SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
_X_ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
Transitional Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-29424
Asia Electronics Holding Co. Inc.
(Exact name of registrant as specified in its charter)
British Virgin Islands 13-3932739
(State or other jurisdiction of incorporation (I.R.S. Employer or
Identification No.) or organization)
c/o Harney, Westwood & Riegels Not Applicable
Craigmuir Chambers (Zip Code)
P.O. Box 71
Road Town, Tortola
British Virgin Islands
(Address of principal executive offices)
(809) 494-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 ______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 14, 1997
Common Stock, par value $.01 per share 10,091,500 Shares
ASIA ELECTRONICS HOLDING CO. INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements.
Consolidated Statements of Income 1
Combined Statements of Income 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Investors' Equity 7
Notes to the Consolidated Financial Statements 8
Unaudited Pro Forma Consolidated Statement of Income 12
Unaudited Pro Forma Consolidated Balance Sheet 13
Notes to Unaudited Pro Forma Financial Statements 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASIA ELECTRONICS HOLDING CO. INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands except per share and share data)
(Unaudited)
For the three For the nine
months ended months ended
September 30, 1997 September 30, 1997
RMB US$ RMB US$
Sales to
- a related company 32,568 3,929 124,344 14,999
- others - - 19,667 2,373
32,568 3,929 144,011 17,372
Cost of goods sold (22,468) (2,710) (103,243) (12,453)
Selling and adminis-
trative expenses (1,945) (235) (5,301) (639)
Interest income, net 3,377 407 1,014 122
Other income, net 4,044 488 6,146 740
Total costs and expenses (16,992) (2,050) (101,384) (12,230)
Income before income taxes 15,576 1,879 42,627 5,142
Provision for income taxes (2,545) (307) (7,979) (962)
Income after income taxes 13,031 1,572 34,648 4,180
Minority interest (2,358) (284) (7,691) (928)
Net income 10,673 1,288 26,957 3,252
Net income per common share 2.2 0.27 5.56 0.67
Weighted average number of
common shares outstanding 4,850,000 4,850,000 4,850,000 4,850,000
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (RMB) into United States dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the Bank of China on September 30, 1997 of US$1.00 = Rmb8.2900. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate on September 30, 1997 or
at any other certain rate.
ASIA ELECTRONICS HOLDING CO. INC.
(PREDECESSOR COMPANIES)
COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
(Amounts in thousand)
(Unaudited)
For the three For the nine
months ended months ended
September 30, 1996 September 30, 1996
RMB US$ RMB US$
Sales to
- a related company 14,867 1,794 52,631 6,349
- others 8,507 1,026 24,498 2,955
23,374 2,820 77,129 9,304
Cost of goods sold (16,144) (1,947) (55,196) (6,658)
Selling and administrative
expenses (1,050) (127) (3,063) (369)
Interest income, net (187) (23) (1,398) (169)
Other expenses, net (35) (4) (79) (10)
Total costs and expenses (17,416) (2,101) (59,736) (7,026)
Income before income taxes 5,958 719 17,393 2,098
Provision for income taxes (1,891) (228) (4,429) (534)
Net income 4,067 491 12,964 1,564
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (RMB) into United States dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the Bank of China on September 30, 1997 of US$1.00 = Rmb8.2900. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate on September 30, 1997 or
at any other certain rate.
