THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Financial Statements
Form 10-QSB
June 30, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________________________
Commission file number 1-11784
The Netplex Group, Inc. (f/k/a CompLink, Ltd.)
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(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2824578
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8260 Greensboro Drive, 5th Floor, McLean, Virginia 22102
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(Address of Principal executive officers)
(703) 356-1717
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(Issuer's telephone number)
175 Community Drive, Great Neck, New York 11021
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(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of July 31, 1996, there were
6,447,608 shares of common stock outstanding.
(1)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 ............................................... 3
Consolidated Statements of Operations - Six and Three
Months ended June 30, 1996 and June 30, 1995 .................... 4
Consolidated Statement of Cash Flows - Six Months ended
June 30, 1996 and June 30, 1995 ................................. 5
Notes to Consolidated Financial Statements ........................ 6
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations ........................................... 9
Part II Other Information
Item 1-6 Other Information ........................................ 12
Signatures ........................................................ 13
(2)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
June 30, December 31,
1996 1995
---- ----
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 2,108,673 840,711
Accounts receivable, less allowance for
doubtful accounts of $118,000 and $46,000 3,191,704 3,326,171
Note receivable 79,492 --
Prepaid expenses and other current assets 198,038 105,244
----------- -----------
Total current assets 5,577,907 4,272,126
Furniture, fixtures and equipment, net 591,998 206,405
Loans receivable from officers 28,850 --
Other assets 163,001 22,334
Excess cost over fair value of net assets
acquired, net 386,510 399,838
----------- -----------
Total assets $ 6,748,266 4,900,703
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 4,238,038 3,533,107
Deferred revenue 131,439 399,437
Notes payable 400,000 100,000
Deferred income taxes 34,000 34,000
Loan payable 59,870 59,870
Due to affiliates -- 250,000
Obligations under capital leases 29,076 --
----------- -----------
Total current liabilities 4,892,423 4,376,414
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share;
2,000,000 shares authorized; none issued -- --
Common stock, par value $.01 per share;
20,000,000 shares authorized; 6,447,608 and
3,197,608 shares issued and outstanding 64,476 31,976
Additional paid-in capital 2,726,030 579,124
Accumulated deficit (934,663) (86,811)
----------- -----------
Total stockholders' equity 1,855,843 524,289
----------- -----------
Total liabilities and stockholders'
equity $ 6,748,266 4,900,703
=========== ===========
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 7,610,475 2,185,584 15,786,296 3,807,633
Cost of sales 6,428,210 1,473,675 13,559,945 2,463,697
----------- ----------- ----------- -----------
Gross profit 1,182,265 711,909 2,226,351 1,343,936
----------- ----------- ----------- -----------
Operating expenses:
Research and development 69,167 -- 69,167 --
Selling and marketing 244,986 125,135 457,269 236,147
General and administrative 1,456,623 549,669 2,545,020 1,039,755
----------- ----------- ----------- -----------
1,770,776 674,804 3,071,456 1,275,902
----------- ----------- ----------- -----------
Operating income(loss) (588,511) 37,105 (845,105) 68,034
----------- ----------- ----------- -----------
Other income (expense):
Interest income 2,301 -- 2,301 --
Interest expense (8,515) (1,802) (5,048) (3,604)
Other 2,511 -- -- --
----------- ----------- ----------- -----------
Income(loss) before income taxes (592,214) 35,303 (847,852) 64,430
----------- ----------- ----------- -----------
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income(loss) $ (592,214) 35,303 (847,852) 64,430
=========== =========== =========== ===========
Net income(loss) per share $ (0.15) 0.01 (0.23) 0.02
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 4,019,037 3,197,608 3,608,322 3,197,608
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
---------------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (847,852) 64,430
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 105,479 21,769
Provision for doubtful accounts 15,600 11,793
Change in assets and liabilities:
Accounts receivable 348,879 (682,733)
Prepaid expenses and other current assets 656,036 (110,313)
Accounts payable and accrued expenses (436,359) 673,708
Deferred revenue (405,067) (74,872)
----------- -----------
Net cash used in operating activities (563,284) (96,218)
----------- -----------
Investing activities:
Purchases of fixed assets (116,748) (14,874)
Notes receivable from officers (10,000) 0
Payments on note receivable 65,579 0
Cash acquired in CompLink acquisition 1,595,077 0
----------- -----------
Net cash provided (used) by
investing activities 1,533,908 (14,874)
----------- -----------
Financing activities:
Proceeds from borrowings under line of credit 300,000 200,000
Principal payments on capital lease obligations (2,662) 0
----------- -----------
Net cash provided by financing activities 297,338 200,000
----------- -----------
Increase in cash and cash equivalents 1,267,962 88,908
Cash and cash equivalents at beginning of year 840,711 133,523
----------- -----------
Cash and cash equivalents at end of period $ 2,108,673 222,431
=========== ===========
Supplemental information
Cash paid during the period for interest $ 5,048 25
=========== ===========
Cash paid during the period for income taxes $ 692 --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(1) Business and Basis of Presentation
Business
The Netplex Group, Inc. (the Company) was incorporated in 1986 to provide
computer consulting services. The Company designs, develops and integrates
network based information systems.
