SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT 2)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
-----------------------------------------------------
Commission File Number: 0-22520
AMTEC, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1989122
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
599 Lexington Avenue, 44th Floor
New York, New York 10022
(Address of principal executive offices)
(212) 319-9160
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No ____
Class Outstanding as of February 12, 1999
Common Stock, par value $.001 per share 30,811,721
Transitional Small Business Format (Check one): Yes No x
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995.
Except for the historical information contained herein, the
matters discussed in this Quarterly Report are forward-looking statements
which involve risks and uncertainties, including but not limited to
economic, competitive, governmental, international and technological
factors affecting the Company's revenues, joint ventures, operations,
markets and prices, and other factors discussed in the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
June 30, 1998.
INTRODUCTION
This Amendment on Form 10-Q-A amends the Registrant's Quarterly Report on
Form 10-Q, as filed by the Registrant on February 12, 1999 as amended on
August 23, 1999 and is being filed to reflect the restatement of the
Registrant's Financial Statements ("the restatement").
The Registrant determined that one of its subsidiaries should have been
accounted for under the equity method of accounting, as the minority
shareholders have substantive participating rights under the joint venture
contracts. Previously, its subsidiary had been consolidated. As a result,
the financial statements as of December 31, 1998, and for nine months ended
December 31, 1998, have been restated from amounts previously reported to
account for its subsidiary under the equity method of accounting. See Note
10 to the consolidated financial statements of the Registrant included
herewith.
Unless otherwise noted, all information provided in this Quarterly Report
is current as of February 12, 1998, the original filing date of the Form
10-Q. Information regarding recent events at the Registrant can be obtained
from reports filed by the Registrant with respect to its activities during
1998, including the Registrant's 10-K for the year ended March 31, 1999.
The Company's March 1998 amounts and quarterly amounts prior to such date
have been restated in the Company's amended 10-K/A dated August 23, 1999.
PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of December 31, 1998
(Restated) and March 31, 1998 5
Consolidated Statement of Operations for the three
and nine months ended December 31, 1998 (Restated)
and 1997 6
Consolidated Statement of Cash Flows for the
nine months ended December 31, 1998 (Restated)
and 1997 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Result of Operations 17
PART II. OTHER INFORMATION 21
Item 1 Legal Proceedings 21
Item 2 Changes in Securities and Use of Proceeds 21
Item 3 Defaults upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Dec. 31, 1998 Mar. 31, 1998
------------- -------------
(As restated;
See note 10)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,075,372 $ 2,134,662
Accounts receivable 104,881 114,661
Prepaid expenses and other current assets 35,637 108,082
----------- -----------
Total current assets 1,215,890 2,357,405
Investments in and advances to unconsolidated subsidiary 1,423,467 5,074,217
Property, plant and equipment, net 116,864 139,136
Office lease deposit 57,414 112,600
----------- -----------
Total assets $ 2,813,635 $ 7,683,358
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 175,663 $ 541,888
Accrued expenses 29,672 792,006
Loans payable - shareholders - 1,452,553
------------ -----------
Total current liabilities 205,335 2,786,447
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 36.5 and 73 shares outstanding at Dec. 31, 1998 and
Mar. 31, 1998, respectively 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
30,008,426 and 26,532,502 issued and outstanding at Dec. 31,
1998 and Mar. 31, 1998, respectively 30,008 26,533
Additional paid-in capital 35,000,177 33,149,142
Accumulated deficit (32,693,336) (27,394,590)
Nonemployee deferred option cost, net - (1,378,125)
Warrants 271,450 493,950
------------ -----------
TOTAL STOCKHOLDERS EQUITY $ 2,608,300 4,896,911
------------- -----------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 2,813,635 $ 7,683,358
============= ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Nine Months Ended Dec. 31 Three Months Ended Dec. 31
1998 1997 1998 1997
---- ---- ---- ----
(As Restated; (As Restated;
See note 10) See note 10)
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
