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UNITED STATES
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, 1999.
or
[ ] 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
AMTEC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1989122
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
599 Lexington Avenue, 44th Floor, New York, New York 10022
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(Address of principal executive offices, including zip code)
212-319-9160
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(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Name of Each Exchange
Class so Registered On Which Registered
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Common Stock, $0.001 par value per share American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Indicate by check mark whether the registrant: (i) 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 (ii) 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 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 issuer's revenues for the fiscal year ended March 31, 1999 were zero.
The number of shares outstanding of the registrant's common stock as of
June 25, 1999 was 32,015,468 shares. The aggregate market value of the
common stock (14,946,981) shares held by non-affiliates, based on the
closing price ($1.1250) of the common stock as of June 25, 1999 was
approximately $16.8 million.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995.
Except for the historical information contained herein, the matters
discussed in this Annual 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 this Annual Report.
PART I
ITEM 1. BUSINESS
AmTec, Inc. ("AmTec" or "the Company") is a company that provides
value-added telecommunications services to and from the Far East and has
telecommunications investments in the People's Republic of China (the "PRC"
or "China"). The Company initially focused its business on China because of
that country's large and rapidly growing need for telecommunications
services, requirement for foreign capital and technology to meet that need,
and the opportunity to obtain cash flow sharing and technical services
agreements with operators who hold exclusive or semi-exclusive
communications licenses. In its first three years, the Company's joint
venture operations have launched six cellular telephone networks with
38,000 subscribers in the northeastern province of Hebei, which has a
population of approximately 65 million people. The Company is using its
presence in China to expand to other telecom services and other Far East
markets. It has formed a joint venture with Fusion Telecommunictions
International to provide telecom services, both voice and data, to and
from Asia; has invested in IXS.NET, Inc. to provide fax services over the
Internet, prepaid credit cards and other Internet Protocol ("IP") based
services; and is expanding its joint venture in China to provide IP fax,
voice and other services which can be transmitted over digital telephone
lines or the Internet. Developing existing network interests in China and
expanding interests or joint ventures in communications networks in the Far
East are key components of the Company's future business strategy.
CHINA TELECOMMUNICATIONS MARKET
Through the Company's interest in cellular telephone networks in
Hebei Province and relationships that the Company has developed with key
policy makers and decision makers in Chinese governmental agencies, AmTec
has focused its business to capitalize on the growth of the Chinese
telecommunications market, which is among the world's largest, fastest
growing, and most under-serviced telecommunications markets. Due to the
importance of a well-developed communications infrastructure to China's
continuing economic development, the PRC government has targeted
communications network development as a high priority in the country's
economic reform program. It is expected that before the year 2000, China
will surpass the United States as both the largest cellular telephone and
cable television markets in the world, measured by number of users.
Since the establishment of China United Telecommunications,
Incorporated ("UNICOM") in 1994, China has had only two licensed
competitors for cellular, fixed wire and long-distance telephony. The cable
television market in China is a monopoly run by the Ministry of Information
Industry, which also regulates telecommunications in China. The Internet is
established in China and there are a large number of Internet service
providers licensed and operating in China. However, the quality of their
service is slow and while the industry is growing rapidly, it is still in
an early stage of development. While other communications markets in China
have experienced greater competition, most notably paging and value-added
services, communications licenses have generally been limited to a small
number of competitors relative to markets in the United States. The Company
believes that both the overall market size and the environment of limited
competition are attractive aspects of the Chinese communications market.
Although Chinese regulations currently prohibit direct foreign
ownership or operation of communications networks, the regulatory
environment has shown recent indications of continuing a policy of partial
deregulation. And while there can be no assurance that this policy of
partial deregulation will continue, the Company believes that it is
well-positioned to benefit from deregulation permitting direct foreign
ownership and operation of communications networks, if such deregulation
were to occur in the future. Similarly, the Company's announced IP Fax and
Internet telephony businesses are positioned to benefit from deregulation
throughout the Far East.
JOINT VENTURES IN CHINA
AmTec holds a 70% interest in Hebei United Telecommunications
Equipment Company Limited ("Hebei Equipment"), a 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. The
Company's investments in Hebei Equipment and Hebei Engineering are
accounted for under the equity method. Hebei Equipment and Hebei
Engineering are both organized as Sino-foreign equity joint ventures
("SFJVs")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.
Hebei Engineering, 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. The first of
these networks commenced operations in February 1997. Hebei Engineering has
been and continues to be 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. As of June
20, 1999 six cities, were providing commercial service, with approximately
38,000 subscribers; construction in one additional city was substantially
completed, with a commercial launch date scheduled during 1999.
As of March 31, 1999, 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 AmTec through its interest in Hebei
Equipment.
Realization of the Company's investment in its SFJVs is dependent
upon UNICOM's operation of the GSM Networks and the payback of outstanding
loans by Hebei Engineering, 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. Each stage can involve various risks and contingencies, the
outcome of which cannot be predicted with a high degree of assurance as
interconnection of the GSM Networks with the public switched telephone
network is sometimes difficult and time consuming, and the successful
completion of all planned sites of the GSM Networks will be dependent, to a
significant degree, upon the ability of the parties to lease or acquire
sites for the location of their base station equipment. While no
difficulties have been encountered to date in procuring such sites, future
site acquisition cannot be assured.
COMPETITION
UNICOM currently faces competition from China Telecom, which has
substantially more experience in operating cellular telephone networks,
greater financial resources, scientific and marketing personnel and
facilities. China Telecom is the operating organization of the former
Ministry of Posts and Telecommunications ("MPT"), previously the
telecommunications policy setting and regulatory arm of the Chinese
government.
China Telecom has a dominant market share in all sectors of
telecommunications in China, and already has established a fixed-wire
network in the country. Formerly the MPT regulated and licensed all
telecommunications networks in China, including network access, and the
ability to make important regulatory decisions with respect to China
Telecom's competitors. Although the MPT has been abolished and succeeded by
the Ministry of Information Industry ("MII"), there can be no assurance
that the new regulatory structure for telecommunications operations in
China (i) will be more favorable to UNICOM or the Company or (ii) will not
be adverse to UNICOM's operations in Hebei. In addition, new competitors
may enter the market, including Code Division Multiple Access ("CDMA")
cellular service which has been offered by the People's Liberation Army and
China Telecom through their joint venture, Great Wall Communications Group
("Great Wall"). It is now reported that UNICOM may be licensed to provide
CDMA service some time in the future.
At present there are four small commercial CDMA cellular trial
networks being tested by Great Wall in China. None of these commercial
trial networks are in Hebei, but there can be no assurances in the future
that Great Wall will not enter the Hebei market.
CONSTRUCTION AND OPERATION OF TELECOMMUNICATIONS NETWORKS
The telecommunications networks in the PRC which the Company's joint
ventures are currently engaged in developing may experience difficulties
and delays relating to the construction and operation of such
telecommunications networks. While UNICOM has successfully commenced
commercial operation in six cities in Hebei, and has substantially
completed network construction in an additional city in Hebei, there can be
no assurance that this additional network will be completed and that
commercial operations in the seventh city will commence. Currently, Hebei
Engineering has no reason to believe that this additional network will not
commence commercial operations.
ADDITIONAL FUNDING OF JOINT VENTURE PROJECTS
At present, all network construction for a 40,000 subscriber
capacity network in seven cities in Hebei has been funded. Expansion of
network capacity from 40,000 subscribers to 70,000 subscribers will require
additional capital. Since the UNICOM Agreement contains no specified
deadline for expansion of the GSM Network to 70,000 subscribers, these
future capital requirements for the GSM Network will depend largely on the
market acceptance of the UNICOM GSM Network cellular service, among other
factors. The Company has no mandatory capital requirements to increase the
capacity from 40,000 to 70,000 subscribers. It is anticipated that debt or
equity contributions made by the Company and/or its partners to the joint
ventures, as well as potential investment from third parties, will be used
to increase the capacity of the GSM Network as required beyond 70,000
subscribers. (See LEGAL AND REGULATORY RISKS)
LEGAL & REGULATORY RISKS
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.
The current PRC regulations prohibit foreign investors and foreign
invested enterprises from operating or participating in the operation of
telecommunications networks in China. The relevant PRC laws and regulations
do not define what constitutes foreign operations or participation in
operations, and it is not clear what rights or actions would violate such
laws and regulations. Based on advice of its Chinese legal counsel,the
Company has structured its investments in China by establishing
Chinese-foreign joint ventures in the PRC to provide financing and
consultancy services to licensed telecommunications operators, i.e.,
utilizing the commonly-known Chinese-Chinese-Foreign ("CCF") structure. The
PRC Government is currently undertaking a review of the CCF structure used
by Unicom. It has been reported that Unicom has been instructed by the PRC
Government not to use the CCF structure in the future and that the PRC
Government is examining and evaluating the existing CCF contracts. It is
unclear if, and to what extent, the existing CCF contracts entered into by
Unicom will be required to be amended. It is also unclear whether foreign
entities involved in the CCF structures will be required to divest
themselves of all or part of their respective interests in the
Chinese-foreign joint venture companies. The evaluation of the CCF
structure by the PRC Government may have a material adverse impact on the
contracts entered into by Hebei Engineering and by the Company which
utilize the CCF structure and may have a material adverse effect on the
Company's business, financial condition and results of operations.
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.
