<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
-------------------------------
For the quarterly period ended Commission file number 001-11784
September 30, 2000
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
----------------------------------------------------------------
(Address of principal executive offices and zip code)
(703) 716-4777
-------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------
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 6, 2000, 18,493,975 shares of the issuer's Common Stock were
outstanding.
1
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THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
b) Condensed Consolidated Statements of Operations
for the Three and Nine Months ended
September 30, 2000 and 1999 4
c) Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 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 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II. Other Information 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
Part I Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
Assets 2000 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,731 $ 4,239
Accounts receivable, net of allowance for doubtful
accounts of $358,345 and $342,000, respectively 6,733 6,765
Prepaid expenses and other current assets 659 826
--------- ---------
Total current assets 15,123 11,830
Property and equipment, net 1,477 1,590
Other assets 1,340 204
Goodwill and other intangible assets, net 3,474 4,437
Net assets of discontinued operations 5,915 8,356
--------- ---------
Total assets $ 27,329 $ 26,417
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,685 $ 3,295
Line of credit 4,386 5,126
Accrued expenses and other current liabilities 10,893 7,883
Capital lease obligation, current portion 13 108
Deferred revenues 58 33
--------- ---------
Total current liabilities 18,035 16,445
Capital lease obligations, net of current portion 168 168
Net liabilities of discontinued operations 1,674 2,460
--------- ---------
Total liabilities 19,877 19,073
--------- ---------
Commitments and contingencies
Minority interest in subsidiary 60 482
--------- ---------
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 September 30, 2000
and December 31, 1999, respectively 1 1
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 September 30, 2000 and
December 31, 1999, respectively 15 15
Class D Cumulative, $.01 par value; 15,000 shares authorized;
10,000 and no shares issued and outstanding at September 30,
2000 and December 31, 1999, respectively 1 0
Common Stock: $.001 par value, 100,000,000 shares authorized;
18,493,975 and 16,137,250 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 18 16
Additional paid in capital 34,815 21,762
Accumulated deficit (27,458) (14,932)
--------- ---------
Total stockholders' equity 7,392 6,862
--------- ---------
Total liabilities and stockholders' equity $ 27,329 $ 26,417
========= =========
</TABLE>
See notes to condensed consolidated statements
3
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- ---------- ----------- ---------
---------------- (Unaudited)----------------
<S> <C> <C> <C> <C>
Revenue
Services $ 4,112 $ 3,815 $ 10,731 $ 10,250
Product 419 671 2,091 1,542
-------- -------- -------- --------
4,531 4,486 12,822 11,792
-------- -------- -------- --------
Cost of revenues
Services 1,968 2,033 5,630 5,015
Product 338 558 1,559 1,100
-------- -------- -------- --------
2,306 2,591 7,189 6,115
-------- -------- -------- --------
Gross profit 2,225 1,895 5,633 5,677
Selling, general and administrative expenses 5,841 3,149 16,652 7,691
Restructure charges 1,512 0 1,512 0
-------- -------- -------- --------
Operating loss (5,128) (1,254) (12,531) (2,014)
Interest expense (income), net 17 116 (22) 319
-------- -------- -------- --------
Net loss before income taxes (5,145) (1,370) (12,509) (2,333)
Provision for (benefit from) income taxes -- -- -- --
-------- -------- -------- --------
Loss from continuing operations before
minority interest (5,145) (1,370) (12,509) (2,333)
Minority interest 170 -- 422 --
-------- -------- -------- --------
Loss from continuing operations (4,975) (1,370) (12,087) (2,333)
Income (loss) from discontinued operations
(net of income taxes) - Note B (429) (97) (951) 1,117
Gain on sale of discontinued operations (net
of income taxes) - Note B 513 -- 513 --
-------- -------- -------- --------
Net loss (4,891) (1,467) (12,525) (1,216)
Preferred Stock dividend (285) (118) (774) (356)
-------- -------- -------- --------
Loss applicable to common shareholders $ (5,176) $ (1,585) $(13,299) $ (1,572)
======== ======== ======== ========
Basic and diluted loss per common share $ (0.28) $ (0.12) $ (0.74) $ (0.13)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic and diluted 18,299 12,932 17,870 11,747
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated statements
