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 March 31, 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
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 March 31, 1997, there were 18,733,462 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........................1-5
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
March 31, 1997 June 30, 1996
-------------- -------------
ASSETS
Current Assets
Cash $ 1,775,537 $ 1,667,031
Accounts receivable, net 5,517,343 5,152,005
Inventories 1,706,858 2,813,937
Current portion of note receivable - officer -- 6,124
Deferred taxes 46,373 42,773
Other current assets 415,565 413,712
------------ ------------
Total currrent assets 9,461,676 10,095,582
------------ ------------
Property and equipment, net 445,743 514,910
Goodwill, net 2,437,765 2,614,445
Other assets 103,483 97,196
------------ ------------
$ 12,448,667 $ 13,322,133
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 2,269,628 $ 2,085,054
Accounts payable 1,490,747 1,274,896
Notes payable - related parties 682,903 650,000
Accrued expenses 989,493 1,008,154
Deferred sales tax obligation 553,052 553,052
Other current liabilities 517,322 709,188
------------ ------------
Total current liabilities 6,503,145 6,280,344
Notes payable - related parties -- 228,322
------------ ------------
Total liabilities 6,503,145 6,508,666
Stockholders' equity
Preferred stocks 7,882,468 11,353,068
Common stock 235,432 218,765
Additional paid-in capital 4,032,610 5,026,332
Discount on preferred stock (6,188,620) (9,361,100)
Retained earnings (deficit) 638,483 (423,598)
Less: Treasury Stock at Cost (723,000 shares) (654,851) --
------------ ------------
Total stockholders' equity 5,945,522 6,813,467
------------ ------------
$ 12,448,667 $ 13,322,133
============ ============
1
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1997 1996
(RESTATED)
----------- -----------
Net sales $20,939,200 $21,145,532
Cost of sales 18,446,752 19,630,389
----------- -----------
Gross profit 2,492,448 1,515,143
----------- -----------
Operating expenses
Selling and administrative 1,922,087 1,431,830
Amortization of goodwill 47,261 36,017
----------- -----------
Total operating expenses 1,969,348 1,467,847
----------- -----------
Income from operations 523,100 47,296
----------- -----------
Other income (expense)
Miscellaneous income (12,074) (8,247)
Interest income 15,212 9,100)
Interest expense (30,148) (9,568)
----------- -----------
Total other (expense) income (27,010) (8,715)
----------- -----------
Income before provision for income taxes 496,090 38,581
Provision for income taxes 198,436 11,989
----------- -----------
Net income $ 297,654 $ 26,592
=========== ===========
Net earnings per share $ 0.01 $ 0.00
=========== ===========
Weighted average number of shares - fully diluted 24,418,198 17,413,922
=========== ===========
2
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31,
1997 1996
(RESTATED)
------------ ------------
Net sales $ 72,362,075 $ 62,642,609
Cost of sales 65,207,295 57,583,034
------------ ------------
Gross profit 7,154,780 5,059,575
------------ ------------
Operating expenses
Selling and administrative 5,236,471 4,078,144
Amortization of goodwill 141,783 108,051
------------ ------------
Total operating expenses 5,378,254 4,186,195
------------ ------------
Income from operations 1,776,526 873,380
------------ ------------
Other income (expense)
Miscellaneous income 52,685 13,128
Interest income 59,057 11,121
Interest expense (118,133) (19,246)
------------ ------------
Total other (expense) income (6,391) 5,003
------------ ------------
Income before provision for income taxes 1,770,135 878,383
Provision for income taxes 708,054 339,434
------------ ------------
Net income $ 1,062,081 $ 538,949
============ ============
Net earnings per share $ 0.04 $ 0.03
============ ============
Weighted average number of shares - fully diluted 24,418,198 17,413,922
============ ============
3
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
1997 1996
(RESTATED)
---------- ----------
Net cash provided by (used in) operating activities $2,018,169 $ 453,636
Cash flows from investing activities:
Purchase of Treasury Stock (654,851) --
Purchase and Retirement of Preferred Stock (1,250,000) --
Purchase of property and equipment (63,446) (26,599)
---------- ----------
Net cash (used in) provided by investing activities (1,968,297) (26,599)
---------- ----------
Cash flows from financing activities:
Notes payable related parties (228,322) 54,364
Notes receivable - officer (6,124) 94,691
Short term borrowings 184,574 --
---------- ----------
Net cash (used in) provided by financing activities (49,872) 149,055
---------- ----------
Net increase in cash 108,506 576,092
Cash and cash equivalents - Beginning of period 1,667,031 919,095
---------- ----------
Cash and cash equivalents - End of period $1,775,537 $1,495,187
========== ==========
4
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Value Series Value Additional Discount on
Shares Common Preferred Preferred Paid-In Preferred Treasury
Issued Stock Issued Stock Capital Stock Stock
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <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) --
Conversion of Series I
Preferred Stock 1,666,665 16,667 (390,000) (2,000,000) (12,667) 1,996,000 --
Purchase and Retirement of
Series D -- -- (117,648) (588,240) (205,880) 294,120
Series J -- -- (166,472) (832,360) (707,500) 832,360
Series K -- -- (10,000) (50,000) (42,500) 50,000
Registration Expenses -- -- -- -- (25,175) -- --
