SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 001-11784
THE NETPLEX GROUP, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2824578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102-3806
(Address of principal executive offices and zip code)
(703) 356-3001
(Issuer'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 [X] No [_]
As of November 13, 1998, 10,204,735 shares of the registrant's Common Stock
were outstanding.
<PAGE>
THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Facing sheet
Index
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997...................... 3
b) Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1998 and 1997..... 4
c) Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1998 and 1997.... ............ 5
d) Notes to Condensed Consolidated Financial Statement........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
Part II Other information............................................. 18
Signatures......................................................... 21
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets
September 30, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,291,145 $ 353,005
Accounts receivable, net 9,157,569 4,133,148
Prepaids and other current assets 427,957 432,842
------------ ------------
Total current assets 10,876,671 4,918,995
------------ ------------
Property and equipment, net 1,404,532 952,546
Employee notes receivable 193,824 193,464
Other assets 226,754 82,738
Acquired software, net 677,987 418,225
Fulfillment data base, net 802,682 --
Other acquired intangible assets 2,750,000 --
Goodwill, net 1,808,959 346,529
------------ ------------
Total assets $ 18,741,409 $ 6,912,497
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,991,785 $ 567,805
Line of Credit 1,994,742 1,316,300
Accrued expenses and other 8,150,715 3,492,521
------------ ------------
Total current liabilities 12,137,242 5,376,626
Other liabilities 182,290 205,169
------------ ------------
Total Liabilities 12,319,532 5,581,795
------------ ------------
Stockholders' equity:
Class A cumulative preferred stock; $.01 par value; 2,000,000
authorized, 987,753 shares outstanding in 1998 and 1,062,500 shares in 1997 9,875 10,625
Class B cumulative preferred stock; $.01 par value; 1,500,000 authorized,
643,770 shares outstanding in 1998 and no shares outstanding in 1997 6,437 --
Class C cumulative preferred stock; $.01 par value; 2,500,000 authorized,
1,500,000 share outstanding in 1998 and no shares outstanding in 1997 15,000 --
Common stock $.001 par value
40,000,000 authorized, 10,259,735 shares outstanding in 1997 and 7,470,370
shares in 1996 10,259 7,470
Additional paid in capital 13,908,331 6,272,407
Accumulated deficit (7,528,025) (4,959,800)
------------ ------------
Commitments and contingencies
Total stockholders' equity 6,421,877 1,330,702
------------ ------------
Total liabilities and stockholders' equity $ 18,741,409 $ 6,912,497
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 16,067,863 $ 10,380,066 $ 43,291,967 $ 30,088,967
Cost of revenues 12,928,169 9,066,074 35,783,356 26,876,627
------------ ------------ ------------ ------------
Gross profit 3,139,694 1,313,992 7,508,407 3,212,340
------------ ------------ ------------ ------------
Operating expenses
Selling, general and administrative expenses 4,029,475 1,931,709 9,301,583 5,376,662
Inventory write-off 131,104 131,104
Restructuring costs 275,000 -- 275,000 --
Acquired in-process technology 250,000 -- 250,000 --
------------ ------------ ------------ ------------
4,685,579 1,931,709 9,957,687 5,376,662
------------ ------------ ------------ ------------
Operating loss (1,545,885) (617,717) (2,499,280) (2,164,322)
Other income (expense)
Interest income(expense), net (38,462) (24,622) (118,941) 14,783
------------ ------------ ------------ ------------
Loss before income taxes (1,584,347) (642,339) (2,568,221) (2,149,539)
Income tax provision -- -- -- --
============ ============ ============ ============
Net loss $ (1,584,347) $ (642,339) $ (2,568,221) $ (2,149,539)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.17) $ (0.10) $ (0.29) $ (0.36)
Weighted average common
shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4 0F 22
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net cash used in operating activities $(2,784,108) $(3,252,864)
----------- -----------
Investing activities:
Purchases of property and equipment (299,986) (141,892)
Net Cash (paid in) acquired from acquisitions (3,146,670) 2,148
----------- -----------
Net cash used in operating activities (3,446,656) (139,744)
----------- -----------
Financing activities:
Net proceeds from stock offerings 6,462,510 --
Net borrowings on line of credit 683,595 772,000
Proceeds from the exercise of stock options and warrants 22,799 607,500
Dividends paid on Class A preferred stock -- (165,000)
----------- -----------
Net cash provided by financing activities 7,168,904 1,214,500
----------- -----------
Increase (decrease) in cash and cash equivalents 938,140 (2,178,108)
Cash and equivalents at beginning of period 353,005 3,691,099
----------- -----------
Cash and equivalents at end of period $ 1,291,145 $ 1,512,991
=========== ===========
Supplemental information:
Cash paid during the period for:
Interest $ 118,941 $ 28,966
=========== ===========
Income taxes $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
(1) General
The accompanying unaudited condensed consolidated financial statements of
The Netplex Group, Inc. and Subsidiaries ("Netplex" or the "Company") have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-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 Company believes the disclosures made are
adequate to make the information presented consistent with past practices.
However, these condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1997.
In the opinion of the Company, the accompanying condensed consolidated
financial statements reflect all adjustments and reclassifications (which
include only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of September 30, 1998 and December 31,
1997, the results of its operations for the three months and nine months
ended September 30, 1998 and 1997. and its cash flows for the nine months
ended September 30, 1998. Interim results are not necessarily indicative of
the results that may be expected for the fiscal years ended December 31,
1998 and 1997.
