10QSB 1 0001.txt NOTIFICATION OF LATE FILING U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter period ended June 30, 2000 ------------- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _____________ OVM INTERNATIONAL HOLDING CORP. (Exact Name of Small Business Issuer as specified in its Charter) Nevada 88-0344135 (State or other Jurisdiction (IRS Employer of incorporation) Identification No.) West 516 Sprague Avenue Spokane, Washington 99204 (Address of Principal Executive Office) (509) 744-8590 (Issuer's Telephone Number, Including Area Code) Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 12,050,000 shares of common stock, $0.0001 par value, as of August 14, 2000. Traditional Small Business Disclosure Format: Yes [ ] No [X] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Amounts in thousands, except share and per share data)

Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 2000 1999 2000 ---- ---- ---- ---- ---- ---- RMB RMB US$ RMB RMB US$ NET SALES 40,447 45,065 4,885 61,050 80,848 7,373 COST OF SALES (33,765) (25,808) (4,078) (45,271) (44,971) (5,467) -------- -------- ------- ------- ------- ------- GROSS PROFIT 6,682 19,257 807 15,779 35,877 1,906 SELLING AND ADMINISTRATIVE EXPENSES (9,502) (12,145) (1,148) (18,470) (23,786) (2,231) INTEREST EXPENSES (279) (947) (34) (1,219) (1,890) (147) INTEREST INCOME 130 45 16 138 130 17 OTHER INCOME/(EXPENSES), NET (1,492) 256 (180) (1,522) 653 (184) ----------- ----------- ---------- ---------- ------------ ---------- INCOME/(LOSS) BEFORE INCOME TAXES (4,461) 6,466 (539) (5,294) 10,984 (639) INCOME TAXES (2,813) (1,066) (340) (2,885) (1,810) (349) ----------- ----------- ---------- ---------- ------------ ---------- (7,274) 5,400 (879) (8,179) 9,174 (988) MINORITY INTERESTS 2,024 (1,802) 245 2,142 (3,062) 259 ----------- ----------- ---------- ---------- ------------ ---------- (5,250) 3,598 (634) (6,037) 6,112 (729) EQUITY IN EARNINGS OF EQUITY INVESTEE 2 82 -- 13 117 1 ----------- ----------- ---------- ---------- ------------ ---------- NET INCOME/(LOSS) (5,248) 3,680 (634) (6,024) 6,229 (728) =========== =========== ========== ========== ============ ========== BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE (0.44) 0.31 (0.05) (0.50) 0.52 (0.06) =========== =========== ========== ========== ============ ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 =========== =========== ========== ========== ============ ==========

See notes to condensed consolidated financial statements. 2 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 (Amounts in thousands)

June 30, December 31, June 30, 2000 1999 2000 ---- ---- ---- RMB RMB US$ Notes (Unaudited) (Note) (Unaudited) ASSETS Current assets: Cash and bank balances 9,888 22,859 1,194 Accounts receivable 33,743 33,804 4,075 Inventories 2 19,256 32,584 2,326 Prepayments, deposits and other 12,124 9,313 1,464 Due from related parties 38,891 36,360 4,697 Assets held for sale - 6,609 - ---------- ---------- ---------- Total current assets 113,902 141,529 13,756 Property, machinery and equipment, net 3 34,643 16,143 4,184 Investments 8,616 8,332 1,041 Other assets: Deferred asset 1,989 4,661 240 Staff housing loans 868 2,831 105 Intangible assets 3,284 3,352 397 ---------- ---------- ---------- Total assets 163,302 176,848 19,723 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable 9,000 28,000 1,087 Current portion of long term debt 510 360 62 Current portion of capital lease 256 - 31 Accounts payable 31,488 25,529 3,803 Advance payments by customers 7,110 7,775 858 Other payables and accrued liabilities 9,499 15,062 1,147 Taxes payable 1,550 5,873 187 ---------- ---------- ---------- Total current liabilities 59,413 82,599 7,175 Long term debt net of current portion 540 690 65 Capital lease obligations 17,934 - 2,166 ---------- ---------- ---------- Total liabilities 77,887 83,289 9,406 ---------- ---------- ---------- Minority interests in consolidated 30,294 32,436 3,659 ---------- ---------- ---------- Shareholders' equity: Common stock, 40,000,000 shares, par US$0.0001 authorized; 12,050,000 shares, issued and outstanding 10 10 1 Additional paid-in capital 30,795 30,795 3,720 Retained earnings 24,233 30,257 2,927 Accumulated other comprehensive income 83 61 10 ---------- ---------- ---------- Total shareholders' equity 55,121 61,123 6,658 ---------- ---------- ---------- Total liabilities and shareholders' equity 163,302 176,848 19,723 ========== ========== ==========

Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Amounts in thousands)

Accumulated Other Common Additional Retained Comprehensive Stock Paid-in Earnings Income Total -------- -------- ---- -------- ------------- ---------- RMB RMB RMB RMB RMB Balance at January 1, 2000 10 30,795 30,257 61 61,123 Comprehensive income: Net loss for the period - - (6,024) - (6,024) Currency translation - - - 22 22 --------- ---------- ---------- ---------- ---------- Total comprehensive income (6,002) ---------- Balance at June 30, 2000 10 30,795 24,233 83 55,121 ========= ========== ========== ========== ==========

See notes to condensed consolidated financial statements. 4 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Amounts in thousands)

Six months ended June 30, ------------------------- 2000 1999 2000 ---- ---- ---- RMB RMB US$ Net cash provided by/(used in) operating activities (4,836) 7,784 (584) ------- ------- ------- Cash flows from investing activities: Acquisition of property, machinery and equipment (7,011) (1,141) (847) Disposal of property, machinery and equipment -- 7 -- ------- ------- ------- Net cash used in investing activities (7,011) (1,134) (847) ------- ------- ------- Cash flows from financing activities: Repayments of notes payable (1,000) (2,000) (121) Increase of long term related party loan -- 288 -- Principal payments under capital lease obligations (124) -- (15) ------- ------- ------- Net cash used in financing activities (1,124) (1,712) (136) ------- ------- ------- Net increase/(decrease) in cash and cash equivalent (12,971) 4,938 (1,567) Cash and cash equivalent, at beginning of period 22,859 25,419 2,761 ------- ------- ------- Cash and cash equivalent, at end of period 9,888 30,357 1,194 ======= ======= ======= Non-cash investing activities: Property, machinery and equipment acquired through capital lease obligations 18,314 -- 2,212 ======= ======= =======

See notes to condensed consolidated financial statements. 5 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For the convenience of the reader, amounts in Renminbi ("RMB") have been translated into United States dollars ("US$") at the rate of US$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30, 2000. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate. 2. INVENTORIES

June 30, December 31, 2000 1999 ---- ---- RMB RMB Raw materials 4,809 9,676 Work in progress 949 10,722 Finished goods 13,498 12,186 ---------- ---------- 19,256 32,584 ========== ==========

3. PROPERTY, MACHINERY AND EQUIPMENT, NET

June 30, December 31, 2000 1999 ---- ---- RMB RMB At cost: Buildings 11,689 741 Plant and machinery 33,901 25,236 ---------- ---------- 45,590 25,977 ---------- ---------- Accumulated depreciation: Buildings 256 41 Plant and machinery 10,691 9,793 ---------- ---------- 10,947 9,834 ---------- ---------- Property, machinery and equipment, net 34,643 16,143 ========== ==========