---------- ----------- ------------ ----------
EXPENSES
Selling, general and administrative 2,849,742 3,290,812 968,417 911,314
---------- ----------- ------------ ----------
LOSS FROM OPERATIONS (2,849,742) (3,290,812) (968,417) (911,314)
---------- ----------- ------------ ----------
OTHER (EXPENSE) INCOME :
Amortization of stock options granted to non-employees (459,376) - - -
Write off of investment - (87,441) - -
Other - net 37,304 (6,446) (18,073) 54,487
---------- ---------- ----------- ---------
Total other (expense) income (422,072) (93,887) (18,073) 54,487
---------- ---------- ----------- ---------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (3,271,814) (3,384,699) (986,490) (856,827)
Equity in losses of unconsolidated subsidiary (1,412,881) (320,274) (1,053,679) (56,567)
----------- ---------- ----------- ----------
NET LOSS (4,684,695) (3,704,973) (2,040,169) (913,394)
PREFERRED STOCK DIVIDEND 614,051 222,891 145,107 114,891
----------- ---------- ------------ ----------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(5,298,746) $(3,927,864) $ (2,185,276) $(1,028,285)
=========== =========== ============ ==========
BASIC LOSS PER COMMON SHARE $ (0.20) $ (0.13) $ (0.08) $ (0.04)
============ =========== ============ ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 26,458,488 30,728,346 25,971,101 29,210,664
=========== =========== ============ ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Dec.31
1998 1997
---- ----
(As restated;
SEE NOTE 10)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (5,298,746) $ (3,927,864)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 459,374 -
Depreciation 35,699 55,603
Preferred stock dividend 614,051 222,891
Issuance of common stock and options for directors'
fees and professional services rendered - 392,381
Equity in losses of unconsolidated subsidiary 1,458,765 320,274
(Increase) decrease in:
Accounts receivable 9,780 (116,215)
Prepaid expenses and other current assets 72,445 19,151
Office lease deposit 55,186 -
Increase (decrease) in:
Accounts payable and accrued expenses (222,796) (32,795)
----------- -----------
Net cash used in operations (2,816,242) (3,066,574)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,427) (36,001)
----------- -----------
Net cash used in investing activities (13,427) (36,001)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock buy back (321,606) -
Series E preferred stock buy back (100,000) -
Repayment from (Advance to) unconsolidated subsidiary 2,191,985 (1,000,000)
Proceeds from sale of Series C convertible preferred stock - net - 2,500,000
Proceeds from sale of Series E convertible preferred stock - net - 6,691,035
---------- -----------
Net cash provided by financing activities 1,770,379 8,191,035
---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,059,290) 5,088,460
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,075,372 $ 6,435,173
============ ===========
See notes to consolidated financial statements.
</TABLE>
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL CASH INFORMATION:
No income taxes and interest were paid during the first nine months of
fiscal 1999 or 1998.
NON CASH FINANCING ACTIVITIES:
Shareholder loans payable of $1,452,553 and related accrued interest of
$906,488 were credited to Additional paid-in capital
34.9 shares of Series E Convertible Preferred Stock were converted into
4,776,188 shares of common stock (inclusive of conversions of preferred
dividends).
Warrants valued at $222,500 were cancelled and credited to Additional
paid-in capital.
The Company cancelled a Common Stock Investment Agreement, as permitted by
the Agreement, with Promethean Investment Group on August 12, 1998.
1,019,465 shares previously held in escrow designated for issuance under
terms of the agreement were cancelled.
The option granted to the Hebei Provincial Government to acquire 3,000,000
shares of the Company's common stock at a price of $3.0625 per share was
cancelled. Unamortized Deferred Option Cost valued at $918,751 was charged
to Additional Paid in Capital.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements as of December 31, 1998 and
for the nine months then ended are unaudited and reflect all
adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position and operating
results for the interim period. All of the adjustments are of a
normal recurring nature. The condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto together with management's
discussion and analysis of financial condition and results of
operations, contained in the Annual Report on Form 10-K/A filed by
the Company on July 14, 1999 for the Company's fiscal year ended
March 31, 1998. The results of operations for the nine months
ended December 31, 1998 are not necessarily indicative of the
results for the entire year ending March 31, 1999.