Business
Based in McLean, Virginia with twelve offices throughout the U.S., The
Netplex Group, Inc. together with its wholly owned subsidiaries, is an
Information Technology (IT) Services and Solutions company providing the
people, technologies, and processes that build, manage, and protect
business information systems. Through the strategic teaming of business
consulting practice areas, operating units, and wholly owned subsidiaries,
Netplex believes that it is positioned to deliver: IT Solutions - Design
and implementation of systems solutions to address IT related business
needs; IT Staffing - Staff augmentation and flexible task outsourcing; and
IT Contractor Resources Business services for the independent IT
Consultant.
Basis of Presentation
The accompanying financial statements include the accounts of The Netplex
Group, Inc. and its wholly-owned subsidiaries for the three months and nine
months ended September 30, 1998 and 1997. The accounts of Onion Peel
Solutions, the PSS Group, Inc., Automated Business Systems, 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 loss per share is calculated using the weighted average number of
common shares outstanding during the periods. Diluted net 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 and nine month periods ended September 30, 1998 and 1997, 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 have not been included in the
calculation as the effect would be anti-dilutive.
A reconciliation of the numerators and denominators of the basic and
diluted EPS for the three months and the nine months ended September 30,
1998 and 1997, is provided below:
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months
September 30 September 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic Earnings(Loss) Per Share of Common Stock:
Weighted average number of common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
Common stock equivalents from outstanding stock
options(1)
----------- ----------- ----------- -----------
Average common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
=========== =========== =========== ===========
Net loss $(1,584,347) $ (642,339) $(2,568,221) $(2,149,539)
Preferred dividends 49,379 57,500 161,000 222,500
----------- ----------- ----------- -----------
Loss attributable to Common Stock $(1,633,726) $ (699,839) $(2,729,221) $(2,372,039)
=========== =========== =========== ===========
Basic loss per share of Common Stock $ (0.17) $ (0.10) $ (0.31) $ (0.36)
=========== =========== =========== ===========
Diluted Earnings (Loss) Per Share of Common Stock:
Weighted average number of common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
Preferred stock convertible into common shares(1) -- -- -- --
Common stock equivalents from outstanding stock
options(1) -- -- -- --
----------- ----------- ----------- -----------
Average common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
=========== =========== =========== ===========
Net loss $(1,584,347) $ (642,339) $(2,568,221) $(2,149,539)
Preferred dividends 49,379 57,500 161,000 222,500
----------- ----------- ----------- -----------
Loss attributable to Common Stock $(1,633,726) $ (699,839) $(2,729,221) $(2,372,039)
=========== =========== =========== ===========
Diluted loss per share of Common Stock $ (0.17) $ (0.10) $ (0.31) $ (0.36)
=========== =========== =========== ===========
</TABLE>
(1) As the Company is in a net loss position the effect of all options and
warrants, including common stock equivalents is anti- dilutive and is thus
not presented in the computations of loss per common share.
(2) Acquisitions
Onion Peel Solutions L.L.C.:
The Company acquired Onion Peel Solutions L.L.C., a Raleigh, NC based
provider of network management solutions as of July 1, 1997, by issuing
80,000 shares of its Common Stock to the members of Onion Peel, subject to
the issuance of additional shares based on the closing price of the
Company's Common Stock on December 31, 1998. The acquisition was accounted
for using the purchase method of accounting, whereby the $400,000 purchase
price was allocated to the fair value of the assets acquired and the
liabilities assumed.
PSS Group, Inc.:
On January 30, 1998, the Company completed the purchase of all of the stock
of The PSS Group, Inc. ("PSS"), the technical professional staff
augmentation operations and business of Preferred Systems Solutions, Inc.
("Preferred") and formerly a wholly owned subsidiary of Preferred. In
consideration for the purchase, the Company paid $300,000 at closing and on
or before January 15, 1999 will pay $300,000 in cash or issue 200,000
shares of its Common Stock or any combination thereof, at Preferred's
option. The agreement also provides that Preferred will receive additional
consideration (the " Preferred Earn-out") if PSS meets certain operating
targets. Such Preferred Earn-out may be paid at the Company's option in
cash or its Common Stock based on future stock
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<PAGE>
prices, or any combination thereof. In connection with the acquisition, the
Company and PSS have entered into employment agreements with certain
employees of PSS. The acquisition was recorded effective January 1, 1998
using the purchase method of accounting.
The purchase price of the PSS acquisition was determined to be $600,000
(subject to adjustment for contingent consideration) and was preliminarily
allocated to the fair value of the assets and liabilities acquired, as
follows:
Cash $ 148,000
Accounts receivable 800,000
Fulfillment database 930,000
Other assets 122,000
Less liabilities assumed (1,400,000)
===========
Net assets acquired $ 600,000
===========
The Company is amortizing the fulfillment database (resume database) over 7
years using the straight-line method.
As of September 30, 1998, the Company has not paid and does not owe any
additional consideration to Preferred, in connection with the acquisition
of PSS.
Automated Business Systems:
On June 18 1998, the Company completed the purchase of all of the stock of
Automated Business Solutions and Kellar Technology Group, Inc.
(Collectively "ABS"). In consideration for the purchase, the Company paid
$200,000 and issued 450,000 shares of its Common Stock. The agreement also
provides that the former shareholders of ABS will receive additional
consideration, if ABS meets certain operating targets. In connection with
the acquisition, the Company has entered into employment agreements with
certain employees of ABS. The acquisition was recorded effective June 30,
1998 using the purchase method of accounting.
