SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-29482
OVM INTERNATIONAL HOLDING CORP.
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(Name of Small Business Issuer in Its Charter)
NEVADA 88-0344135
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification No.)
WEST 516 SPRAGUE AVENUE
SPOKANE, WASHINGTON 99204
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(Address and Principal Executive Offices)(Zip Code)
(509)744-8590
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Exchange Act of
1934:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Securities Exchange Act of
1934:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
----------------------------------------
(Title of class)
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 filing requirements for the past 90
days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State registrant's revenues for the year ended December 31, 1999. $22,737,000
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on March 28, 2000 computed by reference to the closing bid price
of the registrant's Common Stock as reported by THE WALL STREET JOURNAL on that
date. $4,689,000
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock, par value
$.0001 per share (the "Common Stock"), as of March 31 2000, was 12,050,000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
CONVENTIONS
Unless otherwise specified, all references in this report to "US
Dollars" or "US$" are to United States dollars; all references to "Hong Kong
Dollars" or "HK$" are to Hong Kong dollars; and all references to "Renminbi" or
"Rmb" are to Renminbi yuan, which is the lawful currency of the People's
Republic of China ("China" or "PRC"). OVM International Holding Corporation (the
"Company") and OVM Development Limited ("ODL") maintain their accounts in US
Dollars and Hong Kong Dollars, respectively. Liuzhou OVM Construction Machinery
Company Limited ("Liuzhou OVM") and Liuzhou OVM Prestress Construction Company
Limited (the "Construction Company") maintain their accounts in Renminbi. The
financial statements of the Company and its subsidiaries are prepared in
Renminbi. Translations of amounts from Renminbi to US Dollars and from Hong Kong
Dollars to US Dollars are for the convenience of the reader. Unless otherwise
indicated, any translations from Renminbi to US Dollars or from US dollars to
Renminbi have been made at the single rate of exchange as quoted by the People's
Bank of China (the "PBOC Rate") on December 31, 1999, which was US$1.00 =
Rmb8.28. The Renminbi is not freely convertible into foreign currencies and the
quotation of exchange rates does not imply convertibility of Renminbi into US
Dollars or other currencies. Translations from Hong Kong Dollars have been made
at the single rate of exchange as quoted by the Hongkong and Shanghai Banking
Corporation Limited on December 31, 1999, which was US$1.00 = HK$7.77. All
foreign exchange transactions take place in the PRC either through the Bank of
China or other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People's Bank of China. No representation is made
that the Renminbi or US Dollars amounts referred to herein could be converted
into US Dollars or Renminbi, as the case may be, at the PBOC Rate or at all.
FORWARD-LOOKING STATEMENTS
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may", "expect", "anticipate",
"believe", "estimate" or "continue" or the negative thereof or other variations
thereon or comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward looking-statements. The
Company does not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by management of the
Company over time means that actual events are bearing out as estimated in such
forward-looking statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
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OVM International Holding Corporation (the "Company") was organized
under the laws of the State of Nevada on October 18, 1971 under the name of Mr.
Nevada, Inc., and, following the completion of a limited public offering in
April 1972, commenced limited operations which were discontinued in 1990.
Thereafter, the Company engaged in a reorganization and on several occasions
sought to merge with or acquire certain active private companies or operations,
all of which were terminated or resulted in discontinued negotiations. On
October 20, 1995, the Company changed its name to Intermark Development
Corporation. On November 4, 1996, the Company acquired all of the capital stock
of OVM Development Limited ("ODL"), formerly known as Kolcari Investments
Limited, a British Virgin Islands corporation, and changed its name to OVM
International Holding Corporation.
ODL owns a 70 percent equity interest in Liuzhou OVM Construction
Machinery Company Limited ("Liuzhou OVM"), a Sino-foreign equity joint venture
incorporated in the People's Republic of China (the "PRC") on May 10, 1995. The
PRC venture partner is Liuzhou Construction Machinery General Factory (the
"Factory"), which was a PRC State-owned enterprise. The Factory was subsequently
reorganized into a limited liability share capital company on January 10, 1995
known as Liuzhou OVM Joint Stock Company Limited (the "Stock Company"). ODL and
the Stock Company are parties to the Articles of Association and Joint Venture
Contract dated April 18, 1995 which establishes the basis of their relationship.
The joint venture contract is for a 30-year term which may be terminated under
certain limited circumstances as agreed upon by the parties. These Articles
establish a board of directors consisting of seven persons, a majority of which
are designated by ODL. The board of directors has responsibility for all major
financial and operations decisions relating to the activities of the venture
which require approval of a simple majority of directors (i.e. over 50%),
although all major decisions affecting the structure of the joint venture
require unanimous approval of the directors. Day-to-day operations of the joint
venture are overseen by the general manager and other deputy general managers.
The general manager is nominated and appointed by the board of directors of the
joint venture. ODL, in addition to providing initial cash contributions to the
joint venture, is responsible to assist in the purchase of machinery and
equipment outside the PRC, to promote products and assist in obtaining contracts
outside the PRC and to assist in certain training, personnel and procurement
functions.
Liuzhou OVM has undertaken substantially all the businesses originally
carried out by the Factory since January 1, 1995 which principally include the
manufacture, production, sale and distribution of prestressing equipment,
components and hardware used in the construction of motorways, bridges,
railroads, buildings, hydroelectric dams and power stations in the PRC. Products
include anchorage systems, jacks, electric high-pressure oil pumps, steel
cables, direct display sensors, unbonded prestressing tendons and ancillary
equipment widely used in the construction industry.
The Construction Company was incorporated in the PRC on February 28,
1987. The Construction Company was previously a subsidiary company of the Stock
Company. During 1998, Liuzhou OVM acquired a 69.3% interest in the Construction
Company for consideration of Rmb6,930,000, with the remaining interests being
held by an affiliate of the Stock Company (20%) and a third party (10.7%) in the
PRC. The Construction Company is principally engaged in the provision of
engineering services for prestress construction projects. As used herein, the
"Company" refers to OVM International Holding Corporation and includes, unless
the context
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<PAGE>
otherwise requires, the current operations of ODL, Liuzhou OVM and the
Construction Company.
The Company's products are distributed throughout the PRC to a
diversified customer base, with a small portion being sold overseas. The
Company's PRC customers include construction and engineering companies and
provincial, municipal and regional construction bureaus across the PRC.
Until January 1, 2000, the Company's head office and production
facilities were located in Liuzhou Municipality, the industrial city of Guangxi
Zhuang Autonomous Region ("Guangxi"), with a site area of approximately 60,000
square meters. Long term land use rights for the land and the buildings on which
these facilities were situated are held by the Stock Company and leased to
Liuzhou OVM. Effective January 1, 2000, Liuzhou Shuangma Electrical Company
Limited ("Shuangma"), an unaffiliated third party, has agreed to lease certain
land and buildings, located in Liuzhou Municipality, comprising production
facilities and structures, to Liuzhou OVM for a term of 25 years effective
January 1, 2000 with a total site area of approximately 46,000 square meters.
Guangxi has substantial mineral resources and is well known as a base
of non-ferrous metals such as manganese, tin, arsenic and bentonite. According
to China Statistical Yearbook 1999, the regional gross domestic product in
Guangxi amounted to approximately Rmb190 billion (US$23 billion), ranking it
16th in the PRC in 1998.
While the Company's indirect participation in the joint venture
originated in 1995, Liuzhou OVM (inclusive of the operations of the Factory) has
over 30 years of operating history in manufacturing prestressing equipment and
related components. Management believes that Liuzhou OVM is the largest
manufacturer of prestressing equipment and related components in the PRC in
terms of total sales and profit before taxation for each of the two years ended
December 31, 1998 and 1999. Given the quality of Liuzhou OVM's product line,
technical and management staff, strong research and development team, after
sales and customer support systems, management believes that Liuzhou OVM has
established and will continue to maintain a significant competitive position in
the PRC prestressing equipment industry.
RECENT CHANGES TO RELATIONSHIP BETWEEN LIUZHOU OVM AND THE STOCK COMPANY
Historically, the role of the Stock Company in the management of
Liuzhou OVM has been minimal. The directors of the Company, with the objective
of protecting the Company's interests in Liuzhou OVM and strengthening its
management control, have entered various agreements with the Stock Company.
Modifications to the original joint venture arrangements were entered
into by Liuzhou OVM during December 1999 and January 2000. The effects of those
modifications, as well as other agreements recently entered into by Liuzhou OVM,
are that:
o the lease covering the head office and production facilities of the
joint venture, under which the Stock Company was the lessor, has been terminated
effective January 1, 2000;
o effective January 1, 2000, Liuzhou OVM has entered into a 25 year lease
with an unaffiliated third party for production facilities located in Liuzhou
Municipality, Guangxi, of which the rental is less than those leased from the
Stock Company;
o an equipment lease between the Stock Company, as lessor, and Liuzhou
OVM, as lessee, covering production and office equipment, as well as motor
vehicles, has also been terminated;
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<PAGE>
o effective January 1, 2000, an unaffiliated third party has agreed to
lease certain production and transportation equipment to Liuzhou OVM for a term
of 20 years;
o the Stock Company is permitted to establish its own production
facilities, is not prohibited from competing with Liuzhou OVM, and may use the
old "OVM" trademark;
o Liuzhou OVM has agreed to cease using the intangible assets
originally acquired from the Stock Company in 1995, including the "OVM"
trademark;
o Liuzhou OVM is in the process of registering a new trademark, "HVM",
for marketing its new products, components and services;
o Liuzhou OVM has sold one-third of its old inventories to the Stock
Company at normal selling prices, excluding value added tax at 17%;
o Liuzhou OVM has agreed to sell certain assets deemed immaterial to
its business to the Stock Company;
o all technology and know-how upon which the existing products
manufactured by Liuzhou OVM are based may be used by Liuzhou OVM and the Stock
Company;
o certain noncrucial employees of Liuzhou OVM have ceased to be
employed by the joint venture and have become employees of the Stock Company;
and
o ODL and the Stock Company have discussed the possibility of, but no
agreements have yet been entered into for, the buy back of the Stock Company's
30% interest in the joint venture. In the event that the Stock Company sells its
interest in Liuzhou OVM to ODL, Liuzhou OVM would become a wholly-owned
subsidiary of ODL.
Prior to a formal buy back of the Stock Company's 30% interest in the
joint venture, a minority of the board of directors of the joint venture will
continue to be appointed by the Stock Company, but they will not be involved in
day-to-day operations and management of the joint venture. ODL controls a
majority of the board of directors and the appointment of the General Manager
and Deputy General Managers of Liuzhou OVM. Accordingly, the Company's directors
believe that the trade secrets and other proprietary information of the joint
venture will not be compromised by the Stock Company's ability to compete with
the joint venture. Management also believes that since its inception, Liuzhou
OVM has developed considerable goodwill within the PRC prestressing equipment
manufacturing industry, and enjoys a highly favorable reputation for its
technical and management staff, research and development team, quality control
system, sales network and after sales services. Management anticipates that the
goodwill and reputation of Liuzhou OVM will enable it to enjoy continued
success, and that the "HVM" mark will become a symbol of quality products and
services that will gain widespread acceptance from both existing and new
customers.
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STRUCTURE
The following diagram depicts the corporate structure of the Company as at
December 31, 1999.
-----------------------------
| OVM International Holding |
| Corporation (Nevada) |
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|
100%
|
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| OVM Development Limited |
| (British Virgin Islands) |
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|
| -------------------------------
| | Liuzhou OVM Joint Stock |
| | Company Limited (formerly |
| | known as Liuzhou |
| | Construction Machinery |
| | General Factory (People's |
| | Republic of China) |
| -------------------------------
70% |
| 30%
| |
------------------------------- |
| Liuzhou OVM Construction | |
| Machinery Company Limited |---------------
|(People's Republic of China) |
-------------------------------
|
|
------------------------------------------------
| |
50% 69.3%
| |
- ----------------------- ------------------------
| OVM Prestress Co. | | Liuzhou OVM Prestress |
| Pte Ltd. (Republic | | Construction Co. Ltd. |
| of Singapore) | | (People's Republic |
| | | of China) |
- ----------------------- -------------------------
OVM DEVELOPMENT LIMITED ("ODL"), formerly known as Kolcari Investments
Limited is a private limited company incorporated in the British Virgin Islands
on May 3, 1994.
LIUZHOU CONSTRUCTION MACHINERY GENERAL FACTORY (the "Factory"), located
in Liuzhou City, Guangxi Zhuang Autonomous Region, the PRC, was the largest
State-owned manufacturer of prestressing equipment in China. The Factory has
been operating in the PRC since 1967. The Factory was subsequently reorganized
into a limited liability share capital company on January 10, 1995 under the
name of Liuzhou OVM Joint Stock Company Limited (the "Stock Company").
LIUZHOU OVM CONSTRUCTION MACHINERY COMPANY LIMITED. ("Liuzhou OVM") is
a Sino-foreign equity joint venture established under the laws of PRC on May 10,
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1995 and owned 70% by ODL and 30% by the Stock Company. The registered capital
of Liuzhou OVM is US$4 million.
LIUZHOU OVM PRESTRESS CONSTRUCTION CO. LTD. (the "Construction
Company") is a limited liability company established under the laws of PRC on
February 28, 1987. The Construction Company was previously a subsidiary company
of the Stock Company. During 1998, Liuzhou OVM acquired a 69.3% interest in the
Construction Company for consideration of Rmb 6,930,000. The registered capital
of the Construction Company is Rmb 10,000,000.
OVM PRESTRESS CO. PTE LTD is a private limited company incorporated in
the Republic of Singapore on December 11, 1993 that is 50% owned by Liuzhou OVM
and 50% owned by Wee Poh Construction Co. (Pte) Ltd., an unaffiliated third
party, and is principally engaged in providing prestressing and related
engineering services.
SUMMARY OF BUSINESSES
- ---------------------
The Company is principally engaged in the manufacture and sale of
prestressing equipment and ancillary products, and the rendering of engineering
services for prestress construction projects. Prior to the establishment of
Liuzhou OVM in May 1995, which took over the Stock Company's business effective
at January 1, 1995, the business was carried out by the Factory (and
subsequently the Stock Company, which is the largest manufacturer of
prestressing equipment and related components in the PRC).
The Company supplies a wide range of prestressing equipment and
ancillary products which are essential for the production of prestressed
concrete and are widely used in infrastructure projects such as highways,
railroads, bridges, buildings and power stations. The Company's products include
prestressing anchorage, stressing and lifting jacks, electric high-pressure oil
pumps, unbonded prestressing strand, stay cable, soil anchor drillers, pipe
pullers, steel ducts and ancillary products. The Company's PRC customers include
construction and engineering companies, and provincial, municipal and regional
construction bureaus throughout the PRC. At present the Company manufactures a
range of products which serve various applications including the construction of
bridges and buildings, structural strengthening and repairs, anchoring in rock
and soil and lifting and sliding of heavy loads. The Company also offers a
comprehensive range of professional engineering consulting services including
feasibility studies, structural design and construction assistance, as well as
the provision of engineering services for prestress construction projects.
The Company has supplied products and provided technical support for
more than 100 major projects in the PRC including Shanghai Yangpu Bridge, one of
the largest cable-stayed bridges in the world, and the lifting of the antenna
masterpole of the Shanghai East Pearl TV and Broadcasting Tower, the tallest
television broadcasting tower in the PRC. The Company's products were also used
in SouthEast Asia projects, such as New Macau-Taipa Bridge in Macau, Mei Bridge
in Vietnam and Serangon Bridge in Singapore.
Liuzhou OVM is one of the several companies designated by the Ministry
of Construction of the PRC as approved manufacturers of prestressing equipment.
The following are some of the major projects in the PRC as well as other
countries in Asia in which products of Liuzhou OVM or its predecessors were
used:
o Yangpu Bridge in Shanghai
o Nanpu Bridge in Shanghai
o Tianhong Bridge in Tianjin
o Aodang Bridge in Macau
o Reconstruction Engineering of Beijing International Airport
o Beijing-Shenzhen Expressway
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o Shuikou Hydropower Station in Fujian Province
o The Dongming Yellow River Bridge
o The Huangshi Yangtze River Bridge
o The New Railway Station in Beijing
o Friendship Gate in Vietnam
o Bridge over Sungei Serangonn, part of Tampines Expressway
Phase III, in Singapore
o East Pearl TV and Broadcasting Tower in Shanghai
OVERVIEW OF PRESTRESSED CONCRETE
- --------------------------------
Modern structural engineering tends to progress toward more economic
structures through gradually improved methods of design and the use of higher
strength materials. This results in a reduction of cross-sectional dimensions
and consequent weight savings. Significant savings can be achieved by the use of
high strength concrete and steel in conjunction with present-day design methods,
which permit an accurate appraisal of member strength. This process includes
inherent limitations due mainly to the interrelated problems of cracking and
deflection at service loads.
The undesirable characteristics of ordinary reinforced concrete and
steel have been overcome by the development of prestressed concrete which
incorporates steels and concrete of very high strength. The steel, usually in
the form of wires or strands, is embedded in the concrete under high tension
that is held in equilibrium by compressive stresses in the concrete after
hardening.
A prestressed concrete member can be defined as one in which there have
been introduced internal stresses of such magnitude and distribution that the
stresses resulting from the given external loading are counteracted to a desired
degree. A prestressed concrete member include anchorage, jacks and its ancillary
equipment. Concrete is basically a compressive material, with its strength in
tension a low and unreliable value. Prestressing applies a precompression to the
member which reduces or eliminates undesirable tensile stresses that would
otherwise be present. Cracking under service loads can be minimized or even
avoided entirely. Deflections may be limited to an acceptable level. In fact,
members can be designed to have zero deflection under the combined effects of
service load and prestress force. Deflection and crack control, achieved through
prestressing, permit the engineer to make use of efficient and economical high
strength steels in the form of strands, wires or bars, in conjunction with
concrete of much higher strength than normal. Thus prestressing achieves overall
improvement in the performance of structural concrete used for ordinary loads
and spans, and extends the range of applications far beyond tranditional limits,
leading not only to much longer spans than previously thought possible, but
permitting innovative new structural forms to be employed.
Prestressed concrete is particularly well suited for use in bridges of
all kinds because of its durability, rigidity, and economy, as well as the
comparative ease with which an aesthetic appearance can be achieved. Prestressed
concrete bridges frequently make use of composite action. Commonly the beams are
precast and placed in position by crane, eliminating the need for obstructing
traffic. The deck slab is then cast in place and locked to the precast units by
stirrups that project upward into the slab. The long-span concrete bridges
require the development of segmentally cast-in-place hollow prestressed concrete
box girders by post-tensioning.
