SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 22, 1998
The Netplex Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 1-11784 11-2824578
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer of
incorporation) File Number) Identification No.)
8260 Greensboro Drive, 5th Floor, McLean, Virginia 22101
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 356-1717
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 22, 1998, The Netplex Group, Inc. (the "Company") completed the purchase
of all of the stock of Automated Business Systems of North Carolina, Inc. and
Kellar Technology Group, Inc., referred to collectively as "ABS.". In
consideration for the purchase, the Company paid $200,000 in cash and issued
450,000 shares of Common Stock at closing. The Company used working capital to
finance the acquisition. The agreement also provides that ABS will receive
additional consideration (the "Earn-out") equal to a percentage of the net
profits of ABS for the third and fourth quarters of 1998, and the years 1999 and
2000. Such Earn-out payments are to be made 50% in cash and 50% in the Company's
Common Stock. The number of shares of the Company's Common Stock will be based
on 90% of the average closing price of the Company's Common Stock for the last
30 calendar days of the first quarter following the end of each of the
respective earn-out periods.
In connection with the acquisition, the Company also will enter
into employment agreements with certain employees of ABS.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
Exhibit No. Description
----------- -----------
99.1 Audited Combined Financial Statements for
Automated Business Systems of North Carolina, Inc.
and Kellar Technology Group, Inc. for the year
ended December 31, 1997.
99.2 Pro forma financial information.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE NETPLEX GROUP, INC.
Dated: September 5, 1998
` By: /s/ Gene Zaino
-------------------
Name: Gene Zaino
Title: Chairman of the Board
And President
<PAGE>
Automated Business Systems of North Carolina, Inc. and
Combined Company
Index to Combined Financial Statements
Independent Auditors' Report ................................................ 2
Combined balance sheets as of March 31, 1998 (unaudited)
and December 31, 1997............................................... 3
Combined statements of operations and retained earnings
for the three months ended March 31, 1998 (unaudited) and
the year ended December 31, 1997................................... 4
Combined statements of cash flows for the three months ended
March 31, 1998 (unaudited) and the year ended
December 31, 1997.................................................. 5
Notes to the combined financial statements................................... 6
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders of Automated Business Systems of North Carolina, Inc.
and Combined Company:
We have audited the accompanying combined balance sheet of Automated Business
Systems of North Carolina, Inc. and Combined Company as of December 31, 1997,
and the related combined statements of operations and retained earnings, and
cash flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Automated Business
Systems of North Carolina, Inc. and Combined Company as of December 31, 1997,
and the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
McLean, VA
August 21, 1998
2
<PAGE>
Automated Business Systems of North Carolina, Inc. and
Combined Company
Combined Balance Sheets
March 31, December 31,
1998 1997
--------- ------------
(unaudited)
Assets:
Current Assets:
Cash and cash equivalents $121,169 $173,860
Accounts receivable 360,310 163,005
Prepaid expenses and other current assets 14,685 7,592
-------- --------
Total Current Assets 496,164 344,457
Property & equipment, net 1,006 695
Other assets 22,142 22,162
-------- --------
Total Assets $519,312 $367,314
======== ========
Liabilities & Shareholders' Equity:
Current Liabilities:
Accounts Payable $259,122 $167,960
Accrued Expenses 130,708 53,532
Note payable to bank -- 11,523
-------- --------
Total current liabilities 389,830 233,015
Shareholders' Equity:
ABSI common stock, $1 par value;
100,000 shares authorized; 444 issued
and outstanding in 1998 and 1997 444 444
KTG common stock; no par value;
Class A, 1,000,000 shares authorized,
3,000 issued and outstanding in 1998
and 1997 -- --
Class B, 1,000,000 shares authorized,
none outstanding in 1998 and 1997 -- --
Paid in Capital 42,741 42,741
Retained Earnings 86,297 91,114
-------- --------
Total shareholders' equity 129,482 134,299
Total Liabilities & Shareholders' Equity $519,312 $367,314
