SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
----------------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from --------------------------
Commission file number 1-11784
The Netplex Group, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2824578
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8260 Greensboro Drive, 5th Floor, McLean, Virginia 22102
--------------------------------------------------------
(Address of Principal executive officers)
(703) 356-3001
---------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes . X . . No . . . .
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 12, 1997, there were
6,577,870 shares of Class A common stock, $.001 par value outstanding.
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996.........................................3
Condensed Consolidated Statements of Operations - Three Months
ended March 31, 1997 and March 31, 1996...................4
Condensed Consolidated Statements of Cash Flows - Three Months
ended March 31, 1997 and March 31, 1996.................5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................8
Part II Other Information
Item 1-6 Other Information........................................11
Signatures...................................................................12
(2)
<PAGE>
Part I. Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31,1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Assets
March 31, December 31,
1997 1996
------------------- ------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,544,715 $ 3,691,099
Accounts receivable, net 3,901,284 4,304,662
Prepaids and other current assets 285,136 350,074
----------- -----------
Total current assets 7,731,134 8,345,835
Property and equipment, net 1,074,750 1,090,617
Other assets 149,488 78,988
Goodwill, net 366,517 373,180
----------- -----------
Total assets $ 9,321,889 $ 9,888,620
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 845,230 $ 936,865
Accrued expenses 5,656,540 5,166,184
Deferred revenues 114,389 329,267
----------- -----------
Total current liabilities 6,616,159 6,432,316
Other liabilities 244,858 217,016
----------- -----------
Total Liabilities 6,861,017 6,649,332
Stockholders' equity:
Class A cumultative preferred stock;
$.01 par value; 2,000,000 authorized,
1,650,000 shares outstanding in 1997
and 1,750,000 shares in 1996 16,500 17,500
Common stock $.001 par value
20,000,000 authorized, 6,577,870 shares
outstanding in 1997 and 6,442,903 shares
in 1996 6,578 6,443
Additional paid in capital 5,289,842 5,301,542
Accumulated deficit (2,852,048) (2,086,197)
----------- -----------
Commitments and contingencies
Total stockholders' equity 2,460,872 3,239,288
----------- -----------
Total liabilities and stockholders' equity $ 9,321,889 $ 9,888,620
=========== ===========
</TABLE>
see accompanying notes to the condensed consolidated financial statements
(3)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Revenues $ 9,778,312 $ 8,175,821
Cost of Revenues 8,844,054 7,547,708
------------------ ------------------
Gross Profit 934,258 628,113
Operating Expenses
Selling general and administrative expenses 1,708,329 887,071
------------------ ------------------
Operating loss (774,071) (258,958)
Other income 8,220 3,320
------------------ ------------------
Loss before Income Taxes (765,851) (255,638)
Provision for Income taxes - -
------------------ ------------------
Net loss $ (765,851) $ (255,638)
================== ==================
Earnings (loss) per common share:
Loss per common share $ (0.12) $ (0.08)
================== ==================
</TABLE>
see accompanying notes to the condensed consolidated financial statements
(4)
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------- -------------
<S> <C> <C>
Operating activities:
Net loss $ (765,851) $ (255,638)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities
Depreciation and amortization 77,162 30,138
Change in assets and liabilites:
Accounts receivable 403,378 451,075
Prepaid expenses and other assets (5,561) (32,027)
Accounts payable and accrued expenses 359,150 1,193,294
Deferred revenue (214,878) (364,417)
----------- -----------
Net cash (used in)/provided by operating activities (146,600) 1,022,425
Investing activities:
Purchases of property and equipment (54,632) (72,779)
Proceeds from the exercise of stock options 69,934 --
----------- -----------
Net cash provided by/(used in) operating activities 15,302 (72,779)
Financing activities:
Principal payments on capital lease obligations (15,086) --
Repayments on notes receivable from officer -- (10,000)
----------- -----------
Net cash used in financing activities (15,086) (10,000)
(Decrease) increase in cash and cash equivalents (146,384) 939,646
Cash and equivalents at beginning of period 3,691,099 840,711
----------- -----------
Cash and equivalents at end of period $ 3,544,715 $ 1,780,357
=========== ===========
Supplemental information:
Cash paid (received) during the period for:
Interest $ 4,612 $ 3,784
=========== ===========
Income taxes $ -- $ --
=========== ===========
</TABLE>
see accompanying notes to the condensed consolidated financial statements
(5)
<PAGE>
THE NETPLEX GROUP, INC. AND SUBIDIARIES
Notes to the Condensed Consolidated Financial Statements
March 31, 1997
(1) GENERAL
The accompanying unaudited condensed consolidated financial statements of
The Netplex Group, Inc. and Subsidiaries ( "Netplex" or the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, certain
information and note disclosures normally included in the financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes the
disclosures made are adequate to make the information presented consistent
with past practices. However, these condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1996.