HISTORY AND DEVELOPMENT OF LIUZHOU OVM
- --------------------------------------
The predecessor of Liuzhou OVM, is Liuzhou Construction Machinery
General Factory, which was founded in 1987 under the supervision of Liuzhou
Municipal
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Mechanical and Electrical Industrial Bureau. The Factory evolved out
of the former Liuzhou Construction and Machinery Plant founded in 1967. The
major products of the Factory included anchorage systems, electric high-pressure
oil pumps, jacks and other ancillary products which were widely used in
infrastructure projects such as the construction of highways, railroads, bridges
and hydro-power stations.
In 1993, the Factory was granted independent import and export rights
by the Ministry of Foreign Trade and Economic Co-operation of the PRC, which
entitled the Factory to handle import and export transactions directly without
going through various independent import and export corporations. Thereafter,
the Factory was actively involved in exploring the overseas prestressing
equipment market, and its products have been sold for use in Hong Kong, Macau,
Vietnam, Japan, Pakistan, Singapore, Philippines and Taiwan. In the same year,
following approval by the Commission for Restructuring the Economic System of
Guangxi Zhuang Autonomous Region, the Factory established Orient Prestress
Company Ltd ("Orient"), a joint stock limited liability company, in conjunction
with other institutional shareholders which are mainly technical and research
institutes in the PRC. Liuzhou OVM is also a shareholder of Orient. The Stock
Company, being the successor to the Factory (see below), owns approximately 41%
of the equity in Orient and is its largest shareholder.
In December 1994, the Factory was ranked 29th by the State Council
Research and Development Center among the 500 PRC Special Machinery
Manufacturing Enterprises in terms of economic achievement, i.e., sales and
pre-tax profit. On January 10, 1995, upon receipt of approval of the Commission
for Restructuring the Economic System of Guangxi Zhuang Autonomous Region, the
Factory was reorganized into a limited liability share capital company known as
Liuzhou OVM Joint Stock Company Limited.
On May 10, 1995, Liuzhou OVM was established as a Sino-foreign equity
joint venture enterprise. Following its establishment, Liuzhou OVM assumed,
effective January 1, 1995, certain assets and liabilities together with the
business of the Stock Company which related to the manufacture and sale of
prestressing equipment and ancillary products and certain ancillary functions
including research and development, quality control, sales and marketing,
sourcing and other business support functions. The Stock Company retained
certain assets and liabilities that were not assumed by Liuzhou OVM, principally
consisting of investments in various joint ventures and wholly-owned
subsidiaries as well as certain other non-production-related facilities such as
welfare facilities, education and training facilities, recreational, catering,
heat, water and electricity facilities. The Stock Company also retained certain
production-related facilities that were leased to Liuzhou OVM.
PRODUCTS
- --------
The Company produces a wide range of products which are mainly used in
prestressed concrete construction, using the pretensioning and post-tensioning
method, which are widely used in infrastructure projects including motorways,
railroads, bridges, buildings and hydro-power stations. These products include
prestressing anchorage systems, jacks, electric high-pressure oil pumps,
unbonded prestressing tendons, digital display sensors and the ancillary
components. The Company's products are summarized as follows:
PRESTRESSING ANCHORAGE SYSTEMS AND ANCILLARY PRODUCTS. The primary
prestressing anchorage systems manufactured by the Company include tensile end
anchorage, fixed end anchorage and connectors. Prestressing anchorage systems
are used for prestressed concrete construction and construction units using
pretensioning and postensioning methods, as well as rock and soil anchorage,
external cable and stay cable construction.
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JACKS. The Company produces various types of jacks including platform,
pushing and cold-drawn jacks which are used for tensioning of strand, lifting
and pushing of engineering structures and cold drawing of reinforced steel with
different parameters such as nominal oil pressure (MPa), jacking/stressing force
(kN) and/or jacking stroke (mm).
ELECTRIC HIGH-PRESSURE OIL PUMPS. The Company produces several types of
electric high-pressure oil pumps and hydraulic pressure stations. The oil pumps
and stations are always used with various jacks for lifting and anchoring heavy
objects.
DIGITAL DISPLAY SENSORS. Model SC sensor is equipped with proprietary
capabilities and mainly used for digitally displaying technical parameters of
various jacks and in checking the degree of stress in a short period of time.
UNBONDED PRESTRESSING TENDONS. The Company produces two types of
unbonded prestressing tendons with single or double layer of plastic sheaths,
which are used in the construction of prestressed concrete under the
post-tensioning method.
SCREW THREAD STEEL PIPE FOR PRESTRESSED COMPONENTS. The pipe is made of
low carbon steel band, some are zinc coated, and then rolled up spirally. The
pipe is used for forming a hole in the prestressed concrete using the
post-tensioning method.
OTHERS. The Company produces machinery and equipment for its site test
facilities used in the concrete or rock shear test and rock shear elasticity
test in the construction or survey of a dam for a hydraulic power station, and
soil anchor driller for drilling holes in various texture of soils and strong
decayed rock. In the process of dry drilling, the soil is removed with the
blades of the spiral drill. This drilling method is used under good soil
conditions where no collapse will occur.
SALES AND MARKETING
- -------------------
The following table sets forth the Company's aggregate net sales
revenue by product category for each of the two years ended December 31, 1998
and 1999, respectively.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998
---- ----
(Amounts in Thousands)
Product Rmb US$ % Rmb US$ %
- -------
<S> <C> <C> <C> <C> <C> <C>
OVM anchorage system 92,181 11,133 49.0 92,483 11,170 54.3
Jack 39,509 4,772 21.0 22,151 2,675 13.0
High-pressure oil pump 4,610 557 2.4 6,113 738 3.6
Cable, tendon and steel wire 16,969 2,049 9.0 15,198 1,836 8.9
Other equipment and parts 27,524 3,324 14.6 27,426 3,312 16.1
*Others 7,469 902 4.0 6,923 836 4.1
------- ------- ----- ------- ------- -----
Total 188,262 22,737 100.0 170,294 20,567 100.0
======= ======= ===== ======= ======= =====
</TABLE>
*Others include rubber engineering products, corrugation pipes and digital
display sensors.
For each of the two years ended December 31, 1998 and 1999, the largest
ten customers of the Company, which are mainly construction and engineering
companies and provincial, municipal and regional construction bureaus throughout
the PRC,
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accounted for approximately 13.5% and 22.1%, respectively, of the Company's
total sales by value. The largest customer of the Company for each of the two
years ended December 31, 1998 and 1999 accounted for approximately 3.8% and
5.2%, respectively, of the Company's total sales by value. No single customer
accounted for more than 10% of total sales by volume in 1998 or 1999.
For each of the two years ended December 31, 1998 and 1999,
approximately 97% and 88%, respectively of the Company's total sales was derived
from products sold in the PRC with the balance attributable to products exported
to overseas customers.
The Company also sells its products directly to end-users through its
in house sales and marketing and after sales staff, consisting of 47 full-time
employees. These personnel are responsible for conducting marketing research,
training seminars, sales planning, marketing strategy, order consultation with
customers, sales coordination and control, and payment collection. The Company
maintains sales offices in major cities including Liuzhou, Guangzhou, Shanghai,
Beijing, Fujian and Wuhan. The Company also maintains overseas offices in Hong
Kong and Singapore. The Company's marketing efforts include visits to existing
and prospective customers and participation in various exhibitions and trade
fairs held in the PRC at which the Company's products are marketed to local and
overseas customers.
The Company has entered into non-exclusive agreements with two agency
companies. However, sales through these agency arrangements were not significant
and accounted for less than 1% of the Company's total sales for each of the two
years ended December 31, 1998 and 1999.
The Company has been expanding overseas markets. Its products have been
exported from the PRC and sold in Pakistan, Singapore, Japan, Hong Kong, Sudan
and Vietnam. In 2000, the Company is targeting Philippines and Taiwan for
overseas market expansion. A sales team has been dispatched to these countries
to promote the Company's products. The export sales accounted for approximately
3% and 12% of the Company's total sales for each of the two years ended December
31, 1998 and 1999, respectively. All export sales are denominated in U.S.
dollars. The Company competes with domestic manufacturers mainly on its product
quality, after sales services and support. It is the Company's strategy to
develop and design new products and production techniques to maintain its
competitiveness and market share in the industry.
As most infrastructure construction projects are capital intensive and
extend for a relatively long time, most of the equipment and products
manufactured by the Company are sold under fixed price contracts. The production
cycle of the Company's products varies from two months to six months. For
certain large contracts, customers are usually required to pay a cash deposit
(the amount of which differs from customer to customer as each contract is
individually negotiated) upon signing of the relevant sales and purchase
contracts, with the remaining balance payable after delivery or on-site
installation by way of bank collection. All of the contracts concluded with
domestic customers are denominated in Renminbi. For export sales, customers are
required to pay a deposit of at least 30% upon signing of a sales contract, and
the balance is payable after delivery of products by way of telegraphic transfer
or bank collection. Depending on the credit standing of the customer and the
contract sum involved, the Company generally offers credit terms of up to 90
days to customers.
AFTER SALES SERVICE
- -------------------
The Company's after sales services form an integral part of its
operations. The Company offers a wide range of after sales service to customers
located both in the PRC and overseas. These services include: providing on-site
installation
-11-
<PAGE>
services upon the request of the customer; organizing training seminars in the
PRC for customers from time to time regarding the operations and technical
attributes of the Company's products; responding to customers' request to modify
and assist in the technical operation of the Company's products; processing of
inquiries and feedback from customers and prompt provision of parts and
components; and conducting visits on a regular basis to customers in order to
identify customers' specific needs and level of satisfaction with the Company's
products.
RAW MATERIALS AND COMPONENTS
- ----------------------------
The major raw materials and components required by the Company include
metallurgical products including steel and rubber products such as high-pressure
rubber pipes as well as mechanical and electrical components such as bearings
and motors. In prior years, all of the raw materials and components used by the
Company were sourced from PRC suppliers. For each of the two years ended
December 31, 1998 and 1999, the cost of raw materials and components accounted
for approximately 62% and 63%, respectively, of the Company's total production
costs.
The Company has formulated a material supply management policy in
respect of the raw materials and components used in the Company's production
operations. Under this policy, the stock level of raw materials and components
is determined by reference to planned annual consumption and a predetermined
inventory level for different kinds of raw materials and components. The average
inventory level of the Company's raw materials and components is approximately
two months usage.
It is the policy of the Company to maintain more than one supplier for
certain major materials in order to avoid over reliance on a single source of
supply. The Company has long standing relationships with major suppliers and has
not experienced any significant difficulties in sourcing raw materials and
components. The Company has not entered into any long-term purchase arrangements
with any supplier. However, the Company does not anticipate that it will incur
significant difficulties in the sourcing of its raw materials and components.
For each of the two years ended December 31, 1998 and 1999, the largest
ten suppliers of raw materials and components of the Company accounted for
approximately 39.7% and 70.0%, respectively, of the Company's total cost of
purchases, while the largest supplier accounted for approximately 17.0% and
20.0% of the Company's total cost of purchases, respectively, for the same
periods. Although the Company does not rely on any single supplier for its raw
materials, the Company enjoys lower costs on bulk purchases from one supplier
which accounted for a larger percentage of such purchases compared to the total
cost of purchases in 1999.
PRODUCTION FACILITIES AND PROCESS
- ---------------------------------
PRODUCTION FACILITIES
The Company's head office and production facilities were previously
located in Liuzhou Municipality, the industrial city of Guangxi Zhuang
Autonomous Region, the PRC, with a site area of approximately 60,000 square
meters. The total gross floor area of production workshops and premises was
approximately 13,042 square meters. Long term land use rights for the land and
buildings on which these facilities were situated were held by the Stock Company
and leased to Liuzhou OVM at an annual rental of Rmb836,000 (US$101,000) for a
period up to December 31, 2000. Pursuant to an agreement dated January 6, 2000,
the lease was terminated effective January 1, 2000. However, the Stock Company
permitted a transitional period until February 29, 2000 for Liuzhou OVM to
relocate its production facilities to new premises, without charging rent. The
Stock Company also leased 80 pieces of production equipment, 73 pieces of office
equipment and 12 motor
-12-
<PAGE>
vehicles to Liuzhou OVM at an annual rental of Rmb1,821,000 (US$206,000) for a
period up to December 31, 2000. Such lease was also terminated by mutual
agreement following Liuzhou OVM's relocation of head office and production
facilities
Pursuant to an agreement dated December 11, 1999 between Liuzhou OVM
and Liuzhou Shuangma Electrical Company Limited ("Shuangma"), an unaffiliated
third party, Shungma has agreed to lease certain land and buildings in Liuzhou
Municipality, comprising production facilities and structures, to Liuzhou OVM
for a term of 25 years effective January 1, 2000 at an annual rental of Rmb1
million (US$121,000) for the first five years, to be increased by 1% each year
thereafter.
Pursuant to another agreement dated December 12, 1999 between Liuzhou
OVM and Liuzhou Weilesi Elevator Factory ("Weilesi"), an unaffiliated third
party, Weilesi has agreed to lease certain production and transportation
equipment to Liuzhou OVM for a term of 20 years effective January 1, 2000 at an
annual rental of Rmb767,000 (US$93,000) which is calculated based on 10% of the
original cost of the equipment leased.
The Company's production facilities and equipment include lathe
machines, planers, milling machines, boring machines, drilling machines and
other ancillary production machines such as forklifts, air compressors, welding
machines, shearing machines, jigs, dies, tools and hardening furnaces.
PRODUCTION PROCESS
- ------------------
The production process can be divided into three stages. The first
stage is the production of various parts and components, which involves milling,
grinding, boring, heat treatment, welding, refining and painting and coating.
The second stage is the in-house assembly and testing of the products
manufactured. The final stage is the on-site installation and test run.
PRODUCTION CAPACITY
- -------------------
The Company currently manufactures a wide range of prestressing
equipment and ancillary products. The production capacity of the Company is
mainly dependent on the product mix of the Company, which is subject to
adjustment from time to time, the production floor area available for operation,
the quantity of production equipment and the number and working hours of the
Company's workforce. The Company's product mix and the production output for
each product in a given period are determined by the Company's management after
considering several factors including the number of orders received by the
Company for each product, the forecast of future market demand for different
products and the estimated gross profit margins of different products. The
majority of the Company's production facilities can be used, with or without
adaptation, for the manufacture of different products, though certain facilities
can be used for certain components and special parts only.
The Company's capital expenditure on production equipment for each of
the two years ended December 31, 1998 and 1999 were Rmb4,082,000 (US$493,000)
and Rmb4,562,000 (US$551,000), respectively.
COMPETITION
- -----------
The Company, through its indirect ownership of Liuzhou OVM and
inclusive of the operations of the Factory, has over 30 years' history of
manufacturing prestressing equipment and ancillary components and was the
largest manufacturer in the PRC of these specialized products in terms of sales
revenue and profit before taxation for each of the two years ended December 31,
1998 and 1999. The
-13-
<PAGE>
Company believes that Liuzhou OVM has established and should continue to
maintain a strong competitive position in the PRC prestressing equipment
industry. There are only several companies designated by the Ministry of
Construction of the PRC as the manufacturers of these specialized products. The
Company believes that, apart from Liuzhou OVM and the Stock Company, the
prestressing market in the PRC is dominated by only a few major domestic
manufacturers, namely, Zhongyuan Prestressed Equipment Factory, Shanghai Railway
Institute Anchorage Factory, Guizhou Equipment Factory, Dalian onstruction
Engineering Factory, Xiping Construction Equipment Factory.
Because of the recent changes to the relationship between the joint
venture and the Stock Company, Liuzhou OVM faces a new challenge from
competition by the Stock Company. The Stock Company is establishing its own
production line for manufacturing of prestressing equipment which are marketed
under the "OVM" trademark and share the technical know-how of Liuzhou OVM's
existing products. Liuzhou OVM's products are now marketed under the new
trademark "HVM". Management believes that, although Liuzhou OVM's and the Stock
Company's existing products use the same technical know-how, Liuzhou OVM has the
competitive advantages over the Stock Company for its after-sales services,
quality production, strong research and development team, modernized facilities
and management skills and lower cost of production. Management estimates that
the Company's sales will be affected mildly during the first few months
following the transition to the trademark "HVM". The Company has been increasing
its marketing efforts to promote its new trademark "HVM" and is confident that
it will obtain wide acceptance from both existing and new customers.
Despite the increasing demand of prestressed equipment in the PRC
market, Liuzhou OVM's products also face severe competition from both overseas
and other domestic suppliers other than the Stock Company. Excluding the import
VAT and import tariff, management estimates that products from overseas
manufacturers are even less costly than those of domestic manufacturers and the
quality is comparable. Although Liuzhou OVM's competitive advantage over
imported products in terms of pricing (including import VAT and import tariff)
may be partially undermined by the PRC's entry into the World Trade
Organization, management believes that the Company can maintain its
competitiveness due to its accessibility and efficiency of after sales services
and the timely availability of components and special parts.
The major export markets of the Company are developing countries in
Asia where infrastructure activities are expected to increase. In the domestic
market, management believes that the Company has a competitive advantage over
other domestic manufacturers in terms of product technology and product quality.
In addition, the Company's ability to continuously manufacture and supply parts
and components for its products and provide after sales services strengthen its
competitiveness.
QUALITY CONTROL
- ---------------
The Company is committed to manufacturing high quality products and to
providing a high level of after sales service to its customers. Management
believes that product quality is vital to enhancing the Company's
competitiveness, market position and reputation. In order to maintain and
improve the quality of its products and production standards, the Company has
adopted a comprehensive quality control system that conforms with the
internationally recognized ISO 9001 standards.
The Company has established a quality control team consisting of 41
full-time employees to ensure that the quality of products is consistently
maintained. The major responsibilities of the quality control department
include: (i) devising, implementing and improving quality control procedures in
order to comply
-14-
<PAGE>
with ISO 9001; (ii) conducting inspection of raw materials, work-in-progress and
finished products on a sampling basis; (iii) examining of parts and components
manufactured at each stage of the production process; and (iv) reviewing and
improving quality testing procedures and carrying out stringent testing of the
Company's products.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company has established a technical process design and control
department and a research and development department. The technical process
design and control department is responsible for developing new production
skills and designing new production processes. The research and development
department is responsible for development of new products and the technological
improvement of products. These two departments of Liuzhou OVM employed 24
full-time employees including 12 engineers. Since 1989, the Company has
developed over 60 new products, of which 18 have obtained scientific awards from
the State, provincial and municipal governmental authorities.
