SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Form 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JUNE 7, 1996
THE NETPLEX GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 1-11784 11-2824578
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8260 GREENSBORO DRIVE, 5TH FLOOR, MCLEAN, VIRGINIA 22102
- --------------------------------------------------------------------------------
Address of principal executive offices
Registrant's telephone number, including area code: (703) 356-1717
175 COMMUNITY DRIVE, GREAT NECK, NEW YORK 11021
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(a) The Registrant hereby amends Item 7 of this Form 8-K
by including the requisite Financial Statements of The Netplex
Group, Inc. ("Netplex"), America's Work Exchange, Inc. ("AWE") and
Software Resources of New Jersey, Inc. ("SNJ").
(b) The Registrant hereby amends Item 7 of this Form 8-K by
including the requisite pro forma financial information of the mergers between
the Registrant and Netplex and AWE.
(c) EXHIBIT NO. EXHIBITS
99(a) Agreement and Plan of Reorganization
and Merger, dated as of November 20,
1995, by and among the Registrant,
Netplex and AWE (previously filed on
this Report on Form 8-K).
99(b) Financial Statements of Netplex, AWE and
SNJ and ProForma Financial Information
(filed herewith).
SIGNATURE
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 hereunto duly authorized.
THE NETPLEX GROUP, INC.
Dated: August 6, 1996 By: /s/ Gene Zaino
-----------------------------
Gene Zaino
Chairman of the Board
and President
-2-
KPMG
The Global Leader
THE NETPLEX GROUP, INC.
Financial Statements
December 31, 1995
(With Independent Auditors' Report Thereon)
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
Independent Auditors' Report
Stockholders
The Netplex Group, Inc.:
We have audited the accompanying balance sheet of The Netplex Group, Inc. as of
December 31, 1995 and the related statements of earnings and retained earnings
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Netplex Group, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
February 20, 1996
<PAGE>
THE NETPLEX GROUP, INC.
Balance Sheet
December 31, 1995
Assets
Current assets:
Cash $ 18,991
Accounts receivable, less allowance for
doubtful accounts of $46,000 1,361,505
Inventory 27,583
Prepaid expenses and other current assets 16,117
Due from related party, net 100,000
----------
Total current assets 1,524,196
Furniture, fixtures and equipment, net 95,779
Other assets 19,676
----------
Total assets $1,639,651
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 617,195
Deferred revenue 399,437
Note payable, bank 100,000
Note payable 250,000
----------
Total current liabilities 1,366,632
----------
Stockholders' equity:
Common stock, no par value; 20,000,000
shares authorized; 14,877,500 shares
issued and outstanding 226,000
Retained earnings 47,019
----------
Total stockholders' equity 273,019
----------
Total liabilities and stockholders' equity $1,639,651
==========
See accompanying notes to financial statements.
<PAGE>
THE NETPLEX GROUP, INC.
Statement of Earnings and Retained Earnings
Year ended December 31, 1995
Revenue $ 6,270,081
Cost of revenue 3,577,790
-----------
Gross profit 2,692,291
Selling, marketing and general and administrative
expenses 2,652,387
-----------
Earnings from operations 39,904
Interest expense (9,888)
-----------
Earnings before provision for income taxes 30,016
Provision for income taxes 12,000
-----------
Net earnings 18,016
Retained earnings, January 1, 1995 29,003
-----------
Retained earnings, December 31, 1995 $ 47,019
===========
See accompanying notes to financial statements.
<PAGE>
THE NETPLEX GROUP, INC.
Statement of Cash Flows
Year ended December 31, 1995
Operating activities:
Net earnings $ 18,016
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation 14,058
Compensation expense associated with stock awards 4,000
Deferred income taxes 12,000
Changes in assets and liabilities:
Accounts receivable (774,680)
Inventory 28,506
Prepaid expenses and other current assets 23,115
Due to related party 50,000
Other assets (14,095)
Accounts payable and accrued expenses 154,184
Deferred revenue 310,472
---------
Net cash used in operating activities (174,424)
---------
Investing activities:
Capital expenditures (84,685)
---------
Net cash used in investing activities (84,685)
---------
Financing activities:
Line of credit advances 475,000
Line of credit repayments (375,000)
Proceeds from note payable 250,000
Amount advanced to related party (150,000)
Repayments of advances to related party (60,000)
---------
Net cash provided by financing activities 140,000
---------
Decrease in cash (119,109)
Cash at January 1, 1995 138,100
---------
Cash at December 31, 1995 $ 18,991
=========
Supplemental information
Cash paid (refunded) during the year for:
Interest $ 9,087
=========
Income taxes $ (13,025)
=========
See accompanying notes to financial statements.
<PAGE>
THE NETPLEX GROUP, INC.
Notes to Financial Statements
December 31, 1995
(1) Business and Summary of Significant Accounting Policies
Basis of Presentation
The Netplex Group, Inc. (the Company) was incorporated in the State of
Virginia on September 11, 1986 under the name of SEARA Information
Strategy Corp. In May 1991, the Company was sold to CompuServe
Incorporated and changed its name to CompuServe Systems Integration
Group Mid-Atlantic, Inc. On April 15, 1994, the Company changed its name
to The Netplex Group, Inc. upon acquisition of the Company by new
shareholders.
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 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 results could differ from those
estimates.
Nature of Business
The Company operates in a single segment, the computer service industry as
a computer network systems integrator providing networked based systems
to the commercial marketplace. The Company also resells certain computer
hardware and software products and offers consulting, software
programming, implementation and training services.
Inventory
Inventory consists of computer supplies and parts and is stated at the
lower of cost or market, with cost being determined principally by the
first-in first-out method.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives (5 to 7 years) of the
respective assets using principally the straight-line method. Leasehold
improvements are amortized using the straight-line method over the
lesser of the lease term or estimated useful life of the assets.
Revenue Recognition
The Company recognizes revenue from computer hardware product sales when
products are delivered. The Company recognizes revenue from software
sales and licenses when the software is delivered provided no
significant vendor and post-contract customer support (PCS) obligations
remain and collectibility of the resulting receivables is probable. The
Company provides a liability for insignificant vendor obligations
related to recorded revenue. Consulting fees derived from installation,
programming, training and other services are recognized when the
services are performed. Deferred revenue represents the unearned portion
of maintenance and service contract fees received which are included in
revenue on a prorata basis over the life of the maintenance contracts or
as the services are performed for service contracts. The Company has not
provided any PCS other than that performed under maintenance agreements.
(Continued)
<PAGE>
2
THE NETPLEX GROUP, INC.
Notes to Financial Statements, Continued
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(2) Concentration of Credit Risk
The Company sells its products and services principally to major
corporations, law firms and trade associations. Accounts receivable
arise from sale of products and rendering of services. The Company
extends credit to its customers based on their individual
creditworthiness without collateral. For the year ended December 31,
1995 there were two customers that accounted for greater than 10% of the
Company's revenue (33% and 22%, respectively).
