SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
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Commission File Number: 0-22520
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AMTEC, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 84-0873124
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
599 Lexington Avenue, 44th Floor
New York, New York 10022
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(Address of principal executive offices)
(212) 319-9160
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(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Class Outstanding as of August 19, 1997
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Common Stock, par value $.001 per share 31,362,077
Transitional Small Business Format (Check one): Yes No X .
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO ECONOMIC, COMPETITIVE,
GOVERNMENTAL, INTERNATIONAL AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S
REVENUES, JOINT VENTURES, OPERATIONS, MARKETS AND PRICES, AND OTHER FACTORS
DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" ON PAGES 7 THROUGH 11 OF THE
COMPANY'S ANNUAL REPORT ON FROM 10-KSB, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JULY 15, 1997.
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements at June 30, 1997 and for
the three months then ended are unaudited and reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. All of
the adjustments are of a normal recurring nature. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and results of
operations, contained in the Annual Report on Form 10-KSB filed by the
Company on July 15, 1997. The results of operations for the three months
ended June 30, 1997 are not necessarily indicative of the results for the
entire year ending March 31, 1998.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, as expected by management, during
the three months ended June 30, 1997, the Company had a net loss of
$1,700,227. Realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's continued
ability to meet its future project financing requirements for, and the
continued success of its existing Sino-foreign joint ventures to develop
telecommunications networks in the People's Republic of China and for its
operating requirements.
Since January 1996, the Company has focused its business solely on
establishing Sino-foreign joint ventures ("SFJVs") to develop
telecommunications networks in the People's Republic of China ("PRC"). The
Company does not currently generate sales or market any products. The
SFJV's telecommunications networks are in the construction stage and, as
expected by management, do not currently generate any sales.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company, its 60.8% owned
subsidiary Hebei United Communications Equipment Co., Ltd. and subsidiary
("Hebei Equipment") (a limited life Sino-foreign joint venture) and the
Company's wholly owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated in
consolidation. Hebei Equipment owns 51% of Hebei United Telecommunications
Engineering Company, Ltd. ("Hebei Engineering").
The financial statements of Hebei Equipment included in the consolidated
financial statements are as of and for the period ended March 31, 1997. In
the period April 1, 1997 to the end of the Company's first quarter, an
additional $1,000,000 has been invested by the Company in Hebei Equipment.
Such amount will not eliminate on consolidation due to the different
year-end and quarter-end dates. As such, the
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amount has been included in the balance sheet at June 30, 1997 as
"Additional Investment in Joint Venture."
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in June 1997. The
Company believes these statements will not have a material impact on the
Consolidated Financial Statements of the Company when adopted in fiscal
1998.
5
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
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JUNE 30, MARCH 31,
1997 1997
ASSETS:
CURRENT ASSETS:
Cash $ 9,239,820 $ 5,390,871
Accounts Receivable 359,501
Prepaid expenses and other current assets 145,262 182,090
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Total current assets 9,744,583 5,572,961
Property and equipment, net 506,276 518,020
GSM Construction Costs 22,539,525 22,017,869
Joint venture deposits
Additional investment in joint venture 662,401 1,192,000
Investment in Netmatics, Inc. 48,352
Investment in Toucan Technologies, Inc. 19,545
Office lease deposit 111,500 111,500
Deferred expenses 5,855 5,853
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Total assets $33,638,037 $29,418,203
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 374,383 $ 991,194
Accrued interest 811,235 780,902
Loans payable - stockholders 2,413,553 2,413,553
Current portion of Other Payables 450,685
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Total current liabilities 3,599,171 4,636,334
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Loans payable 15,970,392 11,956,486
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Other payables 11,156,020 10,290,128
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Minority interest 1,290,641 1,987,167
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STOCKHOLDERS' EQUITY/(DEFICIT):
Series A Convertible Preferred Stock:
$.001 par value, authorized 10,000,000
shares; 1,524,178 shares issued and
outstanding in 1997 and 1996 1,524 1,524
Series D Convertible Preferred Stock:
$.001 par value, authorized 10,000,000
shares; 145 and 0 shares issued and