Most of the research and products development programs undertaken by
the Company operate in conjunction with universities and research institutions
in the PRC. The Company has collaborated with over 200 universities, testing
facilities, research institutes and local provincial and municipal construction
bureaus in developing its product line.
The Company's annual research and development expenditure accounts for
0.7% and 0.2% of total sales for each of the two years ended December 31, 1998
and 1999. For each of the two years ended December 31, 1998 and 1999, the
aggregate research and development expenses incurred by the Company amounted to
approximately Rmb1,128,000 (US$136,000) and Rmb382,000 (US$46,000),
respectively.
ENVIRONMENTAL PROTECTION
- ------------------------
The Company has adopted measures to reduce the level of pollution
caused by its operation and has continuously complied with the PRC's
environmental protection law and regulations. Environmental protection measures
adopted by the Company include the treatment of emulsified effluent and smoke
and dust emitted from boilers of the Company's production facilities. The
Company has never been fined for violation of environmental laws in the PRC.
INTELLECTUAL PROPERTY RIGHTS
- ----------------------------
The Company has an exclusive license for a term equivalent to the
period of validity (including such extended period as may be permitted under the
law of the relevant jurisdiction) to use the following utility model patents
which are registered in the PRC in the name of Liuzhou OVM:
<TABLE>
<CAPTION>
Registration Date of
Patent Number Application Date of expiry
- ------ ------ ----------- --------------
<S> <C> <C> <C>
Light-weight fire proof
adhesive board 95229844.9 December 29, 1995 December 29, 2005
Anchor bottom board 97204768.9 February 4, 1997 February 4, 2007
High-vibration stranded wire
and bunched steel wire
anchorage 97204767.0 February 4, 1997 February 4, 2007
Internal supporter of
Hydraulic lifting jack 97223202.8 May 23, 1997 May 23, 2007
-15-
<PAGE>
Clipping device of
Hydraulic lifting jack 97223201.X May 23, 1997 May 23, 2007
Protector of steel cable 97217686.1 May 23, 1997 May 23, 2007
Lifting device of hydraulic
Jack 97219235.2 June 20, 1997 June 20, 2007
Squeezing machine 97220322.2 July 1, 1997 July 1, 2007
Prestressed external cable 97220321.4 July 1, 1997 July 1, 2007
Prestressed anchorage of
Suspension bridge 97220320.6 July 1, 1997 July 1, 2007
Fixing device of bunched
Steel wire multi-anchorage 97220324.9 July 1, 1997 July 1, 2007
Hydraulic drilling device 97220318.4 July 1, 1997 July 1, 2007
Fixing device of bunched
Steel wire multi tensioning
Anchorage 97220323.0 July 1, 1997 July 1, 2007
Positioning device of
Suspension tube 97219481.9 July 5, 1997 July 5, 2007
Squeezing spring 97220194.7 July 11, 1997 July 11, 2007
Sealing device 97219876.8 July 16, 1997 July 16, 2007
Anti-vibration device 97219875.X July 16, 1997 July 16, 2007
Prestressed anchorage 97219877.6 July 16, 1997 July 16, 2007
Adhesive anti-corrosive
Bunched steel wire 97221872.6 July 25, 1997 July 25, 2007
Manual controller of
Hydraulic lifting anchorage 97224527.8 August 13, 1997 August 13, 2007
Anchorage working clip 97224320.8 August 8, 1997 August 8, 2007
Anchorage chipping tool 97244491.2 August 8, 1997 August 8, 2007
Angle precision tool of
Anchor head 97224536.7 August 15, 1997 August 15, 2007
Spring steel wire tensioning
Mode 97224192.2 August 16, 1997 August 16, 2007
Digital hydraulic lifting
And lazar inspecting tool 97229729.4 October 10, 1997 October 10, 2007
Cohesive device 97250188.6 November 24, 1997 November 24, 2007
Heavy-weight hydraulic
Lifting controller 97226645.3 September 15, 1997 September 15, 2007
Heavy object descending
Hydraulic controller 97248226.1 November 4, 1997 November 4, 2007
Hydraulic bore jack 97244363.0 November 16, 1997 November 16, 2007
Flat anchor bottom board 97244362.2 November 16, 1997 November 16, 2007
Exchanging conducting
device 97230012.0 December 3, 1997 December 3, 2007
Non-adhesive anchor head
Anti-corrosive device 98209920.7 January 8, 1998 January 8, 2008
Prestressed multi-angle
Expansion device 98209919.3 January 8, 1998 January 8, 2008
Compressor 98210896.6 January 15, 1998 January 15, 2008
Steel wire drill 98210897.4 January 15, 1998 January 15, 2008
Diversified pressure
Protective anchor 98211605.5 March 11, 1998 March 11, 2008
Inspection device on
lasting capacity of jacks 98209419.1 April 12, 1998 April 12, 2008
Inspection device on
Internal leakage of jacks 98209418.3 April 12, 1998 April 12, 2008
Inspection device on over-
Loading capacity of jacks 98209417.5 April 12, 1998 April 12, 2008
Fully integrated steel wire 98209796.4 April 27, 1998 April 27, 2008
Continuous unfixing device
Of steel wire 98209737.9 April 27, 1998 April 27, 2008
Large scale hydraulic
Lifting device 98214318.4 May 15, 1998 May 15, 2008
-16-
<PAGE>
Spiral fixing machine 98215351.1 June 11, 1998 June 11, 2008
Single cable fore-fixing jack 98215971.4 June 29, 1998 June 29, 2008
Fixing device 98216832.2 July 3, 1998 July 3, 2008
Flat-shaped anchor bottom
Board 98217098.X July 16, 1998 July 16, 2008
Compressor 98244544.X October 1, 1998 October 1, 2008
Single cable fixing device 98244545.8 October 1, 1998 October 1, 2008
Adjusting device of steel
Wire tensioning 98245539.9 December 18, 1998 December 18, 2008
Head lifting jack 98250791.7 December 18, 1998 December 18, 2008
Change direction button 98250790.0 December 18, 1998 December 18, 2008
Parallel steel wire bundle
Connector 98250761.5 December 18, 1998 December 18, 2008
Pre-burial anchorage 99201864.1 January 8, 1999 January 22, 2010
Correction device 99201876.5 January 8, 1999 January 22, 2010
Pre-expanded connector 99201863.3 January 8, 1999 January 22, 2010
Drill and fixing device 99202477.3 January 26, 1999 January 22, 2010
End-fixing anchorage with
Steel wire tensioning 99202435.8 January 13, 1999 January 22, 2010
End-fixing anchorage with
Steel wire tensioning 99202476.5 January 26, 1999 January 26, 2009
Jacks 99202849.3 February 3, 1999 January 22, 2010
Pre-tensioned jacks 99206347.7 March 17, 1999 March 17, 2009
</TABLE>
Liuzhou OVM entered into an agreement with the Stock Company on June 5,
1995 and a supplementary agreement dated December 18, 1995 pursuant to which the
Stock Company granted to Liuzhou OVM an exclusive and assignable right to use
the "OVM" trademark, various patented technical know-how, ISO9001 system,
goodwill and sales network in connection with the manufacturing operations
assumed by the Company following the establishment of the Liuzhou OVM for a term
equivalent to the period of validity (including such extended period as may be
permitted under the law of the relevant jurisdiction) of the trademark or the
relevant patented technical know-how in consideration of the sum of Rmb8 million
(approximately US$965,000). The Company has also developed and registered over
60 patented technical processes since the establishment of Liuzhou OVM.
Pursuant to an agreement dated December 12, 1999 between the Stock
Company and Liuzhou OVM, Liuzhou OVM has agreed to cease using the trademark
"OVM" effective February 1, 2000. All technology and know-hows upon which the
existing products manufactured by Liuzhou OVM are based may be used by the Stock
Company. Since February 1, 2000, the Company's products are being marketed under
the trademark "HVM". Registration of the "HVM" trademark is in process, through
a related party intermediary, Shenzhen Hong Da Technical Company Limited ("Hong
Da"). Hong Da has granted the exclusive right to Liuzhou OVM to use the "HVM"
trademark, without charge.
EMPLOYEES
- ---------
Since relocating its head office and production facilities, the
Company's operations have also been simplified. As at March 31, 2000, the
Company had a total of 528 full-time employees, 461 and 60 of which were
employed by Liuzhou OVM and the Construction Company, respectively, with the
balance being employed in administrative positions by the Company (5 employees)
and ODL (2 employees). These employees are employed as follows:
Production 313
Administration and management 46
Quality control 41
Research and development, technical,
process design and control 24
Sales, marketing and after sales service 47
Raw materials supply 24
Others 33
---
528
===
-17-
<PAGE>
OVM Prestress Co. Pte. Ltd., a company 50% owned by Liuzhou OVM,
employs a total of 20 full-time employees.
LEGAL SYSTEM
- ------------
Since 1979, many laws and regulations addressing economic matters in
general have been promulgated in the PRC. Despite this activity in developing
the legal system, the PRC does not have a comprehensive system of laws. In
addition, enforcement of existing laws may be uncertain and sporadic, and
implementation and interpretation thereof inconsistent. The PRC judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in the PRC, it may be difficult to obtain swift and
equitable enforcement of such law, or to obtain enforcement of a judgment by a
court of another jurisdiction. The PRC's legal system is based on written
statutes and, therefore, decided legal cases are without binding legal effect,
although they are often followed by judges as guidance. The interpretation of
PRC laws may be subject to policy changes reflecting domestic political changes.
As the PRC legal system develops, the promulgation of new laws, changes to
existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign investors. The trend of legislation over the past 18
years has, however, significantly enhanced the protection afforded foreign
investors in enterprises in the PRC. However, there can be no assurance that
changes in such legislation or interpretation thereof will not have an adverse
effect upon the business operations or prospects of the Company.
Liuzhou OVM's activities in the PRC are by law subject, in some
particular cases, to administrative review and approval by various national and
local agencies of the PRC government. In particular, part of the Liuzhou OVM's
current operations and the realization of its future expansion programs in the
PRC will be subject to PRC government approvals.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases approximately 46,000 square meters of production
facilities in the Liuzhou Municipality, PRC, from an unaffiliated third party.
The lease is for a term of 25 years, which commenced on January 1, 2000. Annual
rental is Rmb1 million (US$121,000). See above discussion under "Production
Facilities and Process."
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending or threatened against
the Company or any of its subsidiaries as of December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-18-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently only a highly limited trading market for the Common
Stock of the Company. The Common Stock of the Company trades on the OTC Bulletin
Board under the symbol "OVMI" which is a limited market and subject to
substantial restrictions and limitations in comparison to the NASDAQ System. The
Company's Common Stock was included on the OTC Bulletin Board on April 21, 1997.
The following table sets forth the high and low bid prices for the Company's
Common Stock for each fiscal quarter of 1998 and 1999.
High Low
1998 Fiscal Year, quarter ended
March 31, 1998 $4.00 $0.38
June 30, 1998 $4.00 $3.75
September 30, 1998 $3.75 $0.16
December 31, 1998 $0.13 $0.03
1999 Fiscal Year, quarter ended
March 31, 1999 $0.13 $0.03
June 30, 1999 $0.08 $0.05
September 30, 1999 $0.63 $0.07
December 31, 1999 $1.19 $0.38
As of December 31, 1999, the approximate number of record holders of
the Company's Common Stock was 798.
The Company also has outstanding warrants to purchase 4,000,000 shares
at US$3.00 per share on or prior to December 23, 2000.
The Company has not paid any cash dividends on its Common Stock since
incorporation. As the Company has significant capital requirements in the
future, it is not anticipated that funds will be available for the issuance of
dividends in the foreseeable future. It is the management's intention to
reinvest all the income attributable to the Company to finance the expansion of
its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
- --------
THE COMPANY
The Company is a Nevada holding company whose only significant asset is
a wholly-owned British Virgin Islands subsidiary, OVM Development Limited, which
owns a 70% interest in Liuzhou OVM, a Sino-foreign equity joint venture company
established under the laws of the PRC which is principally engaged in the
manufacture and sale of prestressing equipment, components and hardware used in
the construction of motorways, bridges, railroads, buildings, hydroelectric dams
and power stations in the PRC and a 69.3% interest in the Construction Company,
a PRC company which is principally engaged in providing engineering services for
prestress construction projects. Accordingly, the Company will derive its
revenues from the distributions paid to the Company by ODL resulting from
distributions paid by Liuzhou OVM and the Construction Company, in accordance
with the percentage interests held by the shareholders.
The Company's Financial Statements appearing elsewhere in this Form
10-KSB consist of the audited consolidated financial statements of the Company
for the two years ended December 31, 1998 and 1999.
-19-
<PAGE>
The discussion below is presented in the Company's primary operating
currency which is the Renminbi Yuan ("Rmb"). For information purposes these
amounts have been translated into U.S. dollars at an exchange rate of $1.00 =
Rmb8.28 which represents the single rate of exchange as quoted by the People's
Bank of China on December 31, 1999. This U.S. dollars information is presented
for convenience only. No representation is made that Renminbi amounts could have
been, or could be, converted into U.S. dollars at that rate throughout the years
presented.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
from the Company's Statement of Operations expressed as a percentage of the
Company's net sales.
Years ended December 31,
------------------------
1998 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 71.0 58.1
Gross profit 29.0 41.9
Selling and administrative
expenses 26.3 38.5
Interest expenses, net 0.8 1.5
Other income 0.4 0.9
Foreign exchange gain - -
Income before income taxes 2.3 2.8
Income taxes 0.9 1.5
Net income after income taxes 1.4 1.3
Minority interests 0.9 0.7
Equity in earnings of equity investee - -
Net income 0.5 0.6
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
NET SALES AND GROSS PROFIT. Net sales for the year ended December 31,
1999 increased by Rmb17,968,000 (US$2,170,000) or 10.6% to Rmb188,262,000
(US$22,737,000) compared to Rmb170,294,000 (US$20,567,000) in the prior year.
The increase in net sales was mainly attributable to the net sales from a new
subsidiary company that was acquired in late 1998 and the increase in sales
orders achieved by the Company during the year as a result of the gradual
recovery of business environment and improvement in prestressing marketing in
the PRC. Net sales represent the invoiced value of goods sold net of sales tax
and returns. The inventory level of raw materials and components as of the year
ended December 31, 1999 was approximately two months usage. The inventory level
of finished goods and work in progress as of the end of any period varies in
relation to sales order in hand.
Gross profits increased by Rmb29,480,000 (US$3,560,000) or 59.7% to
Rmb78,847,000 (US$9,523,000) for the year ended December 31, 1999 compared to
Rmb49,367,000 (US$5,962,000) in 1998. The gross profit margin increased by 12.9%
points to 41.9% for the year ended December 31, 1999 from 29.0% for the
corresponding period in 1998. Approximately Rmb11,400,000 (US$1,377,000) of the
increase is attributable to an
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<PAGE>
increase in percentage of export sales to total sales, which earned a higher
gross profit margin of approximately 65% compared to that of 30% of local sales,
from 3% in 1998 to 12% in 1999. The remainder of the increase is attributed to
the decrease in raw material prices during the year.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased by Rmb27,639,000 (US$3,338,000) or 61.7% to Rmb72,412,000
(US$8,745,000) for the year ended December 31, 1999 compared to Rmb44,773,000
(US$5,407,000) in the corresponding period in 1998. Rmb12,962,000 (US$1,565,000)
of the increase was due to the increase in expenses for commissions paid to
salesmen for recovery of debts due from customers and the increase in salary
expense relating to increased production during the year. In addition, bad
debts of Rmb14,677,000 (US$1,733,000) were written off representing two long
outstanding debts due from two major customers which, in management's opinion,
were unrecoverable.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts
increased by Rmb695,000 (US$84,000)or 4.4% to Rmb16,669,000 (US$2,013,000) at
December 31, 1999 compared to Rmb15,974,000 (US$1,929,000) at December 31, 1998.
The Company has reviewed the recoverability of individual debts and made
specific provisions for doubtful accounts on a prudent basis and has also
adopted a general provision policy for all other accounts receivable which is
calculated primarily based on 70% and 50% of those outstanding balances aged
over two years and one year, respectively.
INTEREST EXPENSES, NET. Net interest expenses increased by Rmb1,588,000
(US$192,000) or 121.4% to Rmb2,896,000 (US$350,000) for year ended December 31,
1999 compared to Rmb1,308,000 (US$158,000) in the corresponding period in 1998.
The increase in net interest expenses was primarily due to no interest income
charged on amounts due from related parties during the year. The decrease in
interest income was partially offset by the decrease in interest expenses due to
the decrease in average bank loans and the decrease in weighted average interest
rates from 8.4% in 1998 to 8.3% in 1999.
OTHER INCOME. Other income increased from Rmb603,000 (US$73,000) for
the year ended December 31, 1998 to Rmb1,665,000 (US$201,000) for the year ended
December 31, 1999. The increase in other income was due to increased income
generated from the sales of accessory products such as packaging materials in
1999.
INCOME TAXES. According to an approval issued by the State Tax Bureau
of the Liuzhou City dated July 22, 1996, the income of Liuzhou OVM is fully
exempted from corporate 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 income will be taxable at the full rate of 30% exclusive of
local tax. As 1998 and 1999 were the fourth and the fifth profitable years,
respectively, income taxes were provided for the year ended December 31, 1998
and 1999 at the income tax rate of 15%. It is management's intention to reinvest
all of the income attributable to the Company derived from Liuzhou OVM and,
accordingly, no US tax liability was provided.
The Construction Company is subject to business tax of 3% on sales and
national and local income tax of 33%.
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<PAGE>
EQUITY IN EARNINGS OF EQUITY INVESTEE. The equity in earnings of equity
investee arose from the 50% ownership interest held by Liuzhou OVM in OVM
Prestress Co. Pte Ltd., a company incorporated in the Republic of Singapore.
MINORITY INTERESTS. Minority interests represent the 30% equity
interest in Liuzhou OVM, owned by the Stock Company, the PRC joint venture
partner, and 30.7% equity interest in Liuzhou Prestress Construction Co. Ltd.
