10KSB 1 ovm10ksb.txt ANNUAL REPORT 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, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-29482 OVM INTERNATIONAL HOLDING CORP. ------------------------------- (Name of Small Business Issuer in Its Charter) NEVADA 88-0344135 ------ ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or Organization) Identification No.) ROOM 2105, WEST TOWER, SHUN TAK CENTRE 200 CONNAUGHT ROAD C., SHEUNG WAN, HONG KONG -------------------------------------------- (Address and Principal Executive Offices)(Zip Code) (852)2810-6226 (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, 2000. $11,930,000 State the aggregate market value of the voting stock held by non-affiliates of the registrant on March 21, 2001 computed by reference to the closing bid price of the registrant's Common Stock as reported by THE WALL STREET JOURNAL on that date. $7,950,000 APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the registrant's Common Stock, par value $.0001 per share (the "Common Stock"), as of March 30, 2001, was 12,050,000. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] DOCUMENTS INCORPORATED BY REFERENCE None. CONVENTIONS Unless otherwise specified, all references in this report to "US Dollars" or "US$" 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 HVM Development Limited ("HDL") 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, 2000, 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, 2000, which was US$1.00 = HK$7.80. 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. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION ------------ 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 HVM Development Limited ("HDL"), formerly known as OVM Development Limited, a British Virgin Islands corporation, and changed its name to OVM International Holding Corporation. HDL 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 joint 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"). HDL 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 HDL. 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. HDL, 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. After the commencement of operation of Liuzhou OVM in 1995, the Stock Company has become 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. Liuzhou OVM Prestress Construction Co. Ltd. (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 (US$837,000), with the remaining interests being 3 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 otherwise requires, the current operations of HDL, Liuzhou OVM and the Construction Company. The Company's products are distributed throughout the PRC to a diversified customer base as well as overseas customers. The Company's customers include construction and engineering companies and provincial, municipal and regional construction bureaus across the PRC and in overseas countries. The Company's head office and production facilities are located in Liuzhou Municipality, the industrial city of Guangxi Zhuang Autonomous Region ("Guangxi") with a total site area of approximately 46,000 square meters. Long term land use rights for the land and buildings on which these facilities are situated are held by Liuzhou Shuangma Electrical Company Limited ("Shuangma"), an unaffiliated third party, and lease to Liuzhou OVM for a term of 25 years effective January 1, 2000. Liuzhou OVM also leases certain production and transportation equipment from Liuzhou Weilesi Elevator Factory ("Weilesi"), an unaffiliated third party, for a term of 20 years effective January 1, 2000. In January 2000, Liuzhou OVM and the Stock Company entered into various agreements to modify the original joint venture arrangements as follows: o the leases covering the land, buildings, property and equipment between the Stock Company, as lessor, and Liuzhou OVM, as lessee, were terminated effective January 1, 2000; o Liuzhou OVM agreed to cease using the intangible assets originally acquired from the Stock Company in 1995, including the "OVM" trademark; o Liuzhou OVM sold one-third of its inventories to the Stock Company at cost; o Liuzhou OVM sold certain fixed assets to the Stock Company at their carrying values; 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 employees of Liuzhou OVM ceased to be employed by Liuzhou OVM and become employees of the Stock Company; and o HDL 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 HDL, Liuzhou OVM would become a wholly-owned subsidiary of HDL. On April 29, 2001, HDL and the Stock Company entered into a Memorandum of Understanding which provides for the transfer of the Stock Company's interest in Liuzhou OVM to HDL, and the transfer of Liuzhou OVM's interest in the Construction Company to the Stock Company. The terms of the transfers are subject to separate transfer agreements which have not yet been negotiated. The Memorandum of Understanding also requires Liuzhou OVM to change its name prior to July 31, 2001. HDL's acquisition of the Stock Company's interest in Liuzhou OVM is also subject to resolution of a dispute over amounts owed by the Stock Company to Liuzhou OVM. This dispute has been submitted for arbitration being administered by the local PRC government. See "History and Development of Liuzhou OVM" and Note 17 of "Notes to Financial Statements". 4 As a result of these modifications, the Stock Company now competes with the Company in product sales and services. Because of the direct competition from the Stock Company, the Company's sales for the year ended December 31, 2000 decreased by approximately 47.5% compared to that of the corresponding period in 1999. Management has been increasing its marketing effort since January 2000 to promote its new trademark "HVM" and explore new markets and believes that the new trademark will obtain wide acceptance from both existing and new customers. Beginning January 1, 2000, Liuzhou OVM's products are marketed under a new trademark "HVM" which is registered in the name Shenzhen Hong Da Technical Company Limited ("Hong Da"), a PRC entity wholly owned by Ching Lung Po, President and Chief Executive Officer of the Company. 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. HDL still controls a majority of the board of directors and the appointment of the General Manager and Deputy General Managers of Liuzhou OVM. 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. STRUCTURE --------- The following diagram depicts the corporate structure of the Company as at December 31, 2000. ----------------------------- | OVM International Holding | | Corporation (Nevada) | ----------------------------- | 100% | ------------------------------- | HVM Development Limited | | (British Virgin Islands) | ------------------------------- | | ------------------------------ | | Liuzhou OVM Joint Stock | | | Company Limited | | | (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) | ----------------------- ---------------------- -- 5 HVM DEVELOPMENT LIMITED ("HDL"), formerly known as OVM Development Limited, is a private limited company incorporated in the British Virgin Islands on May 3, 1994. LIUZHOU OVM JOINT STOCK COMPANY LIMITED (the "Stock Company"), located in Liuzhou City, Guangxi Zhuang Autonomous Region, the PRC, was the largest State-owned manufacturer of prestressing equipment in China. The Stock Company was a State-owned enterprise and was subsequently reorganized into a limited liability share capital company on January 10, 1995. The Stock Company has been operating in the PRC since 1967. LIUZHOU OVM CONSTRUCTION MACHINERY COMPANY LIMITED. ("Liuzhou OVM") is a Sino-foreign equity joint venture established under the laws of PRC on May 10, 1995 and owned 70% by HDL 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. In 1998, Liuzhou OVM acquired a 69.3% interest in the Construction Company for consideration of Rmb6,930,000 (US$837,000). The registered capital of the Construction Company is Rmb10,000,000 (US$1,208,000). 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 6 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 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 7 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 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, owns approximately 41% of the equity in Orient and is its largest shareholder. 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. 8 As discussed above under "Introduction", in January 2000, Liuzhou OVM and the Stock Company entered into various agreements to modify their original joint venture arrangements. On April 29, 2001, HDL and the Stock Company entered into a Memorandum of Understanding which contemplates the transfer of the Stock Company's interest in Liuzhou OVM to HDL, and the transfer of Liuzhou OVM's interest in the Construction Company to the Stock Company. The terms of the transfers are subject to separate transfer agreements which have not yet been negotiated. The transfer of the Stock Company's interest in Liuzhou OVM is also subject to approval by the local PRC government. Government approval will require resolution to a dispute between HDL and the Stock Company over amounts owed to Liuzhou OVM by the Stock Company. The final determination will be made pursuant to an arbitration proceeding administered by the local PRC government. It is premature for the Company to determine the exact amount, if any, which will be recovered at the conclusion of the arbitration. However, the Company has provided an allowance for amounts which may not be collectible from the Stock Company of Rmb21,623,000 (US$2,611,000) in 2000. 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. 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. 9 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, 1999 and 2000, respectively.

