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 September 30, 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 November 11, 1997, there were
7,382,870 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 -
September 30, 1997 and December 31, 1996. . . . . . . 3
Condensed Consolidated Statements of Operations -
Three and Nine Months ended
September 30, 1997 and September 30, 1996 . . . . . . 4
Condensed Consolidated Statements of Cash Flow -
Nine Months ended September 30, 1997
and September 30, 1996. . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 10
Part II Other Information
Item 1-6 Other Information . . . . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
- ----------
2
<PAGE>
Part I. Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
September 30, 1997 and December 31, 1996
Assets
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------ ----------
Current Assets:
Cash and cash equivalents $ 1,512,993 $ 3,691,099
Accounts receivable, net 4,623,264 4,304,662
Prepaids and other current assets 284,942 350,074
----------- -----------
Total current assets 6,421,199 8,345,835
----------- -----------
Property and equipment, net 1,034,784 1,090,617
Other assets 65,966 78,988
Goodwill, net 810,142 373,180
----------- -----------
Total assets $ 8,332,091 $ 9,888,620
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 566,304 $ 936,865
Line of Credit 740,000 --
Accrued expenses 4,640,861 5,166,184
Deferred revenues 137,749 329,267
----------- -----------
Total current liabilities 6,084,914 6,432,316
Other liabilities 192,492 217,016
----------- -----------
Total Liabilities 6,277,406 6,649,332
----------- -----------
Stockholders' equity:
Class A cumulative preferred stock;
$.01 par value; 2,000,000 authorized,
1,150,000 shares outstanding in 1997
and 1,750,000 shares in 1996 11,500 17,500
Common stock $.001 par value
20,000,000 authorized, 7,382,870 shares
outstanding in 1997 and 6,442,903 shares
in 1996 7,383 6,443
Additional paid in capital 6,271,539 5,301,542
Accumulated deficit (4,235,736) (2,086,197)
----------- -----------
Commitments and contingencies
Total stockholders' equity 2,054,686 3,239,288
----------- -----------
Total liabilities and stockholders' equity $ 8,332,091 $ 9,888,620
=========== ===========
see accompanying notes to the condensed consolidated financial statements
3
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 10,380,066 $ 9,013,727 $ 30,088,967 $ 24,800,023
Cost of revenues 9,066,074 7,753,830 26,876,627 21,613,775
------------ ------------ ------------ ------------
Gross profit 1,313,992 1,259,897 3,212,340 3,186,248
Selling, general and administrative expenses 1,931,709 2,210,283 5,376,662 4,987,639
------------ ------------ ------------ ------------
Operating loss (617,717) (950,386) (2,164,322) (1,801,391)
Other income (expense) (24,622) 20,812 14,783 18,065
------------ ------------ ------------ ------------
Loss before income taxes (642,339) (929,574) (2,149,539) (1,783,326)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (642,339) $ (929,574) $ (2,149,539) $ (1,783,326)
============ ============ ============ ============
Earnings (loss) per common share $ (0.10) $ (0.14) $ (0.36) $ (0.49)
============ ============ ============ ============
</TABLE>
see accompanying notes to the condensed consolidated financial statements
4
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1997 1996
------------- ------------
<S> <C> <C>
Operating activities:
Net loss $(2,149,539) $ (847,852)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities
Depreciation and amortization 285,343 105,479
Provision for doubtful accounts -- 15,600
Change in assets and liabilities:
Accounts receivable (188,794) 348,879
Prepaid expenses and other assets 82,385 656,036
Accounts payable and accrued expenses (1,009,516) (63,344)
Deferred revenue (191,518) (405,067)
----------- -----------
Net cash used in operating activities (3,171,639) (190,269)
----------- -----------
Investing activities:
Purchases of property and equipment (141,892) (116,748)
----------- -----------
Net cash used in operating activities (141,892) (116,748)
----------- -----------
Financing activities:
Proceeds from the exercise of stock options and warrants 607,500 --
Payment of dividends on Class A preferred stock (165,000) --
Principal payments on capital lease obligations (49,225) (25,662)
Cash acquired in merger 2,150 1,245,062
Proceeds from borrowing under line of credit 740,000 300,000
Payments on notes receivable -- 65,579
Repayments on notes receivable from officer -- (10,000)
----------- -----------
Net cash provided by financiang activities 1,135,425 1,574,979
----------- -----------
Decrease in cash and cash equivalents (2,178,106) 1,267,962
Cash and equivalents at beginning of period 3,691,099 840,711
----------- -----------
Cash and equivalents at end of period $ 1,512,993 $ 2,108,673
=========== ===========
Supplemental information:
Cash paid during the period for:
Interest $ 28,966 $ 6,700
=========== ===========
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
September 30, 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-KSB 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 September 30, 1997 and December 31,
1996 and the results of its operations and its cash flows for the three and
nine months ended September 30, 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 "network enable" its
customers, helping them to succeed by providing them a continuum of
technology services and solutions that help build, manage and protect
networked information systems including: Business Protection Services,
Enterprise Systems Management and Network Systems Integration. Netplex
strives to bring its client organizations closer to their customers,
employees, prospects, suppliers and manufactures.
