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, 1998
[ ] 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 March 31, 1998, there were 5,821,052 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...................................6-9
Item 3 - Management Discussion & Analysis
of Financial Condition and Results
of Operations......................................10-11
PART II Other Information Required in Report
Item 5 - Other Information.........................................12
Item 6 - Reports on Form 8K........................................12
Signature Page.....................................................13
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
March 31, 1998 June 30, 1997
-------------- -------------
ASSETS
Current Assets
Cash $ 6,433,977 $ 2,013,549
Accounts receivable, net 13,350,831 9,246,247
Inventories 2,500,772 1,382,236
Deferred taxes 37,249 37,249
Other current assets 611,782 441,469
------------ ------------
Total currrent assets 22,934,611 13,120,750
Property and equipment, net 459,039 439,000
Goodwill, net 3,361,704 3,556,704
Other assets 82,724 31,253
------------ ------------
$ 26,838,078 $ 17,147,707
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft -- $ 533,871
Revolving inventory line of credit 13,074,037 1,830,359
Accounts payable 2,462,092 4,447,595
Notes payable - related parties 127,967 127,967
Accrued expenses 1,128,163 777,385
Income taxes payable 491,581 1,029,016
Other current liabilities 139,110 621,412
------------ ------------
Total liabilities 17,422,950 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 2,879,326 1,244,300
Less: Treasury stock at cost (654,851) (654,851)
------------ ------------
Total stockholders' equity 9,415,128 7,780,102
------------ ------------
$ 26,838,078 $ 17,147,707
============ ============
1
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1998 1997
------------ -------------
Net sales $ 45,278,978 $ 20,939,200
Cost of sales 42,210,327 18,446,752
------------ ------------
Gross profit 3,068,651 2,492,448
------------ ------------
Operating expenses
Selling and administrative 1,703,328 1,922,087
Amortization of goodwill 60,000 47,261
------------ ------------
Total operating expenses 1,763,328 1,969,348
------------ ------------
Income from operations 1,305,323 523,100
------------ ------------
Other income (expense)
Miscellaneous income -- (12,074)
Interest income (43,700) 15,212
Interest expense 7,200 (30,148)
------------ ------------
Total other (expense) income (36,500) (27,010)
------------ ------------
Income (loss) before provision
for income taxes 1,341,823 496,090
Provision for income taxes 644,075 198,436
------------ ------------
Net income (loss) $ 697,748 $ 297,654
============ ============
Basic and diluted earnings per share $ 0.12 $ 0.06
============ ============
Weighted average number of shares 5,874,757 4,883,640
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31,
1998 1997
------------- -------------
Net sales $ 114,490,400 $ 72,362,075
Cost of sales 105,864,629 65,207,295
------------- -------------
Gross profit 8,625,771 7,154,780
------------- -------------
Operating expenses
Selling and administrative 5,481,547 5,236,471
Amortization of goodwill 170,000 141,783
------------- -------------
Total operating expenses 5,651,547 5,378,254
------------- -------------
Income from operations 2,974,224 1,776,526
------------- -------------
Other income (expense)
Miscellaneous income 70,000 52,685
Interest income 120,922 59,057
Interest expense (20,865) (118,133)
------------- -------------
Total other (expense) income 170,057 (6,391)
------------- -------------
Income (loss) before provision
for income taxes 3,144,281 1,770,135
Provision for income taxes 1,509,255 708,054
------------- -------------
Net income (loss) $ 1,635,026 $ 1,062,081
============= =============
Basic and diluted earnings per share $ 0.28 $ 0.22
============= =============
Weighted average number of shares 5,906,330 4,883,640
============= =============
3
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
1998 1997
------------- -------------
Net cash provided by (used in)
operating activities ($ 6,655,094) $ 2,126,675
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 (168,156) (63,446)
------------ ------------
Net cash (used in) provided by
investing activities (168,156) (1,968,297)
------------ ------------
Cash flows from financing activities:
Notes receivable - officer -- (6,124)
Notes payable related parties -- (228,322)
Short term borrowings 11,243,678 184,574
------------ ------------
Net cash (used in) provided by financing
activities 11,243,678 (49,872)
------------ ------------
Net increase (decrease) in cash 4,420,428 108,506
Cash and cash equivalents - Beginning of period 2,013,549 1,667,031
------------ ------------
Cash and cash equivalents - End of period $ 6,433,977 $ 1,775,537
============ ============
4
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common Value Series Value Additional Discount on
Shares Common Preferred Preferred Paid-In Preferred
Issued Stock Issued Stock Capital Stock
------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 5,965,652 $346,380 380,579 $353,057 $6,806,216 ($315,000)
Net Income for the Nine Months Ended
March 31, 1998 -- -- -- -- -- --
Balance at March 31, 1998 5,965,652 $346,380 380,579 $353,057 $6,806,216 ($315,000)
========= ======== ======== ========= ========== ==========
<CAPTION>
Retained Treasury Stock Total
Earnings ------------------------ Stockholders'
(Deficit) Shares Amount Equity
--------- ------ ------ ------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 $1,244,300 (144,600) ($654,851) $7,780,102
Net Income for the Nine Months Ended
March 31, 1998 1,635,026 1,635,026
Balance at March 31, 1998 $2,879,326 (144,600) ($654,851) $9,415,128
=========== ========= ========== ==========
</TABLE>
5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
NINE MONTHS ENDED MARCH 31, 1998
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.
