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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[x] Quarterly report pursuant to section 13 of 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1998
[ ] Transition report pursuant to section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
________________
Commission File No. 0-21038
Network Six, Inc.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0366090
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
475 Kilvert Street, Warwick, Rhode Island 02886
(Address of principal executive offices, including zip code)
(401) 732-9000
(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 of 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 September 30, 1998, there were 763,913 shares of the registrant's Common
Stock, $.10 par value, outstanding.
1
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Network Six, Inc.
Condensed Balance Sheets
Assets Sept. 30, 1998 Dec. 31, 1997
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(unaudited)
Current assets:
Cash $1,454,386 $1,291,924
Contract receivables, less allowance for doubtful
accounts of $50,000 at September 30, 1998 and
December 31, 1997 1,520,127 2,011,379
Costs and estimated earnings in excess of billings
on contracts 1,458,809 1,388,515
Other assets 119,896 244,257
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Total current assets 4,553,218 4,936,075
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Property and equipment
Computers and equipment 533,397 506,484
Furniture and fixtures 156,833 167,558
Leasehold improvements 20,191 20,191
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710,421 694,233
Accumulated depreciation and amortization 596,722 627,146
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Net property and equipment 113,699 67,087
Deferred taxes 391,475 391,475
Contract receivables and costs in excess of billings
on Hawaii contract 3,459,382 3,459,382
Other assets 347,141 438,084
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$8,864,915 $9,292,103
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---------- ----------
2
Sept. 30, 1998 Dec. 31, 1997
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(unaudited)
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to bank $ -- $ 1,160,000
Current installment of obligations under capital leases 88,932 82,690
Accounts payable 106,557 188,377
Accrued salaries and benefits 540,207 449,133
Accrued subcontractor expense 180,102 1,352,393
Note payable - short term 191,015 163,871
Other accrued expenses 456,482 342,465
Billings in excess of costs and estimated earnings on contracts 124,474 155,754
Income taxes payable 538,578 13,338
Deferred taxes 545,869 545,869
Preferred stock dividends payable 712,499 460,068
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Total current liabilities 3,484,715 4,913,958
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Obligations under capital leases, excluding current installments 54,023 104,003
Note payable - long term 1,171,224 742,239
Hawaii Payable 576,483 576,483
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Total Liabilities 5,286,445 6,336,683
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Stockholders' equity:
Series A convertible preferred stock, $3.50 par value. Authorized
857,142.85 shares; issued and outstanding 714,285.71 shares at
September 30, 1998 and December 31, 1997; liquidation of $3.50 per
share plus unpaid and accumulated
dividends 2,235,674 2,235,674
Common stock, $.10 par value. Authorized
4,000,000 shares; issued 763,913 shares at
September 30, 1998 and 734,294 at
December 31, 1997
76,391 73,429
Additional paid-in capital 1,795,059 1,670,939
Retained earnings (accumulated deficit) (528,654) (1,024,622)
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Total stockholders' equity 3,578,470 2,955,420
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Total Liabilities & Stockholders' Equity $ 8,864,915 $ 9,292,103
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3
Network Six, Inc.
Condensed Statements of Income
(Unaudited)
Three months Three months Nine months Nine months
ended 9/30/98 ended 9/30/97 ended 9/30/98 ended 9/30/97
------------- ------------- ------------- -------------
Contract revenue earned $ 2,662,603 $ 3,572,313 $ 8,137,916 $ 8,418,333
Cost of revenue earned 1,535,388 2,765,551 5,140,572 6,332,039
----------- ----------- ----------- -----------
Gross profit 1,127,215 806,762 2,997,344 2,086,294
Selling, general & administrative expenses 617,290 558,555 1,737,581 1,557,873
----------- ----------- ----------- -----------
Income from operations 509,925 248,207 1,259,763 528,421
Other deductions (income)
Interest expense 14,573 76,775 54,289 189,412
Interest earned (10,336) (2,130) (63,377) (10,684)
----------- ----------- ----------- -----------
Income before income taxes 505,688 173,562 1,268,851 349,693
Income taxes 207,552 56,872 520,452 122,393
----------- ----------- ----------- -----------
Net income $ 298,136 $ 116,690 $ 748,399 $ 227,300
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share:
Basic $ 0.28 $ 0.09 $ 0.66 $ 0.12
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ 0.28 $ 0.09 $ 0.66 $ 0.12
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----------- ----------- ----------- -----------
Shares used in computing net income per share:
Basic 763,880 734,294 756,519 728,471
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----------- ----------- ----------- -----------
Diluted 1,065,520 734,294 1,036,411 728,471
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Preferred dividends declared $ 85,068 $ 47,260 $ 252,431 $ 140,240
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4
Network Six, Inc.