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 Rmb40,961,000
(US$4,947,000) and Rmb58,930,000 (US$7,117,000) as of December 31, 1998 and
1999, respectively. Net cash provided by/(used in) operating activities was
Rmb22,449,000 (US$2,711,000) and Rmb 10,608,000 (US$ 1,283,000) for the year
ended December 31, 1998 and 1999, respectively. Net cash flows from the
Company's operating activities are attributable to the Company's income and
changes in operating assets and liabilities.
For the two years ended December 31, 1998 and 1999, the cash flow used
in investing activities related principally to the acquisition of property,
machinery and equipment, purchase of investment and investment in newly formed
subsidiary.
Capital expenditures for production equipment for the two years ended
December 31, 1998 and 1999 were Rmb4,082,000 (US$493,000) and Rmb4,562,000
(US$551,000), respectively. Capital expenditures for the purchase of investment
for the two years ended December 31, 1998 and 1999 were Rmb3,230,000
(US$390,000) and nil, respectively. Capital expenditures for the investment in
newly-formed subsidiary for the two years ended December 31, 1998 and 1999 were
Rmb6,257,000 (US$756,000) and nil, respectively.
The Company's capital expenditure has been principally funded by the
short-term bank loans. As at December 31, 1998 and 1999, the Company had
outstanding short term bank loans of Rmb36,860,000 (US$4,452,000) and
Rmb28,000,000 (US$3,382,000) respectively.
The Company estimates that its relocation and on-going operations will
be funded partially by the retained profits and by additional borrowings.
Management believes that it is and will continue to be able to secure the
external debt financing to the extent required to complete its relocation and
related activities on schedule. In addition, management anticipates continuing
to utilize cash on hand and cash flows from operations to mitigate its external
financing requirements for the next twelve months.
IMPACT OF INFLATION ON RESULTS OF OPERATIONS, LIABILITIES AND ASSETS
- --------------------------------------------------------------------
The Company's operations and financial results could be adversely
affected by economic and changes in the policies of the PRC government, such as
changes in laws and regulations (or the interpretation thereof), measures which
may be introduced to regulate or stimulate the rate of economic growth. The rate
of deflation of the PRC economy, based on published consumer price information,
was 2.6 per cent. for 1998 and 3.0 per cent. for the 10 months ended October 31,
1999. The PRC government has taken certain measures to stimulate domestic demand
and consumption. There can be no assurance that these measures will be
successful.
-22-
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited consolidated financial statements for two years
ended December 31, 1999 and 1998 are appended hereto and incorporated herein
by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company and Liuzhou OVM
as at March 31, 2000. Directors of the Company will be elected at the Company's
annual meeting of shareholders and serve for one year or until their successors
are elected and qualify. Officers are elected by the Board and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the Board.
Name Age Position
- ---- --- --------
Ching Lung Po 53 Chairman of the Board of Directors,
President and CEO of the Company and
Vice Chairman of the Board of
Directors of Liuzhou OVM
Deng Xiao Qiong 48 Director and Chief Financial Officer
of the Company and Deputy General
Manager of Liuzhou OVM
Peng Fang 39 Director of the Company and Director and
Deputy General Manager of Liuzhou OVM
Cheung Lai 46 Director and Treasurer of the Company and
Director of Liuzhou OVM
Wan Wai On 26 Director and Corporate Secretary of
the Company
Tang Xiao Ping 38 Vice President of the Company and
Deputy General Manager of Liuzhou OVM
Ding Yong Gui 43 Vice President of the Company and
General manager of Liuzhou OVM
Chen Xue Ming 62 Director of the Company
Shao Hou Kun 72 Director of the Company
MR. CHING LUNG PO, aged 53, is the Chairman of the Board of Directors
and President of the Company and Vice Chairman of the Board of Directors of
Liuzhou OVM. Mr. Ching has more than 20 years experience in the management of
production and technology of industrial enterprises in PRC. In 1988, Mr. Ching
started his own business and established the Shenzhen Hongda Science &
Technology Company Limited in Shenzhen which manufactures electronic products.
Mr. Ching has been the Chairman of Asia Fiber Holdings Limited (OTC Bulletin
Board: AFBR), a U.S. corporation, which is included on the OTC Bulletin Board
operated by the Nasdaq, since January 2000. He has also been the Director of
China Resources Development, Inc. (Nasdaq: CHRB), a U.S. corporation, since
February 1998. Mr. Ching graduated from the Harbin Military and Engineering
Institute and holds the title of Senior Engineer. Mr. Ching is responsible for
the overall corporate policy and development strategy of the Company. Mr. Ching
devotes approximately 50% of his time to the affairs of the Company and its
subsidiaries.
-24-
<PAGE>
MS.DENG XIAO QIONG, aged 48, is a Director and Chief Financial Officer
of the Company. She is also a Director and Deputy General Manager of Liuzhou
OVM. Ms. Deng graduated from Guangxi Broadcasting Television University
specializing in industrial accounting and achieved the title of accountant in
1987. She joined the Factory as the deputy accounting supervisor in July 1984.
In March 1988, she became the Deputy Chief Accountant of the Factory and in
January 1991, she became the Chief Accountant of the Factory. Ms. Deng has many
years' of experience in financial management. She is responsible for financial
management and control of Liuzhou OVM and is also responsible for the Company's
finance and tax matters, as well as the overall accounting operations of the
Company. Ms. Deng devotes all of her time to the affairs of the Company and its
subsidiaries.
MR. PENG FANG, aged 39, is a Director of the Company and Director and
Deputy General Manager of Liuzhou OVM. He graduated from Dilian Polytechnic
Institute specializing in structural engineering and obtained the title of
senior engineer in 1993. He was also awarded a masters degree and Ph.D. degree
from the institute. He completed his master degree in December 1986 and a Ph.D.
degree in December 1990. From December 1990 to June 1994, he served as senior
engineer in the Foreign Office of the Ministry of Communications. He joined the
Factory in February 1994 and continues to serve as its Deputy General Manager.
He has considerable knowledge and experience in governmental planning for
transportation and communication. He is responsible for development of the
overseas market of Liuzhou OVM. Mr. Peng devotes all of his time to the affairs
of the Company and its subsidiaries.
MS. CHEUNG LAI, aged 46, is the Director and Treasurer of the Company
and a Director of Liuzhou OVM. Ms. Cheung graduated from Heilongjiang
Broadcasting Television University specializing in the English language. From
October 1988 to August 1992, she served as sales manager of the Shenzhen Zhenbao
Enterprise Company. In September 1992, she joined Shenzhen Hongda Science &
Technology Enterprise Company Limited and continues to serve as its finance
manager. Ms. Cheung devotes approximately 50% of her time to the affairs of the
Company and its subsidiaries.
MR. WAN WAI ON, aged 26, is a Director and Corporate Secretary of the
Company. Mr. Wan is a graduate of Rutgers University, New Brunswick, New Jersey
where he received a Bachelors of Arts degree. Since graduation in May 1996, he
has been employed as a general manager of a computer company based in Hong Kong.
Mr. Wan devotes approximately 50% of his time to the affairs of the Company.
MS. TANG XIAO PING, aged 38, is the Vice President of the Company and
Deputy General Manager of Liuzhou OVM. She graduated from Guangxi Broadcasting
Television University specializing in machinery manufacturing. She received the
title of engineer in 1992. She joined the Factory in 1985 and has been a Deputy
General Manager of the Factory since December 1993. She has many years
experience in sales and marketing. She was recognized as one of the "Ten Most
Outstanding Sales Person" by the Liuzhou Mechanical and Electrical Industry
Bureau in 1993. She is also the council member of Huadong Prestressing
Technology United Development Center. She is responsible for the sales of
Liuzhou OVM's products. Ms. Tang devotes all of her time to the affairs of the
Company and its subsidiaries.
MR. DING YONG GUI, aged 43, is a Director of the Company and General
Manager of Liuzhou OVM. Mr. Ding graduated from Guangxi Broadcasting Television
University specializing in Mechanical Engineering. He received the title of
senior engineer in 1997. He joined the Factory in 1979 and his last position in
the Factory was Deputy General Manager. Mr. Ding has many years technical
experience and knowledge in the prestressing industry and is one of the
engineers in exploring various anchorage products of the Company. He is
responsible for the production, research and development and quality control
system of Liuzhou OVM. Mr. Ding devotes all of his time to the affairs of the
Company and its subsidiaries.
-25-
<PAGE>
MR. CHEN XUE MING, aged 62, is a Director of the Company. Mr. Chen
graduated from Xiamen University specializing in economics. He received the
title of senior economist in 1992. Mr. Chen worked in Guangxi Engineering
Factory as Deputy General Manager from August 1989 to March 3, 1997. Mr. Chen
does not involve in the day-to-day management of the Company.
MR. SHOU HOU KUN, aged 72, is a Director of the Company. Mr. Shou
graduated from Tangshan Railway University in 1952. He has been working in the
Railway Department Technical Design Institute for more than 20 years and his
current position is the Deputy Chief Engineer. Mr. Shou was awarded the
Outstanding Design Engineer in the PRC by the Architectural Bureau in 1991. Mr.
Shou does not involve in the day-to-day management of the Company.
ITEM 10. EXECUTIVE COMPENSATION
No director or executive officer has received compensation in excess of
US$100,000 per year for each of the two years ended December 31, 1998 and 1999.
Currently, the Company has no employment contracts with any of its officers and
directors and maintains no retirement, fringe benefits or similar plans for the
benefit of its officers and directors. Mr. Peng Fang, Ms. Tang Xiao Ping, Ms.
Deng Xiao Qiong and Ding Yong Gui, being officers of Liuzhou OVM, are eligible
to participate in the retirement and pension fund established by Liuzhou OVM in
the PRC. See discussion under "Retirement and Pension Fund."
CASH COMPENSATION
- -----------------
The following table shows, for each of the two years ended December 31,
1998 and 1999, the cash and other compensation paid by the Company to its
President and Chief Executive Officer. None of the executive officers of the
Company had annual compensation in excess of US$100,000.
SUMMARY COMPENSATION TABLE
Name and Other All
Principal Annual Other
Position Year Salary Bonus Compensation Compensation
- -------- ---- ------ ----- ------------ ------------
Ching Lung Po, 1999 $62,016 -0- $ -0- $ -0-
President and CEO 1998 $62,016 -0- $ -0- $ -0-
OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------------------
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended December
31, 1999 to each person named in the Summary Compensation Table.
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Shares) Date
- ---- ------- ----------- ---------- ----
Ching Lung Po, -0- -0- -0- -0-
President and CEO
OPTION EXERCISES AND HOLDINGS
- -----------------------------
The following table sets forth information with respect to the exercise
of options to purchase shares of Common Stock during the fiscal year ended
December 31, 1999
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<PAGE>
to each person named in the Summary Compensation Table and the unexercised
options held as of the end of the 1998 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- -------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Shares Options/SARs Options/SARs
Acquired at FY-End at FY-End
on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
- -------------------------------------------------------------------------------
Ching Lung Po, -0- -0- -0- -0-
President and CEO
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
- ---------------------------------------------
The Board of Directors and a majority of the Company's shareholders
adopted the Company's 1996 Stock Option Plan (the "Plan") on September 5, 1996.
Under the Plan, the Company has reserved an aggregate of 1,000,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Board of Directors or a Committee of the Board of
Directors (the "Committee") of the Company will administer the Plan including,
without limitation, the selection of the persons who will be granted Plan
Options under the Plan, the type of Plan Options to be granted, the number of
shares subject to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). Any Incentive Option granted under the Plan must
provide for an exercise price of not less than 100% of the fair market value of
the underlying shares on the date of such grant, but the exercise price of any
Incentive Option granted to an eligible employee owning more than 10% of the
Company's Common Stock must be at least 110% of such fair market value as
determined on the date of the grant. The term of each Plan Option and the manner
in which it may be exercised is determined by the Board of the Directors or the
Committee, provided that no Plan Option may be exercisable more than 10 years
after the date of its grant and, in the case of an Incentive Option granted to
an eligible employee owning more than 10% of the Company's Common Stock, no more
than five years after the date of the grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per Share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and
its subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only officers, directors and employees of
the Company who are employed by the Company or by any subsidiary thereof are
eligible to receive Incentive Options.
-27-
<PAGE>
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason, other than death or disability, the Plan Option granted to him shall
lapse to the extent unexercised on the earlier of the expiration date or three
months following the date of termination. If the optionee dies during the term
of his employment, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date of the Plan Option or the date
one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate on September 4, 2006. Any such termination of the Plan
shall not affect the validity of any Plan Options previously granted thereunder.
As of March 31, 2000, no incentive stock options had been granted.
RETIREMENT AND PENSION FUND
- ---------------------------
The Company does not currently have any retirement and pension fund
program at the level of the parent Company. However, in accordance with
applicable government regulations in the PRC, Liuzhou OVM participates in a
central retirement and pension fund. Mr. Peng Fang, Ms. Tang Xiao Ping, Ms. Deng
Xiao Qiong and Mr. Ding Yong Gui, as officers of Liuzhou OVM, are eligible to
participate in the retirement and pension fund established by Liuzhou OVM in the
PRC. The Company currently makes an annual contribution representing 19% of the
total wages of employees to the retirement and pension fund out of which the
pensions of the Company's retired workers are paid. Effective from January 1,
1995, Liuzhou OVM has internally implemented an additional retirement plan for
its staff. Under this additional plan, the Company is required to contribute 5%
of the total wages of the employees to the retirement plan. The aggregate
pension costs incurred by the Company for each of the two years ended December
31, 1998 and 1999 amounted to Rmb1,428,000 (US$172,000) and Rmb1,701,000
(US$205,000), respectively.
At the end of 1997, Liuzhou OVM implemented an additional retirement
plan of a PRC insurance company for its staff. Under this retirement plan, the
staff will only benefit from the plan if they work in Liuzhou OVM until the
defined age of retirement. The qualified staff is entitled to receive a defined
monthly pension benefit starting from the date of defined age of retirement for
the rest of his life. The total one time premium for the retirement plan of
Rmb4,661,000 (US$563,000) was paid by Liuzhou OVM in 1998
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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<PAGE>
The following table sets forth, as of March 31, 2000, certain
information regarding the Company's Common Stock beneficially owned by each
shareholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding Common Stock. In general, a person is
deemed to be a "beneficial owner" of a security if that person has or shares the
power to vote or direct the voting of such security, or the power to dispose or
to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within sixty (60) days. As of March 31, 2000, there were
12,050,000 shares of Common Stock outstanding.
Name and Address or Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class
---------------- ----------------------- --------
Hoi Wai Investments Limited 5,057,000(2) 41.9%
P.O. Box 116, Road Town
Tortola, British Virgin Islands
NJI No. 1 (A) Investment Fund 685,750(3) 5.8%
6 Battery Road #42-01 Singapore
049909, Republic of Singapore
NJI No. 1(B) Investment Fund 685,750(3) 5.8%
6 Battery Road #42-01n Singapore
049909, Republic of Singapore
Nomura/Jafco East Asia Growth Fund 1,371,500 11.4%
6 Battery Road #42-01 Singapore
049909, Republic of Singapore
Mr. Ching Lung Po 6,057,000(2) 50.2%
Room 1015, Blck M, Telford Garden
Kowloon Bay, Hong Kong(4)
Ms. Cheung Lai -0-(2) -
Flat A18, 10/F, Block A,
Proficient Centre, 6 Wang Kwun Road,
Kowloon Bay, Hong Kong (5)
Li Kin Hang 1,215,000(6) 9.2%
20/F King Jnin Mansion,
13-15 Yik Yam Street
Happy Valley, Hong Kong
Law Shun Ping 826,200(7) 6.4%
86 Shun Ling Street
3/F San Po Kong,
Kowloon, Hong Kong
- ----------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Includes 1,000,000 shares of capital stock directly owned by Mr. Ching
Lung Po. The balance of 5,057,000 shares of capital stock indicated as
held by Mr. Ching Lung Po and Ms. Cheung Lai are held on record by Hoi
Wai Investments Limited. Mr. Ching has a 75% controlling interest in
Hoi Wai Investments Limited and, accordingly, all of its shares have
been attributed to Mr. Ching.
-29-
<PAGE>
(3) All shares of capital stock held by NJI No. 1(A) Investment Fund and
NJI No. 2(B) Investment Fund are held on record by Nomura International
(Hong Kong) Limited, a nominee shareholder for NJI No. 1(A) Investment
Fund and NJI No. 2(B) Investment Fund.
(4) Mr. Ching Lung Po is Chairman of the Board and President of the
Company.
(5) Ms. Cheung Lai is a Director of the Company.
(6) Includes 1,200,000 Warrant Shares.
(7) Includes 816,000 Warrant Shares.
The following table sets forth, as of March 31, 2000, certain
information regarding the Company's Common Stock beneficially owned by (i) each
of the Company's directors and executive officers and (ii) all directors and
executive officers as a group.
Name and Address or Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class
---------------- ----------------------- --------
Ching Lung Po 6,057,000(2) 50.2%
Cheung Lai -0-(2) -
Deng Xiao Qiong -0- -
Peng Fang -0- -
Wan Wai On -0- -
Tang Xiao Ping -0- -
Ding Yong Gui -0- -
Chen Xue Ming -0- -
Shao Hou Kun -0- -
Officers and Directors as a group 6,057,000 50.2%
(8 persons)
- ----------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Includes 1,000,000 shares of capital stock directly owned by Mr. Ching
Lung Po. The balance of 5,057,000 shares of capital stock indicated as
held by Mr. Ching Lung Po and Ms. Cheung Lai are held on record by Hoi
Wai Investments Limited. Mr. Ching has a 75% controlling interest in
Hoi Wai Investments Limited and, accordingly, all of its shares have
been attributed to Mr. Ching.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of the Company's Common Stock. Such persons are required by
SEC regulations to furnish the Company with copies of all such reports they
file.
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<PAGE>
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company, five directors failed to timely file Form
3, reflecting that they had become directors of the Company, and three directors
failed to timely file Form 4 or Form 5 reflecting that they are no longer
directors of the Company. None of the directors owned any securities of the
Company, and no transactions were failed to be reported.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 18, 1995, Kolcari Investments Limited (predecessor of ODL) and
the Stock Company entered into a Joint Venture Contract (the "Contract"),
pursuant to which such parties agreed to establish Liuzhou OVM as a joint
venture limited liability company in accordance with the Laws of the PRC on
Sino-Foreign Equity Joint Venture. The Contract provided that Liuzhou OVM's
total initial registered capital of $4 million was to be contributed in assets
and/or cash as follows: the Stock Company (30%) and Kolcari (70%).
