SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report : June 28, 1996
(Date of earliest event reported)
AMNEX, Inc.
(Exact name of Registrant as specified in charter)
New York 0-17158 11-2790221
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
101 Park Avenue, Suite 2507, New York, NY 10178
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (212)867-0166
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired - see Index to Financial
Statements attached hereto
(b) Pro Forma Financial Information - see Index to Financial
Statements attached hereto
(c) Exhibits
2.1 Stock Purchase Agreement, dated as of April 26, 1996, among
AMNEX, Inc., Robert A. Rowland, Delajane Rowland, Donald D.
Simmons, C. Michael Moehle, Barbara Ann Cromwell, Ellen E.
Wood, Daniel N. Matheson, Capital Network System, Inc., Capital
Network International, Inc., Capital Network Mexico, S.A. de
C.V., and Point to Point Communications Company. *
2.2 First Amendment to Stock Purchase Agreement, dated as of June
28, 1996, by and among the foregoing parties as well as Sirrom
Capital Corporation and Spectrum Global Telecommunications Pty
Limited. *
4 Form of Warrant, dated as of June 28, 1996, for the purchase of an
aggregate of 400,000 Common Shares of AMNEX, Inc. *
23 Consents of Price Waterhouse LLP.
* Previously filed
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMNEX, Inc.
Date: August 23, 1996 By: /s/ Peter M. Izzo, Jr.
Peter M. Izzo, Jr.
President and Chief Executive Officer
<PAGE>
AMNEX, INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
Capital Network System, Inc.
Historical Financial Statements
<S> <C>
Report of Independent Auditors.............................................. 2
Consolidated Balance Sheet as of September 30, 1995 and 1994................ 3
Consolidated Statement of Operations for the years ended
September 30, 1995, 1994 and 1993.................................. 4
Consolidated Statement of Changes in Stockholders Deficit for the years ended
September 30, 1995, 1994 and 1993.................................. 5
Consolidated Statement of Cash Flows for the years ended
September 30, 1995, 1994 and 1993.................................. 6
Notes to the Consolidated Financial Statements.............................. 8
Interim Period Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of June 30, 1996.............................. 18
Consolidated Statement of Operations for the nine months ended
June 30, 1996 and 1995............................................ 19
Consolidated Statement of Changes in Stockholders Deficit for the nine months
ended June 30, 1996............................................... 20
Consolidated Statement of Cash Flows for the nine months ended
June 30, 1996 and 1995............................................ 21
Notes to the Consolidated Financial Statements.............................. 23
AMNEX, INC.
Pro Forma Consolidated Financial Statements (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996.......... 25
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1996......................................... 26
Pro Forma Condensed Consolidated Statement of Operations for the twelve
months ended December 31, 1995..................................... 27
Notes to Pro Forma Condensed Consolidated Financial Statements.............. 28
</TABLE>
<PAGE>
Report of Independent Accountants
June 28, 1996
To the Board of Directors
and Stockholders of Capital
Network System, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit, and
of cash flows present fairly, in all material respects, the financial position
of Capital Network System, Inc. and its subsidiaries at September 30, 1995 and
1994, and the results of their operations and their cash flows for the years
ended September 30, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the Company signed an
agreement on April 26, 1996 which closed on June 28,1996 and resulted in 100% of
the common stock of the Company being acquired by American Network Exchange,
Inc. (Amnex) in exchange for Amnex stock. In connection with this acquisition,
additional funds totaling $2,000,000 were made available to the Company.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
2
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1995 1994
Assets
Current assets:
<S> <C> <C>
Cash $ 280,988 $ 555,349
Accounts receivable 4,024,820 3,527,529
Prepaid expenses 571,905 954,249
Receivables from related parties, net 737 342,187
Other assets 324,877 417,292
Total current assets 5,203,327 5,796,606
Property and equipment, net 3,944,475 3,644,736
Long-term notes receivable from related parties 245,668 1,161,755
Intangible and other assets 429,287 248,147
Total assets $ 9,822,757 $ 10,851,244
Liabilities and Stockholders Deficit
Current liabilities:
Accounts payable $ 2,004,563 $ 958,047
Accounts payable to related parties 132,196 188,971
Accrued expenses 1,869,953 1,281,140
Commissions payable 1,730,265 2,268,928
Surcharges payable 585,597 521,451
Transmission costs payable 2,441,167 2,807,483
Current portion of obligations under capital leases 1,003,388 634,064
Current portion of debt due to related parties 176,607 -
Current portion of long-term debt - 433,645
Other liabilities 115,525 52,216
Total current liabilities 10,059,261 9,145,945
Long-term debt due to related parties 1,018,038 1,113,180
Obligations under capital leases 1,029,947 1,207,255
Long-term debt 2,062,458 2,029,959
Other long-term liabilities 39,000 -
Total liabilities 14,208,704 13,496,339
Commitments and contingencies
Stockholders deficit:
Common stock, no par value 10,000,000 shares
authorized 1,000 1,000
Additional paid-in capital 982,058 871,580
Stockholders notes receivable (298,478) (188,000)
Accumulated deficit (5,070,527) (3,329,675)
Total stockholders deficit (4,385,947) (2,645,095)
Total liabilities and stockholders deficit $ 9,822,757 $ 10,851,244
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years
Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Revenues $ 41,952,950 $ 38,078,415 $ 29,776,757
Expenses:
Cost of revenues 30,705,480 28,495,406 20,830,874
Selling, general and administrative 11,118,390 10,281,080 8,030,118
Depreciation and amortization 590,054 526,924 477,130
42,413,924 39,303,410 29,338,122
(Loss) income from operations (460,974) (1,224,995) 438,635
Other income (expense):
Net interest from (to) related parties (23,402) 14,643 (8,554)
Interest income 9,007 11,493 31,998
Interest and factoring expense (1,265,483) (1,096,265) (701,475)
