SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT # 4)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number: 0-22520
AMTEC, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1989122
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
599 Lexington Avenue, 44th Floor
New York, New York 10022
----------------------------------------
(Address of principal executive offices)
(212) 319-9160
-------------------------------
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No ____
Outstanding as of
Class September 28, 1998
- --------------------------------------- -------------------------------
Common Stock, par value $.001 per share 26,180,945
Transitional Small Business Format (Check one): Yes ____ No x
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995.
Except for the historical information contained herein, the
matters discussed in this Quarterly Report are forward-looking statements
which involve risks and uncertainties, including but not limited to
economic, competitive, governmental, international and technological
factors affecting the Company's revenues, joint ventures, operations,
markets and prices, and other factors discussed in the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
June 30, 1998.
INTRODUCTION
This Amendment on Form 10-Q-A amends the Registrant's Quarterly Report on
Form 10-Q, as filed by the Registrant on September 28, 1998 as amended on
August 23, 1999 and is being filed to reflect the restatement of the
Registrant's Financial Statements ("the restatement").
The Registrant determined that one of its subsidiaries should have been
accounted for under the equity method of accounting, as the minority
shareholders have substantive participating rights under the joint venture
contracts. Previously, its subsidiary had been consolidated. As a result,
the financial statements as of June 30, 1998, and for the three months
ended June 30, 1998, have been restated from amounts previously reported to
account for its subsidiary under the equity method of accounting. See note
10 to the June 30, 1998 consolidated financial statements of the Registrant
included herewith.
Unless otherwise noted, all information provided in this Quarterly Report
is current as of September 28, 1998, the original filing date of the Form
10-Q. Information regarding recent events at the Registrant can be obtained
from reports filed by the Registrant with respect to its activities during
1998, including the Registrant's Quarterly Report on Form 10-Q for the
periods ended September 30, 1998 and December 31, 1998 and the Registrant's
10-K for the year ended March 31, 1999. The Company's March 1998 amounts
and quarterly amounts prior to such date have been restated in the
Company's amended 10-K/A dated August 23, 1999.
PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (Restated)
and March 31, 1998 5
Consolidated Statement of Operations for the three months
ended June 30, 1998 (Restated) and 1997 6
Consolidated Statement of Cash Flows for the three months
ended June 30, 1998 (Restated) and 1997 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Result of Operations 16
PART II. OTHER INFORMATION 20
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, 1998 March 31, 1998
----------- ---------------
As Restated;
see note 10)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,239,806 $ 2,134,662
Accounts receivable 118,255 114,661
Prepaid expenses and other current assets 42,885 108,082
----------- -----------
Total current assets 1,400,946 2,357,405
Investments in and advances to unconsolidated subsidiary 4,768,553 5,074,217
Property, plant and equipment, net 136,187 139,136
Office lease deposit 57,414 112,600
----------- -----------
Total assets $ 6,363,100 $ 7,683,358
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 402,675 $ 541,888
Accrued expenses 29,428 792,006
Loans payable - shareholders - 1,452,553
------------- -----------
Total current liabilities 432,103 2,786,447
------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 68 and 73
shares issued and outstanding at June 30, 1998 and March 30,
1998, respectively 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
26,983,058 and 26,532,502 issued and outstanding at June 30,1998
and March 31,1998, respectively 26,983 26,533
Additional paid-in capital 36,019,875 33,149,142
Accumulated deficit (29,238,874) (27,394,590)
Nonemployee deferred option cost, net (1,148,438) (1,378,125)
Warrants 271,450 493,950
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 5,930,997 4,896,911
------------ -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,363,100 $ 7,683,358
============ ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------
(Unaudited)
Quarter Ended June 30
----------------------------------
1998 1997
---- ----
(AS RESTATED;
SEE NOTE 10)
<S> <C> <C>
REVENUES $ - $ -
------------ ------------
EXPENSES
Selling, general and administrative 1,049,422 1,426,492
------------ ------------
LOSS FROM OPERATIONS (1,049,422) (1,426,492)
------------ -------------
OTHER (EXPENSE) INCOME:
Amortization of stock options granted to non-employees (229,688) -
Interest expense - -
Other - net 4,810 (30,200)
------------- --------------
Total other expense (224,878) (30,200)
------------- --------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (1,274,300) (1,456,692)
