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, 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,
$0.0001 par value, as of August 13, 1999.
Traditional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1999 1998 1999
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
NET SALES 45,065 46,731 5,443 80,848 75,226 9,764
COST OF SALES (25,808) (36,435) (3,117) (44,971) (53,694) (5,431)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 19,257 10,296 2,326 35,877 21,532 4,333
SELLING AND ADMINISTRATIVE
EXPENSES (12,145) (10,440) (1,467) (23,786) (19,359) (2,873)
INTEREST EXPENSES (947) (1,644) (114) (1,890) (2,676) (228)
INTEREST INCOME 45 280 5 130 1,388 16
OTHER INCOME 256 319 31 653 717 79
---------- ---------- ---------- ---------- ---------- ----------
INCOME/(LOSS) BEFORE INCOME
TAXES 6,466 (1,189) 781 10,984 1,602 1,327
INCOME TAXES (1,066) (229) (129) (1,810) (855) (219)
---------- ---------- ---------- ---------- ---------- ----------
5,400 (1,418) 652 9,174 747 1,108
MINORITY INTERESTS (1,802) 515 (218) (3,062) (586) (370)
---------- ---------- ---------- ---------- ---------- ----------
3,598 (903) 434 6,112 161 738
EQUITY IN EARNINGS/(LOSS) OF
EQUITY INVESTEE 82 (4) 10 117 1 14
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME/(LOSS) 3,680 (907) 444 6,229 162 752
========== ========== ========== ========== ========== ==========
BASIC AND DILUTED EARNINGS/
(LOSS) PER SHARE 0.31 (0.08) 0.04 0.52 0.01 0.06
========== ========== ========== ========== ========== ==========
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 JUNE 30, 1999 AND DECEMBER 31, 1998
(Amounts in thousands)
June 30, December 31, June 30,
1999 1998 1999
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 30,357 25,419 3,666
Accounts receivable 35,341 53,715 4,268
Inventories 2 38,968 32,316 4,706
Prepayments, deposits and other 15,725 15,504 1,899
receivables
Due from related parties 43,042 31,198 5,199
---------- ---------- ----------
Total current assets 163,433 158,152 19,738
Property, machinery and equipment, net 3 21,064 21,302 2,544
Accounts receivable, non current 11,187 10,125 1,351
Investments 8,801 8,873 1,063
Other assets:
Deferred asset 4,304 4,979 520
Staff housing loans 2,395 2,391 289
Intangible assets 6,378 6,503 770
---------- ---------- ----------
Total assets 217,562 212,325 26,275
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 34,860 36,860 4,210
Accounts payable 30,015 36,262 3,625
Advance payments by customers 20,895 12,171 2,524
Other payables and accrued liabilities 15,040 16,762 1,816
Due to related parties 111 2,770 13
Taxes payable 11,928 12,366 1,441
---------- ---------- ----------
Total current liabilities 112,849 117,191 13,629
Long term related party loan 3,357 3,069 405
Other long term debt 1,050 1,050 127
---------- ---------- ----------
Total liabilities 117,256 121,310 14,161
---------- ---------- ----------
Minority interests in consolidated subsidiaries 34,200 31,138 4,131
---------- ---------- ----------
Shareholders' equity:
Common stock, 40,000,000 shares, par value of
US$0.0001 authorized; 12,050,000 shares,
Issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,719
Retained earnings 35,267 29,038 4,259
Accumulated other comprehensive income 34 34 4
---------- ---------- ----------
Total shareholders' equity 66,106 59,877 7,983
---------- ---------- ----------
Total liabilities and shareholders' equity 217,562 212,325 26,275
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Additional Retained Comprehensive
Stock Paid-in Earnings Income Total
Capital
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 10 30,795 29,038 34 59,877
Comprehensive income:
Net income for the - - 6,229 - 6,229
period
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999, 10 30,795 35,267 34 66,106
========== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended March 31,
1999 1998 1999
RMB RMB US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 6,229 162 752
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interests 3,062 586 370
Equity in earnings of equity investee (117) (1) (14)
Depreciation 1,369 775 165
Loss on disposal of property, machinery and 3 - -
equipment
Amortization 125 125 15
Decrease/(increase) in assets:
Accounts receivable 17,312 11,389 2,090
Inventories (6,652) (2,940) (803)
Prepayments, deposits and other receivables (221) (8,236) (27)
Due from related parties (11,844) (1,992) (1,431)
Deferred asset 675 1,158 82
Staff housing loans (4) - -
Receivable from equity investee 189 - 23
Increase/(decrease) in liabilities:
Accounts payable (6,247) (2,503) (754)
Advance payments by customers 8,724 4,274 1,054
Other payables and accrued liabilities (1,722) 1,440 (208)
Due to related parties (2,659) 7,344 (321)
Taxes payable (438) (728) (53)
---------- ---------- ----------
Net cash provided by operating activities 7,784 10,853 940
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (1,141) (1,111) (138)
Disposal of property, machinery and equipment 7 - 1
---------- ---------- ----------
Net cash used in financing activities (1,134) (1,111) (137)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of notes payable (2,000) (1,000) (242)
Increase of long term related party loan 288 200 35
---------- ---------- ----------
Net cash used in financing activities (1,712) (800) (207)
---------- ---------- ----------
Net increase in cash and cash equivalent 4,938 8,942 596
Cash and cash equivalent, at beginning of period 25,419 13,956 3,070
---------- ---------- ----------
Cash and cash equivalent, at end of period 30,357 22,898 3,666
========== ========== ==========
</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 six month period ended June
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$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30,
1999. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate.
