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, 2000
--------------
[ ] 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,
$0.0001 par value, as of May 15, 2000.
Traditional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999 2000
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
NET SALES 20,603 35,783 2,488
COST OF SALES (11,506) (19,163) (1,389)
---------- ---------- ----------
GROSS PROFIT 9,097 16,620 1,099
SELLING AND ADMINISTRATIVE
EXPENSES (8,968) (11,641) (1,083)
INTEREST EXPENSES (940) (943) (114)
INTEREST INCOME 8 85 1
OTHER INCOME/(EXPENSES), NET (30) 397 (4)
---------- ---------- ----------
INCOME/(LOSS) BEFORE INCOME TAXES (833) 4,518 (101)
INCOME TAXES (72) (744) (8)
---------- ---------- ----------
(905) 3,774 (109)
MINORITY INTERESTS 118 (1,260) 14
---------- ---------- ----------
(787) 2,514 (95)
EQUITY IN EARNINGS OF EQUITY
INVESTEE 11 35 1
---------- ---------- ----------
NET INCOME/(LOSS) (776) 2,549 (94)
========== ========== ==========
BASIC AND DILUTED EARNINGS/(LOSS)
PER SHARE (0.06) 0.21 (0.01)
========== ========== ==========
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 SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 2000
---- ---- ----
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 14,444 22,859 1,744
Accounts receivable 29,676 33,804 3,584
Inventories 2 34,291 32,584 4,141
Prepayments, deposits and other 14,848 9,313 1,794
Due from related parties 37,821 36,360 4,568
Assets held for sale 6,609 6,609 798
---------- ---------- ----------
Total current assets 137,689 141,529 16,629
Property, machinery and equipment, net 3 36,712 16,143 4,433
Investments 8,614 8,332 1,040
Other assets:
Deferred asset 4,923 4,661 595
Staff housing loans 2,821 2,831 341
Intangible assets 3,318 3,352 401
---------- ---------- ----------
Total assets 194,077 176,848 23,439
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 27,000 28,000 3,261
Current portion of long term debt 360 360 43
Current portion of capital lease 252 - 31
Accounts payable 26,231 25,529 3,168
Advance payments by customers 10,286 7,775 1,242
Other payables and accrued liabilities 13,803 15,062 1,667
Taxes payable 4,785 5,873 578
---------- ---------- ----------
Total current liabilities 82,717 82,599 9,990
Long term debt net of current portion 690 690 83
Capital lease obligations 18,000 - 2,174
---------- ---------- ----------
Total liabilities 101,407 83,289 12,247
---------- ---------- ----------
Minority interests in consolidated 32,318 32,436 3,903
---------- ---------- ----------
Shareholders' equity:
Common stock, 40,000,000 shares, par
US$0.0001 authorized; 12,050,000 shares,
issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,719
Retained earnings 29,481 30,257 3,561
Accumulated other comprehensive income 66 61 8
---------- ---------- ----------
Total shareholders' equity 60,352 61,123 7,289
---------- ---------- ----------
Total liabilities and shareholders' equity 194,077 176,848 23,439
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Additional Retained Comprehensive
Stock Paid-in Earnings Income Total
----- ---------- -------- ------------ ------
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 10 30,795 30,257 61 61,123
Comprehensive income:
Net loss for the period - - (776) - (776)
Currency translation - - - 5 5
------ ------ ------ ------ ------
Total comprehensive income (771)
------
Balance at March 31, 2000 10 30,795 29,481 66 60,352
====== ====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999 2000
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Net cash used in operating activities (4,691) (3,498) (567)
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (2,682) (835) (324)
Disposal of property, machinery and equipment - 3 -
---------- ---------- ----------
Net cash used in investing activities (2,682) (832) (324)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of notes payable (1,000) (1,000) (121)
Increase of long term related party loan - 548 -
Principal payments under capital lease obligations (42) - (5)
---------- ---------- ----------
Net cash used in financing activities (1,042) (452) (126)
---------- ---------- ----------
Net decrease in cash and cash equivalent (8,415) (4,782) (1,017)
Cash and cash equivalent, at beginning of period 22,859 25,419 2,761
---------- ---------- ----------
Cash and cash equivalent, at end of period 14,444 20,637 1,744
========== ========== ==========
Noncash investing activities:
Property, machinery and equipment
acquired through capital
lease obligations 18,314 - 2,212
========== ========== ==========
</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, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.28 quoted by the People's Bank of China as at March 31,
2000. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate.
2. INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
RMB RMB
<S> <C> <C>
Raw materials 10,697 9,676
Work in progress 7,393 10,722
Finished goods 16,201 12,186
---------- ----------
34,291 32,584
========== ==========
</TABLE>
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
RMB RMB
<S> <C> <C>
At cost:
Buildings 11,689 741
Plant and machinery 35,284 25,236
---------- ----------
46,973 25,977
---------- ----------
Accumulated depreciation:
Buildings 187 41
Plant and machinery 10,074 9,793
---------- ----------
10,261 9,834
---------- ----------
Property, machinery and equipment, net 36,712 16,143
========== ==========
</TABLE>
6
<PAGE>
4. MATERIAL AGREEMENTS
In January 2000, the Company entered into various agreements with
Liuzhou OVM Joint Stock Company Limited (the "JV Partner"), which has
resulted in the following:
a. Termination of the Company's lease of land, buildings, property and
equipment from the JV Partner.
b. Allocation of Company personnel to the JV Partner resulting in the
reduction of Company personnel and financial assets related
thereto.
c. Termination of the Company's rights to use certain intangible
assets, including the "OVM" trademark.
d. Transfer of approximately 1/3 of the Company's inventories to the
JV Partner at normal selling prices excluding value added tax at
17%.
e. Transfer of certain fixed assets included in Assets held for Sale
at December 31, 1999.
On December 11, 1999, in anticipation of the termination of the
Company's lease of land, buildings, property and equipment from the JV
Partner, the Company entered into a new lease agreement with an
unaffiliated third party for the lease of land and buildings in which
the Company's main operating facilities are located. The term of the
lease is 25 years, beginning January 1, 2000, with annual rent of RMB1
million for the first five years and escalating at 1% each year
thereafter. In addition, on December 12, 1999, the Company entered into
a lease with another unaffiliated third party for the lease of
production and transportation equipment. The term of the lease is 20
years beginning January 1, 2000, with annual rent of approximately
RMB767,000. Both of the above leases are to be treated as capital
leases.
In January 2000, approximately 300 of the Company's employees left
the Company and became employees of the JV Partner. Included in
prepayments, deposits and other receivables, deferred assets and staff
housing loans at March 31, 2000 was approximately RMB800,000,
RMB2,400,000 and RMB1,946,000, respectively related to these employees.
These assets are expected to be transferred to the JV Partner in the
second quarter of 2000.
Since January 2000, the Company's products are being marketed under a
new trademark ("HVM"), which is in the process of being registered by a
related company, Shenzhen Hong Da Technical Company Limited ("Hong
Da"). Hong Da has granted the Company the exclusive right to use the
HVM trademarks, without cost.
At December 31, 1999, the Company had identified certain buildings,
plant and equipment to be transferred to the JV Partner and these are
included in assets held for sale at March 31, 2000. As of May 19, 2000,
the Company and the JV Partner are still negotiating the quantities and
values of inventories, and values of buildings, property and equipment
to be transferred to the JV Partner. However, management believes that
the value of assets transferred will not be less than their carrying
values at March 31, 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
NET SALES AND GROSS PROFIT. Net sales for the first quarter of fiscal
2000 decreased by RMB15,180,000 (US$1,833,000) or 42.4% to RMB20,603,000
(US$2,488,000), compared to RMB35,783,000 (US$4,322,000) for the corresponding
period in 1999. The decrease was mainly due to the Company's relocation to new
production and office facilities. It is expected that additional contracts will
be completed during the second quarter and that corresponding sales will be
reflected in that period.