Year Ended December 31 1999 2000 ---- ---- (Amounts in Thousands) Product Rmb US$ % Rmb US$ % ------- OVM anchorage system 92,181 11,133 49.0 51,797 6,255 52.4 Jack 39,509 4,772 21.0 13,766 1,663 13.9 High-pressure oil pump 4,610 557 2.4 2,639 319 2.7 Cable, tendon and steel wire 16,969 2,049 9.0 6,341 766 6.4 Other equipment and parts 27,524 3,324 14.6 21,612 2,610 21.9 *Others 7,469 902 4.0 2,625 317 2.7 ------- ------ ----- ------- ------ ---- Total 188,262 22,737 100.0 98,780 11,930 100.0 ======= ====== ===== ======= ====== =====

*Others include rubber engineering products, corrugation pipes and digital display sensors. The largest ten customers of the Company for each of the two years ended December 31, 1999 and 2000 accounted for approximately 22.1% and 14.1%, respectively, of the Company's total sales. The largest customer of the Company for each of the two years ended December 31, 1999 and 2000 accounted for approximately 5.2% and 4.2%, respectively, of the Company's total sales. No single customer accounted for more than 10% of total sales in either 1999 or 2000. For each of the two years ended December 31, 1999 and 2000, approximately 88% and 83%, 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 sells its products directly to end-users through its in house sales and marketing and after sales staff, consisting of 49 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. 10 The Company also sells its products through 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, 1999 and 2000. 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. The export sales accounted for approximately 12% and 17% of the Company's total sales for each of the two years ended December 31, 1999 and 2000, 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 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, 1999 and 2000, the cost of raw materials and components accounted for approximately 63% and 54%, 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. 11 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, 1999 and 2000, the largest ten suppliers of raw materials and components of the Company accounted for approximately 35.4% and 50.4%, respectively, of the Company's total cost of purchases. The largest supplier accounted for approximately 20.1% and 16.0% of the Company's total cost of purchases, respectively, for the same periods. No other single supplier accounted for more than 10% of total cost of purchases for the two years ended December 31, 1999 and 2000, respectively. Although the Company does not rely on any single supplier for its raw materials, the Company enjoys lower costs on bulk purchases from one single supplier. 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. The Stock Company also leased certain production equipment, office equipment and motor vehicles to Liuzhou OVM at an annual rental of Rmb1,821,000 (US$220,000) 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 Shuangma, an unaffiliated third party, Shuangma 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 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 Rmb564,000 (US$68,000). 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. 12 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, 1999 and 2000 were Rmb4,562,000 (US$551,000) and Rmb10,523,000 (US$1,271,000), respectively. The Company also acquired certain property, machinery and equipment by capital leases amounted to Rmb16,469,000 (US$1,989,000) for the year ended December 31, 2000 (1999: nil). 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. The 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. Due to the changes to the relationship between the joint venture and the Stock Company since January 2000, Liuzhou OVM faces direct competition by the Stock Company. The Stock Company has established its own production line for manufacturing prestressing equipment which is marketed under the "OVM" trademark and shares the technical know-how of Liuzhou OVM's existing products which were developed before January 1, 2000. Liuzhou OVM's products are now marketed under the new trademark "HVM". As both Liuzhou OVM and the Stock Company sell prestressed products with the same specification and technical know-how, management believes that the competitive advantages of Liuzhou OVM mainly rest on its ability to develop new products and technical know-how. Competition from the Stock Company contributed significantly to the Company's fiscal 2000 net loss. However, management believes that Liuzhou OVM has 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. 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 13 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 both developing and developed countries in Asia. 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. The Company has received ISO 9001 Certificate of Quality Management System ("ISO 9001") issued by the British Standards Institution in 1996. 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 to 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 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 27 full-time employees including 13 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. Since 1995, the Company has collaborated with over 200 universities, testing facilities, research institutes and local provincial and municipal construction bureaus in its development projects. Currently, the Company is working with over 50 universities or construction bureaus on its construction projects in progress. The Company's annual research and development expenditure accounts for 0.2% and 1.5% of total sales for each of the two years ended December 31, 1999 and 2000. For each of the two years ended December 31, 1999 and 2000, the aggregate research and development expenses incurred by the Company amounted to approximately Rmb382,000 (US$46,000) and Rmb1,443,000 (US$174,000), respectively. 14 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 ---------------------------- Since the establishment of Liuzhou OVM in 1995, Liuzhou OVM has registered numerous utility model patents in the PRC in its name as follows. Liuzhou OVM 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 these patents. However, in connection with the January 2000 agreements, Liuzhou OVM has granted approval to the Stock Company to use those patents together with the related technology which were registered before December 31, 1999. In return, the Stock Company has granted approval to Liuzhou OVM to use the patents together with the related technology which are registered in the PRC in the name of the Stock Company before the establishment of Liuzhou OVM in 1995. All patents registered after January 1, 2000 by Liuzhou OVM are used exclusively by Liuzhou OVM and the Stock Company is not entitled to use them.

Registration Date of Patent Number Application Date of expiry ------ ------ ----------- -------------- 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 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 15 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 Spiral fixing machine 98215351.1 June 11, 1998 June 11, 2008 S ingle 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 16 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 Cable protector 99210405.X May 14, 1999 May 14, 2009 Anchorage cable extention device 99210310.X May 21, 1999 May 21, 2009 Dual head drill 99202295.9 July 3, 1999 July 3, 2009 Triple head drill 99202296.7 July 3, 1999 July 3, 2009 Stripping turn table 99202294.0 July 3, 1999 July 3, 2009 Powder jet device 99202297.5 July 3, 1999 July 3, 2009 Closed jacks 99216369.2 July 8, 1999 July 8, 2009 Exterior steel cable 99216370.6 July 8, 1999 July 8, 2009 Closed anchorage cable 99242380.5 September 3, 1999 September 3, 2009 Clipping steel wire anchorage bundle 98245540.2 November 9, 1998 November 9, 2008 Single hole anchorage board 99317929.0 October 19, 1999 October 19, 2009 Flat head connector 00204219.3 February 25, 2000 February 25, 2010 Prestressed anchorage board 00204217.7 February 25, 2000 February 25, 2010 Conducting device 00204218.5 February 25, 2000 February 25, 2010 Connector 00204215.0 February 25, 2000 February 25, 2010 Anchor equipment with jacks 00237529.X June 8, 2000 June 8, 2010 Single hole trail anchor board (1) 00332471.0 July 6, 2000 July 6, 2010 Single hole trail anchor board (2) 00332477.X July 6, 2000 July 6, 2010 Dual hole trail anchor board (1) 00332476.1 July 6, 2000 July 6, 2010 Dual hole trail anchor board (2) 00332472.9 July 6, 2000 July 6, 2010 Flat-shaped anchor board 00332473.7 July 6, 2000 July 6, 2010