======== ========
The accompanying notes are an integral part of these financial statements
3
<PAGE>
Automated Business Systems of North Carolina, Inc. and
Combined Company
Combined Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -------------------
(unaudited)
<S> <C> <C>
Revenue $ 760,374 $ 4,145,797
Cost of Revenue 421,597 3,048,010
----------- -----------
Gross Profit 338,777 1,097,787
Selling, General and Administrative Expense 341,052 1,116,348
----------- -----------
Loss before taxes (2,275) (18,561)
Provision for income tax 2,542 8,243
----------- -----------
Net loss $ (4,817) $ (26,804)
Retained Earnings at the beginning of the period 91,114 117,918
----------- -----------
Retained Earnings at the end of the period $ 86,297 $ 91,114
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Automated Business Systems of North Carolina, Inc. and
Combined Company
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Operating Activities:
Net loss $ (4,817) $ (26,804)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization 27 18,964
Loss on sale of property and equipment -- 6,867
Changes in assets and liabilities:
Accounts receivable (197,305) 7,143
Prepaids and other assets (7,074) (15,129)
Accounts payable 91,162 37,660
Accrued expenses 77,177 27,244
--------- ---------
Net cash (used in) provided by operating activities (40,830) 55,945
--------- ---------
Investing activities:
Acquisition of property and equipment (338) (29,834)
Proceeds from sale of property and equipment -- 31,000
--------- ---------
Net cash (used in) provided by investing activities (338) 1,166
--------- ---------
Financing activities:
Repayment of notes payable to bank (11,523) (18,315)
Borrowing under note payable to a bank -- 17,000
--------- ---------
Net cash used in financing activities (11,523) (1,315)
--------- ---------
(Decrease) increase in cash and cash equivalents (52,691) 55,796
Cash and cash equivalents at the beginning of the period 173,860 118,064
--------- ---------
Cash and cash equivalents at the end of the period $ 121,169 $ 173,860
========= =========
Supplemental disclosures:
Cash paid during the period for:
Interest $ 1,293 $ 2,685
========= =========
Income taxes $ -- $ 7,577
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Automated Business Systems of North Carolina, Inc. and
Combined Company
Notes to Combined Financial Statements
(1) Business and Basis of Presentation
----------------------------------
Automated Business Systems of North Carolina, Inc., doing
business as Automated Business Systems , Inc. (ABSI) was
incorporated in North Carolina in 1975. Kellar Technology
Group (KTG) was incorporated in Georgia in June 1997. The
companies provide complete systems solutions through the
distribution of hardware and software from Hewlett-Packard
("HP") UNIX and Microsoft NT based technologies to
medium-sized and Fortune 500 organizations, in the Charlotte,
NC; Spartanburg, SC; and Atlanta, GA markets. The shareholders
of ABSI own a majority interest in KTG, and as a result, the
financial statements of the entities, collectively "ABS" or
the "Company" have been reported on a combined basis.
The accompanying financial statements contain the combined
balance sheets of ABSI and KTG as of March 31, 1998 and
December 31, 1997; the combined statements of operations and
retained earnings, and cash flows for the three months ended
March 31, 1998 and the year ended December 31, 1997 (KTG
included on a combined basis from June 19, 1997, date of
inception). The balance sheet as of March 31, 1998 and the
result of operations and cash flows for the three months ended
March 31, 1998 are unaudited. In the opinion of management,
all adjustments, consisting of normal recurring adjustments
necessary for fair presentation of interim period results have
been included. Interim results are not necessarily indicative
of the results that may be expected for the fiscal year ended
December 31, 1998.
(2) Summary of Significant Accounting Policies:
-------------------------------------------
Principles of Combination:
--------------------------
The accompanying combined financial statements include the
accounts of Automated Business Systems, Inc and Kellar
Technology Group, Inc. for the periods outlined above. All
significant intercompany transactions have been eliminated in
combination.
Revenue Recognition:
--------------------
The Company generally recognizes hardware and software product
revenue when such products are delivered to the customer site.
Revenue from consulting service contracts is recognized when
the services are performed and related costs are incurred.
