<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1998
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.
-----------
(Exact Name of Registrant as Specified in its Charter)
New York 11-2790221
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
145 Huguenot Street, New Rochelle, NY 10801
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(Address of Principal Executive Officer) (Zip Code)
(914) 235-1003
--------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 of 1934 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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS 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 Sections 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 ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock,
$.001 par value; 42,268,476 shares at March 31, 1998.
<PAGE>
AMNEX, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
March 31, December 31,
1998 1997
------- -------
(unaudited)
Assets
Current assets:
Cash ........................................... $ 1,953 $ 1,309
Trade receivables, less allowance for
doubtful accounts of $3,762 as of
March 31, 1998 and $3,784 as of
December 31, 1997 ......................... 15,964 15,749
Parts inventory ................................ 1,111 936
Deferred income taxes .......................... 1,665 1,665
Customer advances .............................. 786 631
Prepaid expenses and other current assets ...... 1,903 832
------- -------
Total current assets ................................. 23,382 21,122
Investment in unconsolidated subsidiaries ............ 5,091 5,091
Property and equipment, net .......................... 24,421 24,004
Intangible assets, net ............................... 9,614 9,655
Goodwill, net ........................................ 28,644 28,599
Other assets ......................................... 2,911 3,116
------- -------
$94,063 $91,587
======= =======
F-1
<PAGE>
AMNEX, Inc.
Consolidated Balance Sheets (continued)
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Short-term debt ......................................... $ 9,441 $ 11,020
Accounts payable ........................................ 7,184 8,291
Accrued expenses ........................................ 6,597 6,139
Accrued network expenses ................................ 2,796 2,115
Accrued commissions ..................................... 2,077 2,006
Accrued taxes payable ................................... 1,476 1,788
Due to related party .................................... 1,198 4,397
Current portion of capital lease obligations ............ 1,882 1,882
Current portion of long-term debt ....................... 4,546 3,546
-------- --------
Total current liabilities ..................................... 37,197 41,184
Capital lease obligations ..................................... 807 1,357
Long-term debt ................................................ 25,415 25,188
Minority interest ............................................. 432 424
Compensation payable .......................................... 312 312
Obligations under non-compete agreement ....................... -- 1,314
Common stock subject to redemption ............................ 3,250 3,250
Commitments and contingencies
Shareholders' equity:
Series M Preferred Stock, authorized 2,000
shares, issued and outstanding 1,750
shares at March 31, 1998 and 1,000 shares
at December 31, 1997 (liquidation preference $1,000) 1,690 940
Common Stock, $.001 par; authorized 70,000,000,
issued 42,286,726 at March 31, 1998 and
34,083,129 at December 31, 1997 .................... 42 34
Capital in excess of par value ................................ 76,063 65,597
Accumulated deficit ........................................... (50,669) (47,537)
-------- --------
27,126 19,034
Less 18,250 common shares held in treasury, at cost ........... (476) (476)
-------- --------
Total shareholders' equity .................................... 26,650 18,558
-------- --------
Total liabilities and shareholders' equity .................... $ 94,063 $ 91,587
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
AMNEX, Inc.
Consolidated Statements of Operations
For the Three Months Ended March 1998 and 1997
(In thousands, except share date)
(Unaudited)
1998 1997
-------- --------
Revenue .......................................... $ 22,180 $ 31,327
Costs and expenses:
Cost of sales .............................. 16,810 23,358
Selling, general and administrative ........ 4,473 5,005
Depreciation and amortization .............. 2,548 2,012
Restructuring charge ....................... -- 1,400
-------- --------
23,831 31,775
Operating loss ................................... (1,651) (448)
Interest expense ................................. 1,378 835
Other (income) expense ........................... 8 (23)
-------- --------
Loss before income taxes ......................... (3,037) (1,260)
Provision for income taxes ....................... 75 50
-------- --------
Net loss ......................................... $ (3,112) $ (1,310)
======== ========
Preferred share dividend ......................... 20 154
-------- --------
Net loss available for common shareholders ....... $ (3,132) $ (1,464)
======== ========
Basic and diluted loss per common share .......... $ (.08) $ (.05)
======== ========
See accompanying notes.
F-3
<PAGE>
AMNEX, Inc.
Consolidated Statement of Shareholders' Equity
December 31, 1997 through March 31, 1998
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Capital in Total
$.001 Par Value Stock Excess of Accumulated Treasury Shareholders
Shares Amount Series M Par Value Deficit Stock Equity
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ... 34,083,129 $ 34 $ 940 $ 65,597 $ (47,537) $ (476) $ 18,558
Issuance of common shares .... 5,444,977 5 7,269 7,274
Issuance of preferred shares . 750 750
Conversion of debt ........... 2,758,620 3 3,197 3,200
Issuance of warrants..........
