SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-27042
AlphaNet Solutions, Inc.
------------------------
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2554535
---------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7 Ridgedale Avenue, Cedar Knolls, New Jersey 07927
- -------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(973) 267-0088
--------------
(Registrant's Telephone Number
Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No: ___
--
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 29, 1999:
Class Number of Shares Outstanding
- ----- ----------------------------
Common Stock, $.01 par value 6,266,098
<PAGE>
<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC.
TABLE OF CONTENTS
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................................................... 1
Consolidated Balance Sheets
as of September 30, 1999 (unaudited)
and December 31, 1998........................................................................ 2
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1999 (unaudited) and September 30, 1998 (unaudited)............................ 3
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1999 (unaudited) and September 30, 1998 (unaudited)............................ 4
Notes to Consolidated Financial Statements (unaudited)....................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................ 7
Results of Operations........................................................................12
Liquidity and Capital Resources..............................................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................14
PART II. OTHER INFORMATION............................................................................15
Item 5. Other Information............................................................................15
Item 6. Exhibits and Reports on Form 8-K.............................................................15
SIGNATURES...............................................................................................16
</TABLE>
<PAGE>
PART I.
-------
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 8,997 $ 13,377
Accounts receivable, net . . . . . . . . . . . . . . 37,981 33,057
Inventories . . . . . . . . . . . . . . . . . . . . . 4,874 3,505
Deferred income tax asset . . . . . . . . . . . . . . 2,233 1,761
Prepaid expenses and other current assets . . . . . . 1,162 2,309
Costs in excess of billings . . . . . . . . . . . . . 221 --
----------- --------
Total current assets . . . . . . . . . . . . 55,468 54,009
Property and equipment, net . . . . . . . . . . . . . . . . . 4,507 5,491
Other assets . . . . . . . . . . . . . . . . . . . . . . . .. 2,520 2,394
----------- ---------
Total assets. . . . . . . . . . . . . . . . $ 62,495 $ 61,894
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations . . . . $ 19 $ 17
Accounts payable . . . . . . . . . . . . . . . . . . 12,038 11,072
Accrued expenses . . . . . . . . . . . . . . . . . . 6,799 6,730
Billings in excess of costs . . . . . . . . . . . . -- 815
----------- ---------
Total current liabilities . . . . . . . . . 18,856 18,634
Long term liabilities:
Advance from principal shareholder . . . . . . . . . 675 675
Capital lease obligations . . . . . . . . . . . . . . 36 49
----------- --------
Total liabilities . . . . . . . . . . . . . . . . . 19,567 19,358
----------- --------
Shareholders' equity:
Preferred stock -- $0.01 par value; authorized
3,000,000 shares, none issued . . . . . . . . . . . . -- --
Common stock -- $0.01 par value; authorized
15,000,000 shares, 6,413,793 and 6,366,228 shares
issued and outstanding at September 30, 1999 and
December 31, 1998, respectively . . . . . . . . . . . 64 63
Additional paid-in capital. . . . . . . . . . . . . . 34,109 33,942
Retained earnings. . . . . . . . . . . . . . . . . . 9,475 9,198
Treasury stock - at cost; 150,600 and 136,800 shares
at September 30, 1999 and December 31,1998, respectively (720) (667)
----------- ---------
Total shareholders' equity . . . . . . . . . 42,928 42,536
----------- ---------
Total liabilities and shareholders' equity . $ 62,495 $ 61,894
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months ended Nine Months ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Product sales. . . . . . . . . . . . . . $ 25,817 $30,388 $ 64,075 $ 91,507
Services and support . . . . . . . . . . 14,420 13,212 38,423 42,505
----------- ------- -------- ----------
40,237 43,600 102,498 134,012
Cost of sales:
Product sales . . . . . . . . . . . . . . 23,234 26,669 57,362 80,249
Services and support . . . . . . . . . . 9,278 8,661 26,001 28,576
----------- ------- -------- ----------
32,512 35,330 83,363 108,825
----------- ------- -------- ----------
Gross profit . . . . . . . . . . . . . . . . . 7,725 8,270 19,135 25,187
----------- ------- -------- ----------
Operating expenses:
Selling, general & administrative 7,186 7,199 19,423 20,797
(Recovery) write-off of capitalized asset (139) 2,476 (139) 2,476
----------- ------- -------- ----------
7,047 9,675 19,284 23,273
----------- ------- -------- ----------
Operating income (loss) . . . . . . . . . . . . 678 (1,405) (149) 1,914
Other income (expense):
Interest and other income . . . . . . . . 212 96 630 344
Interest expense . . . . . . . . . . . . (3) (15) (17) (61)
----------- ------- -------- ----------
209 81 613 283
----------- ------- -------- ----------
Income (loss) before income taxes. . . . . . . 887 (1,324) 464 2,197
Provision (benefit) for income taxes . . . . . 364 (543) 187 900
----------- ------- -------- ----------
Net income (loss) . . . . . . . . . . . . . . . $ 523 $ (781) $ 277 $ 1,297
=========== ======== ======== ==========
Basic-Net Income (loss) per share . . . . . . . $ 0.08 $ (0.12) $ 0.04 $ 0.21
=========== ======== ======== ==========
Diluted-Net Income (loss) per share . . . . . . $ 0.08 $ (0.12) $ 0.04 $ 0.20
=========== ======== ======== ==========
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . 6,255 6,305 6,247 6,283
=========== ======== ======== ==========
Weighted average number of common and common
equivalent shares outstanding. . . . . . . 6,260 6,305 6,249 6,362
=========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
Nine Months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 277 $ 1,297
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,005 1,996
Provision for bad debt 1,534 --
Deferred income taxes. . . . . . . .. . . . . . . . . . . . . . . . . . . (472) --
(Recovery) write-off of capitalized asset. . . . . . . . . . . . . . . . (139) 2,476
Increase (decrease) from changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . (6,458) 11,075
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,369) (1,068)
Prepaid expenses and other current assets . . . . . . . . . . . . . 1,147 659
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258) 310
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,105 (5,652)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (9,051)
Costs in excess of billings. . . . . . . . . . . . . . . . . . . . . (1,036) --
---------- -----------
Net cash (used in) provided by operating activities . . . . . . . . . . . (3,595) 2,042
Cash flows from investing activities:
Property and equipment expenditures . . . . . . . . . . . . . . . . . . . . . . (889) (3,295)
Cash flows from financing activities
Exercises of stock options and employee stock purchases . . . . . . . . . . . . 168 674
Repayment of capital lease obligations . . . . . . . . . . . . . . . . . . . . (11) (46)
Repurchase of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (375)
---------- -----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 104 253
---------- -----------
Net (decrease) in cash and cash equivalents (4,380) (1,000)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . 13,377 2,689
----------- -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . $ 8,997 $ 1,689
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALPHANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Description of the Business and Basis of Presentation:
AlphaNet Solutions, Inc. (the "Company") is a regionally-based
information technology consulting and professional services company that
delivers state-of-the-art business solutions to Fortune 1000, as well as
mid-range and smaller companies located primarily in the New
York-to-Philadelphia corridor.
