SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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Commission File Number: 0-22520 .
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AMTEC, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 84-0873124
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
599 Lexington Avenue, 44th Floor
New York, New York 10022
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(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 ____
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Class Outstanding as of February 8, 2000
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Common Stock, par value 36,924,539
$.001 per share
Transitional Small Business Format (Check one): Yes No x .
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Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995.
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Except for the historical information contained herein, the
matters discussed in this Quarterly Report are forward-looking statements
which involve risks and uncertainties, including but not limited to
economic, competitive, governmental, international and technological
factors affecting the Company's revenues, joint ventures, operations,
markets and prices, and other factors discussed in the Company's Annual
Report on Form 10-K/A, filed with the Securities and Exchange Commission on
August 23, 1999.
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PAGE
PART I. FINANCIAL INFORMATION
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Item 1 Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and March 31, 1999 4
Consolidated Statement of Operations for the quarters and nine months ended 5
December 31, 1999 and 1998
Consolidated Statement of Cash Flows for the nine months ended December 31, 6
1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition and Result of 13
Operations
PART II. OTHER INFORMATION 18
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 18
Item 3 Defaults upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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Dec. 31, 1999 March 31, 1999
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(Unaudited)
ASSETS
CURRENT ASSETS:
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Cash $ 629,960 $ 2,093,141
Prepaid expenses and other current assets 53,295 38,805
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Total current assets 683,255 2,131,946
Investments in and advances to unconsolidated subsidiary 2,439,300 2,496,480
Investments in affiliate 631,453 -
Property, plant and equipment, net 62,226 96,926
Loans receivable 575,000 -
Office lease deposit and other assets 55,733 55,733
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TOTAL ASSETS $ 4,446,967 $ 4,781,085
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 593,666 $ 439,195
Accrued expenses 25,034 528,548
Loans payable 1,125,050 -
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TOTAL LIABILITIES 1,743,750 967,743
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 0 and 29.8 shares outstanding at Dec. 31, 1999 and
March 31, 1999, respectively - 1
Series G Convertible Preferred Stock: $.001 par value; 20
shares issued and outstanding at Dec. 31, 1999 and March 31,
1999, respectively 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
36,309,189 and 30,736,721 issued and outstanding at Dec. 31,
1999 and March 31,1999, respectively 36,309 30,737
Additional paid-in capital 38,267,202 36,947,244
Accumulated deficit (36,082,145) (33,646,491)
Warrants 481,850 481,850
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TOTAL STOCKHOLDERS' EQUITY 2,703,217 3,813,342
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,446,967 $ 4,781,085
============ ============
See notes to consolidated financial statements.
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
NINE MONTHS ENDED DEC. 31 QUARTER ENDED DEC. 31
1999 1998 1999 1998
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REVENUES $ - $ - $ - $ -
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EXPENSES
General and administrative
2,402,917 2,849,742 795,378 968,417
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LOSS FROM OPERATIONS
(2,402,917) (2,849,742) (795,378) (968,417)
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OTHER INCOME (EXPENSE):
Amortization of stock
options granted to non-employees - (459,376) - -
Other - net 46,435 37,304 7,763 (18,073)
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Total other income (expense) 46,435 (422,072) 7,763 (18,073)
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LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (2,356,482) (3,271,814) (787,615) (986,490)
Equity in losses of affiliate (171,730) - (81,817) -
Equity in income from (losses of)
unconsolidated subsidiary 442,820 (1,412,881) 520,408 (1,053,679)
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NET LOSS (2,085,392) (4,684,695) (349,024) (2,040,169)
PREFERRED STOCK DIVIDEND 350,262 614,051 258,152 145,107
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LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,435,654) $ (5,298,746) $ (607,176) $ (2,185,276)
============== ============== ============= =============
BASIC LOSS PER COMMON SHARE $ (0.07) $ (0.20) $ (0.02) $ (0.08)
============== ============== ============= ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 32,924,478 26,458,488 34,367,985 25,971,101
============== ============== ============= =============
See notes to consolidated financial statements.
