FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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: 0-17158
AMNEX, INC.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
New York 11-2790221
AMNEX, INC.
101 Park Avenue, Suite 2507
New York, New York
10178
(212)867-0166
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act ofv1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No ____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock $.001 par value 19,533,984 common shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995
Condensed Consolidated Statements of Income - Three months ended
March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1996 and 1995
Condensed Consolidated Statements of Shareholders' Equity
Three months ended March 31, 1996
Notes to Condensed Consolidated Financial Statements - March 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
<PAGE>
<TABLE>
<CAPTION>
AMNEX, INC.
Condensed Consolidated Balance Sheets
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ...................... $ 139,201 $ 94,115
Trade receivables, less allowance for
doubtful accounts of $2,584,492 in 1996
and $2,954,204 in 1995 ......................... 18,968,872 17,079,718
Parts inventory ................................ 353,216 288,603
Deferred income taxes .......................... 121,000 121,000
Note receivable ................................ 925,418 1,290,564
Customer advances .............................. 3,756,911 3,940,469
Deposits and other current assets .............. 717,174 601,904
------------ ------------
Total current assets ........................... 24,981,792 23,416,373
Property and equipment, net .................... 11,575,993 11,595,357
Deposits and other ............................. 2,107,643 3,952,284
Intangible assets, net ......................... 3,270,804 1,360,883
Goodwill, net .................................. 9,036,452 9,254,957
------------ ------------
$ 50,972,684 $ 49,579,854
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ................................ $ 11,302,656 $ 11,865,024
Accounts payable ............................... 3,364,982 4,265,903
Accrued expenses ............................... 7,049,321 5,261,989
Current portion of capital lease obligations ... 966,667 755,608
Current portion of long-term debt .............. 752,359 737,001
------------ -----------
Total current liabilities ...................... 23,435,985 22,885,525
Capital lease obligations ...................... 2,642,127 2,169,916
Long-term debt, less current portion ........... 3,937,136 4,132,193
------------ ------------
Total liabilities .............................. 30,015,248 29,187,634
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par; authorized 5,000,000 shares
Series B Preferred Stock, authorized
356,000 shares, issued and outstanding
72,450 shares at March 31, 1996
and December 31, 1995 .......................... 362,250 362,250
Series D Preferred Stock, authorized
1,413,337 shares issued and outstanding
1.413,337 shares at March 31, 1996
and December 31, 1995 .......................... 3,533,333 3,533,333
Series Series E Preferred Stock,
authorized 1,085,000 shares, issued and
outstanding 1,035,000 shares at March 31, 1996
and 1,085,000 shares at December 31, 1995 ...... 2,910,938 3,051,563
Series F Preferred Stock, authorized
415,000 shares, issued and outstanding
415,000 shares at March 31, 1996
and December 31, 1995 .......................... 2,076,250 2,076,250
Common stock, $.001 par; authorized
40,000,000, issued 19,552,234 at
March 31,1996 and 19,484,030 shares
at December 31, 1995 ........................... 19,552 19,484
Capital in excess of par value ................. 40,147,834 39,963,074
Accumulated deficit ............................ (27,616,471) (28,137,484)
------------ ------------
21,433,686 20,868,470
Less: 18,250 Common Shares held in
treasury, at cost ........................ (476,250) (476,250)
- ------------------------------------------------- ------------ ------------
Total shareholders' equity ..................... 20,957,436 20,392,220
------------ ------------
$ 50,972,684 $ 49,579,854
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
AMNEX, INC.
Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Revenues .......................................... $24,332,465 $23,922,857
----------- -----------
Costs and expenses:
Cost of sales ..................................... 19,709,896 19,394,390
Selling, general and administrative ............... 2,953,983 2,830,306
Depreciation and amortization ..................... 467,201 442,000
Interest expense .................................. 545,372 433,830
----------- -----------
23,676,452 23,100,526
----------- -----------
Income before income taxes ........................ 656,013 822,331
Provision for income taxes ........................ 135,000 370,049
----------- -----------
Net income ........................................ $ 521,013 $ 452,282
=========== ===========
Preferred share dividend .......................... 153,797 101,653
----------- -----------
Net income available for common shares ............ $ 367,216 $ 350,629
=========== ===========
Earnings per common share ......................... $ 0.02 $ 0.02
=========== ===========
Weighted average number of shares outstanding used in
computing earnings per common share: .............. 20,392,032 18,792,439
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
AMNEX, INC.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Net cash used in operating activities ............ $ (842,102) $ (666,764)
----------- -----------
Cash flows from investing activities:
proceeds on disposition of assets .................. 2,374,975
Expenditures for property and equipment .......... (598,218) (746,960)
----------- -----------
Net cash provided by (used in)
investing activities ............................. 1,776,757 (746,960)
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of options ............ 44,203
Borrowings (repayments) under
revolving credit, net ............................ (562,368) 1,099,012
Payments on long-term debt ....................... (179,699) (35,440)
Principal payments under capital
lease obligations ................................ (191,705) (79,148)
----------- -----------
Net cash provided by (used in)
financing activities ............................. (889,569) 984,424
----------- -----------
Net increase (decrease) in cash and
cash equivalents ................................. 45,086 (429,300)
Cash and cash equivalents at beginning of year ... 94,115 592,551
----------- -----------
Cash and cash equivalents at end of year ......... $ 139,201 $ 163,251
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Three months ended March 31, 1996:
1. The Company issued 75,000 Common Shares pursuant to an equity participation
agreement.
