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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the quarterly period ended Commission file number 001-11784
June 30, 2002
THE NETPLEX GROUP, INC.
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(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
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(Address of principal executive offices and zip code)
(703) 716-4777
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(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 14, 2002, 23,050,360 shares of the issuer's Common Stock were
outstanding.
1
THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 3
b) Condensed Consolidated Statements of Operations for the Three and Six Months ended
June 30, 2002 and 2001 4
c) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30,
2002 and 2001 5
d) Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II Other Information 17
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
Part I Financial Information
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
June 30, December 31,
Assets 2002 2001
------------ -------------
Current assets:
Cash and cash equivalents $ 1,824 % 1,251
Accounts receivable, net of allowance for doubtful accounts of $68 and
$186, at June 30, 2002 and December 31, 2001, respectively 221 399
Prepaid expenses and other current assets 324 385
Current assets of discontinued operations 1,945 2,146
------------ -------------
Total current assets 4,314 4,181
Property and equipment, net 352 579
Other assets 200 157
Goodwill, net 124 124
Long-term assets of discontinued operations 1,063 3,646
------------ -------------
Total assets $ 6,053 $ 8,687
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ -- $ 128
Accounts payable 1,942 2,264
Accrued compensation and other accrued expenses 3,705 4,676
Accrued litigation settlements 65 1,510
Capital lease obligation, current portion 67 109
Note payable, current portion 60 1,062
Other current liabilities 105 102
Current liabilities of discontinued operations 2,301 3,054
------------ -------------
Total current liabilities 8,245 12,905
Capital lease obligations long-term, net of current portion 2 2
Note payable, net of current portion 2,071 825
------------ -------------
Total liabilities 10,318 13,732
------------ -------------
Commitments and contingencies
Minority interest in subsidiary -- 1,000
------------ -------------
Stockholders' equity
Preferred Stock:
Class A Cumulative, $.01 par value, liquidation preference of $4.00 per
share for 2001 and 2000; 2,000,000 shares authorized, 80,597 shares
issued and outstanding at June 30, 2002 and December 31, 2001 1 1
Class D Cumulative, $.01 par value; liquidation preference of $5,000
per share; 10,000 shares authorized; 1,324 and outstanding at June 30,
2002 and December 31, 2001 1 1
Class E Cumulative, $.01 par value; liquidation preference of $1,000
per share; 3,000 shares authorized, issued and outstanding at June 30,
2002 and December 31, 2001 1 1
Common Stock: $.001 par value, 100,000,000 shares authorized,
23,050,360 shares issued and outstanding at June 30, 2002 and December
31, 2001, respectively 23 23
Additional paid in capital 32,969 32,583
Accumulated deficit (37,260) (38,654)
------------ -------------
Total stockholders' equity (4,265) (6,045)
------------ -------------
Total liabilities and stockholders' equity $ 6,053 $ 8,687
============ =============
See accompanying notes to consolidated financial statements.
3
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- --------
(Unaudited) (Unaudited)
Revenue $ 578 $ 935 $ 1,178 $ 1,344
Cost of revenues 300 575 587 652
--------- --------- --------- --------
Gross profit 278 360 591 692
--------- --------- --------- --------
Selling, general and administrative expenses 895 1,737 1,881 3,342
--------- --------- --------- --------
Operating loss (617) (1,377) (1,290) (2,650)
Interest (expense) income, net (33) 10 (92) 18
--------- --------- --------- --------
Net loss before income taxes (650) (1,367) (1,382) (2,632)
Provision for income taxes -- -- -- --
--------- --------- --------- --------
Loss from continuing operations before extraordinary items (650) (1,367) (1,382) (2,632)
Income (loss) from discontinued operations (net of income
taxes) 457 (824) 491 (986)
Gain on sale of discontinued operation (net of income taxes) 1,579 -- 1,579 --
--------- --------- --------- --------
Income (loss) before extraordinary gain 1,386 (2,191) 688 (3,618)
--------- --------- --------- --------
Extraordinary gains, net of income taxes 707 -- 707 --
--------- --------- --------- --------
Net income (loss) 2,093 (2,191) 1,395 (3,618)
Preferred Stock dividend (58) (223) (114) (442)
--------- --------- --------- --------
Income (loss) applicable to common shareholders $ 2,035 $ (2,414) $ 1,281 $(4,060)
========= ========= ========= ========
Basic earnings (loss) per common share:
Continuing operations $ (0.03) $ (0.07) $ (0.07) $ (0.14)
Discontinued operations 0.09 (0.04) 0.09 (0.04)
Extraordinary items, net of tax 0.03 -- 0.03 --
========= ========= ========= ========
Total $ 0.09 $ (0.11) $ 0.06 $ (0.18)
========= ========= ========= ========
Diluted earnings (loss) per common share:
Continuing operations $ (0.01) $ (0.07) $ (0.02) $ (0.14)
Discontinued operations 0.02 (0.04) 0.02 (0.04)
Extraordinary items, net of tax 0.01 -- 0.01 --
========= ========= ========= ========
Total $ 0.02 $ (0.11) $ 0.01 $ (0.18)
========= ========= ========= ========
Weighted average common shares outstanding:
Basic 23,050 22,709 23,050 21,959
========= ========= ========= ========
Diluted 92,973 22,709 92,973 21,959
========= ========= ========= ========
See accompanying notes to consolidated financial statements.