outstanding in 1997 and 1996, respectively. 1 1
Series C Convertible Preferred Stock:
$.001 par value, authorized 10,000,000
shares; 250 and 0 shares issued and
outstanding in 1997 and 1996, respectively. 1
Common stock: $.001 par value,
authorized 100,000,000 shares;
31,257,921 and 28,436,952 issued and
outstanding in 1997 and 1996, respectively 31,312 31,258
Additional paid-in capital 27,975,800 25,202,108
Accumulated deficit (22,292,763) (20,592,536)
Cumulative foreign currency exchange loss (1,026) (1,231)
Non-refundable equipment purchase deposit (4,572,536) (4,572,536)
Warrants 479,500 479,500
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Total stockholders' equity/(deficit) 1,621,813 548,088
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Total Liabilities and Equity $33,638,037 $29,418,203
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6
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended June 30,
1997 1996
Net sales $ - $ -
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Expenses:
Cost of sales
Selling, general and administrative 2,369,632 751,109
Research and development
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Total expenses 2,369,632 751,109
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Loss from operations (2,369,632) (751,109)
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Other income (expense):
Interest income
Interest expense (32,459)
Exchange loss
Other - net (21,017) (1,829)
Total other income (expense) (21,017) (34,288)
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Loss before minority interest $ (2,390,649) $ (785,397)
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Minority interest in loss of subsidiaries (798,422) -
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$ (1,592,227) $ (785,397)
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Preferred stock dividend requirement 108,000 -
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Net loss applicable to common shares $ (1,700,227) $ (785,397)
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Net loss per common share $ (0.05) $ (0.03)
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Weighted average common
shares outstanding 31,306,876 29,102,347
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7
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three months ended June 30,
1997 1996
Cash flows form operating activities:
Net loss $ (1,700,227) $ (785,398)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 36,586 5,905
Issuance of common and options stock for
compensation, directors' fees and services rendered 273,747 117,775
Equity in losses of unconsolidated subsidiary
(Increase) decrease in:
Accounts receivable (359,501) (14,250)
Inventories
Prepaid expenses and other current assets 37,031 52,598
Other assets (3,380)
Increase (decrease) in:
Accounts payable and accrued expenses (616,811) 22,522
Accrued interest 30,333 32,459
Minority interest (696,526)
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Net cash used in operating activities (2,995,368) (571,769)
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Cash flows from investing activities:
Purchase of property and equipment (24,842) (6,158)
GSM construction costs and additional investments (59,954)
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Net cash used in investing activities (84,796) (6,158)
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Cash flows from financing activities:
Borrowings 4,429,113 50,000
Proceeds from sale of Series B Convertible Preferred Stock 750,000
Proceeds from sale of Series C Convertible Preferred Stock 2,500,000
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Net cash provided by financing activities 6,929,113 800,000
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Net increase (decrease) in cash and cash equivalents 3,848,949 222,073
Cash and cash equivalents, beginning of period 5,390,871 185,889
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Cash and cash equivalents, end of period $ 9,239,820 $ 407,962
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
AmTec, Inc. (the "Company") develops and finances communications networks in the
People's Republic of China ("PRC"). The Company's interests in its Chinese
communications networks include a Global Service Mobile system ("GSM") and a
planned broadband telecommunications network, both in the northern province of
Hebei, PRC. The Company holds these interests through Sino-foreign joint
ventures ("SFJVs"), which are the legally authorized vehicle for foreign
investment in China. Consistent with PRC laws and regulations, the Company's
SFJVs have entered into contracts with authorized network operators in the PRC
to build networks and sell the assets of such networks to the operators for a
portion of the cash-flow generated by operations of the networks. On July 8,
1997, the Company changed its name to "AmTec, Inc." from "AVIC Group
International, Inc." in order to better reflect its mission of providing
technology to the PRC.
JOINT VENTURES IN HEBEI PROVINCE
In March 1996, the Company formed a joint venture with a 60.8% equity interest
in Hebei United Communication Equipment Company Limited ("Hebei Equipment"). As
a result, Hebei Equipment was converted from a PRC enterprise into a
Sino-foreign joint venture company. On April 15, 1997, all PRC governmental
approvals were finalized for the conversion of Hebei Equipment to a Sino-foreign
joint venture company. At the time of the Company's acquisition of the majority
stake in Hebei Equipment, Hebei United Telecommunications Development Co.
