SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
QUARTERTLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number: 1-13760
THE NETWORK CONNECTION, INC.
1324 Union Hill Road
Alpharetta, Georgia 30201
(770-751-0889)
A Georgia Corporation IRS Employer ID No.
58-1712432
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value per share Registered on The Nasdaq
Stock Market
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(b) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 10, 1998, the registrant had outstanding 4,549,838
shares of its Common Stock.
Transitional Small Business Disclosure Format (Check One): Yes
[ ] No [ X ]
TABLE OF CONTENTS
ITEM PAGE(S)
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (Unaudited)
Balance Sheet June 30, 1998 3,4
Statements of Operations Three Months and Six Months
Ended
June 30, 1998 and 1997 5
Statements of Cash Flows Three Months and Six Months
Ended
June 30, 1998 and 1997 6
Notes to Financial Statements June 30, 1998
7
2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations 8,9
PART II. OTHER INFORMATION
5. Other Information 10
6. Exhibits and Reports on Form 8-K 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NETWORK
CONNECTION, INC.
BALANCE SHEET
(Unaudited)
June 30,
1998
ASSETS
Current assets:
Cash $309,738
Restricted cash 1,000,000
Short-term 110,284
investments
Accounts 7,143,279
receivable, less
allowance of
$731,547 (Notes)
Inventory 2,150,109
Prepaid expenses 301,890
---------
---------
Total current 11,015,300
assets
Property and
equipment:
Land 150,000
Building and 763,055
improvements
Furniture, 2,150,273
fixtures and
equipment
Software 51,982
Vehicles 162,773
---------
---------
3,278,083
Less accumulated (1,129,564)
depreciation
---------
---------
2,148,519
Other assets, net 657,430
---------
---------
Total assets $13,821,249
=========
THE NETWORK
CONNECTION, INC.
BALANCE SHEET
(Unaudited)
June 30,
1998
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Current
liabilities:
Accounts payable $2,746,222
and accrued
expenses
Payable to 70,929
shareholders
Borrowings under 1,250,000
line of credit
and notes (Notes)
Current portion 39,455
of long-term debt
and capital lease
obligations
----------
----------
Total current 4,106,606
liabilities
Long-term debt, 710,676
less current
portion (Notes)
Obligations under 1,222
capital leases,
less current
portion
----------
----------
----------
----------
Total liabilities 4,818,504
Mandatory Redeemable 4% 2,384,010
Convertible Preferred
Stock (Notes)
Shareholders'
equity:
Preferred stock,
$.01 par value:
Authorized,
2,500,000 shares;
Issued and
outstanding, 220,000
Common stock,
$.001 par value:
Authorized,
10,000,000
shares;
Issued and 4,175
outstanding,
4,174,943 shares
Additional paid- 14,255,823
in capital
Accumulated (7,641,263)
deficit ----------
----------
Total 6,618,735
shareholders'
equity
----------
----------
Total liabilities $13,821,249
and shareholders'
equity
==========
THE NETWORK CONNECTION, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Revenues $3,647,080 $1,054,764 $3,758,987 $3,362,580
Cost of revenues 2,016,322 658,752 2,118,528 2,156,065
---------- ----------- ---------- ----------
---------- --------- ---------- ----------
Gross profit 1,630,758 396,012 1,640,459 1,206,515
Selling, general 1,653,682 1,405,198 2,718,607 2,339,223
and administrative
Research and 128,126 86,944
development 72,805 86,944
---------- ----------- ---------- ----------
---------- --------- ---------- ----------
Operating loss (95,729) (1,096,130) (1,206,274) (1,219,652)
Interest,net 62,868 25,743 17,148 38,738
---------- ----------- ---------- ----------
---------- --------- ---------- ----------
Net loss (32,861) (1,070,387) (1,189,126) (1,180,914)
Preferred stock 184,010 184,010
dividends
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss to common ($216,871) ($1,070,387) ($1,373,136) ($1,180,914)
shareholders
========== =========== ========== ==========
Basic and Diluted per
share
net loss to common ($0.05) ($0.27) ($0.33) ($0.33)
shareholders
========== =========== ========== ==========
Weighted average common
and equivalent shares
outstanding, basic and
diluted:
4,161,610 3,931,685 4,157,001 3,558,797
THE NETWORK CONNECTION, INC.
