-----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, BUsqzO3/V8ct0dQZetBFnCCjR9Nn2FzQg+5IPEmz2f8Rim8Sl4hoiowYKh2TOy1Z qUumoFVSN4uTnzCCkOyyrg== 0000950172-99-001109.txt : 19990825 0000950172-99-001109.hdr.sgml : 19990825 ACCESSION NUMBER: 0000950172-99-001109 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 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: 99698053 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. 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT 2) 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 $.001 per share 30,811,721 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 February 12, 1999 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 December 31, 1998, and for nine months ended December 31, 1998, have been restated from amounts previously reported to account for its subsidiary under the equity method of accounting. See Note 10 to the consolidated financial statements of the Registrant included herewith. Unless otherwise noted, all information provided in this Quarterly Report is current as of February 12, 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 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 December 31, 1998 (Restated) and March 31, 1998 5 Consolidated Statement of Operations for the three and nine months ended December 31, 1998 (Restated) and 1997 6 Consolidated Statement of Cash Flows for the nine months ended December 31, 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 17 PART II. OTHER INFORMATION 21 Item 1 Legal Proceedings 21 Item 2 Changes in Securities and Use of Proceeds 21 Item 3 Defaults upon Senior Securities 21 Item 4 Submission of Matters to a Vote of Security Holders 21 Item 5 Other Information 21 Item 6 Exhibits and Reports on Form 8-K 21 Signatures 22
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------------------------------------------- (Unaudited) Dec. 31, 1998 Mar. 31, 1998 ------------- ------------- (As restated; See note 10) ASSETS CURRENT ASSETS: Cash $ 1,075,372 $ 2,134,662 Accounts receivable 104,881 114,661 Prepaid expenses and other current assets 35,637 108,082 ----------- ----------- Total current assets 1,215,890 2,357,405 Investments in and advances to unconsolidated subsidiary 1,423,467 5,074,217 Property, plant and equipment, net 116,864 139,136 Office lease deposit 57,414 112,600 ----------- ----------- Total assets $ 2,813,635 $ 7,683,358 =========== =========== LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable $ 175,663 $ 541,888 Accrued expenses 29,672 792,006 Loans payable - shareholders - 1,452,553 ------------ ----------- Total current liabilities 205,335 2,786,447 ------------ ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS EQUITY: Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 36.5 and 73 shares outstanding at Dec. 31, 1998 and Mar. 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 Mar. 31, 1998, respectively 30,008 26,533 Additional paid-in capital 35,000,177 33,149,142 Accumulated deficit (32,693,336) (27,394,590) Nonemployee deferred option cost, net - (1,378,125) Warrants 271,450 493,950 ------------ ----------- TOTAL STOCKHOLDERS EQUITY $ 2,608,300 4,896,911 ------------- ----------- TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 2,813,635 $ 7,683,358 ============= =========== See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Nine Months Ended Dec. 31 Three Months Ended Dec. 31 1998 1997 1998 1997 ---- ---- ---- ---- (As Restated; (As Restated; See note 10) See note 10) REVENUES $ - $ - $ - $ - ---------- ----------- ------------ ---------- EXPENSES Selling, general and administrative 2,849,742 3,290,812 968,417 911,314 ---------- ----------- ------------ ---------- LOSS FROM OPERATIONS (2,849,742) (3,290,812) (968,417) (911,314) ---------- ----------- ------------ ---------- OTHER (EXPENSE) INCOME : Amortization of stock options granted to non-employees (459,376) - - - Write off of investment - (87,441) - - Other - net 37,304 (6,446) (18,073) 54,487 ---------- ---------- ----------- --------- Total other (expense) income (422,072) (93,887) (18,073) 54,487 ---------- ---------- ----------- --------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (3,271,814) (3,384,699) (986,490) (856,827) Equity in losses of unconsolidated subsidiary (1,412,881) (320,274) (1,053,679) (56,567) ----------- ---------- ----------- ---------- 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 SHAREHOLDERS $(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 =========== =========== ============ =========== See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended Dec.31 1998 1997 ---- ---- (As restated; SEE NOTE 10) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,298,746) $ (3,927,864) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 459,374 - Depreciation 35,699 55,603 Preferred stock dividend 614,051 222,891 Issuance of common stock and options for directors' fees and professional services rendered - 392,381 Equity in losses of unconsolidated subsidiary 1,458,765 320,274 (Increase) decrease in: Accounts receivable 9,780 (116,215) Prepaid expenses and other current assets 72,445 19,151 Office lease deposit 55,186 - Increase (decrease) in: Accounts payable and accrued expenses (222,796) (32,795) ----------- ----------- Net cash used in operations (2,816,242) (3,066,574) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (13,427) (36,001) ----------- ----------- Net cash used in investing activities (13,427) (36,001) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock buy back (321,606) - Series E preferred stock buy back (100,000) - Repayment from (Advance to) unconsolidated subsidiary 2,191,985 (1,000,000) Proceeds from sale of Series C convertible preferred stock - net - 2,500,000 Proceeds from sale of Series E convertible preferred stock - net - 6,691,035 ---------- ----------- Net cash provided by financing activities 1,770,379 8,191,035 ---------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,059,290) 5,088,460 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713 ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,075,372 $ 6,435,173 ============ =========== See notes to consolidated financial statements.
