SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
---------------------------------------
For the quarterly period ended June 30, 1999
Commission file number 001-11784
THE NETPLEX GROUP, INC.
--------------------------------------------------
(Exact name of issuer as specified in its charter)
NEW YORK 11-2824578
- ---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 Robert Fulton Drive, Ste. 250, Reston, Virginia 20191-4346
---------------------------------------------------------------
(Address of principal executive offices and zip code)
(703) 716-4777
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |_| No |X|
As of August 5, 1999, 12,904,403 shares of the issuer's Common Stock were
outstanding.
1
<PAGE>
THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998.................................................3
b) Condensed Consolidated Statements of Operations for the Three
Months and the Six Months Ended June 30, 1999 and 1998................4
c) Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1999 and 1998...................................5
d) Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............14
Part II Other information.....................................................15
Item 4. Submission of Matters to a Vote of Security Holders...................15
Item 6. Exhibits and Reports on Form 8-K......................................15
Signatures....................................................................16
2
<PAGE>
Part I Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------ ------------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 907,826 $ 870,465
Accounts receivable, net of allowance for doubtful
accounts of $401,663 and $588,670, respectively 12,740,921 11,654,743
Prepaids and other current assets 990,240 523,480
------------ ------------
Total current assets 14,638,987 13,048,688
Property and equipment, net 1,684,595 1,704,975
Employee receivables 331,075 248,762
Other assets 426,278 213,174
Acquired software, net 963,892 1,091,624
Fulfillment data base, net 725,973 797,148
Other acquired intangible assets, net 1,933,217 1,773,333
Goodwill, net 2,958,440 1,772,919
------------ ------------
Total assets $ 23,662,457 $ 20,650,623
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,764,636 $ 2,545,730
Line of Credit 4,383,000 4,041,000
Notes Payable -- 300,000
Accrued expenses and other 8,007,395 7,351,468
------------ ------------
Total current liabilities 15,155,031 14,238,198
Note payable 800,000 --
Other liabilities 9,316 57,901
------------ ------------
Total Liabilities 15,964,347 14,296,099
------------ ------------
Stockholders' equity:
Class A cumulative preferred stock: $.01 par value; liquidation
preference of $4.00 per share, unpaid dividends of $0 in 1999
and $267,204 in 1998; 2,000,000 shares authorized; 474,972
and 987,753 shares outstanding in 1999 and 1998 4,749 9,875
Class B cumulative preferred stock: $.01 par
value; liquidation preference of $3.50 per
share; 1,500,000 shares authorized; 643,770
shares outstanding in 1998 -- 6,438
Class C cumulative preferred stock:$.01 par value; liquidation
preference of $3.99 per share; unpaid dividends of $0 in 1999 and
$37,500 in 1998; 2,500,000 shares authorized; 1,500,000 shares
outstanding in 1999 and 1998 15,000 15,000
Common stock $.001 par value; 40,000,000
authorized, 12,717,554 shares outstanding in 1999
and 10,204,735 shares in 1998 12,718 10,204
Additional paid in capital 14,922,892 13,821,531
Accumulated deficit (7,257,249) (7,508,524)
------------ ------------
Commitments and contingencies
Total stockholders' equity 7,698,110 6,354,524
------------ ------------
Total liabilities and stockholders' equity $ 23,662,457 $ 20,650,623
============ ============
</TABLE>
See notes to condensed consolidated statements
3
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
---------- (Unaudited)----------
<S> <C> <C> <C> <C>
Revenue
Services $ 18,294,570 $ 12,272,174 $ 34,825,035 $ 24,426,268
Product 3,463,514 1,657,502 9,627,248 2,797,836
------------ ------------ ------------ ------------
21,758,084 13,296,676 44,452,283 27,224,104
Cost of revenues
Services 13,796,713 10,645,491 26,305,804 21,031,758
Product 2,300,327 1,115,529 7,372,007 1,823,633
------------ ------------ ------------ ------------
16,097,040 11,761,020 33,677,811 22,855,391
------------ ------------ ------------ ------------
Gross profit 5,661,044 2,168,656 10,774,472 4,368,013
Selling, general and administrative
expenses 5,465,898 2,696,022 10,323,595 5,272,107
------------ ------------ ------------ ------------
Operating income (loss) 195,146 (527,366) 450,877 (903,394)
Interest expense, net (66,790) (14,407) (199,600) (80,479)
------------ ------------ ------------ ------------
Net income (loss) before income taxes 128,356 (541,773) 251,277 (983,873)
Provision for (benefit from) income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 128,356 $ (541,773) $ 251,277 $ (983,873)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic and diluted $ 0.00 $ (0.07) $ 0.00 $ (0.13)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic 11,706,600 9,172,542 11,195,457 8,472,566
============ ============ ============ ============
Diluted 18,162,531 -- 17,651,388 --
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated statements
4
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided (used) in operating activities $ 592,914 $ (701,814)
----------- -----------
Investing activities:
Net cash (paid )acquired in acquisitions and earnouts (1,650,450) (146,670)
Purchases of property and equipment (340,747) (182,223)
----------- -----------
Net cash used in investing activities (1,991,197) (328,893)
----------- -----------
Financing activities:
Net proceeds from stock offerings -- 3,069,125
Net borrowings on line of credit 342,000 (271,199)
Proceeds from borrowings of subordinated debt 800,000 --
Proceeds from the exercise of stock options and warrants 1,103,660 --
Payment of dividends on preferred stock (371,313) --
Principal payments on capital lease obligations (56,390) (35,796)
Payment of other notes payable (300,000) --
Employee receivables (82,313) --
----------- -----------
Net cash provided in financing activities 1,435,644 2,762,130
----------- -----------
Increase (decrease) in cash and cash equivalents 37,361 1,731,423
Cash and equivalents at beginning of period 870,465 353,005
----------- -----------
Cash and equivalents at end of period $ 907,826 $ 2,084,428
=========== ===========
Supplemental information:
Cash paid during the period for:
Interest $ 292,081 $ 86,182
=========== ===========
Income taxes $ -- $ --
=========== ===========
</TABLE>
See notes to condensed consolidated statements
5
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended June 30, 1999 and 1998
(Unaudited)
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-Q and Rule 10-01 of
Regulation S-X. 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 year-end
condensed balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. 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, 1998.
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 June 30, 1999 and December 31, 1998, the results of its
operations and its cash flows for the three months ended June 30, 1999 and 1998.
Interim results are not necessarily indicative of the results that may be
expected for the fiscal years ended December 31, 1999 and 1998.
Basis of Presentation
The accompanying financial statements include the accounts of The Netplex Group,
Inc. and its wholly-owned subsidiaries for the three months ended June 30, 1999
and 1998. The accounts of Onion Peel Solutions, LLC, the PSS Group, Inc.,
Automated Business Systems of North Carolina, Inc., Kellar Technology Group,
Inc. and Applied Intelligence Group, Inc. are included from the effective dates
of their acquisitions, accounted for as purchases, which were July 1, 1997,
January 1, 1998, June 30, 1998 and September 1, 1998, respectively. All
significant intercompany transactions were eliminated in consolidation.
