SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
F O R M 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period Commission file number
ended March 31, 1999 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
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
A (Registrant's telephone number, including area code)
8260 Greensboro Drive, Ste. 501, McLean, Virginia 22102
(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 May 7, 1999, 11,456,217 shares of the issuer's Common Stock were
outstanding.
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THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998..............................3
b) Condensed Consolidated Statements of Operations for
the Three Months March 31, 1999 and 1998..........................4
c) Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 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.............................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........12
Part II Other information....................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signatures...........................................................13
2
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Part I Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,572,884 $ 870,465
Accounts receivable, net of allowance for doubtful accounts of
$366,058 and $588,670, respectively 14,944,492 11,654,743
Prepaids and other current assets 941,953 523,480
------------ ------------
Total current assets 17,459,329 13,048,688
Property and equipment, net 1,654,846 1,704,975
Employee notes receivable 233,787 248,762
Other assets 424,816 213,174
Acquired software, net 1,016,142 1,091,624
Fulfillment data base net 766,148 797,148
Other acquired intangible assets 2,060,024 1,773,333
Goodwill, net 2,209,972 1,772,919
------------ ------------
Total assets $ 25,825,064 $ 20,650,623
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,847,631 $ 2,545,730
Line of credit 4,397,611 4,041,000
Notes payable -- 300,000
Accrued expenses and other 8,538,827 7,351,469
------------ ------------
Total current liabilities 17,784,069 14,238,198
Notes payable 800,000 --
Other liabilities 30,146 57,901
------------ ------------
Total Liabilities 18,614,215 14,296,100
------------ ------------
Stockholders' equity:
Class A Cumulative Preferred Stock: $.01 par value; liquidation
preference of $4.00 per share, unpaid dividends of $27,986 in 1999
and $267,204 in 1998; 2,000,000 shares authorized; 493,291 and
987,753 shares outstanding in 1999 and 1998 4,932 9,875
Class B Preferred Stock: $.01 par value; liquidation preference of
$3.50 per share; 1,500,000 shares authorized; 643,770 shares
outstanding in 1999 and 1998 6,438 6,438
Class C Cumulative Preferred Stock:$.01 par value; liquidation
preference of $3.99 per share; unpaid dividends of $37,500 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, 11,456,217 shares
outstanding in 1999 and 10,204,735 shares in 1998 11,456 10,204
Additional paid in capital 14,928,994 14,126,035
Accumulated deficit (7,755,972) (7,813,028)
------------ ------------
Commitments and contingencies
Total stockholders' equity 7,210,850 6,354,524
------------ ------------
Total liabilities and stockholders' equity $ 25,825,064 $ 20,650,623
============ ============
</TABLE>
See notes to condensed consolidated statements
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THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
----------------------------
March 31 March 31
1999 1998
------------ ------------
(Unaudited)
Revenues
Services $ 16,530,465 $ 12,154,094
Product 6,163,734 1,140,334
------------ ------------
22,694,199 13,294,428
Cost of revenues
Services 12,509,091 10,386,267
Product 5,071,680 708,104
------------ ------------
17,580,771 11,094,371
------------ ------------
Gross profit 5,113,428 2,200,057
Selling, general and administrative expenses 4,857,698 2,576,085
------------ ------------
Operating income (loss) 255,731 (376,028)
Interest expense, net (132,810) (66,072)
------------ ------------
Net income(loss) before income taxes 122,921 (442,100)
Provision for (benefit from) income taxes -- --
------------ ------------
Net income (loss) $ 122,921 $ (442,100)
============ ============
EARNINGS (LOSS) PER SHARE:
Basic and diluted $ 0.00 $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 10,676,327 7,773,292
============ ============
See notes to condensed consolidated statements
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THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Net cash used in operating activities $ (318,234) $ (580,364)
----------- -----------
Investing activities:
Purchases of property and equipment (122,824) (109,127)
Net Cash paid in acquisitions (207,900) (151,615)
----------- -----------
Net cash used in investing activities (330,724) (260,742)
----------- -----------
Financing activities:
Proceeds from the exercise of stock options and warrants 799,269 --
Proceeds from borrowings of subordinated debt 800,000 --
Net borrowings on line of credit 356,611 282,548
Payments of notes payable (300,000) --
Dividends paid on Class A and C Preferred Stock (304,504) --
Net proceeds from stock offerings -- 1,555,500
Principal payments of Capital lease obligations -- (23,656)
----------- -----------
Net cash provided by financing activities 1,351,376 1,814,392
----------- -----------
Increase in cash and cash equivalents 702,419 973,286
Cash and equivalents at beginning of period 870,465 353,005
----------- -----------
Cash and equivalents at end of period $ 1,572,884 $ 1,326,291
=========== ===========
Supplemental information:
Cash paid during the period for:
Interest $ 113,406 $ 45,585
=========== ===========
Income taxes -- --
=========== ===========
Non-cash financing activity:
Conversions of Preferred Stock to Common Stock $ 4,943 $ 265
=========== ===========
</TABLE>
See notes to condensed consolidated statements
5
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THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 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 March 31, 1999 and December 31, 1998, the results of its
operations and its cash flows for the three months ended March 31, 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 March 31, 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 March 31, 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 16,980,984 and 9,675,665
shares respectively at March 31, 1999 and 1998.