AMTEC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTAL CASH INFORMATION: No income taxes and interest were paid during the first nine 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 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/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 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. 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 quarters and nine months ended December 31, 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 quarters and nine months ended September 30, 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 approximately $2.8 million of assets, primarily consist of approximately $1.1 million of cash and $1.4 million investment in and advances to Hebei Equipment. The Company's investments in the joint venture were accounted for by the equity method of accounting because minority shareholders of Hebei Equipment and Hebei Engineering have substantive participating rights under the provision of the Joint Venture contracts. The decrease in investment in and advances to unconsolidated subsidiary primarily relates to the repayment of advances of approximately $2.2 million from Hebei Equipment to the Company. NOTE 4 - LIABILITIES The consolidated balance sheet includes total liabilities of approximately $0.2 million which are mainly legal and professional fees payable. The decrease in consolidated liabilities primarily relates to the elimination of shareholder loans and related accrued interest expenses of ITV, Inc., a 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 - 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 and nine months ended December 31, 1998 and 1997:
NINE MONTHS ENDED DEC. 30 THREE MONTHS ENDED DEC. 31 1998 1997 1998 1997 ---- ---- ---- ---- HEBEI EQUIPMENT Revenues $ - $ - $ - $ - ============ ========== ============ ========= Net (loss) income $ (1,982,181) $ (526,766) $ (1,505,256) $ (93,038) ============= =========== ============= ========== HEBEI ENGINEERING Revenues $ 606,629 $ - $ 173,994 $ - ============ ========== ============ ========== Net (loss) income $(1,323,681) $(1,555,691) $ (526,001) $(532,167) ============ ============ =========== ===========
NOTE 7 - 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 August 6, 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 8 - 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 9 - 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. 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. 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 December 31, 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 December 31, 1998, and for the three months and nine months ended December 31, 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 10K/A dated August 23, 1999. A summary of the significant effects of the restatement is as follows:
CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------------- As of Dec. 31, As of Dec. 31, 1998 1998 ---- ---- As Previously As Reported Restated ASSETS Current assets Cash $5,850,056 $1,075,372 Accounts receivable 104,881 104,881 Prepaid expenses and other current assets 228,129 35,637 ----------- ---------- Total current assets 6,183,066 1,215,890 Investment in unconsolidated subsidiary - 1,423,467 Property, plant & equipment, net 821,265 116,864 Investment in GSM network, net of amortization 28,518,017 - Office lease deposit 63,301 57,414 ------------ ----------- TOTAL ASSETS $ 35,585,649 $ 2,813,635 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 175,663 $175,663 Accrued expenses 47,491 29,672 Bank loans payable within one year 4,000,000 - Other current payables 9,737,721 - ----------- ----------- Total current liabilities $13,960,875 $205,335 Loans payable 17,528,747 - Other payables 1,487,727 - ----------- ----------- TOTAL LIABILITIES 32,977,349 205,335 STOCKHOLDERS' EQUITY Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 36.5 shares outstanding at December 31, 1998 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 30,008,426 issued and outstanding at December 31, 1998 30,008 30,008 Additional paid-in capital 35,000,177 35,000,177 Accumulated deficit (32,693,336) (32,693,336) Warrants 271,450 271,450 ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 2,608,300 2,608,300 ------------- ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 35,585,649 $ 2,813,635 ============= ===========
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Dec. 31 1998 1998 ---- ---- As previously As Reported Restated REVENUES $ - $ - ------------ ------------ EXPENSES Selling, general and administrative 3,163,638 2,849,742 Amortization of GSM investment 1,709,845 - ------------ ------------ LOSS FROM OPERATIONS (4,873,483) (2,849,742) ------------ ------------ OTHER (EXPENSE) INCOME : Amortization of stock options granted to non-employees (459,374) (459,376) Other - net (293,812) 37,304 ------------ ------------ Total other expense (753,186) (422,072) ------------ ------------ LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (5,626,669) (3,271,814) Minority interest in loss of subsidiary 941,974 - Equity in losses of unconsolidated subsidiary - (1,412,881) ------------ ------------ NET LOSS (4,684,695) (4,684,695) PREFERRED STOCK DIVIDEND 614,051 614,051 ------------- ------------- LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (5,298,746) $ (5,298,746) ============= ============= BASIC LOSS PER COMMON SHARE $ (0.20) $ (0.20) ============= ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 26,458,488 26,458,488 ============= =============
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended Dec. 31 1998 1998 ---- ---- As previously As Reported Restated REVENUES $ - $ - ----------- ------------ EXPENSES Selling, general and administrative 1,060,769 968,417 Amortization of GSM investment 624,048 - ----------- ------------ LOSS FROM OPERATIONS (1,684,817) (968,417) ----------- ------------ OTHER EXPENSES - net (542,632) (18,073) ----------- ------------ LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (2,227,449) (986,490) Minority interest in loss of subsidiary 187,280 - Equity in losses of unconsolidated subsidiary - (1,053,679) ---------- ------------ NET LOSS (2,040,169) (2,040,169) PREFERRED STOCK DIVIDEND 145,107 145,107 ------------- ------------ LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,185,276) $ (2,185,276) ============= ============= BASIC LOSS PER COMMON SHARE $ (0.08) $ (0.08) ============= ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,971,101 25,971,101 ============= =============