Earnings (loss) per share
Basic net income (loss) per share is calculated using the weighted average
number of common shares outstanding during the periods. Diluted net income
(loss) per common share is calculated using the weighted average number of
common shares and dilutive potential common shares outstanding during the
periods. For the three month periods ended June 30, 1999 and 1998, the assumed
exercise of the Company's outstanding stock options and warrants, Convertible
Preferred Stock and contingently issuable shares in connection with certain
business combinations would be anti-dilutive. The base of shares for the diluted
calculation including common stock equivalents would be 17,651,388 and 9,675,665
shares respectively at June 30, 1999 and 1998.
A reconciliation of the numerators and denominators of the basic and diluted EPS
for the three months and the six months ended June 30, 1999 and 1998, is
provided below:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
<S> <C> <C> <C>
Three months ended June 30, 1999
Net income $ 128,356
Preferred stock dividend 116,049
-----------
Basic and diluted EPS:
Income to common shareholders $ 12,307 11,706,600 $ 0.00
=========== ===========
Three months ended June 30, 1998
Net loss $ (541,773)
Preferred stock dividend 55,149
-----------
Basic and diluted EPS:
Loss to common shareholders $ (596,922) 9,172,542 $ (0.07)
=========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
<S> <C> <C> <C>
Six months ended June 30, 1999
Net income $ 251,277
Preferred stock dividend 236,355
----------- -----------
Basic and diluted EPS:
Income to common shareholders $ 14,942 11,195,457 $ 0.00
=========== ===========
Six months ended June 30, 1998
Net loss $ (983,873)
Preferred stock dividend 111,612
----------- -----------
Basic and diluted EPS
Loss to common shareholders $(1,095,485) 8,472,566 $ (0.13)
=========== ===========
</TABLE>
Subordinated Debt:
On January 28, 1999, the Company raised $800,000 in a private placement to
accredited investors. The Company issued a note payable, subordinated to the
line of credit that the Company has with the bank. The note is payable on or
before February 24, 2004 and bears interest at 14% APR payable monthly.
PSS:
In January 1999, the Company and Preferred Systems Solutions amended the
acquisition agreement for the purchase of The PSS Group, Inc. to eliminate the
earn-out provision of the original agreement. The amendment requires the Company
to purchase a split-dollar life insurance policy on the life of Preferred's
shareholder and fund the policy with four equal annual payments of $425,000
beginning on January 29, 1999. The Company is a beneficiary of this life
insurance policy. The discounted present value of the premium is charged to
split-dollar life insurance in other assets and the difference is charged to
non-compete agreement included in other acquired intangible assets and is being
amortized over the remaining four years of the non-compete agreement.
Proforma Data:
The following table sets forth the proforma results for the three months and the
six months ended June 30, 1998 resulting from the acquisition of Automated
Business Systems of North Carolina, Inc., Kellar Technology Group, Inc., and the
technology consulting division of The viaLink Company, Inc. (formerly Applied
Intelligence Group, Inc.):
(Amounts in thousands, except per share amounts)
Three Six
Months Months
Ended Ended
June 30, June 30,
1998 1998
------- -------
Revenues 18,725 $35,538
Net income (loss) 609 $ 995
======= =======
Net income(loss) per share:
Weighted Average common shares outstanding 10,145 8,604
Proforma EPS $ 0.06 $ 0.10
======= =======
Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company's reportable segments are strategic
business units that offer different products and services to different
industries throughout the United States.
7
<PAGE>
The Company's reportable segments are as follows:
- --Specialized Practices (SP) - a group of specialized industry or technology
focused services organizations that combine to strategize, build, manage, and
protect customers' electronic business systems and their associated network
infrastructure.
- --Regional Operations (RO)-- a series of regional organizations that provide
systems integration and technical consulting services within targeted markets.
- --Contractors Resources (CR)-- a membership-based financial services
organization that provides "back office" administrative services (such as
insurance, tax planning, 401(k), and client billing) that allow IT professionals
to become successful independent contractors.
The Specialized Practices segment consists of four business units: Retail
Consulting, e-business Systems, Business Protection Services, and
Internetworking.
The Company's accounting policies for these segments are the same as those
described in the summary of Significant Accounting Policies, except that income
tax expense is not allocated to each segment. In addition, the Company evaluates
the performance of its segments and allocates resources based on gross margin,
and earnings before interest, taxes, depreciation and amortization ("EBITDA").
Intersegment revenues are immaterial. The table below presents information about
segments used by the chief operating decision-maker of Netplex as of and for the
three months and the six months ended June 30, 1999 and 1998:
Segment
SP RO CR Total
-------- -------- -------- --------
1999 - Three months:
Revenues $ 5,381 $ 6,525 $ 9,852 $ 21,758
Gross profit 3,040 2,270 351 5,661
EBITDA 1,099 554 70 1,723
==========================================================================
1998 - Three months:
Revenues $ 931 $ 4,409 $ 8,589 $ 13,929
Gross profit 768 1,107 294 2,169
EBITDA 173 100 21 294
==========================================================================
1999 - Six months:
Revenues $ 9,687 $ 15,924 $ 18,841 $ 44,452
Gross profit 5,660 4,429 685 10,774
EBITDA 1,996 1,253 116 3,365
==========================================================================
1998 - Six months:
Revenues $ 2,201 $ 7,900 $ 17,123 $ 27,224
Gross profit 1,595 1,081 585 4,369
EBITDA (62) 444 86 468
==========================================================================
Total assets:
June 30, 1999: $ 7,377 $ 9,005 $ 6,962 $ 23,622
Unallocated 278
Total 23,622
==========================================================================
June 30, 1998: $ 2,741 $ 6,230 $4,866 $
--------------------------------------------------------------------------
Unallocated 556
Total 14,393
==========================================================================
8
<PAGE>
Reconciliation of Segment Profit (Loss) to Income (Loss) from Continuing
Operations
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
------- ------- ------- -------
1999 1998 1999 1998
------- ------- ------- -------
Segment EBITDA $ 1,723 $ 294 $ 3,365 $ 468
Unallocated corporate expenses (1,039) (586) (1,987) (1,003)
Depreciation & amortization (489) (236) (927) (369)
Interest expense, net (67) (14) (200) (80)
Tax expense -- -- -- --
------- ------- ------- -------
Income (loss) from continuing
operations $ 128 $ (542) $ 251 $ (984)
======= ======= ======= =======
Acquisition