In the opinion of the Company, the accompanying condensed consolidated
financial statements reflect all adjustments and reclassifications (which
include only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of March 31, 1997 and December 31,
1996 and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1996. Interim results are not necessarily
indicative of the results that may be expected for the fiscal year ended
December 31, 1997.
BUSINESS:
Netplex provides professional technical services that help organizations
build, manage and protect networked information systems with the following
Network Enabling Services: Virtual Network Integration, Network Systems
Management, Support Center Management, Contingency Planning, Information
Security and Staff Augmentation. By providing the expertise and
information systems to link employees, customers, prospects, suppliers and
manufacturers, Netplex helps customers "network-enable" their
organization.
Prior to the merger discussed in further detail in note 2 below, the
Company was in the computer software development and distribution
business. The Company ceased all software development and distribution
activities with the sale of the WorldLink product technology in December
1996.
BASIS OF PRESENTATION:
The accompanying financial statements include the accounts of Netplex
Systems, Inc. (formerly The Netplex Group, Inc.) America's Work Exchange,
Inc. and its wholly owned subsidiary Software Resources of New Jersey,
Inc. for the three months ended March 31, 1996 and include the accounts of
the Netplex Group, Inc. (formerly CompLink, Ltd..) and its wholly-owned
subsidiaries, Netplex Systems, Inc. America's Work Exchange, Software
Resources of New Jersey and Technology Development Systems, Inc. for the
three months ended March 31, 1997. The operations of Technology
Development Systems , Inc. were discontinued in December 1996 with the
completion of the sale of the WorldLink product technology.
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding plus the effect of outstanding options
and warrants, using the treasury stock method. The effect of average
common stock equivalents (stock options and warrants) outstanding during
the period has not been considered, as their effect on the computation is
not dilutive. Weighted average common shares outstanding were 6,457,631
and 3,197,608 for the three months ended March 31, 1997 and 1996,
respectively.
(6)
<PAGE>
(2) THE MERGER:
On June 7, 1996 the Company (formerly known as "CompLink") acquired and
merged with The Netplex Group, Inc. and America's Work Exchange
(collectively referred to as "Netplex") in a reverse merger transaction by
issuing approximately 3,245,000 shares of its common stock or 50.4% of the
outstanding stock after giving effect for the merger. The agreement also
provided for CompLink to issue 1,691,000 options to purchase its common
stock in exchange for the 1,691,000 options outstanding to purchase
Netplex common stock.
The merger was accounted for under the purchase method of accounting as a
reverse merger, since the shareholders of Netplex, which have common
control, received the larger portion of the voting rights of the combined
entity. As a result Netplex was deemed the acquirer for accounting
purposes.
The mergers resulted in a recapitalization of the Company, 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 deficit. In addition, the par value of the Company's common
stock was decreased from $0.01per share to $0.001 per share.
Prior to the merger the Company's fiscal year end was changed from July 31
to December 31. Coincident with the merger, the Company's name was changed
from CompLink, Ltd. to The Netplex Group, Inc. The entity known as The
Netplex Group, Inc. prior to the merger, changed its name to Netplex
Systems, Inc.
(3) LINE OF CREDIT :
The Company maintains a line of credit facility with a bank that expires
on July 1, 1997. This line of credit facility provides for advances of up
to 75% of the eligible accounts receivable (as defined in the agreement)
up to $750,000. Amounts 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
under this line as of March 31, 1997 or December 31, 1996.
(4) CLASS A CUMULATIVE 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 consisted 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 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 on a quarterly basis
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. The preferred
stock has a per share liquidation preference of the greater of: (i) two
times the par 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.
