SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT #3)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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 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 16, 1998
- ------------------------------ --------------------------------------
Common Stock, par value 25,925,145
$.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, 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 November 16, 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 September 30, 1998, and for six months ended
September 30, 1998, have been restated from amounts previously reported to
account for its subsidiary under the equity method of accounting. See Note
11 to the consolidated financial statements of the Registrant included
herewith.
Unless otherwise noted, all information provided in this Quarterly Report
is current as of November 16, 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
period ended 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.
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (Restated) and March 5
31, 1998
Consolidated Statement of Operations for the three and six months ended 6
September 30, 1998 (Restated) and 1997
Consolidated Statement of Cash Flows for the six months ended September 30, 7
1998 (Restated) and 1997
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition and Result of 17
Operations
PART II. OTHER INFORMATION 21
Item 1 Legal Proceedings 21
Item 2 Changes in Securities and Use of Proceeds 21
Item 3 Defaults upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Sept. 30, 1998 March 31, 1998
-------------- --------------
(As Restated;
ASSETS See Note 11)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,356,951 $ 2,134,662
Accounts receivable 112,877 114,661
Prepaid expenses and other current assets 39,261 108,082
----------- -----------
Total current assets 2,509,089 2,357,405
Investments in and advances to unconsolidated subsidiary 2,410,284 5,074,217
Property, plant and equipment, net 125,910 139,136
Office lease deposit 57,414 112,600
----------- -----------
Total assets $ 5,102,697 $ 7,683,358
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 272,985 $ 541,888
Accrued expenses 80,199 792,006
Loans payable - shareholders - 1,452,553
----------- -----------
Total current liabilities 353,184 2,786,447
=========== ===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 66.5 and 73 shares outstanding in Sept. 30 1998 and
March 31, 1998, respectively. 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
26,180,880 and 26,532,502 issued and outstanding in Sept. 30,
1998 and March 31, 1998, respectively 26,181 26,533
Additional paid-in capital 35,878,695 33,149,142
Accumulated deficit (30,508,063) (27,394,590)
Nonemployee deferred option cost, net (918,751) (1,378,125)
Warrants 271,450 493,950
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,749,513 4,896,911
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,102,697 $ 7,683,358
=========== ===========
See notes to consolidated financial statements.
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<TABLE>
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Six months ended Sept. 30 Quarter ended Sept. 30
1998 1997 1998 1997
--------------------------------- ---------------------------------
(As Restated; (As Restated;
See Note 11) See Note 11)
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
----------- ----------- ----------- -----------
EXPENSES
Selling, general and administrative 1,881,328 2,379,498 857,261 953,006
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,881,328) (2,379,498) (857,261) (953,006)
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME :
Amortization of stock options
granted to non-employees (459,376) - (229,688) -
Interest expense - (87,441) - (87,441)
Other - net 55,377 (60,933) 50,567 (30,733)
----------- ----------- ----------- -----------
Total other expense (403,999) (148,374) (179,121) (118,174)
----------- ----------- ----------- -----------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (2,285,327) (2,527,872) (1,036,382) (1,071,180)
Equity in losses of unconsolidated subsidiary (359,202) (263,707) (166,284) (128,172)
----------- ----------- ----------- -----------
NET LOSS (2,644,529) (2,791,579) (1,202,666) (1,199,352)
PREFERRED STOCK DIVIDEND 468,944 108,000 66,523 -
----------- ----------- ----------- -----------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,113,473) $ (2,899,579) $ (1,269,189) $ (1,199,352)
=========== =========== =========== =============
BASIC LOSS PER COMMON SHARE $ (0.12) $ (0.09) $ (0.05) $ (0.04)
=========== =========== =========== =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 26,702,367 31,701,320 26,598,534 32,119,009
=========== =========== =========== =============
See notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------------------
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Ended Sept. 30
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
(As Restated;
See Note 11)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (3,113,473) $ (2,899,579)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 459,374 -
Depreciation 21,930 35,862
Preferred stock dividend 468,944 108,000
Issuance of common stock and options for directors' fees and professional
services rendered - 392,381
Equity in losses of unconsolidated subsidiary 359,202 263,707
(Increase) decrease in:
Accounts receivable 1,784 (100,000)
Prepaid expenses and other current assets 68,821 157,532
Office lease deposit 55,186 -
Increase (decrease) in:
Accounts payable and accrued expenses (80,444) 279,057
----------- -----------
Net cash used in operations (1,758,676) (1,763,040)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,704) (14,365)
----------- -----------
Net cash used in investing activities (8,704) (14,365)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock buy back (202,316) -
Repayment from (Advance to) unconsolidated subsidiary 2,191,985 (1,000,000)
Proceeds from sale of Series C convertible preferred stock - net - 2,500,000
----------- -----------
Net cash provided by financing activities 1,989,669 1,500,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 222,289 (277,405)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,356,951 $ 1,069,308
=========== ===========
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:
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 (inclusive of conversions of preferred
dividends).