Prior to the merger discussed in further detail in note 3 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 and nine months ended September 30, 1997 and 1996. The
accounts of The Netplex Group, Inc. (formerly CompLink, Ltd.) are included
for the three months ended September 30, 1997 and 1996 and the nine months
ended September 30, 1997 and for the four months ended of September 1996,
as the merger (discussed in note 3 below) was completed on May 31, 1996.
The accounts of Technology Development Systems, Inc. (TDS) are also
included for the four months ended of September 1996 due to the merger. The
operations of TDS were discontinued in December 1996 with the completion of
the sale of the WorldLink product technology.
The accounts of Onion Peel Solutions, Inc. (Onion Peel) which was acquired
as of July 1997 (see note 2 below) are included for the three months ended
September 30, 1997
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.
6
<PAGE>
Weighted average common shares outstanding for the three months ended
September 30, 1997 and 1996 were 6,806,923 and 6,497,133, respectively and
were 6,614,098 and 4,611,523 for the nine months ended September 30, 1997
and 1996, respectively.
(2) Acquisition of Onion Peel Solutions L.L.C.:
-------------------------------------------
The Company acquired Onion Peel Solutions L.L.C., a Raleigh, NC based
provider of network management solutions as of July 1, 1997, by issuing
80,000 shares of its common stock to the members of Onion Peel, subject to
the issuance of additional shares based on the closing price of the
Company's common stock on December 31, 1998 (closing price). Accordingly,
if the closing price of the common stock is less than $5.00, the number of
shares issued to the members of Onion Peel will increase so that the
aggregate number of shares to be issued to such members will equal $400,000
divided by the closing price. The cost of the acquisition was determined to
be $400,000. The assets and liabilities of Onion Peel at acquisition date
were $195,000 and $260,000, respectively. The acquisition resulted in costs
in excess of net assets acquired (goodwill) of $465,000. The goodwill
related to this acquisition is currently being amortized on a straight-line
basis over a recovery period of 15 years.
(3) 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. CompLink also issued
approximately 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 had 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 merger 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 $0.01 per 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.
(4) Line of Credit:
---------------
The Company entered into a new line of credit facility with a bank on July
2, 1997. This line of credit facility provides for advances of up to 80% of
eligible accounts receivable (as defined in the agreement) up to
$2,000,000. Amounts outstanding on the line of credit facility bear
interest at the bank's prime rate plus 0.75%. The line of credit facility
expires on July 1, 1998. The Company had borrowings of $740,000 outstanding
under this line of credit at September 30, 1997.
At September 30, 1997, the Company was not in compliance with certain
financial covenants contained in its line of credit facility which requires
the Company to maintain minimum tangible net worth of a least $1.3 million
and a current ratio of at least 1.10 to 1.00. The bank has agreed to waive
the Company's non compliance of these covenants.
7
<PAGE>
The new line of credit facility replaced the line of credit facility with a
bank which allowed for advances of up to 75% of eligible accounts
receivable (as defined in the agreement) up to $750,000 and was personally
guaranteed by the Chief Executive Officer of the Company. Amounts
outstanding under the line of credit facility were charged interest at the
bank's prime rate plus 1.0%.