On April 23, 1999, the Company completed the purchase of the assets of Liles and
Associates, Inc, ("DLA") a Dallas, Texas based information technology consulting
practice for $600,000 in cash. The Company used working capital to finance the
acquisition. The acquisition is recorded effective April 1, 1999 using the
purchase method of accounting. In connection with the acquisition, the Company
has entered into employment agreements with certain employees of DLA. The
acquisition price of $600,000 has been allocated $595,000 to goodwill and $5,000
to Property and Equipment. The goodwill is being amortized over 60 months.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Quarters and the Six Months Ended June 30, 1999 and 1998
The following table sets forth the revenue, gross profit, business unit
expenses, and business unit income of each of the business areas for the
three months and the six months ended June 30, 1999 and 1998:
Consolidated Operating Results by Segment
Amounts in 000's
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues
Specialized Practices $ 5,381 $ 931 $ 9,687 $ 2,201
Regional Operations 6,525 4,409 15,924 7,900
Contractor's Resources 9,852 8,589 18,841 17,123
-------- -------- -------- --------
Operating revenues 21,758 13,929 44,452 27,224
-------- -------- -------- --------
Cost of Revenues
Specialized Practices 2,341 163 4,027 606
Regional Operations 4,255 3,302 11,495 5,711
Contractor's Resources 9,501 8,295 18,156 16,538
-------- -------- -------- --------
Cost of Revenues 16,097 11,760 33,678 22,855
-------- -------- -------- --------
Gross profit
Specialized Practices 3,040 768 5,660 1,595
Regional Operations 2,270 1,107 4,429 2,189
Contractor's Resources 351 294 685 585
-------- -------- -------- --------
Gross profit 5,661 2,169 10,774 4,369
-------- -------- -------- --------
Gross profit percentage
Specialized Practices 56.5% 82.5% 58.4% 72.5%
Regional Operations 34.8% 25.1% 27.8% 27.7%
Contractor's Resources 3.6% 3.4% 3.6% 3.4%
-------- -------- -------- --------
Gross profit percentage 26.0% 15.6% 24.2% 16.0%
-------- -------- -------- --------
Operating Expenses
Specialized Practices 1,941 595 3,664 1,657
Regional Operations 1,716 1,007 3,176 1,745
Contractor's Resources 281 273 569 499
-------- -------- -------- --------
Operating expenses 3,938 1,875 7,409 3,901
-------- -------- -------- --------
Operating income
Specialized Practices 1,099 173 1,996 (62)
Regional Operations 554 100 1,253 444
Contractor's Resources 70 21 116 86
-------- -------- -------- --------
Operating income 1,723 294 3,365 468
Corporate Expenses 1,039 586 1,987 1,003
-------- -------- -------- --------
EBITDA 684 (292) 1,378 (535)
Interest, taxes, depreciation
& amortization 556 250 1,127 449
-------- -------- -------- --------
Net operating income/(loss) $ 128 $ (542) $ 251 $ (984)
======== ======== ======== ========
</TABLE>
10
<PAGE>
The Netplex Group, Inc. (the "Company" or "Netplex") desires to take advantage
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Specifically, the Company wishes to alert readers that the factors set
forth in the sections entitled "Market Opportunity," "Competition," "Service
Fulfillment Model," "Growth Strategy", and "Additional Factors That May Affect
Future Results," below, as well as other factors, could in the future affect,
and in the past have affected, the Company's actual results and could cause the
Company's results for future years or quarters to differ materially from those
expressed in any forward looking statements made by or on behalf of the Company,
including without limitation those contained in this Form 10-Q report. Forward
looking statements can be identified by forward looking words, such as "may,"
"will," "expect," "intend," "anticipate," "believe," "estimate," and "continue"
or similar words.
The amounts expressed below are approximations and roundings.
Results of Operations
Three months ended June 30, 1999 compared to the three months ended June 30,
1998:
Revenue for the three months ended June 30, 1999 increased $7.8 million or 56%
to $21.7 million, compared to $13.9 million for 1998. This increase includes a
$4.4 million or 478% increase in Specialized Practices revenue, a $2.1 million
or 48% increase in Regional Operations revenue, and a $1.3 million or 15%
increase in Contractors Resources revenue.
The revenue growth in the three months ended June 30, 1999 includes $5.5 million
of revenue contributed collectively by ABS, AIG and Dean Liles & Associates,
Inc. which were acquired by the Company in June 1998, September 1998, and April
1999, respectively, and $2.3 million or 16% in revenue growth of the businesses
owned as of January 1, 1998 ("organic growth"). The organic revenue growth
includes increases for Specialized Practices, Regional Operations, and
Contractor's Resources of $867,000, $147,000, and $1.3 million, respectively, or
93.1%, 3.3%, and 14.7%, respectively. The organic revenue growth in the
Specialized Practices and Regional Operations is due primarily to increased
sales volume in 1999 compared to 1998. The growth in Contractor's Resources
revenues is due to an increase in the number of contractor members, which
increased sales volume, and increased rates for services.
Gross profit for the three months ended June 30, 1999 increased $3.5 million or
161% to $5.7 million compared to $2.2 million for 1998. This increase includes
increases in Specialized Practices, Regional Operations, and Contractor's
Resources of $2.3 million or 296%, $1.2 million or 105% and $57,000 or 19%,
respectively.
The gross profit growth includes $3.0 million of gross profit contributed
collectively by ABS, AIG and Dean Liles & Associates, Inc. acquired in June
1998, September 1998, and April, 1999, respectively and a $520,000 increase in
gross profits from businesses owned as of January 1, 1998 (organic growth). The
organic gross profit growth includes increases in gross profits for Specialized
Practices, Regional Operations, and Contractor's Resources of $291,000,
$171,000, and $57,000, respectively, or 37.9%, 15.5%, and 19.5%, respectively.
Gross profit margins increased to 26.0% for the three months ended June 30, 1999
from 15.6% in 1998. Specialized Practices gross profit margins decreased from
82.5% in 1998 to 56.5% in 1999. Regional Operations gross profit margins
increased from 25.1% in 1998 to 34.8% in 1999. Contractors Resources gross
profit margins increased from 3.4% in 1998 to 3.6% in 1999. The gross profit
margin for ABS, AIG and Dean Liles & Associates, Inc. was 53.6% for the three
months.
The decrease in Specialized Practices gross profit margins is primarily due to
the 1998 quarter revenue mix of proprietary product sales revenue with higher
margins in proportion to systems implementation revenues for the six months at
lower gross margins. This change in mix is not expected to be repeated.
The Regional Operations gross profit margin increase is due to an improved mix
of higher margin Systems Integration work over Technical Consulting Services
that command a lower gross profit margin. Contractors Resources achieved
slightly higher gross profit margins primarily through increased billing rates
to its customers.