Basis of Presentation
The Company filed a Form 8-K on June 7, 1996 reporting the described
in footnote 2 below. The Company recorded the merger under the purchase
method of accounting as a reverse merger. The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
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, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended June
30, 1996 and the six month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
December 31, 1996.
(2) Merger
On June 7, 1996 the Company (formerly known as CompLink, Ltd.) acquired and
merged with The Netplex Group, Inc. and America's Work Exchange, Inc.
(combined referred to as Netplex) by issuing 3,250,000 shares of Common
Stock, or 50.4% of the Company's outstanding stock after giving effect to
the mergers. The agreement also provided for CompLink to assume 1,691,000
outstanding common stock options of the acquirees. Netplex is comprised of
two divisions: a computer systems integrator division and another division
that provides contract computer professionals to businesses and
organizations in need of project specific staffing and provides business
services and other benefits to contract computer professionals. The mergers
have been accounted for under the purchase method of accounting as a
reverse merger, since the shareholders of the acquirees, which have common
control, received the larger percentage of the voting rights of the
combined entity. The mergers resulted in a recapitalization of the
accounting
(6)
<PAGE>
acquirors so that the resulting capitalization after the mergers will be
that of CompLink, Ltd.'s giving effect to the new share issuance and the
elimination of CompLink, Ltd.'s accumulated deficit. The acquisition of the
assets and liabilities of CompLink, Ltd. have been accounted for at book
value, which approximates fair value. The statements of operations for the
six and three months ended June 30, 1996 reflect those of Netplex and those
of CompLink commencing June 1, 1996. Prior periods statements of operations
reflect only the results of Netplex. Coincident with the mergers, the
Company's name was changed from CompLink, Ltd. to The Netplex Group, Inc.
and The Netplex Group, Inc. changed its name to The Netplex Systems
Integration Group, Inc. ("Netplex Virginia").
The following unaudited pro forma results of operations present, on the
purchase basis of accounting, the consolidated results of operations of the
Company for the six months ended June 30, 1996 and for the year ended
December 31, 1995 as if the mergers had taken place on January 1, 1995
and reflect the historical results of operations of the purchased
businesses adjusted for goodwill amortization and increased common shares
outstanding from the mergers.
Unaudited
---------
Six Months
Ended Year Ended
June 30, December 31,
1996 1995
------------- --------------
(In thousands except for per share data)
Total revenues $ 16,603 $ 27,318
Net loss $ (2,175) $ (3,407)
Net loss per share $ (0.34) $ (0.52)
============ ============
Weighted average common
shares outstanding 6,448 6,496
============ ============
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase been
made at the beginning of the period, or the results which may occur in the
future.
(7)
<PAGE>
(3) Private Placement
In June 1996, the Company entered into a letter of intent whereby it
engaged two placement agents to raise up to $3,000,000 through the sale of
convertible preferred stock and warrants.
There is no assurance, however, that the Company will be able to sell any
securities through the above mentioned Private Placement and therefore the
Company may not raise any additional capital through such efforts or
otherwise.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Netplex Group, Inc. (the "Company" or "Netplex"), headquartered in McLean,
Virginia, is an information technology solutions provider.
Netplex's core business is based on offering a range of professional technical
services to large organizations who require assistance integrating information
technology into their operations. The Company employs approximately 280
full-time technical employees and has access to a database of several thousand
technical consultants who may be contracted for hire on an as-needed basis. The
Company's services focus on the design, implementation, and management of large
network-based systems. Occasionally, Netplex must resell technology products in
order to deliver customers fully integrated system-solutions. Netplex has
several Specialized Practice Groups focused on certain industries and advanced
technologies. Currently, Netplex has Specialized Practice Groups for Network and
Systems Management, Help Desk Automation, Disaster Recovery Planning,
Information Systems Security, Intranet Deployment, Wireless Data Communications,
Field Force Automation, and Law Firm Office Automation.
