-----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, MJeS3RsNG+0ksvWMgHI//vi4qWtHNI6YhMNiILscIh90MjOtyq+qfszrXZYsr/2V p8TxiBJvuo9h/2FslkmEWg== 0000950172-00-000215.txt : 20000211 0000950172-00-000215.hdr.sgml : 20000211 ACCESSION NUMBER: 0000950172-00-000215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000210 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: 001-12475 FILM NUMBER: 530541 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 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, 1999 ----------------------- Commission File Number: 0-22520 . --------- AMTEC, INC. --------------------------------- (Exact name of Registrant as specified in its charter) Delaware 84-0873124 - ----------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 8, 2000 - ------------------------------- ----------------------------------- Common Stock, par value 36,924,539 $.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/A, filed with the Securities and Exchange Commission on August 23, 1999.
PAGE PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets as of December 31, 1999 and March 31, 1999 4 Consolidated Statement of Operations for the quarters and nine months ended 5 December 31, 1999 and 1998 Consolidated Statement of Cash Flows for the nine months ended December 31, 6 1999 and 1998 Notes to Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Result of 13 Operations PART II. OTHER INFORMATION 18 Item 1 Legal Proceedings 18 Item 2 Changes in Securities and Use of Proceeds 18 Item 3 Defaults upon Senior Securities 18 Item 4 Submission of Matters to a Vote of Security Holders 18 Item 5 Other Information 18 Item 6 Exhibits and Reports on Form 8-K 18 Signatures 19
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------- Dec. 31, 1999 March 31, 1999 ------------- -------------- (Unaudited) ASSETS CURRENT ASSETS: Cash $ 629,960 $ 2,093,141 Prepaid expenses and other current assets 53,295 38,805 ------------ ----------- Total current assets 683,255 2,131,946 Investments in and advances to unconsolidated subsidiary 2,439,300 2,496,480 Investments in affiliate 631,453 - Property, plant and equipment, net 62,226 96,926 Loans receivable 575,000 - Office lease deposit and other assets 55,733 55,733 ------------ ----------- TOTAL ASSETS $ 4,446,967 $ 4,781,085 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $ 593,666 $ 439,195 Accrued expenses 25,034 528,548 Loans payable 1,125,050 - ------------ ----------- TOTAL LIABILITIES 1,743,750 967,743 ------------ ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 0 and 29.8 shares outstanding at Dec. 31, 1999 and March 31, 1999, respectively - 1 Series G Convertible Preferred Stock: $.001 par value; 20 shares issued and outstanding at Dec. 31, 1999 and March 31, 1999, respectively 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 36,309,189 and 30,736,721 issued and outstanding at Dec. 31, 1999 and March 31,1999, respectively 36,309 30,737 Additional paid-in capital 38,267,202 36,947,244 Accumulated deficit (36,082,145) (33,646,491) Warrants 481,850 481,850 ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 2,703,217 3,813,342 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,446,967 $ 4,781,085 ============ ============ See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (UNAUDITED) NINE MONTHS ENDED DEC. 31 QUARTER ENDED DEC. 31 1999 1998 1999 1998 -------------- -------------- ------------- ------------- REVENUES $ - $ - $ - $ - -------------- -------------- ------------- ------------- EXPENSES General and administrative 2,402,917 2,849,742 795,378 968,417 -------------- -------------- ------------- ------------- LOSS FROM OPERATIONS (2,402,917) (2,849,742) (795,378) (968,417) -------------- -------------- ------------- ------------- OTHER INCOME (EXPENSE): Amortization of stock options granted to non-employees - (459,376) - - Other - net 46,435 37,304 7,763 (18,073) -------------- -------------- ------------- ------------- Total other income (expense) 46,435 (422,072) 7,763 (18,073) -------------- -------------- ------------- ------------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (2,356,482) (3,271,814) (787,615) (986,490) Equity in losses of affiliate (171,730) - (81,817) - Equity in income from (losses of) unconsolidated subsidiary 442,820 (1,412,881) 520,408 (1,053,679) -------------- -------------- ------------- ------------- NET LOSS (2,085,392) (4,684,695) (349,024) (2,040,169) PREFERRED STOCK DIVIDEND 350,262 614,051 258,152 145,107 -------------- -------------- ------------- ------------- LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,435,654) $ (5,298,746) $ (607,176) $ (2,185,276) ============== ============== ============= ============= BASIC LOSS PER COMMON SHARE $ (0.07) $ (0.20) $ (0.02) $ (0.08) ============== ============== ============= ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 32,924,478 26,458,488 34,367,985 25,971,101 ============== ============== ============= ============= See notes to consolidated financial statements.