ASIA ELECTRONICS HOLDING CO. INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(Amounts in thousands)
December 31, September 30,
1 9 9 6 1 9 9 6 1 9 9 7 1 9 9 7
RMB US$ RMB US$
(Unaudited)
ASSETS
Current assets:
Cash 8,935 1,078 6,145 741
Accounts receivable 15,713 1,895 15,854 1,912
Due from related companies 31,926 3,851 74,845 9,029
Inventories 21,065 2,541 13,266 1,600
Prepayments and other
current assets 1,592 192 12,617 1,522
Value-added tax credit 4,575 552 4,575 552
Total current assets 83,806 10,109 127,302 15,356
Property, plant and
equipment, net 6,337 764 10,238 1,235
Total assets 90,143 10,873 137,540 16,591
LIABILITIES AND INVESTORS'
EQUITY
Current liabilities:
Short-term bank loans 14,749 1,779 13,984 1,687
Accrued expenses 6,072 732 9,251 1,116
Value-added tax payable 2,401 290 13,613 1,642
Income taxes payable 3,628 438 9,260 1,117
Deferred taxation 669 81 959 116
Total current
liabilities 27,519 3,320 47,067 5,678
Negative goodwill 18,369 2,215 16,992 2,050
Deferred taxation 981 118 981 118
Total liabilities 46,869 5,653 65,040 7,846
Minority interests 15,718 1,896 17,987 2,170
Investors' equity:
Common stock, par value
US$0.01 each, 30,000,000
shares authorized;
4,850,000 shares
outstanding 398 48 402 48
Additional paid-in
capital 27,158 3,276 27,170 3,277
Retained earnings - - 26,941 3,250
Total investors'
equity 27,556 3,324 54,513 6,575
Total liabilities and
investors' equity 90,143 10,873 137,540 16,591
The accompanying notes are an integral part of these financial statements.
ASIA ELECTRONICS HOLDING CO. INC.
CONSOLIDATED BALANCE SHEETS (Cont'd)
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(Amounts in thousands)
Translation of amounts from Renminbi (RMB) into United States dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the Bank of China on September 30, 1997 of US$1.00 = Rmb8.2900. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate on September 30, 1997 or
at any other certain rate.
ASIA ELECTRONICS HOLDING CO. INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands)
(Unaudited)
RMB US$
Cash flows from operating activities:
Net income 26,957 3,252
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation of property,
plant and equipment 2,454 296
Amortization of negative goodwill (1,377) (165)
Provision for deferred taxation 290 35
Minority interest 7,691 928
(Increase) decrease in assets:
Accounts receivable (141) (17)
Due from related companies (42,919) (5,178)
Inventories 7,799 941
Prepayments and other
current assets (11,025) (1,330)
Increase (decrease) in liabilities:
Accrued expenses 3,179 384
Value-added tax payable 11,212 1,352
Income taxes payable 5,632 679
Net cash provided by operating
activities 9,752 1,177
Cash flows from investing
activities:
Purchase of fixed assets (6,782) (818)
Sale proceeds from disposal
of fixed assets 427 51
(6,355) (767)
Cash flows from financing
activities:
Repayment of short-term bank loans (765) (93)
Dividend paid to minority
shareholders (5,422) (654)
Net cash used in financing
activities (6,187) (747)
Net decrease in cash (2,790) (337)
Cash, beginning of period 8,935 1,078
Cash, end of period 6,145 741
The accompanying notes are an integral part of these financial statements.
ASIA ELECTRONICS HOLDING CO. INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont'd)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands)
(Unaudited)
Translation of amounts from Renminbi (RMB) into United States dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the Bank of China on September 30, 1997 of US$1.00 = Rmb8.2900. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate on September 30, 1997 or
at any other certain rate.
ASIA ELECTRONICS HOLDING CO. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN INVESTORS' EQUITY
FOR THE PERIOD FROM JANUARY 3, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands)
(Unaudited)
Additional Retained
Capital paid-in capital earnings Total
RMB RMB RMB RMB
Contribution from
investors 398 27,158 - 27,556
Balance as of
December 31, 1996 398 27,158 - 27,556
Net income - - 26,957 26,957
Capitalization issue
of dividend 16 - (16) -
Repurchase of common
stock (12) 12 - -
Balance as of
September 30, 1997 402 27,170 26,941 54,513
The accompanying notes are an integral part of these financial statements.
ASIA ELECTRONICS HOLDING CO. INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated balance sheet of Asia Electronics Holding
Co. Inc. (the "Company"), incorporated in the British Virgin Islands, and
subsidiaries as of September 30, 1997 and the related interim consolidated
statements of income, cash flows and changes in investors equity for the nine
months ended September 30, 1997 and the combined statements of income of
Xianyang Daming Electronics Co., Limited and Xianyang Yongxin Electronic Co.
Limited (predecessor companies) for the nine months ended September 30, 1996
are unaudited. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of these
interim financial statements have been included therein. Interim results are
not necessarily indicative of results for the entire year.
The interim consolidated financial statements included herein have been prepared
on a basis consistent with that of the audited consolidated financial statements
presented elsewhere in this document, in accordance with generally accepted
accounting principles in the United States of America ("US GAAP").