In addition to providing information technology services, Netplex's wholly owned
subsidiary, Technology Development Systems, Inc. ("TDS"), develops and markets
an award-winning communications software product under the trademarked name of
WorldLink. WorldLink is a message-oriented middleware product suited for
integrating a remote workforce (eg. salesforce), electronic supply chain
integration (eg. Manufacturer to distributor data interchange), and remote
on-line transaction processing (either over the World Wide Web or by direct
dial-up). WorldLink is a single-point communications solution facilitating
unattended access to most computing platforms.
Netplex has offices in the New York City, Central New Jersey, Chicago, and
Washington, D.C. metropolitan markets.
As described in Note 2 to Notes to Consolidated Financial Statements for the six
months ended June 30, 1996, the unaudited pro forma results of operations are
presented as if the mergers occurred on January 1, 1995.
Merger
On June 7, 1996 the Company (formerly known as CompLink, Ltd.) acquired and
merged with The Netplex Group, Inc. and America's Work Exchange, Inc. (combined
referred to as Netplex) by issuing 3,250,000 shares of Common Stock, or 50.4% of
the Company's outstanding stock after giving effect to the mergers. The
agreement also provided for CompLink to assume 1,691,000 outstanding common
stock options of the acquirees. Netplex is comprised of two divisions: a
computer systems integrator division and another division that
(9)
<PAGE>
provides contract computer professionals to businesses and organizations in need
of project specific staffing and provides business services and other benefits
to contract computer professionals. The mergers have been accounted for under
the purchase method of accounting as a reverse merger, since the shareholders of
the acquirees, which have common control, received the larger percentage of the
voting rights of the combined entity. The mergers resulted in a recapitalization
of the accounting acquirors so that the resulting capitalization after the
mergers will be that of CompLink, Ltd.'s giving effect to the new share issuance
and the elimination of CompLink, Ltd.'s accumulated deficit. The acquisition of
the assets and liabilities of CompLink, Ltd. have been accounted for at book
value, which approximates fair value. The statements of operations for the six
and three months ended June 30, 1996 reflect those of Netplex and those of
CompLink commencing June 1, 1996. Prior periods statements of operations reflect
only the results of Netplex. Coincident with the mergers the Company's name was
changed from CompLink, Ltd. to The Netplex Group, Inc.
Results of Operations
Three Months Ended June 30, 1996 and June 30, 1995
Revenues for the three months ended June 30, 1996 were $7,610,475 compared to
$2,185,584 for the same period in 1995, an increase of $5,424,891. The increase
was primarily due to the additional consulting revenue added to the Company's
systems integration and software revenue as a result of a merger between
America's Work Exchange, Inc. (AWE) and another entity. Gross profit margins
decreased to 15.5% for the quarter ended June 30, 1996 compared to 32.6% for the
same period in 1995. The decrease was due to the increased consulting revenues
which produce gross profit margins lower than systems integration and software
revenue. Gross profit dollars increased to $1,182,265 for the quarter ended June
30, 1996 compared to $711,909 for the same period in the prior year, an increase
of $470,356. This increase was a result of the additional consulting revenue,
improved profit margins on the systems integration revenue, and increased
revenues of the WorldLink software product. General and administrative expenses
increased from $549, 669 for the quarter ended June 30, 1995 to $1,456,623 for
the quarter ended June 30, 1996 due to the inclusion of such expenses from the
entities that merged with Netplex. Operating losses were $588,511 for the
quarter ended June 30, 1996, compared to an operating profit of $37,105 for the
same period in the prior year, a decrease of $625,616. This decrease was
primarily due to the operating expenses related to the development and marketing
of the WorldLink software product and the expansion of the Company's consulting
business. No provision for income taxes was required during the current period
due to the Company's incurrence of net operating loss carryforwards.
