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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
MARCH 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from _____________ to ____________
Commission file number 0-22520
TERREMARK WORLDWIDE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1981922
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2601 S. BAYSHORE DRIVE, COCONUT GROVE, FLORIDA 33133
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (305) 856-3200
Securities registered pursuant to Section 12(b) of the Act:
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COMMON STOCK, PAR VALUE $0.001 PER SHARE AMERICAN STOCK EXCHANGE
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(Title of Class) (Name of Exchange on Which Registered)
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark 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 preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (17CFR 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON JUNE 2, 2000, BASED UPON THE CLOSING MARKET
PRICE OF THE REGISTRANT'S VOTING STOCK ON THE AMERICAN STOCK EXCHANGE ON
JUNE 27, 2000, WAS APPROXIMATELY $457,265,812.
THE REGISTRANT HAD 193,551,679 SHARES OF COMMON STOCK, $0.001 PAR
VALUE, OUTSTANDING AS OF JUNE 2, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN PORTIONS OF THE REGISTRANT'S PROXY STATEMENT TO BE FILED IN
CONNECTION WITH ITS 2000 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY
REFERENCE IN PART III OF THIS REPORT.
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TABLE OF CONTENTS
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PAGE NO.
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PART I............................................................................................................3
ITEM 1. BUSINESS...............................................................................................3
ITEM 2. PROPERTIES.............................................................................................8
ITEM 3. LEGAL PROCEEDINGS......................................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................9
PART II..........................................................................................................10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................10
ITEM 6. SELECTED FINANCIAL DATA...............................................................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................15
PART III.........................................................................................................16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................................16
ITEM 11. EXECUTIVE COMPENSATION...............................................................................19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.....................................20
SIGNATURES....................................................................................................22
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PART I
ITEM 1. BUSINESS.
OVERVIEW
We are a company that provides value-added telecommunications services
to 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. We have also
formed a joint venture with Fusion Telecommunications International to provide
telecom services, both voice and data, to and from Asia. We have invested in
IXS.NET, Inc. to provide fax services over the Internet, prepaid credit cards
and other Internet Protocol based services.
On April 28, 2000, we completed a merger with Terremark Holdings, Inc.,
a company engaged, since 1982, in the development, construction, sale, leasing,
management and financing of various real estate projects. Pursuant to this
merger, we changed our name from AmTec, Inc. to Terremark Worldwide, Inc.
Terremark has provided these services to private and institutional investors, as
well as for its own account. The real estate projects with which Terremark has
been involved have included retail, high rise office complexes, mixed use
projects, condominiums, condominium hotels, and governmental assisted housing.
Terremark is also involved in a number of ancillary businesses which complement
its core development operations. Specifically, Terremark engages in brokering
financial services, property management, construction, construction management,
condominium hotel management, residential sales and commercial leasing and
brokerage and advisory services.
In connection with our merger with Terremark, we also sold 68,722,349
shares of our common stock for approximately $28,122,925 to Vistagreen Holdings
(Bahamas), Ltd., Paradise Stream (Bahamas) Limited and Moraine Investments Inc.
In this document, we sometimes refer to these three stockholders together as the
Vistagreen Group.
This report and other written reports and oral statements made from
time to time by us may contain so-called "forward looking statements," all of
which are subject to risks and uncertainties. You can identify these
forward-looking statements by the use of words such as "expects," "plans,"
"will," "estimates," "forecasts," "projects" and other words of similar meaning.
You can also identify them by the fact that they do not relate strictly to
historical or current facts. These statements are likely to address our growth
strategy, financial results and development programs. You must carefully
consider any such statement and should understand that many factors could cause
actual results to differ from our forward-looking statements. These factors
could include inaccurate assumptions and a broad variety of other risks and
uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially. Although it is not possible to predict or identify all such factors,
they may include those listed below, which should not be considered an
exhaustive statement of all potential risks and uncertainties:
o Realization of the anticipated benefits of our recent merger with
Terremark will depend in part on whether we can integrate our
operations in an efficient and effective manner.
o As a result of the merger, we have a new focus to our business. Our
primary business will now involve both telecommunications and real
estate. Because of this new focus, our results of operations to date
may not reflect future results. In addition, we will encounter
challenges and difficulties frequently encountered by early-stage
companies in new and evolving markets.
o We plan additional international expansion in both the
telecommunication and real estate areas which may subject us to
numerous risks associated with international operations.
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o We may face substantial liabilities for indemnification of tax
obligations if we are or become a United States real property holding
corporation. We have agreed to indemnify the Vistagreen Group against
certain tax liabilities that could be incurred by them relating to
their purchase of 68,722,349 shares of our common stock immediately
after the merger in the event that our company was, at the time of the
merger, or becomes, a United States real property holding corporation
as defined in Section 897(c)(2) of the U.S. Internal Revenue Code.
o We could be sued as a result of an uncompleted transaction. 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 or UIH. AmTec terminated the agreement
because, among other reasons, the closing had not occurred by December
31, 1999 through no fault of AmTec. On December 30, 1999, UIH had
indicated that it was ready to close the agreement. Although we
believe that AmTec had clear rights to terminate the agreement, should
UIH seek judicial relief to require us to close, its superior
financial resources could limit our ability to defend ourself.
o China telecommunications regulations could impact our business.
Chinese laws and regulations have prohibited foreign investors and
foreign invested enterprises from owning or operating
telecommunication networks in China.
o Internet regulation in China is unclear, and no single regulatory act
has been promulgated to govern the Internet in China. Consequently,
our ability to operate or invest in Internet-based services is
unclear.
o We have limited operating control in our joint ventures. Because we do
not have majority voting rights in certain of our joint ventures, we
cannot completely control or direct the operation of these entities.
o Political risks in China may adversely affect our business operations.
China has been a socialist state since 1949 and is controlled by the
Communist Party of China. Changes in the political leadership of China
may have a significant effect on their laws and policies.
o Technological advances may make our telecommunications operations
obsolete.
o We face severe competition. The Internet service provider, or ISP,
market is highly competitive in China. There are five national ISPs
owned and operated by the national government. There are over 150
private ISPs licensed to operate in various provinces. Thus, privately
owned ISPs often compete with government owned or affiliated ISPs. The
playing field is unequal, with government-affiliated ISPs having
access to subsidized dial up lines, leased lines and Internet
bandwidth. Our strategic partners may face severe competition as the
Internet develops in China.
o Economic conditions, including interest rates, greatly impact the real
estate market.
o The real estate industry is cyclical and affected by changes in
general and local economic and other conditions including employment
levels, demographic considerations, availability of financing,
interest rate levels, consumer confidence and real estate demand.
o Up front cash requirements may create cash flow problems. We develop
real estate projects. Acquiring land and committing the financial and
managerial resources to develop such projects involve significant
risks. Before a development generates any revenue, material
expenditures are required for items such as acquiring land,
professional fees, construction, financing costs, sales and marketing.
o Our real estate investments are highly leveraged and we may not be
able to make the debt service payments.
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o A significant portion of the financing of our real estate business is
structured as balloon payments, which may be harder for us to pay off
than debt that is structured with level amortization.
o Our real estate management contracts are generally cancellable on
short notice.
o Our real estate operations are situated primarily in South Florida and
this geographic concentration exposes us to certain risks.
o The occurrence of uninsured losses could have a material adverse
effect on our financial condition.
o We are subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning land use that may
adversely impact our business.
o Liability relating to environmental contamination may adversely impact
our business.
We were originally founded as a Colorado corporation on May 10, 1982,
and were reincorporated under the laws of the State of Delaware on July 10,
1996. Since April 1995, we have been engaged in the business of developing
telecommunications networks in the PRC. In January 1996, we sold substantially
all of the assets of ITV Communications, Inc., our former primary operating
subsidiary. On July 8, 1997, we changed our name to AmTec, Inc. from AVIC Group
International, Inc. On April 28, 2000 we merged with Terremark Holdings, Inc.
and changed our name to Terremark Worldwide, Inc. Our principal executive office
is located at 2601 S. Bayshore Drive, 9th Floor, Coconut Grove, Florida 33133.
Our telephone number is (305) 856-3200.
Telecommunications Operations
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TELECOM HOTELS. On May 31, 2000, we acquired Telecom Routing Exchange
Developers, also known as "T-Rex Developers," a facilities provider to the
telecommunications industry. T-Rex Developers develops new facilities and
converts existing properties for use as telecommunications routing exchanges.
Telecommunications routing exchanges are facilities used by telecommunications
companies to house their switches and provide leasable space for internet
service providers, content providers, co-location companies and other similar
tenants. T-Rex Developers is the exclusive real estate service provider for
Telecom Partners, an entity in which the founders of T-Rex Developers have an
interest. Telecom Partners presently owns four properties, one located in each
of Boca Raton, Florida, Cleveland, Ohio, Hartford, Connecticut, and Miami,
Florida.
On June 22, 2000, we completed a transaction to acquire Post Shell
Technology Contractors, Inc. Post Shell Technology Contractors is a 17 year old
Miami company which has performed general contracting services for complex
construction projects, including telecommunications facilities. We feel their
experience will be of benefit to us in our development of our T-Rex brand of
telecom hotels.
CELLULAR TELEPHONE NETWORKS. We hold a 70% interest in Hebei United
Telecommunications Equipment Company Limited, or 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, or Hebei
Engineering, a joint venture with NTT International, or NTTI, and Itochu Corp.
Since the fall of 1998, the government of the PRC has taken a number of actions
that have changed the legal environment in which we operate in China, including
the requirement that China United Telecommunications, Incorporated, which we
refer to as 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 our 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. Our investment in Hebei Equipment is accounted
for under the equity method. Hebei Equipment is organized as Sino-foreign equity
joint venture, or SFJV, under the laws of China and is headquartered in
Shijiazhuang, the capital of Hebei Province. We are currently pursuing the
liquidation of Hebei Equipment.
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IP.COM, LLC. On April 28, 1999, we formed IP.Com, LLC, a 50-50% joint
venture, with Fusion Telecommunications International, Inc., or 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 long distance international telecommunication services,
including telephony and data, to Asia. Currently IP.Com markets its services
only outside China. The joint venture agreement provides a right of first
refusal, to both us and Fusion, to participate as equal partners in new projects
in China.
IXS.NET, INC. During May 1999, we formed a three-way alliance with
Fusion and IXS.NET, a private IP fax service provider, to develop IP fax
services in Hong Kong, Taiwan and Guangdong Province and to act as a value-added
reseller for Jitong Communications Corp., one of the three licensed IP fax
operators in China. We, together with Fusion, agreed to make an equal
convertible debt investment into IXS.NET and we have an option to acquire up to
a 50% interest in IXS.NET.
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, or PSTN, to an Internet node in the city of origin,
then transmits the fax on the Internet internationally to the city of
destination, and converts the fax call to a local telephone call in the city of
destination on its PSTN which is transmitted to the destination fax telephone
number. This model saves the standard international telephone phone call
charges, which can be 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.
Real Estate Operations
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Since our merger on April 28, 2000 with Terremark, we have been engaged
in the real estate activities described below.
DEVELOPMENT. Our development activities involve concept development,
the acquisition of land, the design of the project, arranging for equity and
financing, construction, sales and leasing and ultimate disposition. Our history
of development operations has included variations from this full scale concept
of development to an exit strategy which has involved reselling undeveloped
land, selling a project before completion, joint ventures and redevelopment of
existing projects.
We intend to build on the success of our Fortune House condominium
hotel development by creating a brand name for similar future developments and
to manage similar projects for other developers. We currently own over two acres
of oceanfront property in Ft. Lauderdale, on which we intend to build the second
Fortune House Condominium Hotel.
Other current development projects include the following:
o the Four Seasons Hotel and Tower, a 63 story, 1.2 million square
foot mixed use project located in Miami, Florida which includes a
five star hotel, class A office, retail and ultra luxury
condominium units, and for which we are acting as the
co-developer, along with New York based Millennium
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Partners, and for which we are also providing mortgage brokerage,
sales, construction management, leasing and property management
services;
o Brickell Village, an 11 acre development on the Miami River in
Miami's central business district, for which we are also acting
as co-developer, along with Millennium Partners, and which
project will include, in phases, approximately 900,000 square
feet of retail entertainment and 2 million square feet of
residential and office towers;
o Fortune House-Fort Lauderdale Beach, a 280 unit four star
condominium hotel which we are developing for our own account and
which is located on the property facing the ocean in the heart of
Fort Lauderdale Beach; and
o Royal Palm Doral Center III, a 105,000 square foot office
building overlooking the Doral Golf Course in the western part of
Miami-Dade County and which we are developing for a German
investor with whom we have previously transacted business, and
for whom leasing, property management and mortgage brokerage
services are also being provided.
REAL-ESTATE AND MORTGAGE BROKERAGE. Our mortgage and real estate
brokerage subsidiaries provide diverse brokerage services to our projects and
for other developers and owners, on a third party basis.
Our real estate brokerage subsidiary is involved with both commercial
and residential properties. We currently represent, as the owners' exclusive
leasing agent, various office buildings containing collectively, over 1.2
million square feet of office space. We also have a number of exclusive and
non-exclusive appointments as the agents for various tenants who are in the
market for new or additional office space. On the residential side, we handle
condominium sales for our own projects such as the Fortune House Condominium
Hotels (Brickell Avenue and Fort Lauderdale Beach locations), and the Four
Seasons Hotel and Tower (once units are ready for the market). In addition, we
have recently been retained by another developer to be the developer's exclusive
agent at two condominium projects located on Miami Beach: The Bentley Beach Club
and the Bentley Bay. We are also acting as the exclusive sales agent for, and
providing advisory services to, a project named the Segovia Tower.
PROPERTY MANAGEMENT. We currently manage buildings that total in excess
of 1.5 million square feet of property, two of which are included in the top ten
largest office buildings in the Miami-Dade area.
CONSTRUCTION SERVICES. We have, in the past, provided construction
management and general contracting services as a part of our development
activities. However, we have expanded this aspect of our business to include
post-shell construction and general contracting services for limited risk
projects, such as mid-size office buildings and retail boxes, on behalf of
owners and developers with whom we have existing relationships.
CONDOMINIUM HOTEL MANAGEMENT. We developed the Fortune House brand of
condominium hotel to enable purchasers to buy furnished condominium suites,
which can be rented to guests when the owner is not in residence. We provide
hotel management services for Fortune House. The second Fortune House, which is
located on Fort Lauderdale Beach, is currently in the development stage. Once
Fortune House Fort Lauderdale is completed, we will operate and manage that
property. We intend to sell the right to participate in the rental program
pursuant to a registration statement filed with the Securities and Exchange
Commission. The interests will thereafter be subject to public reporting under
SEC rules.
ADVISORY AND CONSULTING. Closely related to our financial services and
property management operations, we also provide institutional and private
advisory and consulting services.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS. In developing real
estate, we must obtain the approval of numerous government authorities
regulating such matters as permitted land uses, levels of density and the
availability of utility services such as water and waste disposal. Several
authorities in Florida and other states have imposed impact fees as a means of
defraying the cost of providing certain governmental services to developing
areas and the amount of these fees has increased significantly during recent
years. Many state laws require the use
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of specific construction materials. Local governments also, at times, declare
moratoriums on the issuance of building permits and impose other restrictions.
To date, the governmental approval processes and the restrictive zoning
and moratoriums discussed above have not had a material adverse effect on our
development activities. However, there is no assurance that these and other
restrictions will not adversely affect us in the future.
We are subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning land use. Land use and zoning laws
can vary greatly and may result in delays, cause us to incur substantial
compliance and other costs and prohibit or severely restrict development in some
environmentally sensitive regions or areas. Before consummating the purchase of
land, we engage independent environmental engineers to evaluate that land for
the presence of hazardous or toxic materials, wastes or substances. We have not
been materially affected to date by the presence or potential presence of such
materials. We cannot assure you that these inspections will uncover all
environmental hazards and we will not be adversely affected by such hazards.
To varying degrees, permits and approvals will be required to complete
the developments currently being planned by us. Our ability to obtain necessary
approvals and permits for these projects is often beyond our control, and could
restrict or prevent the development of otherwise desirable property. The length
of time necessary to obtain permits and approvals increases the carrying costs
of unimproved property acquired for the purpose of development and construction.
In addition, the continued effectiveness of permits already granted is subject
to factors such as changes in policies, rules and regulations and their
interpretation and application.
In recent years, regulation by federal and state authorities relating
to the sale and advertising of residential real estate has also become more
restrictive. In order to advertise and sell condominiums and other residential
real estate in many jurisdictions, we have been required to prepare registration
statements or other disclosure documents and, in some cases, to file such
materials with designated regulatory agencies.
COMPETITION AND MARKET FACTORS. The development and sale of real estate
is a highly competitive and fragmented industry. We are not able to estimate the
total number of competitors we face, but are aware that we compete with numerous
national, regional and local developers, including some developers with greater
financial resources. Developers compete not only for tenants and buyers, but
also for desirable properties. When marketing our properties, we must compete
with sales and leases of existing properties. The real estate industry is
cyclical and affected by consumer confidence levels, prevailing economic
conditions generally and, in particular, by interest rate levels. A variety of
other factors affect the real estate industry and demand for new construction,
including the availability of labor and materials and increases in the costs
thereof, changes in associated costs such as increases in property taxes and
energy costs, changes in consumer preferences, demographic trends, the
availability of and changes in financing programs and changing economic
conditions in ancillary markets (e.g., South America).
EMPLOYEES
As of March 31, 2000, we had 10 full time employees in New York and our
subsidiary Hebei Equipment had 10 employees. As a result of our merger with
Terremark, as of June 15, 2000, we had approximately 130 full time employees in
Miami, New York and Washington, D.C.