Basis of Presentation - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles. Realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's
existing projects developing profitable operations.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
Consolidation - The consolidated financial statements include the
Company's wholly- owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Equity Method of Accounting - The Company accounts for its
subsidiary Hebei United Telecommunications Equipment Co., Ltd. and
subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint
venture) using the equity method of accounting, as minority
Shareholders of Hebei Equipment have substantive participating
rights under the joint venture contracts. The Company reports its
investment in Hebei Equipment under the caption Investment in and
advances to unconsolidated subsidiary. Under the equity method,
the investment is carried at cost of acquisition, plus the
Company's equity in undistributed earnings or losses since
acquisition. Equity in the losses of the unconsolidated subsidiary
is recognized according to the Company's percentage ownership in
the unconsolidated subsidiary until the Company contributed
capital has been fully depleted. Reserves are provided where
management determines that the investment or equity in earnings is
not realizable. For the period ending March 31, 1998, the Company
used an ownership percentage of 60.8% for purposes of calculating
the share of earnings of its unconsolidated subsidiary since it
did not increase its ownership percentage in Hebei Equipment to
70% until after the close of Hebei Equipment's fiscal year-end
(December 31, 1997). Hebei Equipment owns 51% of Hebei United
Telecommunications Engineering Company, Ltd. ("Hebei
Engineering"). Hebei Equipment also accounts for its investment
using equity method of accounting as minority Shareholders of
Hebei Engineering have substantive participating rights under the
joint venture contracts.
Included in the financial statements are the financial statements
of the Company for the quarters and nine months ended December 31,
1998 and 1997. The Company's share of equity in losses of Hebei
Equipment included in the consolidated financial statements are as
of and for the quarters and nine months ended September 30, 1998
and 1997. By doing that, the Company can ensure that delays in
receiving information from China would not cause problems for the
Company in meeting its reporting deadlines. However, the Company
does monitor events in the lag period and, where appropriate,
would disclose the occurrence of any significant event during such
lag period. The summary financial information of Hebei Equipment
and Hebei Engineering were included in Note 6 to the financial
statements.
NOTE 3 - ASSETS
The consolidated balance sheet includes approximately $2.8 million
of assets, primarily consist of approximately $1.1 million of cash
and $1.4 million investment in and advances to Hebei Equipment.
The Company's investments in the joint venture were accounted for
by the equity method of accounting because minority shareholders
of Hebei Equipment and Hebei Engineering have substantive
participating rights under the provision of the Joint Venture
contracts. The decrease in investment in and advances to
unconsolidated subsidiary primarily relates to the repayment of
advances of approximately $2.2 million from Hebei Equipment to the
Company.
NOTE 4 - LIABILITIES
The consolidated balance sheet includes total liabilities of
approximately $0.2 million which are mainly legal and professional
fees payable. The decrease in consolidated liabilities primarily
relates to the elimination of shareholder loans and related
accrued interest expenses of ITV, Inc., a wholly-owned subsidiary.
NOTE 5 - CHANGES TO EQUITY
The decrease in Stockholders' Equity of approximately $2.3 million
is due primarily to the net loss for the nine months ended
December 31, 1998 of approximately $5.3 million offset by an
increase in Additional paid-in capital resulting primarily from
the cancellation of shareholders' loans and related accrued
interest.
On September 14, 1998 the Company announced its intention to
purchase up to $1 million of its common stock on the open market.
As of December 31, 1998, the Company had purchased 280,800 shares
under this program for a total cost of approximately $312,600. All
the common stock repurchased were cancelled as of December 31,
1998.