(1,279,878) (1,070,129) (678,031)
Net loss $ (1,740,852) $ (2,295,124) $ (239,396)
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
<TABLE>
<CAPTION>
Additional Stockholders
Paid-In Notes Accumulated
Shares Capital Receivable Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 1,000 $ 786,000 $ (188,000) $ (795,155) $ (197,155)
Net loss (239,396) (239,396)
Four thousand four hundred for
one stock split 4,399,000
Balance at September 30, 1993 4,400,000 786,000 (188,000) (1,034,551) (436,551)
Issuance of detachable stock
warrants 97,500 97,500
Net loss (2,295,124) (2,295,124)
Repurchase of FEI shares (10,920) (10,920)
Balance at September 30, 1994 4,400,000 872,580 (188,000) (3,329,675) (2,645,095)
Exercise of stock options 263,043 110,478 (110,478)
Net loss (1,740,852) (1,740,852)
Balance at September 30, 1995 4,663,043 $ 983,058 $ (298,478) $ (5,070,527) $ (4,385,947)
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended September 30,
1995 1994 1993
Increase (Decrease) in Cash
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,740,852) $ (2,295,124) $ (239,396)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,082,982 1,808,652 1,042,521
Provision for losses on related party receivables 386,473 2,549 24,620
Increase (decrease) in allowance for doubtful
accounts (319,301) 648,889 341,188
(Increase) decrease in accounts receivable 1,199,117 (2,162,730) (427,989)
(Increase) decrease in prepaid expenses and
other assets 196,175 (477,620) (375,308)
Increase in accounts payable and accrued
expenses 1,685,886 40,845 291,165
Increase (decrease) in commissions and
surcharges payable (474,517) 433,385 220,017
Increase (decrease) in transmission costs
payable (366,316) 1,920,340 349,701
Increase in related party receivables (101,798) (315,697) (65,722)
Net cash provided by (used in)
operating activities 2,547,849 (396,511) 1,160,797
Cash flows from investing activities:
Additions to property and equipment (1,043,974) (1,438,332) (709,385)
Issuances of notes receivable from related parties (32,666) (47,712) (326,542)
Repayment of notes receivable from related
parties 948,753 46,227 58,981
Net cash used in investing activities (127,887) (1,439,817) (976,946)
Cash flows from financing activities:
Advances from factoring of receivables 33,466,686 34,884,913 30,329,565
Repayments on factoring advances (34,843,555) (34,289,412) (31,087,273)
Proceeds from issuance of long-term debt to
related parties 121,400
Proceeds of issuance of long-term debt 2,105,554 246,774
Payments on long-term debt (433,646) (257,533)
Payments on long-term debt to related parties (70,000)
Principal payments under capital lease
obligations (872,515) (517,622) (407,260)
Issuance of debt for insurance 102,113 91,896
Repayments of debt for insurance (113,406) (79,600)
Net cash provided by (used in)
financing activities (2,694,323) 2,059,596 (988,194)
Net increase (decrease) in cash (274,361) 223,268 (804,343)
Cash at beginning of period 555,349 332,081 1,136,424
Cash at end of period $ 280,988 $ 555,349 $ 332,081
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont d)
Supplemental Cash Flow Information:
The Company paid interest of $1,285,316, $1,001,407, and $693,099 for the
years ended September 30, 1995, 1994, and 1993, respectively.
Capital lease obligations incurred for the purchase of equipment amounted
to $1,064,532, $722,674, and $609,363 for the years ended September 30, 1995,
1994, and 1993, respectively.
Included within the increase in transmission costs payable at September 30,
1994 is $388,646 for which notes payable were issued. The notes were included
within the current portion of long term debt (see Note 6). There were no such
notes outstanding at September 30, 1995. Additionally, included in the balance
of accrued expenses and transmission costs payable at September 30, 1994 is
$1,176,863, which, through vendor agreements, was payable under extended credit
terms. There were no such vendor agreements in place at September 30, 1995.
7
<PAGE>
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Capital Network System, Inc. (the "Company") is a full-service
multi-national provider of long distance telecommunications services, offering
both operator-assisted and direct dial services to all points in the United
States and other foreign countries. The Company markets its domestic and
international operator-assisted services primarily to independent brokers who
represent owners of pay telephone locations, to owners of hospitality locations
and to owners of large groups of private pay phones (collectively
"Subscribers"). The Company markets its direct-dial long distance services
primarily through independent brokers who represent large groups of residential
and business customers. The Company pays commissions to its independent brokers
and Subscribers based on revenues generated from end-users through use of the
telephones owned by the Subscribers. During the year ended September 30, 1993,
the Company acquired a 79% interest in Fulfillment Enterprises, Inc. ("FEI"), a
Texas corporation, to facilitate the expansion of its direct-dial long distance
services. FEI provided telecommunication services to frequent flyers of
Continental Airlines, Inc. During fiscal 1994, the Company acquired a 79%
interest in Capital Network International, Inc. ("CNI"), a Texas corporation,
which provides operator assistance for calls originated internationally and
billable in the United States and Canada.
During fiscal 1994, the Company increased the number of authorized shares
from 10,000 shares of common stock to 10,000,000 shares of common stock,
effective September 30, 1993. The outstanding 1,000 shares of common stock were
split into 4,400,000 shares of common stock, also effective September 30, 1993.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, FEI and CNI. All significant intercompany
accounts and transactions have been eliminated.
Revenue recognition
The Company records as revenues the billable long distance telephone
service rendered as such services are performed. Revenue is measured based on
the minutes of traffic processed. Location surcharges included within most
billable calls are not included in revenue.
Cost of revenues
Cost of revenues primarily consists of transmission costs, billing and
collection expenses, provisions for unbillable and uncollectible amounts,
commission expenses, depreciation on revenue-generating equipment, and operator
compensation and overhead.
