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 September 30, 1997
[ ] 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
________________________________________________________________________________
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, 1997, there were 29,095,260 shares
of the Registrant's Common Stock outstanding.
<PAGE>
ATEC GROUP, INC.
TABLE OF CONTENTS
Page
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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
UNAUDITED AUDITED
September 30, 1997 June 30, 1997
------------------ ------------------
ASSETS
Current Assets
Cash $ 1,261,640 $ 2,013,549
Accounts receivable, net 6,423,128 9,246,247
Inventories 1,435,453 1,382,236
Deferred taxes 37,286 37,249
Other current assets 522,277 441,469
------------------ ------------------
Total currrent assets 9,679,784 13,120,750
------------------ ------------------
Property and equipment, net 454,317 439,000
Goodwill, net 3,496,704 3,556,704
Other assets 39,746 31,253
------------------ ------------------
$ 13,670,551 $ 17,147,707
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 802,523 $ 533,871
Revolving inventory line of credit 2,549,459 1,830,359
Accounts payable 688,867 4,447,595
Notes payable - related parties 117,967 127,967
Accrued expenses 1,077,743 777,385
Income taxes payable 182,787 1,029,016
Other current liabilities -- 621,412
------------------ ------------------
Total liabilities 5,419,346 9,367,605
Stockholders' equity
Preferred stocks 353,057 353,057
Common stock 346,380 346,380
Additional paid-in capital 6,806,216 6,806,216
Discount on preferred stock (315,000) (315,000)
Retained earnings 1,715,403 1,244,300
Less: Treasury stock at cost (654,851) (654,851)
------------------ ------------------
Total stockholders' equity 8,251,205 7,780,102
------------------ ------------------
$ 13,670,551 $ 17,147,707
================== ==================
1
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------ ------------
Net sales $ 33,072,555 $ 25,639,086
Cost of sales 30,371,529 23,258,624
------------ ------------
Gross profit 2,701,026 2,380,462
------------ ------------
Operating expenses
Selling and administrative 1,927,253 1,675,169
Amortization of goodwill 60,000 56,349
------------ ------------
Total operating expenses 1,987,253 1,731,518
------------ ------------
Income from operations 713,773 648,944
------------ ------------
Other income (expense)
Miscellaneous income 70,000 57,974
Interest income 34,406 19,393
Interest expense (6,576) (39,108)
------------ ------------
Total other (expense) income 97,830 38,259
------------ ------------
Income (loss) before provision for income taxes 811,603 687,203
Provision for income taxes 340,500 286,600
------------ ------------
Net income (loss) $ 471,103 $ 400,603
============ ============
Net earnings (loss) per share $ 0.02 $ 0.01
============ ============
Weighted average number of shares - fully diluted 29,358,593 29,105,260
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
----------- -----------
Net cash provided by (used in) operating activities $ (981,400) $ 149,464
Cash flows from investing activities:
Purchase of property and equipment (29,161) (25,647)
----------- -----------
Net cash (used in) provided by investing activities (29,161) (25,647)
----------- -----------
Cash flows from financing activities:
Due from related parties -- --
Notes receivable - officer (10,000) (21,000)
Long term borrowings -- (186,455)
Short term borrowings 268,652 659,956
----------- -----------
Net cash (used in) provided by financing activities 258,652 452,501
----------- -----------
Net increase (decrease) in cash (751,909) 576,318
Cash and cash equivalents - Beginning of period 2,013,549 1,667,031
----------- -----------
Cash and cash equivalents - End of period 1,261,640 2,243,349
=========== ===========
3
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ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Value Series Value Additional Discount on Retained
Shares Common Preferred Preferred Paid-In Preferred Earnings
Issued Stock Issued Stock Capital Stock (Deficit)
---------- -------- ------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 29,828,260 $346,380 380,579 $353,057 $6,806,216 $(315,000) $1,244,300
Net Income for the Quarter Ended
September 30, 1997 -- -- -- -- -- -- 471,103
Balance at September 30, 1997 29,828,260 $346,380 380,579 $353,057 $6,806,216 $(315,000) $1,715,403
========== ======== ======= ======== ========== ========= ==========
</TABLE>
Treasury Stock Total
--------------------- Stockholders'
Shares Amount Equity
-------- --------- ----------
Balance at June 30, 1997 (723,000) $(654,851) $7,780,102
Net Income for the Quarter Ended
September 30, 1997 471,103
Balance at September 30, 1997 (723,000) $(654,851) $8,251,205
======== ========= ==========
4
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 1997
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 which are
hereafter referred to as (the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
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 for the year ended June 30, 1997.
