-----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, EL4cUELqbLQVIlv1BMHhlwI+bLNNTzz4B/yJWE0Gy9AYv1Wx7DzkEi6XtgtbRBtC pvrgfZV4pCjQO7sTRDB2Vg== 0001047469-97-005551.txt : 19971120 0001047469-97-005551.hdr.sgml : 19971120 ACCESSION NUMBER: 0001047469-97-005551 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971119 SROS: AMEX 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: 97724655 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 44TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123199160 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVENUE STREET 2: 44TH 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 FORM 10-Q 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 September 30, 1997 --------------------------------- 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 November 19, 1997 - ------------------ -------------------------------------- Common Stock, par value $.001 per share 33,308,862 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. In addition to the risks and uncertainties set forth in this Form 10-Q, other factors that could cause actual results to differ materially include, but are 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 from time to time in the Company's periodic reports filed with the Securities and Exchange Commission, including without limitation those listed in the section entitled "Risk Factors" on pages 7 through 11 of the Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on July 15, 1997. 2 PART I FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. --------- Consolidated Balance Sheets as of September 30, 1997 and March 31, 1997............................................................ Consolidated Statement of Operations for the three and six months ended September 30, 1996 and 1997................................... Consolidated Statement of Cash Flows for the six months ended September 30, 1996 and 1997......................................... Notes to Consolidated Financial Statements........................... Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations................................................ PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................... Item 2. Changes in Securities................................................ Pursuant to a Common Stock Investment Agreement dated as of March 31, 1997 the (the "Common Stock Investment Agreement") with Promethean Investment Group L.L.C. ("Promethean"), on August 8, 1997, the Company issued into escrow for Promethean 1,570,998 shares of common stock (the "Escrow Shares"). The shares are to be sold to Promethean at a 10% discount to market price within two years following the effective date of a registration statement covering the resale of such shares, by Promethean, in connection0on with $10 million of equity funding to be proved to the Company by Promethean pursuant to the Common Stock Investment Agreement. No such funding has yet been provided to the Company by Promethean and one of the Escrow Shares have yet been sold to Promethean. The company believes that the issuance of the Escrow Shares qualifies as a transaction by an issuer not involving a public offering within the meaning of Section 4(2) of the Securities Act of 1993, as amended. Item 6. Exhibits and Reports on Form 8-K..................................... SIGNATURES.......................................................................
3 Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements at September 30, 1997 and for the six 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-KSB filed by the Company on July 15, 1997. The results of operations for the six months ended September 30, 1997 are not necessarily indicative of the results for the entire year ending March 31, 1998. Basis of Presentation The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, as expected by management, during the six months ended September 30, 1997, the Company had a net loss of $2,889,579. Realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's continued ability to meet its future project financing requirements for its existing projects (as described in Management's Disucssion and Analysis of Financial Condition and Results of Operations), as well as the Company's existing projects developing profitable operations and the ability of the Company to obtain operating capital until its projects begin to generate sufficient cash-flow to support operations. Since January 1996, the Company has focused its business solely on establishing Sino-foreign joint ventures ("SFJVs") to develop telecommunications networks in the People's Republic of China ("PRC"). The Company does not currently generate sales or market any products. The SFJV's telecommunications networks are in the construction stage and, as expected by management, do not currently generate any sales. NOTE 2 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the Company, its 60.8% owned subsidiary Hebei United Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture) and the Company's wholly owned subsidiary, ITV Communications, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). The financial statements of Hebei Equipment included in the consolidated financial statements are as of and for the period ended June 30, 1997. In the period from April 1, 1997 to the end of the Company's second quarter, an additional $1,000,000 has been invested by the Company in Hebei Equipment. Such amount is eliminated upon consolidation of the Company's joint venture subsidiaries. As such, the amount that had been included in the consolidated balance sheet as of June 30, 1997 as "Additional Investment in Joint Venture" is not included in the balance sheet as of September 30, 1997. The financial statements of ITV Communications, Inc. included in the consolidated financial statements are as of September 30, 1997. These financial statements consist in their entirety of shareholder loans in the amount of $2,327,553 and interest expense associated with such debt in the amount of $60,933 for the six months ending September 30, 1997. 