Equity in losses of unconsolidated subsidiary (167,563) (135,535)
----------- -------------
NET LOSS (1,441,863) (1,592,227)
PREFERRED STOCK DIVIDEND 402,421 108,000
------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,844,284) $ (1,700,227)
============ =============
BASIC LOSS PER COMMON SHARE $ (0.06) $ (0.05)
======== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 30,382,177 31,306,876
=========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
Quarter Ended June 30
----------------------------
1998 1997
---- ----
(As Restated;
SEE NOTE 10)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,441,863) $ (1,592,227)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 229,687 -
Depreciation 11,072 13,021
Issuance of common and options stock for
compensation, directors' fees and services rendered - 273,747
Equity in losses of unconsolidated subsidiary 167,563 135,535
(Increase) decrease in:
Accounts receivable (3,594) (69,512)
Prepaid expenses and other current assets 65,197 165,626
Office lease deposit 55,186 -
Increase (decrease) in:
Accounts payable and accrued expenses 30,019 108,460
------------ -------------
Net cash used in operations (886,733) (965,350)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated subsidiary - (276,000)
Purchase of property and equipment (8,123) (1,579)
------------- --------------
Net cash used in investing activities (8,123) (277,579)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance to unconsolidated subsidiary - (724,000)
Proceeds from sale of Series C convertible preferred stock - net - 2,500,000
--------------- --------------
Net cash provided by financing activities - 1,776,000
--------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (894,856) 533,071
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,239,806 $ 1,879,784
============ ============
See notes to consolidated financial statements.
</TABLE>
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------
SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during the first three months of
fiscal 1999 or 1998.
NON CASH FINANCING ACTIVITIES:
Shareholder loans payable of $1,452,553 and related accrued interest of
$906,488 were credited to Additional paid-in capital
5 shares of Series E Convertible Preferred Stock were converted into
450,556 shares of common stock (inclusive of conversions of preferred
dividends).
Warrants valued at $222,500 were cancelled and credited to Additional
paid-in capital.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements at June 30, 1998 are
unaudited and reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the financial
position and operating results for the interim period. All of the
adjustments are of a normal recurring nature. The consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and
results of operations, contained in the Annual Report on Form
10-K-A filed by the Company on July 14, 1999 for the Company's
fiscal year ended March 31, 1998. The results of operations for
the three months ended June 30, 1998 are not necessarily
indicative of the results for the entire year ending March 31,
1999.
Basis of Presentation - The accompanying financial statements
have been prepared in conformity with generally accepted
accounting principles. Realization of a major portion of the
assets in the accompanying balance sheet is dependent upon the
Company's existing projects developing profitable operations.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
Consolidation - The consolidated financial statements include the
Company's wholly- owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Equity Method of Accounting - The Company accounts for its
subsidiary Hebei United Telecommunications Equipment Co., Ltd.
and subsidiary ("Hebei Equipment") (a limited life Sino-foreign
joint venture) using the equity method of accounting, as minority
Shareholders of Hebei Equipment have substantive participating
rights under the joint venture contracts. The Company reports its
investment in Hebei Equipment under the caption Investment in and
advances to unconsolidated subsidiary. Under the equity method,
the investment is carried at cost of acquisition, plus the
Company's equity in undistributed earnings or losses since
acquisition. Equity in the losses of the unconsolidated
subsidiary is recognized according to the Company's percentage
ownership in the unconsolidated subsidiary until the Company
contributed capital has been fully depleted. Reserves are
provided where management determines that the investment or
equity in earnings is not realizable. For the period ending March
31, 1998, the Company used an ownership percentage of 60.8% for
purposes of calculating the share of earnings of its
unconsolidated subsidiary since it did not increase its ownership
percentage in Hebei Equipment to 70% until after the close of
Hebei Equipment's fiscal year-end (December 31, 1997). Hebei
Equipment owns 51% of Hebei United Telecommunications Engineering
Company, Ltd. ("Hebei Engineering"). Hebei Equipment also
accounts for its investment using equity method of accounting as
minority Shareholders of Hebei Engineering have substantive
participating rights under the joint venture contracts.
Included in the financial statements are the financial statements
of the Company for the three months ended June 30, 1998 and 1997.
