<PAGE>
================================================================================
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 ended June 30, 2000 Commission file number 001-11784
THE NETPLEX GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2824578
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1800 Robert Fulton Drive, Suite 250, Reston, Virginia 20191-4346
----------------------------------------------------------------
(Addressof principal executive offices and zip code)
(703) 716-4777
----------------------------------------------------
(Registrant's telephone number, including area code)
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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 August 11, 2000, 18,238,700 shares of the issuer's Common Stock were
outstanding.
1
<PAGE>
THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 ...................................... 3
b) Condensed Consolidated Statements of Operations for
the Three and Six Months ended June 30, 2000 and 1999 .................... 4
c) Condensed Consolidated Statements of Cash Flows for
the Six Months ended June 30, 2000 and 1999 .............................. 5
d) Notes to Condensed Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 12
Part II Other Information ........................................................ 12
Item 2. Changes in Securities and Use of Proceeds ................................ 12
Item 4. Submission of Matters to a Vote of Security Holders ...................... 13
Item 6. Exhibits and Reports on Form 8-K .......................................... 13
Signatures ................................................................ 14
</TABLE>
2
<PAGE>
Part I Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
Assets 2000 1999
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,421,644 $ 4,220,148
Accounts receivable, net of allowance for doubtful
accounts of $358,000 and $342,000, respectively 9,877,628 12,513,823
Prepaid expenses and other current assets 688,806 923,762
------------ ------------
Total current assets 17,988,078 17,657,733
Property and equipment, net 1,643,415 1,891,084
Other assets 672,883 775,290
Goodwill and other intangible assets, net 6,142,227 6,092,610
------------ ------------
Total assets $ 26,446,603 $ 26,416,717
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,852,677 $ 3,294,403
Line of credit 1,379,000 5,126,245
Accrued expenses and other current liabilities 8,767,553 9,305,229
Capital lease obligation, current portion 46,563 107,890
Deferred revenues 212,682 193,262
------------ ------------
Total current liabilities 13,258,475 18,027,029
Insurance premium due 425,000 850,000
Capital lease obligations, net of current portion 195,504 195,504
------------ ------------
Total liabilities 13,878,979 19,072,533
Commitments and contingencies
Minority interest in subsidiary 230,339 481,877
Temporary Equity:
Redeemable Preferred Stock Class D Cumulative, $.01 par value;
15,000 shares authorized; 10,000 shares issued and outstanding at
June 30, 2000 9,500,000 -
Prepaid warrants 1,300,000 -
------------ ------------
Total temporary equity 10,800,000 -
Stockholders' equity:
Preferred Stock:
Class A Cumulative, $.01 par value, liquidation preference of $4.00
per share; 2,000,000 shares authorized; 80,597 and 109,961 shares
issued and outstanding at June 30, 2000 and December 31, 1999,
respectively 805 1,099
Class C Cumulative, $.01 par value; liquidation preference of $3.50
per share; 2,500,000 shares authorized; 1,500,000 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 15,000 15,000
Common Stock: $.001 par value, 40,000,000 shares authorized;
18,238,284 and 16,137,250 shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively 18,238 16,137
Additional paid in capital 24,069,949 21,762,418
Accumulated deficit (22,566,707) (14,932,347)
------------ ------------
Total stockholders' equity 1,537,285 6,862,307
------------ ------------
Total liabilities and stockholders' equity $ 26,446,603 $ 26,416,717
============ ============
</TABLE>
See notes to condensed consolidated statements
3
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
---------------- (Unaudited)----------------
<S> <C> <C> <C> <C>
Revenue
Services $ 18,008,798 $ 18,294,570 $ 34,815,267 $ 34,825,035
Product 2,990,476 3,463,514 6,631,037 9,627,248
------------ ------------ ------------ ------------
20,999,274 21,758,084 41,446,304 44,453,283
------------ ------------ ------------ ------------
Cost of revenues
Services 15,089,142 14,638,713 29,890,629 31,602,804
Product 2,364,339 2,300,327 4,538,682 7,372,007
------------ ------------ ------------ ------------
17,453,481 16,939,040 34,429,311 35,339,811
------------ ------------ ------------ ------------
Gross profit 3,545,793 4,819,044 7,016,993 9,113,472
Selling, general and administrative expenses 7,431,392 4,623,898 14,865,521 8,663,595
------------ ------------ ------------ ------------
Operating income (loss) (3,885,599) 195,146 (7,848,528) 449,877
Interest expense, net (85,562) (66,790) (37,368) (199,600)
------------ ------------ ------------ ------------
Net income (loss) before income taxes (3,971,161) 128,356 (7,885,896) 250,277
Provision for (benefit from) income taxes - - - -
------------ ------------ ------------ ------------
