<PAGE>
--------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
Commission file number: 0-24417
AZTEC TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE 04-3408450
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
50 BRAINTREE HILL OFFICE PARK, SUITE 220, BRAINTREE, MASSACHUSETTS 02184
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 849-1702
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 / /
------------------------
22,810,522 shares of the registrant's common shares, par value $0.001, were
outstanding as of August 4, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
FORM 10-Q
TABLE OF CONTENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets..................... 2
Condensed Consolidated Statements of Operations........... 3
Condensed Consolidated Statements of Cash Flows........... 4
Notes to Condensed Consolidated Financial Statements...... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Factors That May Affect Future Results...................... 15
Item 3. Quantitative and Qualitative Disclosure About Market
Risks..................................................... 17
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits.............................................. 18
B. Reports on Form 8-K................................... 18
Signatures.................................................. 18
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,183 $ 4,550
Accounts receivable, net.................................. 38,799 65,481
Inventories, net.......................................... 4,803 10,685
Unbilled percentage of completion revenues................ 2,639 4,730
Prepaid expenses and other current assets................. 9,508 11,289
Deferred income taxes..................................... 17,800 5,432
Net current assets of discontinued operations............. 3,002 --
--------- --------
Total current assets.................................... 79,734 102,167
Property and equipment, net............................... 7,497 10,386
Intangibles, net.......................................... 5,079 55,760
Deferred income taxes..................................... 9,593 2,476
Other assets.............................................. 1,938 1,908
Net noncurrent assets of discontinued operations.......... 12,960 --
--------- --------
Total assets............................................ $ 116,801 $172,697
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 41,336 $ 166
Accounts payable.......................................... 20,322 34,538
Accrued compensation...................................... 5,565 6,570
Deferred revenue.......................................... 6,858 10,140
Other accrued liabilities................................. 22,155 10,847
--------- --------
Total current liabilities............................... 96,236 62,261
Long-term debt.............................................. 101 74,544
Other long-term liabilities................................. 2,069 1,956
--------- --------
Total liabilities....................................... 98,406 138,761
--------- --------
Stockholders' equity:
Common stock--$.001 par value, 150,000,000 shares
authorized, 22,810,522 and 22,428,837 shares issued and
outstanding, respectively............................... 23 22
Additional paid-in capital................................ 95,407 94,354
Retained deficit.......................................... (77,035) (60,440)
--------- --------
Total stockholders' equity.............................. 18,395 33,936
--------- --------
Total liabilities and stockholders' equity.............. $ 116,801 $172,697
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Products......................................... $ 37,723 $51,895 $ 75,249 $97,597
Services......................................... 20,817 22,399 38,724 43,455
-------- ------- -------- -------
Total revenues............................... 58,540 74,294 113,973 141,052
-------- ------- -------- -------
Gross profit:
Products......................................... 5,176 5,418 10,888 9,387
Services......................................... 7,265 9,427 12,452 18,100
-------- ------- -------- -------
Total gross profit........................... 12,441 14,845 23,340 27,487
Selling, general and administrative expenses....... 15,651 14,066 28,483 25,279
Amortization of intangibles........................ 588 893 1,176 1,788
Write-off of goodwill.............................. 21,852 -- 21,852 --
Strategic restructuring costs...................... -- (345) -- (345)
-------- ------- -------- -------
Operating income (loss)...................... (25,650) 231 (28,171) 765
Interest and other expense......................... 2,810 1,962 4,827 3,835
-------- ------- -------- -------
Loss from continuing operations before income
taxes............................................ (28,460) (1,731) (32,998) (3,070)
Income tax benefit................................. (9,226) (667) (11,085) (1,172)
-------- ------- -------- -------
Loss from continuing operations.................... (19,234) (1,064) (21,913) (1,898)
Discontinued operations:
Income from operations of Voice & Data segment
(less applicable income taxes of $855, $1,139,
$2,138 and $1,741, respectively)............... 266 1,381 2,110 2,326
Gain on disposal of Voice & Data segment,
including provision of $1,993 for operating
income during phase-out period (less applicable
taxes of $3,254)............................... 3,208 -- 3,208 --
-------- ------- -------- -------
Net income (loss).................................. $(15,760) $ 317 $(16,595) $ 428
======== ======= ======== =======
Weighted-average shares outstanding:
Basic............................................ 22,594 22,016 22,556 22,016
Diluted.......................................... 22,594 22,016 22,556 22,016
Per share amounts:
Basic earnings per share:
Loss from continuing operations................ $ (0.85) $ (0.05) $ (0.97) $ (0.09)
Discontinued operations:
Income from operations of Voice & Data
segment...................................... 0.01 0.06 0.09 0.11
Gain on disposal of Voice & Data segment....... 0.14 -- 0.14 --
-------- ------- -------- -------
Net income (loss).................................. $ (0.70) $ 0.01 $ (0.74) $ 0.02
======== ======= ======== =======
Diluted earnings per share:
Loss from continuing operations................ $ (0.85) $ (0.05) $ (0.97) $ (0.09)
Discontinued operations:
Income from operations of Voice & Data
segment...................................... 0.01 0.06 0.09 0.11
Gain on disposal of Voice & Data segment....... 0.14 -- 0.14 --
-------- ------- -------- -------
Net income (loss).................................. $ (0.70) $ 0.01 $ (0.74) $ 0.02
======== ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(16,595) $ 428
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Income from discontinued operations..................... (2,110) (2,326)
Gain on disposal of discontinued operations............. (3,208) --
Depreciation and amortization expense................... 2,195 2,388
Write-off of goodwill................................... 21,852 --
Deferred income taxes................................... 19,485 332
Changes in operating assets and liabilities, net of
effects from dispositions............................. (24,098) 2,739
-------- --------
Net cash (used in) provided by continuing
operations.......................................... (2,479) 3,561
Net cash provided by discontinued operations.......... 4,531 8,539
-------- --------
Net cash provided by operating activities............. 2,052 12,100
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net of disposals..... (1,557) (2,722)
Net cash proceeds from disposal of discontinued
operations.............................................. 30,690 --
Other..................................................... (510) (724)
-------- --------
Net cash provided by (used in) investing activities... 28,623 (3,446)
-------- --------
Cash flows from financing activities:
Payments of long-term debt................................ (33,096) (14,702)
Proceeds from issuance of common stock.................... 1,054 448
-------- --------
Net cash used in financing activities................. (32,042) (14,254)
-------- --------
Net decrease in cash and cash equivalents................... (1,367) (5,600)
Cash and cash equivalents at beginning of period............ 4,550 8,763
-------- --------
Cash and cash equivalents at end of period.................. $ 3,183 $ 3,163
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS
We are a provider of e-Solutions for our clients which permit them to
exploit Internet, intranet and extranet technologies for a competitive
advantage.