8
<PAGE>
Prepaid expenses
Prepaid expenses include prepaid commissions to brokers, prepaid line
charges and prepaid insurance premiums. Included in prepaid expenses are prepaid
commissions of $439,223 and $845,823 at September 30, 1995 and 1994,
respectively.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Equipment acquired under capital leases is recorded at the lower of fair market
value or the present value of the future minimum lease payments at the inception
of the lease. Depreciation and amortization are provided using the straight-line
method over the estimated economic lives of the assets, ranging from three to
five years, or over the lease term of the respective assets, as applicable.
Repair and maintenance costs are expensed as incurred. Direct installation costs
and improvements are capitalized. In addition to the scheduled amortization
recorded during the fiscal year 1994, a further $250,000 and $200,000 for fiscal
years 1995 and 1994 respectively, was reserved against capitalized installation
costs in Mexico to more fairly reflect the realizable value of those assets.
Intangible assets
Intangible assets at September 30, 1995 and 1994 reflect the costs incurred
by the Company's subsidiary, FEI, in acquiring a telecommunication services
contract from a third party. Such costs are being amortized on a straight-line
basis over the contract period of three years. Intangible assets of $54,251 and
$151,695, net of amortization, for the years ended September 30, 1995 and 1994,
respectively, relate to the FEI contract and are included in Intangible and
Other Assets on the consolidated balance sheet. A total of $154,442 was written
off during 1994 in addition to scheduled amortization (see Note 2). During
fiscal 1995, scheduled amortization of $97,444 was expensed.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Capital Network System, Inc. has elected S Corporation filing status for
federal income tax purposes and accordingly is not subject to income taxes and
the effect of its operations accrues to its stockholders. FEI is a Subchapter
"C" corporation and is therefore subject to federal income taxes, however no
provision for income taxes has been recorded due to the net operating losses
incurred since inception. As of September 30, 1995, FEI had approximately
$472,000 of net operating loss carryforwards which expire in 15 years. The
income tax benefits resulting from the net operating loss carryforwards of FEI
will not be recognized by the Company due to the fact that FEI does not have a
history of income required for the realization of the deferred tax asset.
Accordingly, a valuation allowance has been recorded as of September 30, 1995
for the future benefit to be derived from the net operating losses of FEI. CNI
is also subject to federal income taxes. CNI had approximately $16,000 of net
losses for fiscal 1995.
9
<PAGE>
Reclassifications
Certain items in prior year financial statements have been reclassified to
conform to current year presentation.
New accounting pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of. The Company intends to adopt the
statement in fiscal 1996 and does not expect the adoption to have a material
effect on the Companys financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No.123, Accounting for Stock-based Compensation, which
establishes a fair value-based method of accounting for stock-based compensation
plans. The statement allows companies to continue to use the intrinsic
value-based approach, supplemented by footnote disclosure of the pro forma net
income and earnings per share of the fair value-based approach. The Company
intends to follow this latter method and as a result, it will have no effect on
the Companys financial statements.
2. CURRENT OPERATING ENVIRONMENT
On April 26, 1996, the stockholders of the Company (most of whom also serve
as directors and officers of the Company) signed a Stock Purchase Agreement with
American Network Exchange, Inc. (Amnex) which provides for the exchange of 100%
of the common stock of the Company for Amnex common stock. In conjunction with
the sale, funds were made available to the Company totaling $2,000,000 which
became available to the Company as of the closing date of the Stock Purchase
Transaction on June 28,1996. Under the agreement, these funds will be used (1)
fund stockholder taxes due as a result of the purchase transaction, (2) pay
certain other expenses relating to the closing of the agreement, including
employee severance costs and (3) fund working capital needs. In connection with
the agreement, Amnex became the guarantor of $2,000,000 of senior debt of the
Company.
The search for a potential acquirer had been initiated by the Companys
management in recognition of the requirement for additional funding, resulting
from the Companys recent history of operating losses and working capital and
stockholders deficits. For the year ended September 30, 1995, the Company
experienced a loss of $1,740,852, contributing to a working capital deficit of
$4,855,934 and a stockholders' deficit of $4,385,947 as of September 30, 1995.
Domestic operator service revenues decreased in fiscal 1995 to $15,113,182
from $23,653,715 for fiscal 1994. Market niches within the domestic market are
under review for possible ways in which this division can increase sales,
however, management projects further decline during fiscal 1996 in domestic
operator service revenues.
10
<PAGE>
Domestic direct-dial long distance revenue decreased in 1995 to $3,854,619
from $4,094,015 for the previous year primarily due to an anticipated decrease
in traffic resulting from the modification of the agreement between Fulfillment
Enterprises, Inc., (a 79% owned affiliate of the Company) and Continental
Airlines.
International operator service revenues increased in 1995 to $22,985,149
from $10,330,685 in 1994 reflecting the focus of the Company on international
opportunities. Most of this traffic originated in Mexico, although other
countries now generating traffic include Bolivia, Brazil and Jamaica and, for a
short period of time, Panama and The Bahamas. The Company continues to pursue
similar opportunities in other Latin American and Caribbean countries and
throughout Europe and it is anticipated that traffic will resume from The
Bahamas during 1996. Despite initial market and legal research, the Company is
vulnerable to potential adverse actions by significant parties in those
countries. During both 1994 and 1995, Telmex, the monopoly line carrier in
Mexico, restricted access to lines in Mexico which could be similarly restricted
at any time in the future. If the Company experiences significant revenue loss
from Mexico prior to the addition of new revenue streams, the Companys working
capital position would be severely affected. In addition, the Hacienda in Mexico
confiscated certain equipment from the Company's offices in Puerto Vallarta and
has reviewed the related import documentation. The equipment has now been
returned to the Company and all required customs duty, taxes and related
penalties paid by the Company at a cost of approximately $130,000. This amount
has been expensed in the fiscal 1995 financial statements.
At September 30, 1995, the Company was not current in its obligations to a
number of major vendors. Since that time, modified payment terms have been
negotiated with all such vendors through a combination of short term notes,
written and verbal agreements. The Company believes all scheduled payments to
such vendors have been made through June 10, 1996.. The Company believes all
scheduled payments to such vendors have been made through June 28, 1996.