4
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended
June 30,
2002 2001
--------- ---------
(Unaudited)
Net cash used in operating activities $ (2,569) $ (3,281)
--------- ---------
Net cash provided by (used in) discontinued operations (199) 1,367
--------- ---------
Investing activities:
Proceeds from sale of Retail Division 4,300 --
Purchases of property and equipment -- (381)
Other (43) 390
--------- ---------
Net cash provided by investing activities 4,257 9
--------- ---------
Financing activities:
Net borrowings on line of credit (128) (195)
Repayment of notes payable (788) --
--------- ---------
Net cash used in financing activities (916) (195)
--------- ---------
Decrease in cash and cash equivalents 573 (2,100)
Cash and equivalents at beginning of period 1,251 3,813
--------- ---------
Cash and equivalents at end of period $ 1,824 $ 1,713
========= =========
Supplemental information:
Cash paid during the period for:
Interest $ 98 $ 118
========= =========
Income taxes $ -- $ --
========= =========
Restructure of equity/debt:
Minority Interest in Subsidiary $ (1,000) $ --
Note Payable 500 --
Preferred Stock 500 --
--------- ---------
$ -- $ --
========= =========
Extraordinary Item - debt forgiveness:
Obligations related to acquisition $ 363 $ --
Litigation settlements 20 --
Lease obligations 324 --
--------- ---------
$ 707 $ --
========= =========
See accompanying notes to consolidated financial statements.
5
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
The accompanying unaudited condensed consolidated financial statements of The
Netplex Group, Inc. and Subsidiaries ( 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, 2001.
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, 2002 and December 31, 2001, the results of its
operations for the three and six months ended June 30, 2002 and 2001 and its
cash flows for the six months ended June 30, 2002 and 2001. 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 material intercompany transactions were
eliminated in consolidation.
The Company has incurred significant losses from operations and has used cash in
operations in each of the last five years. In addition, as of June 30, 2002, the
Company has a stockholders' deficit of approximately $4.3 million and a working
capital deficit of approximately $3.9 million. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not contain any adjustments that might
result from the outcome of this uncertainty.
Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services. In 2001, the Company did experience lower
operating losses than those reported in 2000 and a reduction in cash used in
operations. However, given the Company's current operating outlook and
continuing economic uncertainty, the Company's liquidity and financial position
are such that additional capital will be needed in 2002 to sustain operations.
In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary.
Management chose to not pursue the rights offering further, choosing instead to
entertain offers for the operations comprising Netplex Systems (either as a
whole or in parts). In March 2002, the Company entered into non-binding letter
of intent to sell the assets of its retail consulting business. On May 15, 2002,
the Company consummated the transaction pursuant to an Asset Purchase Agreement
by and between the Company and CGI Information Systems & Management Consultants,
Inc. ("CGI"). Under the terms of the Asset Purchase Agreement, CGI has acquired
the net assets associated with the Retail Practice Division as of April 26, 2002
from the Company for $4.3 million in cash. The Company recorded a gain from this
sale in the second quarter of 2002 of approximately $1.6 million.
6
Concurrent with the sale of the net assets of the Retail Practices Division to
CGI, the Company entered into a Workout and Collateral Release Agreement with
Waterside Capital Corporation ("Waterside") whereby Waterside:
(1) agreed to release its security interest in the assets of the Retail
Practices Division,
(2) agreed to exchange 500 shares of Netplex Systems, Inc. Series A
Preferred Stock bearing an annual dividend rate of 10% for a Secured
Commercial Note for $500,000 from The Netplex Group, Inc. bearing an
annual interest rate of 9%,
(3) agreed to exchange 500 shares of Netplex Systems, Inc. Series A
Preferred Stock bearing an annual dividend rate of 10% for 500 shares
of The Netplex Group, Inc.'s Preferred Stock bearing an annual dividend
rate of 9%, and
(4) received approximately $341,000 of the sales proceeds to be applied to
dividends, principle and interest due associated with the Netplex
Systems, Inc. Series A Preferred Stock and notes payable by both
Netplex Systems, Inc. and The Netplex Group, Inc.
In addition, the Company continues to entertain offers for the remaining
businesses within its Netplex Systems business.
The Company restructured certain of its obligations and liabilities during the
second quarter of 2002 which resulted in an $0.7 million extraordinary gain for
the period, net of income taxes. The extraordinary items included the
extinguishment of $0.3 million of rent liabilities related to excess office
space and the reduction of $0.4 million of obligations associated with the
acquisition of the PSS Group, Inc. in 1998. There was no income tax charges
associated with these extraordinary gains as they were offset in their entirety
by the Company's net operating losses. Additionally, the Company restructured
its $1.4 million litigation settlement debt, $1.1 million of which was currently
due and $0.3 million which was payable December 31, 2002, as follows:
o Payment of $505,000 million cash in May 2002;
o Commitment to pay 20% of the proceeds, in excess of $2.0 million, from the
sale of the Systems Integration Division of Netplex Systems, Inc.
(included in discontinued operations); and
o Commitment to pay an additional payment if on or before May 23, 2007, the
proceeds received either from the sale of the Company, or the reported
market capitalization of the Company for any consecutive five-day period,
exceeds $20.0 million, then commensurate with such sale or within thirty
days of attaining such market capitalization, as the case may be, Netplex
shall pay an amount equal to the lesser of (i) such excess or (ii)
$895,000. The Company reclassified $895,000 of the litigations settlement
as a long term debt as of June 30, 2002.