Income (loss) before minority interest (3,971,161) 128,356 (7,885,896) 250,277
Minority interest 126,961 - 251,538 -
------------ ------------ ------------ ------------
Net income (loss) (3,844,200) 128,356 (7,634,358) 250,277
Preferred Stock dividend (392,618) (116,049) (488,725) (236,355)
------------ ------------ ------------ ------------
Income (loss) applicable to common
shareholders $ (4,236,818) $ 12,307 $ (8,123,083) $ 13,922
============ ============ ============ ============
Basic and diluted loss per common share $ (0.23) $ 0.00 $ (0.46) $ 0.00
============ ============ ============ ============
Weighted average common shares outstanding:
Basic and diluted 18,082,453 11,706,600 17,653,125 11,195,457
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated statements
4
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 30, June 30,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Net cash provided (used) in operating activities $ (4,700,124) $ 592,914
------------- -----------
Investing activities:
Net cash (paid) acquired in acquisitions and earnouts (425,000) (1,650,450)
Purchases of property and equipment (974,146) (340,747)
------------ -----------
Net cash used in investing activities (1,399,146) (1,991,197)
------------ -----------
Financing activities:
Net proceeds from stock offerings 13,410,589 -
Net borrowings on line of credit (3,747,245) 342,000
Proceeds from borrowings of subordinated debt - 800,000
Proceeds from the exercise of stock options and warrants - 1,103,660
Payment of dividends on preferred stock (301,251) (371,313)
Principal payments on capital lease obligation (61,327) (56,390)
Payment of other notes payable - (300,000)
Employee receivables - (82,313)
------------ -----------
Net cash provided by financing activities 9,300,766 1,433,644
------------ -----------
Increase in cash and cash equivalents 3,201,496 37,361
Cash and equivalents at beginning of period 4,220,148 870,465
------------ -----------
Cash and equivalents at end of period $ 7,421,644 $ 907,826
============ ===========
Supplemental information:
Cash paid during the period for:
Interest $ 176,228 $ 292,081
============ ===========
Income taxes $ - $ -
============ ===========
</TABLE>
See notes to condensed consolidated statements
5
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2000 and 1999
(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, 1999.
In the opinion of the Company, the accompanying condensed consolidated financial
statements reflect all adjustments and reclassifications (which include only
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of June 30, 2000 and December 31, 1999 and the results of its
operations and its cash flows for the three and six months ended June 30, 2000
and 1999. Interim results are not necessarily indicative of the results that may
be expected for the full year.
Basis of Presentation
The accompanying financial statements include the accounts of The Netplex Group,
Inc. and its wholly owned subsidiaries. All acquisitions by the Company are
accounted for as purchases. Additionally, the operating results of all
acquisitions have been included in the consolidated financial statements from
their effective dates of acquisition. All material 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 relevant 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
relevant periods. For the three and six months ended June 30, 2000 and 1999, 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.
Sale of Equity Securities
In March 2000, the Company sold 10,000 shares of convertible Series D Preferred
Stock that resulted in net proceeds to the Company of $9.5 million and issued
prepaid warrants that resulted in net proceeds to the Company of $1.3 million.
The conversion ratio of the preferred to common was established based on 120% of
the weighted average stock price during the thirty trading day period between
April 3, 2000 and May 16, 2000, which was $5.87 per share. The Series D
Preferred Stock securities purchase agreement's call option provision, relating
to the time the Company must obtain additional financing, was amended effective
July 31, 2000. The amendment extends the call option trigger date to October 31,
2000 (previously August 1, 2000) and requires the following by such date: (1)
the Company's subsidiaries must complete the sale of common stock or convertible
securities which results in net proceeds of at least $7 million, and (2) the
Company and/or its subsidiaries must complete the sale of common stock or
convertible securities which results in net proceeds of at least $5 million. The
call option provides the holder an option to purchase an aggregate 5,000 shares
of Series D Preferred Stock and related warrants at an aggregate purchase price
of $5 million if the Company does not complete the sale of equity
securities described above. The conversion price of the preferred stock and the
exercise price of the related warrants are based upon 120% of the weighted
average price of the Company's Common Stock for 15 consecutive trading days
beginning the first day after the holders are entitled to exercise the call
option. Further information can be obtained by reading the Company's amended
Registration Statement on Form S-3 filed on Form S-1 as filed with the SEC on
August 8, 2000.