In addition to the search for a potential acquiror described above and in
order to continue its current operations, the Company successfully adopted a
plan of operations, effective December 15, 1995, which increased operator
service call rates and reduced expenditures. It is anticipated that these
measures will result in a modest profit for fiscal 1996, notwithstanding the
additional funding to be provided by Amnex on June 28, 1996.
Subsequent to year end, a third party advanced the Company $1.5 million in
connection with the potential acquisition of the Company. Negotiations for this
acquisition were terminated and the advance was determined to represent a note
payable. It is anticipated that this note will be settled immediately prior to
the closing of the Amnex agreement with the issuance of new Company stock which
will then be exchanged for Amnex stock in connection with the Companys sale to
Amnex.
3. RELATED PARTY TRANSACTIONS
The Company has entered into various agreements with affiliated companies,
certain officers/stockholders and certain employees of the Company. These
related party transactions are summarized below:
11
<PAGE>
Receivables from/payables to related parties
Accounts receivable from related parties at September 30, 1995 and 1994,
include $957,169 and $912,146, respectively, which were advanced by the Company
to affiliated (through common ownership) companies and officers/stockholders of
the Company. These amounts are unsecured and have no fixed repayment terms. An
allowance for amounts considered uncollectible from the affiliated companies of
$956,432 and $569,959 was maintained at September 30, 1995 and 1994,
respectively. In addition, the Company charged off $386,473 in 1995 and $24,178
in 1994 of advances against the allowance.
Included in accounts payable on the consolidated balance sheet is accrued
but unpaid interest of $132,196 and $188,971 to related parties at September 30,
1995 and 1994, respectively.
Long-term notes receivable from related parties
Long-term notes receivable from related parties of $245,668 and $1,161,755
at September 30, 1995 and 1994, respectively, are due from officers/stockholders
of the Company and bear interest at 8% per annum.
At September 30, 1995, the Company combined and amended certain notes
receivable from officers/stockholders of the Company. The amended notes are
secured by pledge agreements for the shares of common stock of the Company held
by the officers/stockholders. The principal of the notes is payable in full on
September 30, 2000 or on the sale, exchange or other disposition of shares of
common stock of the Company for which the original notes were issued, if
earlier.
The notes receivable balances at September 30, 1995 and 1994 include unpaid
accrued interest receivable.
Long-term debt due to related parties
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Unsecured note payable to an officer/stock-
holder of the Company bearing interest
at 10% per annum. Interest is due monthly
and principal is payable in 36 monthly
installments beginning in April 1996. $ 916,780 $ 916,780
Unsecured note payable to a related party
bearing interest at 11% per annum.
Principal and interest are payable in 36
monthly installments beginning in April
1997. The note is personally guaranteed by
the Chairman of the Board of Directors
of the Company. 135,002 75,000
Unsecured note payable to an officer/stock-
holder bearing interest at 8% per annum.
Principal and interest are payable in 36
monthly installments beginning in April 1996. 142,863 121,400
Less current portion (176,607)
$ 1,018,038 $ 1,113,180
</TABLE>
12
<PAGE>
The notes payable to an officer and stockholder of the Company are
subordinated to the notes payable entered into with third parties.
At September 30, 1995, the Company combined and amended the notes payable
to related parties. In amending certain of the notes, accrued but unpaid
interest at September 30, 1995, was converted into principal.
Scheduled maturities of related party long-term debt are as follows:
<TABLE>
<S> <C> <C>
1996 $ 176,607
1997 375,715
1998 398,215
1999 221,608
2000 22,500
$ 1,194,645
</TABLE>
As of March 31, 1996, the terms of the 10% note shown above were amended.
Accrued but unpaid interest was converted into principal. Interest is now due
monthly at an annual rate of 10.5% and the note matures with a balloon payment
of the principal balance of $1,049,018 due on July 15, 1997.
Stockholders' notes receivable
In October 1990, the Company's principal stockholder transferred certain
shares of common stock to two officers of the Company as compensation for
services rendered by the officers of the Company. The Company reflected the fair
value of the stock transferred as compensation expense and paid-in-capital in
its financial statements for the year ended December 31, 1990. Subsequently, the
Company advanced the stockholders an aggregate of $188,000 for the federal
withholding taxes due as a result of the stock transfer and recorded notes
receivable from the two stockholders for the amounts advanced. The notes 2
receivable bear interest at 6% and are due on September 30, 2000 or on the sale,
exchange or other disposition of shares of common stock of the Company for which
the original notes were issued, if earlier. The stockholder notes receivable
have been reflected as a reduction of stockholders' equity in the accompanying
financial statements. The Company will not recognize any interest income on
these notes receivable until the principal amounts due are received.
In February 1995, the Company issued two further notes receivable in
connection with the exercise of options by two other officers of the Company
(Note 7). The notes were issued with identical terms and conditions to the notes
described above.
13
<PAGE>
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Trade receivables $ 5,501,436 $ 5,323,546
Less allowance for doubtful accounts (1,476,616) (1,796,017)
$ 4,024,820 $ 3,527,529
</TABLE>
Accounts receivable are stated net of factoring liability for balance sheet
presentation. Gross accounts receivable are $9,262,635 and $10,461,752 at
September 30, 1995 and 1994, respectively.
Included in trade receivables from billing services, net of allowance, is
$540,556 and $761,570 at September 30, 1995 and 1994 respectively, of amounts
due from a significant local exchange carrier.
