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 March 31, 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,
$0.0001 par value, as of May 14, 1999.
Traditional Small Business Disclosure Format: Yes [ ] No [x]
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998 1999
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
NET SALES 35,783 28,495 4,321
COST OF SALES (19,163) (17,259) (2,314)
---------- ---------- ----------
GROSS PROFIT 16,620 11,236 2,007
SELLING AND ADMINISTRATIVE EXPENSES (11,641) (8,919) (1,406)
INTEREST EXPENSES (943) (958) (113)
INTEREST INCOME 85 1,034 10
OTHER INCOME 397 398 48
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,518 2,791 546
INCOME TAXES (744) (626) (90)
---------- ---------- ----------
3,774 2,165 456
MINORITY INTERESTS (1,260) (1,101) (152)
---------- ---------- ----------
2,514 1,064 304
EQUITY IN EARNINGS OF EQUITY INVESTEE 35 5 4
---------- ---------- ----------
NET INCOME 2,549 1,069 308
========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE 0.21 0.09 0.03
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 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 MARCH 31, 1999 AND DECEMBER 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
--------- ------------ ---------
1999 1998 1999
---- ---- ----
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
----- ----------- ------ -----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and bank balances 20,637 25,419 2,492
Accounts receivable 49,653 53,715 5,997
Inventories 2 36,664 32,316 4,428
Prepayments, deposits and other 17,040 15,504 2,058
receivables
Due from related parties 36,399 31,198 4,396
------- ---------- ----------
Total current assets 160,393 158,152 19,371
Property, machinery and equipment, net 3 21,442 21,302 2,590
Accounts receivable, non current 10,125 10,125 1,223
Investments 8,908 8,873 1,076
Other assets:
Deferred asset 4,919 4,979 594
Staff housing loans 2,296 2,391 277
Intangible assets 6,440 6,503 778
------- ---------- ----------
Total assets 214,523 212,325 25,909
======= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 35,860 36,860 4,331
Accounts payable 34,526 36,262 4,170
Advance payments by customers 14,706 12,171 1,776
Other payables and accrued liabilities 14,844 16,762 1,793
Due to related parties 1,780 2,770 215
Taxes payable 13,316 12,366 1,608
------- ---------- ----------
Total current liabilities 115,032 117,191 13,893
Long term related party loan 3,617 3,069 437
Other long term debt 1,050 1,050 127
------- ---------- ----------
Total liabilities 119,699 121,310 14,457
------- ---------- ----------
Minority interests in consolidated subsidiaries 32,398 31,138 3,913
------- ---------- ----------
Shareholders' equity:
Common stock, 40,000,000 shares, par
value of US$0.0001 authorized; 12,050,000 shares,
Issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,719
Retained earnings 31,587 29,038 3,815
Accumulated other comprehensive income 34 34 4
------- ---------- ----------
Total shareholders' equity 62,426 59,877 7,539
------- ---------- ----------
Total liabilities and shareholders' equity 214,523 212,325 25,909
======= ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
----- ------- -------- ------ -----
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 10 30,795 29,038 34 59,877
Comprehensive income:
Net income for the period - - 2,549 - 2,549
------ ---------- -------- ---------- ------
Balance at March 31, 1999, 10 30,795 31,587 34 62,426
====== ========== ======== ========== ======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THEREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998 1999
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 2,549 1,069 308
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interests 1,260 1,101 152
Equity in earnings of equity investee (35) (5) (4)
Depreciation 692 1,803 84
Amortization 63 65 8
Decrease/(increase) in assets:
Accounts receivable 4,062 7,504 491
Inventories (4,348) (2,976) (525)
Prepayments, deposits and other receivables (1,536) (8,323) (186)
Due from related parties (5,201) (5,527) (628)
Deferred asset 60 1,158 7
Staff housing loans 95 - 11
Increase/(decrease) in liabilities:
Accounts payable (1,736) (994) (210)
Advance payments by customers 2,535 1,681 306
Other payables and accrued liabilities (1,918) 3,405 (232)
Due to related parties (990) 4,455 (120)
Taxes payable 950 297 115
---------- ---------- ----------
Net cash provided by/(used in) operating activities (3,498) 4,713 (423)
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (835) (2,065) (100)
Disposal of property, machinery and equipment 3 - -
---------- ---------- ----------
Net cash used in financing activities (832) (2,065) (100)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of notes payable (1,000) - (121)
Increase of long term related party loan 548 476 66
---------- ---------- ----------
Net cash provided by/(used in) financing activities (452) 476 (55)
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalent (4,782) 3,124 (578)
Cash and cash equivalent, at beginning of period 25,419 13,956 3,070
---------- ---------- ----------
Cash and cash equivalent, at end of period 20,637 17,080 2,492
========== ========== ==========
</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 three month period ended March
31, 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$1.00 = RMB8.28 quoted by the People's Bank of China as at March 31,
1999. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate.