During the Spring of 1999, the PRC started negotiating accession to
the World Trade Organization ("WTO"). While there is no assurance that
China will join the World Trade Organization, all parties have publicly
expressed the intention of attempting to negotiate an agreement to be
concluded before the WTO ministerial in December 1999. And, the PRC has
confirmed that its proposed concessions to gain admission that were
published in the press were accurate. If the PRC were to join the WTO, the
Telecommunication Protocol of the WTO Agreement assures certain national
treatment of foreign investors in the telecommunications sector, including
minimum direct ownership percentages in licensed telecommunication
operators.
The PRC's pending application to the WTO, the evaluation of the CCF
structure by the government, the draft Telecommunications Law, which may be
substantially affected by a PRC agreement to join the WTO, plus the procedural
issues relating to the establishment of Hebei Equipment and its investment
in Hebei Engineering, create uncertainty. Resolution of these matters may
materially adversely affect the Company's current or future investments in
China and its provision of telecommunication services to China. The Company
believes that most, if not all, foreign telecommunications investors in the
CCF structure face similar uncertainties at this time, and are awaiting
resolution of these questions.
GOVERNMENT CONTROL OF CURRENCY CONVERSION AND EXCHANGE RATE RISKS
The PRC government imposes control over its foreign currency
reserves, in part through direct regulation of the conversion of Renminbi,
the legal tender currency of the PRC, into foreign exchange and through
restrictions on foreign trade.
UNICOM's revenues are denominated in Renminbi. The Company's joint
ventures will consequently receive almost all of their joint venture
distributions in Renminbi, which is freely convertible only for current
accounts. Approval of the State Administration of Foreign Exchange will be
needed under current regulations for conversion of Renminbi for foreign
currencies.
The Company believes that its SFJV will be able to obtain all
required approvals for the conversion and remittance abroad of foreign
currency. However, such approvals do not guarantee the availability of
foreign currency and no assurance can be given that the Company will be
able to convert sufficient amounts of foreign currencies in the PRC's
foreign exchange markets in the future at acceptable rates.
Although the Renminbi to US dollar exchange rate has been relatively
stable since January 1, 1994, there can be no assurance that exchange rates
will not again become volatile or that the Renminbi will not devalue
significantly against the US dollar.
During late 1997 and early 1998, there were a number of currency
devaluations in Asia and unstable and volatile capital markets and foreign
exchange markets. The PRC has not devalued the Renminbi. However, there can
be no assurances that the Renminbi will not be devalued in the future.
OTHER CONTRACTS AND PROJECTS
In addition to the GSM network projects mentioned above, the Company
has entered into other agreements with Hebei Province to develop and
finance telecommunications projects designated for foreign investment. (See
SUBSEQUENT EVENTS)
UIH TRANSACTION
On December 23, 1998, AmTec signed an agreement to acquire 100% of
the common stock of UIH Hunan from UIH China Holdings, a subsidiary of UIH
Asia/Pacific Communications, Inc., a subsidiary of United International
Holdings (doing business as UnitedGlobalCom) for consideration of $12
million, which shall consist of shares of Series F Preferred Stock
convertible into Common Stock at a price equal to the average closing price
of Common Stock during the ten trading days ending three days prior to the
closing of the United International Holdings transaction.
UIH Hunan holds a 49% interest in HITC, a joint venture in Hunan
Province (population 64 million) with a wholly-owned subsidiary of the
Hunan Broadcasting and Television Bureau, the provincial monopoly operator
of cable television in Hunan. HITC holds revenue sharing agreements with
the Hunan Broadcasting and Television Bureau in connection with a microwave
network that is currently transmitting four television channels to 255,000
cable television subscribers in seven cities in Hunan. Revenue sharing
payments made by the Hunan Broadcasting and Television Bureau to HITC are
based on the number of channels transmitted, the number of subscribers
reached and the level of advertising revenues generated.
The consummation of this transaction with UIH China Holdings is
subject to various conditions, including receipt of necessary governmental
approvals and other customary closing conditions. In addition, under the
American Stock Exchange guidelines the Company will be required to obtain
shareholder approval for the number of Common Stock related to this
issuance that is in excess of 19.9% of the Common Stock outstanding on the
date of issuance. Once all of the conditions in China necessary for the
consummation of the transaction are completed, the Company's shareholders
will be asked to approve the necessary increase in the shares to be issued to
UIH Asia/Pacific Communications. At present, UIH is working to complete the
pre-closing conditions in China, including necessary governmental
approvals. The successful completion of this merger is subject to final due
diligence and shareholder approval, among other conditions.
GLOBAL TELESYSTEMS TRANSACTION.
On August 26, 1998, AmTec signed an agreement to acquire a 75%
interest in Shanghai V-Tech Telecom from SFMT-China for consideration of
5,925,357 Shares, valued by AmTec and SFMT-China at $1.35 per Share.
SFMT-China is a subsidiary of Global TeleSystems, Inc. ("GTS").
Shanghai V-Tech Telecom is a joint venture with SSTIC, a Chinese
investment company based in Shanghai. SSTIC holds ownership interest in
numerous telecommunications and technology companies located in Shanghai.
These interests are in networks providing VSAT services, frame relay
services, and data networking for closed user groups not interconnected to
the Publicly Switched Telephone Network ("PSTN"). Shanghai V-Tech Telecom's
revenues will be derived primarily from profit-sharing and revenue-sharing
arrangements.
The consummation of this transaction with GTS is subject to various
conditions, including receipt of necessary governmental approvals and other
customary closing conditions. In addition, under the American Stock
Exchange guidelines the Company will be required to obtain shareholder
approval for the number of shares related to this issuance that is in
excess of 19.9% of the Common Stock outstanding on the date of issuance.
Once all of the conditions in China necessary for the consummation of the
transaction are completed, the Company's shareholders will be asked to
approve the necessary increase in the shares to be issued to SFMT-China. At
present, SFMT-China and GTS are working to complete the pre-closing
conditions in China, including obtaining the necessary governmental
approvals. The successful completion of this merger is subject to final due
diligence and shareholder approval, among other conditions.
OTHER
The Company is also considering several other opportunities in
telecommunications network development and provision of IP based value
added fax and telephony services in China and the Far East. The Company has
begun to focus on these IP service opportunities as the telecommunications
market in China has developed over the last two years. (See SUBSEQUENT
EVENTS.)
EMPLOYEES
As of June 20, 1999, the Company had 13 full time employees in New
York and China.
The Company employs a policy of staffing and managing its
joint-venture subsidiaries and hiring PRC nationals for its China
operations. As of June 20, 1999, the Company's subsidiary Hebei Equipment
had 6 employees. Additionally, Hebei Engineering had 17 employees as of the
same date. It is the intention of the Company to add employees to its
Chinese and Far Eastern subsidiaries and joint ventures for operational
purposes.
The Company's employees are not represented by a labor union and are
not covered by a collective bargaining agreement. The Company believes that
its relations with its employees are good.
SUBSEQUENT EVENTS
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
On April 28, 1999, the Company formed a 50-50% joint venture,
IP.TEL, LLC with Fusion Telecommunications International, Inc. ("Fusion"),
a private facilities-based, multinational long-distance company. Fusion's
current service offerings include voice and data, switched and dedicated,
domestic and international long-distance and domestic and international
prepaid calling cards, provided through a network of owned and leased
facilities, leased lines and resale agreements.
The joint venture will provide value-added telecommunication
services, including telephony and data, to and from Asia. Utilizing the
Company's established presence in China and Fusion's telecommunication
franchise, the companies plan to expand the service offerings of the joint
venture to include a fully integrated Internet protocol based network to
provide voice and fax services. The joint venture agreement includes
language that gives both parties the right of first refusal regarding
projects in China within the scope of IP.TEL, LLC's business proposition.
IXS.NET, INC.
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 in
Asia. The Company and Fusion agreed to make an equal convertible debt
investment into IXS.NET and the Company has an option to acquire up to 50%
of IXS.NET. The Company has invested $175,000 under a loan agreement to
IXS.NET and expects to enter into an eighteen months convertible debt
agreement shortly. The convertible debt agreement will allow for the
Company to advance up to $575,000 over the eighteen months period, subject
to certain terms and conditions. The business is in the process of starting
up in Hebei Province as per an arrangement with Hebei Equipment. During the
next quarter, the Company anticipates obtaining licenses to expand the
service in Sichuan, Beijing, Tanjain and other provinces in China.
The IXS.NET business equips a local business with a modem that
transfers international fax calls through a local phone call on the PSTN to
an Internet node in the city of origin, then transmits the fax on the
Internet internationally to the city of destination, converts the fax call
to a local telephone call in the city of destination on city's PSTN which
is transmitted to the destination fax telephone number. This model saves
the standard international telephone phone call charges, which are very
expensive to and from China. This business model can result in a
significant savings to any business that faxes internationally on a regular
basis. There are other competitors offering similar or essentially the same
service in China and there can be no assurance that the Hebei
Equipment-IXS.NET joint venture will be profitable.
According to the International Data Corporation, the Asia/Pacific
Rim will lead the global Internet fax market with a 169% compound annual
growth rate, boosting regional volume from approximately 350 million
minutes in 1999 to an estimated 4.3 billion minutes in 2002. In the
Internet Fax arena, China is already the leading national market and is
forecasted to supplant Japan as the new leader in overall Asian fax
traffic. Traditional faxing remains very expensive because deregulation and
competition has yet to eliminate high long-distance phone rates. The
IXS.NET joint venture allows the Company to capitalize on this opportunity.
MANAGEMENT
The Company, as of June 30, 1999, promoted R.T. McNamar as President
and Chief Operating Officer and Mr. Wilfred Chow as Controller/Treasurer.