The Company entered into a factoring agreement in March 1992 and revised
August 1994, with a company engaged to provide billing and collection services
to the Company. Under the terms of the agreement, the Company may sell, with
recourse, certain eligible accounts receivable processed by the billing and
collection company. The billing and collection company will advance funds to the
Company of up to 80% of the uncollected receivables purchased (subject to
periodic adjustments), not to exceed a maximum of $6,500,000 and $10,000,000 for
the new and old agreements respectively. The advances bear interest at prime
plus 2% (10.75% and 9.75% at September 30, 1995 and 1994, respectively). The
Company is required to pay a factoring fee of $.0075 and $.01 per individual
account receivable sold under the new and old agreements, respectively. Gross
accounts receivable of $6,525,346 and $7,363,005 at September 30, 1995 and 1994,
respectively, have been billed and should be collected from the factor. Of these
amounts, $3,761,199 and $5,138,206 were advanced to the Company under the terms
of the factoring agreement and remain uncollected at September 30, 1995 and
1994, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Equipment $ 7,710,366 $ 6,300,561
Furniture and fixtures 586,335 584,178
Leasehold improvements 276,739 266,962
8,573,440 7,151,701
Less accumulated depreciation
and amortization (4,628,965) (3,506,965)
$ 3,944,475 $ 3,644,736
</TABLE>
14
<PAGE>
At September 30, 1995 and 1994, property and equipment includes $5,111,825
and $3,939,763, respectively, of equipment obtained through capital lease
agreements. Accumulated amortization on equipment under capital lease agreements
was $2,903,529 and $2,148,099 at September 30, 1995 and 1994, respectively.
Depreciation and amortization expense relating to property and equipment
was $1,222,000, $1,088,749, and $1,042,521 for the years ended September 30,
1995, 1994, and 1993, respectively, of which $755,430, $582,559, and $552,565
related to amortization of equipment under capital leases.
6. LONG TERM DEBT
<TABLE>
<CAPTION>
Long term debt consists of the following:
September 30
1995 1994
<S> <C> <C>
Secured notes payable to a third
party bearing interest of 12.5%
per annum. Payments of interest
commenced in December 1993, and
principal and interest are due in
full in January 1999. $ 2,000,000 $ 2,000,000
Unsecured note payable to a third
party bearing interest of 11.0% per
annum. Payments of interest commenced
in December 1993. Principal and
interest are due in full in December 1996. 100,000 100,000
Unsecured note payable to a third
party bearing interest of 10.0% per annum. 44,351
Unsecured note payable to a third
party bearing interest of 12.0% per annum. 344,295
Unsecured note payable to a third
party bearing interest of 8.0% per annum. 45,000
Less current portion (433,645)
Unamortized debt discount (37,542) (70,042)
$ 2,062,458 $ 2,029,959
</TABLE>
In the issuance of the secured notes payable totaling $2,000,000, the
Company issued warrants to purchase 3.5% of the Company's common stock at $.01
per share. The fair market value of these warrants was recorded as equity, with
a corresponding reduction of the debt outstanding which is shown as a debt
discount. Additional warrants to purchase common stock will be granted in future
periods if the notes payable remain outstanding after November 9, 1996. Deferred
financing costs of $72,878 and $103,835 are included in Intangible and Other
Assets at September 30, 1995 and 1994. Unamortized debt discount and deferred
financing costs are being amortized over the life of the notes.
The secured notes payable are collateralized by substantially all of the
Company's assets.
Scheduled maturities of long term debt include payments of $100,000 in
1997, and $2,000,000 in 1999.
15
<PAGE>
7. EMPLOYEE BENEFIT PLANS
Stock Option Plan
During fiscal 1993, the Company adopted the 1993 Long-Term Incentive Plan,
in which key employees are eligible to receive options to purchase common stock,
certain stock appreciation rights, restricted stock awards, performance shares
or any combination of the foregoing. The maximum number of shares of common
stock that may be issued under the plan shall not exceed 435,164 shares. Stock
options granted may be either incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, or non-qualified options. Options must
be granted within 10 years from November 16, 1993. The stock options are
generally issued at fair market value.
The following table summarizes activity under the stock option plan during
the fiscal years ended September 30, 1994 and 1995:
<TABLE>
<CAPTION>
Number of Shares
Price of
Shares Under Under Available
Option Option for Grant
--------------- --------------- -----------------
<S> <C> <C> <C>
Outstanding at
September 30, 1993 $ .42 382,608 52,556
Surrendered $ .42 (119,565) 119,565
--------------- -----------------
Outstanding at
September 30, 1994 $ .42 263,043 172,121
Exercised $ .42 (263,043)
--------------- -----------------
Outstanding at
September 30, 1995 $ 172,121
--------------- -----------------
</TABLE>
The 401(k) Plan
During fiscal 1993, the Company implemented a defined contribution
retirement plan which complies with section 401(k) of the Internal Revenue Code.
Substantially all employees who have completed six months of service are
eligible to participate in the plan. The Company may provide discretionary
matching contributions to the employee's voluntary contributions under the plan.
The amount expensed for the Company's matching contribution during the years
ended September 30, 1995, and 1994, was $47,857, and $34,995, respectively.
8. BILLING AND COLLECTION AGREEMENTS
The Company has entered into an agreement with companies to provide billing
and collection services to the Company. These companies process calling
information provided by the Company on magnetic tape, assess all applicable
taxes, and remit calling charges to various local exchange carriers for monthly
billing to end-users. Amounts collected from the end-users are remitted to the
billing and collection companies which, in turn, remit such amounts net of
applicable processing and collection fees to the Company. The Company pays these
companies processing fees based on the volume of calls submitted.
9. SIGNIFICANT CUSTOMERS AND EXPORT REVENUES
The Company primarily markets its services through independent brokers.
During 1995 and 1994, no customer represented over 10% of the Company's
revenues. During 1993, revenues to two customers each represented 13% of the
Company's revenues.
16
<PAGE>
Revenues for the years ended September 30, 1995 and 1994 were derived as
follows:
<TABLE>
<CAPTION>
1995 1994
% of Total % of Total
Revenue Revenue Revenue Revenue
<S> <C> <C> <C> <C>
Domestic operator services $15,113,182 36% $23,653,715 62%
International operator services 22,985,149 55% 10,330,685 27%
Direct-dial long distance 3,854,619 9% 4,094,015 11%
</TABLE>
For the year ended September 30, 1993, revenues derived from international
operator services and direct- dial long distance were insignificant as a
percentage of total revenues.