4
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THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September September
30, 30,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Net cash provided (used) in operating activities $ (7,124) $ 66
-------- --------
Investing activities:
Net cash (paid) acquired in acquisitions and earnouts (24) (1,560)
Purchases of property and equipment (1,230) (390)
Other 133 (175)
-------- --------
Net cash used in investing activities (1,121) (2,125)
-------- --------
Financing activities:
Net proceeds from stock offerings 10,324 --
Net borrowings on line of credit (739) 995
Proceeds from the exercise of stock options and warrants 2,671 1,419
Payment of dividends on preferred stock (363) (186)
Principal payments on capital lease obligations -- 9
Proceeds from (payment of) other notes payable (207) 703
Proceeds from employee receivables 51 7
-------- --------
Net cash provided by financing activities 11,737 2,947
-------- --------
Increase in cash and cash equivalents 3,492 888
Cash and equivalents at beginning of period 4,239 870
-------- --------
Cash and equivalents at end of period $ 7,731 $ 1,758
======== ========
Supplemental information:
Cash paid during the period for:
Interest $ 262 $ 459
======== ========
Income taxes $ -- $ --
======== ========
</TABLE>
See notes to condensed consolidated statement
5
<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 September 30, 2000 and December 31, 1999 and the results of
its operations and its cash flows for the three and nine months ended September
30, 2000 and 1999. Interim results are not necessarily indicative of the results
that may be expected for the full year.
Note A -- Basis of Presentation
The accompanying financial statements include the accounts of The Netplex Group,
Inc. and its 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.
The accompanying consolidated financial statements reflect a change in the
manner the Company recognizes revenue in its Contractors Resources Segment
consistent with industry practice and in compliance with EITF 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent" and the Securities and
Exchange Commission's view on revenue recognition issued in Staff Accounting
Bulletin No. 101. CR currently recognizes as revenue the fees (net revenue) it
charges to its members for providing its back office services as these services
are provided. Previously, CR recorded as revenue, the gross billings from
services provided by its members to customers with whom it contracts, invoices
and collects on behalf of its members. This change has no effect on the net
income or loss reported from these operations. Accordingly, effective with the
issuance of the third quarter 2000 financial statements, the results of
operations for all periods presented have been restated for comparability
purposes to reflect this revenue recognition policy.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Gross revenue as previously reported $ 10,605 $ 9,112 $ 31,265 $ 27,954
=========== =========== =========== ==========
Net revenue $ 372 $ 328 $ 1,146 $ 984
=========== =========== =========== ==========
</TABLE>
Note B -- Discontinued Operations
On September 29, 2000, the measurement date, the Company announced its decision
to sell its e-Infrastructure operations. The Company is seeking a buyer for
various businesses within the e-Infrastructure segment and although it is
difficult to predict, the Company expects to complete the sales within the 12
months subsequent to the measurement date. Accordingly, effective with the
issuance of the third quarter 2000 financial statements, the results of
operations and the net assets of the Company's e-Infrastructure segment have
been classified as discontinued operations and prior periods have been restated.
The results of the discontinued segment do not reflect any interest or
management fees allocated by the Company. On September 29, 2000, the Company
signed an agreement to sell its Onion Peel subsidiary (previously included as a
part of the e-Infrastructure segment) for $1,093,000 ($708,000 of cash and
$375,000 of stock) and recorded a gain of $513,000. The Company believes that
6
<PAGE>
the remaining businesses within the segment will not generate future operating
losses prior to disposal and therefore no provision has been recorded in the
accompanying financial statements.
Note C -- Restructure Charge
In the third quarter of 2000, the Company recorded a restructure charge of
$1,512,000 primarily associated with the closing of the Company's Roseland, New
Jersey office and the related costs. Included in the total are the estimated
costs for facility closures, the write-down of redundant and duplicative
property, severance and other employee costs related to the facility closures
and duplicative position eliminations.