The accompanying consolidated financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim periods. The foregoing financial information reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows as of the dates and for the periods presented. These consolidated
financial statements should be read in conjunction with the summary of
significant accounting policies and notes to financial statements contained in
the Company's Form 10-K as filed with the Securities and Exchange Commission.
Results for the interim periods are not necessarily indicative of
results that may be expected for the entire year.
Note 2 - Net Income Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings per Share" ("SFAS No. 128"), which specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS") of entities with publicly held common stock or potential common stock.
The statement defines two EPS calculations, basic and diluted. The objective of
basic EPS is to measure the performance of an entity over the reporting period
by dividing income available to common stockholders by the weighted average
number of shares outstanding. The objective of diluted EPS, consistent with that
of basic EPS, is to measure the performance of an entity over the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period. The calculation of diluted EPS is similar to
basic EPS except both the numerator and denominator are increased for the
conversion of potential common shares.
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
(unaudited)
Three Months ended Nine Months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 523 $ (781) $ 277 $ 1,297
=========== ========== ======= =======
Basic:
Weighted average number of shares outstanding. . . . . 6,255 6,305 6,247 6,283
=========== ========== ======= =======
Net income (loss) per share. . . . . . . . . . . . . . $ 0.08 $ (0.12) $ 0.04 $ 0 .21
=========== ========== ======= =======
Diluted:
Weighted average number of shares outstanding . . . . 6,255 6,305 6,247 6,283
Dilutive effects of stock options . . . . . . . . . . 5 -- 2 79
----------- --------- ------- --------
Weighted average number of common and common
Equivalent shares outstanding 6,260 6,305 6,249 6,362
=========== ========= ======= ========
Net Income (loss) per share . . . . . . . . . . . . . $ 0.08 $ ( 0.12) $ 0.04 $ 0.20
=========== ========== ======= =========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company is a regionally-based information technology consulting and
professional services company that delivers state-of-the-art business solutions
to Fortune 1000, as well as mid-range and smaller companies located primarily in
the New York-to-Philadelphia corridor. The Company was formed in 1984 as an
authorized reseller of computer hardware and software products, and since 1990,
has been developing and offering related IT services. In the third quarter and
nine months of 1999, net product sales were 64.2% and 62.5%, respectively, and
services and support revenue was 35.8% and 37.5%, respectively, of the Company's
net sales. During the same periods, gross profit from product sales was 33.4%
and 35.1%, respectively, and gross profit from services and support revenue was
66.6% and 64.9%, respectively, of the Company's total gross profit.
During the third quarter of 1999, the Company's total net sales decreased
by 7.7%. This decline was primarily attributable to substantially decreased
business from two predominantly low-margin product accounts, partially offset by
increased business from other customers. During the first nine months of 1999,
the Company's total net sales decreased by 23.5% as compared to the comparable
prior year period, due to substantially decreased business from two
predominantly low-margin product accounts. See "Results of Operations" at pages
12-13 below.
The Company has entered into distribution agreements with Ingram Micro
Inc., Pinacor, Inc. and Tech Data Corporation, three of the nation's largest
aggregators, pursuant to which the Company acquires most of its IT product for
resale. The Company's relationship with Pinacor commenced in 1984 and, as
customer demand for IT products grew, the Company initiated its relationships
with Ingram and Tech Data in 1994. The distribution agreements with Ingram,
Pinacor and Tech Data give the Company access to such aggregators' extensive
inventories and provide the Company with electronic ordering capability, product
configuration and testing, and warehousing and delivery. In general, the Company
orders IT products, including workstations, servers, enterprise computing
products, networking and communications equipment, and applications software
from such aggregators on an as-needed basis, thereby reducing the Company's need
to carry large inventories. During the nine months ended September 30, 1999, the
Company acquired approximately 59%, 21% and 10% of its products for resale from
Ingram, Pinacor and Tech Data, respectively.
Except for the $20.4 million contract with the MTA-New York City Transit
Authority ("MTA") entered into in December 1997 (see below), in general, there
are no ongoing written commitments by customers to purchase products from the
Company, and all product sales are made on a purchase order basis. As the market
for IT products has matured, price competition has intensified and is likely to
continue to intensify. The Company's gross profits, margins and results of
operations could be adversely affected by such continued product pricing
pressure, a significant reduction in product purchase orders from the Company's
customers or a disruption in the Company's sources of product supply.
In response to the above-described developments, the Company is
emphasizing its services offerings, which typically carry higher profit margins
than its product business. In this connection, the Company increasingly sells
products as part of an overall IT solution including the sale of services,
rather than on a stand-alone basis. The Company believes that this shift in
emphasis from product to services, coupled with reductions in selling, general
and administrative expenses, will result in improved operating performance.
The Company offers network consulting, workstation support, applications
development, communications installation, professional development, help desk,
remote network management, IT staffing and internet-related services. Services
and support revenue is recognized as such services are performed. The Company's
network consulting, workstation support and communications installation services
are billed on a time and materials basis. The Company's professional development
services are fee-based on a per-course basis. Generally, the Company's service
arrangements with its customers may be terminated by such customers with limited
advance notice and without significant penalty. The most significant cost
relating to the services component of the Company's business is personnel costs
which consist of salaries, benefits and other payroll-related expenses. The
financial performance of the Company's services business is based primarily upon
billing margins (billable hourly rates less the costs to the Company of such
services personnel on an hourly basis) and utilization rates (billable hours
divided by paid hours). The future success of the services component of the
Company's business will depend in large part upon its ability to maintain high
utilization rates at profitable billing margins. The competition for quality
technical personnel in the current tight labor market and concomitant increased
personnel costs could adversely impact the contribution of services to the
Company's overall profitability, unless the Company is able to pass such
increased costs to its customers.
The Company implemented a reduction-in-force in June 1998 due to
lower-than-expected demand for the Company's services from certain clients. In
addition, in January 1999, the Company implemented a second reduction,
eliminating 42 positions, representing approximately 6% of the Company's
workforce, consisting principally of personnel supporting product sales.