(3) Related Party Transactions
The Company has had operating and financing transactions with a related
company, America's Work Exchange, Inc. (AWE), a company with certain
common ownership interests. Advances are non-interest bearing and due on
demand. Activity and amounts due to and due from AWE as of and for the
year ended December 31, 1995 is as follows:
Sales $ 89,462
Purchases 153,638
Management fee expense 50,000
Trade accounts receivable 32,113
Trade accounts payable 53,857
Advances receivable, net 100,000
=========
(4) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment less accumulated depreciation and
amortization at December 31, 1995 is as follows:
Office furniture and equipment $ 14,789
Computer equipment 60,060
Computer software 21,750
Leasehold improvements 16,033
---------
112,632
Less: accumulated depreciation
and amortization 16,853
---------
$ 95,779
=========
(Continued)
<PAGE>
3
THE NETPLEX GROUP, INC.
Notes to Financial Statements, Continued
(5) Financing Arrangements
The Company entered into a $500,000 bank line of credit agreement that
expires June 28, 1996 that provides for advances on the line of credit
of 80% of eligible accounts receivable (as defined) up to $500,000.
Amounts borrowed bear interest at various rates as defined under the
agreement, including the bank's reference rate of prime (8.5% at
December 31, 1995) plus 1%. Under this agreement, the Company must
maintain certain levels of tangible net worth among other financial
covenants. The Company was not in compliance with certain of its debt
covenants at December 31, 1995 and this line of credit is due on demand.
The borrowing arrangement is collateralized by the Company's assets and
is personally guaranteed by two stockholders of the Company. The amount
outstanding under the line of credit at December 31, 1995 was $100,000.
The Company was advanced $250,000 in November 1995 by CompLink Ltd.
(CompLink) in anticipation of the planned merger (note 10). Such amounts
are repayable on demand on or after December 31, 1996 or if the Company
materially (as defined) breaches the merger agreement (note 10) with
CompLink. Interest, at an amount to be determined, will accrue if the
planned merger is not consummated on or before March 31, 1996. In
conjunction with this advance, the Company subsequently transferred
$150,000 to another company party to the merger transaction, AWE, prior
to December 31, 1995 under similar terms as the CompLink advance (note
3), which advance was offset by a $50,000 management fee.
(6) Income Taxes
The components of the provision for income taxes for the year ended
December 31, 1995 is as follows:
Deferred:
Federal $ 12,000
--------
$ 12,000
The net deferred tax asset at December 31, 1995 consists of the following:
Accounts receivable reserves $ 18,000
Depreciation 16,000
--------
34,000
Valuation allowance (34,000)
--------
Net deferred income taxes $ --
========
The Company has provided a valuation allowance for its deferred tax asset
since the Company could not conclude it was more likely than not that it
would realize this asset due principally to the Company's recent taxable
losses. There was no valuation allowance for the deferred tax asset as
of January 1, 1995.
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory Federal income tax rate to earnings
before provision for income taxes for the year ended December 31, 1995
is as follows:
Income tax expense at 34% $ 10,200
Other 1,800
--------
$ 12,000
(Continued)
<PAGE>
4
THE NETPLEX GROUP, INC.
Notes to Financial Statements, Continued
As of December 31, 1995, the Company has no available net operating loss
carryforward.
(7) Employee Benefits
In March 1995, the Company adopted a 401(k) savings plan for the benefit
of qualified employees. The Company does not provide postretirement or
postemployment benefits to employees.
(8) Commitments
(a) Leases
The Company leases its Virginia and New Jersey office facilities under
long-term operating lease arrangements which expire in March 2000 and
April 2005, respectively. The leases require monthly payments of $8,015
and $4,783, respectively. The Virginia lease includes a 3% increase in
base rent annually and both leases contain escalation provisions for
certain costs incurred by the lessor. The Company also leases certain
office furniture and equipment. Future minimum lease payments required
under the leases are as follows:
1996 $ 191,764
1997 194,713
1998 172,299
1999 166,331
2000 61,157
=========
Rent expense amounted to $116,229 for the year ended December 31, 1995.
(b) Employment Contracts
The Company and three employees entered into employment contracts in May
1994 for a period of three years. The contracts stipulate base salaries
aggregating $240,000, subject to annual performance increases and may be
terminated by the Company at will upon four weeks notice and include a
one year's covenant not to compete upon such termination.
(9) Stock Plans
(a) Restricted Stock Award Plan
On April 26, 1994, the Company established a restricted stock plan
whereby the Board of Directors was authorized to issue up to 1,500,000
common shares to nominated employees in recognition of outstanding
performance. During April 1995, 85,000 shares were issued resulting in
compensation expense of approximately $4,000. As of December 31, 1995,
1,432,500 shares were issued under the plan. The Company has the first
right to purchase all employee shares issued under the plan at a price
in accordance with the agreement. During 1995, 55,000 shares were
acquired for a total of $900.
(b) Stock Option Plan
Effective as of November 17, 1995 the Company adopted an incentive and
non-qualified stock option plan. This option plan provides for the
issuance of options to purchase up to 1,116,000 shares of (Continued)
(Continued)
<PAGE>
5
THE NETPLEX GROUP, INC.
Notes to Financial Statements, Continued
common stock and provides that all key Company employees are eligible to
receive incentive and/or non-qualified stock options. The options will
vest over a three year period and expire in ten years. During 1995 the
Company granted options to purchase 1,116,000 shares of common stock
under the option plan at an exercise price of $.35, including options to
purchase 775,000 shares granted to officers of the Company. All options
outstanding under the option plan and unexercised upon consummation of
the merger (note 10) will be assumed by CompLink and will be exchanged
for an equal number of CompLink stock options at similar terms except at
an exercise price equal to the original exercise price divided by a
share conversion ratio of .1176272. Based on the conversion ratio and
market value of CompLink's common stock, the exercise price of the
option on the date of the grant approximated the market value of the
Company's common stock.
(10) Merger Agreement
On November 20, 1995, the Company entered into an agreement and plan of
reorganization and merger with CompLink whereby each outstanding share
of the Company's common stock will be exchanged for .1176272 shares of
CompLink's common stock. The agreement contemplates that a subsidiary of
CompLink will merge into the Company after which the Company's
shareholders will own approximately 27% of CompLink. The merger is
subject to shareholder approval and there can be assurance that the
agreement and plan of reorganization and merger will be approved and
that the transaction contemplated by the agreement will close or become
effective.
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems
Integration Group Mid-Atlantic, Inc.)
FINANCIAL STATEMENTS
APRIL 15, 1994 (Date of Acquisition)
TO DECEMBER 31, 1994
with
INDEPENDENT AUDITORS' REPORT
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
December 31, 1994
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
119 West 57th Street, Suite 1210
New York, New York 10019
Telephone 212-245-0283
Facsimile 212-265-6635
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
THE NETPLEX GROUP, INC.
We have audited the accompanying balance sheet of THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.) as of
December 31, 1994, and the related statements of operations, stockholders'
equity and cash flows for the period April 15, 1994 (date of acquisition) to
December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of THE NETPLEX GROUP, INC. as of
December 31, 1994, and the results of its operations and its cash flows for the
period April 15, 1994 (date of acquisition) to December 31, 1994 in conformity
with generally accepted accounting principles.