6
<PAGE>
Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company's reportable segments are strategic
business units that offer different products and services to different
industries throughout the United States.
The Company's reportable segments are as follows:
--e-Information Systems (e-Info)--provides professional services that
constitute the strategic and creative aspects of Netplex's e-solutions, as
well as complete Internet-based application development and Retail Industry-
focused consulting and integration services.
--e-Infrastructure Services (e-Infra)--provides information security,
performance management, contingency planning, and network management
services that ensure the long-term viability of Netplex's e-solutions, as
well as other aspects of our customers' businesses.
--Contractor's Resources (CR)-- provides business infrastructure and advisory
services for its membership of independent contractors, which allow members
to maximize the freedom and wealth potential of the independent lifestyle
while enjoying the benefits associated with full-time employment.
In 1999, the Company restructured its segments by combining all operations not
related to Contractor's Resources into a single profit and loss center, e-
Infrastructure services, except for its operations related to the acquisition of
AIG that now form the e-Information Services segment. The Company also changed
its components of cost of services to include all labor related to direct labor
employees and their attendant fringe benefits. Prior to 1999, non-billable
direct labor related to idle time, training and other activities was included in
operating expenses. These changes were made to permit a more direct reflection
upon gross profits of the impact of increasing or decreasing labor productivity.
All prior year's cost of services and operating expenses have been restated to
reflect these changes.
The Company's accounting policies for these segments are the same as those
described in the summary of Significant Accounting Policies, except that income
tax expense is not allocated to each segment. In addition, the Company evaluates
the performance of its segments and allocates resources based on gross margin,
and earnings before interest, taxes, depreciation and amortization ("EBITDA").
Inter-segment 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 June 30, 2000 and
1999:
<TABLE>
<CAPTION>
Segment
e-Info e-Infra CR Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
2000 - Three months:
Revenues $ 3,067 $ 7,208 $ 10,725 21,000
Gross profit 1,558 1,563 425 3,546
EBITDA 437 (269) (1,421) (1,253)
===============================================================================================
1999 - Three months:
Revenues $ 2,858 $ 9,048 $ 9,852 $ 21,758
Gross profit 1,435 3,033 351 4,819
EBITDA 617 1,036 70 1,723
===============================================================================================
2000 - Six months:
Revenues $ 5,322 $ 15,466 $ 20,660 $ 41,448
Gross profit 2,275 3,968 775 7,018
EBITDA 61 43 (2,638) (2,534)
===============================================================================================
1999 - Six months:
Revenues $ 5,067 $ 20,544 $ 18,842 $ 44,453
Gross profit 2,607 5,850 656 9,113
EBITDA 1,206 2,042 116 3,364
===============================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
===============================================================================================
Total assets:
June 30, 2000: $ 7,360 $ 6,127 $ 7,140 $ 20,627
Unallocated 5,820
Total 26,447
===============================================================================================
June 30, 1999: $ 7,377 $ 9,005 $ 6,962 $ 23,344
-----------------------------------------------------------------------------------------------
Unallocated 278
Total 23,622
===============================================================================================
</TABLE>
Reconciliation of Segment Profit or (Loss) to Income (Loss) from Operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 30, June 30, June 30, June 30,
--------------- --------------- --------------- ---------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Segment EBITDA $ (1,253) $ 1,723 $ (2,534) $ 3,364
Unallocated corporate expenses (2,151) (1,039) (4,184) (1,987)
Depreciation & amortization (526) (489) (954) (927)
Interest expense, net 86 (67) 38 (200)
Tax expense - - - -
Income (loss) from continuing operations $ (3,844) $ 128 $ (7,634) $ 250
=============== =====================================================
</TABLE>
New pronouncements
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation: an interpretation of APB Opinion No.