2. BASIS OF PRESENTATION
We have prepared the accompanying unaudited condensed consolidated financial
statements pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") regarding interim financial reporting. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1999, included in our Annual Report on Form 10-K/A filed
May 1, 2000. The accompanying condensed consolidated financial statements
reflect all adjustments (consisting solely of normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
results for the interim periods presented. The results of operations for the six
months ended June 30, 2000 are not necessarily indicative of results expected
for the full fiscal period or any other future periods.
3. CREDIT FACILITY
We entered into a credit facility with our bank lenders in July 1998, with
amendments made to the underlying agreement on October 5, 1998, September 30,
1999, March 30, 2000, May 18, 2000 and June 17, 2000. The credit facility
consists of a term portion, which was used to finance acquisitions and a
revolver portion which we use to fund our working capital needs. During the
second quarter ending June 30, 2000, we reduced the amount outstanding under the
term portion of the credit facility from $69.3 million to $39.3 million. During
this same period, the revolver portion of the credit facility increased from
$1 million to $2 million out of a total available of $15 million.
As of June 30, 2000, we were not in compliance with one financial covenant
under the credit facility requiring a minimum debt service coverage. We are
discussing with our lenders the terms on which they would be willing to waive
that noncompliance. While we have reached agreement in principal on terms, we
have not yet signed an actual waiver. Under the agreement in principal, the
lenders would waive compliance with this covenant through April 30, 2001, the
maturity date of the credit facility, and we would agree (i) to issue currently
exercisable warrants to purchase a number of shares equal to 3% of our
outstanding common stock on a fully diluted basis, at an exercise price of $0.01
per share and to register the shares issuable upon the exercise of the warrants
so that they may be freely sold; (ii) to pay interest on outstanding debt on a
monthly basis; (iii) to issue additional warrants to purchase a number of shares
equal to 1% of our outstanding common stock on a fully diluted basis, at $0.01
per share if the outstanding loan commitment is not less than $32 million by
December 31, 2000; and (iv) that the lenders' approval of any transaction
involving a realization on our investment in our subsidiary Blueflame Inc. will
be conditioned upon the payment to them of an amount equal to the amounts
outstanding under the credit facility. "Loan commitment" means, the amount
outstanding under the term portion of our credit facility plus the amount of our
lenders' obligation to loan funds to us under the revolver portion of that
facility. Blueflame Inc., or Blueflame, is the new name of our subsidiary
Professional Computer Solutions, Inc.
5
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. CREDIT FACILITY (CONTINUED)
The loans due under the credit facility are to be repaid by April 30, 2001.
We intend to repay these loans through the sale or other disposition and
restructuring of our subsidiaries or by realizing on the value of our investment
in Blueflame. There can be no assurance that the proceeds of such sales or
realizations will be sufficient to repay the amounts due under the credit
facility. In the March 30, 2000 amendment to the credit facility, the lenders
pre-approved these sales on the condition that the proceeds from each sale are
paid to the lenders and that these proceeds are in excess of certain minimum
amounts. In the event that the proceeds from a sale to be paid to the lenders
are less than the pre-approved amounts, we would be required to obtain the
approval of our lenders.
As of June 30, 2000, we had borrowed funds under the credit facility in
excess of our eligible accounts receivable. As a result, we incurred an
over-advance fee of $318,000 which has been paid.
4. EARNINGS (LOSS) PER SHARE
The following is a summary of the shares used in computing basic and diluted
net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in computing
basic net income (loss) per share..................... 22,594 22,016 22,556 22,016
Dilutive stock options.................................. -- -- -- --
------ ------ ------ ------
Weighted average shares outstanding used in computing
diluted net income (loss) per share................... 22,594 22,016 22,556 22,016
====== ====== ====== ======
</TABLE>
5. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" subsequently updated by SAB 101A and SAB
101B ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We are required to adopt SAB 101 no later than the fourth quarter of
calendar 2000. We are currently evaluating the impact of SAB 101 on our results
of operations and financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination; FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or
6
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
January 12, 2000. We do not expect the application of FIN 44 to have a material
impact on our financial position or results of operations.