<TABLE>
<CAPTION>
2. INVENTORIES
March 31, December 31,
--------- ------------
1999 1998
---- ----
RMB RMB
<S> <C> <C>
Raw materials 13,391 13,320
Work in progress 7,752 9,253
Finished goods 15,521 9,743
---------- ----------
36,664 32,316
========== ==========
</TABLE>
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1999 1998
---- ----
RMB RMB
<S> <C> <C>
At cost:
Buildings 4,221 4,221
Plant and machinery 26,793 25,961
---------- ----------
31,014 30,182
---------- ----------
Accumulated depreciation:
Buildings 1,375 1,324
Plant and machinery 8,197 7,556
---------- ----------
9,572 8,880
---------- ----------
Property, machinery and equipment, net 21,442 21,302
========== ==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES AND GROSS PROFIT. Net sales for the first quarter of fiscal
1999 increased by RMB7,288,000 (US$880,000) or 25.6% to approximately
RMB35,783,000 (US$4,321,000), compared to approximately RMB28,495,000
(US$3,441,000) for the corresponding period in 1998.
Gross profits increased by RMB5,384,000 (US$650,000) or 47.9% to
RMB16,620,000 (US$2,007,000) for the first quarter of fiscal 1999 compared to
RMB11,236,000 (US$1,357,000) in the corresponding period of the prior year.
The increase in net sales was partially attributable to the net sales
of a new subsidiary company which was acquired in 1998. In addition, in
anticipation of the gradual upturn of the business environment in the PRC, the
Company also suspended the price-cutting policy which was adopted in 1998. This
has caused the improvement in the Company's net sales and gross profit.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by RMB2,722,000 (US$329,000) or 30.5% to RMB11,641,000
(US$1,406,000) for first quarter of fiscal 1999 as compared to RMB8,919,000
(US$1,077,000) in the corresponding period in 1998. The increase was
attributable to the consolidation of selling and administrative expenses of the
new subsidiary company which was acquired in 1998 and the increase in the
Company's net sales.
INTEREST INCOME/EXPENSES. Interest expenses for the first quarter of
fiscal 1999 was comparable to that of the corresponding period in the prior
year. Interest income deceased significantly from RMB1,034,000 (US$125,000) for
the first quarter of fiscal 1998 to RMB85,000 (US$10,000) 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 quarter of fiscal 1999 was
comparable to that of the corresponding period of fiscal 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 RMB45,361,000
(US$5,478,000) as of March 31, 1999 compared to RMB40,961,000 (US$4,947,000) as
of December 31, 1998. Net cash used in operating activities for the three months
ended March 31, 1999 was RMB3,498,000 (US$423,000) as compared to net cash
provided by operating activities of RMB4,713,000 (US$569,000) 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 credits, will be
sufficient to satisfy its anticipated working capital needs for at least the
next twelve months.
7
<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.
8
<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 March 31, 1999, the Company filed one current
Report on Form 8-K. On March 29, 1999, the Company filed a Report on Form
8-K dated February 10, 1999, which reported, in Item 4, the changes in the
Company's certifying accountant. No financial statements were filed.
9
<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.
May 19, 1999 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, President
By:/s/ Deng Xiao Qiong
-----------------------------------
Deng Xiao Qiong, Principal Financial
and Accounting Officer
10
<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
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI YUAN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 8.28
<CASH> 20,637
<SECURITIES> 0
<RECEIVABLES> 57,896
<ALLOWANCES> 8,243
<INVENTORY> 49,653
<CURRENT-ASSETS> 160,393
<PP&E> 31,014
<DEPRECIATION> 9,572
<TOTAL-ASSETS> 214,523
<CURRENT-LIABILITIES> 115,032
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 62,416
<TOTAL-LIABILITY-AND-EQUITY> 214,523
<SALES> 35,783
<TOTAL-REVENUES> 36,265
<CGS> 19,163
<TOTAL-COSTS> 30,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 943
<INCOME-PRETAX> 4,518
<INCOME-TAX> 744
<INCOME-CONTINUING> 3,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,549
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
