FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-11784
THE NETPLEX GROUP, INC. (f/k/a COMPLINK, LTD.)
(Name of small business issuer in its charter)
New York 11-2824578
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
8260 Greensboro Drive, 5th Floor, McLean, VA 22102
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (703) 356-3001
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.001 par value Boston Stock Exchange and
The OTC Electronic Bulletin Board
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
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 U No .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent year. $33,524,679
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the voting stock as
sold, or the average bid and asked prices of such stock, as of March 21, 1997.
(See definition of affiliate in Rule 12b-2 of the Exchange Act). $ 16,184, 291
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the Common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
As of March 21, 1997, there are 6,944,903 shares outstanding of the Company' s
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III will be incorporated by reference to
certain portions of a definitive proxy statement which is expected to be filed
by the Company within 120 days after the close of its fiscal year.
This report consists of consecutively numbered pages (inclusive of all
exhibits and including this cover page). The Exhibit Index appears on page .
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Part I.
ITEM 1. BUSINESS
GENERAL
Netplex builds, manages, and protects networked information systems for major
corporations. Demand for the types of services the Company provides is rapidly
growing as commercial enterprises become increasingly dependent upon networked
systems and solutions. In meeting these needs, the Company seeks to bring to
every assignment a unique life-cycle awareness: When contracted to build
systems, the Company strives to assure that they can be effectively managed and
protected, manage systems consistent with their underlying architecture and
security requirements, and protect systems in line with the client's approach to
technology deployment and management.
Netplex provides clients the benefits of our specialized expertise through
broadly focused "Network Enabling Services" -- including network integration,
information security systems, management, mobile communications, and technical
staffing capabilities -- and the tightly targeted "Expert Series" of solutions.
The Company has organized these service offerings under three primary
categories: Information System Solutions (ISS), which provides organizations
networked systems solutions in several specialized technology areas; Technical
Staffing Services (TSS), which provides highly skilled Information Technology
(IT) consultants on a contract basis to organizations; and Independent Employee
Services (IES) which provides payroll, billing, and other financial services to
former independent consultants who have become employees of the Company.
More than 300 of the Company's information technology employees are currently on
assignment with clients, assisting them in implementing networked information
systems in such areas as distributed network design, enterprise network
management, database design, legacy conversion, and client/server development.
The Company's clients are primarily Fortune 1,000 companies and law firms with
significant information technology budgets and recurring staffing and systems
integration needs.
Using technology, industry experts, automated processing, and a recruiting team,
Netplex believes it can provide customers with professional technical services
efficiently and at very fair rates. The Company's approach to attracting and
retaining talent provides it with it believes is a competitive advantage in
accessing scarce human resources. The Company's proprietary automated skills
database currently contains more than 25,000 professionals available to work on
a contract-to-contract basis. The Company has sought to create an extremely
entrepreneurial environment in which its employees can control their individual
financial and professional growth with minimal risk. The Company encourages and
enables contract workers or independent business associates to build a business
through Netplex.
HISTORY
The Company was incorporated in 1986. From 1986 to June 1996, the Company, under
the name CompLink, Ltd., developed and marketed a communications software
product.
On June 7, 1996, the Company (formerly known as CompLink, Ltd. or "CompLink")
acquired and merged with The Netplex Group, Inc. and America's Work Exchange,
Inc. (combined referred to as "Netplex") by issuing approximately 3,245,000
shares of Common Stock. The agreement also provided for CompLink to issue
1,691,000
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options to purchase its Common Stock in exchange for the 1,691,000 outstanding
options to purchase the Common Stock of Netplex. The mergers have been accounted
for under the purchase method of accounting as a reverse merger, since the
shareholders of the acquirees, who have common control, received the larger
percentage of the voting rights of the combined entity. The mergers resulted in
a recapitalization of the Company, 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.
On September 19, 1996, the Company raised approximately $3,000,000 through a
private placement offering of units of equity securities (the "1996 Private
Placement"). Each unit of equity securities consists of one share of $.01 par
value class A convertible preferred stock (the "preferred stock") and one Common
Stock warrant to purchase one share of the Company's $0.001 par value Common
Stock ("Common Stock")at an exercise price of $2.50.
Each share of preferred stock is convertible into one share of Common Stock at
any time, at the discretion of the holder. The preferred stock earns cumulative
dividends at 10% per annum, payable in either cash or additional shares of
preferred stock at the Company's option. Subject to the conversion rights, the
Company may redeem the preferred stock at its stated value (which is $2 per
share) plus all accrued and unpaid dividends upon: (1) registration of the
shares underlying the preferred stock, and (2) 30 days written notice given at
any time upon the common stock attaining certain per share trading prices and
maintaining such prices for a specified period. The preferred stock has a per
share liquidation preference of the greater of: (i) two times the stated value
(plus any accrued and unpaid dividends, or (ii) the amount that would have been
received if such shares were converted to Common Stock on the business day
immediately prior to liquidation.
Each warrant issued in connection with the private placement became exercisable
on March 19, 1997, and expires on September 19, 2001. The Company has the right
to call the warrants (a total of 1,750,000 warrants) at a redemption price of
$.01 per share upon: (1) registration of the shares underlying the warrant (2)
30 days written notice given at any time upon the common stock attaining $5 per
share trading prices and sustaining such prices for twenty (20) trading days.
On October 21, 1996, the Company filed an application for the re-listing of its
Common Stock on the NASDAQ SmallCap Market ("NASDAQ"). While the Company
believes it meets the requirements for listing its Common Stock on NASDAQ, there
can be no assurance that such listing will be approved. The Company's Common
Stock is currently traded on the OTC Electronic Bulletin Board and on the Boston
Stock Exchange.
In order to focus on the Company's core business and reduce corporate losses,
the Company completed the sale of its WorldLink technology product business
("WorldLink")to XcelleNet, Inc. in December 1996 for a sale price of $3 million
in cash.
As a result of this sale, the Company has redirected most of the technical
talent from the WorldLink team to the Information Systems Solutions practice
group.
MARKET AND INDUSTRY OVERVIEW
To compete in world markets, the Company believes that corporations must be able
to: (i) effectively deploy and use networked information systems; (ii)
anticipate and manage the dynamic trends of the technical workforce; and (iii)
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master the complexity and breakneck pace of technological change. Many
corporations find these information technology (IT) functions critical to their
ability to compete, but not a part of their core competencies. Confronted with
the challenge of building, integrating, managing and protecting complex
information systems without expanding corporate staff, businesses are
increasingly turning to IT service providers to augment their in-house IT
operations.
Historically, businesses turned to staffing companies to meet short-term
personnel requirements during peak production periods or to temporarily replace
workers out due to illness, vacation, or abrupt termination. Since the 1980s,
the staffing services industry has evolved into a permanent and significant
component of the human resource plans of many corporations. Corporate
restructuring, downsizing, government regulations, advances in technology, and
the desire by many companies to shift employee costs from fixed to variable
expenses have all contributed to businesses' increased use of a wide range of
staffing alternatives.
IT staffing represents a significant, and growing, portion of the IT services
industry. A 1996 report by Dataquest, Incorporated, on the demand for the
supplemental IT staffing services such as those provided by Netplex estimated
the U.S. market for these services at $9.5 billion in 1994 and projected growth
to $16.1 billion in 1999.
This growth is a result of numerous factors including: (i) an increased focus on
core business operations by organizations; (ii) the need to access specialized
IT skills to keep pace with rapidly changing technologies; (iii) the growing
trend towards flexible staffing which provides a variable cost solution to a
fixed cost problem; and (iv) the desire to reduce the cost of recruiting,
training and terminating employees as IT requirements change.
As a result of the these and other trends, the complexion of the IT workforce is
shifting from a one-employer career to a flexible consulting environment. Source
EDP reports the IT industry workforce currently consists of 70% permanent
employees and 30% consultants and that these proportions will reverse by the
year 2000. The Company believes that it is positioned to grow by taking
advantage of these changes in the IT industry.
BUSINESS STRATEGY
The Company's mission is to provide technical talent and services to help
businesses deliver reliable, timely and secure information across networked
systems.
Netplex believes it: (i) helps organizations keep pace with technology through
our leading industry experts; (ii) leverages our technology integration
experience to more quickly build and better manage a networked information
system; (iii) provides quick access to highly skilled IT consultants as needed;
(iv) reduces the cost and effort of maintaining a trained, qualified technical
workforce; (v) enables customers to focus on their core business, while
outsourcing non-core IT functions to the Company; and, (vi) transitioning
workforce fixed costs to variable costs.
Netplex believes it helps businesses develop and leverage such capabilities by
providing technical talent and know-how through a highly skilled technical
workforce. To retain and support the technical workforce, the Company attempts
to provide consultants with: (i) an entrepreneurial reward system; (ii) the
ability to develop a career within specialized technology service teams (iii)
greater income than the traditional one-company employee; (iv) a wide range of
employee benefits and career counseling; (v) new and exciting projects
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on which to develop their technical skills; and (vi) skills training and
professional development. The Company believes it will be better positioned to
compete in the tight IT labor market if it can provide these benefits to IT
consultants.
GROWTH STRATEGY
EXPAND EXISTING BRANCH DEVELOPMENT AND OPENING NEW BRANCHES
The Company believes it can significantly increase revenues in its four existing
branch locations. The Company will attempt to achieve this growth by expanding
the sales and recruiting organization in each of the locations and increasing
sales to existing customers. From each location the Company also intends to sell
more "productized" or packaged service offerings in its new "Expert" Series of
solutions.
The Company will also open locations in cities that it believes to have high
growth and market potential. The Company intends to accomplish this goal in part
by recruiting a skilled Area Manager and Recruiting Manager for each location.
These two managers will be responsible for developing local accounts and
expanding the location by hiring sales people, technical recruiters, and
administrators.
STRATEGIC ACQUISITIONS The Company believes that acquisitions are a valuable and
important means of achieving critical mass, enhancing market share, increasing
capabilities to deliver large, complex solutions, and supplementing internal
growth. The Company will seek to acquire companies in the IT professional
services industry to facilitate its expansion into new territories or to acquire
businesses that offer services complementary to those of the Company's
Information Systems Solutions practice group. Acquisitions in the staffing
industry will primarily focus on profitable regional staffing companies in
markets with attractive growth opportunities.
The Company's ability to expand successfully by acquisition depends on many
factors, including the successful identification and acquisition of businesses
and management's ability to integrate and operate the new businesses
effectively. The anticipated benefits from any acquisition may not be achieved
unless the operations of the acquired business are successfully combined with
those of the Company in a timely manner. The Company's senior management team is
experienced in identifying acquisition targets and integrating acquired
businesses into the Company's existing infrastructure. The integration of the
Company's acquisitions requires substantial attention from management. The
diversion of management attention, and any difficulties encountered in the
transition process, could have an adverse impact on the Company's revenues and
operating results. In addition, the process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have an adverse
effect on the Company's operations and financial performance.
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EXPAND NATIONAL ACCOUNTS
The Company intends to focus its sales efforts on certain customers("National
Accounts"). These National Accounts include major telecommunications, financial,
and software and hardware development companies. The Company intends to offer a
full range of services to National Accounts, ranging from staff augmentation to
entire IT department outsourcing.
