SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
--------------------
CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from_____ to _____
Commission File Number 0-22710
ATEC GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3673965
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
1952 Jericho Turnpike, East Northport, New York 11731
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (516) 462-2832
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
As of the close of business on September 30, 1996, there were 17,066,797 shares
of the Registrant's Common Stock outstanding.
<PAGE>
ATEC GROUP, INC.
TABLE OF CONTENTS
Page
----
PART I Financial Information
Item 1 - Consolidated Financial Statements....................... 1-4
Item 2 - Notes to Consolidated Condensed Financial Statements.... 5-7
Item 3 - Management Discussion & Analysis
of Financial Condition and Results
of Operations........................................... 8-9
PART II Other Information Required in Report
Item 6 - Other Information.............................. 10
Signature Page.......................................... 11
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED AUDITED
September 30, 1996 June 30, 1996
------------------ --------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 2,243,349 $ 1,667,031
Accounts receivable, net 6,398,689 5,152,005
Inventories 2,585,817 2,813,937
Current portion of note receivable - officer 27,124 6,124
Deferred taxes 42,773 42,773
Other current assets 292,326 413,712
-------------- --------------
Total currrent assets 11,590,078 10,095,582
-------------- --------------
Property and equipment, net 471,146 514,910
Goodwill, net 2,532,287 2,614,445
Other assets 137,443 97,196
-------------- --------------
$ 14,730,954 $ 13,322,133
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 2,745,010 $ 2,085,054
Accounts payable 2,299,834 1,274,896
Notes payable - related parties 650,000 650,000
Accrued expenses 934,143 1,008,154
Deferred sales tax obligation 553,052 553,052
Other current liabilities 292,978 709,188
-------------- --------------
Total current liabilities 7,475,017 6,280,344
Notes payable - officer 41,867 228,322
-------------- --------------
Total liabilities 7,516,884 6,508,666
Stockholders' equity
Preferred stocks 11,353,068 11,353,068
Common stock 218,765 218,765
Additional paid-in capital 5,026,332 5,026,332
Discount on preferred stock (9,361,100) (9,361,100)
Retained earnings (deficit) (22,995) (423,598)
-------------- --------------
Total stockholders' equity 7,214,070 6,813,467
============== ==============
$ 14,730,954 $ 13,322,133
============== ==============
</TABLE>
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- -----------
Net sales $25,639,086 $14,279,684
Cost of sales 23,258,624 13,126,207
----------- -----------
Gross profit 2,380,462 1,153,477
----------- -----------
Operating expenses
Selling and administrative 1,675,169 841,612
Amortization of goodwill 56,349 36,017
----------- -----------
Total operating expenses 1,731,518 877,629
----------- -----------
Income from operations 648,944 275,848
----------- -----------
Other income (expense)
Miscellaneous income 57,974 --
Interest income 19,393 2,021
Interest expense (39,108) (9,678)
----------- -----------
Total other (expense) income 38,259 (7,657)
----------- -----------
Income (loss) before provision for income taxes 687,203 268,191
Provision for income taxes 286,600 107,300
----------- -----------
Net income (loss) $ 400,603 $ 160,891
=========== ===========
Net earnings (loss) per share $ 0.02 $ 0.01
============ ============
Weighted average number of shares - fully diluted 25,541,373 15,611,500
============ ============
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
---------- ----------
Net cash provided by (used in) operating activities $ 149,464 ($ 90,759)
Cash flows from investing activities:
Purchase of property and equipment (25,647) (26,599)
---------- ----------
Net cash (used in) provided by investing activities (25,647) (26,599)
---------- ----------
Cash flows from financing activities:
Due from related parties -- 29,364
Notes receivable - officer (21,000) 94,691
Long term borrowings (186,455) --
Short term borrowings 659,956 --
---------- ----------
Net cash (used in) provided by financing activities 452,501 124,055
---------- ----------
Net increase in cash 576,318 6,697
Cash and cash equivalents - Beginning of period 1,667,031 441,462
---------- ----------
Cash and cash equivalents - End of period 2,243,349 $ 448,159
========== ==========
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Common Value Series Value Additional Discount on Retained Total
Shares Common Preferred Preferred Paid-In Preferred Earnings Stockholders'
Issued Stock Issued Stock Capital Stock (Deficit) Equity
---------- -------- --------- ----------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 17,066,797 $218,765 2,570,689 $11,353,068 $5,026,332 ($9,361,100) ($423,598) $6,813,467
Net Income for the Quarter
Ended September 30, 1996 -- -- -- -- -- -- 400,603 400,603
Balance at September 30, 1996 17,066,797 $218,765 2,570,689 $11,353,068 $5,026,332 ($9,361,100) ($ 22,995) $7,214,070
========== ======== ========= =========== ========== =========== ========= ==========
</TABLE>
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying interim unaudited consolidated financial statements include the
accounts of Atec Group, Inc. and its wholly owned subsidiaries American Computer
Systems Corp., Inc. (ACS), Cony Computer Systems, Inc. (CONY), Innovative
Business Micros, Inc. (Innovative), Micro Computer Store, Inc. (MCS) and Sun
Computer and Software, Inc. (SCSI) which are hereafter referred to as (the
"Company"). All intercompany accounts and transactions have been eliminated in
consolidation.