Six Months Ended June 30, 1996 and June 30, 1995
Revenues for the six months ended June 30, 1996 were $15,786,296 compared to
$3,807,633 for the same period in 1996, an increase of $11,978,663. The increase
was primarily due to the additional consulting revenue added to the Company's
systems integration and software revenue as a result of the merger involving
AWE. Gross profit margins decreased to 14.1% for the six months ended June 30,
1996 compared to 35.3%
(10)
<PAGE>
for the same period in 1995. The decrease was due to the increased consulting
revenues which produce gross profit margins lower than systems integration and
software revenue. Gross profit dollars increased to $2,226,351 for the six
months ended June 30, 1996 compared to $1,343,936 for the same period the prior
year, an increase of $882,415. This increase was a result of the additional
consulting revenue, improved profit margins on the systems integration revenue,
and increased revenues of the WorldLink software product. General and
administrative expenses increased from $1,039,755 for the six months ended June
30, 1995 to $2,545,020 for the six months ended June 30, 1996 due to the
inclusion of such expenses from the entity that merged with Netplex. Operating
losses were $845,105 for the six months ended June 30, 1996, compared to an
operating profit of $68,034 for the same period in the prior year, a decrease of
$913,139. The decrease was primarily due to the operating expenses related to
the development and marketing of the WorldLink software product and the
expansion of the Company's consulting business. No provision for income taxes
was required during the current period due to the Company's incurrence of net
operating loss carryforwards.
Liquidity and Capital Resources
The Company had $685,484 in working capital as of June 30, 1996, compared with a
working capital deficit of $104,288 as of December 31, 1995, an increase of
$789,772. The increase in working capital was primarily due to the combining of
the additional working capital of CompLink, Ltd. as a result of the merger.
As of June 30, 1996, Netplex had a $500,000 bank line of credit. In August 1996
the credit line was increased to the lesser of $750,000 or 75% of eligible
accounts receivable. This loan is personally guaranteed by the Chief Executive
Officer until such time that the Company meets certain working capital
requirements. Interest is payable on the outstanding loan balance at the bank's
prime interest rate plus 1%.
Capital expenditures for the quarter ended June 30, 1996 were approximately
$116,000. Capital expenditures for the balance of 1996 are anticipated to be
$150,000.
The Company anticipates that the cash on hand will not be adequate to meet the
Company's expected cash requirements for the next 12 months. Accordingly, the
Company has entered into a letter of intent with respect to a Private Placement
offering to sell Preferred Stock to raise additional cash. There is no assurance
that such private placement will be consumated or that additional equity or debt
financing will be available to the Company. (See "Note 3 - Private Placement").
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all forward-
looking statements involve risks and uncertainty, including without limitation,
future financings and expenses, as well as general market conditions. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Form 10-QSB will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
Inflation
Inflation has not had and the Company does not expect inflation to have a
significant adverse impact on its operations.
(11)
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
On May 24, 1996, the shareholders of the Company approved an Agreement
and Plan of Reorganization and Merger by and among the Company,
Netplex Virginia and AWE. 2,264,557 shares voted in favor; 7,700
shares voted against; and 1,200 shares abstained. The shareholders
also approved an amendment to the Company's 1992 Incentive and
Non-Qualified Stock Option Plan (the "Plan") increasing the number of
shares authorized for issuance under the Plan. 2,194,589 shares voted
in favor; 77,068 shares voted against; and 1,800 shares abstained.
Finally, the shareholders approved an amendment to the Company's
Amended and Restated Certificate of Incorporation which increased the
Company's authorized capital to 20,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. 2,512,991 shares voted in favor;
46,100 shares voted against; and 36,435 shares abstained.
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No exhibits.
(b) On June 10, 1996, the Registrant filed a Form 8-K under Item 2.
Acquisition or Disposition of Assets.
(12)
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Netplex Group, Inc.
Date: August 8, 1996 By: /s/ Gene Zaino
---------------------------------
Gene Zaino, President and CEO
(Principal Executive Officer) and
Chairman of the Board
Date: August 8, 1996 By: /s/ Kathryn Eggleston
---------------------------------
Kathryn Eggleston, Corporate Controller
(Principal Accounting Officer)
and Treasurer
(13)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FRO
THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 AN
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMEN
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,108,673
<SECURITIES> 0
<RECEIVABLES> 3,310,247
<ALLOWANCES> 118,543
<INVENTORY> 0
<CURRENT-ASSETS> 5,577,907
<PP&E> 970,276
<DEPRECIATION> 378,278
<TOTAL-ASSETS> 6,748,266
<CURRENT-LIABILITIES> 4,892,423
<BONDS> 0
0
0
<COMMON> 64,476
<OTHER-SE> 1,791,367
<TOTAL-LIABILITY-AND-EQUITY> 6,748,266
<SALES> 7,610,475
<TOTAL-REVENUES> 7,610,475
<CGS> 6,428,210
<TOTAL-COSTS> 6,428,210
<OTHER-EXPENSES> 1,774,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (592,214)
<INCOME-TAX> (0)
<INCOME-CONTINUING> (592,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (592,214)
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