Ms. Karin-Joyce Tjon was promoted to Vice President Finance. Concurrently,
the Company's Chief Financial Officer, Albert G. Pastino, resigned on a
fulltime basis, but will remain involved in the Company's business as a
consultant.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This document contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information
currently available to the Company's management. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "going
forward" and similar expressions, as they relate to the Company or Company
management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
described in this Form 10-K. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected. The Company does not
intend to update these forward-looking statements.
ITEM 2. PROPERTIES
The Company leases a 7,600 square foot office located at 599
Lexington Avenue, 44th Floor, New York, New York 10022. The facility serves
as the Company's principal executive offices. The Company pays an annual
rent of $334,400 on a lease which expires in May 2000. The Company has
obtained an option to extend the lease for an additional five year term
based on the fair market value of the leased premises at or about the time
of the expiration of the initial term of the lease.
ITEM 3. LEGAL PROCEEDINGS
A first amended complaint, dated April 15, 1996, was filed against
the Company, ITV Communications, Inc., a subsidiary of 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, in a matter captioned "Jacqueline B. Brandwynne vs. AVIC Group
International, Inc., et al," civil action number BC145036. 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 alleges that certain misrepresentations were made in connection
with the sale of the 666,667 shares and that the claimant was entitled to
receive 666,667 shares of the Company after the completion of the
Reorganization Agreement. 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. Management of the Company believes that these claims are without
merit, that there are valid defenses to each claim and is in the process of
vigorously defending the matter. The Company is represented by the law firm
of Matthias & Berg LLP, 515 South Flower Street, Seventh Floor, Los
Angeles, California 90071, on this matter.
As of June 18, 1999, the Company and Jacqueline B. Brandwynne have
reached a settlement in principle of the legal proceedings. Subject to
documentation and signing of the final agreement, the parties have agreed
to release each other from all claims. The Company has agreed to pay Ms.
Brandwynne $250,000 in AmTec Common Stock, which includes her claim for
attorney's fees. Such amount has been reserved for as of March 31, 1999.
While the management of the Company believes that these claims are without
merit, and that there are valid defenses to each claim, management believes
it is in the best interest of the Company to settle the litigation,
eliminate any possible liability exposure, and avoid additional legal fees
to defend the litigation.
The Company is not aware of any pending litigation that could have a
material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the
quarter ended March 31, 1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 31, 1999, the authorized capital stock of the Company
consisted of 100,000,000 shares of common stock, par value $0.001 per share
(the "Common Stock"), and 10,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock"). As of March 31, 1999, there were
issued and outstanding 30,736,721 shares of Common Stock, options to
purchase 9,987,602 shares of Common Stock, 29.764 shares of Series E
Convertible Preferred Stock, 20 shares of Series G Convertible Preferred
Stock. Further, there were issued and outstanding warrants to purchase
4,196,514 shares of Common Stock. As of March 31, 1999, there were
approximately 2,362 holders of record of the Common Stock.
The Company's Common Stock was originally listed for trading in the
over-the-counter market on March 4, 1996 under the name AVIC Group
International, Inc. and was quoted on the NASDAQ Bulletin Board or in the
"pink sheets" maintained by the National Quotation Bureau, Inc. under the
symbol "AVIC." The Company changed its listing on November 20, 1996, when
its Common Stock was approved for listing on the American Stock Exchange
under the ticker symbol "AVI." On July 8, 1997, the Company changed its
name to AmTec, Inc. and it currently trades on the American Stock Exchange
under the symbol "ATC". The high and low sales prices of the Common Stock,
as quoted on the American Stock Exchange, on June 25, 1999 were $1.1250 and
$1.0625, respectively.
No dividend has been declared or paid by the Company on its shares
of Common Stock since its inception. The payment of dividends by the
Company on its shares of Common Stock is within the discretion of the
Company's Board of Directors and will depend on the earnings, capital
requirements, restrictions in any future credit agreements and operating
and financial condition of the Company, among other factors. Except for
dividends which may be payable on and according to the terms of shares of
Preferred Stock, which may be issued from time to time, the Company does
not anticipate that any dividends will be declared or paid in the future.
There can be no assurance that the Company will ever pay a dividend on its
shares of Common Stock.
The following table sets forth for the period indicated the high and
low sales price of the Company's Common Stock as reported on the American
Stock Exchange.
1998 1999
COMMON 1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q
----- ----- ----- ----- ----- ----- ----- -----
STOCK PRICE
High $5.1875 $3.4375 $2.4375 $1.1875 $2.2500 $1.3750 $1.1250 $1.6250
Low $2.8125 $1.8125 $0.5000 $0.5625 $1.1875 $0.8750 $0.8125 $0.9375
High and low sales price as reported on the American Stock Exchange.
The transfer agent for the Company is Chasemellon Shareholder
Services, LLC, 450 West 33rd Street, New York, New York, 10001. Its
telephone number is (800) 851-9677.
CERTAIN SALES OF UNREGISTERED SECURITIES
On March 16, 1999 the Company completed the sale of 20 shares of its
Series G Convertible Preferred Stock (the "Series G Stock" or "Series G
Shares") for proceeds of $2,000,000.
The Series G Shares were sold pursuant to Reg. D at $100,000 per
share and the holders of the Series G Stock have no rights to cash
dividends but are entitled to an 8% in-kind dividend. Conversion of the
Series G Shares into Common Stock is based on $1.25 (the closing price of
the Company's Common Stock on the last business day immediately preceding
the closing of the transaction). In addition to the shares, warrants were
issued to the Series G Investors to purchase 600,000 shares of the
Company's Common Stock at an exercise price of $1.25. Holders of the Series
G Shares also have a registration right requiring the Company to file a
registration statement covering the Common Stock underlying the Series G
Preferred Shares and related warrants with the Securities and Exchange
Commission (the "SEC") no later than August 2, 1999.
The Series G Shares have a stated liquidation preference value of
$100,000 per share plus an 8% accrued in-kind dividend since the date of
issuance, and is senior to all common stock. The holders of the Series G
Shares have no voting rights except with respect to certain matters that
affect the rights related to the Series G Shares.
ITEM 6. SELECTED FINANCIAL DATA
The Company has focused its business solely on establishing
Sino-foreign joint ventures to develop telecommunications networks in the
PRC, following the sale of the assets of its subsidiary ITV Communications,
Inc. in January 1996. Accordingly, the following historical financial data
is not necessarily indicative of future results of operations. The selected
financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net Sales $ -0- $ -0- $ -0- $ -0- $ 345,276
Loss from continuing
operations (4,649,770) (4,282,613) (3,563,568) (3,380,633) -0-
Loss from discontinued
operations -0- -0- -0- (1,932,977) (5,585,596)
Gain on sale of
discontinued
operations -0- -0- -0- 31,888 -0-
Net Loss (5,579,444) (5,403,368) (4,064,885) (5,281,730) (5,538,303)
Loss from continuing
operation per
common share (0.23) (0.23) (0.14) (0.13) -0-
Loss from discontinued
operation per
common share -0- -0- -0- (0.08) (0.32)
Basic Loss per common
share (0.23) (0.23) (0.14) (0.21) (0.32)
Total Assets 4,781,085 7,683,358 4,004,966 1,660,000 3,267,488
Shareholders' Equity
(Deficit) 3,813,342 4,896,911 548,088 (2,421,606) (1,255,412)
Financial information for the years 1995 and 1996, is not comparable
to the financial information provided for 1997, 1998 and 1999, because
prior to 1997 the Company was 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 Company had previously consolidated the revenues and expenses of
its Sino-foreign joint venture subsidiary Hebei Equipment and its
Sino-foreign joint venture subsidiary Hebei Engineering. The Company is now
accounting for such subsidiaries under the equity method of accounting. The
Company's share of Hebei Equipment's net loss is reported on one line in
its income statement and its investment is reported on one line the balance
sheet as "Investments in and Advances to Unconsolidated Subsidiary". The
Company has filed an amended Form 10-K/A for the year ended March 31, 1998
to reflect this change.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through equity
investments.
Approximately $3,737,000 of cash was used in the Company's
operations for the fiscal year ended March 31, 1999, compared to cash used
of approximately $3,924,000 for the year ended March 31, 1998. The cash
flow from operating activities decreased primarily due to cost control over
selling, general & administrative expenses. During the fiscal year ended
March 31, 1997, the Company used approximately $3,382,000 in its operating
activities.
The Company used approximately $13,000 in its investing activities
in the year ended March 31, 1999, compared to approximately $390,000 in the
year ended March 31, 1998. The decrease in investing activities is related
primarily to the fact that no additional investment was made by the Company
to its subsidiaries in Hebei province, PRC.
The cash inflows from financing activities during the year ended
March 31, 1999 were generated primarily from the repayment of an advance to
Hebei Equipment of $2,200,000 and the offering of 20 shares of Series G
Convertible Preferred Stock for a consideration of $2,000,000.
The Company wrote off its Notes Payable to Shareholders for
approximately $2.3 million, including accrued interest.
During the year ended March 31, 1998, the Company made two offerings
(1) On June 12, 1997, the Company issued 250 shares of Series C Convertible
Preferred Stock at a purchase price of $10,000 per share in consideration
of $2,500,000. Proceeds from this offering were approximately $2,093,900,
which is net of $406,100 of the Series C Shares which were repurchased by
the Company. (2) On October 22, 1997, the Company issued 74 shares of the
Company's Series E Convertible Preferred Stock, at a purchase price of
$100,000 per share, for which the Company received $6,759,000 after
placement agent's fees.