The Company may receive manufacturer rebates resulting from equipment
sales. In addition, the Company receives volume discounts and other incentives
from certain of its suppliers. Except for products in transit or products
awaiting configuration at the Company's facilities, the Company generally does
not maintain large inventory balances. In 1998, the Company's primary vendors
announced or instituted changes in their price protection and inventory
management programs as a direct result of changes in such policies by
manufacturers. Specifically, they announced that they will (i) limit price
protection to that provided by the manufacturer, generally less than 30 days,
rather than the unlimited protection previously available; and (ii) restrict
product returns, other than defective returns, to a percentage (the percentage
varies depending on the vendor and when the return is made) of product
purchased, during a defined period, at the lower of the invoiced price or the
current price, subject to the specific manufacturer's requirements and
restrictions. To date, these changes in the vendor policies have not had a
material impact on the Company's business. Other than changes in such price
protection and return policies, the Company is unaware that any of its suppliers
or manufacturers has changed or intends to further change these programs. There
can be no assurances that any such rebates, discounts or incentives will
continue at historical levels, if at all. Further adverse modification,
restriction or reduction in such programs could have a material adverse effect
on the Company's financial position, results of operations, or cash flows.
The Company believes that its ability to provide a broad range of
technical services, coupled with its traditional strength in providing IT
solutions and its long-term relationships with large clients, positions the
Company to continue to grow the services component of its business. As such, the
Company currently anticipates that an increasing percentage of its gross profits
in the future will be derived from the services and support component of its
business. During the 1999 third quarter, services revenue accounted for
approximately 67% of the Company's total gross profit in this period. In the
near term, the Company believes that the product sales will continue to generate
a declining, but still significant percentage of the Company's gross profit. The
Company believes that its ability to be a single-source provider of IT products,
services and support enables it to earn higher margins than it would earn if it
sold products only.
The Company's net sales, gross profit, operating income and net income
have varied substantially from quarter to quarter and are expected to continue
to do so in the future. The Company believes, therefore, that past operating
results and period-to-period comparisons should not be relied upon as an
indication of future operating performance.
In December 1997, the Company entered into a four-year, $20.4 million
contract with the MTA to furnish and install local and wide-area computer
network components including network and telecommunications hardware, software
and cabling throughout the MTA's over 200 locations. The Company is the prime
contractor on this project and is responsible for project management, systems
procurement, and installation. The work is grouped in contiguous locations and
payment is predicated upon achieving specific milestone events. In the event of
default, in addition to all other remedies at law, the MTA reserves the right to
terminate the services of the Company and complete the MTA Contract itself at
the Company's cost. In the event of unexcused delay by the Company, the Company
may be obligated to pay, as liquidated damages, the sum of $100 per day. While
the Company is currently performing in accordance with the contract terms, there
can be no assurance that any such events of default or unexcused delays would
not occur. In addition, the MTA Contract is a fixed unit price contract, and the
quantities are approximate, for which the MTA has expressly reserved the right,
for each item, to direct the amount of equipment be increased, decreased, or
omitted entirely on 30 days notice. The MTA has the right to suspend the work on
10 days notice for up to 90 days and/or terminate the contract, at any time, on
notice, paying only for the work performed to the date of termination. The
project is subject to the prevailing wage rate and classification for
telecommunications workers, managed by the New York City Controller's office,
over which the Company has no control, and which is generally adjusted in June
of each year and may be so adjusted in the future.
The Company has performed services and supplied products to the MTA since
the inception of the MTA Contract. The work performed to date at MTA sites has
required greater than estimated labor and other costs to complete. Such
increased labor and other costs may also be incurred at other sites. In May
1999, the Company submitted a formal request to the MTA for an equitable
adjustment in the contract amount and terms. This request was supplemented with
a further submission in October 1999. The Company's submission is under
consideration by the MTA. The Company and the MTA have met and scheduled further
discussions concerning the Company's request. However, there can be no assurance
the MTA will approve, either in whole or in part, any equitable adjustment in
the contract amount or terms requested by the Company. There can be no assurance
that the Company can complete the MTA Contract without incurring a loss.
Currently, the Company is recording revenues under the MTA Contract equal to
costs incurred. However, if the Company is unsuccessful in obtaining equitable
adjustments, realizing increased performance efficiencies or otherwise improving
its margins, the Company believes it will sustain a loss under the contract.
<PAGE>
Year 2000 Readiness Disclosure
Historically, certain computer programs have been written using two
digits rather than four to define the applicable year, which could result in
such programs recognizing a date using "00" as the year 1900 rather than the
year 2000. This, in turn, could result in major system failures or
miscalculations, and is generally referred to herein as the "Year 2000 Problem."
Computer systems that are represented by manufacturers as being able to deal
correctly with dates after 1999 are referred to as "Year 2000-Compliant."
Over the past several years, based upon its business needs, the Company
has purchased and installed hardware and software that are represented by the
manufacturers to be Year 2000-Compliant. As of July 1, 1999, the Company
replaced its former integrated accounting system, which was not Year
2000-Compliant, with Platinum SQL Software, which is Year 2000-Compliant. Based
upon the representations of the manufacturers of hardware and software used by
the Company, and the provider of the Platinum SQL Software, the Company believes
that all of its internal business systems, including its computer systems, are
now Year 2000-Compliant. There can be no assurance, however, that the Year 2000
Problem will not adversely affect the Company's business, financial position,
results of operation or cash flows.
During the fourth quarter of 1998, the Company initiated formal
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to the failure of those third
parties to remediate their own Year 2000 Problem. The Company has been receiving
and reviewing the responses to these communications and following up with such
suppliers and customers as needed or appropriate. Based upon the responses
received, the Company does not presently believe that its operations will be
materially impacted by a failure of such third parties to remediate their own
Year 2000 Problem, if any. However, there can be no guarantee that the systems
of other companies on which the Company's own systems rely will be remedied in a
timely manner.
The Company resells IT products of leading hardware manufacturers and
software developers. As a result, the Company has no control over the
developments of such third parties' computer systems, software products or other
business systems developed by such third parties. Consequently, there can be no
assurance that the computer systems, software products or other business systems
sold by the Company will be Year 2000 Compliant. As a result, the Company, as a
reseller, may be liable for Non-Year 2000 Compliant product it resells. Given
the Company's role in the distribution of such products, the Company is not able
to accurately determine the extent, if any, of such potential liability.
The purchasing patterns of the Company's customers and potential customers
may be affected by issues associated with the Year 2000 Problem. As companies
devote significant resources to become Year 2000-Compliant, these expenditures
may result in reduced funds available to purchase products or obtain services
such as those offered by the Company.