("Hebei Development") held a 30% ownership in Hebei Equipment and Beijing CATCH
held subscription rights to a 9.2% ownership of Hebei Equipment. On April 22,
1997, the Board of Directors of Hebei Equipment resolved to terminate Beijing
CATCH's ownership participation in Hebei Equipment because of a default by
Beijing CATCH on its required capital contribution to Hebei Equipment.
The Company, through Hebei Equipment, is currently involved in the development
of two communications networks in Hebei Province: a digital cellular telephone
network (the "GSM Network") and a province-wide broadband network (the "Hebei
Broadband Network"). The GSM Network is being constructed by Hebei United
Telecommunications Engineering Company Limited ("Hebei Engineering"), which is a
51%-owned subsidiary of Hebei Equipment and is 49%-owned by Nippon Telegraph and
Telephone International ("NTTI"), a subsidiary of Nippon Telegraph & Telephone
Corporation. The Hebei Broadband Network (the "Broadband Network"), which will
link existing cable television systems in Hebei Province, will be constructed by
Hebei Equipment.
THE HEBEI GSM NETWORK
Hebei Engineering is constructing the GSM Network pursuant to a 15-year
agreement (the "UNICOM Agreement"), dated February 9, 1996, with China United
Communications Co. ("UNICOM"). UNICOM holds one of two licenses to operate
cellular telephone networks in the PRC. Under the terms of the UNICOM
Agreement, Hebei Engineering will build the GSM Network and sell ownership of
the GSM Network over the life of the agreement to UNICOM in
9
exchange for a majority share of cash flow generated by UNICOM from UNICOM's
operation of the GSM Network. Hebei Engineering will also provide consulting
assistance to UNICOM in the operation of the GSM Network. Hebei Engineering
will receive 78% of up front connection fees paid by new subscribers to connect
to the GSM Network, 78% of depreciation of fixed assets and 78% of net income
generated by UNICOM from operation of the GSM Network until February 9, 2011.
Through the Company's 60.8% interest in Hebei Equipment and Hebei Equipment's
51% interest in Hebei Engineering, the Company holds an indirect 31% interest in
Hebei Engineering.
In February 1997, the GSM Network commenced commercial operations in
Shijiazhuang, the capital of Hebei Province. Construction in six additional
cities is anticipated to conclude before the end of fiscal year 1998.
Construction in the remaining four major cities of Hebei Province is anticipated
to commence during the second half of calendar 1998.
As of August 19, 1997, construction of the first phase of the GSM Network had
been financed with a $3 million equity investment from Hebei Equipment and
NTTI, and vendor financing guaranteed by NTTI and a $20 million Term Loan
facility from Bank of Tokyo Mitsubishi guaranteed by NTTI. Of these amounts,
the Company has provided $1.17 million of equity funding to Hebei Engineering
through the Company's investment in Hebei Equipment. At present, all funding
required for completion of the first phase of construction has been obtained
by Hebei Engineering.
THE HEBEI BROADBAND NETWORK
On April 8, 1997, Hebei Equipment entered into a 20-year agreement (the
"Hebei Broadband Agreement") with Hebei Cable Television Station, the monopoly
provider of cable television service in Hebei Province, pursuant to which Hebei
Equipment will (i) build a fiber-optic and microwave network to connect the
existing cable television systems in the eleven major cities in Hebei Province,
(ii) upgrade one city on a trial basis to a hybrid fiber coaxial network
("HFC"), and (iii) hold the option to upgrade the entire network to an HFC
network. Under the Hebei Broadband Agreement, Hebei Equipment will sell
ownership of the Hebei Broadband Network to Hebei Cable Television Station in
exchange for a majority share of cash flow generated by Hebei Cable Television
Station from operation of the Hebei Broadband Network. Hebei Equipment will
also provide operating personnel and assistance to Hebei Cable Television
Station in the operation of the Hebei Broadband Network. Until Hebei Equipment
has recovered its investment, Hebei Equipment will receive 80% of depreciation
of fixed assets and 80% of net income generated by Hebei Cable Television
Station from operation of the Hebei Broadband Network. Thereafter, for the
balance of 20 years from the commencement date of formal commercial operations,
Hebei Equipment will receive 30% of depreciation of fixed assets and 30% of net
income generated by Hebei Cable Television Station from operation of the Hebei
Broadband Network. Hebei Cable Television Station is a subsidiary enterprise
of the Hebei Radio and Television Department, under the jurisdiction of the
Ministry of Radio, Film and Television in the PRC.