Cash and Cash Equivalents:
---------------------------
The Company considers all highly liquid investments with
maturity, at date of purchase, of three months or less to be
cash equivalents. Cash equivalents are comprised of money
market accounts.
Property and Equipment:
-----------------------
Property and equipment is recorded at cost. Additions to
property and equipment have historically not been material.
Automobiles are being depreciated over five years. All other
property and equipment is being depreciated in the year of
acquisition.
Income Taxes:
-------------
Income taxes are accounted for under the asset and liability
method under Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" (SFAS 109). Under this
method, the deferred tax assets and liabilities are recognized
for the future tax consequences of differences between the
financial statement carrying value of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets are measured
by
6
<PAGE>
applying the enacted statutory tax rates, that are applicable
to the future years in which 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 rate
change is enacted.
Use of Estimates:
-----------------
The preparation of combined 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 combined
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
(3) Property and Equipment:
-----------------------
Property and equipment consists of the following:
March 31, December 31,
1998 1997
----------- ------------
(unaudited)
Office furniture & equipment $ 34,900 $ 34,562
Demo equipment 59,727 59,727
Autos 7,343 7,343
--------- ---------
101,970 101,632
Accumulated depreciation (100,964) (100,937)
--------- ---------
$ 1,006 $ 695
========= =========
(4) Accrued Expenses:
-----------------
March 31, December 31,
1998 1997
---------- ------------
(unaudited)
Accrued payroll and payroll taxes $ 73,826 $ 48,867
Accrued other expenses 56,882 4,665
-------- --------
$130,708 $ 53,532
======== ========
(5) Note Payable to Bank:
---------------------
As of December 31, 1997, the Company had a note payable to a
bank in the amount of $11,523 related to the financing of an
automobile. Monthly payments under this note were $624. The
Company repaid this loan in early 1998.
(6) Commitments:
------------
The Company leases approximately 1,600 square feet of office
space under a non-cancelable operating lease to house the
Company's headquarters in Charlotte, NC. Monthly payments
under this lease are $1,995. The Company also has a refundable
deposit of $1,995 related to these leased premises. This lease
expires on September 30, 1998. The Company's remaining
obligation under this lease at March 31, 1998 and at December
31, 1997 was $11,970 (unaudited) and $17,955, respectively.
7
<PAGE>
(7) Income taxes:
-------------
The Company files separate returns for ABSI and KTG. Income
tax expense for the year ended December 31, 1997 and the three
months ended March 31, 1998 (unaudited) consists of current
tax expense.
The reconciliation between the actual income tax expense and
the income tax computed by applying the statutory Federal
income tax rate to earnings before provision for income taxes
for the three months ended March 31, 1998 (unaudited) and the
year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Computed expected tax provision (benefit) $ (773) $ (6,311)
State taxes, net of Federal benefit 304 986
Non deductible expenses and other 3,011 13,568
-------------- ------------
$ 2,542 $ 8,243
============== ============
</TABLE>
There were no significant deferred tax assets or liabilities
at March 31, 1998 (unaudited) or December 31, 1997.
(8) 401(k) Retirement Plan:
-----------------------
The Company maintains a 401(k) retirement plan ("the Plan")
for employees who meet the eligibility requirements outlined
in the Plan. Participants in the Plan make voluntary tax
deferred contributions to the Plan. The Company does not make
contributions to match the participants contributions, but,
has the ability to make discretionary contributions to the
Plan. During the three months ended March 31, 1998 (unaudited)
and the year ended December 31, 1997, the Company made no
discretionary contributions to the Plan.
(9) Subsequent Event
----------------
On June 22, 1998, The Netplex Group, Inc. ("Netplex") acquired
all of the stock of both ABSI and KTG in exchange for:
$200,000 in cash, 450,000 shares of Netplex common stock, and
additional consideration ("earn-out") to the former ABS
shareholders if the Company meets certain operating targets
over the period beginning on June 30, 1998 through December
31, 2000. Payments due under the earn-out, if any, are to be
made on April 30, 1999, 2000 and 2001 in the form of 50%
Netplex common stock and 50% cash.
8
<PAGE>
The Netplex Group, Inc.