New York, New York
November 27, 1995
-1-
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Balance Sheet
December 31, 1994
Assets
Current assets:
Cash $ 38,100
Accounts receivable, less allowance for
doubtful accounts of $21,793 (Note 4) 586,825
Inventories 56,089
Prepaid income taxes 13,025
Deferred tax asset (Note 5) 12,000
Other assets 26,207
--------
Total current assets 832,246
--------
Furniture and equipment, at cost (Note 1(h))
Office furniture and equipment 2,080
Data processing equipment 16,901
Computer software 8,966
--------
27,947
Accumulated depreciation and amortization 2,795
--------
Net furniture and equipment 25,152
--------
Security Deposit 5,581
--------
Total assets $862,979
========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $431,997
Deferred revenue 88,965
Loan payable (Note 6) 60,000
Payroll and sales taxes payable 31,014
--------
Total liabilities 611,976
--------
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock - without par value;
authorized 20,000,000 shares; issued
and outstanding 14,847,500 shares 222,000
Retained earnings 29,003
--------
Total stockholders' equity 251,003
--------
Total liabilities and stockholders' equity $862,979
========
The accompanying notes are an integral part of these financial statements.
-2-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Statement of Operations
April 15, 1994 (Date of Acquisition) to December 31, 1994
Revenues (Note 1) $3,612,009
Cost of revenues 2,302,072
----------
Gross profit 1,309,937
Selling, general and administrative expenses 1,292,521
----------
Operating income 17,416
Interest expense 413
----------
Income before income tax benefit 17,003
Income tax benefit (Note 5) 12,000
----------
Net profit $ 29,003
==========
The accompanying notes are an integral part of these financial statements.
-3-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Statement of Changes in Stockholders' Equity
April 15, 1994 (Date of Acquisition) to December 31, 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at April 15, 1994 -
Date of Acquisition 2,000 $ 100,000 $ -- $ -- $ 100,000
Net income 29,003 29,003
Cancellation of no par value
common stock in connection
with stock split (note 9) (2,000) (100,000) 100,000 --
Issuance of no par value common
stock in connection with
stock split (note 9) 10,560,000 100,000 (100,000) --
Sale of common stock 1,440,000 100,000 -- 100,000
Common stock issued to
employees 2,847,500 22,000 -- 22,000
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 14,847,500 $ 222,000 $ -- $ 29,003 $ 251,003
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
Statement of Cash Flows
April 15, 1994 (Date of Acquisition) to December 31, 1994
Cash flows from operating activities:
Net income $ 29,003
---------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,795
Changes in operating assets net of acquired liabilities:
Increase in accounts receivable (341,500)
Increase in inventories (22,389)
Increase in prepaid income taxes (13,025)
Increase in deferred tax asset (12,000)
Increase in other assets (11,558)
Increase in security deposit (5,581)
Increase in accounts payable and accrued expenses 376,940
Increase in payroll and sales taxes payable (73,055)
Decrease in deferred revenue 29,563
---------
Total adjustments (69,810)
---------
Net cash used in operating activities (40,807)
---------
Cash flows from investing activities:
Purchase of furniture and equipment (27,947)
---------
Net cash used in investing activities (27,947)
---------
Cash flows from financing activities:
Sale of common stock 100,000
Common stock issued to employees (Note 10) 22,000
Borrowings from related entity 60,000
---------
Net cash provided by financing activities 182,000
---------
Net increase in cash 113,246
Cash at beginning of period 24,854
---------
Cash at end of period $ 138,100
=========
Supplemental disclosure of cash flow information:
Income taxes paid during the year $ 1,579
=========
The accompanying notes are an integral part of these financial statements.
-5-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
(a) Change in name and ownership
The Company was incorporated in the State of Virginia on September 11,
1986 under the name of SEARA Information Strategy Corp. In May, 1991,
the Company was sold to CompuServe Incorporated and changed its name
to CompuServe Systems Integration Group Mid-Atlantic, Inc. On April
15, 1994, the Company changed its name to THE NETPLEX GROUP, INC. upon
the acquisition of the Company by new shareholders.
(b) Nature of business
The Company operates a single segment business in the computer service
industry as a computer network systems integrator providing networked
based systems to the commercial marketplace. The Company also resells
certain computer products and offers consulting, software programming,
implementation and training services.
(c) Cash
For the purpose of the statement of cash flows, cash includes demand
deposits with commercial banks.
(d) Inventory valuation
Inventories consist of computer supplies and repair parts and are
stated at the lower of cost or market, with cost being determined
principally by the first-in-first-out method.
(e) Depreciation and amortization
Depreciation of furniture and equipment is provided over the estimated
useful lives of the respective assets using principally the
straight-line method. Computer software is amortized over five years
using the straight-line method. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
(f) Revenue recognition
The Company recognizes revenue from product sales when products are
shipped or delivered, provided no significant vendor and post contract
customer support (PCS) obligations remain and collectibility of the
resulting receivable is probable. The Company provides a liability for
(Continued)
-6-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
insignificant vendor obligations related to recorded revenue. Revenue
from services are recognized based on the performance of tasks as
defined in the contracts. Deferred revenue represents the unearned
portion of maintenance and service contracts sold which are included
in revenue over the life of the contracts. The Company has not
provided any PCS other than that performed under maintenance and
service agreements.
(g) Income taxes
Effective January 1, 1994, the Company adopted the method of
accounting for income taxes prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 109. The effect of the adoption of
SFAS No. 109 was not material.
(h) Acquisition of the Company
On April 15, 1994, new shareholders acquired the stock of the Company
for $100,000. The transaction was accounted for as a purchase.
Accordingly, the purchase price was allocated to the assets and
liabilities acquired in accordance with their fair values at the date
of acquisition. The acquisition resulted in an excess of net assets
acquired over cost of $113,970. Such excess has been allocated to the
noncurrent assets acquired in the acquisition.
(2) Concentration of credit risk
The Company sells its products and services principally to law firms, trade
associations and large multi-location companies. Accounts receivable arise
from sale of products and rendering of services. The Company extends credit
to its customers based on their individual creditworthiness without
collateral.
(3) Major customer
A significant portion of the Company's business is received from a few
customers the loss of which could have a material effect on the Company.
For the period April 15, 1994 (Date of Acquisition) to December 31, 1994,
approximately 15% of total gross profit was attributable to one customer.
(4) Accounts receivable
Included in accounts receivable are unbilled receivables of $275,408 which
will be billed and collected in accordance with contractual agreements. It
is anticipated that all unbilled receivables will be billed and collected
in 1995.
(Continued)
-7-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(5) Income taxes
The net deferred tax asset at December 31, 1994 consist of the following:
Net operating loss carryforward $ 12,000
Valuation allowance 0
--------
$ 12,000
========
The deferred tax asset balance results from the tax benefit of a net
operating loss carryforward. As it is more likely than not that the future
tax benefit of the net operating loss carryforward will be realized, no
valuation allowance has been recorded for the deferred tax asset.