The total cost of the Company's Year 2000 compliance has been and will be
funded through operating cash flows. The costs incurred to date to purchase and
install Platinum SQL were approximately $1,000,000. Excluding costs associated
with Platinum SQL and the write-off of the capitalized software and consulting
fees, the Company has expended approximately $2.0 million on hardware and
software upgrades for its Year 2000 compliance. The Company does not currently
anticipate that it will incur any additional material expenditures for such Year
2000 compliance. These costs do not include any costs associated with any third
party being Non-Year 2000 Compliant, nor do such costs include internal
personnel costs (primarily salaries and benefits), which the Company does not
separately track and do not include any contingency plan costs.
The Company has not developed a contingency plan with respect to any Year
2000 compliance issues based upon the Company's inquiries of its suppliers and
customers. This is because the Company does not presently believe that its
operations will be materially impacted by a failure of its suppliers or
customers to remediate their own Year 2000 Problem, if any. Such plans may be
developed as and if the need arises.
Statements included in this Year 2000 Readiness Disclosure are
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995. Such forward-looking statements include risks and
uncertainties, including but not limited to the possibility that the currently
installed computer systems, software products or other business systems of the
Company or its distributors, manufacturers or customers, working either alone or
in conjunction with other software or systems, will not accept input of, store,
manipulate and/or output dates in the year 2000 or thereafter without error or
interruption. Such risks and uncertainties may cause the Company's actual
results to differ materially from the results discussed in this Report.
<PAGE>
Forward-Looking Statements
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Such forward-looking
statements include risks and uncertainties, including, but not limited to: (i)
the substantial variability of the Company's quarterly operating results caused
by a variety of factors, some of which are not within the Company's control,
including (a) the short-term nature of the Company's customers' commitments, (b)
patterns of capital spending by customers, (c) the timing, size and mix of
product and service orders and deliveries, (d) the timing and size of new
projects, (e) pricing changes in response to various competitive factors, (f)
market factors affecting the availability of qualified technical personnel, (g)
the timing and customer acceptance of new product and service offerings, (h)
changes in trends affecting outsourcing of IT services, (i) disruption in
sources of supply, (j) changes in product, personnel and other operating costs,
and (k) industry and general economic conditions; (ii) the intense competition
in the markets for the Company's products and services; (iii) the Company's
ability to develop, market, provide, and achieve market acceptance of new
service offerings to prospective and existing clients; (iv) the Company's
ability to attract, hire, train, and retain qualified technical personnel in a
highly competitive and tight labor market; (v) the Company's substantial
reliance on a concentrated number of key customers; (vi) the Company's
dependence on vendor authorizations to resell certain computer products and to
provide related services; (vii) the Company's dependence on certain aggregators
for a substantial portion of its products acquired for resale; (viii) the
Company's reliance on the continued services of key executive officers and
salespersons; and (ix) the possibility that the currently installed computer
systems, software products or other business systems of the Company or its
distributors, manufacturers or customers, working either alone or in conjunction
with other software or systems, will not accept input of, store, manipulate
and/or output dates in the Year 2000 or thereafter without error or
interruption. Such risks and uncertainties may cause the Company's actual
results to differ materially from the results discussed herein.
<PAGE>
Results of Operations
Three Months Ended September 30, 1999 Compared To Three Months Ended
September 30, 1998
Net Sales. Net sales decreased by 7.7%, or $3.4 million, to $40.2 million
for the third quarter of 1999 from $43.6 million for the third quarter of 1998.
Product sales decreased by 15.0%, or $4.6 million, to $25.8 million for the
third quarter of 1999 from $30.4 million for the third quarter of 1998. This
decline in product sales was primarily attributable to substantially reduced
business from two predominantly low-margin product accounts, partially offset by
increased business with other customers, as well as lower average selling prices
due to increased competition. This trend has been accelerated by the ability of
customers to purchase directly from certain manufacturers at discounted prices
and the Company's decision not to pursue low-margin business. Services and
support revenue increased by 9.1%, or $1.2 million, to $14.4 million for the
third quarter of 1999 from $13.2 million for the third quarter of 1998. This
increase is due to higher demand from existing clients and the addition of new
customers.
During the third quarter of 1999, sales to Mercedes Benz, USA and PSE&G
accounted for approximately 24% and 16%, respectively, of the Company's net
sales. There can be no assurance that such customers will continue to place
orders with the Company or engage the Company to perform services and support at
existing levels.
Gross Profit. The Company's gross profit declined by 6.6%, or $0.6
million, to $7.7 million for the third quarter of 1999 from $8.3 million for the
third quarter of 1998. Measured as a percentage of net sales, the Company's
overall gross profit margin increased to 19.2% of net sales for the third
quarter of 1999 from 19.0% for the third quarter of 1998. Gross profit margin
attributable to product sales decreased to 10.0% for the third quarter of 1999
from 12.2% for the third quarter of 1998 due to downward pricing pressure on
product sales. The Company expects that downward pricing pressure on products
will continue, and there can be no assurance that the Company will be able to
improve its margins on product sales in the foreseeable future. Gross margin
attributable to services and support revenue increased to 35.7% of services and
support revenue for the third quarter of 1999 from 34.4% for the third quarter
of 1998 due to higher utilization rates for service personnel during the current
quarter. During the third quarter of 1999, services and support contributed
66.6% of the Company's gross margin dollars, as compared to 55.0% during the
third quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained contant at $7.2 million for both the third
quarter of 1999 and 1998. During the third quarter of 1999, the Company
increased its accounts receivable reserve by $1.5 million to reflect potentially
uncollectable amounts. This increase was offset by lower salaries and
payroll-related expenses relating to reductions in staff, decreases in variable
sales expenses, and lower rent expense attributable to the subleasing of excess
space.
(Recovery) Write-off of Capitalized Asset. During the third quarter of
1998, the Company recorded a charge of $2.5 million to reflect a one-time
write-off of capitalized software and consulting fees associated with the
Company's termination of implementation of an integrated accounting software
program. In the third quarter of 1999, the Company was able to recover $139,000
of such costs written-off during the third quarter of 1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Net sales. Net sales decreased by 23.5%, or $31.5 million, to $102.5
million for the first nine months of 1999 from $134.0 million for the first nine
months of 1998. Product sales decreased by 30.0%, or $27.4 million, to $64.1
million for the first nine months of 1999 from $91.5 million for the first nine
months of 1998. The decline in product sales was primarily attributable to
substantially reduced business from two predominantly low-margin product
accounts, as well as lower average selling prices due to increased competition.