AMTEC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ----------------------------------------------------------------------------------------------------- NINE MONTHS ENDED DEC. 31 1999 1998 ---- ---- UNAUDITED UNAUDITED CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,085,392) $ (4,684,695) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost - 459,374 Depreciation 34,200 35,699 Issuance of common stock for directors' fees 25,000 - Equity in losses of affiliate 171,730 - Equity in (income) losses of unconsolidated subsidiary (442,820) 1,458,765 (Increase) decrease in: Prepaid expenses and other current assets (14,490) 82,225 Office lease deposit and other assets - 55,186 Increase (decrease) in: Accounts payable and accrued expenses 58,453 (222,796) ------------- ------------- Net cash used in operating activities (2,253,319) (2,816,242) CASH FLOWS FROM INVESTING ACTIVITIES: Sale (purchase) of property and equipment 500 (13,427) Loans receivable (575,000) - Investment in affiliate (803,183) - ------------- ------------- Net cash used in investing activities (1,377,683) (13,427) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock buy back (88,633) (321,606) Series E Preferred stock buy back - (100,000) Repayment of advance from unconsolidated subsidiary 500,000 - Proceeds from loans payable 1,125,050 - Proceeds from exercise of employee stock options 631,404 2,191,986 ------------- ------------- Net cash provided by financing activities 2,167,821 1,770,380 ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,463,181) (1,059,289) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,093,141 2,134,662 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 629,960 $ 1,075,373 ============= ============= See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------ SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during the first nine months of fiscal 1999 or 1998. NON CASH FINANCING ACTIVITIES: Nine months ended December 31, 1999 29.8 shares of Series E Convertible Preferred Stock were converted into 3,858,346 shares of common stock. A total of 180,000 shares of Common Stock were issued to officers of the Company as stock awards pursuant to their employment agreements. And a total of 20,000 shares of its Common Stock were issued to some of its directors as compensations. On June 18, 1999, the Company and Jacqueline B. Brandwynne reached a settlement in principle of the legal proceedings filed against the Company on April 15, 1996. The Company has paid Ms. Brandwynne $250,000 in AmTec Common Stock, which includes her claim for attorney's fees. A total of 210,525 shares of Common Stock were issued to Ms. Brandwynne and her attorney in September 1999 pursuant to the settlement agreement. Nine months ended December 31, 1998 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 at December 31, 1999 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 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/A filed by the Company on August 23, 1999 for the Company's fiscal year ended March 31, 1999. The results of operations for the nine months ended December 31, 1999 are not necessarily indicative of the results for the entire year ending March 31, 2000. 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 investments developing profitable operations. NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING Consolidation - The consolidated financial statements include the Company's wholly- owned subsidiary, ITV Communications, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. Equity Method of Accounting - The Company accounts for its subsidiary Hebei United Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture) using the equity method of accounting, as minority shareholders of Hebei Equipment have substantive participating rights under the joint venture contract. The Company reports its investment in Hebei Equipment under the caption "Investment in and advances to unconsolidated subsidiary". Under the equity method, the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Equity in the losses of the unconsolidated subsidiary is recognized according to the Company's percentage ownership in the unconsolidated subsidiary until the Company's contributed capital has been fully depleted. Reserves are provided where management determines that the investment or equity in earnings is not realizable. The Company has used its ownership percentage of 70% for purposes of calculating the share of earnings of its unconsolidated subsidiary, Hebei Equipment. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment also accounts for its investment in Hebei Engineering by using the equity method of accounting as minority shareholders of Hebei Engineering have substantive participating rights under the joint venture contract. Included in the financial statements are the financial statements of the Company for the nine months ended December 31, 1999 and 1998. The Company's share of equity in losses of Hebei Equipment included in the consolidated financial statements are as of and for the nine months ended September 30, 1999 and 1998. This is done so that the Company can ensure that delays in receiving information from China would not cause problems for the Company in meeting its reporting deadlines. However, the Company does monitor events in the lag period and, where appropriate, would disclose the occurrence of any significant event during such lag period under Subsequent Events. The summary financial information of Hebei Equipment and Hebei Engineering are included in Note 6 to the financial statements. The Company owns 50% of IP.Com, LLC and accounts for its investment using the equity method of accounting. The summary financial information of IP.Com, LLC are included in Note 7 to the financial statements. The Company reports its investment in IP.Com, LLC under the caption "Investment in afflilate". NOTE 3 - ASSETS The December 31,1999 consolidated balance sheet includes total current assets of approximately $0.7 million and total assets of approximately $4.4 million. Of these amounts, approximately $0.6 million of cash is planned for parent company operations, approximately $2.4 million represents an investment in and advance to Hebei Equipment and approximately $0.6 million represents a loan receivable from IXS.NET, a private IP fax service provider. (See note 8) NOTE 4 - LIABILITIES The December 31, 1999 consolidated balance sheet includes total liabilities of approximately $1.7 million. Approximately $0.6 million were accounts payable and accrued expenses which are mainly legal and professional fees payable. During the quarter ended December 31, 1999, Terremark Holdings, Inc. ("Terremark"), a privately held, full service real estate and development company based in Miami, Florida agreed to provide AmTec with collateralized bridge financing up to $1.5 million, to meet AmTec's short-term capital requirements and working capital needs. The bridge loan bears 10% annual interest and will become immediately due and payable if the merger agreement (see note 11) is not approved by AmTec's stockholders. Additionally, if the merger does not close by July 1, 2000, AmTec is obligated to repay, if any, the outstanding balance on the bridge loan. As of December 31, 1999, AmTec has obtained approximately $1.1 million under this facility. AmTec has collateralized the bridge financing by pledging all of its tangible and intangible assets to secure the bridge loan. NOTE 5 - CHANGES TO EQUITY The decrease in Stockholders' Equity of approximately $1.1 million for the nine months ended December 31, 1999 was primarily due to the operating net loss of approximately $2.1 million and was partly offset by the issuance of common stock for approximately $1.0 million. As per Section 5 (d) of the Certificate of Designations of Preferences of the Series E Convertible Preferred Stock, all Series E Shares outstanding as of the second anniversary of the issuance, which is October 22, 1999, were subject to automatic conversion into the Company's common stock. On October 22, 1999, the 19.404 Series E Preferred Shares outstanding all converted into 2,679,599 shares of Common Stock. During the nine months ended December 31, 1999, the Company issued a total of 3,858,346 shares of its Common Stock upon the conversion of 29.8 shares of its Series E Convertible Preferred Stock. On September 14, 1998 the Company announced its intention to purchase up to $1 million of its common stock on the open market. During the nine months ended December 31, 1999, the Company purchased 70,000 shares under this program for a total cost of approximately $89,000. All the common stock repurchased was cancelled as of December 31,1999. During the nine months ended December 31, 1999, the Company issued 1,373,597 shares of its Common Stock upon the exercise of stock options by former employees. The Company also issued 180,000 shares of its Common Stock as stock awards to some of its officers pursuant to their employment agreements. As of June 18, 1999, the Company and Jacqueline B. Brandwynne reached a settlement in principle of the legal proceedings filed against the Company on April 15, 1996. A final agreement has been signed and the parties have agreed to release each other from all claims. The Company has paid Ms. Brandwynne $250,000 in AmTec Common Stock, which included her claim for attorney's fees. A total of 210,525 shares of Common Stock were issued to Ms. Brandwynne and her attorney during the quarter ended September 30, 1999 pursuant to the settlement agreement. NOTE 6 - UNCONSOLIDATED