STATEMENTS OF CASH FLOWS
Six months ended June 30
(Unaudited)
1998 1997
Operating
activities
Net loss ($1,189,126) ($1,180,914)
Adjustments to
reconcile net
loss to net cash
used
in operating
activities
Depreciation 205,163 105,000
and amortization
Allowance for 700,000
doubtful accounts
Changes in
operating assets
and liabilities:
Accounts (2,906,777) (1,173,624)
receivable
Inventory 1,294,886 570,510
Prepaid (44,629) (221,289)
expenses and
other assets
Accounts (1,421,895) (450,674)
payable and
accrued expenses
--------- ----------
--------- ---------
Net cash used in (3,362,378) (2,351,391)
operating
activities
Investing
activities:
Purchase of (73,844) (131,993)
property and
equipment
Sale of short- 528,275 495,713
term investments
--------- ----------
--------- ---------
Net cash (used 454,431 363,720
in) provided by
investing
activities
Financing
activities:
Proceeds from 470,000 48,000
issuance of long-
term debt
Net proceeds from 2,017,467 5,427,670
issuance of stock
Proceeds 724,000 (496,000)
(payment) of bank
borrowings and
notes
Payment of long- (18,430) (21,736)
term debt and
capital lease
obligations
Payment of (1,429)
shareholder debt
--------- ----------
--------- ---------
Net cash provided 3,193,037 4,956,505
by financing
activities
--------- ----------
--------- ---------
Net change in 285,090 2,968,834
cash
Cash at 1,024,648 1,000,000
beginning of
period
--------- ----------
--------- ---------
Cash at end of $1,309,738 $3,968,834
period
========= ==========
Supplemental
Information:
Conversion of $2,200,000
convertible debt
to convertible
preferred stock
Beneficial $184,010
conversion
feature on
convertible
preferred stock
THE NETWORK CONNECTION, INC.
CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period
ended June 30,1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. For
further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1997, included
in the Company's Annual Report on Form 10-KSB.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
Forward-Looking Statements
Statements in this Quarterly Report on Form 10QSB that are not
descriptions of historical facts may be forward-looking
statements that are subject to risks and uncertainties, including
economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices, as
well as other specific factors discussed in the Company's filings
with the Securities and Exchange Commission. These and other
factors may cause actual results to differ materially from those
anticipated.
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Basic and Diluted Net Loss Per Common Share
Basic and Diluted net loss per common share have been computed by
dividing net loss by the weighted average number of common shares
outstanding during each period.
Accounts Receivable
The Company's products are often used with other products in
large complex projects. As a result, the Company may grant
extended payment terms for certain sales. Accounts receivable at
June 30, 1998 consisted of approximately $3.6 million from sales
to such customers with extended credit terms of up to 180 days
based on the nature of the project.
Debt and Preferred Stock
On March 11, 1998, the Company raised gross proceeds of $2.2
million in a private placement to a single institutional
investor, KA Investments LDC (the "Investor"), of five-year
convertible debt securities (the "Debentures") pursuant to the
terms of a Convertible Debenture Purchase Agreement, dated March
11, 1998, by and between the Company and the Investor (the
"Debenture Purchase Agreement"). Each Debenture was sold for
$50,000.00, accrued interest at a rate of 4% per annum, and was
convertible at the option of the holder into shares of the
Company's Common Stock at a price per share equal to the lesser
of (i) $8.02 or (ii) 80% of the average closing market price of
the Company's Common Stock during the 21 trading days prior to
conversion, but in no event less than $3.00 per share (as
adjusted for stock splits). As of June 9, 1998, the Investor and
the Company entered into a Convertible Preferred Stock Purchase
Agreement (the "Purchase Agreement"), pursuant to which the
Investor agreed to exchange all of its Debentures for 220,000
shares of the Company's 4% Series A Convertible Preferred Stock
(the "Preferred Stock"). The financial terms of the Preferred
Stock are identical to the financial terms of the Debentures for
which they were exchanged. The Company was obligated to file and
have declared effective by the Securities and Exchange Commission
(the "Commission"), on or prior to June 24, 1998, a registration
statement with respect to the resale of the Common Stock issuable
upon conversion of the Preferred Stock. The Company originally
filed such Registration Statement on May 1, 1998, and such
Registration Statement was declared effective by the Commission
on June 8, 1998. The Company has agreed to use its best efforts
to keep the Registration Statement effective for a period of
three (3) years following the effective date of the Registration
Statement, or through such earlier date when the Common Stock to
be acquired upon conversion of the Preferred Stock may be sold
pursuant to Rule 144(k) under the Securities Act.
