-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8/cL7LYMCcJDmW60J5/QaBY7D3OlUaNO6FenLl7nASYG3AgABPM0FNPplBwUsgJ I/CBGoGFET/kQoQB0Nj76A== 0000950172-99-000170.txt : 19990218 0000950172-99-000170.hdr.sgml : 19990218 ACCESSION NUMBER: 0000950172-99-000170 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMTEC INC CENTRAL INDEX KEY: 0000912890 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840873124 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22520 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123199160 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVENUE STREET 2: 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: AVIC GROUP INTERNATIONAL INC/ DATE OF NAME CHANGE: 19950323 FORMER COMPANY: FORMER CONFORMED NAME: YAAK RIVER MINES LTD DATE OF NAME CHANGE: 19931001 10-Q 1 THIS DOCUMENT IS A COPY OF THE QUARTERLY REPORT ON FORM 10-Q FILED ON FEBRUARY 17, 1999 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 Commission File Number: 0-22520 AMTEC, INC. (Exact name of Registrant as specified in its charter) Delaware 52-1989122 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 599 Lexington Avenue, 44th Floor New York, New York 10022 (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 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 filing requirements for the past 90 days. Yes x No ____ Class Outstanding as of February 12, 1999 Common Stock, par value 30,811,721 $.001 per share Transitional Small Business Format (Check one): Yes No x Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this Quarterly Report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, international and technological factors affecting the Company's revenues, joint ventures, operations, markets and prices, and other factors discussed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on June 30, 1998. Page PART I. FINANCIAL INFORMATION Item 1 Financial Statements 4 Consolidated Balance Sheets as of December 31, 1998 and 4 March 31, 1998 Consolidated Statement of Operations for the three and nine 5 months ended December 31, 1998 and 1997 Consolidated Statement of Cash Flows for the nine months 6 ended December 31, 1998 and 1997 Notes to Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition 12 and Result of Operations PART II. OTHER INFORMATION 16 Item 1 Legal Proceedings 16 Item 2 Changes in Securities 16 Item 3 Default upon Senior Securities 16 Item 4 Submission of Matters to a Vote of Security Holders 16 Item 5 Other Information 16 Item 6 Exhibits and Reports on Form 8-K 16 Signatures 17 PART I FINANCIAL INFORMATION AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS Dec. 31, 1998 Mar. 31, 1998 - ---------------------------------------------- ------------- ------------- ASSETS: Current assets Cash $ 5,850,056 $ 10,442,334 Accounts Receivable 104,881 114,661 Prepaid expenses and other current assets 228,129 356,554 ------------ ------------ Total current assets 6,183,066 10,913,549 Property and equipment, net 821,265 897,265 Investment in construction of GSM networks, net of amortization 28,518,017 28,461,810 Other assets 63,301 113,180 Deferred expenses -- 6,916 ------------ ------------ TOTAL ASSETS $ 35,585,649 $ 40,392,720 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities Accounts payable $ 175,663 $ 551,705 Accrued expenses 47,491 798,376 Loans payable - shareholders -- 1,452,553 Bank loans payable within 1 year 4,000,000 -- Other current payables 9,737,721 10,234,872 ------------ ------------ Total current liabilities 13,960,875 13,037,506 ------------ ------------ Bank loans 17,528,747 20,028,602 Other payables 1,487,727 1,487,727 Minority interest -- 941,974 ------------ ------------ TOTAL LIABILITIES 32,977,349 35,495,809 ------------ ------------ STOCKHOLDERS' EQUITY Preferred Stock: authorized 10,000,000 shares Series E Convertible Preferred Stock: $.001 par value; 36.5 and 73 shares issued and outstanding in Dec.31,1998 and March 31,1998, respectively 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 30,008,426 and 26,532,502 issued and outstanding at Dec. 31, 1998 and March 31, 1998, respectively 30,008 26,533 Additional paid-in capital 35,000,867 33,148,529 Accumulated deficit (32,693,336) (27,394,590) Cumulative foreign currency exchange loss (690) 613 Non employee deferred option cost, net -- (1,378,1225) Warrants 271,450 493,950 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,608,300 4,896,911 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 35,585,649 $ 40,392,720 ============ ============