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 (US$966,000). The Company has also developed and registered over 80 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 agreed to cease using the trademark "OVM" effective February 1, 2000. All technology and know-how upon which the existing products manufactured by Liuzhou OVM were based may be used by the Stock Company. Beginning in January, 2000, the Company's products are marketed under a new trademark "HVM" which is registered in the name of Hong Da, a PRC entity wholly owned by Ching Lung Po, President and Chief Executive Officer of the Company. Hong Da has granted the exclusive right to Liuzhou OVM to use the "HVM" trademark at an annual fee equal to 1.5% of sales under "HVM" trademark pursuant to an agreement dated November 18, 2000. The fee is calculated based on the estimated annual advertising and promotion expenses incurred by Hong Da in establishing the market recognition of the mark. EMPLOYEES --------- As at December 31, 2000, the Company had a total of 561 full-time employees, 494 and 60 of which were employed by Liuzhou OVM and the Construction 17 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 348 Administration and management 50 Quality control 41 Research and development, technical, process design and control 27 Sales, marketing and after sales service 49 Raw materials supply 11 Others 35 --- 561 === 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. Currently, there are no regulations prohibiting joint venture partners from competing with their joint venture. Therefore, Liuzhou OVM's business may be adversely affected by competition from the Stock 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." 18 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, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 19 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 1999 and 2000. High Low 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 2000 Fiscal Year, quarter ended March 31, 2000 $2.44 $0.75 June 30, 2000 $2.28 $0.50 September 30, 2000 $2.38 $1.31 December 31, 2000 $2.00 $0.50 As of March 12, 2001, the approximate number of record holders of the Company's Common Stock was 789. The Company also has outstanding warrants to purchase 4,000,000 shares at US$3.00 per share on or prior to December 23, 2001. 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. The Company's share in the undistributed earnings of the Company's foreign subsidiaries amounted to Rmb25,386,000 and Rmb35,587,000 at December 31, 2000 and 1999, respectively, and these earnings are considered to be indefinitely invested. 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, HVM 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 HDL resulting from distributions paid by Liuzhou OVM and the Construction Company, in accordance with the percentage interests held by the shareholders. 20 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, 1999 and 2000. 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, 2000. 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, 2000 1999 ---- ---- Net sales 100.0% 100.0% Cost of sales (61.7) (58.1) Gross profit 38.3 41.9 Selling and administrative expenses (77.5) (38.5) Interest expenses, net (2.2) (1.5) Other income 0.9 0.9 Foreign exchange gain - - Income/(loss) before income taxes (40.5) 2.8 Income taxes (6.3) (1.5) Net income/(loss) after income taxes (46.8) 1.3 Minority interests 11.1 (0.7) Equity in earnings of equity investee - - Net income/(loss) (35.7) 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, 2000 decreased by Rmb89,482,000 (US$10,807,000) or 47.5% to Rmb98,780,000 (US$11,930,000) compared to Rmb188,262,000 (US$22,737,000) in the prior year. The decrease in net sales was mainly due to direct competition from the Stock Company in 2000, which reduced the Company's sales to unaffiliated customers by approximately 45%. Apart from that, the Company relocated its production and office facilities in early 2000 and the production facilities were not operated at full capacity in the first half of 2000. Full operating capacity was achieved in the second half of 2000. Gross profits decreased by Rmb40,988,000 (US$4,950,000) or 52.0% to Rmb37,859,000 (US$4,572,000) for the year ended December 31, 2000 compared to Rmb78,847,000 (US$9,523,000) in 1999. The gross profit margin decreased by 3.6% points to 38.3% for the year ended December 31, 2000 from 41.9% for the corresponding period in 1999. The decrease in gross profit margin was also due to the competition from the Stock Company. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses increased by Rmb4,171,000 (US$504,000) or 5.8% to Rmb76,583,000 (US$9,249,000) for the year ended December 31, 2000 compared to Rmb72,412,000 21 (US$8,745,000) in the prior year. The increase was mainly due to a provision of Rmb21,623,000 (US$2,611,000) made on an amount due from the Stock Company which, in management's opinion, was unrecoverable, and the write-off of intangible assets of Rmb3,217,000 (US$389,000) related to goodwill arising from the acquisition of the Company's interest in Liuzhou OVM. The increase in selling and administrative expenses was partly offset by a decrease in selling expenses as a result of a decrease in sales. INTEREST EXPENSES, NET. Net interest expenses decreased by Rmb732,000 (US$87,000) or 25.3% to Rmb2,164,000 (US$262,000) for year ended December 31, 2000 compared to Rmb2,896,000 (US$349,000) in the prior year. Although there was a decrease in interest expense on notes payable for the year ended December 31, 2000, 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 obligation to finance the Company's acquisition of property, machinery and equipment. OTHER INCOME. Other income decreased from Rmb1,665,000 (US$201,000) for the year ended December 31, 1999 to Rmb933,000 (US$113,000) for the year ended December 31, 2000. The decrease in other income was due to decreased income generated from the sales of accessory products such as packaging materials in 2000. 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 of 3%. Liuzhou OVM 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 Liuzhou OVM 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 the local income tax of 3%. Accordingly, the Company has made additional provision of Rmb4,476,000 (US$541,000) in the current year for the income taxes assessed for fiscal year 1997. As 1999 and 2000 were the fifth and the sixth profitable years (based on incomes assessed under the generally accepted accounting principles of the PRC), respectively, income taxes were provided for the year ended December 31, 1999 and 2000 at the income tax rates of 15% and 30%, respectively. 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%. 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 and short term bank loans. 22 The Company had a working capital surplus of Rmb58,930,000 (US$7,118,000) and Rmb15,662,000 (US$1,892,000) as of December 31, 1999 and 2000, respectively. Net cash provided by operating activities was Rmb10,608,000 (US$1,283,000) and Rmb10,173,000 (US$1,229,000) for the year ended December 31, 1999 and 2000, 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, 1999 and 2000, the cash flow used in investing activities related principally to the acquisition of property, machinery and equipment. Capital expenditures for production equipment for the two years ended December 31, 1999 and 2000 were Rmb4,562,000 (US$551,000) and Rmb10,523,000 (US$1,271,000), respectively. For the year ended December 31, 2000, the Company also acquired certain property, machinery and equipment amounted to Rmb16,469,000 (US$1,989,000) (1999: nil) which were financed by capital leases. The Company's capital expenditure has been funded by short-term bank loans. As at December 31, 1999 and 2000, the Company had outstanding short term bank loans of Rmb28,000,000 (US$3,382,000) and Rmb16,000,000 (US$1,932,000), respectively. The Company estimates that its on-going operations will be funded by its internally generated funds together with available bank credit. Management believes that it is and will continue to be able to secure the external debt financing and cash flows from operations to satisfy its anticipated working capital needs 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 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. RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS ---------------------------------------- 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. In December 1999, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 provides the Staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company believes that it complies with the accounting and disclosure described in SAB No. 101; therefore, management believes that SAB No. 101 will not impact the Company's consolidated financial statements. 23 ITEM 7. FINANCIAL STATEMENTS The Company's audited consolidated financial statements for two years ended December 31, 2000 and 1999 are included herewith and incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 30, 2001. Directors of the Company 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 54 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 49 Director and Chief Financial Officer of the Company and Deputy General Manager of Liuzhou OVM Peng Fang 40 Director of the Company and Director and Deputy General Manager of Liuzhou OVM Cheung Lai 47 Director and Treasurer of the Company and Director of Liuzhou OVM Wan Wai On 27 Director and Corporate Secretary of the Company Tang Xiao Ping 39 Vice President of the Company and Deputy General Manager of Liuzhou OVM Ding Yong Gui 44 Vice President of the Company and General manager of Liuzhou OVM Chen Xue Ming 63 Director of the Company 24 MR. CHING LUNG PO, aged 54, 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. MS. DENG XIAO QIONG, aged 49, 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 40, 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 47, 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 27, 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 39, 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 25 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 44, 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 fo the Company and its subsidiaries. MR. CHEN XUE MING, aged 63, 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. ITEM 10. EXECUTIVE COMPENSATION CASH COMPENSATION ----------------- The following table shows, for each of the two years ended December 31, 1999 and 2000, the cash and other compensation paid by the Company to its officers and directors.