6. SEGMENT DATA
We are managing our business segments on a business sector basis. Our
reportable segments have been comprised of e-Integration, e-Solutions, Voice and
Data and Other. Our Voice and Data segment is considered a discontinued
operation, due to the sale of three Voice and Data subsidiaries in June 2000 and
the contemplated sale of the remaining Voice and Data subsidiary in the second
half of 2000.
We evaluate the performance of our segments based on operating income.
Operating income for each segment includes selling, general and administrative
expenses directly attributable to the segment and excludes certain expenses
which are managed outside of the reportable segments. Costs excluded from
segments' operating income primarily consist of corporate expenses including
administrative expenses, amortization of intangibles, interest and income taxes,
as well as other non-recurring, restructuring and acquisition related costs.
Segment assets exclude corporate assets which primarily consist of cash and cash
equivalents, certain deferred assets, intangibles and investments in
subsidiaries. Capital expenditures for long-lived assets are not a significant
activity of the reportable operating segments and, as such, not a primary focus
of management in reviewing operating segment performance.
Summary information by segment for the three and six months ended June 30, 2000
and June 30, 1999 is as follows:
<TABLE>
<CAPTION>
E-INTEGRATION E-SOLUTIONS OTHER SUB-TOTAL DISC OPS TOTAL
------------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
Revenue:
Products................................. $33,531 $ -- $4,192 $37,723 $ 3,266 $40,989
Services................................. 8,313 8,227 4,277 $20,817 19,002 $39,819
------- ------- ------ ------- ------- -------
Total................................ $41,844 $ 8,227 $8,469 $58,540 $22,268 $80,808
Gross profit............................... $ 5,443 $ 5,018 $1,980 $12,441 $ 6,224 $18,665
Operating income (loss).................... $(1,846) $ 693 $ 484 $ (669) $ 1,699 $ 1,030
Depreciation............................... $ 258 $ 139 $ 44 $ 441 $ 179 $ 620
Assets..................................... $44,811 $10,124 $4,607 $59,542 $ 3,416 $62,958
======= ======= ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
E-INTEGRATION E-SOLUTIONS OTHER SUB-TOTAL DISC OPS TOTAL
------------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Revenue:
Products................................ $43,586 $ -- $ 8,309 $51,895 $ 1,820 $53,715
Services................................ 10,388 5,558 6,453 $22,399 18,652 $41,051
------- ------ ------- ------- ------- -------
Total............................... $53,974 $5,558 $14,762 $74,294 $20,472 $94,766
Gross profit.............................. $ 8,542 $2,327 $ 3,976 $14,845 $ 6,710 $21,555
Operating income.......................... $ 1,086 $ 621 $ 1,790 $ 3,497 $ 2,411 $ 5,908
Depreciation.............................. $ 161 $ 82 $ 27 $ 270 $ 185 $ 455
Assets.................................... $49,451 $6,941 $14,348 $70,740 $28,587 $99,327
======= ====== ======= ======= ======= =======
</TABLE>
7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
E-INTEGRATION E-SOLUTIONS OTHER SUB-TOTAL DISC OPS TOTAL
------------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
Revenue:
Products.............................. $65,945 $ -- $ 9,304 $ 75,249 $ 6,125 $ 81,374
Services.............................. 17,135 13,924 7,665 $ 38,724 42,228 $ 80,952
------- ------- ------- -------- ------- --------
Total............................. $83,080 $13,924 $16,969 $113,973 $48,353 $162,326
Gross profit............................ $12,967 $ 6,637 $ 3,736 $ 23,340 $13,928 $ 37,268
Operating income (loss)................. $ (570) $ (180) $ 439 $ (311) $ 4,155 $ 3,844
Depreciation............................ $ 491 $ 255 $ 103 $ 849 $ 392 $ 1,241
Assets.................................. $44,811 $10,124 $ 4,607 $ 59,542 $ 3,416 $ 62,958
======= ======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
E-INTEGRATION E-SOLUTIONS OTHER SUB-TOTAL DISC OPS TOTAL
------------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Revenue:
Products.............................. $78,795 $ -- $18,802 $ 97,597 $ 3,611 $101,208
Services.............................. 19,524 10,927 13,004 $ 43,455 36,022 $ 79,477
------- ------- ------- -------- ------- --------
Total............................. $98,319 $10,927 $31,806 $141,052 $39,633 $180,685
Gross profit............................ $14,924 $ 4,776 $ 7,787 $ 27,487 $12,587 $ 40,074
Operating income........................ $ 1,923 $ 1,604 $ 3,411 $ 6,938 $ 3,978 $ 10,916
Depreciation............................ $ 318 $ 151 $ 73 $ 542 $ 369 $ 911
Assets.................................. $49,451 $ 6,941 $14,348 $ 70,740 $28,587 $ 99,327
======= ======= ======= ======== ======= ========
</TABLE>
8
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. SEGMENT DATA (CONTINUED)
A reconciliation of our reportable segment operating income and segment
assets to the corresponding consolidated amounts as of and for the three and six
months ended June 30, 2000 and June 30, 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Segment operating income................... $ (669) $ 3,497 $ (311) $ 6,938
Corporate expenses......................... 2,541 2,717 4,832 4,730
Amortization of intangibles................ 588 894 1,176 1,788
Strategic restructuring costs.............. -- (345) -- (345)
Write-off of goodwill...................... 21,852 -- 21,852 --
--------- --------- --------- --------
Operating income (loss).................... (25,650) 231 (28,171) 765
========= ========= ========= ========
Segment assets............................. $ 59,542 $ 70,740 $ 59,542 $ 70,740
Discontinued operations, net assets........ 3,416 28,587 3,416 28,587
