-----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, SRmen8ifITDhiOmMYI5mBB6t+PgBD2FUTTj1uDLNxELn5NhJrhrusoGkJS/5EGNR j3uz32BwiL8l8SlaaNbk3Q== 0000950172-99-001107.txt : 19990825 0000950172-99-001107.hdr.sgml : 19990825 ACCESSION NUMBER: 0000950172-99-001107 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990824 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/A SEC ACT: SEC FILE NUMBER: 001-12475 FILM NUMBER: 99698050 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/A 1 10-Q - AMENDMENT NO. 4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT # 4) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 ____ Outstanding as of Class September 28, 1998 - --------------------------------------- ------------------------------- Common Stock, par value $.001 per share 26,180,945 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. INTRODUCTION This Amendment on Form 10-Q-A amends the Registrant's Quarterly Report on Form 10-Q, as filed by the Registrant on September 28, 1998 as amended on August 23, 1999 and is being filed to reflect the restatement of the Registrant's Financial Statements ("the restatement"). The Registrant determined that one of its subsidiaries should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, its subsidiary had been consolidated. As a result, the financial statements as of June 30, 1998, and for the three months ended June 30, 1998, have been restated from amounts previously reported to account for its subsidiary under the equity method of accounting. See note 10 to the June 30, 1998 consolidated financial statements of the Registrant included herewith. Unless otherwise noted, all information provided in this Quarterly Report is current as of September 28, 1998, the original filing date of the Form 10-Q. Information regarding recent events at the Registrant can be obtained from reports filed by the Registrant with respect to its activities during 1998, including the Registrant's Quarterly Report on Form 10-Q for the periods ended September 30, 1998 and December 31, 1998 and the Registrant's 10-K for the year ended March 31, 1999. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated August 23, 1999. PAGE PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets as of June 30, 1998 (Restated) and March 31, 1998 5 Consolidated Statement of Operations for the three months ended June 30, 1998 (Restated) and 1997 6 Consolidated Statement of Cash Flows for the three months ended June 30, 1998 (Restated) and 1997 7 Notes to Consolidated Financial Statements 9 Item 2 Management's Discussion and Analysis of Financial Condition and Result of Operations 16 PART II. OTHER INFORMATION 20 Item 1 Legal Proceedings 20 Item 2 Changes in Securities and Use of Proceeds 20 Item 3 Defaults upon Senior Securities 20 Item 4 Submission of Matters to a Vote of Security Holders 20 Item 5 Other Information 20 Item 6 Exhibits and Reports on Form 8-K 21 Signatures 22
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------- (Unaudited) June 30, 1998 March 31, 1998 ----------- --------------- As Restated; see note 10) ASSETS CURRENT ASSETS: Cash $ 1,239,806 $ 2,134,662 Accounts receivable 118,255 114,661 Prepaid expenses and other current assets 42,885 108,082 ----------- ----------- Total current assets 1,400,946 2,357,405 Investments in and advances to unconsolidated subsidiary 4,768,553 5,074,217 Property, plant and equipment, net 136,187 139,136 Office lease deposit 57,414 112,600 ----------- ----------- Total assets $ 6,363,100 $ 7,683,358 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 402,675 $ 541,888 Accrued expenses 29,428 792,006 Loans payable - shareholders - 1,452,553 ------------- ----------- Total current liabilities 432,103 2,786,447 ------------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 68 and 73 shares issued and outstanding at June 30, 1998 and March 30, 1998, respectively 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 26,983,058 and 26,532,502 issued and outstanding at June 30,1998 and March 31,1998, respectively 26,983 26,533 Additional paid-in capital 36,019,875 33,149,142 Accumulated deficit (29,238,874) (27,394,590) Nonemployee deferred option cost, net (1,148,438) (1,378,125) Warrants 271,450 493,950 ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 5,930,997 4,896,911 ------------ ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,363,100 $ 7,683,358 ============ =========== See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------- (Unaudited) Quarter Ended June 30 ---------------------------------- 1998 1997 ---- ---- (AS RESTATED; SEE NOTE 10) REVENUES $ - $ - ------------ ------------ EXPENSES Selling, general and administrative 1,049,422 1,426,492 ------------ ------------ LOSS FROM OPERATIONS (1,049,422) (1,426,492) ------------ ------------- OTHER (EXPENSE) INCOME: Amortization of stock options granted to non-employees (229,688) - Interest expense - - Other - net 4,810 (30,200) ------------- -------------- Total other expense (224,878) (30,200) ------------- -------------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (1,274,300) (1,456,692) Equity in losses of unconsolidated subsidiary (167,563) (135,535) ----------- ------------- NET LOSS (1,441,863) (1,592,227) PREFERRED STOCK DIVIDEND 402,421 108,000 ------------ ------------ LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,844,284) $ (1,700,227) ============ ============= BASIC LOSS PER COMMON SHARE $ (0.06) $ (0.05) ======== ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 30,382,177 31,306,876 =========== ========== See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------------- (Unaudited) Quarter Ended June 30 ---------------------------- 1998 1997 ---- ---- (As Restated; SEE NOTE 10) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,441,863) $ (1,592,227) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 229,687 - Depreciation 11,072 13,021 Issuance of common and options stock for compensation, directors' fees and services rendered - 273,747 Equity in losses of unconsolidated subsidiary 167,563 135,535 (Increase) decrease in: Accounts receivable (3,594) (69,512) Prepaid expenses and other current assets 65,197 165,626 Office lease deposit 55,186 - Increase (decrease) in: Accounts payable and accrued expenses 30,019 108,460 ------------ ------------- Net cash used in operations (886,733) (965,350) ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated subsidiary - (276,000) Purchase of property and equipment (8,123) (1,579) ------------- -------------- Net cash used in investing activities (8,123) (277,579) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Advance to unconsolidated subsidiary - (724,000) Proceeds from sale of Series C convertible preferred stock - net - 2,500,000 --------------- -------------- Net cash provided by financing activities - 1,776,000 --------------- -------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (894,856) 533,071 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713 -------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,239,806 $ 1,879,784 ============ ============ See notes to consolidated financial statements.
AMTEC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ---------------------------------------------------------------------------- SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during the first three months of fiscal 1999 or 1998. 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 5 shares of Series E Convertible Preferred Stock were converted into 450,556 shares of common stock (inclusive of conversions of preferred dividends). Warrants valued at $222,500 were cancelled and credited to Additional paid-in capital. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements at June 30, 1998 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 July 14, 1999 for the Company's fiscal year ended March 31, 1998. The results of operations for the three months ended June 30, 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. 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 contracts. 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 contributed capital has been fully depleted. Reserves are provided where management determines that the investment or equity in earnings is not realizable. For the period ending March 31, 1998, the Company used an ownership percentage of 60.8% for purposes of calculating the share of earnings of its unconsolidated subsidiary since it did not increase its ownership percentage in Hebei Equipment to 70% until after the close of Hebei Equipment's fiscal year-end (December 31, 1997). Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment also accounts for its investment using equity method of accounting as minority Shareholders of Hebei Engineering have substantive participating rights under the joint venture contracts. Included in the financial statements are the financial statements of the Company for the three months ended June 30, 1998 and 1997. The Company's share of equity in losses of Hebei Equipment included in the consolidated financial statements are as of and for the quarter ended March 31, 1998 and 1997. By doing 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. The summary financial information of Hebei Equipment and Hebei Engineering were included in Note 6 to the financial statements. NOTE 3 - ASSETS The consolidated balance sheet includes total current assets of approximately $1.4 million and total assets of approximately $6.4 million. Of these amounts, approximately $1.2 million of cash is reserved for parent company operations and approximately $4.7 million was investment in and advance to Hebei Equipment. The Company's current cash position is sufficient to support operations of the Company through January 1, 2000. NOTE 4 - LIABILITIES The consolidated balance sheet includes total liabilities of approximately $0.4 million. The decrease in consolidated liabilities primarily relates to the elimination of shareholder loans and related