Management intends to focus on improving the operations of its Contractors
Resources business by growing both its business to consumer service ("Member
Services") and its business to business service ("Business Services") offerings.
Critical to the success of these operations is the Company's ability to continue
to attract members to the Member Services segment and to grow the Business
Services segment by obtaining contracts and master agreements with employers who
contract with large numbers of independent consultants.
Revenue from consulting service contracts in the Company's Member Services
segment is recognized as the fees (net revenue) it charges to its members for
providing its back office services as these services are provided. Gross
billings generated by Member Services segment operations for the three and six
month periods ended June 30, 2002 were $6.2 million and $12.9 million,
respectively and for the three and six month periods ended June 30, 2001 were
$9.6 million and $19.8 million, respectively.
The Company recognizes revenue in its Business Services segment based on the
gross amount billed to the customer derived from the hours worked and the
contractual rate applied to those hours. This policy is consistent with the
guidance provided by EITF 99-19 considering the Company has credit risk for the
gross amounts of each transaction and can assert certain rights over the
activities of each consultant.
The Company amortized goodwill recognized prior to July 1, 2001, until January
1, 2002. Effective January 1, 2002, in accordance with the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations, and SFAS 142, Goodwill and Intangible Assets, goodwill is
no longer subject to amortization. The Company completed a transitional fair
value based impairment test of goodwill and determined that goodwill has not
suffered any impairment.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Note B -- Discontinued Operations
In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary. In
January 2002 management made the decision
7
to not pursue the rights offering, choosing instead to entertain offers for the
operations comprising Netplex Systems (either as a whole or in parts). In March
2002, the Company entered into non-binding letter of intent to sell the assets
of its retail consulting business. On May 15, 2002, The Netplex Group, Inc. (the
"Company") consummated the transaction pursuant to an Asset Purchase Agreement
by and between the Company and CGI Information Systems & Management Consultants,
Inc. ("CGI"). Under the terms of the Asset Purchase Agreement, CGI has acquired
the net assets associated with the Retail Practice Division as of April 26, 2002
from the Company for $4.3 million in cash. The Company recorded a gain from this
sale in the second quarter of 2002 of approximately $1.6 million.
In addition, the Company continues to entertain offers for the remaining
businesses within its Netplex Systems business.
In accordance with the Statement of Financial Accounting Standard No, 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the results of
operations and the net assets of Netplex Systems have been classified as
discontinued operations as of June 30, 2002 and prior periods have been
restated. The major classes of assets and liabilities as of June 30, 2002 and
2001 and amounts of revenue and pretax profit or loss for the three and six
months ended June 30, 2002 and 2001 reported in discontinued operations of
Netplex Systems are as follows:
2002 2001
------------------------
(amounts in thousands)
Accounts receivable $ 1,918 $ 2,515
Fixed assets, net $ 33 $ 720
Goodwill $ 1,026 $ 2,679
Other Intangibles $ -- $ 1,084
Accrued compensation $ 311 $ 1,198
Other liabilities $ 1,990 $ 2,010
Three months:
Revenue $ 3,081 $ 4,314
Pretax income (loss) $ 457 $ (824)
Six months:
Revenue $ 6,045 $ 12,540
Pretax income (loss) $ 491 $ (986)
The discontinued revenue and pretax profit applicable to the Retail
Practices Division which was sold on May 15, 2002 is as follows:
2002 2001
------------------------
(amounts in thousands)
Three months:
Revenue $ 527 $ 2,655
Pretax income (loss) $ 51 $ (537)
Six months:
Revenue $ 1,948 $ 6,117
Pretax income (loss) $ 81 $ (786)
The Company believes Netplex Systems will not generate future operating
losses prior to disposal.
Note D -- Financing
The Company's subsidiary, Netplex Systems, Inc. ("Systems") is a party to a
Commercial Revolving Loan, Demand Loan and Security Agreement ("Revolving Loan")
with American Commercial Finance Corporation ("Lender") which expires on March
31, 2003. Under the Revolving Loan, Systems can borrow an amount equal to 80% of
eligible accounts receivable as defined in the agreement, up to $3.0 million. .
The Revolving Loan bears interest at the prime rate plus 1.75% (6.5% as of June
30, 2002) and is secured by (i) System's , the Company's and each of
8
the Company's subsidiaries' assets, (ii) a $400,000 guaranty from a shareholder,
Waterside Capital (the "Guaranty") and (iii) fidelity guaranties from two of the
Company's officers. On May 15, 2002, the Lender released the Guaranty. On June
1, 2002, Systems and the Lender executed the First Amendment to the Commercial
Revolving Loan and Security Agreement whereby the maximum principal amount was
adjusted from $3.0 million to $1.0 million. As of June 30, 2002 the balance
outstanding on the Revolving Loan was approximately $675,000, all of which is
classified as discontinued operations. In July, the Company paid off the
remaining balance of the Revolving Loan and the line of credit was closed.
Note E -- 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 months ended June 30, 2001, the assumed exercise
of the Company's outstanding stock options and warrants, Convertible Preferred
Stock and contingently issuable shares in connection with certain business
combinations would be anti-dilutive. The anti-dilutive outstanding stock options
and warrants, Convertible Preferred Stock, and contingently issuable shares,
combined, total approximately 77,666,595 and 76,916,183 shares outstanding at
the three and six months ended June 30, 2001, respectively.
