10QSB 1 ovm-10qsb.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, 2002 ------------- [ ] 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: 12,070,000 shares of common stock, $0.0001 par value, as of August 12, 2002. Transitional Small Business Disclosure Format: Yes [ ] No [X] OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND DECEMBER 31, 2001 (Amounts in thousands)
June 30, December 31, June 30, 2002 2001 2002 -------- -------- -------- RMB RMB US$ Notes (Unaudited) (Note) (Unaudited) ASSETS Current assets: Cash and bank balances 3,906 7,286 472 Restricted cash 1,944 1,754 234 Accounts receivable 2 59,030 51,021 7,129 Inventories 20,518 18,291 2,478 Prepayments, deposits and other 3,948 2,736 477 receivables Due from related parties 3,072 3,072 371 Net assets held for disposition 5,621 5,621 679 -------- -------- -------- Total current assets 98,039 89,781 11,840 Restricted cash 648 556 78 Property, machinery and equipment, net 3 12,222 13,113 1,476 Leased property, machinery and equipment, 4 12,878 13,179 1,555 net Investments 1,865 1,865 225 Due from related party 3,755 4,229 454 Other assets: Deferred asset 1,564 1,624 189 Staff housing loans 577 675 70 -------- -------- -------- Total assets 131,548 125,022 15,887 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable 17,550 12,600 2,120 Other debt 720 720 87 Current portion of capital leases 198 190 24 Accounts payable 30,147 30,949 3,641 Advance payments by customers 10,169 7,277 1,228 Other payables and accrued liabilities 12,069 12,000 1,458 Taxes payable 3,782 4,391 456 Due to related parties 566 649 68 -------- -------- -------- Total current liabilities 75,201 68,776 9,082 Notes payable -- 2,000 -- Capital leases net of current portion 13,661 13,762 1,650 -------- -------- -------- Total liabilities 88,862 84,538 10,732 -------- -------- -------- Minority interests in consolidated subsidiaries 18,158 17,122 2,193 -------- -------- -------- Shareholders' equity: Common stock, 40,000,000 shares, par value of US$0.0001 authorized; 12,070,000 shares, issued and outstanding 10 10 1 Additional paid-in capital 30,899 30,899 3,732 Accumulated deficit (6,756) (7,892) (816) Accumulated comprehensive income 375 345 45 -------- -------- -------- Total shareholders' equity 24,528 23,362 2,962 -------- -------- -------- Total liabilities and shareholders' equity 131,548 125,022 15,887 ======== ======== ========
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Amounts in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------- ------------------------------------------- 2002 2001 2002 2002 2001 2002 ----------- ----------- ----------- ----------- ----------- ----------- RMB RMB US$ RMB RMB US$ NET SALES 32,409 27,378 3,914 56,832 48,363 6,864 COST OF SALES (17,672) (15,007) (2,134) (30,223) (27,331) (3,650) ----------- ----------- ----------- ----------- ----------- ----------- GROSS PROFIT 14,737 12,371 1,780 26,609 21,032 3,214 SELLING AND ADMINISTRATIVE EXPENSES (12,570) (11,030) (1,518) (22,361) (19,801) (2,701) INTEREST EXPENSES (591) (642) (71) (1,187) (1,266) (143) INTEREST INCOME 8 6 1 13 63 2 OTHER INCOME/(EXPENSES), NET 30 (10) 3 236 (67) 28 ----------- ----------- ----------- ----------- ----------- ----------- INCOME/(LOSS) BEFORE INCOME TAXES 1,614 695 195 3,310 (39) 400 INCOME TAXES (802) (376) (97) (1,138) (414) (138) ----------- ----------- ----------- ----------- ----------- ----------- 812 319 98 2,172 (453) 262 MINORITY INTERESTS (439) (530) (53) (1,036) 1,799 (125) EQUITY IN LOSS OF EQUITY INVESTEE -- (579) -- -- (677) -- ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME/(LOSS) 373 (790) 45 1,136 669 137 ----------- ----------- ----------- ----------- ----------- ----------- OTHER COMPREHENSIVE INCOME LOSS; fOREIGN CURRENCY TRANSLATION ADJUSTMENTS 5 (2) 1 30 24 4 ----------- ----------- ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME (LOSS) 378 (792) 46 1,166 693 141 =========== =========== =========== =========== =========== =========== BASIC AND DILUTED EARNINGS PER SHARE 0.03 (0.07) -- 0.09 0.06 0.01 =========== =========== =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 12,070,000 12,050,000 12,070,000 12,070,000 12,050,000 12,070,000 =========== =========== =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 2 OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Amounts in thousands)