The Company's share of equity in losses of Hebei Equipment
included in the consolidated financial statements are as of and
for the quarter ended March 31, 1998 and 1997. By doing that, the
Company can ensure that delays in receiving information from
China would not cause problems for the Company in meeting its
reporting deadlines. However, the Company does monitor events in
the lag period and, where appropriate, would disclose the
occurrence of any significant event during such lag period. The
summary financial information of Hebei Equipment and Hebei
Engineering were included in Note 6 to the financial statements.
NOTE 3 - ASSETS
The consolidated balance sheet includes total current assets of
approximately $1.4 million and total assets of approximately $6.4
million. Of these amounts, approximately $1.2 million of cash is
reserved for parent company operations and approximately $4.7
million was investment in and advance to Hebei Equipment. The
Company's current cash position is sufficient to support
operations of the Company through January 1, 2000.
NOTE 4 - LIABILITIES
The consolidated balance sheet includes total liabilities of
approximately $0.4 million. The decrease in consolidated
liabilities primarily relates to the elimination of shareholder
loans and related accrued expenses of ITV, Inc., a wholly-owned
subsidiary.
NOTE 5 - CHANGES TO EQUITY
The increase in Stockholders' Equity of approximately $1 million
for the quarter ended June 30, 1998 was primarily the result of
an increase in Additional paid-in capital of approximately $3
million due to the elimination of approximately $2.4 million of
shareholders' loans and related accrued interest, amortization of
the discount on the Series E Preferred Stock of approximately
$0.4 milion and the cancellation of 300,000 warrants valued at
$0.2 million. These increases were offset by a loss for the
quarter of approximately $1.8 million and an increase in
Accumulated deficit of approximately $0.1 million related to
AmTec's increase in the ownership of its Sino-Foreign Joint
Venture from 60.8% to 70%. Also, during the quarter the Company
issued 450,556 shares of its Common Stock upon the conversion of
5 shares of its Series E Convertible Preferred Stock.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial information of
the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's quarters ended
June 30, 1998 and 1997:
(Unaudited) (Unaudited)
QUARTER ENDED QUARTER ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
HEBEI EQUIPMENT
Revenues $ - $ -
========= ==========
Net loss $ (239,376) $ (222,919)
============ ===========
HEBEI ENGINEERING
Revenues $ 198,623 $ -
========== ==========
Net loss $ (429,428) $ (486,101)
============ ===========
NOTE 7 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" establishes new rules for
reporting and display of comprehensive income and its components.
Other than an insignificant amount of foreign currency
transactions, the Company has no other items of other
comprehensive income and the net loss reported in the statement
of operations is equivalent to the total comprehensive loss.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
Segments of an Enterprise and Related Information - In June 1997,
the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131
requires the reporting of profit and loss, specific revenue and
expense items, and assets for reportable segments. It also
requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts
disclosed for segments, in each case to the corresponding amounts
in the general purpose financial statements. Management has
evaluated the effect on its financial reporting of the adoption
of this statement and has found the majority of required
disclosures not to be applicable and has determined that it
operates in only one segment.
NOTE 9 - SUBSEQUENT EVENTS
The Company cancelled a Common Stock Investment Agreement, as
permitted by the Agreement, with Promethean Investment Group. It
is the Company's intention to cancel the 1,019,465 shares held in
escrow that were designated for issuance under terms of the
agreement.
On August 6, 1998 the Company signed an agreement with UIH
Asia/Pacific Communications, Inc ("UAP"), a wholly-owned
subsidiary of United International Holdings, Inc. ("UIH"), under
which AmTec will issue to UAP $12 million of preferred stock
convertible into 9.6 million AmTec shares at a price of $1.25 per
share, subject to certain anti-dilution provisions, in exchange
for 100% of the common stock of UIH Hunan, Inc. ("UIHH"). UIHH
holds a 49% interest in a Sino-foreign joint venture with the
Broadcasting Bureau of Hunan, the monopoly cable television
operator in Hunan Province, People's Republic of China. The
agreement, which is subject to satisfactory completion of due
diligence, approval of AmTec's shareholders and approvals of
appropriate regulatory authorities in China, provides UAP with an
option to increase its holdings in AmTec to 25% of AmTec's fully
diluted common shares and with rights of co-investment with AmTec
in China.