4 NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS The financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," in September 1997. The Company believes these statements will not have a material impact on the Consolidated Financial Statements of the Company when adopted in fiscal 1998. NOTE 4 - SUBSEQUENT EVENTS On October 22, 1997, the Company completed the sale of seventy-four shares of its Series E Convertible Preferred Stock for gross proceeds of $7,400,000. The sale of this security is more fully described in Item 2 of this Section 1, "Management's Discussion and Analysis of Financial Condition and Results of Operation." 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation AmTec, Inc. (the "Company") develops and finances communications networks in the People's Republic of China ("PRC"). The Company's first interests in its Chinese communications networks include a Global Service Mobile system ("GSM") and a planned broadband telecommunications network, both in the northern province of Hebei, PRC. The Company holds these interests through Sino-foreign joint ventures ("SFJVs"), which are the legally authorized vehicle for foreign investment in China and expects to hold interests in future networks through the same vehicles. Consistent with PRC laws and regulations, the Company's SFJVs have entered into contracts with authorized network operators in the PRC to build networks and sell the assets of such networks to the operators for a portion of the cash-flow generated by operations of the networks. On July 8, 1997, the Company changed its name to "AmTec, Inc." from "AVIC Group International, Inc." Joint Ventures in Hebei Province In March 1996, the Company formed a joint venture with a 60.8% equity interest in Hebei United Telecommunication Equipment Company Limited ("Hebei Equipment"). As a result, Hebei Equipment was converted from a PRC enterprise into a Sino-foreign joint venture company. On April 15, 1997, all PRC governmental approvals were finalized for the conversion of Hebei Equipment to a Sino-foreign joint venture company. At the time of the Company's acquisition of the majority stake in Hebei Equipment, Hebei United Telecommunications Development Co. ("Hebei Development") held a 30% ownership in Hebei Equipment and Beijing CATCH held subscription rights to a 9.2% ownership of Hebei Equipment. On April 22, 1997, the Board of Directors of Hebei Equipment resolved to terminate Beijing CATCH's ownership participation in Hebei Equipment. Further, on October 9, 1997 the Company and Hebei Development agreed to transfer the 9.2% ownership of Hebei Equipment to the Company. Of an additional one million dollars invested in Hebei Equipment by AmTec, $276,000 was allocated as a capital contribution to acquire the additional 9.2% interest in Hebei Equipment. PRC governmental approvals for this transfer are currently pending. The increased ownership of Hebei Equipment by the Company is not reflected in the financial statements of the Company for the period ending September 30, 1997. The Company, through Hebei Equipment, developed a digital cellular telephone network (the "GSM Network") and is developing a province-wide broadband network (the "Hebei Broadband Network"). The GSM Network is being constructed by Hebei United Telecommunications Engineering Company Limited ("Hebei Engineering"), which is a 51%-owned subsidiary of Hebei Equipment and is 49%-owned by Nippon Telegraph and Telephone International ("NTTI"), a subsidiary of Nippon Telegraph & Telephone Corporation. The Hebei Broadband Network (the "Broadband Network"), which will link existing cable television systems in Hebei Province, will be constructed by Hebei Equipment. The Company expects its joint venture subsidiaries to generate revenues from its GSM network during the second half of fiscal year 1998. The Hebei GSM Network Hebei Engineering is constructing the GSM Network pursuant to a 15-year agreement (the "UNICOM Agreement"), dated February 9, 1996, with China United Communications Co. ("UNICOM"). UNICOM holds one of two licenses to operate cellular telephone networks in the PRC. Under the terms of the UNICOM Agreement, Hebei Engineering will build the GSM Network and sell ownership of the GSM Network over the life of the agreement to UNICOM in exchange for a majority share of cash flow generated by UNICOM from UNICOM's operation of the GSM Network. Hebei Engineering will also 6 provide consulting assistance to UNICOM in the operation of the GSM Network. Hebei Engineering will receive 78% of up front connection fees paid by new subscribers to connect to the GSM Network, 78% of depreciation of fixed assets and 78% of net income generated by UNICOM from operation of the GSM Network until February 9, 2011. Through the Company's 60.8% interest in Hebei Equipment and Hebei Equipment's 51% interest in Hebei Engineering, the Company holds an indirect 31% interest in Hebei Engineering. In February 1997, the GSM Network commenced commercial operations in Shijiazhuang, the capital of Hebei Province. Construction in six additional cities is anticipated to conclude before the end of fiscal year 1998. Construction in the remaining three major cities of Hebei Province is anticipated to commence during the second half of calendar 1998. As of November 19, 1997, construction of the first phase of the GSM Network had been financed with a $3 million equity investment from Hebei Equipment and NTTI, vendor financing guaranteed by NTTI and a $20 million Term Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI. Of these amounts, the Company has provided $1.17 million of equity funding to Hebei Engineering through