A reconciliation of the numerators and denominators of the basic and diluted EPS
for the three months ended March 31, 1999 and 1998, is provided below:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- ----------
<S> <C> <C> <C>
1999 Basic and Diluted
Net income from continuing operations $ 122,921 $
Preferred Stock dividends (135,286)
---------- ---------- ----------
EPS
Income (loss) available to common
shareholders $ (12,365) 10,676,327 $ (0.00)
========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- ----------
<S> <C> <C> <C>
1998 Basic and Diluted
Net loss from continuing operations $ (415,257) -- --
Preferred Stock dividends (56,472) -- --
---------- ---------- ----------
EPS
Income (loss) available to common shareholders $ (471,729) 7,773,792 $ (0.06)
========== ========== ==========
</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 ended
March 31, 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)
Total
Revenues $16,813
Net income (loss) $ 386
=======
Net income(loss) per share:
Weighted Average common shares outstanding 8,867
Proforma EPS $ 0.04
=======
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 through out the United States.
The Company's reportable segments are as follows:
- -- Specialized Practice Groups (SPG) -provides global specialized solutions
that build, manage, and protect customers' information systems and the
networks upon which they run.
- -- Regional Operations (RO)--provides local systems integration and technical
consulting services within regional markets.
- -- Contractors Resources (CR)--provides professional independent contractors
with "back office" services that eliminate the distraction and expense of
tedious administrative duties, thus allowing them to focus on growing their
business without incorporating.
The Specialized Practice Groups Segment consists of three business units:
Enterprise Management Systems, Business Protection Services, and Applied
Intelligence Group. 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
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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 ended March 31, 1999 and 1998:
Segment
SPG RO CR Total
------- ------- ------- -------
1999:
Revenues $ 4,306 $ 9,399 $ 8,989 $22,694
Gross profit 2,620 2,159 334 5,113
EBITDA 897 699 46 1,642
Total assets 8,503 10,538 5,297 24,338
================================================================================
1998:
Revenues $ 1,270 $ 3,490 $ 8,534 $13,294
Gross profit 827 1,081 292 2,200
EBITDA (235) 344 65 174
Total assets 2,268 2,697 3,433 8,380
================================================================================
Reconciliation of Segment Profit or (Loss) to (Loss) from Continuing Operations
1999 1998
------- -------
Segment EBITDA $ 1,642 $ 174
Unallocated corporate expenses (948) (417)
Depreciation & amortization (438) (133)
Interest expense, net (133) (66)
Tax expense -- --
======= =======
(Loss) from continuing operations $ 123 $ (442)
======= =======
Subsequent Events:
On April 23, 1999, the Company completed the purchase of the assets of Dean
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 and
will be recorded using the purchase method of accounting. In connection with the
acquisition, the Company has entered into employment agreements with certain
employees of DLA.