During the nine months ended December 31, 1998, the Company issued
4,776,188 shares of its Common Stock upon the conversion of 34.9
shares of its Series E Convertible Preferred Stock.
On November 10, 1998, 38.5 of the Company's Series E Convertible
Preferred Shares were acquired from an investment fund by the
Company and investors known to the Company. As a result of this
transaction, the Company bought back 3.08 Series E Convertible
Preferred Shares, at a consideration of US$100,000, which would
have been convertible into 433,754 common shares at the conversion
rate effective on November 12, 1998. All the Series E Convertible
Preferred Shares repurchased by the Company were retired on
January 20, 1999.
During the quarter ended December 31, 1998, the Company cancelled
the option granted to the Hebei Provincial Government to acquire
3,000,000 shares of the Company's common stock at a price of
$3.0625 per share. At the date of grant, $1,837,500 was
capitalized as Deferred Option Cost of which $918,751 was
amortized through September 31, 1998. The unamortized Deferred
Option Cost up to the date of cancellation was charged to
Additional Paid in Capital.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial information of
the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's quarters and nine
months ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 30 THREE MONTHS ENDED DEC. 31
1998 1997 1998 1997
---- ---- ---- ----
HEBEI EQUIPMENT
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
============ ========== ============ =========
Net (loss) income $ (1,982,181) $ (526,766) $ (1,505,256) $ (93,038)
============= =========== ============= ==========
HEBEI ENGINEERING
Revenues $ 606,629 $ - $ 173,994 $ -
============ ========== ============ ==========
Net (loss) income $(1,323,681) $(1,555,691) $ (526,001) $(532,167)
============ ============ =========== ===========
</TABLE>
NOTE 7 - SIGNIFICANT TRANSACTIONS
On August 27, 1998 the Company signed a definitive agreement with
a subsidiary of Global TeleSystems, Inc. ("GTS"), under which a
subsidiary of GTS will acquire approximately 5.9 million shares of
the Company's common stock and the Company, through a subsidiary,
will acquire GTS's 75% interest in a Shanghai-based joint venture.
The shares will be issued at a price of $1.35 per share and will
make GTS, through a wholly owned subsidiary, AmTec's second
largest shareholder following the close of the transaction with
UIHH described below. The joint venture holds the rights to a
majority share of the cash flow generated by Shanghai VSAT Network
Systems (SVC), the premier satellite-based telecommunications
network operator in China. The merger is subject to final due
diligence among other conditions.
On August 6, 1998, the company signed a definitive agreement with
UIH Hunan Inc. ("UIHH"), an indirect subsidiary of United
International Holdings, Inc., under which AmTec will issue to
UIHH's direct parent company $12 million of convertible preferred
stock ("Series F Shares") in exchange for 100% of the common stock
of UIHH. The Series F Shares will be convertible into AmTec's
common stock at a price equal to the Average Closing Price of the
common stock during the ten trading days ending three trading days
prior to closing of the transaction. However, the conversion price
of the Series F Shares will be no higher than $1.25 per share.
Once issued, the Series F Shares will carry certain anti-dilution
provisions. UIHH holds a 49% interest in a Sino-foreign joint
venture with the Broadcasting Bureau of Hunan, the monopoly cable
television operator in Hunan Province, People's Republic of China.
The agreement, which is subject to satisfactory completion of due
diligence and approvals of appropriate regulatory authorities in
China among other conditions, provides UAP with a three year
option to increase its holdings in AmTec to 25% of AmTec's fully
diluted common shares for a price of $3 per share and with rights
of co-investment with AmTec in China. Subject to shareholder
approval as required by the American Stock Exchange, the
consummation of this transaction will make UAP AmTec's largest
shareholder.
NOTE 8 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" establishes new rules for
reporting and display of comprehensive income and its components.
Other than an insignificant amount of foreign currency
transactions, the Company has no other items of other
comprehensive income and the net loss reported in the statement of
operations is equivalent to the total comprehensive loss.