The accompanying notes are an integral part of these financial statements. AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Nine months ended Dec 31 Quarter ended Dec 31 1998 1997 1998 1997 - ---------------------------------------- ------------------------ ------------------------ Revenues $ - $ - $ - $ - --------------------------- -------------------------- Expenses: Selling, general and administrative 3,163,638 3,672,582 1,060,769 1,207,104 Amortization of GSM investment 1,709,845 - 624,048 - -------------------------- -------------------------- Total expenses 4,873,483 3,672,582 1,684,817 1,207,104 -------------------------- -------------------------- Loss from operations (4,873,483) (3,672,582) (1,684,817) (1,207,104) Other income (expense): Amortization of stock options (459,374) - - - Other - net (293,812) (81,721) (542,632) 21,339 --------------------------- -------------------------- Total other income (expense) (753,186) (81,721) (542,632) 21,339 --------------------------- -------------------------- Loss before minority interest (5,626,669) (3,754,303) (2,227,449) (1,185,765) Minority interest in loss of subsidiaries (941,974) (49,330) (187,280) (272,371) --------------------------- --------------------------- Net loss (4,684,695) (3,704,973) (2,040,169) (913,394) Preferred stock dividend 614,051 222,891 145,107 114,891 -------------------------- --------------------------- Loss applicable to common shares (5,298,746) (3,927,864) (2,185,276) (1,028,285) =========================== =========================== Basic loss per common share (0.20) (0.13) (0.08) (0.04) =========================== =========================== Weighted average common shares outstanding 26,458,488 30,728,346 25,971,101 29,210,664 ========================== ==========================
The accompanying notes are an integral part of these financial statements. AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended Dec. 31, 1998 Dec. 31, 1997 - ---------------------------------------------------- ------------- ------------- Cash flows used in operating activities: Net loss $ (5,298,746) $ (3,704,973) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 459,374 -- Depreciation and amortization of GSM investment 1,709,845 -- Depreciation 87,855 58,072 Preferred Stock dividend 614,051 -- Issuance of common and options stock for compensation, directors' fees and services rendered -- 392,381 (Increase) decrease in: Accounts receivable 9,780 (116,215) Prepaid expenses and other current assets 128,425 16,117 Deferred Expense 6,916 -- Other assets 49,879 4,827 Increase (decrease) in: Accounts payable and accrued expenses (219,861) (506,655) Accrued interest -- 93,126 Other current payables (497,151) -- Foreign currency loss (1,303) 280 Minority Interest (941,974) (20,082) ------------ ------------ Net cash used in operating activities (3,892,910) (3,783,122) ------------ ------------ Cash flows used in investing activities: Purchase of property and equipment (11,855) (83,171) GSM construction costs and additional investments (1,766,052) (9,101,705) Timing reversal of investment in joint venture -- 1,192,000 ------------ ------------ Net cash used in investing activities (1,777,907) (7,992,876) ------------ ------------ Cash flows from financing activities: Borrowings 1,500,145 10,392,983 Preferred stock dividend -- (222,891) Proceeds from sale of Series C convertible preferred stock -- 2,500,000 Proceeds from sale of Series E convertible preferred stock -- 6,691,035 Common stock buyback (321,606) -- Preferred stock buyback (100,000) -- ------------ ------------ Net cash provided by financing activities 1,078,539 19,361,127 ------------ ------------ Net increase (decrease) in cash and cash equivalents (4,592,278) 7,585,129 Cash and cash equivalents, beginning of period 10,442,334 5,390,871 ------------ ------------ Cash and cash equivalents, end of period $ 5,850,056 $ 12,976,000 ============ ============
The accompanying notes are an integral part of these financial statements. AMTEC, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows - ----------------------------------------------------------------------------- Supplemental Cash Information: No income taxes were paid during the first nine months of fiscal 1999 or 1998. Interest paid with respect to the bank loan and other vendors financing during the first nine months of fiscal 1999 and 1998 were $ 1,709,000 and $1,323,000 respectively. Non Cash Financing Activities: Shareholder loans payable of $1,452,553 and related accrued interest of $906,488 were credited to Additional paid-in capital 34.9 shares of Series E Convertible Preferred Stock were converted into 4,776,188 shares of common stock (inclusive of conversions of preferred dividends). Warrants valued at $222,500 were cancelled and credited to Additional paid-in capital. The Company cancelled a Common Stock Investment Agreement, as permitted by the Agreement, with Promethean Investment Group on August 12, 1998. 1,019,465 shares previously held in escrow designated for issuance under terms of the agreement were cancelled. The option granted to the Hebei Provincial Government to acquire 3,000,000 shares of the Company's common stock at a price of $3.0625 per share was cancelled. Unamortized Deferred Option Cost valued at $918,751 was charged to Additional Paid in Capital. Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements as of December 31, 1998 and for the nine months then ended are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. All of the adjustments are of a normal recurring nature. The 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 Annual Report on Form 10-K filed by the Company on June 30, 1998 for the Company's fiscal year ended March 31, 1998. The results of operations for the nine months ended December 31, 1998 are not necessarily indicative of the results for the entire year ending March 31, 1999. Basis of Presentation The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. Realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's existing projects developing profitable operations. Included in the financial statements are the financial statements of the Company for the nine months ended December 31, 1998 and 1997 and the financial statements of its joint venture subsidiaries for the nine months ended September 30, 1998 and 1997. Revenue Recognition Due to the early stage of the networks' rollout, the Company has not been able to determine its revenue earned under its cash flow sharing contract with China United Telecommunications Incorporated ("UNICOM"). The Company elected to recognize revenue when cash is received, which is once a year, during the Company's last quarter. The Company is implementing a system to estimate its revenue from the cash flow sharing contract and the Company expects to accrue revenue beginning in its next fiscal year. NOTE 2 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the Company, its 70% owned subsidiary Hebei United Telecommunications Equipment Co., Ltd. ("Hebei Equipment") (a 20 year life Sino-foreign joint venture) and subsidiary, and the Company's wholly owned subsidiary, ITV Communications, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. Hebei Equipment in turn owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering") (a 25 year life Sino-foreign joint venture). NOTE 3 - ASSETS The consolidated balance sheet includes approximately $28.5 million of assets, net of amortization, associated with the construction of the Hebei GSM Networks. The Company, which has the right to the largest share of the distributable cash flow from these networks over a fifteen year period, amortizes its investment in these networks over that period. NOTE 4 - LIABILITIES The consolidated balance sheet includes total liabilities of approximately $32.9 million. Of this amount, approximately $32.7 million are liabilities of AmTec's subsidiary (Hebei Engineering), which are guaranteed by co-investors in the Company's joint venture with no recourse to AmTec, Inc. During the quarter ended December 31, 1998, Hebei Engineering obtained a $1.5 million bank loan in addition to its $20 million loan payable. $4 million of the loan payable was reclassified to current liabilities as loan payable within one year. AmTec, Inc.'s direct liabilities amount to approximately $0.2 million. The decrease in consolidated liabilities primarily relates to the elimination of shareholder loans and related accrued expenses of ITV, Inc., an inactive wholly-owned subsidiary. NOTE 5 - CHANGES TO EQUITY The decrease in Stockholders' Equity of approximately $2.3 million is due primarily to the net loss for the nine months ended December 31, 1998 of approximately $5.3 million offset by an increase in Additional paid-in capital resulting primarily from the cancellation of shareholders' loans and related accrued interest. On September 14, 1998 the Company announced its intention to purchase up to $1 million of its common stock on the open market. As of December 31, 1998, the Company had purchased 280,800 shares under this program for a total cost of approximately $312,600. All the common stock repurchased were cancelled as of December 31, 1998. During the nine months ended December 31, 1998, the Company issued 4,776,188 shares of its Common Stock upon the conversion of 34.9 shares of its Series E Convertible Preferred Stock. On November 10, 1998, 38.5 of the Company's Series E Convertible Preferred Shares were acquired from an investment fund by the Company and investors known to the Company. As a result of this transaction, the Company bought back 3.08 Series E Convertible Preferred Shares, at a consideration of US$100,000, which would have been convertible into 433,754 common shares at the conversion rate effective on November 12, 1998. All the Series E Convertible Preferred Shares repurchased by the Company were retired on January 20, 1999. During the quarter ended December 31, 1998, the Company cancelled the option granted to the Hebei Provincial Government to acquire 3,000,000 shares of the Company's common stock at a price of $3.0625 per share. At the date of grant, $1,837,500 was capitalized as Deferred Option Cost of which $918,751 was amortized through September 31, 1998. The unamortized Deferred Option Cost up to the date of cancellation was charged to Additional Paid in Capital. NOTE 6 - SIGNIFICANT TRANSACTIONS On August 27, 1998 the Company signed a definitive agreement with a subsidiary of Global TeleSystems, Inc. ("GTS"), under which a subsidiary of GTS will acquire approximately 5.9 million shares of the Company's common stock and the Company, through a subsidiary, will acquire GTS's 75% interest in a Shanghai-based joint venture. The shares will be issued at a price of $1.35 per share and will make GTS, through a wholly owned subsidiary, AmTec's second largest shareholder following the close of the transaction with UIHH described below. The joint venture holds the rights to a majority share