Warrants valued at $222,500 were cancelled and credited to Additional
paid-in capital.
The Company cancelled a Common Stock Investment Agreement, as permitted by
the Agreement, with Promethean Investment Group on August 12, 1998.
1,019,465 shares previously held in escrow designated for issuance under
terms of the agreement were cancelled.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements as of September 30, 1998 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-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 six months ended
September 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 quarters and six months ended September 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 quarters and six months ended June 30, 1998 and
1997. By doing that, the Company can ensure that delays in
receiving information from China would not cause problems for the
Company in meeting its reporting deadlines. However, the Company
does monitor events in the lag period and, where appropriate,
would disclose the occurrence of any significant event during such
lag period. The summary financial information of Hebei Equipment
and Hebei Engineering were included in Note 6 to the financial
statements.
NOTE 3 - ASSETS
The consolidated balance sheet includes approximately $5.1 million
of assets, primarily consist of approximately $2.4 million of cash
and $2.4 million investment in and advances to unconsolidated
subsidiary. The Company's investments in the joint venture were
accounted for by the equity method of accounting because minority
shareholders of Hebei Equipment and Hebei Engineering have
substantive participating rights under the provision of the Joint
Venture contracts. The decrease in investment in and advances to
unconsolidated subsidiary primarily relates to the repayment of
advances of approximately $2.2 million from Hebei Equipment to the
Company.
NOTE 4 - LIABILITIES
The consolidated balance sheet includes total liabilities of
approximately $0.4 million which are mainly legal and professional
fees payable. The decrease in consolidated liabilities primarily
relates to the elimination of shareholder loans and related
accrued interest expenses of ITV, Inc., a wholly-owned subsidiary.
NOTE 5 - CHANGES TO EQUITY
The decrease in Stockholders' Equity of approximately $150,000
primarily is due to the net loss for the six months ended
September 30, 1998 of approximately $3.1 million offset by an
increase in Additional paid-in capital resulting primarily from
the cancellation of shareholders' loans and related accrued
interest.
As permitted by the agreement, on August 12, 1998 the Company
cancelled a Common Stock Investment Agreement with Promethean
Investment Group. 1,019,465 shares of the Company's common stock
held in escrow under this agreement was cancelled as well.
During the six months ended September 30, 1998, the Company issued
667,843 shares of its Common Stock upon the conversion of 6.7
shares of its Series E Convertible Preferred Stock. (See Note 10
regarding the acquisition of certain E-Shares.)
On September 14, 1998 the Company announced its intention to
purchase up to $1 million of its common stock on the open market.
As of September 30, 1998, the Company had purchased 162,000 shares
under this program for a total cost of approximately $202,000. The
stock was duly cancelled and retired after it was repurchased in
accordance with Delaware General Corporation Law.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial information of
the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's quarters and six
months ended September 30, 1998 and 1997:
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Six months ended Sept. 30 Three months ended Sept. 30
------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
HEBEI EQUIPMENT
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
============== ============== ============== ==============
Net (loss) income $ (549,090) $ (433,728) $ (273,493) $ (210,809)
============== ============== ============== ==============
HEBEI ENGINEERING
Revenues $ 432,635 $ - $ 234,012 $ -
============== ============== ============== ==============
Net (loss) income $ (797,680) $ (1,023,524) $ (368,252) $ (537,423)
============== ============== ============== ==============
</TABLE>
NOTE 7 - SIGNIFICANT TRANSACTIONS
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, 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 and approvals
of appropriate regulatory authorities in China among other
conditions, provides UAP with an option to increase its holdings
in AmTec to 25% of AmTec's fully diluted common shares for a price
of $3 per share and with rights of co-investment with AmTec in
China. The consummation of this deal will make UAP AmTec's largest
shareholder.
