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 June 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,
$0.0001 par value, as of August 13, 1998.
Traditional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1998 1997 1998
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
SALES 46,731 28,897 5,644 75,226 54,882 9,085
COST OF SALES (36,435) (15,602) (4,400) (53,694) (31,705) (6,485)
---------- ---------- ---------- ---------- ----------- ----------
GROSS PROFIT 10,296 13,295 1,244 21,532 23,177 2,600
SELLING AND ADMINISTRATION
EXPENSES (10,440) (7,924) (1,261) (19,359) (16,020) (2,338)
PROVISION FOR DOUBTFUL
ACCOUNTS AND OTHER
RECEIVABLES - (3,875) - - (3,875) -
INTEREST EXPENSES (1,644) (707) (199) (2,676) (3,454) (323)
INTEREST INCOME 280 1,546 34 1,388 3,224 168
OTHER INCOME, NET 319 34 38 717 980 86
---------- ---------- ---------- ---------- ----------- ----------
INCOME/(LOSS) BEFORE INCOME
TAXES (1,189) 2,369 (144) 1,602 4,032 193
INCOME TAXES (229) - (28) (855) - (103)
---------- ---------- ---------- ---------- ----------- ----------
NET INCOME/(LOSS) AFTER
INCOME TAXES (1,418) 2,369 (172) 747 4,032 90
SHARE OF PROFIT/(LOSS) OF AN
ASSOCIATED COMPANY (4) 23 - 1 58 -
---------- ---------- ---------- ---------- ----------- ----------
NET INCOME/(LOSS) BEFORE
MINORITY INTEREST (1,422) 2,392 (172) 748 4,090 90
MINORITY INTERESTS 515 (1,226) 62 (586) (1,748) (71)
---------- ---------- ---------- ---------- ----------- ----------
NET INCOME/(LOSS) (907) 1,166 (110) 162 2,342 19
========== ========== ========== ========== ========== ==========
BASIC AND DILUTED EARNINGS/
(LOSS) PER SHARE (0.08) 0.10 (0.01) 0.01 0.19 -
========== ========== ========== ========== ========== ==========
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>
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 JUNE 30, 1998 AND DECEMBER 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1998
RMB RMB US$
Notes (unaudited) (audited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 22,898 13,956 2,765
Accounts receivable, net of allowance
of RMB13,076 (1997: RMB13,076) 102,282 113,671 12,353
Inventories 2 37,685 34,745 4,551
Prepayments, deposits and other 22,262 14,026 2,689
receivables
Due from related parties 48,493 46,501 5,857
---------- ---------- ----------
Total current assets 233,620 222,899 28,215
Interest in an associated company 4,417 4,416 533
Property, machinery and equipment, net 3 13,074 12,738 1,579
Deferred asset 675 1,833 82
Goodwill 3,555 3,622 429
Intangible assets 3,074 3,132 371
---------- ---------- ----------
Total assets 258,415 248,640 31,209
========== ========== ==========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans 40,420 41,420 4,882
Accounts payable 68,163 70,666 8,232
Advance payments by customers 14,979 10,705 1,809
Other payables and accrued liabilities 23,774 22,334 2,871
Due to related parties 9,575 2,231 1,156
Sales taxes payable 10,905 12,488 1,317
Income taxes payable 855 - 103
---------- ---------- ----------
Total current liabilities 168,671 159,844 20,370
Long term loan from a related party 3,581 3,381 433
Minority interests 26,867 26,281 3,245
---------- ---------- ----------
Total liabilities and minority interests 199,119 189,506 24,048
---------- ---------- ----------
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$0.0001 each
Additional paid-in capital 30,795 30,795 3,719
Exchange reserve 66 66 8
Retained earnings 28,425 28,263 3,433
---------- ---------- ----------
Total stockholders' equity 59,296 59,134 7,161
---------- ---------- ----------
Total liabilities, minority interests and
Stockholders' equity 258,415 248,640 31,209
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997 1998
RMB RMB US$
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 162 2,342 20
Adjustments to reconcile net income to
net cash provided by operating activities:
Share of profit of an associated company (1) (58) -
Minority interests 586 1,748 71
Depreciation 775 744 94
Amortization of goodwill 67 68 8
Amortization of intangible assets 58 57 7
Decrease/(increase) in assets:
Accounts receivable 11,389 (8,900) 1,375
Inventories (2,940) 1,177 (355)
Prepayments, deposits and other receivables (8,236) (5,011) (995)
Due from related parties (1,992) 2,776 (241)
Deferred asset 1,158 (112) 140
Increase/(decrease) in liabilities:
Accounts payable (2,503) (103) (302)