The computation of the numerator and denominator in the basic and dilutive
earnings per share calculation for the three and six month period ended June 30,
2002 is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2002 2002
--------------------------------
Numerator:
Basic income applicable to common shareholders $ 2,035 $ 1,281
Add: Preferred Stock dividends 58 114
----------------------------
Diluted income applicable to common shareholders $ 2,093 $ 1,395
============================
Denominator:
Basic earnings per share - weighted average shares 23,050,360 23,050,360
Exercise of stock options and warrants -- --
Conversion of preferred shares 8,481,100 8,481,100
Conversion of prepaid warrants 61,441,507 61,441,507
----------------------------
Diluted earnings per share - weighted average shares 92,972,967 92,972,967
============================
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.
The Company has two reportable segments after the reclassification of the
Netplex Systems segment as a discontinued operation. All prior year's revenue,
cost of services and operating expenses have been restated to reflect this
reclassification. The Company's reportable segments are as follows:
o Member Services - For individuals ("members") who can successfully
market their own consulting expertise, Member Services provides a
complete corporate infrastructure that makes it easier to enjoy the
flexibility and financial benefits of building and operating a
consulting practice. Member Services include: (1) contact negotiation
and administration; (2) W-2 employment, payroll, and benefits services;
(3) access to an online time, billing, and accounting system; (4)
accounts receivable collection assistance; (5) dedicated business
support staff services; and (6) career information and counseling.
9
o Business Services - Business Services provides a convenient,
centralized solution that improves the quality and removes costs
associated with clients' use of contingent workers ("consultants").
Business Services include (1) providing the tools and processes that
enable clients to efficiently align their talent requirements with
qualified individuals; and (2) providing a convenient and
cost-effective vehicle by which clients may use these consultants, as
well as those provided by third-parties, on an as-needed basis.
The Company's accounting policies for these segments are the same as those
described in Note 2 - Summary of Significant Accounting Policies in the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2001
and Note A, above, except that operating expenses, interest expense and income
tax expense are not allocated to each segment. In addition, the Company
evaluates the performance of its segments and allocates resources based on gross
margin. Inter-segment revenues are immaterial.
The table below presents information about segments used by the chief operating
decision-maker of the Company as of and for the three and six months ended June
30, 2002 and 2001:
Member Business Segment
Services Services Total
------------ ----------- -----------
2002 - Three months:
Revenues $ 274 $ 304 $ 578
Gross profit 221 57 278
2001 - Three months:
Revenues $ 385 $ 550 $ 935
Gross profit 293 67 360
2002 - Six months:
Revenues $ 566 $ 612 $ 1,178
Gross profit 487 104 591
2001 - Six months:
Revenues $ 794 $ 550 $ 1,344
Gross profit 625 67 692
Total assets:
- ------------
June 30, 2002:
Continuing $ 2,469 $ 163 $ 2,632
Discontinued 3,008
Unallocated 413
-----------
Total $ 6,053
-----------
June 30, 2001:
Continuing $ 2,273 $ 744 $ 3,017
Discontinued 7,075
Unallocated 1,616
-----------
Total $ 11,708
-----------
10
Reconciliation of Gross Profit to Net Operating Loss:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
2002 2001 2002 2001
---------- --------- ---------- ---------
Gross profit $ 278 $ 360 $ 591 $ 692
CR operating expenses 622 1,353 1,308 2,634
Unallocated corporate expenses 273 384 573 708
Interest (expense) income, net (33) 10 (92) 18
Tax expense -- -- -- --
---------- --------- ---------- ---------
Loss from continuing operations (650) (1,367) (1,382) (2,632)
Income (loss) from discontinued operations, net of tax 457 (824) 491 (986)
Gain on sale of discontinued operation, net of tax 1,579 -- 1,579 --
Extraordinary gain, net of tax 707 -- 707 --
---------- --------- ---------- ---------
Net operating loss $ 2,093 $ (2,191) $ 1,395 $ (3,618)
========== ========= ========== =========
Note G -- Recent Accounting Pronouncements
In April 2002, the FASB issued FAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". FAS
145 rescinds FAS 4 and FAS 64, which addressed the accounting for gains and
losses from extinguishment of debt, rescinds FAS 44 which set forth
industry-specific transitional guidance that did not apply to the Company,
amends FAS 13 to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions and makes technical corrections to certain
existing pronouncements that are not substantive in nature. The Company adopted
FAS 145, except the provisions of the Statement that relate to the rescission of
FASB Statement No. 4, in the second quarter of fiscal year 2002 which did not
have a significant impact on the Company's financial position or results of
operations. The provisions of this Statement relating to the rescission of FASB
Statement No. 4 shall be adopted by the Company on January 1, 2002. Upon such
adoption, the Company will reclassify the extraordinary items reported in the
quarter ended June 30, 2003.
In July 2002, the FASB issued FAS 146, "Accounting for Exit or Disposal
Activities." FAS 146 addresses the recognition, measurement and reporting of
costs associated with exit and disposal activities, including restructuring
activities that are currently accounted for pursuant to the guidance set forth
in Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of FAS 146
includes costs related to terminating a contract that is not a capital lease,
costs to consolidate facilities or relocate employees, and certain termination
benefits provided to employees who are involuntarily terminated. FAS 146 is
effective for exit or disposal activities initiated after December 31, 2002. The
Company shall adopt FAS 146 on January 1, 2003 and does not anticipate it will
have a significant impact on its financial position or results of operations.
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. 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 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 services, the Company's dependence on the continued services
of its Chairman and Chief Executive Officer, 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
11
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.