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Segments of an Enterprise and Related Information - In June 1997,
the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131
requires the reporting of profit and loss, specific revenue and
expense items, and assets for reportable segments. It also
requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts
disclosed for segments, in each case to the corresponding amounts
in the general purpose financial statements. Management has
evaluated the effect on its financial reporting of the adoption of
this statement and has found the majority of required disclosures
not to be applicable and has determined that it operates in only
one segment.
Disclosures about Pensions and Other Postretirement Benefits--In
February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits".
This Statement is effective for fiscal years beginning after
December 15, 1997. This Statement revises employers' disclosures
about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, and requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis. Management is currently evaluating the effect of
adopting this statement on its financial reporting.
NOTE 10 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER EQUITY
ACCOUNTING METHOD
Subsequent to the issuance of the Company's financial statements
for the period ended December 31, 1998, the Company's management
determined that Hebei Equipment, should have been accounted for
under the equity method of accounting, as the minority
shareholders have substantive participating rights under the joint
venture contracts. Previously, Hebei Equipment had been
consolidated. As a result, the financial statements as of December
31, 1998, and for the three months and nine months ended December
31, 1998, have been restated from amounts previously reported to
account for Hebei Equipment under the equity method of accounting.
The Company's March 1998 amounts and quarterly amounts prior to
such date have been restated in the Company's amended 10K/A dated
August 23, 1999. A summary of the significant effects of the
restatement is as follows:
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
As of Dec. 31, As of Dec. 31,
1998 1998
---- ----
As
Previously As
Reported Restated
ASSETS
Current assets
<S> <C> <C>
Cash $5,850,056 $1,075,372
Accounts receivable 104,881 104,881
Prepaid expenses and other current assets 228,129 35,637
----------- ----------
Total current assets 6,183,066 1,215,890
Investment in unconsolidated subsidiary - 1,423,467
Property, plant & equipment, net 821,265 116,864
Investment in GSM network, net of amortization 28,518,017 -
Office lease deposit 63,301 57,414
------------ -----------
TOTAL ASSETS $ 35,585,649 $ 2,813,635
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 175,663 $175,663
Accrued expenses 47,491 29,672
Bank loans payable within one year 4,000,000 -
Other current payables 9,737,721 -
----------- -----------
Total current liabilities $13,960,875 $205,335
Loans payable 17,528,747 -
Other payables 1,487,727 -
----------- -----------
TOTAL LIABILITIES 32,977,349 205,335
STOCKHOLDERS' EQUITY
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 36.5 shares outstanding at December 31, 1998 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
30,008,426 issued and outstanding at December 31, 1998 30,008 30,008
Additional paid-in capital 35,000,177 35,000,177
Accumulated deficit (32,693,336) (32,693,336)
Warrants 271,450 271,450
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,608,300 2,608,300
------------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 35,585,649 $ 2,813,635
============= ===========
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Dec. 31
1998 1998
---- ----
As previously As
Reported Restated
<S> <C> <C>
REVENUES $ - $ -
------------ ------------
EXPENSES
Selling, general and administrative 3,163,638 2,849,742
Amortization of GSM investment 1,709,845 -
------------ ------------
LOSS FROM OPERATIONS (4,873,483) (2,849,742)
------------ ------------
OTHER (EXPENSE) INCOME :
Amortization of stock options granted to non-employees (459,374) (459,376)
Other - net (293,812) 37,304
------------ ------------
Total other expense (753,186) (422,072)
------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (5,626,669) (3,271,814)
Minority interest in loss of subsidiary 941,974 -
Equity in losses of unconsolidated subsidiary - (1,412,881)
------------ ------------
NET LOSS (4,684,695) (4,684,695)
PREFERRED STOCK DIVIDEND 614,051 614,051
------------- -------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (5,298,746) $ (5,298,746)
============= =============
BASIC LOSS PER COMMON SHARE $ (0.20) $ (0.20)
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 26,458,488 26,458,488
============= =============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended Dec. 31