<TABLE>
<CAPTION>
Utilized Balance as
----------------------- of Sept 30,
(in thousands) Accrual Cash Noncash 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Write-down of Long Lived Assets $ 160 $ -- $ 160 $ --
Employee Severance and termination benefits 819 484 -- 335
Excess Facility Costs 403 -- -- 403
Other 130 -- -- 130
----------- ----------- ----------- -------------
$ 1,512 $ 484 $ 160 $ 868
----------- ----------- ----------- -------------
</TABLE>
Note D -- 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 nine months ended September 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.
Note E -- 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 extended the call option trigger date to October
31, 2000 (previously August 1, 2000). 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.
On November 10, 2000, the Company restructured the Series D Preferred Stock.
See Note H - "Subsequent Event" for a discussion of the Series D Preferred
Stock.
Note F -- 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.
In the third quarter of 2000, the Company had two reportable segments after the
reclassification of the e-Infrastructure segment as a discontinued operation.
All prior year's revenue, cost of services and operating expenses have been
restated to reflect this reclassification. Effective in the third quarter of
2000, the Company's reportable segments are as follows:
-- e-Solutions - provides professional services that constitute the strategic
and creative aspects of Netplex's e-solutions, as well as complete Internet-
based application development, business security and protection consulting
services and Retail Industry-focused consulting and integration services.
7
<PAGE>
-- Contractors 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.
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 September 30,
2000 and 1999:
<TABLE>
<CAPTION>
Segment
e-Solutions CR Total
-------------- ------------ ------------
<S> <C> <C> <C>
2000 - Three months:
Revenues $ 4,159 $ 372 $ 4,531
Gross profit 1,978 247 2,225
EBITDA 467 (1,305) (838)
---------------------------------------------------------------------------
1999 - Three months:
Revenues $ 4,158 $ 328 $ 4,486
Gross profit 1,659 236 1,895
EBITDA 825 (420) 405
---------------------------------------------------------------------------
2000 - Nine months:
Revenues $ 11,676 $ 1,146 $ 12,822
Gross profit 4,886 747 5,633
EBITDA 427 (3,334) (2,907)
---------------------------------------------------------------------------
1999 - Nine months:
Revenues $ 10,808 $ 984 $ 11,792
Gross profit 4,988 689 5,677
EBITDA 2,604 (305) 2,299
---------------------------------------------------------------------------
Total assets:
-------------
September 30, 2000: $ 8,326 $ 7,641 $ 15,967
Discontinued 5,915
Unallocated 5,447
---------------------------------------------------------------------------
Total $ 27,329
---------------------------------------------------------------------------
September 30, 1999: $ 8,437 $ 8,722 $ 17,159
Discontinued 7,468
Unallocated 1,396
---------------------------------------------------------------------------
Total $ 26,023
---------------------------------------------------------------------------
</TABLE>
Reconciliation of Segment EBITDA to Net Operating Loss:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September September September September
30, 30, 30, 30,
------------ ------------ ------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Segment EBITDA $ (838) $ 405 $ (2,907) $ 2,299
Unallocated corporate expenses (1,986) (1,251) (6,210) (3,233)
Restructure charges (1,512) -- (1,512) --
Depreciation & amortization (622) (408) (1,480) (1,080)
Interest expense, net (17) (116) 22 (319)
Tax expense -- -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations (4,975) (1,370) (12,087) (2,333)
Income (loss) from discontinued operations,
net of tax (429) (97) (951) 1,117
Gain on disposal of discontinued operations 513 -- 513 --
------------ ------------ ------------ ------------
Net operating loss $ (4,891) $ (1,467) $ (12,525) $ (1,216)
============ ============ ============ ============
</TABLE>
8
<PAGE>
Note G -- Recent Accounting 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 adopted FIN 44 during the fiscal quarter ended September 30, 2000.
The adoption of FIN 44 did not have a significant effect on the Company's
results of operations or its financial position.