Corporate assets........................... 36,218 12,025 36,218 12,025
Intangible assets.......................... 5,079 72,313 5,079 72,313
Intangible assets discontinued
operations............................... 12,546 55,785 12,546 55,785
--------- --------- --------- --------
Consolidated assets........................ $ 116,801 $ 239,450 $ 116,801 $239,450
========= ========= ========= ========
</TABLE>
7. DISCONTINUED OPERATIONS
In June 2000, we completed the sale of three Voice and Data subsidiaries to
Morganthaler Partners VI, L.P. for $34.5 million, with $2.0 million of that
amount placed in escrow to satisfy potential future indemnification and other
obligations. We currently expect to sell the remaining Voice and Data subsidiary
in the second half of 2000. As a result we have recorded a net after tax gain of
$3.2 million reflecting these activities as part of discontinued operations. The
Voice and Data segment has been reported as a discontinued operation in the
Condensed Consolidated Statements of Operations and prior period results of
operations have been restated accordingly. Revenues from discontinued operations
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Products.................................. $ 3,266 $ 1,820 $ 6,125 $ 3,611
Services.................................. 19,002 18,652 42,228 36,022
------- ------- ------- -------
Total revenues........................ $22,268 $20,472 $48,353 $39,633
======= ======= ======= =======
</TABLE>
At June 30, 2000, the remaining net assets of the Voice and Data segment of
approximately $16.0 million consisted of $7.0 million of current assets,
primarily accounts receivable and inventory, $13.0 million of intangibles and
equipment, and $4.0 million of current liabilities, primarily accounts payable
and other accrued liabilities.
9
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. IMPAIRMENT OF INTANGIBLE ASSETS
We recorded a non-cash accounting charge of $21.9 million in the second
quarter of 2000 related to the impairment of certain intangible assets based on
our review of future operating cashflows and estimated proceeds from divestiture
of subsidiaries to which they relate.
9. TAXES
Deferred taxes increased as a result of the recognition of a tax benefit
resulting from our operating losses for the six months ended June 30, 2000.
Taxes payable of $13,801 (included in other accrued liabilities) increased as a
result of taxes payable on the sale of the subsidiaries in our Voice and Data
segment described in Note 7.
10. SUBSEQUENT EVENTS
In July 2000, we initiated a restructuring plan to improve operational
efficiencies and close non-profitable operations. The plan included the closing
of our Trumbell, Connecticut location, as well as staff reductions at certain of
our operating locations. We are currently reviewing restructuring charges
estimated to be between $1.0 and $2.0 million which will be recorded in the
third quarter of 2000 and which will include employee severance costs, asset
impairments and other costs associated with personnel reductions and facility
closures.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a provider of e-Solutions for our clients which permit them to
exploit Internet, intranet and extranet technologies for a competitive
advantage. We have provided in the past a broad range of services principally in
the Northeast region of the United States and, to a lesser extent, in other
regions of the United States. We are in the process of selling, closing and
restructuring our other subsidiaries, so that we may focus on maximizing the
value of our e-Solutions business through Blueflame and on repaying by
April 30, 2001 the debt outstanding under our credit facility.
We have retained financial advisors to assist us in the sale of PCM, Inc.
and McDowell, Tucker & Co. and to advise us on realizing on our investment in
Blueflame.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the three and six months ended June 30, 2000 and June 30, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------------ ------------------ ---------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues........... 78.7 80.0 79.5 80.5
----- ----- ----- -----
Gross profit............. 21.3 20.0 20.5 19.5
Selling, general and
administrative
expenses................. 26.7 18.9 25.0 17.9
Amortization of
intangibles.............. 1.0 1.2 1.0 1.3
Write-off of goodwill...... 37.3 0.0 19.2 0.0
Strategic restructuring
costs.................... 0.0 (0.5) 0.0 (0.2)
----- ----- ----- -----
Operating income
(loss)................. (43.7) 0.4 (24.7) 0.5
Other expense, net......... 4.8 2.6 4.2 2.7
----- ----- ----- -----
Loss before income
taxes.................. (48.5) (2.2) (28.9) (2.2)
Benefit from income
taxes.................... (15.8) (0.9) (9.7) (0.8)
----- ----- ----- -----
Net loss................. (32.7)% (1.3)% (19.2)% (1.4)%
Income from discontinued
operations (net of
tax)..................... 0.5 1.9 1.9 1.6
Gain on disposal of V&D
(net of tax)............. 5.5 0.0 2.8 0.0
----- ----- ----- -----
Net income (loss)........ (26.7)% 0.6% (14.5)% 0.2%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999.
Consolidated revenues from continuing operations decreased 21.3% from $74.3
million in the three months ended June 30, 1999 to $58.5 million for the three
months ended June 30, 2000. This decrease was due primarily to a decrease in
product revenues in our e-Integration business of approximately $10.1 million as
this business segment attempts to move towards a higher concentration of service
sales. In addition, revenues decreased by approximately $6.3 million in our
Other segment primarily attributable to a downturn in performance of PCM, Inc.'s
delivery of hardware and network integration services.