of the cash flow generated by Shanghai VSAT Network Systems (SVC), the premier satellite-based telecommunications network operator in China. The merger is subject to final due diligence among other conditions. On December 23, 1998, the company signed a definitive agreement with UIH Hunan Inc. ("UIHH"), an indirect subsidiary of United International Holdings, Inc., under which AmTec will issue to UIHH's direct parent company $12 million of convertible preferred stock ("Series F Shares") in exchange for 100% of the common stock of UIHH. The Series F Shares will be convertible into AmTec's common stock at a price equal to the Average Closing Price of the common stock during the ten trading days ending three trading days prior to closing of the transaction. However, the conversion price of the Series F Shares will be no higher than $1.25 per share. Once issued, the Series F Shares will carry certain anti-dilution provisions. UIHH holds a 49% interest in a Sino-foreign joint venture with the Broadcasting Bureau of Hunan, the monopoly cable television operator in Hunan Province, People's Republic of China. The agreement, which is subject to satisfactory completion of due diligence and approvals of appropriate regulatory authorities in China among other conditions, provides UAP with a three year option to increase its holdings in AmTec to 25% of AmTec's fully diluted common shares for a price of $3 per share and with rights of co-investment with AmTec in China. Subject to shareholder approval as required by the American Stock Exchange, the consummation of this transaction will make UAP AmTec's largest shareholder. NOTE 7 - GSM NETWORK OPERATION On October 1, 1998, Hebei Unicom's sixth GSM network launched operations in the city of Langfang, Hebei Province, which has a metropolitan area population of 3.6 million people. As of February 12, 1999 the subscriber base of the six networks reached approximately 35,000 subscribers, an increase of 15,000 subscribers from September 30, 1998. NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS Comprehensive Income - In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income". This statement is effective for financial statements issued for periods beginning after December 31, 1997. Management has evaluated the effect on its financial reporting of the adoption of this statement and has found the majority of required disclosures not to be applicable and the remainder not to be significant. Segments of an Enterprise and Related Information - In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss, specific revenue and expense items, and assets for reportable segments. It also requires the reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments, in each case to the corresponding amounts in the general purpose financial statements. Management has evaluated the effect on its financial reporting of the adoption of this statement and has found the majority of required disclosures not to be applicable and the remainder not to be significant. Disclosures about Pensions and Other Postretirement Benefits--In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This Statement is effective for fiscal years beginning after December 15, 1997. This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. Management is currently evaluating the effect of adopting this statement on its financial reporting. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation AmTec, Inc. ("AmTec" or "the Company") is a telecommunications company with operations in the People's Republic of China (the "PRC" or "China"). The Company has focused its operations on China because of its large and rapidly growing need for telecommunications services, its requirement for foreign capital and technology to meet that need, and AmTec's opportunity to obtain cash flow sharing and technical services agreements with operators who hold exclusive or semi-exclusive communications licenses. The Company has established majority ownership in joint ventures with Chinese and other partners to provide financing, network construction and operational consulting services to licensed China network operators. The Company's current operations primarily are focused on a series of cellular telephone networks in the northeastern province of Hebei, which has 11 major cities and a population of approximately 64 million people. These networks are being launched with subscribers growing from 20,000 to 35,000 in the third quarter. Revenues and income will be shown in the fourth quarter for the full year. Key components of AmTec's business strategy are developing existing network interests and obtaining additional interests in communications networks in China, including combining the efforts of major telecommunications companies in China. Amtec is in the process of closing mergers with 1) GTS which will give the Company data networking services throughout China from Shanghai and with 2)UIHH which will give the company cable television transmission for 255,000 subscribers in Hunan Province. Joint Ventures in China AmTec holds a 70% interest in Hebei United Telecommunications Equipment Company Limited ("Hebei Equipment"), a