10QSB 1 ovm10-qsb.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter period ended June 30, 2001 ------------- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _____________ OVM INTERNATIONAL HOLDING CORP. (Exact Name of Small Business Issuer as specified in its Charter) Nevada 88-0344135 (State or other Jurisdiction (IRS Employer of incorporation) Identification No.) Room 2105, West Tower, Shun Tak Centre 200 Connaught Road C., Sheung Wan, Hong Kong (Address of Principal Executive Office) (852) 2810-6226 (Issuer's Telephone Number, Including Area Code) Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. (1) Yes X No (2) Yes X No ------ ------ ------ ------ State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 12,050,000 shares of common stock, $0.0001 par value, as of August 14, 2001. Traditional Small Business Disclosure Format: Yes [ ] No [X] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Amounts in thousands, except share and per share data)

Three Months Ended June 30, Six Months Ended June 30, -------------------------------------- --------------------------------------- 2001 2000 2001 2001 2000 2001 ---------- ---------- ---------- ---------- ---------- ---------- RMB RMB US$ RMB RMB US$ NET SALES 27,378 25,406 3,307 48,363 46,009 5,841 COST OF SALES (15,007) (18,724) (1,813) (27,331) (30,230) (3,301) ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROFIT 12,371 6,682 1,494 21,032 15,779 2,540 SELLING AND ADMINISTRATIVE EXPENSES (11,030) (9,502) (1,332) (19,801) (18,470) (2,391) INTEREST EXPENSES (642) (279) (78) (1,266) (1,219) (153) INTEREST INCOME 6 130 1 63 138 7 OTHER EXPENSES, NET (10) (1,492) (1) (67) (1,522) (8) ---------- ---------- ---------- ---------- ---------- ---------- INCOME/(LOSS) BEFORE INCOME TAXES 695 (4,461) 84 (39) (5,294) (5) INCOME TAXES (376) (2,813) (45) (414) (2,885) (50) ---------- ---------- ---------- ---------- ---------- ---------- 319 (7,274) 39 (453) (8,179) (55) MINORITY INTERESTS (530) 2,024 (64) 1,799 2,142 217 EQUITY IN EARNINGS/(LOSS) OF EQUITY INVESTEE (579) 2 (70) (677) 13 (81) ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME/(LOSS) (790) (5,248) (95) 669 (6,024) 81 ========== ========== ========== ========== ========== ========== BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE (0.07) (0.44) (0.01) 0.06 (0.50) 0.01 ========== ========== ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 ========== ========== ========== ========== ========== ==========

See notes to condensed consolidated financial statements. 2 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 AND DECEMBER 31, 2000 (Amounts in thousands)

June 30, December 31, June 30, 2001 2000 2001 ---------- ---------- ---------- RMB RMB US$ Notes (Unaudited) (Note) (Unaudited) ASSETS Current assets: Cash and bank balances 11,421 10,433 1,379 Accounts receivable 42,285 34,678 5,107 Inventories 2 22,509 20,659 2,719 Prepayments, deposits and other 6,855 5,520 828 receivables Due from related parties 8,505 16,878 1,027 ---------- ---------- ---------- Total current assets 91,575 88,168 11,060 Property, machinery and equipment, net 3 19,027 19,577 2,298 Leased property, machinery and equipment, 4 15,397 15,755 1,860 net Investments 8,172 9,160 987 Due from related party 2,985 - 360 Other assets: Deferred asset 1,949 2,214 235 Staff housing loans 763 810 92 ---------- ---------- ---------- Total assets 139,868 135,684 16,892 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable 13,500 16,000 1,631 Other debt 1,050 1,050 127 Current portion of capital leases 227 223 27 Accounts payable 41,263 34,205 4,983 Advance payments by customers 7,118 6,266 860 Other payables and accrued liabilities 10,970 10,650 1,325 Taxes payable 3,784 4,112 457 ---------- ---------- ---------- Total current liabilities 77,912 72,506 9,410 Long term debt net of current portion Capital leases net of current portion 15,819 15,935 1,910 ---------- ---------- ---------- Total liabilities 93,731 88,441 11,320 ---------- ---------- ---------- Minority interests in consolidated 19,706 21,505 2,380 subsidiaries ---------- ---------- ---------- Shareholders' equity: Common stock, 40,000,000 shares, par value of US$0.0001 authorized; 12,050,000 shares, issued and outstanding 10 10 1 Additional paid-in capital 30,795 30,795 3,719 Accumulated deficit (4,341) (5,010) (524) Accumulated comprehensive loss (33) (57) (4) ---------- ---------- ---------- Total shareholders' equity 26,431 25,738 3,192 ---------- ---------- ---------- Total liabilities and shareholders' equity 139,868 135,684 16,892 ========== ========== ==========

Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001 (Amounts in thousands)

Accumulated other Common Additional Accumulated comprehensive stock paid-in capital deficit loss Total ------ --------------- ----------- ------------- ------- RMB RMB RMB RMB RMB Balance at January 1, 2001 10 30,795 (5,010) (57) 25,738 Comprehensive income: Net income for the period -- -- 669 -- 669 Currency translation adjustments -- -- -- 24 24 ------ ------- ------- ------ ------- Total comprehensive income 693 ------- Balance at June 30, 2001 10 30,795 (4,341) (33) 26,431 ====== ======= ======= ====== =======

See notes to condensed consolidated financial statements. 4 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Amounts in thousands)

Six months ended June 30, --------------------------------------- 2001 2000 2001 ------- ------- ------- RMB RMB US$ Net cash provided by/(used in) operating activities 2,589 (4,836) 313 ------- ------- ------- Cash flows from investing activities: Acquisition of property, machinery and equipment (1,239) (7,011) (150) Disposal of property, machinery and equipment -- -- -- ------- ------- ------- Net cash used in investing activities (1,239) (7,011) (150) ------- ------- ------- Cash flows from financing activities: Increase in notes payable 600 -- 72 Repayments of notes payable (850) (1,000) (102) Repayment of principal of capital leases (112) (124) (14) ------- ------- ------- Net cash used in financing activities (362) (1,124) (44) ------- ------- ------- Net decrease in cash and cash equivalents 988 (12,971) 119 Cash and cash equivalents, at beginning of period 10,433 22,859 1,260 ------- ------- ------- Cash and cash equivalents, at end of period 11,421 9,888 1,379 ======= ======= ======= Non-cash investing activities: Property, machinery and equipment acquired through capital leases -- 18,314 -- ======= ======= =======

See notes to condensed consolidated financial statements. 5 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For the convenience of the reader, amounts in Renminbi ("RMB") have been translated into United States dollars ("US$") at the rate of US$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30, 2001. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate. 2. INVENTORIES

June 30, December 31, 2001 2000 RMB RMB Raw materials 8,165 5,714 Work in progress 9,132 5,757 Finished goods 5,212 9,188 ---------- ---------- 22,509 20,659 ========== ==========

3. PROPERTY, MACHINERY AND EQUIPMENT, NET

June 30, December 31, 2001 2000 RMB RMB Cost: Buildings 1,253 1,253 Leasehold improvement 2,072 2,072 Plant, machinery and equipment 28,073 26,936 ---------- ---------- 31,398 30,261 ---------- ---------- Accumulated depreciation: Buildings 589 537 Leasehold improvement 125 83 Plant, machinery and equipment 11,657 10,064 ---------- ---------- 12,371 10,684 ---------- ---------- Property, machinery and equipment, net 19,027 19,577 ========== ==========

6 4. LEASED PROPERTY, MACHINERY AND EQUIPMENT, NET

June 30, December 31, 2001 2000 RMB RMB Cost: Buildings 10,948 10,948 Plant, machinery and equipment 5,521 5,521 ---------- ---------- 16,469 16,469 Accumulated amortization 1,072 714 ---------- ---------- Leased property, machinery and equipment, net 15,397 15,755 ========== ==========