During fiscal year ended March 31, 1997, the Company issued 150
shares of the Company's Series D Convertible Preferred Stock at a purchase
price of $10,000 per share in consideration of $1,500,000.
The Company anticipates that its cash and cash equivalents should be
adequate to finance the Company's operating requirements for the current
fiscal year.
EQUITY ISSUANCE AND SERVICE AGREEMENTS
Common Stock issued in connection with conversion of Preferred Stock:
During fiscal 1999, the Company issued 5,554,424 shares of its
Common Stock upon conversion of 40.356 outstanding shares of the Company's
Series E Convertible Preferred Shares.
Common stock issued in connection with stock option plans and
services performed:
During fiscal 1999 the Company did not issue any common stock in
connection with stock option plans. In connection with services performed,
the Company issued 85,000 options to members of its Board of Directors.
During fiscal 1998 the Company issued (i) 10,000 shares of common
stock to a former employee of the Company, upon the exercise of an option
issued pursuant to the Company's 1996 Stock Option Plan. The option had an
exercise price of $0.35 per share, (ii) 10,000 shares of common stock were
issued to each of its four outside directors as compensation for services.
The shares issued had a combined value of $85,000, which was expensed as
directors compensation, (iii) 8,500 shares of its common stock were issued
at market to its legal firm in lieu of $25,500 of legal billings, and (iv)
14,734 shares issued in connection with other services at a market value of
$41,457.
During fiscal 1998, the Company issued 1,019,465 shares of its
Common Stock, net of cancellation, into escrow for Promethean Investment
Group, LLC ("Promethean") pursuant to a Common Stock Investment Agreement
entered into between the Company and Promethean. The shares would have been
issued to Promethean if the Company drew on funds from Promethean pursuant
to the Common Stock Investment Agreement. This agreement was subsequently
cancelled during fiscal 1999.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998
The Company's indirect subsidiary, Hebei Engineering, recorded
revenues of RmB 6,488,482 (approximately $811,000) for the year ended
December 31, 1998, and RmB 1,706,499 (approximately $213,000) for the year
ended December 31, 1997. (See Page F-34). The Company has no revenues on
its consolidated financial statements because the results of operations of
the Company's subsidiary Hebei Equipment were accounted for under the equity
method of accounting. The Company recorded only its share of losses of its
unconsolidated subsidiary according to the percentage of its equity
interest. The Company had net losses of $5,579,444 and $5,403,368 during
the fiscal years ended March 31, 1999 and 1998, respectively.
Selling, general and administrative expenses ("SG&A") increased from
$4,282,613 during the year ended March 31, 1998, to $4,649,770 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 the Company's unconsolidated subsidiary of
$606,647 recorded during the year ended March 31, 1998 and $385,139 during
the year ended March 31, 1999 represents the Company's share of losses
reported by Hebei Equipment for the year ended December 31, 1997 and
December 31, 1998, during which period the Company 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 the Company's Common Stock at a price
of $3.0625 per share. In accordance with Generally Accepted Accounting
Principles, the Company recorded their estimated value of $1,837,500 during
the year 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. The Company received a
tax refund of approximately $70,000 during the year ended March 31, 1998.
The Company's loss applicable to common shareholders decreased 9%
from $6,802,054 during the year ended March 31, 1998, to $6,251,901 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 & administrative
expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
The Company has experienced net losses of $5,403,368 and $4,064,885
during the fiscal years ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expenses increased from
$3,563,568 during the year ended March 31, 1997, to $4,282,613 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 the Company's unconsolidated subsidiary of
$140,526 recorded during the year ended March 31, 1997 and $606,647 during
the year ended March 31, 1998 represents the Company's share of losses
reported by Hebei Equipment for the year ended December 31, 1996 and
December 31, 1997, during which period the Company owned a sixty point
eight percent (60.8%) equity interest Hebei Equipment.
The Company issued to the Hebei Provincial Government three million
options to purchase an equal number of shares of the Company's Common Stock
at a price of $3.0625 per share. In accordance with Generally Accepted
Accounting Principles, the Company has recorded their value of $1,837,500
and has 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 $87,441.
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
shareholder loans payable.
Other income (net) of approximately $70,000 during the year ending
March 31, 1998 was related to a tax refund previously paid.
The Company's net loss increased 33% from $4,064,885 during the year
ended March 31, 1997, to $5,403,368 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 &
administrative expenses.
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.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. Generally, it requires that an entity recognizes all derivatives
as either an asset or liability and measures those instruments at fair
value, as well as identifies the conditions for which a derivative may be
specifically designed as a hedge. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently addressing the
financial reporting measures that will be needed in order to comply with
this disclosure. The Company has not participated in any hedging activities
in connection with foreign currency exposure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company has not entered into any financial instruments for
trading or hedging purposes.
The Company is not exposed to fluctuations in foreign currencies
relative to the U.S. dollar, as its revenues, costs, assets and liabilities
are, for the most part, denominated in local currencies. The results of
operations of the Company's subsidiaries were as reported in their local
currencies.
The Company's carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses is a reasonable
approximation of their fair value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements required by this Item 8 are attached hereto
as "Exhibit (a)(1)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The directors of the Company currently have terms which will end at
the next annual meeting of the stockholders of the Company or until their
successors are elected and qualified, subject to their prior death,
resignation or removal. Officers are appointed by and serve at the
discretion of the Board of Directors, subject to the rights of the officers
under their respective employment agreements. There are no family
relationships among any of the Company's directors and executive officers.
NAME AGE POSITION
---- --- --------
Joseph R. Wright, Jr. 60 Chairman of the Board of Directors,
Chief Executive Officer and President
Richard T. McNamar 60 Vice Chairman of the Board of Directors
Richard S. Braddock 57 Director
Marvin S. Rosen 58 Director
James R. Lilley 71 Director
Michael H. Wilson 61 Director
Michael J. Lim 34 Executive Vice President
Albert G. Pastino 56 Senior Vice President, Chief Financial
Officer and Treasurer
James F. O'Brien 52 Senior Vice President, General Counsel
and Corporate Secretary
Xiao Jun 41 Executive Vice President - AVIC China
Joseph R. Wright, Jr. has served as the Company's Chairman of the
Board of Directors since May 1995, Chief Executive Officer since March 1996
and President since May 1996. Mr. Wright also serves as Chairman and member
of the Board of GRC International, Inc. a U.S. public company that provides
technical information technology support to government and private
entities, Co-Chairman of Baker & Taylor Holdings, Inc., an international
book and video distribution company, and a member of the Board of PanAm
Sat, the largest private satellite operator. 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. Prior to 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. He is a former member of the President's Export
Council and a former member of the Board of Directors of Travelers;
Harcourt Brace Janovich; and Hampton University.
Richard T. McNamar, prior to serving as President and Chief Operating
Officer, served as the Company's Vice Chairman of the Board of
Directors since September 1996. He was the founder and Chairman of
International Franchise, Inc., a firm that specialized in international
financial transactions, from 1995 to 1997. He was a Managing Director of
Oppenheimer & Co. from 1991 to 1994. Formerly, he was the Vice-Chairman of
The Bank of New England Corporation and subsidiaries from 1990 to 1991. Mr.
McNamar served as Deputy Secretary of the United States Treasury from 1981
to 1985. He served in the Nixon and Ford Administrations from 1972 to 1977,
where he served as the Executive Director of the Federal Trade Commission
from 1973 through 1977. Mr. McNamar is also currently a member of the
Executive Board of the Bretton Woods Committee, the Board of the Institute
of the Americas, and a member of Home EquiVest, LLC..
Richard S. Braddock has served as a Director of the Company since
August 1997. He is Chairman and Chief Executive Officer of priceline.com, a
position he has held since August of 1998. He has served as the Chairman of
True North Communications, Inc. (a public company) from December 1997 to
January 1999. He has served as a principal of Clayton, Dubilier & Rice,
Inc. from 1994 to 1995 and as the Chief Executive Officer of Medco
Containment Services from January 1993 to December 1993. Mr. Braddock held
various positions at Citicorp from 1973 through 1992 including that of
President and Chief Operating Officer of Citicorp and its principal
subsidiary, Citibank, N.A., from January 1990 to November 1992 and as
sector executive for worldwide consumer activities from 1985 to 1990. Mr.
Braddock served as a director of Citicorp from 1985 to 1992. Mr. Braddock
serves on the Board of Directors of E*Trade Group, Inc., Eastman Kodak
Company, Cadbury Schweppes plc adr, and priceline.com, all publicly-held
companies; and NewSub Services, Inc., Prime Response Ltd. and Walker
Digital, all private companies; and of Lincoln Center for the Performing
Arts. He is a trustee of the Cancer Research Institute. Mr. Braddock
received his bachelors degree from Dartmouth College and his M.B.A from the
Harvard Graduate School of Business Administration.
James R. Lilley has served as a Director of the Company since May
1997. Ambassador Lilley is currently a resident director at the American
Enterprise Institute ("AEI") which he joined in January 1993, and has
directed the Institute for Global Chinese Affairs at the University of
Maryland since 1996. Prior to his joining AEI, Ambassador Lilley served in
President Bush's Administration as the Assistant Secretary of Defense for
International Security Affairs from November 1991 to January 1993.