The components of the income tax benefit for the period April 15, 1994
(Date of Acquisition) to December 31, 1994 are as follows:
Currently payable:
Federal $ 0
State and local 0
--------
0
--------
Deferred tax asset:
Federal (8,200)
State and local (3,800)
--------
(12,000)
--------
Income tax benefit $(12,000)
========
A reconciliation of income taxes at the statutory rate to the Company's
effective rate is as follows:
Statutory rate (34.0)%
Net operating loss carryforwards 34.0 %
-----
Effective income tax rate -- %
=====
As of December 31, 1994, the Company has a net operating loss carryforward
of approximately $24,000 that may be used to offset future taxable income.
The loss carryforward expires in the year 2010.
(Continued)
-8-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(6) Related party transaction
During 1994, the Company borrowed $60,000 from an entity owned by three
shareholders of the Company. At December 31, 1994, the unpaid balance was
$60,000. The loan bears no interest and has no stated maturity date.
(7) Employee benefits
The Company does not provide postretirement or postemployment benefits to
employees. The cost of employee benefits and compensated leave are accrued
as they are vested to the employee.
(8) Lease commitment
The Company leases its office facility under a long-term operating lease
arrangement which expires in March 2000. The lease requires monthly
payments of $8,015 and a 3% increase in base rent annually, and an
escalation provision for certain costs incurred by the lessor. Future
minimum lease payments over the next five years and in the aggregate
thereafter are as follows:
Year Ending December 31, Minimum Payment
1995 $ 96,186
1996 99,072
1997 102,044
1998 105,105
1999 108,258
Thereafter 27,877
---------
$ 538,542
=========
Rent expense amounted to $54,434 for the period April 15, 1994 (Date of
Acquisition) to December 31, 1994.
(9) Common Stock Conversion
On April 26, 1994, the Board of Directors approved (a) an increase in the
authorized number of shares of the Company to 20,000,000 shares of common
stock without par value, and (b) the issuance of 5,280 shares of common
stock for each share of common stock outstanding at October 11, 1994. The
Company issued 10,560,000 shares of common stock to effectuate the stock
split. At December 31, 1994, 14,487,500 shares of common stock were
outstanding.
(Continued)
-9-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(10) Incentive Stock Award Plan
The Company has a restricted stock plan whereby the Board of Directors
authorize the officers to grant awards to nominated employees in
recognition of outstanding performance. During 1994, 1,347,500 shares were
issued under the plan and the related costs were charged to operations.
(11) Pro Forma Results of Operations
The following pro forma information represents the results of operations as
though the Company had been acquired at the beginning of the year:
Revenues (Note 1)
Cost of revenues
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Interest expense
Income (loss) before income tax benefit
Income tax benefit (Note 5)
Net income (loss)
(12) Subsequent Events (Unaudited)
(a) Borrowing Arrangement
The Company entered into a $500,000 bank line of credit agreement
dated June 28, 1995. Amounts borrowed bear interest at various rates
as defined under the agreement, including the banks reference rate of
prime plus 1 percent. Under this agreement, the Company must maintain
certain levels of working capital and net worth and is subject to
certain restrictive covenants. The borrowing agreement is
collateralized by the Company's assets and is personally guaranteed by
two stockholders of the Company.
(Continued)
-10-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(12) Subsequent Events (Unaudited) (continued)
(b) Merger Agreement
On November 17, 1995, the Company entered into an agreement and plan
of reorganization and merger with Complink Ltd. The agreement
contemplates that a subsidiary of Complink Ltd. will merge into the
Company after which the Company's shareholders will own approximately
27 percent of Complink Ltd. The agreement is subject to shareholder
approval and there can be no assurance that the agreement and plan of
reorganization and merger will be approved and that the transaction
contemplated by the agreement will close or become effective.
(c) Employee benefits
In March 1995, the Company adopted a 401(k) saving plan for the
benefit of qualified employees.
(d) Lease commitments
The Company entered into new long-term operating agreements for the
lease of office space and certain equipment under various
noncancellable operating leases. Future minimum lease payments
required under the leases are as follows:
Year Ending December 31, Minimum Payment
------------------------ ---------------
1995 $ 120,407
1996 184,719
1997 187,669
1998 170,661
1999 166,331
Thereafter 61,157
---------
$ 890,944
=========
(Continued)
-11-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
THE NETPLEX GROUP, INC.
(Formerly CompuServe Systems Integration Group Mid-Atlantic, Inc.)
Notes to Financial Statements
(12) Subsequent Events (Unaudited) (continued)
(e) Stock Option Plan
On November 17, 1995, the Company adopted an incentive and
nonqualified stock option plan entitled "The 1995 Incentive and
Nonqualified Stock Option Plan." The incentive provision of the plan
is intended to qualify under Section 422 of the Internal Revenue Code.
Under the terms of the plan, options to purchase common stock are
granted at not less than the estimated fair market value at the date
of the grant and are exercisable during specified future periods.
A summary of stock options granted are as follows:
Options Shares Exercise Price
Granted Issued per Share
------- ------ ---------
Incentive stock options 1,116,000 0 $0.35
Nonqualified stock options 0 0 $0.35
--------- ----
1,116,000 0
========= ====
-12-
TOCCI, GOLDSTEIN & COMPANY LLP
Certified Public Accountants
<PAGE>
AMERICA'S WORK EXCHANGE, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
Independent Auditors' Report
Stockholders
America's Work Exchange, Inc.
and Subsidiary:
We have audited the accompanying consolidated balance sheets of America's Work
Exchange, Inc. and subsidiary (a development stage company) as of December 31,
1995 and 1994 and the related consolidated statements of operations and deficit
accumulated during the development stage and cash flows for the year ended
December 31, 1995 and for the period April 21, 1994 (inception) to December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America's Work Exchange, Inc.