Results of Operations:
Three months ended June 30, 2002 compared to the three months ended June 30,
2001:
Revenue for the three months ended June 30, 2002 decreased $0.3 million or 38.2%
to $0.6 million as compared to $0.9 million for the same period in 2001.
Approximately $0.2 million and $1.0 million of the decrease in revenue was
attributed to the Business Services segment and the Member Services segment,
respectively. This decrease is primarily due to the reduction in billing
utilization and billing rates of members as a result of the weakened US economy.
Revenue from consulting service contracts in the Company's Member Services
segment is recognized as the fees (net revenue) it charges to its members for
providing its corporate and back office services as these services are provided.
Gross billings, revenue and average fee percentage for the three month period
ended June 30, 2002 is as follows:
June 30, June 30,
2002 2001
-------- --------
Gross Billings $6.2 $9.6
Revenue (net basis) $0.3 $0.4
Revenue % of Gross Billings 4.4% 4.0%
The Company believes the weakened U.S. economic conditions commencing in the
fourth quarter of 2001 caused many of its customers to reduce its contingent
workforce in an effort to avoid or decrease the amount of internal downsizing
required. This reduction caused numerous Member Services segment members to seek
new assignments which inherently resulted in varying periods of non-billing and
lower billing rates.
Gross profit for the three months ended June 30, 2002 decreased $0.1 million or
22.8% to $0.3 million as compared to $0.4 million for the same period in 2001.
This decline is primarily attributed to the lower volume of business in the
Member Services segment due to a decrease in the number of members with billing
activity. The gross profit and gross profit margins by segment were as follows:
12
June 30, June 30,
2002 2001
-------- --------
Gross Profit:
Member Services $ 221 $ 293
Business Services 57 67
-------- --------
Total $ 278 $ 360
======== ========
Gross Margin
Member Services 80.7% 76.1%
Business Services 18.8% 12.2%
Total 48.1% 38.5%
Approximately 40% of the gross margin improvement was attributed to lower
operating expenses and approximately 60 % of the improvement was attributed to
improved margins on Business Services segment contracts.
Contractors Resources operating expenses include sales and marketing, facility,
administration, IT and financial services. These operating expenses for the
three month period ended June 30, 2002 decreased $0.7 million or 54.0% to $0.6
million from $1.3 million for the same period of 2001. Approximately, $0.4
million of this decrease resulted from the staff reductions (18 employees)
implemented in 2001 and $0.1 million resulted from the termination of leases
associated with the consolidation of office space in 2001.
Corporate expense includes the salaries and associated benefits of the chief
executive and financial officers in addition to the cost of professional
services associated with the management of a public company. These corporate
expenses for the three months ended June 30, 2002 decreased $0.1 million or
28.9% to $0.3 million as compared to $0.4 million in the same period of 2001.
This decrease is primarily attributed to the reduced professional fees.
Loss from continuing operations before interest and income taxes for the three
months ended June 30, 2002 was $0.6 million as compared to a loss of $1.4
million for the same period of 2001, a decline in the loss before interest and
taxes of $0.8 million or 55.2%. The components of this decline are discussed
above.
Interest expense, net of interest income for the three month period ended June
30, 2002 was approximately $33,000 as compared to interest income, net of
interest expense for the same period in 2001 of approximately $10,000. This
increase of interest expense is primarily attributed to the interest on the note
payable to Waterside Capital Corporation which was entered into in the third
quarter of 2001.
Income from discontinued operations for the three month period ended June 30,
2002 was approximately $0.5 million compared to a loss of approximately $0.8
million for the same period in 2001. This $1.3 million change is primarily
attributed to the reduction in the sales and marketing expenses associated with
these operations. 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
June 30, 2002 was $1.6 million related to the sale of the net assets of the
Retail Practice Division of the Company's Netplex Systems, Inc. subsidiary. The
acquirer, CGI, made a cash payment of $4.3 million for approximately $2.3 of net
assets of the Retail Practice Division. There were approximately $0.4 million of
broker and legal fees associated with the transaction. There was no comparable
gain in the same period of 2001. See Note A to the financial statements for a
description of the gain on the disposal of discontinued operations. There was no
income tax charges associated with this gain as it was offset in its entirety by
the Company's net operating losses.
The Company restructured certain of its obligations and liabilities during the
second quarter of 2002 which resulted in an $0.7 million extraordinary gain for
the period, net of income taxes. The extraordinary items included an
extinguishment of $0.3 million of rent liabilities related to excess office
space and a reduction of $0.4 million of obligations associated with the
acquisition of the PSS Group, Inc. in 1998. There was no income tax charges
associated with these extraordinary gains as they were offset in their entirety
by the Company's net operating losses. Additionally, the Company restructured
its $1.4 million litigation settlement debt, $1.1 million of which was currently
due and $0.3 million which was payable December 31, 2002, as follows:
o Payment of $505,000 million cash in May 2002;
o Commitment to pay 20% of the proceeds, in excess of $2.0 million, from the
sale of the Systems Integration Division of Netplex Systems, Inc.
(included in discontinued operations); and
o Commitment to pay an additional payment if on or before May 23, 2007, the
proceeds received either from the sale of the Company, or the reported
market capitalization of the Company for any consecutive five-day period,
exceeds $20.0 million, then commensurate with such sale or within thirty
days of attaining such market capitalization, as the case may be, Netplex
shall pay an amount equal to the lesser of (i) such excess or (ii)
$895,000. The Company reclassified $895,000 of the litigations settlement
as a long term debt as of June 30, 2002.