Business unit expenses for the three months ended June 30, 1999 increased $2.1
million or 110% to $3.9 million from $1.9 million in 1998. This increase
includes increases in Specialized Practices and Regional Operations business
unit expenses of $1.3 million and $709,000, respectively. Contractors Resources
business unit expenses increased by $9,000. The increase in business unit
expenses was primarily due to the acquisitions of ABS, AIG and Dean Liles &
Associates, Inc. which collectively increased business unit expenses in 1999 by
$2.0 million. The increase in Contractor's Resources business unit expenses is
due to the addition of operations staff to support growth.
Business unit income for the three months ended June 30, 1999 was $1.7 million
compared to $294,000 in 1998, an improvement of $1.4 million. This improvement
includes increases in business unit profits from Specialized Practices, Regional
Operations, and Contractor's Resources of $927,000, $454,000, and $49,000,
respectively, or
11
<PAGE>
538%, 456%, and 225%, respectively. Business unit income for ABS, AIG and Dean
Liles & Associates, Inc. accounted for $929,000 or 64% of this improvement.
Corporate expense for the three months ended June 30, 1999 increased $453,000 or
77% to $1.0 million from $589,000 in 1998. This increase reflects an additional
investment in corporate development capability to support the growth of
operations and the integration of acquisitions.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the three months ended June 30, 1999 was $684,000 compared to a loss of
$292,000 in 1998, an improvement in EBITDA of $976,000. The components of this
improvement are discussed above.
Depreciation, amortization and interest expense for the three months ended June
30, 1999 increased $306,000 to $556,000 from $250,000 in 1998. This increase is
principally due to increased amortization and depreciation from the acquisitions
of ABS, AIG and Dean Liles & Associates, Inc. and increased borrowings under the
Company's line of credit facility to support growth for the three months ended
June 30, 1999.
No provision for income taxes was required for the three months ended June 30,
1999 due to utilization of net operating loss carryforwards generated in
previous years. No provision for income taxes was required for the three months
ended June 30, 1998 due to the generation of net losses.
Net income for the three months ended June 30, 1999 was $128,000 compared to a
net loss of $542,000 in 1998, an increase of $670,000. The components of this
increase are discussed above.
Six months ended June 30, 1999 compared to the three months ended June 30, 1998:
Revenue for the six months ended June 30, 1999 increased $17.2 million or 63% to
$44.5 million, compared to $27.2 million for 1998. This increase includes a $7.5
million or 340% increase in Specialized Practices revenue, a $8.0 million or
102% increase in Regional Operations revenue, and a $1.7 million or 10% increase
in Contractors Resources revenue.
The revenue growth in 1999 includes $12.8 million of revenue contributed
collectively by ABS, AIG and Dean Liles & Associates, Inc. which were acquired
by the Company in June 1998, September 1998, and April, 1999, respectively, and
$4.4 million or 16% in revenue growth of the businesses owned as of January 1,
1998 ("organic growth"). The organic revenue growth includes increases for
Specialized Practices, Regional Operations, and Contractor's Resources of $1.5
million, $1.1 million, and $1.7 million, respectively, or 70.3%, 14.3%, and
10.0%, respectively. The organic revenue growth in the Specialized Practices and
Regional Operations is due primarily to increased sales volume in 1999 compared
to 1998. The growth in Contractor's Resources revenues is due to an increase in
the number of contractor members, which increased sales volume, and increased
rates for services.
Gross profit for the six months ended June 30, 1999 increased $6.4 million or
147% to $10.8 million compared to $4.4 million in 1998. This increase includes
increases in Specialized Practices, Regional Operations, and Contractor's
Resources of $4.1 million or 255%, $2.2 million or 102% and $100,000 or 17%,
respectively.
The gross profit growth includes $5.1 million of gross profit contributed
collectively by ABS, AIG and Dean Liles & Associates, Inc. acquired in June
1998, September 1998, and April, 1999, respectively and a $1.3million increase
in gross profits from businesses owned as of January 1, 1998 (organic growth).
The organic gross profit growth includes increases in gross profits for
Specialized Practices, Regional Operations, and Contractor's Resources of
$676,000, $528,000, and $100,000, respectively, or 42.4%, 24.1%, and 17.1%,
respectively.
Gross profit margins increased to 24.2% for the six months ended June 30, 1999
from 16.0% in 1998. Specialized Practices gross profit margins decreased from
72.4% in 1998 to 58.4% in 1999. Regional Operations gross profit margins
increased from 27.7% in 1998 to 27.8% in 1999. Contractors Resources gross
profit margins increased from 3.4% in 1998 to 3.6% in 1999. The gross profit
margin for ABS, AIG and Dean Liles & Associates, Inc. was 39.7% for the six
months.
The decrease in Specialized Practices gross profit margins is primarily due to
the 1998 quarter revenue mix of proprietary product sales revenue with higher
margins in proportion to systems implementation revenues for the six months at
lower gross margins. This change in mix is not expected to be repeated.
The Regional Operations gross profit margin increase is due to an slightly
improved mix of higher margin Systems Integration work over Technical Consulting
Services that command a lower gross profit margin. Contractors Resources
achieved slightly higher gross profit margins primarily through increased
billing rates to its customers.
Business unit expenses for the six months ended June 30, 1999 increased $3.5
million or 90% to $7.4 million from $3.9 million in 1998. This increase includes
increases in Specialized Practices and Regional Operations business unit
expenses of $2.0 million and $1.4 million, respectively. Contractors Resources
business unit expenses increased by $70,000. The increase in business unit
expenses was primarily due to the acquisitions of ABS, AIG and Dean
12
<PAGE>
Liles & Associates, Inc. which collectively increased business unit expenses in
1999 by $3.6 million. The increase in Contractor's Resources business unit
expenses is due to the addition of operations staff to support growth.
Business unit income for the six months ended June 30, 1999 was $3.4 million
compared to $468,000 in 1998, an improvement of $2.9 million. This improvement
includes increases in business unit profits from Specialized Practices, Regional
Operations, and Contractor's Resources of $2.1 million, $809,000, and $30,000,
respectively, or 3,306%, 183%, and 34%, respectively. Business unit income for
ABS, AIG and Dean Liles & Associates, Inc. accounted for $1.5 million or 53% of
this improvement.
Corporate expense for the six months ended June 30, 1999 increased $1.0 million
or 98% to $2.0 million from $1.0 million in 1998. This increase reflects an
additional investment in corporate development capability to support the growth
of operations and the integration of acquisitions.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the six months ended June 30, 1999 was $1.4 million compared to a loss of
$535,000 in 1998, an improvement in EBITDA of $2.0 million. The components of
this improvement are discussed above.
Depreciation, amortization and interest expense for the six months ended June
30, 1999 increased $678,000 to $1.1 million from $448,000 in 1998. This increase
is principally due to increased amortization and depreciation from the
acquisitions of ABS, AIG and Dean Liles & Associates, Inc. and increased
borrowings under the Company's line of credit facility to support growth for the
six months ended June 30, 1999.