DEVELOP NEW "PRODUCTIZED" SERVICE OFFERINGS The Company intends to increase its
service offerings for technology projects and specialized consulting services.
The underlying resources for these "productized" service offering products will
either be developed by the Company's internal technical staff or will be
purchased through a strategic acquisition.
BUILD CENTRAL RECRUITING SERVICES AND ON-LINE RECRUITING SERVICES The Company
has built a centralized national technical database at its McLean headquarters.
From this database, the Company will develop the Central Recruitment Center,
which will help qualify and identify consultant and employee candidates on a
worldwide scale. The database will also be linked to the Company's World Wide
Web site where candidates can review all of the Company's job requirements and
easily apply for the assignments in which they are interested. Providing such
quality content on its Web site is one way the Company believes it will build
strategic value in the highly competitive staffing services market. The Company
will also advertise available positions on other recruiting sites throughout the
World Wide Web.
NETPLEX SERVICES
Information Systems Solutions
The Netplex Information Systems Solutions (ISS) practice group specializes in
building, managing, and protecting networked information systems. The group's
blend of methodologies and experience enables Netplex to provide customers with
a suite of strategic solutions. These systems solutions are designed by ISS'
subject matter experts and incorporate best-of-breed technology products.
Areas of ISS core expertise include:
o Virtual Network Integration
o Networked Systems Management
o Support Center Management
o Contingency Planning
o Information Security
ISS has forged marketing and support partnerships with leading technology
manufacturers -- such as Microsoft, Hewlett Packard, IBM, Novadigm, XcelleNet,
and Unisys -- to develop and design leading edge networked systems solutions.
ISS can build large complex information networks; implement and manage a remote
workforce automation system; reduce the cost of managing a several-thousand-node
computing environment while dramatically improving the system's service level
performance; consolidate distributed Help Desk functions into one remote central
support facility; implement state-of-the-art information security protection;
and prepare an organization to quickly recover from a major system disaster,
whether natural, man-made, or caused by the Year 2000 date change problem.
TECHNICAL STAFFING SERVICES
Technical Staffing Services provides clients with highly skilled IT consultants,
programmers, systems analysts, database developers, project managers, network
specialist, applications developers, and software engineers on both a short- and
long-term basis. The Company's flexible staffing approach enables clients to use
the Company's consultants and employees to leverage their existing IT
capabilities and more rapidly and cost effectively meet peak
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workloads, handle special projects, overcome personnel shortages, and solve
staffing emergencies.
The Company's consulting assignments can be as short as a few months to over a
year in duration. Customers are billed for the actual time worked by the
Company's consultants. Therefore, clients are better able to manage their work
flow, while reducing the expenses -- such as taxes and benefits -- of hiring,
terminating, and maintaining full-time employees.
Many consultants who work for Technical Staffing Services do so on an hourly
contract with the Company as Netplex "Contract Associates". To encourage the
most qualified professionals to choose Netplex, the Company provides all
Contract Associates with access to benefits such as medical, dental, 401(k), and
flexible spending accounts. Consultants are recruited by the Company's Technical
Recruiting organization, which is supported by a database of over 25,000
qualified candidates.
INDEPENDENT EMPLOYEE SERVICES
IES provides payroll, billing, support services, and other benefits to IT
consultants, whether they find consulting assignments on their own or through
the Company's Technical Staffing Services group. Joining IES enables these
consultants to spend less time on paperwork and record keeping so they are
better able to focus on serving their clients, marketing their services, and
keeping pace with technology.
These consultants also join the IES group to access the advantages of
affiliating with the Company which includes the following: (i) the stable
environment needed to create and maintain an extensive employment history and
financial creditability; (ii) a wide array of back-office services such as
payroll, billing, and federal, state and local tax filings; (iii) review of
contracts; (iv) a group medical and dental plan more affordable than coverages
available to them on their own; (v) medical and dependent care cost
reimbursement plans; (vi) 401(k) and pension program; and (vii) general
liability insurance. Using these and other services reduces the consultant's
cost of purchasing similar benefits on their own.
Finally, joining IES also gives consultants access to previously unavailable
opportunities by removing a difficult tax-related obstacle to their employment.
IRS Section 1706 imposes severe penalties on companies that mis-classify 1099
employees (referring to the IRS form for reporting payments to independent
contractors). Therefore, many companies choose not to employ independent
consultants and risk the penalties inherent with IRS Section 1706 unless they
are on another company's payroll. Because Netplex's IES consultants are not 1099
workers, clients avoid a potential tax problem and the consultants can pursue a
wider range of assignments.
SALES AND MARKETING
The Company markets its services through two complementary sales organizations:
(i) a Local Organization, and (ii) a Sales Support Group.
Each Location Sales Organization is managed by an Area Manager with both
profitability and operations responsibility, and is staffed by one or more sales
people and a location administrator. Area Managers are compensated by a
combination of salary plus bonus incentives based on location profitability.
The Sales Support Group consists of regional Business Development Managers who
assist the Location Sales Organization in selling and closing ISS projects and
solutions. The Practice Development Managers are responsible for assisting the
sales organization in qualifying prospective ISS business, providing sales
presentation support to the sales force, and generating proposals.
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RECRUITING
The Company believes that identifying and retaining highly talented IT
consultants is critical to its success. This is achieved through the Recruiting
Organization. Each local Recruiting Organization reports to a Recruiting Manager
and is staffed by one or more Technical Recruiters responsible for soliciting,
recruiting and assessing technical consultants, developing and maintaining
consultant relationships, and maintaining and updating the Company's database
(the "Database") of IT consultant profiles and resumes.
The Company offers its IT consultants a comprehensive benefits package, which
the Company believes provides it a competitive advantage in recruiting and
retaining skilled technical talent. The benefits program includes medical and
dental insurance, a 401(k) retirement program, and flexible medical and
dependent care reimbursement accounts.
The local recruiting offices are supported by a customized national database
which currently contains more than 25,000 resumes. At any particular time,
however, only certain individuals whose resumes are included in the Database may
be available for placement by the Company. Developed by the Company, the
Database provides Technical Recruiters advanced search functions to more quickly
identify and monitor a qualified candidate for a specific position.
The Company recruits IT consultants through a number of different methods:
referrals, local print advertising, participation in technical job fairs, and
listing a variety of job openings on recruitment sites throughout the Internet
and on the Company's World Wide Web home page. The Company believes this
recruiting strategy will continue to provide it with qualified IT consultants to
meet its staffing requirements.
OPERATIONS AND SUPPORT SERVICES From its headquarters in McLean, Virginia, the
Company provides its locations and practice groups with centralized support
services, including marketing, cental recruitment services financial and
accounting, information systems legal support, human resources, and purchasing.
All of the Company's branch locations are linked by, and can quickly communicate
over a Wide Area Network managed by a centralized Management Information Systems
department at McLean headquarters. Branch locations rely on this network for
rapid access to the Company's technical talent database.
The Company also uses numerous techniques to govern and guide sales, recruiting,
financial, and operating activities. The Company believes the investment made in
these processes will enhance its ability to grow and attract and retain superior
technical and managerial talent.
CENTRAL RECRUITMENT CENTER
The Company plans to launch a Central Recruitment Center in 1997. Located at
corporate headquarters in McLean, Virginia, the Center will help manage the
Database of qualified candidates and provide central recruiting support in areas
where the Company does not maintain offices. Staffed by a group of dedicated
recruiters and administrators, the Central Recruitment Center will allow the
Company to send recruiting assistance to new locations or rapidly expanding
offices.
CUSTOMERS
The Company's goal is to provide technical talent and services to help
businesses deliver reliable, timely, and secure information across networked
systems. To accomplish this, the Company places great emphasis in developing
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long-term client relationships. Positioning itself as a specialist in
strategically selected networked technology, Netplex strives to reinforce
clients' image of the Company as being uniquely qualified to provide a wide
range of systems solutions. This is increasingly important as clients seek to
reduce the number of vendors with which they do business. For this reason, the
Company has begun to focus significant efforts on qualifying for -- and
remaining on -- multiple clients' vendor lists. The Company is currently
approved on several vendor lists of Fortune 500 companies. The Company maintains
a broad and well-balanced client base: no single customer accounted for more
than 10% of the Company's revenues over the past year.
COMPETITION
The IT services industry is fragmented and highly competitive at both the local
and national levels. Many participants in the information technology consulting
market have significantly greater financial, technical, and marketing resources
- -- and generate greater revenues -- than the Company. Some of these competitors
have a nationwide presence equivalent to, or greater than, that of the Company.
The information technology services market includes participants in a variety of
market segments, including systems consulting and integration firms,
professional services companies, application software firms, temporary
employment agencies, professional services groups of computer equipment and
software companies, accounting firms, and general consulting firms. Some of the
firms with which the Company competes in various geographic and service markets
are Electronic Data Systems, ISSC (the consulting division of IBM Corporation),
Computer Sciences Corp., Andersen Consulting, Cap Gemini America, Booz-Allen,
Computer Horizons Corp., Analysts International Corp., Computer Task Group, Inc.
and The Registry, Inc.
The Company believes the principal competitive factors in the IT services
industry include responsiveness to fulfill client needs, speed of systems
integration, quality of service, technical expertise, project management
capabilities, and price.
In staffing for client projects, the Company competes for IT consultants with
many of those same companies as well as other local and regional technology or
staffing service providers. Several competitive factors affect a company's
success in recruiting and retaining such professionals: compensation,
availability of benefits, a continuous flow of quality assignments, and access
to advanced training and technical support. The Company believes it is well
positioned in all of these areas to attract the highest quality IT talent.
INTELLECTUAL PROPERTY
The Company does not hold any patents or registered trademarks. However, the
Company considers its Database to be highly proprietary.
EMPLOYEES
As of March 21, 1996, the Company employed approximately 100 full-time staff
employees and 250 contract employees.
The Company is responsible for, and pays the employer's share of, Social
Security taxes (FICA), federal and state unemployment taxes, worker's
compensation insurance, and other costs relating to all of its employees. The
Company offers a suite of benefits to its contract employees; it is a different
selection than offered permanent employees. The Company believes that its
relations with its employees are good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's leases approximately 10,000 square feet of space in
McLean, Virginia for its corporate offices and the operations of ISS and TSS in
the Mid-Atlantic Region at a monthly rental rate of $15,554. The Company also
leases office space in New York City, Central and Western New Jersey and the
Greater Chicago area to serve as the branch offices of its operations. These
leases expire on different dates from May 2000 to June 2001.
Prior to the Merger, the Company's primary operating facility and
corporate headquarters was located in Great Neck, NY. As a result of the Merger
the Company's corporate offices moved from these facilties to its McLean, VA
headquarters. The Company settled the remaining obligation under the Great Neck
office lease in March 1997 for approximately $320,000.
The Company believes that the space in its existing corporate and
branch facilities should be adequate for the foreseeable future to support the
growth of its existing operations in the geographic areas in which it currently
operates. The Company expects to expand its operations into new geographic
regions in the future and will need to lease additional branch offices to
support operations in those regions.