The Company acquired an 80% equity interest in Xianyang Daming Electronic Co.,
Limited ("Daming") and Xiangyang Yongxin Electronic Co., Limited ("Yongxin"),
effective as of December 31, 1996 (see below Note 2 for details). Because the
Company is an investment holding company with no other business activities, the
combined result of operations of Daming and Yongxin for the nine months period
ended September 30, 1996 is presented for comparative purpose.
For the purposes of these interim consolidated financial statements, certain
information and disclosures normally included in financial statements prepared
in accordance with US GAAP have been condensed or omitted. These unaudited
interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form F-1 as filed with the Securities and Exchange Commission ("SEC") on
September 18, 1997, as supplemented by the prospectus, dated as of September 24,
1997.
2. BUSINESS COMBINATION
The Company acquired an 80% interest in Daming and Yongxin, both incorporated in
the People's Republic of China (PRC), effective as of December 31, 1996.
Pursuant to an outstanding informal agreement, the purchase price was based upon
the proportionate amount of the paid-in capital of both companies at the
acquisition date or approximately RMB25,895,000. The acquisition has been
accounted for as a purchase, with the purchase price allocated to the
proportionate fair values of the acquired assets and assumed liabilities and
resulted in an excess of the net fair value of the acquired companies over the
purchase price of approximately RMB43,716,000. Such excess amount has been
applied, first to reduce the proportionate value of the acquired long-term
assets
to zero (principally property, plant and equipment), with the remainder of
approximately RMB18,369,000 classified as negative goodwill in the accompanying
balance sheet. The operating results of Daming and Yongxin have been included
in the consolidated statement of income effective as of January 1, 1997. The
following presents the unaudited pro forma effects of the acquisition on the
Company's results of operations for the nine months ended September 30, 1996, as
if the acquisition had occurred on January 1, 1996.
For the nine months ended
September 30, 1996
RMB'000 US$'000
Net sales 77,129 9,304
Net income 13,562 1,636
Net income per common share 2.80 0.34
Weighted average number of
shares ('000s) 4,850 4,850
3. INVENTORIES
Inventories comprised:
December 31, September 30,
1996 1996 1997 1997
RMB'000 US$'000 RMB'000 US$'000
Finished goods 21,065 2,541 13,266 1,600
Total 21,065 2,541 13,266 1,600
4. NET INCOME PER COMMON SHARE
Net income per common share has been computed based upon the weighted average
number of shares outstanding for the applicable period. The Company has no
dilutive securities or common stock equivalents.
5. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "net income per common share",
which is effective for both interim and annual periods ending after December 15,
1997. SFAS No. 128 specifies the computation, presentation and disclosure
requirement for basic and diluted income per share. This statement will be
adopted by the Company in connection with its consolidated financial statements
for the year ending December 31, 1997. The adoption of this new standard will
have no effect on the net income per common share for the period ended September
30, 1997.
6. SUBSEQUENT EVENTS
a. On October 1, 1997, the Company completed an initial public offering of
4,600,000 shares at an initial public offering price of US$8 per share (the
"Offering"). The net proceeds from this offering, after underwriters discounts
and commissions and other expenses, were approximately US$32.12 million.
b. US$5.5 million of the proceeds from the offering was used to acquire
a 70%
equity interest in Yantai Daewoo Electronic Components Co., Ltd (" Yantai") and
a 90% equity interest in Xianyang Dnon Tech Special Electro Technique Co., Ltd.
("Dnon Tech"), two Sino-foreign joint ventures incorporated in the PRC (the
"Acquisitions"). The Acquisitions were consummated in October 1997 and each
will
be accounted for as a purchase. Yantai and Dnon Tech are both related companies
and are principally engaged in the manufacturing of deflection yokes and
enameled
copper wires, respectively. The effects of the Acquisitions and the Offering
are
reflected in the unaudited pro forma consolidated statement of income and
balance
sheet in Note 7 below.
7. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of income for the nine
months ended September 30, 1997 represents a consolidation, adjusted as
described
in the accompanying notes, of the unaudited consolidated statement of income of
the Company and the unaudited combined statement of income of Yantai and Dnon
Tech for the nine months ended September 30, 1997, as if the operations of the
Company had been consolidated with the operations of Yantai and Dnon Tech at the
beginning of the nine months ended September 30, 1997.