(5) 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 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. The preferred stock earns cumulative
dividends of 10% per annum, payable in either cash or in additional shares
of preferred stock (Payment In Kind or "PIK").
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.
The registration of the resale of the shares underlying the conversion of
the Class A Preferred Stock to common stock and the exercise of the
underlying common stock warrants was completed in November 1996.
As of September 30, 1997, preferred shareholders have converted 600,000
shares of the preferred stock into common stock and have exercised 175,000
of the warrants. As of September 30, 1997, 1,575,000 warrants to purchase
common stock from the private placement remain outstanding.
The Company declared cash dividends payable to the holders of its preferred
stock as of December 31, 1996 and March 31, 1997 $98,000 and $82,500,
respectively. The Company accrued, but did not declare, a dividend due to
the holders of its preferred stock at June 30, 1997. On November 14,1997,
the Board of Directors of the Company declared a dividend payable in shares
of the class A cumulative preferred stock (PIK dividend) to cover the June
30 and September 30, 1997 dividends due to its preferred shareholders.
Approximately 75,000 shares of preferred stock will be distributed to the
holders of record of the preferred stock to satisfy this obligation.
(6) Common Stock ,Stock Options and Warrants:
-----------------------------------------
The Company had 7,283,903 and 6,442,903 shares of its $0.001 par value
common stock outstanding at September 30, 1997and 1996.
As of September 30, 1997, the Company has issued options to purchase
2,654,000 of its common stock pursuant to its 1992 Incentive Stock Option
Plan, 1995 Director's Plan and 1995 Consultant's Plan . The Company also
has 1,347,900 warrants outstanding to purchase its common stock, in
addition to the 1,575,000 outstanding warrants issued to purchasers of the
preferred stock discussed in
8
<PAGE>
note 4 above. The exercise prices of these options and warrants range from
$2.00 to $5.25. Approximately 380,000 options and 670,000 warrants expire
before March 31, 1998, the remainder of these options and warrants have
expiration dates ranging from 1999 to 2007.
In September 1997, the Company received $100,000 from the exercise of
50,000 the warrants.
(7) Recent Accounting Pronouncements:
---------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.128, "Earnings per
Share", which is effective for all interim and annual periods ending after
December 15, 1997. This statement replaces "primary" and "fully-diluted"
earnings per share (EPS) with "basic" and "diluted" EPS on the face of the
statement of operations. The Company does not expect the adoption of SFAS
No. 128 to have a material effect on its financial position or results of
operations.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" which is effective for the year ending December
31, 1998. This statement continues the previous requirements to disclose
certain information about an entity's capital structure found in Accounting
Principles Board (APB) Opinion No. 10, "Omnibus Opinion -1966" and No. 15,
"Earnings per Share" and FASB Statement No. 47, "Disclosure of Long-Term
Obligations." The Company has been subject to the requirements of those
standards and as a result does not expect the adoption of SFAS No. 129 to
have a material impact on the Company's financial statements.
In September 1997, FASB issued SFAS No. 130 "Reporting Comprehensive
Income", which is effective for the year ending December 31, 1998. This
statement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
Earlier application of this standard is permitted; however, upon adoption
the Company will be required to reclassify previously reported annual and
interim financial statements. The Company believes that the disclosure of
comprehensive income in accordance with the provisions of SFAS No. 130 will
impact the manner of presentation of its financial statements as currently
and previously reported.
In September 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for the year
ending December 31, 1998. This statement requires companies to present
certain information about operating segments and related information,
including geographic and major customer data, in its annual financial
statements and in condensed financial statements for interim periods. The
Company does not believe that the adoption of SFAS No. 131 will have a
material impact on its financial statements.
9
<PAGE>
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 the expertise and information systems to link employees,
customers, prospects, suppliers and manufacturers to help "network-enable"
organizations. Netplex provides the following network enabling services:
Business Protection Services, Enterprise Systems Management and Network Systems
Integration. 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, Raleigh, North Carolina and Chicago
metropolitan markets.
In September 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 to 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 approximated fair value. At merger, CompLink's operations
consisted primarily of the distribution of WorldLink remote and mobile workforce
automation software developed by TDS.