No provision for income taxes was required for the six months ended June 30,
1999 due to utilization of net operating loss carryforwards generated in
previous years. No provision for income taxes was required for the six months
ended June 30, 1998 due to the generation of net losses.
Net income for the six months ended June 30, 1999 was $251,000 compared to a net
loss of $1.0 million in 1998, an increase of $1.2 million. The components of
this increase are discussed above.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash and cash equivalents of $907,826. The
Company had $4,383,000 outstanding on its line of credit facilities and $800,000
in long term subordinated debt.
The following increased the Company's liquidity and capital resources:
For the six months ended June 30, 1999 the Company's cash increased by $37,000.
This increase is comprised of cash provided by operating activities of $593,000,
cash used in investing activities of $1,991,000 and cash provided by financing
activities of $1,436,000.
As of June 30, 1998, the Company maintains a line of credit with a bank that
allows the Company to borrow the lesser of $6 million or 80% of eligible
accounts receivable. Advances against this line of credit bear interest at 0.75%
over the bank's prime rate and require the Company to maintain certain financial
covenants. The Company had borrowings of $4,383,000 under the line of credit as
of June 30, 1999. As of August 11, 1999 the Company had net availability of
$780,000 under the line. This line of credit expires on July 1, 2000.
Capital expenditures for the six months ended June 30, 1999 were $370,000.
Dividends of $371,000 were paid on the Company's Class A and Class C Cumulative
Preferred Stock during the six months ended June 30, 1999. The Company's Class B
Preferred Stock does not bear dividends. At June 30, 1999, the Company had
accrued dividends of $61,245 on the Class A and Class C Preferred Stock .
During the six months ended June 30, 1999, 512,601 shares of Class A Preferred
Stock and 643,770 shares of Class B Preferred Stock were converted into
1,156,371 shares of Common Stock. No Class C Preferred Stock were converted into
Common Stock during the six months ended June 30, 1999. The Class C shares are
not eligible for conversion to Common Stock until September 2003. The
conversions of the Class A Cumulative Preferred Stock during the six months
ended June 30, 1999 will reduce the Company's obligation for dividend payments
by $25,630 per quarter ($102,520 annually).
Incentive and consultant stock options and Common Stock purchase warrants to
purchase an aggregate of 644,850 shares of the Company's Common Stock were
exercised during the six months ended June 30, 1999, generating cash proceeds to
the Company of $1,103,000.
In February 1999, the Company borrowed $800,000 of subordinated debt from
Waterside Capital. The subordinated debt bears interest at 14% and matures in
February 2004.
In January 1999, the Company paid a $300,000 note payable related to its January
1, 1998 acquisition of The PSS Group, Inc.
13
<PAGE>
Acquisitions and future plans.
On April 23, 1999, the Company completed the purchase of the assets of Dean
Liles & Associates, Inc. a Dallas, TX based information technology consulting
practice, for $600,000 in cash.
Based on the Company's current operating plan, the Company believes that the
cash generated from operating activities, coupled with borrowings on its line of
credit facility, will be sufficient to meet the anticipated needs for working
capital and capital expenditure for at least the next 12 months. Thereafter, if
cash generated from operations is insufficient to satisfy the Company's
liquidity needs, the Company may seek to obtain additional capacity on its line
of credit, sell convertible debt securities or sell additional equity
securities. However, no assurances can be given that any such addition financing
sources will be available on acceptable terms or at all. The sale of convertible
debt securities or additional equity securities could result in additional
dilution to the Company's stockholders. The Company has no current plans,
agreements, commitments, and is not engaged in any negotiations with respect to
such transactions.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations. As a result,
computer systems and/or software used by many companies may need to be upgraded
to comply with such "Year 2000" requirements. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance.
The Company's vendors, customers, suppliers, and service providers are under no
contractual obligation to provide Year 2000 information to the Company.
Generally, the Company believes its key internal software systems are either
compliant, the vendors claim compliance, or the problems can be corrected by
purchasing small amounts of hardware, software or software upgrades, where
necessary. The Company is also continuing its assessment of the readiness of
external entities, such as subcontractors, suppliers, vendors, and service
providers that interface with the company.
Based on its assessments and current knowledge, the Company believes it will
not, as a result of the Year 2000 issue, experience any material disruptions in
internal processes, information processing or services from outside
relationships. The Company presently believes that the Year 2000 issue will not
pose significant operational problems and the Company will be able to manage its
total Year 2000 transition without any material effect on the Company's results
of operations or financial condition. The most likely risks to the Company from
Year 2000 issues are external, due to the difficulty of validating all key third
parties' readiness for Year 2000. The Company has sought and will continue to
seek confirmation of such compliance and seek relationships, which are
compliant.
The Company currently anticipates that all of its internal systems and equipment
will be Year 2000 compliant by the end of the third quarter of 1999 and that the
associated costs will not have a material adverse effect on the Company's
results of operations and financial condition. However, the failure to properly
assess or timely implement a material Year 2000 problem could result in a
disruption in the Company's normal business activities or operations. Such
failures, depending on the extent and nature, could materially and adversely
effect the Company's operations and financial condition. To date, the Company
has not developed a contingency plan.
The Company does not believe that the costs of its Year 2000 Program have been
or are material to its financial position or results of operations. All expenses
have been charged against earnings as incurred and the Company intends to
continue to charge such costs against earnings as the costs are incurred.
The Company believes that all of its network management software products
(Amerigo and Amerigo/L2, Network Data Collector, ROVE, and ROVE Motif) will
properly process/utilize dates beyond December 31, 1999.
The estimates and conclusions set forth herein regarding Year 2000 compliance
contain forward-looking statements and are based on management's estimates of
future events and information provided by third parties. There can be no
assurance that such estimates and information provided will prove to be
accurate. Risks to completing the Year 2000 project include the availability of
resources, the Company's ability to discover and correct potential Year 2000
problems and the ability of suppliers and other third parties to bring their
systems into Year 2000 compliance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments that would require
disclosure under this item. The Company's obligations under its line of credit
are short-term in nature with an interest rate which approximates the market
rate.
14
<PAGE>
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals were voted upon by the Company's shareholders at the
Annual Meeting of Shareholders held on June 9, 1999 ("Annual Shareholders
Meeting"):
The following persons were elected as directors of the Company to serve
staggered terms until the succeding annual shareholders meeting or until their
successors have been duly elected and qualified:
Name Votes For Votes Against Abstained
---- --------- ------------- ---------
Class III Directors (three year term):
Gene Zaino 10,045,194 130,294 0
Richard Goldstein 10,077,838 97,650 0
Class II Directors (two year term):
Steven L. Hanau 10,077,838 97,650 0
Deborah S. Novick 9,792,838 382,650 0
Class I Directors (one year term):
J. Alan Lindauer 10,077,838 97,650 0
Pamela Fredette 10,077,838 97,650 0
<TABLE>
<CAPTION>
Resolution In Favor Against Abstained Not Voted
---------- -------- ------- --------- ---------
<S> <C> <C> <C> <C>
Approval of the Amendment to our 6,171,183 176,757 28,850 3,578,146
Certificate of Incorporation to
stagger the Board of Directors.