6 4. MATERIAL AGREEMENTS In January 2000, the Company entered into various agreements with Liuzhou OVM Joint Stock Company Limited (the "JV Partner"), which has resulted in the following: a. Termination of the Company's lease of land, buildings, property and equipment from the JV Partner. b. Allocation of Company personnel to the JV Partner resulting in the reduction of Company personnel and financial assets related thereto. c. Termination of the Company's rights to use certain intangible assets, including the "OVM" trademark. d. Transfer of approximately 1/3 of the Company's inventories to the JV Partner at normal selling prices excluding value added tax at 17%. e. Transfer of certain fixed assets included in Assets held for Sale at December 31, 1999. On December 11, 1999, 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 located. The term of the lease is 25 years, beginning January 1, 2000, with annual rent of RMB1 million (US$121,000) 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 RMB767,000 (US$93,000). 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. Certain assets which were included in prepayments, deposits and other receivables, deferred assets and staff housing loans and amounted to RMB787,000 (US$95,000), RMB3,254,000 (US$393,000)and RMB2,034,000 (US$246,000), respectively related to these employees were transferred to the JV Partner in the second quarter of 2000. Beginning in January 2000, the Company'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 Company the exclusive right to use the HVM trademarks without cost. The Company sold certain inventories and buildings, plant and equipment to the JV Partner in the second quarter of 2000 at their carrying values of RMB15,041,000 (US$1,817,000) and RMB9,515,000 (US$1,149,000), respectively. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 NET SALES AND GROSS PROFIT. Net sales for the first half of fiscal 2000 decreased by RMB19,798,000 (US$2,391,000) or 24.5% to RMB61,050,000 (US$7,373,000), compared to RMB80,848,000 (US$9,764,000) for the corresponding period in 1999. The decrease was mainly due to the Company's relocation to new production and office facilities in early 2000 and the production facilities are not yet operating at full capacity. The Company also experienced competition from its JV Partner. Gross profit decreased by RMB20,098,000 (US$2,427,000) or 56.0% to RMB15,779,000 (US$1,906,000) for the first half of fiscal 2000 compared to RMB35,877,000 (US$4,333,000) in the corresponding period of the prior year. The decrease was due to the decrease in sales during the current period and the sale of certain inventories to the JV Partner, amounting to RMB15,041,000 (US$1,817,000), at their carrying values. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the first half of fiscal 2000 decreased by RMB5,316,000 (US$642,000) or 22.3% to RMB18,470,000 (US$2,231,000), compared to RMB23,786,000 (US$2,873,000) for the corresponding period in 1999. The decrease was mainly due to a decrease in selling expenses as a result of a decrease in sales, and a decrease in salary expenses as some of the staff was transferred to the JV Partner. INTEREST INCOME/EXPENSE. Interest expense for the first half of fiscal 2000 decreased by RMB671,000 (US$81,000) or 35.5% to RMB1,219,000 (US$147,000), compared to RMB1,890,000 (US$228,000) in the corresponding period of the prior year. The Company has financed its acquisition of property, machinery and equipment in the fiscal 2000 by capital leases totaling RMB18,314,000 (US$2,212,000). Although there was a decrease in interest expense in the first half of fiscal 2000 on notes payable, resulting from the decrease in average bank borrowing rates and outstanding notes payable, it was partially offset by the interest expense arising from the capital lease obligations. Interest income for the first half of fiscal 2000 was RMB138,000 (US$17,000) which was comparable to RMB130,000 (US$16,000) in the corresponding period of the prior year. OTHER INCOME/(EXPENSES), NET Other income for the first half of 1999 amounted to RMB653,000 (US$79,000), and mainly represented income received on rental of machinery to certain related parties. Expenses recorded by the Company for the first half of 2000 amounted to RMB1,522,000 (US$184,000), and mainly arose from a sales return by a customer. INCOME TAXES. Pursuant to an approval issued by the State Tax Bureau of the Liuzhou City dated July 22, 1966, the income of the JV is fully exempted from Chinese national income tax for three years commencing from first profitable year of operations in 1995 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. However, the National Tax Bureau has revoked the preferential rate approval in 2000 such that the income of the JV is only fully exempted from Chinese national income tax for two years commencing from first profitable year of operation in 1995 followed by a 50% exemption for the next three years, after which the income is taxable at the full rate of 30% exclusive of local income tax of 3%. Accordingly, the Company has made additional provisions in the current year for the income taxes assessed for fiscal year 1997. THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 NET SALES AND GROSS PROFIT. Net sales for the second quarter of fiscal 2000 decreased by RMB4,618,000 (US$558,000) or 10.2% to RMB40,447,000 (US$4,885,000), compared to RMB45,065,000 (US$5,443,000) for the corresponding period in 1999. The decrease was mainly due to the Company's relocation to new production and office facilities in early 2000, which were not operated at full capacity during the quarter. During the second quarter of fiscal 2000, the Company sold certain inventories to the JV Partner at their carrying value which amounted to RMB15,041,000 (US$1,817,000). 