25" ("FIN 44"). FIN 44 provides guidance on how to account for stock-based
compensation, including stock option grants. FIN 44 is effective July 1, 2000.
The Company intends to adopt FIN 44 during the fiscal quarter ended September
30, 2000. The Company does not expect that the adoption of the Interpretation
will have a significant effect on the Company's results of operations or its
financial position.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Information
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this quarterly
report constitute "forward-looking statements" including statements concerning
the Company's expectation that the cash generated from operating activities,
combined with borrowings on its line of credit facilities, will be adequate to
satisfy its working capital and capital expenditure requirements for at least
the next 12 months. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the Company's recent operating losses, uncertainty concerning its
ability to obtain funding to expand and improve its business, the variance in
the timing of the Company's revenues and the introduction and market acceptance
of its products, the Company's dependence on the continued services of its
Chairman and Chief Executive Officer and its President as well as its ability to
attract and retain quality technical and management personnel, the competitive
and rapidly changing nature of the Company's business, the Company's ability to
remain competitive and respond to changes in the industry as well as manage its
growth, the significant volatility of the Company's stock price, uncertainty
regarding the Company's liability for violations committed by the consultants it
employs, the Company's ability to satisfy guarantees made to its customers,
uncertainty regarding the dilutive impact of conversion and exercise of the
Company's outstanding preferred stock and warrants on its shareholders and the
impact on its stock price, the risks set forth in the Company's amended
Registration Statement on Form S-3 filed on Form S-1 as filed with the
Securities and Exchange Commission on August 8, 2000 and risk factors listed
from time to time in subsequent filings.
Forward-looking statements are intended to apply only at the time they are made.
Moreover, whether or not stated in connection with a forward-looking statement,
the Company undertakes no obligation to correct or update a forward-looking
statement. Therefore, the actual experience of the Company and the results
achieved during the period covered by any particular forward-looking statement
should not be regarded as a representation by the
8
<PAGE>
Company or any other person that these estimates will be realized, and actual
results may vary materially. There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate. If the Company were to update or
correct a forward-looking statement, investors and others should not conclude
that the Company will make additional updates or corrections thereafter.
The following table sets forth the revenue, gross profit, expenses, and income
of each of the business areas for the three and six months ended June 30, 2000
and 1999:
Consolidated Operating Results by Segment (amounts in 000's)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Operating revenues
e-Information Services $ 3,067 $ 2,858 $ 5,322 $ 5,067
------------ ----------- ----------- ----------
e-Infrastructure Services 4,217 5,584 8,835 10,917
e-Infrastructure Product Resales 2,991 3,464 6,631 9,627
------------ ----------- ----------- ----------
e-Infrastructure 7,208 9,048 15,466 20,544
------------ ----------- ----------- ----------
e-Business Solutions 10,275 11,906 20,788 25,611
Contractor's Resources 10,725 9,852 20,660 18,842
------------ ----------- ----------- ----------
Operating revenues 21,000 21,758 41,448 44,453
------------ ----------- ----------- ----------
Gross profit
e-Information Services 1,558 1,435 2,275 2,607
------------ ----------- ----------- ----------
e-Infrastructure Services 936 1,869 1,876 3,595
e-Infrastructure Product Resales 627 1,164 2,092 2,255
------------ ----------- ----------- ----------
e-infrastructure 1,563 3,033 3,968 5,850
------------ ----------- ----------- ----------
e-Business Solutions 3,121 4,468 6,243 8,457
Contractor's Resources 425 351 775 656
------------ ----------- ----------- ----------
Gross profit 3,546 4,819 7,018 9,113
------------ ----------- ----------- ----------
Gross profit percentage
e-Information Services 50.7% 50.2% 42.7% 23.9%
------------ ----------- ----------- ----------