Pursuant to an agreement dated June 5, 1995 between Liuzhou OVM and the
Stock Company (successor in interest to the Factory), operating assets and
production facilities of the Factory valued at US$1,423,324, according to a
valuation performed by the PRC State-approved assets valuer, were transferred to
Liuzhou OVM. Of the total value of assets transferred into Liuzhou OVM,
US$1,200,000 represented a capital contribution by the Stock Company for its 30%
equity interest in Liuzhou OVM and the balance of US$223,325 was recorded as a
loan to Liuzhou OVM. The remaining 70% of the issued capital is being provided
by Kolcari through the contribution of cash in the approximate amount of
US$2,800,000, of which US$2,170,000 had been paid as at December 31, 1996 with
the balance of US$630,000 had been paid as at December 31, 1998.
Following the establishment of Liuzhou OVM, a series of comprehensive
services, leases and assets transfer agreements were entered into between
Liuzhou OVM and the Stock Company and its affiliates. Descriptions of these
agreements are set forth below.
Pursuant to a lease agreement dated June 5, 1995 between Liuzhou OVM
and the Stock Company, the Stock Company agreed to lease the land use rights
with gross area of approximately 60,000 sq. meters, production plants and
premises with a gross area of approximately 9,463 sq. meters and 22
transportation vehicles, to Liuzhou OVM. The lease covering the land use rights,
production plants and premises is for a term equal to the period of duration of
Liuzhou OVM. The rental rate is renewable every three years with each increment
capped below 10%. With respect to the leasing of the transportation vehicles,
the initial lease term is for a period of three years from the date of the
agreement. Pursuant to a supplementary agreement dated September 28, 1995, the
aggregate cost of such rentals for each of the years ended December 31, 1995 and
1996 was agreed to be Rmb300,000 (US$36,000). The rental rate and lease term for
the year ended December 31, 1997 and subsequent years is subject to further
negotiation between the parties. Pursuant to another supplementary agreement
dated December 1, 1997, the aggregate cost of such rentals for each of the three
years ended December 31, 1997, 1998 and 1999 was agreed to be Rmb300,000
(US$36,000). Pursuant to the third supplementary agreement dated January 15,
1998, 22 transportation vehicles were reduced to 18. The aggregate rentals for
all of the leases for each of the three years ended December 31, 1998, 1999 and
2000 was agreed to be Rmb1,106,000 (US$134,000). Pursuant to an agreement dated
January 6, 2000, the above lease was terminated effective January 1, 2000.
Pursuant to a lease agreement dated October 5, 1995 between Liuzhou OVM
and the Stock Company, the Stock Company agreed to lease 80 pieces of production
equipment, 73 pieces of office equipment and 12 motor vehicles, to Liuzhou OVM.
-31-
<PAGE>
The rental is renewable every three years. Pursuant to a supplementary agreement
dated January 15, 1998, the aggregate rental for the above items for each of the
three years ended December 31, 1998, 1999 and 2000 was agreed to be Rmb
1,821,000 (US$206,000). Following the relocation of production premises, the
lease was also terminated by agreement of the parties effective January 1, 2000.
As provided under an agreement dated June 5, 1995 among Liuzhou OVM,
the Stock Company and the heat treatment plant (the "Plant") wholly owned by the
Stock Company, the Plant agreed to provide Liuzhou OVM heat treatment
subcontracting services at a discount of 3-5% from the prevailing market rate.
The aggregate subcontracting charges for each of the two years ended December
31, 1998 and 1999 amounted to Rmb7,312,000 (US$883,000) and Rmb10,621,000
(US$1,283,000), respectively.
In accordance with an agreement dated June 5, 1995 and a supplementary
agreement dated December 18, 1995 between Liuzhou OVM and the Stock Company, the
Stock Company agreed to transfer its intangible assets including trademarks,
patents, technology and know-how related to existing products and products under
development to Liuzhou OVM at a total consideration of Rmb8,000,000 (US$966,000)
(the "Transfer Fee"). An annual royalty equal to 0.6% of the net sales (after
deducting VAT) is payable by Liuzhou OVM until the full Transfer Fee is settled.
The royalty is payable by Liuzhou OVM each year commencing January 1, 1997.
Pursuant to an agreement dated December 12, 1999 between Liuzhou OVM and the
Stock Company, Liuzhou OVM has agreed to cease using the intangible assets
(principally the "OVM" trademark) effective February 1, 2000. Pursuant to
another agreement dated January 6, 2000 between the Stock Company and Liuzhou
OVM, all technology and know-how upon which the existing products manufactured
by Liuzhou OVM are based may be used by the Stock Company. Liuzhou OVM also
agreed to sell one-third of its inventories as at December 31, 1999 to the Stock
Company at normal selling prices excluding value added tax at 17%. Liuzhou OVM
also agreed to sell certain assets deemed immaterial to its business to the
Stock Company at either net book value or fair value.
In accordance with an agreement dated October 18, 1996 between Liuzhou
OVM and the Stock Company, the Stock Company and its affiliates agreed to pay
interest against the amounts due to Liuzhou OVM at an interest rate equal to the
prevailing bank borrowing rate with effect from January 1, 1997. No interest was
charged by Liuzhou OVM for the year ended December 31, 1999.
For each of the two years ended December 31, 1998 and 1999, Liuzhou OVM
had sales amounting to approximately Rmb460,000 (US$56,000) and nil,
respectively, to Hong Kong Prestressed Engineering Limited, a company
incorporated in Hong Kong, of which two of the Company's directors, [Mr. Wan
Ying Ling, and Mr. Wu Guosen], have a beneficial interest. In addition, Liuzhou
OVM purchases and sells a significant portion of its raw materials and finished
goods to the Stock Company's affiliates. The amount of such sales and purchases
were Rmb25,623,000 (US$3,095,000) and Rmb25,210,000 (US$3,045,000),
respectively, for the year ended December 31, 1998 and Rmb11,922,000
(US$1,437,000) and Rmb5,172,000 (US$625,000), respectively, for the year ended
December 31, 1999.
Liuzhou OVM also leases certain plant and machinery to the Stock
Company's affiliates. For each of the two years ended December 31, 1998 and
1999, a rental income of nil and Rmb61,000 (US$7,000), respectively, was
received by Liuzhou OVM. At the same time, the Stock Company's affiliates also
lease certain plant and machinery to Liuzhou OVM and a rental expense of
Rmb824,000 (US$100,000) and Rmb784,000 (US$95,000), respectively, was incurred
by Liuzhou OVM for each of the two years ended December 31, 1998 and 1999.
-32-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
- ----------------------------------
The following financial statements are filed as a part of this Form
10-KSB in Appendix A hereto:
Independent auditors' report, together with consolidated financial
statements for the Company and subsidiaries, including:
a. Consolidated balance sheet as of December 31, 1999
b. Consolidated statements of income for the two years ended December
31, 1999 and 1998
c. Consolidated statements of cash flows for the two years ended
December 31, 1999 and 1998
d. Consolidated statement of shareholders' equity and comprehensive
income for the two years ended December 31, 1999 and 1998
e. Notes to consolidated financial statements
REPORTS ON FORM 8-K
- -------------------
During the last quarter of the fiscal year ended December 31, 1999, the
Company filed no reports on Form 8-K.
EXHIBITS
- --------
Exhibits Exhibit Description
- -------- -------------------
2.1 Acquisition Agreement dated November 4, 1996(1)
3.1 Articles of Incorporation and Amendments thereto(1)
3.2 Bylaws(1)
4.1 Form of Common Stock Purchase Warrant dated December 16, 1996(1)
4.2 Specimen of Common Stock Certificate(2)
10.1 Joint Venture Contract between Liuzhou OVM Joint Stock Co. Ltd. and
Kolcari Investments Limited and Articles of Association for
Sino-Foreign Equity Joint Venture(1)
10.2 Agreement Concerning Entrustment of the Heat Treatment Plant with
Processing Tasks(1)
10.3 Agreement Concerning Transfer of Intangible Assets(1)
10.4 Agreement Concerning the Provision of Power, Water Supply and Welfare
Facilities(1)
10.5 Supplementary Agreement on the Transfer of Intangible Assets(1)
10.6 Agreement Concerning the Leasing of Land, Buildings and Motor
Vehicles(1)
10.7 Supplementary Agreement on the Leasing of Land, Buildings and Motor
Vehicles(1)
10.8 Agreement Concerning Matters Relating to the Establishment of the
Financial Accounts for the Joint Venture(1)
10.9 Agreement Concerning the Injection of Assets of Three Production
Workshops(1)
10.10 Supplementary Agreement Concerning Collection of Accounts Receivable
and Allocation of Expenses Incurred on the Collection of Accounts
Receivable(1)
10.11 1996 Stock Option Plan(1)
-33-
<PAGE>
10.12 Employment Agreement with Kwok Kwan Hung(1)
10.13 Agreement to Extend Date of Installment Contribution(1)
10.14 Supplementary Agreement on the Leasing of Land, Buildings and Motor
Vehicles(3)
10.15 Supplementary Agreement Concerning the Provision of Welfare
Facilities(3)
10.16 Agreement Concerning Interest on the Amounts due from OVM Joint Stock
Co. Ltd. and its Affiliates(3)
10.17 Supplementary Agreement to Extend the Date of Installment
Contribution(3)
10.18 Supplementary Agreement on the Leasing of Land, Buildings and Motor
Vehicles(4)
10.19 Agreement and Supplementary Agreement Concerning the Leasing of
Production Equipment, Office Equipment and Motor Vehicles (4)
10.20 Agreement on Termination of Use of Intangible Assets (5)
10.21 Agreement on the Division of Technical Information and Personnel and
Other Issues (5)
10.22 Agreement on Termination of Tangible Assets Leasing Agreement (5)
10.23 Agreement on Leasing of Production and Transportation Equipment (5)
10.24 Agreement on Leasing of Production and Operating Premises and Buildings
(5)
21 Subsidiaries of the Registrant(5)
27 Financial Data Schedule(5)
- ----------------------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2 (File No. 333-27119).
(2) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A filed January 8, 1998.
(3) Incorporated by reference to exhibit of the same number filed with the
Company's Form 10-KSB for the fiscal year December 31, 1997.
(4) Incorporated by reference to exhibit of the same number filed with the
Company's Form 10-KSB for the fiscal year December 31, 1998
(5) Filed herewith
-34-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OVM INTERNATIONAL HOLDING CORP.
By: /s/ Ching Lung Po
---------------------------
Ching Lung Po
Chairman, President and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ching Lung Po Chief Executive Officer, May 2, 2000
- ------------------------------------ President and Chairman
Ching Lung Po of the Board of Directors
/s/ Deng Xiao Qiong Chief Financial and Accounting May 2, 2000
- ------------------------------------ Officer and Director
Deng Xiao Qiong
/s/ Cheung Lai Treasurer and Director May 2, 2000
- ------------------------------------
Cheung Lai
/s/ Wan Wai On Secretary and Director May 2, 2000
- ------------------------------------
Wan Wai On
/s/ Peng Fang Director May 2, 2000
- ------------------------------------
Peng Fang
/s/ Chen Xue Ming Director May 2, 2000
- ------------------------------------
Chen Xue Ming
/s/ Shao Hou Kun Director May 2, 2000
- ------------------------------------
Shao Hou Kun
/s/ Tang Xiao Ping Vice President May 2, 2000
- ------------------------------------
Tang Xiao Ping
/s/ Ding Yong Gui Vice President May 2, 2000
- ------------------------------------
Ding Yong Gui
</TABLE>
-35-
<PAGE>
APPENDIX A
Independent auditors' report, together with consolidated financial
statements for the Company and subsidiaries, including:
a. Consolidated balance sheet as of December 31, 1999
b. Consolidated statements of income for the two years ended December
31, 1999 and 1998
c. Consolidated statements of cash flows for the two years ended
December 31, 1999 and 1998
d. Consolidated statement of shareholders' equity and comprehensive
income for the two years ended December 31, 1999 and 1998
e. Notes to consolidated financial statements
-36-
<PAGE>
OVM INTERNATIONAL HOLDING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Contents Page
<S> <C>
Report of Independent Auditors F-1
Consolidated balance sheet F-2
Consolidated statements of income F-3
Consolidated statements of shareholders' equity and comprehensive income F-4
Consolidated statements of cash flows F-5
Notes to consolidated financial statements F-6 to 23
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders,
OVM INTERNATIONAL HOLDING CORPORATION
We have audited the accompanying consolidated balance sheet of OVM
International Holding Corporation and its subsidiaries as of December 31, 1999,
and the related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the two year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the financial position of OVM
International Holding Corporation and its subsidiaries as of December 31, 1999,
and the results of their operations and their cash flows for each of the years
in the two year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
HORWATH GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
April 14, 2000
(except for Note 13, as to which the
date is April 28, 2000)
F-1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999
(Amounts in thousands except share data)
Note US$ RMB
---
<S> <C> <C>
ASSETS
Current assets:
Cash and bank balances $ 2,761 22,859
Accounts receivable, net of allowance of RMB12,488 4,083 33,804
Inventories 4 3,935 32,584
Prepayments, deposits and other receivables, net of allowance of RMB4,181 1,125 9,313
Due from related parties 18 4,391 36,360
Assets held for sale 5 798 6,609
----------- -----------
Total current assets 17,093 141,529
Property, machinery and equipment, net 6 1,950 16,143
Investments 7 1,006 8,332
Other assets:
Deferred assets 8 563 4,661
Staff housing loans 9 342 2,831
Intangible assets 10 405 3,352
----------- -----------
Total assets $ 21,359 176,848
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 11 $ 3,382 28,000
Current portion of long term debt 12 43 360
Accounts payable 3,083 25,529
Advance payments by customers 939 7,775
Other payables and accrued liabilities 1,819 15,062
Taxes payable 709 5,873
----------- -----------
Total current liabilities 9,975 82,599
Long term debt net of current portion 12 84 690
----------- -----------
Total liabilities 10,059 83,289
----------- -----------
Minority interests in consolidated subsidiaries 3,917 32,436
----------- -----------
Commitments and contingencies 13,23,24
Shareholders' equity:
Common stock, 40,000,000 shares, par value of US$0.0001 authorized;
12,050,000 shares, issued and outstanding 14 1 10
Additional paid-in capital 14 3,715 30,795
Retained earnings 3,655 30,257
Accumulated comprehensive income 12 61
----------- -----------
Total shareholders' equity 7,383 61,123
----------- -----------
Total liabilities and shareholders' equity $ 21,359 176,848
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Amounts in thousands except share data)
1999 1998
---- ----
Note US$ RMB RMB
--- --- ---
<S> <C> <C> <C> <C>
Sales:
Related parties 18 $ 1,440 11,922 27,630
Others 21,297 176,340 142,664
----------- ----------- -----------
Net sales 22,737 188,262 170,294
Cost of sales, including costs incurred to related
parties of RMB19,328 and RMB36,440 in 1999
and 1998, respectively (13,214) (109,415) (120,927)
----------- ----------- -----------
Gross profit 9,523 78,847 49,367
Selling and administrative expenses 8,745 72,412 44,773
----------- ----------- -----------
Income from operations 778 6,435 4,594
Interest expense, including amounts to related
parties of RMB489 and RMB555 in 1999
and 1998, respectively (389) (3,224) (4,633)
Interest income, including amounts from related
parties of RMBNil and RMB3,096 in 1999
and 1998, respectively 40 328 3,325
Other income 201 1,665 603
Foreign exchange gain 4 32 23
----------- ----------- -----------
Income before income taxes 634 5,236 3,912
Income taxes 15 (344) (2,846) (1,585)
----------- ----------- -----------
290 2,390 2,327
Minority interests (157) (1,298) (1,565)
Equity in earnings of equity investee 7 15 127 13
----------- ----------- -----------
Net income $ 148 1,219 775
=========== =========== ===========
Basic and diluted earnings per share 3(i) $ 0.01 0.10 0.06
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Amounts in thousands except share data)
Number of Accumulated
shares of Additional other
common Common paid-in Retained comprehensive
stock stock capital earnings income Total
RMB RMB RMB RMB RMB
----------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 12,050,000 10 30,795 28,263 66 59,134
-----------
Comprehensive income:
Net income - - - 775 - 775
Currency translation
adjustments - - - - (32) (32)
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income 743
-----------
Balances at
December 31, 1998 12,050,000 10 30,795 29,038 34 59,877
-----------
Comprehensive income:
Net income - - - 1,219 - 1,219
Currency translation
adjustments - - - - 27 27
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income 1,246
-----------
Balances at
December 31, 1999 12,050,000 10 30,795 30,257 61 61,123
=========== =========== =========== =========== =========== ===========
U.S.$ $ 1 $ 3,715 $ 3,655 $ 12 $ 7,383
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Amounts in thousands except share data)
1999 1998
---- ----
US$ RMB RMB
--- --- ---
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 148 1,219 775
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interests 157 1,298 1,565
Equity in earnings of unconsolidated subsidiary (15) (127) (13)
Loss on write off of intangible assets (97) (791) -
Depreciation 344 2,848 2,145
Amortization 34 286 251
Decrease (increase) in assets:
Accounts receivable 3,628 30,036 49,938
Inventories (32) (267) 6,654
Prepayments, deposits and other receivables 748 6,191 (1,460)
Due from related parties (623) (5,162) 8,843
Deferred assets 38 318 (3,146)
Staff housing loans (53) (440) (973)
Receivable from equity investee 81 668 (673)
Increase (decrease) in liabilities:
Accounts payable (1,296) (10,733) (34,404)
Advance payments by customers (531) (4,396) (1,098)
Other payables and accrued liabilities (205) (1,700) (6,317)
Due to related parties (259) (2,147) 539
Taxes payable (784) (6,493) (177)
----------- ----------- -----------
Net cash provided by operating activities 1,283 10,608 22,449
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (551) (4,562) (4,082)
Purchase of investment - - (3,230)
Investment in newly formed subsidiary - - (6,257)
----------- ----------- -----------
Net cash used in investing activities (551) (4,562) (13,569)
----------- ----------- -----------
Cash flows from financing activities:
Increase in notes payable 725 6,000 15,910
Repayment of notes payable (1,795) (14,860) (12,960)
Repayment of long term related party loan - - (312)
----------- ----------- -----------
Net cash (used in) provided by financing activities (1,070) (8,860) 2,638
----------- ------------ -----------
Net (decrease) increase in cash and cash equivalents (338) (2,814) 11,518
Exchange difference 29 254 (55)
Cash and cash equivalents at beginning of year 3,070 25,419 13,956
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,761 22,859 25,419
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
1. Organization and principal activities
The accompanying consolidated financial statements include the
accounts of OVM International Holding Corporation (the "Company"), and
its subsidiaries, OVM Development Limited ("ODL"), Liuzhou OVM
Construction Machinery Company Limited ("Liuzhou OVM" or the "Joint
Venture" or the "JV") and Liuzhou OVM Prestress Construction Company
Limited ("OVM Prestress")
OVM International Holding Corporation was incorporated in the
State of Nevada, in the United States of America.