Revenues from international operator services are derived from
non-affiliated customers primarily in Mexico.
10. COMMITMENTS AND CONTINGENCIES
The Company operates in a highly regulated environment. In October 1995, an
FCC Memorandum Opinion and Order to Show Cause was issued, requiring the Company
to show why their operator service rates should not be substantially reduced
from present levels and why during the discovery period the Company should not
be required to provide consumer and rate information to callers using operator
services. The Company is protesting the Order and is preparing information which
management believes will provide support for its rate structure. If the ultimate
outcome of this action is some level of rate reduction, the domestic portion of
the Company's operator services would be adversely affected.
The Company leases office space under various operating leases and leases
property and equipment under both capital and operating leases. Rent expense
under all operating leases totaled $525,188, $726,343 and $653,576 during the
years ended September 30, 1995, 1994 and 1993, respectively.
Future minimum lease payments under all leases as of September 30, 1995 are
shown in the following schedule:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1996 $ 1,232,994 $ 521,069
1997 951,125 513,835
1998 178,348 464,782
1999
2000
2,362,467 $ 1,499,686
Less amount representing interest 329,132
Present value of minimum lease payments 2,033,335
Less current portion 1,003,388
Long-term lease obligation $ 1,029,947
</TABLE>
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims. Management does not believe that the outcome of any
of these matters will have a material adverse affect on the Company's financial
position.
17
<PAGE>
AMNEX, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, 1996
<TABLE>
<CAPTION>
June 30,
1996
Assets
Current assets:
<S> <C>
Cash $ 552,870
Accounts receivable, net 4,026,861
Prepaid expenses 265,235
Receivables from related parties, net 341,285
Other assets 326,214
Total current assets 5,512,465
Property and equipment, net 3,566,227
Long-term notes receivable from related parties 248,928
Intangible and other assets, net 300,982
Total assets $ 9,628,602
Liabilities and Stockholders Deficit
Current liabilities:
Accounts payable $ 1,885,461
Commissions payable 1,224,522
Surcharges payable 2,025,839
Transmission costs payable 2,425,784
Current portion of obligations under capital leases 977,042
Other liabilities 403,414
Total current liabilities 8,942,062
Long-term debt due to related parties 1,344,249
Obligations under capital leases 407,862
Long-term debt 2,000,000
Total liabilities 12,694,173
Commitments and contingencies
Stockholders deficit:
Common stock, no par value 10,000,000 shares
authorized 1,000
Additional paid-in capital 2,494,857
Stockholders notes receivable (298,478)
Accumulated deficit (5,262,950)
Total stockholders deficit (3,065,571)
Total liabilities and stockholders deficit $ 9,628,602
</TABLE>
18
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1996 1995
<S> <C> <C>
Revenues $ 31,898,962 $ 33,003,924
Expenses:
Cost of revenue 22,611,250 23,775,168
Selling, general and administrative 8,262,184 7,784,117
Depreciation and amortization 388,109 393,909
31,261,543 31,953,194
Income from operations 637,419 1,050,730
Other income (expense):
Net interest from (to) related parties (8,674) (4,840)
Interest income 32,588 4,953
Interest and factoring expense (853,756) (936,456)
(829,842) (936,343)
Net income (loss) $ (192,423) $ 114,387
</TABLE>
19
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Additional Stockholders
Common Stock Paid-In Notes Accumulated
Shares Stock Capital Receivable Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1995 4,663,043 $ 1,000 $ 982,058 $ (298,478) $ (5,070,527) $ (4,385,947)
Issuance of Common Stock
on conversion of Note 518,116 1,500,000 1,500,000
Issuance of Common Stock
on exercise of warrants 187,918 12,799 12,799
Net loss (192,423) (192,423)
Balance at
June 30, 1996 5,369,077 $ 1,000 $ 2,494,857 $ (298,478) $ (5,262,950) $ (3,065,571)
</TABLE>
20
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (192,423) $ 114,387
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,400,312 1,335,495
Provision for losses on related party receivables 5,833 97,368
(Gain) Loss on disposal of assets 37,408 (348)
Increase in allowance for doubtful
accounts 24,296 313,672
(Increase) in accounts receivable (1,441,224) (1,746,476)
Decrease in prepaid expenses and
other assets 317,035 259,360
Increase (decrease) in accounts payable and
accrued expenses (1,890,460) 74,242
Increase in commissions and
surcharges payable 934,500 94,552
Increase (decrease) in transmission costs
payable (15,383) 624,900
Increase in related party receivables (334,134) (37,481)
Net cash provided by (used in)
operating activities (1,154,240) 1,129,671
Cash flows from investing activities:
Additions to property and equipment (887,354) (675,000)
Issuance of notes on sale of equipment 2,422
Proceeds from sale of equipment 7,891
Issuances of notes receivable from related parties (18,545) (16,301)
Repayment of notes receivable from related parties 27,415 66,236
Net cash used in investing activities (870,593) (622,643)
Cash flows from financing activities:
Advances from factoring of receivables 24,125,171 25,127,402
Repayments on factoring advances (22,710,285) (25,199,852)
Proceeds from issuance of long-term debt to
related parties 11,204
Proceeds of issuance of long-term debt 1,567,558
Payments on long-term debt (5,720) (311,911)
Principal payments under capital lease
obligations (691,213) (614,302)
Net cash provided by (used in)
financing activities 2,296,715 (998,663)
Net increase (decrease) in cash 271,882 (491,635)
Cash at beginning of period 280,988 555,349
Cash at end of period $ 552,870 $ 63,714
</TABLE>
21
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Contd)
Supplemental Cash Flow Information:
The Company paid interest of approximately $892,000 and $1,107,000 for the
nine months ended June 30, 1996 and 1995, respectively.
Capital lease obligations incurred for the purchase of equipment amounted
to approximately $43,000 and $598,000 for the nine months ended June 30, 1996
and 1995, respectively.