On August 27, 1998 the Company signed an agreement with a
subsidiary of Global TeleSystems, Inc. (GTS), under which a
subsidiary of GTS will acquire approximately 5.9 million shares of
the Company's common stock and merge GTS' Shanghai-based joint
venture into the Company. The shares will be issued at a price of
$1.35 per share and will make GTS, through a wholly owned
subsidiary, AmTec's second largest shareholder following the close
of the merger with UIHH described above. The joint venture holds
the rights to a majority share of the cash flow generated by
Shanghai VSAT Network Systems (SVC), the premier satellite-based
telecommunications network operator in China. The merger is
subject to final due diligence among other conditions.
NOTE 8 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" establishes new rules for
reporting and display of comprehensive income and its components.
Other than an insignificant amount of foreign currency
transactions, the Company has no other items of other
comprehensive income and the net loss reported in the statement of
operations is equivalent to the total comprehensive loss.
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Segments of an Enterprise and Related Information - In June 1997,
the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131
requires the reporting of profit and loss, specific revenue and
expense items, and assets for reportable segments. It also
requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts
disclosed for segments, in each case to the corresponding amounts
in the general purpose financial statements. Management has
evaluated the effect on its financial reporting of the adoption of
this statement and has found the majority of required disclosures
not to be applicable and has determined that it operates in only
one segment.
Disclosures about Pensions and Other Postretirement Benefits--In
February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits".
This Statement is effective for fiscal years beginning after
December 15, 1997. This Statement revises employers' disclosures
about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, and requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis. Management is currently evaluating the effect of
adopting this statement on its financial reporting.
NOTE 10 - SUBSEQUENT EVENTS
On November 10, 1998, 38.5 shares of the Company's Series E
Convertible Preferred Shares were acquired from an investment fund
by the Company and investors known to the Company. As a result of
this transaction, the Company is retiring 3.85 Series E
Convertible Preferred Shares which would have been convertible
into 542,192 common shares at the conversion rate effective on
November 12, 1998.
NOTE 11 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER EQUITY
ACCOUNTING METHOD
Subsequent to the issuance of the Company's financial statements
for the period ended September 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
September 30, 1998, and for the three months and six months ended
September 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:
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CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------
As of September 30, As of September 30,
1998 1998
---- ----
As
Previously As
Reported Restated
ASSETS
Current assets
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Cash $6,772,103 $2,356,951
Accounts receivable 112,877 112,877
Prepaid expenses and other current assets 430,596 39,261
------------ ------------
Total current assets 7,315,576 2,509,089
Investment in unconsolidated subsidiary - 2,410,284
Property, plant & equipment, net 848,108 125,910
Investment in GSM network, net of amortization 29,131,345 -
Office lease deposit 63,300 57,414
------------ ------------
TOTAL ASSETS $ 37,358,329 $ 5,102,697
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $272,985 $272,985
Accrued expenses 43,004 80,199
Other current payables 10,477,578 -
------------ ------------
Total current liabilities $10,793,567 $353,184
Loans payable 20,028,602 -
Other payables 1,487,727 -
Minority interest 298,920 -
------------ ------------
TOTAL LIABILITIES 32,608,816 353,184
STOCKHOLDERS' EQUITY
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 66.5 shares outstanding at September 30, 1998 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
26,180,880 issued and outstanding at September 30, 1998 26,181 26,181
Additional paid-in capital 35,991,440 35,878,695
Accumulated deficit (30,620,808) (30,508,063)
Non employee deferred option cost, net (918,751) (918,751)
Warrants 271,450 271,450
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,749,513 4,749,513
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 37,358,329 $ 5,102,697
============ ============
</TABLE>
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CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Quarter Ended Sept. 30
----------------------
1998 1998
---- ----
As previously As
Reported Restated
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REVENUES $ - $ -