the Company's investment in Hebei Equipment. At present, all funding required for completion of the first phase of construction to service 40,000 subsidiaries in ten cities has been obtained by Hebei Engineering. The Hebei Broadband Network On April 8, 1997, Hebei Equipment entered into a 20-year agreement (the "Hebei Broadband Agreement") with Hebei Cable Television Station, the only provider of cable television service in Hebei Province, pursuant to which Hebei Equipment will (i) build a fiber-optic and microwave network to connect the existing cable television systems in the eleven major cities in Hebei Province, (ii) upgrade one city on a trial basis to a hybrid fiber coaxial network ("HFC"), and (iii) hold the option to upgrade the entire network to an HFC network. Under the Hebei Broadband Agreement, Hebei Equipment will sell ownership of the Hebei Broadband Network to Hebei Cable Television Station in exchange for a majority share of cash flow generated by Hebei Cable Television Station from operation of the Hebei Broadband Network. (Operating cash flow from the network will be derived from revenues generated from a government mandated rate increase plus system-wide advertising revenue less operating expenses.) Hebei Equipment will also provide operating personnel and assistance to Hebei Cable Television Station in the operation of the Hebei Broadband Network. Until Hebei Equipment has recovered its investment in the Broadband Network, it will receive 80% of depreciation of fixed assets and 80% of net income generated by Hebei Cable Television Station from operation of the Hebei Broadband Network. Thereafter, for the balance of the 20 years from the commencement date of formal commercial operations, Hebei Equipment will receive 30% of depreciation of fixed assets and 30% of net income generated by Hebei Cable Television Station from operation of the Hebei Broadband Network. Hebei Cable Television Station is a subsidiary enterprise of the Hebei Radio and Television Department, under the jurisdiction of the Ministry of Radio, Film and Television in the PRC. The current funding requirement to link cable systems in the eleven largest cities in Hebei Province for the Hebei Broadband Network is estimated at approximately $14 million. As of November 20, 1997, the Company had invested approximately $4.0 million in Hebei Equipment for purposes of investment in the Hebei Broadband Network, leaving approximately $4 million remaining to be invested after considering capital invested in the form of equipment and other assets by the government of the PRC. The Company anticipates that the balance of required funding will be provided in the form of equity and debt investments in Hebei Equipment from the Company and other sources over the next eighteen months, including additional joint venture entities that may be established with strategic partners. 7 Long Term Cooperation Agreement On July 22, 1997, the Company entered into a Long Term Cooperation Agreement (the "Long Term Cooperation Agreement") with the Electronics Industry Department of the Hebei Provincial Government. The Long Term Cooperation Agreement expands the Company's relationship with the Electronics Industry Department of Hebei Province, a partner in the Company's joint venture, Hebei Equipment. It further establishes the groundwork for the participation of the Company in every major telecommunications and technology business opportunity in Hebei Province designated for foreign investment by giving the Company the right of first refusal to develop, finance and participate in such projects. The Long Term Cooperation Agreement specifically provides for the Company's participation in (i) all future expansion of the Company's existing cellular, cable television and data network agreements in Hebei Province; (ii) a fixed wire telephone network; (iii) import and export of high technology equipment and products; (iv) a telecommunications network for the Highway and Transportation Department of Hebei Province and (v) any other communications and technology projects designated for foreign investment in Hebei Province. In exchange for the development rights described, the Long Term Cooperation Agreement provides for the issuance by the Company of options to purchase three million shares of the Company's Common Stock at $3.25 per share, the market value of the Company's Common Stock as reported on the American Stock Exchange at the time the agreement was made. The options are issuable to the Hebei Provincial Government. The Long Term Cooperation Agreement is subject to the execution of a definitive agreement with the Hebei Provincial government which is expected to be completed by the end of the Company's fiscal year ending March 31, 1998. RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1996. The Company reported no sales during either the six months ended September 30, 1996 or, as expected by management, during the six months ended September 30, 1997, which was attributable to the early stage construction of the Company's GSM Network and the early stage construction of the Company's GSM Network and the early stage of development of its Broadband Network in Hebei Province, PRC, and the Company's sale of the assets and business of its operating subsidiary, ITV Communications, Inc., in January 1996. As a result of the Company's sale of the assets of ITV Communications, Inc., the Company eliminated Research and Development costs or Costs related to sales of products. Selling, general and administrative expenses increased from $1,863,181 during the six months ended September 30, 1996 to $2,922,779 during the six months ended September 30, 1997. The increase primarily related to the consolidation of approximately $585,000 of operating expenses of the Company's joint venture subsidiaries in the PRC. Further this increase reflects: (i) non-cash expenses in the amount of $250,000 related to the issuance of options to executives of the Company with an exercise price at a 9% discount to the market price of the Company's Common Stock at the time of issuance, (ii) a $250,000 reserve established to offset a $350,000 loan to American Network Technologies, Inc. and (iii) increases in salary expenses related to an increased number of employees during the quarter ending September 30, 1997, an unaffiliated entity. For the three months ending September 30, 1997 the Company's selling, general and administrative costs declined by $558,925 to $553,147 from the three months ending September 30, 1996. This decrease relates to a decrease in . The Company's net loss increased from $1,765,503 during the six months ended September 30, 1996 to $2,889,579 during the six months ended September 30, 1997. The increase in net loss primarily relates to increases in subsidiary operations that were not offset through consolidation. 8 The Company's assets increased $8,222,845 during the first half of fiscal year 1998, from $28,226,203 to $36,449,048. This increase is principally the result of an increase in capitalized costs related to the construction of the GSM network being built by the Company's joint ventures in Hebei Province, PRC, which the Company reports through consolidation. Liquidity and Capital Resources The Company has financed its current activities primarily through equity investments since the Company does not yet have cash flow from operations to support existing business operations due to the early stage of the Company's joint venture projects. The Company generated no sales during the quarter ended September 30, 1997. Further, the Company generated an operating loss of $2,922,779 and a net loss of $1,993,157 during the six months then ended. There can be no assurances that the Company will ever achieve profitable operations. During the six months ended September 30, 1997, the Company used $8,362,542 of cash in its operating activities, primarily the result of the net loss of $2,791,579. Further, the Company used $5,278,978 of cash from investing activities during this period. During the period ending September 30, 1997, the Company used approximately $2,237,957 in its financing activities. This use of cash was the result of a reduction in borrowings of $4,737,957 which was offset by proceeds of $2,500,000 from the sale of the Company's Series C Convertible Preferred Stock in June 1997. Cancellation of Series A Convertible Preferred Stock On December 19, 1995, the Company issued 1,524,178 shares of the Company's Series A Convertible Preferred Stock (the "Series A Shares") to Tweedia International Limited ("Tweedia") in consideration of the transfer of a non-refundable equipment purchase deposit made pursuant to a contract between Motorola, Inc. and Beijing CATCH Communications Group Co., an affiliate of Tweedia. The Subscription Agreement for the Series A Convertible Preferred Stock provided that, if all or any portion of the deposit should be forfeited at any time and for any reason whatsoever by Tweedia, an equivalent number of the Series A Shares issued to Tweedia would be cancelled on the books and records of the Company. On August 19, 1997, upon determination that the entire deposit had been forfeited by Beijing CATCH Communications Group Co. to Motorola, the Company cancelled the outstanding shares of Series A Convertible Preferred Stock from the books and records of the Company and all rights and privileges offered Tweedia as a holder of the Series A Shares were terminated. Financing Activities During the quarter ended September 30, 1997 the Company completed no financings. However, on October 22, 1997 the Company completed the sale of 74 shares of its Series E Convertible Preferred Stock (the "Series E Stock" or "Series E Shares") for gross proceeds of $7,400,000. The Series E Shares were sold pursuant to Reg. D at $100,000 per share and the holders of the Series E Stock have no rights to dividends. Conversion of the Series E Shares into Common Stock is based on the lower of (i) a 10% premium to the market price of the Company's Common Stock, as reported on the American Stock Exchange, at the time of closing or (ii) a discount to the lowest trade during the five (5) trading days prior to the conversion. The discount, which ranges from 15% to 20%, is based on the date of the shareholder's conversion of the Series E shares, with the discount increasing as the period the shares are held increases. The Conversion of the Series E Shares is restricted by certain "lock-up" agreements between the Company and the holders of the Series E Stock under which fifty shares of the Series E Shares 9 may not be converted prior to March 2, 1998, and the remaining twenty four shares may not be converted prior to the first anniversary of the close of the offering. The Series E Shares are subject to options redemption by the Company for cash at any time at a redemption price per share euqal to $100,000 (the "Issue Price") multiplied by the sum of (i) one plus (ii) an amount equal to 8% of the Issue Price per annum for the period that has passed since the date of issuance of the Series E Shares (the "Premium") plus (iii) the above-described discount then in effect. The Series E stock rank prior to the Company's Common Stock and on parity with the Company's Series C Preferred Stock and Series D Preferred Stock upon liquidation, dissolution or winding up of the Company. In the event of any of the foregoing, each share of Series E Stock shall be entitled to receive, after any distributions with respect to any then outstanding senior-ranking securities, an amount equal to the Issue Price plus the Premium. In addition to the shares, warrants were issued to five of the Series E Investors to purchase 1,236,346 shares of the Company's Common Stock at