Our employees are not represented by a labor union and are not covered
by a collective bargaining agreement. We believe that our relations with our
employees are good.
ITEM 2. PROPERTIES.
Until our merger on April 28, 2000, our principal executive offices
were comprised of 7,760 square feet of rental office space located at 599
Lexington Avenue, 44th Floor, New York, New York 10022. We paid an annual rent
of $334,400 pursuant to the lease for this space, which expired in May 2000.
While we have obtained an extension of this lease until October 30, 2000, we are
moving our New York office to the Chrysler Building, also located in New
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York City, in order to accommodate our need for a larger space. Since the
merger, our corporate headquarters have been relocated to the Terremark Centre,
2601 S. Bayshore Drive, Miami, Florida 33133. Since April 1, 2000, we have been
paying $36,650 rent per month for our 14,660 square feet of office space in the
Terremark Centre. We also maintain smaller Florida offices in downtown Miami,
Coral Gables, Boca Raton and South Miami, Florida as well as in Washington D.C.
and Manhattan. We also maintain temporary sales and construction offices. We
believe that our current space is adequate for our expected growth in the next
year.
ITEM 3. LEGAL PROCEEDINGS.
We are, from time to time, involved in litigation relating to claims
arising out of our operations in the normal course of business. These claims
against us are generally covered by insurance. We are not currently subject to
any litigation which singularly or in the aggregate could reasonably be expected
to have a material adverse effect on our financial conditions or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our stockholders during the
quarter ended March 31, 2000. A special meeting of the stockholders was held on
April 28, 2000 in order to, among other things, approve our merger with
Terremark.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK AND PREFERRED STOCK INFORMATION
Our common stock, par value $.001 per share, is quoted under the symbol
"TWW" on the American Stock Exchange. Prior to April 28, 2000, our common stock
traded under the symbol "ATC" on the American Stock Exchange. As of March 31,
2000, our authorized capital stock consisted of 100,000,000 shares of common
stock and 10,000,000 shares of preferred stock. As a part of the merger, our
authorized capital stock was increased to 300,000,000 shares of common stock and
10,000,000 shares of preferred stock. As of June 27, 2000, 193,551,679 shares of
common stock were outstanding and held by 190 holders of record and 20 shares of
our series G convertible preferred stock were outstanding and held by one holder
of record. We believe we have in excess of 9,700 beneficial owners of our common
stock.
The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices for our common stock on the American Stock Exchange.
American Stock Exchange quotations are based on actual transactions and not bid
prices.
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FISCAL YEAR 1999 PRICES
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QUARTER ENDED HIGH LOW
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June 30, 1998 $2.2500 $1.1875
September 31, 1998 1.3750 .8750
December 31, 1998 1.1250 .8125
March 31, 1999 1.625 .9375
FISCAL YEAR 2000 PRICES
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QUARTER ENDED HIGH LOW
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June 30, 1999 $1.4375 $1.2500
September 31, 1999 2.0625 1.0625
December 31, 1999 2.3750 .8750
March 31, 2000 5.9375 1.8125
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DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not plan
to pay cash dividends in the foreseeable future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to our merger with Terremark, we issued to the Terremark
shareholders 78,539,830 shares of our common stock. Pursuant to a Stock Purchase
Agreement by and between Vistagreen Holdings (Bahamas), Ltd., Moraine
Investments, Inc., Paradise Stream (Bahamas) Limited and AmTec, Inc., dated as
of November 24, 1999, as amended, we sold 68,722,349 shares of our common stock
on April 28, 2000. These shares were not registered under the Securities Act of
1933, as amended, based on the exemptions provided by Section 4(2) of the
Securities Act.
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Proceeds of the sale of the stock to the Vistagreen group are being
used for general corporate development, acquisitions and working capital.
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is selected financial data for, and as of the end of,
each of the five years ended March 31, 2000. The selected statement of
operations and balance sheet data for each of the five years ended March 31,
2000 have been derived from our financial statements, which have been audited by
our independent auditors. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and the
Notes thereto included elsewhere in this report.
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Twelve Months Ended March 31,
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2000 1999 1998 1997 1996
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Net Sales................................... $ -0- $ -0- $ -0- $ -0- $ -0-
Loss from continuing operations............. (4,350,107) (4,649,770) (4,282,613) (3,563,568) (3,380,633)
Loss from discontinued operations........... -0- -0- -0- -0- (1,932,977)
Gain on sale of discontinued operations..... -0- -0- -0- -0- 31,888
Net Loss.................................... (4,574,076) (5,579,444) (5,403,368) (4,064,885) (5,281,730)
Loss from continuing operation per common
share..................................... (0.15) (0.23) (0.23) (0.14) (0.13)
Loss from discontinued operation per common
share..................................... -0- -0- -0- -0- (0.08)
Basic and diluted loss per common share..... (0.15) (0.23) (0.23) (0.14) (0.21)
Total Assets................................ 7,489,508 4,781,085 7,683,358 4,004,966 1,660,000
Stockholders' Equity (Deficit).............. 5,223,144 3,813,342 4,896,911 548,088 (2,421,606)
</TABLE>
----------------------------
Financial information for the year 1996 is not comparable to the
financial information provided for 1997, 1998, 1999 and 2000, because prior to
1997 we were not engaged in the development of telecommunications networks in
the PRC.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of results of operations and financial
condition is based upon and should be read in conjunction with our Consolidated
Financial Statements and Notes thereto, the Selected Financial Data and other
financial data appearing elsewhere in this report.
On April 28, 2000, after approval by our stockholders, we completed our
merger with Terremark Holdings, Inc. Pursuant to this merger, we changed our
name from AmTec, Inc. to Terremark Worldwide, Inc. We intend to account for the
merger as a reverse acquisition.
The reverse acquisition will be accounted for as a purchase business
combination in which Terremark is the accounting acquirer and we are the legal
acquirer. As a result of the reverse acquisition, the financial statements on
an ongoing basis will be that of the accounting acquirer, Terremark. The net
assets of the legal acquirer, AmTec, will be revalued and the purchase price
will be allocated to the assets acquired and liabilities assumed.
As the merger was completed after March 31, 2000, all financial
statements and other information contained herein are reflective of business
operations of AmTec only, and do not include the financial results of Terremark.
Certain information relating to the effects of the merger on our financial
condition, are reflected in our Definitive Proxy Statement filed with the
Securities and Exchange Commission on March 24, 2000. The post-merger company
will begin to report combined financial results for the quarter ended June 30,
2000.
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<PAGE> 12
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2000 AS COMPARED TO THE YEAR
ENDED MARCH 31, 1999
Our joint venture, IP.Com, started its operations in September 1999 and
recorded revenues of approximately $2.4 million through March 31, 2000. We
reported no revenue on our consolidated financial statements because the results
of operations of our subsidiary Hebei Equipment and its subsidiary, Hebei
Engineering, as well as IP.Com, have been accounted for under the equity method
of accounting. We recorded only our share of income (losses) of our
unconsolidated subsidiaries according to the percentage of our equity interest.
Selling, general and administrative expenses decreased from
approximately $4.6 million during the year ended March 31, 1999 to approximately
$4.4 million during the year ended March 31, 2000. The decrease is primarily
related to a reduction in legal and professional fees related to the incomplete
Global TeleSystems, Inc., or GTS, and UIH merger transaction and a reduction in
salaries and fringe benefits as some employees resigned in June 1999.
We recorded approximately $380,000 equity income from our
unconsolidated subsidiary, Hebei Equipment, during the year ended March 31,
2000. The equity income represents our share of income reported by Hebei
Equipment for the year ended December 31, 1999. We recorded an equity loss of
approximately $385,000 during the year ended March 31, 1999. The equity loss
represents our share of loss reported by Hebei Equipment for the year ended
December 31, 1998. Hebei Equipment's net income for the year ended December 31,
1999 was attributed to its equity income from its subsidiary, Hebei Engineering
which had a gain on sale of its GSM network during the year. We are currently
pursuing the liquidation of Hebei Equipment.
We recorded approximately $698,000 of equity losses from our affiliate,
IP.Com, during the year ended March 31, 2000. The equity loss represents our
share of loss reported by IP.Com for the year ended March 31, 2000.
We had net losses of approximately $4.6 million and $5.6 million during
the years ended March 31, 2000 and 1999, respectively. Our loss applicable to
common shareholders decreased 21% from approximately $6.2 million during the
year ended March 31, 1999 to approximately $4.9 million during the year ended
March 31, 2000. This decrease in loss applicable to common shares was primarily
due to a decrease in general and administrative expenses, a decrease in the
recognition of preferred stock dividends as well as a decrease in the share of
equity loss from Hebei Equipment, offset by an increase in the equity in loss of
IP.Com.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999 AS COMPARED TO THE YEAR
ENDED MARCH 31, 1998
Our indirect subsidiary, Hebei Engineering, recorded revenues of RmB
6,488,482 (approximately $786,000) for the year ended December 31, 1998, and RmB
1,706,499 (approximately $216,000) for the year ended December 31, 1997. We have
no revenues on our consolidated financial statements because the results of
operations of our subsidiary, Hebei Equipment, were accounted for under the
equity method of accounting. We recorded only our share of losses of our
unconsolidated subsidiary according to the percentage of our equity interest. We
had net losses of $5.6 million and $5.4 million during the fiscal years ended
March 31, 1999 and 1998, respectively.
Selling, general and administrative expenses increased from $4.3
million during the year ended March 31, 1998, to $4.6 million during the year
ended March 31, 1999, due to increases in salaries and legal and professional
expenses incurred during the past year.
The equity in losses of our unconsolidated subsidiary of $607,000
recorded during the year ended March 31, 1998 and $385,000 during the year ended
March 31, 1999 represents our share of losses reported by Hebei Equipment for
the year ended December 31, 1997 and December 31, 1998, during which period we
owned a 60.8% and a 70.0% equity interest, respectively, of Hebei Equipment.
Amortization of stock options granted to non employees was related to
the three million options issued to the Hebei Provincial Government to purchase
an equal number of shares of our common stock at a price of $3.0625 per share.
In accordance with generally accepted accounting principles, we recorded their
estimated value of $1,837,500 during the year
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<PAGE> 13
ended March 31, 1998, and amortized approximately $459,000 during each of the
years ended March 31, 1998 and 1999. The amortization of these options is a
non-cash expense. The options were cancelled as of December 31, 1998.
Other expense of approximately $85,000 was primarily franchise and
other tax paid during the year ended March 31, 1999. We received a tax refund of
approximately $70,000 during the year ended March 31, 1998.
Our loss applicable to common stockholders decreased 9% from $6.8
million during the year ended March 31, 1998, to $6.3 million during the year
ended March 31, 1999. This decrease in loss applicable to common shares was
primarily due to a decrease in the recognition of preferred stock dividends as
well as a decrease in the share of equity loss from Hebei Equipment, offset by
increases in selling, general and administrative expenses.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AS COMPARED TO THE YEAR
ENDED MARCH 31, 1997
We experienced net losses of $5.4 million and $4.1 million during the
years ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expenses increased from $3.6
million during the year ended March 31, 1997, to $4.3 million during the year
ended March 31, 1998, due to increased levels of salaries paid to employees and
legal and professional expenses incurred during the past year.
The equity in losses of our unconsolidated subsidiary of $141,000
recorded during the year ended March 31, 1997 and $607,000 during the year ended
March 31, 1998 represents our share of losses reported by Hebei Equipment for
the year ended December 31, 1996 and December 31, 1997, during which period we
owned a 60.8% equity interest Hebei Equipment.
We issued to the Hebei Provincial Government three million options to
purchase an equal number of shares of our common stock at a price of $3.0625 per
share. In accordance with generally accepted accounting principles, we recorded
their value of $1.8 million and have amortized approximately $459,000. The
issuance of these options is a non-cash expense.
Loss from abandoned assets relates to the assets of Netmatics which
have been written off for the total amount of $87, 000.
Interest expense during the year ended March 31, 1998, decreased to
approximately $125,000 from approximately $129,000 during the year ended March
31, 1997, due to a reduction in the outstanding balance of stockholder loans
payable.
Other income (net) of approximately $70,000 during the year ended March
31, 1998 was related to a tax refund previously paid.
Our net loss increased 33% from $4.1 million during the year ended
March 31, 1997, to $5.4 million during the year ended March 31, 1998. This
increase in net loss was primarily due to the share of equity loss from Hebei
Equipment, amortization of stock options issued to the Hebei Provincial
Government, as well as increases in selling, general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Approximately $3,147,000 of cash was used in our operations during the
fiscal year ended March 31, 2000, compared to cash used of approximately
$3,737,000 during the year ended March 31, 1999. The decrease was primarily due
to decreased selling, general and administrative expenses.
We used approximately $2,284,000 in our investing activities in the
year ended March 31, 2000, compared to approximately $13,000 in the year ended
March 31, 1999. The increase in investing activities is related primarily to an
investment in IP.Com and loans provided to IXS.Net and T-Rex made by us during
the fiscal year 2000.
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<PAGE> 14
The cash inflows from financing activities during the year ended March
31, 2000 were generated primarily from the cash received from the exercise of
stock options and warrants of approximately $5,640,000, a bridge loan obtained
from Terremark of $1,125,000 and the repayment of an advance made to Hebei
Equipment of $500,000.
During the year ended March 31, 2000, we issued 3,858,346 shares of our
common stock upon conversion of 29.8 outstanding shares of our Series E
convertible preferred stock.
During the year ended March 31, 2000, we issued 3,296,408 shares of our
common stock as a result of the exercise of certain employee stock options and
stock warrants. In connection with services performed, we issued 20,000 shares
of our common stock to members of our Board of Directors and we issued a total
of 180,000 shares of our common stock to certain of our officers as stock awards
pursuant to their employment agreements. We also issued 210,525 shares of our
common stock upon settlement of a legal proceeding filed against us by a former
stockholder.
We anticipate that our cash and cash equivalents should be adequate to
finance our operating requirements for the current fiscal year. However, in the
event that we expand our operations, we will need additional financing to
develop the same. Although we believe that financing is available to us, there
can be no assurance that we will be able to obtain the same, or if available,
that the terms will be acceptable to us.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
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, 1999. Our management has not yet completed
the analysis of the impact that would have on our financial statements and has
not yet adopted this standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have not entered into any financial instruments for trading or
hedging purposes.
We are not exposed to fluctuations in foreign currencies relative to
the U.S. dollar, as our revenues, costs, assets and liabilities are, for the
most part, denominated in local currencies. The results of operations of our
subsidiaries were as reported in their local currencies.
Our carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses is a reasonable approximation of their
fair value.
Economic, interest rates and other conditions greatly impact the real
estate market. It is possible that our operations will not generate income
sufficient to meet our operating expenses or will generate income and capital
appreciation, if any, at a rate less than that anticipated or available through
comparable real estate or other investments.
The real estate industry is cyclical and affected by changes in general
and local economic and other conditions including employment levels, demographic
considerations, availability of financing, interest rate levels, consumer
confidence and real estate demand. In addition, developers are subject to
various risks, many of them outside their control including competitive
overbuilding, availability and cost of property, materials and labor, adverse
weather conditions which can cause delays in construction schedules, cost
overruns, changes in government regulations pertaining to building standards or
environmental matters, increases in real estate taxes and other local government
fees and acts of God, such as hurricanes and floods.
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<PAGE> 15
We cannot predict whether interest rates will be at levels attractive
to prospective tenants or buyers and any increase in interest rates could affect
our business adversely.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item 8 are attached to hereto
as Exhibit (a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On April 28, 2000, Terremark merged with and into AmTec, Inc. AmTec was
the surviving corporation in this merger and its name was changed to Terremark
Worldwide, Inc.
Prior to the transaction with Terremark, Deloitte & Touche LLP was
engaged by AmTec to perform the March 31, 2000 audit of AmTec, Inc. As a result
of the transaction with Terremark, PricewaterhouseCoopers, LLP was engaged by
Terremark Worldwide as its principal accountants to audit the Terremark
Worldwide financial statements for the year ending March 31, 2001. The
engagement of PricewaterhouseCoopers was made effective April 28, 2000.
The decision to change independent accountants was not recommended or
approved by AmTec's board of directors or the audit committee of its board of
directors. However, the decision to retain one independent accounting firm was
made by the board of directors of Terremark Worldwide on April 28, 2000.
Deloitte & Touche LLP was engaged to audit AmTec's March 31, 2000
financial statements. During AmTec's two most recent fiscal years ended March
31, 2000, there were no disagreements between management and Deloitte & Touche
LLP on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of Deloitte & Touche LLP, would have caused
Deloitte & Touche LLP to make reference to the subject matter of the
disagreement in connection with its report. In addition, the financial
statements of AmTec for such periods contained no adverse opinion or disclaimers
of opinion, and were not qualified or modified in any way. Also, during this
same period there were no reportable events as defined or listed in Item 304 of
Regulation S-K.
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<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Our executive officers and directors, and their ages as of May 15,
2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
------ ---- ------------------
<S> <C> <C>
Manuel D. Medina............... 47 Chairman of the Board, President and Chief Executive Officer
Joseph R. Wright, Jr........... 61 Vice Chairman of the Board and President of Terremark Communications
Group, Inc.
Joel A. Schleicher............. 47 Director
Marvin S. Rosen................ 58 Director
Kenneth I. Starr............... 51 Director
Timothy Elwes.................. 64 Director
Miguel J. Rosenfeld............ 50 Director
Clifford J. Preminger.......... 48 Director
Brian K. Goodkind.............. 42 Executive Vice President and General Counsel
Irving A. Padron, Jr........... 29 Senior Vice President and Chief Financial Officer
Edward P. Jacobsen............. 44 President of Terremark Construction Services, Inc.