Advance payments by customers 4,274 (1,163) 516
Other payables and accrued liabilities 1,440 (766) 174
Due to related parties 7,344 (1,342) 887
Sales taxes payable 855 - 103
Income taxes payable (1,583) 1,669 (191)
---------- ---------- ----------
Net cash provided by/(used in) operating activities 10,853 (6,874) 1,311
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (1,111) (476) (134)
---------- ---------- ----------
Net cash provided by/(used in) financing activities (1,111) (476) (134)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of bank loans (1,000) (500) (121)
Advance/(repayments) of long term loan from a 200 589 24
related party
---------- ---------- ----------
Net cash provided by/(used in) financing activities (800) 89 (97)
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalent 8,942 (7,261) 1,080
Cash and cash equivalent, at beginning of period 13,956 22,526 1,685
---------- ---------- ----------
Cash and cash equivalent, at end of period 22,898 15,265 2,765
========== ========== ==========
</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 six months period ended June
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$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30,
1998. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate.
<TABLE>
<CAPTION>
2. INVENTORIES
June 30, December 31,
1998 1997
RMB RMB
(unaudited) (audited)
<S> <C> <C>
Raw materials 13,034 11,411
Work in progress 4,261 5,632
Finished goods 20,390 17,702
---------- ----------
37,685 34,745
========== ==========
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
June 30, December 31,
1998 1997
RMB RMB
(unaudited) (audited)
At cost:
Buildings 4,221 4,221
Plant and machinery 15,240 14,129
---------- ----------
19,461 18,350
---------- ----------
Accumulated depreciation:
Buildings 1,071 969
Plant and machinery 5,316 4,643
---------- ----------
6,387 5,612
---------- ----------
Property, machinery and equipment, net 13,074 12,738
========== ==========
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES AND GROSS PROFIT. For the first half year of 1998, net sales
increased by RMB20,344,000 (US$2,457,000) or 37.1% to RMB75,226,000
(US$9,085,000) from RMB54,882,000 (US$6,628,000) in the corresponding period of
the prior year. Given the adverse impact of the Asian financial crisis on the
Chinese economy, some of the infrastructure activities were slowed down or
suspended. It was the Company's policy to reduce the prices to boost sales in
the first half year of 1998. The increase in net sales revenue was mainly due to
more sales contracts received and completed during the current period.
Gross profits decreased by RMB1,645,000 (US$199,000) or 7.1% to
RMB21,532,000 (US$2,600,000) for the six months ended June 30, 1998 compared to
RMB23,177,000 (US$2,799,000) in the corresponding period of the prior year. The
decrease in gross profit was a result of the Company's policy to reduce prices
in order to boost sales.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB3,339,000 (US$403,000) or 20.8% to RMB19,359,000
(US$2,338,000) for the six months ended June 30, 1998 as compared to
RMB16,020,000 (US$1,935,000) in the corresponding period in 1997. 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.
PROVISION FOR BAD DEBT EXPENSES. No additional provision for bad debt
expenses was charged to the income statements during the six months period ended
June 30, 1998 because the management considered that the period-end allowance
for doubtful accounts was adequate.
INTEREST INCOME/EXPENSES. Interest expenses decreased by RMB778,000
(US$94,000) or 22.5% to RMB2,676,000 (US$323,000) for the six months ended June
30, 1998 as compared to RMB3,454,000 (US$417,000) in the corresponding period in
1997. The decrease in interest expenses in the six months period ended June 30,
1998 was due to the decrease in the average bank borrowing rates during the
current period. Interest income mainly represented the income received on the
amounts due from related parties, bear interest at the average bank borrowing
rates. Interest income decreased by RMB1,836,000 (US$222,000) or 56.9% to
RMB1,388,000 (US$168,000) for the six months ended June 30, 1998 as compared to
RMB3,224,000 (US$389,000) in the corresponding period in 1997. The decrease was
mainly due to the reduction of balances with related parties and the average
bank borrowing rates.