ITEM 3. LEGAL PROCEEDINGS
From time to time, disagreements with individual employees and
disagreements as to the interpretation, effect or nature of the individual
agreements arise in the ordinary course of business and may result in legal
proceedings being commenced against the Company. On December 31, 1996, ACS (UK)
LTD., a software distributor based in the United Kingdom, filed a complaint
against Technology Development Systems, Inc., a wholly owned subsidiary of the
Company ("TDS"), in the Circuit Court of Cook County, Illinois. The plaintiff
alleges that TDS breached its obligations under the Distributor Agreement
between the plaintiff and TDS for the WorldLink product when TDS sold the
WorldLink technology to a third party. The plaintiff is demanding a sum
exceeding one million dollars for the breach of contract. In the opinion of
management and the Company's legal counsel, the lawsuit has little merit, and
the outcome of the pending litigation will not have a material adverse effect on
the Company's financial condition, liquidity or results of operations. The
Company intends to vigorously defend against the lawsuit.
The Company is not currently involved in any litigation or proceedings
which if decided against the Company would have a material adverse affect,
either individually or in the aggregate, and, except as set forth in the
preceding paragraph to the Company's knowledge, no other legal proceedings,
which, if decided against the Company would have a material adverse affect are
currently contemplated by any individuals, entities or governmental authorities.
The principal risks that the Company insures against are workers'
compensation, personal injury, property damage, professional malpractice, errors
and omissions, and fidelity losses. The Company maintains insurance in such
amounts and with such coverages and deductibles as management believes are
reasonable and prudent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the holders of the Company's
Common Stock during the fourth quarter of the Company's fiscal year ended
December 31, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the OTC Electronic
Bulletin board and on the Boston Stock Exchange. Effective June 7, 1996, upon
completion of the merger with Netplex, the Company was de-listed from NASDAQ.
The Company filed an application for re-listing on October 21, 1996.
This application was still being reviewed by NASDAQ as of March 21, 1997. The
Company believes that it meets the requirements for re-listing, although there
can be no assurances that the Company's application will be approved by NASDAQ.
The quotations set forth in the table reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions:
Fiscal 1995 High Low
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1st Quarter.............................. $4.63 $1.75
2nd Quarter.............................. $4.23 $1.88
3rd Quarter.............................. $4.00 $2.00
4th Quarter.............................. $3.38 $2.06
Fiscal 1996
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1st Quarter.............................. $3.50 $2.38
2nd Quarter (OTC Electronic Bulletin Board
commencing June 7,1996). $3.38 $2.77
3rd Quarter............................. $3.38 $2.31
4th Quarter............................. $4.00 $3.25
(b) The Company has not paid any cash dividends on its Common Stock and
does not intend to pay cash dividends on its Common Stock for the foreseeable
future. The Company intends to retain future earnings, if any, to finance future
development.
(c) As of March 21, 1997, there were approximately 85 holders of record
of the Company's Common Stock. The Company believes that at such date there were
in excess of 500 beneficial owners of the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 7, 1996, the Company (formerly known as "CompLink, Ltd." or
"CompLink") acquired and merged(the "Merger") with America's Work Exchange and
The Netplex Group, Inc. (collectively referred to as "Netplex") in a reverse
merger transaction by issuing approximately 3,245,000 shares of Common Stock, or
50.4% of the Company's then outstanding Common Stock after giving effect for the
Merger. The merger agreement also provided for the Company to assume 1,691,000
outstanding Common Stock options of Netplex. As a result, Netplex is considered
the acquirer for accounting purposes.
The assets and liabilities of CompLink and its wholly owned subsidiary,
he Technology Development Systems (TDS) were recorded by the Company on the
merger date at book value which approximates fair value.
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On December 31, 1996, the Company completed the sale of its interest in
WorldLink to Xcellenet, Inc. for an aggregate sale price of $3 million. The
Company's gain on the disposal of this business segment of approximately $1.8
million and the net loss from this segment's operations from the merger date
(June 1, 1996 for accounting purposes) through the date of disposal of
approximately $1.3 million was reported as discontinued operations in the
Company's statement of operations.
As of December 31, 1996, all of the Company's operations are
concentrated in the Networked Computer Systems and Services business segment.
The statement of operations for the year ended December 31, 1996 reflect those
of Netplex for the full year and those of CompLink commencing on June 1, 1996.
The operations of TDS, commencing on June 1, 1996 are reported as discontinued
operations. The December 31, 1995 balance sheet and the statements of operations
and of cash flows for the year ended December 31, 1995 reflect the financial
position, the results of operations and cash flows of Netplex.
On September 19, 1996, in order to fund the new entity, the Company
raised approximately $3 million through the 1996 Private Placement(See "Business
- - General").
RESULTS OF CONTINUING OPERATIONS
FISCAL YEAR ENDED DECEMBER 31,1996 COMPARED
TO FISCAL YEAR ENDED DECEMBER 31, 1995.
The Company, after the disposition of the software development and
distribution segment, operates in a single business segment, Networked Computer
Systems and Services. However, to aid in the discussion of the results of the
Company's operations, this segment is subdivided into three service offerings
(as described in the "Business"). These service offerings consist of:
Information Systems Solutions("ISS");Technical Staffing Services("TSS") and
Independent Employee Services("IES").
Revenues for the year ended December 31 ,1996 increased to
approximately $33.5 million as compared to $6.1 million for the same period in
1995, an increase of $27.4 million. This increase is primarily attributable to
the inclusion of a full year of operations of a subsidiary (the "IES
Subsidiary"), acquired by AWE in December 1995, that provides the Company's IES
services. This subsidiary accounted for approximately $26.4 million of this
increase. The remaining increase of $945,OOO includes an increase of $1.5
million in TSS project revenues and is offset by a decrease in ISS project
revenues of $550,000.
Gross Profit for the year ended December 31, 1996 decreased by
approximately $100,000 to approximately $2.6 million as compared to $2.7 million
for the same period of 1995. This decrease is primarily due a decrease in ISS
gross profit of $1.8 million resulting from the combined effects of a decline in
ISS revenues ($550,000 as discussed above) and a $1.2 million decrease
attributable to the sale of services which generated lower gross profits than
those in the prior year. The majority of this decrease was offset by increases
in gross profit of approximately $1.7 million, that includes an increase of $1.1
million from the inclusion of a full year of operations of the IES Subsidiary
and an increase in gross profit of approximately $600,000 stemming primarily
from the increase in TSS sales.
Gross margins decreased to 8% for the year ended December 31, 1996 as
compared to 44% for the same period of 1995. This decrease is due primarily to
(i) the inclusion of a full year of operations of the IES Subsidiary which are
performed at lower gross margins than the other service offerings of the
-11-
<PAGE>
Company and (ii) an erosion of the ISS margin(as discussed above).
Selling, general and administrative expenses for the year ended
December 31, 1996 increased by approximately $2.4 million to $5.2 million from
$2.8 million for the comparable 1995 period. This increase includes $1.1 million
in selling, general and administrative costs from the inclusion of the full year
of operations of the IES Subsidiary, a $850,000 net increase in costs of AWE and
Netplex comprised primarily of significant increases in sales and recruiting
headcount during 1996 for TSS and a $525,000 increase resulting from the
inclusion of the post merger CompLink selling, general and administrative cost.
Operating losses for the year ended December 31, 1996 increased by
approximately $2.5 million to $2.6 million from $56,000 for the year ended
December 31, 1995. This increase in operating losses is due primarily to the
aforementioned increases in selling, general and administrative expenses.
Other income(expense) for the year ended December 31, 1996 increased by
approximately $55,000 to $38,000 in other income from ($17,000) of other expense
in the comparable 1995 period. This increase is primarily due to interest income
received from investments of excess cash balances in money market accounts.
The Company had an income tax benefit of $34,000 for the year ended
December 31, 1996 compared to a income tax provision of $12,000 for the
comparable 1995 period. The 1996 income tax benefit was generated from a change
in the Company's deferred tax asset valuation allowance.
Income from discontinued operations of approximately $488,000 resulted
from the Company's discontinuance of its software development and distribution
business. This income includes a gain from the disposal of the business of
approximately $1.8 million which resulted primarily from the sale of the
WorldLink product technology to XcelleNet, Inc. offset by losses of
approximately $1.3 million from the operations of this business from the date of
its acquisition in the merger with CompLink (June 1, 1996 for accounting
purposes) through the disposal date.
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the Company experienced improved liquidity, particularly in
the third and fourth quarters. The improvement in liquidity resulted primarily
from the completion of several transactions including, the 1996 Private
Placement which generated net proceeds of approximately $3.0 million; the
completion of the sale of WorldLink which generated proceeds net of costs
related to the sale and disposal of the business of approximately $2.5 million,
and the Merger of the Company with CompLink, Ltd. and its Subsidiary in which
the Company received approximately $1.2 million in cash.
The improvement in liquidity from the above transactions was partially
offset by the use of $3.1 million in operating activities. This use of cash
includes the Company's net loss for 1996 of approximately $2.0 million and the
net effect of increased accounts payable and accrued expenses, increased
depreciation expense and increased accounts receivable stemming from the
combined effects of increased business volume, the Company's acquisition of
CompLink and Subsidiary, as well as the inclusion of the full year of operations
of the IES Subsidiary. The Company also used cash in 1996 to repay the
outstanding balance under its line of credit with a bank, repay certain loans
and to purchase property and equipment.
-12-
<PAGE>
The Company maintains a line of credit facility with a bank. Under the
terms of this line of credit facility, the Company may borrow up to the lesser
of $750,000 or 75% of eligible accounts receivable. The line of credit bears
interest at the bank's prime rate plus 1%. This line of credit facility expires
in June 1997. This line of credit is personally guaranteed by the Company's
Chief Executive Officer. Management believes that it will be able to renew this
line of credit upon its expiration.
At December 31, 1996 Company had approximately $3.7 million in cash and
no outstanding balance on its $750,000 line of credit facility with a bank.
The Company is expecting to incur operating losses until it achieves
full productivity of the majority of its sales force. While it cannot be certain
as to when such levels of productivity can be attained, the Company anticipates
that its sales force will operate at levels below full productivity through at
least the first half of 1997. The Company will continue to make significant
investments in marketing, training and infrastructure to increase productivity,
build its core competency practice unit skill base and product offerings and
foster growth of its operations. Despite the expectation of continued operating
losses, management believes that its current cash balance and credit facility
will be sufficient to meet operating requirements for at least the next twelve
months.
INFLATION
The Company does not expect inflation to have a significant adverse
impact on its operations.
FORWARD-LOOKING STATEMENTS
This Form 10-KSB 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 and 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 with
out limitation, the growth of the Company, future financings, acquisitions and
expenses and general market conditions). A1though 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-KSB
will prove accurate. In light of the significant uncertainties inherent in
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.
ITEM 7. FINANCIAL STATEMENTS
See Consolidated Financial Statements listed in the accompanying index
to Consolidated Financial Statements on Page F-1 herein.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-13-
<PAGE>
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item will be filed with the
Securities and Exchange Commission not later than 120 days after the fiscal year
covered by this form.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item will be filed with the
Securities and Exchange Commission not later than 120 days after the fiscal year
covered by this form.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be filed with the
Securities and Exchange Commission not later than 120 days after the fiscal year
covered by this form.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be filed with the
Securities and Exchange Commission not later than 120 days after the fiscal year
covered by this form.