<TABLE>
<CAPTION>
2. INVENTORIES
June 30, December 31,
1999 1998
RMB RMB
<S> <C> <C>
Raw materials 11,860 13,320
Work in progress 3,985 9,253
Finished goods 23,123 9,743
---------- ----------
38,968 32,316
========== ==========
</TABLE>
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
RMB RMB
<S> <C> <C>
At cost:
Buildings 4,221 4,221
Plant and machinery 27,090 25,961
---------- ----------
31,311 30,182
---------- ----------
Accumulated depreciation:
Buildings 1,425 1,324
Plant and machinery 8,822 7,556
---------- ----------
10,247 8,880
---------- ----------
Property, machinery and equipment, net 21,064 21,302
========== ==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES AND GROSS PROFIT. For the first half year of 1999, net sales
increased by RMB5,622,000 (US$679,000) or 7.5% to approximately RMB80,848,000
(US$9,764,000), compared to approximately RMB75,226,000 (US$9,085,000) for the
corresponding period in 1998.
Gross profits increased by RMB14,345,000 (US$1,732,000) or 66.6% to
RMB35,877,000 (US$4,333,000) for the six months ended June 30, 1999 compared to
RMB21,532,000 (US$2,600,000) in the corresponding period of the prior year.
The increase in net sales was partially attributable to the net sales
contributed 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
has caused the improvement in the Company's gross profit margin.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB4,427,000 (US$535,000) or 22.9% to RMB23,786,000
(US$2,873,000) for the six months ended June 30, 1999 as compared to
RMB19,359,000 (US$2,338,000) 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 six months ended
June 30, 1999 decreased by RMB786,000 (US$95,000) or 29.4% to RMB1,890,000
(US$228,000) as compared to RMB2,676,000 (US$323,000) in the corresponding
period of the prior year. The decrease in interest expenses in the six month
period ended June 30, 1999 was due to the decrease in the average bank borrowing
rates during the current period. Interest income deceased significantly from
RMB1,388,000 (US$168,000) for the six months ended June 30, 1998 to RMB130,000
(US$16,000) for the corresponding period of fiscal 1999. The decrease was due to
the lack of interest income on amounts due from related parties.
OTHER INCOME. Other income for the first half year of 1999 decreased by
RMB64,000 (US$8,000) or 8.9% to RMB653,000 (US$79,000) from RMB717,000
(US$87,000) 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 first half of 1999 increased by
RMB6,067,000 (US$733,000) or 3,700% to RMB6,229,000 (US$752,000) from RMB162,000
(US$20,000) for the corresponding period of fiscal 1998. The increase was the
results of improved macroeconomic conditions in the PRC as well as the
suspension of price-cutting policy that was implemented by the Company in early
1998.
7
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES AND GROSS PROFIT. Net sales for the second quarter of fiscal
1999 was comparable to that of the corresponding period in 1998.
Gross profits increased by RMB8,961,000 (US$1,082,000) or 87.0% to
RMB19,257,000 (US$2,326,000) for the second quarter of fiscal 1999 compared to
RMB10,296,000 (US$1,243,000) in the corresponding period of the prior year.