The approval of a proposal to 5,207,924 53,475 52,240 4,641,297
authorize the issuance of shares
of our common stock to complete a
private placement of our
securities with certain
independent investors and their
agent who purchased a prepaid
warrant for our common stock.
The approval of a proposal to 5,158,774 59,375 95,490 4,641,297
authorize the issuance of shares
of our common stock to complete a
private placement of our
securities with certain
independent investors and their
agent who purchased our Class C
preferred stock which is
convertible to our common stock.
The approval of a proposal to 8,592,795 275,097 244,445 842,599
approve an amendment to our 1992
Incentive and Stock Option Plan in
order to increase the maximum
number of common shares to be
issued under the plan from
3,000,000 to 3,500,000 shares.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3(i) - Certificate Of Amendment Of Certificate Of Incorporation Of
The Netplex Group, Inc.
15
<PAGE>
20 - 1992 Incentive And Nonqualified Stock Option Plan Of The
Netplex Group, Inc.
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter the Company filed two Form 8-K's related to Item
4 Changes in Registrant's Certifying Accountant.
16
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NETPLEX GROUP, INC.
(Registrant)
DATE: August 16, 1999 /s/ Gene Zaino
---------------------- ----------------------------------
Gene Zaino
Chairman of the Board
And Chief Executive Officer
(Principal Executive Officer)
DATE: August 16, 1999 /s/ Walton E. Bell, III
---------------------- ----------------------------------
Walton E. Bell, III
Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
17
EXHIBIT 3(i)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE NETPLEX GROUP, INC.
Under Section 805 of the Business Corporation Law
-----------------------------------------------------
It is certified that:
FIRST: The name of the Corporation is THE NETPLEX GROUP, INC., F/K/A
COMPLINK, LTD. (the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was
filed with the Department of State on August 1, 1986 under the name of COMPLINK,
LTD. A Restated Certificate of Incorporation was filed with the Department of
State on March 9, 1993. An Amendment to the Certificate of Incorporation was
filed on June 12, 1996. An Amendment to the Certificate of Incorporation was
filed on September 19, 1996. A Certificate of Correction of the Amendment of the
Certificate of Incorporation was filed on October 16, 1996. An Amendment to the
Certificate of Incorporation was filed on August 5, 1998. An Amendment to the
Certificate of Incorporation was filed on September 30, 1998. An Amendment to
the Certificate of Incorporation was filed on September 30, 1998.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended by inserting a new Article NINTH in its entirety to read as follows and
the renumbering the existing Article NINTH to be Article TENTH:
ARTICLE NINTH
BOARD OF DIRECTORS
Section 9.1. Number of Directors.
(a) The total number of directors on the Board of Directors of
the Corporation is six (6). The number of directors may be changed by the
by-laws or by the Board of Directors pursuant to the authority provided by the
by-laws. The number of directors will not be less than then minimum number
prescribed by the New York Business Corporation Law nor more than fifteen (15).
The number of directors shall be as fixed or changed from time to time by (i)
the Board of Directors, within the minimum and maximum, or (ii) the affirmative
vote, at a meeting of the shareholders called for such a purpose, of not less
than 75% of the total number of votes of the then outstanding shares of stock of
the Corporation entitled to vote, voting together as a single class, but only if
notice of such proposal was contained in the notice of such meeting.
(b) In the event of any increase or decrease in the number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly as equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 9.2. Terms of Directors.
The directors shall be classified with respect to the time for
which they severally hold office into three classes, Class I, Class II and Class
III, with each group containing one-third of the total, as near as may be, and
as shall be adjusted from time to time by the Board of Directors of the
Corporation to maintain such proportionality. Each initial director in Class I
shall hold office for a term expiring at the 2000 annual meeting of
18
<PAGE>
shareholders; each initial director in Class II shall hold office for a term
expiring at the 2001 annual meeting of shareholders; and each initial director
in Class III shall hold office for a term expiring at the 2002 annual meeting of
shareholders. Notwithstanding the foregoing provisions of this Section 9, each
director shall serve until such director's successor is duly elected and
qualified or until such director's earlier death, resignation or removal. At
each annual meeting of shareholders, the successors to the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election and until their successors have been duly elected and
qualified or until any such director's earlier death, resignation or removal.
Section 9.3. Initial Directors.
The names of the persons who will serve as the initial directors of
the Corporation in each of the Classes specified below are:
Class I directors - J. Alan Lindauer, Pamela Fredette
Class II directors - Deborah Novick, Steven Hanau
Class III directors - Gene Zaino, Richard Goldstein
Section 9.4. Removal of Directors.
(a) Except as otherwise provided pursuant to the provisions of
the Certificate of Incorporation relating to the rights of the holders of any
class or series of shares of Preferred Stock, voting separately by class or
series, to elect directors under specified circumstances, any director or
directors may be removed from office at any time, but only for cause (as defined
in Section 9.4(b) hereof) and only by the affirmative vote, at a meeting of the
shareholders called for such a purpose, of not less than 75% of the total number
of votes of the then outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
but only if notice of such proposal was contained in the notice of such meeting.
At least 60 days prior to such meeting of shareholders, written notice shall be
sent to the director or directors whose removal will be considered at such
meeting.
(b) For purposes of this Section 9.4, "cause" shall mean (i)
conduct as a director of the Corporation or any subsidiary involving dishonesty
of a material nature or (ii) criminal conduct (other than minor infractions and
traffic violations) that relates to the performance of the director's duties as
a director of the Corporation or any subsidiary.
Section 9.5. Vacancies of the Board of Directors.
Any vacancy occurring on the Board of Directors resulting from
resignation, removal, death, an increase in the number of directors, or
otherwise shall be filled only by vote of a majority of the directors then in
office, whether or not a quorum, and the term of any directors so chosen shall
expire at the next shareholders meeting at which directors are elected and until
their successors shall be elected and qualified or until any such director's
earlier death, resignation or removal.
FOURTH: The foregoing amendments to the Certificate of Amendment
herein certified were authorized by vote of the Board of Directors followed by
the affirmative vote of the holders of a majority of all outstanding shares
entitled to vote thereon at a meeting of the shareholders of said Corporation
duly called and held on the _____ day of __________, 1999, a quorum being
present.
IN WITNESS WHEREOF, we have subscribed this document on _________,
1999 and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
THE NETPLEX GROUP, INC.
By:
-----------------------------------
Gene Zaino
President
By:
-----------------------------------
Robert M. Skelton
19
EXHIBIT 20
1992 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
OF
THE NETPLEX GROUP, INC.
