<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended December 31, 1996
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Commission File Number: 0-22520
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AVIC GROUP INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1989122
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
599 Lexington Avenue, 44th Floor
New York, New York 10022
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(Address of principal executive offices)
(212) 319-9160
--------------
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Class Outstanding as of February 17, 1996
- ----------------------- ------------------------------------
Common Stock, par value $.001 per share 30,925,785
Transitional Small Business Format (Check one): Yes No X
---- ----
<PAGE>
PART ONE
FINANCIAL INFORMATION
Item 1. Financial Statements
2
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements at December 31, 1996 and
for the three-month and nine-month periods ending December 31, 1996 are
unaudited and include the accounts of AVIC Group International, Inc. (the
"Company) and its interest in its majority owned subsidiary (a limited life
Sino-foreign joint venture) and its wholly owned subsidiary, ITV
Communications, Inc. In the opinion of management all adjustments,
consisting of normal recurring adjustments necessary for a fair
presentation of the financial position and operating results for the
interim period, have been reflected. The accompanying condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and results of
operations, contained in the Form 10-KSB filed by the Company for the year
ended March 31, 1996. The interim consolidated financials for the nine
months ended December 31, 1996 are not indicative of the year end results.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, as expected by management, during
the nine months ended December 31, 1996, the Company experienced a net loss
of $2,961,303, related to the development of its PRC related
telecommunications projects. In view of this matter, realization of a major
portion of the assets in the accompanying balance sheet is dependent upon
the Company's ability to meet its financing requirements, and the success
of its majority owned subsidiary which develops telecommunications networks
in the People's Republic of China.
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No.7. The Company is devoting substantially
all of its present efforts to establish a new business and its planned
principal operations have not commenced as of the date of the preparation
of this report. Management does anticipate the commencement of commercial
operations of its majority owned subsidiary during the Company's fourth
fiscal quarter, though it can make no assurances that operations will
commence on schedule. All losses accumulated since inception have been
considered as part of the Company's development stage activities.
DISCONTINUED OPERATIONS
In January 1996, the Company sold substantially all of the assets and
liabilities of ITV Communications, Inc. (the "ITV Asset Sale") associated
with ITV Communications, Inc.'s operations, and ITV's operations ceased
after the ITV Asset Sale. Since January 1996, the Company has focused its
business solely on
3
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the establishment of limited life Sino-foreign joint ventures ("SFJVs") to
develop telecommunications networks in the People's Republic of China
("PRC"). The Company does not currently generate sales or market any
products.
2. CONSOLIDATION OF MAJORITY OWNED SUBSIDIARY
On or about September 24, 1996 the Company received all official PRC
regulatory approvals to hold a 60.8% interest in Hebei United
Telecommunications Equipment Ltd., Company (the "Subsidiary") that is
involved in developing a digital cellular telephone network in Hebei
Province, PRC. The Subsidiary was established to hold a 51% interest in
Hebei United Telecommunications Engineering Company, Ltd. ("Hebei
Engineering") that is developing a GSM network in Hebei Province, PRC. NTT
International, Inc. holds the remaining 49% of Hebei Engineering. As a
result, the attached financial statements of the Company for the three-
month and nine-month periods ending December 31, 1996 reflect the
consolidation of the Company's subsidiary since its formation. The
Company's investment was previously accounted for as a joint venture
deposit totaling $1,170,000. The table below summarizes the effect of
consolidating the SFJV previously accounted for as a joint venture deposit:
INCREASE/(DECREASE)
Accounts receivable $4,499,175
Prepaid expenses 1,574,644
Fixed assets, net 122,563
Construction in progress 137,285
Joint venture deposits (1,170,000)
Deferred expenses 65,265
------------
5,228,932
------------
Accounts and other payables $15,983
Long term loans 11,017,864
Minority interest 1,912,413
Foreign currency translation 2,375
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12,948,635
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Cash balance acquired $7,719,703
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------------
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4
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AVIC GROUP INTERNATIONAL, INC.