This trend has been accelerated by the ability of customers to purchase directly
from certain manufacturers at discounted prices and the Company's decision not
to pursue low-margin business. Services and support revenue decreased by 9.6% or
$4.1 million, to $38.4 million for the first nine months of 1999 from $42.5
million for the first nine months of 1998. This decline was primarily
attributable to decreased demand from existing customers, partially offset by
increased services business from new customers during the third quarter of 1999,
and loss of services business directly related to the product accounts
referenced above.
In the first nine months of 1999, sales to Mercedes Benz, USA; PSE&G and
Summit Bank accounted for approximately 13%, 13% and 10% of the Company's net
sales, respectively. There can be no assurance that such customers will continue
to place product orders with the Company or engage the Company to perform
services and support at existing levels.
Gross Profit. The Company's gross profit decreased by 24.0%, or $6.1
million, to $19.1 million for the first nine months of 1999 from $25.2 million
for the first nine months of 1998. Total gross profit margin decreased to 18.7%
of net sales for the first nine months of 1999 from 18.8% for the first nine
months of 1998. Gross profit margin attributable to product sales decreased to
10.5% for the first nine months of 1999 from 12.3% for the first nine months of
1998, primarily due to downward pricing pressure on product sales. The Company
expects that downward pricing pressure on products will continue, and there can
be no assurance that the Company will be able to improve its margins on product
sales in the foreseeable future. Gross profit margin attributable to services
and support revenue decreased to 32.3% of services and support revenue for the
first nine months of 1999 from 32.8% for the first nine months of 1998. The
decrease in such gross profit margin was primarily attributable to lower
utilization of billable personnel in the first quarter of 1999. During the first
nine months ended September 30, 1999, services and support revenue contributed
64.9% of the Company's gross margin dollars, as compared to 55.3% during the
nine months ended September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 6.6%, or $1.4 million, to $19.4 million for
the first nine months of 1999 from $20.8 million for the first nine months of
1998. The decrease in selling, general and administrative expenses was primarily
attributable to lower variable selling expenses related to the decrease in net
sales, lower salaries and payroll related cost due to staff reductions as
compared to the prior year period and reduced marketing costs. Such decreases
were partially offset by the increase in the Company's accounts receivable
reserve of $1.5 million during the third quarter of 1999 to reflect potentially
uncollectable amounts.
(Recovery) Write-off of Capitalized Asset. During the third quarter of
1998, the Company recorded a charge of $2.5 million to reflect a one-time
write-off of capitalized software and consulting fees associated with the
Company's termination of implementation of an integrated accounting software
program. In the third quarter of 1999, the Company was able to recover $139,000
of such costs written-off during the third quarter of 1998.
Liquidity and Capital Resources
During the first nine months of 1999, as was the case throughout 1998, the
Company funded its operations primarily from cash generated by operations. The
Company's working capital was $36.6 million at September 30, 1999 and $35.4
million at December 31, 1998, and the Company is debt-free with the exception of
$55,000 in capital leases as of September 30, 1999.
During the nine months ended September 30, 1999, the Company used $3.6
million in operating activities. This was primarily due to increases in accounts
receivable and inventories, offset by an increase in accounts payable and
non-cash expenses relating to depreciation, amortization and bad debt. As
measured in days sales outstanding, the Company's accounts receivable increased
to 87 days at September 30, 1999 from 78 days at December 31, 1998.
The Company sold 12,223 shares of common stock to employees in the third
quarter. As of September 30, 1999, a total of 124,713 shares had been sold to
employees under the 500,000 share Employee Stock Purchase Plan approved by the
Company's shareholders in May 1998, and the Company has received an aggregate of
$661,313 from such sales.
The Company purchases certain inventory and equipment through financing
arrangements with Finova Capital Corporation and IBM Credit Corporation,
pursuant to which, as of September 30, 1999, there were outstanding balances of
$5.1 million and $4.2 million, respectively. Obligations under such financing
arrangements are collateralized by substantially all of the assets of the
Company. In connection with the Loan and Security Agreement entered into on
September 30, 1998 with First Union National Bank (the "Bank") (see below), the
Bank entered into an intercreditor agreement with IBM Credit Corporation and
Finova Capital Corporation with respect to their relative interests in the
aforementioned collateral.
On June 30, 1997, the Company and the Bank executed a Loan and Security
Agreement, whereby the Bank expanded the Company's credit facility to enable the
Company to borrow, based upon eligible accounts receivable, up to $15.0 million
for short-term working capital purposes. Such facility includes a $2.5 million
sublimit for letters of credit and a $5.0 million sublimit for acquisition
advances. Under the facility, the Company may borrow, subject to certain
post-closing conditions and covenants by the Company, (i) for working capital
purposes, at the Bank's prime rate less 0.50% or LIBOR plus 1.25% and (ii) for
acquisitions, at the Bank's prime rate less 0.25% or LIBOR plus 1.50%. The
Company's obligations under such facility are collateralized by a first priority
lien on the Company's accounts receivable and inventory, except for inventory
for which the Bank has or will have subordinated its position to certain other
lenders pursuant to intercreditor agreements. On September 30, 1998, the Company
and the Bank entered into an amendment to the aforementioned Loan and Security
Agreement, whereby the Bank extended the Company's credit facility for an
additional year through September 30, 1999. As of September 28, 1999, the
Company entered into a further amendment to the Loan and Security Agreement
extending the existing credit arrangements through December 31, 1999.
The Company believes that its available funds, together with existing and
anticipated credit facilities, will be adequate to satisfy its current and
planned operations for at least the next 24 months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information.
Early Termination of New York City Lease. As of October 6, 1999, the
Company entered into a Lease Termination and Surrender Agreement with the
landlord of its leased premises at 460 West 34th Street, pursuant to which, in
consideration of the sum of $125,000 payable to the Company and return of the
Company's security deposit in the amount of $43,333.33, together with accrued
interest thereon, the Company surrendered its leased space, and assigned all of
its right, title and interest as sublandlord under a sublease for a portion of
such space, to the landlord. The Company has since received the aforementioned
sums from the landlord and leased alternative space in New York City more
proximate to its clients.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit.
10.28 Second Amendment and Reaffirmation of Loan Documents
dated September 28, 1999 by and among AlphaNet
Solutions, Inc., The LearningNet, Inc. (f/k/a)
NETtemps, Inc. and First Union National Bank.
10.29 Revolving Note dated September 28, 1999 by and between First
Union National Bank and AlphaNet Solutions, Inc.
10.30 Lease Termination and Surrender Agreement dated as of
October 6, 1999 by and between 460 West 34th Street
Associates and AlphaNet Solutions, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report on Form 10-Q is filed.
