10QSB 1 ovm10qsb.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 September 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, $0.0001 par value, as of November 14, 2001. Traditional Small Business Disclosure Format: Yes [ ] No [ X ] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Amounts in thousands, except share and per share data)
Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------------- ------------------------------------------- 2001 2000 2001 2001 2000 2001 ----------- ----------- ----------- ----------- ----------- ----------- RMB RMB US$ RMB RMB US$ NET SALES 30,531 25,542 3,687 78,894 86,592 9,528 COST OF SALES (18,246) (13,798) (2,203) (45,577) (59,069) (5,504) ----------- ----------- ----------- ----------- ----------- ----------- GROSS PROFIT 12,285 11,744 1,484 33,317 27,523 4,024 SELLING AND ADMINISTRATIVE EXPENSES (11,159) (10,302) (1,348) (30,960) (28,772) (3,739) INTEREST EXPENSES (649) (430) (78) (1,915) (1,649) (232) INTEREST INCOME 13 32 1 76 170 9 OTHER INCOME/(EXPENSES), NET (2) 256 -- (69) (1,266) (8) ----------- ----------- ----------- ----------- ----------- ----------- INCOME/(LOSS) BEFORE INCOME TAXES 488 1,300 59 449 (3,994) 54 INCOME TAXES (399) (715) (48) (813) (3,600) (98) ----------- ----------- ----------- ----------- ----------- ----------- 89 585 11 (364) (7,594) (44) MINORITY INTERESTS (149) (281) (18) 1,650 1,861 199 EQUITY IN EARNINGS/(LOSS) OF EQUITY INVESTEE (171) 13 (21) (848) 26 (102) ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME/(LOSS) (231) 317 (28) 438 (5,707) 53 =========== =========== =========== =========== =========== =========== BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE (0.02) 0.03 -- 0.04 (0.47) -- =========== =========== =========== =========== =========== =========== 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 SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (Amounts in thousands)
September 30, December 31, September 30, 2001 2000 2001 ---------- ---------- ---------- RMB RMB US$ Notes (Unaudited) (Note) (Unaudited) ASSETS Current assets: Cash and bank balances 4,891 10,433 591 Accounts receivable 46,768 34,678 5,648 Inventories 2 30,484 20,659 3,682 Prepayments, deposits and other 9,086 5,520 1,097 receivables Due from related parties 4,512 16,878 545 ---------- ---------- ---------- Total current assets 95,741 88,168 11,563 Property, machinery and equipment, net 3 18,885 19,577 2,281 Leased property, machinery and equipment, 4 15,218 15,755 1,838 net Investments 8,509 9,160 1,028 Due from related party 5,435 - 656 Other assets: Deferred asset 1,992 2,214 241 Staff housing loans 666 810 80 ---------- ---------- ---------- Total assets 146,446 135,684 17,687 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable 14,600 16,000 1,763 Other debt 900 1,050 109 Current portion of capital leases 236 223 29 Accounts payable 41,304 34,205 4,988 Advance payments by customers 13,716 6,266 1,657 Other payables and accrued liabilities 9,990 10,650 1,206 Taxes payable 3,892 4,112 470 ---------- ---------- ---------- Total current liabilities 84,638 72,506 10,222 Capital leases net of current portion 15,754 15,935 1,903 ---------- ---------- ---------- Total liabilities 100,392 88,441 12,125 ---------- ---------- ---------- Minority interests in consolidated 19,855 21,505 2,398 subsidiaries ---------- ---------- ---------- Shareholders' equity: Common stock, 40,000,000 shares, par value of US$0.0001 authorized; 12,050,000 shares, issued and outstanding 10 10 1 Additional paid-in capital 30,795 30,795 3,719 Accumulated deficit (4,572) (5,010) (552) Accumulated comprehensive loss (34) (57) (4) ---------- ---------- ---------- Total shareholders' equity 26,199 25,738 3,164 ---------- ---------- ---------- Total liabilities and shareholders' equity 146,446 135,684 17,687 ========== ========== ==========
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (Amounts in thousands)