Included within the increase in transmission costs payable at June 30, 1996
is approximately $661,000 for which notes payable were issued. There were no
such notes outstanding at June 30, 1995.
On June 27, 1996, $1,500,000 of notes payable were converted to 518,116
shares of Common Stock.
22
<PAGE>
CAPITAL NETWORK SYSTEM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of June 30, 1996; results
of operations for the nine months ended June 30, 1996 and 1995; cash flows for
the nine months ended June 30, 1996 and 1995; and changes in shareholders equity
for the nine months ended June 30, 1996. For further information, refer to CNSIs
financial statements and notes thereto included herein for the year ended
September 30, 1995.
2. Accounts Receivable
Accounts receivable are presented net of uncollectible reserves and
factoring liabilities. As of June 30, 1996, factoring liabilities equal
$5,176,085.
23
<PAGE>
AMNEX, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited Pro Forma Condensed Consolidated Financial
Statements (the Pro Forma Financial Statements) present the Pro Forma Condensed
Consolidated Financial Position and Results of Operations of AMNEX, Inc. and
CNSI. The Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996
gives effect to the Acquisition of CNSI (Acquisition) on that date. The
unaudited Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 1996 and the year ended December 31, 1995, give effect to
the Acquisition as if it occurred as of the beginning of the respective periods.
The Pro Forma Financial Statements give effect to an Stock Purchase
Agreement among AMNEX, Inc., as Purchaser, and the former CNSI Shareholders (the
Stock Purchase Agreement) to acquire all the issued and outstanding Common Stock
of CNSI, effective June 30, 1996. Pursuant to the Stock Purchase Agreement,
CNSIs investment in its consolidated subsidiary, Fulfillment Enterprise, Inc.
(FEI), was distributed to the CNSI shareholders immediately prior to the
Acquisition.
The pro forma adjustments and assumptions described in the accompanying
Notes to the unaudited Pro Forma Financial Statements are based on estimates,
evaluations and other data currently available and are subject to change. The
Pro Forma Financial Statements are provided for illustrative purposes only and
are not necessarily indicative of the consolidated financial position or
consolidated results of operations that would have been reported had the
Acquisition occurred on the dates indicated, nor do they represent a forecast of
the consolidated financial position at any future date or the consolidated
future results of operations for any future period.
The Pro Forma Financial Statements, including the notes thereto, should be
read in conjunction with the consolidated financial statements and notes of CNSI
included herein and the consolidated financial statments and notes of AMNEX,
Inc. included in AMNEXs Annual Report on Form 10-K for the year ended December
31, 1995 and Quarterly Report on Form 10Q for the period ended June 30, 1996.
24
<PAGE>
AMNEX, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
CONSOLIDATED Pro Forma Adjustments Pro Forma
AMNEX CNSI FEI (a) Transactions Consolidated
Assets
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,190 $ 553 $ (77) $ $ 2,666
Accounts receivable, net 20,186 4,027 (122) 5,176 (b) 29,267
Parts inventory 333 333
Deferred income taxes 121 121
Due from related parties 341 758 (1,099) (c)
Prepaids and other
current assets 4,067 591 (58) (c) 4,600
24,982 5,512 559 (4,019) 37,524
Property and equipment, net 11,817 3,566 (3) (1,076) (c) 14,307
Long-term notes recievable
from related parties 249 (249) (c)
Deposits and other 1,970 301 (21) (46) (c) 2,204
Intangible assets, net 3,078 3,078
Goodwill, net 8,818 20,059 (c) 28,877
$ 53,117 $ 9,628 $ (538) $ 22,707 $ 85,990
Liablilities and shareholders equity
Current liabilities
Short-term debt $ 13,415 $ $ $ 5,176 (b) $ 18,591
Accounts payable 3,548 1,885 (24) 5,409
Accrued expenses and other 4,651 2,828 (98) 4,725 (c) 12,106
Accrued commissions 1,760 3,251 5,011
Current portion of
long-term obligations 1,816 977 2,793
25,190 8,940 (122) 9,901 43,910
Long-term debt due to
related parties 1,344 1,344
Long-term obligations, net 6,604 2,408 9,012
31,794 12,692 (122) 9,901 54,266
Shareholders equity
Preferred stock 8,882 8,882
Common stock 20 1 3 (c,d) 24
Capital in excess of par value 40,236 2,495 9,415 (c,d) 50,633
Stockholders note receivable (298) 298 (d)
Retained earnings (deficit) (27,339) (5,263) 660 4,603 (d) (27,339)
21,799 (3,065) 660 12,806 32,200
Less: Treasury stock (476) (476)
21,323 (3,065) 660 12,806 31,724
$ 53,117 $ 9,628 $ (538) $ 22,707 $ 85,990
</TABLE>
25
<PAGE>
AMNEX, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the twelve months ended (Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
CONSOLIDATED Pro Forma Adjustments Pro Forma
AMNEX CNSI FEI (a) Transactions Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 50,758 $ 24,374 $ (453) $ 3,144 (e) $ 77,823
Costs and expenses
Cost of sales 41,538 16,910 (318) 3,144 (e) 61,274
Selling, general and
administrative 6,198 5,497 (161) (1,196) (f) 10,338
Depreciation and
amortization 924 249 (2) 428 (g) 1,599
48,660 22,656 (481) 2,376 73,211
Operating income 2,098 1,718 28 768 4,612
Interest expense 1,104 538 (7) 15 (h) 1,650
Income before income taxes 994 1,180 35 753 2,962
Provision for income taxes 196 151 (i) 347
Net income $ 798 $ 1,180 $ 35 $ 602 $ 2,615
Preferred share dividend 308 308
Net income available for
Common Shares $ 490 $ 1,180 $ 35 $ 602 $ 2,307
Earnings per Common Share $ 0.02 $ 0.09
Weighted average number of
shares outstanding used in
computing earnings per
Common Share 20,923 25,022
</TABLE>
26
<PAGE>
AMNEX, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the twelve months ended (Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
CONSOLIDATED Pro Forma Adjustments Pro Forma
AMNEX CNSI FEI (a) Transactions Consolidated
December 31, September 30, September 30,
1995 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 105,890 $ 41,953 $ (1,784) $ 6,783 (e) $ 152,842
Costs and expenses
Cost of sales 87,957 30,706 (1,394) 6,783 (e) 124,052
Selling, general and
administrative 12,145 11,118 (461) (3,596) (f) 19,206
Depreciation and
amortization 1,984 590 (1) 872 (g) 3,445
102,086 42,414 (1,856) 4,059 146,703
Operating income (loss) 3,804 (461) 72 2,724 6,139
Interest expense 2,044 1,280 (22) 98 (h) 3,400
Income (loss) before
income taxes 1,760 (1,741) 94 2,626 2,739
Provision for income taxes 329 525 (i) 854
Net income (loss) $ 1,431 $ (1,741) $ 94 $ 2,101 $ 1,885
Preferred share dividend 543 543
Net income (loss) available
for Common Shares $ 888 $ (1,741) $ 94 $ 3,060 $ 1,342
Earnings per Common Share $ 0.05 $ 0.06
Weighted average number of
shares outstanding used in
computing earnings per
Common Share 19,416 23,515
</TABLE>
27
<PAGE>
AMNEX, INC.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
For purposes of determining the pro forma effect of the transaction on
AMNEXs Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996 and
on the Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 1996 and the year ended December 31, 1995 respectively,
the following pro forma adjustments have been made.