The Company registered the Shares underlying the Preferred Stock
to provide the holder of such shares, upon conversion of the
Preferred Stock, with freely tradable shares of Common Stock.
Pursuant to the terms of the Registration Agreement, this
Registration Statement covers up to 20% of the number of shares
of Common Stock outstanding on the issue date of the Preferred
Stock under the Purchase Agreement. The terms of the Purchase
Agreement require that the Company maintain a reserve of up to
20% of the number of shares of Common Stock outstanding on the
issue date of the Preferred Stock under the Purchase Agreement
for issuance upon conversion. The terms of the Preferred Stock
permit the Company, at its option, to pay the dividends on the
Preferred Stock in shares of Common Stock in lieu of cash under
certain circumstances. However, the Company does not intend to
issue such number of shares of Common Stock in lieu of cash
dividends which, when added to the number of shares of Common
Stock into which the Preferred Stock is convertible, would allow
the aggregate number of such shares of Common Stock to exceed 20%
of the outstanding shares of Common Stock on the issue date of
the Preferred Stock under the Purchase Agreement
Each share of Preferred Stock is convertible, in whole or in
part, from time to time beginning June 8, 1998 (the "Conversion
Date"), subject to the restriction that the holders of the
Preferred Stock shall be entitled to convert up to 25% of the
aggregate Stated Value [e.g., ten ($10.00) dollars per share] of
the Preferred Stock on the Conversion Date, up to 50% of the
aggregate Stated Value of the Preferred Stock on the first month
anniversary of the Conversion Date, up to 75% of the aggregate
Stated Value of the Preferred Stock on the second month
anniversary of the Conversion Date, and the entire aggregate
Stated Value of the Preferred Stock on the third month
anniversary of the Conversion Date.
The outstanding Preferred Stock is subject to mandatory
redemption by the Company, at the aggregate Stated Value thereof
plus accrued and unpaid dividends, on March 11, 2003, or earlier
under certain circumstances. In addition, during the period from
March 11, 2001 through March 11, 2003, if any five- day average
of the closing bid price of the Common Stock is $3.00 or
greater, any outstanding shares of Preferred Stock shall be
subject to automatic conversion by the Company into shares of
Common Stock at $3.00 per share.
On May 19, 1998, the Company entered into a promissory note with
an institutional lender in the amount of $470,000. This note is
secured by the real estate of the Company. The note is due and
payable on April 19, 2001 and bears interest, payable monthly, at
an annual rate of 16%.
On June 29, 1998, the Company entered into a promissory note with
an institutional investor in the amount of $1,250,000. This note
is unsecured and is due and payable with accrued interest at an
annual rate of 8% on August 28, 1998. The Company, in its sole
discretion, may elect to pay this note on August 28, 1998,
subject to a payment charge of $87,500, or exchange this note for
a series of convertible preferred stock or convertible debentures
of the Company.
Subsequent Event
During July 1998, holders of the Company's Preferred Stock
exercised their right and converted 110,000 shares of the
Preferred Stock into 374,895 shares of the Company's common
stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Revenues increased 246% to $3.6 million for the quarter and
increased 12% to $3.8 million for the six months ended June 30,
1998 from $1.1 million for the quarter and $3.4 million for the
six months ended June 30, 1997. This increase in the second
quarter primarily resulted from deliveries of the Company's
CruiseView system for the first of two ships to Star Cruises
under a program announced in the fiscal fourth quarter of 1997and
licensing fees for the Company's AirView technology.