e-Infrastructure Services 22.1% 33.5% 21.2% 32.9%
e-Infrastructure Product Resales 20.9% 33.6% 31.5% 23.4%
------------ ----------- ----------- ----------
e-infrastructure 21.6% 33.5% 25.6% 28.4%
------------ ----------- ----------- ----------
e-Business Solutions 30.3% 37.5% 30.0% 33.0%
Contractor's Resources 3.9% 3.6% 3.7% 3.5%
------------ ----------- ----------- ----------
Gross profit percentage 16.8% 22.1% 20.5% 20.5%
------------ ----------- ----------- ----------
Operating Expenses
e-Information Services 1,121 818 2,214 1,401
e-Infrastructure Services and Product Resales 1,832 1,997 3,925 3,808
------------ ----------- ----------- ----------
e-Business Solutions 2,953 2,815 6,139 5,209
Contractor's Resources 1,846 281 3,413 540
------------ ----------- ----------- ----------
Operating expenses 4,799 3,096 9,552 5,749
------------ ----------- ----------- ----------
Operating income (loss)
e-Information Services 437 617 61 1,206
e-Infrastructure Services and Product Resales (269) 1,036 43 2,042
------------ ----------- ----------- ----------
e-Business Solutions 168 1,653 104 3,249
Contractor's Resources (1,421) 70 (2,638) 116
------------ ----------- ----------- ----------
Operating income (loss) (1,253) 1,723 (2,534) 3,364
Corporate Expenses 2,151 1,039 4,184 1,987
------------ ----------- ----------- ----------
EBITDA (3,404) 684 (6,718) 1,377
Interest, taxes, depreciation,
amortization and minority interest 440 556 916 1,127
------------ ----------- ----------- ----------
Net operating income( loss) $ (3,844) $ 128 $ (7,634) $ 250
============ =========== =========== ==========
</TABLE>
9
<PAGE>
Results of Operations:
Three months ended June 30, 2000 compared to the three months ended June 30,
1999:
Revenue for the three months ended June 30, 2000 declined $758 thousand or 3.5%
to $21 million, compared to $21.8 million for the same period in 1999. This
decline includes a $1.6 million or 13.7% decrease in e-Business Solutions
revenue made up primarily of a $1.4 million or 24.5% decrease in e-
Infrastructure Services and a related decrease in e-Infrastructure Product
Resales of $473 thousand or 13.7% offset by a $209 thousand or 7.3% increase in
e-Information Services revenue. The decrease in e-Infrastructure Services is due
to a transition of staffing services to Contractor's Resources and a decreasing
emphasis on systems integration . This decrease also is reflective of abnormally
high product resales in 1999 coupled with the effect of the Company's planned
move of product resales to third parties to decrease the cost of financing the
sales and to focus efforts more on services offerings. This overall decline in
revenue was offset by a $873 thousand or 8.9% increase in Contractor's Resources
revenue.
Gross profit for the three months ended June 30, 2000 declined $1.3 million or
26.4% to $3.5 million as compared to $4.8 million for the same period of 1999.
This decline includes increases in e-Information Services and Contractor's
resources of $123 thousand or 8.6% and $74 thousand or 21.1%, respectively,
offset by decreases in. e-Infrastructure Services and e-Infrastructure Product
Resales gross profits of $933 thousand or 49.9% and $537 thousand or 46.1%,
respectively.
Gross profit margins decreased to 16.8% for the three months ended June 30, 2000
from 22.1% in the same period of 1999. E-Information Services gross profit
margins increased from 50.2% in 1999 to 50.7% in 2000. e-Infrastructure gross
profit margins decreased from 33.5% in 1999 to 21.6% in 2000. This consisted of
decreases in e-Infrastructure Services gross profit margins from 33.5% in 1999
to 22.1% in 2000 and e-Infrastructure Product Resales gross profit margins from
33.6% in 1999 to 20.9% in 2000. Contractor's Resources gross profit margins
increased slightly from 3.6% in 1999 to 3.9% in 2000.
Segment operating expenses for the three months ended June 30, 2000 increased
$1.7 million or 55% to $4.8 million from $3.1 million for the same period of
1999. This increase includes increases in e-Information Services and
Contractor's Resources of $303 thousand or 37% and $1.6 million or 556.9%,
respectively offset by a $165 thousand or 8.3% decrease in e-Infrastructure.
Segment loss for the three months ended June 30, 2000 was $1.3 million as
compared to segment income of $1.7 million for the same period of 1999, a
decline of $3 million. This decline includes decreases in segment profits from
e-Information, e-Infrastructure and Contractor's Resources of $180 thousand or
29.2%, $1.3 million or 126%, and $1.5 million or 2,130%, respectively.