The common stock warrants are presently exercisable until 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 (2) 30 days written notice given at any time upon attaining
certain per share trading prices and sustaining such prices for a
specified period.
(7)
<PAGE>
As of March 31, 1997, preferred shareholders have converted 100,000
shares of the Class A preferred stock common stock. No holders of the
Company's preferred stock have exercised their warrants. The Company
declared cash dividends payable to the holders of record of its preferred
stock on January 15 and April 15 of $.056 per share and $0.05 per share,
respectively. Accordingly, The Company accrued dividends payable of
approximately $98,000 and $82,500 at December 31, 1996 and March 31, 1997,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Netplex Group, Inc. (the "Company") provides professional technical services
that help organizations build, manage and protect networked information systems.
The Company provides its customers the expertise and information systems to link
employees, customers, prospects, suppliers and manufacturers to help customers
"network-enable" their organization. Netplex provides the following network
enabling services: Virtual Network Integration, Network Systems Management,
Support Center Management, Contingency Planning, Information Security and Staff
Augmentation. Occasionally, the Company must re-sell technology products in
order to deliver customers fully integrated system-solutions as part of its
service offerings.
The Company is headquartered in McLean, Virginia and has branch offices in the
New York City, Central New Jersey, and Chicago metropolitan markets.
In June 1996, the Company (formerly known as CompLink, Ltd..) acquired and
merged (the "Merger") with America's Work Exchange, its wholly owned subsidiary
Software Resources of New Jersey, 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 provided for the Company to issue options to purchase 1,691,000 shares
of the Company's Common Stock in exchange for options to purchase 1,691,000
shares of Netplex's Common Stock. As a result, Netplex was considered the
acquirer for accounting purposes.
The assets and liabilities of CompLink and its wholly owned subsidiary,
Technology Development Systems (TDS) were recorded by the Company at merger date
at book value which approximates fair value. At merger, CompLink's operations
consisted primarily of the distribution of WorldLink remote and mobile workforce
automation software developed by TDS
In December 1996, the Company completed the sale of its interest in the
WorldLink product technology and discontinued the operations of TDS. Upon
completion of the sale, the Company's operations are concentrated on providing
technical services to users of networked information systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
The Company operates in a single business segment as a provider of Information
Technology Services. These services are delivered to customers in several
formats ranging from fixed-price projects to consulting engagements to staff
augmentation assignments (which include an array of independent employee
services). Occasionally, the Company may resell technology product as a
component of a project.
(8)
<PAGE>
Revenues for the three months ended March 31, 1997 were approximately $9.8
million compared to approximately $8.2 million for the same period in 1996, an
increase of $1.6 million or 20%. The increase is primarily the net result of
increased sales of staff augmentation services of approximately $2.1 million and
decreased product re sales of approximately $500,000.
Gross Profit increased to approximately $900,000 for the three months ended
March 31, 1997 as compared to approximately $600,000 for the same period of
1996, an increase of $300,000 or 50%. The increased gross profit is primarily
due to the net result of increased staff augmentation services revenues.
Gross Margin increased to 10% in the three months ended March 31, 1997 from 8%
for the comparable period in 1996. This increase stems primarily from the
increase in staff augmentation revenues and a decrease in product resales which
generally generate lower gross profit margins than services provided by the
Company.
Selling, general and administrative expense increased from approximately
$900,000 for the quarter ended March 30, 1996 to $1.7 million for the quarter
ended March 31, 1997, an increase of $800,000 or 89%. This increase is primarily
due to costs associated with increased selling and central support resources
added after the June 1996 merger.
Operating losses were $774,000 for the quarter ended March 31, 1997, compared to
an operating loss of $256,000 for the same period prior year, a decrease of
$518,000. The components of this decrease are discussed above.
No provisions for income taxes were required for the three months ended March
30, 1997and 1996, due to the net loss for the period then ended.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997 the Company's operating activities
used approximately $147,000 of the Company's cash. This cash usage was primarily
the result of the Company's net loss of approximately $766,000 for the period
then ended, offset by the effect of decreased accounts receivable and increased
accounts payable and accrued expenses.
The Company funded its operations, purchased property and equipment, made
payments on its capital lease obligations by using the cash it had on hand at
December 31, 1996 and cash received from the exercise of stock options.