and subsidiary (a development stage company) as of December 31, 1995 and 1994
and the results of their operations and their cash flows for the year ended
December 31, 1995 and for the period April 21, 1994 (inception) to December 31,
1994 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
February 27, 1996
<PAGE>
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 821,720 74,879
Accounts receivable 1,964,666 --
Amounts receivable from related party 53,857 60,000
Prepaid expenses 4,382 --
Income taxes receivable 30,168 --
----------- --------
Total current assets 2,874,793 134,879
Furniture, fixtures and equipment, net 110,626 6,066
Costs in excess of fair value of net assets acquired 399,838 --
Other assets 2,658 --
----------- --------
Total assets $ 3,387,915 140,945
=========== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 2,915,912 --
Amounts payable to related party 26,863 12,000
Deferred income taxes 34,000 --
Advance from related party, net 100,000 --
Loan payable 59,870 --
----------- --------
Total current liabilities 3,136,645 12,000
----------- --------
Loan payable -- 59,870
----------- --------
Stockholders' equity:
Common stock, Par value $.001 per share;
25,000,000 shares authorized, 7,918,750
and 10,000,000 issued and outstanding,
respectively 7,919 10,000
Additional paid-in-capital 377,181 90,100
Deficit accumulated during the development stage (133,830) (31,025)
----------- --------
Total stockholders' equity 251,270 69,075
----------- --------
Commitments
Total liabilities and stockholders' equity $ 3,387,915 140,945
=========== ========
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations and Deficit Accumulated
During the Development Stage
For the year ended December 31, 1995 and the period
April 21, 1994 (inception) to December 31, 1994 and
December 31, 1995
<TABLE>
<CAPTION>
Apr. 21, 1994 Apr. 21, 1994
Year ended (inception) to (inception) to
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenue $ 162,338 -- 162,338
Cost of revenue 131,355 -- 131,355
--------- --------- ---------
Gross profit 30,983 -- 30,983
Selling, marketing and general and
administrative expenses 126,580 29,438 156,018
--------- --------- ---------
Loss from operations (95,597) (29,438) (125,035)
Interest expense, net (7,208) (1,587) (8,795)
--------- --------- ---------
Loss before provision for income taxes (102,805) (31,025) (133,830)
Provision for income taxes -- -- --
Net loss (102,805) (31,025) (133,830)
Deficit accumulated during the development
stage, beginning of period (31,025) -- --
--------- --------- ---------
Deficit accumulated during the development
stage, end of period $(133,830) (31,025) (133,830)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the year ended December 31, 1995 and the period
April 21, 1994 (inception) to December 31, 1994 and
December 31, 1995
<TABLE>
<CAPTION>
Apr. 21, 1994 Apr. 21, 1994
Year ended (inception) to (inception) to
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995
------------- ------------- -------------
Operating activities:
<S> <C> <C> <C>
Net loss $(102,805) (31,025) (133,830)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 5,000 -- 5,000
Changes in assets and liabilities, net
of effects of acquisition:
Amounts receivable from related party 6,143 -- 6,143
Accounts payable and accrued expenses 63,712 -- 63,712
Amounts payable to related party 14,863 12,000 26,863
--------- --------- ---------
Net cash used in operating activities (13,087) (19,025) (32,112)
--------- --------- ---------
Investing activities:
Capital expenditures (31,007) (6,066) (37,073)
Cash acquired in acquisition 690,935 -- 690,935
--------- --------- ---------
Net cash provided by (used in)
investing activities 659,928 (6,066) 653,862
--------- --------- ---------
Financing activities:
Proceeds on advance from related party, net 100,000 (60,000) 40,000
Loan payable advance -- 59,870 59,870
Proceeds on capitalization -- 100,100 100,100
--------- --------- ---------
Net cash provided by financing activities 100,000 99,970 199,970
--------- --------- ---------
Increase in cash and cash equivalents 746,841 74,879 821,720
Cash and cash equivalents at beginning of period 74,879 -- --
--------- --------- ---------
Cash and cash equivalents at end of period $ 821,720 74,879 821,720
========= ========= =========
Supplemental information
Cash paid during the periods for:
Interest $ 8,993 2,245 11,238
========= ========= =========
Income taxes $ -- -- --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Business and Significant Accounting Policies
Business and Basis of Presentation
America's Work Exchange, Inc. (AWE or the Company) was formed in April 1994
as a contingency staffing firm which will provide contract computer
professionals to organizations in need of project specific staffing. The
Company was in its development stage through December 31, 1995 but began
to generate revenues from computer consulting services during the year
ended December 31, 1995. The Company is still in the development stage
at December 31, 1995 because it has not commenced generating revenues
from its planned primary business activities.
As of December 28, 1995, the Company acquired Software Resources of New
Jersey, Inc. (SRNJ) in a transaction accounted for as a purchase with
SRNJ becoming a wholly-owned subsidiary of the Company (note 2). SRNJ
was incorporated in 1985 as a data processing consultant cooperative
serving the New York Metropolitan area. SRNJ provides computer
programming consulting services to customers, while providing business
and administrative services to its programmer employees. All significant
intercompany transactions and balances have been eliminated in
consolidation.
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 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 results could differ from those
estimates.
Revenue Recognition
The Company and SRNJ recognize revenue as contract computer consulting
services are performed and the cost of service is incurred.
Cash Equivalents
The Company considers all highly liquid investments with a maturity, at
date of purchase, of three months or less to be cash equivalents. Cash
equivalents at December 31, 1995 and 1994 are comprised of demand
deposit, money market accounts and a mutual fund account. Non-cash
investing activities for the year ended December 31, 1995 include the
issuance of 2,262,500 shares of common stock to acquire SRNJ (note 2)
and the cancellation of 4,343,750 shares held by two shareholders (note
11).
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
provided for over the estimated useful lives of the assets on a
straight-line basis upon placement in service.
Costs in Excess of Fair Value of Net Assets Acquired
The costs in excess of fair value of net assets acquired (goodwill) is
being amortized on a straight-line basis over fifteen years. The
recovery of the unamortized goodwill balance is evaluated utilizing the
undiscounted net earnings of the acquired company.
(Continued)
<PAGE>
2
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
Income Taxes
The Company filed its initial federal income tax return in 1994 and will
file its 1995 federal income tax return as a development stage company
whereby the loss for the year for income tax purposes will be recognized
over the following five years income tax filings.
SRNJ files its corporate tax returns using the cash basis of accounting.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
The Company and SRNJ will file consolidated federal and state income tax
returns beginning in 1996.
(2) Acquisition
As of December 28, 1995, the Company purchased all of the net assets of
SRNJ in exchange for 2,262,500 shares of common stock. The fair market
value of the common stock of $285,000 was determined based on the price
per share received by AWE for the most recent sale of its common stock
in an arm's length transaction. The acquisition was accounted for as a
purchase whereby the acquisition costs were allocated to the various
assets purchased and liabilities assumed based on their respective fair
values. The total assets and liabilities of SRNJ at acquisition date
amounted to approximately $2,771,000 and $2,886,000, respectively. The
operating results of SRNJ have not been included in the consolidated
operating results of the Company for the one business day in the year
ended December 31, 1995 subsequent to the acquisition due to their being
immaterial. For accounting purposes, the operating results of SRNJ will
be included with those of the Company effective January 1, 1996. The
acquisition resulted in costs in excess of fair value of net assets
acquired of $399,838. In accordance with a Memorandum of Agreement, in
the event the merger among CompLink, Ltd. (CompLink) and AWE (note 13)
does not occur by July 31, 1996 or such later date as to which the
parties may agree, but not later than December 31, 1996, the acquisition
of SRNJ by AWE will be rescinded. The following unaudited proforma
combined results of operations for 1995 and 1994 have been prepared
assuming that the acquisition of SRNJ occurred at the beginning of each
period. In preparing the proforma data, adjustments have been made for
(i) the amortization of goodwill in 1995 and 1994 and (ii) the
elimination of SRNJ compensation expense in 1995 associated with stock
grants to two minority shareholders. The following information is not
necessarily indicative of results of operations that would have occurred
nor is it necessarily indicative of future results of operations of the
combined companies.