OVM Development Limited ("ODL") was incorporated in the
British Virgin Islands on May 3, 1994.
In 1995, ODL entered into an agreement with Liuzhou OVM Joint
Stock Company Limited (the "JV Partner") to set up a Sino-foreign
equity joint venture in the PRC. The JV Partner was incorporated in the
People's Republic of China (the "PRC") and was principally engaged in
the manufacture and sale of prestress products used in the construction
of highways, bridges and buildings. The joint venture operates under
the name of Liuzhou OVM Construction Machinery Company Limited.
As provided in the joint venture agreement, the total investment
for the JV was US$4,000 (RMB34,000). The JV Partner transferred certain
of its property, machinery and equipment to the JV as its 30%
contribution. In addition, the business operations of the JV Partner
were acquired by the JV. The remaining 70% investment was provided by
ODL in cash of US$2,800 (RMB23,800). Accordingly, ODL has a controlling
interest in the JV through a majority voting interest of 70%.
The net income of the JV, after provision for income taxes and
appropriations to various statutory and discretionary reserves, will be
shared by the Company and the JV Partner according to their respective
equity interests and is subject to the board of directors' approval.
The term of the JV is 30 years.
F-6
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- --------------------------------------------------------------------------------
1. Organization and principal activities (continued)
Effective November 4, 1996, pursuant to an acquisition
agreement (the "Agreement") among the Company and ODL and the then
shareholders of ODL, the Company issued 8,800,000 shares of its common
stock to the original shareholders of ODL in exchange for all the
issued ordinary shares of ODL. These transactions have been treated as
a recapitalization of ODL with ODL as the acquirer (the "Reverse
Acquisition").
During 1997, the JV set up a new subsidiary, Liuzhou OVM
Trading Company Limited ("OVM Trading"), which was incorporated in the
PRC. The JV owned a 95% interest in OVM Trading with the remaining 5%
interest held by a third party. OVM Trading was principally engaged in
the sale of the prestressed products manufactured by the JV. At the end
of 1998, OVM Trading was liquidated and its operations were transferred
to a branch of the JV.
During 1998, the JV acquired 69.3% of OVM Prestress, a newly
formed entity that was incorporated in the PRC. The remaining interests
of OVM Prestress are held by an affiliate of the JV Partner (20%) and a
third party (10.7%) in the PRC. OVM Prestress is principally engaged in
the provision of engineering services for prestress construction
projects.
2. Basis of presentation
The consolidated financial statements of the Company include
the accounts of the Company and its subsidiaries. All material
intercompany balances and transactions have been eliminated on
consolidation. The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America ("US GAAP"). This basis of accounting differs from
that used in the statutory financial statements of the JV and its
subsidiaries which are prepared in accordance with the accounting
principles and the relevant financial regulations established by the
Ministry of Finance of the PRC.
The principal adjustments made to the statutory financial
statements of the JV and its subsidiaries to conform to US GAAP include
the following:
o Allowance for doubtful accounts receivable and
obsolete inventories;
o Reclassification of certain expense items from equity
appropriations to charges against income; and
o Recognition of sales and cost of sales upon delivery of
product to customers.
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
F-7
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- --------------------------------------------------------------------------------
3. Summary of significant accounting policies
(a) Cash and cash equivalents
Cash and cash equivalents include cash on hand and
deposits with banks with an original maturity of three months
or less.
(b) Inventories
Inventories are stated at the lower of cost or market
value. Cost is determined on the weighted average basis and in
the case of work in progress and finished goods, comprises
direct materials, direct labor and overhead.
(c) Property, machinery and equipment
Property, machinery and equipment are stated at cost
less accumulated depreciation.
Depreciation is calculated on a straight-line basis
to write off the cost of each asset over its estimated useful
life. The principal annual rates used for this purpose are as
follows:
Buildings 8.4%
Plant, machinery and equipment 12%
(d) Intangible assets
Intangible assets, which include goodwill and
proprietary technology and trademarks, are stated at cost less
accumulated amortization. Amortization is calculated on a
straight-line basis over 30 years.
Management assesses the carrying values of its
long-lived assets for impairment when circumstances warrant
such a review. Generally, assets to be used in operations are
considered impaired if the sum of expected undiscounted future
cashflows is less than the assets' carrying values. If an
impairment is indicated, the loss is measured based on the
amounts by which the assets' carrying values exceed their fair
values. Based on its review, management does not believe that
any impairment has occurred as of December 31, 1999.
(e) Investments
Affiliated entities in which the Company does not
have a controlling interest are accounted for using the equity
method of accounting.
Other long-term investments, which are neither
subsidiaries nor equity investments, are stated at cost.
F-8
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- --------------------------------------------------------------------------------
3. Summary of significant accounting policies (continued)
(f) Revenue recognition
Sales represent the invoiced value of goods, net of
returns and allowances, recognized upon delivery of goods to
customers.
(g) Income taxes
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated
statement of income in the period that includes the enactment
date.
(h) Foreign currency translation
The functional currency of the operations in the PRC
is the Renminbi ("RMB"). The accounts of foreign operations
are prepared in their functional currency which is their
respective local currency and are translated into RMB using
the closing rate method. Under the closing rate method, the
balance sheet of foreign operations is translated at the rate
of exchange (the "Exchange Rate") quoted by the People's Bank
of China at the balance sheet date and the statement of income
is translated at the average rate for the year. Resulting
translation adjustments are reported as a separate component
of comprehensive income.
The financial records of the JV and its subsidiaries
are maintained in RMB.
In preparing these financial statements, foreign
currency transactions have been translated into RMB using the
Exchange Rate at the date of transactions. Monetary assets and
liabilities denominated in foreign currencies have been
translated into RMB using the Exchange Rate at the balance
sheet date. The exchange gains or losses were credited or
charged to the statement of income.
Translation of amounts from RMB into United States
dollars (US$) for the convenience of the reader has been made
at the Exchange Rate on December 31, 1999 of US$1.00 equal to
RMB8.280 and accordingly, differs from the underlying foreign
currency amounts. No representation is made that the RMB
amounts could have been, or could be, converted into United
States dollars at that rate on December 31, 1999 or at any
other date.
F-9
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING COPRORATION
- --------------------------------------------------------------------------------
3. Summary of significant accounting policies (continued)
(i) Earnings per share
Basic earnings per share amounts are calculated using
the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share
assumes the conversion, exercise or issuance of all potential
common stock instruments, such as options and warrants, unless
the effect is to reduce a loss or increase earnings per share.
The basic and diluted weighted average shares outstanding
during each of the years ended December 31, 1999 and 1998 were
12,050,000.
(j) Research and development costs
Research and development costs are expensed as
incurred and amounted to RMB382 and RMB1,128, net (note 12),
for 1999 and 1998 respectively.
(k) Advertising costs
Advertising costs are expensed by the Company as
incurred. Total advertising costs incurred by the Company
during 1999 and 1998 were RMB606 and RMB524 respectively.
(l) Retirement benefits
The contributions to the PRC and internally
implemented retirement plans for existing employees are
charged to income as services are provided.
Contributions of RMB4,661 to an additional Company
administered retirement plan for existing employees is being
amortized over 20 years as future services are provided (note
17 and 13).
(m) Comprehensive income:
The Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income,"
on January 1, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income, its components
and accumulated balances in a full set of general-purpose
financial statements. SFAS No. 130 defines comprehensive
income to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among
other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting
standards as components of comprehensive income be reported in
a financial statement that is presented with the same
prominence as other financial statements. The Company's only
current component of comprehensive income is foreign currency
translation adjustments.
F-10
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
3. Summary of significant accounting policies (continued)
(n) Segment reporting:
The Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS
No. 131") January 1, 1998. The Company's results of operations
and financial position were not affected by implementation of
SFAS No. 131 as it operates in only one segment.
(o) Pension and other post retirement benefits:
The Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post Retirement Benefits"
on January 1, 1998. SFAS No. 132 requires comparative
information for earlier years to be restated. The Company's
results of operations and financial position were not affected
by implementation of SFAS No. 132.
(p) Recently issued accounting pronouncements:
In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which is
effective for financial statements for all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS No. 133
standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial
position and measure them at fair value. SFAS No. 133 also
addresses the accounting for certain hedging activities. The
Company currently does not have any derivative instruments nor
is it engaged in hedging activities, thus the Company does not
believe implementation of SFAS No. 133 will have a material
impact on its financial statement presentation or disclosures.
4. Inventories
At December 31, 1999, inventories consist of the following:
<TABLE>
<CAPTION>
US Dollars RMB
---------- ---
<S> <C> <C>
Raw materials $ 1,169 9,676
Work in progress 1,295 10,722
Finished goods 1,471 12,186
------------------ ----------------
$ 3,935 32,584
================= ================
</TABLE>
F-11
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
5. Assets held for sale
At December 31, 1999, assets held for sale consist of the
following which are to be transferred to the JV Partner (Note 13):
<TABLE>
<CAPTION>
US Dollars RMB
---------- ---
<S> <C> <C>
Buildings $ 290 2,403
Plant, machinery and equipment 508 4,206
------------------ ----------------
$ 798 6,609
================== ================
</TABLE>
6. Property, machinery and equipment, net
At December 31, 1999, property, machinery and equipment
consists of:
<TABLE>
<CAPTION>
US Dollars RMB
---------- ---
<S> <C> <C>
Cost:
Buildings $ 89 741
Plant, machinery and equipment 3,048 25,236
------------------ ----------------
3,137 25,977
------------------ ----------------
Accumulated depreciation:
Buildings 5 41
Plant, machinery and equipment 1,182 9,793
------------------ ----------------
1,187 9,834
------------------ ----------------
Property, machinery and equipment, net $ 1,950 16,143
================== ================
</TABLE>
7. Investments
<TABLE>
<CAPTION>
At December 31, 1999, investments consist of:
US Dollars RMB
---------- ---
<S> <C> <C>
Equity investment (a)
Cost $ 569 4,709
Share of post-acquisition retained earnings 40 331
Currency translation adjustment (55) (454)
------------------ ----------------
554 4,586
Investment at cost (b) 450 3,730
Receivable from equity investee 2 16
------------------ ----------------
$ 1,006 8,332
================== ================
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
7. Investments (continued)
(a) The Company has a 50% equity investment in OVM Prestress Co.
Pte. Ltd, ("OVM Singapore") a company incorporated in the
Republic of Singapore. OVM Prestress Co. Pte. Ltd. is
principally engaged in the provision of prestressing and
related engineering services. The Company's share of earnings
of OVM Singapore is included in income as earned.
Summarized condensed unaudited financial information of OVM
Singapore as of and for the year ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
US Dollars RMB
---------- ---
<S> <C> <C>
Net Sales $ 399,795 3,310,300
Gross profit $ 65,269 540,425
Net income $ 1,161 9,618
Current assets $ 531,812 4,403,405
Non-current assets $ 269,223 2,229,170
Current liabilities $ 83,037 687,550
</TABLE>
(b) During 1998, the JV acquired a 21.7% interest in Orient
Prestress Company Limited ("Orient Prestress"), which was
incorporated in the PRC. The Company has not adopted the
equity method of accounting for Orient Prestress in the
consolidated financial statements as the Company is not in a
position to exercise any significant influence on the day to
day management and operation of Orient Prestress.
<TABLE>
<CAPTION>
8. Deferred assets
US Dollars RMB
<S> <C> <C>
Housing loans (a) $ 58 482
Retirement costs (b) 505 4,179
--------------- ----------------
$ 563 4,661
=============== ================
</TABLE>
(a) This represents employment incentives comprising housing loans
made to two senior management staff members of the JV for the
purchase of residential properties. The loans are
collateralized by the properties and are interest free. The
loans are being amortized as compensation expense over the
period of service required of 5 to 10 years.
(b) This represents the cost of a retirement plans entered into by
the JV during 1998 for its staff and is being amortized over
20 years. Amortization for the years ended December 31, 1999
and 1998 was RMB241 (Note 13 and 17).
F-13
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
9. Staff housing loans
At December 31, 1999 staff housing loans of RMB2,831 consist
of housing loans advanced to the existing staff of the JV for the
purchase of residential properties. The loans are collateralized by the
properties purchased, bear interest at approximately 0.3% per annum and
are repayable over periods of 3 to 15 years. During the year ended
December 31, 1999 loans of RMB1,062 were made and RMB622 was repaid.
10. Intangible assets
<TABLE>
<CAPTION>
US Dollars RMB
---------- ---
<S> <C> <C>
Goodwill $ 486 4,027
Proprietary technology and trademarks, at cost 420 3,480
Accumulated amortization (151) (1,254)
------------------ ----------------
755 6,253
Proprietary technology and trademarks written off
(Note 13) (350) (2,901)
------------------ ----------------
$ 405 3,352
================== ================
</TABLE>
11. Notes payable
At December 31, 1999, notes payable consist of amounts payable
to various banks in the PRC. RMB22,000 is collateralized by the Joint
Venture Partners land use rights of certain property that includes the
JV factory premises and by certain plant and machinery owned by the JV
and the JV partner. All notes are due within one year of the balance
sheet date and interest at a weighted average rate of 8.3% per annum
was incurred during 1999 (1998: 8.4%).
12. Other long-term debt
At December 31, 1999, long term debt consists of loans from
the Technical Department of the Liuzhou City Government for the purpose
of carrying out research and development projects. The loans are
unsecured, non-interest bearing, are guaranteed by a subsidiary of the
JV Partner and are repayable in 2001 except for RMB360, which is
repayable in 2000. During the year ended December 31, 1999, as a result
of the successful completion of certain research and development
projects, loans of RMB300 were applied against research and development
expense. At December 31, 1999, repayment of an additional RMB60 is
contingent upon the successful completion of certain remaining
projects.
F-14
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
13. Subsequent events
In January 2000, the Company and the Joint Venture Partner
entered into various agreements resulting in the following:
a. Termination of the Company's lease of land, buildings,
property and equipment from the Joint Venture Partner.
b. Allocation of Company personnel to the Joint Venture
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 Joint Venture 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, as a result of the pending 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 to be located. The term of
the lease is 25 years, beginning January 1, 2000, with annual rent of
RMB1,000 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. Both of the above leases are to be treated as capital leases.
In January 2000, approximately 300 members 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 December 31, 1999 was approximately
RMB800, RMB2,400 and RMB1,946, respectively related to these employees.
These assets are to be transferred to the JV Partner.
In December 1999, as a result of the termination of the
Company's rights to use certain intangible assets, including the "OVM"
trademark, the Company wrote off RMB2,901 of intangible assets.
RMB2,110 was absorbed by the JV Partner resulting in a net loss to the
Company of RMB791. Beginning in January 2000, Liuzhou OVM's products
are 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 JV 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 year-end. As of April 28,
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 as well as a value
for the Company's equity investment in Orient Prestress. However,
management believes that the value of assets transferred will not be
less than their carrying values at December 31, 1999.
F-15
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
14. Common stock and additional paid-in capital
The Company has issued 4,000,000 stock purchase warrants for
the purchase of one share of the Company's common stock at an exercise
price of US$3.00 per warrant, exercisable through December 23, 2000. An
aggregate of 4,000,000 shares of common stock has been reserved for
issuance upon exercise of the stock purchase warrants. All stock
purchase warrants remained outstanding at December 31, 1999.
The Company has a stock option plan (the "Plan") that allows
the Company to grant stock options to officers, directors, key
employees, consultants and affiliates of the Company. An aggregate of
1,000,000 shares of common stock have been reserved for issuance upon
exercise of stock options granted under the Plan. Pursuant to the Plan,
the exercise price must be at least equal to the fair market value of
the shares of common stock at the date of grant. At December 31, 1999,
no stock options have been granted under the Plan.
15. Income taxes
It is management's intention to reinvest all the income
attributable to the Company earned by its operations outside the United
States. Accordingly no U.S. corporate income taxes have been provided
in these financial statements.
Under the current laws of the British Virgin Islands (the
"BVI"), dividends and capital gains arising from the Company's
investments in the BVI are not subject to income taxes and no
withholding tax is imposed on payments of dividends to the Company.
Pursuant to an approval issued by the State Tax Bureau of the
Liuzhou City dated July 22, 1996, the income of the JV is fully exempt
from Chinese national 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
30% exclusive of local income tax of 3%. The JV is also exempt from the
local income tax rate throughout the term of the joint venture.
Provision for income tax of 15% has been made as the three year full
tax exemption commencing from the first profitable year in 1995 expired
during the year. The Company's share in the JV's tax savings resulting
from this tax holiday for the years ended December 31, 1999 and 1998
amounted to RMB87 and RMB360 (RMB0.01 and RMB0.04 per share),
respectively.
OVM Prestress was formed in 1998 and is subject to business
tax of 3% on sales and national and local income tax of 33%.
F-16
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
15. Income taxes (continued)
A reconciliation of the effective income tax rates with the
statutory income tax rate in the PRC is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
RMB RMB
<S> <C> <C>
Statutory income tax 33% 33%
Computed expected tax expense 1,728 1,291
Impact of tax holiday of the JV (124) (514)
Item which gives rise to no tax benefit:
Net loss of the Company and ODL 413 638
Others, primarily timing differences in revenue recognition 829 170
---------------- ----------------
Taxation charges for the year 2,846 1,585
================ ================
</TABLE>
The Company's share in the undistributed earnings of the
Company's foreign subsidiaries amounted to RMB34,587 and RMB33,064 at
December 31, 1999 and 1998 respectively. Because those earnings are
considered to be indefinitely invested, no provision for United States
corporate income taxes on those earnings has been provided. Upon
distribution of those earnings in the form of dividends or otherwise,
the Company would be subject to U.S. corporate income taxes.
Unrecognized deferred U.S. corporate income tax in respect of these
undistributed earnings, less the Company's expenses available for
deduction for tax purposes, as at December 31, 1999 and 1998 was
RMB10,447 and RMB9,873 respectively.
No deferred income taxes have been provided as the effect of
all temporary differences is not material.