Corporate expense for the three months ended June 30, 2000 increased $1.2
million or 112% to $2.2 million from $1 million in the same period of 1999. This
increase reflects an additional investment in corporate development capability
to support the growth of operations and the integration of acquisitions.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the three months ended June 30, 2000 was a loss of $3.4 million as compared
to earnings of $684 thousand for the same period of 1999, a decline in EBITDA of
$4.1 million or 597%. The components of this decline are discussed above.
Depreciation, amortization, interest expense and minority interest for the three
months ended June 30, 2000 decreased $116 thousand to $440 thousand from $556
thousand for the same period of 1999. This decrease is principally due to
decreased amortization resulting from the write-off of goodwill and intangibles
of the PSS Group, Inc. in 1999.
No provision for income taxes was required for the three months ended June 30,
2000 due to the generation of net losses. No provision for income taxes was
required for the three months ended June 30, 1999 due to utilization of net
operating loss carryforwards generated in previous years.
Net loss for the three months ended June 30, 2000 was $3.8 million compared to
net income of $128 thousand in the same period of 1999, a decrease of $4
million. The components of this decrease are discussed above.
Six months ended June 30, 2000 compared to the six months ended June 30, 1999:
Revenue for the six months ended June 30, 2000 declined $3 million or 6.8% to
$41.4 million, compared to $44.5 million for the same period in 1999. This
decline includes a $4.8 million or 18.8% decrease in e-Business Solutions
revenue made up primarily of a $2.1 million or 19.1% decrease in e-
Infrastructure Services and a related decrease in e-Infrastructure Product
Resales of $3 million or 31.1% offset by a $255 thousand or 5% increase in e-
Information Services revenue. The decrease in e-Infrastructure Services is due
to a transition of staffing services to Contractor's Resources and a decreasing
emphasis on systems integration . This decrease also is reflective of abnormally
high
10
<PAGE>
product resales in 1999 coupled with the effect of the Company's planned move of
product resales to third parties to decrease the cost of financing the sales and
to focus efforts more on services offerings. This overall decline in revenue was
offset by a $1.8 million or 9.6% increase in Contractor's Resources revenue.
Gross profit for the six months ended June 30, 2000 declined $2.1 million or 23%
to $7 million as compared to $9.1 million for the same period of 1999. This
decline includes an increase in Contractor's resources of $119 thousand or 18.1%
offset by decreases in. e-Information Services, e-Infrastructure Services and e-
Infrastructure Product Resales gross profits of $332 thousand or 12.7%, $1.7
million or 47.8% and $163 thousand or 7.2%, respectively.
Gross profit margins remained constant at 20.5% for the six months ended June
30, 2000 compared to 1999. e-Information Services gross profit margins increased
from 23.9% in 1999 to 42.7% in 2000. e-Infrastructure gross profit margins
decreased from 28.4% in 1999 to 25.6% in 2000. This consisted of a decrease in
e-Infrastructure Services gross profit margins from 32.9% in 1999 to 21.2% in
2000 offset by an increase in e-Infrastructure Product Resales gross profit
margins from 23.4% in 1999 to 31.5% in 2000. Contractor's Resources gross profit
margins increased slightly from 3.5% in 1999 to 3.7% in 2000.
Segment operating expenses for the six months ended June 30, 2000 increased $3.8
million or 66.2% to $9.6 million from $5.7 million for the same period of 1999.
This increase includes increases in e-Information Services, e-Infrastructure
Services and Product Resales, and Contractor's Resources of $813 thousand or
58%, $117 thousand or 3.1% and $2.9 million or 532%, respectively.
Segment loss for the six months ended June 30, 2000 was $2.5 million as compared
to segment income of $3.4 million for the same period of 1999, a decline of $5.9
million. This decline includes decreases in segment profits from e-Information,
e-Infrastructure and Contractor's Resources of $1.1 million or 94.9%, $2 million
or 97.9%, and $2.8 million or 2,374%, respectively.
Corporate expense for the six months ended June 30, 2000 increased $2.2 million
or 110.6% to $4.2 million from $2 million in the same period of 1999. This
increase reflects an additional investment in corporate development capability
to support the growth of operations and the integration of acquisitions.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the six months ended June 30, 2000 was a loss of $6.7 million as compared to
earnings of $1.4 million for the same period of 1999, a decline in EBITDA of
$8.1 million or 587%. The components of this decline are discussed above.