The purchase price of the ABS acquisition was determined to be $791,000
(subject to adjustment for contingent consideration) and was preliminarily
allocated to the fair value of the assets and liabilities acquired, as
follows:
Cash $ 205,000
Accounts receivable 756,000
Property and equipment 51,000
Other assets 33,000
Goodwill 673,000
Less liabilities assumed (927,000)
=========
Net assets acquired $ 791,000
=========
The Company is amortizing the goodwill resulting from the acquisition over
an estimated useful life of 15 years using the straight-line method.
As of September 30, 1998, the Company has recorded $158,000 of additional
consideration in accordance with the ABS acquisition agreement. Such
consideration was recorded as an addition to goodwill and will be recovered
over the remaining life of the goodwill resulting from the transaction.
Applied Intelligence Group, Inc.
On October 16, 1998, The Netplex Group, Inc. (the "Company" or "Netplex")
completed the purchase of the information technology consulting business of
Applied Intelligence Group, Inc. of Oklahoma City ("AIG") effective
September 1, 1998. In consideration for the purchase, the Company paid
$3,000,000 and issued 643,770 shares of Class B Preferred Stock ("Preferred
Stock") (valued at $1,000,000) at closing. The Company used working capital
to finance the acquisition. Such working capital was provided by (i) an
increase in the Company's line of credit from First Union National Bank
from $2.0 million to $6.0 million, which credit line is based on 80% of the
Company's eligible accounts receivable and (ii) certain equity instruments
as further described in Note 3. The Class B Preferred Stock is convertible
into Common Stock of the Company at anytime on a share for share
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<PAGE>
basis. No dividends are payable on the Preferred Stock. The holders of the
Preferred Stock have agreed not to sell or otherwise distribute the Common
Stock underlying the Preferred Stock for a period of one year. The
agreement also provides that AIG will receive additional consideration (the
"AIG Earn-out") if AIG meets certain operating targets. Such Earn-out would
consist of (i) up to $1.5 million of cash based on net profit AIG generates
over the next six quarters and (ii) up to 643,770 shares of Class B
Preferred Stock if AIG achieves approximately 9 million net profits over
the next 9 quarters. The acquisition was accounted for using the purchase
method of accounting. In connection with the acquisition, the Company
entered into employment agreements with certain employees of AIG.
The purchase price of the AIG acquisition was determined to be $4,000,000
(subject to adjustment for contingent consideration). The Company has
allocated the purchase price on a preliminary basis to the fair value of
the assets and liabilities acquired and to the acquired in-process
technology, as follows:
Prepaid and other assets $ 52,000
Property and equipment 450,000
Acquired software 850,000
Assembled workforce 1,000,000
ViaLink non-compete agreement 900,000
Goodwill 836,000
Less: liabilities assumed (338,000)
-----------
Net assets acquired 3,750,000
Acquired in process technology 250,000
-----------
Purchase price $ 4,000,000
-----------
The Company has allocated $250,000 of the purchase price to it's
preliminary estimate of the fair value of certain in-process internet
commerce product technology that had not achieved technological feasibility
as of acquisition date. Accordingly, such costs were included in the
statement of operations for the three and nine months ended September 30,
1998. The purchase price allocation may change as the result of additional
studies and analyses.
As of September 30, 1998, the Company has recorded $ 133,000 of additional
consideration in accordance with the AIG acquisition agreement. Such
consideration was recorded as an addition to goodwill and will be recovered
over the remaining life of such goodwill.
The following unaudited supplemental financial information presents the
consolidated results of the Company from continuing operations, on a pro
forma basis, and the resulting increase in common shares outstanding, as
though the acquisitions of Onion Peel, PSS, ABS and AIG were consummated on
January 1, 1997.
<TABLE>
<CAPTION>
Unaudited
(amounts in thousands, except per share data)
--------------------------------------------------------------
Three Months Nine Months
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 17,503 $ 16,720 $ 52,588 $ 41,205
======== ======== ======== ========
Net loss (1,500) (875) (850) (2,587)
======== ======== ======== ========
Weighted Average shares outstanding 9,889 7,257 9,395 7,144
======== ======== ======== ========
Basic and diluted loss per share $ (0.16) $ (0.13) $ (0.11) $ (0.39)
======== ======== ======== ========
</TABLE>
(3) Equity Financings:
On July 29, 1998, at the Company's annual meeting of shareholders, the
number of authorized shares of preferred stock was increased from 2,000,000
to 6,000,000 and the number of authorized shares of Common Stock , $.001
par value was increased from 20,000,000 to 40,000,000.
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<PAGE>
Between January 1, 1998 and September 30, 1998, the Company has raised
additional equity totaling $6,463,000 as follows:
In February 1998 the Company raised $100,000 through the sale of 80,000
shares of un-registered Common Stock plus a warrant to purchase an
additional 100,000 shares of common stock at $1.20.
In March 1998 the Company raised $1,457,000 of financing in a Private
placement raised primarily from accredited investors and employees of the
Company. The Company issued shares of un-registered Common Stock to
purchasers who have agreed not to sell or otherwise distribute their shares
for a period of one year. These restricted shares carry registration rights
and were offered at $1.00 per share. The funds will be used to finance
operations and additional acquisitions.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3 million after fees and expenses).
The sale represents the first half of a transaction that could include the
sale of an additional 1,500 units for $1.5 million at a future date,
subject to the satisfaction of certain conditions. Each unit sold in the
private placement consisted of a prepaid Common Stock purchase warrant
entitling the holder to acquire such number of shares of the Company's
Common Stock as is equal to $1,000 divided by an adjustable exercise price
and an additional incentive warrant to acquire 52 shares of Common Stock
(or an aggregate of 78,000 shares of Common Stock). The Company also
granted the placement agent a warrant to purchase 39,000 shares of Common
Stock plus a placement fee and a non-accountable expense allowance equal to
12.53% of the proceeds of the offering. The second half of the transaction
would be for the sale of an additional and committed 1,500 units, for
$1,000 per unit.
