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, 1999
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Commission File Number: 0-22520
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AMTEC, INC. .
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(Exact name of Registrant as specified in its charter)
Delaware 52-1989122
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
599 Lexington Avenue, 44th Floor
New York, New York 10022 .
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(Address of principal executive offices)
(212) 319-9160
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(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 13, 1999
- ------------------------------------- -------------------------------------
Common Stock, par value 35,530,192
$.001 per share
Transitional Small Business Format (Check one): Yes___ No _x_
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995.
Except for the historical information contained herein, the
matters discussed in this Quarterly Report are forward-looking statements
which involve risks and uncertainties, including but not limited to
economic, competitive, governmental, international and technological
factors affecting the Company's revenues, joint ventures, operations,
markets and prices, and other factors discussed in the Company's Annual
Report on Form 10-K/A, filed with the Securities and Exchange Commission on
August 23, 1999.
PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30,
1999 and March 31, 1999 4
Consolidated Statement of Operations for the quarters
and six months ended September 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the six
months ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Result of Operations 13
PART II. OTHER INFORMATION 20
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
<TABLE>
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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SEPT. 30, 1999 MARCH 31, 1999
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 743,399 $ 2,093,141
Prepaid expenses and other current assets 92,295 38,805
---------------- ----------------
Total current assets 835,694 2,131,946
Investments in and advances to unconsolidated subsidiary 1,918,892 2,496,480
Property, plant and equipment, net 73,379 96,926
Loans receivable 400,000 -
Office lease deposit and other assets 115,733 55,733
---------------- ----------------
TOTAL ASSETS $ 3,343,698 $ 4,781,085
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 667,851 $ 439,195
Accrued expenses 127,505 528,548
---------------- ----------------
TOTAL LIABILITIES 795,356 967,743
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value;
74 shares issued, 19.4 and 29.8 shares outstanding at
Sept. 30, 1999 and March 31, 1999, respectively 1 1
Series G Convertible Preferred Stock: $.001 par value;
20 shares issued and outstanding at Sept. 30, 1999 and
March 31, 1999, respectively 1 1
Common stock: $.001 par value, authorized 100,000,000
shares; 32,513,393 and 30,736,721 issued and outstanding
at Sept. 30, 1999 and March 31,1999, respectively 32,513 30,737
Additional paid-in capital 37,419,033 36,947,244
Accumulated deficit (35,385,056) (33,646,491)
Warrants 481,850 481,850
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 2,548,342 3,813,342
---------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 3,343,698 $ 4,781,085
================ ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Six months ended Sept. 30 Quarter ended Sept. 30
------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
------------ ------------ ------------ ------------
EXPENSES
General and administrative 1,607,539 1,881,328 772,404 857,261
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,607,539) (1,881,328) (772,404) (857,261)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Amortization of stock options granted to
non-employes - (459,376) - (229,688)
Other - net 38,672 55,377 10,465 50,567
------------ ------------ ------------ ------------
Total other income (expense) 38,672 (403,999) 10,465 (179,121)
------------ ------------ ------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (1,568,867) (2,285,327) (761,939) (1,036,382)
Equity in losses of unconsolidated subsidiary (77,588) (359,202) (43,715) (166,284)
------------ ------------ ------------ ------------
NET LOSS (1,646,455) (2,644,529) (805,654) (1,202,666)
PREFERRED STOCK DIVIDEND 92,110 468,944 - 66,523
------------ ------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(1,738,565) $(3,113,473) $ (805,654) $(1,269,189)
============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (0.05) $ (0.12) $ (0.03) $ (0.05)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 31,952,566 26,702,367 32,153,666 26,598,534
============ ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SIX MONTHS ENDED SEPT. 30
---------------------------------
1999 1998
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UNAUDITED UNAUDITED
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,646,455) $ (2,644,529)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost - 459,374
Depreciation 22,539 21,930
Issuance of common stock for directors' fees 25,000 -
Loss on disposal of fixed assets 508 -
Equity in losses of unconsolidated subsidiary 77,588 359,202
(Increase) decrease in:
Accounts receivable - 1,784
Prepaid expenses and other current assets (53,490) 68,821
Office lease deposit and other assets (60,000) 55,186
Increase (decrease) in:
Accounts payable and accrued expenses 147,611 (80,444)
--------------- ----------------
Net cash used in operations (1,486,699) (1,758,676)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and equipment 500 (8,704)
Loans receivable (400,000) -
--------------- ----------------
Net cash used in investing activities (399,500) (8,704)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock buy back (88,633) (202,316)
Repayment of advance from unconsolidated subsidiary 500,000 2,191,985
Proceeds from exercise of employee stock options 125,090 -
--------------- ----------------
Net cash used in financing activities 536,457 1,989,669
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,349,742) 222,289
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,093,141 2,134,662
--------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 743,399 $ 2,356,951
=============== ================
See notes to consolidated financial statements.