accrued expenses of ITV, Inc., a wholly-owned subsidiary. NOTE 5 - CHANGES TO EQUITY The increase in Stockholders' Equity of approximately $1 million for the quarter ended June 30, 1998 was primarily the result of an increase in Additional paid-in capital of approximately $3 million due to the elimination of approximately $2.4 million of shareholders' loans and related accrued interest, amortization of the discount on the Series E Preferred Stock of approximately $0.4 milion and the cancellation of 300,000 warrants valued at $0.2 million. These increases were offset by a loss for the quarter of approximately $1.8 million and an increase in Accumulated deficit of approximately $0.1 million related to AmTec's increase in the ownership of its Sino-Foreign Joint Venture from 60.8% to 70%. Also, during the quarter the Company issued 450,556 shares of its Common Stock upon the conversion of 5 shares of its Series E Convertible Preferred Stock. 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 quarters ended June 30, 1998 and 1997: (Unaudited) (Unaudited) QUARTER ENDED QUARTER ENDED JUNE 30, 1998 JUNE 30, 1997 ------------- ------------- HEBEI EQUIPMENT Revenues $ - $ - ========= ========== Net loss $ (239,376) $ (222,919) ============ =========== HEBEI ENGINEERING Revenues $ 198,623 $ - ========== ========== Net loss $ (429,428) $ (486,101) ============ =========== NOTE 7 - COMPREHENSIVE INCOME Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes new rules for reporting and display of comprehensive income and its components. Other than an insignificant amount of foreign currency transactions, the Company has no other items of other comprehensive income and the net loss reported in the statement of operations is equivalent to the total comprehensive loss. NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS 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 has determined that it operates in only one segment. NOTE 9 - SUBSEQUENT EVENTS The Company cancelled a Common Stock Investment Agreement, as permitted by the Agreement, with Promethean Investment Group. It is the Company's intention to cancel the 1,019,465 shares held in escrow that were designated for issuance under terms of the agreement. On August 6, 1998 the Company signed an agreement with UIH Asia/Pacific Communications, Inc ("UAP"), a wholly-owned subsidiary of United International Holdings, Inc. ("UIH"), under which AmTec will issue to UAP $12 million of preferred stock convertible into 9.6 million AmTec shares at a price of $1.25 per share, subject to certain anti-dilution provisions, in exchange for 100% of the common stock of UIH Hunan, Inc. ("UIHH"). 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, approval of AmTec's shareholders and approvals of appropriate regulatory authorities in China, provides UAP with an option to increase its holdings in AmTec to 25% of AmTec's fully diluted common shares and with rights of co-investment with AmTec in China. On August 9, 1998 a fourth GSM network began operations in the city of Baoding, which has a metropolitan area population of 9.54 million people and on September 14, 1998 a fifth GSM network began operations in Qinghuangdao, which has metropolitan area population of 2.6 million. Both cities are located in Hebei Province in the People's Republic of China. On August 27, 1998 the Company signed a definitive agreement with SFMT, Inc., a wholly owned subsidiary of Global Telesystems, Inc. ("GTS") under which SFMT will acquire approximately 5.9 million shares of AmTec common stock in exchange for SFMT's interest in V-Tech, a Sino-Foreign Joint Venture which holds rights to a majority of the cash flow generated by Shanghai VSAT Network Systems, the premier satellite-based telecommunications network operator in China. The agreement is subject to satisfactory completion of due diligence and approval of AmTec's shareholders. NOTE 10 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER EQUITY ACCOUNTING METHOD Subsequent to the issuance of the Company's financial statements for the period ended June 30, 1998, the Company's management determined that Hebei Equipment, should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, Hebei Equipment had been consolidated. As a result, the financial statements as of June 30, 1998 and for the three months ended June 30, 1998, have been restated from amounts previously reported to account for Hebei Equipment under the equity method of accounting. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated August 23, 1999. A summary of the significant effects of the restatement is as follows:
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, AS OF JUNE 30, 1998 1998 ---- ---- As Previously As Reported Restated ASSETS CURRENT ASSETS Cash $8,827,274 $1,239,806 Accounts receivable 118,255 118,255 Prepaid expenses and other current assets 274,372 42,885 -------------- ------------ TOTAL CURRENT ASSETS 9,219,901 1,400,946 Investment in unconsolidated subsidiary - 4,768,553 Property, plant & equipment, net 876,266 136,187 Investment in GSM network, net of amortization 28,997,493 - Office lease deposit 63,302 57,414 ------------- ------------- TOTAL ASSETS $ 39,156,962 $ 6,363,100 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $402,675 $402,675 Accrued expenses 48,391 29,428 Other current payables 10,568,017 - ------------- ------------- TOTAL CURRENT LIABILITIES $11,019,083 $432,103 Loans payable 20,028,602 - Other payables 1,487,727 - Minority interest 690,553 - ------------- -------------- TOTAL LIABILITIES 33,225,965 432,103 STOCKHOLDERS' EQUITY Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 68 shares issued and outstanding at June 30, 1998 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 26,983,058 issued and outstanding at June 30, 1998 26,983 26,983 Additional paid-in capital 36,132,621 36,019,875 Accumulated deficit (29,351,620) (29,238,874) Non employee deferred option cost, net (1,148,438) (1,148,438) Warrants 271,450 271,450 ------------- --------------- TOTAL STOCKHOLDERS' EQUITY 5,930,997 5,930,997 -------------- --------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 39,156,962 $ 6,363,100 ============= ============
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended June 30 -------------------------------- 1998 1998 ---- ---- As previouslY As Reported Restated REVENUES $ - $ - ------------ ---------- EXPENSES Selling, general and administrative 1,696,185 1,049,422 ------------ ---------- LOSS FROM OPERATIONS (1,696,185) (1,049,422) ------------ ----------- OTHER INCOME (EXPENSE): Amortization of stock options granted to non-employees (229,688) (229,688) Other - net 119,912 4,810 ------------ ----------- Total other expense (109,776) (224,878) ------------ ------------ LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (1,805,961) (1,274,300) Minority interest in loss of subsidiary 364,098 - Equity in losses of unconsolidated subsidiary - (167,563) ------------ ------------ NET LOSS (1,441,863) (1,441,863) PREFERRED STOCK DIVIDEND 402,421 402,421 ------------ ------------ LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,844,284) $ (1,844,284) ============= ============= BASIC LOSS PER COMMON SHARE $ (0.06) $ (0.06) ============== ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 30,382,177 30,382,177 ============ =============
CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended June 30 1998 1998 ---- ---- As previously As Reported Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,844,284) $ (1,844,284) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 229,687 229,687 Depreciation 576,464 11,072 Preferred stock dividend 402,421 402,421 Equity in losses of unconsolidated subsidiary - 167,563 (Increase) decrease in: Accounts receivable (3,594) (3,594) Prepaid expenses and other current assets 82,182 65,197 Deferred expenses 6,916 - Office lease deposit 49,879 55,186 Increase (decrease) in: Accounts payable and accrued expenses 7,473 30,019 Other current payables 332,532 - Minority interest (251,421) - ---------- ------------ Net cash used in operations (411,745) (886,733) ---------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (8,123) (8,123) GSM construction costs and additional investments (1,083,025) - ------------ ----------- Net cash used in investing activities (1,091,148) (8,123) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in minority interest ownership (112,167) - ------------ ----------- Net cash used in financing activities (112,167) - ------------ ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,615,060) (894,856) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,827,274 $ 1,239,806 =========== ============
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 China's large and rapidly growing need for telecommunications services, China's requirement for foreign capital and technology to meet that need, and the 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 65 million people. In addition, the Company has interests in other projects and networks in various stages of development, including a multimedia network for cable television programming transmission. Developing existing network interests and obtaining additional interests in communications networks in China in the future are key components of the Company's business strategy. Subsequent to the issuance of the Company's financial statements for the period ended June 30, 1998, the Company determined that Hebei Equipment should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, Hebei Equipment had been consolidated. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated July 14, 1999. The effects of the restatement have been presented in Note 10 of the Notes to the Financial Statements and have been reflected herein. CHINA TELECOMMUNICATIONS MARKET Through the Company's interest in cellular telephone networks in Hebei Province and relationships that the Company has developed with key policy makers and decision makers in Chinese governmental agencies, AmTec has focused its business to capitalize on the growth of the Chinese telecommunications market, which is among the world's largest, fastest growing, and most under-serviced telecommunications markets. Due to the importance of a well-developed communications infrastructure to China's continuing economic development, the PRC government has targeted communications network development as a high priority in the country's economic reform program. It is expected that before the year 2000, China will surpass the United States as both the largest cellular telephone and cable television markets in the world. Since the establishment of China United Telecommunications, Incorporated ("Unicom") in 1994, China has had only two licensed competitors for cellular, fixed wire and long-distance telephony. The cable television market in China is a monopoly run by the Ministry of Information Industry, which also regulates telecommunications in China. While other communications markets in China have experienced greater competition, most notably paging and value-added services, communications licenses have generally been limited to a small number of competitors relative to markets in the United States. The Company believes that both the overall market size and the environment of limited competition are attractive aspects of the Chinese communications market. Although Chinese regulations currently prohibit direct foreign ownership or operation of communications networks, the regulatory environment has shown recent indications of continuing a policy of partial deregulation. And while there can be no assurance that this policy of partial deregulation will continue, the Company believes that it is well-positioned to benefit from deregulation permitting direct foreign ownership and operation of communications networks, if such deregulation were to occur in the future. 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. 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 flow 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 September 14, 1998 five cities, were providing commercial service, with approximately 17,000 subscribers; construction in two additional cities was substantially completed, with commercial launch dates scheduled during 1998 for these additional cities. As of June 30, 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 $20 million Term Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Ito Chu. Of the $3 million of equity raised by Hebei Engineering, $1.17 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. Each stage can involve various risks and contingencies, the outcome of which cannot be predicted with a high degree of assurance as interconnection of the GSM Networks with the public switched telephone network is sometimes difficult and time consuming, and the successful completion of all planned sites of the GSM Networks will be dependent, to a significant degree, upon the ability of the parties to lease or acquire sites for the location of their base station equipment. While no major difficulties have been encountered to date in procuring such sites, future site acquisition can not be assured. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997. The Company has no revenues on its consolidated financial statements because the results of operations of the Company's subsidiary Hebei Equipment were accounted for under the equity method of accounting. The Company recorded only its share of losses of its unconsolidated subsidiary according to the percentage of its equity interest. The Company had net losses of $1,441,863 and $1,592,227 during the quarters ended June 30, 1998 and 1997, respectively. Selling, general and administrative expenses decreased from approximately $1.4 million during the three months ended June 30, 1997 to approximately $1.0 million during the three months ended June 30, 1998. The decrease primarily related to a reduction in expenses incurred during the startup of the joint ventures offset primarily by increases in salaries and fringe benefits related to the hiring of a Chief Financial Officer and General Counsel in June, 1997. The Company reported assets of approximately $6.4 million at June 30, 1998, a decrease of $1.3 million from March 31, 1998. This decrease primarily related to the funding of current operations using cash and other accounts payable. The consolidated balance sheet of the Company included total liabilities of approximately $0.4 million as of June 30, 1998 compared to approximately $2.8 million as of March 31, 1998. The decrease in liabilities primarily relates to the elimination of shareholder loans and related accrued interest expenses. The Company's loss before dividends decreased from approximately $1.6 million during the three months ended June 30, 1997 to approximately $1.4 million during the three months ended June 30, 1998. The decrease in net loss primarily relates to a decrease in general and administrative expenses, partially offset