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AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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NINE MONTHS ENDED DEC. 31
1999 1998
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UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss $ (2,085,392) $ (4,684,695)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost - 459,374
Depreciation 34,200 35,699
Issuance of common stock for directors' fees 25,000 -
Equity in losses of affiliate 171,730 -
Equity in (income) losses of unconsolidated
subsidiary (442,820) 1,458,765
(Increase) decrease in:
Prepaid expenses and other current assets (14,490) 82,225
Office lease deposit and other assets - 55,186
Increase (decrease) in:
Accounts payable and accrued expenses 58,453 (222,796)
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Net cash used in operating activities (2,253,319) (2,816,242)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and equipment 500 (13,427)
Loans receivable (575,000) -
Investment in affiliate (803,183) -
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Net cash used in investing activities (1,377,683) (13,427)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock buy back (88,633) (321,606)
Series E Preferred stock buy back - (100,000)
Repayment of advance from unconsolidated subsidiary 500,000 -
Proceeds from loans payable 1,125,050 -
Proceeds from exercise of employee stock options 631,404 2,191,986
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Net cash provided by financing activities 2,167,821 1,770,380
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NET DECREASE IN CASH AND CASH EQUIVALENTS (1,463,181) (1,059,289)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,093,141 2,134,662
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 629,960 $ 1,075,373
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See notes to consolidated financial statements.
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AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during the first nine months of
fiscal 1999 or 1998.
NON CASH FINANCING ACTIVITIES:
Nine months ended December 31, 1999
29.8 shares of Series E Convertible Preferred Stock were converted into
3,858,346 shares of common stock.
A total of 180,000 shares of Common Stock were issued to officers of the
Company as stock awards pursuant to their employment agreements. And a
total of 20,000 shares of its Common Stock were issued to some of its
directors as compensations.
On June 18, 1999, the Company and Jacqueline B. Brandwynne reached a
settlement in principle of the legal proceedings filed against the Company
on April 15, 1996. The Company has paid Ms. Brandwynne $250,000 in AmTec
Common Stock, which includes her claim for attorney's fees. A total of
210,525 shares of Common Stock were issued to Ms. Brandwynne and her
attorney in September 1999 pursuant to the settlement agreement.
Nine months ended December 31, 1998
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 at December 31, 1999 are
unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial
position and operating results for the interim period. All of the
adjustments are of a normal recurring nature. The consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and
results of operations, contained in the Annual Report on Form
10-K/A filed by the Company on August 23, 1999 for the Company's
fiscal year ended March 31, 1999. The results of operations for
the nine months ended December 31, 1999 are not necessarily
indicative of the results for the entire year ending March 31,
2000.
Basis of Presentation - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles. Realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's
existing investments developing profitable operations.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
Consolidation - The consolidated financial statements include the
Company's wholly- owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Equity Method of Accounting - The Company accounts for its
subsidiary Hebei United Telecommunications Equipment Co., Ltd. and
subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint
venture) using the equity method of accounting, as minority
shareholders of Hebei Equipment have substantive participating
rights under the joint venture contract. The Company reports its
investment in Hebei Equipment under the caption "Investment in and
advances to unconsolidated subsidiary". Under the equity method,
the investment is carried at cost of acquisition, plus the
Company's equity in undistributed earnings or losses since
acquisition. Equity in the losses of the unconsolidated subsidiary
is recognized according to the Company's percentage ownership in
the unconsolidated subsidiary until the Company's contributed
capital has been fully depleted. Reserves are provided where
management determines that the investment or equity in earnings is
not realizable. The Company has used its ownership percentage of
70% for purposes of calculating the share of earnings of its
unconsolidated subsidiary, Hebei Equipment. Hebei Equipment owns
51% of Hebei United Telecommunications Engineering Company, Ltd.