</TABLE>
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------
SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during the first six months of fiscal
1999 or 1998.
NON CASH FINANCING ACTIVITIES:
Six months ended September 30, 1999
10.36 shares of Series E Convertible Preferred Stock were converted into
1,178,747 shares of common stock.
A total of 80,000 shares of Common Stock were issued to officers of the
Company as stock awards pursuant to their employment agreements. And a
total of 20,000 shares of its Common Stock were issued to some of its
directors as compensations.
On June 18, 1999, the Company and Jacqueline B. Brandwynne reached a
settlement in principle of the legal proceedings filed against the Company
on April 15, 1996. The Company has paid Ms. Brandwynne $250,000 in AmTec
Common Stock, which includes her claim for attorney's fees. A total of
210,525 shares of Common Stock were issued to Ms. Brandwynne and her
attorney in September 1999 pursuant to the settlement agreement.
Six months ended September 30, 1998
Shareholder loans payable of $1,452,553 and related accrued interest of
$906,488 were credited to Additional paid-in capital.
6.7 shares of Series E Convertible Preferred Stock were converted into
667,843 shares of common stock (including 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements at September 30, 1999 are
unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial
position and operating results for the interim period. All of the
adjustments are of a normal recurring nature. The consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and
results of operations, contained in the Annual Report on Form
10-K/A filed by the Company on August 23, 1999 for the Company's
fiscal year ended March 31, 1999. The results of operations for
the six months ended September 30, 1999 are not necessarily
indicative of the results for the entire year ending March 31,
2000.
Basis of Presentation - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles. Realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's
existing investments developing profitable operations.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
Consolidation - The consolidated financial statements include the
Company's wholly- owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Equity Method of Accounting - The Company accounts for its
subsidiary Hebei United Telecommunications Equipment Co., Ltd. and
subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint
venture) using the equity method of accounting, as minority
shareholders of Hebei Equipment have substantive participating
rights under the joint venture contract. The Company reports its
investment in Hebei Equipment under the caption "Investment in and
advances to unconsolidated subsidiary". Under the equity method,
the investment is carried at cost of acquisition, plus the
Company's equity in undistributed earnings or losses since
acquisition. Equity in the losses of the unconsolidated subsidiary
is recognized according to the Company's percentage ownership in
the unconsolidated subsidiary until the Company's contributed
capital has been fully depleted. Reserves are provided where
management determines that the investment or equity in earnings is
not realizable. The Company has used its ownership percentage of
70% for purposes of calculating the share of earnings of its
unconsolidated subsidiary, Hebei Equipment. Hebei Equipment owns
51% of Hebei United Telecommunications Engineering Company, Ltd.
("Hebei Engineering"). Hebei Equipment also accounts for its
investment in Hebei Engineering by using the equity method of
accounting as minority shareholders of Hebei Engineering have
substantive participating rights under the joint venture contract.
Included in the financial statements are the financial statements
of the Company for the six months ended September 30, 1999 and
1998. The Company's share of equity in losses of Hebei Equipment
included in the consolidated financial statements are as of and
for the six months ended June 30, 1999 and 1998. This is done so
that the Company can ensure that delays in receiving information
from China would not cause problems for the Company in meeting its
reporting deadlines. However, the Company does monitor events in
the lag period and, where appropriate, would disclose the
occurrence of any significant event during such lag period under
Subsequent Events. The summary financial information of Hebei
Equipment and Hebei Engineering are included in Note 6 to the
financial statements.
