SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT #3) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ----------------------------------- Commission File Number: 0-22520 . AMTEC, INC. . (Exact name of Registrant as specified in its charter) Delaware 52-1989122 ---------------------------- -------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 599 Lexington Avenue, 44th Floor New York, New York 10022 . -------------------------------- (Address of principal executive offices) (212) 319-9160 ------------------ (Registrant's telephone number) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ Class Outstanding as of November 16, 1998 - ------------------------------ -------------------------------------- Common Stock, par value 25,925,145 $.001 per share Transitional Small Business Format (Check one): Yes No x . Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this Quarterly Report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, international and technological factors affecting the Company's revenues, joint ventures, operations, markets and prices, and other factors discussed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on June 30, 1998. INTRODUCTION This Amendment on Form 10-Q-A amends the Registrant's Quarterly Report on Form 10-Q, as filed by the Registrant on November 16, 1998 as amended on August 23, 1999 and is being filed to reflect the restatement of the Registrant's Financial Statements ("the restatement"). The Registrant determined that one of its subsidiaries should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, its subsidiary had been consolidated. As a result, the financial statements as of September 30, 1998, and for six months ended September 30, 1998, have been restated from amounts previously reported to account for its subsidiary under the equity method of accounting. See Note 11 to the consolidated financial statements of the Registrant included herewith. Unless otherwise noted, all information provided in this Quarterly Report is current as of November 16, 1998, the original filing date of the Form 10-Q. Information regarding recent events at the Registrant can be obtained from reports filed by the Registrant with respect to its activities during 1998, including the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1998 and the Registrant's 10-K for the year ended March 31, 1999. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated August 23, 1999. PAGE PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets as of September 30, 1998 (Restated) and March 5 31, 1998 Consolidated Statement of Operations for the three and six months ended 6 September 30, 1998 (Restated) and 1997 Consolidated Statement of Cash Flows for the six months ended September 30, 7 1998 (Restated) and 1997 Notes to Consolidated Financial Statements 9 Item 2 Management's Discussion and Analysis of Financial Condition and Result of 17 Operations PART II. OTHER INFORMATION 21 Item 1 Legal Proceedings 21 Item 2 Changes in Securities and Use of Proceeds 21 Item 3 Defaults upon Senior Securities 21 Item 4 Submission of Matters to a Vote of Security Holders 21 Item 5 Other Information 21 Item 6 Exhibits and Reports on Form 8-K 21 Signatures 22 AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------------------------------------------------- (Unaudited) Sept. 30, 1998 March 31, 1998 -------------- -------------- (As Restated; ASSETS See Note 11) CURRENT ASSETS: Cash $ 2,356,951 $ 2,134,662 Accounts receivable 112,877 114,661 Prepaid expenses and other current assets 39,261 108,082 ----------- ----------- Total current assets 2,509,089 2,357,405 Investments in and advances to unconsolidated subsidiary 2,410,284 5,074,217 Property, plant and equipment, net 125,910 139,136 Office lease deposit 57,414 112,600 ----------- ----------- Total assets $ 5,102,697 $ 7,683,358 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 272,985 $ 541,888 Accrued expenses 80,199 792,006 Loans payable - shareholders - 1,452,553 ----------- ----------- Total current liabilities 353,184 2,786,447 =========== =========== COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 66.5 and 73 shares outstanding in Sept. 30 1998 and March 31, 1998, respectively. 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 26,180,880 and 26,532,502 issued and outstanding in Sept. 30, 1998 and March 31, 1998, respectively 26,181 26,533 Additional paid-in capital 35,878,695 33,149,142 Accumulated deficit (30,508,063) (27,394,590) Nonemployee deferred option cost, net (918,751) (1,378,125) Warrants 271,450 493,950 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 4,749,513 4,896,911 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,102,697 $ 7,683,358 =========== =========== See notes to consolidated financial statements. AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) Six months ended Sept. 30 Quarter ended Sept. 30 1998 1997 1998 1997 --------------------------------- --------------------------------- (As Restated; (As Restated; See Note 11) See Note 11) REVENUES $ - $ - $ - $ - ----------- ----------- ----------- ----------- EXPENSES Selling, general and administrative 1,881,328 2,379,498 857,261 953,006 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (1,881,328) (2,379,498) (857,261) (953,006) ----------- ----------- ----------- ----------- OTHER (EXPENSE) INCOME : Amortization of stock options granted to non-employees (459,376) - (229,688) - Interest expense - (87,441) - (87,441) Other - net 55,377 (60,933) 50,567 (30,733) ----------- ----------- ----------- ----------- Total other expense (403,999) (148,374) (179,121) (118,174) ----------- ----------- ----------- ----------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (2,285,327) (2,527,872) (1,036,382) (1,071,180) Equity in losses of unconsolidated subsidiary (359,202) (263,707) (166,284) (128,172) ----------- ----------- ----------- ----------- NET LOSS (2,644,529) (2,791,579) (1,202,666) (1,199,352) PREFERRED STOCK DIVIDEND 468,944 108,000 66,523 - ----------- ----------- ----------- ----------- LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,113,473) $ (2,899,579) $ (1,269,189) $ (1,199,352) =========== =========== =========== ============= BASIC LOSS PER COMMON SHARE $ (0.12) $ (0.09) $ (0.05) $ (0.04) =========== =========== =========== ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 26,702,367 31,701,320 26,598,534 32,119,009 =========== =========== =========== ============= See notes to consolidated financial statements. - --------------------------------------------------------------------------------------------------------------------------------- AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------ (Unaudited) Six Months Ended Sept. 30 - ------------------------------------------------------------------------------------------------------------------------ 1998 1997 ---- ---- (As Restated; See Note 11) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,113,473) $ (2,899,579) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 459,374 - Depreciation 21,930 35,862 Preferred stock dividend 468,944 108,000 Issuance of common stock and options for directors' fees and professional services rendered - 392,381 Equity in losses of unconsolidated subsidiary 359,202 263,707 (Increase) decrease in: Accounts receivable 1,784 (100,000) Prepaid expenses and other current assets 68,821 157,532 Office lease deposit 55,186 - Increase (decrease) in: Accounts payable and accrued expenses (80,444) 279,057 ----------- ----------- Net cash used in operations (1,758,676) (1,763,040) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (8,704) (14,365) ----------- ----------- Net cash used in investing activities (8,704) (14,365) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock buy back (202,316) - Repayment from (Advance to) unconsolidated subsidiary 2,191,985 (1,000,000) Proceeds from sale of Series C convertible preferred stock - net - 2,500,000 ----------- ----------- Net cash provided by financing activities 1,989,669 1,500,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 222,289 (277,405) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,134,662 1,346,713 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,356,951 $ 1,069,308 =========== =========== See notes to consolidated financial statements. AMTEC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------ SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during the first six months of fiscal 1999 or 1998. NON CASH FINANCING ACTIVITIES: Shareholder loans payable of $1,452,553 and related accrued interest of $906,488 were credited to Additional paid-in capital 6.7 shares of Series E Convertible Preferred Stock were converted into 667,843 shares of common stock (inclusive of conversions of preferred dividends). Warrants valued at $222,500 were cancelled and credited to Additional paid-in capital. The Company cancelled a Common Stock Investment Agreement, as permitted by the Agreement, with Promethean Investment Group on August 12, 1998. 1,019,465 shares previously held in escrow designated for issuance under terms of the agreement were cancelled. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements as of September 30, 1998 and for the six months then ended are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. All of the adjustments are of a normal recurring nature. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto together with management's discussion and analysis of financial condition and results of operations, contained in the Annual Report on Form 10-K-A filed by the Company on July 14, 1999 for the Company's fiscal year ended March 31, 1998. The results of operations for the six months ended September 30, 1998 are not necessarily indicative of the results for the entire year ending March 31, 1999. Basis of Presentation - The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. Realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's existing projects developing profitable operations. NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING Consolidation - The consolidated financial statements include the Company's wholly- owned subsidiary, ITV Communications, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. Equity Method of Accounting - The Company accounts for its subsidiary Hebei United Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture) using the equity method of accounting, as minority Shareholders of Hebei Equipment have substantive participating rights under the joint venture contracts. The Company reports its