by approximately $0.2 million amortization of Non-employee deferred option costs . Stockholders' Equity increased by approximately $1 million from March 31, 1998 to June 30, 1998, as a result of an increase in Additional paid-in capital of approximately $3 million due to the cancellation of approximately $2.4 million of shareholders' loans and related accrued interest, amortization of the discount on the Series E Preferred Stock of approximately $0.4 milion and the cancellation of 300,000 warrants valued at $0.2 million. These increases were offset by a loss for the quarter of approximately $1.8 million and an increase in Accumulated deficit of approximately $0.1 million related to AmTec's increase in the ownership of its Sino-Foreign Joint Venture from 60.8% to 70%. LIQUIDITY AND CAPITAL RESOURCES The Company had an operating loss of approximately $1.0 million and a loss applicable to common shares of $1.8 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 three months ended June 30, 1998, the Company's cash decreased by approximately $0.9 million, primarily due to cash used to fund current operations. The Company's direct cash position is expected to be sufficient to support operations of the Company through January 1, 2000. EQUITY ISSUANCES The Company issued 450,556 shares of its Common Stock during its first quarter upon conversion of 5 shares of the Company's Series E Convertible Preferred Shares (the "Series E Shares") by certain holders of the Series E Shares. 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 are being implemented to make the necessary modifications to ensure Year 2000 compliance. The financial impact of making the required system changes for Year 2000 compliance are not expected to have any material effect on the Company's financial statements. However, even as the Company's assessment is completed without identifying any material non-compliant systems operated by, or in the control of, the Company, or of third parties, the most reasonable likely worse case scenario would be a systems failure beyond the control of the Company to remedy. Such a failure could materially prevent the Company from operating its business. The Company believes that such a failure could 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 No matters were submitted to a vote of stockholders during the Quarter ended June 30, 1998. Item 5. Other Information Agreement with UIH Asia/Pacific Communications, Inc. On August 6, 1998 the Company signed an agreement with UIH Asia/Pacific Communications, Inc ("UAP"), a wholly-owned subsidiary of United International Holdings, Inc. ("UIH"), under which AmTec will issue to UAP $12 million of preferred stock convertible into 9.6 million AmTec common shares at a price of $1.25 per share, subject to certain anti-dilution provisions in exchange for 100% of the common stock of UIH Hunan, Inc. UIH intends, through its ownership in AmTec, to make AmTec its key operation in the China telecommunications market. The transaction, which is subject to satisfactory completion of due diligence, approval of AmTec's shareholders and approvals of appropriate regulatory authorities in China will result in UAP becoming AmTec's largest shareholder and hold the right to nominate 2 members to AmTec's Board of Directors. In addition, UAP will receive co-investment rights with AmTec in China and an option to purchase additional AmTec common stock at $3.00 per share to increase its stake in AmTec to 25 % on a fully diluted basis. 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 operator is currently delivering video services to 13 cities and over 255,000 subscribers. The joint venture currently receives fees for transmission services and participates in the network's advertising revenue. It is currently profitable and will add revenues to AmTec in the first quarter after closing, which is anticipated to take place in the third quarter of the Company's fiscal year. Agreement with SFMT, Inc. On August 27, 1998 the Company signed a definative agreement with SFMT, Inc., a wholly owned subsidiary of Global Telesystems, Inc. ("GTS") under which SFMT will acquire approximately 5.9 million shares of AmTec common stock in exchange for SFMT's interest in V-Tech, a Sino-Foreign Joint Venture which holds rights to a majority of the cash flow generated by Shanghai VSAT Network Systems, the premier satellite-based telecommunications network operator in China. The agreement is subject to satisfactory completion of due diligence and approval of AmTec's shareholders. The shares will be issued at a price of $1.35 per share and will make GTS, through a wholly owned subsidiary, AmTec's largest shareholder following the close of the above mentioned merger with UIH Asia/Pacific Communications, Inc. 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 June 30, 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: August 23, 1999 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 -----END PRIVACY-ENHANCED MESSAGE-----