5. MATERIAL AGREEMENTS AND CONTINGENCIES In January 2000, Liuzhou OVM entered into various agreements with the Stock Company resulting in the following: a. Termination of Liuzhou OVM's lease of land, buildings, property and equipment from the JV Partner. b. Allocation of part of Liuzhou OVM's personnel to the Stock Company resulting in the reduction of Liuzhou OVM's personnel and financial assets related thereto. c. Termination of Liuzhou OVM's rights to use certain intangible assets, including the "OVM" trademark. d. Transfer of approximately 1/3 of Liuzhou OVM's inventories to the Stock Company at normal selling prices excluding value added tax at 17%. e. Transfer of certain fixed assets to the Stock Company including the amount classified as Assets held for Sale at December 31, 1999. Notwithstanding these agreements, both HDL and the Stock Company continue to hold their respective interests in Liuzhou OVM and have retained their respective rights under the terms of the Joint Venture Agreement. The Company and the Stock Company have not been able to agree on the final determination of the amount owed to Liuzhou OVM by the Stock Company as a result of the above agreements. Accordingly, HDL submitted a dispute to non-binding arbitration being administered by the local PRC government in early 2001. No determination as to the likelihood of a favorable outcome to the arbitration can be made at this time. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 NET SALES AND GROSS PROFIT. Net sales for the six months ended June 30, 2001 increased by RMB2,354,000 (US$284,000) or 5.1% to RMB48,363,000 (US$5,841,000), compared to RMB46,009,000 (US$5,557,000) for the corresponding period in 2000. Although selling prices in 2001 were comparable to those of the corresponding period in 2000, sales volume increased by approximately 6% which attributed to the overall increase in sales. The increase in sales volume was mainly attributable to increased infrastructure projects in the PRC, especially in Western China. Gross profit increased by RMB5,253,000 (US$634,000) or 33.3% to RMB21,032,000 (US$2,540,000) for the six months ended June 30, 2001 compared to RMB15,779,000 (US$1,906,000) in the corresponding period of the prior year. Gross profit margin increased from 34% in 2000 to 44% in 2001. The increase in gross profit margin was mainly attributable to improved control over production cost. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the six months ended June 30, 2001 increased by RMB1,331,000 (US$161,000) or 7.2% to RMB19,801,000 (US$2,391,000), compared to RMB18,470,000 (US$2,231,000) for the corresponding period in 2000. The increase was mainly due to an allowance made on accounts receivable of RMB1,800,000 (US$217,000) in the current period. INTEREST INCOME/(EXPENSES). Interest expense for the six months ended June 30, 2001 was RMB1,266,000 (US$153,000) which was comparable to RMB1,219,000 (US$147,000) for the corresponding period of the prior year. During the current period, the increase in outstanding notes payable offset the effect of a decrease in average bank borrowing rates. Interest income for the six months ended June 30, 2001 decreased by RMB75,000 (US$9,000) or 54.3% to RMB63,000 (US$7,000), compared to RMB138,000 (US$17,000) in the corresponding period of the prior year. The decrease was mainly due to the decrease in bank balances. OTHER EXPENSES, NET. Other expenses for the six months ended June 30, 2001 amounted to RMB67,000 (US$8,000), and mainly represented a loss on the disposal of machinery and equipment. Other expenses for the six months ended June 30, 2000 amounted to RMB1,522,000 (US$184,000), and mainly represented a sales return by a customer. INCOME TAXES. The income of Liuzhou OVM is subject to Chinese national income tax at the full rate of 30%. Liuzhou OVM is exempt from the 3% local income tax throughout the term of the joint venture. Income from the Company's investments in the British Virgin Islands is not subject to income taxes. MINORITY INTERESTS. Minority interests represent the 30% equity interest in Liuzhou OVM owned by the Stock Company, the PRC joint venture partner, and the 30.7% equity interest in Liuzhou Prestress Construction Co. Ltd. The decrease in minority interests for the six months ended June 30, 2001 was mainly due to an adjustment made on the 30% equity interest in Liuzhou OVM to reflect the minority interest in losses of Liuzhou OVM. NET INCOME/(LOSS). The increase in net income for the six months ended June 30, 2001 was mainly attributable to the adjustment to minority interests described above and the increased revenues. THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 NET SALES AND GROSS PROFIT. Net sales for the second quarter of 2001 increased by RMB1,972,000 (US$238,000) or 7.8% to RMB27,378,000 (US$3,307,000), compared to RMB25,406,000 (US$3,068,000) for the corresponding period in 2000. The increase was mainly due to the increase in selling prices and sales volume in the current period. 