The following unaudited pro forma consolidated balance sheet represents a
consolidation, adjusted as described in the accompanying notes, of the unaudited
consolidated balance sheet of the Company at September 30, 1997 and the
unaudited
combined balance sheet of Yantai and Dnon Tech at September 30. 1997, and
assumes
the Company acquired each of Yantai and Dnon Tech as of September 30, 1997.
The following unaudited pro forma consolidated financial statements should be
read in conjunction with, and are qualified in their entirety by reference to
the
unaudited consolidated financial statements of the Company and the unaudited
combined financial statements of Yantai and Dnon Tech.
The following pro forma financial statements are provided for informational and
comparative purposes only and do not purport to be indicative of the results of
operations and financial position of the Company had such transactions in fact
occurred on January 1, 1997 or September 30, 1997, respectively, or during the
period presented or during any future period.
Unaudited Pro Forma Consolidated Statement of Income
For the nine months ended September 30, 1997
Asia
Electronics
Holding Co Yantai and
Inc. & Sub- Dnon Tech Pro Forma Pro Forma
sidiaries (combined) Adjustments Consolidated
(Amounts in thousands, except share and per share data)
RMB RMB RMB RMB US$
Sales 144,011 72,477 (10,122)(1) 206,366 24,893
Cost of goods
sold (103,243) (60,482) 10,122(1) (146,453) (17,666)
7,150(2)
Selling and
administrative
expenses (5,301) (3,762) (9,063) (1,093)
Interest income
(expense), net 1,014 (266) 748 90
Other income
(expense), net 6,146 (1,163) (771)(3) 4,212 508
Total cost and
expenses (101,384) (65,673) 16,501 (150,556) (18,161)
Income before
income taxes 42,627 6,804 6,379 5,810 6,732
Provision for
income taxes (7,979) 65 (7,914) (955)
Income after
income taxes 34,648 6,869 6,379 47,896 5,777
Minority
interest (7,691) - (1,585)(4) (9,276) (1,119)
Net income 26,957 6,869 4,794 38,620 4,658
Pro forma net
income per
common share 6.85 0.83
Pro forma
weighted average
number of common
shares
outstanding (5) 5,638,000 5,638,000
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1997
Asia
Electronics
Holding Co. Yantai and
Inc. & Sub- Dnon Tech Pro Forma Pro Forma
sidiaries (combined) Adjustments Consolidated
(Amounts in thousands)
RMB RMB RMB RMB
ASSETS
Current assets :
Cash 6,145 8,197 (45,595)(9) (31,253)
Accounts receivable 15,854 225 16,079
Due from
joint venture
partners - 9,405 9,405 9,405
Due from related
companies 74,845 (1,743)(7) 73,102 73,102
Inventories 13,266 15,089 28,355
Prepayments and
other current
assets 12,617 1,824 14,441
Value-added
tax credit 4,575 271 4,846
Total current
assets 127,302 35,011 (47,338) 114,975
Property, plant
and equipment, net 10,238 47,262 57,500
Other assets - 1,281 1,281
Deferred tax
assets - 435 (32)(8) 403
Goodwill - - 10,280(9) 10,280
Total assets 137,540 83,989 (37,090) 184,439
LIABILITIES AND
INVESTORS'
EQUITY
Current liabilities
Short-term
bank loans 13,984 7,057 21,041
Accounts payable - 5,401 5,401
Due to related
Companies - 7,383 (1,743,)(7) 5,640
Due to a joint
Ventures partner - 12,513 12,513
Accrued expense 9,251 1,469 10,720
Value-added tax
Payable 13,613 - 13,613
Income tax payable 9,260 - 9,260
Deferred taxation 959 - 959
Dividend payable - 3,744 3,744
Total current
liabilities 47,067 37,567 (1,734) 82,891
Negative goodwill 16,992 - 16,992
Deferred taxation 981 - (32)(8) 949
Total liabilities 65,040 37,567 (1,775) 100,832
Minority interests 17,987 - 11,107(9) 29,094
Investors' equity
Common stock 402 39,062 (39,062)(9) 402
Additional paid-in
Capital 27,170 610 (610)(9) 27,170
Retained charges 26,941 6,750 (6,750)(9) 26,941
Total investors'
equity 54,513 46,422 (46,422) 54,513
Total liabilities
and investors'
equity 137,540 83,989 (37,090) 184,439