Ambassador Lilley was U.S. Ambassador to the People's Republic of China
from April 1989 to May 1991, and to the Republic of Korea from 1986 to
1989. Ambassador Lilley is the co-editor of Beyond MFN: Trade with China
and American Interests and is the author of the forward for the AEI
publication, Chinese Military Modernization. He has represented Hunt Oil of
Texas and United Technologies of Hartford, Connecticut in 1979 to 1980.
Ambassador Lilley worked for Archer-Daniels-Midland Co. and Westinghouse as
a business consultant.
Michael H. Wilson has served as a Director of the Company since May
1997. He has been Vice-Chairman of RBC Dominion Securities, Inc. in
Toronto, Canada since 1995. Prior to 1994, Mr. Wilson held senior Federal
Cabinet posts with the Government of Canada in Finance, Industry, Science
and Technology and International Trade. Mr. Wilson serves on the Board of
Directors of BP Amoco plc, Manufacturers Life Insurance Company and Rio
Algom Limited. He is also active in a number of professional and community
organizations in Canada and the United States.
Marvin S. Rosen has served as Director of the Company since March
1999. Mr. Rosen is a Principal Shareholder and Member of the Executive
Committee of Greenberg Traurig, P.A., a national 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 (since 1997), where he
has also been Vice-Chairman since December 1998. Mr. Rosen received his
B.S. 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.
Michael J. Lim has served as the Executive Vice President of the
Company since November 1995 and as the Chief Financial Officer from May
1996 through June 1997. Prior to his joining the Company, Mr. Lim was an
investment banker with Bear, Stearns & Co., Inc. from 1986 to 1988 and from
1991 to 1995. During the two and a half years prior to his joining the
Company, Mr. Lim served as Vice President of Bear Stearns Asia Limited,
where he advised Asian enterprises on a wide variety of financing
transactions, with particular focus on telecommunications and
infrastructure financings. Mr. Lim also worked as an investment banker with
the Chase Manhattan Bank from 1990 to 1991. Mr. Lim received his A.B. from
Harvard College in English Literature in 1985 and his M.B.A. from the Amos
Tuck School of Business Administration at Dartmouth in 1990. Mr. Lim
resigned from the Company as of June 30, 1999.
Albert G. Pastino was appointed in June 1997 to serve as a Senior
Vice President and Chief Financial Officer of the Company and was appointed
Treasurer of the Company in December 1997. From 1993 to 1997, Mr. Pastino
served as the President of Kisco Capital Company, Inc., an affiliate of
Kohlberg & Company, a private equity investment company. He also served on
the boards of directors of a number of Kohlberg & Company's portfolio
companies. From 1989 through 1992, Mr. Pastino served as Senior Vice
President and Chief Operating Officer of Fortis Private Capital, Inc., a
private equity investment company investing in expansion financing and
management buyouts. Mr. Pastino began his business career at Deloitte &
Touche LLP where he served as partner, and gained his investment banking
experience at Alex Brown & Sons, Incorporated. Mr. Pastino received an
M.B.A. from Fairleigh Dikinson University and a B.S. from St. Joseph's
University. Mr. Pastino resigned from the Company on a fulltime basis as of
June 30, 1999, and will remain a Consultant to the Company.
James F. O'Brien was appointed in June 1997 to serve as a Senior
Vice President and General Counsel of the Company and was appointed
Corporate Secretary of the Company in May 1998. Mr. O'Brien was a senior
litigation partner at the law firm of Goulston and Storrs in Boston,
Massachusetts where he founded the litigation practice in 1978 and
specialized in complex financial transactions. He has served as an advisor
to U.S. corporations seeking business opportunities in Southeast Asia. Mr.
O'Brien received a J.D. from Boston College Law School and an A.B. from St.
John's Seminary in Boston. Mr. O'Brien resigned from the Company as of
March 31, 1999.
Xiao Jun has served as Executive Vice President - AVIC China since
December 1995. He also served as a Director from February 1995 through
October 1997, the Company's Secretary from February 1995 to January 1996
and as Chief Financial Officer from June 1995 to May 1996. He has been the
President of Xiao Hua International, Inc., an international steel trading
business based in California since June 1993. He served as the Vice
President of ITV from December 1994 to January 1996. From March 1990 to May
1993, Mr. Xiao was the Vice President of Chong Qing Special Metals Industry
Co. From 1985 to 1990, Mr. Xiao served as an engineer and project manager
at the representative office of IBM China/HK Corp. (Beijing). Mr. Xiao
received a bachelor's degree in physics from the Beijing Polytechnic
University in 1982.
The Board of Directors currently has an Audit Committee and a
Compensation Committee. The members appointed to the Audit Committee of the
Board of Directors during the fiscal year ended March 31, 1999 were Michael
H. Wilson, Chairman of the Committee, James R. Lilley and Richard T.
McNamar. The members appointed to the Compensation Committee of the Board
of Directors during the fiscal year ended March 31, 1998, as of the most
recent shareholder meeting, were Richard S. Braddock, Chairman of the
Committee, Drew Lewis and Joseph R. Wright, Jr. Mr. Lewis resigned from the
Board of Directors and the Compensation Committee during the quarter ending
December 1998.
Section 16(a) Beneficial Ownership Reporting Compliance. Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and beneficial holders of more
than 10% of any class of the Company's equity securities to file with the
Commission initial reports of ownership and reports of changes in ownership
of such equity securities of the Company. Based solely upon a review of
such forms furnished to the Company, and on written representations from
certain reporting persons that no other reports were required for such
persons, the Company believes that all reports required pursuant to Section
16(a) with respect to its executive officers, directors and 10% beneficial
stockholders for the fiscal year ended March 31, 1999 were timely filed.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following tables set forth certain information concerning
compensation for the fiscal years ended March 31, 1999, 1998 and 1997 of
certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers whose total annual salary and
bonus exceeded $100,000, for the fiscal year ended March 31, 1998 (the
"Named Executive Offices").
Long Term
Compensation
---------------------
Annual Compensation Awards
--------------------------------------------- ---------------------
Name and Other Annual Stock Options/
Principal Position Year Salary ($) Bonus ($) Compensation Awards ($) SARS (#)
- ------------------ ----- ----------------------- ------------- ----------- ---------
Joseph R. Wright 1999 483,333 (2)$35,000
Chief Executive 1998 392,967 50,000 (2)$30,000
Officer(1) 1997 256,250 (2)$30,000 $281,250 3,000,000
R. T. McNamar 1999 100,000
Vice Chairman (3) 1998 100,000 (4)$37,500
1997 500,000
Michael J. Lim 1999 307,500 50,000
Executive Vice 1998 253,417 75,000 250,000
President (5) 1997 167,333
Albert G, Pastino 1999 205,000 30,000
Senior Vice 1998 125,000 50,000 467,500
President, Chief 1997
Financial Officer &
Treasurer (6)
James F. O'Brien 1999 222,916
Senior Vice 1998 125,000 50,000 467,500
President, General 1997
Counsel & Corporate
Secretary(7)
Xiao Jun 1999 175,000
Executive Vice 1998 175,000
President-AVIC 1997 123,958
China (8)
- -----------------
(1) Mr. Wright has served as the Company's Chief Executive Officer since
March 14, 1996. He joined the Company as the Chairman of the Board
of Directors on May 1, 1995.
(2) During fiscal 1996, 1997 and 1998, the Company paid approximately
$30,000 per year on behalf of Mr. Wright for certain personal tax
and accounting services rendered by third parties for Mr. Wright.
(3) Mr. McNamar joined the Company on September 3, 1996 as Vice
Chairman of the Board of Directors.
(4) Mr. McNamar received 25,000 shares of the Company's Common Stock
pursuant to his terms of employment with the Company, such shares
having a value of $37,500 at the time of issuance in September 1997.
(5) Mr. Lim joined the Company as the Executive Vice President -
Operations on November 7, 1995 and served as the Company's Chief
Financial Officer from May 1996 through June 15, 1997.
(6) Mr. Pastino joined the Company as the Senior Vice President and
Chief Financial Officer on June 16, 1997. He became the Treasurer of
the Company on December 8, 1997.
(7) Mr. O'Brien joined the Company as Senior Vice President and General
Counsel on June 16, 1997. He became the Secretary of the Company on
May 14, 1998.
(8) Mr. Xiao joined the Company in 1995 as the Executive Vice President
of AVIC-China.
OPTION AND SAR GRANTS DURING LAST FISCAL YEAR
The Company issued 375,000 stock options at fair market value and no
SARs to its Named Executive Officers during the fiscal year ended March 31,
1999.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding option
exercises by the Named Executive Officers during the fiscal year 1999 and
options held by such Named Executive Officers on March 31, 1999:
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year End at Fiscal Year End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Joseph R. Wright - - 6,000,000 200,000 $3,262,500 $112,500
R. T. McNamar - - 500,000 - - -
Michael J. Lim - - 1,125,000 225,000 1,173,438 142,188
Albert G. Pastino - - 430,000 112,500 - 42,188
James F. O'Brien - - 446,875 88,125 - -
Xiao Jun - - 515,000 - 559,488 -
- ----------------
(1) Based on a per share price of $1.4375, the closing price of the
Common Stock as reported on the American Stock Exchange on March 31,
1999, minus the exercise price of the option, multiplied by the
number of shares underlying the Option.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with five of its
executive officers, Messrs. Joseph R. Wright, Jr. which superseded his
earlier agreement, Richard T. McNamar, Michael J. Lim, Albert G. Pastino
and James F. O'Brien.