1998 1998
---- ----
As previously As
Reported Restated
<S> <C> <C>
REVENUES $ - $ -
----------- ------------
EXPENSES
Selling, general and administrative 1,060,769 968,417
Amortization of GSM investment 624,048 -
----------- ------------
LOSS FROM OPERATIONS (1,684,817) (968,417)
----------- ------------
OTHER EXPENSES - net (542,632) (18,073)
----------- ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (2,227,449) (986,490)
Minority interest in loss of subsidiary 187,280 -
Equity in losses of unconsolidated subsidiary - (1,053,679)
---------- ------------
NET LOSS (2,040,169) (2,040,169)
PREFERRED STOCK DIVIDEND 145,107 145,107
------------- ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,185,276) $ (2,185,276)
============= =============
BASIC LOSS PER COMMON SHARE $ (0.08) $ (0.08)
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 25,971,101 25,971,101
============= =============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Dec.31
-------------------------------
1998 1998
---- ----
As previously As
Reported Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (5,298,746) $ (5,298,746)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost 459,374 459,374
Depreciation and amoritzation of GSM investment 1,709,845 -
Depreciation 87,855 35,699
Preferred stock dividend 614,051 614,051
Equity in losses of unconsolidated subsidiary - 1,458,765
(Increase) decrease in:
Accounts receivable 9,780 9,780
Prepaid expenses and other current assets 128,425 72,445
Deferred expenses 6,916 -
Office lease deposit 49,879 55,186
Increase (decrease) in:
Accounts payable and accrued expenses (219,861) (222,796)
Other current payables (498,454) -
Minority interest (941,974) -
------------- -------------
Net cash used in operations (3,892,910) (2,816,242)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (11,855) (13,427)
GSM construction costs and additional investments (1,766,052) -
------------- -------------
Net cash used in investing activities (1,777,907) (13,427)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 1,500,145 -
Repayment from (Advance to) unconsolidated subsidiary - 2,191,985
Common stock buy back (321,606) (321,606)
Preferred stock buy back (100,000) (100,000)
------------ ------------
Net cash provided by financing activities 1,078,539 1,770,379
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,592,278) (1,059,290)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,850,056 $ 1,075,372
============ ============
</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, primarily are focused
on a series of cellular telephone networks in the northeastern province of
Hebei, which has 11 major cities and a population of approximately 64
million people. These networks are being launched with subscribers growing
from 20,000 to 35,000 in the third quarter. Revenues and income will be
shown in the fourth quarter for the full year.
Key components of AmTec's business strategy are developing existing network
interests and obtaining additional interests in communications networks in
China, including combining the efforts of major telecommunications
companies in China. Amtec is in the process of closing mergers with 1) GTS
which will give the Company data networking services throughout China from
Shanghai and with 2)UIHH which will give the company cable television
transmission for 255,000 subscribers in Hunan Province.
Subsequent to the issuance of the Company's financial statements for the
period ended December 31, 1998, the Company determined that Hebei Equipment
should have been accounted for under the equity method of accounting, as
the minority shareholders have substantive participating rights under the
joint venture contracts. Previously, Hebei Equipment had been consolidated.
The Company's March 1998 amounts and quarterly amounts prior to such date
have been restated in the Company's amended 10-K/A dated July 14, 1999. The
effects of the restatement have been presented in Note 10 of the Notes to
the Financial Statements and have been reflected herein.
JOINT VENTURES IN CHINA
AmTec holds a 70% interest in Hebei United Telecommunications Equipment
Company Limited ("Hebei Equipment"), a Sino-foreign joint venture with a
wholly-owned subsidiary of the Electronics Industry Department of Hebei
Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United
Telecommunications Engineering Company Limited ("Hebei Engineering"), a
joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei
Equipment and Hebei Engineering are organized as Sino-foreign equity joint
ventures under the laws of China and are headquartered in Shijiazhuang, the
capital of Hebei Province. If the mergers with GTS and UIHH close as
expected. AmTec will acquire their interest in China which are also
Sino-foreign joint ventures.