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1997
Pro Forma Pro Forma
Pro Forma Consolidated Consolidated
Adjustments Adjustments As Adjusted(6)
(Amounts in thousands)
RMB RMB US$
ASSETS
Current assets :
Cash 266,274(6) 235,022 28,350
Accounts receivable 16,079 1,940
Due from
joint venture
partners 9,405 1,135
Due from related
companies 73,102 8,818
Inventories 28,355 3,420
Prepayments and
other current
assets 14,441 1,742
Value-added
tax credit 4,846 585
Total current
assets 266,275 381,250 45,990
Property, plant
and equipment, net 57,500 6,936
Other assets 1,281 155
Deferred tax
assets 403 49
Goodwill 10,280 1,240
Total assets 266,275 450,714 54,370
LIABILITIES AND
INVESTORS'
EQUITY
Current liabilities
Short-term
bank loans 21,041 2,538
Accounts payable 5,401 652
Due to related
Companies 5,640 681
Due to a joint
Ventures partner 12,513 1,509
Accrued expense 10,720 1,293
Value-added tax
Payable 13,613 1,642
Income tax payable 9,260 1,117
Deferred taxation 959 116
Dividend payable 3,744 452
Total current
liabilities 82,891 10,000
Negative goodwill 16,992 2,050
Deferred taxation 949 114
Total liabilities 100,832 12,164
Minority interests 29,094 3,510
Investors' equity
Common stock 381(6) 783 95
Additional paid-in
Capital 265,894(6) 293,064 35,351
Retained charges 26,941 3,250
Total investors'
equity 266,275 320,788 38,696
Total liabilities
and investors'
equity 266,275 450,714 54,370
Notes To Unaudited Pro Forma Financial Statements
(1) Adjusted to eliminate inter-company sales and purchases of enameled
copper
wire.
(2) This represents the reversal of a revaluation of inventory to fair value
in connection with the acquisition, which was included in the results of
operations in the first quarter 1997.
(3) Adjusted to record the amortization of goodwill arising from the
acquisition of 70% of the equity of Yantai and 90% of the equity of Dnon
Tech over a period of 10 years.
(4) Adjusted to account for the minority interests of Yantai (30%) and Dnon
Tech (10%).
The weighted average number of shares outstanding has been adjusted for
the issuance in the Offering of approximately 788,000 shares for the nine
months ended September 30, 1997, which represents the number of shares at
the initial public offering price of US$8.00 per share that would be
required to generate the net proceeds of US$5,500,000 to be used for the
acquisition of Yantai and Dnon Tech.
(6) Adjusted to reflect the sale of 4,600,000 shares of common stock offered
at the initial public offering price of US$8.00 per share and the receipt
of the net proceeds therefrom.
(7) Adjusted to eliminate inter-company balances.
(8) Adjusted to offset deferred tax assets and liabilities.
(9) Adjusted to record cash paid for the acquisition of 70% of the equity of
Yantai and 90% of the equity of Dnon Tech. Each acquisition is accounted
for as a purchase, with the purchase price allocated to the proportionate
fair value of the acquired assets and assumed liabilities, and results in
goodwill of approximately RMB10,280,000 (US$1,240,000).
ASIA ELECTRONICS HOLDING CO. INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of operations of the Company (excluding Yantai and Dnon Tech)
The following discussion is based on the unaudited pro forma consolidated
statement of income of the Company for the nine months ended September 30, 1996,
as if the Company had acquired Daming and Yongxin at January 1, 1996 and the
unaudited consolidated statement of income for the Company for the nine months
ended September 30, 1997. The Company acquired an 80% equity interest in Daming
and Yongxin, effective as of December 31, 1996. Because the Company is an
investment holding company with no other business activities, the pro forma
consolidated results of the Company would be the same as the combined results of
operations of Daming and Yongxin for the nine months ended September 30, 1996.
