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, 1999
------------------
[ ] 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) 744-8590
(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,
$0.0001 par value, as of November 10, 1999.
Traditional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in thousands, except share and per share data)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1999 1998 1999
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
NET SALES 46,519 49,155 5,618 127,367 124,381 15,382
COST OF SALES (30,330) (38,730) (3,663) (75,301) (92,424) (9,094)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 16,189 10,425 1,955 52,066 31,957 6,288
SELLING AND ADMINISTRATIVE
EXPENSES (11,270) (11,656) (1,361) (35,056) (31,015) (4,234)
INTEREST EXPENSES (744) (1,194) (90) (2,634) (3,870) (318)
INTEREST INCOME 76 933 9 206 2,321 25
OTHER INCOME 211 1,566 26 864 2,283 104
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,462 74 539 15,446 1,676 1,865
INCOME TAXES (290) 202 (35) (2,100) (653) (253)
---------- ---------- ---------- ---------- ---------- ----------
4,172 276 504 13,346 1,023 1,612
MINORITY INTERESTS (1,368) (244) (165) (4,430) (830) (535)
---------- ---------- ---------- ---------- ---------- ----------
2,804 32 339 8,916 193 1,077
EQUITY IN EARNINGS OF EQUITY
INVESTEE 3 17 - 120 18 14
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME 2,807 49 339 9,036 211 1,091
========== ========== ========== ========== ========== ==========
BASIC AND DILUTED EARNINGS
PER SHARE 0.233 0.004 0.028 0.750 0.018 0.091
========== ========== ========== ========== ========== ==========
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>
<TABLE>
<CAPTION>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Amounts in thousands)
September 30, December 31, September 30,
1999 1998 1999
------------- ------------ -------------
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 28,932 25,419 3,494
Accounts receivable 30,851 53,715 3,726
Inventories 2 41,512 32,316 5,014
Prepayments, deposits and other receivables 15,890 15,504 1,919
Due from related parties 43,451 31,198 5,247
---------- ---------- ----------
Total current assets 160,636 158,152 19,400
Property, machinery and equipment, net 3 21,883 21,302 2,643
Accounts receivable, non current 11,187 10,125 1,351
Investments 7,965 8,873 962
Other assets:
Deferred asset 4,245 4,979 513
Staff housing loans 2,454 2,391 296
Intangible assets 6,316 6,503 763
---------- ---------- ----------
Total assets 214,686 212,325 25,928
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 27,000 36,860 3,261
Accounts payable 30,997 36,262 3,744
Advance payments by customers 19,930 12,171 2,407
Other payables and accrued liabilities 15,291 16,762 1,847
Due to related parties 426 2,770 51
Taxes payable 12,122 12,366 1,464
---------- ---------- ----------
Total current liabilities 105,766 117,191 12,774
Long term related party loan 3,089 3,069 373
Other long term debt 1,350 1,050 163
---------- ---------- ----------
Total liabilities 110,205 121,310 13,310
---------- ---------- ----------
Minority interests in consolidated subsidiaries 35,568 31,138 4,296
---------- ---------- ----------
Shareholders' equity:
Common stock, 40,000,000 shares, par value of
US$0.0001 authorized; 12,050,000 shares,
Issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,719
Retained earnings 38,074 29,038 4,598
Accumulated other comprehensive income 34 34 4
---------- ---------- ----------
Total shareholders' equity 68,913 59,877 8,322
---------- ---------- ----------
Total liabilities and shareholders' equity 214,686 212,325 25,928
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
---------- ---------- ---------- ------------- ----------
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 10 30,795 29,038 34 59,877
Comprehensive income:
Net income for the period - - 9,036 - 9,036
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1999 10 30,795 38,074 34 68,913
========== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in thousands)
Nine months ended September 30,
---------------------------------------
1999 1998 1999
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 9,036 211 1,091
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interests 4,430 830 535
Equity in earnings of equity investee (120) (18) (14)
Depreciation 1,946 1,193 235
Loss on disposal of property, machinery and equipment 3 - -
Amortization 187 188 23
Decrease/(increase) in assets:
Accounts receivable 21,802 (586) 2,633
Inventories (9,196) 8,682 (1,110)
Prepayments, deposits and other receivables (386) (11,804) (47)
Due from related parties (12,253) (2,363) (1,480)
Deferred asset 734 1,158 89
Staff housing loans (63) - (8)
Receivable from equity investee 1,028 - 124
Increase/(decrease) in liabilities:
Accounts payable (5,265) 2,338 (636)
Advance payments by customers 7,759 4,419 937
Other payables and accrued liabilities (1,471) 206 (178)
Due to related parties (2,344) 8,974 (283)
Taxes payable (244) (955) (29)
---------- ---------- ----------
Net cash provided by operating activities 15,583 12,473 1,882
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (2,537) (1,855) (307)
Disposal of property, machinery and equipment 7 - 1
---------- ---------- ----------
Net cash used in investing activities (2,530) (1,855) (306)
---------- ---------- ----------
Cash flows from financing activities:
New bank loans - 1,900 -
Repayments of notes payable (9,860) (1,000) (1,190)
Increase of long term related party loan 20 (97) 2
Increase of other long term debt 300 - 36
---------- ---------- ----------
Net cash used in financing activities (9,540) 803 (1,152)
---------- ---------- ----------
Net increase in cash and cash equivalent 3,513 11,421 424
Cash and cash equivalent, at beginning of period 25,419 13,956 3,070
---------- ---------- ----------
Cash and cash equivalent, at end of period 28,932 25,377 3,494
========== ========== ==========
</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 month period ended
September 30, 1999, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.28 quoted by the People's Bank of China as at September
30, 1999. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate.