Sino-foreign joint venture with a wholly-owned subsidiary of the Electronics Industry Department of Hebei Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United Telecommunications Engineering Company Limited ("Hebei Engineering"), a joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei Equipment and Hebei Engineering are organized as Sino-foreign equity joint ventures under the laws of China and are headquartered in Shijiazhuang, the capital of Hebei Province. If the mergers with GTS and UIHH close as expected. AmTec will acquire their interest in China which are also Sino-foreign joint ventures. Cellular Telephone Networks Currently, legal restrictions in China prohibit foreign participation in the operation and ownership of communications networks. Therefore, the Company has established majority ownership in joint ventures with Chinese and other partners to provide financing, network construction and operational consulting services to licensed Chinese network operators. Substantially all of the Company's revenues are derived from contractual arrangements for the sharing of cash flows generated from network operations rather than from ownership or operation of the networks. Until regulations in China change to permit direct foreign ownership and operations of communications networks, all future revenues of the Company will continue to be derived from these contractual arrangements. Through Hebei Engineering, AmTec entered into an agreement (the "Unicom Agreement") on February 9, 1996 with Unicom to (i) finance and assist Unicom in the construction of cellular networks (the "GSM Networks" or "GSM Project") in the ten largest cities in Hebei Province and (ii) provide consulting and management support services to Unicom in its operation of the GSM Networks in the 10 largest cities of Hebei Province. This GSM Project will have a capacity of up to 70,000 subscribers. Hebei Engineering is entitled to 78% of the distributable cash flow (defined as activation charges plus depreciation plus net income) from the GSM Networks for a 15-year period commencing February 9, 1996. The construction and operational plan for the GSM Networks consists of a "roll-out" across Hebei Province on a city-by-city basis. As of February 12, 1999 six cities, were providing commercial service, to approximately 35,000 subscribers. As of December 31, 1998, construction of the GSM Networks had been financed by Hebei Engineering with $3 million of equity capital, approximately $11 million of vendor financing guaranteed by NTTI, and a $21.5 million Term Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Itochu. Of the $3 million of equity raised by Hebei Engineering, $1.53 million was contributed by Hebei Equipment. Achievement of the Company's business objectives is dependent upon Unicom's operation of the GSM Networks, among other factors. The implementation of the GSM Networks involves systems design, site procurement, construction, electronics installation, initial systems optimization and receipt of necessary permits and business licenses prior to commencing commercial service. While no major difficulties have been encountered to date in launching the six networks now operating, absence of difficulties in launching additional networks can not be assured. Results of Operations for the Nine and Three Months Ended December 31, 1998 As Compared to the Nine and Three Months Ended December 31, 1997. Due to the early stage of the networks' rollout, the Company has not been able to determine its revenue earned under its cash flow sharing contract and the Company did not recognize revenue from the GSM operations during the nine months ended December 31, 1998 and 1997. Instead revenues are recognized when cash is received, which is expected to occur in the last fiscal quarter. The Company is implementing a system to estimate its revenue from the cash flow sharing contract and the Company expects to begin accruing revenue within the next year as the networks continue to develop. As of February 12, 1999 six cellular networks serving approximately 35,000 subscribers were operating in Hebei province. Selling, general and administrative expenses increased from approximately $3.6 million during the nine months ended December 31, 1997 to approximately $4.8 million during the nine months ended December 31, 1998. The increase primarily related to increases in the amortization of the investment in GSM network of approximately $1.7 million and an increase in salaries and fringe benefits of approximately $0.3 million related to the hiring of a Chief Financial Officer and General Counsel in June 1997. These increases were offset by an approximately $0.8 million reduction in the start-up costs of the Company's joint venture. Selling, general and administrative expenses increased from approximately $1.2 million during the three months ended December 31, 1997 to approximately $1.6 million during the three months ended December 31, 1998. The increase for the quarter was primarily attributed to the amortization of the Company's investment in the GSM networks offset by a reduction in the start-up costs of its joint venture. The Company reported assets