Purchase of Common Stock -- -- -- -- -- -- (654,851)
Net Income for the Nine
Months Ended March 31, 1997 -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1997 18,733,462 $ 235,432 1,886,569 $ 7,882,468 $ 4,032,610 ($ 6,188,620) ($ 654,851)
============ ============ ============ ============ ============ ============ ============
<CAPTION>
Retained Total
Earnings Stockholders'
(Deficit) Equity
------------ ------------
<S> <C> <C>
Balance at June 30, 1996 ($ 423,598) $ 6,813,467
Conversion of Series I
Preferred Stock -- --
Purchase and Retirement of
Series D (500,000)
Series J (707,500)
Series K (42,500)
Registration Expenses -- (25,175)
Purchase of Common Stock -- -654851
Net Income for the Nine
Months Ended March 31, 1997 1,062,081 1,062,081
------------ ------------
Balance at March 31, 1997 $ 638,483 $ 5,945,522
============ ============
</TABLE>
5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
NINE MONTHS ENDED MARCH 31, 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 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 nine month results, revenues would have been $67.1 million and
net income would have been $585,320 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
---------- ----------- -----------
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 400,000 282,352 1,411,760
Series E convertible 200,000 200,000 1,000,000
Series J convertible 800,000 633,528 3,167,640
Series K convertible 400,000 390,000 1,950,000
----------- -----------
Total preferred 1,886,569 $ 7,882,468
=========== ===========
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 24,418,198 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 March 31, 1997, the Company had purchased 723,000
shares of common stock for a total cost of $654,851 and 294,120 shares of
preferred stock with a par value of $1,470,600 for a total cost of $1,250,000.
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 third party 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
The Company's revenues for the nine months ended March 31, 1997 increased to
$72.4 million from $62.6 million for the prior year, an increase of
approximately 16%. 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 $7.2
million for March 31, 1997 from $5.1 million for the comparable 1996 period, a
44% increase due to the increased revenues. Gross margins as a percentage of
revenues for the six months were 9.8% 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.
8
<PAGE>
Revenues for the three months ended March 31, 1997 were approximately the same
as the comparable period of the prior year. Gross margins increased to $2.5
million (11.9%) from $1.5 million (7.1%) in 1996. The level sales and increase
in gross margins resulted from the discontinuance of sales to selected low
margin wholesale customers in 1997.
March 31, 1997 operating expenses exclusive of amortization of intangible assets
increased to $5.2 million for the nine months ended March 31, 1997 as compared
to $4.1 million for the prior year. The increase in operating expenses are
related to additional selling expenses and 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. The increase
in operating expenses for the three months ended March 31, 1997 is primarily
increased selling expenses.
The provision for income taxes was $708,054 for the 1997 period as compared to
$339,434 for 1996 period.
As a result of the above, the Company's net income increased to $1,062,081 for
the nine months ended March 31, 1997 compared to $538,949 for 1996. Net income
per share was $.04 compared to $.03 for the same period in the prior year.
Primary and fully diluted average shares outstanding were 24,418,198 for 1997.
Net income for the three months ended March 31, 1997 increased to $297,654 as
compared to $26,592 for the 1996 quarter. The increase is primarily attributed
to weather related problems in the 1996 quarter and better gross margins in the
1997 quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $1,775,537 at March 31, 1997, a increase of
$108,506 compared to June 30, 1996. The Company's working capital at March 31,
1997 was $2,958,531 as compared to a working capital of $3,815,238 at June 30,
1996. Net cash provided by operating activities was $2,018,169.
Cash used for investing activities totaled $1,968,297. The Company purchased
$1,470,600 of the outstanding preferred stock for $1,250,000 and 723,000 shares
of its common stock for $654,851.
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
March 31, 1997, indebtedness of the Company to Deutsche Financial was
$2,269,628, an increase of $188,574 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
March 31, 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 March 31, 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: May 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-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,775,537
<SECURITIES> 0
<RECEIVABLES> 5,641,143
<ALLOWANCES> 123,800
<INVENTORY> 1,706,858
<CURRENT-ASSETS> 9,461,676
<PP&E> 1,075,482
<DEPRECIATION> (629,739)
<TOTAL-ASSETS> 12,448,667
<CURRENT-LIABILITIES> 6,503,145
<BONDS> 0
0
7,882,468
<COMMON> 235,432
<OTHER-SE> (2,172,378)
<TOTAL-LIABILITY-AND-EQUITY> 12,448,667
<SALES> 20,989,200
<TOTAL-REVENUES> 20,989,200
<CGS> 18,446,752
<TOTAL-COSTS> 1,969,348
<OTHER-EXPENSES> (3,138)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,148
<INCOME-PRETAX> 496,090
<INCOME-TAX> 198,436
<INCOME-CONTINUING> 297,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,654
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