NOTE 3 - ASSETS
The September 30,1999 consolidated balance sheet includes total
current assets of approximately $0.9 million and total assets of
approximately $3.3 million. Of these amounts, approximately $0.7
million of cash is planned for parent company operations,
approximately $1.9 million represents an investment in and advance
to Hebei Equipment and approximately $0.4 million represents a
loan receivable from IXS.NET, a private IP fax service provider,
for the development of IP fax services in Asia. During May 1999,
the Company formed a three-way alliance with Fusion
Telecommunications International, Inc. ("Fusion") and IXS.NET. The
Company and Fusion agreed to make an equal convertible debt
investment into IXS.NET and the Company has an option to acquire
up to 50% of IXS.NET. The convertible debt agreement allows for
the Company to advance up to $575,000 over the eighteen months
period, subject to certain terms and conditions.
NOTE 4 - LIABILITIES
The September 30, 1999 consolidated balance sheet includes total
liabilities of approximately $0.8 million. Approximately $0.7
million were accounts payable which are mainly legal and
professional fees payable. Other liabilities were accrued expenses
of approximately $0.1 million.
NOTE 5 - CHANGES TO EQUITY
The decrease in Stockholders' Equity of approximately $1.3 million
for the six months ended September 30, 1999 was primarily due to
the operating loss of approximately $1.6 million and was partly
offset by the issuance of common stock for approximately $0.4
million.
During the six months ended September 30, 1999, the Company issued
1,178,747 shares of its Common Stock upon the conversion of 10.36
shares of its Series E Convertible Preferred Stock.
On September 14, 1998 the Company announced its intention to
purchase up to $1 million of its common stock on the open market.
During the six months ended September 30, 1999, the Company
purchased 70,000 shares under this program for a total cost of
approximately $89,000. All the common stock repurchased was
cancelled as of September 30,1999.
During the six months ended September 30, 1999, the Company issued
357,000 shares of its Common Stock upon the exercise of stock
options by former employees. The Company also issued 80,000 shares
of its Common Stock as stock awards to some of its officers
pursuant to their employment agreements.
As of June 18, 1999, the Company and Jacqueline B. Brandwynne
reached a settlement in principle of the legal proceedings filed
against the Company on April 15, 1996. A final agreement has been
signed and the parties have agreed to release each other from all
claims. The Company has paid Ms. Brandwynne $250,000 in AmTec
Common Stock, which includes her claim for attorney's fees. A
total of 210,525 shares of Common Stock were issued to Ms.
Brandwynne and her attorney during the quarter ended September
30, 1999 pursuant to the settlement agreement.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial information of
the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's six months ended
September 30, 1999 and 1998:
<TABLE>
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SIX MONTHS ENDED SEPT. 30 THREE MONTHS ENDED SEPT. 30
UNAUDITED UNAUDITED
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
HEBEI EQUIPMENT
Revenues $ - $ - $ - $ -
========== ============ ========== ===========
Net (loss) income $ (110,840) $ (549,090) $ (62,451) $ (273,493)
========== ============ ========== ===========
HEBEI ENGINEERING
Revenues $ 734,871 $ 432,635 $ 396,558 $ 234,012
========== ============ ========== ===========
Net (loss) income $ (594,850) $ (797,680) $(278,750) $ (368,252)
========== ============ ========== ===========
</TABLE>
NOTE 7 - NEW ACCOUNTING STANDARD NOT YET ADOPTED
The Financial Accounting Standards Board has issued a new standard
SFAS No. 133 "Derivative Instruments and Hedging Activities",
which is effective for fiscal years beginning after July 1, 2000.
Management has not yet completed the analysis of the impact this
would have on the financial statements of the Company and has not
adopted this standard.
NOTE 8 - SUBSEQUENT EVENTS
Proposed acquisition
On November 9, 1999, the Company announced it signed a Letter of
Intent to acquire Terremark Holdings, Inc. ("Terremark"), a
privately held, full service real estate and development company
based in Miami, Florida. AmTec will be the surviving company and
under the terms of the proposed acquisition, will acquire all
existing Terremark's net assets, including real estate,
development projects, management and construction contracts and
brokerage operations.
The two companies are in the process of completing due diligence
and preparing a definitive merger agreement which will require
AmTec Board and stockholder approval. The transaction is expected
to close in the first quarter of 2000.
Upon completion of the merger, Terremark shareholders will own
40% of AmTec's common stock, affiliates of Mr. Francis Lee, a
businessman in Southeast Asia, will control 35% and existing
AmTec shareholders will own 25% on a fully diluted basis.
Terremark is committed to providing the combined company with
initial liquid assets of approximately $30 million from a third
party affiliate of Terremark upon completion of the merger.