16. Foreign currency exchange
The Renminbi ("RMB") is not freely convertible into foreign
currencies.
A single rate of exchange is quoted daily by the People's Bank
of China. Enterprises operating in the PRC can enter into exchange
transactions through the People's Bank of China or other authorized
institutions. Payments for imported materials are subject to the
availability of foreign currency, which is dependent on the foreign
currency denominated earnings of the enterprises, or must be arranged
through the authorized institutions. Approval for exchange at the
authorized institutions is granted to enterprises in the PRC for valid
reasons such as purchases of imported materials and remittance of
earnings. While conversion of RMB into United States dollars or other
foreign currencies can generally be effected at the authorized
institutions, there is no guarantee that it can be effected at all
times. At December 31, 1999 and 1998, RMB38,217 and RMB36,143,
respectively, of shareholders' equity is subject to exchange conversion
restrictions.
F-17
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
17 Retirement plans
As stipulated by PRC government regulations, the JV is
required to make pension contributions of 19% of basic salaries to PRC
insurance companies which are organized by the PRC government. The PRC
insurance companies are responsible for the payment of pension benefits
to retired staff. Contributions made by the JV during the years ended
December 31, 1999 and 1998 amounted to RMB1,494 and RMB1,215
respectively.
The JV also operates two additional retirement plans for its
staff. Under one of the plans, the JV contributes 5% of basic salaries.
On retirement, the staff members are entitled to a lump sum payment of
the balance in their accounts. Costs incurred by the JV for this plan
during the years ended December 31, 1999 and 1998 amounted to RMB207
and RMB213 respectively.
Under the second retirement plan, the JV made a one-time
contribution of RMB4,661 in 1998. Under this retirement plan, the staff
will only benefit from the plan if they work in the JV until
retirement, as defined. Upon retirement, qualifying staff will receive
a defined monthly pension benefit.
The JV has no obligation for the payment of pension benefits
beyond the contributions described above.
18. Related party transactions and balances
A significant portion of the business undertaken by the
Company during the years has been effected with other State-owned
enterprises in the PRC and on such terms as determined by the relevant
PRC authorities. All these transactions including the transactions
summarized in this note represent realized revenues and expenses to the
Company.
After the commencement of operation of the JV in 1995, the JV
Partner became an investment holding company and engaged in the trading
of building and construction materials, import and export of
construction equipment, construction design and consultation services
which are in different segments from the products and services provided
by the JV. The JV Partner remains a State-owned enterprise of which the
majority is owned by the Mechanical and Electrical Industrial Bureau of
the Liuzhou City Government. The significant transactions of the
Company with the JV Partner and its subsidiaries are summarized below:
F-18
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
18. Related party transactions and balances (continued)
<TABLE>
<CAPTION>
1999 1998
US Dollars RMB RMB
---------- --- ---
<S> <C> <C> <C>
Sales of raw materials $276 2,283 24,960
Sales of finished goods 1,162 9,619 663
Interest income - - 2,941
Rental income from leasing of -
plant and machinery 7 61 -
Sales of machinery 4 34 -
Transportation income 28 235 -
Services fee income 4 34
Rental expenses for leasing of
land and buildings, plant and
machinery and motor vehicles (303) (2,505) (2,553)
Purchases of raw materials (24) (196) (19,250)
Sub-contracting charges (1,283) (10,621) (7,312)
Interest expense (59) (489) (553)
Purchases of finished goods (416) (3,443) (5,960)
Management fees (37) (310) -
In addition, the Company had transactions with affiliates of
the JV Partner, as summarized below:
1999 1998
US Dollars RMB RMB
---------- --- ---
Sales of raw materials $ 2 20 924
Sales of finished goods - 623
Interest income - 155
Rental expenses for leasing of
plant and machinery (95) (784) (824)
Sub-contracting charges (30) (246) (541)
Interest expense - (2)
Purchases of raw materials (185) (1,533) -
</TABLE>
F-19
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
18. Related party transactions and balances (continued)
During the years ended December 31, 1999 and 1998, the Company
made sales of RMBNil and RMB460, respectively to a Hong Kong company in
which two of the Company's directors have a beneficial interest and of
RMB1,783 and RMBNil, respectively to OVM Prestress Engineering Company
Pte. Ltd.
<TABLE>
<CAPTION>
The balances with related parties are as follows:
US Dollars RMB
<S> <C> <C>
Due from related parties:
JV Partner $ 2,707 22,412
Director - Mr. Ching Lung Po 1,684 13,948
----------------- ----------------
$ 4,391 36,360
================= ================
</TABLE>
During the years ended December 31, 1999 and 1998 the interest
rate on amounts due from related parties was 0% and 8.4%, respectively.
Pursuant to an agreement dated on December 1, 1997, the JV
Partner and its affiliates and subsidiaries agreed to pay the interest
to Liuzhou OVM on the balances due to it. The accumulated interest
charged on the balances with the JV Partner and its affiliates and
subsidiaries as at December 31, 1999 amounted to RMB7,800 which has not
been settled by the JV Partner. Liuzhou OVM has made a provision of
RMB1,500 in respect of this matter. The balance of RMB6,300 has been
transferred to amount due from a director - Mr Ching Lung Po, who has
undertaken the recoverability of this amount.
19. Supplemental cash flow information
<TABLE>
<CAPTION>
1999 1998
US Dollars RMB RMB
---------- --- ---
<S> <C> <C> <C>
Interest paid $ 335 2,772 3,891
================= ================= ================
Income taxes paid $ 345 2,861 244
================= ================= ================
</TABLE>
F-20
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
20. Financial instruments
The carrying amounts reported in the Company's balance sheet
for current assets and current liabilities, except for bank loans and
amounts resulting from related party transactions, qualifying as
financial instruments approximate their fair values because of the
short maturity of such instruments. The carrying amounts of bank loans
approximate their fair value based on the borrowing rates currently
available for bank loans with similar terms and average maturities. The
fair value of the amount resulting from related party transactions
cannot be determined due to the related party nature of the
transactions.
21. Nature of operations and concentration of risk
The Company manufacturers and sells substantially all
prestress products used in the construction of highways, bridges and
buildings in the PRC. Accordingly, the credit risk arising from
accounts receivable of the JV is concentrated with the PRC government
which is usually the initiator of these large scale capital projects.
During the years ended December 31, 1999 and 1998, the Company also had
foreign sales (primarily in Japan and Vietnam) comprising approximately
12% and 3% of total sales, respectively.
No customers accounted for 10% or more of the total sales of
the Company during 1999 or 1998.
Details of the Company's purchases from suppliers, which
accounted for 10% or more of the total purchases, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
% %
<S> <C> <C>
Purchases:
Hubei Huangshi Metal Materials Company - 17
Hubei Huangshi Dazhi Steeling Factory 20 15
Others 80 68
---------------- ----------------
100 100
================ ================
</TABLE>
The PRC economy has, for many years, been a centrally planned
economy, operating on the basis of annual, five-year and ten-year state
plans adopted by central PRC governmental authorities which set out
national production and development targets. The PRC government has
been pursuing economic reforms since it first adopted its "open-door"
policy in 1978. There is no assurance that the PRC government will
continue to pursue economic reforms or that there will not be any
significant change in its economic or other policies, particularly in
the event of any change in the political leadership of, or the
political, economic or social conditions in the PRC. There is also no
assurance that the Company will not be adversely affected by any such
change in government policies or any unfavorable change in the
political, economic or social conditions, the laws or regulations or
the rate or method of taxation in the PRC.
F-21
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
21. Nature of operations and concentration of risk (continued)
As many of the economic reforms which have been or are being
implemented by the PRC government are unprecedented or experimental,
they may be subject to adjustment or refinement which may have adverse
effects on the Company. Further, through state plans and other economic
and fiscal measures, it remains possible for the PRC government to
exert significant influence on the PRC economy.
22. Distribution of profits
The Company's ability to pay dividends is primarily dependent
on the Company receiving distributions from the JV in the PRC.
Pursuant to the relevant laws and regulations of Sino-foreign
joint venture enterprises, and the JV's articles of association, the JV
is required to make appropriations to a general reserve fund, an
enterprise development fund and an employee welfare and incentive fund,
in which the percentage of annual appropriations are subject to the
decision of the JV's board of directors. The appropriations to the
employee welfare and incentive fund have been charged to the statements
of income. The other appropriations, if any, are accounted for as
reserve funds in the balance sheet and are not available for
distribution as dividends to the joint venture partners of the JV. In
accordance with a board resolution, no appropriations were made to the
reserve funds by the JV for 1999 and 1998.
Net income of the JV and its subsidiaries reported under US
GAAP differs from that reported under PRC Rules and Regulations.
Profits available for distribution are based on financial statements
prepared under PRC Rules and Regulations, and at December 31, 1999 and
1998, the Company's share in the distributable profits of the JV and
its subsidiaries were approximately RMB39,360 and RMB37,301,
respectively.
23. Operating lease commitments
At December 31, 1999, future minimum payments under operating
leases for the leasing of land and buildings, plant and machinery and
motor vehicles in Liuzhou from the JV Partner were RMB289, all due in
2000.
Rent Expense under operating leases was RMB3,461 and RMB3,495
for the years ended December 31, 1999 and 1998, respectively.
F-22
<PAGE>
- --------------------------------------------------------------------------------
OVM INTERNATIONAL HOLDING CORPORATION
- --------------------------------------------------------------------------------
24. Commitments and Contingencies
In accordance with an agreement dated June 5, 1995 (the "Original
Agreement"), the JV Partner agreed to transfer certain intangible
assets including trademarks and proprietary technology and know-how
relating to its products and products under development to Liuzhou OVM
for a total consideration of RMB24,000 (US$2,899) (the "Transfer fee").
An annual royalty (the "Annual Royalty") calculated at 1.5% on the net
sales (before VAT) is payable by Liuzhou OVM each year commencing
January 1, 1997 until the Transfer fee is fully settled. By a
supplementary agreement dated December 18, 1995 (the "Supplementary
Agreement") entered into between Liuzhou OVM and the JV Partner, the
Transfer fee was revised from RMB24,000 to RMB8,000 and the calculation
of Annual Royalty was revised from 1.5% to 0.6% on the net sales before
VAT. In addition, pursuant to an agreement with the JV Partner dated
December 12, 1999, Liuzhou OVM agreed to stop to use the trademarks and
the JV Partner agreed to waive the remaining unsettled Transfer fee. A
disagreement has arisen regarding the calculation of the Transfer fee.
The JV Partner is calculating the Transfer fee on the basis of the
Original Agreement at 1.5% on the net sales before VAT and ignored the
Supplementary Agreement. The accumulated difference in Annual Royalty
as calculated from the two agreements for the period from January 1,
1997 to December 31, 1999 amounted approximately to RMB4,500.
Management of Liuzhou OVM is in the process of negotiation with the JV
Partner for the resolution of this matter and are confident that
agreement will be reached and the Supplementary Agreement will prevail.
At December 31, 1999, the Company had outstanding capital
commitments for purchases of equipment and moulds of approximately
RMB3,383. In addition, Liuzhou OVM entered into purchase contracts
subsequent to year-end, for the acquisition of the plant and machinery
amounting to RMB1,369.
F-23
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
10.20 Agreement on Termination of Use of Intangible Assets
10.21 Agreement on the Division of Technical Information and Personnel and
Other Issues
10.22 Agreement on Termination of Tangible Assets Leasing Agreement
10.23 Agreement on Leasing of Production and Transportation Equipment
10.24 Agreement on Leasing of Production and Operating Premises and Buildings
21 Subsidiaries of the Registrant
27 Financial Data Schedule
-37-
EXHIBIT 10.20
Agreement on Termination of Use of Intangible Assets
Party A: Liuzhou Construction Machinery General Factory
Party B: Liuzhou OVM Construction Machinery Co., Ltd.
Party A and Party B, upon mutual negotiation, hereby reach the following
agreement on the termination of use of the intangible assets owned by Party A:
1. The "Agreement on the Transfer of Intangible Assets" entered between
Party A and Party B on June 5, 1995 shall be terminated on January 31,
2000.
2. Party B still has the right to use the intangible assets of Party A
according to the previous agreement before January 31, 2000. When using
the intangible assets, Party B guarantees to maintain and protect the
honor of the intangible assets owned by Party A and shall not cause any
damage to the image and honor of the intangible assets owned by Party
A. Party B shall not cause any defamation or damage to the intangible
assets owned by Party A due to its termination of use of the intangible
assets after such termination.
3. Party A and Party B shall comply the clauses of this Agreement
strictly, and if any party breaches this Agreement, that breaching
party shall bear related economic responsibility.
4. This Agreement is in duplicate, with one held by each party. This
Agreement takes effect after signing by the legal representatives of
both parties.
Party A: Party B:
Liuzhou Construction Machinery Liuzhou OVM Construction Machinery
General Factory Co., Ltd.
/s/ Chen Qian /s/ Ching Lung Po
- ------------- -----------------
Chen Qian Ching Lung Po
December 12, 1999
EXHIBIT 10.21
Agreement on the Division of Technical Information and
Personnel and Other Issues
Party A: Liuzhou Construction Machinery General Factory (the "Factory")
Party B: Liuzhou OVM Construction Machinery Co., Ltd. ("Liuzhou OVM")
After friendly negotiation, Party A and Party B hereby reach agreement on the
following issues:
I. Personnel Division
1. Party A and Party B have agreed: after determining respective
intermediate-level personnel, both parties issued a joint notice on
January 5, 2000, and have decided the working personnel working in Party
A and Party B, respectively, according to actual requirements for human
resources and based on the personal wills. The list of these personnel
shall be finalized before 15:00 of January 6. After confirming the
personnel, the management personnel shall not be changed before March 1.
2. The personnel of Operating Company and Import & Export Company shall be
divided according to the joint notice issued by both parties on December
26, 1999.
3. The contracts entered by the Operating Company and Import & Export
Company in the name of the Factory and the files and information of the
Factory shall be handed over to the Factory; and the contracts entered by
Liuzhou OVM and file and information of Liuzhou OVM shall be handed over
to Liuzhou OVM. The above hand-over work shall be started on January 7
and be responsible by the respective appointing personnel. The hand-over
of files and information for fiscal year 1999 shall be completed before
January 7, and the hand-over of other files and information shall be
completed before January 12.
4. The originals of files and information of the production & manufacturing
department, quality control department, information center, purchasing
department and host secretary system of Liuzhou OVM shall be handed over
to Party A if such originals are handled and registered in the name of
Party A and Party B shall keep copies of such originals; or handed over
to Party B if such originals are handled and registered in the name of
Party B and Party A shall keep copies of such originals. The original of
policy documents of human resources department shall be handed over to
Party A, with copies kept by Party B. The personnel records, contracts,
graduation certificates and professional title certificates of the
personnel transferred to the Factory shall be handed over to Party A. The
hand-over work shall be commenced on January 7 and completed by January
12, 2000. Information of other departments not mentioned above shall be
handed over, where necessary, according to above-mentioned Clauses.
5. The list of personnel working in Party A or Party B shall be determined
before 3:00 P.M. on January 6, 2000,. January 7 to 8 is a period for work
hand-over and take-over. On January 9, the personnel of each party shall
return to the offices of respective parties and no personnel
intercrossing shall happen any more since then. Any personnel who have
changed the party to work for shall hand over the documents, files
information and business related to his previous job to his ex-employer
before January 8 before leaving.
6. After this personnel division, Party A and Party B warrant that the
year-end salary calculation and bonus of all personnel, no matter they
work for Party A or Party B, shall not be affected (those for sales and
marketing personnel
1
<PAGE>
shall be handled in accordance with the joint notice issued on December
26, 1999 by both parties).
7. After this personnel division, all pensions, risk securities, housing
loans and individual borrowing, etc. handled by Liuzhou OVM before
December 31, 1999 shall be transferred in accordance with their new
employment relationships. The settlement shall be made through offsetting
the current accounts between both parties which shall be completed before
January 31, 2000.
8. After this personnel division, the personnel departments of both parties
shall manage their own personnel respectively and no intercrossing is
allowed. Afterwards, any personnel turnover shall be handled in
accordance with the regulations of the State.
II. Technical Information
1. The originals of technology patents and information materials of the
Factory shall be kept in the Factory and Liuzhou OVM shall keep a copy
for each document.
2. The originals of technology patents and information materials which were
generated after the establishment of Liuzhou OVM shall be kept in Liuzhou
OVM and the Factory shall keep a copy for each document.
3. Both parties may continue to use the documents on technical patents and
technical design (including product inspection certificates and test
reports) developed by either party before January 31, 2000 without
charges. One party may give priority to the other on the use of its
technical patents developed after February 1, 2000, either at a charge or
free of charge, upon mutual negotiation.
4. From January 6, 2000 onwards, Party A and Party B shall send their
respective staff to handle the change over formalities in the technical
information room and original drawing room, and both parties shall try
their best to finish such formalities before January 31, 2000.
5. Borrowing, using or copying is allowed for production purpose and shall
be conducted through normal channel, with the presentation of signatures
by Chen Qian, Head of the Factory, or Wang Liuping, Secretary, for Party
A, or, with presentation of signature by Ding Yong Gui, Deputy-general
Manager, for Party B.
III. Equipment
1. The equipment shall be arranged on the basis of respective ownership. The
tools that are used with the equipment shall be owned by the Factory if
such tools are manufactured before September 1995, or owned by OVM Joint
Company if manufactured after October 1, 1995. If there are two sets of
the same equipment owned by Party B, Party B could sell one set to Party
A at an agreed price by offsetting the current account between both
parties. If there is only one set of equipment, the party who holds its
ownership shall decide whether to transfer it or not.
2. Party A shall agree to keep the three cranes owned by Party B for its use
as the structure of Party B's new factory building is unsuitable to use
them. Party B shall transfer the three cranes to Party A at agreed prices
based on their net values and shall be settled by offsetting the current
accounts.
3. Party B shall guarantee not to purchase the same kind of paint coating
equipment for production of same kind of products in the future. Party A
shall agree to buy, at the actual purchasing price, the paint coating
equipment of
2
<PAGE>
Party B which has been using in the Cable Company, by offsetting
respective party's current account.
4. Party B shall transfer No.3 multi-functional heat treatment plant to
Party A, by presenting the copy of the original invoice and expense
details, as is required by Party A, of which amount shall be offset
through the current account after verification.
5. In the process of relocating its equipment related with its production
and management, Party B shall transfer those equipment to Party A, at
agreed prices by offsetting the current account, if Party B is of the
opinion that such equipment is difficult to move or moving such equipment
shall incur heavy losses and Party A also needs such equipment its
production.