investment in Hebei Equipment under the caption Investment in and advances to unconsolidated subsidiary. Under the equity method, the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Equity in the losses of the unconsolidated subsidiary is recognized according to the Company's percentage ownership in the unconsolidated subsidiary until the Company contributed capital has been fully depleted. Reserves are provided where management determines that the investment or equity in earnings is not realizable. For the period ending March 31, 1998, the Company used an ownership percentage of 60.8% for purposes of calculating the share of earnings of its unconsolidated subsidiary since it did not increase its ownership percentage in Hebei Equipment to 70% until after the close of Hebei Equipment's fiscal year-end (December 31, 1997). Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment also accounts for its investment using equity method of accounting as minority Shareholders of Hebei Engineering have substantive participating rights under the joint venture contracts. Included in the financial statements are the financial statements of the Company for the quarters and six months ended September 30, 1998 and 1997. The Company's share of equity in losses of Hebei Equipment included in the consolidated financial statements are as of and for the quarters and six months ended June 30, 1998 and 1997. By doing that, the Company can ensure that delays in receiving information from China would not cause problems for the Company in meeting its reporting deadlines. However, the Company does monitor events in the lag period and, where appropriate, would disclose the occurrence of any significant event during such lag period. The summary financial information of Hebei Equipment and Hebei Engineering were included in Note 6 to the financial statements. NOTE 3 - ASSETS The consolidated balance sheet includes approximately $5.1 million of assets, primarily consist of approximately $2.4 million of cash and $2.4 million investment in and advances to unconsolidated subsidiary. The Company's investments in the joint venture were accounted for by the equity method of accounting because minority shareholders of Hebei Equipment and Hebei Engineering have substantive participating rights under the provision of the Joint Venture contracts. The decrease in investment in and advances to unconsolidated subsidiary primarily relates to the repayment of advances of approximately $2.2 million from Hebei Equipment to the Company. NOTE 4 - LIABILITIES The consolidated balance sheet includes total liabilities of approximately $0.4 million which are mainly legal and professional fees payable. The decrease in consolidated liabilities primarily relates to the elimination of shareholder loans and related accrued interest expenses of ITV, Inc., a wholly-owned subsidiary. NOTE 5 - CHANGES TO EQUITY The decrease in Stockholders' Equity of approximately $150,000 primarily is due to the net loss for the six months ended September 30, 1998 of approximately $3.1 million offset by an increase in Additional paid-in capital resulting primarily from the cancellation of shareholders' loans and related accrued interest. As permitted by the agreement, on August 12, 1998 the Company cancelled a Common Stock Investment Agreement with Promethean Investment Group. 1,019,465 shares of the Company's common stock held in escrow under this agreement was cancelled as well. During the six months ended September 30, 1998, the Company issued 667,843 shares of its Common Stock upon the conversion of 6.7 shares of its Series E Convertible Preferred Stock. (See Note 10 regarding the acquisition of certain E-Shares.) On September 14, 1998 the Company announced its intention to purchase up to $1 million of its common stock on the open market. As of September 30, 1998, the Company had purchased 162,000 shares under this program for a total cost of approximately $202,000. The stock was duly cancelled and retired after it was repurchased in accordance with Delaware General Corporation Law. NOTE 6 - UNCONSOLIDATED SUBSIDIARIES The following tables represent summary financial information of the Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei Engineering, for the Company's quarters and six months ended September 30, 1998 and 1997: Six months ended Sept. 30 Three months ended Sept. 30 ------------------------- --------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- HEBEI EQUIPMENT Revenues $ - $ - $ - $ - ============== ============== ============== ============== Net (loss) income $ (549,090) $ (433,728) $ (273,493) $ (210,809) ============== ============== ============== ============== HEBEI ENGINEERING Revenues $ 432,635 $ - $ 234,012 $ - ============== ============== ============== ============== Net (loss) income $ (797,680) $ (1,023,524) $ (368,252) $ (537,423) ============== ============== ============== ============== NOTE 7 - SIGNIFICANT TRANSACTIONS On August 6, 1998 the Company signed an agreement with UIH Asia/Pacific Communications, Inc ("UAP"), a wholly-owned subsidiary of United International Holdings, Inc. ("UIH"), under which AmTec will issue to UAP $12 million of preferred stock convertible into 9.6 million AmTec common shares, subject to certain anti-dilution