Condensed Statements of Cash Flow
(Unaudited)
Nine months Nine months
ended ended
9/30/98 9/30/97
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Net Income $ 748,399 $ 227,300
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,774 64,212
Provision for doubtful accounts -- (47,856)
Loss on sale/disposal of fixed assets 6,518 11,248
Changes in operating assets and liabilities:
Contract receivables 491,252 (79,201)
Cost and estimated earnings
in excess of billings on contracts (70,294) 687,206
Income taxes receivable -- 516,046
Other current assets 124,361 84,580
Long term amounts due from Hawaii -- 112,443
Other assets 90,943 (512,656)
Accounts payable (81,820) (159,587)
Accrued salaries and benefits 91,074 (214,595)
Accrued subcontractor exp. (1,172,291) 993,778
Other accrued expenses 114,017 12,055
Accrued restructuring -- (5,383)
Billings in excess of costs
and estimated earnings on contracts (31,280) 110,197
Deferred tax liability -- (156,508)
Income taxes payable 525,240 365,640
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Net cash provided by operating activities 867,893 2,008,919
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5
ended ended
9/30/98 9/30/97
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Cash flows from investing activities:
Cash Proceeds from Sale/Disposal of Capital Assets -- 1,947
Capital expenditures (84,904) (18,390)
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Net cash provided by (used in) investing activities (84,904) (16,443)
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Cash flows from financing activities:
Principal payments on capital lease obligations (43,738) (42,985)
Net payments on note payable to bank (1,160,000) --
Net proceeds (payments) on other notes payable 456,129 (106,025)
Proceeds from the sale of treasury stock -- 6,047
Proceeds from issuance of common stock 127,082 18,953
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Net cash used in financing activities (620,527) (124,010)
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Net increase (decrease) in cash 162,462 1,868,466
Cash at beginning of period 1,291,924 127,581
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Cash at end of period $ 1,454,386 $ 1,996,047
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Supplemental cash flow information:
Cash (received) paid during the period for:
Income taxes $ (4,788) $ (545,781)
Interest 54,289 158,326
6
Network Six, Inc.
Notes to Financial Statements
September 30, 1998
(unaudited)
(1) Basis of Presentation
The interim financial statements have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to SEC rules
and regulations; nevertheless, management believes that the disclosures
herein are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Form 10K and Proxy Statement.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
of the Company as of September 30, 1998, and the statements of income and
cash flows for the three month and nine month periods ended September 30,
1998 and 1997, have been included herein. The results of operations for the
interim periods are not necessarily indicative of the results for the full
years.
(2) The 1997 earnings per share figures were reclassified to comply with the
Company's December 1997 adoption of SFAS No. 128. Under the new
requirements for calculating basic earnings per share, the dilutive effect
of stock options and warrants are excluded.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement Regarding Forward-Looking Statements
This report contains forward-looking statements reflecting the Company's
expectations or beliefs concerning future events that could materially affect
Company performance in the future. All forward-looking statements are subject to
the risks and uncertainties inherent with predictions and forecasts. They are
necessarily speculative statements, and unforeseen factors, such as competitive
pressures, litigation results and regulatory and state funding changes could
cause results to differ materially from any that may be expected. In particular,
adverse decisions in on-going material litigation could have a material adverse
effect on the Company's financial condition and operating results. Actual
results and events may therefore differ significantly from those discussed in
forward-looking statements. Moreover, forward-looking statements are made in the
context of information available as of the date stated, and the Company
undertakes no obligation to update or revise such statements to reflect new
circumstances or unanticipated events as they occur.