Pro forma
consolidated
results of
operations
for the nine Consolidated results of
months ended operations for the nine
September 30, 1996 months ended September 30, 1997
Amounts Percentage Amounts Percentage
(RMB'000) (RMB'000)
Net
sales 77,129 100% 144,011 100%
Gross
profit 21,933 28% 40,768 28%
Selling and
administrative
expenses
3,063 4% 5,301 4%
Income before
income
taxes 20,584 27% 42,627 30%
Net
income 13,562 18% 26,957 19%
Net Sales. The increase in net sales was mainly due to expanded operations and
increased market demand. The increase was especially substantial for the sales
of 25" deflection yokes, which had a total sales volume of approximately
1,289,440 units (compared with 607,000 units for the nine months ended September
30, 1996) contributing approximately RMB109,000,000 to the net sales for the
period ended September 30, 1997.
Gross Profit. The increase in gross profit reflected the growth in net sales.
Selling and Administrative Expenses. The increase in selling and administrative
expenses reflected the growth in net sales.
Income Before Income Taxes. The increase in income before income taxes was
mainly due to the increase in net sales and the inclusion of a gain from sales
of certain fixed assets to a related company of approximately RMB5,556,000.
Net Income. The increase in net income reflected the changes described above.
<PAGE>
The following discussion is based on the unaudited pro forma consolidated
statement of income of the Company for the three months ended September 30,
1996,
as if the Company had acquired Daming and Yongxin at January 1, 1996, and the
unaudited consolidated statement of income of the Company for the three months
ended September 30, 1997.
Pro forma consolidated
results of operations Consolidated results of
for the three months operations for the three months
ended September 30, 1996 ended September 30, 1997
Amounts Percentage Amounts Percentage
(RMB'000) (RMB'000)
Net
sales 23,374 100% 32,586 100%
Gross
profit 7,230 31% 10,100 31%
Selling and
administrative
expenses
1,050 4% 1,945 6%
Income before
income
taxes 6,933 30% 15,576 48%
Net
income 4,218 18% 10,673 33%
Net Sales. The increase in net sales was mainly due to expanded operations and
increased market demand. The increase was especially substantial for sales of
25" deflection yokes.
Gross Profit. The increase in gross profit reflected the growth in net sales.
Selling and Administrative Expenses. The increase in selling and administrative
expenses reflected the growth in net sales.
Income Before Income Taxes. The increase in income before income taxes was
mainly due to the increase in net sales and the inclusion of a gain from sales
of certain fixed assets to a related company of approximately RMB5,556,000.
Net income. The increase in net income reflected the changes described above.
<PAGE>
Results of operations of the Company (including Yantai and Dnon Tech)
The following discussion is based on the unaudited pro forma consolidated
statement of income of the Company for the nine months ended September 30, 1996,
as if the Company had acquired Daming, Yongxin, Yantai and Dnon Tech at January
1, 1996, and the unaudited pro forma consolidated statement of income for the
Company for the nine months ended September 30, 1997, as if the Company had
acquired Yantai and Dnon Tech at January 1, 1997.
Pro forma consolidated
results of operations Pro forma consolidated results
for the nine months of operations for the nine
ended September 30, 1996 months ended September 30, 1997
Amounts Percentage Amounts Percentage
(RMB'000) (RMB'000)
Net
sales 132,454 100% 206,366 100%
Gross
profit 29,506 22% 59,913 29%
Selling and
administrative
expenses
6,377 5% 9,063 4%
Income before
income
taxes 26,292 20% 55,810 27%
Net
income 18,303 14% 38,620 18%
Net Sales. The increase in net sales reflected the changes described above. In
addition, net sales at Dnon Tech increased from approximately RMB4,267,000 to
RMB18,569,000.
Gross Profit. The increase in gross profit was primarily attributable to the
reduced costs of production associated with the expansion of the scale of
operations and the improvement in production efficiency.
Selling and Administrative Expenses. The increase in selling and administrative
expenses reflected the growth in net sales.
Income Before Income Taxes. The increase in income before income taxes was
mainly due to the increase in net sales and the inclusion of a gain from sales
of certain fixed assets to a related company of approximately RMB5,556,000.
Net Income. The increase in net income reflected the changes described above.