2. Interest of approximately $467,000 was paid.
3. Income taxes of approximately $44,000 were paid.
4. Capital lease obligations incurred to acquire property and equipment
were $874,975.
Three months ended March 31, 1995:
1. The Company issued 125,000 Common Shares pursuant to an equity participation
agreement.
2. Interest of approximately $448,000 was paid.
3. Income taxes of approximately $51,000 were paid.
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
AMNEX, INC.
Condensed Consolidated Statement of Shareholders' Equity December 31, 1995
through March 31, 1996
(Unaudited)
Balance, . Exercise Conversion Balance,
December 31, of Stock of Preferred Net March 31,
1995 Options Shares Income 1996
------------ --------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Common stock,
$.001 par value,
Shares .......... 19,484,030 18,204 50,000 19,552,234
Amount .......... 19,484 $ 18 $ 50 $ $ 19,552
Capital in excess of
par value ...... 39,963,074 44,185 140,575 40,147,834
Preferred stock
Series B ....... 362,250 362,250
Preferred Stock
Series D ....... 3,533,333 3,533,333
Preferred Stock
Series E ....... 3,051,563 (140,625) 2,910,938
Preferred Stock
Series F ....... 2,076,250 2,076,250
Accumulated
Deficit ........ (28,137,484) 521,013 (27,616,471)
Treasury
stock .......... (476,250) (476,250)
----------- ----------- -------- -------- -----------
Total
shareholders'
equity .......... $ 20,392,220 $ 44,203 $ $521,013 $ 20,957,436
============ ========= ======== ======== ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMNEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. 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
condensed consolidated financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996; results of operations for the three months ended March 31,
1996 and 1995; cash flows for the three months ended March 31, 1996 and 1995;
and changes in shareholders' equity for the three months ended March 31, 1996.
For further information, refer to AMNEX's financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 1995. The
December 31, 1995 balance sheet has been derived from AMNEX's audited financial
statements as of that date.
2. Preferred Stock
In January 1996, the holder of an aggregate of 50,000 shares of the Company's
Series E Preferred Stock elected to convert such shares into 50,000 shares of
the Company's Common Stock.
3. Subsequent Events:
On May 2, 1996, AMNEX entered into a definitive agreement to acquire all of the
stock of Capital Network System, Inc. ("CNSI") for unregistered stock valued at
$15 million. CNSI reported revenues of $ 41.9 million and total assets of $ 9.8
million, for their fiscal year ended September 30, 1995. The consummation of the
transaction is subject to regulatory approval and certain other conditions to
closing. Due to these conditions to closing, the Company gives no assurances
that this transaction will be completed.
CNSI is a privately held corporation providing operator services, predominantly
in international markets, with its headquarters in Austin, Texas. The company
currently employs approximately 130 persons. This transaction will be accounted
for as a purchase.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared with
Three Months Ended March 31, 1995
Results of Operations
Revenues for the three months ended March 31, 1996 and 1995 were $24.3 million
and $23.9 million, respectively. Several actions impacted the first quarter
operations. Significant bad weather in the Northeast reduced call counts and
minutes. As expected revenues from the Company's core operator services product
line continued to decrease. These factors were offset by increased revenues
during the 1996 quarter from long distance service offerings, including $309,000
from the 1+ coin product which began to ramp up in the third quarter of 1995.
Additionally, revenues increased in the Company's Integrated Services product
lines, including the Crescent Communications subsidiary which was acquired in
the last quarter of 1995, and had approximately $1.2 million of revenues during
the first quarter of 1996. Further, the Company recognized revenues of $1.5
million related to the sale of certain internal processes and related
infrastructure, associated with validation and fraud control. The decrease in
operator services revenue has been caused by current trends impacting the
operator services industry, including (i) increases in the number of consumers
who dial access numbers, rather than dialing "0+" and utilizing the operator
services company who provides services for the telephone used (referred to in
the industry as "Dial Around") and (ii) continued efforts by governmental
regulatory agencies to establish maximum rates which may be charged for "0+"
calls ("Rate Caps"). This revenue shift is consistent with the Company's efforts
to move towards being a provider of wholesale services, seeking to reduce the
fixed cost base of the Company and move into new product lines.