("Hebei Engineering"). Hebei Equipment also accounts for its
investment in Hebei Engineering by using the equity method of
accounting as minority shareholders of Hebei Engineering have
substantive participating rights under the joint venture contract.
Included in the financial statements are the financial statements
of the Company for the nine months ended December 31, 1999 and
1998. The Company's share of equity in losses of Hebei Equipment
included in the consolidated financial statements are as of and
for the nine months ended September 30, 1999 and 1998. This is
done so that the Company can ensure that delays in receiving
information from China would not cause problems for the Company in
meeting its reporting deadlines. However, the Company does monitor
events in the lag period and, where appropriate, would disclose
the occurrence of any significant event during such lag period
under Subsequent Events. The summary financial information of
Hebei Equipment and Hebei Engineering are included in Note 6 to
the financial statements.
The Company owns 50% of IP.Com, LLC and accounts for its
investment using the equity method of accounting. The summary
financial information of IP.Com, LLC are included in Note 7 to the
financial statements. The Company reports its investment in
IP.Com, LLC under the caption "Investment in afflilate".
NOTE 3 - ASSETS
The December 31,1999 consolidated balance sheet includes total
current assets of approximately $0.7 million and total assets of
approximately $4.4 million. Of these amounts, approximately $0.6
million of cash is planned for parent company operations,
approximately $2.4 million represents an investment in and advance
to Hebei Equipment and approximately $0.6 million represents a
loan receivable from IXS.NET, a private IP fax service provider.
(See note 8)
NOTE 4 - LIABILITIES
The December 31, 1999 consolidated balance sheet includes total
liabilities of approximately $1.7 million. Approximately $0.6
million were accounts payable and accrued expenses which are
mainly legal and professional fees payable. During the quarter
ended December 31, 1999, Terremark Holdings, Inc. ("Terremark"), a
privately held, full service real estate and development company
based in Miami, Florida agreed to provide AmTec with
collateralized bridge financing up to $1.5 million, to meet
AmTec's short-term capital requirements and working capital needs.
The bridge loan bears 10% annual interest and will become
immediately due and payable if the merger agreement (see note 11)
is not approved by AmTec's stockholders. Additionally, if the
merger does not close by July 1, 2000, AmTec is obligated to
repay, if any, the outstanding balance on the bridge loan. As of
December 31, 1999, AmTec has obtained approximately $1.1 million
under this facility. AmTec has collateralized the bridge financing
by pledging all of its tangible and intangible assets to secure
the bridge loan.
NOTE 5 - CHANGES TO EQUITY
The decrease in Stockholders' Equity of approximately $1.1 million
for the nine months ended December 31, 1999 was primarily due to
the operating net loss of approximately $2.1 million and was
partly offset by the issuance of common stock for approximately
$1.0 million.
As per Section 5 (d) of the Certificate of Designations of
Preferences of the Series E Convertible Preferred Stock, all
Series E Shares outstanding as of the second anniversary of the
issuance, which is October 22, 1999, were subject to automatic
conversion into the Company's common stock. On October 22, 1999,
the 19.404 Series E Preferred Shares outstanding all converted
into 2,679,599 shares of Common Stock. During the nine months
ended December 31, 1999, the Company issued a total of 3,858,346
shares of its Common Stock upon the conversion of 29.8 shares of
its Series E Convertible Preferred Stock.
On September 14, 1998 the Company announced its intention to
purchase up to $1 million of its common stock on the open market.
During the nine months ended December 31, 1999, the Company
purchased 70,000 shares under this program for a total cost of
approximately $89,000. All the common stock repurchased was
cancelled as of December 31,1999.
During the nine months ended December 31, 1999, the Company issued
1,373,597 shares of its Common Stock upon the exercise of stock
options by former employees. The Company also issued 180,000
shares of its Common Stock as stock awards to some of its officers
pursuant to their employment agreements.