Terremark affiliates, including Communications Investors Group,
own approximately 9% of AmTec on a fully diluted basis and have an
investment position in AmTec's joint venture partner, Fusion
Telecommunications International, Inc. ("Fusion"). In addition,
Mr. Manuel D. Medina, the Chairman and CEO of Terremark, is a
Director of Fusion.
In addition, Terremark is providing AmTec with collateralized
bridge financing up to $1.5 million, to meet AmTec's short-term
capital requirements and working capital needs. AmTec has
collateralized the bridge financing by pledging all of its
tangible and intangible assets to secure the bridge loan. After
the merger is completed the bridge loan is extinguished. If there
is no definitive agreement by December 31 or no closing by July
1, 2000, AmTec will have to repay any outstanding balance on the
bridge loan.
After execution of a definitive merger agreement, the completion
of the merger will require AmTec to file an S-4 with the
Securities & Exchange Commission, submit it to AmTec
shareholders, and obtain a majority of the shareholders voting to
approve to issue additional stocks to complete the merger. There
can be no assurance that the due diligence will be satisfactorily
completed, that a satisfactory definitive merger agreement can be
negotiated, that the AmTec Board of Directors will approve the
merger agreement, nor that the AmTec shareholders will approve
the merger.
Failure of the AmTec shareholders to approve the terms of the
merger could result in material adverse change to AmTec, including
an impaired ability to fund its capital expenditures to expand its
business opportunities. In turn, this could result in an inability
to fund the Company's ongoing operations. If the merger does not
take place, AmTec expects to raise the capital necessary to repay
the $1.5 million bridge loan to Terremark by issuing a debt
instrument but there is no assurance that this can be done on
satisfactory terms or terms that would not be materially adverse
to the existing shareholders. Failure to repay this loan could
have a material adverse effect on the Company.
SERIES E CONVERTIBLE PREFERRED STOCK
As per Section 5 (d) of the Certificate of Designations of
Preferences of the Series E Convertible Preferred Stock, all
Series E Shares outstanding as of the second anniversary of the
issuance, which is October 22, 1999, were subject to automatic
conversion into the Company's common stock. On October 22, 1999,
The 19.404 Series E Convertible Preferred Shares outstanding all
converted into 2,679,599 shares of Common Stock.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
AmTec, Inc. ("AmTec" or "the Company") is a company that provides
value-added telecommunications services to and from the Far East and has
telecommunications investments in the People's Republic of China (the "PRC"
or "China"). The Company initially focused its business on China because of
that country's large and rapidly growing need for telecommunications
services, requirement for foreign capital and technology to meet that need,
and the opportunity to obtain cash flow sharing and technical services
agreements with operators who hold exclusive or semi-exclusive
communications licenses.
In their first three years, the Company's joint venture operations have
initiated service on six cellular telephone networks with 38,000
subscribers in the northeastern province of Hebei, which has a population
of approximately 65 million people. The Company is using its presence in
China to expand to other telecom services and other international markets.
It has formed a joint venture, IP.COM, LLC ("IP.COM"), formerly known as
IP.TEL, LLC, with Fusion Telecommunications International, Inc. ("Fusion"),
that provides telecom services, both voice and data, to and from Asia; it
has a convertible debt investment in IXS.NET, Inc. is providing fax
services over the Internet, prepaid calling cards and other Internet
Protocol ("IP") based services to worldwide markets including Asia, South
America, Europe and the United States of America; and it is expanding its
joint ventures in China to provide IP fax, voice and other services which
can be transmitted over digital telephone lines or the Internet. Expansion
via joint ventures in voice and data telecommunications services and the
Internet in international markets are the key components of the Company's
future business strategy.
JOINT VENTURES
AmTec holds a 50% interest in IP.COM, a joint venture with Fusion. Fusion's
current service offerings include voice and data, switched and dedicated,
domestic and international long-distance, and domestic and international
prepaid calling cards, provided through a network of owned and leased
facilities, leased lines and resale agreements. IP.COM will provide
value-added telecommunication services, including telephony and data, to
and from Asia. Utilizing the Company's established presence in China and
Fusion's telecommunication franchise, the companies plan to expand the
service offerings of IP.COM to include a fully integrated Internet protocol
based network to provide voice and fax services. The joint venture
agreement includes language that gives both parties the right of first
refusal regarding projects in China within the scope of IP.COM's business
proposition.
