SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
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CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 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)
90 Adams Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (516) 231-2832
1952 Jericho Turnpike, East Northport, New York 11731
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 December 31, 1996, there were 18,733,462 shares
of the Registrant's Common Stock outstanding.
<PAGE>
ATEC GROUP, INC.
TABLE OF CONTENTS
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Page
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PART I Financial Information
Item 1 - Consolidated Financial Statements........................1-5
Item 2 - Notes to Consolidated Condensed Financial Statements.....6-8
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
UNAUDITED AUDITED
December 31, 1996 June 30, 1996
----------------- -------------
ASSETS
Current Assets
Cash $ 911,316 $ 1,667,031
Accounts receivable, net 6,460,949 5,152,005
Inventories 2,545,434 2,813,937
Current portion of note
receivable - officer 14,124 6,124
Deferred taxes 37,249 42,773
Other current assets 328,478 413,712
----------- -----------
Total currrent assets 10,297,550 10,095,582
----------- -----------
Property and equipment, net 470,138 514,910
Goodwill, net 2,485,026 2,614,445
Other assets 65,946 97,196
----------- -----------
$13,318,660 $13,322,133
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $1,980,554 $ 2,085,054
Accounts payable 2,139,944 1,274,896
Notes payable - related parties 610,774 650,000
Accrued expenses 864,887 1,008,154
Deferred sales tax obligation 553,052 553,052
Other current liabilities 311,593 709,188
----------- -----------
Total current liabilities 6,460,804 6,280,344
Notes payable - officer -- 228,322
----------- -----------
Total liabilities 6,460,804 6,508,666
Stockholders' equity
Preferred stocks 9,353,068 11,353,068
Common stock 235,432 218,765
Additional paid-in capital 5,282,473 5,026,332
Discount on preferred stock (7,659,083) (9,361,100)
Retained earnings (deficit) 340,829 (423,598)
Less: Treasury Stock at
Cost (761,800 shares) (694,863) --
----------- -----------
Total stockholders' equity 6,857,856 6,813,467
----------- -----------
$13,318,660 $13,322,133
=========== ===========
1
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
1996 1995
(RESTATED)
----------- -----------
Net sales $25,783,789 $22,655,291
Cost of sales 23,501,921 20,795,078
----------- -----------
Gross profit 2,281,868 1,860,213
----------- -----------
Operating expenses
Selling and administrative 1,604,318 1,331,754
Amortization of goodwill 73,068 36,017
----------- -----------
Total operating expenses 1,677,386 1,367,771
----------- -----------
Income from operations 604,482 492,442
----------- -----------
Other income (expense)
Miscellaneous income 6,786 12,362
Interest income 24,452 9,100
Interest expense (48,878) (9,568)
----------- -----------
Total other (expense) income (17,640) 11,894
----------- -----------
Income before provision for income taxes 586,842 504,336
Provision for income taxes 223,018 199,211
----------- -----------
Net income $ 363,824 $ 305,125
=========== ===========
Net earnings per share $ 0.01 $ 0.01
=========== ===========
Weighted average number of
shares - fully diluted 25,160,473 20,511,500
=========== ===========
2
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31,
1996 1995
(RESTATED)
----------- -----------
Net sales $51,422,875 $36,934,975
Cost of sales 46,760,545 33,921,285
----------- -----------
Gross profit 4,662,330 3,013,690
----------- -----------
Operating expenses
Selling and administrative 3,279,487 2,173,366
Amortization of goodwill 129,417 72,034
----------- -----------
Total operating expenses 3,408,904 2,245,400
----------- -----------
Income from operations 1,253,426 768,290
----------- -----------
Other income (expense)
Miscellaneous income 64,760 12,362
Interest income 43,845 11,121
Interest expense (87,986) (19,246)
----------- -----------
Total other (expense) income 20,619 4,237
----------- -----------
Income before provision for income taxes 1,274,045 772,527
Provision for income taxes 509,618 306,511
----------- -----------
Net income $ 764,427 $ 466,016
=========== ===========
Net earnings per share $ 0.03 $ 0.03
=========== ===========
Weighted average number of
shares - fully diluted 25,160,473 17,216,200
=========== ===========
3
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
1996 1995
(RESTATED)
---------- ----------
Net cash provided by (used in)
operating activities $ 75,797 ($574,268)
Cash flows from investing activities:
Purchase of Treasury Stock (694,863) --
Purchase of property and equipment (12,282) (26,599)
---------- ---------
Net cash (used in) provided by
investing activities (707,145) (26,599)
---------- ---------
Cash flows from financing activities:
Due from related parties -- 54,364
Notes receivable - officer (8,000) 94,691
Long term borrowings (11,867) --
Short term borrowings (104,500) --
---------- ---------
Net cash (used in) provided by
financing activities (124,367) 149,055
---------- ---------
Net increase (decrease) in cash (755,715) (451,812)
Cash and cash equivalents - Beginning of period 1,667,031 919,095
---------- ---------
Cash and cash equivalents - End of period $ 911,316 $ 467,283
========== =========
4
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Value Series Value Additional
Shares Common Preferred Preferred Paid-In
Issued Stock Issued Stock Capital
---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 17,066,797 $218,765 2,570,689 $11,353,068 $5,026,332
Conversion of Series I Preferred Stock 1,666,665 16,667 (390,000) (2,000,000) 281,316
Registration Expenses -- -- -- -- (25,175)
Purchase of Common Stock -- -- -- -- --
Net Income for the Six Months Ended
December 31, 1996 -- -- -- -- --
Balance at December 31, 1996 18,733,462 $235,432 2,180,689 $ 9,353,068 $5,282,473
========== ======== ========= =========== ==========
<CAPTION>
Discount on Retained Total
Preferred Treasury Earnings Stockholders'
Stock Stock (Deficit) Equity
----------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 ($9,361,100) -- ($423,598) $6,813,467
Conversion of Series I Preferred Stock 1,702,017 -- -- --
Registration Expenses -- -- -- (25,175)
Purchase of Common Stock -- (694,863) -- (694,863)
Net Income for the Six Months Ended
December 31, 1996 -- -- 764,427 764,427
Balance at December 31, 1996 ($7,659,083) ($694,863) $340,829 $6,857,856
============ ========== ======== ==========
</TABLE>
5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
SIX MONTHS ENDED DECEMBER 31, 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 in the six month results, revenues would have been $41,497,107 and net
income would have been $512,357 or $.03 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.