Note H - Subsequent Event
Restructuring of Series D Preferred Stock; Issuance of Series E Preferred Stock
On November 10, 2000, the Company, a New York corporation, entered into an
Exchange, Redemption and Conversion Agreement (the "Exchange Agreement") with
the holders of the Company's Series D Preferred Stock, HFTP Investment L.L.C.,
Fisher Capital Ltd. and Wingate Capital Ltd., that provides for the following:
-- the exchange of $6,177,000 of the original face amount of the Series D
Preferred Stock and warrants held by the holders of the Series D Preferred
Stock in exchange for the Company's issuance of $3,000,000 of its new Series
E Preferred Stock;
-- the waiver by the holders of the Series D Preferred Stock of their right to
receive further dividends under the Series D Preferred Stock
-- the waiver of certain other rights of the holders of the Series D Preferred
Stock, including the right to acquire additional shares of Series D
Preferred Stock, the right to require the Company to redeem the Series D
Preferred Stock upon the occurrence of certain events beyond the Company's
control, and the waiver of certain anti-dilution rights.
Also, as part of the agreement, the Company redeemed 500 of the remaining 3,823
shares of Series D Preferred Stock at their original face value of $500,000, and
sold to the holders of the Series D Preferred Stock 1,000 shares of the
Company's common stock at a price of $0.65625 per share. As a result of that
sale, the remaining 3,323 shares of Series D Preferred Stock will have an
adjusted conversion price of $.65625. Upon execution of the agreements, the
Series D Preferred Stockholders converted 1,178 shares of Series D Preferred
Stock into 1,808,473 shares of common stock. The remaining 2,145 shares of
Series D Preferred Stock that they hold will be convertible into 3,293,020
shares of common stock.
The Series E Preferred Stock has terms similar to the restructured Series D
Preferred Stock, with the primary exceptions being that the Series E Preferred
Stock is redeemable for $3,000,000 at the Company's option on or before April
30, 2001, provided that the Company redeems at least $1,500,000 of such stock on
or before January 30, 2001 and the Series E Preferred Stock accrues dividends at
the rate of 7% per year. If the Series E Preferred Stock is not redeemed or upon
the occurrence of certain other events, it becomes convertible into shares of
common stock at a conversion price of $0.47 per share. Pursuant to a related
Registration Rights Agreement, the Company has agreed to register with the
Securities and Exchange Commission, within 90 days of the issuance of the Series
E Preferred Stock, the resale of the 1,000 additional shares of common stock
sold as part of the transaction as well as the shares issuable to the holders of
the Series E Preferred Stock upon conversion of that stock to common stock.
As a result of the above, the Company has classified the Series D Preferred
Stock as equity in the accompanying financial statements. Previously, the
Series D Preferred Stock was classified as Temporary Equity since the Holder had
the option, based in the occurrence of certain events outside of the Company's
control, to redeem the Series D Preferred Stock into cash.
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
9
<PAGE>
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 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 nine months ended September 30,
2000 and 1999:
Consolidated Operating Results by Segment
(amounts in 000's)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenues
e-Solutions services $ 3,740 $ 3,487 $ 9,585 $ 9,266
e-Solutions product resales 419 671 2,091 1,542
-------------- ------------- ------------- -------------
e-Solutions 4,159 4,158 11,676 10,808
Contractors Resources 372 328 1,146 984
-------------- ------------- ------------- -------------
Operating revenues 4,531 4,486 12,822 11,792
-------------- ------------- ------------- -------------
Gross profit
e-Solutions services 1,897 1,546 4,353 4,546
e-Solutions product resales 81 113 533 442
-------------- ------------- ------------- -------------
e-Solutions 1,978 1,659 4,886 4,988
Contractors Resources 247 236 747 689
-------------- ------------- ------------- -------------
Gross profit 2,225 1,895 5,633 5,677
-------------- ------------- ------------- -------------
Gross profit percentage
e-Solutions services 50.7% 44.3% 45.4% 49.1%
e-Solutions product resales 19.4% 16.8% 25.5% 28.7%
-------------- ------------- ------------- -------------
e-Solutions 47.6% 39.9% 41.8% 46.1%
Contractors Resources 66.6% 72.0% 65.2% 70.0%