-------------- --------------
EXPENSES
Selling, general and administrative 1,492,481 857,261
-------------- --------------
LOSS FROM OPERATIONS (1,492,481) (857,261)
-------------- --------------
OTHER INCOME (EXPENSE):
Amortization of stock options granted to non-employees (229,688) (229,688)
Other - net 128,907 50,567
-------------- --------------
Total other expense (100,781) (179,121)
-------------- --------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (1,593,262) (1,036,382)
Minority interest in loss of subsidiary 390,596 -
Equity in losses of unconsolidated subsidiary - (166,284)
-------------- --------------
NET LOSS (1,202,666) (1,202,666)
PREFERRED STOCK DIVIDEND 66,523 66,523
-------------- --------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,269,189) $ (1,269,189)
============== ==============
BASIC LOSS PER COMMON SHARE $ (0.05) $ (0.05)
============== ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 26,598,534 26,598,534
============== ==============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended Sept. 30
--------------------------
1998 1998
---- ----
As previously As
Reported Restated
<S> <C> <C>
REVENUES $ - $ -
-------------- --------------
EXPENSES
Selling, general and administrative 3,188,666 1,881,328
-------------- --------------
LOSS FROM OPERATIONS (3,188,666) (1,881,328)
-------------- --------------
OTHER INCOME (EXPENSE):
Amortization of stock options granted to non-employees (459,376) (459,376)
Other - net 248,819 55,377
-------------- --------------
Total other expense (210,557) (403,999)
-------------- --------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (3,399,223) (2,285,327)
Minority interest in loss of subsidiary 754,694 -
Equity in losses of unconsolidated subsidiary - (359,202)
-------------- --------------
NET LOSS (2,644,529) (2,644,529)
PREFERRED STOCK DIVIDEND 468,944 468,944
-------------- --------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,113,473) $ (3,113,473)
============== ==============
BASIC LOSS PER COMMON SHARE $ (0.12) $ (0.12)
============== ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 26,702,367 26,702,367
============== ==============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------
Six Months Ended Sept.30
1998 1998
As previously As
Reported Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (3,113,473) $ (3,113,473)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 459,376 459,374
Depreciation 1,175,648 21,930
Preferred stock dividend 468,944 468,944
Equity in losses of unconsolidated subsidiary - 359,202
(Increase) decrease in:
Accounts receivable 1,784 1,784
Prepaid expenses and other current assets (74,042) 68,821
Deferred expenses 6,916 -
Office lease deposit 49,880 55,186
Increase (decrease) in:
Accounts payable and accrued expenses (134,407) (80,444)
Other current payables 242,706 -
Minority interest (643,054) -
----------- -----------
Net cash used in operations (1,559,722) (1,758,676)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,254) (8,704)
GSM construction costs and additional investments (1,786,772) -
----------- -----------
Net cash used in investing activities (1,796,026) (8,704)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment from (Advance to) unconsolidated subsidiary - 2,191,985
Common stock buy back (202,316) (202,316)
Change in minority interest ownership (112,167) -
----------- -----------
Net cash (used in) provided by financing activit (314,483) 1,989,669
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,670,231) 222,289
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,772,103 $ 2,356,951
=========== ===========
</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 its large and
rapidly growing need for telecommunications services, its requirement for
foreign capital and technology to meet that need, and AmTec's opportunity
to obtain cash flow sharing and technical services agreements with
operators who hold exclusive or semi-exclusive communications licenses. The
Company has established majority ownership in joint ventures with Chinese
and other partners to provide financing, network construction and
operational consulting services to licensed China network operators. The
Company's current operations, through its subsidiary, Hebei Engineering,
are focused on a series of cellular telephone networks in the northeastern
province of Hebei, which has 11 major cities and a population of
approximately 64 million people. In addition, the Company has interests in
other projects and networks in various stages of development.
Key components of AmTec's business strategy are developing existing network
interests and obtaining additional interests in communications networks in
China, including combining the efforts of major telecommunications
companies in China.
Subsequent to the issuance of the Company's financial statements for the
period ended September 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 9
of the Notes to the Financial Statements and have been reflected herein.