Six months ended June 30, ------------------------------- 2002 2001 2002 ------- ------- ------- RMB RMB US$ Net cash (used in)/provided by operating activities (5,923) 2,589 (715) ------- ------- ------- Cash flows from investing activities: Acquisition of property, machinery and equipment (314) (1,239) (38) ------- ------- ------- Net cash used in investing activities (314) (1,239) (38) ------- ------- ------- Cash flows from financing activities: Increase in notes payable 12,550 600 1,516 Repayments of notes payable (9,600) (850) (1,160) Repayment of principal of capital leases (93) (112) (11) ------- ------- ------- Net cash provided by/(used in) financing activities 2,857 (362) 345 ------- ------- ------- Net (decrease)/increase in cash and cash equivalents (3,380) 988 (408) Cash and cash equivalents, at beginning of period 7,286 10,433 880 ------- ------- ------- Cash and cash equivalents, at end of period 3,906 11,421 472 ======= ======= =======
See notes to condensed consolidated financial statements. 3 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 accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. 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, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For the convenience of the reader, amounts in Renminbi ("RMB") have been translated into United States dollars ("US$") at the rate of US$1.00 = RMB8.28 quoted by the People's Bank of China as at June 30, 2002. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate. 2. INVENTORIES June 30, December 31, 2002 2001 RMB RMB Raw materials 3,785 3,462 Work in progress 4,958 4,342 Finished goods 11,775 10,487 ---------- ---------- 20,518 18,291 ====== ====== 3. PROPERTY, MACHINERY AND EQUIPMENT, NET June 30, December 31, 2002 2001 RMB RMB Cost: Buildings 1,729 1,729 Leasehold improvement 2,591 2,591 Plant, machinery and equipment 20,213 19,899 ---------- ---------- 24,533 24,219 ---------- ---------- Accumulated depreciation: Buildings 267 195 Leasehold improvement 238 186 Plant, machinery and equipment 11,806 10,725 ---------- ---------- 12,311 11,106 ---------- ---------- Property, machinery and equipment, net 12,222 13,113 ========== ========== 4 4. LEASED PROPERTY, MACHINERY AND EQUIPMENT, NET June 30, December 31, 2002 2001 RMB RMB Cost: Buildings 10,948 10,948 Plant, machinery and equipment 3,271 3,271 ---------- ---------- 14,219 14,219 Accumulated amortization 1,341 1,040 ---------- ---------- Leased property, machinery and equipment, net 12,878 13,179 ========== ========== 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 NET SALES AND GROSS PROFIT. Net sales for the six months ended June 30, 2002 increased by RMB8,469,000 (US$1,023,000) or 17.5% to RMB56,832,000 (US$6,864,000), compared to RMB48,363,000 (US$5,841,000) for the corresponding period in 2001. The increase was mainly attributable to an increase in sales volume in light of the improved infrastructure industry in the PRC, especially in Western China, and an increase in market acceptance of the Company's new anchorage products which were launched in 2001. Gross profit increased by RMB5,577,000 (US$674,000) or 26.5% to RMB26,609,000 (US$3,214,000) for the six months ended June 30, 2002 compared to RMB21,032,000 (US$2,540,000) in the corresponding period of the prior year. Gross profit margin increased from 43.5% in 2001 to 46.8% in 2002. The increase in gross profit margin was mainly attributable to the decrease in raw materials prices and improved control over production cost. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the six months ended June, 2002 increased by RMB2,560,000 (US$309,000) or 12.9% to RMB22,361,000 (US$2,701,000), compared to RMB19,801,000 (US$2,391,000) for the corresponding period in 2001. The increase was mainly due to an increase in allowance made on accounts receivable to RMB3,000,000 (US$362,000) for the six months ended June 30, 2002 compared to RMB1,800,000 (US$217,000) for the six months ended June 30, 2001, and the increase in sales activities during the current period. INTEREST INCOME/(EXPENSES). Interest expense for the six months ended June 30, 2002 decreased by RMB79,000 (US$10,000) or 6.2% to RMB1,187,000 (US$143,000), compared to RMB1,266,000 (US$153,000) for the corresponding period of the prior year. The decrease was mainly attributable to a decrease in weighted average interest rates from 7.3% in 2001 to 6.9% in 2002. Interest income for the six months ended June 30, 2002 decreased to RMB13,000 (US$2,000), compared to RMB63,000 (US$7,000) in the corresponding period of the prior year. The decrease was mainly due to the decrease in bank balances and interest rates. 