As of June 18, 1999, the Company and Jacqueline B. Brandwynne
reached a settlement in principle of the legal proceedings filed
against the Company on April 15, 1996. A final agreement has been
signed and the parties have agreed to release each other from all
claims. The Company has paid Ms. Brandwynne $250,000 in AmTec
Common Stock, which included her claim for attorney's fees. A
total of 210,525 shares of Common Stock were issued to Ms.
Brandwynne and her attorney during the quarter ended September 30,
1999 pursuant to the settlement agreement.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial information of
the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's nine months ended
December 31, 1999 and 1998:
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NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
UNAUDITED UNAUDITED
1999 1998 1999 1998
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HEBEI EQUIPMENT
Revenues $ - $ - $ - $ -
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Net income (loss) $ 632,600 $ (1,982,181) $ 743,440 $ (1,505,256)
============= ============= ============= =============
HEBEI ENGINEERING
Revenues $ - $ 606,629 $ - $ 173,994
============= ============= ============= =============
Net income (loss) $ 3,292,534 $ (1,323,681) $ 3,887,384 $ (526,001)
============== ============= ============= =============
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As expected, during the quarter ended December 31, 1999, the
Company learnt that Unicom terminated their cash flow sharing and
technical services agreement with Hebei Engineering. With the
termination of that agreement, Hebei Engineering ceased to receive
revenue from Unicom and Hebei Engineering's interests in six
cellular networks in Hebei Province have been transferred to
Unicom. Hebei Engineering recorded a gain of approximately $7.5
million with respect to the transfer of the networks of which $0.8
million was transferred to Hebei Equipment.
NOTE 7 - INVESTMENT IN AFFILIATE
The following table represents summary financial information of
the Company's investment in an affiliate company, IP.Com, LLC for
the quarter and nine months ended December 31, 1999 and 1998:
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NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
UNAUDITED UNAUDITED
1999 1998 1999 1998
---- ---- ---- ----
IP.COM
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Revenues $ 1,143,016 $ - $ 1,101,862 $ -
================ ================ ================ ================
Net loss $ (343,459) $ - $ (163,635) $ -
================ ================ ================ ================
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AmTec owns 50% of IP.Com, LLC and accounts for its investment
using the equity method of accounting. IP.Com began it operations
in late September 1999 and AmTec's shares of its equity loss was
$171,730 for the nine months ended December 31, 1999.
NOTE 8 - LOAN RECEIVABLE
Loan receivable represents a convertible debt investment made by
AmTec in IXS.Net. The loan receivable bears a prime interest rate
and bears a prime plus 4% interest payable upon defaults. During
May 1999, the Company formed a three-way alliance with Fusion
Telecommunications International, Inc. ("Fusion") and IXS.NET. The
Company and Fusion made an equal convertible debt investment into
IXS.NET and the Company has an option to acquire up to 50% of
IXS.NET. AmTec intends to convert the debt into equity investment
during its fiscal year 2001.
IXS.NET purchases network and transmission services from
established carriers at discounted prices and resells the services
to its customers. Revenue derived from the provision of
telecommunications services are recognized in the period during
which the call terminates. Revenues are derived from the sale of
IP Fax, IP Phone and calling card services. The following table
represents summary financial information of IXS.NET for the
quarter and nine months ended December 31, 1999 and 1998:
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NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
UNAUDITED UNAUDITED
1999 1998 1999 1998
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IXS.NET
Revenues $ 955,961 $ - $ 724,553 $ -
============== ============== ============== ==============
Net loss $ (468,496) $ - $ (220,129) $ -
============== ============== ============== ==============
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NOTE 9 - NEW ACCOUNTING STANDARD NOT YET ADOPTED
The Financial Accounting Standards Board has issued a new standard
SFAS No. 133 "Derivative Instruments and Hedging Activities",
which is effective for fiscal years beginning after July 1, 2000.