In April 1998 the Company raised $198,000 of financing in two Private
placements raised from accredited investors. The Company issued shares of
un-registered Common Stock to purchasers who have agreed not to sell or
otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at $1.375 to
$1.50 per share. The funds will be used to finance operations and
additional acquisitions.
On August 28, 1998, the Company raised $592,000 of financing in a private
placement to accredited investors. The Company issued un-registered shares
of Common Stock to purchasers who have agreed not to sell or otherwise
distribute their shares for a period of one year. These restricted shares
carry registration rights and were offered at $1.3125 per share.
On September 28, 1998, the Company completed the sale of 1,700 units of
prepaid common stock purchase warrants in a Private placement, totaling
$1.5 million ($1.3 million net of expenses). The prepaid warrants are
exercisable in shares of Common Stock of the Company as is computed by
dividing $1,700,000 by 125% of the fixed exercise price of $1.3938, with
respect to any exercise within thee first year, and the lower of the fixed
exercise price and a variable exercise price (subject to a floor price of
$1.00), with respect to any exercise after the first year. As part of this
transaction, the Company also issued to the holders, warrants to purchase
141,667 shares of common stock at an exercise price of $1.3938 per share.
In connection with the issuance of these warrants, the Company issued
50,000 shares of its Common Stock to the placement agent.
On September 30, 1998, the Company completed the sale of 1,500,000 shares
of its Class C Convertible Preferred Stock and warrants to purchase Common
Stock for $1.5 million (1.4 million net of expenses). The Class C Preferred
Stock bears a dividend rate of 9.99% for the first year, and 15%
thereafter. The Preferred Stock is convertible at any time after the
earlier of a change in control of the Company or five years from the date
of issuance. The number of shares into which the Preferred Stock is
convertible is equal to $1,5000,000 (plus accrued but unpaid dividends)
divided by 25% of the 20 day average trading price of the Common Stock
immediately prior to conversion. The warrants issued entitles the holder to
acquire 150,000 shares of Common Stock at $1.375 per share. The Company may
be required to issue up to an additional 450,000 shares of Common Stock
under the warrants, depending upon the term in which the Class C Preferred
Stock is outstanding. The Preferred Stock is redeemable at the option of
the Company at any time within the first five years. In connection with the
issuance of this Preferred Stock and warrants, the Company issued warrants
to purchase 250,000 shares of Common Stock at $1.59 per share to the
placement agent.
(4) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") SFAS No. 131 Segment Information.
This standard is effective for reporting periods beginning January
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<PAGE>
1, 1999. SFAS No. 131 amends the requirements for public enterprises to
report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS No. 131, are components of
an enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources
and in assessing performance. The financial information is required to be
reported on the basis that it is used internally for evaluating the segment
performance. The Company believes it operates in three segments as defined:
IT Solutions, IT Staffing, and IT Contractors Resources. The Company is
planning to implemented this pronouncement effective January 1, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Based in McLean, Virginia with twelve offices throughout the eastern U.S.,
The Netplex Group, Inc., together with its wholly owned subsidiaries ("the
Company" or "Netplex"), is an Information Technology (IT) Services and
Solutions company providing the people, technologies, and processes to
build, manage, and protect business information systems. Through the
strategic teaming of business consulting practice areas, operating units,
and wholly owned subsidiaries, Netplex believes that it is positioned to
deliver: IT Solutions - Design and implementation of systems solutions to
address IT related business needs; IT Staffing - Staff augmentation and
flexible task outsourcing; and IT Contractor Resources - Business services
for the independent IT Consultant.
The Company's operations have been concentrated on providing IT services
and solutions to U.S.-based commercial organizations since the beginning of
1997.
In July 1997, the Company acquired the net assets of Onion Peel Solutions,
L.L.C. ("Onion Peel") to broaden its customer base and expand the
fulfillment capacity of its Enterprise Systems Management service offerings
in exchange for 80,000 shares of its Common Stock, subject to adjustment.
In January 1998, the Company acquired the net assets of The PSS Group, Inc.
("PSS") to expand its staffing organization in the Washington DC
metropolitan area and to broaden its customer base, for $300,000 in cash a
$300,000 promissory note to be paid in either cash or 200,000 shares of the
Company's Common Stock. The agreement also provides for additional payments
based on PSS's future profitability.
In June 1998, the Company acquired all of the stock of Automated Business
Systems ("ABS") for $200,000 in cash and issued 450,000 shares of the
Company's common stock. The agreement provides for additional payments
based on ABS's future profitability. The acquisition of ABS expands the
geographic reach of the Company's IT Solutions business to the Charlotte,
NC; Spartanburg, SC and Atlanta, GA market places and broadens its customer
base.
In September 1998 the Company acquired certain assets of the Applied
Intelligence Group ("AIG" ) for $3,000,000 and issued 643,770 shares of
Class B convertible preferred stock. The agreement provides for additional
payments based on AIG's future profitability. The acquisition of AIG
expands the IT Solutions practice adding information technology consulting
expertise in the retail and distribution industry and expands the Company's
geographic reach in to the southwest .
The results of operations for PSS, ABS and AIG are included in the
statements for operations for the three and nine month periods ended
September 30, 1998 beginning on the effective date of their acquistions
January 1, 1998, June 30, 1998 and September 1, 1998, respectively.