General
Effective February 23, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
announced new listing requirements for continued inclusion on the Nasdaq
National Market. Nasdaq has provided notice to the Company that the Company does
not meet the new continued listing requirements with respect to the Company's
net tangible assets and the market value of the Company's listed Common Stock.
The Company submitted a plan to Nasdaq to achieve compliance with the new
listing requirements. The Nasdaq did not grant the Company an exception to these
new listing requirements. On October 29, 1998 the Company's common stock was
moved to The Nasdaq SmallCap Market.
The Company received comments on January 30, 1998 from the Securities and
Exchange Commission regarding the timing of revenue recognition with regard to
the Company's contract with the State of Hawaii during 1996 and whether an
allowance should be taken by the Company against the contract receivable
relating to that contract ($3,459,382 at September 30, 1998). The Company
believes that, although the outcome of the Company's litigation with the State
of Hawaii is uncertain, it is likely to prevail in the Hawaii litigation and
therefore the Company is not required to take an allowance against that
receivable.
In September 1998, the Company announced it had entered into a $500,000
term loan with the Business Development Corporation of Rhode Island and the
Small Business Loan Fund Corporation, a subsidiary of the Rhode Island Economic
Development Corporation. See Liquidity and Capital Resources.
The Company has conducted a comprehensive review of its internal computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
that the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the Year 2000 may have a material impact on the operations of
the Company.
8
Results of Operations - Nine Months Ended September 30, 1998 Compared to 1997
Contract revenue decreased $280,417 or 3.3% from $8,418,333 in the nine
months ended September 30, 1997 to $8,137,916 in the nine months ended September
30, 1998 primarily due to the completion of the Idaho Child Support Enforcement
project in March 1997, and the substantial completion of the Rhode Island
Immunization tracking system (Kidsnet) and the Maine Automated Child Welfare
Information System (MACWIS) projects. This decrease was offset by increased work
on the Rhode Island Department of Human Services contract due to welfare reform,
expansion of the MIM Corporation project, and increased business for the
Company's Network Services Division.
Cost of revenue earned, consisting of direct employee labor, direct
contract expense and subcontracting expense, decreased $1,191,467 or 18.8% from
$6,332,039 in the nine months ended September 30, 1997 to $5,140,572 in the nine
months ended September 30, 1998 due primarily to a lower reliance on
subcontractor labor which is generally at a higher cost than the Company's
internal staff.
Gross profit increased $911,050 or 43.7% from $2,086,294 for the nine
months ended September 30, 1997 to $2,997,344 for the nine months ended
September 30, 1998. Gross profit as a percentage of contract revenue increased
from 24.8% for the nine months ended September 30, 1997 to 36.8% for the nine
months ended September 30, 1998. The increase in gross profit percentage is
primarily due to higher margins on new projects.
Selling, general and administrative (SG&A) expenses increased $179,708 or
11.5% from $1,557,873 in the nine months ended September 30, 1997 to $1,737,581
in the nine months ended September 30, 1998 due to an increase in marketing and
related expenses. On a percentage of contract revenue basis, SG&A expenses
increased from 18.5% to 21.4%.
Interest expense decreased $135,123 to $54,289, or 71.3%, from $189,412 due
to a lower level of borrowing.
As a result, income before income taxes increased $919,158, or 262.9%, from
$349,693 for the nine months ended September 30, 1997 to $1,268,851 for the nine
months ended September 30, 1998.
Net income increased $521,099, or 229.3%, from $227,300 for the nine months
ended September 30, 1997 to $748,399 for the nine months ended September 30,
1998. As a percentage of contract revenue, net income increased from 2.7% to
9.2%.
Results of Operations - Three Months Ended September 30, 1998 Compared to 1997
Contract revenue decreased $909,710, or 25.5%, from $3,572,313 in the three
months ended September 30, 1997 to $2,662,603 in the three months ended
September 30, 1998 primarily due to less work performed on the Maine Automated
Child Welfare Information System (MACWIS). This was offset by increased work on
the Rhode Island Department of Human Services contract due to welfare reform,
expansion of the MIM Corporation project and increased business for the
Company's Network Services Division.