8 Gross profit increased by RMB5,689,000 (US$687,000) or 85.1% to RMB12,371,000 (US$1,494,000) for the second quarter of 2001 compared to RMB6,682,000 (US$807,000) in the corresponding period of the prior year. Gross profit margin increased from 26% in 2000 to 45% in 2001. The increase in gross profit margin was mainly attributable to improved control over production cost and an increase in selling prices as the Company obtained certain large infrastructure projects at higher prices. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the second quarter of 2001 increased by RMB1,528,000 (US$185,000) or 16.1% to RMB11,030,000 (US$1,332,000), compared to RMB9,502,000 (US$1,148,000) for the corresponding period in 2000. The increase was mainly due to an allowance made on accounts receivable of RMB1,200,000 (US$145,000) in the second quarter of 2001. INTEREST INCOME/(EXPENSE). Interest expense for the second quarter of 2001 increased by RMB363,000 (US$44,000) or 130% to RMB642,000 (US$78,000), compared to RMB279,000 (US$34,000) in the corresponding period of the prior year. The increase was mainly due to a decrease in average outstanding notes payable. OTHER EXPENSES, NET. Other expenses for the second quarter of 2000 amounted to RMB1,492,000 (US$180,000), and mainly represented a sales return by a customer. INCOME TAXES. The income of Liuzhou OVM is subject to Chinese national income tax at the full rate of 30%. Liuzhou OVM is exempt from the 3% local income tax throughout the term of the joint venture. Income from the Company's investments in the British Virgin Islands is not subject to income taxes. MINORITY INTERESTS. Minority interests represent the 30% equity interest in Liuzhou OVM owned by the Stock Company, the PRC joint venture partner, and the 30.7% equity interest in Liuzhou Prestress Construction Co. Ltd. Minority interests for the second quarter of 2001 represented the sharing of net income of Liuzhou OVM while minority interests for the second quarter of 2000 represented the sharing of net losses of Liuzhou OVM. NET INCOME/(LOSS). The decrease in net loss for the second quarter of 2001 was mainly attributable to increased revenues. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs are to fund inventories, accounts receivable and capital expenditures. The Company has financed its working capital requirements through a combination of internally generated cash, short term bank loans and advances from affiliates. The Company had a working capital surplus of RMB13,663,000 (US$1,650,000) as of June 30, 2001 compared to RMB15,662,000 (US$1,892,000) as of December 31, 2000. Net cash provided by operating activities for the six months ended June 30, 2001 was RMB2,589,000 (US$313,000) as compared to net cash used in operating activities of RMB4,836,000 (US$584,000) for the corresponding period in 2000. Net cash flows from the Company's operating activities are attributable to the Company's income and changes in operating assets and liabilities. The Company's additions to property, machinery and equipment for the six months ended June 30, 2001 were RMB1,239,000 (US$150,000). Accounts receivable and accounts payable increased by 22% and 21%, respectively, from December 31, 2000 to June 30, 2001. The increase in accounts payable was mainly due to delayed payments to suppliers in order to finance current assets, particularly accounts receivable. The increase in accounts receivable was mainly due to delayed payments by customers, and accordingly, the Company increased the provision for uncollectible amounts by RMB1,800,000 (US$217,000) on the accounts receivable balance aged over 1 year during the current period. The Company evaluates the allowance level from time to time by applying the Company's provision policy. Apart from the above, there has been no other significant change in financial condition and liquidity since the fiscal year ended December 31, 2000. The Company believes that internally generated funds together with available bank credit, will be sufficient to satisfy its anticipated working capital needs for at least the next twelve months. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: NONE ITEM 2. CHANGES IN SECURITIES: NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) During the three months ended June 30, 2001, the Company filed no current Reports on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OVM INTERNATIONAL HOLDING CORP. August 20, 2001 By: /s/ Ching Lung Po ---------------------------------------- Ching Lung Po, President By: /s/ Deng Xiao Qiong ---------------------------------------- Deng Xiao Qiong, Chief Financial Officer 12