of approximately $35.6 million at December 31, 1998, a decrease of 12% or $5 million from March 31, 1998. This decrease primarily related the funding of current operations of approximately $4.6 million using cash. The Company's additional investment in the GSM networks of approximately $1.7 million during the nine months ended December 31, 1998 was offset by approximately the same amount of amortization provided during the period. The consolidated balance sheet of the Company includes total liabilities of approximately $32.9 million. Of this amount, approximately $32.7 million are liabilities of AmTec's Sino-foreign joint venture subsidiaries, with no recourse to AmTec, Inc. AmTec's direct liabilities amount to approximately $0.2 million. The decrease in consolidated liabilities is primarily attributed to the elimination of shareholder loans and related accrued expenses and a decrease in minority interest. The Company's loss before dividends increased from $3.7 million during the nine months ended December 31, 1997 to $5.6 million during the nine months ended December 31, 1998. The increase in net loss primarily relates to an increase in selling, general and administrative expenses and offset by an increase in the minority interest in loss of subsidiaries. The decrease in Stockholders' Equity of approximately $2.3 million for the nine months ended December 31, 1998 was the net result of an increase in Additional paid-in capital of approximately $1.8 million, a loss for the nine months of approximately $5.3 million, the cancellation of deferred option cost of $1.4 million and the cancellation of 300,000 warrants valued at $0.2 million. The increase in Additional paid-in capital was due to the elimination of approximately $2.4 million of shareholders' loans and related accrued interest, elimination of $0.9 million deferred option cost, amortization of the discount on the Series E Convertible Preferred Stock of approximately $0.6 million and elimination of approximately $0.3 million paid-in capital in relation to common stocks buy back during the nine months ended December 31, 1998. Liquidity and Capital Resources While the Company reported $216,348 of revenue during the year ended March 31, 1998, it did not report revenues for the nine months ended December 31, 1998. As stated earlier, the Company has elected not to recognize revenue earned under its contract with China UNICOM due to the early stage of the networks' rollout and the availability of a system to report revenue on a monthly basis. Instead revenues are recognized when cash is received under the revenue sharing contract. However, the Company expects to begin recognizing revenue on a quarterly basis beginning next year as the networks continue to develop and system are implemented. As a result, the Company generated an operating loss of $5.62 million and a loss applicable to common shares of $5.29 million during this period. While the Company expects to achieve profitable operations within several years, there can be no assurances that the Company will achieve this goal. As a result, the Company has financed its current activities primarily through private equity placements. During the nine months ended December 31, 1998, the Company's cash decreased by approximately $4.6 million was primarily due to additional investment in the GSM network of approximately $1.7 million, cash used to fund current operations of approximately $3.9 million, $0.3 million of cash used to buy back common stock, $0.1 million of cash used to buy back preferred stock. The cash decrease was partially offset by an additional $1.5 million bank loans obtained by the Company's subsidiary (Hebei Engineering). The loan is guaranteed by co-investors in the Company's joint venture with no recourse to AmTec, Inc. The Company's current cash position plus anticipated funding is expected to be sufficient to support its operations through January 1, 2000. Equity Issuance The Company issued 4,776,188 shares of its Common Stock during its first nine months upon conversion of 34.9 shares of the Company's Series E Convertible Preferred by certain holders of the Series E Shares. PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Default upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of stockholders during the six months ended December 31, 1998. Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27. Financial Data Schedule (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the nine months ended December 31, 1998. 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. Dated: February 12, 1999 AmTec, Inc. By: /s/ Joseph R. Wright, Jr. ----------------------------- Joseph R. Wright, Jr. Chief Executive Officer By: /s/ Albert G. Pastino ------------------------------ Albert G. Pastino Principal Financial and Accounting Officer EX-27 2 EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1999 OCT-01-1998 DEC-31-1998 5,850,056 0 104,881 0 0 6,183,066 1,063,244 241,979 35,585,649 13,960,875 19,016,474 30,008 0 1 2,578,291 35,585,649 0 0 0 4,873,483 (753,186) 0 554,725 (5,298,746) 0 (5,298,746) 0 0 0 (5,298,746) 0.20 0.16
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