On August 9, 1998 a fourth GSM network began operations in the
city of Baoding, which has a metropolitan area population of 9.54
million people and on September 14, 1998 a fifth GSM network
began operations in Qinghuangdao, which has metropolitan area
population of 2.6 million. Both cities are located in Hebei
Province in the People's Republic of China.
On August 27, 1998 the Company signed a definitive agreement with
SFMT, Inc., a wholly owned subsidiary of Global Telesystems, Inc.
("GTS") under which SFMT will acquire approximately 5.9 million
shares of AmTec common stock in exchange for SFMT's interest in
V-Tech, a Sino-Foreign Joint Venture which holds rights to a
majority of the cash flow generated by Shanghai VSAT Network
Systems, the premier satellite-based telecommunications network
operator in China. The agreement is subject to satisfactory
completion of due diligence and approval of AmTec's shareholders.
NOTE 10 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER
EQUITY ACCOUNTING METHOD
Subsequent to the issuance of the Company's financial statements
for the period ended June 30, 1998, the Company's management
determined that Hebei Equipment, should have been accounted for
under the equity method of accounting, as the minority
shareholders have substantive participating rights under the
joint venture contracts. Previously, Hebei Equipment had been
consolidated. As a result, the financial statements as of June
30, 1998 and for the three months ended June 30, 1998, have been
restated from amounts previously reported to account for Hebei
Equipment under the equity method of accounting. The Company's
March 1998 amounts and quarterly amounts prior to such date have
been restated in the Company's amended 10-K/A dated August 23,
1999. A summary of the significant effects of the restatement is
as follows:
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, AS OF JUNE 30,
1998 1998
---- ----
As
Previously As
Reported Restated
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $8,827,274 $1,239,806
Accounts receivable 118,255 118,255
Prepaid expenses and other current assets 274,372 42,885
-------------- ------------
TOTAL CURRENT ASSETS 9,219,901 1,400,946
Investment in unconsolidated subsidiary - 4,768,553
Property, plant & equipment, net 876,266 136,187
Investment in GSM network, net of amortization 28,997,493 -
Office lease deposit 63,302 57,414
------------- -------------
TOTAL ASSETS $ 39,156,962 $ 6,363,100
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $402,675 $402,675
Accrued expenses 48,391 29,428
Other current payables 10,568,017 -
------------- -------------
TOTAL CURRENT LIABILITIES $11,019,083 $432,103
Loans payable 20,028,602 -
Other payables 1,487,727 -
Minority interest 690,553 -
------------- --------------
TOTAL LIABILITIES 33,225,965 432,103
STOCKHOLDERS' EQUITY
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 68
shares issued and outstanding at June 30, 1998 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
26,983,058 issued and outstanding at June 30, 1998 26,983 26,983
Additional paid-in capital 36,132,621 36,019,875
Accumulated deficit (29,351,620) (29,238,874)
Non employee deferred option cost, net (1,148,438) (1,148,438)
Warrants 271,450 271,450
------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 5,930,997 5,930,997
-------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 39,156,962 $ 6,363,100
============= ============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended June 30
--------------------------------
1998 1998
---- ----
As previouslY As
Reported Restated
<S> <C> <C>
REVENUES $ - $ -
------------ ----------
EXPENSES
Selling, general and administrative 1,696,185 1,049,422
------------ ----------
LOSS FROM OPERATIONS (1,696,185) (1,049,422)
------------ -----------
OTHER INCOME (EXPENSE):
Amortization of stock options granted to non-employees (229,688) (229,688)
Other - net 119,912 4,810
------------ -----------
Total other expense (109,776) (224,878)
------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (1,805,961) (1,274,300)
Minority interest in loss of subsidiary 364,098 -
Equity in losses of unconsolidated subsidiary - (167,563)
------------ ------------
NET LOSS (1,441,863) (1,441,863)
PREFERRED STOCK DIVIDEND 402,421 402,421
------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,844,284) $ (1,844,284)
============= =============
BASIC LOSS PER COMMON SHARE $ (0.06) $ (0.06)
============== =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 30,382,177 30,382,177
============ =============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended June 30
1998 1998
---- ----
As previously As
Reported Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,844,284) $ (1,844,284)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 229,687 229,687
Depreciation 576,464 11,072
Preferred stock dividend 402,421 402,421
Equity in losses of unconsolidated subsidiary - 167,563
(Increase) decrease in:
Accounts receivable (3,594) (3,594)
Prepaid expenses and other current assets 82,182 65,197
Deferred expenses 6,916 -
Office lease deposit 49,879 55,186
Increase (decrease) in:
Accounts payable and accrued expenses 7,473 30,019
Other current payables 332,532 -
Minority interest (251,421) -
---------- ------------