During May 1999, the Company formed a three-way alliance with Fusion and
IXS.NET, a private IP fax service provider, to develop IP fax services in
Asia. The Company and Fusion agreed to make an equal convertible debt
investment into IXS.NET and the Company has an option to acquire up to 50%
of IXS.NET. The Company has invested $400,000 under a loan agreement to
IXS.NET and entered into an eighteen-month convertible debt agreement. The
convertible debt agreement allows for the Company to advance up to $575,000
over the eighteen months period, subject to certain terms and conditions.
IXS.NET has started its business both in China and Taiwan. Up to October
1999, it has secured more than 1,100 business customers with approximately
6,000 fax transactions per day.
The IXS.NET business equips a local business with a modem that transfers
international fax calls through a local phone call on the Public Switched
Telephone Network ("PSTN") to an Internet node in the city of origin, then
transmits the fax on the Internet internationally to the city of
destination, converts the fax call to a local telephone call in the city of
destination on city's PSTN which is transmitted to the destination fax
telephone number. This transmission model saves the standard international
telephone phone call charges, which are very expensive to and from China.
This business model can result in a significant savings to any business
that faxes internationally on a regular basis. There are other competitors
offering similar or essentially the same service in China and there can be
no assurance that the business will be profitable.
According to the International Data Corporation, the Asia/Pacific Rim will
lead the global Internet fax market with a 169% compound annual growth
rate, boosting regional volume from approximately 350 million minutes in
1999 to an estimated 4.3 billion minutes in 2002. In the Internet Fax
arena, China is already the leading national market and is forecasted to
supplant Japan as the new leader in overall Asian fax traffic. Traditional
faxing remains very expensive because deregulation and competition has yet
to eliminate high long-distance phone rates. The IXS.NET joint venture
allows the Company to capitalize on this opportunity.
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. In addition to developing cellular networks in
Hebei Province, these joint venture operations will provide
telecommunications services over the Internet in Sichuan Province (with a
population of over 110 million) and are in the process of expanding to
other markets.
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 cellular networks revenues have been
derived from contractual arrangements for the sharing of cash flow
generated from network operations rather than from ownership or operation
of the networks. Through Hebei Engineering, an indirect equity investee of
the Company, AmTec entered into an agreement (the "Unicom Agreement") on
February 9, 1996 with China United Communications Company ("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.
As of September 30, 1999, 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. The construction and operational plan for
the GSM Networks consist of a "roll-out" across Hebei Province on a basis.
Through October 31, 1999, six cities were providing commercial service with
approximately 38,000 subscribers.
Achievement of the Company's business objectives for its cellular
investment in Hebei is dependent upon Unicom's operation of the GSM
Networks, Chinese government policies, and market condition, among other
factors.
LEGAL & REGULATORY RISKS
The PRC's legal system is a civil law system based on written statutes and
is a system in which decided legal cases have little precedential value.
The PRC Government began to promulgate a comprehensive system of laws in
1979. Many laws and regulations governing economic matters in general have
been promulgated. The general effect of this legislation has been to
enhance the protection afforded to foreign invested enterprises in the PRC.
However, as these laws and regulations are relatively new, their
interpretation and enforcement involve significant uncertainty.
The current PRC regulations prohibit foreign investors and foreign invested
enterprises from operating or participating in the operation of
telecommunications networks in China. The relevant PRC laws and regulations
do not define what constitutes foreign operations or participation in
operations, and it is not clear what rights or actions would violate such
laws and regulations. Based on advice of its Chinese legal counsel, the
Company has structured its investments in China by establishing
Chinese-foreign joint ventures in the PRC to provide financing and
consultancy services to licensed telecommunications operators, i.e.,
utilizing the commonly-known Chinese-Chinese-Foreign ("CCF") structure.