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, 1997
Preferred Stocks:
Series A cumulative convertible 29,233 29,121 $ 2,912
Series B convertible 12,704 1,458 145
Series C convertible 350,000 350,000 350,000
----------- -----------
Total preferred 380,579 $ 353,057
=========== ===========
Common Stock 70,000,000 29,105,260 $ 346,380
Stock Option Plan and Common Stock Purchase Warrants
In August 1997, the Company awarded 700,000 common stock purchase options to
employees under the 1997 Stock Option Plan at an exercise price of $.625 per
share (the market price on the date of grant). In December 1996, the Company
issued 700,000 common stock purchase options at an exercise price of $.75 per
share. Total outstanding common stock purchase options at September 30, 1997
were 1,400,000.
During August 1997, the Company entered into non-exclusive Investment Banking
agreements with Auerback, Pollack & Richardson, Inc. and M.H. Meyerson & Co.,
Inc. In connection with these agreements, the Company agreed to issue 1,200,000
common stock purchase warrants at exercise prices of $.75 to $1.50 per share.
Split of Common Stock Proposed
The Company's Board of Directors unanimously authorized a reverse stock split of
the Company's outstanding shares of Common Stock ("Reverse Stock Split")
pursuant to which each five (5) outstanding shares of Common Stock will be
automatically converted into one (1) share of Common Stock subject to
stockholders approval at the Company's annual meeting on November 18, 1997.
6
<PAGE>
The primary reason for the Reverse Stock Split is to increase the per share
stock price of the Common Stock in order for the Company to be in a position to
obtain a listing on the National Association of Securities Dealers, Inc.
("Nasdaq") National Market System ("NMS"), thus providing the Company with
greater market exposure. NMS requires a minimum bid price of $5.00 per share for
an initial listing. In addition, an increased share price will help assure
future compliance with recently instituted Nasdaq SmallCap Market minimum
maintenance requirements.
3. Computation of Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding. Shares outstanding and earnings per share for the
three months ended September 30, 1996 have been restated to reflect the increase
in shares issued upon the conversion of preferred stock due to market price
changes.
4. Goodwill
Goodwill relating to the acquisition of ACS and CONY is being amortized over a
period of fifteen years.
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. is a leading system integrator and provider of a full line
of information technology products and services to business, professionals,
government agencies and educational institutions. ATEC offers computer hardware,
software, connectivity devices, multimedia products, data communication via
satellite, video conferencing, Internet, Intranet and Y2K solutions to their
clients.
RESULTS OF OPERATIONS
September 30, 1997 compared to September 30, 1996
The Company's revenues for the first quarter ended September 30, 1997 increased
to $33.1 million from $25.6 million for the prior year, an increase of
approximately 29%. 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 $2.7
million for September 30, 1997 from $2.4 million for the comparable 1996
quarter, a 13% increase due to the increased revenues. Gross margins as a
percentage of revenues for the quarter were 8.2% as compared to 9.3% for the
prior year. The slight decline in gross margins are the result of higher than
normal wholesale revenues. 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, 1997 operating expenses exclusive of amortization of intangible
assets increased to $1.9 million as compared to $1.6 million for the prior year.
The increase is for additional selling expenses.
Amortization of intangible assets increased to $60,000 for the quarter from
$56,349 in the comparable 1996 period. The provision for income taxes was
$340,500 for the 1997 quarter as compared to $286,600 for 1996 quarter.
As a result of the above, the Company's net income increased to $471,103 for the
three months ended September 30, 1997 compared to $400,603 for the 1996 quarter.
For the September 30, 1997 quarter, net income per share was $.02 compared to
$.01 in the prior year. Primary and fully diluted average shares outstanding
were 29,358,593 for 1997 and 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $1,261,640 at September 30, 1997, a decrease of
$751,909 as compared to June 30, 1997. The Company's working capital at
September 30, 1997 was $4,260,438 as compared to a working capital of $3,753,145
at June 30, 1997. The increase in working capital primarily resulted from
increased profits. Net cash used by operating activities was $981,400 due to
decreases in liabilities, primarily income taxes. Cash used for investing
activities totaled $29,161 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 $7 million. At
September 30, 1997, indebtedness of the Company to Deutsche Financial was
$2,549,459, a decrease of $719,100 compared to June 30, 1997. 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, 1997
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, 1997:
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 13, 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,261,640
<SECURITIES> 0
<RECEIVABLES> 6,528,928
<ALLOWANCES> (105,800)
<INVENTORY> 1,435,453
<CURRENT-ASSETS> 9,679,784
<PP&E> 1,141,078
<DEPRECIATION> (686,761)
<TOTAL-ASSETS> 13,670,551
<CURRENT-LIABILITIES> 5,428,217
<BONDS> 0
0
353,057
<COMMON> 330,280
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,670,551
<SALES> 33,072,555
<TOTAL-REVENUES> 33,072,555
<CGS> 30,371,529
<TOTAL-COSTS> 1,987,253
<OTHER-EXPENSES> (97,830)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,576
<INCOME-PRETAX> 811,603
<INCOME-TAX> 340,500
<INCOME-CONTINUING> 471,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471,103
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