-------------- ------------- ------------- -------------
Gross profit percentage 49.1% 42.2% 43.9% 48.1%
-------------- ------------- ------------- -------------
Operating expenses
e-Solutions 1,511 834 4,459 2,384
Contractors Resources 1,552 656 4,081 994
-------------- ------------- ------------- -------------
Operating expenses 3,063 1,490 8,540 3,378
-------------- ------------- ------------- -------------
Operating income (loss)
e-Solutions 467 825 427 2,604
Contractors Resources (1,305) (420) (3,334) (305)
-------------- ------------- ------------- -------------
Operating income (loss) (838) 405 (2,907) 2,299
-------------- ------------- ------------- -------------
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Corporate expenses (1,986) (1,251) (6,210) (3,233)
Restructure charges (1,512) -- (1,512) --
-------------- ------------- ------------- -------------
EBITDA (4,336) (846) (10,629) (934)
Depreciation and amortization (622) (408) (1,480) (1,080)
Interest income (expense) (17) (116) 22 (319)
Tax expense -- -- -- --
-------------- ------------- ------------- -------------
Loss from continuing operations (4,975) (1,370) (12,087) (2,333)
Income (loss) from discontinued operations,
net of tax (429) (97) (951) 1,117
Gain on disposal of discontinued operations 513 -- 513 --
-------------- ------------- ------------- -------------
Net operating ( loss) $ (4,891) $ (1,467) $ (12,525) $ (1,216)
============== ============= ============= =============
</TABLE>
Results of Operations:
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999:
Revenue. Revenue for the three months ended September 30, 2000 was $4.5
million, unchanged from the same period in 1999. Revenue for e-Solutions
services increased $0.3 million which was offset by a decrease of $0.3 million
in e-Solutions product resale revenue.
Revenue for CR reflects a change in the manner the Company recognizes revenue
consistent with industry practice and in compliance with EITF 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent" and the Securities and
Exchange Commission's view on revenue recognition issued in Staff Accounting
Bulletin No. 101. CR currently recognizes as revenues the fees (net revenue) it
charges to its members for providing its back office services as these services
are provided. Previously, CR recorded as revenue, the gross billings from
services provided by its members to customers with whom it contracts, invoices
and collects on behalf of its members. This change has no effect on the net
income or loss reported from these operations. Accordingly, effective with the
issuance of the third quarter 2000 financial statements, the results of
operations for all periods presented have been restated for comparability
purposes to reflect this revenue recognition policy.
Gross profit for the three months ended September 30, 2000 increased $0.3
million or 17.4% to $2.2 million as compared to $1.9 million for the same period
of 1999. This increase resulted primarily from the increase in e-Solutions
services gross profit due to an increase in service revenue coupled with
improvements in utilization of the technical staff.
Gross profit margins increased to 49.1% for the three months ended September 30,
2000 from 42.2% in the same period of 1999. E-solution services gross profit
margins increased from 44.3% in 1999 to 50.7% in 2000. e-Solution Product
Resales gross profit margins increased from 16.8% in 1999 to 19.4% in 2000.
Contractors Resources gross profit margins decreased from 72.0% in 1999 to 66.6%
in 2000.
Segment operating expenses for the three months ended September 30, 2000
increased $1.6 million or 105.8% to $3.1 million from $1.5 million for the same
period of 1999. This increase includes increases in e-Solutions and Contractors
Resources of $0.7 million or 81.3% and $0.9 million or 136.5%, respectively.
Theses increases resulted primarily from increased sales and marketing programs
at e-Solutions and the fees paid to TMP Interactive, Inc. under the co-branding
services arrangement with Contractors Resources.
Segment loss for the three months ended September 30, 2000 was $0.8 million as
compared to segment income of $0.4 million for the same period of 1999, a
decline of $1.2 million. This decline includes decreases in segment profits from
e-Solution and Contractors Resources of $0.3 million or 43.4% and $0.9 million
or 210.6%, respectively which were principally a result of the increased segment
operating expenses noted above and the decreased profit from product resales
consistent with the strategy to focus on service based solutions.