The following discussion is based on the unaudited pro forma consolidated
statement of income of the Company for the three months ended September 30,
1996,
as if the Company had acquired Daming, Yongxin, Yantai and Dnon Tech at January
1, 1996 and the unaudited pro forma consolidated statement of income of the
Company for the three months ended September 30, 1997, as if the Company had
acquired Yantai and Dnon Tech at January 1, 1997.
Pro forma consolidated Pro forma consolidated
results of operations for results of operations for
the three months the three months
ended September 30, 1996 ended September 30, 1997
Amounts Percentage Amounts Percentage
(RMB'000) (RMB'000)
Net sales 45,054 100% 55,323 100%
Gross profit 10,886 24% 13,719 26%
Selling and
administrative
expenses 2,847 6% 3,351 6%
Income before income
taxes 11,283 25% 17,159 33%
Net income 8,106 18% 11,729 22%
Net Sales. The increase in net sales reflected the changes described above. In
addition, net sales at Dnon Tech increased from approximately RMB1,130,000 to
RMB3,700,000.
Gross Profit. The increase in gross profit reflected the growth in net sales.
Selling and Administrative Expenses. The increase in selling and administrative
expenses reflected the growth in net sales.
Income Before Income Taxes. The increase in income before income taxes was
mainly due to the increase in net sales and the inclusion of a gain from sales
of certain fixed assets to a related company of approximately RMB5,556,000.
Net Income. The increase in net income reflected the changes described above.
Liquidity and Capital Resources
The Company mainly relies on cash flow from operations and short-term borrowings
from banks to meet its financial obligations. As of September 30, 1997, the
Company had net working capital of approximately RMB80,000,000. Changes in
working capital were mainly due to the increase in the amount due from related
companies, which was approximately RMB74,845,000 at September 30, 1997.
The Company's short-term borrowings are mainly denominated in United States
dollars and are secured by corporate guarantees given by Xianyang Pianzhuan. As
of September 30, 1997, the Company had total short-term borrowings of
approximately RMB13,984,000. The Company has credit facilities granted by The
People's Construction Bank of China and China Industrial and Commercial Bank
amounting to credit of RMB50,000,000 and an additional United States dollar
denominated credit of US$5,000,000. The average interest rate for the bank
borrowings was 6.5%. The Company may also borrow Renminbi, if necessary, for
future cash requirements but at a higher interest rate.
For the period ended September 30, 1997, the Company had combined net cash flow
from operating activities of RMB9,752,000. Cash flow from operations was mainly
contributed from the Company's net income, and the increase in value-added tax
payable and income tax payable and a reduction in inventories.
The Company anticipates that it will be able to meet its ongoing cash
requirements with cash generated from operations and borrowings, as needed, from
existing banking relationships.
On October 1, 1997, the Company completed an initial public offering of
4,600,000
shares at an initial public offering price of US$8 per share. Subsequently, the
underwriters exercised their option to purchase an additional 690,000 shares at
US$8 per share. The net proceeds from this offering, after underwriters
discounts and commissions and other expenses, were approximately US$37.1
million.
US$5.5 million of the proceeds from the offering was used to acquire a 70%
equity
interest in Yantai Daewoo Electronic Components Co., Ltd (" Yantai") and a 90%
equity interest in Xianyang Dnon Tech Special Electro Technique Co., Ltd. ("Dnon
Tech"), two Sino-foreign joint ventures incorporated in the PRC. Both
acquisitions were consummated in October 1997.
The Company intends to use approximately US$15.5 million of the net proceeds to
finance the installation of its new deflection yoke manufacturing facility in
Weihai and installations at two existing deflection yoke manufacturing
facilities
in Xianyang.
The Company also intends to apply approximately US$2.0 million of the net
proceeds to research and product development activities and use approximately
US$1.0 million on sales and marketing activities.
The Company will apply the remaining approximately US$13.1 million of net
proceeds for general corporate purposes and working capital.
Pending such uses, the Company intends to invest the net proceeds from the
offering in U.S. short-term, investment grade, interest-bearing securities.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
ASIA ELECTRONICS HOLDING CO. INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period covered
by this report.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.<PAGE>
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.
ASIA ELECTRONICS HOLDING CO. INC.
Date: November 19, 1997 By: /s/ Qingsong Du
Qingsong Du
Chief Executive Officer
By: /s/ Fan Baiyan
Fan Baiyan
Chief Financial Officer