On June 14, 1996, ATEC acquired all the stock of Innovative located in
Hauppauge, NY. The acquisition of Innovative has been accounted for under the
pooling of interest method and, accordingly, the consolidated financial
statements have been restated to include the accounts and operations of
Innovative. Innovative changed its fiscal year end from September 30 to June 30.
The results of Innovative for the quarter ended September 30, 1995 were not
included. If Innovative's results for the quarter ended September 30, 1995 were
included, revenues would have been $18,841,816, net income of $207,262 or $.01
per share.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. 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, such interim
statements reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and the results of operations
and cash flows for the interim periods presented. The results of operations for
these interim periods are not necessarily indicative of the results to be
expected for the full year. These financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
included in the Company's report on Form 10-K dated September 30, 1996, for the
year ended June 30, 1996.
5
<PAGE>
2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
Authorized Outstanding Amount
---------- ----------- -----------
September 30, 1996
Preferred Stocks:
Series A cumulative convertible 29,233 29,231 $ 2,923
Series B convertible 12,704 1,458 145
Series C convertible 350,000 350,000 350,000
Series D convertible 400,000 400,000 2,000,000
Series E convertible 200,000 200,000 1,000,000
Series I convertible 390,000 390,000 2,000,000
Series J convertible 800,000 800,000 4,000,000
Series K convertible 400,000 400,000 2,000,000
---------- -----------
Total preferred 2,570,689 $11,353,068
========== ===========
Common Stock 70,000,000 17,066,797 $ 218,765
3. Computation of Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding. The common equivalent shares of 25,541,373 were
calculated on the assumption that all preferred shares were converted as of the
end of each period presented.
4. Goodwill
Goodwill relating to the acquisition of ACS and CONY is being amortized over a
period of fifteen years.
6
<PAGE>
5. Litigation
During 1990, a competitor of the Company commenced an action against it and one
of its advertising agents. The complaint seeks $1,000,000 in damages for alleged
disclosure of certain trade secrets, and $10,000,000 in punitive damages and
$10,000,000 based upon allegations that the Company interfered with and impaired
the competitor's business relations. Management believes that there is no merit
to this action. The action has been virtually inactive since commencement.
A lawsuit was commenced against the Company by Mid Hudson Clarklift as a result
of a claim filed against them by a former employee of the Company who sustained
an injury while operating a forklift. The lawsuit consists of four causes of
action each for $5,000,000 and one cause of action by the former employee's wife
for $2,000,000. The lawsuit is in the discovery stages. Management and its
counsel have no opinion as to its ultimate disposition.
The Company is a defendant in various other lawsuits for which certain
provisions have been made in the financial statements. Management is of the
opinion that the ultimate resolution of these actions will not have a
significant effect on the Company's financial statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ATEC Group, Inc. and Subsidiaries
Background
ATEC Group, Inc. ("the Company"), through its wholly owned subsidiaries
ACS, CONY, INNOVATIVE, MCS and SCSI is engaged in the sale of computer hardware
and software products to businesses, professionals, government agencies and
educational institutions. The Company provides its customers with a wide range
of services, including designing, integration and installing computer systems,
local area networks, high volume data communications, video conferencing and
Internet ready solutions.