Accumulated Additional other Common paid-in Accumulated comprehensive stock capital deficit loss Total ------ ------- ------- ------ ------ RMB RMB RMB RMB RMB Balance at January 1, 2001 10 30,795 (5,010) (57) 25,738 Comprehensive income: Net income for the period -- -- 438 -- 438 Currency translation adjustments -- -- -- 23 23 ------ ------- ------- ------ ------- Total comprehensive income 461 ------- Balance at September 30, 2001 10 30,795 (4,572) (34) 26,199 ====== ====== ======= ====== =======
See notes to condensed consolidated financial statements. 4 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Amounts in thousands)
Nine months ended September 30, ------------------------------- 2001 2000 2001 ------- ------- ------- RMB RMB US$ Net cash used in operating activities (2,419) (10,777) (292) ------- ------- ------- Cash flows from investing activities: Acquisition of property, machinery and equipment (1,555) (6,051) (188) ------- ------- ------- Net cash used in investing activities (1,555) (6,051) (188) ------- ------- ------- Cash flows from financing activities: Increase in notes payable 9,600 2,000 1,160 Repayments of notes payable (11,000) (1,000) (1,329) Repayment of principal of capital leases (168) (185) (20) ------- ------- ------- Net cash provided by/(used in) financing activities (1,568) 815 (189) ------- ------- ------- Net decrease in cash and cash equivalents (5,542) (16,013) (669) Cash and cash equivalents, at beginning of period 10,433 22,859 1,260 ------- ------- ------- Cash and cash equivalents, at end of period 4,891 6,846 591 ======= ======= ======= Non-cash financing activities: Notes payable to JV Partner off set against receivable from JV Partner -- 18,000 -- ======= ======= ======= 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 nine months periods ended September 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$1.00 = RMB8.28 quoted by the People's Bank of China as at September 30, 2001. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate. 2. INVENTORIES
September 30, December 31, 2001 2000 RMB RMB Raw materials 9,334 5,714 Work in progress 10,231 5,757 Finished goods 10,919 9,188 ---------- ---------- 30,484 20,659 ========== ==========
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
September 30, December 31, 2001 2000 RMB RMB Cost: Buildings 1,253 1,253 Leasehold improvement 2,072 2,072 Plant, machinery and equipment 28,389 26,936 ---------- ---------- 31,714 30,261 ---------- ---------- Accumulated depreciation: Buildings 615 537 Leasehold improvement 146 83 Plant, machinery and equipment 12,068 10,064 ---------- ---------- 12,829 10,684 ---------- ---------- Property, machinery and equipment, net 18,885 19,577 ========== ==========
6 4. LEASED PROPERTY, MACHINERY AND EQUIPMENT, NET
September 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 1,251 714 ---------- ---------- Leased property, machinery and equipment, net 15,218 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 NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 NET SALES AND GROSS PROFIT. Net sales for the nine months ended September 30, 2001 decreased by RMB7,698,000 (US$930,000) or 8.9% to RMB78,894,000 (US$9,528,000), compared to RMB86,592,000 (US$10,458,000) for the corresponding period in 2000. The decrease was mainly attributable to a decrease in sales volume as some inventories were not yet delivered to customers as at the quarter end. Gross profit increased by RMB5,794,000 (US$700,000) or 21.1% to RMB33,317,000 (US$4,024,000) for the nine months ended September 30, 2001 compared to RMB27,523,000 (US$3,324,000) in the corresponding period of the prior year. Gross profit margin increased from 32% in 2000 to 42% 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 nine months ended September 30, 2001 increased by RMB2,188,000 (US$264,000) or 7.6% to RMB30,960,000 (US$3,739,000), compared to RMB28,772,000 (US$3,475,000) for the corresponding period in 2000. The increase was mainly due to an allowance made on accounts receivable of RMB2,800,000 (US$338,000) in the current period. INTEREST INCOME/(EXPENSES). Interest expense for the nine months ended September 30, 2001 increased by RMB266,000 (US$32,000) or 16.1% to RMB1,915,000 (US$231,000), compared to RMB1,649,000 (US$199,000) for the corresponding period of the prior year. The increase was mainly attributable to an