SUBSIDIARIES The following tables represent summary financial information of the Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei Engineering, for the Company's nine months ended December 31, 1999 and 1998:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 UNAUDITED UNAUDITED 1999 1998 1999 1998 ---- ---- ---- ---- HEBEI EQUIPMENT Revenues $ - $ - $ - $ - ============= ============= ============= ============= Net income (loss) $ 632,600 $ (1,982,181) $ 743,440 $ (1,505,256) ============= ============= ============= ============= HEBEI ENGINEERING Revenues $ - $ 606,629 $ - $ 173,994 ============= ============= ============= ============= Net income (loss) $ 3,292,534 $ (1,323,681) $ 3,887,384 $ (526,001) ============== ============= ============= =============
As expected, during the quarter ended December 31, 1999, the Company learnt that Unicom terminated their cash flow sharing and technical services agreement with Hebei Engineering. With the termination of that agreement, Hebei Engineering ceased to receive revenue from Unicom and Hebei Engineering's interests in six cellular networks in Hebei Province have been transferred to Unicom. Hebei Engineering recorded a gain of approximately $7.5 million with respect to the transfer of the networks of which $0.8 million was transferred to Hebei Equipment. NOTE 7 - INVESTMENT IN AFFILIATE The following table represents summary financial information of the Company's investment in an affiliate company, IP.Com, LLC for the quarter and nine months ended December 31, 1999 and 1998:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 UNAUDITED UNAUDITED 1999 1998 1999 1998 ---- ---- ---- ---- IP.COM Revenues $ 1,143,016 $ - $ 1,101,862 $ - ================ ================ ================ ================ Net loss $ (343,459) $ - $ (163,635) $ - ================ ================ ================ ================
AmTec owns 50% of IP.Com, LLC and accounts for its investment using the equity method of accounting. IP.Com began it operations in late September 1999 and AmTec's shares of its equity loss was $171,730 for the nine months ended December 31, 1999. NOTE 8 - LOAN RECEIVABLE Loan receivable represents a convertible debt investment made by AmTec in IXS.Net. The loan receivable bears a prime interest rate and bears a prime plus 4% interest payable upon defaults. During May 1999, the Company formed a three-way alliance with Fusion Telecommunications International, Inc. ("Fusion") and IXS.NET. The Company and Fusion made an equal convertible debt investment into IXS.NET and the Company has an option to acquire up to 50% of IXS.NET. AmTec intends to convert the debt into equity investment during its fiscal year 2001. IXS.NET purchases network and transmission services from established carriers at discounted prices and resells the services to its customers. Revenue derived from the provision of telecommunications services are recognized in the period during which the call terminates. Revenues are derived from the sale of IP Fax, IP Phone and calling card services. The following table represents summary financial information of IXS.NET for the quarter and nine months ended December 31, 1999 and 1998:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 UNAUDITED UNAUDITED 1999 1998 1999 1998 ---- ---- ---- ---- IXS.NET Revenues $ 955,961 $ - $ 724,553 $ - ============== ============== ============== ============== Net loss $ (468,496) $ - $ (220,129) $ - ============== ============== ============== ==============
NOTE 9 - NEW ACCOUNTING STANDARD NOT YET ADOPTED The Financial Accounting Standards Board has issued a new standard SFAS No. 133 "Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after July 1, 2000. Management has not yet completed the analysis of the impact this would have on the financial statements of the Company and has not adopted this standard. NOTE 10 - UNCOMPLETED TRANSACTIONS During 1998, the Company signed an agreement with a subsidiary of Global TeleSystems, Inc. ("GTS"), under which that subsidiary of GTS would acquire approximately 5.9 million shares of the Company's common stock and the Company would acquire GTS's 75% interest in a Shanghai-based joint venture. This joint venture hold 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. AmTec has terminated the agreement because, among other reasons, necessary governmental approvals were not granted. GTS has agreed to the termination. During 1998, AmTec entered into an agreement to acquire an investment in a cable television network venture located in Hunan province, PRC, from United International Holdings ("UIH"). AmTec has terminated the agreement because, among other reasons, the closing had not occurred by December 31, 1999 through no fault of AmTec. AmTec believes that it had clear rights