8
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Quarters Ended March 31, 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 ended March 31, 1999 and 1998:
Consolidated Operating Results by Business Segment
Amounts in 000's
Three Months Ended
March 31,
--------------------
Revenues 1999 1998
-------- --------
Specialized Practices $ 4,306 $ 1,270
Regional Operations 9,399 3,490
Contractor's Resources 8,989 8,534
-------- --------
Revenues 22,694 13,294
-------- --------
Cost of Revenues
Specialized Practices 1,686 443
Regional Operations 7,240 2,409
Contractor's Resources 8,655 8,242
-------- --------
Cost of Revenues 17,581 11,094
-------- --------
Gross profit
Specialized Practices 2,620 827
Regional Operations 2,159 1,081
Contractor's Resources 334 292
-------- --------
Gross profit 5,113 2,200
-------- --------
Gross profit percentage
Specialized Practices 60.8% 65.1%
Regional Operations 23.0% 31.0%
Contractor's Resources 3.7% 3.4%
-------- --------
Gross profit percentage 22.5% 16.5%
-------- --------
Business unit expenses
Specialized Practices 1,724 1,062
Regional Operations 1,460 738
Contractor's Resources 288 226
-------- --------
Business unit expenses 3,472 2,026
-------- --------
Business unit income (loss)
Specialized Practices 896 (235)
Regional Operations 699 343
Contractor's Resources 46 66
-------- --------
Operating income 1,641 174
-------- --------
Corporate Expenses 948 417
-------- --------
EBITDA 693 (243)
Interest, taxes, depreciation & amortization 571 199
-------- --------
Net operating income/(loss) $ 122 $ (442)
======== ========
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The amounts expressed below are approximations and roundings.
Results of Operations
Three months ended March 31, 1999 compared to the three months ended March 31,
1998:
Revenue for the three months ended March 31, 1999 increased $9.4 million or 71%
to $22.7 million, compared to $13.3 million for the same period in 1998. This
increase includes a $5.9 million or 169% increase in Regional Operations
revenue, a $3.0 million or 239% increase in Specialized Practices revenue, and a
$455,000 or 5% increase in Contractors Resources revenue.
The revenue growth in 1999 includes $7.3 million of revenue contributed
collectively by ABS and AIG which were acquired by the Company in June 1998 and
September 1998, respectively, and $2.1 million or 16% in revenue growth of the
businesses owned as of January 1, 1998 ("organic growth"). The organic revenue
growth in 1999 includes increases in Regional Operations, Specialized Practices,
and Contractors Resources revenues of $981,000 (28%), $681,000 (54%) and
$455,000 (5%), respectively. The organic revenue growth in the Local and
Specialized Practices is due primarily to increased sales volume in 1999 as
compared to the same period of 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 March 31, 1999 increased $2.9 million or
132% to $5.1 million as compared to $2.2 million for the same period of 1998.
This increase includes increases in Regional Operations, Specialized Practices,
and Contractor's Resources of $1.1 million or 100%, $ 1.8 million or 217% and $
43,000 or 15%, respectively.
The gross profit growth includes $2.1 million of gross profit contributed
collectively by ABS and AIG acquired in June 1998 and September 1998,
respectively and a $785,000 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 Regional Operations, Specialized Practices and
Contractor's Resources of $357,000 (33%) $385,000 (47%) and $43,000 (15%),
respectively.
Gross profit margins increased to 22.5% for the three months ended March 31,
1999 from 16.5% in the same period of 1998. Specialized Practices gross profit
margins decreased from 65.1% in 1998 to 60.8% in 1999. Regional Operations gross
profit margins decreased from 31.0% in 1998 to 23.0% in 1999. Contractors
Resources gross profit margins increased from 3.4% in 1998 to 3.7% in 1999. The
gross profit margin for ABS and AIG was 29%.
The decrease in Specialized Practices gross profit margins is primarily due to
the higher product content in the 1999 revenues than in 1998 and increased
systems implementation consulting revenue. Product revenue and systems
implementation consulting revenue commands a lower gross profit margin than
custom software development, high end consulting and system design work revenue,
which did not grow as rapidly as the product or systems implementation
consulting revenue during the three months ended March 31,1999.
The Regional Operations gross profit margin decrease is due to higher growth in
Technical Consulting Services than in Systems Integration, Technical Consulting
Services command a lower gross profit margin than Systems Integration work.
Contractors Resources achieved higher gross profit margins primarily through
increased billing rates to its customers.
Business unit expenses for the three months ended March 31, 1999 increased $1.5
million or 71% to $3.5 million from $2.0 million for the same period of 1998.
This increase includes increases in Regional Operations and Specialized
Practices business unit expenses of $722,000 and $662,000, respectively.
Contractors Resources business unit expenses increased by $62,000. The increase
in business unit expenses was primarily due to the acquisitions of ABS and AIG
which collectively increased business unit expenses in 1998 by $1.5 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 March 31, 1999 was $1.6 million
as compared to business unit income of $174 thousand for the same period of
1998, an improvement of $1.4 million. This improvement includes increases in
business unit profits from Regional Operations, Specialized Practices of
$355,000 (103%), $1.1 million (482%), respectively, offset by a $19,000 (29%)
decline in Contractor's Resources business unit income. Business unit income for
ABS and AIG accounted for $615,000 (42%) of this improvement.