Michael L. Katz................ 50 President and Chief Operating Officer of Terremark Real Estate Group, Inc.
William J. Biondi.............. 54 President of Terremark Management Services, Inc., Terremark Realty,
Inc., and Terremark Financial Services, Inc.
Aviva D. Budd.................. 59 Senior Vice President of Business Development and President of
Terremark Northeast, Inc.
</TABLE>
Manuel D. Medina has served as our Chairman of the Board, President and
Chief Executive Officer since April 28, 2000, the date of our merger, and as
that of Terremark since its founding in 1982. In addition, Mr. Medina is a
managing partner of Communications Investors Group, the holder of AmTec Series G
preferred stock. Mr. Medina has been a director of Fusion Telecommunications
International since December 14, 1998. Before founding Terremark, Mr. Medina, a
certified public accountant, worked with PricewaterhouseCoopers LLP.
Subsequently, he established and operated an independent financial and real
estate consulting company. Mr. Medina earned a Bachelors of Science degree in
Accounting from Florida Atlantic University in 1974.
Joseph R. Wright, Jr. has served as our Vice Chairman of the Board as
well as the President of Terremark Communications Group since April 28, 2000.
Prior to that, Mr. Wright served as AmTec's Chairman of the Board since May
1995, Chief Executive Officer since March 1996 and President since May 1996. Mr.
Wright also served as Chairman of the Board of GRC International, Inc. a U.S.
public company that provides technical information technology support to
government and private entities from 1996 to 2000. He is also Co-Chairman of
Baker & Taylor Holdings, Inc., an international book and video distribution
company, and Vice Chairman of Jefferson Consulting Group, a Washington D.C.
consulting firm. From 1989 to 1994, Mr. Wright served as Executive Vice
President, Vice Chairman and Director of W.R. Grace & Co., an international
chemicals and health care company, President of Grace Energy Corporation and
Chairman of Grace Environmental Company. From 1982 to 1989, Mr. Wright held the
positions of Director and Deputy Director of the Office of Management and
Budget, The White House, and was a member of President Reagan's cabinet. Before
1982, he served as Deputy Secretary, United States Department of Commerce,
President of Citicorp Retail Services and Retail Consumer Services, held posts
in the United States Department of Agriculture and the United States Department
of Commerce, and was Vice President and Partner of Booz Allen & Hamilton, a
management consulting firm. Mr. Wright also serves on the Boards of Directors of
PanAm Sat corporation, Fusion Telecommunications International, Inc., Cereus
Technology Partners, RealMed Corporation and serves on the AT&T Government
Markets Advisory Board. He is a former member of
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<PAGE> 17
the President's Export Council and a former member of the Board of Directors of
Travelers, Harcourt Brace Janovich, and Hampton University.
Joel A. Schleicher has served as a member of our board of directors
since August 1999. Mr. Schleicher has been President and Chief Executive Officer
for Exp@nets since June of 1998. Exp@nets is a leading nationwide provider of
networked communication solutions to business. His previous communications
industry experience started as the Chief Operating Officer, President and
director of Nextel Communications, Inc. from 1989 to 1995 and subsequently with
ProCommunications, Inc. from 1996 to 1997. He has been a member of the board of
directors of NovAtel, Inc., a global GPS provider, since 1997, Fusion
Telecommunications, an international long distance service provider, since 1998,
and TechTronic Industries, a Hong Kong based manufacturer of consumer
appliances, since 1998. Before Nextel, Mr. Schleicher spent 10 years in the
consumer durables and energy sectors of industry and four years with KPMG Peat
Marwick in various capacities. He is a graduate of the Carlson School of the
University of Minnesota.
Marvin S. Rosen has served as a member of our board of directors since
March 1999. Mr. Rosen is a co-founder of Fusion Telecommunications International
and has served as its Vice Chairman since December 1998. Mr. Rosen is a
principal shareholder and member of the executive committee of Greenberg
Traurig, P.A., an international law firm. From September 1995 through January
1997, Mr. Rosen served as the Finance Chairman of the Democratic National
Committee. Mr. Rosen currently serves on the Board of Directors of the
Children's Health Fund (New York City), since 1994, the Robert F. Kennedy
Memorial, since 1995, Bio-Medical Disposal, Inc., since 1998 and Fusion
Telecommunications International, Inc., since 1997, where he has also been
Vice-Chairman since December 1998. Mr. Rosen received his Bachelor of Science
degree in Commerce from the University of Virginia, his LL.B. from Dickinson
School of Law and his LL.M. in Corporations from New York University Law School.
Kenneth I. Starr has served as a member of our board of directors since
April 28, 2000. Mr. Starr has also served as the Chairman and Chief Executive
Officer of Starr & Company, a New York City-based accounting and business
management firm, since he founded this firm in 1986.
Timothy Elwes served as a member of our board of directors since April
28, 2000. Mr. Elwes has also served as member of the board of directors of
Timothy Elwes & Partners Ltd., a financial services company, from May 1978 until
October 1994, the business of which was merged into Fidux Trust Co. Ltd. in
December 1995. Mr. Elwes is a director of Fidux Trust Co. Ltd. He is also a
non-executive director of Partridge Fine Arts plc, a public company since 1989.
He has served as a director of Makecater Ltd., a property-developing company,
since 1995. Since 1989 he has served as a director of Tagring Ltd., a financial
services company.
Miguel J. Rosenfeld has served as a member of our board of directors
since April 28, 2000 and has also served as a Senior Vice President of Delia
Feallo Productions, Inc. since November 1991, where he was responsible for the
development of soap opera productions in Latin America. From January 1995 until
May 1998, he was the Director of Affiliates and Cable for Latin America for
Protele, a division of Televisa International LLC. From December 1984 until
September 1998, he was a sales manager for Capitalvision International
Corporation. Mr. Rosenfeld holds a Bachelors degree in Administration from the
University of Buenos Aires which he earned in 1975.
Clifford J. Preminger served as a member of our board of directors
since June 2000. Mr. Preminger is the president of T-Rex Developers, and
co-founded Telecom Realty Partners, LLC. He is also a founding partner of the
Washington, D.C. law firm of Preminger & Glazer, a boutique practice
specializing in corporate and large-scale commercial real estate transactions on
a national basis. In addition, he is actively engaged in the operation and
management of start-up and operating companies engaged in diverse lines of
business. Prior to joining Preminger & Glazer, Mr. Preminger served as President
and Chief Operating Officer of Seafield Center, Inc., a recognized leader in
providing Drug and Alcohol Rehabilitation Services throughout the United States
and was a partner in the law firm Kaye, Scholer, Fierman, Hays & Handler. Mr.
Preminger is also a founder of Service USA, a national mortgage banking field
service company, and Fusion International Telecommunications, Inc., an
international long distance reseller. He presently serves on the Board of
Directors of Service USA, Nuthena, and The Washington
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<PAGE> 18
Woodworking Company. Mr. Preminger received a B.A. from the Maxwell School of
Citizenship and Public Affairs of Syracuse University and a J.D. from Case
Western Reserve University.
Brian K. Goodkind has served as our Executive Vice President and
General Counsel since April 28, 2000. Prior to that, since April 1998, Mr.
Goodkind served as the Vice-Chairman, Executive Vice President, and General
Counsel to Terremark. In this capacity, Mr. Goodkind oversaw the operations,
office management, risk management, development of systems, human resources, and
legal matters for Terremark. Mr. Goodkind has been a member of the Florida Bar
since 1982, and was in private practice for 16 years, specializing in commercial
litigation, employment law, international transactions and real estate. His
experience includes over 11 years, from 1986 until 1998, as one of two founding
partners of a seventy-attorney full-service law firm, for which he served as
managing partner for over five years. Mr. Goodkind received his Bachelor of Arts
degree from the University of Alabama and his J.D. from the University of
Florida.
Irving A. Padron, Jr. has served as our Senior Vice President and Chief
Financial Officer since April 28, 2000. Prior to that, beginning in 1997, Mr.
Padron served as the Senior Vice President and Chief Financial Officer of
Terremark. From 1992 until joining Terremark, Mr. Padron was a Manager with KPMG
Peat Marwick's financial service practice in Miami, Florida, focusing on the
development of that firm's real estate practice. His experience also includes
providing audit and consulting services to multinational manufacturing,
retailing and distribution clients as well as to international banks. Mr Padron
holds a Certified Public Accountant License and is a licensed real estate sales
person in the State of Florida.
Edward P. Jacobsen has served as President of Terremark Construction
Services, Inc. since 1991, where he administers all construction operations for
the company. This role includes research and analysis of potential development
opportunities, as well as feasibility, construction, and budget analysis. Mr.
Jacobsen joined Terremark in 1991 to help establish offices and manage post-war
construction projects in Kuwait and Saudi Arabia. In 1993, he returned to
Terremark's corporate headquarters in Miami to assume managerial responsibility
of all development, construction, and property management operations. Mr.
Jacobsen holds licenses as a professional engineer, general contractor, and real
estate salesperson in the State of Florida.
Michael L. Katz has served as the President and Chief Operating Officer
of Terremark Real Estate Group, Inc. since April 28, 2000. Prior to that, Mr.
Katz served as the President and Chief Operating Officer of Terremark Group,
Inc., the predecessor to Terremark Real Estate Group. Mr. Katz has had primary
responsibility for supervising all operations of Terremark Group and all its
subsidiaries since 1998. Mr. Katz co-founded KB Commercial and served as its
Chairman from 1987 to 1997. KB Commercial provided a full range of real estate
services, primarily focused on asset management and all of its discipline for
its institutional clients. Mr. Katz has been a member of the Florida Bar since
1974. Mr. Katz received his Bachelor of Arts degree from the University of
Maryland and his J.D. from the University of Florida.
William J. Biondi has served as the President of Terremark Management
Services, Inc., Terremark Realty, Inc., and Terremark Financial Services, Inc.
since April 28, 2000. Mr. Biondi joined the senior management of Terremark Group
upon the merger of Terremark with KB Commercial Real Estate Group in 1998. As
President of Terremark Management Services, Inc., Terremark Realty, Inc., and
Terremark Financial Services, Inc., Mr. Biondi has overseen the management,
brokerage, and leasing activities of these three divisions, as well as being
responsible for business generation. Mr. Biondi has over 25 years of commercial
real estate experience covering all aspects of office building development,
rehabilitation, sales, leasing and day-to-day portfolio management in the South
Florida marketplace. The positions he has held have included President, CEO and
Co-founder of Clark-Biondi Company, President and CEO of Grubb & Ellis of
Florida, and President and CEO of KB Commercial Real Estate Group.
Aviva D. Budd has served as President of Terremark Northeast, Inc.
since April, 1999. From April 1997 until April 1999, Ms. Budd was a Senior Vice
President of U.S. Realty Advisors, L.L.C. From February 1995 until April 1997,
Ms. Budd served as Principal Investment Officer for real estate for Combined
Retirement and Trust Funds of the State of Connecticut. Ms. Budd has also served
as Senior Vice President of Business Development since June 23, 2000. Ms. Budd
received her Bachelor of Arts degree from the University of Connecticut and her
J.D. from Harvard Law School.
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<PAGE> 19
EMPLOYMENT AGREEMENTS
Mr. Wright has entered into a one year employment contract with us to
serve as President and Vice Chairman of Terremark Communications Group, Inc. The
agreement provides for an annual base salary of $250,000 and a surrender by him
of options to purchase two million shares of the common stock at $3 per share
and of options to purchase one million shares of common stock at $0.35 per
share. We have also entered into employment agreements with Manuel D. Medina,
Brian K. Goodkind, Irving I. Padron, Jr., Michael L. Katz, Edward P. Jacobson,
William J. Biondi and Aviva D. Budd.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Registrant's 2000 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Registrant's 2000 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the Registrant's 2000 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
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<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. The financial statements listed in the accompanying
Table of Contents to Consolidated Financial Statements and Financial Statement
Schedule at page F-1 herein are filed as part of this report.
3. The exhibits listed in the Exhibit Index are filed with or
incorporated by reference as part of this report.
(b) No Reports on Form 8-K were filed by us during the fourth
quarter of the fiscal year ended March 31, 2000.
(c) The following exhibits, which are furnished with this Annual
Report or incorporated herein by reference, are filed as a part of this Annual
Report.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
2.1 Agreement for Sale of Assets by and between ITV Communications, Inc.
and Netmatics, Inc., dated January 11, 1996, and Promissory Note and
Security Agreement dated January 16, 1996(1)
2.2 Agreement of Merger between AVIC Group International, Inc., a Colorado
corporation, with and into AVIC Group International, Inc., a Delaware
corporation dated July 10, 1996(4)
2.3 Agreement and Plan of Merger by and between Terremark Holdings, Inc.
and AmTec, Inc., dated as of November 24, 1999, as amended by that
certain Amendment to Agreement and Plan of Merger, dated as of
February 11, 2000(7)
3.1 Amendments to Certificate of Incorporation of the Company dated June 7,
1996 and June 10, 1996 (5)
3.2 Restated Certificate of Incorporation of the Company (3)
3.3 Certificate of Ownership and Merger Merging China Telecommunications
and Technologies, Inc. into the Company(6)
3.4 Certificate of Merger of Terremark Holdings, Inc. with and into AmTec,
Inc. (8)
3.5 Restated Bylaws of the Company (8)
4.1 Certificate of Designations of Preferences of Series G Convertible
Preferred Stock of the Company (8)
4.2 Specimen Common Stock Certificate (6)
10.1 1995 Stock Option Plan (2)
10.2 1996 Stock Option Plan (2)
10.3 Real Property lease between Lexreal Associates and the Company dated
May 8, 1995 (2)
10.4 Form of Indemnification Agreement for directors and officers of the
Company (4)
10.5 Form of Employment Agreement
10.6 Employment Agreement with Joseph R. Wright
21 Subsidiaries of the Company
27 Financial Data Schedule
---------------
(1) Previously filed as part of the Company's Current Report on Form 8-K
dated January 19, 1996.
(2) Previously filed as part of the Company's Transition Report on Form
10-KSB for the transition period from October 1, 1994 to March 31,
1995.
(3) Previously filed as part of the Company's Current Report on Form 8-K
dated March 6, 1997.
(4) Previously filed as part of the Company's Definitive Proxy Statement
dated April 18, 1996.
(5) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1996.
20
<PAGE> 21
(6) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997.
(7) Previously filed as part of the Company's Definitive Proxy Statement
filed on March 24, 2000.
(8) Previously filed as part of the Company's Registration Statement on
Form S-3 filed on May 15, 2000.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day of
June, 2000.
Terremark Worldwide, Inc.
By: /s/ Manuel D. Medina
-------------------------
Manuel D. Medina,
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
22
<PAGE> 23
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Manuel D. Medina Chairman of the Board, President and June 29, 2000
------------------------- Chief Executive Officer
Manuel D. Medina (principal executive officer)
/s/ Joseph R. Wright Jr.
------------------------- Director June 29, 2000
Joseph R. Wright Jr.
------------------------- Director June , 2000
Joel A. Schleicher
/s/ Marvin S. Rosen
------------------------- Director June 29, 2000
Marvin S. Rosen
/s/ Kenneth L. Starr
------------------------- Director June 29, 2000
Kenneth L. Starr
/s/ Timothy Elwes
------------------------- Director June 29, 2000
Timothy Elwes
/s/ Miguel J. Rosenfeld
------------------------- Director June 29, 2000
Miguel J. Rosenfeld
/s/ Clifford J. Preminger
------------------------- Director June 29, 2000
Clifford J. Preminger
/s/ Irving A. Padron, Jr.
------------------------- Senior Vice President and Chief Financial Officer June 29, 2000
Irving A. Padron, Jr. (principal financial and accounting officer)
</TABLE>
23
<PAGE> 24
FINANCIAL STATEMENTS
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMTEC, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5 - F-6
Consolidated Statements of Cash Flows F-7 - F-9
Notes to Consolidated Financial Statements F-10 - F-25
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
INDEPENDENT AUDITORS' REPORT F-26
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM APRIL 29, 1997, (DATE OF ESTABLISHMENT) TO
DECEMBER 31, 1997
Balance Sheets F-27
Statements of Operations F-28
Statements of Investors' Equity F-29
Statements of Cash Flows F-30
Notes to Financial Statements F-31 - F-36
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
INDEPENDENT AUDITORS' REPORT F-37
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Balance Sheets F-38
Statements of Operations F-39
Statements of Investors' Equity (Deficit) F-40
Statements of Cash Flows F-41
Notes to Financial Statements F-42 - F-49
</TABLE>
F-1
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AmTec, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of AmTec, Inc.
and subsidiaries (the "Company") as of March 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March
31, 2000 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2000, in conformity
with accounting principles generally accepted in the United States of
America.
As discussed in Note 12 to the consolidated financial statements, on April
28, 2000, the Company merged with Terremark Holdings, Inc. and changed its
name to Terremark Worldwide, Inc.