RESULTS OF OPERATIONS
September 30, 1996 compared to September 30, 1995
The Company's revenues for the first quarter ended September 30, 1996 increased
to $25.6 million from $14.3 million for the prior year, an increase of
approximately 80%. This increase is primarily attributable to the acquisition of
Innovative and internal growth. Revenues are generated by the Company's sales of
computer hardware and software, and related support services. Gross margin for
the period increased to $2.4 million for September 30, 1996 from $1.2 million
for the comparable 1995 quarter, a 106% increase due to the increased revenues.
Gross margins as a percentage of revenues for the quarter were 9.3% as compared
to 8.1% for the prior year. These margins are expected to increase as the
Company attempts to increase its market share in more profitable sectors of the
business such as integration, hardware service/maintenance, networking, and
training.
September 30, 1996 operating expenses exclusive of amortization of intangible
assets increased to $1.6 million as compared to $0.8 million for the prior year.
The 100% increase in operating expenses are related to the exclusion of
Innovative in the prior year due to the change in its fiscal year. Innovative
expenses in 1995 were approximately $500,000.
Amortization of intangible assets increased to $56,349 for the quarter from
$36,017 in the comparable 1995 period.
The provision for income taxes was $286,600 for the 1996 quarter as compared to
$107,300 for 1995 quarter.
As a result of the above, the Company's net income increased to $400,603 for the
three months ended September 30, 1996 compared to $160,891 for the 1995 quarter.
For the September 30, 1996 quarter, net income per share was $.02 compared to
$.01 in the prior year. Primary and fully diluted average shares outstanding
were 25,541,373 for 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $2,243,349 at September 30, 1996, an increase of
$576,318 as compared to June 30, 1996. The Company's working capital at
September 30, 1996 was $4,115,061 as compared to a working capital of $3,815,238
at June 30, 1996. The increase in cash and working capital primarily resulted
from short term borrowing under the revolving credit facility and increased
profits. Net cash provided by operating activities was $149,464.
Cash used for investing activities totaled $25,647 for the purchase of property
and equipment.
To accommodate the Company's financial needs for inventory financing, Deutsche
Financial Service has granted a credit line in the amount of $5 million. At
September 30, 1996, indebtedness of the Company to Deutsche Financial was
$2,745,010, a increase of $659,956 compared to June 30, 1996. Substantially, all
of subsidiary company tangible and intangible assets are pledged as collateral
for this facility.
9
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
Other Information
September 30, 1996
PART II
- -------
Item 6. Exhibits and Reports on form 8-k
a) Exhibits - none
b) Reports on Form 8-K:
The following reports on Form 8K were filed by the Company during the
quarter ended September 30, 1996:
NONE
10
<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.
ATEC GROUP, INC.
(REGISTRANT)
Dated: November , 1996
By:
-----------------------------------------
Ashok Rametra, in the capacity of both
Vice President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,243,349
<SECURITIES> 0
<RECEIVABLES> 6,504,489
<ALLOWANCES> (105,800)
<INVENTORY> 2,585,817
<CURRENT-ASSETS> 11,590,078
<PP&E> 1,017,140
<DEPRECIATION> (545,994)
<TOTAL-ASSETS> 14,730,954
<CURRENT-LIABILITIES> 7,475,017
<BONDS> 0
0
11,353,068
<COMMON> 218,765
<OTHER-SE> (4,357,963)
<TOTAL-LIABILITY-AND-EQUITY> 14,730,954
<SALES> 25,639,086
<TOTAL-REVENUES> 25,639,086
<CGS> 23,258,624
<TOTAL-COSTS> 1,675,169
<OTHER-EXPENSES> 38,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,108
<INCOME-PRETAX> 687,203
<INCOME-TAX> 286,600
<INCOME-CONTINUING> 400,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,603
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