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended Dec.31 ------------------------------- 1998 1998 ---- ---- As previously As Reported Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,298,746) $ (5,298,746) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 459,374 459,374 Depreciation and amoritzation of GSM investment 1,709,845 - Depreciation 87,855 35,699 Preferred stock dividend 614,051 614,051 Equity in losses of unconsolidated subsidiary - 1,458,765 (Increase) decrease in: Accounts receivable 9,780 9,780 Prepaid expenses and other current assets 128,425 72,445 Deferred expenses 6,916 - Office lease deposit 49,879 55,186 Increase (decrease) in: Accounts payable and accrued expenses (219,861) (222,796) Other current payables (498,454) - Minority interest (941,974) - ------------- ------------- Net cash used in operations (3,892,910) (2,816,242) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (11,855) (13,427) GSM construction costs and additional investments (1,766,052) - ------------- ------------- Net cash used in investing activities (1,777,907) (13,427) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 1,500,145 - Repayment from (Advance to) unconsolidated subsidiary - 2,191,985 Common stock buy back (321,606) (321,606) Preferred stock buy back (100,000) (100,000) ------------ ------------ Net cash provided by financing activities 1,078,539 1,770,379 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (4,592,278) (1,059,290) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,850,056 $ 1,075,372 ============ ============
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, through its subsidiary, 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. Subsequent to the issuance of the Company's financial statements for the period ended December 31, 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. 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. 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. 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. 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 $5,298,746 and $3,927,864 during the nine months ended Dec. 31, 1998 and 1997, respectively. Selling, general and administrative expenses decreased from approximately $3.3 million during the nine months ended December 31, 1997 to approximately $2.8 million during the nine months ended December 31, 1998. The decrease primarily related to the reduction in expenses incurred for the start-up of the Company's joint venture during the nine months ended December 31, 1997. Selling, general and administrative expenses increased from approximately $0.9 million during the three months ended December 31, 1997 to approximately $1.0 million during the three months ended December 31, 1998. The increase for the quarter was primarily attributed to the accrual for year end bonus and increase in legal and professional fee related to the GTS and UIHH merger transactions. At December 31, 1998, the Company reported assets of approximately $2.8 million which mainly consist of approximately $1.1million cash and $1.4 million investment in Hebei Equipment. Total assets decreased approximately $4.9 million from March 31, 1998 primarily related the funding of current operations using cash and shares of equity loss in the Hebei Equipment. The consolidated balance sheet of the Company includes total liabilities of approximately $0.2 million which are mainly legal and professional fee payable. 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 applicable to common shareholders increased from approximately $3.9 million during the nine months ended December 31, 1997 to approximately $5.3 million during the nine months ended December 31, 1998. The increase in net loss primarily relates to an increase in preferred stock dividend and an increase in the equity losses of unconsolidated subsidiary. 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 $1.9 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 stock buy backs during the nine months ended December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company had an operating loss of approximately $2.8 million and a loss applicable to common shareholders of approximately $5.3 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. Approximately $2.8 million of cash was used in the Company's operations for the nine months ended December 31, 1998, compared to cash used of approximately $3.1 million for the nine months ended December 31, 1997. The cash flow from operating activities decreased primarily due to cost control over selling, general & administrative expenses. The Company used approximately $13,000 in its investing activities in the nine months ended December 31, 1998, compared to approximately $36,000 in the nine months ended December 31, 1997. The Company did not have other investing activities except for purchase of office equipment. The cash inflows from financing activities during the nine months ended December 31, 1998 were generated primarily from the repayment of an advance to Hebei Equipment of approximately $2.2 million. Whereas, the cash inflows from financing activities during the nine months ended December 31, 1997 were generated from the offering of shares of Series C and Series E Convertible Preferred Stock for consideration of approximately $9.2 million. During the nine months ended December 31, 1998, the Company's cash decreased by approximately $1.1 million was primarily due to cash used to fund current operations of approximately $2.8 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 the repayment of an advance to Hebei Equipment of approximately $2.2 million. 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. 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 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: 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-----