8 Gross profit decreased by RMB12,575,000 (US$1,519,000) or 65.3% to RMB6,682,000 (US$807,000) for the second quarter of fiscal 2000 compared to RMB19,257,000 (US$2,326,000) in the corresponding period of the prior year. The decrease was mainly due to the decrease in sales during the current period and inventory sales to the JV Partner which were made at their carrying values. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the second quarter of fiscal 2000 decreased by RMB2,643,000 (US$319,000) or 21.8% to RMB9,502,000 (US$1,148,000), compared to RMB12,145,000 (US$1,467,000) for the corresponding period in 1999. The decrease was mainly due to a decrease in selling expenses as a result of a decrease in sales, and a decrease in salary expenses as some of the staff were transferred to the JV Partner. INTEREST INCOME/EXPENSE. Interest expense for the second quarter of fiscal 2000 decreased by RMB668,000 (US$80,000) or 70.5% to RMB279,000 (US$34,000), compared to RMB947,000 (US$114,000) for the corresponding period of the prior year. The Company has financed its acquisition of property, machinery and equipment in fiscal 2000 by capital leases totaling RMB18,314,000 (US$2,212,000). The decrease in interest expense in the second quarter of fiscal 2000, resulted from the decrease in average bank borrowing rates and a reduction in outstanding notes payable, which was only partially offset by the interest expense arising from the capital lease obligations. Interest income increased from RMB45,000 (US$5,000) for the second quarter of fiscal 1999 compared to RMB130,000 (US$16,000) for the corresponding period of fiscal 2000. The increase was due to an increase in average bank balances during the current period. OTHER INCOME/(EXPENSES), NET Other income for the second quarter of 1999 amounted to RMB256,000 (US$31,000), and mainly represented income received on rental of machinery to certain related parties. Expenses recorded by the Company for the second quarter of 2000 amounted to RMB1,492,000 (US$180,000), and mainly arose from a sales return by a customer. INCOME TAXES. See discussion of income taxes under comparison of six months ended June 30, 2000 compared to six months ended June 30, 1999. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs are to fund inventories, accounts receivable and capital expenditures. The Company has financed its working capital requirements through a combination of internally generated cash, short term bank loans and advances from affiliates. The Company had a working capital surplus of RMB54,489,000 (US$6,581,000) as of June 30, 2000 compared to RMB58,930,000 (US$7,117,000) as of December 31, 1999. Net cash used in operating activities for the six months ended June 30, 2000 was RMB4,836,000 (US$584,000) as compared to net cash provided by operating activities of RMB7,784,000 (US$940,000) for the corresponding period in 1999. Net cash flows from the Company's operating activities are attributable to the Company's income and changes in operating assets and liabilities. The Company's additions to property, machinery and equipment for the first half of fiscal 2000 were RMB25,325,000 (US$3,059,000), of which 18,314,000 (US$2,212,000) was financed by capital leases. There has been no other significant change in financial condition and liquidity since the fiscal year ended December 31, 1999. The Company believes that internally generated funds together with available bank credit, will be sufficient to satisfy its anticipated working capital needs for at least the next twelve months. YEAR 2000 ISSUE The Year 2000 issue is the result of information technology systems and embedded systems using a two-digit format, as opposed to four digits, to indicate the year. The Company and its subsidiaries use a limited amount of computer software primarily in connection with their accounting and financial reporting systems. Such programs have been upgraded so that they are year 2000 compatible. In addition to software issues, certain of the computer hardware of the Company and its subsidiaries have been replaced with more current technology. As of June 30, 2000, the Company has not experienced any disruptions or failures to its normal operations as a result of the transition into calendar year 2000. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: NONE ITEM 2. CHANGES IN SECURITIES: NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule (Electronic filing only). (b) During the three months ended June 30, 2000, the Company filed no current Reports on Form 8-K. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OVM INTERNATIONAL HOLDING CORP. August 16, 2000 By:/s/ Ching Lung Po ---------------------------------- Ching Lung Po, President By:/s/ Deng Xiao Qiong ----------------------------------- Deng Xiao Qiong, Principal Financial and Accounting Officer 12