Cost of revenue earned, consisting of direct employee labor, direct
contract expense and subcontracting expense, decreased $1,230,163, or 44.5%,
from $2,765,551 in the three months ended
9
September 30, 1997 to $1,535,388 in the three months ended September 30, 1998
due to the decreased effort to support the reduced level of business and a
reduced reliance on higher priced subcontractor labor.
Gross profit increased $320,454, or 39.7%, from $806,762 for the three
months ended September 30, 1997 to $1,127,215 for the three months ended
September 30, 1998. Gross profit as a percentage of contract revenue increased
from 22.6% for the three months ended September 30, 1997 to 42.3% for the three
months ended September 30, 1998. The increase in gross profit percentage is due
to higher margins on new projects.
Selling, general and administrative (SG&A) expenses increased $58,735, or
10.5%, from $558,555 in the three months ended September 30, 1997 to $617,290 in
the three months ended September 30, 1998 due to an increase in marketing and
related expenses. On a percentage of contract revenue basis, SG&A expenses
increased to 23.2% from 15.6%.
Interest expense decreased $62,202 to $14,573, or 81.0%, from $76,775 due
to a lower level of borrowing.
As a result, income before income taxes increased $332,126, or 191.4%, from
$173,562 for the three months ended September 30, 1997 to $505,688 for the three
months ended September 30, 1998.
Net income increased $181,446 from $116,690, or 155.5%, for the three
months ended September 30, 1997 to $298,136 for the three months ended September
30, 1998. As a percent of revenues, net income increased from 3.3% to 11.2%.
Liquidity and Capital Resources
In order to finance bid preparation costs and to obtain sufficient
collateral to support performance bonds required by some customers, the Company
has, in the past, entered into joint ventures with other firms with greater
financial resources when bidding for contracts. The Company expects to continue
and expand this practice prospectively as well as to pursue more time and
material contracts than it has historically pursued. Time and materials
contracts generally do not require performance bonds and almost always involve
less risk to deliver what the customer requires.
The Company has historically not received its first contract progress
payments until approximately three to six months after contract award, which
itself was as much as 12 months after proposal preparation commences. The
Company was therefore required to fund substantial costs well before the receipt
of related income, including marketing and proposal costs and the cost of a
performance bond. Prospectively, the Company expects to continue to tighten up
this timetable, thereby reducing the requirement for additional working capital.
The Company has funded its operations through cash flows from operations,
bank borrowings, borrowings from venture partners, and private placements of
equity securities. Net cash provided by operating activities was $867,893 and
$2,008,919 in the nine months ended September 30, 1998 and 1997, respectively.
Fluctuations in net cash provided by operating activities are primarily the
result of changes in net income, accounts receivable and income tax payable,
accounts payable and costs and estimated earnings in excess of billings on
contracts due to differences in contract milestones and payment dates.
On December 31, 1997 the Company signed a one year$1.5 million line of
credit with a commercial
10
lender (the "Line of Credit"). Accounts receivable from four of the Company's
contracts secure the new Line of Credit. The Company can borrow up to 80% of the
aggregate invoice amounts and is required to repay any borrowings within 90
days. As of September 30, 1998 the borrowing availability on the line of credit
was $635,095. The interest rate is prime plus five percent on balances below $1
million and prime plus one and one half percent on balances over $1 million. The
Line of Credit also carries a six- percent annual service fee on borrowed
balances. At September 30, 1998 the Line of Credit had an outstanding balance of
zero.
On September 21, 1998 the Company entered into two five-year term loans.
Each for $250,000. One lender was the Small Business Loan Fund Corporation,
("SBLFC"), a subsidiary of the Rhode Island Economic Development Corporation.
The other lender was the Business Development Corporation of Rhode Island
("BDC"). The SBLFC loan carries an annual interest rate of 9.5% and must be
repaid over five years. The BDC loan carries an annual interest rate of 10.25%,
and an annual deferred fee of $5,000, and must be paid back over five years.
Both term loans are secured by substantially all the assets of the Company. The
BDC was also issued a five-year warrant to purchase 11,000 shares of the
Company's common stock with a strike price of $4.50 per share. The warrant
expires on September 20, 2003.