The above acquisitions fit within the Company's three distinct, but
inter-related business operations:
o IT Solutions - Design and implementation of systems solutions to address
all information technology-related business needs. This business is
comprised of several specialized technology consulting practices and
provides customers with firm deliverables, generally on a "proposed
estimate" or "fixed-fee" basis. IT Solutions also maintains certifications
with several leading technology manufacturers, which authorizes Netplex to
resell and implement "best-in-class" technology products.
o IT Staffing - Providing technical staff augmentation services to
organizations based on technical need and Information Technology goals. IT
Staffing provides customers with IT consulting and resource services on an
as-needed basis, generally for contract terms ranging from three to 12
months. Consulting rates vary based on the skills and experience of the
consultants requested.
11 OF 22
<PAGE>
o IT Contractor's Resources - Providing business advice, skills training,
and administrative employer services to IT contract professionals. IT
Contractor's Resources targets independent-minded IT professionals who are
entrepreneurial and accustomed to the variability and flexibility of
contract assignments. This service provides the stability and "back-office"
infrastructure to enable and encourage IT professionals to build
skills-based careers across multiple customer environments.
12 0F 22
<PAGE>
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 and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Consolidated Operating Results by Segment
Amounts in $000's
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues
IT Solutions $ 4,468 $ 1,241 $ 9,637 $ 3,280
IT Staffing 2,840 841 7,772 2,285
IT Contractor's Resources 8,760 8,298 25,883 24,524
-------- -------- -------- --------
Operating revenues 16,068 10,380 43,292 30,089
-------- -------- -------- --------
Gross profit
IT Solutions 2,213 758 4,796 1,785
IT Staffing 635 307 1,835 681
IT Contractor's Resources 291 249 877 747
-------- -------- -------- --------
Gross profit 3,139 1,314 7,508 3,213
-------- -------- -------- --------
Gross profit percentage
IT Solutions 49.5% 61.1% 49.8% 54.4%
IT Staffing 22.4% 36.5% 23.6% 29.8%
IT Contractor's Resources 3.3% 3.0% 3.4% 3.0%
-------- -------- -------- --------
Gross profit percentage 19.5% 12.7% 17.3% 10.7%
-------- -------- -------- --------
Business unit expenses
IT Solutions 1,964 677 4,153 2,205
IT Staffing 868 599 2,081 1,018
IT Contractor's Resources 272 257 771 720
-------- -------- -------- --------
Business unit expenses 3,104 1,533 7,005 3,943
-------- -------- -------- --------
Business unit income (loss)
IT solutions 249 81 643 (420)
IT Staffing (233) (292) (246) (337)
IT Contractor's Resources 19 (8) 106 27
-------- -------- -------- --------
Business unit income (loss) 35 (219) 503 (730)
-------- -------- -------- --------
Corporate Expenses 689 347 1,712 1,176
Inventory write-off 131 131
Restructuring costs 275 -- 275 --
Acquired in process technology 250 -- 250 --
-------- -------- -------- --------
Total corporate and other costs 1,345 347 2,368 1,176
-------- -------- -------- --------
EBITDA (1,310) (566) (1,865) (1,906)
Interest, taxes, depreciation
& amortization 275 76 703 243
======== ======== ======== ========
Net loss $ (1,585) $ (642) $ (2,568) $ (2,149)
======== ======== ======== ========
</TABLE>
13 OF 22
<PAGE>
Results of Operations
Three months ended September 30, 1998 and 1997
Revenue for the three months ended September 30, 1998 increased
approximately $5.7 million or 55% to approximately $16.1 million, compared
to $10.4 million for the same period in 1997. This increase includes a $3.2
million or 261% increase in IT Solutions revenue, a $2.0 million or 238%
increase in IT Staffing revenue, and $460,000 or 6% increase in IT
Contractor Resources revenue. The increase in revenues is due to a
combination of growth, better integration across the three business units
and the acquisition of PSS (January 1998), ABS (June 1998) and AIG
(September 1998).
Gross Profit for the three months ended September 30, 1998 increased
approximately $1.8 million or 140% to approximately $3.1 million as
compared to approximately $1.3 million for the same period of 1997. This
increase includes an increase of approximately $1.5 million or 192% in IT
Solutions gross profit, an approximately $329,000 or 107% increase in IT
Staffing gross profit and a $42,000 or 17% increase in IT Contractor
Resources gross profit. The increased IT Solutions gross profit is
primarily due to an increase in revenues from the IT Solutions practice
areas and the acquisition of ABS in June 1998 and AIG in September 1998.
The increase in IT Staffing is attributable to growth and to the
acquisition of The PSS Group, Inc in January 1998. The IT Contractor
Resources increase is all due to internal revenue growth.
Gross Profit margin increased to approximately 19.5% for the three months
ended September 30, 1998, from approximately 12.7% for the same period of
1997. This increase is due to a greater proportion of revenues being
generated by IT Solutions and IT Staffing in the three months ended
September 30, 1998 than in the same period of 1997. The IT Solutions and
Staffing businesses achieve higher gross profit margins than experienced in
the IT Contractor Resources business.
Business unit expenses for the three months ended September 30, 1998
increased approximately $1.6 million or 100% to approximately $3.1 million
from approximately $1.5 million for the same period of 1997. This increase
includes increases in IT Solutions, IT Staffing and IT Contractor's
Resources business unit expenses of approximately $1.3 million, $270,000
and $16,000, respectively. The increase in IT Solutions business unit
expenses is primarily due to expanded sales force and practice management
staff as and the acquistions of ABS and AIG in June 1998 and September
1998, respectively. The IT Staffing increase is primarily due to the
acquisition of PSS in January 1998, the expansion of the Reston, VA
facility and the opening of the Tampa, FL office (April 1998).