<PAGE>
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.
AlphaNet Solutions, Inc.
DATE: November 12, 1999 By: /s/ Donald A. Deieso
----------------------------
Donald A. Deieso
President and Chief Executive Officer
(Principal Executive Officer)
DATE: November 12, 1999 By: /s/ David M. Gordon
----------------------------
David M. Gordon
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
EXHIBIT 10.28
ALPHANET SOLUTIONS, INC.
SECOND AMENDMENT TO AND REAFFIRMATION OF LOAN DOCUMENTS
SECOND AMENDMENT TO AND REAFFIRMATION OF LOAN DOCUMENTS (this "Second
Amendment") made as of this 28th day of September, 1999 by and among ALPHANET
SOLUTIONS, INC., a New Jersey corporation (the "Company"), THE LEARNINGNET, INC.
f/k/a NETTEMPS, INC., a New Jersey corporation (the "Guarantor") and FIRST UNION
NATIONAL BANK, a national banking institution (the "Bank").
W I T N E S S E T H:
WHEREAS, the Bank has agreed to make credit available to the Company on
a revolving basis in the principal amount of up to $15,000,000 (the "Loan"),
pursuant to the terms and conditions of a certain Loan and Security Agreement,
dated June 30, 1997, as amended (as so amended and as amended and reaffirmed by
this Second Amendment, the "Loan Agreement"; all capitalized terms used herein
and not defined shall have the meanings ascribed to them therein); and
WHEREAS, the Loan is evidenced by a certain revolving note of the
Company dated September 30, 1998 (the "Exiting Revolving Note"); and
WHEREAS, as collateral security for its obligations under the Loan
Agreement and the Existing Revolving Note, the Company granted to the Bank liens
and security interests in the Collateral described in the Loan Agreement; and
WHEREAS, the repayment and performance obligations of the Company under
the Loan Agreement and the Existing Revolving Note were guaranteed by the
Guarantor under the Guaranty; and
WHEREAS, as collateral security for its obligations under the Loan
Agreement and the Guaranty, the Guarantor granted to the Bank liens and security
interests in the Collateral described in the Loan Agreement; and
WHEREAS, the Bank, the Company and the Guarantor have agreed that (a)
the Loan Agreement should be amended, among other things, to: (i) extend the
Maturity Date to December 31, 1999; and (ii) amend certain of the definitions
set forth therein; and (b) the other Loan Documents shall be reaffirmed and
amended to include the amendments set forth in the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the Bank, the Company and the Guarantor, do hereby agree as
follows:
1. By executing this Second Amendment, each of the Company and the
Guarantor confirms and acknowledges that it has no defenses, offsets or
counterclaims against any of its obligations to the Bank under the Loan
Documents and that all amounts outstanding, if any, under the Existing
Revolving Note and the other Loan Documents are owing to the Bank
without defense, off-set or counterclaim.
2. A new Section 1.35B to the Loan Agreement is hereby added as
follows:
"Second Amendment" means the Second Amendment to and Reaffirmation of
Loan Documents, dated as of September 28, 1999, by and among the Company, the
Guarantor and the Bank.
3. Section 1.60 of the Loan Agreement is hereby amended to read as
follows:
"Maturity Date" means December 31, 1999.
4. Section 1.72 of the Loan Agreement is hereby amended to read as
follows:
"Revolving Note" means that certain Revolving Note dated September
28, 1999 issued by Borrower evidencing the Loan and any revolving note replacing
such note."
5. The Company shall execute a new Revolving Note dated the date hereof
which shall supersede and replace (but not represent a repayment or
novation of) the Existing Revolving Note. The Revolving Note dated the
date hereof shall be the "Revolving Note" for all purposes of the Loan
Agreement and the other Loan Documents.
6. By executing this Second Amendment, the Company and the Guarantor
confirm and acknowledge that (i) the representations and warranties
contained in Article V of the Loan Agreement (pertaining to each of
them) are correct as of the date hereof, (ii) the Company and the
Guarantor are in compliance with all covenants contained in the Loan
Agreement (except as otherwise agreed to by the Bank in writing) and
all other Loan Documents, and (iii) no Event of Default, or an event
which with the giving of notice or passage of time or both would
constitute an Event of Default, has occurred and is continuing.
7. All references to the "Agreement" or "this Agreement" in the Loan
Agreement shall mean the Loan Agreement, as amended and reaffirmed by
this Second Amendment; all references to the "Guaranty" in the Loan
Agreement shall be deemed to mean the Guaranty, as amended and
reaffirmed by this Second Amendment; and all references to the "Loan
Documents" shall mean and include the Loan Documents, as amended and
reaffirmed by this Second Amendment, as well as the Revolving Note (as
defined in the Loan Agreement, as amended by this Second Amendment).
All references to the "Obligations" in the Loan Agreement shall mean
and include the obligations of the Company and the Guarantor to the
Bank pursuant to the Loan Documents, as amended and reaffirmed pursuant
to this Second Amendment, including, but not limited to the Revolving
Note (as defined in the Loan Agreement, as amended by this Second
Amendment).
8. By executing this Second Amendment, the parties hereto confirm the
continued accuracy of all Schedules and Exhibits attached to and made a
part of the Loan Agreement and the other Loan Documents. If any such
Schedule or Exhibit is no longer fully accurate or needs updating, such
revised or updated Schedule or Exhibit shall be delivered to the Bank
as a condition precedent to the effectiveness of this Second Amendment
and shall be deemed to replace the prior Schedule or Exhibit for all
purposes of the Loan Agreement or such other Loan Document.
9. The Guaranty, effective the date hereof, is hereby amended to
provide that the term "Obligations" therein shall mean and include the
obligations of the Company to the Bank under the Loan Agreement and the
other Loan Documents, as each is amended and reaffirmed by this Second
Amendment, and all references to the "Loan Agreement" and the "Loan
Documents" in the Guaranty shall mean and include such agreements, as
amended and reaffirmed by, or delivered pursuant to, this Second
Amendment. By executing this Second Amendment, the Guarantor reaffirms
and acknowledges the validity of the Guaranty as of the date hereof and
confirms that it guarantees unconditionally the obligations of the
Company under the Revolving Note (as defined in the Loan Agreement, as
amended and reaffirmed by this Second Amendment) and the other Loan
Documents, as amended and reaffirmed by this Second Amendment.