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<PAGE>
The decrease in revenues for the three months ended June 30, 2000 compared
to the prior year period was offset in part by an increase in our e-Solutions
revenues of $2.7 million or 48.0%. This increase can be attributed to
Blueflame's significant investment in technical, sales and marketing personnel
and related activities.
Gross profit from continuing operations decreased 16.2% from $14.8 million,
or 20.0% of revenues, for the three months ended June 30, 1999 to $12.4 million,
or 21.3% of revenues, for the three months ended June 30, 2000. The increase in
gross profit as a percentage of revenues was due primarily to a higher
concentration of service revenues with higher margins. In addition, product
margins as a percentage of revenue increased from 10.4% for the three months
ended June 30, 1999 to 13.7% for the three months ended June 30, 2000 primarily
attributable to product margins in our e-Integration business.
Selling, general and administrative expenses from continuing operations
increased 11.3% from $14.1 million, or 18.9% of revenues, for the three months
ended June 30, 1999 to $15.7 million, or 26.7% of revenues, for the three months
ended June 30, 2000. The increase in selling, general and administrative
expenses as a percentage of revenues was due primarily to the cost of our
significant investments in our Blueflame subsidiary in the area of technical,
selling, marketing, and other related administrative activities. The increase
was offset in part by the impact of cost reduction actions we took in the second
half of 1999.
Amortization of intangibles from continuing operations decreased $.3 million
from $.9 million for the three months ended June 30, 1999 to $.6 million for the
three months ended June 30, 2000 due to the related impact of write-offs of
goodwill of $69.1 million for the year ended December 31, 1999.
Write-off of goodwill for the three months June 30, 2000 of $21.9 million
represents the write-down of intangible assets to their estimated fair value.
Interest and other expense from continuing operations of $2.0 million for
the three months ended June 30, 1999 increased to $2.8 million in the three
months ended June 30, 2000 primarily due to increased interest rates on our
credit facility in the fourth quarter of 1999 and at the beginning of the second
quarter of 2000. In addition, interest expense increased in the comparable
period because of increased bank fees associated with an amendment made to our
credit facility on March 30, 2000.
Income tax benefit from continuing operations increased from $.7 million in
the three months ended June 30, 1999 to $9.2 million in the three months ended
June 30, 2000, reflecting effective tax rates of 38.5% and 32.4%, respectively.
Discontinued operations represent the results of our Voice and Data segment
for the comparable periods including the expected after tax gain on the
completed disposal of the segment.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Consolidated revenues from continuing operations decreased 19.2% from $141.1
million in the six months ended June 30, 1999 to $114.0 million for the six
months ended June 30, 2000. This decrease was due primarily to a decrease in
product revenues in our e-Integration business of approximately $12.9 million as
this business segment attempts to move towards a higher concentration of service
sales. In addition, revenues decreased by approximately $14.8 million in our
Other segment primarily attributable to a downturn in performance of PCM, Inc.'s
delivery of hardware and network integration services.
Gross profit from continuing operations decreased 15.1% from $27.5 million,
or 19.5% of revenues, for the six months ended June 30, 1999 to $23.3 million,
or 20.5% of revenues, for the six months ended June 30, 2000. The increase in
gross profit as a percentage of revenues was due primarily to a higher
concentration of service revenues with higher margins. In addition, product
margins as a percentage of revenue increased from 9.6% for the six months ended
June 30, 1999 to 14.5% for the six months ended June 30, 2000 primarily
attributable to product margins in our e-Integration business.
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<PAGE>
Selling, general and administrative expenses from continuing operations
increased 12.7% from $25.3 million, or 17.9% of revenues, for the six months
ended June 30, 1999 to $28.5 million, or 25.1% of revenues, for the six months
ended June 30, 2000. The increase in selling, general and administrative
expenses as a percentage of revenues was due primarily to the cost of our
significant investments in our Blueflame subsidiary in the area of technical,
selling, marketing, and other related administrative activities. The increase
was offset in part by the impact of cost reduction actions we took in the second
half of 1999.
Amortization of intangibles from continuing operations decreased $.6 million
from $1.8 million for the six months ended June 30, 1999 to $1.2 million for the
six months ended June 30, 2000 due to the related impact of write-offs of
goodwill of $69.1 million for the year ended December 31, 1999.
Write-off of goodwill for the six months June 30, 2000 of $21.9 million
represents the write-down of intangible assets to their estimated fair value.
Interest and other expense from continuing operations of $3.8 million for
the six months ended June 30, 1999 increased to $4.8 million in the six months
ended June 30, 2000 primarily due to increased interest rates on our credit
facility in the fourth quarter of 1999 and at the beginning of the second
quarter of 2000. In addition, interest expense increased in the comparable
period because of increased bank fees associated with an amendment made to our
credit facility on March 30, 2000.
Income tax benefit increased from $1.2 million in the six months ended
June 30, 1999 to $11.1 million in the six months ended June 30, 2000, reflecting
effective tax rates of 38.2% and 33.6%, respectively.
Discontinued operations represent the results of our Voice and Data segment
for the comparable periods including the expected after tax gain on the
completed disposal of the segment.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had cash of $3.2 million and working capital deficit of
($16.5) million resulting from the classification of the amount outstanding
under our credit facility of $41.3 million as a current liability.