Corporate expense for the three months ended September 30, 2000 increased $0.7
million or 58.8% to $2.0 million from $1.3 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. Subsequently, as a result of the restructuring and discontinued
operations, corporate expenses are expected to decrease.
Restructuring charges of $1.5 million for the three month period ended September
30, 2000 were the result of the closing of the Company's Roseland, New Jersey
office, including related workforce reductions. There was no comparable charge
in the same period of 1999.
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Earnings (from continuing operations) before interest, income taxes,
depreciation and amortization ("EBITDA") for the three months ended September
30, 2000 was a loss of $4.3 million as compared to a loss of $0.8 million for
the same period of 1999, a decline in EBITDA of $3.4 million or 412.5%. The
components of this decline are discussed above.
Depreciation, amortization and interest expense for the three months ended
September 30, 2000 increased $0.1 million to $0.6 million from $0.5 million for
the same period of 1999. This increase is principally due to the amortization of
the developed software for the Contractors Resources operation.
Loss from discontinued operations for the three month period ended September 30,
2000 was $0.4 million compared to $0.1 million for the same period in 1999, an
increase of $0.3 million or 342.3%. See Note B to the financial statements for
a description of the discontinued operations.
Gain on the disposal of discontinued operations for the three month period ended
September 30, 2000 was $0.5 million and related to the sale of the Onion Peel
subsidiary operations. There was no comparable gain in the same period of 1999.
See Note B to the financial statements for a description of the gain on the
disposal of discontinued operations.
No provision for income taxes was required for the three months ended September
30, 2000 due to the generation of net losses. No provision for income taxes was
required for the three months ended September 30, 1999 due to utilization of net
operating loss carryforwards generated in previous years.
Net loss for the three months ended September 30, 2000 was $4.9 million compared
to a net loss of $1.5 million in the same period of 1999, an increase in net
loss of $3.4 million. The components of this increase are discussed above.
Nine months ended September 30, 2000 compared to the nine months ended September
30, 1999:
Revenue for the nine months ended September 30, 2000 increased $1.0 million or
6.5% to $12.8 million, compared to $11.8 million for the same period in 1999.
This increase includes a $0.9 million or 8.0% increase in e-Solution revenue
made up of a $0.5 million or 25.8% increase in e-Solutions product resales and
an increase of $0.3 or 2.6% in e-Solution services. This overall increase in
revenue was augmented by a $0.2 million or 11.8% increase in Contractors
Resources revenue.
Gross profit for the nine months ended September 30, 2000 remained relatively
unchanged from the same period of 1999. Contractors Resources gross profit
increased $0.1 million or 6.0% offset by decreases in e-Solutions gross profits
of $0.1 million or 0.2%. The e-Solutions services gross losses increased $0.2
million or 3.2% were partially offset by e-Solutions product resales gross
profit increases of $0.1 million or 15.1%.
Gross profit margins decreased to 43.9% for the nine months ended September 30,
2000 compared to 48.1% for the same period in 1999. e-Solutions services and
product resales gross profit margins decreased from 49.1% and 28.6% in 1999 to
45.4% and 25.5% in 2000, respectively. This decrease in e-Solution services was
primarily due to lower technical staff utilization levels in the nine months
ended September 30, 2000 compared to the same period in 1999. Contractors
Resources gross profit margin decreased from 70.0% in 1999 to 65.2% in 2000.
Segment operating expenses for the nine months ended September 30, 2000
increased $5.1 million or 81.2% to $8.5 million from $3.4 million for the same
period of 1999. This increase included increases in e-Solutions and Contractors
Resources of $2.0 million or 54.3% and $3.1 million or 121.9%, respectively.
The increase in the Contractors Resources' operating expenses was due primarily
to the fees paid to TMP Interactive, Inc. under the co-branding services
arrangement.
Segment loss for the nine months ended September 30, 2000 was $2.9 million as
compared to a segment income of $2.3 million for the same period of 1999, a
decline of $5.2 million or 432.4%. This decline includes decreases in segment
profits from e-Solutions and Contractors Resources of $2.2 million or 78.8% and
$3.0 million or 194.6%, respectively.