CONSILODATED BALANCE SHEETS
A Development Stage Company
(Unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1996 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $6,271,672 $185,889
Accounts receivable 21,310,966
Prepaid expenses and other current assets 10,360 60,678
------------- -------------
Total Current assets 27,592,998 246,567
Equipment, net of accumulated depreciation 437,392 76,233
Construction in progress 0
Joint venture deposit 0 1,170,000
Investment in Netmatics 60,281
Non-refundable equipment purchase deposit 4,572,536 4,572,536
Deferred expenses 5,853
Other assets 141,500 167,200
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Total Assets $32,810,560 $6,232,536
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $11,107,708 $866,990
Other accrued expenses 760,538
Accrued interest 748,441 651,063
Other Liabilities
Loans payable - stockholders (unsecured, interest
at 8.5% per annum) 2,613,553 2,563,553
Long term loans 11,979,336
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Total Liabilities 27,209,576 4,081,606
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Minority Interest 1,483,019
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Stockholders' equity
Preferred stock: $.001 par value, authorized 10,000,000
shares; issued and outstanding 1,524,178 1,524 1,524
Preferred stock: $.001 par value, authorized 10,000,000
shares; issued and outstanding 100 1
Common stock: $.001 par value, authorized 100,000,000
shares; issued and outstanding 28,451,982
and 30,962,190 Dec. 31 and March 31, 1996 30,962 28,437
Additional paid-in capital 23,575,064 18,648,620
Deficit accumulated during the development stage (19,488,954) (16,527,651)
Foreign currency translation (632)
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Total stockholders' equity 4,117,965 2,150,930
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Total liabilities and stockholders' equity $32,810,560 $6,232,536
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</TABLE>
The accompanying notes are an integral part of these financial statements
5
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<TABLE>
<CAPTION>
Nine months ended Dec. 31 Quarter ended Dec. 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Net sales 686,076 $ 37,790
EXPENSES
Cost of sales 360,638 27,291
Selling, general, and administrative 2,863,128 2,679,766 $ 999,947 686,874
Research and development 1,287,629 348,272
------------ ------------ ------------ ------------
Total expenses 2,863,128 4,328,033 999,947 1,062,437
------------ ------------ ------------ ------------
Loss from operations (2,863,128) (3,641,957) (999,947) (1,024,647)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Consulting income
Gain from sale of assets
Loss from abandoned assets
Interest expense (535,523) (206,210) (503,353) (82,663)
Equity in losses of unconsolidated
subsidiary
Other (147,835) 8,319 (115,061) 6,500
Income taxes (2,629) (1,600) (800) 0
------------ ------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST (3,549,115) (3,841,448) (1,619,161) (1,100,780)
------------ ------------ ------------ ------------
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 587,812 423,361
------------ ------------ ------------ ------------
NET LOSS ($2,961,303) ($3,841,448) ($1,195,800) ($1,100,780)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET LOSS PER SHARE ($0.10) ($0.15) ($0.06) ($0.04)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 28,779,625 25,331,249 29,433,510 25,491,626
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
March 27, 1992
(Inception) to
Dec. 31,
1996
----
<S> <C>
REVENUE
Net sales $1,223,894
EXPENSES
Cost of sales $1,061,435
Selling, general, and administrative $12,226,753
Research and development $5,731,612
------------
Total expenses 19,019,800
------------
Loss from operations (17,795,906)
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OTHER INCOME (EXPENSE)
Consulting income 150,000
Gain from sale of assets 31,880
Loss from abandoned assets (130,840)
Interest expense (909,818)
Equity in losses of unconsolidated
subsidiary (500,000)
Other 35,726
Income taxes 2,629
------------
------------
LOSS BEFORE MINORITY INTEREST (19,116,327)
------------
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 587,812
------------
NET LOSS ($18,528,515)
------------
------------
NET LOSS PER SHARE ($1.40)
------------
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,638,700
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
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<TABLE>
<CAPTION>
March 27,
1992
(Inception) to Nine months ended
Dec. 31, Dec. 31,
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($19,488,954) ($2,961,303) ($1,463,961)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services 180,862 180,862
Amortization of capitalized software development costs 450,000 84,375
Depreciation 876,309 14,312 97,371
Loss from abandoned assets 130,840
Gain from sale of assets (31,880)
Equity in losses of unconsolidated subsidiary 500,000
(Increase) decrease in:
Accounts receivable (16,814,992) (16,811,203) (91,772)
Inventories (564,451) (32,632)
Prepaid expenses and other current assets 1,518,086 1,635,322 (33,545)
Other assets (93,036) 74,164 (169,372)
Increase (decrease)in:
Accounts payable and accrued expenses 11,873,514 10,053,224 201,656
Accrued interest 1,251,096 600,033 60,355
Deposit 850,000 0
------------ ------------ ------------
Net cash used in operating activities (19,362,536) (7,214,589) (1,347,525)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment (1,701,223) (115,622) (102,332)