The Company's operations have been concentrated on providing technical services
to users of networked information systems since the beginning of 1997. The
Company discontinued the operations of its software development and distribution
segment upon the completion of the sale of its interest in the WorldLink product
technology for $3.0 million in December 1996.
In July 1997, the Company acquired the net assets of Onion Peel to broaden its
customer base and expand the fulfillment capacity of its Enterprise Systems
Management service offerings in exchange for 80,000 shares of its common stock,
subject to adjustment, see note 2 above.
Results of Operations
The Company operates in a single business segment as a provider of Information
Technology Services, ranging from fixed-price projects to consulting engagements
to staff augmentation assignments (which include an array of independent
employee services). The Company occasionally resells technology products in
conjunction with the delivery of services it provides.
Three Months Ended September 30, 1997 and September 30, 1996
Revenues for the three months ended September 30, 1997 were approximately
$10,380,000 compared to approximately $9,014,000 for the same period in 1996, an
increase of $1,366,000 or 15%. The increase is primarily the result of increased
services revenues of approximately $1,580,000 or 19% increase over that of the
prior year, offset by the elimination of WorldLink software license revenues of
$214,000 resulting from the Company's sale of the WorldLink product in December
1996 .
Gross Profit increased by approximately $54,000 (or 4.3%) to approximately
$1,314,000 for the three months ended September 30, 1997 as compared to
approximately $1,260,000 for the same period of 1996.
10
<PAGE>
The increased gross profit is primarily due to the increased consulting revenues
offset by the elimination of WorldLink software license revenue of approximately
$179,000.
Gross Margin decreased to 13% in the three months ended September 30, 1997 from
14% for the comparable period in 1996. This decrease results primarily from the
elimination of the WorldLink software license revenue as discussed above.
Selling, general and administrative expense decreased approximately $278,000 (or
12.6%) to approximately $1,932,000 during the three months ended September 30,
1997 from approximately $2,210,000 for the three months ended September 30,
1996. This decrease is primarily due to elimination of the post-merger operating
expenses of TDS and the associated development costs of WorldLink which totaled
approximately $500,000 for the period. This decrease is offset, in part, by the
additional marketing support, expansion of sales and recruiting forces,
additional information systems capacity and corporate support that occurred
after the Merger.
Operating losses were approximately $618,000 for the quarter ended September 30,
1997, compared to $950,000 for the same period of the prior year, a 35% or
$332,000 decrease. The components of the decreased loss are discussed above.
Other income(expense) decreased from other income of approximately $21,000 for
the quarter ended September 30, 1996 to other expense of approximately $25,000
for the quarter ended September 30, 1997. This decrease is primarily due to
interest expense associated with the Company's increased borrowings under its
line of credit and capital lease obligations.
No provisions for income taxes were required for the three months ended
September 30, 1997 and 1996, due to the net loss for the period then ended.
Nine Months Ended September 30, 1997 and September 30, 1996
Revenues for the nine months ended September 30, 1997 were approximately
$30,089,000 compared to approximately $24,800,000 for the same period in 1996,
an increase of $5,289,000 or 21%. The increase is primarily the result of
increased services revenues of approximately $5,743,000, offset in part by the
elimination of $333,000 of WorldLink software license revenues.
Gross Profit increased $26,000 to approximately $3,212,000 for the nine months
ended September 30, 1997 as compared to approximately $3,186,000 for the same
period of 1996. Consulting gross profits increased in line revenues and were
offset by the elimination of the gross profits from the sale of WorldLink
software license revenue of approximately $235,000.
Gross Margin decreased to 11% in the nine months ended September 30, 1997 from
13% for the comparable period in 1996. This decrease results primarily the
effects of the elimination of the gross profits from the sale of WorldLink
software license revenue .
Selling, general and administrative expense increased approximately $389,000 (or
7.8%) to approximately $5,337,000 during the nine months ended September 30,
1997 from approximately $4,988,000 for the nine months ended September 30, 1996.