Gross profit as a percentage of revenues increased by 7% to 45%
during the quarter ended June 30, 1998 as compared to 38% for the
same period in 1997. This increase was primarily due to revenues
generated during the 1998 period from technology licensing fees
which were not realized in the same 1997 period. Gross margins
for any particular period are not necessarily indicative of the
results that may occur in any future period due to factors
including, but not limited to, changes in product mix,
fluctuating component cost, critical component availability and
industry competition.
Selling, general and administrative expenses increased $248,484
(18%) for the quarter ended and $379,384 (14%) for the six months
ended June 30, 1998, as compared to the same 1997 periods. This
increase related primarily to a $700,000 charge, which in the
judgement of management, is due to worsening economic conditions
internationally, particularly in Asia, and the length of time
that accounts receivable for certain international extended
programs have been past due, to reserve for the uncertainty and
possible uncollectibility of such outstanding receivables. This
charge was offset by a decrease in expenses of $451,516 (32%) for
the quarter and $320,616 (14%) for the six months, which were
incurred in the respective periods in 1997 and not in 1998,
primarily for additional (i) marketing expenses (including
advertising, trade show, public relations, bidding and proposal
and demonstration expenses) associated with the introduction of
new products for Courseware on Demand and increased sales and
marketing activity in the cruise line market and; (ii) employment
of sales and marketing personnel and related payroll and non-
recurring legal and administrative expenses related to
establishing a sales office in Singapore.
The Company anticipates that it will continue to invest in its
marketing and sales generation strategy (increasing advertising,
trade show, demonstration and proposal expenses and sales and
marketing personnel, with related payroll costs) to increase
revenues and increase net income from operations in the future;
such investment may adversely affect short-term operating
performance.
Changes in interest income and expense are attributable to
changes in average outstanding borrowings during the periods
presented, a conversion of debt interest to preferred stock
dividends and interest income on restricted cash and short-term
securities.
Liquidity and Capital Resources; Certain Transactions
During the six months ended June 30, 1998, the Company's cash
increased $285,090 principally due to the net proceeds from the
issuance of convertible preferred stock of $2.0 million, proceeds
from the issuance of debt $1.2 million and the sale of short term
investments of $528,275, offset by cash used in operating
activities of $3.4 million and the purchase of property and
equipment of $73,844. The negative change in cash from operating
activities primarily resulted from a net loss of $1.2 million, a
decrease in accounts payable and accrued expenses of $1.4
million, and an increase of $2.9 million in accounts receivable,
offset by a decrease in inventory of $1.3 million. The reduction
in cash from operating activities was offset by depreciation and
amortization of $205,163 and an increase in allowance for
doubtful accounts of $700,000 to reserve for possible
uncollectibility of accounts receivable from certain
international sales due to worsening international economic
conditions, particularly in Asia.
The Company's primary source of funds at June 30, 1998 consisted
of $1.4 million in cash and short-term investments and funds
available under a $1.00 million revolving line of credit. $1.0
million of cash represents two certificates of deposit which were
restricted from use by the fact that they were pledged as
collateral for the availability of the line of credit. The line
of credit, which expires in May 1999, bears interest at an annual
rate of 7.05%. At June 30, 1998, the Company had no borrowings
outstanding under the line of credit.
Capital expenditures for the purchase of property and equipment
for the six months ended June 30, 1998 were $73,844, primarily
for the purchase of additional equipment and software in order to
expand product demonstration and development capabilities. During
1998, capital expenditures are anticipated to be funded through
existing working capital or other financing.
The Company is indebted to an institutional lender as of June 30,
1998, in the aggregate amount of $247,613, for the purchase of
its primary operating facility. This loan is secured by the
purchased real estate and the personal guarantees of Wilbur and
Barbara Riner, and bears annual interest at the rate of such
lender's prime rate plus 2%. A default by the Company in payment
of this mortgage loan could result in foreclosure against the
property.
