------
6,805 5,612
---------- ----------
Property, machinery and equipment, net 13,400 12,738
========== ==========
</TABLE>
5 NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, became effective in the first quarter of 1998.
SFAS no. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement has no impact on the Company's net income or stockholders'
equity. Essentially, under SFAS No. 130, the new label "accumulated
other comprehensive income" has replaced that of the former "exchange
reserve" in the stockholders' equity section of the consolidated
balance sheet.
In 1997, the Financial Accounting Standards Board also issued SFAS no.
131, Disclosures about Segments of an Enterprise and Related
Information. The Company plans to adopt this Statement effective
December 31, 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
NET SALES AND GROSS PROFIT. For the nine months of 1998, net sales
decreased by RMB6,597,000 (US$798,000) or 5.0% to RMB124,381,000 (US$15,040,000)
from RMB130,978,000 (US$15,838,000) in the corresponding period of the prior
year.
Gross profits decreased by RMB20,423,000 (US$2,470,000) or 39.0% to
RMB31,957,000 (US$3,864,000) for the nine months of 1998 compared to
RMB52,380,000 (US$6,334,000) in the corresponding period of the prior year.
Given the adverse impact of the Asian financial crisis on the Chinese and Asian
economy, some infrastructure activities were slowed down or suspended. This
adverse effect on sales was partly offset by the Company's policy to reduce
prices to boost sales for the nine months of 1998. The decrease in gross profit
was a result of this policy.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB3,893,000 (US$471,000) or 14.4% to RMB31,015,000
(US$3,750,000) for the nine months of 1998 as compared to RMB27,122,000
(US$3,280,000) in the corresponding period in 1997. The increase was primarily
related to 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.
PROVISION FOR DOUBTFUL ACCOUNTS AND OTHER RECEIVABLES. No additional
provision for bad debt expenses was charged to the income statements for the
nine months ended September 30, 1998 because management considered that the
period-end allowance for doubtful accounts was adequate.
INTEREST INCOME/EXPENSES. Interest expenses decreased by RMB1,455,000
(US$176,000) or 27.3% to RMB3,870,000 (US$468,000) for the nine months of 1998
as compared to RMB5,325,000 (US$644,000) in the corresponding period in 1997.
The decrease in interest expenses for the nine months of 1998 was due to a
decrease in the average bank borrowing rates during the current period. Interest
income mainly represented income received on amounts due from related parties,
and bear interest at the average bank borrowing rates. Interest income decreased
by RMB2,525,000 (US$305,000) or 52.1% to RMB2,321,000 (US$281,000) for the nine
months of 1998 as compared to RMB4,846,000 (US$586,000) in the corresponding
period in 1997. The decrease was mainly due to the reduction of average balances
with related parties and the average bank borrowing rates.
OTHER INCOME/(LOSS), NET. Other income increased by RMB1,317,000
(US$159,000) or 136.3% from RMB966,000 (US$117,000) for the nine months of 1997
to RMB2,283,000 (US$276,000) for the corresponding period in 1998. The increase
was primarily due to service fee received on transportation service provided to
customers.
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 Construction
Machinery Company Limited ("JV"), a PRC subsidiary of the Company, 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 33%. No income tax was provided
in 1997 as this was the third profitable year of operation of the JV. Income tax
was provided in 1998 at 16.5% as this was the fourth profitable year of
operation of the JV. Another subsidiary of the Company in PRC, Liuzhou OVM
Trading Co. Ltd., which was established in 1997 was subject to income tax at the
full rate of 33%. It is the management's intention to reinvest all the income
attributable to the Company derived from its subsidiaries in 1998 and,
accordingly, no U.S. tax liability should be payable.
8
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
NET SALES AND GROSS PROFIT. Net sales for the third quarter of fiscal
1998 increased by RMB26,941,000 (US$3,258,000) or 35.4% to approximately
RMB49,155,000 (US$5,944,000), compared to approximately RMB76,096,000
(US$9,201,000) for the corresponding period in 1997.
Gross profits decreased by RMB18,778,000 (US$2,271,000) or 64.3% to
RMB10,425,000 (US$1,261,000) for the third quarter of fiscal 1998 compared to
RMB29,203,000 (US$3,531,000) in the corresponding period of the prior year. Due
to the continuing impact of the Asian financial crisis on the Chinese and Asian
economy in the third quarter of 1998, infrastructure activities were further
slowed down or suspended. The Company's policy to reduce prices in order to
boost sales and maintain its competitiveness caused the reduction in gross
profit.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB554,000 (US$67,000) or 5.0% to RMB11,656,000
(US$1,409,000) for third quarter of fiscal 1998 as compared to RMB11,102,000
(US$1,342,000) in the corresponding period in 1997. The increase was primarily
related to 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.
INTEREST INCOME/EXPENSES. Interest expenses decreased by RMB677,000
(US$82,000) or 36.2% to RMB1,194,000 (US$144,000) for the third quarter of
fiscal 1998 as compared to RMB1,871,000 (US$226,000) in the corresponding period
in 1997. The decrease in interest expenses was due to a decrease in the average
bank borrowing rates during the current period. Interest income mainly
represented income received on amounts due from related parties, and bear
interest at the average bank borrowing rates. Interest income decreased by
RMB689,000 (US$83,000) or 42.4% to RMB933,000 (US$112,000) for the third quarter
of fiscal 1998 as compared to RMB1,622,000 (US$196,000) in the corresponding
period in 1997. The decrease was also due to a reduction of average bank
borrowing rates.
OTHER INCOME/(LOSS), NET. Other income increased by RMB1,580,000
(US$191,000) for the third quarter of fiscal 1998 to RMB1,566,000 (US$189,000).
The increase was primarily due to the service fee received on transportation
services provided to customers.
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 RMB64,665,000
(US$7,819,000) as of September 30, 1998 compared to RMB63,055,000 (US$7,625,000)
as of December 31, 1997. Net cash provided by operating activities for the nine
months ended September 30, 1998 was RMB12,473,000 (US$1,509,000) as compared to
net cash used in operating activities of RMB10,727,000 (US$1,297,000) for the
corresponding period in 1997. 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, 1997. The Company believes
that internally generated funds together with available bank credits, will be
sufficient to satisfy its anticipated working capital needs for at least the
next twelve months.
9
<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, 1998, the Company filed no
current Reports on Form 8-K.
10
<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.
November 13, 1998 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, President
By:/s/Kwok Kwan Hung
-----------------------------------
Kwok Kwan Hung, Principal Fianancial
and Accounting Officer
11
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 8.27
<CASH> 25,377
<SECURITIES> 0
<RECEIVABLES> 127,333
<ALLOWANCES> 13,076
<INVENTORY> 26,063
<CURRENT-ASSETS> 240,391
<PP&E> 20,205
<DEPRECIATION> 6,805
<TOTAL-ASSETS> 265,466
<CURRENT-LIABILITIES> 175,726
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 59,335
<TOTAL-LIABILITY-AND-EQUITY> 265,466
<SALES> 124,381
<TOTAL-REVENUES> 128,985
<CGS> 92,424
<TOTAL-COSTS> 123,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,870
<INCOME-PRETAX> 1,676
<INCOME-TAX> 653
<INCOME-CONTINUING> 1,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 0.018
<EPS-DILUTED> 0.018
</TABLE>