Management has not yet completed the analysis of the impact this
would have on the financial statements of the Company and has not
adopted this standard.
NOTE 10 - UNCOMPLETED TRANSACTIONS
During 1998, the Company signed an agreement with a subsidiary of
Global TeleSystems, Inc. ("GTS"), under which that subsidiary of
GTS would acquire approximately 5.9 million shares of the
Company's common stock and the Company would acquire GTS's 75%
interest in a Shanghai-based joint venture. This joint venture
hold 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. AmTec has terminated
the agreement because, among other reasons, necessary governmental
approvals were not granted. GTS has agreed to the termination.
During 1998, AmTec entered into an agreement to acquire an
investment in a cable television network venture located in Hunan
province, PRC, from United International Holdings ("UIH"). AmTec
has terminated the agreement because, among other reasons, the
closing had not occurred by December 31, 1999 through no fault of
AmTec. AmTec believes that it had clear rights to terminate the
agreement.
NOTE 11 - PROPOSED ACQUISITION
On November 9, 1999, the Company announced it signed a Letter of
Intent to acquire Terremark Holdings, Inc. ("Terremark"), a
privately held, full service real estate and development company
based in Miami, Florida. AmTec will be the surviving company and
under the terms of the proposed acquisition, will acquire all
existing Terremark's net assets, including real estate,
development projects, management and construction contracts and
brokerage operations.
The two companies signed a definitive merger agreement on November
24, 1999. The transaction, which requires the approval of the
shareholders is proceeding and is expected to close in the first
half of 2000.
Failure of the AmTec shareholders to approve the terms of the
merger could result in material adverse change to AmTec, including
an impaired ability to fund its capital expenditures to expand its
business opportunities. In turn, this could result in an inability
to fund the Company's ongoing operations. If the merger does not
take place, AmTec expects to raise the capital necessary to repay
the $1.5 million bridge loan to Terremark by issuing a debt
instrument but there is no assurance that this can be done on
satisfactory terms or terms that would not be materially adverse
to the existing shareholders. Failure to repay this loan could
have a material adverse effect on the Company's ability to
continue as a going concern.
NOTE 12 - SUBSEQUENT EVENTS
Hebei Engineering ceased its operations and began its winding up
procedures after the transfer of its interests in the cellular
networks in Hebei Province to Unicom. As of January 24, 2000,
Hebei Equipment received approximately $817,000 as a result of
the liquidation of Hebei Engineering.
During the month of January and through February 8, 2000, the
Company received $1,254,599 from former employees upon the
exercise of 590,434 stock options and $61,751 upon the conversion
of 24,950 warrants.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
AmTec is a company that provides value-added telecommunications
services to and from the Far East and has telecommunications investments in
the People's Republic of China. We initially focused our business on China
because of that country's large and rapidly growing need for
telecommunications services and its requirement for foreign capital and
technology to meet that need. As a result of our experience gained from our
early ventures with GSM cellular projects in Hebei Province, we decided
that our business goals would best be achieved by forming alliances with
partners that provide international telecom and internet related services
to and from China. So, in 1999, we formed a joint venture with Fusion
Telecommunications International to provide telecom services, both voice
and data, to and from Asia and we have a debt investment in IXS.NET, Inc.
to provide fax services over the Internet, prepaid credit cards and other
Internet Protocol based services.
While our joint venture operations in six cellular networks in
Hebei Province in Northeast China have been terminated, Hebei Province is
negotiating to try to continue an ongoing participation in these networks
but, more important, to reposition the joint venture to provide Internet
Protocol fax, access and calling cards, voice and other services which can
be transmitted over digital telephone lines or the Internet.
AmTec expects to continue to grow through alliances with
international telecom and internet services companies as a way of building
shareholder value.
The merger with Terremark is expected to provide the financing
needed to expand these businesses in China, and other markets.