Cost of sales, as a percentage of revenues, was 86.3% and 81.1% for the three
months ended March 31, 1996 and 1995, respectively, after giving effect to the
$1.5 million sale described above. There are several elements affecting this
increase. Commissions increased by one-half percentage point from the previous
year. In addition, although the mix of sales has begun to shift to the new
product lines which have lower direct cost of sales and commissions, the Company
is still in a transition period and cost of sales remain high. The Company's
core operator service business, which has the highest commission rates, still
contributes over 85% of total revenue. Furthermore, although the Company has
taken action to reduce commission costs, the mix of customers during this
transition period remains stable. Network costs have increased due to the
expansion of the new 1+ coin product to regions throughout the country. As new
phones are activated and usage begins to ramp up, these costs will be reduced as
a percentage of sales. Operator wages decreased from a year ago as cost control
measures that were put into place the last quarter of 1995 have been fully
realized. As a percentage to revenues, operator wages for the period March 31,
1996 and 1995 were 4.7% and 6.2%, respectively. Other components of cost of
sales, measured as a percentage of revenue, showed changes of less than one
percent.
Selling, general, and administrative expenses, as a percentage of revenues, were
12.1% and 11.8%, respectively, for the three month periods ended March 31, 1996
and 1995. This increase related primarily to one-time professional fees for
recruitment and legal and accounting fees not expected to continue in the second
quarter. In addition, start up expenses associated with the 1+ coin product have
been absorbed into selling and administrative expenses.
Interest expense increased by approximately $112,000 for the three month period
ended March 31, 1996 as compared to March 31, 1995. This is due to additional
capital lease obligations of the integrated services product lines for AHE and
interest on loans associated with the Crescent acquisition in October 1995.
The Company's Management has established goals to strategically position the
Company in markets which will lower its cost of sales, improve profit margins
and secure its customer base. This is expected to be achieved in part through
the development and deployment of new technologies as well as through strategic
acquisitions.
As part of this strategy, the Company has entered into multi-year contracts with
several interexchange carriers which allows the Company to provide 1+ coin
signaling and transmission services for inter-LATA traffic from local exchange
carrier pay telephones presubscribed to such carriers. When the conversion of
these telephones is complete in late 1996, the Company expects to have in excess
of 500,000 public pay telephones utilizing this service. As of March 31, 1996
398,000 pay phones were under contract to provide such service, of which 127,000
phones were active.
The Company may enter into other lines of business, through acquisition or
internal development, where such lines of business are expected to meet its
strategic goals.
Liquidity and Capital Resources
Working capital increased to $1.5 million at March 31, 1996, as compared to
$530,000 at December 31, 1995. During the three months ended March 31, 1996, the
Company entered into a contract to purchase the rights to certain phones and
their future income, in exchange for certain advances the company had previously
made to the customer. Deposits and other assets decreased and intangible assets
increased by approximately by $ 1.9 million related to the above transaction.
Accounts payable and accrued expenses increased by $661,000 or 6.9%, as a result
of improved payment terms obtained from several key suppliers. The Company also
obtained approximately $860,000 in additional capital lease financing from two
financing companies. This continues as a source for the Company's expansion of
the AHE integrated services product line.
For a description of the pending acquisition of Capital Network Systems, Inc.
see Note 3 of the Notes to Condensed Consolidated Financial Statements.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K.
NONE
<PAGE>
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.
By:/s/ Peter M. Izzo, Jr.
- ----------------------------
Peter M. Izzo, Jr.
President and
Chief Executive Officer
Date: May 15, 1996
By:/s/ Richard L. Stoun
- ---------------------------
Richard L. Stoun
Chief Accounting Officer
Date: May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S.
<CIK> 0000793526
<NAME> AMNEX, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 139,201
<SECURITIES> 0
<RECEIVABLES> 21,553,364
<ALLOWANCES> (2,584,492)
<INVENTORY> 353,216
<CURRENT-ASSETS> 24,981,792
<PP&E> 21,495,742
<DEPRECIATION> (9,919,749)
<TOTAL-ASSETS> 50,972,684
<CURRENT-LIABILITIES> 23,435,985
<BONDS> 0
0
8,882,771
<COMMON> 19,552
<OTHER-SE> 12,055,113
<TOTAL-LIABILITY-AND-EQUITY> 50,972,684
<SALES> 24,332,465
<TOTAL-REVENUES> 24,332,465
<CGS> 19,709,896
<TOTAL-COSTS> 19,709,896
<OTHER-EXPENSES> 3,421,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 545,372
<INCOME-PRETAX> 656,013
<INCOME-TAX> 135,000
<INCOME-CONTINUING> 521,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521,013
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