<TABLE>
<CAPTION>
2. INVENTORIES
September 30, December 31,
------------- ------------
1999 1998
---- ----
RMB RMB
<S> <C> <C>
Raw materials 12,349 13,320
Work in progress 6,227 9,253
Finished goods 22,936 9,743
---------- ----------
41,512 32,316
========== ==========
</TABLE>
<TABLE>
<CAPTION>
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
September 30, December 31,
------------- ------------
1999 1998
---- ----
RMB RMB
<S> <C> <C>
At cost:
Buildings 4,782 4,221
Plant and machinery 27,925 25,961
---------- ----------
32,707 30,182
---------- ----------
Accumulated depreciation:
Buildings 1,476 1,324
Plant and machinery 9,348 7,556
---------- ----------
10,824 8,880
---------- ----------
Property, machinery and equipment, net 21,883 21,302
========== ==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES AND GROSS PROFIT. For the nine months ended September 30,
1999, net sales increased by RMB2,986,000 (US$361,000) or 2.4% to approximately
RMB127,367,000 (US$15,382,000), compared to approximately RMB124,381,000
(US$15,022,000) for the corresponding period in 1998.
Gross profits increased by RMB20,109,000 (US$2,429,000) or 62.9% to
RMB52,066,000 (US$6,288,000) for the nine months ended September 30, 1999
compared to RMB31,957,000 (US$3,860,000) in the corresponding period of the
prior year.
The increase in net sales was partially attributable to the net sales
from a new subsidiary company that was acquired in late 1998. In addition, in
anticipation of the gradual recovery of the business environment in the PRC, the
Company also suspended the price-cutting policy that was introduced in 1998 in
view of the difficult market conditions prevailing at that time. This resulted
in an improvement in the Company's gross profit margin.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB4,041,000 (US$488,000) or 13.0% to RMB35,056,000
(US$4,234,000) for the nine months ended September 30, 1999 as compared to
RMB31,015,000 (US$3,746,000) in the corresponding period in 1998. The increase
was attributable to the consolidation of the selling and administrative expenses
of the new subsidiary company that was acquired in late 1998, the increase in
the Company's net sales and the increase in the staff welfare and other related
costs..
INTEREST INCOME/EXPENSES. Interest expenses for the nine months ended
September 30, 1999 decreased by RMB1,236,000 (US$149,000) or 31.9% to
RMB2,634,000 (US$318,000) as compared to RMB3,870,000 (US$467,000) in the
corresponding period of the prior year. The decrease in interest expenses in the
nine month period ended September 30, 1999 was due to the decrease in the
average bank borrowing rates and the outstanding notes payable during the
current period. Interest income deceased significantly from RMB2,321,000
(US$280,000) for the nine months ended September 30, 1998 to RMB206,000
(US$25,000) for the corresponding period of fiscal 1999. The decrease was due to
no interest charge on amounts due from related parties in the current period.
OTHER INCOME. Other income for the nine months ended September 30, 1999
decreased by RMB1,419,000 (US$171,000) or 62.2% to RMB864,000 (US$104,000) from
RMB2,283,000 (US$276,000) for the corresponding period of fiscal 1998. The
decrease was mainly due to the reclassification of sales of scrapped raw
materials to net sales in fiscal 1999.
NET INCOME. Net income for the nine months ended September 30, 1999
increased by RMB8,825,000 (US$1,066,000) or 418% to RMB9,036,000 (US$1,091,000)
from RMB211,000 (US$25,000) for the corresponding period of fiscal 1998. The
increase resulted from improved macroeconomic conditions in the PRC as well as
suspension of the price-cutting policy that was implemented by the Company in
early 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES AND GROSS PROFIT. Net sales for the third quarter of fiscal
1999 decreased by RMB2,636,000 (US$318,000) or 5.3% to RMB46,519,000
(US$5,618,000), compared to RMB49,155,000 (US$5,937,000) for the corresponding
period in 1998. The decrease was mainly due to less contracts being completed
during the current period.
Gross profits increased by RMB5,764,000 (US$696,000) or 55.3% to
RMB16,189,000 (US$1,955,000) for the third quarter of fiscal 1999 compared to
RMB10,425,000 (US$1,259,000) in the corresponding period of the prior year.