SUMMARY COMPENSATION TABLE Name and Other All Principal Annual Other Position Year Salary Bonus Compensation Compensation -------- ---- ------ ----- ------------ ------------ Ching Lung Po, 2000 $115,385 -0- -0- -0- President and CEO 1999 $61,538 -0- -0- -0- Wan Wai On, 2000 $35,897 -0- -0- -0- Director and Secretary 1999 -0- -0- -0- -0-

The Company paid its President, Mr. Ching Lung Po, an annual salary of US$115,385 in 2000. Except for Mr. Ching Lung Po, no director or executive officer of the Company or any of its subsidiaries was paid a total annual salary and bonus in excess of US$100,000 during the fiscal years ended December 31, 1999 and 2000. On June 1, 2000, the Company entered into a Service Agreement with Mr. Ching Lung Po. In accordance with the terms of the Service Agreement, Mr. Ching has been employed by the Company as Chief Executive Officer and to perform such duties as the Board of Directors shall from time to time determine. Mr. Ching shall receive a base salary of HK$1,200,000 (US$153,846) annually. The Service Agreement has a term of two years and shall be automatically renewed unless earlier terminated as provided therein. On June 1, 2000, the Company entered into an Employment Agreement with Mr. Wan Wai On. In accordance with the terms of the Employment Agreement, Mr. Wan has been employed by the Company as Corporate Secretary and to perform such duties as the Board of Directors shall from time to time determine. Mr. Wan shall receive a base salary of HK$480,000 (US$61,538) annually. The Employment Agreement has a term of two years and shall be automatically renewed unless earlier terminated as provided therein. 26 Except for the foregoing, the Company has no employment contracts with any of its officers or directors or maintain 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 Mr. 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." 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, 2000 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 Wan Wai On, -0- -0- -0- -0- Director and Secretary

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, 2000 to each person named in the Summary Compensation Table and the unexercised options held as of the end of the 2000 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 Wan Wai On, -0- -0- -0- -0- Director and Secretary 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. 27 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. 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 30, 2001, no incentive stock options had been granted. 28 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 20% 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, 1999 and 2000 amounted to Rmb1,701,000 (US$205,000) and Rmb777,000 (US$94,000), 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 Rmb2,296,000 (US$277,000) was paid by Liuzhou OVM in 1998. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 30, 2001, 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 30, 2001, 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 29 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. (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 30, 2001, certain information regarding the Company's Common Stock beneficially owned by (i) each of the Company's directors, (ii) each of the Company's executive officers and (iii) 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- - 30 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. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, Ding Yong Gui and Tang Xiao Ping filed Form 3s on May 30, 2000 to report their status as officers, which commenced on October 8, 1999. Deng Xiao Qiong filed Form 3 on March 31, 2000 to report her status as director, which commenced on January 29, 1999. Chen Xue Ming and Shao Hou Kun filed Form 3s on March 31, 2000 to report their status as directors, which commenced on May 6, 1998. Cheung Lai and Peng Fang filed Form 3s on March 31, 2000 to report their status as directors, which commenced on October 8, 1999. Kwok Kwan Hung filed Form 4 on March 31, 2000 to report that he is no longer a director since January 29, 1999. Wu Guo Sen and Wan Ying Lin filed Form 4s on March 31, 2000 to report that they are no longer directors since October 8, 1999. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On April 18, 1995, Kolcari Investments Limited (predecessor of HDL) 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 US$4 million was to be contributed in assets and/or cash as follows: the Stock Company (30%) and Kolcari (70%). 31 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. 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 Rmb1,821,000 (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, 1999 and 2000 amounted to Rmb10,621,000 (US$1,283,000) and nil, 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. 32 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 transfer certain inventories, fixed assets and financial assets related to former employees of Liuzhou OVM to the Stock Company amounted to Rmb28,302,000 (US$3,418,000). Liuzhou OVM purchases and sells a significant portion of its raw materials and finished goods to the Stock Company and its affiliates. The amount of such sales and purchases were Rmb11,922,000 (US$1,440,000) and Rmb7,970,000 (US$963,000), respectively, for the year ended December 31, 1999 and Rmb915,000 (US$110,000) and Rmb5,042,000 (US$609,000), respectively, for the year ended December 31, 2000. Liuzhou OVM also leases certain plant and machinery to the Stock Company's affiliates. For each of the two years ended December 31, 1999 and 2000, a rental income of Rmb61,000 (US$7,000) and Rmb64,000 (US$8,000), 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 Rmb784,000 (US$95,000) and Rmb24,000 (US$3,000), respectively, was incurred by Liuzhou OVM for each of the two years ended December 31, 1999 and 2000. In accordance with an agreement dated November 18, 2000 between Liuzhou OVM and Hong Da, a PRC entity wholly owned by Ching Lung Po, Hong Da has granted to Liuzhou OVM the exclusive right to use the "HVM" trademark at an annual fee based on 1.5% of Liuzhou OVM's sales under "HVM" trademark. Intangible asset fees charged by Hong Da amounted to Rmb1,127,000 (US$136,000) for the year ended December 31, 2000. 33 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, 2000 b. Consolidated statements of operations for the two years ended December 31, 2000 and 1999 c. Consolidated statements of shareholders' equity and comprehensive income (loss)for the two years ended December 31, 2000 and 1999 d. Consolidated statements of cash flows for the two years ended December 31, 2000 and 1999 e. Notes to consolidated financial statements REPORTS ON FORM 8-K ------------------- During the last quarter of the fiscal year ended December 31, 2000, 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) 34 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) 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) 10.25 Agreement on the Use of Trademark (6) 10.26 Service Agreement with Ching Lung Po (6) 10.27 Employment Agreement with Wan Wai On (6) 10.28 Memorandum of Understanding (6) 21 Subsidiaries of the Registrant(6) ---------------------------- (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) Incorporated by reference to exhibit of the same number filed with the Company's Form 10-KSB for the fiscal year December 31, 1999 (6) Filed herewith 35 SIGNATURE Pursuant to the requirements of 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 of Board, 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.