Unaudited Pro Forma Consolidated Financial Statements
The accompanying unaudited pro forma consolidated financial statements are
provided to illustrate the effect of the acquisition of Automated Business
Systems of North Carolina, Inc. and Kellar Technology Group, Inc. (collectively
"ABS") on the historical financial statements of The Netplex Group, Inc. ("the
Company"), as if this acquisition had occurred, for balance sheet purposes, on
March 31, 1998 and, for statement of operations purposes on January 1, 1998 and
January 1, 1997. The pro forma consolidated statements of operations are not
necessarily indicative of operating results which would have been achieved had
the acquisition been consummated as of the beginning of the period presented and
should not be construed as representative of future operations. For purposes of
these pro forma consolidated statements, the acquisition has been accounted for
under the purchase method of accounting, based on a preliminary estimate of the
fair values of the assets and liabilities acquired. The pro forma adjustments
are described in the accompanying notes are based on available information and
certain assumptions that the Company believes are reasonable. These pro forma
financial statements should be read in conjunction with the Company's Report on
Form 10-KSB for the year ended December 31, 1997 and Report on Form 10-Q for the
three months ended March 31, 1998.
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Pro-Forma Condensed Consolidated Balance Sheet
As of March 31, 1998
<TABLE>
<CAPTION>
Netplex ABS Subtotal Adjustments(a) Pro-forma
------------ ------------ ------------- ---------------- ------------
Assets
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,326,291 $ 121,169 $ 1,447,460 $ (200,000) $ 1,247,460
Accounts receivable, net 6,293,041 360,310 6,653,351 6,653,351
Prepaid expenses and other 419,630 14,685 434,315 434,315
------------ ------------ ------------ ------------ ------------
Current assets 8,038,962 496,164 8,535,126 (200,000) 8,335,126
Property & equipment, net 1,012,474 1,006 1,013,480 50,000 1,063,480
Employee notes receivable 195,014 -- 195,014 195,014
Fulfillment database, net 930,000 -- 930,000 930,000
Acquired software, net 394,991 -- 394,991 394,991
Goodwill, net 339,866 -- 339,866 660,643 1,000,589
Other assets 142,197 22,142 164,339 164,339
------------ ------------ ------------ ------------ ------------
Total Assets $ 11,053,504 $ 519,312 $ 11,572,816 $ 510,643 $ 12,083,459
============ ============ ============ ============ ============
Liabilities & Stockholders' Equity
Accounts Payable $ 1,051,407 $ 259,122 $ 1,310,529 $ 1,310,529
Line of credit 2,404,670 -- 2,404,670 2,404,670
Accrued Expenses and other 4,834,246 130,708 4,964,954 50,000 5,014,954
------------ ------------ ------------ ------------ ------------
Total current liabilities 8,290,323 389,830 8,680,153 50,000 8,730,153
Other liabilities 292,237 -- 292,237 -- 292,237
------------ ------------ ------------ ------------ ------------
Total Liabilities 8,582,560 389,830 8,972,390 50,000 9,022,390
Stockholders' Equity
Class A preferred stock 10,625 -- 10,625 -- 10,625
Common stock 9,007 444 9,451 450 9,457
(444)
Additional paid in capital 7,826,370 42,741 7,869,111 639,675 8,466,045
(42,741)
Accumulated deficit (5,375,058) 86,297 (5,288,761) (50,000) (5,425,058)
(86,297)
------------ ------------ ------------ ------------ ------------
Commitments and contingencies
Stockholders' equity 2,470,944 129,482 2,600,426 480,206 3,061,069
------------ ------------ ------------ ------------ ------------
Total Liabilities &
Stockholders' Equity $ 11,053,504 $ 519,312 $ 11,572,816 $ 527,664 $ 12,083,459
============ ============ ============ ============ ============
</TABLE>
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Pro-Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Netplex ABS Total Adjustments Pro forma
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 13,311,308 $ 760,374 $ 14,071,682 -- $ 14,071,682
Cost of revenues 11,176,766 421,597 11,598,363 -- 11,598,363
------------ ------------ ------------ ------------ ------------