JOINT VENTURES IN CHINA
AmTec holds a 70% interest in Hebei United Telecommunications Equipment
Company Limited ("Hebei Equipment"), a Sino-foreign joint venture with a
wholly-owned subsidiary of the Electronics Industry Department of Hebei
Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United
Telecommunications Engineering Company Limited ("Hebei Engineering"), a
joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei
Equipment and Hebei Engineering are organized as Sino-foreign equity joint
ventures under the laws of China and are headquartered in Shijiazhuang, the
capital of Hebei Province.
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. On October 1,
1998 a sixth GSM network launched operations in the city of Langfang, Hebei
Province, which has a metropolitan area population of 3.6 million people.
As of November 16, 1998 the subscriber base of the six networks reached
approximately 31,000 subscribers, an increase of 11,000 subscribers from
September 30, 1998.
As of September 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 Itochu. 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. While no major difficulties have been encountered to date in
launching the six networks now operating, absence of difficulties in
launching additional networks can not be assured.
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THE SIX AND THREE MONTHS ENDED SEPTEMBER 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 $2,644,529 and $2,791,579 during the six months ended Sept 30,
1998 and 1997, respectively.
Selling, general and administrative expenses decreased from approximately
$2.4 million during the six months ended September 30, 1997 to
approximately $1.9 million during the six months ended September 30, 1998.
The decrease primarily related to the reduction in expenses incurred for
the start-up of the Company's joint venture.
Selling, general and administrative expenses decreased from approximately
$1.0 million during the three months ended September 30, 1997 to
approximately $0.9 million during the three months ended September 30,
1998. The decrease for the quarter was primarily attributed to a higher
legal and professional fees associated with the fund raising during the
quarter ended September 30, 1997.
The Company reported total assets of approximately $5.1 million at
September 30, 1998, a decrease of $2.5 million from March 31, 1998. This
decrease primarily related to the shares of equity loss of 0.4 million and
the funding of current operations of approximately $1.8 million using cash.
The consolidated balance sheet of the Company includes total liabilities of
approximately $0.4 million which are primarily legal and professional fee
payable. The decrease in consolidated liabilities primarily relates to the
elimination of shareholder loans and related accrued expenses and a
decrease in minority interest.
The Company's loss before dividends decreased from $2.8 million during the
six months ended September 30, 1997 to $2.6 million during the six months
ended September 30, 1998. The decrease in net loss primarily relates to an
increase in the equity loss of unconsolidated subsidiaries offset by an
decrease in selling, general and administrative expenses.
The decrease in Stockholders' Equity of approximately $0.2 million for the
six months ended September 30, 1998 was the net result of an increase in
Additional paid-in capital of approximately $2.8 million, a loss for the
six months of approximately $3.1 million, amortization of deferred option
cost of $0.5 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%. The increase in
Additional paid-in capital was due to the elimination of approximately $2.4
million of shareholders' loans and related accrued interest, amortization
of the discount on the Series E Convertible Preferred Stock of
approximately $0.4 milion and the cancellation of 300,000 warrants valued
at $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an operating loss of $1.9 million and a loss applicable to
common shares of $3.1 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 six months ended September 30, 1998, the Company's cash
increased by approximately $0.2 million, primarily due to repayment of
approximately $2.2 million from Hebei Equipment, cash used to fund current
operations of approximately $1.8 million and $0.2 million of cash used to
buy back common stock. The Company's direct cash position is expected to be
sufficient to support its operations through January 1, 2000.
EQUITY ISSUANCES
The Company issued 667,843 shares of its Common Stock during its first six
months upon conversion of 6.7 shares of the Company's Series E Convertible
Preferred Shares (the "Series E Shares") by certain holders of the Series E
Shares. (See NOTE 9 regarding the acquisition of certain Series E Shares.)
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year.
Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and are being
implemented to make the necessary modifications to ensure Year 2000
compliance. The financial impact of making the required system changes for
Year 2000 compliance are not expected to have any material effect on the
Company's financial statements.
However, even as the Company's assessment is completed without identifying
any material non-compliant systems operated by, or in the control of, the
Company, or of third parties, the most reasonable likely worse case
scenario would be a systems failure beyond the control of the Company to
remedy. Such a failure could materially prevent the Company from operating
its business. The Company believes that such a failure could lead to lost
revenues, increased operating cost, or other business interruptions of a
material nature.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders
during the six months ended September 30, 1998.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during
the six months ended September 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