Net cash used in operations (411,745) (886,733)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,123) (8,123)
GSM construction costs and additional investments (1,083,025) -
------------ -----------
Net cash used in investing activities (1,091,148) (8,123)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in minority interest ownership (112,167) -
------------ -----------
Net cash used in financing activities (112,167) -
------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,615,060) (894,856)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,827,274 $ 1,239,806
=========== ============
</TABLE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
AmTec, Inc. ("AmTec" or "the Company") is a telecommunications company with
operations in the People's Republic of China ( the "PRC" or "China"). The
Company has focused its operations on China because of China's large and
rapidly growing need for telecommunications services, China's requirement
for foreign capital and technology to meet that need, and the opportunity
to obtain cash flow sharing and technical services agreements with
operators who hold exclusive or semi-exclusive communications licenses. The
Company has established majority ownership in joint ventures with Chinese
and other partners to provide financing, network construction and
operational consulting services to licensed China network operators. The
Company's current operations primarily are focused on a series of cellular
telephone networks in the northeastern province of Hebei, which has 11
major cities and a population of approximately 65 million people. In
addition, the Company has interests in other projects and networks in
various stages of development, including a multimedia network for cable
television programming transmission. Developing existing network interests
and obtaining additional interests in communications networks in China in
the future are key components of the Company's business strategy.
Subsequent to the issuance of the Company's financial statements for the
period ended June 30, 1998, the Company determined that Hebei Equipment
should have been accounted for under the equity method of accounting, as
the minority shareholders have substantive participating rights under the
joint venture contracts. Previously, Hebei Equipment had been consolidated.
The Company's March 1998 amounts and quarterly amounts prior to such date
have been restated in the Company's amended 10-K/A dated July 14, 1999. The
effects of the restatement have been presented in Note 10 of the Notes to
the Financial Statements and have been reflected herein.
CHINA TELECOMMUNICATIONS MARKET
Through the Company's interest in cellular telephone networks in Hebei
Province and relationships that the Company has developed with key policy
makers and decision makers in Chinese governmental agencies, AmTec has
focused its business to capitalize on the growth of the Chinese
telecommunications market, which is among the world's largest, fastest
growing, and most under-serviced telecommunications markets. Due to the
importance of a well-developed communications infrastructure to China's
continuing economic development, the PRC government has targeted
communications network development as a high priority in the country's
economic reform program. It is expected that before the year 2000, China
will surpass the United States as both the largest cellular telephone and
cable television markets in the world.
Since the establishment of China United Telecommunications, Incorporated
("Unicom") in 1994, China has had only two licensed competitors for
cellular, fixed wire and long-distance telephony. The cable television
market in China is a monopoly run by the Ministry of Information Industry,
which also regulates telecommunications in China. While other
communications markets in China have experienced greater competition, most
notably paging and value-added services, communications licenses have
generally been limited to a small number of competitors relative to markets
in the United States. The Company believes that both the overall market
size and the environment of limited competition are attractive aspects of
the Chinese communications market.
Although Chinese regulations currently prohibit direct foreign ownership or
operation of communications networks, the regulatory environment has shown
recent indications of continuing a policy of partial deregulation. And
while there can be no assurance that this policy of partial deregulation
will continue, the Company believes that it is well-positioned to benefit
from deregulation permitting direct foreign ownership and operation of
communications networks, if such deregulation were to occur in the future.
JOINT VENTURES IN CHINA
AmTec holds a 70% interest in Hebei United Telecommunications Equipment
Company Limited ("Hebei Equipment"), a Sino-foreign joint venture with a
wholly-owned subsidiary of the Electronics Industry Department of Hebei
Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United
Telecommunications Engineering Company Limited ("Hebei Engineering"), a
joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei
Equipment and Hebei Engineering are organized as Sino-foreign equity joint
ventures under the laws of China and are headquartered in Shijiazhuang, the
capital of Hebei Province.