No provision for income taxes was required for the three months ended June 30,
2002 or 2001 due to the utilization of net operating losses from prior periods.
The Company provided a valuation allowance for all of its deferred tax assets at
December 31, 2001, 2000, and 1999 because the Company could not conclude that it
was more likely than not that it would realize these assets due principally to
the Company's history of losses.
13
Net income for the three months ended June 30, 2002 was $2.1 million compared to
a net loss of $2.2 million in the same period of 2001, an change of $4.3
million. The components of this decrease in net income are discussed above.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001:
Revenue for the six months ended June 30, 2002 decreased $0.1 million or 12.4%
to $1.2 million as compared to $1.3 million for the same period in 2001. In the
second quarter of 2001, the Company initiated a new reportable segment, Business
Services, which included the migration of the Company's staffing business.
Approximately $0.1 million of the increase in revenue is attributed to this new
segment and was partially offset by a $0.2 million decrease in Member Services
segment revenue.
Revenue from consulting service contracts in the Company's Member Services
segment is recognized as the fees (net revenue) it charges to its members for
providing its back office services as these services are provided. Gross
billings, revenue and average fee percentage for the six month period ended June
30, 2002 is as follows:
June 30, June 30,
2002 2001
-------- --------
Gross Billings $12.9 $19.8
Revenue (net basis) $ 0.6 $ 0.8
Revenue % of Gross Billings 4.4% 4.0%
The Company believes the weakened U.S. economic conditions commencing in the
fourth quarter of 2001 caused many of its customers to contract its contingent
workforce in an effort to avoid or decrease the amount of internal downsizing
required. This contraction caused numerous Member Services segment members to
seek new assignments which inherently resulted in varying periods of
non-billing.
Gross profit for the six months ended June 30, 2002 decreased $0.1 million or
14.6% to $0.6 million as compared to $0.7 million for the same period in 2001.
The gross profit margin decreased from 51.5% in the six month period ended June
30, 2001 to 50.2% in the six month period ended June 30, 2002. This decline is
primarily attributed to the lower margin business activity from the new Business
Services segment coupled with an approximate 29% volume decrease in the higher
margin Member Services segment. The gross profit and gross profit margins by
segment were as follows:
June 30, June 30,
2002 2001
-------- --------
Gross Profit:
Member Services $ 487 $ 625
Business Services 104 67
-------- -------
Total $ 591 $ 692
======== ========
Gross Margin
Member Services 86.0% 78.8%
Business Services 17.0% 12.0%
Total 50.2% 51.5%
Contractors Resources operating expenses include sales and marketing, facility,
administration, IT and financial services. These operating expenses for the six
month period ended June 30, 2002 decreased $1.3 million or 50.3% to $1.3 million
from $2.6 million for the same period of 2001. Approximately, $0.5 million of
this decrease resulted from the staff reductions (18 employees) implemented in
2001 and $0.1 million resulted from the termination of leases associated with
the consolidation of office space in 2001.
Corporate expense includes the salaries and associated benefits of the chief
executive and financial officers in addition to the cost of professional
services associated with the management of a public company. These corporate
expenses for the six months ended June 30, 2002 decreased $0.1 million or 19.1%
to $0.6 million as compared to $0.7 million for the same period in 2001. This
decrease is primarily attributed to the reduced professional fees.
14
Loss from continuing operations before interest and income taxes for the six
months ended June 30, 2002 was $1.3 million as compared to a loss of $2.7
million for the same period of 2001, a decline in the loss before interest and
taxes of $1.4 million or 47.5%. The components of this decline are discussed
above.
Interest expense, net of interest income for the six month period ended June 30,
2002 was approximately $92,000 as compared to interest income, net of interest
expense for the same period in 2001 of approximately $18,000. This increase of
interest expense is primarily attributed to the interest on the note payable to
Waterside Capital Corporation which was entered into in the third quarter of
2001.
Income from discontinued operations for the six month period ended June 30, 2002
was approximately $0.5 million compared to a loss of approximately $1.0 million
for the same period in 2001. This $1.5 million change is primarily attributed to
the reduction in the sales and marketing expenses associated with these
operations. See Note B to the financial statements for a description of the
discontinued operations.
Gain on the disposal of discontinued operations for the six month period ended
June 30, 2002 was $1.6 million related to the sale of the net assets of the
Retail Practice Division of the Company's Netplex Systems, Inc. subsidiary. The
acquirer, CGI, made a cash payment of $4.3 million for approximately $2.3 of net
assets of the Retail Practice Division. There were approximately $0.4 million
broker and legal fees associated with the transaction. There was no comparable
gain in the same period of 2001. See Note A to the financial statements for a
description of the gain on the disposal of discontinued operations. There was no
income tax charges associated with this gain as it was offset in its entirety by
the Company's net operating losses.
The Company restructured certain of its obligations and liabilities during the
second quarter of 2002 resulting in an $0.7 million extraordinary gain for the
period, net of income taxes. The extraordinary items included an extinguishment
of $0.3 million of rent liabilities related to excess office space and a
reduction of $0.4 million of obligations associated with the acquisition of the
PSS Group, Inc. in 1998. There was no income tax charges associated with these
extraordinary gains as they were offset in their entirety by the Company's net
operating losses. Additionally, the Company restructured its $1.4 million
litigation settlement debt, $1.1 million of which was currently due and $0.3
million which was payable December 31, 2002, as follows:
o Payment of $505,000 million cash in May 2002;
o Commitment to pay 20% of the proceeds, in excess of $2.0 million, from the
sale of the Systems Integration Division of Netplex Systems, Inc.