Corporate expense for the nine months ended September 30, 2000 increased $3.0
million or 49.6% to $6.2 million from $3.2 million in the same period of 1999.
This increase reflects the additional investment in corporate development
capability to support the growth of operations and the integration of
acquisitions. Subsequently, as a result of the restructuring and discontinued
operations, corporate expenses are expected to decrease.
Restructuring charges of $1.5 million for the nine month period ended September
30, 2000 were the result of the closing of the Company's Roseland, New Jersey
office, including related workforce reductions. There was no comparable charge
in the same period of 1999.
Earnings (from continuing operations) before interest, income taxes,
depreciation and amortization ("EBITDA") for the nine months ended September 30,
2000 was a loss of $7.7 million as compared to a loss of $3.2 million for the
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same period of 1999, a decline in EBITDA of $4.5 million or 138.8%. The
components of this decrease are discussed above.
Depreciation, amortization, interest expense and minority interest for the nine
months ended September 30, 2000 increased $0.1 million to $1.5 million from $1.4
million for the same period of 1999. This increase is principally due to the
amortization of the developed software for the Contractors Resources operation.
Loss from discontinued operations for the nine month period ended September 30,
2000 was $1.0 million compared to an income from discontinued operations of $1.1
million for the same period in 1999, an decrease of $2.1 million or 185.1%. See
Note B to the financial statements for a description of the discontinued
operations.
Gain on the disposal of discontinued operations for the nine month period ended
September 30, 2000 was $0.5 million. There was no comparable gain in the same
period of 1999. See Note B to the financial statements for a description of the
gain on the disposal of discontinued operations.
No provision for income taxes was required for the nine months ended September
30, 2000 due to the generation of net losses. No provision for income taxes was
required for the nine months ended September 30, 1999 due to utilization of net
operating loss carryforwards generated in previous years.
Net loss for the nine months ended September 30, 2000 was $12.5 million compared
to $1.2 million in the same period of 1999, a decrease of $11.3 million or
930.0%. The components of this decrease are discussed above.
Liquidity and Capital Resources:
At September 30, 2000, the Company had cash and cash equivalents of $7.7
million. The Company had $4.4 million outstanding on its line of credit
facilities.
The following increased the Company's liquidity and capital resources:
For the nine months ended September 30, 2000 the Company's cash increased by
$3.5 million. This increase is comprised of cash used in operating activities of
$7.1 million, cash used in investing activities of $1.1 million and cash
provided by financing activities of $11.7 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.
On July 31, 2000, the Company received a 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 $4.0 million. The Company has also agreed to
maintain an interest-bearing deposit account of $2.0 million with the bank. The
Company has borrowed approximately $4,386,000 under the line of credit at
September 30, 2000. As of September 30, 2000, the Company was not in compliance
with the covenant that requires it to maintain tangible net assets of
$4,000,000. The bank was notified but did not issue a notice of default. The
Company and the Bank are in discussions to resolve the matter and negotiate an
amendment to the loan agreement as soon as practical.
Dividends of $0.4 million were paid on the Company's Class A, Class C Class D
Cumulative Preferred Stock during the nine months ended September 30, 2000.
At September 30, 2000, there were $0.1 million of accrued dividends on the
Company's Class D Cumulative Preferred Stock. The Company subsequently issued
common stock in lieu of cash as payment of those dividends.
During the nine months ended September 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 nine months ended September 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 2,078,752 shares of the Company's Common
Stock were exercised during the nine months ended September 30, 2000, generating
cash of $2.7 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
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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 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.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the nine month period ended
September 30, 2000.
27.2 Restated Financial Data Schedule for the nine month period ended
September 30, 1999.
(a) Reports on Form 8-K
During the fiscal quarter ended September 30, 2000, the Company did not
file any reports on Form 8-K.
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SIGNATURE
---------
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: November 14, 2000 /s/ Gene M. Zaino
-------------------------
Gene M. Zaino
Chairman of the Board
(Principal Executive Officer)
DATE: November 14, 2000 /s/ Peter J. Russo
-------------------------
Peter J. Russo
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
15