Subsidiary cash acquired (Note 2) 7,719,703 7,719,703
Joint venture deposit (1,170,000)
Investment in Netmatics (60,281) (60,281)
Proceeds from sale of assets 250,000
Increase in capitalized computer software development
costs (675,000)
------------ ------------ ------------
Net cash Provided by/(used in) investing activities 4,363,199 7,543,800 (102,332)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable-stockholders, net 10,190,273 1,011,472 361,104
Receipt of common stock subscription receivable 1,536,303 (50,000)
Sale of preferred stock 2,500,000 2,500,000
Sale of common stock 7,047,440 2,248,107
Foreign Exchange Loss (3,007) (3,007)
------------ ------------ ------------
Net cash provided by financing activities 21,271,009 5,756,572 311,104
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,271,672 6,085,783 (1,138,753)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0 185,889 1,178,898
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,271,672 $6,271,672 $40,145
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
7
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company devotes substantially all of its efforts to developing Sino-foreign
joint ventures to establish telecommunications networks in the PRC. In January
1996, the Company completed the sale of the assets of its ITV subsidiary. As
such, research and development, marketing, and sales of products from its ITV
subsidiary have ceased (see Note 1 to the Consolidated Financial Statements).
The Company, which had been trading on the NASDAQ Over The Counter Market (the
"Over The Counter Market") since its listing in March, 1996, received approvals
from the American Stock Exchange (the "AMEX") on November 19, 1996 to list on
the AMEX. On November 20,1996, the Company ceased its trading on the Over The
Counter Market and began trading on the AMEX under the trading symbol AV.
LIQUIDITY AND CAPITAL RESOURCES.
The Company generated sales of $1,223,894 from March 31, 1993 through March 31,
1996, all of which were associated with the discontinued operations of its ITV
subsidiary. Further, the Company has generated operating losses of $17,795,906
from March 1992 (inception) through December 31, 1996 and net losses of
$18,528,515 since inception, of which $13,820,929 are attributable to losses
from the discontinued operations of its ITV subsidiary. There can be no
assurances that the Company will ever achieve profitable operations.
From its inception in March, 1992 through December 31, 1996, the Company has
used $19,363,036 of cash from its operating activities. This use of cash was
primarily the result of the net loss of $18,528,515 since inception, of which
approximately $13,800,000 is attributable to the discontinued operations of ITV
Communications, Inc.
Further, the Company used approximately $3,357,000 (net of subsidiary cash
acquired, see Note 2) of cash from investing activities during this period.
This amount primarily consisted of approximately $1,701,000 used for the
purchase of machinery and equipment, $1,170,000 originally classified as a joint
venture deposit and $675,000 expended for capitalized computer software
development costs used in research and development in ITV's former business
operations.
The Company's successful transition from a development stage company to
profitable operations is dependent upon obtaining adequate financing to fund
current operations and the development of a market for the Company's products.
The Company will continue to seek funds in the form of lines of credit, equity
and debt securities from third party sources and from its existing stockholders.
There can be no assurances that the Company's majority owned subsidiary is
capable of maintaining the current schedule to commence operations.
8
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The Company's auditors have included an explanatory paragraph in their Report of
Independent Certified Public Accountants on the March 31, 1996 financial
statements, to the effect that recovery of the Company's assets are dependent
upon future events, the outcome of which is indeterminable, and that the
successful completion of the Company's development program and its transition,
ultimately, to the attainment of profitable operations is dependent upon
obtaining adequate financing to fulfill its development activities and achieving
a level of sales adequate to support the Company's current operations and
expenses related to certain PRC Telecommunications Networks. There can be no
assurances that such a financing can be completed on terms favorable to the
Company or at all, or that the business of the Company will ever achieve
profitable operations.
Management believes the attainment of successful operations is now dependent on
the successful start-up of the Company's Hebei GSM project, which is expected
to commence operations in the Company's fourth fiscal quarter 1996, and the
funding of the Company's development of additional telecommunications networks
in China.
In the event the Company fails to raise additional funds from such financing,
and fails to generate any additional revenues from operations, the Company may
not be able to meet all of its obligations past August 1997, based on its
current operating expenditures. There can be no assurances that any additional
sources of financing will be available from existing stockholders or external
sources on terms favorable to the Company or at all or that the business of the
Company will ever achieve profitable operations.