CELLULAR TELEPHONE NETWORKS
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, held 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. Since the fall of 1998, the government of the People's Republic
of China has taken a number of actions that have changed the legal
environment in which the Company operates in China, including the
requirement that Unicom terminate or revise its agreements with foreign
invested companies. Consequently, Unicom terminated Hebei Engineering's
cash flow sharing and technical services agreement. With the termination of
that agreement, Hebei Engineering was liquidated and the Company's joint
venture interests in six cellular networks in Hebei Province have been
transferred to Unicom. As of January 24, 2000, Hebei Equipment received
approximately $817,000 as a result of the liquidation of Hebei Engineering.
IP.COM, LLC
On April 28, 1999, AmTec formed a 50-50% joint venture, IP.Com,
LLC, with Fusion Telecommunications International, Inc. ("Fusion"), , a
private facilities-based, multinational long-distance company. Fusion's
current service offerings include voice and data, switched and dedicated,
domestic and international long-distance and domestic and international
prepaid calling cards, provided through a network of owned and leased
facilities, leased lines and resale agreements.
IP.Com provides value-added telecommunication services, including
telephony and data, to Asia. Utilizing AmTec's established presence in
China and Fusion's telecommunication franchise, the companies plan to
expand the service offerings of the joint venture to include a fully
integrated Internet protocol ("IP") based network to provide voice and fax
services. The IP.Com, LLC joint venture agreement provides both AmTec and
Fusion with a right of first refusal to participate as equal partners in
new projects in China
IXS.NET, INC.
During May 1999, AmTec formed a three-way alliance with Fusion and
IXS.NET, a private IP fax service provider, to develop IP fax services in
Asia. AmTec and Fusion agreed to make an equal convertible debt investment
into IXS.NET and AmTec has an option to acquire up to 50% of IXS.NET. The
convertible debt agreement provides for AmTec to advanced up to $575,000
over the eighteen months period, subject to certain terms and conditions.
The IXS.NET business equips a local business with a modem that
transfers international fax calls through a local phone call on the Public
Switched Telephone Network ("PSTN") to an Internet node in the city of
origin, then transmits the fax on the Internet internationally to the city
of destination, converts the fax call to a local telephone call in the city
of destination on city's PSTN which is transmitted to the destination fax
telephone number. This model saves the standard international telephone
phone call charges, which are very expensive to and from China. This
business model can result in a significant savings to any business that
faxes internationally on a regular basis.
IXS.NET purchases network and transmission services from
established carriers at discounted prices and resells the services to its
customers. Revenue derived from the provision of telecommunications
services are recognized in the period during which the call terminates.
Revenues are derived from the sale of IP Fax, IP Phone and calling card
services. For the quarter ending December 31, 1999, revenues were $724,553.
On an annualized basis, the December figures produced recurring revenue of
$3.8 million.
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1999
AS COMPARED TO THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1998.
AmTec's joint venture, IP.Com, LLC., started its operations
beginning late September 1999 and recorded revenues of $1.1 million for
the period from September 15, 1999 through December 31, 1999. AmTec
reported no revenues on its consolidated financial statements because the
results of operations of AmTec's subsidiary Hebei Equipment and its
subsidiary, Hebei Engineering, as well as its joint venture IP.Com, LLC
have been accounted for under the equity method of accounting. AmTec has
recorded only its share of income (losses) of its unconsolidated subsidiary
and joint venture according to the percentage of its equity interest. AmTec
had net losses of $2.1 million and $4.7 million during the nine months
ended December 31, 1999 and 1998, respectively.
General and administrative expenses decreased from approximately
$2.8 million during the nine months ended December 31, 1998 to
approximately $2.4 million during the nine months ended December 31, 1999.
The decrease is primarily related to a reduction in legal and professional
fees related to the pending GTS and UIHH merger transactions and a
reduction in salaries and fringe benefits as some employees resigned in
June 1999.