During the six months ended June 30, 2000, net cash used in continuing
operating activities was $2.5 million. Net cash provided by investing activities
was $28.6 million, which consisted primarily of $30.7 million of net cash
proceeds from disposal of three of our subsidiaries. Net cash used in financing
activities was $32.0 million, which consisted of a $30.0 million paydown of the
term portion of our credit facility and a $3.0 million paydown of the working
capital portion of the credit facility, offset by approximately $1.0 million in
proceeds from issuance of common stock.
During the six months ended June 30, 1999, net cash provided by continuing
operating activities was $3.6 million. Net cash used in investing activities was
$3.4 million, which consisted primarily of $2.7 million of additions of property
and equipment. Net cash used in financing activities was $14.3 million,
reflecting the $10.6 million recovery from Solutions, E.T.C. used to pay down
long-term debt on the credit facility, as well as payment of approximately $4.0
million to reduce the working capital portion of the credit facility.
As of June 30, 2000, we had made $1.6 million in capital expenditures
against the $4.0 million budgeted for 2000. The largest items include
$1.4 million for additions to equipment.
We will rely primarily on the revolver portion of our line of credit and, to
a lesser extent, on cash from operating activities to meet our cash flow needs
over the next six months. For a description of the line of credit, see Note 3 to
Item 1--Financial Statements. We expect that as we sell certain subsidiaries our
cash flow from operations will decline. We anticipate, however, that we will
have adequate funds available under the revolver portion of our line of credit
to fund our divestiture strategy and to sustain our remaining operations through
December 31, 2000.
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<PAGE>
Our ability to satisfy our liquidity requirements after December 31, 2000
will depend on the timing and the proceeds that we receive from the sale or
other disposition and restructuring of our subsidiaries and from the realization
on our investment in Blueflame. Our line of credit expires on April 30, 2001 by
which time we are required to have repaid amounts outstanding under that
facility. We estimate that we will be able to do so through the sale of
subsidiaries and by realizing on the value of Blueflame. There are, however,
significant uncertainties that may effect our ability to provide cash from these
sources. These include the price at which we sell or dispose of certain of our
subsidiaries other than Blueflame and the terms upon which we may realize on our
investment in Blueflame.
We have made progress during the second quarter in the sale of our
subsidiaries and in reducing the amount due under our line of credit. In
June 2000, we completed the sale of three of our Voice and Data subsidiaries for
$34.5 million and used substantially all of those proceeds to reduce our
obligations under the term portion of our credit facility. We have entered into
negotiations for the sale of our remaining Voice and Data subsidiary, Aztec
International. We anticipate that proceeds of that sale will also be used to
further reduce our obligations under the term portion of our credit facility.
Upon the sale of Aztec International, our remaining subsidiaries will consist of
McDowell, Tucker & Co., PCM, Inc., Digital Network Associates LLC, Aztec
Technology Partners of New England LLC, and Blueflame. We have distributed
offering memorandums regarding the sale of McDowell Tucker and PCM.
As a corporation organized under Delaware law, we must obtain the approval
of our stockholders if we sell substantially all of our assets. We will
therefore be required to file proxy materials with the SEC and hold a
stockholders meeting to obtain approval for the proposed sales of our
subsidiaries.
In the March 30, 2000 amendment to the credit facility, we committed to
proceed on a commercially reasonable basis with the initial public offering of
Blueflame. Subsequent market conditions and other considerations have caused us
to delay the public offering of Blueflame stock. We are considering our
alternatives to realize on our investment in Blueflame, and we have retained a
financial advisor to assist us on those alternatives.
There can be no assurance that we will be able to successfully complete the
sale of any of our subsidiaries and realize on our investment in Blueflame or
that the sales of these subsidiaries and such realization will raise sufficient
proceeds to satisfy our outstanding obligations to our lenders. Proceeds
received upon the sale of the subsidiaries will be primarily used to reduce the
amount outstanding under the credit facility and will not, therefore, be
available for operating cash flow purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" subsequently updated by SAB 101A and SAB
101B ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We are required to adopt SAB 101 no later than the fourth quarter of
calendar 2000. We are currently evaluating the impact of SAB 101 on our results
of operations and financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FIN 44 to have a material impact on our financial
position or results of operations.
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<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
WE MAY NOT BE ABLE TO REPAY THE LOANS UNDER THE CREDIT FACILITY BY APRIL 2001.
We currently estimate that we will be able to repay the amounts outstanding
under the credit facility by its maturity on April 30, 2001 through the sales of
subsidiaries and by realizing on the value of our investment in Blueflame. There
can be no assurance, however, that we will be able to successfully complete the
sale of our subsidiaries, or that the sales or other disposition of these
subsidiaries and realizing on Blueflame will raise sufficient proceeds to
satisfy our obligations under the credit facility.
THE SALE OF OUR SUBSIDIARIES MAY IMPAIR OUR ABILITY TO GENERATE ADEQUATE CASH
FLOW.
The continued sale or other disposition and restructuring of our
subsidiaries could result in our not having adequate cash flow to sustain
operations. While our current projections indicate that we will be able to
continue to divest subsidiaries and maintain adequate cash flow, there can be no
assurance that our forecasts will be realized in fact.