IV Party A shall agree to move the Import & Export Company out of the
original office building, and shall leave the sales department of Party A
to work in the previous office of the Trading Company of Party B, and
Party B shall move its Trading Company to other place. This change of
office place shall be completed before January 12.
V Raw materials and finished products
One third of each specification of raw materials and finished products
(including the goods used or delivered by Party A during the transition
period) shall be left to Party A based on the inventory ledger of Party B
as at December 31, 1999. All the rest shall be moved out by Party B
before February 29. For the one third of raw materials and finished
products left for Party A, of which the raw materials are based on book
prices and finished products are based on agreed prices. For those raw
materials and goods which are not recorded in the ledger shall be
allocated after verification and counted by both parties.
VI For all the above-mentioned equipment, raw materials and finished
products transferred to Party A by Party B, Party B shall prepare an
invoice based on the checklist signed by Party A after its receipt and
the agreed prices for settlement with Party A.
VII Current account issue
1. Concerning the current accounts between Party B and Party A (including
Party A' subsidiaries, Rubber Company, Liuzhou Wireless Factory, Cable
Company, Light Material Factory, Orient Company, Prestress Material
Company, Heat Treatment Branch Factory and other independent-accounting
units), both parties shall enter into an offsetting agreement before
January 31, 2000 after accounts verification by both parties to transfer
all current accounts with Party A's subsidiaries which are
independent-accounting units to a centralized account of Party A.
2. Concerning the returning of rental for leasing Beijing Office, a rental
of Rmb1,300,000 has been paid according to the lease agreement (of which:
the Factory paid Rmb400,000 and Liuzhou OVM paid Rmb900,000), with lease
period of fifty years and annual rental of Rmb26,000. Liuzhou OVM has
used it for 4 years and 6 months with total rental of Rmb117,000. Now
Party A shall agree to lease Beijing Office and pay Rmb320,000 as rental
to Party B by offsetting the current account between the two parties. The
Beijing Office shall be in use by Party A thereafter.
3. Concerning the commercial retirement insurance purchased previously by
Party B for the staff of Party A, respective parties' personnel
departments shall determine the amounts payable for them and shall settle
these amounts by
3
<PAGE>
offsetting the current account after determination of respective parties'
personnel before January 1, 2000.
4. Party A shall verify the payment by Liuzhou OVM on its behalf under the
house-purchasing scheme for awarding Wang Shanqing, Huang Shiyong and Wu
Guosen amounted to Rmb700,000 before January 31, 2000, and the amount
shall be settled through offsetting current account.
VIII No.3 mechanical workshop and finished product warehouse
1. The equipment, tools, clipping devices, materials and semi-finished
products in No.3 mechanical workshop and finished product warehouse which
are owned by Liuzhou OVM shall be transferred to Party B's new premise as
soon as possible.
2. After Party B has moved out the equipment in the No.3 mechanical workshop
and finished product warehouse, the two vacant buildings which are owned
by Liuzhou OVM shall be taken over by Party A at an agreed price or at a
price after valuation. The price shall be settled by offsetting through
current account that shall be finished before the transfer of the factory
buildings.
3. Party B shall transfer the two buildings to Party A after Party B has
completed all the removal work.
IX Loan
1. Concerning the loans borrowed by Party B from Party A, Liuzhou OVM shall
agree to repay by installments on the condition that the above
settlements of current account be cleared and the exact loan amount be
verified.
2. One party shall agree to enter into guarantee agreement for the other
party in respect of working capital needed for the latter party's
production by separate agreement between both parties.
X. Moving work
Party B shall move to the new premise, Shuangma Factory, as soon as
possible, and Party A shall provide supports and cooperation to expedite
that moving work.
XI. Thereafter, both parties shall support each other, and neither party
shall defame the other as to its enterprise, products and trademarks.
XII. Party A and Party B shall comply the above-said clauses strictly. If
either party does not comply the above clauses strictly or even violates
these clauses, the relation coordination group appointed by the City
Committee of the Communist Party and City People's Government shall be
responsible for the coordination and arbitration. If either party
breaches the Agreement seriously, the breaching party shall bear related
responsibilities for its breaching of the agreement.
Party A: Party B:
Liuzhou Construction Machinery Liuzhou OVM Construction Machinery
General Factory Co., Ltd.
/s/ Chen Qian /s/ Ching Lung Po
- ----------------------- ------------------------------
Chen Qian Ching Lung Po
January 6, 2000
4
EXHIBIT 10.22
Agreement on Termination of Tangible Assets Leasing Agreement
Party A: Liuzhou Construction Machinery General Factory (the "Factory")
Party B: Liuzhou OVM Construction Machinery Co., Ltd.
Upon friendly negotiation, both parties hereby reach the following agreement on
the termination of the tangible asset leasing agreement:
1. Party A and Party B agree that the (LJ102-4) "Agreement on the Leasing of
Land, Buildings and Motor Vehicles" signed by both parties on June 5,
1995 shall be early terminated on March 1, 2000. Party B shall hand over
the tangible assets related with such Agreement to Party A on March 1,
2000. If some of the tangible assets that could not be handed over to
Party A in time, both parties shall negotiate to extend the period for
handing over.
2. As for the (LJ102-1/3) "Agreement on Leasing of Production Plant, Office
Building and Equipment" entered into between Party B and Orient Prestress
Co., Ltd. ("Orient") on December 5, 1997, the legal formalities of Orient
Prestress Co., Ltd. for terminating such Agreement shall be handled by
Party A, one of the shareholders of Orient. Shall the legal formalities
fail to be completed before February 29, 2000, Party A could, for and on
behalf of Orient, negotiate with Party B to find a way to terminate this
(LJ102-1/3) Agreement and return the tangible assets.
3. The transition period is from January 1, 2000 to February 29, 2000,
during which Party A shall still be responsible for the overall
production and management work. While relocating the equipment, Party B
shall ensure a good linking in handing over the leased assets specified
in above Clauses 1 and 2 to Party A. All the management personnel in
production and manufacturing departments who promised to remain to work
in Factory shall work under the commanding of Ding Yong Gui, with the
assistance and coordination of Wang Liu Ping, secretary of the Communist
Party Committee of Factory, so as to ensure the normal operation of the
production commanding system.
4. During this transition period, Party A shall not collect leasing charges
on the assets specified in above Clauses 1 and 2. The salaries and other
welfare of those persons who promised to remain to work in Factory shall
be paid by Party A.
5. During this transition period, for the execution of the contract signed
by both parties, Party B guarantees to finish the orders placed with it
on the basis of the quantity, delivery time and quality required by Party
A according to the normal production cycle evaluated. One third of the
inventories as at December 31, 1999 is reserved for Party A at agreed
prices, but not restrict to those under special contracts upon
presentation of the contracts signed with the customers. It shall be
coordinated and arranged through mutual negotiation. The prices are
agreed and to be settled with Party A based on 83% of the ex-factory
prices of Party B in 1999. In case Party A takes delivery of the products
processed and manufactured during the transition period, it shall be on
cash-on-delivery basis. The consideration for one third of the
inventories as at December 31, 1999 shall be settled through offsetting
the current accounts between both parties.
6. Party A and Party B shall comply the above-said clauses strictly. If
either party does not abide by the above clauses strictly or even violate
these clauses, the relation coordination group of the City Committee of
Communist Party and City People's Government shall be responsible for the
coordination and arbitration. If either party breaches the Agreement
seriously, the
1
<PAGE>
breaching party shall bear related responsibilities for its breaching of
the agreement.
Party A Party B:
Liuzhou Construction Machinery Liuzhou OVM Construction Machinery
General Factory Co., Ltd.
/s/ Chen Qian /s/ Ching Lung Po
- ----------------------- ---------------------------
Chen Qian Ching Lung Po
January 6, 2000
2
EXHIBIT 10.23
Agreement on Leasing of Production and Transportation Equipment
Party A: Liuzhou Weilesi Elevator Factory ("Weilesi")
Party B: Liuzhou OVM Construction Machinery Co., Ltd. ("Liuzhou OVM")
Upon friendly negotiation, Both parties hereby reach the following agreement on
leasing some of the production and transportation equipment by Party A to Party
B:
1. Party A agrees to lease some of its production and transportation
equipment for Party B's use. Please refer to the attached for the details
of equipment leased.
2. Party A guarantees that it shall have the ownership of above leased
equipment and shall be entitled to lease such equipment according to the
laws and regulations.
3. Party A guarantees that it shall handle all related formalities about the
above equipment leased to Party B as are required by laws and regulations
of the State or administrative procedures, such as, obtaining of the
approval of the Workers Deputy Congress, evaluation and reporting to
related authority for approval. Shall Party A fail to handle or finish
any necessary formalities that has caused this agreement to become
terminated or changed wholly or party, Party A shall compensate Party B
for the losses of which the amount equals twice the annual rental of the
previous year.
4. The annual rental of leasing the above production and transportation
equipment is calculated on the basis of 10% of the original values of the
equipment that are shown in the attached list of equipment leased.
5. The above lease of equipment is for a term of twenty years.
6. The rental of the above-mentioned equipment shall be paid every calendar
month before the fifteenth day of that month and a fine of 0.05% on a
daily basis shall be levied if the monthly rental is not paid before the
specified time. If Party B delay the payment the rental for more than six
months, Party A shall have the right to terminate this Agreement. If
Party B also agrees to terminate the Agreement, it shall bear the
responsibilities for breaching the Agreement according to Clause 13. If
Party B continues to lease the equipment after negotiation, Party B shall
pay all rental payable and a fine equals one month rental within 90 days.
7. During the lease period, Party A shall bear all related taxes levied by
the State, and Party B shall bear all the expenses incurred for the
transportation equipment.
8. During the lease period, Party B shall bear all repair and maintenance
expenses for above production and transportation equipment.
9. Party A shall hand over the production and transportation equipment
specified in Clause 1 of this Agreement to Party B before December 31,
1999. The lease period commences on January 1, 2000.
10. Party B shall guarantee that it shall use the leased production and
transportation equipment as mentioned in Clause 1 of this Agreement for
the purpose according to related laws and regulations, or otherwise Party
B shall bear the economic responsibilities resulted from such violation
of related laws and regulations.
1
<PAGE>
11. If Party A goes bankruptcy or plans to transfer or lease some or whole of
the production or transportation equipment during the effective period of
the Agreement, Party A shall give 6 months advance notice to Party B, and
Party B shall be given priority to purchase under the same conditions. If
the leased production or transportation equipment is transferred to the
other party, Party A shall guarantee that the transferee continues to
comply with the Agreement.
12. The Agreement shall terminate automatically if the following conditions
occur in the effective period of the Agreement:
(1) There happens the force majeure that leads to failure to execute
the Agreement.
(2) The government makes a decision to use the building and site where
the leased production equipment is installed and thus such
equipment need to be removed.
13. During the effective period of this Agreement, if either party wants to
terminate this Agreement in advance, that party shall give one year
advance notice to the other party. Any breaching party shall compensate
that other party the amount equals two years rental.
14. In order to strengthen the friendly cooperation relation between both
parties, Party B shall arrange for its products that require processing
to be performed by Party A and shall promise to employ the workers of
Party A at priority for its development and manufacturing of new
products.
15. Party A and Party B shall settle the disputes arising from the
performance of the Agreement through negotiation, and shall lodge a
lawsuit to the people's court if such settlement through negotiation
fails.
16. The Agreement is in six copies, with three held by each party. The
Agreement shall become effective after signing by the representatives and
affixing the common seals of both parties.
Party A: Party B:
Liuzhou Weilesi Elevator Liuzhou OVM Construction
Factory Machinery Co., Ltd.
/s/ Jiang Xiaolin /s/ Ching Lung Po
- -------------------------- --------------------------
Jiang Xiaolin Chinf Lung Po
December 12,1999
2
EXHIBIT 10.24
Agreement on Leasing of Production and Operating Premises and Buildings
Party A: Liuzhou Shuangma Electrical Group Company
Party B: Liuzhou OVM Construction Machinery Co., Ltd.
Upon friendly negotiation, both parties hereby reach the following agreement on
the lease of part of the production and operating premises and buildings owned
by Party A to Party B:
1. Party A shall agree to lease part of its production and operating
premises (including the roads outside the factory) and water and
electricity facilities to Party B. Party A shall agree to lease part of
its buildings (including the old canteen and clinic) to Party B. Please
see the attached diagram for the details to be leased.
2. Party A guarantees that Party A shall be entitled to lease the
above-mentioned land and buildings to Party B according to the laws and
regulations.
3. Party A guarantees that it shall handle all related formalities about the
above land and buildings leased to Party B as are required by laws and
regulations of the State or administrative procedures, such as, obtaining
of the approval of the Workers Deputy Congress and reporting to related
authority for approval. Shall Party A fail to handle or finish any
necessary formalities that has caused this agreement to become terminated
or changed wholly or party, Party A shall compensate Party B for the
losses amounted Rmb2 million (rental for two years plus decoration
expenses).
4. The annual rental for production and operating premises (including water
and electricity facilities) and buildings is Rmb1 million. Such rental
shall remain unchanged during the first five years and to be increased by
1% annually thereafter.
5. The above lease of production premises (including water and electricity
facilities) and buildings is for a term of 25 years.
6. As this Agreement becomes effective, Party B shall pay a deposit of
Rmb80,000 to Party A. The rental of the above-mentioned equipment shall
be paid every quarter within first ten days of that quarter amounted to
Rmb250,000 and a fine of 0.05% on a daily basis shall be levied if the
monthly rental is not paid before the specified time. If Party B delay
the payment the rental for more than six months, Party A shall have the
right to terminate this Agreement. If Party B also agrees to terminate
the Agreement, it shall bear the responsibilities for breaching the
Agreement according to Clause 15. If Party B continues to lease the
equipment after negotiation, Party B shall pay all rental payable and a
fine equals one month rental within 90 days.
7. During the lease period, Party A shall pay all the real-estate-related
taxes and fees levied by the State.
8. During the lease period, Party B shall be responsible for the repairs and
renewal of above-mentioned buildings and water and electricity
facilities. Party B shall have the ownership of added facilities after
the lease period. Party A shall assist Party B in providing solutions for
the independent metering of water and electricity consumption, with
expenses borne by Party B.
9. Party A shall hand over part of the production premises (including water
and electricity facilities) and buildings in the production area
specified in Clauses 1 and 2 of this Agreement to Party B before December
31, 1999 and rental shall be payable from January 1,2000 onwards. All the
rest shall be handed over to Party B before February 15, 2000, and Party
B shall be responsible for decoration and the rental shall be payable on
April 1, 2000 onwards.
1
<PAGE>
10. Party B shall guarantee that it shall use the leased premises (including
water and electricity facilities) and buildings for the purpose according
to the related laws and regulations, or otherwise Party B shall bear the
economic responsibilities resulted from such violation of related laws or
regulations.
11. Party B shall use the leased premises (including water and electricity
facilities) and buildings specified in Clauses of this Agreement for the
industrial production purpose and shall comply with fire safety
regulations of the State. If such premises and buildings shall be used
for other purposes, prior approval of Party A is necessary.
12. During the effective period of this Agreement, Party B shall be allowed
to decorate the leased buildings. If the structure of the buildings shall
be changed significantly, prior approval of Party A is necessary. The
decoration shall not be dismantled after the expiration of the lease
period.
If Party B has to expand or modify the leased buildings during the
effective period of the agreement, prior approval of Party A is
necessary, and also shall be accompanied by the approval of the related
authorities as when necessary. Party A and Party B shall sign a written
agreement on this issue.
13. During the effective period of this Agreement, if Party A needs to
transfer the whole or part of leased buildings and premises, Party A
shall give one year advance notice to Party B, and Party B shall be given
the priority to purchase under the same conditions. If the leased
premises and buildings are transferred to others, Party A shall guarantee
that the transferee continues to comply with the Agreement.
14. The Agreement shall terminate automatically if the following conditions
occur during the effective period of the agreement:
(1) There happens the force majeure that leads to failure to execute
the Agreement.
(2) The government makes a decision to use the land where the leased
buildings are required to be removed.
15. During the effective period of this Agreement, if either party wants to
terminate this Agreement in advance, such party shall give two years
advance notice to the other party. Any breaching party shall compensate
the other party an amount equals two years rental.
16. In order to strengthen the friendly cooperation relation between both
parties, Party B shall arrange for its products that require processing
to be processed by Party A on the conditions that the same quality, same
prices and timing delivery are assured. When other conditions are
fulfilled, both parties shall discuss on further cooperation.
17. Party A and Party B should settle the disputes on the performance of the
Agreement through negotiation, and may lodge a lawsuit to the people's
court if such settlement fails.
18. The Agreement is in six copies, with three copies held by each party. The
Agreement shall become effective after signing by the representatives of
both parties and affixing the common seals of both parties.
Party A: Party B:
Liuzhou Shuangma Electrical Liuzhou OVM Construction
Machinery Group Co. Co., Ltd.
/s/ Feng Liulin /s/ Ching Lung Po
- -------------------- -----------------------
Feng Liulin Ching Lung Po
December 11, 1999
2
EXHIBIT 21
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
Name Jurisdiction Percentage Ownership
- ---- ------------ --------------------
<S> <C> <C>
OVM Development Limited British Virgin Islands 100%
Liuzhou OVM Construction People's Republic 70% (by ODL)
Machinery Company Limited of China
Liuzhou OVM Prestress People's Republic 69.3% (by Liuzhou OVM)
Construction Co. Ltd. of China
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB REPORT OF OVM INTERNATIONAL HOLDING CORP FOR THE YEAR ENDED DECEMBER 31,
1999 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 8.28
<CASH> 22,859
<SECURITIES> 0
<RECEIVABLES> 46,292
<ALLOWANCES> 12,488
<INVENTORY> 32,584
<CURRENT-ASSETS> 141,529
<PP&E> 25,977
<DEPRECIATION> 9,834
<TOTAL-ASSETS> 176,848
<CURRENT-LIABILITIES> 82,599
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 61,113
<TOTAL-LIABILITY-AND-EQUITY> 176,848
<SALES> 188,262
<TOTAL-REVENUES> 188,262
<CGS> 109,415
<TOTAL-COSTS> 109,415
<OTHER-EXPENSES> 72,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,224
<INCOME-PRETAX> 5,236
<INCOME-TAX> 2,846
<INCOME-CONTINUING> 1,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