1995 1994
---- ----
Net revenue $ 20,512,271 15,030,555
============ ===========
Net earnings (loss) $ (191,497) 10,121
============ ===========
(Continued)
<PAGE>
3
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
(3) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment less accumulated depreciation consist of
the following at December 31, 1995 and 1994:
1995 1994
---- ----
Office and computer equipment $ 104,624 6,066
Furniture and fixtures 11,002 -
--------- --------
115,626 6,066
Less accumulated depreciation 5,000 -
--------- --------
$ 110,626 6,066
========= ========
(4) Related Party Transactions
The Company has had operating and funding transactions with a related
company, The Netplex Group, Inc. (Netplex), a company with certain
common ownership interests. Advances are non-interest bearing and are
due on demand. Activity and amounts due to and due from Netplex as of
and for the year ended December 31, 1995 and for the period April 21,
1994 (inception) to December 31, 1994 is as follows:
As of and
As of and for the period
for the Apr. 21, 1994
year ended (inception) to
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
Sales $ 153,638 --
Purchases 61,940 --
Management fee income 50,000 --
Trade accounts receivable 53,857 --
Trade accounts payable 32,113 12,000
Advances (payable) receivable (100,000) 60,000
========== =======
(5) Loan Payable
The Company in 1994 was advanced $59,870 from a relative of one of the
Company's stockholders. The loan bears interest at 15% and is due on
August 15, 1996.
(6) Income Taxes
Due to the incurrence of net operating loss carryforwards, there is no
provision for income taxes for the year ended December 31, 1995 and for
the period April 21, 1994 (inception) to December 31, 1994.
(Continued)
<PAGE>
4
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory Federal income tax rate to loss
before provision for income taxes for the year ended December 31, 1995
and for the period April 21, 1994 (inception) to December 31, 1994 is as
follows:
For the period
Apr. 21, 1994
Year ended (inception) to
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
Income tax benefit at 34% $ (34,954) (10,549)
Net operating loss carryforward 34,954 10,549
--------- --------
$ -- --
========= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and liability at December 31, 1995
and 1994 are presented below:
1995 1994
---- ----
Deferred tax asset:
Net operating loss carryforward $ 51,000 12,000
Less valuation allowance (51,000) (12,000)
--------- --------
Deferred tax asset $ -- --
========= ========
Deferred tax liability:
Accrual to cash adjustment 22,000 --
Property and equipment, principally
due to differences in depreciation 12,000 --
--------- --------
Deferred tax liability $ 34,000 --
========= ==========
The Company has provided a valuation allowance for the entire deferred tax
asset since the Company can not conclude that it is more likely then not
that it will realize this asset due to the Company's history of
operating losses.
At December 31, 1995, the Company has approximately $134,000 of net
operating loss carryforwards (NOL's) available for Federal income tax
purposes expiring in varying amounts through 2010. SRNJ utilized
approximately $104,000 of its 1995 NOL to carryback to 1994 thereby
generating an income tax receivable of approximately $30,000 at December
31, 1995. The future annual usage of the Company's NOL's for income tax
purposes will be subject to annual limitations due to the change in
ownership from the Company's acquisition of SRNJ.
(7) Business and Credit Concentrations
The majority of the Company's and SRNJ's customers are corporations and
technical programming brokers. No customers have accounted for more than
10% of the Company's revenues to unaffiliated customers through December
31, 1995.
(Continued)
<PAGE>
5
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
(8) Employee Benefit Plans
SRNJ provides a profit sharing plan and a 401(k) plan for its employees.
SRNJ contributes 10% to the profit sharing plan and matches employees'
contributions to the 401(k) plan. The Company does not provide its
employees any postretirement or postemployment benefits.
(9) Lease Commitments
SRNJ leases its office facility under a long-term lease agreement that
expires in June 1998. SRNJ also leases various office equipment and AWE
began to rent in 1996 its New Jersey office from Netplex on a month to
month basis. The lease for the office facility requires SRNJ to pay its
proportionate share of real estate taxes and other common charges. The
following is a schedule of future minimum lease payments for
noncancellable operating leases (with initial or remaining terms in
excess of one year) as of December 31, 1995:
Year ending December 31:
1996 $ 20,423
1997 19,727
1998 8,280
--------
Total minimum lease payments $ 48,430
========
There was no rent expense for the year ended December 31, 1995 and for the
period April 21, 1994 (inception) to December 31, 1994.
(10) Commitments
In 1994, AWE entered into an agreement with a third party software
developer for the development of a database program in exchange for
deferred payments of approximately $212,000 payable over three years
with interest at 8%. AWE is not obligated to make any such payments
until such time as the program is accepted. Through February 27, 1996
the program has not been accepted by AWE. Final acceptance is expected
to occur by June 1996.
Upon the acquisition of SRNJ, its president entered into a seven year
employment contract with AWE. The contract stipulates a base salary of
$150,000, subject to annual performance increases, and an annual bonus
of approximately $33,000, subject to SRNJ meeting certain financial
requirements.
(11) Common Stock
In November 1995, two shareholders of the Company cancelled their shares
totaling 3,393,750 and 950,000, respectively for no consideration. The
corresponding par value of $4,344 has been transferred to additional
paid in capital from common stock. The share cancellation can be
rescinded if the CompLink merger (note 13) is not consummated by July
31, 1996 or such later date as to which the parties may agree, but not
later than December 31, 1996.
(Continued)
<PAGE>
6
AMERICA'S WORK EXCHANGE, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
(12) Stock Option Plan
Effective November 17, 1995, the Company adopted an incentive and
non-qualified stock option plan. This option plan provides for the
issuance of options to purchase up to 575,000 shares of common stock and
provides that all key Company employees are eligible to receive
incentive and/or non-qualified stock options. The options will vest over
a three year period and expire in ten years. During 1995, the Company
granted options to purchase 575,000 shares of common stock under the
option plan at an exercise price of $.55, including options to purchase
525,000 shares granted to officers of the Company. All options
outstanding under the option plan and unexercised upon consummation of
the merger (note 13) will be assumed by CompLink and will be exchanged
for an equal number of CompLink stock options at similar terms except at
an exercise price equal to the original exercise price divided by a
share conversion ratio of .1894238. Based upon the conversion ratio and
market value of CompLink's common stock, the exercise price of the
options on the date of grant approximated the market value of the
Company's common stock.
(13) Merger
On November 20, 1995, the Company entered into an agreement and plan of
reorganization and merger with CompLink whereby each outstanding share
of the Company's outstanding common stock will be exchanged for .1894238
shares of CompLink common stock. The merger is subject to shareholder
approval and there can be no assurance that the agreement and plan of
reorganization and merger will be approved and that the transaction
contemplated by the agreement will close or become effective.
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
Independent Auditors' Report
Stockholders
Software Resources of New Jersey, Inc.:
We have audited the accompanying balance sheets of Software Resources of New
Jersey, Inc. as of December 31, 1995 and 1994 and the related statements of
operations and accumulated deficit and cash flows for the years then ended.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Software Resources of New
Jersey, Inc. as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in note 1 to the financial statements, the Company changed its
method of accounting for investments in 1994.
KPMG PEAT MARWICK LLP
Jericho, New York
February 27, 1996
F-52
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 690,934 401,874
Investments -- 172,038
Accounts receivable 1,964,666 1,273,684
Prepaid expenses 4,382 --
Income taxes receivable 30,168 --
Advances to related party -- 37,774
Loan receivable -- 12,540
----------- -----------
Total current assets 2,690,150 1,897,910
Furniture, fixtures and equipment, net 78,553 48,070
Other assets 2,658 2,658
----------- -----------
Total assets $ 2,771,361 1,948,638
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses 2,850,928 1,916,435
Amounts payable to stockholder, net 1,271 24,349
Income taxes payable -- 36,000
Deferred income taxes 34,000 25,000
----------- -----------
Total current liabilities 2,886,199 2,001,784
----------- -----------
Stockholders' deficit:
Common stock, par value $1 per share; 100
shares authorized, 100 and 91 shares
issued and outstanding, respectively 100 91
Additional paid-in capital 18,900 909
Accumulated deficit (133,838) (54,146)
----------- -----------
Total stockholders' deficit (114,838) (53,146)
----------- -----------
Commitments
Total liabilities and
stockholders' deficit $ 2,771,361 1,948,638
=========== ===========
See accompanying notes to financial statements.