CELLULAR TELEPHONE NETWORKS
Currently, legal restrictions in China prohibit foreign participation in
the operation and ownership of communications networks. Therefore, the
Company has established majority ownership in joint ventures with Chinese
and other partners to provide financing, network construction and
operational consulting services to licensed Chinese network operators.
Substantially all of the Company's revenues are derived from contractual
arrangements for the sharing of cash flows generated from network
operations rather than from ownership or operation of the networks. Until
regulations in China change to permit direct foreign ownership and
operations of communications networks, all future revenues of the Company
will continue to be derived from these contractual arrangements.
Through Hebei Engineering, AmTec entered into an agreement (the "Unicom
Agreement") on February 9, 1996 with Unicom to (i) finance and assist
Unicom in the construction of cellular networks (the "GSM Networks" or "GSM
Project") in the ten largest cities in Hebei Province and (ii) provide
consulting and management support services to Unicom in its operation of
the GSM Networks in the 10 largest cities of Hebei Province. This GSM
Project will have a capacity of up to 70,000 subscribers. Hebei Engineering
is entitled to 78% of the distributable cash flow (defined as activation
charges plus depreciation plus net income) from the GSM Networks for a
15-year period commencing February 9, 1996.
On October 1, 1998, Hebei Unicom's sixth GSM network launched operations in
the city of Langfang, Hebei Province, which has a metropolitan area
population of 3.6 million people. As of February 12, 1999 the subscriber
base of the six networks reached approximately 35,000 subscribers, an
increase of 15,000 subscribers from September 30, 1998.
As of December 31, 1998, construction of the GSM Networks had been financed
by Hebei Engineering with $3 million of equity capital, approximately $11
million of vendor financing guaranteed by NTTI, and a $21.5 million Term
Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and
Itochu. Of the $3 million of equity raised by Hebei Engineering, $1.53
million was contributed by Hebei Equipment.
Achievement of the Company's business objectives is dependent upon Unicom's
operation of the GSM Networks, among other factors. The implementation of
the GSM Networks involves systems design, site procurement, construction,
electronics installation, initial systems optimization and receipt of
necessary permits and business licenses prior to commencing commercial
service. While no major difficulties have been encountered to date in
launching the six networks now operating, absence of difficulties in
launching additional networks can not be assured.
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1998
AS COMPARED TO THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1997.
The Company has no revenues on its consolidated financial statements
because the results of operations of the Company's subsidiary Hebei
Equipment were accounted for under the equity method of accounting. The
Company recorded only its share of losses of its unconsolidated subsidiary
according to the percentage of its equity interest. The Company had net
losses of $5,298,746 and $3,927,864 during the nine months ended Dec. 31,
1998 and 1997, respectively.
Selling, general and administrative expenses decreased from approximately
$3.3 million during the nine months ended December 31, 1997 to
approximately $2.8 million during the nine months ended December 31, 1998.
The decrease primarily related to the reduction in expenses incurred for
the start-up of the Company's joint venture during the nine months ended
December 31, 1997.
Selling, general and administrative expenses increased from approximately
$0.9 million during the three months ended December 31, 1997 to
approximately $1.0 million during the three months ended December 31, 1998.
The increase for the quarter was primarily attributed to the accrual for
year end bonus and increase in legal and professional fee related to the
GTS and UIHH merger transactions.
At December 31, 1998, the Company reported assets of approximately $2.8
million which mainly consist of approximately $1.1million cash and $1.4
million investment in Hebei Equipment. Total assets decreased approximately
$4.9 million from March 31, 1998 primarily related the funding of current
operations using cash and shares of equity loss in the Hebei Equipment.