OUR BUSINESS STRATEGY WILL FOCUS ON THE SUCCESS OF BLUEFLAME AND COULD BE
AFFECTED BY RISKS ASSOCIATED WITH BLUEFLAME'S BUSINESS.
As we sell, restructure, or dispose of our subsidiaries, our success
increasingly becomes dependant on the success of Blueflame. Risks associated
with Blueflame's business include a reliance, under short term contracts, on a
small number of clients that comprise a substantial portion of its e-Solutions
revenues. During the first six months of 2000, Blueflame's five largest clients
accounted for nearly 70% of its revenue. Additionally, Blueflame has experienced
operating losses in the first half of 2000 as it made significant investments in
recruiting technical, sales and marketing personnel and related expenses to
expand its business, as well as expenses associated with a proposed initial
public offering. Blueflame's ability to generate operating profits in the future
will depend heavily on its ability to grow its service revenues and to fully
utilize its technical personnel. Blueflame has recently changed its name and
will require time and investment to build brand awareness. The market for
providing e-Solutions professional services is continuously evolving and
intensely competitive. We expect competition to intensify even further. Some of
Blueflame's competitors have longer operating histories and many competitors
have more clients, longer client relationships, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources. As a result, Blueflame's competitors may be in a stronger
position to respond quickly to emerging technologies and changes in client
requirements. They may also develop and promote their products and services more
effectively than Blueflame.
WE MAY BE UNABLE TO ATTRACT AND RETAIN OUR EMPLOYEES WHICH MAY RESULT IN OUR
INABILITY TO SUCCESSFULLY COMPETE.
Aztec's business involves the delivery of professional services and is labor
intensive. Our success depends in large part on our ability to attract, develop,
motivate, and retain technical professionals. At June 30, 2000 approximately 66%
of Aztec employees were technical professionals. Qualified technical
professionals are in great demand and are likely to remain a limited resource
for the foreseeable future. There can be no assurance that we will be able to
attract and retain sufficient numbers of technical professionals in the future.
Our proposed sale, restructuring, or other disposition of our subsidiaries may
make it more difficult to retain employees. An increase in turnover rates could
have a material adverse effect on our business, including our ability to divest
our subsidiaries in a timeframe and at values which are adequate to repay
amounts due under our credit facility by April 30, 2001.
15
<PAGE>
WE RELY ON A NUMBER OF KEY PERSONNEL, THE LOSS OF ANY OF THESE INDIVIDUALS COULD
ADVERSELY AFFECT OUR OPERATIONS.
Our operations depend on the continued efforts of Ira Cohen, our President
and Chief Operating Officer, Ross Weintraub, our Chief Financial Officer, our
operating company presidents, particularly Benjamin Tandowski, the president of
Blueflame, and the senior management of certain of our operating companies. If
any of these people becomes unable to continue in his or her present role, or if
we are unable to attract and retain other skilled professionals, our business,
or the business of our operating subsidiaries, could be adversely affected. We
do not currently maintain key man life insurance policies for any of our
officers or other personnel.
OUR OPERATING RESULTS ARE SUBJECT TO FLUCTUATION ON A QUARTERLY BASIS AND THE
FLUCTUATIONS MAY ADVERSELY AFFECT OUR STOCK PRICE.
We have experienced, and may in the future continue to experience,
fluctuations in our quarterly operating results. Factors that may cause our
quarterly operating results to vary include the number of active client
projects, the requirements of client projects, the termination of major client
projects, the loss of major clients, the timing of new client engagements, and
the timing of personnel cost increases. Certain of these factors may also affect
our personnel utilization rates which may cause further variation in quarterly
operating results. The timing of revenues is difficult to forecast because our
sales cycle is relatively long and our services are impacted by both the
financial condition and management decisions of its clients and general economic
conditions. Because a high percentage of our expenses are relatively fixed at
the beginning of any period and our general policy is to not adjust our staffing
levels based upon what we view as short-term circumstances, a variation in the
timing of the initiation or the completion of client assignments, particularly
at or near the end of any quarter, can cause significant variations in operating
results from quarter to quarter and could result in losses for any particular
period. In addition, many of our engagements are, and may be in the future,
terminable by our clients without penalty. A termination of a major project
could require us to maintain under-utilized employees, resulting in a higher
than expected percentage of unassigned professionals, or to terminate the
employment of excess personnel. Due to all of the foregoing factors, there can
be no assurance that our results of operations will not be below the
expectations of investors for any given fiscal period.
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO ADJUST TO RAPID TECHNOLOGICAL
CHANGES.
As with all IT solutions companies, our success will depend in part on our
ability to develop IT solutions that keep pace with continuing changes in IT,
evolving industry standards, and changing client preferences. There can be no
assurance that we will be successful in adequately addressing these developments
on a timely basis or that, if these developments are addressed, we will be
successful in the marketplace. In addition, there can be no assurance that
products or technologies developed by others will not render our services
uncompetitive or obsolete. Our failure to address these developments could have
a material adverse effect on our operating results and financial condition.
WE HAVE A SIGNIFICANT AMOUNT OF GOODWILL AND INTANGIBLES ON OUR FINANCIAL
STATEMENTS WHICH IS SUBJECT TO PERIODIC REVIEW AND POTENTIAL WRITE DOWNS, WHICH
MAY REDUCE OUR INCOME AND ADVERSELY AFFECT OUR STOCK PRICE.