provisions, in exchange for 100% of the common stock of UIH Hunan, Inc. ("UIHH"). UIHH holds a 49% interest in a Sino-foreign joint venture with the Broadcasting Bureau of Hunan, the monopoly cable television operator in Hunan Province, People's Republic of China. The agreement, which is subject to satisfactory completion of due diligence and approvals of appropriate regulatory authorities in China among other conditions, provides UAP with an option to increase its holdings in AmTec to 25% of AmTec's fully diluted common shares for a price of $3 per share and with rights of co-investment with AmTec in China. The consummation of this deal will make UAP AmTec's largest shareholder. On August 27, 1998 the Company signed an agreement with a subsidiary of Global TeleSystems, Inc. (GTS), under which a subsidiary of GTS will acquire approximately 5.9 million shares of the Company's common stock and merge GTS' Shanghai-based joint venture into the Company. The shares will be issued at a price of $1.35 per share and will make GTS, through a wholly owned subsidiary, AmTec's second largest shareholder following the close of the merger with UIHH described above. The joint venture holds the rights to a majority share of the cash flow generated by Shanghai VSAT Network Systems (SVC), the premier satellite-based telecommunications network operator in China. The merger is subject to final due diligence among other conditions. NOTE 8 - COMPREHENSIVE INCOME Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes new rules for reporting and display of comprehensive income and its components. Other than an insignificant amount of foreign currency transactions, the Company has no other items of other comprehensive income and the net loss reported in the statement of operations is equivalent to the total comprehensive loss. NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS Segments of an Enterprise and Related Information - In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss, specific revenue and expense items, and assets for reportable segments. It also requires the reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments, in each case to the corresponding amounts in the general purpose financial statements. Management has evaluated the effect on its financial reporting of the adoption of this statement and has found the majority of required disclosures not to be applicable and has determined that it operates in only one segment. Disclosures about Pensions and Other Postretirement Benefits--In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This Statement is effective for fiscal years beginning after December 15, 1997. This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. Management is currently evaluating the effect of adopting this statement on its financial reporting. NOTE 10 - SUBSEQUENT EVENTS On November 10, 1998, 38.5 shares of the Company's Series E Convertible Preferred Shares were acquired from an investment fund by the Company and investors known to the Company. As a result of this transaction, the Company is retiring 3.85 Series E Convertible Preferred Shares which would have been convertible into 542,192 common shares at the conversion rate effective on November 12, 1998. NOTE 11 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER EQUITY ACCOUNTING METHOD Subsequent to the issuance of the Company's financial statements for the period ended September 30, 1998, the Company's management determined that Hebei Equipment, should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, Hebei Equipment had been consolidated. As a result, the financial statements as of September 30, 1998, and for the three months and six months ended September 30, 1998, have been restated from amounts previously reported to account for Hebei Equipment under the equity method of accounting. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated August 23, 1999. A summary of the significant effects of the restatement is as follows: CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------ As of September 30, As of September 30, 1998 1998 ---- ---- As Previously As Reported Restated ASSETS Current assets Cash $6,772,103 $2,356,951 Accounts receivable 112,877 112,877 Prepaid expenses and other current assets 430,596 39,261 ------------ ------------ Total current assets 7,315,576 2,509,089 Investment in unconsolidated subsidiary - 2,410,284 Property, plant & equipment, net 848,108 125,910 Investment in GSM network, net of amortization 29,131,345 - Office lease deposit 63,300 57,414 ------------ ------------ TOTAL ASSETS $ 37,358,329 $ 5,102,697 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $272,985 $272,985 Accrued expenses 43,004 80,199 Other current payables 10,477,578 - ------------ ------------ Total current liabilities $10,793,567 $353,184 Loans payable 20,028,602 - Other payables 1,487,727 - Minority interest 298,920 - ------------ ------------ TOTAL LIABILITIES 32,608,816 353,184 STOCKHOLDERS' EQUITY Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 66.5 shares outstanding at September 30, 1998 1 1 Common stock: $.001 par value, authorized 100,000,000 shares; 26,180,880 issued and outstanding at September 30, 1998 26,181 26,181 Additional paid-in capital 35,991,440 35,878,695 Accumulated deficit (30,620,808) (30,508,063) Non employee deferred option cost, net (918,751) (918,751) Warrants 271,450 271,450 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 4,749,513 4,749,513 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 37,358,329 $ 5,102,697 ============ ============ CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------ Quarter Ended Sept. 30 ---------------------- 1998 1998 ---- ---- As previously As Reported Restated REVENUES $ - $ - -------------- -------------- EXPENSES Selling, general and administrative 1,492,481 857,261 -------------- -------------- LOSS FROM OPERATIONS (1,492,481) (857,261) -------------- -------------- OTHER INCOME (EXPENSE): Amortization of stock options granted to non-employees (229,688) (229,688) Other - net 128,907 50,567 -------------- -------------- Total other expense (100,781) (179,121) -------------- -------------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (1,593,262) (1,036,382) Minority interest in loss of subsidiary 390,596 - Equity in losses of unconsolidated subsidiary - (166,284) -------------- -------------- NET LOSS (1,202,666) (1,202,666) PREFERRED STOCK DIVIDEND 66,523 66,523 -------------- -------------- LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (1,269,189) $ (1,269,189) ============== ============== BASIC LOSS PER COMMON SHARE $ (0.05) $ (0.05) ============== ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 26,598,534 26,598,534 ============== ============== CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------ Six Months Ended Sept. 30 -------------------------- 1998 1998 ---- ---- As previously As Reported Restated REVENUES $ - $ - -------------- -------------- EXPENSES Selling, general and administrative 3,188,666 1,881,328 -------------- -------------- LOSS FROM OPERATIONS (3,188,666) (1,881,328) -------------- -------------- OTHER INCOME (EXPENSE): Amortization of stock options granted to non-employees (459,376) (459,376) Other - net 248,819 55,377 -------------- -------------- Total other expense (210,557) (403,999) -------------- -------------- LOSS BEFORE EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (3,399,223) (2,285,327) Minority interest in loss of subsidiary 754,694 - Equity in losses of unconsolidated subsidiary - (359,202) -------------- -------------- NET LOSS (2,644,529) (2,644,529) PREFERRED STOCK DIVIDEND 468,944 468,944 -------------- -------------- LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,113,473) $ (3,113,473) ============== ============== BASIC LOSS PER COMMON SHARE $ (0.12) $ (0.12) ============== ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 26,702,367 26,702,367 ============== ============== CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------------------- Six Months Ended Sept.30 1998 1998 As previously As Reported Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,113,473) $ (3,113,473) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option cost 459,376 459,374 Depreciation 1,175,648 21,930 Preferred stock dividend 468,944 468,944 Equity in losses of unconsolidated subsidiary - 359,202 (Increase) decrease in: Accounts receivable 1,784 1,784 Prepaid expenses and other current assets (74,042) 68,821 Deferred expenses 6,916 - Office lease deposit 49,880 55,186 Increase (decrease) in: Accounts payable and accrued expenses (134,407) (80,444) Other current payables 242,706 - Minority interest (643,054) - ----------- ----------- Net cash used in operations (1,559,722) (1,758,676) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (9,254) (8,704) GSM construction costs and additional investments (1,786,772) - ----------- ----------- Net cash used in investing activities (1,796,026) (8,704) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment from (Advance to) unconsolidated subsidiary - 2,191,985 Common stock buy back (202,316) (202,316) Change in minority interest ownership (112,167) - ----------- ----------- Net cash (used in) provided by financing activit (314,483) 1,989,669 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,670,231) 222,289 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,442,334 2,134,662 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,772,103 $ 2,356,951 =========== =========== ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION AmTec, Inc. ("AmTec" or "the Company") is a telecommunications company with operations in the People's Republic of China ( the "PRC" or "China"). The Company has focused its operations on China because of its large and rapidly growing need for telecommunications services, its requirement for foreign capital and technology to meet that need, and AmTec's opportunity to obtain cash flow sharing and technical services agreements with operators who hold exclusive or semi-exclusive communications licenses. The Company has established majority ownership in joint ventures with Chinese and other partners to provide financing, network construction and operational consulting services to licensed China network operators. The Company's current operations, through its subsidiary, Hebei Engineering, are focused on a series of cellular telephone networks in the northeastern province of Hebei, which has 11 major cities and a population of approximately 64 million people. In addition, the