10. By executing this Second Amendment, each of the Company and the
Guarantor confirms the security interests previously granted to the
Bank in and to the Collateral described in the Loan Agreement as
security for their obligations under the Loan Documents (as defined in
the Loan Agreement as amended by this Second Amendment), and each of
the Company and the Guarantor hereby grants to the Bank a security
interest in the Collateral described in the Loan Agreement to secure
the repayment of their Obligations under the Revolving Note (as defined
in the Loan Agreement as amended by this Second Amendment) and Guaranty
(as defined in the Loan Agreement as amended by this Second Amendment),
as applicable, and the other Loan Documents, as amended and reaffirmed
by this Second Amendment.
11. As conditions precedent to the effectiveness of this Second
Amendment, the following shall be delivered to the Bank by the Company
and/or the Guarantor:
(a) This Second Amendment, duly executed by all parties hereto;
(b) The Revolving Note, duly executed by the Company;
(c) The Certification (as to jurisdiction of execution);
(d) A corporate resolution, incumbency certificate, and such other
documents as the Bank may reasonably request reflecting the corporate
authorization and approval of the transactions contemplated hereunder by the
Company and the Guarantor; and
(e) Such other documents as the Bank may reasonably request.
12. The Company and the Guarantor hereby covenant and agree to execute
any and all UCC-1 and/or UCC-3 financing statements in order to perfect
the Bank's security interest in the assets of the Guarantor, all in
form and substance satisfactory to Bank.
13. This Second Amendment is incorporated by reference into the Loan
Agreement and the other Loan Documents. Except as otherwise provided
herein, all other provisions of the Loan Agreement and the other Loan
Documents are hereby confirmed and ratified and shall remain in full
force and effect as of the date of this Second Amendment.
14. This Second Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument.
15. This Second Amendment shall be binding upon the parties hereto and
their heirs, executors, administrators, successors and/or assigns.
16. This Second Amendment shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
17. In the event any provision of this Second Amendment or any other
Loan Document executed and delivered in connection herewith shall be
held invalid or unenforceable by a court of competent jurisdiction,
such holdings shall not invalidate or render unenforceable any other
provision hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
FIRST UNION NATIONAL BANK
By: /s/ Nancy Angell
------------------------------
Name: Nancy Angell
Title: Assistant Vice President
ATTEST: ALPHANET SOLUTIONS, INC.
By: /s/ Jack P. Adler By: /s/ David M. Gordon
------------------------- ------------------------------
Name: Jack P. Adler Name: David M. Gordon
Title: Secretary Title: Vice President, Treasurer and
Chief Financial Officer
ATTEST: THE LEARNINGNET, INC. f/k/a
NETTEMPS, INC.
By:/s/ Jack P. Adler By: /s/ Stan Gang
--------------------------- --------------------------------
Name: Jack P. Adler Name: Stan Gang
Title: Secretary Title: Chairman of the Board
EXHIBIT 10.29
ALPHANET SOLUTIONS, INC.
REVOLVING NOTE
$15,000,000.00
Morristown, New Jersey
September 28, 1999
FOR VALUE RECEIVED, ALPHANET SOLUTIONS, INC., a New Jersey corporation
(the "Borrower"), promises to pay to the order of FIRST UNION NATIONAL BANK (the
"Bank"), the principal amount of FIFTEEN MILLION and 00/100 DOLLARS
($15,000,000.00), or the aggregate amount of all unpaid Advances made by the
Bank to the Borrower, whichever is less, in lawful money of the United States,
together with interest thereon as hereinafter provided.
1. The Agreement. This Revolving Note is issued pursuant to a certain
Loan and Security Agreement dated June 30, 1997 by and between the Bank and the
Borrower, as amended (as so amended and as the same may be hereafter amended,
modified or supplemented, the "Agreement"), and is entitled to the benefit of
all of the terms thereof. In this Revolving Note, all words and terms defined in
the Agreement shall have the respective meanings and be construed as provided
therein, unless a different meaning clearly appears from the context. Payment of
the principal amount hereof and accrued and unpaid. interest thereon is subject
to acceleration as provided in the Agreement.
2. Calculation of Interest. Interest on the unpaid principal amount
hereof shall accrue from the date hereof until the earlier of (i) the occurrence
of an Event of Default or (ii) December 31, 1999 (which is defined in the
Agreement as the "Maturity Date"), at the rates set forth in the Agreement.
Interest shall be computed on the basis of the actual number of days elapsed
over a year of 360 days. From and after the occurrence of an Event of Default,
principal amounts outstanding hereunder shall bear interest at the default rate
as set forth in the Agreement.
3. Payment of Principal and Interest. Interest on the unpaid principal
amount of each (i) Base Rate Advance hereunder shall be due and payable monthly,
on the first day of each month commencing October, 1999, and continuing on the
first day of each consecutive month thereafter and (ii) Adjusted LIBO Rate
Advance hereunder shall be due and payable on the last day of the Interest
Period but in no event less often than quarterly (in which case such payments
shall be made on the last Working Day of such calendar quarter), until the
Maturity Date, on which date the entire principal amount outstanding hereunder
and any accrued and unpaid interest thereon shall become immediately due and
payable in full. Late payments of principal or interest are subject to a late
charge as set forth in the Agreement.
4. Repayments. The Borrower may, as described in the Agreement, repay
Advances under this Revolving Note; provided, that each partial repayment shall
be in a principal amount of not less than $100,000 or any multiple thereof. In
the event Borrower for any reason repays any Adjusted LIBO Rate Advance on the
day which is not the end of an Interest Period, Borrower shall, upon written
demand by Bank, pay to Bank the Repayment Indemnity with respect to such
repayment. All outstanding Advances shall be due and payable, together with any
and all accrued interest thereon, on the Maturity Date.
5. Place and Manner of Payment. All payments of principal and interest
shall be made by the Borrower directly to the Bank or as set forth in the
Agreement, and such payments shall be made in immediately available funds.
6. Waiver. The Borrower hereby waives presentment, demand, protest and
notice of protest, and all other demands and notices in connection with the
payment and enforcement of this Revolving Note, and assents to extensions of the
time of payment, or forbearance or other indulgence, without notice.
7. Collateral. The obligations of the Borrower hereunder are secured by
the Collateral described in the Agreement. The terms of the Agreement and the
other Loan Documents are incorporated herein by reference.
8. Governing Law. This Revolving Note shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
9. Successors and Assigns. This Revolving Note shall be binding upon
the Borrower and its successors and/or assigns and shall inure to the benefit of
the Bank and its successors and assigns.
10. Prior Note. This Note shall supersede, replace and continue, but
shall not be considered a repayment or novation of, the note dated September 30,
1998, by the Borrower to the order of the Bank (the "Prior Note"). All
obligations of the Borrower under the Prior Note shall be evidenced by, and
continued pursuant to, this Note.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
executed by its duly authorized officer on the day and year first above written
and declare this Revolving Note to be a sealed instrument.