DELOITTE & TOUCHE LLP
New York, New York
June 22, 2000
F-2
<PAGE> 26
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,838,064 $ 2,093,141
Prepaid expenses and other current assets 62,264 38,805
------------ ------------
Total current assets 3,900,328 2,131,946
Investments in and advances to unconsolidated subsidiary 1,828,209 2,496,480
Investments in affiliate 370,988 --
Property, plant and equipment, net 51,823 96,926
Loans receivable 1,215,602 --
Office lease deposit and other assets 122,558 55,733
------------ ------------
TOTAL ASSETS $ 7,489,508 $ 4,781,085
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 402,228 $ 439,195
Accrued expenses 739,136 528,548
Loan payable 1,125,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 2,266,364 967,743
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 0 and 29.8 shares outstanding at March 31, 2000 and
March 31, 1999, respectively -- 1
Series G Convertible Preferred Stock: $.001 par value; 20
shares issued and outstanding at March 31, 2000 and March 31,
1999, respectively 1 1
Common stock: $.001 par value, authorized 100,000,000 shares;
38,232,000 and 30,736,721 issued and outstanding at March 31,
2000 and March 31,1999, respectively 38,232 30,737
Additional paid-in capital 43,281,315 36,947,244
Accumulated deficit (38,570,829) (33,646,491)
Warrants 474,425 481,850
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,223,144 3,813,342
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,489,508 $ 4,781,085
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 27
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
General and administrative 4,350,107 4,649,770 4,282,614
Amortization of stock options granted to non-employees -- 459,374 459,374
------------ ------------ ------------
LOSS FROM OPERATIONS (4.350,107) (5,109,144) (4,741,988)
------------ ------------ ------------
OTHER (EXPENSE) INCOME:
Other - net 93,917 (85,161) (54,733)
------------ ------------ ------------
Total other expense 93,917 (85,161) (54,733)
------------ ------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY AND AFFILIATE (4,256,190) (5,194,305) (4,796,721)
Equity income from (losses of) unconsolidated subsidiary 380,356 (385,139) (606,647)
Equity in losses of affiliate (698,242) -- --
------------ ------------ ------------
NET LOSS
(4,574,076) (5,579,444) (5,403,368)
PREFERRED STOCK DIVIDENDS 350,262 672,457 1,398,686
------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (4,924,338) $ (6,251,901) $ (6,802,054)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.15) $ (0.23) $ (0.23)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 33,960,017 27,495,213 29,843,712
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 28
AMTEC, INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series C
Common Stock Preferred Stock Preferred Stock
----------------------------- ------------------ ------------------------
Shares Amount Shares Amount Shares Amount
----------- ---------- ------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 31,257,921 $ 31,258 1,524,178 $ 1,524 -- $ --
Advance to joint venture partner -- -- -- -- -- --
Allocation of non-refundable deposit
from former affiliate -- -- -- -- -- --
Buyback of Series C preferred stock -- -- -- -- (31) --
Cancellation of common stock (12,727,909) (12,728) -- -- -- --
Cancellation of Series A preferred -- -- (1,524,178) (1,524) -- --
Cancellation of Warrants -- -- -- -- -- --
Common shares issued for directors fees 40,000 40 -- -- -- --
Common shares issued for services 23,233 23 -- -- -- --
Common stock investment agreement - net
of cancellation 1,019,465 1,019 -- -- -- --
Conversion of Series C shares to common
stock 4,507,639 4,508 -- -- (219) (1)
Conversion of Series D shares to common
stock 2,236,507 2,237 -- -- -- --
Conversion of Series E shares to common
stock 106,646 107 -- -- -- --
Cumulative foreign currency exchange loss -- -- -- -- -- --
Deferred financing costs, net of
amortization -- -- -- -- -- --
Exercise of employee stock options 69,000 69 -- -- -- --
Issuance of Series C preferred stock -- -- -- -- 250 1
Issuance of Series E preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
Other -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Stock options issued to third party -- -- -- -- -- --
Tweedia loan cancellation -- -- -- -- -- --
------------ ------------ ------------ --------- ---------- ------------
BALANCE, March 31, 1998 26,532,502 26,533 -- -- -- --
Cancellation of common stocks investment
agreement (1,019,465) (1,019) -- -- -- --
Cancellation of shareholders loans and
accrual interest -- -- -- -- -- --
Cancellation of Stock options issued to
third party -- -- -- -- -- --
Cancellation of Warrants -- -- -- -- -- --
Common Shares buyback (330,800) (331) -- -- -- --
Conversion of Series E shares to common
stock 5,554,484 5,554 -- -- -- --
Cumulative foreign currency exchange loss -- -- -- -- -- --
Issuance of Series G preferred stock -- -- -- -- -- --
Issuance of Warrants -- -- -- -- -- --
Net loss -- -- -- -- -- --
Options issued for services rendered -- -- -- -- -- --
Preferred Shares buyback -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
------------ ------------ ------------ --------- ---------- ------------
BALANCE, March 31, 1999 30,736,721 30,737 -- -- -- --
Common shares as stocks awards 180,000 180 -- -- -- --
Common shares buyback (70,000) (70) -- -- -- --
Common shares issued for directors fees 20,000 20 -- -- -- --
Common shares issued for settlement of
claim 210,525 211 -- -- -- --
Conversion of Series E shares to common
stock 3,858,346 3,858 -- -- -- --
Exercise of stock options and warrants 3,296,408 3,296 -- -- -- --
Net loss -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
------------ ------------ ------------ --------- ---------- ------------
BALANCE, March 31, 2000 38,232,000 $ 38,232 -- $ -- -- $ --
============ ============ ============ ========= ========== ============
</TABLE>
<TABLE>
<CAPTION>
SERIES D SERIES E SERIES G
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- --------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 150 $ 1 -- $ -- -- $ --
Advance to joint venture partner -- -- -- -- -- --
Allocation of non-refundable deposit
from former affiliate -- -- -- -- -- --
Buyback of Series C preferred stock -- -- -- -- -- --
Cancellation of common stock -- -- -- -- -- --
Cancellation of Series A preferred -- -- -- -- -- --
Cancellation of Warrants -- -- -- -- -- --
Common shares issued for directors fees -- -- -- -- -- --
Common shares issued for services -- -- -- -- -- --
Common stock investment agreement - net
of cancellation -- -- -- -- -- --
Conversion of Series C shares to common
stock -- -- -- -- -- --
Conversion of Series D shares to common
stock (150) (1) -- -- -- --
Conversion of Series E shares to common
stock -- -- (1) -- -- --
Cumulative foreign currency exchange loss -- -- -- -- -- --
Deferred financing costs, net of
amortization -- -- -- -- -- --
Exercise of employee stock options -- -- -- -- -- --
Issuance of Series C preferred stock -- -- -- -- -- --
Issuance of Series E preferred stock -- -- 74 1 -- --
Net loss -- -- -- -- -- --
Other -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Stock options issued to third party -- -- -- -- -- --
Tweedia loan cancellation -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ---------
BALANCE, March 31, 1998 -- -- 73 1 -- --
Cancellation of common stocks investment
agreement -- -- -- -- -- --
Cancellation of shareholders loans and
accrual interest -- -- -- -- -- --
Cancellation of Stock options issued to
third party -- -- -- -- -- --
Cancellation of Warrants -- -- -- -- -- --
Common Shares buyback -- -- -- -- -- --
Conversion of Series E shares to common
stock -- -- (40) -- -- --
Cumulative foreign currency exchange loss -- -- -- -- -- --
Issuance of Series G preferred stock -- -- -- -- 20 1
Issuance of Warrants -- -- -- -- -- --
Net loss -- -- -- -- -- --
Options issued for services rendered -- -- -- -- -- --
Preferred Shares buyback -- -- (3) -- -- --
Preferred stock dividends -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ---------
BALANCE, March 31, 1999 -- -- 30 1 20 1
Common shares as stocks awards -- -- -- -- -- --
Common shares buyback -- -- -- -- -- --
Common shares issued for directors fees -- -- -- -- -- --
Common shares issued for settlement of
claim -- -- -- -- -- --
Conversion of Series E shares to common
stock -- -- (30) (1) -- --
Exercise of stock options and warrants -- -- -- -- -- --
Net loss -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ---------
BALANCE, March 31, 2000 -- $ -- -- $ -- 20 $ 1
============ ============ ============ ============ ============ =========
</TABLE>
See notes to financial statements
F-5
<PAGE> 29
AMTEC, INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL EQUIPMENT DEFERRED
PAID-IN ACCUMULATED PURCHASE OPTION
WARRANTS CAPITAL DEFICIT DEPOSIT COSTS TOTAL
----------- ----------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 $ 479,500 $ 25,200,877 $(20,592,536) $ (4,572,536) $ -- $ 548,088
Advance to joint venture partner -- (540,000) -- -- -- (540,000)
Allocation of non-refundable deposit
from former affiliate -- 850,000 -- -- -- 850,000
Buyback of Series C preferred stock -- (406,100) -- -- -- (406,100)
Cancellation of common stock -- 12,728 -- -- -- --
Cancellation of Series A preferred -- (4,571,012) -- 4,572,536 -- --
Cancellation of Warrants (147,000) -- -- -- -- (147,000)
Common shares issued for directors fees -- 84,960 -- -- -- 85,000
Common shares issued for services
rendered -- 66,934 -- -- -- 66,958
Common stock investment agreement - net
of cancellation -- (1,019) -- -- -- --
Conversion of Series C shares to common
stock -- (4,508) -- -- -- --
Conversion of Series D shares to common
stock -- 129,673 -- -- -- 131,909
Conversion of Series E shares to common
stock -- (107) -- -- -- --
Cumulative foreign currency exchange loss -- 1,844 -- -- -- 1,844
Deferred financing costs, net of
amortization 161,450 (229,415) -- -- -- (67,965)
Exercise of employee stock options -- 34,681 -- -- -- 34,750
Issuance of Series C preferred stock -- 2,499,999 -- -- -- 2,500,000
Issuance of Series E preferred stock -- 6,759,000 -- -- -- 6,759,001
Net loss -- -- (5,403,368) -- -- (5,403,368)
Other -- (580) -- -- -- (580)
Preferred stock dividends -- 1,398,686 (1,398,686) -- -- --
Stock options issued to third party -- 1,837,500 -- -- (1,378,125) 459,375
Tweedia loan cancellation -- 25,000 -- -- -- 25,000
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 1998 493,950 33,149,142 (27,394,590) -- (1,378,125) 4,896,911
Cancellation of common stocks investment
agreement -- 1,019 -- -- -- --
Cancellation of shareholders loans and
accrual interest -- 2,359,621 -- -- -- 2,359,621
Cancellation of Stock options issued to
third party -- (918,751) -- -- 1,378,125 459,374
Cancellation of Warrants (222,500) 222,500 -- -- -- --
Common Shares buyback -- (383,052) -- -- -- (383,383)
Conversion of Series E shares to common
stock -- 138,821 -- -- -- 144,375
Cumulative foreign currency exchange loss -- (613) -- -- -- (613)
Issuance of Series G preferred stock -- 2,000,000 -- -- -- 2,000,001
Issuance of Warrants 210,400 (210,400) -- -- -- --
Net loss -- -- (5,579,444) -- -- (5,579,444)
Options issued for services rendered -- 16,500 -- -- -- 16,500
Preferred Shares buyback -- (100,000) -- -- -- (100,000)
Preferred stock dividends -- 672,457 (672,457) -- -- --
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 1999 481,850 36,947,244 (33,646,491) -- -- 3,813,342
Common shares as stocks awards -- 157,320 -- -- -- 157,500
Common shares buyback -- (88,563) -- -- -- (88,633)
Common shares issued for directors fees -- 24,980 -- -- -- 25,000
Common shares issued for settlement of
claim -- 249,789 -- -- -- 250,000
Conversion of Series E shares to common
stock -- (3,857) -- -- -- --
Exercise of stock options and warrants (7,425) 5,644,140 -- -- -- 5,640,011
Net loss -- -- (4,574,076) -- -- (4,574,076)
Preferred stock dividends -- 350,262 (350,262) -- -- --
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 2000 $ 474,425 $ 43,281,315 $(38,570,829) $ -- $ -- $ 5,223,144
========== ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
F-6
<PAGE> 30
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,574,076) $(5,579,444) $(5,403,368)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of deferred option cost -- 459,375 459,375
Depreciation 45,111 55,250 43,432
Provision for impairment of investment 356,347
Loss from abandoned assets -- -- 87,441
(Loss)Gain from sale of assets (508) 137 --
Issuance of common stock in connection with Series E buyback
transaction -- 144,375 --
Issuance of common stock and options for directors' fees and
professional services rendered 25,000 16,500 151,957
Equity in losses (income from) of unconsolidated subsidiary (380,356) 385,139 606,647
Equity in losses of affiliated company 698,242 -- --
(Increase) decrease in:
Accounts receivable -- 114,661 (114,661)
Prepaid expenses and other current assets (23,459) 69,277 63,839
Advances to unconsolidated subsidiary 192,280
Office lease deposit and other assets (66,825) 56,867 (1,100)
Increase (decrease) in:
Accounts payable and accrued expenses 581,115 540,917 293,027
Loans payable - stockholders -- -- (111,000)
----------- ----------- -----------
Net cash used in operating activities (3,147,129) (3,736,946) (3,924,411)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Netmatics -- -- (87,441)
Purchase of property and equipment -- (13,427) (29,212)
Investment in unconsolidated subsidiary (1,069,230) -- (276,000)
Loan receivable (1,215,602) -- --
Proceeds from sale of assets 500 250 --
----------- ----------- -----------
Net cash used in investing activities (2,284,332) (13,177) (392,653)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Warrants issued for services rendered -- -- (215,546)
Buyback common stock (88,633) (383,383) --
Buyback Series E convertible preferred stock -- (100,000) --
Loans payable to stockholders -- -- 25,000
Loans payable to Terremark 1,125,000 -- --
Repayment from(advance to) unconsolidated subsidiary 500,000 2,191,985 (3,724,000)
Proceeds from sale of common stock -- -- 166,659
Proceeds from sale of Series C convertible preferred stock -- -- 2,093,900
Proceeds from sale of Series E convertible preferred stock -- -- 6,759,000
Proceeds from sale of Series G convertible preferred stock -- 2,000,000 --
Exercise of options and warrants 5,640,017 -- --
----------- ----------- -----------
Net cash provided by financing activities 7,176,384 3,708,602 5,105,013
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,744,923 (41,521) 787,949
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,093,141 2,134,662 1,346,713
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,838,064 $ 2,093,141 $ 2,134,662
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 31
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during fiscal 2000, 1999 and 1998.
2. NONCASH FINANCING ACTIVITIES:
FISCAL 2000
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 certain 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 certain of
its directors as compensation.
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. In September 1999, the Company gave Ms. Brandwynne and
her attorney a total of 210,525 shares of Common Stock with a value of
$250,000 pursuant to the settlement agreement.
FISCAL 1999
Shareholder loans payable of $1,452,553 and related accrued interest of
$907,068 were cancelled and credited to Additional Paid-In Capital.
The Company paid a dividend in-kind of $210,400 as part of the issuance of
Series G Preferred Stock.
40.4 shares of Series E Convertible Preferred Stock were converted into
5,554,424 shares of common stock.
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. 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.
FISCAL 1998
150 shares of Series D Convertible Preferred Stock were converted into
2,236,507 shares of common stock.
F-8
<PAGE> 32
AMTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
219 shares of Series C Convertible Preferred Stock were converted into
4,507,639 shares of common stock.
0.8 share of Series E Convertible Preferred Stock was converted into
106,646 shares of common stock.
12,727,909 shares of common stock were canceled upon determination that
the full purchase price for such shares was not paid.
$850,000 Notes Payable related to a nonrefundable deposit received from a
former affiliate was credited to Additional Paid in Capital.
1,524,178 shares of the Company's Series A Convertible Preferred Shares
were canceled in accordance with the terms of a subscription agreement.
The Company issued stock options valued at $1,837,500 to the Hebei
provincial government in exchange for a long-term cooperation agreement.
See notes to consolidated financial statements.
F-9
<PAGE> 33
AMTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
AmTec, Inc., ("the Company") through its majority-owned subsidiary in the
People's Republic of China ("PRC") provides value-added telecommunications
services in the Far East and was involved in providing financing and
assistance in building telecommunications networks for third parties in
the PRC. Additionally, the Company through its 50% joint venture, IP.Com,
provides value-added telecommunication services, including telephony and
data, to Asia.
During fiscal 1998 the Company organized two wholly-owned subsidiaries,
one a Bermuda company and the other a British Virgin Island company. There
was no activity in either company during the years ended March 31, 2000,
1999 and 1998.
As discussed in Note 12, on April 28, 2000, the Company acquired Terremark
Holdings, Inc. ("Terremark") in a transaction expected to be accounted for
as a reverse acquisition in which the Company is the legal acquirer and
Terremark is the accounting acquirer. The Company changed its name to
Terremark Worldwide, Inc on April 28, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include accounts of the Company and its wholly-owned subsidiaries. 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. The summary
financial information of Hebei Equipment and Hebei Engineering are
included in Note 3 to the financial statements.
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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 4 to the financial statements. The
Company reports its investment in IP.Com, LLC under the caption
"Investment in affiliate".
DIFFERENCE IN YEAR END - The Company's share of equity in losses of Hebei
Equipment included in the consolidated financial statements are as of and
for the years ended December 31, 1999, 1998 and 1997, Hebei Equipment's
year-end. Since inception the Company has had a March 31 year-end. The
Company maintained this year-end even though its subsidiaries have a
calendar year-end so 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. All companies established under PRC law are required to
have a December 31 fiscal year-end date. Hebei Equipment and Hebei
Engineering are equity joint venture companies established under PRC law.
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION - Certain amounts in the prior years financial
statements have been reclassified to conform with the current year
presentations.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method, to write off the
cost of property and equipment over their estimated useful lives, after
deducting the estimated salvage value of the assets as follows:
Furniture, fixtures and equipment 5 years
Leasehold improvements 5 years
Computer software 3 years
LONG-LIVED ASSETS - The Company evaluates long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be
recoverable. When such events occur, the Company measures impairment by
comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from the use of the
assets and their eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the
assets, the Company would recognize an impairment loss. The impairment
loss, if determined, would be measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. The Company
determined that, as of March 31, 2000 and 1999, there had been no
impairment in the carrying value of the long-lived assets.