EQUITY ISSUANCE AND SERVICE AGREEMENTS
As the Company is a development stage company, the Company's current cash flow
from operations is not capable of supporting existing business operations in its
present form. Since inception in March 1992, the Company has financed its
development stage activities through private equity investments and loans from
its founding stockholders.
In October 1996, the Company entered into an agreement with two of its legal
firms, to settle a portion of their accrued fees through the issuance of stock
options. With this transaction, the Company converted an aggregate of $97,596
of accrued legal fees into an aggregate of 44,962 shares of the Company's common
stock at $1.50 per share, the market value of the Company's common stock at the
time. A portion of the accrued legal fees were credited against gains made by
actual resale price. In addition, one firm continues to hold 20,102 options to
purchase additional shares against future legal fees. The Company also agreed
to register the underlying shares with the Securities and Exchange Commission
(the "SEC" or the "Commission") on Form S-8. The registration statement related
to these shares was filed with the Commission on or about November 11, 1996.
9
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On October 15, 1996 the Company agreed to issue warrants to David Rubenstein to
purchase 200,000 shares of the Company's Common Stock. These warrants were
issued for Mr. Rubenstein's services related to advising the Company with
respect to its Sino-foreign joint ventures and marketing activities in the
People's Republic of China (the "PRC"). The warrants issued have a three-year
term and an exercise price of $1.50, which was the market value of the Company's
common stock at the time of issuance of the warrants.
The Company agreed to issue to E. Pendelton James on December 10, 1996, 5,000
shares of the Company's common stock with a market value of $18,125 (based on
the fair market value at the time of their issuance), in addition to 5,000
shares issued to him in May, 1996 which had a market value of $45,625 (based on
the fair market value at the time of issuance), for professional executive
search consulting services he has been providing to the Company in developing
the composition of its management and Board of Directors.
In September 1996 the Company approved the issuance of 25,000 shares of the
Company's common stock to Joseph R. Wright, Jr., Chairman and Chief Executive
Officer of the Company, in lieu of a portion of cash compensation Mr. Wright had
been accruing from September 1996 through October 1996. The amount of salary
accrued through October 15, 1996 was $37,500, which was converted into 25,000
shares of the Company's common stock. The Company agreed to issue this
compensation in stock at $1.50 per share, the fair market value of the shares at
the time of the grant.
The Company agreed to register shares underlying warrants to David Rubenstein
and shares issued to E. Pendelton James for consulting services, and shares
issued to Joseph R. Wright in lieu of cash compensation with the Securities and
Exchange Commission. On or about December 31, 1996, the Company filed a
registration statement on Form S-8 with the Securities and Exchange Commission.
The total number of shares covered by the registration statement was 397,500.
On or about November 4, 1996, the Company entered into a twelve (12) month
financial advisory services agreement with Patricof & Company Capital
Corporation ("Patricof"). The services provided by Patricof under this
agreement relate to financial advisory services, including, but not limited to,
the development of a financing strategy for the Company and the Company's
projects in the PRC. The agreement calls for a $50,000 retainer and the payment
of success fees for raising capital for the Company and its projects. These
fees are: six percent (6%) of the funds raised up to five million dollars (such
fee will not to be less than $200,000); five percent (5%) of the funds raised
between five and ten million dollars; and four percent (4%) of the funds in
excess of ten million dollars. In addition, the Company has agreed to issue a
warrant to purchase up to 600,000 shares of the Company's common stock to
Patricof. This warrant has an exercise price of $2.00 per share, which was the
market value of the Company's common stock at the time of the issuance of the
warrants. 300,000 of the warrants vest immediately, and
10
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the additional 300,000 warrants will vest only when Patricof has raised a
minimum of ten million dollars in any form of financing for the Company.
On November 18, 1996 the Company entered into subscription agreements with
private accredited investors to sell 1,000,000 shares of the Company's Common
Stock at the quoted price of the Company's Common Stock at the time the
subscription was negotiated. During the period between November 18 through
November 20, 1996, the Company received the two million dollars with respect to
this private investment. The proceeds from the investment are intended to be
used to further fund the Company's development efforts with respect to
telecommunications projects in the PRC and operating expenses.