Gross profit 2,134,542 338,777 2,473,319 -- 2,473,319
Selling, general and
administrative expenses 2,483,723 341,052 2,824,775 15,178 b 2,839,953
------------ ------------ ------------ ------------ ------------
Operating loss (349,181) (2,275) (351,456) (15,178) (366,634)
Interest expense, net 66,076 -- 66,076 -- 66,076
------------ ------------ ------------ ------------ ------------
Loss before taxes (415,257) (2,275) (417,532) (15,178) (432,710)
Provision for income taxes -- 2,542 2,542 (2,542)c --
------------ ------------ ------------ ------------ ------------
Net loss $ (415,257) $ (4,817) $ (420,074) $ (12,636) $ (432,710)
============ ============ ============ ============ ============
Basic and diluted loss per
Common share $ (0.07)
=============
Weighted average common shares
shares outstanding, basic and diluted 8,223,292
=============
</TABLE>
<PAGE>
The Netplex Group, Inc. and Subsidiaries
Pro-Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Netplex ABS Total Adjustments Consolidated
----------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 40,468,134 $ 4,145,797 $ 44,613,931 -- $ 44,613,931
Cost of revenues 35,415,644 3,048,010 38,463,654 -- 38,463,654
------------ ------------ ------------ ------------ ------------
Gross profit 5,052,490 1,097,787 6,150,277 -- 6,150,277
Selling, general and
administrative expenses 7,899,756 1,116,348 9,016,104 60,710 b 9,076,814
------------ ------------ ------------ ------------ ------------
Operating loss (2,847,266) (18,561) (2,865,827) 60,710 (2,926,537)
Interest expense, net 26,337 -- 26,337 -- 26,337
------------ ------------ ------------ ------------ ------------
Loss before taxes (2,873,603) (18,561) (2,892,164) (60,701) (2,952,865)
Provision for income taxes -- 8,243 8,243 (8,243)c --
------------ ------------ ------------ ------------ ------------
Net loss $ (2,873,603) $ (26,804) $ (2,900,407) $ (52,458) $ (2,953,865)
============ ============ ============ ============ ============
Basic and diluted loss per
Common share $ (0.45)
=============
Weighted average common shares
shares outstanding, basic and diluted 7,270,863
=============
</TABLE>
<PAGE>
Notes to the unaudited pro forma consolidated financial statements
(a) This Adjustment records the acquisition of ABS by
Netplex, under the purchase method of accounting,
through the issuance of $200,000 in cash and 450,000
shares of Netplex common stock (valued at $590,125 or
$1.3125 per share). In connection with the preliminary
allocation of the purchase price the historical cost
basis of the assets and liabilities of ABS were deemed
to be at fair value, except for property and equipment
which was brought up to its estimated fair value
through an adjustment of approximately $50,000 and the
accrual of estimated direct costs related to the
acquisition of $50,000. The net assets of ABS acquired
(at fair value) was $129,482. Cost in excess of net
assets acquired (goodwill) resulting from this
transaction is $660,632 and is expected to be amortized
on a straight-line basis over an estimated life of 15
years.
(b) This adjustment reverses the tax provision of ABS for
the three months ended March 31, 1998 of $2,543 and for
the year ended December 31, 1997 of $8,243. Netplex
experienced net operating losses during the three month
and years ended March 31, 1998 and December 31, 1997,
respectively and accordingly, no consolidated provision
for income taxes is be required for the periods
presented on the combined entity.
(c) This adjustment records depreciation and amortization
for the three months ended March 31, 1998 and the year
ended December 31, 1997 of $15,170 and
$60,710,respectively. Depreciation expense on the
increase in ABS property and equipment ($50,000
depreciated on a straight-line basis for over a 3 year
estimated life) for the three months ended March 31,
1998 of $4,167 and $16,667 for the year ended December
31, 1997. Goodwill amortization recorded on Goodwill of
$660,643 on a straight-line basis over a 15 year
estimated life of $11,011 for the three months ended
March 31, 1998 and $44,043 for the year ended December
31, 1997.