On March 11, 1998, the Company raised gross proceeds of $2.2
million in a private placement to a single institutional
investor, KA Investments LDC (the "Investor"), of five-year
convertible debt securities (the "Debentures") pursuant to the
terms of a Convertible Debenture Purchase Agreement, dated March
11, 1998, by and between the Company and the Investor (the
"Debenture Purchase Agreement"). Each Debenture was sold for
$50,000.00, accrued interest at a rate of 4% per annum, and was
convertible at the option of the holder into shares of the
Company's Common Stock at a price per share equal to the lesser
of (i) $8.02 or (ii) 80% of the average closing market price of
the Company's Common Stock during the 21 trading days prior to
conversion, but in no event less than $3.00 per share (as
adjusted for stock splits). As of June 9, 1998, the Investor and
the Company entered into a Convertible Preferred Stock Purchase
Agreement (the "Purchase Agreement"), pursuant to which the
Investor agreed to exchange all of its Debentures for 220,000
shares of the Company's 4% Series A Convertible Preferred Stock
(the "Preferred Stock"). The financial terms of the Preferred
Stock are identical to the financial terms of the Debentures for
which they were exchanged. The Company was obligated to file and
have declared effective by the Securities and Exchange Commission
(the "Commission"), on or prior to June 24, 1998, a registration
statement with respect to the resale of the Common Stock issuable
upon conversion of the Preferred Stock. The Company originally
filed such Registration Statement on May 1, 1998, and such
Registration Statement was declared effective by the Commission
on June 8, 1998. The Company has agreed to use its best efforts
to keep the Registration Statement effective for a period of
three (3) years following the effective date of the Registration
Statement, or through such earlier date when the Common Stock to
be acquired upon conversion of the Preferred Stock may be sold
pursuant to Rule 144(k) under the Securities Act.
The Company registered the Shares underlying the Preferred Stock
to provide the holder of such shares, upon conversion of the
Preferred Stock, with freely tradable shares of Common Stock.
Pursuant to the terms of the Registration Agreement, this
Registration Statement covers up to 20% of the number of shares
of Common Stock outstanding on the issue date of the Preferred
Stock under the Purchase Agreement. The terms of the Purchase
Agreement require that the Company maintain a reserve of up to
20% of the number of shares of Common Stock outstanding on the
issue date of the Preferred Stock under the Purchase Agreement
for issuance upon conversion. The terms of the Preferred Stock
permit the Company, at its option, to pay the dividends on the
Preferred Stock in shares of Common Stock in lieu of cash under
certain circumstances. However, the Company does not intend to
issue such number of shares of Common Stock in lieu of cash
dividends which, when added to the number of shares of Common
Stock into which the Preferred Stock is convertible, would allow
the aggregate number of such shares of Common Stock to exceed 20%
of the outstanding shares of Common Stock on the issue date of
the Preferred Stock under the Purchase Agreement
Each share of Preferred Stock is convertible, in whole or in
part, from time to time beginning June 8, 1998 (the "Conversion
Date"), subject to the restriction that the holders of the
Preferred Stock shall be entitled to convert up to 25% of the
aggregate Stated Value [e.g., ten ($10.00) dollars per share] of
the Preferred Stock on the Conversion Date, up to 50% of the
aggregate Stated Value of the Preferred Stock on the first month
anniversary of the Conversion Date, up to 75% of the aggregate
Stated Value of the Preferred Stock on the second month
anniversary of the Conversion Date, and the entire aggregate
Stated Value of the Preferred Stock on the third month
anniversary of the Conversion Date.
The outstanding Preferred Stock is subject to mandatory
redemption by the Company, at the aggregate Stated Value thereof
plus accrued and unpaid dividends, on March 11, 2003, or earlier
under certain circumstances. In addition, during the period from
March 11, 2001 through March 11, 2003, if any five- day average
of the closing bid price of the Common Stock is $3.00 or greater,
any outstanding shares of Preferred Stock shall be subject to
automatic conversion by the Company into shares of Common Stock
at $3.00 per share.
On May 19, 1998, the Company entered into a promissory note with
an institutional lender in the amount of $470,000. This note is
secured by the real estate of the Company. The note is due and
payable on April 19, 2001 and bears interest, payable monthly, at
an annual rate of 16%.