The Company entered into a two year employment agreement dated as of
January 1, 1999, with Joseph R. Wright, Jr., pursuant to which Mr. Wright
agreed to serve as the Company's Chairman of the Board of Directors, Chief
Executive Officer and President and to operate out of the Company's
executive offices located in New York, New York. The agreement provides for
an annual base salary of $450,000, ten year options to purchase 200,000
shares of Common Stock at an exercise price of $0.875 (the market price at
the date of grant), vesting over a two year period, and a stock award of
100,000 shares of Common Stock.
On September 6, 1996, the Company entered into a one year verbal
employment agreement with Richard T. McNamar pursuant to which Mr. McNamar
will serve as Vice Chairman of the Company. He received 25,000 shares of
the Company's Common Stock upon commencing employment. Initially, Mr.
McNamar was part time, and negotiated to receive a contingent success fee
for financings he introduced or arranged for the Company. On October 1,
1996 Mr. McNamar became a full time employee and waived his rights to any
success fees. In his part time capacity, Mr. McNamar was issued an option
to purchase 250,000 shares of the Company's Common Stock at an exercise
price of $1.50 per share on September 6, 1996. He received an additional
option for 250,000 shares at an exercise price of $1.50 per share when he
became a full time employee on October 1, 1996. The exercise price of the
options were based on the market value of the Common Stock on the date of
grant. The Company and Mr. McNamar signed a three year employment agreement
on June 30, 1999 whereby Mr. McNamar will serve as President and Chief
Operating Officer of the Company. The agreement provides for a base salary
of $150,000 and ten year options to acquire 200,000 shares of the Company's
Common Stock at an exercise price at the fair market value of Company's
Common Stock at the date of grant, vesting over a two year period.
On January 1, 1999, the Company entered into a two year contract
with Michael J. Lim, whereby Mr. Lim will serve as an Executive Vice
President of the Company. The agreement provides for an annual base salary
of $330,000, ten year options to purchase 100,000 shares of Common Stock at
an exercise price of $0.875 (the market price at the date of grant),
vesting over a two year period, and a stock award of 50,000 shares of
Common Stock. Mr. Lim has resigned from the Company as of June 30, 1999.
On January 1, 1999, the Company entered into a two year contract
with Albert G. Pastino, whereby Mr. Pastino will serve as a Senior Vice
President and Chief Financial Officer of the Company. The agreement
provides for an annual base salary of $220,000, ten year options to
purchase 75,000 shares of Common Stock at an exercise price of $0.875 (the
market price at the date of grant), vesting over a two year period, and a
stock award of 30,000 shares of Common Stock. Mr. Pastino resigned from the
Company on a fulltime basis as of June 30, 1999, and will remain a
Consultant to the Company.
On October 15, 1997, the Company entered into a five-year employment
agreement with James F. O'Brien. Mr. O'Brien will serve as a Senior Vice
President and General Counsel of the Company and will receive an annual
base salary of $200,000 for the first year and stock options to acquire
467,500 shares of Common Stock at an exercise price of $2.125 per share.
The exercise price of the options for Mr. O'Brien was based
on the market price of the Company's Common Stock, as reported on the
American Stock Exchange, at the time the grant was made. Mr. O'Brien
resigned from the Company as of March 31, 1999.
EMPLOYEE STOCK OPTION PLANS
As of February 8, 1995, the Company's Board of Directors and
stockholders approved the Company's 1995 Stock Option Plan (the "1995 Stock
Option Plan") in connection with the closing of the transactions
contemplated by the Reorganization Agreement. The Company has reserved up
to 500,000 shares of Common Stock for issuance under the 1995 Stock Option
Plan. The Company has granted options to purchase up to 385,000 shares of
Common Stock under the 1995 Stock Option Plan, 260,000 of which have been
exercised as of June 25, 1999.
The 1996 Stock Option Plan (the "1996 Stock Option Plan" and
together with the 1995 Stock Option Plan, the "Stock Option Plans") was
adopted by the Board of Directors on March 14, 1996 and by the Company's
stockholders on May 7, 1996 and amended on January 1, 1999. The Company has
reserved for issuance thereunder an aggregate of 12,000,000 shares of
Common Stock. The Company has granted options to purchase up to 9,867,602
shares of Common Stock under the 1996 Stock Option Plan, 10,000 of which
have been exercised. Of the 9,867,602 options granted as of the date of
this Report, 9,241,994 options have vested, and the remaining 625,608
options may vest subject to certain schedules. The Board of Directors has
approved a provision in the 1996 Stock Option Plan which will place a
6,000,000 share limit on the number of options that may be granted under
the 1996 Stock Option Plan to an employee in the fiscal year ended March
31, 1996, and a 1,500,000 share limit in each fiscal year thereafter.
A description of each of the Company's Stock Option Plans is set
forth below. The description is intended to be a summary of the material
provisions of the Company's Stock Option Plans and does not purport to be
complete.
Administration of and Eligibility Under Stock Option Plans. Each of
the Stock Option Plans, as adopted, provides for the issuance of options to
purchase shares of Common Stock to officers, directors, employees,
independent contractors and consultants of the Company and its
subsidiaries. The Stock Option Plans authorize the issuance of incentive
stock options ("ISOs"), and non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee")
to be established by the Board of Directors to administer the Stock Option
Plans.
Subject to the terms and conditions of the Stock Option Plans, the
Committee will have the sole authority to determine: (a) the persons
("optionees") to whom options to purchase shares of Common Stock and SARs
will be granted, (b) the number of options and SARs to be granted to each
such optionee, (c) the price to be paid for each share of Common Stock upon
the exercise of such option, (d) the period within which each option and
SAR will be exercised and any extensions thereof, and (e) the terms and
conditions of each such stock option agreement and SAR agreement which may
be entered into between the Company and any such optionee.
All officers, directors and employees of the Company and its
subsidiaries and certain consultants and other persons providing
significant services to the Company and its subsidiaries will be eligible
to receive grants of options and SARs under the Stock Option Plans.
However, only employees of the Company and its subsidiaries are eligible to
be granted ISOs.
Stock Option Agreements. All options granted under the Stock Option
Plans will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the Stock Option Plans need not be identical
and may include any term or condition which is not inconsistent with the
respective Stock Option Plan and which the Committee deems appropriate for
inclusion.
Incentive Stock Options. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power
of all classes of the securities of the Company or its subsidiaries to whom
such ownership is attributed on the date of grant ("Ten Percent
Stockholders"), the exercise price of each ISO must be at least 100% of the
fair market value of the Company's Common Stock as determined on the date
of grant. ISOs granted to Ten Percent Stockholders must be at an exercise
price of not less than 110% of such fair market value.
Each ISO must be exercised, if at all, within ten (10) years from
the date of grant, but, within five (5) years of the date of grant in the
case of ISOs granted to Ten Percent Stockholders.
An optionee of an ISO may not exercise an ISO granted under the
Stock Option Plans so long as such person holds a previously granted and
unexercised ISO.
The aggregate fair market value (determined as of time of the grant
of the ISO) of the Common Stock with respect to which the ISOs are
exercisable for the first time by the optionee during any calendar year
shall not exceed $100,000.
As of the date of this Report, ISOs have been granted under the 1995
Stock Option Plan, subject to certain vesting schedules, to purchase up to
385,000 shares of Common Stock, 260,000 of which have been exercised.
375,000 ISOs have an exercise price of $0.3555 per share and 10,000 ISOs
have an exercise price of $1.50 per share.
Further, as of the date of the Report, ISOs have been granted under
the 1996 Stock Option Plan, subject to certain vesting schedules, to
purchase up to 372,380 shares of Common Stock. These options have the
following per share exercise prices: 285,714 shares ($0.35), 76,666 shares
($3.00) and 10,000 shares ($1.50).
Non-Qualified Stock Options. The exercise price of each NSO will be
determined by the Committee on the date of grant. However, the exercise
price for the NSOs under the 1995 Stock Option Plan will in no event be
less than 85% of the fair market value of the Common Stock on the date the
option is granted, or not less than 110% of the fair market value of the
Common Stock on the date such option is granted in the case of an option
granted to a Ten Percent Stockholder. No such restriction exists with
respect to the exercise prices of NSOs granted under the 1996 Stock Option
Plan.
The exercise period for each NSO will be determined by the Committee
at the time such option is granted, but in no event will such exercise
period exceed ten (10) years from the date of the grant.
As of the date of this Report, NSOs have been granted under the 1996
Stock Option Plan to purchase up to 9,495,222 shares of Common Stock,
subject to certain vesting schedules. These options have exercise prices
that range from $0.35 to $3.00.
Stock Appreciation Rights. Each SAR granted under the Stock Option
Plans will entitle the holder thereof, upon exercise of the SAR, to receive
from the Company, in exchange therefor, an amount equal in value to the
excess of the fair market value on the date of exercise of one share of
Common Stock over its fair market value on the date of grant (or in the
case of an SAR granted in connection with an option, the excess of the fair
market value of one share of Common Stock at the time of exercise over the
option exercise price per share under the option to which the SAR relates),
multiplied by the number of shares of Common Stock covered by the SAR or
the option, or portion thereof, that is surrendered.
SARs will be exercisable only at the time or times established by
the Committee. If an SAR is granted in connection with an option, the SAR
will be exercisable only to the extent and on the same conditions that the
related option could be exercised. The Committee may withdraw any SAR
granted under the Stock Option Plans at any time and may impose any
conditions upon the exercise of an SAR or adopt rules and regulations from
time to time affecting the rights of holders of SARs.