The primary reason for the increase in selling, general and administrative
expenses is the additional marketing support, expansion of the sales and
recruiting forces, additional information systems capacity and corporate support
that occurred after the Merger. Selling, general and administrative expenses for
the nine months ended September 30, 1996 included the post-merger operating
expenses of TDS and the associated development costs for the WorldLink software
which totaled approximately $800,000 for the post merger period. Pre-merger
selling, general and administrative expenses of CompLink and TDS are not
included in the 1996 amount and totaled approximately $1,327,000.
11
<PAGE>
Selling, general and administrative expenses for the nine months ended September
30, 1997 was favorably impacted by the reversal of approximately $400,000 in
accruals for costs associated with the sale of the WorldLink software.
Operating losses were approximately $2,164,000 for the nine months ended
September 30, 1997, compared to $1,801,000 for the same period of the prior
year, an increased loss of $366,000. The components of the increased loss are
discussed above.
Other income(expense) decreased approximately $3,000 to other income of $15,000
for the nine months ended September 30, 1997 from other income of $18,000 for
the comparable period of 1996.
No provisions for income taxes were required for the nine months ended September
30, 1997 and 1996, due to the net loss for the period then ended.
Liquidity and Capital Resources
At September 30, 1997, the Company has cash and cash equivalents of
approximately $1,513,000. The Company has $740,000 outstanding on its line of
credit facility and has no long term debt. The Company believes that its current
cash and cash available under its line of credit will be sufficient to fund its
operations for the next six months. The Company is currently considering various
options for increasing its financial resources as it expects operating losses to
continue through at least the end of 1997.
On July 1, 1997, the credit line was expanded by the bank to the lesser of
$2,000,000 or 80% of eligible accounts receivable and the interest rate was
reduced to 0.75% over the bank's prime rate. The bank has waived certain
financial covenant contained in this line of credit agreement with which the
Company was not in compliance at September 30,1997.
During the nine months ended September 30, 1997, the Company received $607,500
from the exercise of outstanding options and warrants.
For the nine months ended September 30, 1997 the Company's operating activities
used approximately $3.2 million, investing activities used approximately
$142,000 and financing activities provided approximately $1.1 million of the
Company's cash. The uses of cash primarily were the Company's net loss of
$2.1million, decreased accounts payable and accrued expenses of approximately $1
million offset by cash provided from the exercise of warrants and options of
$607,500 and borrowings under its line of credit of $740,000. The Company will
continue to make significant investments in marketing, training and
infrastructure to increase productivity, build its technical staff skill base
and foster growth of its operations.
The Company acquired Onion Peel as of July 1, 1997 for 80,000 shares of the
Company's common stock , subject to adjustment (see note 2). The Company
received approximately $2,000 in cash at acquisition and expects to achieve an
increase of approximately $750,000 in potential borrowings over the remaining
life of its existing credit line as a result of this acquisition.
Capital expenditures for the nine months ended September 30, 1997 were
approximately $142,000. Capital expenditures for the balance of 1997 are
anticipated to be approximately $40,000.
The Company is actively pursuing the acquisition of additional technical
consulting firms to broaden its customer base, expand its technical capacity and
enhance its fulfillment capability. The Company has identified several potential
acquisition candidates, has signed a letter of intent with one such candidate,
and is currently engaged in due diligence activities of this company. The letter
of intent is subject to the satisfactory completion of due diligence by the
Company and the negotiation of the terms of acquisition in a definitive
agreement. There can be no assurances that the Company will complete the
definitive agreement for the acquisition of this company.
12
<PAGE>
In August 1997, Nasdaq enacted new standards for the listing of its member
companies on its SmallCap Market. These standards, which take effect on February
23, 1998, require listed companies to maintain certain financial and corporate
governance criterion for continued listing on the SmallCap market. As of
September 30, 1997, the Company would not meet one of the financial criterion
which require it to maintain certain minimum tangible net asset amounts and,
thus, would not meet the new standards for continued listing on the SmallCap
market. After such standards take effect, companies that do not meet the new
standards could be subject to de listing from the SmallCap market. The Company
is actively pursuing its options to ensure that it attains at least the minimum
standards for continued listing on the SmallCap Market before the six month
period expires, however, there can be no assurances that the Company will be
successful in achieving the new standards and maintaining its SmallCap listing.