Company has interests in other projects and networks in various stages of development. Key components of AmTec's business strategy are developing existing network interests and obtaining additional interests in communications networks in China, including combining the efforts of major telecommunications companies in China. Subsequent to the issuance of the Company's financial statements for the period ended September 30, 1998, the Company determined that Hebei Equipment should have been accounted for under the equity method of accounting, as the minority shareholders have substantive participating rights under the joint venture contracts. Previously, Hebei Equipment had been consolidated. The Company's March 1998 amounts and quarterly amounts prior to such date have been restated in the Company's amended 10-K/A dated July 14, 1999. The effects of the restatement have been presented in Note 9 of the Notes to the Financial Statements and have been reflected herein. JOINT VENTURES IN CHINA AmTec holds a 70% interest in Hebei United Telecommunications Equipment Company Limited ("Hebei Equipment"), a Sino-foreign joint venture with a wholly-owned subsidiary of the Electronics Industry Department of Hebei Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United Telecommunications Engineering Company Limited ("Hebei Engineering"), a joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei Equipment and Hebei Engineering are organized as Sino-foreign equity joint ventures under the laws of China and are headquartered in Shijiazhuang, the capital of Hebei Province. CELLULAR TELEPHONE NETWORKS Currently, legal restrictions in China prohibit foreign participation in the operation and ownership of communications networks. Therefore, the Company has established majority ownership in joint ventures with Chinese and other partners to provide financing, network construction and operational consulting services to licensed Chinese network operators. Substantially all of the Company's revenues are derived from contractual arrangements for the sharing of cash flow generated from network operations rather than from ownership or operation of the networks. Until regulations in China change to permit direct foreign ownership and operations of communications networks, all future revenues of the Company will continue to be derived from these contractual arrangements. Through Hebei Engineering, AmTec entered into an agreement (the "Unicom Agreement") on February 9, 1996 with Unicom to (i) finance and assist Unicom in the construction of cellular networks (the "GSM Networks" or "GSM Project") in the ten largest cities in Hebei Province and (ii) provide consulting and management support services to Unicom in its operation of the GSM Networks in the 10 largest cities of Hebei Province. This GSM Project will have a capacity of up to 70,000 subscribers. Hebei Engineering is entitled to 78% of the distributable cash flow (defined as activation charges plus depreciation plus net income) from the GSM Networks for a 15-year period commencing February 9, 1996. The construction and operational plan for the GSM Networks consists of a "roll-out" across Hebei Province on a city-by-city basis. On October 1, 1998 a sixth GSM network launched operations in the city of Langfang, Hebei Province, which has a metropolitan area population of 3.6 million people. As of November 16, 1998 the subscriber base of the six networks reached approximately 31,000 subscribers, an increase of 11,000 subscribers from September 30, 1998. As of September 30, 1998, construction of the GSM Networks had been financed by Hebei Engineering with $3 million of equity capital, approximately $11 million of vendor financing guaranteed by NTTI, and a $20 million Term Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Itochu. Of the $3 million of equity raised by Hebei Engineering, $1.17 million was contributed by Hebei Equipment. Achievement of the Company's business objectives is dependent upon Unicom's operation of the GSM Networks, among other factors. The implementation of the GSM Networks involves systems design, site procurement, construction, electronics installation, initial systems optimization and receipt of necessary permits and business licenses prior to commencing commercial service. While no major difficulties have been encountered to date in launching the six networks now operating, absence of difficulties in launching additional networks can not be assured. RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1997. The Company has no revenues on its consolidated financial statements because the results of operations of the Company's subsidiary Hebei Equipment were accounted for under the equity method of accounting. The Company recorded only its share of losses of its unconsolidated subsidiary according to the percentage of its equity interest. The Company had net losses of $2,644,529 and $2,791,579 during the six months ended Sept 30, 1998 and 1997, respectively. Selling, general and administrative expenses decreased from approximately $2.4 million during the six months ended September 30, 1997 to approximately $1.9 million during the six months ended September 30, 1998. The decrease primarily related to the reduction in expenses incurred for the start-up of the