The Company believes that cash flow generated by operations will be
sufficient to fund continuing operations through the end of 1998. This assumes,
however, that there are no materially adverse decisions rendered in the ongoing
litigation with Hawaii, MAXIMUS and CBSI. See Part II Item 1 - Legal
Proceedings.
The Company believes that inflation has not had a material impact on its
results of operations to date.
PART 11 - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1995, the Company began negotiating a significant amendment to its
contract for a child support enforcement ("CSE") system with the State of Hawaii
(the State) when it determined that the total estimated cost to complete the
system would be significantly greater than expected. In March 1996, the Company
received final State and federal government approval for this contract amendment
totaling $4.4 million. As a result of numerous in-depth reviews of this contract
amendment, management determined that remaining contract costs would exceed the
contract value by $440,000, and therefore, accrued this loss in December 1995.
In June 1996 the Company announced a new subcontract agreement with
Complete Business Solutions, Inc ("CBSI") to expand CBSI's role in the Hawaii
CSE contract. CBSI, at the request of Hawaii, was contracted to lead a detailed
review of the current system under development. Hawaii, in turn, agreed to pay
CBSI $1.2 million from the Company's remaining contract budget when various
milestones were achieved. The Company had a significant role in the detailed
review and had hoped that its results would facilitate the resolution of open
contractual scope issues.
On September 13, 1996, the State of Hawaii terminated its contract with the
Company, effective September 23, 1996, claiming that the Company had failed to
fulfill its obligations under the contract. In response, the Company also
terminated the contract with the State effective September 23, 1996. The Hawaii
contract, originally estimated to be a $20.7 million contract, was increased to
$25.2 million by the State and the Company in March 1996, and was the Company's
largest contract at the time. Prior to termination, approximately $16.5 million
of costs had been incurred towards completion of the contract, and $11 million
11
had been billed and substantially paid.
On November 12, 1996 the State of Hawaii filed a lawsuit in the Circuit
Court of the First Circuit of the State of Hawaii against the Company and Aetna
Casualty and Surety and Federal Insurance Company for damages due to breach of
contract (the "Hawaii litigation"). Aetna Casualty and Surety and Federal
Insurance Company provided the $10.3 million performance bond on the Company's
contract with the State of Hawaii to develop and install the State's child
support enforcement system. The suit alleges the Company failed to meet
contractual deadlines, provided late, incomplete and/or unsuitable deliverables,
materially breached the contract by never completing the design, the application
programming, and the system test and systems implementation. The State is
seeking an unspecified amount for general damages, consequential and special
damages, liquidated damages, attorneys' fees, reimbursement for the cost of the
suit and interest costs that the court deems just and proper.
The Company vigorously denies the State's allegation and, on January 23,
1997, filed a counter claim against the State alleging that the State has
breached the contract. The Company is seeking $70 million in damages and is
alleging that the State fraudulently induced the Company into designing and
building a system having capabilities and features far beyond the scope of the
Company's contract. The fraudulent inducement was in the form of withholding
payments, improper rejection of work that satisfied the requirements of the
contract and verbal and written abuse of the Company's employees and management.
In addition, Unisys, a vendor providing equipment under the Company's
Hawaii contract, submitted a $896,000 claim against the $10.3 million
performance bond. In February of 1997, the State released all but $1.1 million
of the performance bond; the remainder is intended to cover amounts payable to
Unisys and other subcontractors. In April of 1997, after a detailed review of
their records and discussions with the Company, Unisys agreed to lower their
claim to $842,239 and Aetna Casualty and Surety paid that claim. Lockheed Martin
IMS (Lockheed), which guaranteed the performance bond, reimbursed Aetna for that
claim. In December 1997, the Company reached an agreement with Lockheed to repay
the $842,239 over a five-year period.
On December 13, 1996 CBSI filed a lawsuit in the Superior Court of the
State of Rhode Island for $517,503, which the Company had previously accrued,
plus interest, costs and attorney's fees. The Company disputes the $517,503
owned to CBSI and filed a counterclaim against CBSI on January 13, 1997
alleging, among other things, that CBSI failed to complete its duties required
under the subcontract with the Company in a timely manner, improperly engaged in
negotiations with the State of Hawaii to complete the project, hired and
attempted to hire employees of the Company in violation of its subcontract
agreement with the Company and obtained and utilized confidential information
and proprietary intellectual property inappropriately. Also, the Company alleges
that CBSI owes the Company $482,750 as of December 31, 1996 for which the
Company has not established a reserve for uncollectibility.