-14-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) EXHIBIT
NO.
2.1 Agreement and Plan of Reorganization and Merger dated as of
November 20, 1995, by and among The Netplex Group, Inc.,
America's Work Exchange, Inc. and the Company.** 3.1 The
Company's Amended and Restated Certificate of
Incorporation.***
3.2 The Company's By-laws.***
3.3 Amendment to the Company's Amended and Restated Certificate
of Incorporation.*
4.1 Form of Common Stock Certificate.***
4.5 Form of Warrant issued to investors in connection with 1992
bridge financing.***
4.6 Form of Unit Purchase Option granted to the Underwriter of
the Company's initial public offering.***
4.7 Form of Purchase Option granted to Placement Agent in
connection with the 1996 Private Placement.****
4.8 Form of Warrant issued in connection with the 1996 Private
Placement.****
4.9 Certificate of Designation for the preferred stock.****
10.5 1992 Incentive and Non-Qualified Stock Option Plan.**
10.6 Amendment to 1992 Incentive and Non-Qualified Stock Option
Plan.*
10.9 Form of Indemnification Agreement between the Officers and
Directors of the Company and the Company.**
10.10 1995 Directors' Stock Option Plan.*****
10.11 1995 Consultant's Stock Option Plan.*****
10.12 Employment Agreement between the Company and Gene Zaino.*
23 Consent of the KMPG Peat Marwick LLP.*
27 Financial Data Schedule.*
(b) The Company filed one report on Form 8-K during the quarter ended
December 31, 1996 under Item 2. Acquisition or Disposition of Assets.
- ----------------------
* Filed Herewith.
** Incorporated by reference to the Company's Current Report on Form
8- K, filed with the Securities and Exchange Commission (the
"Commission") on June 7, 1996, as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2, filed with the Commission on January 29, 1993 (Commission
File No. 33-57546), as amended.
**** Incorporated by reference to the Company's Registration Statement on
Form S-3, filed with the Commission on November 18, 1996, as amended
(Commission File No. 333-16423).
***** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed with the Commission on December 31, 1996,
(Commission File No. 333-19115).
-15-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of McLean, Commonwealth of
Virginia on the 27th day of March, 1997.
The Netplex Group, Inc.
By: /s/ Gene Zaino
--------------
Gene Zaino
Chairman, President and C.E.O.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gene Zaino Chairman, President March 27, 1997
- ----------------------------- and Chief Executive
Gene Zaino Officer, [Principal
Executive Officer]
/s/ Matthew G. Jones Chief Financial Officer
- ----------------------------- and Treasurer [Principal
Accounting Officer] March 27, 1997
/s/ Neil Luden Vice President & Director March 27 ,1997
- ------------------------------
Neil Luden
/s/ Richard Goldstein Director March 27 ,1997
- ------------------------------
Richard Goldstein
/s/ Howard Landis Director March 27 ,1997
- ------------------------------
Howard Landis
/s/ Deborah Schondorf-Novick Director March , 1997
- ------------------------------
Deborah Schondorf-Novick
<PAGE>
Item 7. Consolidated Financial Statements
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995.................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995............................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995.................................... F-6
Notes to Consolidated Financial Statements ..................... F-7
<PAGE>
Independent Auditors' Report
Board of Directors
and Stockholders of:
The Netplex Group, Inc. :
We have audited the accompanying consolidated balance sheets of The Netplex
Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Netplex Group,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
McLean, Virginia
March 21, 1997
F-2
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
1996 1995
--------------- ----------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,691,099 $ 840,711
Accounts receivable, net of allowance for doubtful
accounts of $177,477 and $46,000, respectively 4,304,662 3,299,308
Prepaid expenses and other current assets 350,074 78,250
--------------- ----------------
Total current assets 8,345,835 4,218,269
Property and equipment, net 1,090,617 206,405
Other assets 78,988 22,334
Excess cost over fair value of net assets acquired, net 373,180 399,838
--------------- ----------------
Total assets $ 9,888,620 $ 4,846,846
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 936,865 $ 628,321
Accrued expenses 5,166,184 2,850,928
Deferred revenue 329,267 399,437
Obligation under capital lease, current installments 106,347 -
Due to affiliates - 250,000
Notes payable - 100,000
Loan payable - 59,870
Deferred income taxes - 34,000
--------------- ----------------
Total current liabilities 6,538,663 4,322,556
Obligation under capital lease, net of current installments 110,669 -
--------------- ----------------
Total liabilities 6,649,332 4,322,556
-------------- ---------------
Stockholders' equity:
Class A cumulative convertible preferred stock, $.01 par
value; liquidation preference of the greater of: (i)
two times the stated value of $2 per share plus all
accrued and unpaid dividends, or (ii) the amount that
would have been received if such shares were
converted to common stock on the business day
immediately prior to the liquidation; 2,000,000
shares authorized; 1,750,000
shares issued and outstanding in 1996 17,500 -
Common stock, $.001and $.01 par value for 1996 and 1995,
respectively, 20,000,000 authorized: 6,442,903 and 3,197,608
shares issued and outstanding in 1996 and 1995, respectively 6,443 31,976
Additional paid in capital 5,301,542 579,124
Accumulated deficit (2,086,197) (86,810)
--------------- ----------------
Commitments and contingencies
Total stockholders' equity 3,239,288 524,290
-------------- ---------------
Total liabilities and stockholders' equity $ 9,888,620 $ 4,846,846
=============== ================
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE>
THE NETPLEX GROUP, INC AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 33,524,679 $ 6,139,319
Cost of revenues 30,878,166 3,416,045
------------- --------------
Gross profit 2,646,513 2,723,274
Operating expenses
Selling, general and administrative expenses 5,205,906 2,778,967
------------- --------------
Operating loss (2,559,393) (55,693)
Other income/(expenses)
Interest income/(expense), net 33,119 (17,096)
Other income 4,808 -
------------- --------------
37,927 (17,096)
Loss from continuing operations
before income taxes (2,521,466) (72,789)
Income tax (benefit) provision (34,000) 12,000
------------- --------------
Loss from continuing operations (2,487,466) (84,789)
Discontinued operations:
Loss from operations of discontinued segment (1,332,050) -
Net gain from disposal 1,820,129 -
------------- --------------
Income from discontinued operations 488,079 -
Net loss $ (1,999,387) $ (84,789)
============= ==============
Earnings(loss) per common share:
Continuing operations $ (0.51) $ (0.03)
Discontinued operations $ 0.09 $ -
------------- --------------
Total $ (0.42) $ (0.03)
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Class A cumulative,
convertible preferred stock Common stock
----------------------------------- -----------------------------------
Shares $ Shares $
-------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 - $ - 2,769,037 $ 27,690
Net loss for the year ended December 31, 1995
Merger with SRNJ 428,571 4,286
-------------- ------------------- ----------------- -----------------
Balance at December 31, 1995 - $ - 3,197,608 $ 31,976
Reduction in par value resulting from the
merger of the Company with Netplex
from $0.01 per share to $0.001 per share (28,778)
Issuance of shares in the merger of
the Company with Netplex 3,245,295 3,245
Private placement of Class A cumulative, convertible
preferred stock 1,750,000 17,500
Net loss for the year ended December 31, 1996
Declaration of dividend on Class A cumulative,
convertible preferred stock
-------------- ------------------- ----------------- -----------------
Balance at December 31, 1996 1,750,000 $ 17,500 6,442,903 $ 6,443
============== =================== ================= =================
</TABLE>
See accompanying notes to the consolidated financial statements
<TABLE>
<CAPTION>
Additonal
paid in Accumulated
capital deficit Total
-------------- -------------------- -----------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 298,410 $ (2,021) $ 324,079
Net loss for the year ended December 31, 1995 (84,789) (84,789)
Merger with SRNJ 280,714 285,000
-------------- -------------------- -----------------
Balance at December 31, 1995 $ 579,124 $ (86,810) $ 524,290
Reduction in par value resulting from the
merger of the Company with Netplex
from $0.01 per share to $0.001 per share 28,778 -
Issuance of shares in the merger of
the Company with Netplex 1,767,488 1,770,733
Private placement of Class A cumulative, convertible
preferred stock 3,024,346 3,041,846
Net loss for the year ended December 31, 1996 (1,999,387) (1,999,387)
Declaration of dividend on Class A cumulative,
convertible preferred stock (98,194) (98,194)
-------------- -------------------- -----------------
-
Balance at December 31, 1996 $ 5,301,542 $ (2,086,197) $3,239,288
============== ==================== =================
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
Operating activities:
<S> <C> <C>
Net loss $ (1,999,387) $ (84,789)
Adjusments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 587,902 19,058
Gain on sale of WorldLink product technology (1,820,129) -
Compensation expense associated with stock awards - 4,000
Deferred income taxes (34,000) 12,000
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable (789,955) (774,680)
Prepaid expenses and other current assets (117,496) 51,621
Other assets (9,404) (14,095)
Accounts payable and accrued expenses 1,190,669 164,039
Deferred revenue (131,643) 325,335
------------- ------------
Net cash used in operating activities (3,123,443) (297,511)
------------- ------------
Investing activities:
Capital expenditures (631,983) (115,692)
Net proceeds from the sale of WorldLink product technology 2,492,795 -
Cash acquired in acquisition 1,245,062 690,935
------------- ------------
Net cash provided by investing activities 3,105,874 575,243
------------- ------------
Financing activities:
Proceeds from private placement 3,041,846 -
Line of credit advances 650,000 475,000
Line of credit repayments (650,000) (375,000)
Payments of obligation under capital lease (14,019) -
(Repayment) Proceeds from note payable (100,000) 250,000
Repayments of loan payable (59,870) -
------------- ------------
Net cash provided by financing activities 2,867,957 350,000
------------- ------------
Increase in cash and equivalents 2,850,388 627,732
Cash and cash equivalents at beginning of period 840,711 212,979
------------- ------------
Cash and cash equivalents at end of period $ 3,691,099 $ 840,711
============= ============
Supplemental Information:
Cash paid (received) during the period for:
Interest $ 24,247 $ 18,080
============= ============
Income taxes $ 12,985 $ (13,025)
============= ============
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) The Business and Basis of Presentation:
THE BUSINESS:
The Netplex Group, Inc. ("the Company") was incorporated in 1986 to
provide professional technical services primarily to large commercial
organizations. The Company builds, manages and protects large networked
systems, with service offerings including information security,
contingency planning, mobile communication technology, network and systems
management and temporary technical staffing services.
BASIS OF PRESENTATION:
MERGER WITH NETPLEX:
On June 7, 1996, the Company (formerly known as "CompLink, Ltd." or
"CompLink") acquired and merged with America's Work Exchange and The
Netplex Group, Inc. (collectively referred to as "Netplex") in a reverse
merger transaction by issuing approximately 3,245,000 shares of common
stock, or 50.4 % of the Company's outstanding stock after giving effect
for the merger. The merger agreement also provided for the Company to
assume 1,691,000 outstanding common stock options of Netplex.