Business unit income for the three months ended September 30, 1998 was
approximately $35,000 as compared to a business unit loss of $219,000 for
the same period of 1997, an improvement of approximately $254,000. This
improvement includes increases in business unit profits from IT Solutions
and IT Contractors Resources of $168,000 and $27,000 respectively and
decreased losses from IT Staffing of $59,000
Corporate expense for the three months ended September 30, 1998 increased
approximately $342,000 or 99% to approximately $689,000 from approximately
$347,000 compared to the same period in 1997. This increase reflects an
additional investment in corporate development capability to support the
growth of operations and the integration of acquisitions.
Restructuring costs of $275,000 were recorded in the three months ended
September 30, 1998 related to the reduction of duplicate costs,
consolidation of facilities and write down on certain assets stemming from
the Company's continued integration of its acquisitions.
The Company's preliminary estimate of acquired in-process technology of
$250,000 from the Company's acquisition of AIG were recorded in the three
months ended September 30, 1998 (see further discussion in Note 2
Acquisitions). The purchase price allocation may change as the result of
additional studies and analyses.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") for the three months ended September 30, 1998 was a loss of
approximately $1.3 million as compared to a loss of approximately $566,000
for the same period of 1997, an increase in loss of approximately $733,000.
The components of this improvement are discussed above.
Depreciation, amortization and interest expense for the three months ended
September 30, 1998 increased approximately $199,000 to approximately
$275,000 from approximately $76,000 for the same period of 1997. This
increase is principally due to increased borrowings under the Company's
line of credit facility in the three months ended September 30, 1998 as
compared to the same period of 1997 as well as the additional depreciation
and amortization of assets acquired in the Company's acquisitions of PSS,
ABS and AIG..
14 OF 22
<PAGE>
No provision or benefit for income taxes was required for either the three
months ended September 30, 1998 or 1997.
The net loss increased approximately $943,000 to approximately $1.6 million
from approximately $642,000 in the same period of 1997. The components of
this increase are discussed above.
Nine months ended September 30, 1998 and 1997
Revenue for the nine months ended September 30,1998 increased approximately
$13.2 million or 44% to approximately $43.3 million, as compared to $30.1
million for the same period in 1997. This increase includes a $6.3 million
or 194% increase in IT Solutions revenue, a $5.5 million or 240% increase
in IT Staffing revenue, and a $1.4 million or 6% increase in IT Contractor
Resources revenue. The increase in revenues is due to a combination of
growth, better integration across the three business units as well as the
acquisition of Onion Peel (July 1997), ABS (June 1998), and AIG (September
1998), the PSS Group (acquired in January 1998) and the opening of a Tampa
office (April 1998).
Gross Profit for the nine months ended September 30,1998 increased
approximately $4.3 million or 134% to approximately $7.5 million as
compared to approximately $3.2 million for the same period of 1997. This
increase includes increases of approximately $3 million or 169% in IT
Solutions gross profit, an approximately $1.2 million or 170% increase in
IT Staffing gross profit and a $130,000 or 17% increase in IT Contractor
Resources gross profit. The increased IT Solutions gross profit is
primarily due to an increase in revenues from the IT Solutions practice
areas as well as the acquisitions of Onion Peel (July 1997), ABS (June
1998) and AIG (September 1998). The increase in IT Staffing is attributable
to growth and to the acquisition of The PSS Group, Inc (January 1998). The
IT Contractor Resources increase is due to revenue growth.
Gross Profit margin increased to approximately 17.3% for the nine months
ended September 30, 1998, from approximately 10.7 % for the same period of
1997. This increase is due to a greater proportion of revenues being
generated by IT Solutions and IT Staffing in the nine months ended
September 30 ,1998 than in the same period of 1997. The IT Solutions and
Staffing businesses achieve higher gross profit margins than experienced in
the IT Contractor Resources business.
Business unit expenses for the nine months ended September 30, 1998
increased approximately $3.1 million or 77% to approximately $7.0 million
from approximately $3.9 million for the same period of 1997. This increase
includes increases in IT Solutions, IT Staffing and IT Contractor's
Resources business unit expenses of approximately $1.9 million, $1.1
million and $52,000, respectively. The IT Solutions increase includes the
business unit expenses for ABS (acquired in June 1998) and AIG (acquired in
September 1998) and Onion Peel (acquired in July 1997) as well as increases
due to the expansion of the sales force and practice management staff. IT
Staffing business unit expense increase is primarily due to the acquisition
of PSS in January 1998 and the expansion of the Reston, VA facility and the
opening of the Tampa office in April 1998. The Contractor's Resources
business unit expense growth is due to the growth of operations.
Business unit income for the nine months ended September 30, 1998 was
approximately $503,000 as compared to an operating business unit loss of
$730,000 for the same period of 1997, an increase of approximately $1.2
million. This increase includes increased business unit profits from IT
Solutions, IT Staffing and IT Contractor Resources of approximately $1
million, $91,000, and $79,000, respectively.
Corporate expense for the nine months ended September 30, 1998 increased
approximately $535,000 or 46% to approximately $1.7 million from
approximately $1.2 million when compared to the same period of 1997. This
increase reflects an additional investment in corporate development
capability to support the growth of operations and integration of
acquisitions. Restructuring costs of $345,000 were recorded in the nine
months ended September 30, 1998 related to the reduction of duplicate
costs, consolidation of facilities and write down on certain assets
stemming from the Company's continued integration of its acquisitions.