a price equal to 120% of the market price of the Company's Common Stock at the time of closing based on the amount invested by the shareholders and the length of the "lock-up" agreed upon between the Company and certain investors. Holders of the Series E Shares also have a registration right requiring the Company to file a registration statement covering the Common Stock underlying the Series E Preferred Shares and related warrants with the SEC no later than March 2, 1998 Of the $7,400,000 gross proceeds from the sale of the Series E Shares, $3,000,000 was invested into the Broadband Network in Hebei Province, approximately $707,000 was distributed as fees and expenses to a placement agent for the offering, and the balance of approximately $3,693,000 will be maintained by the Company for working capital and possible investment in additional projects. The Company also issued warrants to purchase 326,171 shares of the Company's Common Stock to the Placement Agent as fees for services. These Warrants have an exercise price of $2.475 per share. Equity Issuances The Company issued 10,000 shares of common stock to each of its four outside directors as compensation for services. The shares were issued on September 9, 1997 and had a combined value of $85,000, $84,960 of which was expensed as directors compensation. The Company also issued 8,500 shares of its Common Stock at the then current market price to its legal firm in lieu of $25,500 of legal billings, which was the then market value of the shares at the time of issuance. The Company further issued, pursuant to a settlement of claims, an additional 14,590 shares with a then market value of $41,458, which shares were classified as settlement expenses on the books of the Company. On August 8, 1997, the Company issued 1,570,998 shares of its Common Stock into escrow for Promethean Investment Group, LLC ("Promethean") pursuant to a Common Stock Investment Agreement entered into between the Company and Promethean. The shares will be issued to Promethean at such time as the Company draws on funds from Promethean pursuant to the Common Stock Investment Agreement. Risk Factors Some of the Company's agreements relating to Sino-foreign joint ventures that will engage in telecommunications business in the PRC are preliminary in nature and are subject to the receipt of significant approvals and permits from various governmental agencies in the PRC and, in certain cases, the execution of more definitive agreements. There can be no assurances that, in connection with those joint ventures that require more definitive agreements and further approvals, such definitive agreements will ever be consummated or that such approvals and permits will be obtained for the benefit of the Company. The Company does not anticipate acquiring the necessary technical capability, personnel or resources to build, service or maintain a telecommunications network and instead plans to form alliances with strategic partners and/or technical partners rather than maintain a high internal cost structure. As a result, the consummation of all or any of the Company's proposed transactions may require the participation of additional third parties, other than PRC governmental agencies and NTTI, who may be investors in or independent contractors with any such proposed Sino-foreign joint ventures, for the purpose of building, servicing or maintaining any such telecommunications network. There can be no assurances that the Company will be able to obtain the requisite cooperation or participation of any such third parties with respect to the Company's proposed business operations. Further, certain of the Company's agreements will require significant financings necessary to fund the construction of such networks. 10 In addition, the Company's proposed business operations in the PRC are always subject to significant risks. These risks include, but are not limited to the limited precedent for the establishment of Sino-foreign ventures for the purpose of engaging in the telecommunications industry in the PRC, governmental restrictions on foreign business ventures in the PRC, PRC regulation of it's economy and foreign currency exchange and the general political environment in the PRC. The Company's successful transition to profitable operations is dependent upon obtaining adequate financing to fund current operations, projects under agreement and the development of a market for the Company's products. The Company will continue to seek funds in the form of lines of credit and /or equity and debt securities from third party sources as well as from its existing stockholders. The Company's auditors have included an explanatory paragraph in their Independent Auditor's Report to the effect that recovery of the Company's assets is dependent upon future events, the outcome of which is undeterminable, and that the successful completion of the Company's development program and it's transition, ultimately, to the attainment of profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company's cost structure. There can be no assurances that such a financing can be completed on terms favorable to the Company, or at all, or that the business of the Company will ever achieve profitable operations. In the event the Company fails to raise additional funds, and its Sino-foreign joint venture's telecommunications networks fail to generate revenues from operations, the Company may not be able to meet all of its obligations past March 31, 1999, based on its current operating expenditures. In the event the Company does not receive any such additional financing or generate profitable operations, management's options will be to suspend or discontinue its business activity in its present form. 11 PART II OTHER INFORMATION Item 1. Legal Proceedings. Demand was made by the Company upon ANT for repayment of the $350,000 loaned by the Company to ANT. ANT failed to comply with that demand, and on July 25, 1997, the Company initiated an action in the Middlesex Superior Court, Cambridge, Massachusetts, against ANT and Andrew J. Rodriguez, the Chief Executive Officer of ANT and a guarantor of a portion of the loan, to recover the loaned funds. The Company is being represented by Messrs. Needham & Warren, 10 Liberty Square, Boston, Massachusetts, 02109. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 3. Certificate of Designations of Preferences of Series & Preferred Stock of Amtec, Inc. 27. Financial Data Schedule (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarterly period ended September 30, 1997. 12 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: November 19, 1997 AmTec, Inc. By: /s/ Joseph R. Wright, Jr. ----------------------------- Joseph R. Wright, Jr. Chief Executive Officer By: /s/ Albert G. Pastino ----------------------------- Albert G. Pastino Principal Financial and Accounting Officer 13 EX-3 2 EXHIBIT 3 CERTIFICATE OF DESIGNATIONS OF PREFERENCES OF SERIES E PREFERRED STOCK OF AMTEC, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is AmTec, Inc., a Delaware corporation. 2. The Certificate of Incorporation of the Corporation authorizes the issuance of 10,000,000 shares of Preferred Stock, and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued. 3. The Corporation has, as of the date hereof, authorized 1, 524, 178 shares of Series A Common Stock, of which none are issued and outstanding; the Corporation has authorized 100 shares of Series B Preferred Stock, of which none are issued and outstanding; the Corporation has authorized 250 shares of Series C Preferred Stock, of which 250 shares are issued and outstanding; and the Corporation has authorized 150 shares of Series D Preferred Stock, of which 122 shares are issued and outstanding. 4. The Board of Directors of the Corporation, pursuant to the authority expressly vested in it as aforesaid, has adopted the following resolutions creating a Series E Preferred Stock: RESOLVED, that 120 Shares of the Ten Million (10,000,000) authorized shares of Preferred Stock of the Corporation shall be designated Series E Convertible Preferred Stock, $0.001 par value per share, and shall possess the rights and privileges set forth below: Section 1. Designation and Amount. The shares of such series shall be designated as "Series E Convertible Preferred Stock" (the "Series E Preferred Stock.") and the number of shares constituting the Series E Preferred Stock shall be 120. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series E Preferred Stock to a number less than the number of shares then outstanding plus the number shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series E Preferred Stock. Section 2. Rank. The Series E Preferred Stock shall rank: (i) prior to all of the Corporation's Common Stock, par value $0.001 per share ("Common Stock"); (ii) prior to any class or series of capital stock of the Corporation hereafter created that does not specifically by its terms rank senior to or on parity with the Series E Preferred Stock of whatever subdivision (collectively, with the Common Stock, "Junior Securities"); (iii) on parity with the Series C and Series D Preferred Stock of the Company ("Parity Securities") in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as "Distributions"); and (iv) junior to any Preferred Stock subsequently created specifically ranking senior to the Series E Preferred Stock ("Senior Securities") in terms of Distributions. Section 3. Dividends. The Series E Preferred Stock will bear no dividends, and the holders of the Series E Preferred Stock shall not be entitled to receive dividends on the Series E Preferred Stock. Section 4. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the then holders of shares of Series E Preferred Stock shall be entitled to receive, immediately after any distributions to Senior Securities required by the Corporation's Certificate of Incorporation or any statement of designation of preferences, and prior and in preference to any distribution to Junior Securities but in parity with any distribution of Parity Securities, an amount per share equal to the sum of (I) $100,000 for each outstanding share of Series E Preferred Stock (the "Issue Price") and (ii) an amount equal to 8% of the Issue Price per annum for the period that has passed since the date of issuance of the Series E Preferred Stock (such amount being referred to herein as the "Premium"). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series E Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series E Preferred Stock and the Parity Securities, respectively, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series E Preferred Stock and the Parity Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Certificate of Incorporation and any statement(s) of designation of preferences. (b) Upon the completion of the distribution required by subsection 4(a), if assets remain in this Corporation, they shall be distributed to holders of Parity Securities (unless holders of Parity Securities have received distributions pursuant to subsection 4(a) above and Junior Securities in accordance with the Corporation's Certificate of Incorporation including any duly adopted certificate(s) of designation of preferences. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 4, but shall instead be treated pursuant to Section 7 hereof. Section 5. Conversion. The record holders of the Series E Preferred Stock shall have conversion Rights as follows (the "Conversion Rights"): (a) Right to Convert. The record holder of the Series E Preferred Stock shall be entitled, as set forth below, subject to the restrictions on conversion set forth in Section 5(b) below, at the office of the Company or any transfer agent for the Series E Preferred Stock, to convert the shares of Series E Preferred Stock held by such holder into that number of fully-paid and nonassessable shares of the Company's Common Stock at the Conversion Rate as set forth 2 below. The number of shares of Common Stock into which this Series E Preferred Stock may be converted is hereinafter referred to as the "Conversion Rate" for such Series E Preferred Stock, and is computed as follows: Number of shares issued upon conversion of one share of Preferred Stock equals Issue Price + [(.08)(N/365)(Issue Price)] ----------------------------------------- Conversion Price where *N = the number of days between (I) the date that, in connection with the consummation of the initial purchase of this Series E Preferred Stock from the Company, the escrow agent first had in its possession funds representing full payment for the Series E Preferred Stock for which conversion is being elected, and (ii) the applicable date of conversion for the Series E Preferred Stock for which conversion is being elected, *Issue Price = the Issue Price, as defined in Section 4(a), and *Conversion Price = the lesser of (x) the Fixed Conversion Price, as may be adjusted pursuant to Section 5(e) below, or (y) the Adjustable Conversion Price. For purposes hereof: * "Fixed Conversion Price" shall equal 110% of the Index Price, provided, however, that if on March 2, 1998, the average Closing Bid Price for the prior 10 business days has declined 25% or more from the Index Price, then the Fixed Conversion Price shall be reset to equal 110% of that 10-day average Closing Bid Price, * "Adjustable Conversion Price" shall equal: (a) during the period beginning March 2, 1998 and ending April 30, 1998, 85% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, (b) during the period beginning May 1, 1998 and ending May 31, 1998, 84% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, (c) during the period beginning June 1, 1998 and ending June 30, 1998, 83% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, (d) during the period beginning July 1, 1998 and ending July 31, 1998, 82% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, 3 (e) during the period beginning August 1, 1998 and ending August 31, 1998, 81% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, (f) during the period beginning September 1, 1998, 80% of the average Closing Bid Price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion. * "Index Price" equals the average Closing Bid Price for the ten business days immediately preceding the Issue Date, * "Closing Bid Price" shall mean the closing bid price of the Company's Common Stock as reported by the American Stock Exchange ("AMEX',) (or, if not reported by AMEX, as reported by such other exchange or market where traded) on the applicable date. * "Issue Date" shall mean the date that the Series E Preferred Stock is first issued. (b) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of this Series E Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the number of shares of Common Stock to be received shall be rounded up to the next whole number of shares. In the case of a dispute as to the calculation of the Conversion Rate, the Company's calculation shall be deemed conclusive absent manifest error. In order to convert Series E Preferred Stock into full shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, by either overnight courier or 2 day courier, to the office of the Company or of any transfer agent for the Series E Preferred Stock, and shall give written notice ("Notice of Conversion") to the Company at such office that he elects to convert the same, the number of shares of Series E Preferred Stock so converted and a calculation of the Conversion Rate (with an advance copy of the certificate(s) and the notice by facsimile). Once the Notice of Conversion has been so delivered, the conversion set forth therein shall be irrevocable, and the certificate(s) indicated for conversion shall be canceled on the Company's books; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless either the certificates evidencing such Series E Preferred Stock are delivered to the Company or its transfer agent as provided above, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. The Company shall issue and deliver within three (3) business days after delivery to the Company of such certificates, or after such agreement and indemnification, to such holder of Series E Preferred Stock at the address of the holder on the books of the Company, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid, and a certificate for any unconverted shares of Series E Preferred Stock. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in the Notice of Conversion. (c) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series E Preferred Stock, such number of its shares 4 of Common Stock as shall from time to time be suffcient to effect the conversion of all then outstanding shares of Series E Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be suffcient to effect the conversion of all then outstanding shares of Series E Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (d) Automatic Conversion. Each share of Series E Preferred Stock outstanding on the second anniversary of the Issue Date automatically shall be converted into Common Stock on such date at the Conversion Price then in effect and the second anniversary of the Issue Date shall be deemed the Date of Conversion with respect to such Conversion. (e) Adjustment to Fixed Conversion Price. In computing the Fixed Conversion Price for purposes of Section 5(a): (i) If, prior to the conversion of all of the Series E Preferred Stock, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, or other similar event, the Fixed Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a combination or reclassification of shares, or other similar event, the