Given the Company's anticipation of continued losses, its expectation of
strategic acquisitions and its need to attain compliance with the new SmallCap
listing standards, the Company is assessing alternative ways to raise cash and
equity. The Company will seek to enter into a transaction or transactions to
raise additional cash and equity during the fourth quarter of 1997 or in January
1998 to ensure that it has sufficient equity and cash resources to carry it
through the end of 1998. The Company has engaged an investment banking firm to
act as an agent to find investors to however, there can be no assurances that
additional financing will be available to the Company.
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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1997, the Company was served with a complaint by Data
Systems Analysis, Inc. (DSA) in the United States District Court for
the District of New Jersey for copyright infringement and breach of the
Company's agreement dated July 11, 1995. The Complaint claims damages
in excess of $3,000,000 plus punitive damages. The Company believes
that the allegations contained in DSA's complaint are without merit and
will vigorously defend such action. However, there can be no assurances
as to the actual outcome of this action or its impact on the Company.
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 on Form 8-K:
The Company filed a form 8-K describing the lawsuit filed by DSA
for copyright infringement and breach of contract under Item 5 -
Other Events.
14
<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: November 14, 1997 By: /s/ Gene Zaino
----------------- ---------------------------
Gene Zaino, President and CEO
(Principal Executive Officer) and Chairman
of the Board
Date: November 14, 1997 By: /s/ Matthew G. Jones
----------------- ---------------------------
Matthew G. Jones, Chief Financial Officer
(Principal Accounting Officer)
15
THE NETPLEX GROUP, INC. EXHIBIT 11
SCHEDULE RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------ --------- ------------ -----------
<S> <C> <C> <C> <C>
Primary Earnings(Loss) Per Share:
Weighted average number of common shares outstanding 6,806,923 6,497,133 6,517,750 3,608,322
Common stock equivalents from outstanding stock options - (3) - (3) - -
----------- ----------- ------------- -------------
Average shares outstanding 6,806,923 6,497,133 6,517,750 3,608,322
=========== =========== ============= =============
Net loss (642,339) (929,574) (2,149,539) (1,783,326)
Preferred dividends 57,500 - 197,500 -
----------- ----------- ------------- -------------
Loss attributable to Common $ (699,839) $ (929,574) $ (2,347,039) $ (1,783,326)
=========== =========== ============= =============
Primary Loss per share $ (0.10) $ (0.14) $ (0.36) $ (0.49)
=========== =========== ============= =============
Fully Diluted Earnings (Loss) Per Share: (2)
Weighted average number of common shares outstanding 6,806,923 6,497,133 6,517,750 3,608,322
Preferred stock convertible into common shares (1) - (3) - - -
Common stock equivalents from outstanding stock options - (3) - (3) - -
----------- ----------- ------------- -------------
Average shares outstanding 6,806,923 6,497,133 6,517,750 3,608,322
=========== =========== ============= =============
Net loss $ (642,339) $ (929,574) $ (2,149,539) $ (1,783,326)
Preferred dividends 57,500 - 197,500 -
----------- ----------- ------------- -------------
Loss attributable to Common $ (699,839) $ (929,574) $ (2,347,039) $ (1,783,326)
=========== =========== ============= =============
Fully Diluted Loss Per Share (2) $ (0.10) $ (0.14) $ (0.36) $ (0.49)
=========== =========== ============= =============
</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 SEPTEMBER 30, 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> SEP-30-1997
<CASH> 1,512,993
<SECURITIES> 0
<RECEIVABLES> 4,779,535
<ALLOWANCES> (156,271)
<INVENTORY> 0
<CURRENT-ASSETS> 6,421,199
<PP&E> 1,842,138
<DEPRECIATION> (807,354)
<TOTAL-ASSETS> 8,332,091
<CURRENT-LIABILITIES> (6,084,914)
<BONDS> 0
0
(11,500)
<COMMON> (7,383)
<OTHER-SE> (6,271,539)
<TOTAL-LIABILITY-AND-EQUITY> (2,054,686)
<SALES> (30,088,967)
<TOTAL-REVENUES> (30,088,967)
<CGS> 26,876,627
<TOTAL-COSTS> 5,376,662
<OTHER-EXPENSES> (14,783)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,149,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,149,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,149,539)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