1. Purpose of the Plan
This 1992 Incentive and Nonqualified Stock Option Plan (the "Plan") is
intended as an incentive, to retain in the employ of The Netplex Group, Inc.
(the "Company") and any Subsidiary of the Company within the meaning of Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code")), persons
of training, experience and ability, to attract new employees whose services are
considered valuable, to encourage the sense of proprietorship and to stimulate
the active interest of such persons in the development and financial success of
the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code ("Incentive Options") while certain other options granted pursuant to
the Plan shall be nonqualified stock options ("Nonqualified Options"). Incentive
Options and the Nonqualified Options are hereinafter referred to collectively as
"Options".
2. Administration of the Plan
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee") consisting
of at least two independent directors of the Company. No person shall be
eligible to serve on the Committee unless he is then a "disinterested person"
within the meaning of Rule l6b-3 of the Securities and Exchange Commission
("Rule l6b-3") promulgated under the Securities Exchange Act of 1934, as amended
(the "Act"), if and as Rule l6b-3 is then in effect. The members of the
Committee, shall serve at the pleasure of the Board.
The Committee, subject to Section 3 hereof, shall have full power and
authority to designate recipients of Options, to determine the terms and
conditions of respective Option agreements (which need not be identical) and to
interpret the provisions and supervise the administration of the Plan. Subject
to Section 7 hereof, the Committee shall have the authority, without limitation,
to designate which Options granted under the Plan shall be Incentive Options and
which shall be Nonqualified Options. To the extent any Option does not qualify
as an Incentive Option, it shall constitute a separate Nonqualified Option.
Notwithstanding any provision in the Plan to the contrary, no Options may be
granted under the Plan to any member of the Committee during the term of his
membership on the Committee.
Subject to the provisions of the Plan, the Committee shall interpret the
Plan and all Options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry the Plan or any Options into
effect. The act
20
<PAGE>
or determination of a majority of the Committee shall be deemed to be the act or
determination of the Committee and any decision reduced to writing and signed by
all of the members of the Committee shall be fully effective as if it had been
made by a majority at a meeting duly held. Subject to the provisions of the
Plan, any action taken or determination made by the Committee pursuant to this
and the other paragraphs of the Plan shall be conclusive on all parties.
3. Designation of Optionees.
The persons eligible for participation in the Plan as recipients of
Options ("Optionees") shall include only full-time key employees (including
full-time key employees who also serve as directors) of the Company or any
Subsidiary. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee, the Optionee's degree of responsibility
for and contribution to the growth and success of the Company or any Subsidiary,
the Optionee's length of service, age, promotions, potential and any other
factors which the Committee may consider relevant. An employee who has been
granted an Option hereunder may be granted an additional Option or Options, if
the Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 7 hereof, a total of Three
Million Five Hundred Thousand (3,500,000) shares of common stock, $.001 par
value ("Stock"), of the Company shall be subject to the Plan. The shares of
Stock subject to the Plan shall consist of unissued shares or previously issued
shares reacquired and held by the Company or any Subsidiary of the Company, and
such amount of shares of Stock shall be and is hereby reserved for such purpose.
Any of such shares of Stock which may remain unsold and which are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purpose of the Plan, but until termination of the Plan the Company shall
at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may again be subject to an Option under the
Plan.
5. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price of each share of Stock purchasable
under an Option shall be determined by the Committee at the time of grant but
shall not be less than 100% of the fair market value of such share of Stock on
the date the Option is granted in the case of an Incentive Option and not less
than 100% of the fair market value of such share of Stock on the date the Option
is granted in the case of a non-Incentive Option; provided, however, that with
respect to an Incentive Option, in the case of an Optionee who, at the time such
Option is granted, owns (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of any Subsidiary, then the purchase price per share of Stock shall
be at least 110% of the Fair Market Value (as defined below) per share of Stock
at the time of grant. The exercise price for each incentive stock option shall
be subject to adjustment as provided in Section 7 below. The fair market value
("Fair
21
<PAGE>
Market Value") means the closing price of publicly traded shares of Stock on the
national securities exchange on which shares of Stock are listed, (if the shares
of Stock are so listed) or on the NASDAQ Stock Market System (if the shares of
Stock are regularly quoted on the NASDAQ Stock Market System), or, if not so
listed or regularly quoted, the mean between the closing bid and asked prices of
publicly traded shares of Stock in the over-the-counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Committee in a manner consistent with the provisions of the Code.
(b) Option Term. The term of each Option shall be fixed by the Committee,
but no Option shall be exercisable more than ten years after the date such
Option is granted; provided, however, that in the case of an Optionee who, at
the time such Option is granted, owns more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary, then such Option
shall not be exercisable with respect to any of the shares subject to such
Option later than the date which is five years after the date of grant.
(c) Exercisability. Subject to paragraph (j) of this Section 5, Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at grant, provided, however,
that except as provided in paragraphs (f) and (g) of this Section 5, unless a
shorter or longer vesting period is otherwise determined by the Committee at
grant, Options shall be exercisable as follows: up to one-third (1/3) of the
aggregate initial shares of Stock purchasable under an Option shall be
exercisable commencing one year after the date of grant, an additional one-third
(1/3) of the aggregate initial shares of Stock purchasable under an Option shall
be exercisable commencing two years after the date of grant, and the balance of
the aggregate initial shares of Stock purchasable under an Option shall be
exercisable commencing three years from the date of grant. The Committee may
waive such installment exercise provision at any time in whole or in part based
on performance and/or such other factors as the Committee may determine in its
sole discretion, provided, however, no Option shall be exercisable until more
than six months have elapsed from the date of grant of such Option.
(d) Method of Exercise. Options may be exercised in whole or in part at
any time during the option period, by giving written notice to the Company
specifying the number of shares to be purchased, accompanied by payment in full
of the purchase price, in cash, by check or such other instrument as may be
acceptable to the Committee. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be made in
the form of Stock owned by the Optionee (based on the Fair Market Value of the
Stock on the trading day before the Option is exercised); provided, however,
that if such Stock was issued pursuant to the exercise of an Incentive Option
under the Plan, the holding requirements for such Stock under the Code shall
first have been satisfied. An Optionee shall have the rights to dividends or
other rights of a shareholder with respect to shares subject to the Option after
(i) the Optionee has given written notice of exercise and has paid in full for
such shares and (ii) becomes a shareholder of record.
(e) Non-transferability of Options. Options are not transferable and may
be exercised solely by the Optionee during his lifetime or after his death by
the person or persons entitled thereto under his will or the laws of descent and
distribution. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of, or to subject to execution, attachment or similar process, any
Option contrary to the provisions hereof shall be void and ineffective and shall
give no right to the purported transferee.