Depreciation, amortization, interest expense and minority interest for the six
months ended June 30, 2000 decreased $212 thousand to $916 thousand from
$1.1million for the same period of 1999. This decrease is principally due to
decreased amortization resulting from the write-off of goodwill and intangibles
of the PSS Group, Inc. in 1999.
No provision for income taxes was required for the six months ended June 30,
2000 due to the generation of net losses. No provision for income taxes was
required for the six months ended June 30, 1999 due to utilization of net
operating loss carryforwards generated in previous years.
Net loss for the six months ended June 30, 2000 was $7.6 million compared to net
income of $250 thousand in the same period of 1999, a decrease of $7.9 million.
The components of this decrease are discussed above.
Liquidity and Capital Resources:
At June 30, 2000, the Company had cash and cash equivalents of $7.4 million. The
Company had $1.4 million outstanding on its line of credit facilities.
The following increased the Company's liquidity and capital resources:
For the six months ended June 30, 2000 the Company's cash increased by $3.2
million. This increase is comprised of cash used in operating activities of $4.7
million, cash used in investing activities of $1.4 million and cash provided by
financing activities of $9.3 million.
In March 2000, the Company issued prepaid warrants that resulted in net proceeds
to the Company of $1.3 million and issued convertible preferred stock that
resulted in net proceeds to the Company of $9.5 million.
Effective May 30, 2000, the Company amended its line of credit with First Union
National Bank so that it can now borrow up to an amount equal to 80% of eligible
accounts receivable, as described in the line of credit, but not more than $3.0
million. The line of credit with First Union National Bank expires on September
15, 2000. The terms of the line of credit require that the Company meet certain
financial and other covenants. Before we amended our line of credit on May 30,
2000, our line of credit allowed us to borrow up to an amount equal to 80% of
eligible accounts receivable, as described in the line of credit, but not more
than $6.0 million. Amounts borrowed under the amended
11
<PAGE>
line of credit bear interest at the bank's prime rate plus 3/4%, and outstanding
advances were $1.379 million at June 30, 2000. The loan is secured by
substantially all of the Company's tangible and intangible assets.
On July 31, 2000, the Company received an additional line of credit, secured by
the Company's assets, with Silicon Valley Bank. Under the Silicon Valley Bank
line of credit the Company can borrow up to an amount equal to 85% of its
eligible accounts receivable, as described in the line of credit, but not more
than $6.0 million. This line of credit expires on July 31, 2002 and bears
interest at the bank's prime rate plus 1.75%. The terms of the line of credit
require that the Company meet certain financial and other covenants, including
maintaining minimum tangible net worth of $4 million. The Company has also
agreed to maintain an interest-bearing deposit account of $2 million with the
bank.
Dividends of $301 thousand were paid on the Company's Class A and Class C
Cumulative Preferred Stock during the six months ended June 30, 2000.
At June 30, 2000, there were no accrued dividends on the Company's Class A and
Class C Cumulative Preferred Stock.
During the six months ended June 30, 2000, 29,364 shares of Class A Cumulative
Preferred Stock were converted into an equal number of shares of Common Stock.
The Class C shares are not eligible for conversion to Common Stock until
September 2003. The conversions of the Class A Cumulative Preferred Stock during
the six months ended June 30, 2000 will reduce the Company's obligation for
dividend payments by $1,835 per quarter ($7,341 annually).
Stock options and warrants to purchase 2,071,670 shares of the Company's Common
Stock were exercised during the six months ended June 30, 2000, generating cash
of $2.6 million for the Company.
Acquisitions and future plans.
Based on the Company's current operating plan, the Company believes that the
cash generated from operating activities, coupled with borrowings on its line of
credit facility, will be sufficient to meet the anticipated needs for working
capital and capital expenditure for at least the next 12 months. Thereafter, if
cash generated from operations is insufficient to satisfy the Company's
liquidity needs, the Company may seek to obtain additional capacity on its line
of credit, sell convertible debt securities or sell additional equity
securities. However, no assurances can be given that any such addition financing
sources will be available on acceptable terms or at all. The sale of convertible
debt securities or additional equity securities could result in additional
dilution to the Company's stockholders. Except as contemplated by the terms of
the Series D Preferred Stock, the Company has no current plans, agreements,
commitments, and is not engaged in any negotiations with respect to such
transactions.