Gross profit decreased by RMB7,523,000 (US$909,000) or 45.3% to
RMB9,097,000 (US$1,099,000) for the first quarter of fiscal 2000 compared to
RMB16,620,000 (US$2,007,000) in the corresponding period of the prior year. The
decrease was mainly due to the decrease in sales during the current period.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the first quarter of fiscal 2000 decreased by RMB2,673,000
(US$323,000) or 23.0% to RMB8,968,000 (US$1,083,000), compared to RMB11,641,000
(US$1,406,000) for the corresponding period in 1999. The decrease was mainly due
to a decrease in selling expenses as a result of a decrease in sales, and a
decrease in salary expenses as some of the staff was transferred to the PRC
joint venture partner.
INTEREST INCOME/EXPENSE. Interest expense for the first quarter of
fiscal 2000 was RMB940,000 (US$114,000) which was comparable to RMB943,000
(US$114,000) in the corresponding period of the prior year. The Company has
financed its acquisition of property, machinery and equipment in the first
quarter of fiscal 2000 by capital leases totaling RMB18,314,000 (US$2,212,000).
Although there was a decrease in interest expense in the first quarter of fiscal
2000 on notes payable, resulting from the decrease in average bank borrowing
rates and outstanding notes payable, it was offset by the interest expense
arising from the capital lease obligations. Interest income deceased
significantly from RMB85,000 (US$10,000) for the first quarter of fiscal 1999
compared to RMB8,000 (US$1,000) for the corresponding period of fiscal 2000. The
decrease was due to a decrease in average bank balances during the current
period.
OTHER INCOME/(EXPENSES), NET Other income for the first quarter of 1999
amounted to RMB397,000 (US$48,000), and mainly represented income received on
rental of machinery to certain related parties. Expenses recorded by the Company
for the first quarter of 2000 amounted to RMB30,000 (US$4,000) as the Company
made a donation to a charitable organization.
8
<PAGE>
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 RMB54,972,000
(US$6,639,000) as of March 31, 2000 compared to RMB58,930,000 (US$7,117,000) as
of December 31, 1999. Net cash used in operating activities for the three months
ended March 31, 2000 was RMB4,691,000 (US$567,000) as compared to RMB3,498,000
(US$422,000) for the corresponding period in 1999. Net cash flows from the
Company's operating activities are attributable to the Company's income and
changes in operating assets and liabilities.
The Company's capital expenditure on property, machinery and equipment
for the first quarter of fiscal 2000 was RMB18,314,000 (US$2,212,000), which was
financed by capital leases.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. 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.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of March 31, 2000, the Company has not experienced any disruptions
or failures to its normal operations as a result of the transition into calendar
year 2000.
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 March 31, 2000, 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.
May 19, 2000 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 THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0001030916
<NAME> OVM INTERNATIONAL HOLDING CORP.
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI YUAN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 8.28
<CASH> 14,444
<SECURITIES> 0
<RECEIVABLES> 29,676
<ALLOWANCES> 0
<INVENTORY> 34,291
<CURRENT-ASSETS> 137,689
<PP&E> 46,973
<DEPRECIATION> 10,261
<TOTAL-ASSETS> 194,077
<CURRENT-LIABILITIES> 82,717
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 60,342
<TOTAL-LIABILITY-AND-EQUITY> 194,077
<SALES> 20,603
<TOTAL-REVENUES> 20,603
<CGS> 11,506
<TOTAL-COSTS> 11,506
<OTHER-EXPENSES> 8,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940
<INCOME-PRETAX> (833)
<INCOME-TAX> 72
<INCOME-CONTINUING> (776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (776)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