increase in outstanding notes payable. Interest income for the nine months ended September 30, 2001 decreased by RMB94,000 (US$11,000) or 55.3% to RMB76,000 (US$9,000), compared to RMB170,000 (US$21,000) 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 nine months ended September 30, 2001 amounted to RMB69,000 (US$8,000), and mainly represented a loss on the disposal of machinery and equipment. Other expenses for the nine months ended September 30, 2000 amounted to RMB1,266,000 (US$153,000), 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 nine months ended September 30, 2001 was mainly due to a decrease in net loss incurred by Liuzhou OVM which was partly offset by 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 nine months ended September 30, 2001 was mainly attributable to the adjustment to minority interests described above and the increased gross profit. THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 NET SALES AND GROSS PROFIT. Net sales for the third quarter of 2001 increased by RMB4,989,000 (US$603,000) or 19.5% to RMB30,531,000 (US$3,687,000), compared to RMB25,542,000 (US$3,085,000) for the corresponding period in 2000. The increase was mainly due to more completed contracts during the current period. 8 Gross profit increased by RMB541,000 (US$65,000) or 4.6% to RMB12,285,000 (US$1,484,000) for the third quarter of 2001 compared to RMB11,744,000 (US$1,418,000) in the corresponding period of the prior year. Gross profit margin decreased from 46% in 2000 to 40% in 2001. Certain infrastructure projects completed in the third quarter of 2000 were sold at prices higher than normal due to less competition in bidding these projects, which resulted in a higher gross profit margin in the third quarter of 2000. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the third quarter of 2001 increased by RMB857,000 (US$104,000) or 8.3% to RMB11,159,000 (US$1,348,000), compared to RMB10,302,000 (US$1,244,000) for the corresponding period in 2000. The increase was mainly due to an additional allowance made on accounts receivable of RMB1,000,000 (US$121,000) in the third quarter of 2001. INTEREST INCOME/(EXPENSE). Interest expense for the third quarter of 2001 increased by RMB219,000 (US$26,000) or 50.9% to RMB649,000 (US$78,000), compared to RMB430,000 (US$52,000) in the corresponding period of the prior year. The increase was mainly due to an increase in outstanding notes payable. OTHER INCOME/(EXPENSE), NET. Other income for the third quarter of 2000 mainly represented sale of packaging materials to customers. 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 third quarter of 2001 was mainly attributable to a decrease in the net income of Liuzhou OVM. NET INCOME/(LOSS). The change from a net income for the third quarter of 2000 to a net loss for the third quarter of 2001 was mainly attributable to increased selling and administrative expenses. 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 RMB11,103,000 (US$1,341,000) as of September 30, 2001 compared to RMB15,662,000 (US$1,892,000) as of December 31, 2000. Net cash used in operating activities for the nine months ended September 30, 2001 was RMB2,419,000 (US$292,000) as compared to RMB10,777,000 (US$1,302,000) 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 nine months ended September 30, 2001 were RMB1,555,000 (US$188,000). Accounts receivable and accounts payable increased by 35% and 21%, respectively, from December 31, 2000 to September 30, 2001. The increase in accounts payable was mainly due to increased purchases of raw materials in the third quarter of 2001 and 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 RMB2,800,000 (US$338,000) 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 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 September 30, 2001, the Company filed no Current Reports on Form 8-K. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OVM INTERNATIONAL HOLDING CORP. November 19, 2001 By: /s/ Ching Lung Po ----------------------------------- Ching Lung Po, President By: /s/ Deng Xiao Qiong ----------------------------------- Deng Xiao Qiong, Chief Financial Officer 12