On February 3, 1997, the Company filed a third-party complaint ("TPC") as
part of the Hawaii litigation against MAXIMUS Corporation ("MAXIMUS") and CBSI.
MAXIMUS has been the State of Hawaii's contract supervisor and advisor since the
inception of the Hawaii project. The allegations the Company has made against
CBSI in this TPC are substantially similar to the allegations made against CBSI
in the Company's counterclaim to CBSI's December 13, 1996 lawsuit brought
against the Company in Rhode Island. The Company alleged, moreover, that MAXIMUS
is liable to the Company on grounds that: (i) the Company was an intended third
party beneficiary under the contract between the MAXIMUS and Hawaii; (ii)
MAXIMUS tortuously interfered in the contract between the Company and Hawaii;
(iii) MAXIMUS negligently breached duties to the Company and (iv) MAXIMUS aided
and abetted Hawaii in Hawaii's breach of contract. The Company's TPC seeks $60
million in damages.
12
Management believes that the Company's claims against the State, MAXIMUS
and CBSI have substantial merit and will vigorously pursue these claims. There
is substantial uncertainty, however, inherent in all litigation. If the Company
were not to prevail in its suit with the State, such a result could have a
material adverse financial effect on the Company and could jeopardize the
Company's ability to continue with its present listing on The Nasdaq National
Market. Management of the Company and its attorneys are unable to predict with
any certainty the ultimate outcome of this litigation, although it is their
belief that a favorable outcome is likely. At September 30, 1998, the Company
had unbilled work-in-process and related receivables from the State and CBSI of
approximately $3.46 million, for which no allowance for uncollectibility has
been recorded. The Company has not accrued for any potential liability to the
State, which may result from this litigation. In addition, the Company has not
accrued for any legal expense to be incurred in connection with this litigation,
which could be significant. Although all parties have filed pretrial statements
with the court a trial date has not yet been established.
Due to the significant uncertainty created by these events, the Company
ceased recognition of revenue on the Hawaii contract in 1996. An adjustment of
$1.8 million was recorded in the fourth quarter to reverse revenue of $1
million, $400 thousand and $400 thousand previously recognized in the first,
second and third quarters, respectively. In addition, 1996 costs incurred
related to the Hawaii contract of $1.96 million were charged to expense in 1996.
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Materially Important Events
Effective February 23, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
announced new listing requirements for continued inclusion on the
Nasdaq National Market. Nasdaq has provided notice to the Company that
the Company does not meet the new continued listing requirements with
respect to the Company's net tangible assets and the market value of
the Company's listed Common Stock. The Company submitted a plan to
Nasdaq to achieve compliance with the new listing requirements. The
Nasdaq did not grant the Company an exception to these new listing
requirements. On October 29, 1998 the Company's common stock was moved
to The Nasdaq SmallCap Market.
Item 6. Exhibits and Reports on Form 8K
13
(a) None
(b) The following reports on Form 8-K have been filed during the
quarter for which this report is filed.
A current report on Form 8-K, dated September 29, 1998 was filed by
the Company and included the press release dated September 23, 1998
announcing a $500,000 term loan.
A current report on Form 8-K, dated July 28, 1998 was filed by the
Company and included the press release dated July 31, 1998, announcing
the Company's results for the quarter ended June 31, 1998. A Statement
of Operations (without notes) for the quarters ended June 31, 1998
and, 1997 was included with the filing. A balance sheet as of June 31,
1998 and December 31, 1997 was also included with the filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Network Six, Inc.
Date: October 30, 1998 By: /s/ Kenneth C. Kirsch
---------------------
Kenneth C. Kirsch
Chairman, President and
Chief Executive Officer
By: /s/ Dorothy M. Cipolla
----------------------
Dorothy M. Cipolla
Chief Financial Officer and Treasurer
(principal financial officer)
14