Fixed Conversion Price shall be proportionately increased. (ii) If, prior to the conversion of all Series E Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity, then the holders of Series E Preferred Stock shall thereafter have the right to purchase and receive upon conversion of Series E Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the conversion of Series E Preferred Stock held by such holders had such merger, consolidation, exchange of shares, recapitalization or reorganization not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of the Series E Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Fixed Conversion Price and of the number of shares issuable upon conversion of the Series E Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof. The Company shall not effect any transaction described in this subsection 5(e) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the holders of the Series E Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the holders of the Series E Preferred Stock may be entitled to purchase. (iii) If any adjustment under this Section 5(e) would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion shall be the next higher number of shares. 5 Section 6. Corporate Change. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Company (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Company's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), this Series E Preferred Stock shall be assumed by the acquiring entity and thereafter this Series E Preferred Stock shall be convertible into such class, type and amount of securities as the holder would have received had the holder converted this Series E Preferred Stoek immediately prior to such Corporate Change. Section 7. Protective Provisions. So long as shares of Series E Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds of the then outstanding shares of Series E Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of Series E Preferred Stock or any Senior Securities so as to affect adversely the Series E Preferred Stock; or (b) create any new class or series of stock having rights preferential to those of the Series E Preferred Stock with respect to Distributions (as defined in Section 2 above). Section 8. Redemption By Company. (a) Company's Right to Redeem at its Election. At any time, the Company shall have the right, in its sole discretion, to redeem ("Redemption at Company's Election"), from time to time, any or all of the Series E Preferred Stock provided the Company shall first provide ten (10) days advance written notice. If the Company elects to redeem some but not all of the Series E Preferred Stock, the Company shall redeem a pro-rata amount from each holder of the Series E Preferred Stock. (b) Redemption Price At Company's Election. The Redemption Price at Company's Election shall be an amount per share equal to the Issue Price multiplied by the sum of one (1) plus the Premium plus (one (1) minus the Adjustable Conversion Price then in effect.) (c) Mechanics of Redemption at Company's Election. The Company shall effect each such redemption by giving at least ten (10) days prior written notice ("Notice of Redemption at Company's Election") to (a) the holders of the Series E Preferred Stock selected for redemption, at the address and facsimile number of such holder appearing in the Company's Series E Stock register and (b) the transfer agent, which notice of Redemption at Company's Election shall be deemed to have been delivered two (2) business days after the Company's mailing (by overnight or two (2) day courier, with a copy by facsimile) of such Notice of Redemption at Company's Election. Such Notice of Redemption at Company's Election shall indicate (i) the number of shares of Series E Preferred Stock that have been selected for redemption, (ii) the date on which such redemption is to become effective (the "Date of Redemption at Company's Election") and (iii) the applicable Redemption Price at Company's Election. Notwithstanding the above, holder may convert into Common Stock pursuant to Section 5 prior to the close of business on the Date of Redemption at Company's Election, any Series E Preferred Stock which it is otherwise entitled to convert, including Series E Preferred Stock that has been selected for redemption at Company's Election pursuant to this section. (d) Payment of Redemption Price. Each holder submitting Series E Preferred Stock being redeemed under this section shall send its Series E Preferred Stock Certificates so redeemed to the Company or its transfer agent no later than the Date of Redemption at Company's Election, and the Company shall pay the applicable redemption price to that holder within five (5) business days of the Date of Redemption at Company's Election. The Company shall not be obligated to deliver the redemption price unless the Preferred Stock Certificates so redeemed are delivered to the Company or its transfer agent. Section 9. Status of Converted or Redeemed Stock. In the event any shares of Series E Preferred Stock shall be converted or redeemed, the shares so converted or redeemed shall be canceled, shall return to the status of authorized but unissued Preferred Stock of no designated series, and shall not be issuable by the Corporation as Series E Preferred Stock. Section 10. Miscellaneous. As used herein, the term "business day" means a business day in the City of New York. FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series E Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the certificate of incorporation of the Corporation pursuant to the laws of the State of Delaware. Signed on October 17, 1997. /s/ Albert G. Pasting CFO /s/ Joseph R. Wright, Jr. - ------------------------- ------------------------- Attest President /s/ Timothy P.F. Crowley ------------------------- Secretary 6 -----END PRIVACY-ENHANCED MESSAGE-----