The current funding requirement to link cable systems in the eleven
largest cities in Hebei Province for the Hebei Broadband Network is
estimated at approximately $23 million. As of August 19, 1997, the Company had
invested approximately $1.0 million in Hebei Equipment for purposes of
investment in the Hebei Broadband Network. The Company anticipates that the
balance of required funding will be provided in the form of equity and debt
investments in Hebei Equipment from the Company and other sources, including
additional joint venture entities that may be established with strategic
partners.
10
LONG TERM COOPERATION AGREEMENT
On July 22, 1997, the Company entered into a Long Term Cooperation Agreement
(the "Long Term Cooperation Agreement") with the Electronics Industry Department
of the Hebei Provincial Government. The Long Term Cooperation Agreement expands
the Company's relationship with the Electronics Industry Department of Hebei
Province, a partner in the Company's joint venture, Hebei Equipment. It further
establishes the groundwork for the participation of the Company in every major
telecommunications and technology business opportunity in Hebei Province
designated for foreign investment by giving the Company the right of first
refusal to develop, finance and participate in such projects. The Long Term
Cooperation Agreement specifically provides for the Company's participation in
(i) all future expansion of the Company's existing cellular, cable television
and data network agreements in Hebei Province; (ii) a fixed wire telephone
network; (iii) import and export of high technology equipment and products; (iv)
a telecommunications network for the Highway and Transportation Department of
Hebei Province; and (v) any other communications and technology projects
designated for foreign investment in Hebei Province. In exchange for the
development rights described, the Long Term Cooperation Agreement provides for
the issuance by the Company of options to purchase three million shares of the
Company's Common Stock at $3.25 per share, the market value of the Company's
Common Stock as reported on the American Stock Exchange at the time the
agreement was made. The options are issuable to the Hebei Provincial
Government. The Long Term Cooperation Agreement is subject to the execution of
a definitive agreement with the Hebei Provincial government.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1996.
The Company reported no sales during either the three months ended June 30, 1996
or, as expected by management, during the three months ended June 30, 1997.
This lack of sales was attributable to the early stage construction of the
Company's GSM Network and the early stage of development of its Broadband
Network in Hebei Province, PRC, and the Company's sale of the assets and
business of its operating subsidiary, ITV Communications, Inc., in January 1996.
As a result of the Company's sale of the assets of ITV Communications, Inc., the
Company generated no Research and Development costs or Costs related to sales of
products.
Selling, general and administrative expenses increased from $751,109 during
the three months ended June 30, 1996 to $2,369,632 during the three months ended
June 30, 1997. The increase primarily related to the consolidation of
approximately $1,260,000 of operating expenses of the Company's joint venture
subsidiaries in the PRC. Further this increase reflects increases of marketing
fees and travel expenses related to the Company's PRC operations, and non-cash
expenses in the amount of $250,000 related to the issuance of options to
executives of the Company with an exercise price at a 9% discount to the market
price of the Company's Common Stock at the time of issuance.
The Company's net loss increased from $785,397 during the three months ended
June 30, 1996 to $1,700,227 during the three months ended June 30, 1997. The
increase in net loss primarily relates to increases in debt interest and
registration fees of the Company's operating subsidiary, Hebei Engineering,
during the period ended June 30, 1997.
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The Company's assets increased $4,219,834 during the first quarter of fiscal
year 1998, from $29,418,203 to $33,638,037. This increase is the result of an
increase in the assets of the Company's joint ventures in Hebei Province, PRC,
which the Company reports through consolidation. Further, stockholders' equity
increased by $1,073,725 during the quarter, from $548,088 to $1,621,813. This
increase primarily relates to an increase of $2,773,692 in additional paid in
capital, including proceeds from the sale of 250 shares of the Company's
Series C Convertible Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its current activities primarily through equity
investments since the Company does not yet have cash flow from operations to
support existing business operations due to the early stage of the Company's
joint venture projects.
The Company generated no sales during the quarter ended June 30, 1997. Further,
the Company has generated an operating loss of $2,369,632 and a net loss
of $1,700,227 during the quarter then ended. There can be no assurances that
the Company will ever achieve profitable operations.
During the quarter ended June 30, 1997, the Company used $2,995,368 of cash from
its operating activities, primarily the result of the net loss of $1,700,227.