As of the date of this Report, no SARs have been granted pursuant to
the 1995 Stock Option Plan and no SARs have been granted under the 1996
Stock Option Plan.
Termination of Option and Transferability. In general, any unexpired
options or SARs granted under the Stock Option Plans will terminate: (a) in
the event of death or disability, pursuant to the terms of the option
agreement or SAR agreement, but not less than six (6) months or more than
twelve (12) months after the applicable date of such event, (b) in the
event of retirement, pursuant to the terms of the option agreement or SAR
agreement, but no less than thirty (30) days or more than three (3) months
after such retirement date, or (c) in the event of termination of such
person other than for death, disability or retirement, until thirty (30)
days after the date of such termination. However, the Committee may in its
sole discretion accelerate the exercisability of any or all options or SARs
upon termination of employment or cessation of services.
The options and SARs granted under the Stock Option Plans generally
will be non-transferable, except by will or the laws of descent and
distribution.
Adjustments Resulting from Changes in Capitalization. The number of
shares of Common Stock reserved under the Stock Option Plans and the number
and price of Common Stock covered by each outstanding option or SAR under
the Stock Option Plans will be proportionately adjusted by the Committee
for any increase or decrease in the number of issued and outstanding shares
of Common Stock resulting from any stock dividends, split-ups,
consolidations, recapitalizations, reorganizations or like event.
Amendment or Discontinuance of Stock Option Plan. The Board of
Directors has the right to amend, suspend or terminate the Stock Option
Plans at any time. Unless sooner terminated by the Board of Directors, the
1995 Stock Option Plan and the 1996 Stock Option Plan will terminate on
February 8, 2005 and May 7, 2006, respectively, the tenth anniversary date
of the effectiveness of each such Stock Option Plan.
Directors and Officers Liability Insurance. The Company has obtained
directors' and officers' liability insurance with an aggregate liability
for the policy year, inclusive of costs of defense, in the amount of
$3,000,000. The insurance policy ending April 2, 1999, was renewed as of
April 12, 1999 and will expire March 31, 2000.
Indemnification of Officers and Directors. The Company's Certificate
of Incorporation and Bylaws designate the relative duties and
responsibilities of the Company's officers, establish procedures for
actions by directors and stockholders and other items. The Company's
Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions that will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
In addition, the Company has adopted a form of indemnification
agreement (the "Indemnification Agreement") which provides the indemnitee
with the maximum indemnification allowed under applicable law. The Company
has not entered into Indemnification Agreements with any of its directors,
executives, employees or consultants as of the date of this Report. Since
the Delaware statute is non-exclusive, it is possible that certain claims
beyond the scope of the statute may be indemnifiable. The Indemnification
Agreements provide a scheme of indemnification which may be broader than
that specifically provided by Delaware law. It has not yet been determined,
however, to what extent the indemnification expressly permitted by Delaware
law may be expanded, and therefore the scope of indemnification provided by
the Indemnification Agreements may be subject to future judicial
interpretation.
The Indemnification Agreement provides, in pertinent part, that the
Company shall indemnify an indemnitee who is or was a party or is
threatened, pending or completed action or proceeding whether civil,
criminal, administrative or investigative by reason of the fact that the
indemnitee is or was a director, officer, key employee or agent of the
Company or any subsidiary of the Company. The Company shall advance all
expenses, judgments, fines, penalties and amounts paid in settlement
(including taxes imposed on indemnitee on account of receipt of such
payouts) incurred by the indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding
as described above. The indemnitee shall repay such amounts advanced only
if it shall be ultimately determined that he or she is not entitled to be
indemnified by the Company. The advances paid to the indemnitee by the
Company shall be delivered within 20 days following a written request by
the indemnitee. Any award of indemnification to an indemnitee, if not
covered by insurance, would come directly from assets of the Company,
thereby affecting a stockholder's investment.
Termination of Employment and Change of Control Agreements. Except
as set forth in employment agreements and stock option agreements of
certain employees of the Company and its subsidiaries, the Company has no
compensatory plans or arrangements which relate to the resignation,
retirement or any other termination of an executive officer or key employee
with the Company or a change in control of the Company or a change in such
executive officer's or key employee's responsibilities following a change
in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common
Stock as of March 31, 1999 by : (i) each person known by the Company to
beneficially own 5% or more of the outstanding Shares, (ii) each director
of the Company, (iii) each Named Executive Officer of the Company, and (iv)
all directors and executive officers of the Company as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their
Shares, except to the extent authority is shared by spouses under
applicable law. The information set forth in the table and accompanying
footnoes has been furnished by the named beneficial owners:
NAME OF NO. OF
BENEFICIAL OWNER SHARES PERCENT (1)
---------------- ------ -----------
Joseph R. Wright, Jr. (2) 6,515,144 21.13%
Richard T. McNamar (3) 525,000 1.70%
Richard S. Braddock (4) 231,092 *
James R. Lilley (5) 78,574 *
Michael H. Wilson (6) 125,722 *
Marvin S. Rosen (7) 1,276,530 4.14%
Michael J. Lim (8) 1,181,900 3.83%
Albert G. Pastino (9) 621,057 2.01%
James F. O'Brien (10) 446,875 1.45%
Xiao Jun (11) 525,000 1.70%
All executive officers and
directors as a group (12) 11,526,894 37.39%
Jenny Sun (13) 5,541,593 17.98%
Polmont Investments
Limited (14) 5,541,593 17.98%
Occidental Worldwide
Corporation (15) 5,541,593 17.98%
Max Chian Yi Sun (16) 5,541,593 17.98%
- ----------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares subject to
options currently exercisable, or exercisable within 60 days of
March 31, 1999, are deemed outstanding for computing the percentage
of the person holding such options but are not deemed outstanding
for computing the percentage of any other person.
(2) Includes 42,148 Shares held by Austin Trading Partners, LP, of which
Mr. Wright is a limited partner. Also includes options to purchase
6,000,000 Shares. The address of Mr. Wright is c/o AmTec, Inc., 599
Lexington Avenue, 44th Floor, New York, New York 10022.
(3) Includes options to purchase 500,000 Shares.
(4) Includes options to purchase 52,500 Shares.
(5) Includes options to purchase 47,500 Shares.
(6) Includes options to purchase 52,500 Shares.
(7) Includes options to purchase 12,500 Shares.
(8) Includes options to purchase 1,125,000 Shares.
(9) Includes options to purchase 430,000 Shares.
(10) Includes options to purchase 446,875 Shares.
(11) Includes options to purchase 515,000 Shares.
(12) Includes options to purchase 9,201,017 Shares
(13) Includes 2,450,000 Shares held by Polmont Investments Limited and
2,797,691 Shares held by Occidental Worldwide Corporation of which
Ms. Sun has voting power. It also includes 293,402 Shares currently
held by Chian Jeng Sun & Chieh Siong Soon and 500 Shares held by Max
Sun. The address of Ms. Sun is 1052 North Beverly Drive, Beverly
Hills, CA 90210. The Company believes that Ms. Sun is currently out
of compliance with her required filings of Statements of Beneficial
Ownership based on available information related to her ownership of
the Company's securities.
(14) Includes 2,797,691 Shares held by Occidental Worldwide Corporation
and 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong
Soon and 500 Shares held by Max Sun. The address of Polmont
Investments Limited is c/o Havelet Trust Company, P.O. Box 3136,
Road Town, Tortola, British Virgin Islands.
(15) Includes 2,450,000 Shares held by Polmont Investments Limited and
293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon
and 500 Shares held by Max Sun. The address of Occidental Worldwide
Corporation is Mr. Vincent Lim, c/o Rabobank, Shell Tower, 1 Raffles
Place, Singapore.
(16) Includes 2,450,000 Shares held by Polmont Investments Limited and
2,797,691 Shares held by Occidental Worldwide Corporation of which
Mr. Sun has voting power. It also includes 293,402 Shares currently
held by Chian Jeng Sun & Chieh Siong Soon. The address of Mr. Sun is
126 JLN DEDAP, Taman Ampang, Selangor, Malaysia. The Company
believes that Mr. Sun is currently out of compliance with his
required filings of Statements of Beneficial Ownership based on
available information related to his ownership of the Company's
securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS: The following financial statements and
supplemental data are filed:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES: All applicable financial statement
schedules have been omitted because the required information is included in
the consolidated financial statements and notes thereto filed as Exhibit
(a) (1).
(b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed by the Company
during the fourth quarter of the fiscal year ending March 31, 1999.