6
<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 J convertible 800,000 800,000 4,000,000
Series K convertible 400,000 400,000 2,000,000
---------- ----------
Total preferred 2,180,689 $9,353,068
========== ==========
Common Stock 70,000,000 18,733,462 $235,432
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
beginning of the period.
4. Goodwill
Goodwill is being amortized over a period of fifteen years.
5. Treasury Stock
On November 15, 1996, the Board of Directors authorized the repurchase of the
company's capital stock. At December 31, 1996, the Company had purchased 761,800
shares for a total cost of $694,863.
7
<PAGE>
6. 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.
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
Six Months 1996 compared to Six Months 1995
The Company's revenues for the six months ended December 31, 1996 increased to
$51.4 million from $36.9 million for the prior year, an increase of
approximately 39%. This increase is primarily attributable to 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 $4.7
million for December 31, 1996 from $3.0 million for the comparable 1995 period,
a 56% increase due to the increased revenues. Gross margins as a percentage of
revenues for the six months were 9.1% as compared to 8.2% 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.
8
<PAGE>
December 31, 1996 operating expenses exclusive of amortization of intangible
assets increased to $3.3 million as compared to $2.2 million for the prior year.
The 50% increase in operating expenses are related to the exclusion of
Innovative for the first quarter of the prior year due to the change in its
fiscal year. Innovative expenses in the first quarter of 1995 were approximately
$500,000.
Amortization of intangible assets increased to $129,417 for the quarter from
$72,034 in the comparable 1995 period.
The provision for income taxes was $509,618 for the 1996 period as compared to
$306,511 for 1995 period.
As a result of the above, the Company's net income increased to $764,427 for the
three months ended December 31, 1996 compared to $306,511 for 1995. Net income
per share was $.03 compared to $.03 in the prior year. Primary and fully diluted
average shares outstanding were 25,160,473 for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $911,316 at December 31, 1996, a decrease of
$755,715 compared to June 30, 1996. The decrease resulted primarily from the
purchase of the Company's common stock. The Company's working capital at
December 31, 1996 was $3,836,746 as compared to a working capital of $3,815,238
at June 30, 1996. Net cash provided by operating activities was $75,797.
Cash used for investing activities totaled $12,282 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
December 31, 1996, indebtedness of the Company to Deutsche Financial was
$1,980,554, a decrease of $104,500 compared to June 30, 1996. Substantially, all
of subsidiary company tangible and intangible assets are pledged as collateral
for this facility.
The Company entered into an agreement to purchase $1,250,000 of the outstanding
preferred stock at a 15% discount from par value. The Company plans to satisfy
its obligations under this agreement in two cash installments of an aggregate of
$625,000 each. These installments are to be paid on January 31, 1997 and March
31, 1997.
9
<PAGE>
Atec Group, Inc. and Subsidiaries
Other Information
December 31, 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 December 31, 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: February 14, 1997
By:/s/ Ashok Rametra
------------------------------------------
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> DEC-31-1996
<CASH> 911,316
<SECURITIES> 0
<RECEIVABLES> 6,355,149
<ALLOWANCES> (108,800)
<INVENTORY> 2,545,434
<CURRENT-ASSETS> 10,297,550
<PP&E> 1,067,635
<DEPRECIATION> (597,497)
<TOTAL-ASSETS> 13,318,660
<CURRENT-LIABILITIES> 6,460,804
<BONDS> 0
0
9,353,068
<COMMON> 235,432
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,318,660
<SALES> 25,783,789
<TOTAL-REVENUES> 25,783,789
<CGS> 23,501,921
<TOTAL-COSTS> 1,677,386
<OTHER-EXPENSES> 17,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,878
<INCOME-PRETAX> 586,842
<INCOME-TAX> 223,018
<INCOME-CONTINUING> 363,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363,824
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