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INCOME TAXES - Deferred income taxes are provided for using the liability
method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement bases of assets and liabilities. The tax consequences of those
differences are classified as current or non-current based upon the
classification of the related assets or liabilities in the financial
statements. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some
portion of, or all of, the deferred tax assets will not be realized.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount
reported in the balance sheets for cash and cash equivalents, accounts
receivable, loan receivable, accounts payable, loan payable and accrued
expenses approximates fair value because of the immediate short-term
maturity of these financial instruments.
LOSS PER SHARE - Basic loss per common share is based on the weighted
average number of common shares outstanding during the year. The effect of
shares issuable upon exercise of warrants and stock options is
anti-dilutive, therefore diluted earnings per share is not presented.
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.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
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. The Company adopted SFAS 131 during the fiscal year 1999 and
since the Company only invests in telecommunication networks, no other
reportable segments were reported in the financial statements.
NEW ACCOUNTING STANDARD NOT YET ADOPTED - The Financial Accounting
Standards Board has issued SFAS No. 133, "Derivative Instruments and
Hedging Activities", which is effective for fiscal years beginning after
July 1, 1999. Management has not yet completed the analysis of the impact
this will have on the financial statements of the Company.
3. INVESTMENT IN AND ADVANCE TO UNCONSOLIDATED SUBSIDIARY
The Company conducts its operations in the PRC through a Sino Foreign
Joint Venture ("SFJV"). The Company invested $2.1 million and holds a 70%
interest in Hebei United Telecommunications Equipment Company Limited
("Hebei Equipment"), a SFJV 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 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.
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The following summarizes the total equity investment by the Company in
Hebei Equipment as of March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Investment in unconsolidated subsidiary $ 2,100,000 $ 2,100,000
Less: Accumulative share of equity losses (753,179) (1,133,535)
Valuation allowance for investment (356,347) --
----------- -----------
990,474 966,465
Add: Accumulative advances to unconsolidated subsidiary 837,735 1,530,015
----------- -----------
Investment in and advanced to unconsolidated subsidiary $ 1,828,209 $ 2,496,480
=========== ===========
</TABLE>
Hebei Equipment held a 51% interest in Hebei Engineering, which was
involved in developing GSM networks in the ten largest cities in Hebei
Province, PRC for China United Communications Company ("Unicom"). Since
the fall of 1998, the government of the PRC 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 in December 1999 and the Company's joint venture interests in
six cellular networks in Hebei Province have been transferred to Unicom.
As a result of the termination of the agreement, Hebei Engineering did not
record any network revenue for the year ended December 31, 1999. As of
January 24, 2000, Hebei Equipment received approximately $817,000 as a
result of the liquidation of Hebei Engineering. While Hebei Engineering's
operation had been terminated, Hebei Equipment has tried to negotiate to
continue an ongoing participation in these networks. Hebei Equipment is
also engaged in the development of Internet Protocol related businesses.
The Company is currently pursuing the liquidation of Hebei Equipment.
The following summarized the major activities of Hebei Equipment and Hebei
Engineering prior to its liquidation:
A. HEBEI ENGINEERING'S INVESTMENT IN GSM NETWORKS
Hebei Engineering had borrowed approximately $33,560,000 to purchase
equipment which was contributed to Unicom to construct the GSM networks in
Hebei Province and had received the right to receive future cash flow. The
GSM networks were being built pursuant to a 15-year Project Cooperation
Contract. Terms of the Project Cooperation contract included the
following:
Initially, Hebei Engineering owned 100% of the assets prior to
contributing such assets to Unicom and once contributed, Hebei Engineering
owned and retained title to a 70% interest in the assets and Unicom owned
and retained title to a 30% interest in the assets.
Both parties agreed to distribute the profit according to the
"Distributable Cash Flow" (as defined) with 22% going to Unicom and 78%
going to Hebei Engineering.
Each year, Hebei Engineering would transfer ownership of assets to Unicom
equal in value to the Distributable Cash Flow received up to 60% of the
assets in any one year. The maximum amount of assets transferred could not
exceed 90% of the assets until termination of the Project Cooperation
Contract.
Upon the termination of the contract the remaining 10% of the network
assets would be assigned to Unicom without any further consideration.
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Hebei Engineering would receive 78% of the Distributable Cash Flow after
transfer of all the assets for the remainder of the 15-year period.
Under PRC law, foreign investment entities, such as Hebei Engineering, are
not permitted to own or operate telecommunications networks. Substantially
all of the Hebei Engineering's revenues were derived from contractual
arrangements for the sharing of cash flow from network operations rather
than from ownership or operation of the networks. Hebei Engineering had
recorded its investment (GSM Construction Costs) as a right to receive
future cash flow at cost and amortized its cost of these rights based upon
the greater of the amount computed using (a) the ratio that current gross
revenues from the GSM networks to the total of current and anticipated
future gross revenues from the GSM networks or (b) the straight-line
method over 15 years which was the remaining estimated economic life of
the GSM networks at the inception of this investment.
Income from the GSM Networks was recognized at the time when Hebei
Engineering could estimate or calculate the portion of its Distributable
Cash Flow from the Networks. Unicom commenced operation of the GSM
Networks in February 1997.
B. SUMMARY FINANCIAL INFORMATION FOR THE UNCONSOLIDATED SUBSIDIARY
The following tables represent summary financial information of the
Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei
Engineering, as of and for the years ended December 31, 1999 and 1998:
HEBEI HEBEI
EQUIPMENT EQUIPMENT
1999 1998
----------- -----------
Revenues $ -- $ --
=========== ===========
Net (loss) income $ 543,365 $ (548,806)
=========== ===========
Current assets $ 1,819,490 $ 2,698,980
Non-current assets 852,644 46,904
----------- -----------
Total assets $ 2,672,134 $ 2,745,884
=========== ===========
Current liabilities $ 910,797 $ 1,530,994
Non-current liabilities -- --
----------- -----------
Total liabilities $ 910,797 $ 1,530,994
=========== ===========
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HEBEI HEBEI
EQUIPMENT EQUIPMENT
1999 1998
--------- ---------
Revenues $ -- $ 781,745
============ ============
Net (loss) income $ 2,286,824 $ (1,729,431)
============ ============
Current assets $ 1,606,065 $ 3,755,416
Non-current assets -- 29,605,048
------------ ------------
Total assets $ 1,606,065 $ 33,360,464
============ ============
Current liabilities $ -- $ 5,385,717
Non-current liabilities -- 28,653,783
------------ ------------
Total liabilities $ -- $ 34,039,500
============ ============
4. INVESTMENT IN AFFILIATE
On April 28, 1999, the Company formed a joint venture, IP.Com, 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.
The joint venture provides value-added telecommunication services,
including telephony and data, to Asia. Utilizing the Company's established
presence in China and Fusion's telecommunications franchise, the companies
plan to expand the service offerings of the joint venture to include a
fully integrated Internet protocol based network to provide voice and fax
services.
The following table represents summary financial information of the
Company's investment in IP.Com for the year ended March 31, 2000:
Revenues $ 2,353,400
===========
Net loss $(1,396,484)
===========
Current assets $ 299,782
Non-current assets 1,216,551
-----------
Total assets $ 1,516,333
===========
Current liabilities $ 608,851
Non-current liabilities 154,169
-----------
Total liabilities $ 763,020
===========
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The Company owns 50% of IP.Com and accounts for its investment using the
equity method of accounting. IP.Com began it's operations in September
1999 and the Company's share of its equity loss was $698,242 for the year
ended March 31, 2000.
5. LOAN RECEIVABLE
During May 1999, the Company formed a three-way alliance with Fusion and
IXS.NET, a private IP fax service provider, to develop IP fax services to
Asia. IXS.NET purchases network and transmission services from established
carriers at discounted prices and resells the services to its customers.
As of March 31, 2000, the Company advanced $750,000 to IXS.NET. The loan
receivable represents a convertible debt investment made by the Company in
IXS.NET. The loan bears a bank reference interest rate plus 4% (13% as of
March 31, 2000) payable upon defaults. The Company and Fusion have made an
equal convertible debt investment into IXS.NET and the Company has an
option to acquire up to 50% of IXS.NET.
On March 7, 2000, the Company entered into a Services and Loan Agreement
with Telecom Routing Exchange Developers, Inc.,("T-REX"), the wholly-owned
subsidiary of Terremark. T-REX's business is to provide operational
support and development expertise in exchange for fees and a minority
interest in profits to entities involved in acquiring, developing,
renovating, managing and operating real property used as
telecommunications routing exchange facilities. The Company agreed to
provide certain support and consulting services for T-REX and to provide a
working capital loan in the aggregate amount of $300,000. During the year
ended March 31, 2000, the Company charged T-REX a $15,602 service fee and
loaned them $300,000 for working capital. The loan bears 10% interest per
annum.
On January 24, 2000, the Company agreed to lend up to $150,000 to a
subsidiary of Fusion, Fusion Asia, LLC, under a note which is convertible
into 50% of the equity of Fusion Asia. As of March 31, 2000, the Company
advanced $150,000 to Fusion Asia.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of March 31, 2000 and
1999:
2000 1999
-------- --------
Furniture, fixtures and equipment $205,858 $208,277
Leasehold improvements 18,009 18,009
Computer software 15,385 15,385
-------- --------
239,252 241,671
Less accumulated depreciation 187,429 144,745
-------- --------
$ 51,823 $ 96,926
======== ========
Depreciation expense for fiscal years ended March 31, 2000, 1999 and 1998
was $45,111, $55,250 and $43,432 respectively.
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7. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases a facility for its corporate and operations
offices under a lease agreement which expires in fiscal year 2001. Minimum
annual rental commitments under this lease for the year ending March 31,
2001 is $55,733.
Rent expense for fiscal years ended March 31, 2000, 1999 and 1998 was
$236,867, $356,357 and $337,763 respectively.
EMPLOYMENT AGREEMENTS - As of March 31, 2000, the Company has entered into
employment agreements with two officers expiring through January 2001 with
aggregate annual salaries of $400,000. Those agreements were replaced with
new employment agreements as of April 28, 2000, as a result of the merger
with Terremark (see Note 12).
LITIGATION - A first amended complaint, dated April 15, 1996, was filed
against the Company, ITV, and other parties, including certain of the
Company's officers, directors and principal stockholders, by Jacqueline
Brandwynne, a stockholder of the Company. The complaint, filed in the
Superior Court of California, County of Los Angeles, alleges fraud,
misrepresentation and breach of contract with respect to the sale of
666,667 shares of ITV stock for $1,000,000 prior to the completion of the
Reorganization Agreement between the Company and ITV (the "Reorganization
Agreement") in February 1995, in connection with which the shares of ITV
were exchanged on a two for one basis for shares of the Company. The
complaint seeks rescission of the transaction and damages of no less than
$1,000,000. The complaint also alleges a claim in connection with an
alleged oral employment agreement for 125,000 options to purchase shares
of the Company's Common Stock at an exercise price of $0.35 per share and
the right to purchase additional shares of Common Stock at $1.00 per
share, plus other benefits, including a salary of no less than $130,000.
On June 18, 1999, the Company and Jacqueline B. Brandwynne reached a
settlement in principle of the legal proceedings. In September 1999, the
Company agreed to pay Ms. Brandwynne and her attorney, a total of 210,525
in the Company's Common Stock valued at $250,000 pursuant to the
settlement agreement.
During 1998, the Company entered into an agreement to acquire an
investment in a cable television network venture located in Hunan
Province, PRC, from United International Holdings or UIH. The Company
terminated the agreement because, among other reasons, it believes the
closing had not occurred by December 31, 1999 through no fault of the
Company. On December 30, 1999, UIH had indicated that it was ready to
close the agreement. Should UIH seek judicial relief to require the
Company to close, its superior financial resources could limit the
Company's ability to defend management of the Company. The Company
believes that it had clear rights to terminate the agreement. However,
any unfavorable outcome resulting from this termination could have a
material effect on the financial statements.
The Company is not aware of any pending litigation that could have a
materially adverse effect on the Company's business, financial condition
or results of operations.
REGULATION - The PRC's legal system is a civil law system based on written
statutes and is a system in which decided legal cases have little
precedential value. The PRC Government began to promulgate a comprehensive
system of laws in 1979. Many laws and regulations governing economic
matters in general have been promulgated. The general effect of this
legislation has been to enhance the protection afforded to foreign
invested enterprises in the PRC. However, as these laws and regulations
are relatively new, their interpretation and enforcement involve
significant uncertainty.
F-17
<PAGE> 41
Chinese laws and regulations have prohibited foreign investors and foreign
invested enterprises from owning or operating telecommunication networks
in China. Since the fall of 1998, the Chinese government has taken a
number of actions which have changed the legal environment in which the
Company is operating in China, such as:
o preparing a new telecommunications law not yet issued; and
o seeking admission to the World Trade Organization.
The result of these actions is difficult to predict since negotiations
with relevant parties are ongoing and political uncertainties exist in
China. Among other possibilities:
o the Company may be unable to convert returns of or on its investment it
receives, if any, to U.S. currency or repatriate funds from China;
o the new telecommunications law may facilitate entry into
telecommunications businesses in China by national and international
entities and increase competition; and
o WTO accession will require China to abide by certain rules which
assures foreign investors minimum direct ownership percentages in
licensed telecommunications operators and may foster competition from
Chinese or foreign telecommunications operators or investors.
In order to provide a uniform regulatory framework to encourage the
orderly development of the PRC telecommunications industry, the PRC
authorities are currently preparing a draft Telecommunications Law. Once
formulated, the draft law will be submitted to the National People's
Congress for review and adoption. It is unclear if and when the
Telecommunications Law will be adopted. The nature and the scope of the
regulation envisaged by the Telecommunications Law is not fully known but
the Company believes that, if adopted, the Telecommunications Law will
have a positive effect on the overall development of the
telecommunications industry in the PRC. However, the Telecommunications
Law, if adopted, may have an adverse effect on the Company's business,
financial condition or results of operations.
The Chinese laws and regulations governing the telecommunications industry
may also be changed or applied in a manner which would have a material
adverse effect on the business, financial condition and results of
operations of the Company.
Each of the Company's joint ventures, Hebei Equipment and Hebei
Engineering, is organized under the laws of the PRC as a Sino-foreign
equity joint venture enterprise, a distinct legal entity with limited
liability. Such entities are governed by the Law of the PRC on Joint
Ventures Using Chinese and Foreign Investments, and implementing
regulations related thereto. The parties to an equity joint venture have
rights to the financial returns of the joint venture in proportion to the
joint venture interests that they hold. The operation of equity joint
ventures is subject to an extensive body of law governing such matters as
formation registration, capital contribution, capital distributions,
accounting, taxation, foreign exchange, labor and liquidation. The
transfer or increase of an interest in a Sino-foreign equity joint venture
enterprise requires agreement among the parties to the venture and is
effective upon approval of relevant government agencies.
FOREIGN CURRENCY EXCHANGE - The Company's joint ventures will receive
nearly all of their revenue in Renminbi, which will need to be converted
to other currencies, primarily U.S. dollars, and remitted outside of the
PRC. Although the Renminbi is not a freely convertible currency at
present, effective July 1, 1996, foreign currency "current account"
transactions by foreign investment enterprises, including Sino-foreign
joint ventures, are no longer subject to the approval of State
Administration of Foreign Exchange ("SAFE", formerly, "State
Administration of Exchange Control"). These transactions need only a
ministerial review, according to the ADMINISTRATION OF THE SETTLEMENT,
SALE AND PAYMENT OF FOREIGN EXCHANGE PROVISIONS promulgated in 1996.
"Current account" items include international commercial transactions,
which occur on a regular basis, such as those relating to trade and
provision of services. Distributions to joint venture parties also are
F-18
<PAGE> 42
considered a "current account transaction." Other noncurrent account
items, known as "capital account" items, remain subject to SAFE approval.
8. STOCKHOLDERS' EQUITY
CANCELLATION OF LOANS PAYABLE TO SHAREHOLDERS - In fiscal 1999, loans
payable and accrued interest in the amount of $2,359,621 were cancelled
and credited to Additional Paid-In Capital account.
CANCELLATION OF CERTAIN SHARES OF COMMON STOCK - On December 8, 1997, the
Company reduced its outstanding common stock and credited its Additional
Paid-in Capital $12,728 as a result of canceling 12,727,909 shares of its
common stock and 318,182 options to purchase its common stock issued to
Tweedia International, Ltd. The cancellation was based on a determination
that the full purchase price for the shares was never paid. The 12,727,909
canceled shares represented approximately thirty-eight percent of the
total number of the Company's common shares outstanding prior to the
cancellation of such shares.
REPURCHASE OF COMMON STOCK - 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 March 31, 1999, the Company had purchased 330,800 shares
under this program for a total cost of approximately $383,383. During
fiscal 2000, the Company purchased additional 70,000 shares for a total
cost of approximately $88,633. All the common stock repurchased were
cancelled as of March 31, 2000.
SALE OF COMMON STOCK - During fiscal 1998, 69,000 common shares were
issued in connection with the exercise of certain employee stock options.
Proceeds from this issuance aggregated $34,750. The Company did not sell
any common shares during fiscal 1999. During fiscal 2000, 3,296,408 common
shares were issued in connection with the exercise of certain employee
stock options and stock warrants. Proceeds from this issuance aggregated
$5,640,017.
SERIES A CONVERTIBLE PREFERRED STOCK - On August 19, 1997, upon
determination that the entire amount of a nonrefundable deposit had been
forfeited by a former affiliate, the Company canceled all of the
outstanding Series A Convertible Preferred Stock (the "Series A Shares").