(c) EXHIBITS
The following exhibits, which are furnished with this Annual Report
or incorporated herein by reference, are filed as 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(8)
2.3 Purchase Agreement by and among SFMT-China, Inc., AmTec Hebei
Telecom Holdings, Ltd. and the Company; dated August 26, 1998
2.4 Agreement and Plan of Merger among the Company, AmTec Acquisition
Corporation and UIH Hunan, Inc. dated as of December 23, 1998
3.1 Amendments to Articles of Incorporation of the Company dated June
7, 1996 and June 10, 1996(5)
3.2 Restated Certificate of Incorporation of the Company(7)
3.3 Certificate of Ownership and Merger Merging China
Telecommunications and Technologies, Inc. into the Company(9)
3.4 Restated Bylaws of the Company (13)
4.1 Certificate of Designations of Preferences of Series C
Convertible Preferred Stock of the Company(9)
4.2 Certificate of Designations of Preferences of Series D
Convertible Preferred Stock of the Company(7)
4.3 Certificate of Designations of Preferences of Series E
Convertible Preferred Stock of the Company(10)
4.4 Certificate of Designations of Preferences of Series G
Convertible Preferred Stock of the Company
4.5 Specimen Common Stock Certificate(9)
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 Employment Agreement between Joseph R. Wright, Jr. and the
Company dated as of April 15, 1995(3), and amendments thereto
dated as of November 21 1995(4) and September 12, 1996(6)
10.5 Employment Agreement between Michael J. Lim and the Company dated
as of November 6, 1995(4)
10.6 Employment Agreement between Xiao Jun and the Company dated as of
January 1, 1996(4)
10.7 Employment Agreement between Albert G. Pastino and the Company
dated as of October 15, 1997(12)
10.8 Employment Agreement between James F. O'Brien and the Company
dated as of October 15, 1997(12)
10.9 Employment Agreement between Michael J. Lim and the Company dated
January 23, 1998(13)
10.10 Form of Indemnification Agreement for directors and officers of
the Company(8)
10.11 Common Stock Investment Agreement between Promethean Investment
Group L.L.C. and the Company dated March 31, 1997, as amended on
April 29, 1997(9)
10.12 China Paging Networks Preliminary Agreement between Beijing CATCH
Communications Group Co. and the Company dated April 1995(3)
10.13 Mobile Telephone Network Preliminary Agreement between Beijing
CATCH Communications Group Co. and the Company dated April 27,
1995(3)
10.14 Cellular Telephone Network Preliminary Agreement between Beijing
CATCH Communications Group Co., Tweedia International Limited and
the Company dated April 1995(3)
10.15 Memorandum of Understanding between Hebei United Communications
Equipment Company and the Company dated May 1, 1995(3)
10.16 Letter of Intent between Hebei United Communications Equipment
Company and the Company dated October 10, 1995(4)
10.17 Joint Venture Contract between Hebei United Communications
Equipment Company and NTTI dated December 22, 1995(5)
10.18 Agreement between Hebei United Communications Equipment Company
and the Company dated March 22, 1996(5)
10.19 Joint Venture Contract between Hebei United Telecommunications
Development Company, Beijing CATCH Communications Group Co. and
the Company dated September 20, 1996(9)
10.20 Project Cooperation Contract between China United
Telecommunications Co. and Hebei United Telecommunications
Engineering Company Limited dated February 9, 1996(9)
10.21 Term Loan Agreement between Hebei United Telecommunications
Engineering Company Limited and Bank of Tokyo-Mitsubishi, Ltd.
dated August 5, 1996(9)
10.22 Project Cooperation Contract between Hebei Cable Television
Station and Hebei United Communications Equipment Company Limited
dated April 8, 1997(9)
10.23 Employment Agreement between Joseph R. Wright, Jr. and the
Company dated as of January 1, 1999
10.24 Employment Agreement between Michael J. Lim. and the Company
dated as of January 1, 1999
10.25 Employment Agreement between Albert G. Pastino and the Company
dated as of January 1, 1999
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP(13)
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 May 1, 1995.
(4) Previously filed as part of the Company's Current Report on Form 8-K
dated December 22, 1995.
(5) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1996.
(6) Previously filed as part of the Company's Registration Statement on
Form S-8 filed on January 31, 1997.
(7) Previously filed as part of the Company's Current Report on Form 8-K
dated March 6, 1997.
(8) Previously filed as part of the Company's Definitive Proxy Statement
dated April 18, 1996.
(9) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997.
(10) Previously filed as part of the Company's Quarterly Report on Form
10-Q/A dated September 30, 1997.
(11) Previously filed as part of the Company's Current Report on Form 8-K
dated December 8, 1997.
(12) Previously filed as part of the Company's Quarterly Report on Form
10-Q dated December 31, 1997.
(13) Previously filed as part of the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMTEC, INC.
By /s/ Joseph R. Wright, Jr.
-----------------------------
Joseph R. Wright, Jr.
Chairman of the Board,
Chief Executive Officer and
President
Date: July 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph R. Wright, Jr. Chairman of the Board of July 14, 1999
- ----------------------------- Directors, Chief Executive
Joseph R. Wright, Jr. Officer and President
(Principal Executive Officer)
/s/ Richard T. McNamar Vice Chairman of the Board July 14, 1999
- ----------------------------- of Directors
Richard T. McNamar
/s/ Richard S. Braddock Director July 14, 1999
- -----------------------------
Richard S. Braddock
/s/ Marvin S. Rosen Director July 14, 1999
- -----------------------------
Marvin S. Rosen
/s/ James R. Lilley Director July 14, 1999
- -----------------------------
James R. Lilley
/s/ Michael H. Wilson Director July 14, 1999
- -----------------------------
Michael H. Wilson
/s/ Wilfred Chow Controller and Treasurer July 14, 1999
- ----------------------------- (Principal Accounting
Wilfred Chow Officer)
FINANCIAL STATEMENTS
TABLE OF CONTENTS
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PAGE
AMTEC, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
MARCH 31, 1999, 1998 AND 1997:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-22
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
INDEPENDENT AUDITORS' REPORT F-23
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 29, 1997, (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1997
Balance Sheets F-24
Statements of Operations F-25
Statements of Investors' Equity F-26
Statements of Cash Flows F-27
Notes to Financial Statements F-28 - F-33
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
INDEPENDENT AUDITORS' REPORT F-34
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998,
1997 AND PERIOD FROM JANUARY 31, 1996 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER, 1996:
Balance Sheets F-35
Statements of Operations F-36
Statements of Investors' Equity (Deficit) F-37
Statements of Cash Flows F-38
Notes to Financial Statements F-39 - F-46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AmTec Inc.
We have audited the accompanying consolidated balance sheets of AmTec Inc.
and subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 29, 1999
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
- -----------------------------------------------------------------------------
1999 1998
ASSETS
CURRENT ASSETS:
Cash $ 2,093,141 $ 2,134,662
Accounts receivable -- 114,661
Prepaid expenses and other current assets 38,805 108,082
------------ ------------
Total current assets 2,131,946 2,357,405
Investments in and advances to
unconsolidated subsidiary 2,496,480 5,074,217
Property, plant and equipment, net 96,926 139,136
Office lease deposit 55,733 112,600
------------ ------------
Total assets $ 4,781,085 $ 7,683,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 439,195 $ 541,888
Accrued expenses 528,548 792,006
Loans payable - shareholders -- 1,452,553
------------ ------------
Total current liabilities 967,743 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,
73.2 and 29.8 shares outstanding in
1999 and 1998, respectively 1 1
Series G Convertible Preferred Stock:
$.001 par value; 20 and 0 shares
issued and outstanding in 1999 and 1998,
respectively 1 --
Common Stock: $.001 par value, authorized
100,000,000 shares;
30,736,721 and 26,532,502 issued and
outstanding in 1999 and 1998, respectively 30,737 26,533
Additional Paid-In Capital 36,947,244 33,149,142
Accumulated deficit (33,646,491) (27,394,590)
Nonemployee deferred option cost, net -- (1,378,125)
Warrants 481,850 493,950
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,813,342 4,896,911
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,781,085 $ 7,683,358
============ ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------
1999 1998 1997
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
Selling, general and administrative 4,649,770 4,282,613 3,563,568
------------ ------------ ------------
LOSS FROM OPERATIONS (4,649,770) (4,282,613) (3,563,568)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Amortization of stock options
granted to non-employees (459,374) (459,375) --
Interest expense -- (125,586) (129,039)
Other - net (85,161) 70,853 (33,216)
Write off of investment in affiliate -- -- (198,538)
------------ ------------ ------------
Total other expense (544,535) (514,108) (360,793)
------------ ------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (5,194,305) (4,796,721) (3,924,361)
Equity in losses of unconsolidated
subsidiary (385,139) (606,647) (140,524)
------------ ------------ ------------
NET LOSS (5,579,444) (5,403,368) (4,064,885)
PREFERRED STOCK DIVIDEND 672,457 1,398,686 10,000
------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (6,251,901) $ (6,802,054) $ (4,074,885)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (0.23) $ (0.23) $ (0.14)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 27,495,213 29,843,712 29,102,347
============ ============ ============
See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 1999,1998 AND 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
- -------------------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------- --------------- ---------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
BALANCE, March 31, 1996 28,436,982 $28,437 1,524,178 $1,524 - $ - - $ - - $ -
Issuances of Series B
preferred stock - - - - 100 1 - - - -
Conversion of Series B
shares 1,507,477 1,507 - - (100) (1) - - - -
Issuance of Series D
preferred stock - - - - - - - - 150 1
Common shares issued for
services rendered 90,962 91 - - - - - - - -
Common shares issued to
employees as
compensation 212,500 213 - - - - - - - -
Common shares issued for
directors fees 10,000 10 - - - - - - - -
Sale of common shares 1,000,000 1,000 - - - - - - - -
Cumulative foreign
currency exchange loss - - - - - - - - - -
Preferred dividends - - - - - - - - - -
Warrants - - - - - - - - - -
Net loss - - - - - - - - - -
------------ ------------- ----------- -------- ----- ----- ----- ----- ------ -------
BALANCE, March 31, 1997 31,257,921 $31,258 1,524,178 $1,524 - $ - - $ - 150 $ 1
Exercise of employee
stock options 69,000 69 - - - - - - - -
Issuance of Series C
preferred stock - - - - - - 250 1 - -
Common shares issued for
services rendered 23,233 23 - - - - - - -