(included in discontinued operations); and
o Commitment to pay an additional payment if on or before May 23, 2007, the
proceeds received either from the sale of the Company, or the reported
market capitalization of the Company for any consecutive five-day period,
exceeds $20.0 million, then commensurate with such sale or within thirty
days of attaining such market capitalization, as the case may be, Netplex
shall pay an amount equal to the lesser of (i) such excess or (ii)
$895,000. The Company reclassified $895,000 of the litigations settlement
as a long term debt as of June 30, 2002.
No provision for income taxes was required for the six months ended June 30,
2002 or 2001 due to the utilization of net operating losses from prior periods.
The Company provided a valuation allowance for all of its deferred tax assets at
December 31, 2001, 2000, and 1999 because the Company could not conclude that it
was more likely than not that it would realize these assets due principally to
the Company's history of losses.
Net income for the six months ended June 30, 2002 was $1.4 million compared to a
net loss of $3.6 million in the same period of 2001, a change of $5.0 million.
The components of this decrease in net income are discussed above.
Liquidity and Capital Resources:
At June 30, 2002, the Company had cash and cash equivalents of $1.8 million.
In the six months ended June 30, 2002 the Company's cash and cash equivalents
increased by $0.6 million which was primarily attributed to the $4.3 million
gain on the sale of the Retail Division of Netplex Systems which was partially
offset by the $1.4 million loss on continuing operations, the $1.3 million
reduction in accrued expenses including $0.5 million of litigation settlement
payments and the $0.8 million of note payable payments.
The Company has incurred significant losses from operations and has used cash in
operations in each of the last five years. In addition, as of June 30, 2002, the
Company has a stockholders' deficit of approximately $4.3 million and a working
capital deficit of approximately $3.9 million. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not contain any adjustments that might
result from the outcome of this uncertainty.
Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services. In 2001, the Company did experience lower
operating losses than those reported in 2000 and a reduction in cash used in
operations. However, given the Company's current operating outlook and
continuing economic
15
uncertainty, the Company's liquidity and financial position are such that
additional capital will be needed in 2002 to sustain operations.
In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary.
Management chose to not pursue the rights offering further, choosing instead to
entertain offers for the operations comprising Netplex Systems (either as a
whole or in parts). In March 2002, the Company entered into non-binding letter
of intent to sell the assets of its retail consulting business. On May 15, 2002,
The Netplex Group, Inc. (the "Company") consummated the transaction pursuant to
an Asset Purchase Agreement by and between the Company and CGI Information
Systems & Management Consultants, Inc. ("CGI"). Under the terms of the Asset
Purchase Agreement, CGI has acquired the net assets associated with the Retail
Practice Division as of April 26, 2002 from the Company for $4.3 million in
cash. The Company recorded a gain from this sale in the second quarter of 2002
of approximately $1.6 million.
Concurrent with the sale of the net assets of the Retail Practices Division to
CGI, the Company entered into a Workout and Collateral Release Agreement with
Waterside Capital Corporation ("Waterside") whereby Waterside:
(1) agreed to release its security interest in the assets of the Retail
Practices Division,
(2) agreed to exchange 500 shares of Netplex Systems, Inc. Series A
Preferred Stock bearing an annual dividend rate of 10% for a Secured
Commercial Note for $500,000 from The Netplex Group, Inc. bearing an
annual interest rate of 9%,
(3) agreed to exchange 500 shares of Netplex Systems, Inc. Series A
Preferred Stock bearing an annual dividend rate of 10% for 500 shares
of The Netplex Group, Inc.'s Preferred Stock bearing an annual dividend
rate of 9%, and
(4) received approximately $341,000 of the sales proceeds to be applied to
dividends, principle and interest due associated with the Netplex
Systems, Inc. Series A Preferred Stock and notes payable by both
Netplex Systems, Inc. and The Netplex Group, Inc.
In addition, the Company continues to entertain offers for the remaining
businesses within its Netplex Systems business.
The Company restructured certain of its obligations and liabilities during the
second quarter of 2002 resulting in an $0.7 million extraordinary gain for the
period, net of income taxes. The extraordinary items included an extinguishment
of $0.3 million of rent liabilities related to excess office space and a
reduction of $0.4 million of obligations associated with the acquisition of the
PSS Group, Inc. in 1998. There was no income tax charges associated with these
extraordinary gains as they were offset in their entirety by the Company's net
operating losses. Additionally, the Company restructured its $1.4 million
litigation settlement debt, $1.1 million of which was currently due and $0.3
million which was payable December 31, 2002, as follows:
o Payment of $505,000 million cash in May 2002;
o Commitment to pay 20% of the proceeds, in excess of $2.0 million, from the
sale of the Systems Integration Division of Netplex Systems, Inc.
(included in discontinued operations); and
o Commitment to pay an additional payment if on or before May 23, 2007, the
proceeds received either from the sale of the Company, or the reported
market capitalization of the Company for any consecutive five-day period,
exceeds $20.0 million, then commensurate with such sale or within thirty
days of attaining such market capitalization, as the case may be, Netplex
shall pay an amount equal to the lesser of (i) such excess or (ii)
$895,000. The Company reclassified $895,000 of the litigations settlement
as a long term debt as of June 30, 2002.