to terminate the agreement. NOTE 11 - PROPOSED ACQUISITION On November 9, 1999, the Company announced it signed a Letter of Intent to acquire Terremark Holdings, Inc. ("Terremark"), a privately held, full service real estate and development company based in Miami, Florida. AmTec will be the surviving company and under the terms of the proposed acquisition, will acquire all existing Terremark's net assets, including real estate, development projects, management and construction contracts and brokerage operations. The two companies signed a definitive merger agreement on November 24, 1999. The transaction, which requires the approval of the shareholders is proceeding and is expected to close in the first half of 2000. Failure of the AmTec shareholders to approve the terms of the merger could result in material adverse change to AmTec, including an impaired ability to fund its capital expenditures to expand its business opportunities. In turn, this could result in an inability to fund the Company's ongoing operations. If the merger does not take place, AmTec expects to raise the capital necessary to repay the $1.5 million bridge loan to Terremark by issuing a debt instrument but there is no assurance that this can be done on satisfactory terms or terms that would not be materially adverse to the existing shareholders. Failure to repay this loan could have a material adverse effect on the Company's ability to continue as a going concern. NOTE 12 - SUBSEQUENT EVENTS Hebei Engineering ceased its operations and began its winding up procedures after the transfer of its interests in the cellular networks in Hebei Province to Unicom. As of January 24, 2000, Hebei Equipment received approximately $817,000 as a result of the liquidation of Hebei Engineering. During the month of January and through February 8, 2000, the Company received $1,254,599 from former employees upon the exercise of 590,434 stock options and $61,751 upon the conversion of 24,950 warrants. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION AmTec is a company that provides value-added telecommunications services to and from the Far East and has telecommunications investments in the People's Republic of China. We initially focused our business on China because of that country's large and rapidly growing need for telecommunications services and its requirement for foreign capital and technology to meet that need. As a result of our experience gained from our early ventures with GSM cellular projects in Hebei Province, we decided that our business goals would best be achieved by forming alliances with partners that provide international telecom and internet related services to and from China. So, in 1999, we formed a joint venture with Fusion Telecommunications International to provide telecom services, both voice and data, to and from Asia and we have a debt investment in IXS.NET, Inc. to provide fax services over the Internet, prepaid credit cards and other Internet Protocol based services. While our joint venture operations in six cellular networks in Hebei Province in Northeast China have been terminated, Hebei Province is negotiating to try to continue an ongoing participation in these networks but, more important, to reposition the joint venture to provide Internet Protocol fax, access and calling cards, voice and other services which can be transmitted over digital telephone lines or the Internet. AmTec expects to continue to grow through alliances with international telecom and internet services companies as a way of building shareholder value. The merger with Terremark is expected to provide the financing needed to expand these businesses in China, and other markets. CELLULAR TELEPHONE NETWORKS 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, held 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. Since the fall of 1998, the government of the People's Republic of China has taken a number of actions that have changed the legal environment in which the Company operates in China, including the requirement that Unicom terminate or revise its agreements with foreign invested companies. Consequently, Unicom terminated Hebei Engineering's cash flow sharing and technical services agreement. With the termination of that agreement, Hebei Engineering was liquidated and the Company's joint venture interests in six cellular networks in Hebei Province have been transferred to Unicom. As of January 24, 2000, Hebei Equipment received approximately $817,000 as a result of the liquidation of Hebei Engineering. IP.COM, LLC On April 28, 1999, AmTec formed a 50-50% joint venture, IP.Com, LLC, with Fusion Telecommunications International, Inc. ("Fusion"), , a private facilities-based, multinational long-distance company. Fusion's current service offerings include