The mergers have been accounted for under the purchase method of
accounting as a reverse merger, since the shareholders of Netplex, which
have common control, received the larger of the voting rights of the
combined entity. As a result, Netplex is considered the acquirer for
accounting purposes.
The mergers resulted in a re-capitalization of the acquirers, so that the
resulting capitalization of the Company after the merger is that of
CompLink's giving effect to the issuance of new shares and elimination of
CompLink's accumulated deficit. In addition, the par value of the
Company's common stock was decreased from $0.01 per share to $0.001 per
share in connection with the merger. The assets and liabilities of
CompLink were recorded by the Company at book value which approximates
fair value. The total assets and liabilities of CompLink at merger date
amounted to approximately $2,524,000 and $753,000, respectively.
The statement of operations for the year ended December 31, 1996 reflect
those of Netplex for the year and those of CompLink and its wholly-owned
subsidiary, TDS, commencing on June 1, 1996. The merger has been accounted
for assuming that it occurred on May 31, 1996. The operating results of
CompLink and TDS from June 1, 1996 up to June 7, 1996 (the merger date)
have been included in the Company's 1996 consolidated statement of
operations, as such amounts are not material. The December 31, 1995
balance sheet and the statements of operations and of cash flows for the
year ended December 31, 1995 reflect the financial position, the results
of operations and cash flows of Netplex.
Coincident with the mergers the Company's name was changed from CompLink,
Ltd. to The Netplex Group, Inc. and the entity known as the Netplex Group,
Inc. prior to the merger changed its name to Netplex Systems, Inc. The
Company's fiscal year end was changed from July 31 to December 31. Upon
completion of the merger , the Company consists of Netplex Systems, Inc.;
America's Work Exchange ("AWE") and its wholly- owned subsidiary, Software
Resources of New Jersey ("SRNJ"); and The Netplex Group, Inc. (formerly
known as CompLink Ltd.) and its wholly-owned subsidiary, Technology
Development Systems ("TDS").
F-7
<PAGE>
ACQUISITION OF SRNJ:
On December 28, 1995, America's Work Exchange purchased all of the net
assets of SRNJ in exchange for 2,262,500 shares of its common stock. The
fair value of the common stock of $285,000 was determined based on the
price per share received for the most recent sale of Netplex stock in an
arm's length transaction. The acquisition was accounted for as a purchase
whereby the acquisition costs were allocated to the underlying assets. The
total assets and liabilities of SRNJ at acquisition date amounted to
approximately $2,771,000 and $2,886,000. The acquisition was deemed to
close on December 31, 1995 for accounting purposes, therefore, the
operating results of the Company for the year ended December 31, 1995 do
not reflect the operations of SRNJ. The acquisition resulted in costs in
excess of the fair value of the net assets acquired of $399,838.
The following unaudited pro forma results of operations present on the
purchase basis of accounting the consolidated operating results of the
Company from continuing operations for the years ended December 31, 1996
and 1995 as if the mergers with CompLink and SRNJ 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 merger. The pro forma results do not
include the operations of the discontinued business segment (see note 3).
Unaudited
Years Ended
December 31,
--------------------------------------
1996 1995
--------------------------------------
(in thousands except per share data)
Revenues $33,995 $27,318
======== ========
Net loss from continuing operations ($2,652) ($3,407)
======== ========
Net loss per share
from continuing operations ($0.41) ($0.52)
======== ========
Weighted average common
shares outstanding 6,443 6,443
======== ========
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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS SEGMENTS:
The Company's sole business segment at December 31, 1996 was networked
computer services. Prior to December 31, 1996 the Company also operated in
the software development and distribution business. Upon completion of the
sale of the WorldLink product technology, the Company ceased operations in
this business segment (note 3).
PRINCIPLES OF CONSOLIDATION:
The accompanying financial statements include the accounts of America's
Work Exchange and Netplex Systems, Inc. (formerly the Netplex Group, Inc.)
prior to the merger on June 7, 1996, and the accounts of The Netplex
Group, Inc. (formerly CompLink, Ltd.) and its wholly-owned subsidiaries
Netplex Systems, Inc. (formerly the Netplex Group, Inc.), America's Work
Exchange, Software Resources of New Jersey, and Technology Development
F-8
<PAGE>
Systems, subsequent to the merger. All significant intercompany balances
and transactions have been eliminated.
REVENUE RECOGNITION:
The majority of the Company's revenues are from time and materials
contracts. These revenues are recognized when the services are performed
and the costs are incurred. Revenues related to fixed price contracts are
recognized on a percentage of completion basis. Revenues for maintenance
contracts are recognized ratably over the service period of the underlying
contract. Deferred revenue represents the unearned portion of maintenance
contracts and amounts billed in advance of customer acceptance, in
accordance with the terms of the contract. The Company records loss
provisions for its contracts, if required, at the time that such losses
are identified.
CASH AND 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, 1996 are comprised of money market accounts,
and at December 31, 1995 are comprised of money market accounts and a
demand deposit and mutual fund account. Substantially all of the Company's
cash and cash equivalents at December 31, 1996 are invested in two banks.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Depreciation and amortization
are provided for using the straight-line method over the estimated useful
lives of the assets which range from 3 to 7 years. Property and equipment
under capital leases are stated at the present value of the minimum lease
payments and are amortized using the shorter of the lease term or the
estimated useful life. Expenditures for repairs and maintenance are
charged to operations as incurred.
Depreciation and amortization expense related to property and equipment
was $318,865 and $19,058 for the years ended December 31, 1996 and 1995.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of ", on January 1, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
EXCESS COSTS OVER NET ASSETS ACQUIRED:
Excess costs over net assets acquired (goodwill) resulting from AWE's
acquisition of SRNJ is being amortized on a straight-basis over a recovery
period of 15 years. The Company assesses the potential impairment and
recovery of goodwill on an annual basis and more frequently if factors
dictate. Management forecasts are used to evaluate the recovery of
goodwill through determining whether amortization of the goodwill can be
recovered through the undiscounted operating cash flow (cash flow
excluding goodwill amortization, non recurring charges and interest
expense) . If an impairment of goodwill appears to have occurred,
impairment is measured based on projected discounted operating cash flow
(excluding goodwill amortization, non recurring charges and interest
expense) using a discount rate reflecting the Company's cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. The Company may assess the
net carrying amount of goodwill using internal and or independent
valuations.
F-9
<PAGE>
Accumulated amortization of goodwill related to the purchase of SRNJ at
December 31, 1996 was $26,656 and none at December 31, 1995. In connection
with the Company's decision to discontinue its software development and
distribution segment (note 3), the Company wrote off the remaining balance
of the goodwill of $255,407 associated with CompLink's acquisition of TDS.
INCOME TAXES:
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured by applying enacted statutory tax
rates, that are applicable to the future years in which the deferred tax
assets or liabilities are expected to be settled or realized. Any change
in tax rates on deferred tax assets and liabilities is recognized in net
income in the period in which the tax rate change is enacted.
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per common share amounts were computed by dividing
earnings (loss) after deduction of preferred stock dividends by the
weighted average number of common shares outstanding. The effect of
average common stock equivalents (stock options and warrants) outstanding
has not been considered, as their effect on the computation is not
dilutive. Weighted average common shares outstanding were 5,026,306 and
3,197,306 for the years ended December 31, 1996 and 1995, respectively.
STOCK OPTIONS:
Prior to January 1, 1996, the Company accounted for its 1992 Incentive
Stock Option plan ("ISO Plan") and the 1995 Director's Stock Option plan
(the "Director's Plan") in accordance with the provisions of APB Opinion
No. 25 ("APB 25") "Accounting for Stock Issued to Employees" and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation", which permits entities
to recognize, as expense over the vesting period, the fair value of all
stock-based awards on the grant date. Alternatively, SFAS No. 123 ("SFAS
123") also allows entities to continue to apply the provisions of APB 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and in future
years as if the fair-value-based method defined in SFAS 123 had been
applied. The Company has elected to continue to apply the provisions of
APB Opinion 25 and provide the pro forma disclosure provisions of SFAS 123
for the ISO and Director's Plans.
The Company's 1995 Consultant's Plan (the " Consultant's Plan") allows for
the granting of options to both employees and individuals who are not
employees of the Company. The Company accounts for the options granted to
non-employees based on the provisions of SFAS 123.
USE OF ESTIMATES:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
(3) DISCONTINUANCE OF BUSINESS SEGMENT:
In December 1996, the Company made the decision to discontinue its
software development and distribution segment, through the sale of TDS's
interest in its WorldLink product technology ("WorldLink"). WorldLink
represented the primary asset offering of the Company's software
development and distribution segment. The operations of the software
development and distribution segment have been treated as discontinued
operations in accordance with the provisions of Accounting Principles
Board Opinion No. 30 (APB 30). Pursuant to APB 30, the revenue, costs and
expenses have
F-10
<PAGE>
been excluded from their respective captions in the Company's consolidated
statements of operations and the net results have been reported separately
as income from discontinued operations.
On December 31, 1996, the Company completed the sale of its interest in
WorldLink to Xcellenet, Inc. for an aggregate sale price of approximately
$2.5 million, net of expenses paid related to the sale of approximately
$500,000. The remaining net assets of TDS were written down to their net
realizable values and consist primarily of accounts receivable and
furniture and equipment, which the Company plans to use in its continuing
operations.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
----------------------------
1996 1995
------------ ----------
Computer software $ 464,318 $ 21,750
Computer and office equipment 460,422 190,475
Furniture and fixtures 212,561 -
Equipment under capital leases 247,100 -
Leasehold Improvements 46,934 16,033
------------ ----------
1,431,335 228,258
Accumulated depreciation and amortization
(340,718) (21,853)
------------ ----------
Property and equipment, net $1,090,617 $206,405
============ =========
Computer software at December 31, 1996, includes $407,337 of software that
was developed for internal usage. Such software was placed in to service
in January 1997 and will be amortized over a 3 year useful life.
Accumulated depreciation includes $29,125 related to assets under capital
leases at December 31, 1996 and none at December 31, 1995.
(5) ACCRUED EXPENSES:
Accrued expenses consists of the following:
December 31,
-----------------------------
1996 1995
--------------- ------------
Payroll and employee benefits $ 3,592,795 $ 2,646,141
Costs of discontinued segment 704,890
-
Merger costs 466,432
-
Other 402,067 204,787
--------------- ------------
$ 5,166,184 $ 2,850,928
=============== ============
(6) NOTES PAYABLE TO BANK:
The Company entered into a line of credit facility with a bank that
expires on July 1, 1997. This line of credit facility provides for
advances of 75% of eligible accounts receivable (as defined in the
agreement) up to $750,000. Amounts borrowed bear interest at the bank's
reference rate of prime (8.5%) plus 1% . The line of credit is personally
guaranteed by the Company's Chief Executive Officer. The Company had no
outstanding advances on the line of credit at December 31, 1996.
F-11
<PAGE>
The Company entered into a $500,000 bank line of credit agreement in 1995
that expired on June 28, 1996. This line of credit provided for advances
on the line of credit of 80% of the eligible accounts receivable (as
defined) up to $500,000. Under this agreement, the Company was required to
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 the line of credit was due on demand.