CELLULAR TELEPHONE NETWORKS
Currently, legal restrictions in China prohibit foreign participation in
the operation and ownership of communications networks. Therefore, the
Company has established majority ownership in joint ventures with Chinese
and other partners to provide financing, network construction and
operational consulting services to licensed Chinese network operators.
Substantially all of the Company's revenues are derived from contractual
arrangements for the sharing of cash flow generated from network operations
rather than from ownership or operation of the networks. Until regulations
in China change to permit direct foreign ownership and operations of
communications networks, all future revenues of the Company will continue
to be derived from these contractual arrangements.
Through Hebei Engineering, AmTec entered into an agreement (the "Unicom
Agreement") on February 9, 1996 with Unicom to (i) finance and assist
Unicom in the construction of cellular networks (the "GSM Networks" or "GSM
Project") in the ten largest cities in Hebei Province and (ii) provide
consulting and management support services to Unicom in its operation of
the GSM Networks in the 10 largest cities of Hebei Province. This GSM
Project will have a capacity of up to 70,000 subscribers. Hebei Engineering
is entitled to 78% of the distributable cash flow (defined as activation
charges plus depreciation plus net income) from the GSM Networks for a
15-year period commencing February 9, 1996.
The construction and operational plan for the GSM Networks consists of a
"roll-out" across Hebei Province on a city-by-city basis. As of September
14, 1998 five cities, were providing commercial service, with approximately
17,000 subscribers; construction in two additional cities was substantially
completed, with commercial launch dates scheduled during 1998 for these
additional cities.
As of June 30, 1998, construction of the GSM Networks had been financed by
Hebei Engineering with $3 million of equity capital, approximately $11
million of vendor financing guaranteed by NTTI, and a $20 million Term Loan
facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Ito Chu.
Of the $3 million of equity raised by Hebei Engineering, $1.17 million was
contributed by Hebei Equipment.
Achievement of the Company's business objectives is dependent upon Unicom's
operation of the GSM Networks, among other factors. The implementation of
the GSM Networks involves systems design, site procurement, construction,
electronics installation, initial systems optimization and receipt of
necessary permits and business licenses prior to commencing commercial
service. Each stage can involve various risks and contingencies, the
outcome of which cannot be predicted with a high degree of assurance as
interconnection of the GSM Networks with the public switched telephone
network is sometimes difficult and time consuming, and the successful
completion of all planned sites of the GSM Networks will be dependent, to a
significant degree, upon the ability of the parties to lease or acquire
sites for the location of their base station equipment. While no major
difficulties have been encountered to date in procuring such sites, future
site acquisition can not be assured.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED
TO THE THREE MONTHS ENDED JUNE 30, 1997.
The Company has no revenues on its consolidated financial statements
because the results of operations of the Company's subsidiary Hebei
Equipment were accounted for under the equity method of accounting. The
Company recorded only its share of losses of its unconsolidated subsidiary
according to the percentage of its equity interest. The Company had net
losses of $1,441,863 and $1,592,227 during the quarters ended June 30, 1998
and 1997, respectively.
Selling, general and administrative expenses decreased from approximately
$1.4 million during the three months ended June 30, 1997 to approximately
$1.0 million during the three months ended June 30, 1998. The decrease
primarily related to a reduction in expenses incurred during the startup of
the joint ventures offset primarily by increases in salaries and fringe
benefits related to the hiring of a Chief Financial Officer and General
Counsel in June, 1997.
The Company reported assets of approximately $6.4 million at June 30, 1998,
a decrease of $1.3 million from March 31, 1998. This decrease primarily
related to the funding of current operations using cash and other accounts
payable.
The consolidated balance sheet of the Company included total liabilities of
approximately $0.4 million as of June 30, 1998 compared to approximately
$2.8 million as of March 31, 1998. The decrease in liabilities primarily
relates to the elimination of shareholder loans and related accrued
interest expenses.
The Company's loss before dividends decreased from approximately $1.6
million during the three months ended June 30, 1997 to approximately $1.4
million during the three months ended June 30, 1998. The decrease in net
loss primarily relates to a decrease in general and administrative
expenses, partially offset by approximately $0.2 million amortization of
Non-employee deferred option costs .