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 has caused the improvement in the Company's gross profit.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB1,705,000 (US$206,000) or 16.3% to RMB12,145,000
(US$1,467,000) for the second quarter of fiscal 1999 as compared to
RMB10,440,000 (US$1,261,000) in the corresponding period in 1998. The increase
was attributable to the consolidation of selling and administrative expenses of
the new subsidiary company that was acquired in 1998 and the increase in staff
welfare and other related costs.
INTEREST INCOME/EXPENSES. Interest expenses for the second quarter of
fiscal 1999 decreased by RMB697,000 (US$84,000) or 42.4% to RMB947,000
(US$114,000) as compared to RMB1,644,000 (US$199,000) in the corresponding
period of the prior year. The decrease in interest expenses in the second
quarter of fiscal 1999 was due to the decrease in the average bank borrowing
rates and the outstanding bank loan balances. Interest income deceased
significantly from RMB280,000 (US$34,000) for the second quarter of fiscal 1998
compared to RMB45,000 (US$5,000) for the corresponding period of fiscal 1999.
The decrease was due to the lack of interest income on amounts due from related
parties.
OTHER INCOME Other income for the second quarter of 1999 decreased by
RMB63,000 (US$8,000) or 19.7% to RMB256,000 (US$31,000) from RMB319,000
(US$39,000) 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 second quarter of 1999 increased by
RMB4,587,000 (US$554,000) from a net loss of RMB907,000 (US$110,000) for the
second quarter of 1998 to a net income of RMB3,680,000 (US$444,000) for the
second quarter of 1999. The increase was the results of improved macroeconomic
conditions in the PRC as well as the suspension of price-cutting policy that was
implemented by the Company in early 1998.
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 RMB50,584,000
(US$6,109,000) as of June 30, 1999 compared to RMB40,961,000 (US$4,947,000) as
of December 31, 1998. Net cash provided by operating activities for the six
months ended June 30, 1999 was RMB7,784,000 (US$940,000) as compared to
RMB10,853,000 (US$1,311,000) 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
As is more fully described in the Company's annual report on Form
10-KSB for the fiscal year ended December 31, 1998, the Company is modifying or
replacing its software as well as hardware to ensure year 2000 compliance. The
Company believes that the costs directly associated with the year 2000 issue
will be less than US$20,000 and that all required upgrades and replacements will
be completed prior to the end of the third quarter of 1999.
Although the Company believes that its internal exposure to the year
2000 issue is limited and that its remediation efforts will be successful in
addressing its year 2000 issues, there can be no assurance that such remediation
efforts will be successful or that its upgraded software or any newly installed
systems will be fully year 2000 compatible. At this time, the Company is unable
to accurately predict the consequences of failed remediation efforts or a
failure of the Company's upgraded software or new systems to effectively address
the year 2000 issue, although management does not believe that any such failures
will result in a material, adverse effect on the Company or its subsidiaries, or
the operation of their business.
Any failure of the software or systems of suppliers, customers,
financial institutions or other third parties with which the Company or its
subsidiaries conducts business to address their year 2000 issues could impair
the Company's ability to conduct normal operations. Because the Company is still
evaluating the status of the systems of the third parties with which the Company
and its subsidiaries conduct business, management has not yet developed a
comprehensive contingency plan and is unable to identify "the most reasonably
likely worst case scenario" at this time. As management identifies significant
risks related to these issues, management will develop appropriate contingency
plans.
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 June 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.
August 13, 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 SIX MONTHS ENDED JUNE
30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 8.28
<CASH> 30,357
<SECURITIES> 0
<RECEIVABLES> 43,584
<ALLOWANCES> 8,243
<INVENTORY> 38,968
<CURRENT-ASSETS> 163,433
<PP&E> 31,311
<DEPRECIATION> 10,247
<TOTAL-ASSETS> 217,562
<CURRENT-LIABILITIES> 112,849
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 66,096
<TOTAL-LIABILITY-AND-EQUITY> 217,562
<SALES> 80,848
<TOTAL-REVENUES> 80,848
<CGS> 44,971
<TOTAL-COSTS> 44,971
<OTHER-EXPENSES> 23,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,890
<INCOME-PRETAX> 10,984
<INCOME-TAX> 1,810
<INCOME-CONTINUING> 6,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,229
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
</TABLE>