OTHER INCOME. Other income decreased by RMB263,000 (US$32,000) or 26.8%
from RMB980,000 (US$118,000) for the six months ended June 30, 1997 to
RMB717,000 (US$86,000) for the corresponding period in 1998. The decrease was
primarily related to less income being earned from leasing of equipment for the
current period as compared to the corresponding period in 1997.
INCOME TAXES. According to an approval issued by the State Tax Bureau
of the Liuzhou City dated July 22, 1996, the income of a Company's subsidiary in
PRC, Liuzhou OVM Construction Machinery Company Limited ("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 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%.
6
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES AND GROSS PROFIT. Net sales for the second quarter of fiscal
1998 increased by RMB17,834,000 (US$2,154,000) or 61.7% to approximately
RMB46,731,000 (US$5,644,000), compared to approximately RMB28,897,000
(US$3,490,000) for the corresponding period in 1997. Due to the continuing
impact of the Asian financial crisis on the Chinese economy in the second
quarter of 1998, the Company decided to reduce the prices further in order to
boost sales and maintain its competitiveness. The increase in net sales revenue
was mainly due to more sales contracts received and completed during the current
period.
Gross profits decreased by RMB2,999,000 (US$362,000) or 22.6% to
RMB10,296,000 (US$1,244,000) for the second quarter of fiscal 1998 compared to
RMB13,295,000 (US$1,606,000) in the corresponding period of the prior year. The
decrease in gross profit was a result of the Company's policy to reduce prices
in order to boost sales.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB2,516,000 (US$304,000) or 31.8% to RMB10,440,000
(US$1,261,000) for second quarter of fiscal 1998 as compared to RMB7,924,000
(US$957,000) in the corresponding period in 1997. 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.
INTEREST INCOME/EXPENSES. Interest expenses increased by RMB937,000
(US$113,000) or 133% to RMB1,644,000 (US$199,000) for the second quarter of
fiscal 1998 as compared to RMB707,000 (US$85,000) in the corresponding period in
1997. The increase in interest expenses was due to the increase of average bank
loans during the current period. Interest income mainly represented the income
received on the amounts due from related parties, bear interest at the average
bank borrowing rates. Interest income decreased by RMB1,266,000 (US$153,000) or
81.9% to RMB280,000 (US$34,000) for the second quarter of fiscal 1998 as
compared to RMB1,546,000 (US$187,000) in the corresponding period in 1997. The
decrease was mainly due to the reduction of balances with related parties and
the average bank borrowing rates.
OTHER INCOME. Other income increased by RMB285,000 (US$34,000) from
RMB34,000 (US$4,000) for the second quarter of fiscal 1997 to RMB319,000
(US$38,000) for the corresponding period in 1998. The increase was primarily due
to a loss on disposal of scrap materials in 1997.
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 RMB64,949,000
(US$7,844,000) as of June 30, 1998 compared to RMB63,055,000 (US$7,615,000) as
of December 31, 1997. Net cash provided by operating activities for the six
months ended June 30, 1998 was RMB10,853,000 (US$1,311,000) as compared to net
cash used in operating activities of RMB6,874,000 (US$830,000) 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 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 June 30, 1998, 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.
August 18, 1998 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 JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI YUAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 8.28
<CASH> 22,898
<SECURITIES> 0
<RECEIVABLES> 115,358
<ALLOWANCES> 13,076
<INVENTORY> 37,685
<CURRENT-ASSETS> 233,620
<PP&E> 19,461
<DEPRECIATION> 6,387
<TOTAL-ASSETS> 258,415
<CURRENT-LIABILITIES> 168,671
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 59,286
<TOTAL-LIABILITY-AND-EQUITY> 258,415
<SALES> 75,226
<TOTAL-REVENUES> 77,331
<CGS> 53,694
<TOTAL-COSTS> 73,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,676
<INCOME-PRETAX> 1,602
<INCOME-TAX> 855
<INCOME-CONTINUING> 747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