Further, the Company used $84,796 of cash from investing activities during this
period. During the period ending June 30, 1997, the Company received
approximately $6,929,000 through its financing activities.
FINANCING ACTIVITIES
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 will provide $10 million in equity funding to the Company, subject
to certain stock trading volume and price restrictions. The
Company has agreed to issue a minimum of $4,000,000 in Common Stock, at a 10%
discount to market price, to Promethean within two years following the effective
date of a registration statement covering the shares to be sold pursuant to the
Common Stock Investment Agreement. On April 29, 1997, the Company and
Promethean agreed to increase the equity funding commitment from $10 million to
$25 million.
On June 13, 1997, the Company issued to ten accredited investors 250 shares of
the Company's Series C Convertible Preferred Stock, par value $.001 per share
(the "Series C Preferred Shares"), at a price of $10,000 per share pursuant to
an exempt transaction under Regulation D promulgated under the Securities Act.
The holders of the Series C Preferred Shares are entitled to receive, when, as
and if declared by the board of directors of the Company out of funds legally
available therefor, cumulative dividends at the annual rate of 8% per annum per
share, payable quarterly (i) in shares of Common Stock, or (ii) in cash in
connection with any payment pursuant to a Series C Conversion Default (as
defined below). The holders of Series C Preferred Shares have certain
preferential rights over the holders of Common Stock in the event of the
liquidation, dissolution or winding-up of the Company or a disposition of the
Company's assets. The holders of the Series C Preferred
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Shares also have certain registration rights and certain rights to participate
in exempt equity offerings by the Company until June 12, 1999.
The Series C Preferred Shares are convertible by the holders into the number of
shares of Common Stock which may be purchased at the lowest trading price during
the 30 business days immediately preceding each conversion date (the "Lowest
Trading Price") for the Series C Preferred Shares. In addition, under certain
circumstances, the holders of the Series C Preferred Shares may be obligated to
purchase additional shares of Common Stock for cash. In the event the Company
issues or sells any shares of Common Stock or shares of securities convertible
into or exchangeable for Common Stock (other than shares of Common Stock or
options to purchase Common Stock issued pursuant to stock option plans or are
otherwise issued as compensation to employees or directors or shares of Common
Stock issued upon exercise of options, warrants or rights outstanding as of June
13, 1997 or shares of Common Stock or options to purchase Common Stock issued in
consideration for business acquisitions or combinations made by the Company) at
an effective purchase price per share of less than $5.00, then at the time the
Series C Preferred Shares are submitted for conversion, the Company shall cause
the effective market price on the conversion date of such shares of Common Stock
to be equal to the lesser of (i) the Lowest Trading Price, or (ii) the effective
price at which such securities are issued.
If the Company does not have sufficient shares available to satisfy its
obligations to the holders of Series C Preferred Shares upon receipt of a
conversion notice, or otherwise fails or refuses to perfect conversion of any
Series C Preferred Shares (a "Series C Conversion Default"), the holders of the
Series C Preferred Shares have the right to put the Series C Preferred Shares to
the Company at a price equal to 125% of the purchase price, plus all accrued and
unpaid dividends.
The holders of the Series C Preferred Shares may not convert such shares prior
to August 12, 1997 and may convert subsequent to such date as follows: (i) 60
shares after August 13, 1997; (ii) 120 shares after September 12, 1997; (iii)
180 shares after October 12 1997; and (iv) 250 shares after November 11, 1997.
As of August 19, 1997, there were 250 Series C Preferred Shares outstanding and
held of record. The holders of the Series C Preferred Shares have no voting
rights, except with respect to certain matters that affect the rights of the
Series C Preferred Shares.
PROPOSED ACQUISITION OF AMERICAN NETWORK TECHNOLOGIES, INC.
On May 19, 1997, the Company signed a letter of intent to acquire the private
data network business of American Network Technologies, Inc. ("ANT"), including
AmNet China, a developer and manager of private data networks in the People's
Republic of China. The terms of the acquisition were subject to the Company's
normal due diligence process and the execution of a definitive purchase
agreement. In the course of negotiations for the proposed acquisition, the
Company loaned to American Network Technologies, Inc. the sum of $350,000.