The consolidated balance sheet of the Company includes total liabilities of
approximately $0.2 million which are mainly legal and professional fee
payable. The decrease in consolidated liabilities is primarily attributed
to the elimination of shareholder loans and related accrued expenses and a
decrease in minority interest.
The Company's loss applicable to common shareholders increased from
approximately $3.9 million during the nine months ended December 31, 1997
to approximately $5.3 million during the nine months ended December 31,
1998. The increase in net loss primarily relates to an increase in
preferred stock dividend and an increase in the equity losses of
unconsolidated subsidiary.
The decrease in Stockholders' Equity of approximately $2.3 million for the
nine months ended December 31, 1998 was the net result of an increase in
Additional paid-in capital of approximately $1.9 million, a loss for the
nine months of approximately $5.3 million, the cancellation of deferred
option cost of $1.4 million and the cancellation of 300,000 warrants valued
at $0.2 million. The increase in Additional paid-in capital was due to the
elimination of approximately $2.4 million of shareholders' loans and
related accrued interest, elimination of $0.9 million deferred option cost,
amortization of the discount on the Series E Convertible Preferred Stock of
approximately $0.6 million and elimination of approximately $0.3 million
paid-in capital in relation to common stock buy backs during the nine
months ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an operating loss of approximately $2.8 million and a loss
applicable to common shareholders of approximately $5.3 million during this
period. While the Company expects to achieve profitable operations within
several years, there can be no assurances that the Company will achieve
this goal. As a result, the Company has financed its current activities
primarily through private equity placements.
Approximately $2.8 million of cash was used in the Company's operations for
the nine months ended December 31, 1998, compared to cash used of
approximately $3.1 million for the nine months ended December 31, 1997. The
cash flow from operating activities decreased primarily due to cost control
over selling, general & administrative expenses.
The Company used approximately $13,000 in its investing activities in the
nine months ended December 31, 1998, compared to approximately $36,000 in
the nine months ended December 31, 1997. The Company did not have other
investing activities except for purchase of office equipment.
The cash inflows from financing activities during the nine months ended
December 31, 1998 were generated primarily from the repayment of an advance
to Hebei Equipment of approximately $2.2 million. Whereas, the cash inflows
from financing activities during the nine months ended December 31, 1997
were generated from the offering of shares of Series C and Series E
Convertible Preferred Stock for consideration of approximately $9.2
million.
During the nine months ended December 31, 1998, the Company's cash
decreased by approximately $1.1 million was primarily due to cash used to
fund current operations of approximately $2.8 million, $0.3 million of cash
used to buy back common stock, $0.1 million of cash used to buy back
preferred stock. The cash decrease was partially offset by the repayment of
an advance to Hebei Equipment of approximately $2.2 million. The Company's
current cash position plus anticipated funding is expected to be sufficient
to support its operations through January 1, 2000.
EQUITY ISSUANCE
The Company issued 4,776,188 shares of its Common Stock during its first
nine months upon conversion of 34.9 shares of the Company's Series E
Convertible Preferred by certain holders of the Series E Shares.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year.
Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and are being
implemented to make the necessary modifications to ensure Year 2000
compliance. The financial impact of making the required system changes for
Year 2000 compliance are not expected to have any material effect on the
Company's financial statements.
However, even as the Company's assessment is completed without identifying
any material non-compliant systems operated by, or in the control of, the
Company, or of third parties, the most reasonable likely worse case
scenario would be a systems failure beyond the control of the Company to
remedy. Such a failure could materially prevent the Company from operating
its business. The Company believes that such a failure could lead to lost
revenues, increased operating cost, or other business interruptions of a
material nature.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders
during the six months ended December 31, 1998.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during
the nine months ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: August 23, 1999 AmTec, Inc.
By: /s/ Joseph R. Wright Jr.
--------------------------
Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Wilfred Chow
---------------------------
Wilfred Chow
Principal Financial and
Accounting Officer