The PRC Government is currently undertaking a review of the CCF structure
used by Unicom. It has been reported that Unicom has been instructed by the
PRC Government not to use the CCF structure in the future and that the PRC
Government is examining and evaluating all existing CCF contracts. It is
becoming clear that the existing CCF contracts entered into by Unicom will
be amended, modified or unwound. It appears that foreign entities involved
in the CCF structures will be required to divest themselves of all or part
of their interests in the Chinese-foreign joint venture companies. The
evaluation of the CCF structure by the PRC Government may have a material
adverse impact on the contracts entered into by Hebei Engineering and by
the Company which utilize the CCF structure and may have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's CCF joint venture, Hebei Engineering, is currently in the
process of being liquidated and perhaps terminated. Subsequent to September
30, 1999, the Company's partner in Hebei Equipment, the Hebei Development
Corporation, has been in negotiations with Unicom to discuss the Hebei
Government's expansion of the Hebei GSM networks through Hebei Equipment
with AmTec participating. Further discussions are scheduled to resume in
January 2000. It appears that the Hebei Province will not be included in
the expected initial public offering of Unicom, just as most provinces were
not included in the initial public offering of China Telecom in 1997. To
that end, the Hebei Provincial Government is attempting to increase its
ownership interest in the Hebei GSM project through Hebei Equipment. To
date there have been no definitive proposals as to how AmTec might
participate in this combined telecommunications joint venture. But, there
have been expressions of interest on the part of the Hebei Provincial
Government in AmTec participating on a continuing basis, and preliminary
discussions about the possibility of AmTec converting all or part of its
interest in the GSM into a new structure. There is no certainty of reaching
either a substitute agreement or a settlement satisfactory to the Company.
The restructuring or termination of Hebei Engineering might result in a
material change in AmTec's investment in Hebei Equipment. This material
change may adversely affect AmTec's investment or result in a material
change in the nature of the underlying communications investment. At this
time, the outcome of these negotiations is uncertain and may be affected
among other things by the Chinese Government's policies concerning the
Chinese-Chinese-Foreign Joint Venture structure, the success or failure of
China's bid to join the World Trade Organization ("WTO"), the terms of its
accession to the WTO, if it were to occur, Unicom's initial public offering,
and other factors. Consequently, it is not possible to predict how AmTec's
investment in Hebei Equipment may materially change over the coming months.
It does appear that there will be a change in the current situation. And,
it is possible that the joint venture will be terminated in its present
form in a manner that may materially adversely affect AmTec. This could
include AmTec receiving a return of its capital and some unsatisfactory
rate of return on that investment or the exchange of the interest in Hebei
Equipment for another telecom investment with the Hebei Government as its
partner. Any such change could materially adversely affect AmTec.
If Hebei Engineering were terminated and its investment returned plus a
rate of return, the Company would attempt to negotiate the highest possible
cash settlement for the buy out. This might result in a return of AmTec
cash currently held in Chinese banks and eventual payment of cash
compensation to AmTec. If this were to happen, the Company would reinvest
the cash received into its IP.COM and IXS.NET international telephone
services business. This may provide working capital and lessen the
Company's needs to externally finance these businesses, which are the most
rapidly growing segments of its businesses. There can be no assurance that
cash compensation from the termination of Hebei Engineering will be
forthcoming and the amount of the cash the Company would receive due to
such termination and the timing of such an occurrence are not known at this
time.
In order to provide a uniform regulatory framework to encourage the orderly
development of the PRC telecommunications industry, the PRC authorities are
currently preparing a draft Telecommunications Law. Once formulated, the
draft law will be submitted to the National People's Congress for review
and adoption. It is unclear if and when the Telecommunications Law will be
adopted. The nature and the scope of the regulation envisaged by the
Telecommunications Law is not fully known but the Company believes that, if
adopted, the Telecommunications Law will have a positive effect on the
overall development of the telecommunications industry in the PRC. However,
the Telecommunications Law, if adopted, may have an adverse effect on the
Company's business, financial condition or results of operations.
The Chinese laws and regulations governing the telecommunications industry
may also be changed or applied in a manner which would have a material
adverse effect on the business, financial condition and results of
operations of the Company.
During the Spring of 1999, the PRC started negotiating accession to the
WTO. While there is no assurance that China will join the WTO, all parties
have publicly expressed the intention of attempting to negotiate an
agreement to be concluded before the WTO ministerial in December 1999. The
PRC has confirmed that its proposed concessions to gain admission that were
published in the press were accurate. If the PRC were to join the WTO, the
Telecommunication Protocol of the WTO Agreement assures certain national
treatment of foreign investors in the telecommunications sector, including
minimum direct ownership percentages in licensed telecommunication
operators.