As of June 30, 2000, approximately $17.6 million, or 15.1% of our total
assets and 95.8% of our stockholders' equity constituted goodwill and
intangibles. Goodwill represents the excess of cost over the fair market value
of net tangible and identified intangible assets acquired in business
combinations accounted for under the purchase method of accounting. We currently
amortize goodwill on a straight line method over a period ranging from
15-40 years and identified intangible assets are amortized on a straight line
basis, generally over four years with the amount amortized in a particular
period constituting a non-cash expense that reduces our operating results.
Amortization of goodwill resulting from certain past
16
<PAGE>
acquisitions, and additional goodwill recorded in certain future acquisitions,
may not be deductible for tax purposes. In addition, we will be required to
periodically evaluate the recoverability of goodwill by reviewing the
anticipated undiscounted future cash flows from the operations of the acquired
companies and comparing such cash flows to the carrying value of the associated
goodwill. If goodwill becomes impaired, we would be required to write down the
carrying value of the goodwill and incur a related charge to its income. A
reduction in net income resulting from the amortization or write down of
goodwill could have a material and adverse impact upon the market price of our
Common Stock.
THE SPIN-OFF FROM OUR PREDECESSOR MAY RESULT IN CONTINGENT LIABILITIES.
In June 1998, we were part of a spin-off of subsidiaries from U.S. Office
Products and entered into a number of contractual arrangements which provide
for, among other things, that we indemnify our predecessor corporation from tax
and other liabilities relating to our businesses prior to and following the
spin-off. For a discussion of the risk factors related to the spin-off,
reference is made to the risk factors in our Annual Report on Form 10-K/A for
the year ended December 31, 1999.
THIS FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS." FORWARD-LOOKING
STATEMENTS GIVE OUR CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. YOU CAN
IDENTIFY THESE STATEMENTS BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO
HISTORICAL OR CURRENT FACTS. THEY USE WORDS SUCH AS "ANTICIPATE," "ESTIMATE,"
"EXPECT," "PROJECT," "INTENT," "PLAN," "BELIEVE," AND OTHER WORDS AND TERMS OF
SIMILAR MEANING IN CONNECTION WITH ANY DISCUSSION OF FUTURE OPERATING OR
FINANCIAL PERFORMANCE. IN PARTICULAR, THESE INCLUDE STATEMENTS RELATING TO THE
GRANT OF A WAIVER BY OUR BANKS FOR OUR NONCOMPLIANCE WITH THE CREDIT FACILITY,
OUR ANTICIPATED CASH FLOW, AND TO FUTURE ACTIONS SUCH AS SALE OF ASSETS OR
SUBSIDIARIES, FUTURE PERFORMANCE, OR RESULTS OF CURRENT AND ANTICIPATED SALES
AND MARKETING EFFORTS, EXPENSES, THE OUTCOME OF CONTINGENCIES, THE NEED FOR BANK
APPROVALS OF CERTAIN TRANSACTIONS, THE EXISTENCE OF A MARKET FOR OUR SECURITIES
OR THOSE OF BLUEFLAME, AND LIQUIDITY ISSUES.
ANY OF THESE FORWARD-LOOKING STATEMENTS MAY TURN OUT TO BE WRONG. THEY CAN
BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN RISKS
AND UNCERTAINTIES. THESE RISKS INCLUDE THE VARIABILITY OF OUR QUARTERLY
OPERATING RESULTS, THE INHERENT DIFFICULTIES IN PROJECTING FINANCIAL RESULTS IN
OUR INDUSTRY, AND OTHER RISKS IDENTIFIED BY US FROM TIME TO TIME IN OUR 10-Q,
8-K AND 10-K REPORTS, AND AMENDMENTS TO THOSE REPORTS, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ALSO NOTE THAT WE PROVIDE A CAUTIONARY DISCUSSION OF
RISKS, UNCERTAINTIES AND POSSIBLY INACCURATE ASSUMPTIONS RELEVANT TO OUR
BUSINESS UNDER THE SECTIONS TITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." OTHER FACTORS BESIDES THOSE
LISTED COULD ALSO ADVERSELY AFFECT US. FINALLY, WE CALL YOUR ATTENTION TO THE
FACT THAT WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to interest rate change market risk principally with respect
to our credit facility, which is priced based on certain interest rate
alternatives. At June 30, 2000, approximately $41.3 million was outstanding
under the credit facility. Changes in the prime interest rate during calendar
year 2000 could have a positive or negative effect on our interest expense. We
do not engage in financial transactions for trading or speculative purposes.
We do not believe that we face primary market risk exposure that is material
to our operations.
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PART II. OTHER INFORMATION
ITEM 2 EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
We filed a Current Report on Form 8-K/A, dated June 21, 2000, reporting
(under Item 2 thereof) the sale on June 7, 2000 of three of our Voice and
Data subsidiaries to CMF Holdings, Inc., a wholly-owned subsidiary of
Morgenthaler Partners VI, L.P.
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.
<TABLE>
<S> <C> <C>
Date: August 14, 2000 AZTEC TECHNOLOGY PARTNERS, INC.
BY: /s/ ROSS J. WEINTRAUB
--------------------------------------
Ross J. Weintraub
CHIEF FINANCIAL OFFICER
DULY AUTHORIZED OFFICER AND
PRINCIPAL ACCOUNTING OFFICER
</TABLE>
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