F-53
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Statements of Operations and Accumulated Deficit
Years ended December 31, 1995 and 1994
1995 1994
---- ----
Revenue $ 20,349,933 15,030,555
Cost of revenue 19,804,093 14,570,646
------------ ------------
Gross profit 545,840 459,909
Selling, marketing and general and
administrative expenses 686,908 364,463
------------ ------------
Earnings (loss) from operations (141,068) 95,446
------------ ------------
Other income:
Interest income 22,169 9,946
Gains on investments, net 14,175 23,754
Other 9,032 --
------------ ------------
45,376 33,700
------------ ------------
Earnings (loss) before provision for
(recovery of) income taxes (95,692) 129,146
Provision for (recovery of) income taxes (16,000) 61,000
------------ ------------
Net earnings (loss) (79,692) 68,146
Accumulated deficit at beginning of year (54,146) (122,292)
------------ ------------
Accumulated deficit at end of year $ (133,838) (54,146)
============ ============
See accompanying notes to financial statements.
F-54
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Statements of Cash Flows
Years ended December 31, 1995 and 1994
1995 1994
---- ----
Operating activities:
Net earnings (loss) $ (79,692) 68,146
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Compensation expense on stock awards 18,000 --
Depreciation 22,339 10,111
Gains on investments, net (14,175) (23,754)
Provision for deferred income taxes 9,000 25,000
Changes in assets and liabilities:
Accounts receivable (690,982) (318,720)
Prepaid expenses (4,382) --
Accounts payable and accrued expenses 934,493 571,732
Income taxes (receivable) payable (66,168) 36,000
--------- ---------
Net cash provided by operating activities 128,433 368,515
--------- ---------
Investing activities:
Purchases of investments (385,470) (385,432)
Proceeds on sales of investments 571,683 249,148
Capital expenditures (52,822) (42,093)
Advance on loan receivable -- (30,000)
Payments on loan receivable 12,540 17,460
--------- ---------
Net cash provided by (used in) investing
activities 145,931 (190,917)
--------- ---------
Financing activities:
Amounts advanced to stockholder (23,078) (23,644)
Advances to related party (2,961) (37,774)
Payments received on related party advances 40,735 --
--------- ---------
Net cash provided by (used in) financing
activities 14,696 (61,418)
--------- ---------
Increase in cash and cash equivalents 289,060 116,180
Cash and cash equivalents at beginning of year 401,874 285,694
--------- ---------
Cash and cash equivalents at end of year $ 690,934 401,874
========= =========
Supplemental information
Cash paid during the years for:
Interest $ -- --
========= =========
Income taxes $ 41,168 --
========= =========
See accompanying notes to financial statements.
F-55
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Business and Significant Accounting Policies
Business and Basis of Presentation
Software Resources of New Jersey, Inc. (the Company) was incorporated in
1985 as a data processing consultant cooperative serving the New York
Metropolitan area. The Company provides computer programming consulting
services to customers, while providing business and administrative
services to its programmer employees.
As of December 28, 1995, the Company entered into a sale agreement and
plan of reorganization and merger with America's Work Exchange, Inc.
(AWE) whereby all of the Company's outstanding common stock was acquired
by AWE. In accordance with a Memorandum of Agreement, in the event the
merger among CompLink, Ltd. (CompLink) and AWE (note 11) does not occur
by July 31, 1996 or such later date as to which the parties may agree,
but not later than December 31, 1996, the acquisition of the Company by
AWE will be rescinded. The accompanying financial statements have been
prepared on a stand-alone basis.
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 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 results could differ from those
estimates.
Revenue Recognition
The Company recognizes revenue as contract computer consulting services
are performed and the cost of service is incurred. The difference
between revenue received from customers and direct service employee
costs (gross profit) represents the Company's fee for providing business
and administrative services to their programmer employees.
Cash Equivalents
The Company considers all highly liquid investments with a maturity, at
date of purchase, of three months or less to be cash equivalents. Cash
equivalents at December 31, 1995 and 1994 are comprised of demand
deposits, money market accounts and a mutual fund account.
Investments
Investments at December 31, 1994 consisted primarily of marketable equity
securities. The Company adopted the provisions of Statement of Financial
Accounting Standards No.115, "Accounting for Certain Investments in Debt
and Equity Securities" (Statement 115) at January 1, 1994. Under
Statement 115, debt and marketable equity securities are classified in
one of three categories: trading, available for sale, or
held-to-maturity. Trading securities are bought and held principally for
the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and
intent to hold the security until maturity. All other securities not
included in trading or held to maturity are classified as
available-for-sale. The Company accounts for its investments based on
settlement date. As of December 31, 1994, all investments were
classified as trading securities and are recorded at fair value. The
cost and market value of these marketable equity securities were
$162,297 and $172,038, respectively, at December 31, 1994.
(Continued)
F-56
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Notes to Financial Statements, Continued
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
provided for over the estimated useful lives of the assets on a
straight-line basis.
Income Taxes
The Company files its corporate tax returns using the cash basis of
accounting. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
realized or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company and AWE will file consolidated federal and state income tax
returns beginning in 1996.
Reclassifications
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 presentation.
(2) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following at December 31,
1995 and 1994:
1995 1994
---- ----
Office and computer equipment $ 121,040 68,218
Furniture and fixtures 32,388 32,388
--------- --------
153,428 100,606
Less accumulated depreciation 74,875 52,536
--------- --------
$ 78,553 48,070
========= ========
(3) Loan Receivable
The Company in 1994 advanced $30,000 to an employee. The amount bore no
interest and was due on demand. The balance outstanding at December 31,
1994 was $12,540. All amounts were repaid as of December 31, 1995.
(4) Advances to Related Party
The Company in 1994 advanced various amounts totaling $37,774 to a company
that was partially owned by the Company's majority stockholder. Such
amounts were non-interest bearing and were due on demand. During 1995
additional advances were made totaling $2,961. As of December 31, 1995
all amounts were repaid.
(Continued)
F-57
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Notes to Financial Statements, Continued
(5) Amounts Payable to Stockholder, Net
As of December 31, 1994, the Company had received various amounts from its
majority stockholder in the amount of $37,539 and had advanced $13,190
to this stockholder. The amounts bear no interest and are payable on
demand. The net amount outstanding at December 31, 1995 and 1994 is
$1,271 and $24,349, respectively.