SIGNATURE TITLE DATE --------- ----- ---- /S/ Ching Lung Po Chief Executive Officer, April 29, 2001 ----------------------------------- President and Chairman Ching Lung Po of the Board of Directors /s/ Deng Xiao Qiong Chief Financial April 29, 2001 ----------------------------------- Officer and Director Deng Xiao Qiong /s/ Cheung Lai Treasurer and Director April 29, 2001 ----------------------------------- Cheung Lai /s/ Wan Wai On Secretary and Director April 29, 2001 ----------------------------------- Wan Wai On /s/ Peng Fang Director April 29, 2001 ----------------------------------- Peng Fang /s/ Chen Xue Ming Director April 29, 2001 ----------------------------------- Chen Xue Ming /s/ Tang Xiao Ping Vice President April 29, 2001 ----------------------------------- Tang Xiao Ping /s/ Ding Yong Gui Vice President April 29, 2001 ----------------------------------- Ding Yong Gui

36 APPENDIX A Independent auditors' report, together with consolidated financial statements for the Company and subsidiaries, including: a. Consolidated balance sheet as of December 31, 2000 b. Consolidated statements of operations for the two years ended December 31, 2000 and 1999 c. Consolidated statements of shareholders' equity and comprehensive income (loss) for the two years ended December 31, 2000 and 1999 d. Consolidated statements of cash flows for the two years ended December 31, 2000 and 1999 e. Notes to consolidated financial statements OVM INTERNATIONAL HOLDING CORPORATION CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000 AND 1999 CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000 AND 1999

Contents Page Report of Independent Auditors F-2 Consolidated balance sheet F-3 Consolidated statements of operations F-4 Consolidated statements of shareholders' equity and comprehensive income (loss) F-5 Consolidated statements of cash flows F-6 Notes to consolidated financial statements F-7 - F-24

F-1 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, 2000, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each of the years in the two year period ended December 31, 2000. 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, 2000, and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 2000 in conformity with generally accepted accounting principles. HORWATH GELFOND HOCHSTADT PANGBURN, P.C. Denver, Colorado March 16, 2001, except for Note 24, as to which the date is April 29, 2001 F-2 OVM INTERNATIONAL HOLDING COPRORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 (Amounts in thousands except share data)

Note US$ RMB --- --- ASSETS Current assets: Cash and bank balances $ 1,260 10,433 Accounts receivable, net of allowance of RMB21,063 4,188 34,678 Inventories 4 2,495 20,659 Prepayments, deposits and other receivables, net of allowance of RMB4,791 667 5,520 Due from related parties, net of allowance of RMB21,623 17 2,038 16,878 ------------ ----------- Total current assets 10,648 88,168 Property, machinery and equipment, net 5 2,364 19,577 Leased property, machinery and equipment, less accumulated amortization 6 1,903 15,755 Investments 7 1,106 9,160 Other assets: Deferred assets 8 267 2,214 Staff housing loans 9 99 810 ------------ ----------- Total assets $ 16,387 135,684 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable 11 $ 1,932 16,000 Other debt 12 127 1,050 Current portion of capital leases 27 223 Accounts payable 4,131 34,205 Advance payments by customers 757 6,266 Other payables and accrued liabilities 1,285 10,650 Taxes payable 497 4,112 ------------ ----------- Total current liabilities 8,756 72,506 Capital leases net of current portion 1,925 15,935 ------------ ----------- Total liabilities 10,681 88,441 ------------ ----------- Minority interests in consolidated subsidiaries 2,598 21,505 ------------ ----------- Commitments and contingencies 22,23 Shareholders' equity: Common stock, 40,000,000 shares, par value of US$0.0001 authorized; 12,050,000 shares, issued and outstanding 13 1 10 Additional paid-in capital 13 3,719 30,795 Retained earnings (605) (5,010) Accumulated comprehensive loss (7) (57) ------------- ------------ Total shareholders' equity 3,108 25,738 ------------ ----------- Total liabilities and shareholders' equity $ 16,387 135,684 ============ ===========

The accompanying notes are an integral part of these financial statements. F-3 OVM INTERNATIONAL HOLDING COPRORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 (Amounts in thousands except share data)

2000 1999 ---- ---- Note US$ RMB RMB --- --- --- Sales: Related parties 17 $ 110 915 11,922 Others 11,820 97,865 176,340 ------------ ----------- ------------ Net sales 11,930 98,780 188,262 Cost of sales, including costs incurred to related parties of RMB5,351 and RMB19,328 in 2000 and 1999, respectively 7,358 60,921 109,415 ------------ ----------- ------------ Gross profit 4,572 37,859 78,847 Selling and administrative expenses 9,249 76,583 72,412 ------------ ----------- ------------ (Loss) / income from operations (4,677) (38,724) 6,435 Interest expense, including amounts to related parties of RMB Nil and RMB489 in 2000 and 1999, respectively (286) (2,364) (3,224) Interest income 24 200 328 Other income 113 933 1,665 Foreign exchange (loss) gain (10) (84) 32 ------------ ----------- ------------ (Loss) income before income taxes (4,836) (40,039) 5,236 Income taxes 14 (748) (6,191) (2,846) ------------ ----------- ------------ (5,584) (46,230) 2,390 Minority interests 1,320 10,931 (1,298) Equity in earnings of equity investee 7 4 32 127 ------------ ----------- ------------ Net (loss) income $ (4,260) (35,267) 1,219 ============= =========== ============ Basic and diluted earnings per share 3(i) $ (0.35) (2.93) 0.10 ============ ========== ============