The borrowing agreement was collateralized by the Company's assets and was
personally guaranteed by two stockholders of the Company. The amount
outstanding under the line of credit at December 31, 1995 was $100,000.
(7) INCOME TAXES:
The components of the income tax expense (benefit) consists of the
following for the years ended December 31, 1996 and 1995:
1996 1995
------- ---------
Deferred $(34,000) $12,000
------- ---------
The reconciliation between the actual income tax expense and income tax
computed by applying the statutory federal income tax rate to earnings
before provision for income taxes for the year ended December 31, 1996 and
1995 is as follows:
1996 1995
-------- --------
Computed "expected" tax (benefit) on income
from continuing operations $(857,298) $(24,748)
Change in valuation allowance for deferred tax
assets allocated to income tax expense 823,298 -
Net operating loss carryforward - 34,948
Other - 1,800
-------- --------
$(34,000) $12,000
-------- -------
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $3,000,372 $51,000
Research and development credit carryforwards 187,186
-
Excess tax basis over book of net assets acquired 199,920
-
Allowance for doubtful accounts receivable 74,540 18,000
-
Accrued liabilities, not presently deductible 496,133
-
Other 69,804 16,000
----------- -----------
Total gross deferred tax assets 4,027,955 85,000
Less valuation allowance (3,995,875) (85,000)
------------ -----------
Net deferred tax asset 32,080 -
=========== ===========
Deferred tax liabilities:
Obligation under capital leases (12,852) -
Other (19,228) (34,000)
=========== ===========
Total deferred tax liabilities (32,080) (34,000)
=========== ===========
Net deferred tax asset (liability) $ - ($34,000)
=========== ===========
</TABLE>
The net change in the valuation allowance was an increase of $3,910,875 in
1996 and an increase of $73,000 in 1995. The Company has provided a
valuation allowance for the majority of its deferred tax assets at
December 31, 1996 and 1995 since the Company could not conclude that it
was more likely than not that it would realize these assets due
principally to the Company's history of losses.
<PAGE>
As of December 31, 1996 the Company has net operating loss carry forwards
(NOL's) for federal income tax purposes of approximately $10,400,000 .
Additionally, the Company has $187,000 of research and development tax
credits available to offset future taxable income. The NOL's and credit
carryforwards expire primarily in 2007 through 2011. The future annual
usage of approximately $9,600,000 these NOL's and credits for income tax
purposes are subject to annual limitations and may not be fully utilized
for tax purposes due to the change in ownership resulting from the
Company's merger in 1996. In addition, approximately $9,600,000 of these
NOL's and credits and may only be used to offset future taxable income of
the accounting acquiree.
(8) COMMITMENTS:
EMPLOYMENT AGREEMENTS:
On June 7,1996, in connection with the closing of the merger, the Board of
Directors approved three-year employment agreements with the Chairman and
Chief Executive Officer and three executives of Netplex and AWE that
provide for aggregate base salaries ranging from $110,000 to $150,000 with
annual bonuses up to 60% of base salary based of the Company's financial
and operating performance, subject to Board approval. These agreements
expire on June 6, 1999.
In November 1995, the Company approved a consulting agreement between the
Company and its Chief Executive Officer (CEO), Mr. Gene Zaino, for
services to be rendered to CompLink in connection with the merger. Mr.
Zaino received $5,425 per month under this agreement through its
termination upon the completion of the merger.
OBLIGATIONS UNDER LEASES:
The Company leases computer equipment, furniture, vehicles and office
facilities under long-term lease agreements. The following is a schedule
of future minimum lease payments for capital and non cancelable operating
leases (with initial terms in excess of one year) as of December 31, 1996:
Capital Operating
Year ending December 31: leases leases
------ ------
1997 $106,347 $ 556,354
1998 78,787 534,401
1999 60,090 523,484
2000 - 428,925
Thereafter - 124,364
--------- -----------
Total minimum lease payments 245,224 $2,167,528
============
Less: amount representing interest 28,208
---------
Present value of minimum lease payments $217,016
=========
Total rent expense was approximately $577,250 and $166,229 for the years
ended December 31, 1996 and 1995, respectively.
(9) CLASS A CUMULATIVE, CONVERTIBLE PREFERRED STOCK:
0n September 19, 1996, the Company raised approximately $3,000,000 through
the completion of a private placement offering of units of equity
securities. Each unit of equity securities consists of one share of Class
A cumulative, convertible preferred stock (the "preferred stock") and one
common stock warrant to purchase one share of the Company's common stock
at an exercise price of $2.50.
Each share of preferred stock is convertible into one share of common at
any time, at the discretion of the holder. The preferred stock earns
cumulative dividends at 10% per annum, payable in either cash or
additional shares of preferred stock at the Company's option. Subject to
the conversion rights, the Company may redeem the preferred stock at its
stated value plus all accrued and unpaid dividends upon: (1) registration
of the shares underlying the preferred stock, and (2) 30 days written
notice given at any time upon attaining certain per share trading prices
and sustaining such prices for a specified period.
F-14
<PAGE>
The preferred stock has a per share liquidation preference of the greater
of: (i) two times the stated value of the preferred stock (stated value is
$2 per share) plus any accrued and unpaid dividends, or (ii) the amount
that would have been received if such shares were converted to common
stock on the business day immediately prior to liquidation.
Each warrant issued in connection with the private placement becomes
exercisable on March 19, 1997 and expires on September 19, 2001. The
Company has the right to call the warrants at a redemption price of $.01
per share upon: (1) registration of the shares underlying the warrant, and
(2) 30 days written notice given at any time upon attaining certain per
share trading prices and sustaining such prices for a specified period.
On December 31, 1996, the Company declared a dividend payable of
approximately $0.056 per share to all holders of record of the preferred
stock on January 15, 1997. Accordingly, the Company accrued a dividend
payable of approximately $98,000 at December 31, 1996.
(10) COMMON STOCK AND WARRANTS:
Pursuant to an agreement dated March 25, 1992, the Company sold 100,000
units each consisting of one share of common stock and one warrant with an
aggregate purchase price of $250,000 and issued an additional 120,000
warrants, with provisions identical to those issued with the units. Each
warrant is exercisable at any time through March 23, 1997, and entitles
the holder to purchase one share of common stock at $3.00 per share. All
of these warrants are exercisable at December 31, 1996. On March 27, 1997,
the term of 170,000 of these warrants was extended until March 27, 1998.
In an initial public offering (IPO), effective March 10, 1993, the Company
sold 1,150,000 units, each consisting of one share of common stock and one
redeemable common stock purchase warrant (Warrant) at an aggregate
purchase price of $5,750,000. Net proceeds to the Company were $4,666,367.
Each Warrant entitled the holder to purchase, through March 10, 1999, one
share of common stock at $5.25 per share. In September 1993, the Company
called for redemption its publicly traded warrants issued in connection
with its initial public offering. The Company received net proceeds of
$5,996,838 from the exercise of 1,143,690 common stock warrants.
In connection with the IPO, the Company sold to the underwriters for $100
the right to purchase up to an aggregate of 100,000 unit purchase options
(Units). The Units are exercisable initially at $6.00 per Unit through
March 1998. The Units are identical to those offered in the IPO, except
that the warrants may not be redeemed by the Company. The Units contains
anti-dilution provisions providing for adjustments to the exercise price
upon the occurrence of certain events. In connection with the merger of
the Company with Netplex, the Unit exercise price was reduced from $6.00
to $2.40 per share from the effects of this anti-dilution provision. The
exercise price of the underlying warrants remained at $5.25 per share. All
of these units are exercisable at December 31, 1996.
In connection with the merger of the Company with Netplex, effective April
11, 1996, the Company provided its underwriters with warrants to purchase
up to 125,000 shares of the Company's common stock. Each warrant entitles
the holder to purchase, through April 10, 2001, one share of common stock
at an exercise price of $3.50 per share. All of these warrants are
exercisable at December 31, 1996. The fair value of these warrants of
approximately $170,000 at the date of grant was recorded in conjunction
with the merger and as a result, did not have an impact on the Company's
equity.
In connection with the merger of the Company with Netplex, effective June
7, 1996, the shareholders of Netplex were granted warrants to purchase up
to 150,000 shares of the Company's common stock. Each warrant entitles the
holder to purchase, through June 6, 2001, one share of common stock at an
exercise price of $2.50 per share. These warrants became exercisable on
October 7, 1996. The fair value of these warrants of approximately
$270,000 at the date of grant was recorded in conjunction with the merger
and as a result, did not have an impact on the Company's equity.
F-15
<PAGE>
In connection with the Class A cumulative, convertible preferred stock
private placement, the Company provided the underwriters for the private
placement with the option to purchase up to 87,500 units, each consisting
of one share of $.01 par value Class A cumulative, convertible preferred
stock and one common stock purchase warrant. These units are exercisable
at $2.00 per share and are identical in all respects to the units sold in
the private placement transaction. The 87,500 units are all exercisable at
December 31, 1996. The common stock purchase warrants became exercisable
on March 19, 1997.
(11) STOCK OPTIONS:
As of December 31, 1996, the Company maintains three stock option plans;
the 1992 Incentive Stock Option Plan (ISO Plan), the 1995 Director's Stock
Option Plan (Director's Plan) and the 1995 Consultant's Stock Option Plan
(Consultant's Plan).
The ISO Plan includes both incentive and non-qualified stock options. The
Board of Directors may grant stock options to employees to purchase up to
3,000,000 shares of the Company's authorized but unissued common stock.
Stock options are granted with an exercise price equal to the market price
on the date of grant. All stock options expire 10 years from grant date (5
years in the case that the optionee is a holder of more than 10% of the
voting stock of the Company). The options vest and become fully
exercisable after 3 years from the date of grant. At December 31, 1996,
there were 587,500 shares available for grant under this plan.
The per share weighted-average fair value of the ISO Plan stock options
granted in 1996 and 1995 was $1.83 and $2.06, on the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions: 1996 - expected dividend yield 0.0%, expected volatility 44%,
risk-free interest rate of 6.70%, and an expected life of 10 years; 1995 -
expected dividend yield 0.0 %, expected volatility 44%, risk-free interest
rate of 6.14%, and an expected life of 10 years.
The Director's Plan authorizes the Board of Directors to grant each
director options to purchase up to 15,000 shares of the Company's
authorized but unissued common stock, upon election to the Board, and
award aggregate options to purchase up to 100,000 shares of the Company's
authorized but unissued common stock. The terms of option grants for the
Director's Plan are identical to those of the ISO plan, except that the
vesting period for the Director's Plan is at the Board's discretion.
Option grants under this Plan from inception to date have contained three
year vesting periods. At December 31 ,1996, there were 40,000 shares
available for grant under this Plan.
The per share weighted-average fair value of the Director's Plan stock
options granted in 1996 and 1995 was $1.67 and $2.35, on the grant date
using the Black-Scholes option-pricing model with the following weighted
average assumptions: 1996 - expected dividend yield 0.0%, expected
volatility 44%, risk-free interest rate of 6.81%, and an expected life of
10 years; 1995 - expected dividend yield 0.0%, expected volatility 44%,
risk-free interest rate of 6.48%, and an expected life of 10 years.