Company's joint venture. Selling, general and administrative expenses decreased from approximately $1.0 million during the three months ended September 30, 1997 to approximately $0.9 million during the three months ended September 30, 1998. The decrease for the quarter was primarily attributed to a higher legal and professional fees associated with the fund raising during the quarter ended September 30, 1997. The Company reported total assets of approximately $5.1 million at September 30, 1998, a decrease of $2.5 million from March 31, 1998. This decrease primarily related to the shares of equity loss of 0.4 million and the funding of current operations of approximately $1.8 million using cash. The consolidated balance sheet of the Company includes total liabilities of approximately $0.4 million which are primarily legal and professional fee payable. The decrease in consolidated liabilities primarily relates to the elimination of shareholder loans and related accrued expenses and a decrease in minority interest. The Company's loss before dividends decreased from $2.8 million during the six months ended September 30, 1997 to $2.6 million during the six months ended September 30, 1998. The decrease in net loss primarily relates to an increase in the equity loss of unconsolidated subsidiaries offset by an decrease in selling, general and administrative expenses. The decrease in Stockholders' Equity of approximately $0.2 million for the six months ended September 30, 1998 was the net result of an increase in Additional paid-in capital of approximately $2.8 million, a loss for the six months of approximately $3.1 million, amortization of deferred option cost of $0.5 million and an increase in Accumulated deficit of approximately $0.1 million related to AmTec's increase in the ownership of its Sino-Foreign Joint Venture from 60.8% to 70%. The increase in Additional paid-in capital was due to the elimination of approximately $2.4 million of shareholders' loans and related accrued interest, amortization of the discount on the Series E Convertible Preferred Stock of approximately $0.4 milion and the cancellation of 300,000 warrants valued at $0.2 million. LIQUIDITY AND CAPITAL RESOURCES The Company had an operating loss of $1.9 million and a loss applicable to common shares of $3.1 million during this period. While the Company expects to achieve profitable operations within several years, there can be no assurances that the Company will achieve this goal. As a result, the Company has financed its current activities primarily through private equity placements. During the six months ended September 30, 1998, the Company's cash increased by approximately $0.2 million, primarily due to repayment of approximately $2.2 million from Hebei Equipment, cash used to fund current operations of approximately $1.8 million and $0.2 million of cash used to buy back common stock. The Company's direct cash position is expected to be sufficient to support its operations through January 1, 2000. EQUITY ISSUANCES The Company issued 667,843 shares of its Common Stock during its first six months upon conversion of 6.7 shares of the Company's Series E Convertible Preferred Shares (the "Series E Shares") by certain holders of the Series E Shares. (See NOTE 9 regarding the acquisition of certain Series E Shares.) IMPACT OF THE YEAR 2000 The "Year 2000" problem is the result of computer programs being written using two digits, rather than four digits, to define the applicable year. Any of the programs used in the Company's operations that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Company has previously instituted a thorough program to identify these computer programs and modify or replace its key financial information and operational systems so that they will function properly in the year 2000. Remaining financial and operational systems have been assessed, and detailed plans have been developed and are being implemented to make the necessary modifications to ensure Year 2000 compliance. The financial impact of making the required system changes for Year 2000 compliance are not expected to have any material effect on the Company's financial statements. However, even as the Company's assessment is completed without identifying any material non-compliant systems operated by, or in the control of, the Company, or of third parties, the most reasonable likely worse case scenario would be a systems failure beyond the control of the Company to remedy. Such a failure could materially prevent the Company from operating its business. The Company believes that such a failure could lead to lost revenues, increased operating cost, or other business interruptions of a material nature. PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of stockholders during the six months ended September 30, 1998. Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27. Financial Data Schedule (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the six months ended September 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 23, 1999 AmTec, Inc. By: /s/ Joseph R. Wright, Jr. ------------------------------ Joseph R. Wright, Jr. Chief Executive Officer By: /s/ Wilfred Chow ------------------------------ Wilfred Chow Principal Financial and Accounting Officer