The PRC's pending application to the WTO, the evaluation of the CCF
structure by the government, the draft Telecommunications Law, which may be
substantially affected by a PRC agreement to join the WTO, plus certain
procedural issues relating to the establishment of Hebei Equipment and its
investment in Hebei Engineering, create uncertainty. Resolution of these
matters may materially adversely affect the Company's current or future
investments in China and its provision of telecommunication services to
China. The Company believes that most, if not all, foreign
telecommunications investors in the CCF structure face similar
uncertainties at this time, and are awaiting resolution of these questions.
As of November 15, 1999, there are press reports from Beijing that United States
and China have reached an agreement that should permit China to join the WTO
this year. There can be no assurances that China will join the WTO. However,
should China join the WTO it could have a material adverse effect on the
Company by (a) introducing telecommunications laws in China that are adverse
to the Company's interest or (b) liberalizing of telecommunications laws that
foster more competition from Chinese or foreign telecommunication operators
or investors. At this time the effect of China joining the WTO on the
Company is unclear.
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1999
AS COMPARED TO THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1998.
The Company's indirect subsidiary, Hebei Engineering, recorded revenues of
RmB 6,084,000 (approximately $735,000) for the six months ended September
30, 1999, and RmB 3,600,000 (approximately $ 435,000) for the six months
ended September 30, 1998. The Company has no revenues on its consolidated
financial statements because the results of operations of the Company's
subsidiary Hebei Equipment and its subsidiary, Hebei Engineering, were
accounted for under the equity method of accounting. The Company recorded
only its share of losses of its unconsolidated subsidiary according to the
percentage of its equity interest. The Company had net losses of $1,646,456
and $2,644,529 during the six months ended September 30, 1999 and 1998,
respectively.
Selling, general and administrative expenses decreased from approximately
$1.9 million during the six months ended September 30, 1998 to
approximately $1.6 million during the six months ended September 30, 1999.
The decrease is primarily related to a reduction in legal and professional
fees related to the pending GTS and UIHH merger transactions and a
reduction in salaries and fringe benefits as some employees resigned in
June 1999.
Selling, general and administrative expenses decreased from approximately
$0.9 million during the three months ended September 30, 1998 to
approximately $0.8 million during the three months ended September 30,
1999. The decrease is primarily attributed to a reduction in salaries and
fringe benefits as some employees resigned in June, 1999.
The Company reported assets of approximately $3.3 million at September 30,
1999, a decrease of approximately $1.4 million from March 31, 1999. This
decrease primarily related to the funding of current operations using cash
and the cash payments to reduce current accounts payable.
The consolidated balance sheet of the Company included total liabilities of
approximately $0.8 million as of September 30, 1999 compared to
approximately $1.0 million as of March 31, 1999. The decrease in
liabilities primarily relates to additional payments made during the
quarter on some accrued expenses and the reversal of a claim provision upon
the issuance of stock in September 1999.
The Company's loss before preferred stock dividends decreased from
approximately $2.6 million during the six months ended September 30, 1998
to approximately $1.6 million during the six months ended September 30,
1998. The decrease in net loss primarily relates to a decrease in general
and administrative expenses of approximately $0.3 million, a decrease of
approximately $0.5 million amortization of Non-employee deferred option
costs and a decrease of approximately $0.3 million in equity in losses of
unconsolidated subsidiary.
Stockholders' Equity decreased by approximately $1.3 million from March 31,
1999 to September 30, 1999, as a result of a loss for the six months of
approximately $1.6 million and an increase in Additional paid-in capital of
approximately $0.4 million related to issuance of AmTec's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an operating loss of approximately $1.6 million and a loss
applicable to common shares of $1.7 million during this six month ended
September 30, 1999. While the Company expects to achieve profitable
operations within several years, there can be no assurances that the
Company will achieve this goal. The Company has financed its current
activities primarily through private equity placements.
During the six months ended September 30, 1999, the Company's cash
decreased by approximately $1.4 million, primarily due to cash used to fund
current operations and loans to IXS.NET. The Company received $0.5 million
repayment of some of its advances to its subsidiary during in September
1999. The Company also expects receipts of equity income distributions from
its joint venture with Fusion during the current fiscal year. The Company
is also in the process of getting additional capital investment in
connection with the Terremark transaction. See Subsequent Event for
details.
EQUITY ISSUANCE
During the six months ended September 30, 1999, the Company issued:
1,178,747 shares of its Common Stock upon conversion of 10.36 shares of the
Company's Series E Convertible Preferred by certain holders of the Series E
Shares;
357,000 shares of its Common Stock upon the exercise of stock options by
former employees;
80,000 shares of its Common Stock as stock awards granted to some of its
officers pursuant to their employment agreements;
20,000 shares of its Common Stock as compensation paid to some of its
directors; and
210,525 shares of its Common Stock upon settlement of a legal proceedings
filed against the Company by a former shareholder.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year.
Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and 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
The Company held its 1998 and 1999 Annual Meeting of Shareholders
on October 20, 1999. At the Company's 1998 Annual Meeting of
Shareholders, the Company's stockholders met to consider and vote
upon the following five proposals:
(1) A proposal to elect a full board of five directors of the
Company to hold office until their successors are elected and
qualified or if the shareholders approve an amendment to the
Company's certificate of Incorporation to classify the Board
of Directors of the Company into three classes with staggered
terms of office, until the expiration of the respective terms
of office of each class. The nominees for the Board of
Directors are: Joseph R. Wright, Jr., R. Tim McNamar, Richard
S. Braddock, James R. Lilley, Michael H. Wilson.
(2) A proposal to ratify the appointment of Deloitte & Touche,
LLP as the Company's independent auditors for the fiscal year
ending March 31, 1999.
(3) A proposal to approve the issuance of up to 8,000,000 shares
of the Common Stock pursuant to conversion of certain shares
of the Company's Series E Convertible Preferred Stock.
(4) A proposal to approve the amendment to the Certificate of
Incorporation of the Company to classify the Board of
Directors into three classes.
(5) A proposal to approve the amendment to the Certificate of
Incorporation of the Company to eliminate action by written
consent of stockholders.
Results with respect to the voting on each of the above proposals
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total shares outstanding: 32,045,468 100.00%
Total shares present: 23,598,202 73.64%
Votes For (%) Votes Withheld
Proposal 1: 23,525,127 (99.69%) 73,075
Votes For (%) Votes Against Votes Abstained
Proposal 2: 23,184,908 (98.25%) 116,799 296,495
Votes For (%) Votes Against Votes Abstained
Proposal 3: 11,855,016 (50.24%) 1,909,539 358,653
Votes For (%) Votes Against Votes Abstained
Proposal 4 11,465,845 (48.59%) 2,310,716 346,647
Votes For (%) Votes Against Votes Abstained
Proposal 5 10,761,631 (45.60%) 2,984,944 376,633
</TABLE>
Therefore, Proposal 1 to 3 were approved by the shareholders and
Proposal 4 and 5 were not approved.
At the Company's 1999 Annual Meeting of Shareholders, the
Company's stockholders met to consider and vote upon the following
two proposals:
(1) A proposal to elect a full board of seven directors of the
Company with three Directors to be elected to serve as
follows: R. Tim McNamar, Marvin Rosen and Joel Schelicher
will serve until the Annual Meeting for the 2003 fiscal year
or until their successors are elected and qualified or until
the expiration of the respective terms of office of each
class The nominees for the Board of Directors was R. Tim
McNamar, Marvin S. Rosen, Joel A. Schleicher;
(2) A proposal to ratify the appointment of Deloitte & Touche,
LLP as the Company's independent auditors for the fiscal year
ending March 31, 2000;
Results with respect to the voting on each of the above proposals
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total shares outstanding: 32,045,468 100.00%
Total shares present: 23,598,202 73.64%
Proposal 1:
Votes For (%) Votes Withheld
R. Tim McNamar 23,323,955 (98.84%) 267,000
Marvin S. Rosen 23,301,146 (98.74%) 266,513
Joel A. Schleicher 23,276,880 (98.64%) 282,279
Votes For (%) Votes Against Votes Abstained
Proposal 2: 23,173,313 (98.20%) 132,870 292,019
</TABLE>
Therefore, all Proposal were approved by the shareholders.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the Quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 15, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 743,399
<SECURITIES> 0
<RECEIVABLES> 92,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 835,694
<PP&E> 239,252
<DEPRECIATION> (165,873)
<TOTAL-ASSETS> 3,343,698
<CURRENT-LIABILITIES> 795,356
<BONDS> 0
0
1
<COMMON> 32,513
<OTHER-SE> 2,515,828
<TOTAL-LIABILITY-AND-EQUITY> 3,343,698
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,607,539
<OTHER-EXPENSES> (38,672)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,646,455)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,646,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,646,455)
<EPS-BASIC> (0.05)
<EPS-DILUTED> 0
</TABLE>