General and administrative expenses decreased from approximately
$1.0 million during the three months ended December 31, 1998 to
approximately $0.8 million during the three months ended December 31, 1999.
The decrease is primarily attributed to a reduction in salaries and fringe
benefits as some employees resigned in June, 1999.
The Company reported assets of approximately $4.4 million at
December 31, 1999, a decrease of approximately $ 0.3 million from March 31,
1999. This decrease primarily related to the funding of current operations
using cash and the cash payments to reduce current accounts payable.
The consolidated balance sheet of the Company included total
liabilities of approximately $1.7 million as of December 31, 1999 compared
to approximately $1.0 million as of March 31, 1999. The increase in
liabilities primarily relates to a bridge loan obtained from Terremark
during the quarter.
The Company's loss before preferred stock dividends decreased from
approximately $4.7 million during the nine months ended December 31, 1998
to approximately $2.1 million during the nine months ended December 31,
1999. The decrease relates to a decrease in general and administrative
expenses of approximately $0.4 million, a decrease of approximately $0.5
million related to amortization of Non-employee deferred option costs and a
decrease of approximately $1.7 million in equity in losses of
unconsolidated subsidiary.
Stockholders' Equity decreased by approximately $1.1 million from
March 31, 1999 to December 31, 1999, as a result of a loss for the nine
months of approximately $2.1 million and an increase in Additional paid-in
capital of approximately $1.0 million related to issuance of AmTec's Common
Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an operating loss of approximately $2.1 million
and a loss applicable to common shares of $2.4 million during the nine
months ended December 31, 1999. While the Company expects to achieve
profitable operations within several years, there can be no assurances that
the Company will achieve this goal.
During the nine months ended December 31, 1999, the Company's cash
decreased by approximately $1.4 million, primarily due to cash used to fund
current operations, loans to IXS.NET and investments made in IP.COM. The
Company received $0.5 million repayment of some of its advances to its
subsidiary in September 1999. During the quarter ended December 31, 1999,
the Company obtained a bridge loan for up to $1.5 million from Terremark of
which AmTec has borrowed approximately $1,125,000. This bridge loan is
collateralized by all of AmTec's tangible and intangible assets. If the
pending merger with Terremark is completed, the bridge loan will be
forgiven. If the merger does not close by July 1, 2000, AmTec is obligated
to repay any outstanding balance on the bridge loan. It is expected that
AmTec will need to borrow additional funds from the bridge loan to meet its
obligations as they become due during the quarter ending March 31, 2000.
If the bridge loan becomes due and the merger is not completed,
the Company is unlikely to have the means to repay it. Since the bridge
loan is secured by all the Company's assets, nonpayment will likely render
the Company insolvent and could lead to insolvency proceeding or
liquidation.
EQUITY ISSUANCE
During the nine months ended December 31, 1999, the Company issued:
3,858,346 shares of its Common Stock upon conversion of 29.8 shares of the
Company's Series E Convertible Preferred by certain holders of the Series E
Shares;
1,373,597 shares of its Common Stock upon the exercise of stock options by
former employees;
180,000 shares of its Common Stock as stock awards granted to some of its
officers pursuant to their employment agreements;
20,000 shares of its Common Stock as compensation paid to some of its
directors; and
210,525 shares of its Common Stock upon settlement of a legal proceeding
filed against the Company by a former shareholder.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year.
Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and have been
implemented to make the necessary modifications to ensure Year 2000
compliance. The financial impact of making the required system changes for
Year 2000 compliance has not had any material effect on the Company's
financial statements.
The Company has not identified material non-compliant systems operated by,
or in the control of, the Company, or of third parties. The Company has not
received any report of a systems failure beyond the control of the Company
to remedy. The Company does not expect a major failure to occur in the
future that will 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
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
--------
27. Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
The Company filed no reports on Form 8-K during the Quarter
ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: February 10, 2000 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
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