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 that approximates the market
rate.
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds.
In May, 2000, in connection with a co-branded services arrangement we entered
into with one of our subsidiaries and TMP Interactive, Inc., we issued warrants
to TMP Interactive, Inc. for the right to purchase 3,000,000 shares of Netplex
common stock, consisting of (i) a warrant for the right to purchase 2,000,000
shares of common stock at an exercise price of $9.00, subject to certain
adjustments as stated therein, which expires May 2, 2003 and is not presently
exercisable (except under certain conditions as set forth in the warrant) and
(ii) a warrant for the right to purchase 1,000,000 shares of common stock at an
exercise price of $6.00, subject to certain adjustments as stated therein, which
expires May 2, 2003 and is currently exercisable. Exemption from registration is
claimed under Section 4(2) of the Securities Act because it did not involve a
public offering.
In May, 2000 in connection with a leasing arrangement, we issued a warrant to
Roseland II L.L.C. for the right to purchase 15,000 shares of our common stock
at an exercise price of $7.72 per share. The warrant expires on May 15, 2005.
Exemption from registration is claimed under Section 4(2) of the Securities Act
because it did not involve a public offering.
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<PAGE>
In July, 2000 in connection with a line of credit arrangement, we issued a
warrant to Silicon Valley Bank for the right to purchase 75,000 shares of our
common stock at an exercise price of $6.00 per share. The warrant expires on
July 31, 2005. Exemption from registration is claimed under Section 4(2) of the
Securities Act because it did not involve a public offering.
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals and matters were voted upon by the Company's
shareholders at the Annual Meeting of Shareholders held on June 30, 2000:
The persons listed below were elected as directors of the Company to serve
until the 2003 annual meeting of shareholders and until their successors have
been duly elected and qualified or until such director's earlier death,
resignation or removal. Directors are elected by a plurality of the votes cast,
in person or by proxy, at the meeting.
Name Votes For Votes Withheld
---- --------- --------------
J. Alan Lindauer 16,255,055 177,695
Pamela Fredette 16,230,232 202,518
The proposals listed below were approved in accordance with the
following guidelines: the affirmative vote of at least a majority of the
outstanding shares of Common Stock entitled to vote was required for approval of
the first proposal; and the affirmative vote of a majority of the votes cast, in
person or by proxy, was required for the ratification and approval of the second
and third proposals.
<TABLE>
<CAPTION>
Proposal In Favor Against Abstained/Not Voted
-------- -------- ------- -------------------
<S> <C> <C> <C>
To approve an amendment to the Certificate 15,901,317 418,758 112,675
of Incorporation of the Company, as
previously amended, to increase the number
of authorized shares of Common Stock of
the Company, par value $.001 per share
from 40,000,000 shares to 100,000,000
shares.
To ratify the selection of Grant Thornton 16,323,102 96,971 12,677
LLP as the Company's auditors for the year
ending December 31, 1999 and to approve
the selection of Grant Thornton LLP as the
Company's auditors for the year ending
December 31, 2000.
To approve the issuance of the shares of 6,208,037 400,827 9,823,886
Common Stock issuable upon conversion of
the Series D Preferred Stock and exercise of
related warrants.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 3, 2000 the Company filed an 8-K under Item 5 Other Events
pertaining to a private placement. On May 22, 2000 the Company filed an 8-K
under Item 5 Other Events pertaining to an agreement it entered into with
TMP Interactive, Inc.
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NETPLEX GROUP, INC.
(Registrant)
DATE: August 14, 2000 /s/ Gene Zaino
---------------------- ---------------------------
Gene Zaino
Chairman of the Board
(Principal Executive Officer)
DATE: August 14, 2000 /s/ Walton E. Bell, III
---------------------- ---------------------------
Walton E. Bell, III
Vice President and Chief
Financial Officer (Principal
Financial Officer)
DATE: August 14, 2000 /s/ Peter Russo
---------------------- ----------------------------
Peter Russo
Executive Vice President and Chief
Accounting Officer (Principal
Accounting Officer)
14