On or about December 13, 1996, the Company changed independent accounting firms,
replacing Singer, Lewak, Greenbaum & Goldstein of Los Angeles with Deloitte &
Touche, LLP. for which interim reports were filed with the Securities and
Exchange Commission on Form 8-K on December 9 and December 10, 1996.
PROJECT DEVELOPMENT STATUS
On December 15, 1996, the Company, through its majority owned subsidiary, signed
a letter of intent (the "HFC Letter of Intent") to upgrade and expand an
existing cable television network with over 1.2 million existing subscribers
into a hybrid fiber coaxial network in Hebei Province, PRC. The Broadcasting
and Television Department of Hebei Province, the monopoly provider of cable
television services in Hebei Province, will operate the network, which will be
capable of providing services in addition to cable television, including
Internet access, video conferencing, pay-per-view services, private network
telephony and fax and data transmission. The Company estimates, on a
preliminary basis, that approximately $44 million of funding and an 18-month
construction period will be required to complete the HFC network. The parties
to the HFC Letter of Intent are the Broadcasting and Television Department of
Hebei Province, the Electronic Industry Department of Hebei Province and Hebei
United Telecommunications Engineering Ltd., Co. (collectively the "Partners").
The HFC Letter of Intent is subject to the payment of a $1,200,000 deposit (see
"Subsequent Events") in addition to the negotiation of a definitive contract,
which the Company expects to execute in the fourth quarter of fiscal year 1996,
at which time the Company will actively pursue financing alternatives in order
to fund the project. The Company can make no assurances that such a definitive
agreement may be obtained, or that it will be able to raise the required
financing to fund the project.
On November 20, 1996, the Company signed a Letter of Intent (the "Sichuan Letter
of Intent") with China Unicom's Sichuan Branch . China Unicom has contracted
with various parties to construct a GSM network in Sichuan Province
("Sichuan"). The Sichuan Letter of Intent contemplates the Company's
involvement in future expansion of this GSM Network which is anticipated to
expand the network to a total capacity of approximately 150,000 to 200,000
subscribers to the Sichuan GSM Network. Sichuan
11
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Province, the largest Province in China with respect to land mass and
population, is located in Northwestern China, and has a population of 111
million people. The Sichuan Letter of Intent is preliminary in nature and is
subject to the negotiation of more definitive agreements and significant
approvals from governmental agencies. The Company can make no assurances that
such definitive agreements and approvals may be obtainable, nor, if they are
obtained, that the terms of such agreements will be favorable to the Company.
Since the Company does not currently have the technical capability, personnel or
resources to build, service or maintain a telecommunications network, the
successful development of the Company's current telecommunications business in
the PRC may require the cooperation and participation of third parties, other
than PRC governmental agencies, who may be parties to or independent contractors
with the Company's Sino-foreign joint ventures. There can be no assurances that
the Company will be able to obtain the requisite cooperation or participation of
any such third parties with respect to the Company's proposed business
operations.
In addition, the Company's proposed business operations in the PRC are subject
to significant risks. These risks include, but are not limited to, governmental
restrictions on foreign business ventures in the PRC, PRC regulation of its
economy and foreign currency exchange and general political environment in the
PRC. For a more detailed discussion of these risk factors, please see the
Company's Annual Report filed with the Securities and Exchange Commission on
Form 10-KSB on July 15, 1996 for the fiscal year ended March 31, 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO
THE NINE MONTHS ENDED DECEMBER 31, 1995.
Following the ITV Asset Sale in January 1996, the Company has focused its
business solely on establishing Sino-foreign joint ventures ("SFJVs") to develop
telecommunications networks in the People's Republic of China ("PRC"). As a
result of the ITV Asset Sale, the Company does not currently generate sales or
market any products. Management expects to begin commencing sales during the
fourth quarter of fiscal year 1997, when the Hebei GSM project is expected to
commence operations. In light of this change in operations, net sales decreased
from $686,076 during the nine months ended December 31, 1995 to $0 during the
nine months ended December 31, 1996. Net sales during the nine months ended
December 31, 1995 reflect the former operations of the Company's subsidiary, ITV
Communications, Inc. ("ITV").
Selling, general and administrative expenses increased approximately 7% from
$2,679,766 during the nine months ended December 31, 1995 to $2,863,128 during
the nine months ended December 31, 1996. The increase primarily related to the
consolidation of SG&A expenses of the Company's majority owned subsidiary, which
more than offset reductions in professional fees paid out during the period, and
increases due to operations related to the consolidation of the Company's
interest in a joint venture in Hebei Province, PRC.