ATTEST: ALPHANET SOLUTIONS, INC.
By: /s/ Jack P. Adler By: /s/ David M. Gordon
-------------------------- ------------------------------
Name: Jack P. Adler Name: David M. Gordon
Title: Senior Vice President Title: Vice President, Treasurer and
Chief Financial Officer
<PAGE>
CERTIFICATION
Borrower: AlphaNet Solutions, Inc.
Promissory Note dated September 28, 1999, in the principal amount of
$15,000,000.
The undersigned each hereby certify that the promissory note and related loan
documentation evidencing the above referenced loan have been executed by the
Borrower and delivered to the Bank in the State of New Jersey.
Date: September 28, 1999
Borrower: AlphaNet Solutions, Inc. Bank: First Union National Bank
By: /s/ David M. Gordon By: /s/ Nancy Angell
-------------------- --------------------
DAVID M. GORDON NANCY ANGELL
Title: Vice President, Treasurer Title: Assistant Vice President
and Chief Financial Officer
EXHIBIT 10.30
ALPHANET SOLUTIONS, INC.
LEASE TERMINATION AND SURRENDER AGREEMENT
AGREEMENT, dated as of this 6th day of October 1999 between 460 WEST
34TH STREET ASSOCIATES, having an office c/o Kaufman Management Company, 450
Seventh Avenue, New York, New York (hereinafter called "Landlord"), and ALPHANET
SOLUTIONS, INC., a New Jersey corporation, having an office at 460 West 34th
Street, New York, New York (hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS:
Landlord and Tenant's predecessor-in-interest THE LANDE GROUP, INC.,
executed that certain lease dated as of December 23, 1996 (the "Lease") covering
the entire nineteenth (19th) floor in the building (the "Premises") known as 460
West 34th Street, New York, New York (the "Building") for a term to expire on
April 30, 2008 (the "Expiration Date");
Tenant and Robert A. M. Stern Architects ("Subtenant") entered into
that certain sublease dated as of November 20, 1998 (the "Sublease"), wherein
approximately 9,400 square feet on the nineteenth (19th) floor of the Building
(the "Sublet Premises") was sublet to Subtenant;
Landlord and Tenant are now the present landlord and tenant under the
Lease and desire for Tenant to surrender possession of the balance of the
Premises to Landlord (the "Remaining Premises"), (i.e. the Premises without the
Sublet Space), to have Tenant assign its interest in the Sublease to Landlord,
and to enter into certain other agreements incidental thereto upon the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
FIRST: On or prior to November 1, 1999 (the "Surrender Date"), Tenant
shall surrender the Remaining Premises to Landlord in accordance with the Lease
provisions pertinent to the surrender of the entire Premises including, without
limitation, Article 22 entitled "End of Term". In furtherance thereof and
provided Tenant timely surrenders possession of the Remaining Premises on or
prior to the Surrender Date and otherwise performs its obligation pursuant to
Article FOURTH hereof, then the Lease shall be terminated as of the Surrender
Date with the same force and effect as if said date were the Expiration Date.
SECOND: Notwithstanding anything contained to the contrary in the
Lease, all fixtures, equipment, improvements and appurtenances attached to or
built into the Remaining Premises as of the date hereof (including, without
limitation, all "built-ins", carpeting, paneling, partitions, lighting fixtures,
special cabinet work, doors, drapes, wall treatments, decorations, shelving and
kitchen equipment) shall be and remain a part of the Remaining Premises, shall
be deemed the property of Landlord and shall not be removed by Tenant.
THIRD: Effective as of the Surrender Date, Tenant hereby assigns
transfers, sets over and conveys all its right, title and interest as
Sublandlord under the Sublease to Landlord. Accordingly, from after the
Surrender Date, Landlord hereby assumes all of the obligations of Tenant under
the Sublease and agrees to indemnify and save Tenant harmless from and against
any and all claims by Subtenant arising under the Sublease but accruing from and
after the Surrender Date.
FOURTH: In consideration of Tenant's agreement to surrender the
Remaining Premises to Landlord and to assign its interest in the Sublease and
additional rent, and provided Tenant duly performs all of the terms, covenants
and conditions of the Lease and this Agreement through the Surrender Date,
including, without limitation, payment of all fixed rent and additional rent due
under the Lease through the Surrender Date, then, Landlord shall (a) on or prior
to the Surrender Date, pay to Tenant the sum of ONE HUNDRED TWENTY FIVE THOUSAND
AND 00/100 ($125,000.00) and (b) promptly after the Surrender Date, return to
Tenant the security deposit in the sum of FORTY THREE THOUSAND THREE HUNDRED
THIRTY THREE AND 33/100 ($43,333.33) DOLLARS, together with any accrued interest
thereon.
FIFTH: Subject to the provisions hereof, Landlord and Tenant do hereby
release each other from any and all obligations under the Lease accruing from
and after the Surrender Date.
SIXTH: This Agreement shall take effect as of the date hereof. As
amended hereby the Lease is hereby ratified and confirmed in all respects.
SEVENTH: Tenant represents and warrants that no broker was responsible
for bringing about this Agreement.
EIGHTH: This Agreement may not be changed, modified or cancelled orally
and shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
LANDLORD:
460 WEST 34TH STREET ASSOCIATES
By: /s/ Edward J. Hart
---------------------------------------------
EDWARD J. HART
TENANT:
ALPHANET SOLUTIONS, INC.
By: /s/ Jack P. Adler
---------------------------------------------
JACK P. ADLER
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited interim Consolidated Financial Statements as of September
30, 1999 contained in the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1999 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,997
<SECURITIES> 0
<RECEIVABLES> 41,081
<ALLOWANCES> 3,100
<INVENTORY> 4,874
<CURRENT-ASSETS> 55,468
<PP&E> 11,388
<DEPRECIATION> 6,881
<TOTAL-ASSETS> 62,495
<CURRENT-LIABILITIES> 18,856
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 42,864
<TOTAL-LIABILITY-AND-EQUITY> 62,495
<SALES> 102,498
<TOTAL-REVENUES> 102,498
<CGS> 83,363
<TOTAL-COSTS> 19,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 464
<INCOME-TAX> 187
<INCOME-CONTINUING> 277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277
<EPS-BASIC> 0.04<F1>
<EPS-DILUTED> 0.04<F1>
<FN>
This amount is in accordance with Financial Accounting Standards Board
Statement No. 128.
</FN>
</TABLE>