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 income for the six months ended June 30, 2002 amounted to RMB236,000 (US$29,000), and mainly represented sub-lease income for land, buildings and other equipment, and the write off of creditors. INCOME TAXES. In 2001, the PRC Government introduced the Western Exploitation income tax incentive for certain enterprises invested in the Western Provinces of the PRC, and Liuzhou HVM is entitled to this incentive. Accordingly, income tax provisions for 2001 and 2002 are calculated based on a preferential tax rate of 15%. Liuzhou HVM 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 HVM owned by the PRC joint venture partner, and the 30.7% equity interest in Liuzhou Prestress Construction Co. Ltd. THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 NET SALES AND GROSS PROFIT. Net sales for the three months ended June 30, 2002 increased by RMB5,031,000 (US$608,000) or 18.4% to RMB32,409,000 (US$3,914,000), compared to RMB27,378,000 (US$3,307,000) for the corresponding period in 2001. The increase was mainly attributable to an increase in sales volume in light of the improved infrastructure industry in the PRC, especially in Western China, and an increase in market acceptance of the Company's new anchorage products which were launched in 2001. 6 Gross profit increased by RMB2,366,000 (US$286,000) or 19.1% to RMB14,737,000 (US$1,780,000) for the three months ended June 30, 2002 compared to RMB12,371,000 (US$1,494,000) in the corresponding period of the prior year. Gross profit margin slightly increased from 45.2% in 2001 to 45.5% in 2002. Despite the decrease in raw materials prices and improved control over production cost, gross profit margin only increased slightly as the Company completed certain large infrastructure projects in the second quarter of 2001 at higher prices. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for the three months ended June 30, 2002 increased by RMB1,540,000 (US$186,000) or 14.0% to RMB12,570,000 (US$1,518,000), compared to RMB11,030,000 (US$1,332,000) for the corresponding period in 2001. The increase was mainly due to an increase in allowance made on accounts receivable to RMB3,000,000 (US$362,000) for the three months ended June 30, 2002 compared to RMB1,200,000 (US$145,000) for the three months ended June 30, 2001, which was partly offset by a decrease in legal and professional expenses. INTEREST INCOME/(EXPENSES). Interest expense for the three months ended June 30, 2002 decreased by RMB51,000 (US$6,000) or 7.9% to RMB591,000 (US$71,000), compared to RMB642,000 (US$78,000) for the corresponding period of the prior year. The decrease was mainly attributable to a decrease in weighted average interest rates. OTHER EXPENSES, NET. Other income for the three months ended June 30, 2002 mainly represented sub-lease income for land, buildings and other equipment. INCOME TAXES. In 2001, the PRC Government introduced the Western Exploitation income tax incentive for certain enterprises invested in the Western Provinces of the PRC, and Liuzhou HVM is entitled to this incentive. Accordingly, income tax provisions for 2001 and 2002 are calculated based on a preferential tax rate of 15%. Liuzhou HVM 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 HVM owned by the PRC joint venture partner, and the 30.7% equity interest in Liuzhou Prestress Construction Co. Ltd. 7 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. The Company had a working capital surplus of RMB22,838,000 (US$2,758,000) as of June 30, 2002 compared to RMB21,005,000 (US$2,537,000) as of December 31, 2001. Net cash used in operating activities for the six months ended June 30, 2002 was RMB5,923,000 (US$715,000) as compared to net cash provided by operating activities of RMB2,589,000 (US$313,000) for the corresponding period in 2001. 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, 2002 were RMB314,000 (US$38,000). Accounts receivable increased by 16%, and advance payments by customers increased by 40% from December 31, 2001 to June 30, 2002. The increase in accounts receivables was mainly due to increased sales activities in the first half of 2002 and the delayed payments by customers. The Company made an additional allowance of RMB3 million (US$362,000) due to the increase in debtors aging in accordance with the Company's provision policy. The increase in advance payments by customers was mainly due to the increase in scheduled delivery in the next quarter. Apart from the above, there has been no significant change in financial condition and liquidity since the fiscal year ended December 31, 2001. 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. 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: NONE ITEM 2. CHANGES IN SECURITIES: NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 99.1 Certification of Chief Financial Officer 99.2 Certification of Chief Executive Officer (b) During the three months ended June 30, 2002, the Company filed no current Reports on Form 8-K. 9 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 12, 2002 By:/s/ Ching Lung Po ---------------------------------- Ching Lung Po, Chief Executive Officer By:/s/ Deng Xiao Qiong ----------------------------------- Deng Xiao Qiong, Chief Financial Officer 10