(6) Income Taxes
The components of the provision for (recovery of) income taxes for the
years ended December 31, 1995 and 1994 are as follows:
1995 1994
------------------------------------------------------------
Total Federal State Total Federal State
Current $ (25,000) (25,000) - 36,000 22,000 14,000
Deferred 9,000 7,650 1,350 25,000 22,000 3,000
-------- -------- ------ ------- ------- -------
$ (16,000) (17,350) 1,350 61,000 44,000 17,000
======== ======== ====== ======= ======= =======
A reconciliation between the actual income tax expense (recovery) and
income taxes computed by applying the statutory Federal income tax rate
to earnings (loss) before provision for (recovery of) income taxes for
the years ended December 31, 1995 and 1994 is as follows:
1995 1994
---- ----
Income tax expense (recovery) at 34% $(33,000) 44,000
Utilization of net operating loss carryforward -- (24,000)
Nondeductible expenses 8,000 20,000
State income taxes, net of Federal benefit 1,000 11,000
Other 8,000 10,000
-------- --------
$(16,000) 61,000
======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liability at December 31, 1995 and 1994 are
presented below:
1995 1994
---- ----
Deferred tax liability:
Accrual to cash adjustment $22,000 17,000
Property and equipment, principally
due to differences in depreciation 12,000 8,000
------- -------
Deferred tax liability $34,000 25,000
======= =======
(Continued)
F-58
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Notes to Financial Statements, Continued
At December 31, 1995, the Company has no net operating loss carryforwards
(NOL's) available for Federal income tax purposes as it utilized its
1995 generated tax loss to carryback to 1994 thereby generating an
income tax receivable of approximately $30,000 at December 31, 1995. The
Company utilized approximately $72,000 of its previous available NOL in
1994.
(7) Business and Credit Concentrations
The majority of the Company's customers are corporations and technical
programming brokers. In 1995 and 1994, no customer accounted for more
than 10% of the Company's revenues.
(8) Employee Benefit Plans
The Company provides a profit sharing plan and a 401(k) plan for its
employees. The Company contributes 10% to the profit sharing plan and
matches employees' contributions to the 401(k) plan. The Company paid
$1,843,136 and $1,551,829 for these plans in 1995 and 1994,
respectively. The Company does not provide its employees any
postretirement or postemployment benefits.
(9) Commitments
(a) Leases
The Company leases its office facility under a long-term lease agreement
that expires in June 1998. The Company also leases various office
equipment. The following is a schedule of future minimum lease payments
for noncancellable operating leases (with initial or remaining terms in
excess of one year) as of December 31, 1995:
Year ending December 31:
1996 $ 20,423
1997 19,727
1998 8,280
--------
Total minimum lease payments $ 48,430
========
The lease for the office facility requires the Company to pay its
proportionate share of real estate taxes and other common charges. Total
rent expense was $18,634 and $16,133 for the years ended December 31,
1995 and 1994, respectively.
(b) Employment Contract
Upon AWE's acquisition of the Company, the Company's president entered
into a seven year employment contract with AWE. The contract stipulates
a base salary of $150,000, subject to annual performance increases, and
an annual bonus of approximately $33,000, subject to the Company meeting
certain financial requirements.
(10) Common Stock
The Company in February 1995 granted nine shares of common stock to two
employees. The share awards were valued at fair market value and the
corresponding charge to operations of $18,000 was recorded in the year
ended December 31, 1995.
(Continued)
F-59
<PAGE>
SOFTWARE RESOURCES OF NEW JERSEY, INC.
Notes to Financial Statements, Continued
(11) Merger
On November 20, 1995, the Company and AWE entered into an agreement and
plan of reorganization and merger with CompLink which contemplates that
all of AWE's outstanding common stock will be acquired by CompLink.
Shareholders of AWE will receive .1894238 shares of CompLink for each
share of AWE's common stock. The merger is subject to shareholder
approval and there can be no assurance that the agreement and plan of
reorganization and merger will be approved and that the transaction
contemplated by the agreement will close or become effective.
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined condensed financial statements
assume that mergers of Complink and Netplex and Complink and America's Work
Exchange were consummated as of the beginning of the period presented and
combines the condensed unaudited consolidated statements of operations for the
six months ended June 30, 1996 for CompLink, Netplex and AWE, and combines
CompLink's historical condensed unaudited consolidated statements of operations
for the twelve months ended December 31, 1995 and Netplex's and AWE's audited
historical condensed statements of operations for the years ended December 31,
1995. The pro forma combined condensed financial statements reflect certain
adjustments for transaction fees and other costs related to the Mergers,
goodwill amortization and increased common shares outstanding from the Mergers.
The pro forma combined condensed statements of operations are not
necessarily indicative of operating results which would have been achieved had
the Mergers been consummated as of the beginning of such periods and should not
be construed as representative of future operations.
CompLink acquired and merged with Netplex and America's Work Exchange as
described in Item 2 of the Form 8-K filed on June 7, 1996, by issuing 3,250,000
shares of CompLink Common Stock, or 50.4% of CompLink's outstanding common stock
after the Mergers. 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's giving effect to the new share issuance and the
elimination of CompLink's accumulated deficit. The acquisition of the assets and
liabilities of CompLink have been accounted for at book value, which
approximates fair value.
<PAGE>
Assets
Current assets:
Cash and cash equivalents ....................................... $ 2,109
Accounts receivable, less allowance for doubtful accounts ....... 3,192
Note receivable ................................................. 79
Prepaid expenses and other current assets ....................... 198
-------
Total current assets ......................... 5,578
Furniture, fixtures and equipment, net of accumulated depreciation .. 592
Loans receivable from officers ...................................... 29
Other assets ........................................................ 563
Excess cost over net assets acquired, net of accumulated amortization 172
-------
Total assets ................................. $ 6,933
=======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................... 4,332
Deferred revenue ................................................ 131
Line of Credit .................................................. 400
Obligations under capital leases ................................ 29
-------
Total current liabilities .................... 4,892
-------
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 shares issued and outstanding ......... 65
Additional paid-in capital ...................................... 4,052
Accumulated deficit ............................................. (2,076)
-------
Total stockholders' equity ................... 2,041
-------
Total liabilities and stockholders' equity ... $ 6,933
=======
<PAGE>
Six Months
Ended Year Ended
June 30, December 31,
1996 1995
-------- ------------
Revenues ........................................... $ 16,603 27,318
Cost of sales ...................................... 13,584 23,613
-------- --------
Gross profit ....................................... 3,019 3,705
-------- --------
Business unit expenses:
Selling and marketing ............. 740 1,739
Operating and administrative ...... 2,947 3,313
-------- --------
3,687 5,052
-------- --------
Business unit operating income (loss) .............. (668) (1,347)
-------- --------
Corporate expenses:
Research and development .......... 414 503
General and administrative ........ 1,112 1,739
-------- --------
1,526 2,242
-------- --------
Operating income (loss) ............................ (2,194) (3,589)
-------- --------
Other income (expense):
Interest income ................... 24 142
Interest expense .................. (5) 0
Other ............................. 0 36
-------- --------
Loss before income taxes ........................... (2,175) (3,411)
-------- --------
Recovery of income taxes ........................... -- (4)
-------- --------
Net loss ........................................... $ (2,175) (3,407)
======== ========
Net loss per share ................................. $ (0.34) (0.52)
======== ========
Weighted average number of common
shares outstanding ................ 6,448 6,496
======== ========