voice and data, switched and dedicated, domestic and international long-distance and domestic and international prepaid calling cards, provided through a network of owned and leased facilities, leased lines and resale agreements. IP.Com provides value-added telecommunication services, including telephony and data, to Asia. Utilizing AmTec's established presence in China and Fusion's telecommunication franchise, the companies plan to expand the service offerings of the joint venture to include a fully integrated Internet protocol ("IP") based network to provide voice and fax services. The IP.Com, LLC joint venture agreement provides both AmTec and Fusion with a right of first refusal to participate as equal partners in new projects in China IXS.NET, INC. During May 1999, AmTec formed a three-way alliance with Fusion and IXS.NET, a private IP fax service provider, to develop IP fax services in Asia. AmTec and Fusion agreed to make an equal convertible debt investment into IXS.NET and AmTec has an option to acquire up to 50% of IXS.NET. The convertible debt agreement provides for AmTec to advanced up to $575,000 over the eighteen months period, subject to certain terms and conditions. The IXS.NET business equips a local business with a modem that transfers international fax calls through a local phone call on the Public Switched Telephone Network ("PSTN") to an Internet node in the city of origin, then transmits the fax on the Internet internationally to the city of destination, converts the fax call to a local telephone call in the city of destination on city's PSTN which is transmitted to the destination fax telephone number. This model saves the standard international telephone phone call charges, which are very expensive to and from China. This business model can result in a significant savings to any business that faxes internationally on a regular basis. IXS.NET purchases network and transmission services from established carriers at discounted prices and resells the services to its customers. Revenue derived from the provision of telecommunications services are recognized in the period during which the call terminates. Revenues are derived from the sale of IP Fax, IP Phone and calling card services. For the quarter ending December 31, 1999, revenues were $724,553. On an annualized basis, the December figures produced recurring revenue of $3.8 million. RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1998. AmTec's joint venture, IP.Com, LLC., started its operations beginning late September 1999 and recorded revenues of $1.1 million for the period from September 15, 1999 through December 31, 1999. AmTec reported no revenues on its consolidated financial statements because the results of operations of AmTec's subsidiary Hebei Equipment and its subsidiary, Hebei Engineering, as well as its joint venture IP.Com, LLC have been accounted for under the equity method of accounting. AmTec has recorded only its share of income (losses) of its unconsolidated subsidiary and joint venture according to the percentage of its equity interest. AmTec had net losses of $2.1 million and $4.7 million during the nine months ended December 31, 1999 and 1998, respectively. General and administrative expenses decreased from approximately $2.8 million during the nine months ended December 31, 1998 to approximately $2.4 million during the nine months ended December 31, 1999. The decrease is primarily related to a reduction in legal and professional fees related to the pending GTS and UIHH merger transactions and a reduction in salaries and fringe benefits as some employees resigned in June 1999. General and administrative expenses decreased from approximately $1.0 million during the three months ended December 31, 1998 to approximately $0.8 million during the three months ended December 31, 1999. The decrease is primarily attributed to a reduction in salaries and fringe benefits as some employees resigned in June, 1999. The Company reported assets of approximately $4.4 million at December 31, 1999, a decrease of approximately $ 0.3 million from March 31, 1999. This decrease primarily related to the funding of current operations using cash and the cash payments to reduce current accounts payable. The consolidated balance sheet of the Company included total liabilities of approximately $1.7 million as of December 31, 1999 compared to approximately $1.0 million as of March 31, 1999. The increase in liabilities primarily relates to a bridge loan obtained from Terremark during the quarter. The Company's loss before preferred stock dividends decreased from approximately $4.7 million during the nine months ended December 31, 1998 to approximately $2.1 million during the nine months ended December 31, 1999. The decrease relates to a decrease in general