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Net research and development expenses decreased by 100% from $1,287,629 during
the nine months ended December 31, 1995 to $0 during the nine months ended
December 31, 1996. The decrease in research and development expenses was due to
the cessation of ITV's operations.
The Company's net loss decreased from $3,841,448 during the nine months ended
December 31, 1995 to $2,961,303 during the nine months ended December 31, 1996.
The decrease in net loss was due to the ITV Asset Sale, as ITV generated losses
during the nine months ended December 31, 1995, and the reduction of certain of
the Company's professional fees paid out during the period.
The Company's interest expenses increased during the nine month period ending
December 31, 1996 from the comparable period in 1995. Though interest expenses
associated with shareholder loans decreased due to a conversion of $1,891,553 of
debt to 1,891,553 shares of the Company's common stock in December 1995, this
decrease was more than offset by an increase of approximately $438,000 of
interest expense associated with a term loan made to Hebei Engineering by the
Bank of Tokyo-Mitsubishi, Ltd. which are reflected in the Company's financial
statements through consolidation of its majority owned subsidiary. This term
loan allows Hebei Engineering to borrow up to $20,000,000. The loan bears an
interest rate of 6.82 percent per annum on funds drawn. The terms of the term
loan require repayment in five consecutive semi-annual installments, each equal
to one-fifth of the total amount of principal outstanding beginning on the third
anniversary of the first date on which funds were borrowed. As of December 31,
1996, Hebei Engineering had borrowed approximately $12,000,000 under this
facility. NTT International, a partner in the GSM Joint Venture with the
Company's majority owned subsidiary, has guaranteed this term loan for Hebei
Engineering.
SUBSEQUENT EVENTS
On or about February 7, 1997, the Company made an initial deposit of $300,000 on
the Hebei HFC Project. This deposit is a portion of a $1,200,000 deposit that
is required from the Company as a prerequisite to signing a definitive contract
for the HFC project. The Company expects to execute a definitive agreement
regarding the Hebei HFC project in the fourth quarter of fiscal year 1996, at
which time the Company will actively pursue financing alternatives in order to
fund the project.
13
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PART TWO
OTHER INFORMATION
Item 2. Changes in Securities
On November 19, 1996 the Company sold to certain accredited investors
one million shares of the Company's Common Stock for an aggregate of
two millions dollars, or two dollars per share. These shares were
issued pursuant to an exemption from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a)EXHIBITS.
27 Financial Data Schedule
(b)REPORTS ON FORM 8-K.
The Company filed the following reports on Form 8-K during the quarterly
period ended December 31, 1996:
1.Current Report on Form 8-K dated December 9, 1996
2.Current Report on Form 8-K Dated December 10, 1996
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 17, 1997 AVIC Group International, Inc.
By: /s/ Joseph R. Wright, Jr.
-------------------------------
Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Michael J. Lim
-------------------------------
Michael J. Lim
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from AVIC Group
International, Inc.'s Form 10-QSB and 10KSB for the periods ending December 31,
1996 and March 31, 1996 respectively. It is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-START> OCT-01-1996 APR-01-1996
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 6,271,672 186,889
<SECURITIES> 0 0
<RECEIVABLES> 21,310,968 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,592,998 246,587
<PP&E> 10,360 95,789
<DEPRECIATION> 14,312 19,556
<TOTAL-ASSETS> 32,810,560 6,232,586
<CURRENT-LIABILITIES> 1,287,616 4,081,606
<BONDS> 0 0
0 0
1,525 1,524
<COMMON> 30,962 28,437
<OTHER-SE> 4,085,476 2,120,969
<TOTAL-LIABILITY-AND-EQUITY> 32,810,560 6,232,636
<SALES> 0 683,733
<TOTAL-REVENUES> 0 683,733
<CGS> 0 637,065
<TOTAL-COSTS> 2,863,128 5,132,261
<OTHER-EXPENSES> 147,835 591,343
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 535,523 241,850
<INCOME-PRETAX> (2,963,932) (5,281,730)
<INCOME-TAX> 2,629 0
<INCOME-CONTINUING> (2,961,303) (5,281,730)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,961,303) (5,281,730)
<EPS-PRIMARY> (0.10) (0.21)
<EPS-DILUTED> (0.10) (0.21)
</TABLE>