On December 19, 1995, the Company had issued 1,524,178 shares of the
Company's Series A Shares in consideration of the transfer of a $4,572,536
nonrefundable equipment purchase deposit to the Company from a former
affiliate. The Subscription Agreement for the Series A Convertible
Preferred Stock provided that, if all or any portion of the deposit should
be forfeited at any time and for any reason whatsoever by the former
affiliate an equivalent number of the Series A Shares issued to it would
be canceled.
SERIES C CONVERTIBLE PREFERRED STOCK - In June 1997, the Company completed
a $2,500,000 offering of its Series C Convertible Preferred Stock ("Series
C Preferred"). The offering consisted of 250 shares of Series C Preferred
at $10,000 per share and entitled the holder to cumulative dividends at an
annual rate of 8% per annum per share. The dividends were payable
quarterly in shares of Common Stock or, in cash in connection with any
payment pursuant to a Conversion Default at the election of the Company's
board of directors. Such Series C shares were converted at conversion
rates equal to the lowest trading price of the Company's common stock
during the 30 business days immediately preceding each conversion date.
During fiscal 1998, 219 outstanding Series C shares were converted into
4,507,639 common shares. In addition, the Company repurchased for
consideration of $406,100 and retired 31 Series C shares. In connection
with the discount for the above conversion, the Company credited
Additional Paid-in Capital $260,784 and charged preferred dividends in an
equal amount.
SERIES D CONVERTIBLE PREFERRED STOCK - In March 1997, the Company
completed a $1,500,000 offering of its Series D Convertible Preferred
Stock ("Series D Preferred"). The offering consisted of 150 shares of
Series D Preferred at $10,000 per share and warrants to purchase common
stock of the Company. The holder was entitled to cumulative dividends at
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<PAGE> 43
the annual rate of 8% per annum per share, payable quarterly in shares of
Common Stock or, in cash in connection with any payment pursuant to a
Conversion Default at the election of the Company's board of directors.
During fiscal 1998, the Series D Preferred was converted into common stock
of the Company at a conversion rate equal to the lowest trading price of
the Company's common stock during the 30 days preceding each conversion
date. In addition, the Series D Preferred shareholders converted their
warrants into common stock at prices aggregating $131,909. Such Series D
Preferred and warrants conversions aggregated 2,236,507 shares. In
connection with the discount for the above conversion, the Company
credited Additional Paid-in Capital $48,677 and charged preferred
dividends in an equal amount.
SERIES E CONVERTIBLE PREFERRED STOCK - On October 22, 1997, the Company
issued 74 shares of its Series E Convertible Preferred Stock (the "Series
E Preferred"), par value $.001 per share and at a price of $100,000 per
share and paying an 8% in-kind dividends. The net proceeds the Company
received were approximately $6,759,000. The Series E Preferred has a
stated liquidation preference value of $100,000 per share plus accrued
in-kind 8% dividends since the date of issuance. Such liquidation
preference is senior to all common stock but in parity with other series
of preferred stock of the Company. The holders of Series E Preferred have
no voting rights except with respect to certain matters that affect the
rights related to the Series E Preferred.
Conversion of the Series E Preferred into Common Stock, which are
restricted by certain "lock-up" agreements, is based on the lower of: (i)
the lesser of a 10% premium to the market price of the Company's Common
Stock, as reported on the American Stock Exchange, at the time of the
investment's closing or of a 10% premium to the 10 day average trading
price six months after the close or (ii) a discount to the lowest trade
during the five (5) trading days prior to each conversion. The discount,
which ranges from 15% to 20%, depends upon the date of the shareholders'
conversion of the Series E Preferred, with the discount increasing as the
period the shares are held increases. Warrants were issued to five of the
Series E Investors to purchase up to 1,236,364 shares of the Company's
Common Stock at a price equal to 120% of the market price of the Company's
Common Stock at the time of the investment's closing. The number of
warrants issued to each investor depended upon the amount invested and the
length of the "lock-up" agreed upon between the Company and investor.
On November 10, 1998, 38.5 shares of the Company's Series E Preferred 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
shares of its Series E Preferred for $100,000. All of the Series E
Preferred repurchased by the Company, which have 53,655 warrants attached,
were retired and cancelled on January 20, 1999. 35.42 of the Series E
Preferred bought by other investors were converted to Common Stocks on
November 11, 1998. In connection to the conversion, the investors entered
into a non-binding agreement to hold the converted Common Stock for a
specified period of time. An additional 141,680 shares of Common Stock was
issued to the investors with respect to the agreement and $144,375 was
charged to expense in the statement of operations.
The Company registered 13,832,792 shares of common stock on January 16,
1998, to cover the common stock issuable to the Series E Holders upon
conversion of their Series E shares and exercise of their warrants. As of
March 31, 2000, all 70.92 shares (74 shares net of 3.08 shares bought back
by the Company) of the Series E Preferred Stock were converted into
9,519,416 shares of the Company's common stock.
SERIES G CONVERTIBLE PREFERRED STOCK - In March 1999, the Company
completed a $2,000,000 offering of its Series G Convertible Preferred
Stock ("Series G Preferred"). The offering consisted of 20 shares of
Series G Preferred at $100,000 per share and Warrants to purchase Common
Stock of the Company. Each Warrant entitled the holder to purchase one
share of Common Stock at a fixed exercise price of $1.25 per share. The
Company allocated $210,400 for the Warrants issued using the Black-Scholes
valuation model. The value allocated to the Series G Preferred was
F-20
<PAGE> 44
$1,789,600. In connection with the discount on the Series G Preferred, the
Company credited $210,400 to Additional Paid-in Capital and charged
preferred dividends for an equal amount.
The Series G Preferred has a stated liquidation preference value of
$100,000 per share plus 8% accrued in-kind dividends since the date of
issuance. Such liquidation preference is senior to all Common Stock but in
parity with other series of preferred stock of the Company. The holders of
Series G Preferred have no voting rights except with respect to certain
matters that affect the rights related to the Series G Preferred.
None of the Series G Preferred was converted into common stock up to March
31, 2000.
STOCK WARRANTS -During fiscal 1998, the Company issued Warrants to
purchase 326,171 shares of the Company's Common Stock to the Placement
Agent as fees for services in connection with the placement of the Series
E Preferred described above. These Warrants have an exercise price of
$2.475 per share and expire on October 22, 2002. The Company has assigned
a value of $161,450 to these Warrants.
During fiscal 1998, the Company rescinded an agreement it entered into in
July 1996 with an investment banking firm in which such firm was to act as
a financial advisor to the Company. As part of this rescission the Company
canceled Warrants to purchase 200,000 shares of the Company's common
stock. Professional fees and Warrants were reduced by $147,000 to reflect
this cancellation.
In connection with a financial services agreement which was cancelled
during fiscal 1999, the Company issued 600,000 Warrants to an investment
banking firm, 300,000 of which vested at the time the agreement was
entered into and 300,000 which were to vest when such firm had raised a
minimum of $10 million. During fiscal 1997, with respect to the vested
300,000 Warrants, the Company recorded $222,500 in professional fees which
management determined to be the fair value of the Warrants. The Warrants
were not exercised and were subsequently cancelled during fiscal 1999. The
value of such Warrants was credited to Additional Paid-In Capital upon
cancellation.
During fiscal 1999, the Company issued 600,000 Warrants to purchase the
Company's Common Stock at a fixed exercise price of $1.25 per share. The
Warrants were issued in connection with the Company's issuance of Series G
Preferred (see Series G Convertible Preferred Stock above).
During fiscal 2000, the Company received $3,067,908 from the exercise of
Warrants to purchase 1,009,533 shares of Common Stock of the Company.
ISSUANCE OF COMMON STOCK FOR SERVICES - During the year ended March 31,
1998 the Company issued shares of its Common Stock for services rendered.
The number of shares issued in each case was based upon the quoted market
value of the stock at the issue date and the value of the services
rendered. Total shares issued in connection with these services amounted
to 63,233 covering the $151,957 of expenses which are included in the
accompanying financial statements.
THE PROMETHEAN COMMON STOCK EQUITY AGREEMENT - On March 31, 1997 the
Company entered into a Common Stock Investment Agreement with Promethean
Investment Group L.L.C. ("Promethean") pursuant to which Promethean would
provide a $10 million equity line to the Company. The agreement was
cancelled during fiscal year 1999 by the Company in accordance with the
terms in the agreement.
Initially, 1,570,998 shares were issued into escrow on behalf of
Promethean. During the year ended March 31, 1998, none of the shares
issued under this agreement were released from escrow. During the year
ended March 31, 1999, this agreement was cancelled and all the shares
issued into escrow on behalf of Promethean were cancelled.
F-21
<PAGE> 45
STOCK OPTIONS - The Company has adopted two stock option plans which were
The Company, Inc. 1995 Stock Plan and The Company, Inc. 1996 Stock Option
Plan. Under those plans, incentive and nonqualified options and stock
appreciation rights may be granted to employees, officers, directors, and
consultants of the Company. There are 12,500,000 shares of common stock
reserved for issuance under these plans. The exercise price of the options
are determined by the board of directors, but in the case of an incentive
stock option, the exercise price may not be less than 100% of the fair
market value on the date of grant. Options vest over periods not to exceed
ten years.
A summary of the status of all of the Company's stock options issued as of
March 31, 2000, 1999 and 1998 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
---------------------------- --------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 9,987,602 $ 1.43 12,460,102 $ 1.42 7,905,000 $ 1.40
Granted 413,500 1.38 527,500 1.14 4,624,102 2.55
Exercised (2,286,875) 1.12 -- -- (69,000) 0.35
Expired (265,727) 1.27 -- -- --
Cancelled -- (3,000,000) 3.06 --
--------- ---------- ---------
Outstanding at end of year 7,848,500 $ 1.53 9,987,602 $ 1.43 12,460,102 $ 1.42
========= ========== ========== ============= ========= ========
Options exercisable at
end of year 7,650,250 $ 1.54 9,111,994 $ 1.46 7,671,102 $ 1.28
========= ========== ========== ============= ========= ========
Weighted average fair value
of options granted during
the year $ 1.03 $ 0.19 $ 0.53
========= ========== =========
</TABLE>
The above options include options granted to the Hebei Provincial
Government during fiscal 1998 to acquire 3,000,000 shares of the Company's
common stock at a price of $3.0625 per share. These options, which vest
25% every six months from the date of grant, were cancelled during fiscal
1999. In connection with granting these options, $1,837,500 was recorded
as a charge to Deferred Option Cost and a corresponding credit was made to
Additional Paid-in Capital. During the quarter ended December 31, 1998,
the Company cancelled these options granted. Deferred Option Cost of
$918,751 was amortized through the cancellation date of these options. The
unamortized Deferred Option Cost up to the date of cancellation was
charged to Additional Paid-in Capital.
The Company followed the guidelines under SFAS No. 123 to determine the
fair value of options at the date of grant. The value was determined using
an adjusted Black-Scholes option pricing model. The Black-Scholes model is
generally accepted as appropriate primarily for short-term,
exchange-traded options. As of March 31, 1999, the Company's management
had determined that the longer term options it has issued did not have the
liquidity of an exchange traded option and where the underlying common
stock was not highly liquid (as is the case with the Company's Common
Stock), the Black-Scholes formula needs to be adjusted, especially in
reference to the volatility measurement used. The Company's stock was
thinly traded, averaging around 100,000 shares per day, and cannot be
considered highly liquid. For the purpose of valuing the Company's
options, which could have up to a ten year life, the following assumptions
were used, where the volatility measurement was based on management's
expectations and judgement:
F-22
<PAGE> 46
Risk-free rate 4.69 - 5.64%
Volatility 20-23%
Expected Life 3 - 5 years
Expected Dividends 0%
As of March 31, 2000, the Company determined the fair value of options at
the date of grant using a Black-Scholes option pricing model. The Company
abandoned the adjustments made to the model in fiscal 1998 and 1999 as
trading volume of the Company's common stocks improved. For the purpose of
valuing the Company's options, which can have up to a ten-year life, the
following assumptions were used:
Risk-free rate 5.27 - 6.4%
Volatility 80-105%
Expected Life 5 years
Expected Dividends 0%
The following table summarizes information about options outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
AVERAGE NUMBER
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES AT 3/31/00 LIFE (YEARS) PRICE AT 3/31/00 PRICE
--------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.35-0.50 3,525,000 5.12 0.350 3,525,000 0.350
0.51-1.00 225,000 8.65 0.867 125,000 0.861
1.01-1.50 1,043,500 7.29 1.359 945,250 1.370
1.51-2.00 25,000 8.70 1.819 25,000 1.819
2.01-3.00 3,017,500 6.01 2.998 3,017,500 2.998
3.01-4.00 12,500 10.00 4.000 12,500 4.000
--------- ---------
7,848,500 7,650,250
========= =========
</TABLE>
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related Interpretations in accounting for its employee options.
Accordingly, no compensation cost has been recognized with respect to such
awards. Had compensation cost for the Company's stock option plans been
determined consistent with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
net earnings and earnings per share would have approximated the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Net loss applicable to common shares -
as reported $ (4,924,338) $ (6,251,901)
============= =============
Net loss - pro forma $ (5,312,517) $ (6,812,194)
============= =============
Loss per common share - as reported $ (0.15) $ (0.23)
============= =============
Loss per common share - pro forma $ (0.16) $ (0.25)
============= =============
</TABLE>
9. LOAN PAYABLE
During the quarter ended December 31, 1999, Terremark agreed to provide
the Company with collateralized bridge financing up to $1.5 million, to
meet the Company'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 12) is not
approved by the Company's stockholders. Additionally, if the merger does
F-23
<PAGE> 47
not close by July 1, 2000, the Company is obligated to repay, if any, the
outstanding balance on the bridge loan. As of March 31, 2000, the Company
has obtained approximately $1,125,000 under this facility. The Company has
collateralized the bridge financing by pledging all of its tangible and
intangible assets to secure the bridge loan. The loan was fully repaid in
April 2000.
10. INCOME TAXES
As of March 31, 2000, the Company has federal net operating loss carry
forwards of approximately $12,900,000 through 2020. In considering
previous years stock issuance and the merger with Terremark (see Note
12) using these losses to offset future profits may be subject to
limitation under Section 382 of the Internal Revenue Code if it is
determined that an ownership change has occurred in connection with the
stock issuance and the merger.
Significant components of the Company's deferred assets and tax
liabilities for federal income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carried forwards $ 5,964,942 $ 4,125,593
Start-up and other costs 6,623,557 6,623,557
Research credit 266,000 266,000
Other 164,401 --
------------ ------------
Total deferred tax assets 13,018,900 11,015,150
Valuation allowance for deferred tax assets (13,018,900) (11,015,150)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
</TABLE>
A valuation allowance has been provided equal to the amount of the
deferred tax assets, as management of the company does not believe that it
is more likely than not that the deferred tax assets will be realized. The
net change in the valuation allowance for the years ended March 31, 2000
and 1999 was an increase of $2,003,750 and $1,326,887, respectively.
11. UNCOMPLETED TRANSACTIONS
During fiscal 1999, 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. The Company
has terminated the agreement because, among other reasons, necessary
governmental approvals were not granted. GTS has agreed to the
termination.
During fiscal 1999, the Company entered into an agreement to acquire an
investment in a cable television network venture located in Hunan
province, PRC, from United International Holdings ("UIH"). The Company has
terminated the agreement because, among other reasons, believes the
closing had not occurred by December 31, 1999 through no fault of the
Company. The Company believes that it had clear rights to terminate the
agreement.
F-24
<PAGE> 48
12. SUBSEQUENT EVENTS
On November 24, 1999, the Company signed a definitive merger agreement
with Terremark, a privately held, full service real estate and development
company based in Miami, Florida. Terremark has been engaged in the
development, construction, sale, leasing, management and financing of
various real estate projects since 1982. Terremark has provided these
services to private and institutional investors, as well as for its own
account. The real estate projects with which Terremark has been involved
have included retail, high rise office complexes, mixed-use projects,
condominiums, condominium hotels, and governmental assisted housing.
Terremark is also involved in a number of ancillary businesses which
complement its core development operations. Specifically, Terremark
engages in brokering financial services, property management,
construction, construction management, condominium hotel management,
residential sales and commercial leasing and brokerage, and advisory
services.
Pursuant to the merger agreement, Terremark will merge with and into AmTec
with AmTec as the surviving company. Under the terms of the proposed
transaction, the Company will acquire all existing Terremark's net assets,
including real estate, development projects, management and construction
contracts and brokerage operations. Concurrent with the signing of the
merger agreement, the Company entered into a stock purchase agreement with
Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business
company, Moraine Investments, Inc., a British Virgin Islands company and
Paradise Stream (Bahamas) Limited, a Bahamian international business
company. These parties with whom the Company has entered into the stock
purchase agreement will be collectively referred to as Vistagreen. Under
the stock purchase agreement, the Company will sell to Vistagreen
68,520,236 shares of outstanding shares of common stock of the combined
company, representing 35% of the outstanding common stock of the combined
company on a fully diluted basis, after giving effect to the merger. Both
the merger and stock purchase transactions are subject to satisfaction of
certain conditions and approval from the Company's shareholders.
On April 28, 2000, after approval by AmTec's shareholders, AmTec completed
its merger with Terremark. Pursuant to this merger, the Company changed
its name from AmTec, Inc. to Terremark Worldwide, Inc. The Company intends
to account for the merger as a reverse acquisition.
The reverse acquisition will be accounted for as a purchase business
combination in which Terremark is the accounting acquirer and the Company
is the legal acquirer. As a result of the reverse acquisition, the
financial statements on a prospective basis will be that of the accounting
acquirer (Terremark), while the net assets of the legal acquirer (the
Company) will be revalued and the purchase price will be allocated to the
assets acquired and liabilities assumed.