The accompanying notes are an integral part of these financial statements. F-4 OVM INTERNATIONAL HOLDING COPRORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, 2000 AND 1999 (Amounts in thousands except share data)

Number of Accumulated shares of Additional other common Common paid-in Retained comprehensive stock stock capital earnings income (loss) Total (deficit) RMB RMB RMB RMB RMB ---------- ---------- ---------- ---------- ---------- ---------- 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 ---------- Comprehensive loss: Net loss -- -- -- (35,267) -- (35,267) Currency translation adjustments -- -- -- -- (118) (118) ---------- ---------- ---------- ---------- ---------- ---------- Total comprehensive loss -- -- -- (5,010) -- (35,385) ---------- Balances at December 31, 2000 12,050,000 10 30,795 (5,010) (57) 25,738 ========== ========== ========== ========== ========== ========== U.S.$ $ 1 $ 3,719 $ (605) $ (7) $ 3,108 ========== ========== ========== ========== ==========

The accompanying notes are an integral part of these financial statements. F-5 OVM INTERNATIONAL HOLDING COPRORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999 (Amounts in thousands except share data)

2000 1999 ---- ---- US$ RMB RMB --- --- --- Cash flows from operating activities: Net (loss) income $ (4,260) (35,267) 1,219 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Minority interests (1,320) (10,931) 1,298 Equity in earnings of equity investee (4) (32) (127) Loss on write off of intangible assets 389 3,217 (791) Loss on disposal of property, machinery and equipment 171 1,415 - Depreciation 401 3,323 2,848 Amortization 26 217 286 Allowance for doubtful accounts 3,721 30,808 - Decrease (increase) in assets: Accounts receivable (1,141) (9,449) 30,036 Inventories (376) (3,110) (267) Prepayments, deposits and other receivables 296 2,452 6,191 Due from related parties 3,316 27,459 (5,162) Deferred assets - - 318 Staff housing loans (2) (13) (440) Receivable from equity investee (109) (910) 668 Increase (decrease) in liabilities: Accounts payable 1,048 8,676 (10,733) Advance payments by customers (182) (1,509) (4,396) Other payables and accrued liabilities (533) (4,412) (1,700) Due to related parties - - (2,147) Taxes payable (212) (1,761) (6,493) ------------ ------------ ----------- Net cash provided by operating activities 1,229 10,173 10,608 ----------- ----------- ----------- Cash flows from investing activities Acquisition of property, machinery and equipment (1,271) (10,523) (4,562) Proceeds on disposal of property, machinery and equipment 28 239 - ----------- ----------- ----------- Net cash used in investing activities (1,243) (10,284) (4,562) ----------- ----------- ----------- Cash flows from financing activities: Increase in notes payable 1,449 12,000 6,000 Repayment of notes payable (2,899) (24,000) (14,860) Repayment of principal of capital lease (37) (311) - ------------ ------------ ----------- Net cash used in financing activities (1,487) (12,311) (8,860) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (1,501) (12,422) (2,814) Exchange difference - (4) 254 Cash and cash equivalents at beginning of year 2,761 22,859 25,419 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,260 10,433 22,859 =========== =========== ===========

The accompanying notes are an integral part of these financial statements. F-6 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, HVM Development Limited ("HDL") (formally known as 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. On August 10, 2000, the company changed its name to HVM Development Limited. ("HDL") In 1995, HDL 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 JV 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 HDL in cash of US$2,800 (RMB23,800). Accordingly, HDL 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, are 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. Currently, there are no regulations governing the prohibition of joint venture partners from competing with the joint ventures. Therefore, Liuzhou OVM's business may be adversely affected by competition from its Joint Venture Partner. 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. F-7 OVM INTERNATIONAL HOLDING COPRORATION 1. Organization and principal activities (continued) In January 2000, the JV and the JV Partner entered into various agreements resulting in the following: a. Termination of the JV's lease of land, buildings, property and equipment from the JV Partner. b. Allocation of part of JV personnel to the JV Partner resulting in the reduction of JV personnel and financial assets related thereto. c. Termination of the JV's rights to use certain intangible assets, including the "OVM" trademark. d. Transfer of approximately 1/3 of the JV's inventories to the Joint Venture Partner at normal selling prices excluding value added tax at 17%. e. Transfer of certain fixed assets to the JV Partner including the amount classified as Assets held for Sale at December 31, 1999. Notwithstanding these agreements, both HDL and the JV Partner continue to hold their respective interests in the JV and have retained their respective rights under the terms of the Joint Venture agreement. As discussed in Note 17, the Company and the JV Partner have not been able to agree on the final determination of the amount owed to the JV by the JV Partner as a result of the above agreements. The final determination will be made pursuant to an arbitration proceeding administered by the PRC government. Thus, it is currently premature for the Company to be able to determine the exact amount which will be received. However, the Company has provided an allowance which it believes is adequate for amounts which may not be collectible from the JV Partner. 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. F-8 OVM INTERNATIONAL HOLDING COPRORATION 2. Basis of presentation (cont'd) 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. 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% Leasehold improvements 4% Plant, machinery and equipment 12% F-9 OVM INTERNATIONAL HOLDING COPRORATION 3. Summary of significant accounting policies (continued) (d) Intangible assets Intangible assets, which include goodwill and proprietary technology and trademarks, are stated at cost less accumulated amortization. Through 2000, amortization was 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. In 2000, management determined that the total remaining intangible assets were impaired and an impairment loss was recorded (Note 10). (e) Investments Affiliated entities in which the Company has significant influence but 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) 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. F-10 OVM INTERNATIONAL HOLDING COPRORATION 3. Summary of significant accounting policies (continued) (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, 2000 of US$1.00 equal to RMB8.28 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, 2000 or at any other date. (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, 2000 and 1999 were 12,050,000. (j) Research and development costs Research and development costs are expensed as incurred and amounted to RMB1,443 and RMB382, net (Note 12), for 2000 and 1999 respectively. (k) Advertising costs Advertising costs are expensed by the Company as incurred. Total advertising costs incurred by the Company during 2000 and 1999 were RMB608 and RMB606 respectively. F-11 OVM INTERNATIONAL HOLDING COPRORATION 3. Summary of significant accounting policies (continued) (l) Retirement benefits The contributions to the PRC and internally implemented retirement plans for existing employees are charged to expenses as services are provided. Contributions of RMB2,296 to an additional Company administered retirement plan for existing employees is being amortized over 20 years as future services are provided (Note 8 and 16). (m) Comprehensive income: The Company has adopted Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". 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. (n) Segment reporting: The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131"). The Company's results of operations and financial position are 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". SFAS No. 132 requires comparative information for earlier years to be restated. The Company's results of operations and financial position are not affected by implementation of SFAS No. 132. F-12 OVM INTERNATIONAL HOLDING COPRORATION 3. Summary of significant accounting policies (continued) (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. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 provides the Staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company believes that it complies with the accounting and disclosure described in SAB No. 101; therefore, management believes that SAB No. 101 will not impact the Company's consolidated financial statements. 4. Inventories At December 31, 2000, inventories consist of the following: US Dollars RMB ---------- --- Raw materials $ 690 5,714 Work in progress 695 5,757 Finished goods 1,110 9,188 ------------ ----------- $ 2,495 20,659 ============ =========== During the year ended December 31, 2000, approximately RMB15,035 of inventories were transferred to the JV partner at cost. F-13 OVM INTERNATIONAL HOLDING COPRORATION 5. Property, machinery and equipment, net At December 31, 2000, property, machinery and equipment consists of:

US Dollars RMB ---------- --- Cost: Buildings $ 151 1,253 Leasehold improvement 250 2,072 Plant, machinery and equipment 3,253 26,936 ---------------- -------------- 3,654 30,261 ---------------- -------------- Accumulated depreciation: Buildings 65 537 Leasehold improvement 10 83 Plant, machinery and equipment 1,215 10,064 ---------------- -------------- 1,290 10,684 ---------------- -------------- Property, machinery and equipment, net $ 2,364 19,577 ================ ==============

During the year ended December 31, 2000, approximately RMB9,435 of fixed assets were transferred to the JV Partner at their carrying amounts. 6. Leased property, machinery and equipment, net On December 11, 1999, as a result of the termination of the Company's lease of land, buildings, property and equipment from the JV Partner, the Company entered into a new lease agreement with an unaffiliated third party for the lease of land and buildings in which the Company's main operating facilities are located. The term of the lease is 25 years, beginning January 1, 2000, with annual rent of RMB1,000 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 RMB564. Both of the above leases are classified as capital leases. At December 31, 2000, property, machinery and equipment under capital leases consists of:

US Dollars RMB ---------- --- Cost: Buildings $ 1,322 10,948 Plant, machinery and equipment 667 5,521 ------------------ ---------------- 1,989 16,469 Accumulated amortization 86 714 ------------------ ---------------- Leased property, machinery and equipment, net $ 1,903 15,755 ================== ================

F-14 OVM INTERNATIONAL HOLDING COPRORATION

6. Leased property, machinery and equipment, net (continued) At December 31, 2000, future minimum payments under capital leases together with the present value of the net minimum lese payments are as follows: US Dollars RMB ---------- --- 2001 $ 189 1,564 2002 189 1,564 2003 189 1,564 2004 189 1,564 2005 190 1,574 Thereafter 3,517 29,125 -------------- ------------- Total minimum lease payments 4,463 36,955 Less: Amount representing interest (2,512) (20,797) -------------- ------------- $ 1,951 16,158 ============== ============= 7. Investments At December 31, 2000, investments consist of: US Dollars RMB ---------- --- Equity investment (a) Cost $ 569 4,709 Share of post-acquisition retained earnings 43 363 Currency translation adjustment (69) (568) -------------- ---------- 543 4,504 Investment at cost (b) 450 3,730 Receivable from equity investee 113 926 -------------- ---------- $ 1,106 9,160 ============== ==========

(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 Singapore. 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 unaudited financial information of OVM Singapore as of and for the year ended December 31, 2000 and 1999 is as follows: 2000 1999 US Dollars RMB RMB ---------- --- --- Current assets $ 613 5,078 4,403 Non-current assets $ 244 2,027 2,229 Total liabilities, all current $ 164 1,359 688 Net Sales $ 553 4,575 3,310 Gross profit $ 133 1,099 540 Net income $ 8 63 10

F-15 OVM INTERNATIONAL HOLDING COPRORATION 7. Investments (continued) (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. 8. Deferred assets US Dollars RMB Housing loans (a) $ 40 329 Retirement costs (b) 227 1,885 ----------- ----------- $ 267 2,214 =========== =========== (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. In January 2000, approximately RMB2,365 was transferred to the JV Partner in relation to staff retained by the JV Partner. Amortization for the years ended December 31, 2000 and 1999 was RMB101 and RMB241, respectively. (Note 16). 9. Staff housing loans At December 31, 2000 staff housing loans of RMB810 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, 2000 loans of RMB170 were made and RMB157 was repaid. In addition, an amount of RMB2,034 was transferred to the JV Partner in 2000 in relation to staff retained by the JV Partner. (Note 1) 10. Impairment of intangible assets During the year ended December 31, 2000, the Company included in selling and administrative expense, impairment losses of approximately RMB3,217 related to goodwill arising from its acquisition of its interest in the JV. During the fourth quarter of 2000, management determined that, as a result of the various agreements with the JV Partner, the value of the goodwill was uncertain and was therefore written off. F-16 OVM INTERNATIONAL HOLDING COPRORATION 11. Notes payable At December 31, 2000, notes payable consists of amounts payable to various banks in the PRC. RMB6,000 is collateralized by plant and machinery owned by the JV. Another note of RMB5,000 is guaranteed by a third party, and a guarantee fee of RMB80 was paid for such guarantee. All remaining notes are unsecured. All notes are due within one year of the balance sheet date and interest at a weighted average rate of 7.2% per annum was incurred during 2000 (1999: 8.3%). 12. Other debt At December 31, 2000, other 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. At December 31, 2000, repayment of an additional RMB60 is contingent upon whether the Company successfully completes certain remaining projects. 13. Common stock and additional paid-in capital The Company has granted 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 through December 23, 2001. 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, 2000. 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, 2000, no stock options have been granted under the Plan. 14. 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. F-17 OVM INTERNATIONAL HOLDING COPRORATION 14. Income taxes (continued) 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. The National Tax Bureau revoked the preferential rate approval in 2000 and the income of the JV is only fully exempted from Chinese national income tax for two years commencing from first profitable year of operation (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 the local income tax of 3%. Accordingly, the Company has made additional provision of RMB4,476 in the current year for the additional income taxes for 1997. The five year tax exemption expired in 2000. The Company's share in the JV's tax savings resulting from this tax holiday for the years ended December 31, 1999 amounted to RMB87 (RMB0.01 per share) OVM Prestress was formed in 1998 and is subject to business tax of 3% on sales and national and local income tax of 33%. A reconciliation of the effective income tax rates with the statutory income tax rate in the PRC is as follows:

2000 1999 ---- ---- RMB RMB Statutory income tax 33% 33% Computed expected tax expense (benefit) - 1,728 Impact of revoked preferential tax (tax holiday) of the JV 4,476 (124) Item which gives rise to no tax benefit: Net loss of the Company and HDL 757 413 Others 958 829 ------------ ---------- Taxation charges for the year 6,191 2,846 ============ ==========

The Company's share in the undistributed earnings of the Company's foreign subsidiaries amounted to RMB25,386 and RMB34,587 at December 31, 2000 and 1999 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, 2000 and 1999 was RMB5,602 and RMB10,447 respectively. No deferred income taxes have been provided as the effect of all temporary differences is not material. F-18 OVM INTERNATIONAL HOLDING COPRORATION 15. 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, 2000 and 1999, RMB15,899 and RMB38,217, respectively, of shareholders' equity is subject to exchange conversion restrictions. 16. Retirement plans As stipulated by PRC government regulations, the JV is required to make pension contributions of 20% 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, 2000 and 1999 amounted to RMB756 and RMB1,494 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, 2000 and 1999 amounted to RMB21 and RMB207 respectively. No contribution was made after March 2000. Under the second retirement plan, the JV made a one-time contribution of RMB2,296 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. F-19 OVM INTERNATIONAL HOLDING COPRORATION 17. 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. At January 1, 2000, the Company had amounts due from the JV Partner of RMB22,412. Additional amounts of approximately RMB29,600 became due from the JV Partner as a result of the transfer of certain inventories, fixed assets and financial assets related to former JV employees to the JV Partner under the various January 2000 agreements. Other significant transactions with the JV Partner during 2000 are summarized below:

2000 1999 US Dollars RMB RMB ---------- --- --- Sales of raw materials $ 1 10 2,283 Sales of finished goods 109 905 9,619 Rental income from leasing of Plant and machinery 8 64 61 Sales of machinery - - 34 Transportation income - - 235 Services fee income - - 34 Rental expenses for leasing of Land and buildings, plant and Machinery and motor vehicles (34) (285) (2,505) Purchases of raw materials - - (196) Sub-contracting charges - - (10,621) Interest expense - - (489) Purchases of finished goods (593) (4,908) (3,443) Purchases of packing materials (11) (92) - Management fees - - (310) Trademark use fee (62) (512) -

F-20 OVM INTERNATIONAL HOLDING COPRORATION 17. Related party transactions and balances (continued) In addition, the Company had transactions with affiliates of the JV Partner, as summarized below:

2000 1999 US Dollars RMB RMB ---------- --- --- Sales of raw materials $ - - 20 Rental income 1 1 - Rental expenses for leasing of Plant and machinery (3) (24) (784) Sub-contracting charges - - (246) Purchases of raw materials - - (1,533) Purchases of finished goods (5) (42) -

During the years ended December 31, 2000 and 1999, the Company made sales of RMB719 and RMB1,783, respectively, to OVM Prestress Engineering Company Pte. Ltd. Amounts due from the Joint Venture Partner are the subject of arbitration under a proceeding being administered by the local PRC government. However, at this time, it is too early to determine the outcome of the arbitration and the Company has provided an allowance for uncollectible amounts of RMB21,623. At December 31, 2000 the balances with related parties are as follows:

US Dollars RMB ---------- --- Due from related parties: JV Partner $ 700 5,799 Director - Mr. Ching Lung Po 1,338 11,079 ----------------- ---------------- $ 2,038 16,878 ================= ================

These balances are unsecured, non-interest bearing and due on demand. 18. Supplemental cash flow information

2000 1999 US Dollars RMB RMB ---------- --- --- Interest paid $ 286 2,364 2,772 ========= ========== ========== Income taxes paid $ 486 4,026 2,861 ========= ========== ==========

Non-cash investing and financing activities Capital leases obligation of RMB16,469 were incurred during 2000. Inventories of approximately RMB 15,035, prepayments, deposits and other receivables of approximately RMB 731, fixed assets of approximately RMB9,435, deferred assets of approximately RMB2,365 and staff housing loans of approximately RMB2,034 were transferred to the joint venture partner in 2000 in exchange for a receivable of approximately RMB29,600. F-21 OVM INTERNATIONAL HOLDING COPRORATION 19. 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. 20. 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, 2000 and 1999, the Company also had foreign sales (primarily in Japan and Vietnam) comprising approximately 17% and 12% of total sales, respectively. No customers accounted for 10% or more of the total sales of the Company during 2000 or 1999. Details of the Company's purchases from suppliers, which accounted for 10% or more of the total purchases, are as follows: 2000 1999 ---- ---- % % Purchases: Hubei Huangshi Daye Steeling Factory 16 20 Others 84 80 -------- -------- 100 100 ======== ======== 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. 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. F-22 OVM INTERNATIONAL HOLDING COPRORATION 21. 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 2000 and 1999. 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. At December 31, 2000 and 1999, the Company's share in the distributable profits of the JV and its subsidiaries were approximately RMB 40,342 and RMB39,360, respectively. 22. Operating lease commitments At December 31, 2000, future minimum payments under operating leases for the leasing of land and buildings, plant and machinery and motor vehicles in Liuzhou including from the JV Partner were as follows: RMB --- 2001 367 2002 331 2003 292 2004 256 2005 256 Thereafter 1,429 --------- 2,931 ========= Rent Expense under operating leases was RMB761 and RMB3,461 for the years ended December 31, 2000 and 1999, respectively. F-23 OVM INTERNATIONAL HOLDING COPRORATION 23. 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. Beginning in January 2000, Liuzhou OVM's products are marketed under a new trademark ("HVM") which is registered in the name of 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 at an annual fee based on 1.5% of sales. Intangible asset fees charged by Hong Da amounted to RMB1,127 for the current year. At December 31, 2000, the Company had no outstanding capital commitments for purchases of equipment and moulds. 24. Subsequent event On April 29, 2001, HDL and the JV Partner entered into a Memorandum of Understanding, which provides for the transfer of the JV Partner's interest in the JV to HDL, and the transfer of the JV's interest in OVM Prestress to the JV Partner. The terms of the transfers are subject to separate transfer agreements which have not yet been negotiated. F-24 INDEX TO EXHIBITS EXHIBIT NUMBERS DESCRIPTION 10.25 Agreement on the Use of Trademark 10.26 Service Agreement with Ching Lung Po 10.27 Employment Agreement with Wan Wai On 10.28 Memorandum of Understanding 21 Subsidiaries of the Registrant