The Company's preliminary estimate of acquired in-process technology of
$250,000 from the Company's acquisition of AIG were recorded in the nine
months ended September 30, 1998 (see further discussion in Note 2
Acquisitions). The purchase price allocation may change as the result of
additional studies and analyses.
15 OF 22
<PAGE>
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") for the nine months ended September 30, 1998 and 1997, were
losses of approximately $1.9 million. The components of loss before
interest, income taxes, depreciation and amortization for these periods are
discussed above.
Depreciation, amortization and interest expense for the nine months ended
September 30, 1998 increased approximately $460,000 to approximately
$703,000 from approximately $243,000 for the same period of 1997. This
increase is principally due to increased borrowings under the Company's
line of credit facility in the nine months ended September 30, 1998 as
compared to the same period of 1997 and to the increased depreciation and
amortization from assets acquired in the acquisitions of Onion Peel, PSS,
ABS and AIG.
No provision or benefit for income taxes was required for either the nine
months ended September 30, 1998 or 1997.
The net loss increased approximately $419,000 to approximately $2.5 million
from approximately $2.1 million in the same period of 1997. The components
of this increase are discussed above
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had cash and cash equivalents of
$1,291,145. The Company had $1,994,742 outstanding on its line of credit
facilities and had long term capital lease obligations of $182,290.
The Company's liquidity and capital resources were increased by the
following:
For the nine months ended September 30, 1998 the Company's cash increased
by $938,000. This increase is comprised of cash used in operating
activities of approximately $2,785,000 cash used in investing activities of
approximately $3,447,000 and cash provided by financing activities of
approximately $7,168,000.
As of September 30, 1998, the Company maintains a line of credit with a
bank which allows the Company to borrow the lesser of $6,000,000 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
$1,995,000 under the line of credit as of September 30, 1998. As of
November 12, 1998 the Company had net availability of $800,000 under the
line. This line of credit expires on July 1, 2000.
The Company also had a line of credit facility with a bank that it acquired
in the PSS acquisition (the "PSS line of credit"). The Company retired the
PSS line of credit in April 1998 and repaid the outstanding balance of
approximately $803,000.
In January 1998, the Company completed the purchase of all of the stock of
PSS. In June 1998 the Company completed the purchase of all of the stock of
ABS. Effective September 1, 1998 the Company acquired certain assets of
AIG. See additional discussion of the PSS, ABS and AIG acquisitions in Note
2 -Acquisitions.
Capital expenditures for the Nine months ended September 30, 1998 were
approximately $300,000. Cash paid in the acquisitions of ABS, AIG and PSS,
net of cash acquired totaled approximately $3,147,000.
Between January 1, 1998 and September 30, 1998, the Company has raised
additional equity totaling $6,463,000, as follows:
In February 1998 the Company raised $100,000 through the sale of 80,000
shares of un-registered Common Stock plus a warrant to purchase an
additional 100,000 shares at $1.20.
In March 1998 the Company raised $1,457,000 of financing in a Private
placement with accredited investors and employees of the Company. The
Company issued shares of un-registered Common Stock to purchasers who have
agreed not to sell or otherwise distribute their shares for a period of one
year. These restricted shares carry registration rights and were offered at
$1.00 per share. The funds will be used to finance operations and
additional acquisitions.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3 million net of expenses). The sale
represents the first half of a transaction that could include the sale of
an additional 1,500 units for $1.5 million at a future date, subject to the
satisfaction of certain conditions. See additional discussion in Note 3-
Equity Financings.
On April 26, 1998, the Company raised $150,000 of financing in a private
placement with accredited investors. The Company issued non registered
shares of Common Stock to purchasers who have agreed not to sell or
16 OF 22
<PAGE>
otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at $1.50 per
share.
On April 27, 1998, the Company raised $48,125 of financing in a private
placement with accredited investors. The Company issued non registered
shares of Common Stock to purchasers who have agreed not to sell or
otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at $1.375 per
share.
On August 28, 1998, the Company raised $592,000 of financing in a private
placement with accredited investors. The Company issued non registered
shares of Common Stock to purchasers who have agreed not to sell or
otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at $1.3125 per
share.
On September 28, 1998, the Company completed the sale of 1,700 units of a
Private placement, totaling $1.5 million ($1.3 million net of expenses).
See additional discussion in Note 3- Equity Financings.
On September 30, 1998, the Company completed the sale of 1,500,000 shares
of its Class C, 9.9% Preferred Stock for $1.5 million ($1.4million net of
expenses) and warrants to acquire up to 550,000 shares of common stock
based on certain conditions. See additional discussion in Note 3 -Equity
Financings.
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 which was expanded from $ 2.0 million to $6.0
million in September 1998, 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.
The proceeds of these equity financings have been used to finance
acquisitions and to provide additional corporate working capital.
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,
in approximately one year, 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 the 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 second quarter of
1999 and that the associated costs will not have a material adverse effect
on the
17 OF 22
<PAGE>
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's subsidiary, Onion Peel Software L.L.C., (OPS) head quartered
in Raleigh, North Carolina, confirms that all of its network management
software products (America, Productivity Series, Network Data Collector,
ROVE and ROVE Motif) will properly process/utilize dates beyond December
31, 1999.
The Company does not engage in any Year 2000 work.
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.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and
uncertainty, (including without limitation, future financings and expenses,
revenues and income of the Company, as well as general market conditions)
though the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Form 10-Q will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be
achieved.
INFLATION
Inflation has not had and the Company does not expect inflation to have a
significant adverse impact on its operations.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter the Company settled the complaint filed against it by
ACS, Ltd. on terms favorable to the Company.