Stockholders' Equity increased by approximately $1 million from March 31,
1998 to June 30, 1998, as a result of an increase in Additional paid-in
capital of approximately $3 million due to the cancellation of
approximately $2.4 million of shareholders' loans and related accrued
interest, amortization of the discount on the Series E Preferred Stock of
approximately $0.4 milion and the cancellation of 300,000 warrants valued
at $0.2 million. These increases were offset by a loss for the quarter of
approximately $1.8 million and an increase in Accumulated deficit of
approximately $0.1 million related to AmTec's increase in the ownership of
its Sino-Foreign Joint Venture from 60.8% to 70%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an operating loss of approximately $1.0 million and a loss
applicable to common shares of $1.8 million during this period. While the
Company expects to achieve profitable operations within several years,
there can be no assurances that the Company will achieve this goal. As a
result, the Company has financed its current activities primarily through
private equity placements.
During the three months ended June 30, 1998, the Company's cash decreased
by approximately $0.9 million, primarily due to cash used to fund current
operations. The Company's direct cash position is expected to be sufficient
to support operations of the Company through January 1, 2000.
EQUITY ISSUANCES
The Company issued 450,556 shares of its Common Stock during its first
quarter upon conversion of 5 shares of the Company's Series E Convertible
Preferred Shares (the "Series E Shares") by certain holders of the Series E
Shares.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year.
Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and are being
implemented to make the necessary modifications to ensure Year 2000
compliance. The financial impact of making the required system changes for
Year 2000 compliance are not expected to have any material effect on the
Company's financial statements.
However, even as the Company's assessment is completed without identifying
any material non-compliant systems operated by, or in the control of, the
Company, or of third parties, the most reasonable likely worse case
scenario would be a systems failure beyond the control of the Company to
remedy. Such a failure could materially prevent the Company from operating
its business. The Company believes that such a failure could lead to lost
revenues, increased operating cost, or other business interruptions of a
material nature.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the
Quarter ended June 30, 1998.
Item 5. Other Information
Agreement with UIH Asia/Pacific Communications, Inc.
On August 6, 1998 the Company signed an agreement with UIH
Asia/Pacific Communications, Inc ("UAP"), a wholly-owned
subsidiary of United International Holdings, Inc. ("UIH"), under
which AmTec will issue to UAP $12 million of preferred stock
convertible into 9.6 million AmTec common shares at a price of
$1.25 per share, subject to certain anti-dilution provisions in
exchange for 100% of the common stock of UIH Hunan, Inc. UIH
intends, through its ownership in AmTec, to make AmTec its key
operation in the China telecommunications market. The
transaction, which is subject to satisfactory completion of due
diligence, approval of AmTec's shareholders and approvals of
appropriate regulatory authorities in China will result in UAP
becoming AmTec's largest shareholder and hold the right to
nominate 2 members to AmTec's Board of Directors. In addition,
UAP will receive co-investment rights with AmTec in China and an
option to purchase additional AmTec common stock at $3.00 per
share to increase its stake in AmTec to 25 % on a fully diluted
basis.
UIHH holds a 49% interest in a Sino-foreign joint venture with
the Broadcasting Bureau of Hunan, the monopoly cable television
operator in Hunan Province, People's Republic of China. The
operator is currently delivering video services to 13 cities and
over 255,000 subscribers. The joint venture currently receives
fees for transmission services and participates in the network's
advertising revenue. It is currently profitable and will add
revenues to AmTec in the first quarter after closing, which is
anticipated to take place in the third quarter of the Company's
fiscal year.
Agreement with SFMT, Inc.
On August 27, 1998 the Company signed a definative agreement with
SFMT, Inc., a wholly owned subsidiary of Global Telesystems, Inc.
("GTS") under which SFMT will acquire approximately 5.9 million
shares of AmTec common stock in exchange for SFMT's interest in
V-Tech, a Sino-Foreign Joint Venture which holds rights to a
majority of the cash flow generated by Shanghai VSAT Network
Systems, the premier satellite-based telecommunications network
operator in China. The agreement is subject to satisfactory
completion of due diligence and approval of AmTec's shareholders.
The shares will be issued at a price of $1.35 per share and will
make GTS, through a wholly owned subsidiary, AmTec's largest
shareholder following the close of the above mentioned merger
with UIH Asia/Pacific Communications, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the Quarter
ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: August 23, 1999 AmTec, Inc.
By: /s/ Joseph R. Wright, Jr.
-----------------------------
Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Wilfred Chow
-----------------------------
Wilfred Chow
Principal Financial and
Accounting Officer