Preferred stock dividend ..... (20) (20)
Net loss ..................... (3,112) (3,112)
---------- ----- ------- -------- --------- ------ ---------
Balance, March 31, 1998 ...... 42,286,726 $ 42 $ 1,690 $ 76,063 $ (50,669) $ (476) $ 26,650
========== ===== ======= ======== ========= ====== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMNEX, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss ......................................................................... $(3,112) $(1,310)
Adjustments to reconcile net loss to net cash
provided by (used) in operating activities:
Depreciation and amortization ............................................... 2,546 2,011
Minority interest ........................................................... (8) (5)
Provision for losses on receivables ......................................... (22) (189)
Gain on sale of assets
Changes in assets and liabilities:
Trade receivables ...................................................... (193) (4,003)
Parts inventory ........................................................ (175) (64)
Customer advances, prepaid expenses and
other current assets ................................................ (1,226) 566
Other assets ........................................................... (700) (196)
Accounts payable and other accrued expenses ............................ (209) 3,219
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Net cash provided by (used in) operating activities .............................. (3,099) 29
------- -------
Cash flows from investing activities
Purchase of business, net of cash acquired ....................................... -- (880)
Purchase of payphones ............................................................ (1,154) (378)
Expenditures for property and equipment .......................................... (546) (884)
------- -------
Net cash used in investing activities ............................................ (1,700) (2,142)
Cash flows from financing activities
Proceeds from sale of common stock ............................................... 5,585 --
Proceeds from sale of Preferred shares ........................................... 750 --
Proceeds from the exercise of common stock options ............................... -- 37
Proceeds from long-term debt ..................................................... 1,816 --
Borrowings (repayments) under revolving credit, net .............................. (1,567) 112
Payments on long-term debt ....................................................... (590) (471)
Principal payments under capital lease obligations ............................... (551) (649)
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Net cash used in financing activities ............................................ 5,443 (971)
------- -------
Net increase (decrease) in cash .................................................. 644 (3,084)
Cash at beginning of period ...................................................... 1,309 4,947
------- -------
Cash at end of period ............................................................ $ 1,953 $ 1,863
======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
Supplemental disclosure of cash flow information:
(In thousands, except share data)
Three months ended March 31, 1998:
1. The Company issued 526,168 Common Shares pursuant to an agreement with
Teleplus, Inc.
2. The Company issued 2,758,620 Common Shares pursuant to the conversion of
$3,200 in notes. (See shareholders' equity note.)
3. Interest of $1,068 was paid.
Three months ended March 31, 1997:
1. The Company issued 422,309 Common Shares pursuant to the conversion of
51,250 Series G Preferred Shares.
2. The Company issued 94,369 Common Shares for the acquisition of pay
telephones.
3. The Company issued 526,168 Common Shares pursuant to agreement with
Teleplus, Inc.
4. The Company issued 12,844 Common Shares pursuant to employee stock
options.
5. Interest of $983 was paid.
6. Income taxes of $321 were paid.
F-6
<PAGE>
AMNEX, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. Basis of Presentation
The accompanying unaudited 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 consolidated financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of March 31, 1998;
results of operations for the three months ended March 31, 1998 and 1997;
cash flows for the three months ended March 31, 1998 and 1997; and
changes in shareholders' equity for the three months ended March 31,
1998. 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, 1997. The December 31, 1997 balance sheet has been derived
from AMNEX's audited financial statements as of that date. Certain prior
year amounts were reclassified to conform with the current year
presentation.
2. Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which significantly changes the
way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to shareholders. SFAS No. 131 is
effective for annual periods beginning after December 15, 1997 and
interim periods beginning in the second year of application. The Company
intends to adopt the provisions of this standard in 1998 and does not
expect its application to have a material impact on the financial
statements of the Company.
3. Shareholders' Equity
In January 1998, the Company received net proceeds of $750 in connection
with the issuance of 750 shares of Series M Convertible Preferred Stock
and the issuance of warrants to purchase 45,000 shares of the Company's
Common Stock at $2.65 per share. The Series M Convertible Preferred Stock
has the following rights and preferences, among others: (i) 5% cumulative
dividend payable quarterly, (ii) the right to convert each share into
Common Stock of the Company at a conversion price that is the lesser of
(a) the average of the lowest five closing bid prices during the thirty
trading day period before conversion notice was sent or (b) $2.65; and
(iii) a liquidation preference equal to the stated value plus all accrued
and unpaid dividends. The Series M Preferred Shareholders have no voting
rights.
During January and February 1998, the Company received $5,624 in proceeds
in connection with several stock purchase agreements under which the
Company issued 4,918,809 shares of its Common Stock at prices ranging
from $1.10 and $1.16 per share. Certain restrictions were placed on the
resale of these shares for a one year period from the date of issuance.
In January 1998, Francesco Galesi, a Director of the Company, converted
$3,200 in unpaid notes into 2,758,620 Common Shares of the Company at the
then current market price of the Company's Common Stock. In consideration
for these 1997 loans, the Company granted to Mr. Galesi a warrant for the
purchase of 750,000 Common Shares at an exercise price of $1.50 per
share.