After completion of its due diligence with respect to the possible acquisition
of ANT and the private data networks of American Networks in China, the
Company determined that such acquisition was not beneficial to its operations
in the United States or the People's Republic of China. The Company made a
demand for repayment of the $350,000 loan and, when that demand was not
honored, on July 25, 1997 the Company filed a lawsuit against American Network
Technologies, Inc. to recover the loaned funds (See "Legal Proceedings").
13
EMPLOYMENT AGREEMENTS
On June 16, 1997, the Company entered into two year employment agreements with
each of Albert G. Pastino and James F. O'Brien, which agreements are subject to
ratification by the Board of Directors of the Company. Mr. Pastino will serve
as a Senior Vice President and Chief Financial Officer of the Company and will
receive an annual base salary of $100,000 plus performance bonus for the first
year and stock options to acquire 400,000 shares of Common Stock at an exercise
price of $3.00 per share, a discount to market of $0.3125 per share at the time.
Mr. O'Brien will serve as a Senior Vice President and General Counsel of the
Company and will receive an annual base salary of $100,000 plus performance
bonus for the first year and stock options to acquire 400,000 shares of Common
Stock at an exercise price of $3.00 per share.
RISK FACTORS
Certain of the Company's agreements related to Sino-foreign joint ventures that
will engage in telecommunications business in the PRC are preliminary in nature
and are subject to the receipt of significant approvals and permits from various
governmental agencies in the PRC and, in certain cases, the execution of more
definitive agreements. There can be no assurances that, in connection with those
joint ventures that require more definitive agreements and further approvals,
such definitive agreements will ever be consummated or that such approvals and
permits will be obtained for the benefit of the Company.
The Company does not currently have all necessary technical capability,
personnel or resources to build, service or maintain a telecommunications
network and plans to form alliances with strategic partners and/or technical
partners rather than maintain a high internal cost structure. As a result, the
consummation of all or any of the Company's proposed transactions may require
the participation of additional third parties, other than PRC governmental
agencies and NTTI, who may be investors in or independent contractors with any
such proposed Sino-foreign joint ventures, for the purpose of building,
servicing or maintaining any such telecommunications network. There can be no
assurances that the Company will be able to obtain the requisite cooperation or
participation of any such third parties with respect to the Company's proposed
business operations. Further, certain of the Company's agreements will require
significant financings necessary to fund the construction of such networks.
In addition, the Company's proposed business operations in the PRC are always
subject to significant risks. These risks include, but are not limited to the
limited precedent for the establishment of Sino-foreign ventures for the purpose
of engaging in the telecommunications industry in the PRC, governmental
restrictions on foreign business ventures in the PRC, PRC regulation of it's
economy and foreign currency exchange and the general political environment in
the PRC.
The Company's successful transition to profitable operations is dependent upon
obtaining adequate financing to fund current and future operations, projects
under agreement and the development of a market for the Company's products. The
Company will continue to seek funds in the form of lines of credit and /or
equity and debt securities from third party sources as well as from its existing
stockholders.
The Company's auditors have included an explanatory paragraph in their
Independent Auditor's Report to the effect that recovery of the Company's assets
is dependent upon future events, the outcome of which is undeterminable, and
that the successful completion of the Company's development program and it's
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities
14
and achieving a level of sales adequate to support the Company's cost structure.
There can be no assurances that such a financing can be completed on terms
favorable to the Company, or at all, or that the business of the Company will
ever achieve profitable operations.
In the event the Company fails to raise additional funds, and its Sino-foreign
joint venture's telecommunications networks fail to generate revenues from
operations, the Company may not be able to meet all of its obligations past
February 28, 1998, based on its current operating expenditures.
In the event the Company does not receive any such additional financing
or generate profitable operations, management's options will be to suspend
or discontinue its business activity in its present form.
15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Demand was made by the Company upon ANT for repayment of the $350,000 loaned by
the Company to ANT. ANT failed to comply with that demand, and on July 25,
1997, the Company initiated an action in the Middlesex Superior Court,
Cambridge, Massachusetts, against ANT and Andrew J. Rodriguez, the Chief
Executive Officer of ANT and a guarantor of the loan, to recover the loaned
funds. The Company is being represented by Messrs. Needham & Warren, 10 Liberty
Square, Boston, Massachusetts, 02109.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the
quarterly period ended June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 19, 1997 AmTec, Inc..
By: /s/ Joseph R. Wright, Jr.
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Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Michael J. Lim
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Michael J. Lim
Principal Financial and
Accounting Officer
17