(a) Adjustment for removal of Fulfillment Enterprises, Inc. (FEI)
from Consolidated CNSI as it was dirtributed to the former CNSI
shareholders.
(b) Accounts receivable are presented net of uncollectible reserves and
factoring liabilities. As of June 30, 1996,factoring liabilities
equal $5,176,085. Such adjustment is to present the accounts on
the same basis as AMNEX, Inc.
(c) The Stock Purchase Agreement results in a change of control of 100%
of CNSI Common Stock in exchange for 4,099,086 shares of
unregistered Common Stock of AMNEX, Inc. with a par value of $.001
per share. The estimated market value of the shares exchanged was
determined by the indicated closing market price on the effective
date of $3.625 per share and a discount for unregistered stock of
30%. The purchase price and allocation thereof is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C> <C>
Market value of shares issued $ 14,859 (i)
Less: Discount for unregistered stock based upon
preliminary estimate of independent appraiser (4,458) (i)
Add: Cash consideration to be paid 1,094 (ii)
11,495
Add: Assumption of FEI indebtedness 150 (iii)
Forgiveness of related party receivables - current 409 (iii)
Forgiveness of related party receivables - long-term 249
Forgiveness of debt due from FEI 540 (iii)
Accrued employee termination benefits 1,763 (ii)
Accrued lease termination costs 898 (ii)
Reduction of switching equipment to net realizable value 1,076
Estimated costs associated with Acquisition Agreement 970 (ii)
Write-off of deferred financing costs 104 (iv)
Estimated Purchase Price $ 17,654
Allocation of the purchase price on the basis of fair value in
excess of book value:
Book value of CNSI net assets acquired $ (2,405)
Goodwill 20,059
Estimated Purchase Price $ 17,654
</TABLE>
(i) Aggregate net adjustments of $3 and $9,415 to Common Stock and
Capital in excess of par, respectively.
(ii) Aggregate accrued expenses of $4,725.
(iii) Aggregate forgiveness of related party receivables of $1,099.
(iv) Aggregate adjustment split between $58 current and $46 long-term
adjustments.
28
<PAGE>
AMNEX, INC.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(d) Elimination of equity in acquired company and stockholders note
receivable
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock $ 1 (i)
Capital in excess of par 2,495 (i)
Stockholders note receivable (298)
Deficit (4,603)
$ (2,405)
</TABLE>
(i) Aggregate net adjustments of $3 and $9,415 to Common Stock and Capital in
excess of par, respectively.
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, 1996 December 31, 1995
(in thousands) (in thousands)
<S> <C> <C> <C>
(e) Increase revenue and cost of sales to
record surcharge on the same basis
as AMNEXs accounting policy $ 3,144 $ 6,783
(f) Decrease in expense due to cost savings
expected from consolidation of
duplicate facilities $ (1,196) $ (3,596)
(g) Decrease in depreciation due to writedown
of switches and leaseholds $ (240) $ (464)
Increase in amortization expense of
goodwill over 15 years $ 668 $ 1,336
$ 428 $ 872
(h) Increase in interest expense on refinancing of
Sirrom note at 13% from 12.5% $ 5 $ 10
Decrease for interest income recorded on
related party loans 10 88
$ 15 $ 98
(i) Tax effect of pro forma adjustments $ 151 $ 525
</TABLE>
29
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-58082) of AMNEX, Inc. of our report dated June 28,
1996 relating to the consolidated financial statements of Capital Network
System, Inc., for the year ended September 30, 1995, which appears in the
Exhibit to Amendment No. 1 to Form 8-K.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
September 9, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-90928) of AMNEX, Inc. of our report dated June 28,
1996 relating to the consolidated financial statements of Capital Network
System, Inc., for the year ended September 30, 1995, which appears in the
Exhibit to Amendment No. 1 to Form 8-K.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
September 9, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-37398) of AMNEX, Inc. of our report dated June 28,
1996 relating to the consolidated financial statements of Capital Network
System, Inc., for the year ended September 30, 1995, which appears in the
Exhibit to Amendment No. 1 to Form 8-K.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
September 9, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No.333-05659) of AMNEX, Inc. of our report dated June 28,
1996 relating to the consolidated financial statements of Capital Network
System, Inc., for the year ended September 30, 1995, which appears in the
Exhibit to Amendment No. 1 to Form 8-K.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
September 9, 1996
<PAGE>