The Consultant's Plan authorizes the Board of Directors to grant
individuals who are not eligible for the ISO or Director's Plans stock
options to purchase up to 800,000 shares of the Company's authorized but
unissued common stock. The exercise price, terms of the option grant and
vesting period for the Consultant's Plan stock options are at the Board's
discretion. As of December 31, 1996, the Company had granted no options
under this Plan.
The Company applies APB Opinion No. 25 in accounting for its ISO and
Director's Plans and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
F-16
<PAGE>
1996 1995
--------- -------
(in thousands except per share data)
Net loss - As reported ($1,999) ($ 85)
========= ========
Net loss - Pro forma ($3,462) ($353)
========= ========
Net loss per share - As reported ($0.41) ($0.03)
========= ========
Net loss per share - Pro forma ($0.71) ($0.11)
========= ========
Weighted average common
shares outstanding 5,026 3,197
========= ========
Pro forma net income reflects only the option grants in 1996 and 1995.
Therefore, the full impact of calculating compensation costs for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
option's vesting periods and compensation cost for options granted prior
to January 1, 1995 is not considered.
Stock option activity for the Plans during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Weighted - Average
Number of shares Exercise Price
------------------------------------------------------------------
ISO Director's ISO Director's
Plan Plan Plan Plan
---------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 370,000 $5.32 $ -
-
Granted 464,500 30,000 2.00 3.56
Exercised
- - - -
Forfeited/Canceled (110,000) 6.13
- -
Expired
- - - -
---------------- ------------- ------------- --------------
Balance at December 31, 1995 724,500 30,000 $3.07 $3.56
Assumed in Merger 1,691,000 2.95
- -
Granted 233,000 30,000 2.75 2.50
Exercised
- - -
Forfeited/Canceled (236,000) 5.50
- -
Expired
- - -
---------------- ------------- ------------- --------------
Balance at December 31, 1996 2,412,500 60,000 $2.86 $3.03
================ ============= ============= ==============
</TABLE>
ISO PLAN OPTIONS:
At December 31 ,1996, the range of exercise prices for the options granted
under the ISO plan was $2.00-$6.13 and the weighted average remaining
contractual life of those options was 6 years. At December 31, 1996 and
1995, the number of options exercisable under the ISO Plan totaled 867,167
and 150,000, respectively. The weighted average exercise price of those
options was $3.00 and $4.13, respectively.
F-17
<PAGE>
DIRECTOR'S PLAN OPTIONS:
At December 31, 1996, the range of exercise prices for options granted
under the Director's Plan was $2.50- $3.56 and the weighted-average
remaining contractual life of those options was 8 years. At December 31,
1996, the number of options exercisable under the Director's Plan totaled
15,000 and the weighted-average exercise price of those options was $3.56.
No options were exercisable under the Director's Plan at December 31,
1995.
(12) RELATED PARTY TRANSACTIONS:
The Company contracted with an entity owned by a shareholder of the
Company, for the development of a certain software used in the Company's
technical staffing operations. The Company paid the shareholder $150,000
in 1996 and has a remaining obligation of $62,000 (recorded as accounts
payable) at December 31, 1996, related to the development of this
software.
A director of the Company, is a Vice President of the underwriter (the
"Underwriter") of the private placement completed by the Company on
September 19, 1996 (see note 9). The Company paid the Underwriter $432,500
for fees associated with the completion of this transaction.
The Company paid $17,900 for accounting, tax and consulting services in
1996 to a CPA firm in which a partner of this firm is a director of the
Company since July 1996.
(13) LITIGATION:
The Company is subject to a number of lawsuits and claims arising out of
the conduct of its business, including those relating to the
discontinuance of its software development and distribution segment.
Management believes that the probable resolution of such matters will not
materially affect the financial position, results of operations or cash
flows of the Company.
(14) EMPLOYEE BENEFIT PLANS:
During 1996, the Company sponsored a 401(k) retirement plan ("the Plan")
under which substantially all full-time employees were eligible to
participate. The Company made no matching contributions to the Plan during
1996.
The Company's subsidiary provided a profit sharing plan and a 401(k) plan
for its employees during 1996. The subsidiary contributed 10% of the
employees salary to the profit sharing plan and matched 100% of the
employees voluntary contributions to the 401(k) plan. The Company's
contributions to the profit sharing plan and to the 401(k) plan during
1996 were $1,653,964 and $628,333, respectively. The Company made no
contributions to these plans in 1995.
On January 1, 1997, the Company's and the subsidiary's 401(k) plans were
merged. Under the merged Plan, all full time employees with over 1000
hours of service to the Company or its subsidiaries are eligible to
participate. The Company matches one-half of the employees voluntary
contributions up to a maximum Company contribution of 5% of a
participant's salary.
The Company does not provide any post retirement or any post employment
benefits.
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
COMPLINK, LTD.
Under Section 805 of the Business Corporation Law
OLSHAN GRUNDMAN FROME & ROSENZWEIG
505 PARK AVENUE
NEW YORK, NEW YORK 10022
ATTN: KENNETH SCHLESINGER, ESQ.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
COMPLINK, LTD.
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is COMPLINK, LTD. (the
"Corporation").
SECOND: The certificate of incorporation of the Corporation was filed
with the Department of State on August 1, 1986. A Restated Certificate of
Incorporation was filed with the Department of State on March 27, 1992. An
Amended and Restated Certificate of Incorporation was filed with the Department
of State on March 9, 1993.
THIRD: The Amended and Restated Certificate of Incorporation of the
corporation is hereby amended by striking out Article FIRST in its entirety and
the following new Article FIRST is substituted in lieu thereof:
"FIRST: The name of the corporation is The Netplex Group,
Inc. (hereinafter sometimes called the "corporation")."
FOURTH: The Certificate of Incorporation of the corporation is hereby
further amended by striking out the first paragraph of Article FOURTH in its
entirety and the following first paragraph of Article FOURTH is substituted in
lieu thereof:
"FOURTH: The total number of shares of stock that this
corporation shall have the authority to issue is (i)
20,000,000 shares of Common Stock, $.001 par value per share
("Common Stock"), and (ii) 2,000,000 shares Preferred Stock,
$.01 par value per share ("Preferred Stock")."
FIFTH: The previously outstanding shares of the Corporation will be
exchanged for new shares of the corporation on a share-for-share basis.
SIXTH: The foregoing amendments to the Certificate of Incorporation
herein certified have been duly adopted in accordance with the provisions of
Article 8 of the New York Business Corporation Law.
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on June 7, 1996
and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
COMPLINK, LTD.
By:
-----------------------------
Gene Zaino
President
By:
-----------------------------
Neil Luden
Secretary
-2-
AMENDMENT TO 1992 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
Subject to adjustment as provided in Section 7 hereof, a total of Three
Million (3,000,000) shares of common stock, $.01 par value ("Stock"), of the
Company shall be subject to the Plan. The shares of Stock subject to the Plan
shall consist of unissued shares or previously issued shares reacquired and held
by the Company or any Subsidiary of the Company, and such amount of shares of
Stock shall be and is hereby reserved for such purpose. Any of such shares of
Stock which may remain unsold and which are not subject to outstanding Options
at the termination of the Plan shall cease to be reserved for the purpose of the
Plan, but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares of Stock to meet the requirements of the Plan.
Should any Option expire or be cancelled prior to its exercise in full or should
the number of shares of Stock to be delivered upon the exercise in full of an
Option be reduced for any reason, the shares of Stock theretofore subject to
such Option may again be subject to an Option under the Plan.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 7th day of June, 1996, by and between
COMPLINK, LTD., a New York corporation with its principal place of business at
175 Community Drive, Great Neck, New York 11021 (the "Company"), and GENE ZAINO
(the "Executive").
WHEREAS, the Company desires to employ the Executive as its Chief
Executive Officer and Chairman of the Board and the Executive is willing to
undertake such employment, and the parties hereto wish to set forth certain
terms of the Executive's employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto do agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment, as Chief Executive Officer and
President of the Company, upon the terms and subject to the conditions contained
herein.
2. Duties.
(a) The Executive shall have the authority and perform all duties of
the position of Chief Executive Officer and Chairman of the Board of the Company
consistent with the powers and duties of such offices set forth in the Company
By-Laws, as well as any other duties, commensurate with the Executive's
position, which are assigned by the Board of Directors of the Company (the
"Board"). The Executive will be in charge of all day-to-day operations of the
Company, provided however, that the Board of Directors must approve all budgets
of the Company and all transactions not reflected in such budget which require
the Company to expend more than $50,000. Notwithstanding the foregoing, the
Executive may authorize expenditures in excess of $50,000 if such expenditures
are pursuant to a purchase order or the Company has received a letter of
commitment from a customer. The Company will maintain a bank account with a
Federal Deposit Issuance Corporation ("FDIC") insured bank selected by the
Executive. The Executive agrees that checks drawn on such account which are
equal to or greater than $10,000 must be co- signed by another officer of the
Company.
(b) Throughout his employment hereunder, Executive shall devote his
full time, attention, knowledge and skills during normal business hours in
furtherance of the business of the Company and will faithfully, diligently, and
to the best of his ability, perform the duties described above and further the
Company's best interests. During his employment, the Executive
<PAGE>
shall not engage, and shall not solicit any employees of the Company or its
subsidiaries or other affiliates to engage, in any commercial activities which
are in any way in competition with the activities of the Company, or which may
in any way interfere with the performance of his duties or responsibilities to
the Company.
(c) The Executive shall at all times be subject to, observe and
carry out such rules, regulations, policies, directions and restrictions as the
Company, consistent with Executive's rights and duties under this Agreement, may
from time to time establish and those imposed by law.
3. Executive Covenants. In order to induce the Company to enter into
this Employment Agreement, the Executive hereby agrees as follows:
(a) Except when it is in the interest of the Company, or with the
consent of or as directed by the Board, the Executive shall keep confidential
and shall not divulge to any other person or entity, during the term of the
Executive's employment or thereafter, any of the business secrets or other
confidential information regarding the Company or its subsidiaries which have
not otherwise become public knowledge.
(b) All papers, books and records of every kind and description
relating to the business and affairs of the Company, whether or not prepared by
the Executive, shall be the sole and exclusive property of the Company, and the
Executive shall surrender them to the Company at any time upon request by the
Board.
(c) During the term of employment by the Company, and for a period
of one (1) year thereafter unless the Agreement is terminated pursuant to
Paragraph 8(d) hereof, the Executive shall not, without the prior written
consent of the Board (such consent not to be unreasonably withheld) (i)
participate as a director, stockholder or partner, or have any direct or
indirect financial interest as creditor, in any business which directly or
indirectly competes with the Company or its subsidiaries which exist as of the
date of the termination of this Agreement (the "Existing Subsidiaries");
provided, however, that nothing in this Agreement shall restrict the Executive
from holding up to two (2%) percent of the outstanding capital stock or other
securities of any publicly traded entity; (ii) solicit any customers of the
Company or its Existing Subsidiaries to stop or reduce the business such
customer is conducting with the Company or its Existing Subsidiaries; or (iii)
directly or indirectly, act in the capacity of an executive officer, employee or
in any other capacity for or of any company or other entity, within the
continental United States, which designs, develops, markets or supports software
communications and network gateway products or
-2-
<PAGE>
otherwise designs, develops or markets any products in competition with any of
the products of the Company or its Existing Subsidiaries.