Management intends to focus on improving the operations of its Contractors
Resources business by growing both its business to consumer service
("MyBizOffice") and its business to business service ("Consultant Service
Center") offerings. Critical to the success of these operations is the Company's
ability to continue to attract members to the MyBizOffice solution and to grow
the Consultant Service Center business by obtaining contracts and master
agreements with employers who contract with large numbers of independent
consultants.
The Company's subsidiary, Netplex Systems, Inc. ("Systems") is a party to a
Commercial Revolving Loan, Demand Loan and Security Agreement ("Revolving Loan")
with American Commercial Finance Corporation ("Lender") which expires on March
31, 2003. Under the Revolving Loan, Systems can borrow an amount equal to 80% of
eligible accounts receivable as defined in the agreement, up to $3.0 million.
The Revolving Loan bears interest at the prime rate plus 1.75% (6.5% as of June
30, 2002) and is secured by (i) System's , the Company's and each of the
Company's subsidiaries' assets, (ii) a $400,000 guaranty from a shareholder,
Waterside Capital (the "Guaranty") and (iii) fidelity guaranties from two of the
Company's officers. On May 15, 2002, the Lender released the Guaranty. On June
1, 2002, Systems and the Lender executed the First Amendment to the Commercial
Revolving Loan and Security Agreement whereby the maximum principal amount was
adjusted from $3.0 million to $1.0 million. As of June 30, 2002 the balance
outstanding on the Revolving Loan was approximately $675,000, all of which is
classified as discontinued operations. In July, the Company paid off the
remaining balance of the Revolving Loan and line of credit was closed.
16
At June 30, 2002, there were approximately $276,000 of accrued dividends on the
Company's Class A, D and E Preferred Stock.
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 1. Legal Proceedings
For a description of certain legal proceedings affecting the Company, see the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File
No. 1-11784). There have been no subsequent material developments in such legal
proceedings since such report was filed.
Item 5. Other Information
Effective April 16, 2002, Alan J. Lindauer tendered his resignation from the
Company's Board of Directors. The resignation was not the result of any
disagreement related to the Company's operations, policies or practices.
The Board of Directors met on May 7, 2002 and resolved the following:
o The appointment of Kurt Malmgren and Peter Russo as directors until
the next shareholders' meeting at which time the Board of Directors
may nominate them for election by the shareholders;
o Kurt Malmgren is an independent director and will serve on the audit
and compensation committees;
o Approval and ratification of the May 1, 2002 employment agreements for
Gene Zaino and Peter Russo;
o Adoption of The Netplex Group, Inc. 2002 Stock Ownership Plan subject
to ratification by shareholder vote at next shareholder meeting, which
has a ten year term, allows for the award of Incentive and
Non-Qualified Stock Options and Restricted Stock and initially has
6,000,000 shares available for awards;
o The increase of shares available for grant under the 1992 Incentive
and Non-Qualified Stock Option Plan from 6,000,000 to 8,000,000;
o The increase of shares available for grant under the 1995 Director's
Stock Option Plan from 300,000 to 1,500,000; and
o The increase of shares available for grant under the 1995 Consultant's
Stock Option Plan from 830,000 to 1,500,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement, by and between CGI Information Systems and
Management Consultants, Inc. and Netplex Systems, Inc. dated May 15,
2002. *
4.1 The Netplex Group, Inc. 2002 Stock Ownership Plan.
4.2 Workout and Collateral Release Agreement, by and among Netplex
Systems, Inc, The Netplex Group, Inc. and Waterside Capital
Corporation dated May 15, 2002. *
10.1 Revolving Promissory Note for $1,000,000, by and between Netplex
Systems, Inc. and American Commercial Finance Corporation, dated June
1, 2002.
17
10.2 First Amendment to Commercial Revolving Loan and Security Agreement,
by and between Netplex Systems, Inc. and American Commercial Finance
Corporation, dated June 1, 2002.
10.3 Release of Guaranty, by and between American Commercial Finance
Corporation and Waterside Capital Corporation, dated May 15, 2002.
10.4 Employment Agreement between The Netplex Group, Inc. and Gene Zaino.
10.5 Employment Agreement between The Netplex Group, Inc. and Peter Russo.
10.6 Amendment to Settlement Agreement and Release, by and between Data
Systems Analysts, Inc. and The Netplex Group, Inc. and Technology
Developments Systems, Inc., dated May 23, 2002.
10.7 Settlement Agreement, by and between Robert J. Hisel., Jr, Preferred
Systems Solutions, Inc. and The Netplex Group, Inc., dated May 22,
2002.
99.1 Surrender and Acceptance Agreement, by and between The Netplex Group,
Inc. and Roseland II LLC, dated May 15, 2002.
99.2 Written Statement of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the fiscal quarter ended June 30, 2002, the Company filed one report
on Form 8-K.
On May 30, 2002, the Company filed a Form 8K to announce that it consummated
a transaction pursuant to an Asset Purchase Agreement by and between the
Company and CGI Information Systems & Management Consultants, Inc. ("CGI")
whereby CGI has acquired the net assets associated with the Retail Practice
Division as of April 26, 2002 from the Company for $4.3 million in cash.
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: August 14, 2002 /s/ Gene M. Zaino
---------------------------------
Gene M. Zaino
Chairman of the Board
(Principal Executive Officer)
DATE: August 14, 2002 /s/ Peter J. Russo
---------------------------------
Peter J. Russo
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
18