7
<PAGE>
In anticipation of the gradual recovery of the business environment in
the PRC, the Company suspended the price-cutting policy that was adopted in
1998. This resulted in an improvement in the Company's gross profit.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the third quarter of fiscal 1999 decreased by RMB386,000
(US$47,000) or 3.3% to RMB11,270,000 (US$1,361,000), compared to RMB11,656,000
(US$1,408,000) for the corresponding period in 1998. The effect of a 5.3%
decrease in net sales on the selling and administrative expenses was partly
offset by the consolidation of the results of the new subsidiary company that
was acquired in late 1998 and the increase in staff welfare and other related
costs.
INTEREST INCOME/EXPENSES. Interest expenses for the third quarter of
fiscal 1999 decreased by RMB450,000 (US$54,000) or 37.7% to RMB744,000
(US$90,000) as compared to RMB1,194,000 (US$144,000) in the corresponding period
of the prior year. The decrease in interest expenses in the third quarter of
fiscal 1999 was due to the decrease in the average bank borrowing rates and the
outstanding notes payable. Interest income deceased significantly from
RMB933,000 (US$113,000) for the third quarter of fiscal 1998 compared to
RMB76,000 (US$9,000) for the corresponding period of fiscal 1999. The decrease
was due to no interest charge on amounts due from related parties in the current
period.
OTHER INCOME Other income for the third quarter of 1999 decreased by
RMB1,355,000 (US$164,000) or 86.5% to RMB211,000 (US$26,000) from RMB1,566,000
(US$189,000) for the corresponding period of fiscal 1998. The decrease was
mainly due to the reclassification of sales of scrapped raw materials to net
sales in fiscal 1999.
NET INCOME. Net income increased significantly from RMB49,000
(US$6,000) for the third quarter of 1998 to RMB2,807,000 (US$339,000) for the
corresponding period in 1999. The increase was the results of improved
macroeconomic conditions in the PRC.
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 had a working capital surplus of RMB54,870,000
(US$6,627,000) as of September 30, 1999 compared to RMB40,961,000 (US$4,947,000)
as of December 31, 1998. Net cash provided by operating activities for the nine
months ended September 30, 1999 was RMB15,583,000 (US$1,882,000) as compared to
RMB12,473,000 (US$1,506,000) for the corresponding period in 1998. 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, 1998. 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.
8
<PAGE>
YEAR 2000 ISSUE
The Company has been addressing the potential risks associated with the
year 2000 issue. It has established a program to assess and modify internal
information technology ("IT") and non-information technology ("non-IT")
operations that are at risk, and further, to evaluate the year 2000 readiness of
key third parties with which the Company conducts business.
For the IT systems, the assessment phase and modification phase, which
include software replacements and system upgrades, have been completed. The
total cost directly associated with the year 2000 issue was less than US$20,000.
The IT systems are being tested for year 2000 compliance and are expected to be
completed by the end of 1999. For the non-IT systems, the management has
finished the assessment and testing phases and is confident that all key non-IT
systems are year 2000 compliance.
The Company has conducted informal communications with key third
parties with which the Company conducts business in order to evaluate the
Company's exposure to their year 2000 compliance. To-date, a majority of these
third parties have indicated that they are already year 2000 compatible or their
year 2000 exposure is limited. However, the Company can give no assurance that
all these third parties will not be materially impacted by year 2000 issues. The
Company is continuing with follow-up communications with key third parties.
The Company has developed a contingency plan which would be implemented
in the event that any of the Company's effort to address and correct the year
2000 issues are not effective, which include, identifying alternate suppliers,
identifying manual methods for continuing operations and purchasing buffer
inventories. Even where the Company has developed such a contingency plan, there
can be no assurance that the plan will address all problems that may arise or
that such plan, if implemented, will operate successfully.
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, 1999, 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 10, 1999 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, President
By:/s/ Deng Xiao Qiong
-----------------------------------
Deng Xiao Qiong, Principal Financial
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 NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 1030916
<NAME> OVM INTERNATIONAL HOLDING CORP.
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI YUAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 8.28
<CASH> 28,932
<SECURITIES> 0
<RECEIVABLES> 42,038
<ALLOWANCES> 0
<INVENTORY> 41,512
<CURRENT-ASSETS> 160,636
<PP&E> 32,707
<DEPRECIATION> 10,824
<TOTAL-ASSETS> 214,686
<CURRENT-LIABILITIES> 105,766
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 68,903
<TOTAL-LIABILITY-AND-EQUITY> 214,686
<SALES> 127,367
<TOTAL-REVENUES> 127,367
<CGS> 75,301
<TOTAL-COSTS> 75,301
<OTHER-EXPENSES> 35,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,634
<INCOME-PRETAX> 15,446
<INCOME-TAX> 2,100
<INCOME-CONTINUING> 9,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,036
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.75
</TABLE>