(d) The parties agree that the Executive's services are unique and
that any breach or threatened breach of the provisions of this Paragraph 3 will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy. Accordingly, the Company shall, in addition to other
remedies provided by law, be entitled to such equitable and injunctive relief as
may be necessary to enforce the provisions of this Paragraph 3 against the
Executive or any person or entity participating in such breach or threatened
breach. Nothing contained herein shall be construed as prohibiting the Company
from pursuing any other and additional remedies available to it, at law or in
equity, for such breach or threatened breach including any recovery of damages
from the Executive and the immediate termination of his employment.
4. Base Salary and Bonuses. As full compensation for Executive's
services hereunder and in exchange for his promises contained herein, the
Company shall compensate the Executive in the following manner:
(a) Base Salary. The Company shall compensate Executive at the base
salary rate of One Hundred and Thirty Thousand United States Dollars ($130,000
U.S.) per annum, payable in equal installments on the same basis as other senior
salaried officers of the Company. Such annual salary may be increased in the
future by such amounts and at such times as the Board shall deem appropriate in
its sole discretion reasonably exercised based upon the financial performance of
the Company.
(b) Annual Bonuses. The Board, shall also grant bonuses to the
Executive based upon the financial and operating performance of the Company. The
bonuses paid to the Executive may not exceed 60% of the Executive's base salary.
Bonuses will be based on a schedule approved by the Board of Directors of the
Company.
(c) Withholding. The amounts set forth in subparagraphs (a) and (b)
above shall be subject to appropriate payroll withholding and any similar
deductions required by law.
5. Long-Term Incentive Plan. The Executive shall be entitled to
participate, to the extent he is eligible under the terms and conditions
thereof, in any stock option plan, stock award plan, Omnibus stock plan,
performance unit plan or similar incentive plan currently in existence or
hereafter established by the Company, in the manner and to the same extent as
the Company's other senior executive officers. Awards to the Executive under any
such plan shall be made at such times and in
-3-
<PAGE>
such amounts as shall be determined in the sole discretion reasonably exercised
of the Board subject to confirmation by Holdings Board or the Executive
Committee thereof.
6. Benefit Plans. During the term of his employment, the Executive
shall be entitled to participate in the Company management employee benefits and
retirement plans, as they are in existence on the date of this Agreement, or as
they may be amended or added hereafter, to the same extent as the Company's
other senior executive officers.
7. Other Benefits. The Executive shall be provided the following
additional benefits:
(a) Business Expense. The Company shall reimburse the Executive,
upon proper accounting, for reasonable expenses and disbursements incurred by
him in the course of the performance of his duties hereunder.
(b) Vacation. The Executive shall be entitled to four (4) weeks of
vacation each year of this Agreement, without reduction in salary.
(c) Automobile. The Company shall at its expense cause an automobile
to be made available for use by the Employee during the term of this Agreement.
(d) Life Insurance. The Company shall enter into a term life
insurance policy whereby the Company shall pay the premiums on a term life
insurance policy for the Executive insuring the life of the Executive for
$350,000. The Executive shall be deemed the owner of the life insurance policy
and shall have such right to designate the beneficiaries of such policy.
8. Duration and Termination.
(a) Duration. The term of this Agreement shall commence, and be
contingent upon, the merger of the Company or its subsidiaries with the NETPLEX
Group, Inc. and America's Work Exchange, Inc. and shall terminate three years
after the effective date of such merger, unless earlier terminated pursuant to
the provisions hereof.
(b) Termination Upon Death of Executive. This Agreement shall
immediately terminate, and all rights, benefits and obligations hereunder shall
cease, in the event of the Executive's death; provided, however, that his heirs
shall continue to be paid his salary for a period of one (1) year thereafter and
participate in the Company's medical insurance plans.
-4-
<PAGE>
(c) Termination Upon Disability of Executive. In the event that a
mutually acceptable physician determines that the Executive is unable to
substantially perform his usual and customary duties under this Agreement for
more than four (4) months in any calendar year, this Agreement shall immediately
terminate. However, in addition to such entitlements as the Executive may have
under any Company disability insurance, or other disability insurance program,
the Executive's salary and participation in the Company's medical insurance
plans shall be continued for a period of one (1) year subsequent to the date of
termination of employment.
(d) Termination by the Company for Reasons Other Than Cause. In the
event of the termination of this Agreement by the Company for any reason other
than "Cause" (hereinafter defined), the Executive shall be entitled (without any
obligation on the part of the Executive to mitigate damages) to continuation of
his Base Salary and the benefits set forth in Paragraphs 5, 6 and 7 herein for
the remainder of the term of this Agreement. Notwithstanding the foregoing, the
provisions of Paragraph 3 shall survive termination of this Agreement for all
purposes.
(e) Termination by the Company for Cause. The Company, by notice
from the Board to the Executive, shall have the right to terminate this
Agreement in any of the following events (each of which shall constitute
"Cause"): (i) the ----- Executive's willful and material breach in respect of
his duties under this Agreement if such breach continues unremedied for thirty
(30) days after written notice thereof from the Board to the Executive
specifying the acts constituting the breach and requesting that they be
remedied; or (ii) the Executive is convicted or pleads guilty to a felony,
during the employment period other than for conduct undertaken in good faith in
furtherance of the interests of the Company.
All compensation, benefits and reimbursements (including any annual
bonus, pro rated based on the number of days prior to termination) accrued
through the date of termination shall be paid to the Executive at the times
normally paid by the Company, and the Executive shall thereafter be entitled to
retain all benefits and rights accrued through the termination date. Termination
under this subparagraph (e) shall be without damages or liability to the
Executive for compensation and other benefits which would have accrued hereunder
after termination.
9. Indemnification. The Company shall defend and hold the Executive
harmless to the fullest extent permitted by applicable law and the Company
By-Laws and Certificate of Incorporation in connection with any claim, action,
suit, investigation or proceeding arising out of or relating to performance by
the Executive of services for, or action of the Executive as a Director, officer
or employee of, the Company or any parent,
-5-
<PAGE>
subsidiary or affiliate of the Company, or of any other person or enterprise at
the Company's request. Expenses incurred by the Executive in defending a claim,
action, suit or investigation or proceeding shall be paid by the Company in
advance of the final disposition thereof upon the receipt by the Company of any
undertaking by or on behalf of the Executive to repay such amount unless it
shall ultimately be determined that he is entitled to be indemnified hereunder;
provided, however, that this Paragraph 9 shall not apply to a non-derivative
action commenced by the Company against the Executive.
10. Successors and Assigns. The rights of the Company hereunder shall
run in favor of the Company, its successors, assigns, nominees or other legal
representatives. Termination of Executive's employment shall not operate to
relieve him of any remaining obligations hereunder, and all such obligations are
binding upon his heirs, executors, administrators or other legal
representatives. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation or otherwise) to all or a significant portion of
the assets of the Company, by agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place. Regardless of whether such agreement is
executed, this Agreement shall be binding upon any successor in accordance with
the operation of law and such successor shall be deemed the "Company" for
purposes of this Agreement.
11. Arbitration of All Disputes.
(a) Any controversy or claim arising out of or relating to this
Agreement or the breach thereof (including the arbitrability of any controversy
or claim), shall be settled by arbitration in the County of Nassau, State of New
York, by three arbitrators, one of whom shall be appointed by the Company, one
by the Executive and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration Association. The arbitration shall be conducted in accordance with
the rules of the American Arbitration Association, except with respect to the
selection of arbitrators which shall be as provided in this Section. The cost of
any arbitration proceeding hereunder shall be borne equally by the Company and
the Executive. The award of the arbitrators shall be binding upon the parties.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for the
Executive to retain legal counsel and/or incur
-6-
<PAGE>
other costs and expenses in connection with the enforcement of any or all of his
rights under this Agreement, and provided that the Executive substantially
prevails in the enforcement of such rights, the Company shall pay (or the
Executive shall be entitled to recover from the Company, as the case may be) the
Executive's reasonable attorneys' fees and costs and expenses in connection with
the enforcement of his rights, including the enforcement of any arbitration
award.
12. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given upon
receipt if delivered by hand, sent by telecopier or courier, and three (3) days
after such communication is mailed within the continental United States by first
class certified mail, return receipt requested, postage prepaid, to the other
party, in each case addressed as follows:
(a) if to the Company:
CompLink, Ltd.
175 Community Drive
Great Neck, New York 11021
Att: Executive Vice President
and
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Att: Steven Wolosky, Esq.
(b) if to the Executive:
Gene Zaino
4 Beaumont Drive
Melville, New York 11747
Addresses may be changed by written notice sent to the other party at the last
recorded address of that party.
13. Severability. If any provision of this Agreement shall be adjudged
by any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement.
14. Prior Understanding. This Agreement embodies the entire
understanding of the parties hereto, and supersedes all other oral or written
agreements or understandings between them regarding the subject matter hereof.
No change, alteration or modification hereof may be made except in a writing,
signed by both parties hereto. The headings in this Agreement are for
convenience and reference only and shall not be construed as part
-7-
<PAGE>
of this Agreement or to limit or otherwise affect the meaning hereof.
15. Execution in Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed to be original,
but all such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
16. Choice of Laws. Jurisdiction over disputes with regard to this
Agreement shall be exclusively in the courts of the State of New York, and this
Agreement shall be construed in accordance with and governed by the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
COMPLINK, LTD.
By:
----------------------------
Authorized Officer
ATTEST:
- --------------------- ---------------------------------
Gene Zaino
-8-
Consent of Independent Auditors
The Board of Directors
The Netplex Group, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
33-16423 and 33-19115 on Forms S-3 and S-8, respectively, of The Netplex Group,
Inc. of our report dated March 21, 1997, relating to the consolidated balance
sheets of The Netplex Group, Inc. and Subsidiaries as of December 31, 1996, and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended, which report appears in the
December 31, 1996, annual report on Form 10-KSB of The Netplex Group, Inc. and
Subsidiaries.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
McLean, Virginia
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,691,099
<SECURITIES> 0
<RECEIVABLES> 4,482,139
<ALLOWANCES> (177,477)
<INVENTORY> 0
<CURRENT-ASSETS> 8,345,835
<PP&E> 1,431,335
<DEPRECIATION> (340,718)
<TOTAL-ASSETS> 9,888,620
<CURRENT-LIABILITIES> (6,538,663)
<BONDS> 0
0
(17,500)
<COMMON> (6,443)
<OTHER-SE> (3,215,345)
<TOTAL-LIABILITY-AND-EQUITY> (9,888,620)
<SALES> (33,524,679)
<TOTAL-REVENUES> (33,524,679)
<CGS> 30,878,166
<TOTAL-COSTS> 36,084,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37,927)
<INCOME-PRETAX> 2,521,466
<INCOME-TAX> (34,000)
<INCOME-CONTINUING> 2,487,966
<DISCONTINUED> (488,079)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,999,387
<EPS-PRIMARY> 0.42
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</TABLE>