On May 31, 2000, the Company acquired Telecom Routing Exchange Developers,
also known as "T-Rex Developers," a facilities provider to the
telecommunications industry. T-Rex Developers develops new facilities and
converts existing properties for use as telecommunications routing
exchanges. Telecommunications routing exchanges are facilities used by
telecommunications companies to house their switches and provide leasable
space for internet service providers, content providers, co-location
companies and other similar tenants. T-Rex Developers is the exclusive
real estate service provider for Telecom Partners, an entity in which the
founders of T-Rex Developers have an interest. Telecom Partners presently
owns four properties, one located in each of Boca Raton, Florida,
Cleveland, Ohio, Hartford, Connecticut, and Miami, Florida.
On May 9, 2000, the Company announced that it had reached agreement to
acquire Post Shell Technology Contractors, Inc. The Company expects to
close this transaction in June 2000. Post Shell Technology Contractors is
a 17 year old Miami company which has performed general contracting
services for complex construction projects, including telecommunications
facilities.
F-25
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
We have audited the accompanying balance sheets of Hebei United
Telecommunications Equipment Co., Ltd. as of December 31, 1999 and 1998
and the related statements of operations, investors' equity and cash flows
for the years ended December 31, 1999, 1998 and the period from April 29,
1997 (date of establishment) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hebei United Telecommunications
Equipment Co., Ltd. as of December 31, 1999 and 1998 and the results of
its operations and its cash flows for the years ended December 31, 1999,
1998 and the period from April 29, 1997 (date of establishment) to
December 31, 1997 in conformity with accounting principles generally
accepted in the United States of America.
Deloitte Touche Tohmatsu
Beijing, People's Republic of China
May 26, 2000
F-26
<PAGE> 50
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1999 1998
-------------------- ------------------
RMB RMB
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 12,823,655 16,232,535
Other receivables 2,239,904 6,169,000
----------- -----------
Total current assets 15,063,559 22,401,535
Property and equipment, net 340,334 389,305
Investment in a Joint Venture 6,718,705 --
----------- -----------
Total Assets 22,122,598 22,790,840
=========== ===========
LIABILITIES AND
INVESTORS' EQUITY
Current Liabilities:
Amount due to an investor 7,446,402 12,656,909
Other payables 94,084 50,340
----------- -----------
Total current liabilities 7,540,486 12,707,249
----------- -----------
Total Liabilities 7,540,486 12,707,249
----------- -----------
Investors' equity:
Capital contribution 24,923,218 24,923,218
Accumulated deficit (10,341,106) (14,839,627)
----------- -----------
Total Investors' equity 14,582,112 10,083,591
----------- -----------
Total Liabilities and Investors' Equity 22,122,598 22,790,840
=========== ===========
</TABLE>
See notes to financial statements
F-27
<PAGE> 51
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND THE PERIOD APRIL 29, 1997
(DATE OF ESTABLISHMENT) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
APRIL 29, 1997
(DATE OF
YEAR ENDED YEAR ENDED ESTABLISHMENT) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------------- ----------------- ---------------------
RMB RMB RMB
<S> <C> <C> <C>
General and administrative expenses (2,643,904) (1,508,326) (758,658)
Other (expense) income:
Operation set up expense -- -- (2,000,000)
Equity in income (loss) of Joint Venture 6,718,705 (4,383,750) (8,347,533)
Exchange loss -- -- (24,680)
Interest income 423,720 1,336,978 846,342
---------- ---------- -----------
Net income (loss) 4,498,521 (4,555,098) (10,284,529)
========== ========== ===========
</TABLE>
See notes to financial statements
F-28
<PAGE> 52
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENTS OF INVESTORS' EQUITY
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
CONTRIBUTION DEFICIT TOTAL
----------------- ------------------ ----------------------
RMB RMB RMB
<S> <C> <C> <C>
Capital contribution 24,923,218 -- 24,923,218
Net loss -- (10,284,529) (10,284,529)
---------- ----------- -----------
Balance, December 31, 1997 24,923,218 (10,284,529) 14,638,689
Net loss -- (4,555,098) (4,555,098)
---------- ----------- -----------
Balance, December 31, 1998 24,923,218 (14,839,627) 10,083,591
Net income -- 4,498,521 4,498,521
---------- ----------- -----------
Balance, December 31, 1999 24,923,218 (10,341,106) 14,582,112
========== =========== ===========
</TABLE>
See notes to financial statements
F-29
<PAGE> 53
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND THE PERIOD APRIL 29, 1997
(DATE OF ESTABLISHMENT) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
APRIL 29, 1997
(DATE OF
YEAR ENDED YEAR ENDED ESTABLISHMENT) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------------- ---------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) 4,498,521 (4,555,098) (10,284,529)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 97,171 95,981 37,928
Loss on disposal of equipment -- 10,944 --
Equity in (income) loss of a joint venture (6,718,705) 4,383,750 8,347,533
Changes in assets and liabilities:
Other receivables 3,929,096 (5,066,247) (1,102,753)
Amount due to an investor (5,210,507) (18,151,722) 30,808,631
Other payables 43,744 17,415 32,925
----------- ----------- -----------
Net cash (used) provided by operating activities (3,360,680) (23,264,977) 27,839,735
----------- ----------- -----------
Cash flows from investing activities:
Additions of property and equipment (48,200) (2,800) (531,358)
----------- ----------- -----------
Cash used in investing activities (48,200) (2,800) (531,358)
----------- ----------- -----------
Cash flow from financing activities:
Capital contribution -- -- 12,191,935
----------- ----------- -----------
Cash provided by financing activities -- -- 12,191,935
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (3,408,880) (23,267,777) 39,500,312
Cash and cash equivalents, beginning of period 16,232,535 39,500,312 --
----------- ----------- -----------
Cash and cash equivalents, end of period 12,823,655 16,232,535 39,500,312
=========== =========== ===========
Supplemental disclosures of cash flow information:
Non-cash transactions:
During the period ended December 31, 1997, DEVELOPMENT CO. and CATCH contributed
their interest in a Joint Venture valued at RMB12,731,283 into the Company as
capital contribution.
</TABLE>
See notes to financial statements
F-30
<PAGE> 54
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, 1998 AND THE PERIOD APRIL 29, 1997
(DATE OF ESTABLISHMENT) TO DECEMBER 31, 1997
1. ORGANIZATION
Hebei United Telecommunications Equipment Co., Ltd. ("the Company") was
established on April 29, 1997 as a limited liability joint venture company
in the People's Republic of China ("PRC"). The period of operation is
twenty years. The registered capital of the Company was US$3 million, of
which 60.8% (US$ 1.824 million) was contributed by AmTec, Inc. (formerly
known as AVIC Group International, Inc.), 9.2% (US$276,000) by CATCH
Telecommunication Co., Ltd. (the "CATCH") and 30% (US$900,000) by Hebei
United Telecommunications Development Co., Ltd. (the "DEVELOPMENT CO.") .
On November 7, 1997, CATCH agreed to transfer its interest in the Company
to AmTec, Inc. Subsequent to the transfer (which occurred on November 30,
1997), AmTec, Inc. owns 70% (US$2.1 million) and DEVELOPMENT CO. owns 30%
(US$900,000) of the Company's registered capital. The Company's major
activity to date is an investment in a Chinese joint venture which was
mainly engaged in the development and construction of telecommunication
systems, and providing related technical consulting and repair services.
The Chinese joint venture was in the process of dissolution as of December
31, 1999 and the Company received the final distribution on dissolution of
the Chinese joint venture on January 19, 2000.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
This basis of accounting differs from that used in the statutory financial
statements of the Company, which are required to be prepared in accordance
with the accounting principles and relevant financial regulations as
established by the Ministry of Finance of the PRC.
The principal adjustments made to conform the statutory financial
statements of the Company to US GAAP included the following:
o Adjustment to write off organization and operation set up expenses.
o Adjustment to write off exchange loss.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in preparing the
financial statements set out in this report, and which conform with
accounting principles generally accepted in the United States of America
are as follows:
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand, demand deposits and highly liquid instruments with a maturity of
three months or less at the time of purchase.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method to write off the cost of property and equipment, net of the
estimated residual value of 10% of cost, over their estimated useful lives
as follows:
Furniture, fixture and equipment 5 years
Motor vehicles 5 years
F-31
<PAGE> 55
LONG LIVED ASSETS - The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the net carrying
amount may not be recoverable. When such events occur, the Company
measures impairment by comparing the carrying value of the long-lived
asset to the estimated undiscounted future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of
the expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined, would be measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
INVESTMENT IN JOINT VENTURE - The Company had owned 51% interest in Hebei
United Telecommunications Engineering Company, Ltd. ("Hebei Engineering")
up to January 20, 2000 Hebei Engineering was dissolved. The Company
accounts for its investment using the equity method of accounting as the
minority shareholders of Hebei Engineering have substantive participating
rights under the joint venture contract. 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. The Company's investment in
Hebei Engineering has been fully offset by its share of losses up to
December 31, 1998. Hebei Engineering was dissolved on January 20, 2000 and
the Company received approximately RMB6.7 million final distribution on
January 19, 2000.
INCOME TAX - Deferred income taxes are provided for using the liability
method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement bases of assets and liabilities. The tax consequences of those
differences are classified as current or non-current based upon the
classification of the related assets or liabilities in the financial
statements. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some
portion of, or all of, the deferred tax assets will not be realized.
FOREIGN CURRENCY TRANSLATION - The Company's financial statements are
prepared using Renminbi as the reporting currency. Foreign currency
transactions are translated at the rates ruling on the dates of the
transactions. Monetary assets and liabilities denominated in foreign
currencies are translated at the rates ruling on the balance sheet date.
Exchange gains and losses are reported in the statement of operation.
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. The
Company has no items of other comprehensive income and the net loss
reported in the statement of operations is equivalent to the total
comprehensive loss.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
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. The Company adopted SFAS 131 during the year and since the
Company only invested in the Hebei Engineering, no other reportable
segments were reported in the financial statements.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consists principally
of temporary cash investments. The Company places its temporary cash
investments with various financial institutions in the PRC. The Company
believes that no significant credit risk exists as these investments are
made with high-credit, quality financial institutions.
F-32
<PAGE> 56
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the recorded amounts of assets and liabilities and disclosures of
contingent assets and liabilities in the financial statements and recorded
amounts of revenue and expenses during the period. Actual results could
differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash and cash
equivalents, other receivables, other payables, and amount due to an
investor approximate fair value because of the short maturity of these
instruments.
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, 1999. Management has not yet completed the
analysis of the impact this would have on the financial statements of the
Company and has not yet adopted this standard.
4. OPERATION SET UP EXPENSE
Amount represents payment to CATCH for services provided in connection
with the formation of the Company.
5. INCOME TAX
The statutory income tax rate of the Company is 33%. There is no provision
for the income taxes during the years ended December 31, 1999 and 1998 and
the period from April 29, 1997 (date of establishment) to December 31,
1997 as the Company has no assessable profits during the relevant periods.
Deferred tax assets of RMB1,260,872, RMB695,754 and RMB639,209 existed as
at the end of 1999, 1998 and 1997 respectively, arising from temporary
differences. A valuation allowance has been made for the full amount of
the deferred tax assets since it is considered more likely than not that
all of the deferred assets will not be realized.
Deferred tax assets are composed of the following:
December 31, 1999 December 31, 1998
------------------- --------------------
Operation set up expense 686,400 660,000
Organization expenses 563,648 20,948
Exchange gain/loss 8,009 8,144
Other 2,815 6,662
Valuation allowance (1,260,872) (695,754)
---------- --------
-- --
========== ========
F-33
<PAGE> 57
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
----------------------------
1999 1998
---------- ----------
RMB RMB
At cost:
Furniture, fixtures and equipment 225,358 222,358
Motor vehicles 342,600 297,400
------- -------
567,958 519,758
Less: Accumulated depreciation 227,624 130,453
------- -------
340,334 389,305
======= =======
All assets are located in the PRC
7. INVESTMENT IN A JOINT VENTURE
The Company holds a 51% interest in Hebei Engineering, which is developing
GSM networks in the ten largest cities in Hebei Province, PRC. Nippon
Telegraph and Telephone International, Inc. ("NTT") and Itochu Corporation
hold the remaining 49% interest in Hebei Engineering.
The Company's investments in the joint venture was accounted for by the
equity method of accounting because minority shareholders of Hebei
Engineering have substantive participating rights under the provision of
the Joint Venture contracts. (See Note 3).
DECEMBER 31,
------------------------------
1999 1998
---------- ------------
RMB RMB
Cost 12,731,283 12,731,283
Less: Accumulative share of losses (6,012,578) (12,731,283)
----------- -----------
6,718,705 --
=========== ===========
Hebei Engineering was a Sino-foreign equity joint venture established on
January 31, 1996 in the PRC. The period of operation was 25 years. The
registered capital of Hebei Engineering is US$ 3 million and was mainly
engaged in the development and construction of telecommunication systems,
and providing related technical consulting services. Hebei Engineering was
in the process of dissolution as of December 31, 1999 and Unicom had
terminated Hebei Engineering's cash flow sharing and technical services
agreement. As a result of the termination of the agreement, Hebei
Engineering did not record any networks revenue during the year ended
December 31, 1999. The Company received a distribution of approximately
RMB 6.7 million on January 19, 2000.
Summarized balance sheets of Hebei Engineering as of December 31, 1999 and
1998 and summarized statements of operations for the years ended December
31, 1999 and 1998 and for the period April 29, 1997 (date of
establishment) to December 31, 1997 are as follows:
F-34
<PAGE> 58
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31,
-------------------------------------
1999 1998
--------------- -----------------
RMB RMB
<S> <C> <C>
ASSETS
Current Assets: 13,296,613 31,169,950
Other assets -- 5,336,274
Investment in GSM network -- 240,385,622
----------- ------------
Total Assets 13,296,613 276,891,846
=========== ============
LIABILITIES AND INVESTORS' EQUITY (DEFICIT)
Current liabilities -- 44,701,454
Long-term Liabilities: -- 237,826,398
----------- ------------
Total Liabilities -- 282,527,852
----------- ------------
Investors' equity (deficit): 13,296,613 (5,636,006)
----------- ------------
Total Liabilities and Investors' Equity 13,296,613 276,891,846
=========== ============
STATEMENT OF OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
RMB RMB
Net revenue from GSM network -- 6,488,482
Total expenses (13,704,002) (22,726,394)
----------- ------------
Net loss from operations (13,704,002) (16,237,912)
Gain on sale of GSM networks 51,254,175 --
Total other income (loss) net (18,617,554) 1,883,636
----------- ------------
Net income (loss) 18,932,619 (14,354,276)
=========== ============
</TABLE>
8. AMOUNT DUE TO AN INVESTOR
Amount due to an investor represents funds advanced to the Company by
AmTec, Inc. These amounts are interest free and payable on demand.
F-35
<PAGE> 59
9. CAPITAL CONTRIBUTION
DECEMBER 31, 1999 AND 1998
---------------------------------
OWNERSHIP RMB
Capital contributed by:
DEVELOPMENT CO. 30% 7,480,150
AmTec Inc. 70% 17,443,068
-------------- ---------------
100% 24,923,218
============= ===============
10. COMMITMENTS
The Company leases certain buildings under operating leases, which expire
through 2000. Rental expense under these operating leases was RMB17,640 in
1999, RMB100,128 in 1998 and RMB62,580 in 1997.
The aggregate minimum operating lease commitments under all
non-cancellable leases at December 31, 1999, require payment of RMB51,400
in 2000.
11. RETIREMENT BENEFITS
The Company's employees are entitled to a retirement pension calculated
with reference to their basic salaries on retirement and their length of
service in accordance with a government managed pension plan. The PRC
government is responsible for the pension liability to these retired
staff. The Company is required to make contributions to the state
retirement plan at rates ranging from 18% to 20% of the adjusted monthly
basic salaries of the current employees. The expense of such arrangements
to the Company was insignificant for the periods presented. The Company is
not obligated under any other post-retirement plans and post-employment
benefits are not significant.
F-36
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
We have audited the accompanying balance sheets of Hebei United
Telecommunications Engineering Co., Ltd. as of December 31, 1999 and 1998
and the related statements of operations, investors' equity (deficit) and
cashflows for the years ended December 31, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hebei United Telecommunications
Engineering Co., Ltd. as of December 31, 1999 and 1998, the results of its
operations and its cash flows for the years ended December 31, 1999, 1998
and 1997 in conformity with accounting principles generally accepted in the
United States of America.