Corporate expense for the three months ended March 31, 1999 increased $531,000
or 127% to $948,000 from $417,000 in the same period of 1998. This increase
reflects an additional investment in corporate development capability to support
the growth of operations and the integration of acquisitions.
10
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Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the three months ended March 31, 1999 was $694,000 as compared to a loss of
$243,000 for the same period of 1998, an improvement in EBITDA of $937,000. The
components of this improvement are discussed above.
Depreciation, amortization and interest expense for the three months ended March
31, 1999 increased $372,000 to $571,000 from $199,000 for the same period of
1998. This increase is principally due to increased amortization and
depreciation from the acquisitions of ABS and AIG and increased borrowings under
the Company's line of credit facility to support growth for the three months
ended March 31, 1999.
No provision for income taxes was required for the three months ended March 31,
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 March 31, 1998 due to the generation of net losses.
Net income for the three months ended March 31, 1999 was $122,000 compared to a
net loss of $442,000 in the same period of 1998 an increase of $545,000. The
components of this increase are discussed above.
Liquidity and Capital Resources:
At March 31, 1999, the Company had cash and cash equivalents of $1,572,884. The
Company had $4,398,000 outstanding on its line of credit facilities, $800,000 in
long term subordinated debt and long term capital lease obligations of $30,146.
The following increased the Company's liquidity and capital resources:
For the three months ended March 31, 1999 the Company's cash increased by
$702,000. This increase is comprised of cash used in operating activities of
$318,000, cash used in investing activities of $331,000 and cash provided by
financing activities of $1,351,000.
As of March 31, 1998, the Company maintains a line of credit with a bank that
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 $4,398,000 under the line of credit as
of March 31, 1999. As of May 7, 1999 the Company had net availability of
$927,000 under the line. This line of credit expires on July 1, 2000.
Capital expenditures for the three months ended March 31, 1999 were $123,000.
Dividends of $304,000 were paid on the Company's Class A and Class C Cumulative
Preferred Stock during the three months ended March 31, 1999. The Company's
Class B Preferred Stock does not bear dividends. At March 31, 1999, the Company
had accrued dividends of $65,864 on the Class A and Class C Preferred Stock .
During the three months ended March 31, 1999, 494,282 shares of Class A
Preferred Stock were converted into 494,282 shares of Common Stock. No shares of
Class B or Class C Preferred Stock were converted into Common Stock during the
three months ended March 31, 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 three months ended March 31, 1999 will
reduce the Company's obligation for dividend payments by $24,714 per quarter
($98,856 annually).
Incentive and consultant stock options and Common Stock purchase warrants to
purchase an aggregate of 394,600 shares of the Company's Common Stock were
exercised during the three months ended March 31, 1999, generating cash proceeds
to the Company of $800,000.
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.
Acquisitions and future plans.
On April 23, 1999, the Company completed the purchase of the assets of Dean
Liles and Associates, 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
11
<PAGE>
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 second 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
(America, Productivity Series, 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.
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
12
<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: May 12, 1999 /s/ Gene Zaino
--------------------------------
Gene Zaino
Chairman of the Board
And President (Principal
Executive Officer)
DATE: May 12, 1999 /s/ Walton E. Bell, III
--------------------------------
Walton E. Bell, III
Vice President and Chief
Financial Officer (Principal
Financial and AccountingOfficer)
13
<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/A FOR THE PERIOD
ENDED MARCH 31, 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> MAR-31-1999
<CASH> 1,572,884
<SECURITIES> 0
<RECEIVABLES> 15,280,550
<ALLOWANCES> (366,058)
<INVENTORY> 0
<CURRENT-ASSETS> 17,459,329
<PP&E> 3,638,330
<DEPRECIATION> (1,983,484)
<TOTAL-ASSETS> 25,825,064
<CURRENT-LIABILITIES> (17,784,069)
<BONDS> 0
0
(26,370)
<COMMON> (11,456)
<OTHER-SE> (7,173,024)
<TOTAL-LIABILITY-AND-EQUITY> (25,825,064)
<SALES> (22,694,199)
<TOTAL-REVENUES> (22,694,199)
<CGS> 17,580,771
<TOTAL-COSTS> 4,857,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,810
<INCOME-PRETAX> 122,921
<INCOME-TAX> 0
<INCOME-CONTINUING> 122,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,921
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