At March 30, 1997 the Company has cash and cash equivalents of $3,545,000. The
Company has no long-term debt and has no outstanding balance on its $750,000
line of credit facility with a bank.
The Company is expected to incur operating losses until such time that it
achieves full productivity 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 end of 1997. The Company will continue to make significant investments in
marketing, training and infrastructure to increase productivity, build its core
competency technical staff skill base and foster growth of its operations.
Management is actively reviewing the Company's expenditures to maintain control
on discretionary spending and to expedite the Company's profitability. Despite
the expectation of continued operating losses, management believes that its
current cash balance and line of credit facility, provided that such credit
facility is renewed (as discussed below) will be sufficient to meet Company's
operating requirements through the end of the 1997.
Capital expenditures for the three months ended March 31, 1997 were
approximately $55,000. Capital expenditures for the balance of 1997 are
anticipated to be approximately $150,000.
(9)
<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% and is personally guaranteed by the Company's Chief
Executive Officer. The Company's current line of credit facility with the Bank
expires on July 1, 1997. The Company has discussed renewal of its line of credit
with the Bank. Management believes that the line of credit will be renewed on
terms favorable to the Company. However, there can be no assurances that such
line of credit facility will in fact be renewed .
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, (including without
limitation, , future financings and expenses, as well as general market
conditions) though the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Form 10-QSB will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
INFLATION
Inflation has not had and the Company does not expect inflation to have a
significant adverse impact on its operations.
(10)
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule
(b). Reports in Form 8-k:
During the quarter ended December 31, 1996, the Company
filed one report on Form 8-K under Item 2--Acquisition
or Disposition of Assets.
(11)
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Netplex Group, Inc.
Date: May 14, 1997 By: /s/ Gene Zaino
-----------------------------
Gene Zaino, President and CEO
(Principal Executive Officer)
and Chairman of the Board
Date: May 14, 1997 By: /s/ Matthew G. Jones
-----------------------------
Matthew G. Jones, Chief Financial
Officer (Principal Accounting Officer)
THE NETPLEX GROUP, INC. EXHIBIT 11
SCHEDULE RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1997 1996
----------------- -------------------
<S> <C> <C>
Primary Earnings(Loss) Per Share:
Weighted average number of common shares outstanding 6,577,870 3,197,608
Common stock equivalents from outstanding stock options - (3) - (3)
----------------- -------------------
Average shares outstanding 6,577,870 3,197,608
Net loss $ (765,851) $ (255,638)
----------------- -------------------
Primary Loss per share $ (0.12) $ (0.08)
================= ===================
Fully Diluted Earnings (Loss) Per Share: (2)
Weighted average number of common shares outstanding 6,577,870 3,197,608
Preferred stock convertible into common shares (1) - (3) -
Common stock equivalents from outstanding stock options - (3) - (3)
----------------- -------------------
Average shares outstanding 6,577,870 3,197,608
Net loss $ (765,851) $ (255,638)
----------------- -------------------
Fully Diluted Loss Per Share (2) $ (0.12) $ (0.08)
================= ===================
</TABLE>
(1) The Company's convertible preferred stock is not a common stock equivalent.
(2) Fully -diluted EPS is within 3% of Primary EPS and is,thus, not required to
be disclosed on the Condensed Consolidated Statement of Operations.
(3) As the Company is in a net loss position the effect of all options and
warrants, including common stock equivalents is anti-dilutive and is thus
not presented in the computations of loss per common share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-QSB FOR THE PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,544,715
<SECURITIES> 0
<RECEIVABLES> 4,078,761
<ALLOWANCES> (177,477)
<INVENTORY> 0
<CURRENT-ASSETS> 7,731,134
<PP&E> 1,937,175
<DEPRECIATION> (862,425)
<TOTAL-ASSETS> 9,321,889
<CURRENT-LIABILITIES> (6,616,159)
<BONDS> 0
0
(16,500)
<COMMON> (6,578)
<OTHER-SE> (2,437,794)
<TOTAL-LIABILITY-AND-EQUITY> (9,321,889)
<SALES> (9,778,312)
<TOTAL-REVENUES> (9,778,312)
<CGS> 8,844,054
<TOTAL-COSTS> 1,708,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,220)
<INCOME-PRETAX> 765,861
<INCOME-TAX> 0
<INCOME-CONTINUING> 765,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765,861
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