Deloitte Touche Tohmatsu
Beijing, People's Republic of China
May 26, 2000
F-37
<PAGE> 61
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 13,296,613 23,869,946
Accounts receivable -- 6,829,981
Other receivables -- 470,023
------------ ------------
Total current assets 13,296,613 31,169,950
Property and equipment, net -- 5,273,129
Deferred assets -- 63,145
Investment in GSM network, net -- 240,385,622
------------ ------------
Total Assets 13,296,613 276,891,846
============ ============
LIABILITIES AND INVESTORS' EQUITY
Current Liabilities:
Amount due to investors -- 844,392
Other payables -- 10,675,770
Accrued expenses -- 66,492
Long term loans due within one year -- 33,114,800
------------ ------------
Total current liabilities -- 44,701,454
------------ ------------
Long-term Liabilities:
Long-term loans -- 230,313,434
Other payables -- 7,512,964
------------ ------------
-- 237,826,398
------------ ------------
Total Liabilities -- 282,527,852
------------ ------------
Investors' equity (deficit):
Capital contribution 24,963,300 24,963,300
Capital reserve (4,800) (4,800)
Accumulated deficit (11,661,887) (30,594,506)
------------ ------------
Total investors' equity (deficit) 13,296,613 (5,636,006)
------------ ------------
Total Liabilities and Investors' Equity (Deficit) 13,296,613 276,891,846
============ ============
</TABLE>
See notes to financial statements
F-38
<PAGE> 62
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenue from GSM network -- 6,488,482 1,706,499
----------- ----------- -----------
Expenses:
General and administrative expenses (2,018,590) (2,694,259) (2,222,446)
Amortization of GSM network (11,685,412) (20,032,135) (18,125,794)
----------- ----------- -----------
Total expenses (13,704,002) (22,726,394) (20,348,240)
----------- ----------- -----------
Net loss from operations (13,704,002) (16,237,912) (18,641,741)
----------- ----------- -----------
Other income (expenses):
Rental income, net 153,428 461,784 736,965
Other income, net -- -- 250,000
Interest income 1,488,134 1,266,668 1,328,727
Gain on sale of GSM network 51,254,175 -- --
Exchange gain (loss) (161,595) 233,713 (41,663)
Interest expense (17,931,179) (78,529) --
Loss on disposal of equipment and other assets (2,166,342) -- --
----------- ----------- -----------
Total other income 32,636,621 1,883,636 2,274,029
----------- ----------- -----------
Net income (loss) 18,932,619 (14,354,276) (16,367,712)
=========== =========== ===========
</TABLE>
See notes to financial statements
F-39
<PAGE> 63
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF INVESTORS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
(DEFICIT)
CAPITAL CAPITAL RETAINED
CONTRIBUTION RESERVE EARNINGS TOTAL
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 24,963,300 (4,800) 127,482 25,085,982
Net loss -- -- (16,367,712) (16,367,712)
---------- ------ ----------- -----------
Balances, December 31, 1997 24,963,300 (4,800) (16,240,230) 8,718,270
Net loss -- -- (14,354,276) (14,354,276)
---------- ------ ----------- -----------
Balances, December 31, 1998 24,963,300 (4,800) (30,594,506) (5,636,006)
Net income -- -- 18,932,619 18,932,619
---------- ------ ----------- -----------
Balances, December 31, 1999 24,963,300 (4,800) (11,661,887) (13,296,613)
========== ====== =========== ===========
</TABLE>
See notes to financial statements
F-40
<PAGE> 64
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) 18,932,619 (14,354,276) (16,367,712)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Bad debt 55,500 -- --
Loss on disposal of equipment and other assets 2,166,342 6,043 9,407
Gain on disposal of GSM networks (51,254,175) -- --
Depreciation 328,734 501,745 358,278
Amortization of investment in GSM network 11,685,412 20,032,135 18,125,794
Changes in assets and liabilities:
Accounts receivable 6,829,981 (6,829,981) --
Other receivables 414,523 484,325 (869,654)
Other payables (19,033,126) 364,203 369,218
Accrued expenses (66,492) 13,772 28,160
------------ ------------ -----------
Net cash (used in) provided by operating activities (29,940,682) 217,966 1,653,491
------------ ------------ -----------
Cash flows from investing activities:
Short-term investment -- -- 270,300
Additions to property and equipment -- -- (3,113,736)
Proceeds from disposal of equipment 2,841,198 2,200 --
Purchases of deferred assets -- (5,900) (8,500)
Proceeds from disposal of GSM networks 279,954,385 -- --
Investment in GSM network -- (103,234,659) (69,144,541)
------------ ------------ -----------
Net cash provided by (used in) investing activities 282,795,583 (103,238,359) (71,996,477)
------------ ------------ -----------
Cash flow from financing activities:
Loans borrowed -- 107,211,434 66,238,400
Repayment of loans (263,428,234) (9,600,000) --
------------ ------------ -----------
Net cash (used in) provided by financing activities (263,428,234) 97,611,434 66,238,400
------------ ------------ -----------
Net decrease in cash and cash equivalents (10,573,333) (5,408,959) (4,104,586)
Cash and cash equivalents, beginning of period 23,869,946 29,278,905 33,383,491
------------ ------------ -----------
Cash and cash equivalents, end of period 13,296,613 23,869,946 29,278,905
============ ============ ===========
Supplemental disclosures of cash flow information:
Interest paid 24,263,705 20,602,968 8,144,426
============ ============ ===========
</TABLE>
See notes to financial statements
F-41
<PAGE> 65
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
Hebei United Telecommunications Engineering Co., Ltd. ("the Company") was
established on January 31, 1996 as a limited liability joint venture
company in the People's Republic of China ("PRC"). The period of operation
is 25 years. The registered capital of the Company is US$ 3 million, of
which 51% (US$1.53 million) was contributed by Hebei United
Telecommunications Equipment Co., Ltd.("EQUIPMENT CO."), and 49% (US$ 1.47
million) by NTT International Inc. ("NTT"). On October 18, 1996, NTT
agreed to transfer 19.6% of the capital in the Company to Itochu
Corporation ("ITOCHU") with effect from December 27, 1996. Subsequent to
the transfer, EQUIPMENT CO. owned 51% (US$1.53 million), NTT owned 29.4%
(US$882,000) and ITOCHU owned 19.6% (US$588,000) of the Company's
registered capital. The Company was mainly engaged in developing and
assisting in construction of telecommunication systems, and providing
related technical consulting services.
The Company had invested approximately RMB253 million in the construction
of GSM telecommunications network (the "GSM network") in Hebei Province of
the PRC. The GSM network was built pursuant to a 15-year Project
Cooperation Contract with China United Communications Company ("UNICOM"),
the operator of the GSM network. Terms of the contract include the
following:
Initially, UNICOM will own 30% of the assets while the Company will own
70% of the assets. Both parties agree to distribute the profit according
to the "Distributable Cash Flow" (as defined) with 22% going to UNICOM and
78% going to the Company. Each year, the Company will transfer assets
equal in value to the Distributable Cash Flow received up to 60% of the
assets. The maximum amount of assets transferred will not exceed 90% of
the assets until termination of Cooperation Contract. Upon the termination
of the contract the remaining 10% of the network assets shall be assigned
to UNICOM without any further consideration. The Company will continue to
receive 78% of the Distributable Cash Flow after transfer of the assets
for the remainder of the 15-year period.
Under PRC law, foreign investment enterprises, such as the Company, are
not permitted to own or operate telecommunications networks. Substantially
all of the Company's revenues are derived from contractual arrangements
for the sharing of cash flow from network operations rather than from
ownership or operation of the network. The Company recorded its
investment(GSM Construction Costs) at cost and amortized it over the
remaining life of the project. Income from the GSM network is recognized
at the time when the Company can estimate or calculate the portion of its
Distributable Cash Flow from the network. UNICOM commenced operation of
the GSM network in February 1997.
On August 9, 1999, the Company and UNICOM entered into an agreement to
terminate the Project Cooperation Contract. According to the agreement,
the Company would transfer the GSM network to UNICOM and UNICOM would pay
RMB287million to the Company as cost of transferring the GSM network,
settlement of the Company's prior year revenue and compensation for
terminating the cooperation. On August 18, 1999 the Company commenced a
liquidation process which was completed on December 6, 1999. The final
distribution to investors happened in January 2000 and the business
license of the Company was formally cancelled on January 20, 2000.
F-42
<PAGE> 66
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
This basis of accounting differs from that used in the statutory financial
statements of the Company, which are required to be prepared in accordance
with the accounting principles and relevant financial regulations as
established by the Ministry of Finance of the PRC.
The principal adjustments made to conform to the statutory financial
statements of the Company to US GAAP mainly included the following:
o Adjustment to write off organization expenses
o Adjustment to write off exchange loss and gain
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in preparing the
financial statements set out in this report, and which conform with
accounting principles generally accepted in the United States of America
are as follows:
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand, demand deposits and highly liquid instruments with a maturity of
three months or less at the time of purchase.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method to write off the cost of property and equipment, net of the
estimated residual value of 10% of cost, over their estimated useful lives
as follows:
Land and buildings 20 years
Furniture, fixtures and equipment 5 years
Motor vehicles 5 years
LONG LIVED ASSETS - The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the net carrying
amount may not be recoverable. When such events occur, the Company
measures impairment by comparing the carrying value of the long-lived
asset to the estimated undiscounted future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of
the expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined, would be measured as the amount by which
the carrying amount of the asset exceeds the fair value of the assets. The
Company has liquidated all the assets as of December 31, 1999.
INVESTMENT IN GSM NETWORKS - Investment in GSM network is stated at cost
less amortization. The investment in GSM network is amortized on a
straight-line basis over the remaining life of the project cooperation
agreement between the Company and UNICOM. The investment in GSM
telecommunication networks was sold to UNICOM pursuant to a termination
agreement with UNICOM effected August 9, 1999. An amount of approximately
RMB279 million was received by the Company as proceeds from the sale of
the investment resulting in a gain of approximately RMB 52 million.
CAPITALIZATION OF BORROWING COSTS - Borrowing costs directly attributable
to the acquisition, construction or production of qualifying assets, i.e.
assets that necessarily take a substantial period of time to get ready for
their intended use or sale, are capitalized as part of the cost of those
F-43
<PAGE> 67
assets. Capitalization of such borrowing costs ceases when the assets are
substantially ready for their intended use or sale. Investment income
earned from the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from borrowing costs
capitalized.
REVENUE RECOGNITION - Revenue related to the GSM networks is recognized at
the time when the Company can estimate or calculate the portion of its
distributable cash flow from the network.
INCOME TAX - Deferred income taxes are provided for using the liability
method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement bases of assets and liabilities. The tax consequences of those
differences are classified as current or non-current based upon the
classification of the related assets or liabilities in the financial
statements. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some
portion of, or all of, the deferred tax assets will not be realized.
FOREIGN CURRENCY TRANSLATION - The Company's financial statements are
prepared using Renminbi as the reporting currency. Foreign currency
transactions are translated at the rates ruling on the dates of the
transactions. Monetary assets and liabilities denominated in foreign
currencies are translated at the rates ruling on the balance sheet date.
Exchange gains and losses are taken to the statement of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash and cash
equivalents, short-term investments, accounts receivable, other
receivables, other payables, and amount due to investors approximate fair
value because of the short maturity of these instruments.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally
of temporary cash investments and trade accounts receivable.
The Company places its temporary cash investments with various financial
institutions in the PRC. The Company believes that no significant credit
risk exists as these investments are made with high-credit, quality
financial institutions.
The Company's account receivable represents revenue from GSM networks due
from UNICOM, the operator of the GSM networks. The Company believes that
no significant credit risk exists, as UNICOM is a high-credit PRC
state-owned enterprise.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the recorded amounts of assets and liabilities and disclosures of
contingent assets and liabilities in the financial statements and recorded
amounts of revenue and expenses during the period. Actual results could
differ from these estimates.
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. The
Company has no items of other comprehensive income and the net loss
reported in the statement of operations is equivalent to the total
comprehensive loss.
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 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
F-44
<PAGE> 68
disclosed for segments, in each case to the corresponding amounts in the
general purpose financial statements. The Company adopted SFAS 131 during
the year and since the Company only invested in the GSM networks, no other
reportable segments were reported in the financial statements.
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, 1999. 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.
4. INCOME TAX
The statutory income tax rate of the Company is 33%. There is no provision
for the income taxes during the years ended December 31, 1999 and 1998, as
the Company did not have any assessable income for the relevant periods.
Deferred tax assets of RMB10,096,188 and RMB5,359,276 existed as at the
end of 1998 and 1997 arising from temporary differences. A valuation
allowance has been made for the full amount of the deferred tax assets
since it is considered more likely than not that all of the deferred
assets will not be realized.
No provision for deferred taxation has been made in the financial
statements for the year ended December 31, 1999 as no significant
temporary differences arose during the period and no significant deferred
tax assets and liabilities existed at the relevant balance sheet date.
Deferred tax assets are composed of the following:
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -----------------
RMB RMB
Amortization of GSM networks -- 12,592,117
Organization expenses -- 218,310
Exchange gain/loss -- (9,895)
GSM networks revenue -- (2,704,344)
Valuation allowance -- (10,096,188)
----------- -----------
-- --
=========== ===========
F-45
<PAGE> 69
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------
RMB RMB
<S> <C> <C>
At cost:
Land and buildings -- 4,629,909
Furniture, fixtures and equipment -- 641,751
Motor vehicles -- 973,738
--------- ----------
-- 6,245,398
Less: accumulated depreciation -- (972,269)
--------- ----------
-- 5,273,129
========= ==========
</TABLE>
All assets were located in the PRC before they were disposed in the course
of dissolution. As of December 31, 1999, all assets have been disposed.
6. INVESTMENT IN GSM NETWORKS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------
RMB RMB
<S> <C> <C>
Cost of investment -- 278,543,551
Less: accumulated amortization -- (38,157,929)
---------- ------------
-- 240,385,622
========== ============
</TABLE>
Investment represents investment in GSM telecommunication network in Hebei
Province, the PRC. The GSM network was built pursuant to a 15-year
agreement with UNICOM commencing in February, 1996. UNICOM commenced
operation of the GSM networks in February 1997. The investment was
amortized on a straight-line basis over the remaining 12-year life of the
agreement commencing from the operation of the networks to the date of its
disposal.
The investment in GSM telecommunication networks was sold to UNICOM
pursuant to a termination agreement with UNICOM effected August 9, 1999
for RMB279 million. The amount was received in two payments on August 10
and October 11, 1999.
F-46
<PAGE> 70
7. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
COMPANY NAME DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ----------------- -----------------
RMB RMB
<S> <C> <C>
Amount due to NTT -- 512,300
Amount due to ITOCHU -- 332,092
---- --------
Total -- 844,392
==== ========
</TABLE>
Guarantee fees paid to NTT and ITOCHU are as follows:
<TABLE>
<CAPTION>
COMPANY NAME 1999 1998 1997
-------------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Amount paid to NTT 1,447,514 1,541,283 2,167,260
Amount paid to ITOCHU 874,006 755,081 467,482
-------------- ------------ ------------
Total 2,321,520 2,296,364 2,634,742
============== ============ ============
</TABLE>
8. OTHER PAYABLES
The Company has acquired a digital microwave system under deferred payment
terms with final installments payable in 2001. The liabilities are
guaranteed by NTT .
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ------------------
RMB RMB
<S> <C> <C>
Liabilities payable:
1999 -- 3,756,482
2000 -- 3,756,482
2001 -- 3,756,482
--------------------- -------------------
-- 11,269,446
Less: Liabilities due within one year
(included in other payables) -- 3,756,482
--------------------- -------------------
Long-term payables -- 7,512,964
===================== ===================
</TABLE>
All above liabilities have been paid off as of December 31, 1999.
F-47
<PAGE> 71
9. LONG-TERM LOANS
Scheduled repayments for the long-term loans are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------- ------------------
RMB RMB
<S> <C> <C>
Liabilities payable:
1999 -- 33,114,800
2000 -- 66,229,600
2001 -- 98,218,496
2002 -- 43,281,044
2003 -- 22,584,294
-------------------- ---------------------
-- 263,428,234
Less: Liabilities due within one year -- 33,114,800
-------------------- ---------------------
-- 230,313,434
==================== =====================
</TABLE>
On August 5, 1996, the Company was granted a long-term loan facility of
US$ 20,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch at an
annual interest rate of 6.82%. The Company has utilized US$20,000,000
(RMB165,574,000) as of December 31, 1998. Interest is payable on the
outstanding balance six months after the date of the agreement, every six
months thereafter, and at maturity. The principal is payable in five
equal, consecutive, semiannual installments, each in an amount of
US$4,000,000 commencing on the third anniversary of the date of the
agreement.
On July 10, 1998, the Company was granted a long term loan facility of
US$5,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch with an
annual interest rate equals to the funding rate plus 0.625%. The Company
has utilized US$5,000,000 (RMB41,393,500) as of December 31, 1998.
Interest is payable on the outstanding balance on February 5, 1999, every
six months thereafter, and at maturity. The principal is payable in four
equal, consecutive, semiannual installments, each in an amount of
US$1,250,000 commencing on the fifth interest payment date.
On September 30, 1998, the Company was granted a long term loan facility
of US$6,820,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch with
an annual interest rate equals to the funding rate plus 0.75%. The Company
has utilized US$ 6,820,000 (RMB56,460,824) as of December 31, 1998.
Interest is payable on the outstanding balance on February 5, 1999, every
six months thereafter, and at maturity. The principal is payable in five
equal, consecutive, semiannual installments, each in the amount of
US$1,364,000 commencing on the sixth interest payment date.
All the obligations of the Company under the above agreements are
guaranteed 60% by NTT International Corporation and 40% by ITOCHU. All
such obligations had been paid off as of December 31, 1999.
F-48
<PAGE> 72
10. CAPITAL CONTRIBUTION
<TABLE>
<CAPTION>
DECEMBER 31, 1999 AND DECEMBER 31, 1998
---------------------------------------
OWNERSHIP RMB
--------------- -------------------
<S> <C> <C>
Capital contributed by:
EQUIPMENT CO. 51.00% 12,731,283
NTT 29.40% 7,339,210
ITOCHU 19.60% 4,892,807
--------------- -----------------
100.00% 24,963,300
=============== =================
</TABLE>
11. EMPLOYEE RETIREMENT BENEFITS AND POST-RETIREMENT BENEFIT
The Company's retired employees are entitled to a retirement pension
calculated with reference to their basic salaries on retirement and their
length of service in accordance with a government managed pension plan.
The PRC government is responsible for the pension liability to these
retired staff. The Company is required to make contributions to the state
retirement plan at rates ranging from 18% to 20% in 1997, 1998 and the
period from January 1, 1999 to December 6, 1999 of the adjusted monthly
basic salaries of the current employees. The expense of such arrangements
to the Company was insignificant in all the periods presented. The Company
is not obligated under any other post-retirement plans and post employment
benefits are insignificant.
F-49