Item 2. Changes in Securities
In February 1998 the Company sold 80,000 shares of Common Stock to a
purchaser at a price of $1.25 per share. In addition, the purchaser
received a warrant to purchase an additional 100,000 shares of Common Stock
at an exercise price of $1.20 per share.
In March 1998 the Company closed a private placement of 1,457,000 shares of
Common Stock. Such shares were sold at a price of $1.00 per share.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3 million net of fees and expenses).
The sale represents the first half of a transaction that could include the
sale of an additional 1,500 units for $1.5 million at a future date,
subject to the satisfaction of certain conditions. See additional
discussion in Note 3- Equity Financings.
On April 26 and 27, 1998, the Company raised $198,125 of financing in a
private placement with accredited investors. The Company issued non
registered shares of Common Stock to purchasers who have agreed not to sell
18 OF 22
<PAGE>
or otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at prices
ranging from $1.375 to $1.50 per share. The funds will be used to finance
operations and additional acquisitions.
On August 28, 1998, the Company raised $592,000 of financing in a private
placement with accredited investors. The Company issued non registered
shares of Common Stock to purchasers who have agreed not to sell or
otherwise distribute their shares for a period of one year. These
restricted shares carry registration rights and were offered at $1.3125 per
share.
On September 28, 1998, the Company completed the sale of 1,700 units of a
Private placement, totaling $1.5 million ($1.3 million net of expenses).
See additional discussion in Note 3- Equity Financings.
On September 30, 1998, the Company completed the sale of 1,500,000 shares
of its Class C, 9.9% Preferred Stock and warrants for $1.5 million (1.4
million net of expenses). See additional discussion in Note 3 -Equity
Financings.
All of the above transactions were made pursuant to the exemption contained
in Section 4(2) of the Securities Act of 1933, as amended. In each case the
Company engaged no underwriter. With Respect to the transactions
consummated on April 7, 1998, September 28, 1998 and September 30, 1998,
the Company engaged the services of a Placement Agent. For further
information relating to such transactions, please see Note 3 to the
Condensed Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities
Nothing to Report
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 July 29, 1996 ("Annual
Shareholders Meeting"):
1. The following persons were elected as directors of the Company to serve
until the next Annual Shareholders and until their successors have been
duly elected and qualified:
Name Votes For Votes Against Abstained
---- --------- ------------- ---------
Gene Zaino 8,120,424 83,139 0
Deborah S. Novick 7,757,024 446,539 0
Richard Goldstein 8,126,624 76,939 0
Frank C. Lagattuta 8,129,624 73,939 0
Steven L. Hanau 8,129,624 73,939 0
19 OF 22
<PAGE>
<TABLE>
<CAPTION>
Broker
Resolution In Favor Against Abstained Non Votes
---------- -------- ------- --------- ---------
<S> <C> <C> <C> <C>
2. To authorize the issuance of shares of 4,682,562 232,979 291,250 2,996,772
Common Stock of the Company to complete a
private placement of the Company's
Securities with certain independent
investors and their agent.
3. To authorize an amendment to the 7,668,310 261,333 273,920 0
certificate of incorporation of Netplex
increasing the number of authorized shares
of Netplex Common Stock, par value $0.001
("Common Stock") from 20,000,000 to
40,000,000 shares.
4. To approve an amendment to the 4,846,440 322,851 37,500 2,996,772
certificate of incorporation of Netplex to
increase the number of authorized shares of
Netplex Preferred Stock, par value $0.01
("Preferred Stock") from 2,000,000 to
6,000,000 shares.
5. To approve an amendment to the Netplex 5,342,174 299,072 26,970 2,535,347
1995 Directors Stock Option Plan,
increasing the number of shares of Common
Stock authorized to be issued under the
1995 Directors Stock Option Plan from
100,000 to 300,000 shares
6. To approve the Netplex 1998 Employee 4,965,223 193,518 17,406 2,996,772
Stock Purchase Plan ("Stock Purchase Plan").
7. To ratify the appointment of KPMG Peat 8,039,338 109,625 23,956 0
Marwick L.L.P. as the Netplex independent
auditors for the year 1998.
</TABLE>
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
27 - Financial Data Schedule
(b). Reports on Form 8-K:
Form 8-K dated July 2, 1998 describing ABS acquisition
Item 2. Acquisition or Disposition of Assets.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
SIGNATURES
20 OF 22
<PAGE>
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The Netplex Group, Inc.
Date: November 23, 1998 By: /s/ Gene Zaino
---------------------------
Gene Zaino, President and CEO
(Principal Executive Officer) and
Chairman of the Board
Date: November 23, 1998 By: /s/ Walton E. Bell, III
---------------------------------
Walton E. Bell, III,
Chief Financial Officer
(Principal Accounting Officer)
21 OF 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,291,145
<SECURITIES> 0
<RECEIVABLES> 9,598,650
<ALLOWANCES> (441,081)
<INVENTORY> 0
<CURRENT-ASSETS> 10,876,671
<PP&E> 3,017,335
<DEPRECIATION> (1,612,823)
<TOTAL-ASSETS> 18,741,409
<CURRENT-LIABILITIES> (12,207,242)
<BONDS> 0
0
(31,309)
<COMMON> (10,259)
<OTHER-SE> (13,908,331)
<TOTAL-LIABILITY-AND-EQUITY> (18,741,409)
<SALES> (43,291,967)
<TOTAL-REVENUES> (43,291,967)
<CGS> 35,783,356
<TOTAL-COSTS> 9,957,687
<OTHER-EXPENSES> (118,941)
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</TABLE>