On June 29, 1998, the Company entered into a promissory note with
an institutional investor in the amount of $1,250,000. This note
is unsecured and is due and payable with accrued interest at an
annual rate of 8% on August 28, 1998. The Company, in its sole
discretion, may elect to pay this note on August 28, 1998,
subject to a payment charge of $87,500, or exchange this note for
a series of convertible preferred stock or convertible debentures
of the Company.
The Company believes that its working capital requirements will
increase throughout 1998 and beyond, particularly as its focus
continues on large, long-term projects. The Company is in
discussions with commercial and private lenders to increase the
availability of borrowings secured by assets of the Company. The
Company believes that currently available cash, the proceeds
received from the issuance of debt and preferred stock and funds
generated from operations, if any, further expansion of terms
with trade creditors and increasing the availability of
borrowings secured by assets of the Company will be sufficient to
satisfy its cash needs for the foreseeable future. However,
maintaining an adequate level of working capital through the end
of 1998, and thereafter, will depend in part on the success of
the Company's products in the marketplace, the relative
profitability of those products, continued availability of memory
and storage components at favorable pricing and the Company's
ability to control operating expenses. The Company may seek or
require additional financing for growth opportunities, including
any expansion that the Company may undertake internally, for
strategic acquisitions or partnerships or for expansion of
additional sites or major long-term projects. There can be no
assurance that any such financing will be available on terms
acceptable to the Company, if at all.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 11, 1998, the Company held its 1998 Annual Meeting
of Stockholders (the "Annual Meeting"). At the Annual Meeting,
the following directors were elected, with the effect being that
their terms continued after the Annual Meeting: James Riner
(3,829,610 votes in favor, 0 votes against and 35,424 votes
abstaining) and Arthur Bauer (3,829,500 votes in favor, 0 votes
against and 35,534 votes abstaining).
The following additional matters were also voted on and
approved at the Annual Meeting, with the following vote
tabulations being registered:
1. That the Corporation appoint Coopers & Lybrand L.L.P.
as the Corporation's independent auditors for the fiscal year
ending December 31, 1998. The following votes were cast:
3,826,232 in favor; 26,754 against and 12,048 abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
On June 9, 1998, the Company filed a report on Form 8-K
announcing the exchange of its Debentures for Preferred
Stock.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE NETWORK CONNECTION, INC.
(Registrant)
Date: August 14, 1998 By:__/s/ Wilbur
Riner________________________________
Wilbur Riner
Chairman and Chief Executive Officer
By:__/s/ Bryan R.
Carr________________________________
Bryan R. Carr
Chief Financial and Principal
Accounting Officer
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE NETWORK
CONNECTION, INC. FOR THE QUARTER ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-1-1998 APR-1-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 1,309,738 1,309,738
<SECURITIES> 110,284 110,284
<RECEIVABLES> 7,874,826 7,874,826
<ALLOWANCES> 731,547 731,547
<INVENTORY> 2,150,109 2,150,109
<CURRENT-ASSETS> 11,015,300 11,015,300
<PP&E> 3,278,083 3,278,083
<DEPRECIATION> 1,129,564 1,129,564
<TOTAL-ASSETS> 13,821,249 13,821,249
<CURRENT-LIABILITIES> 4,106,606 4,106,606
<BONDS> 711,898 711,898
2,384,010 2,384,010
0 0
<COMMON> 4,175 4,175
<OTHER-SE> 6,614,560 6,614,560
<TOTAL-LIABILITY-AND-EQUITY> 13,821,249 13,821,249
<SALES> 3,758,987 3,647,080
<TOTAL-REVENUES> 3,758,987 3,647,080
<CGS> 2,118,528 2,016,322
<TOTAL-COSTS> 2,018,607 953,682
<OTHER-EXPENSES> 128,126 72,805
<LOSS-PROVISION> 700,000 700,000
<INTEREST-EXPENSE> (17,148) (62,868)
<INCOME-PRETAX> (1,189,126) (32,861)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,189,126) (32,861)
<EPS-PRIMARY> (0.33) (0.05)
<EPS-DILUTED> (0.33) (0.05)
</TABLE>