and administrative expenses of approximately $0.4 million, a decrease of approximately $0.5 million related to amortization of Non-employee deferred option costs and a decrease of approximately $1.7 million in equity in losses of unconsolidated subsidiary. Stockholders' Equity decreased by approximately $1.1 million from March 31, 1999 to December 31, 1999, as a result of a loss for the nine months of approximately $2.1 million and an increase in Additional paid-in capital of approximately $1.0 million related to issuance of AmTec's Common Stock. LIQUIDITY AND CAPITAL RESOURCES The Company had an operating loss of approximately $2.1 million and a loss applicable to common shares of $2.4 million during the nine months ended December 31, 1999. While the Company expects to achieve profitable operations within several years, there can be no assurances that the Company will achieve this goal. During the nine months ended December 31, 1999, the Company's cash decreased by approximately $1.4 million, primarily due to cash used to fund current operations, loans to IXS.NET and investments made in IP.COM. The Company received $0.5 million repayment of some of its advances to its subsidiary in September 1999. During the quarter ended December 31, 1999, the Company obtained a bridge loan for up to $1.5 million from Terremark of which AmTec has borrowed approximately $1,125,000. This bridge loan is collateralized by all of AmTec's tangible and intangible assets. If the pending merger with Terremark is completed, the bridge loan will be forgiven. If the merger does not close by July 1, 2000, AmTec is obligated to repay any outstanding balance on the bridge loan. It is expected that AmTec will need to borrow additional funds from the bridge loan to meet its obligations as they become due during the quarter ending March 31, 2000. If the bridge loan becomes due and the merger is not completed, the Company is unlikely to have the means to repay it. Since the bridge loan is secured by all the Company's assets, nonpayment will likely render the Company insolvent and could lead to insolvency proceeding or liquidation. EQUITY ISSUANCE During the nine months ended December 31, 1999, the Company issued: 3,858,346 shares of its Common Stock upon conversion of 29.8 shares of the Company's Series E Convertible Preferred by certain holders of the Series E Shares; 1,373,597 shares of its Common Stock upon the exercise of stock options by former employees; 180,000 shares of its Common Stock as stock awards granted to some of its officers pursuant to their employment agreements; 20,000 shares of its Common Stock as compensation paid to some of its directors; and 210,525 shares of its Common Stock upon settlement of a legal proceeding filed against the Company by a former shareholder. IMPACT OF THE YEAR 2000 The "Year 2000" problem is the result of computer programs being written using two digits, rather than four digits, to define the applicable year. Any of the programs used in the Company's operations that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Company has previously instituted a thorough program to identify these computer programs and modify or replace its key financial information and operational systems so that they will function properly in the year 2000. Remaining financial and operational systems have been assessed, and detailed plans have been developed and have been implemented to make the necessary modifications to ensure Year 2000 compliance. The financial impact of making the required system changes for Year 2000 compliance has not had any material effect on the Company's financial statements. The Company has not identified material non-compliant systems operated by, or in the control of, the Company, or of third parties. The Company has not received any report of a systems failure beyond the control of the Company to remedy. The Company does not expect a major failure to occur in the future that will lead to lost revenues, increased operating cost, or other business interruptions of a material nature. PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information None 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 Quarter ended December 31, 1999. 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 10, 2000 AmTec, Inc. By: /s/ Joseph R. Wright, Jr. ------------------------- Joseph R. Wright, Jr. Chief Executive Officer By: /s/ Wilfred Chow ------------------------- Wilfred Chow Principal Financial and Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-2000 APR-01-1999 DEC-31-1999 629,960 0 575,000 0 0 683,255 239,252 (177,026) 4,446,967 1,743,750 0 0 1 36,309 2,666,908 4,446,967 0 0 0 2,402,917 (46,435) 0 0 (2,356,482) 0 (2,085,392) 0 0 0 (2,085,392) (0.07) 0
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