22
<PAGE>
(f) Termination by Death. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with the Company or any Subsidiary
terminates by reason of death, the Option may thereafter be immediately
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one year from the date of such death or until the expiration of the
stated term of such Option as provided under the Plan, whichever period is
shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by
the Committee at grant, if any Optionee' s employment with the Company or any
Subsidiary terminates by reason of total and permanent disability as determined
under the Company's long term disability policy ("Disability"), any Option held
by such Optionee may thereafter be exercised, to the extent it was exercisable
at the time of termination due to Disability (or on such accelerated basis as
the Committee shall determine at or after grant) , but may not be exercised
after one year from the date of such termination of employment or the expiration
of the stated term of such Option, whichever period is shorter; provided,
however, that, if the Optionee dies within such one-year period, any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent to
which it was exercisable at the time of death for a period of one year from the
date of such death or for the stated term of such Option, whichever period is
shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined by
the Committee at grant, if any Optionee's employment with the Company or any
Subsidiary terminates by reason of Normal or Early Retirement (as such terms are
defined below), any Option held by such Optionee may thereafter be exercised to
the extent it was exercisable at the time of such Retirement (as defined below)
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three months from the date of such
termination of employment or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such three-month period, any unexercised Option held by such Optionee
shall thereafter be exercisable, to the extent to which it was exercisable at
the time of death, for a period of one year from the date of such death or for
the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall mean
retirement from active employment with the Company or any Subsidiary on or after
the normal retirement date specified in the applicable Company or Subsidiary
pension plan or if no such pension plan, age 65. Early Retirement shall mean
retirement from active employment with the Company or any Subsidiary pursuant to
the early retirement provisions of the applicable Company or Subsidiary pension
plan or if no such pension plan, age 55. Retirement shall mean Normal or Early
Retirement.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with the Company or any Subsidiary
terminates for any reason other than death, Disability or Retirement, the Option
shall thereupon terminate, except that the exercisable portion of any Option
which was exercisable on the date of such termination of employment may be
exercised for the lesser of three months from the date of termination or the
balance of such Option's term if the Optionee's employment with the Company or
any Subsidiary is involuntarily terminated by the Optionee's employer without
Cause. Cause shall mean a felony conviction or the failure of an Optionee to
contest prosecution for a felony or an Optionee's
23
<PAGE>
willful misconduct or dishonesty, any of which is harmful to the business or
reputation of the Company or any Subsidiary. The transfer of an Optionee from
the employ of the Company to a Subsidiary, or vice versa, or from one Subsidiary
to another, shall not be deemed to constitute a termination of employment for
purposes of the Plan.
j) Limit on Value of Incentive Option. The aggregate Fair Market Value,
determined as of the date the Option is granted, of the Stock for which
Incentive Options are exercisable for the first time by any Optionee during any
calendar year under the Plan (and/or any other stock option plans of the Company
or any Subsidiary) shall not exceed $100,000.
(k) Transfer of Incentive Option Shares. The stock option agreement
evidencing any Incentive Options granted under this Plan shall provide that if
the Optionee makes a disposition, within the meaning of Section 424(c) of the
Code and regulations promulgated thereunder, of any share or shares of Stock
issued to him pursuant to his exercise of an Incentive Option granted under the
Plan within the two-year period commencing on the day after the date of the
grant of such Incentive Option or within a one-year period commencing on the day
after the date of transfer of the share or shares to him pursuant to the
exercise of such Incentive Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of federal income tax withholding required by law.
6. Term of Plan.
No Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the date the Plan is approved by the Board, but Options granted
may extend beyond that date.
7. Capital Change of the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the Securities Act of 1933, as amended, or the Company has determined that
such registration is unnecessary, each person exercising an Option under the
Plan may be required by the Company to give a representation in writing that he
is acquiring the shares for his own account for investment and not with a view
to, or for sale in connection with, the distribution of any part thereof.
9. Taxes.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any taxes or any other tax matters.
10. Effective Date of Plan.
24
<PAGE>
The Plan shall be effective on the date it is approved by the Board,
provided however that the Plan shall subsequently be approved by majority vote
of the Company's shareholders in the manner contemplated by Rule l6b-3 of the
Act within one (1) year from the date approved by the Board.
11. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made which would impair the right of any Optionee under any
Option theretofore granted without his consent. The Board, in its discretion,
may require any Plan amendments to be submitted for approval by the shareholders
of the Company, including, but not limited to, cases in which such approval is
deemed necessary for compliance with Section 162(m) or other requirements of the
Code or with the requirements of Nasdaq or any listing exchange, or to secure
exemption from Section 16(b) of the Securities Exchange Act of 1934.
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. Government Regulations.
The Plan, and the granting and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.
The Company intends that the Plan meet the requirements of Rule l6b-3 and
that transactions of the type specified in subparagraphs (0 and (f) of Rule
l6b-3 by officers of the Company (whether or not they are directors) pursuant to
the Plan will be exempt from the operation of Section 16(b) of the Act. In all
cases, the terms, provisions, conditions and limitations of the Plan shall be
construed and interpreted consistent with the Company's intent as stated in this
Section 13.
14. General Provisions.
(a) Certificates. All certificates for shares of Stock delivered under the
Plan shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon any
Optionee of the Company or any Subsidiary, any right to continued employment
(or, in case the Optionee is also a director, continued retention as a director)
with the Company or a Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company or any Subsidiary to terminate the
employment of any of its employees at any time.
25
<PAGE>
(c) Limitation of Liability. No member of the Board or the Committee, or
any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(d) Registration of Options. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued upon
the exercise thereof has been registered under the Securities Act of 1933 and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration. The Company shall not be under any
obligation to register under applicable federal or state securities laws any
Stock to be issued upon the exercise of an Option granted hereunder, or to
comply with an appropriate exemption from registration under such laws in order
to permit the exercise of an Option and the issuance and sale of the Stock
subject to such Option however, the Company may in its sole discretion register
such Stock at such time as the Company shall determine. If the Company chooses
to comply with such an exemption from registration, the Stock issued under the
Plan may, at the direction of the Committee, bear an appropriate restrictive
legend restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop-transfer instructions to the
transfer agent to the Company.
THE NETPLEX GROUP, INC.
26
<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-Q/A FOR THE PERIOD
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 907,826
<SECURITIES> 0
<RECEIVABLES> 13,142,584
<ALLOWANCES> (401,663)
<INVENTORY> 0
<CURRENT-ASSETS> 14,638,987
<PP&E> 3,856,252
<DEPRECIATION> (2,171,657)
<TOTAL-ASSETS> 23,662,457
<CURRENT-LIABILITIES> (15,155,031)
<BONDS> 0
0
(19,749)
<COMMON> (12,718)
<OTHER-SE> (7,665,643)
<TOTAL-LIABILITY-AND-EQUITY> (23,662,457)
<SALES> (22,694,199)
<TOTAL-REVENUES> (244,452,283)
<CGS> 33,677,811
<TOTAL-COSTS> 10,323,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,600
<INCOME-PRETAX> (251,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> (251,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (251,277)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