F-7
<PAGE>
4. Loss Per Share
The following table sets forth the computation of basic and diluted loss
per share for the quarters ended March 31, 1998 and 1997:
1998 1997
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Numerator:
Net loss ..................................... $ (3,112) $ (1,310)
Preferred stock dividends .................... 20 154
------------ ------------
Numerator for basic and diluted loss per share -
loss available to common stockholders (1)... $ (3,132) $ (1,464)
============ ============
Denominator:
Denominator for basic and diluted loss per
share - weighted-average shares ......... 39,838,260 27,503,743
============ ============
Basic and diluted loss per share ............... $ (0.08) $ (0.05)
============ ============
(1) For both quarters stock options, warrants, preferred stock and its
related dividends, and convertible debentures were excluded from
computation as they were antidilutive.
F-8
<PAGE>
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934 regarding events, conditions, and financial trends that may affect the
Company's future plans of operations, business strategy, operating results, and
financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors are discussed herein and also include general economic
factors and conditions that may directly or indirectly impact the Company's
financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared with
Three Months Ended March 31, 1997
Results of Operations
For the three months ended March 31, 1998, the Company had an operating loss of
$1,651,000 as compared to a $448,000 operating loss for the three months ended
March 31, 1997. The increased operating loss for the quarter ended March 31,
1998 was principally attributable to a $9,147,000 reduction in revenue to
$22,180,000 for the quarter ended March 31, 1998 as compared to revenue of
$31,327,000 in the quarter ended March 31, 1997. The decline in revenue was
primarily due to a $8,641,000 reduction in the Company's domestic and
international operator services revenue. The 1997 period results included a
restructuring charge of $1,400,000 which related to the Company's plan, which
has been completed, to close certain of its facilities and eliminate redundant
functions.
Despite the decrease in revenue, cost of sales, as a percentage of revenue was
comparable to that of the first quarter of 1997. For the first quarter of 1998
cost of sales was 75.7% of revenue as compared to 74.6% of revenue in the
first quarter of 1997.
Selling, general and administrative expenses totaled $4,473,000, or 20.2% of
revenue, in the quarter ended March 31, 1998 as compared to $5,005,000, or
16.0% of revenue, in the quarter ended March 31, 1997. The increase, as a
percentage of sales, in the current quarter resulted from the decline in
revenue. The Company's effective cost control efforts and its 1997
restructuring plan have enabled it to reduce its spending level in 1998.
Interest expense increased to $1,378,000 for the three months ended March 31,
1998 from $835,000 for the three months ended March 31, 1997. The increase
reflects increased borrowings related to the issuance of 8-1/2% Convertible
Subordinated Notes in the aggregate principal amount of $15 million on
September 30, 1997 and an interest charge related to warrants issued in
connection with the conversion, in January 1998, of $3,200,000 in unpaid notes
into 2,758,620 Common Shares of the Company, by Francesco Galesi, a Director
of the Company.
Liquidity and Capital Resources
The Company had a working capital deficiency of $13,815,000 at March 31, 1998
versus a $20,062,000 deficiency at December 31, 1997. The improvement was
primarily due to $6,335,000 in cash received in January and February 1998 in
connection with the issuance of Preferred and Common Stock of the Company and
the conversion of $3,200,000 in debt into Common Shares of the Company in
January 1998. The Company is continuing to pursue alternate and additional
financing from several different sources and believes additional financing will
be obtained to meet its current and future obligations.
The Company has in place a lending agreement with one of its billing and
collection agents under which advances of up to $21 million are provided based
on eligible receivables. Such receivables are purchased by the billing and
collection agent, with recourse, at the approximate rate of 76% of the gross
amount thereof. The Company pays interest under this agreement at prime plus
1.5% per annum. At March 31, 1998, the amount due under this agreement was
$6,713,000. The lending agreement extends through February 2000.
The Company has a $5,000,000 revolving line of credit (the "Line of Credit")
which provides borrowings based on a percentage of eligible receivables and
interest at a rate equal to the prime rate plus 1% per annum. At March 31,
1998, the amount due under this agreement was $2,716,000.
1
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) Previously reported.
Item 3. Defaults Upon Senior Securities.
(a) None.
(b) None.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1998.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended March 31, 1998, a Current Report on Form
8-K was filed by the Company as follows:
(i) Date of Report: January 29, 1998
Item Reported: 5
2
<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.
May 14, 1998 By: /s/ Alan J. Rossi
------------------
Alan J. Rossi
Chairman of the Board and
Chief Executive Officer
May 14, 1998 By: /s/ Cynthia I. Terrell
-----------------------
Cynthia I. Terrell
Vice President and
Chief Financial Officer
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,953
<SECURITIES> 0
<RECEIVABLES> 15,964
<ALLOWANCES> 3,762
<INVENTORY> 1,111
<CURRENT-ASSETS> 23,382
<PP&E> 43,233
<DEPRECIATION> 18,812
<TOTAL-ASSETS> 94,063
<CURRENT-LIABILITIES> 37,197
<BONDS> 33,848
0
1,690
<COMMON> 76,105
<OTHER-SE> (50,669)
<TOTAL-LIABILITY-AND-EQUITY> 94,063
<SALES> 0
<TOTAL-REVENUES> 22,180
<CGS> 0
<TOTAL-COSTS> 16,810
<OTHER-EXPENSES> 7,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,378
<INCOME-PRETAX> (3,037)
<INCOME-TAX> 75
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,112)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