6
<PAGE>
2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
December 31, 1997 Authorized Outstanding Amount
- ----------------- ---------- ----------- ------
Preferred Stocks:(1)
Series A cumulative convertible 29,233 29,231 $ 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 5,821,052 $346,380
(1) As discussed below in "Split of Common Stock", the conversion ratios of
the preferred stock has been adjusted as follows: Series A - One (1) share
equals one-fifth (1/5) share of common; Series B - One (1) share equals
one-fifth (1/5) share of common; Series C - Ten (10) shares equal
one-fifth (1/5) share of common.
Stock Option Plan and Common Stock Purchase Warrants
In August 1997, the Company awarded 140,000 common stock purchase options to
employees under the 1997 Stock Option Plan at an exercise price of $3.125 per
share (the market price on the date of grant). In March 1998, the Company's
compensation committee awarded 560,000 common stock purchase options at $5.00.
In December 1996, the Company issued 140,000 common stock purchase options at an
exercise price of $3.75 per share. Total outstanding common stock purchase
options at March 31, 1998 were 840,000.
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 240,000
common stock purchase warrants at exercise prices of $3.75 to $7.50 per share.
In March 1998, the Company issued 250,000 common stock purchase warrants at
exercise prices of $4.00 to $5.00 for investor relations services. In February
1998, the Company entered into a non-exclusive investment banking agreement with
First Colonial Securities Group, Inc. and agreed to issue 125,000 common stock
purchase warrants at exercise prices of $4.25 to $5.25 per share.
7
<PAGE>
Split of Common Stock
The Company's stockholders approved 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 at the Company's annual meeting on November 18,
1997. All share and per share data have been adjusted to reflect the split.
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 and nine months ended March 31, 1997 have been adjusted for the stock
split.
4. Goodwill
Goodwill 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.
8
<PAGE>
6. Event Subsequent to Balance Sheet Date
On April 9, 1998, the Company acquired ninety percent of the outstanding stock
of Logix Solutions, Inc. ("Logix") in exchange for 252,000 shares of ATEC Group,
Inc. common stock and options to purchase 756,000 shares at $4.74 per share
expiring September 8, 1999, 2,520,000 shares at $7.50 per share expiring
September 8, 1999 and 2,520,000 shares at $10.00 per share exercisable
commencing on March 31, 1999 through December 31, 2000. In addition, the Logix
shareholders were granted options to purchase 471,698 shares of common stock at
$4.24 per share expiring on April 23, 1998. On April 23, 1998, 327,520 shares of
common stock were issued in consideration of cash payment of $1,388,685.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ATEC Group, Inc. and Subsidiaries
Background
ATEC Group, Inc. ("the Company") is engaged in the sale of computer
hardware and software products to businesses, professionals, government agencies
and educational institutions. In April 1998, the Company acquired a 90% interest
in Logix, a year 2000 solution provider. The Company provides its customers with
a wide range of services, including designing, integration and installing
computer systems, local area networks, high volume data satellite
communications, video conferencing, year 2000 and Internet ready solutions.
Results of Operations
March 31, 1998 compared to March 31, 1997
The Company's revenues for the third quarter ended March 31, 1998 increased to
$45.3 million from $20.9 million for the prior year, an increase of
approximately 116%. 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 $3.1
million for March 31, 1998 from $2.5 million for the comparable 1997 quarter, a
23% increase due to the increased revenues. Gross margins as a percentage of
revenues for the nine months were 6.8% as compared to 11.9% for the prior year.
The decline is the result of higher wholesale revenues. The Company's goal is to
increase these margins as the Company attempts to increase its market share in
more profitable sectors of the business such as integration, hardware
service/maintenance, networking, training and year 2000 code remediations.
March 31, 1998 operating expenses exclusive of amortization of intangible assets
decreased to $1.7 million as compared to $1.9 million for the prior year. The
decrease resulted from general cost controls.
The provision for income taxes was $644,075 for the 1998 quarter as compared to
$198,436 for 1997 period.
As a result of the above, the Company's net income increased to $697,748 for the
three months ended March 31, 1998 compared to $297,654 for the 1997 quarter. For
the March 31, 1998 quarter, basic and diluted net income per share was $.12
compared to $.06 in the prior year. Average shares outstanding were 5,874,757
for 1998 and 4,883,640 for 1997.
10
<PAGE>
Revenues for nine months ended March 31, 1998 increased to $114.5 million from
$72.4 million for the prior year, an increase of approximately 58%. This
increase is primarily attributed to internal growth. Gross margins increased to
$8.6 million as compared to $7.2 million for the comparable period of the prior
year. Gross margins as a percentage of revenues for the nine months were 7.5% as
compared to 9.9% for the prior year. The decline in gross margins is the result
of higher wholesale revenues. Operating expenses increased slightly to $5.4
million as compared to $5.2 million for the prior year. The provision for income
taxes was $1,509,255 for 1998 as compared to $708,054 for the prior year.
As a result of the above, the Company's net income increased to $1,635,026 for
the nine months ended March 31, 1998 as compared to $1,062,081 for the prior
year. Basic and diluted net income per share was $.28 compared to $.22 in the
prior year. Average shares outstanding were 5,906,330 for 1998 and 4,883,640 for
1997.
Liquidity and Capital Resources
The Company's cash position was $6,433,977 at March 31, 1998, an increase of
$4,420,428 compared to June 30, 1997. The Company's working capital at March 31,
1998 was $5,511,611 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 $6,655,094. Cash used for investing
activities totaled $168,156 for the purchase of property and equipment.
To accommodate the Company's financial needs for inventory financing, Deutsche
Financial Service (DFS) has granted a credit line in the amount of $22 million.
At March 31, 1998, indebtedness of the Company to Deutsche Financial was $13.1
million, an increase of $11.2 million compared to June 30, 1997. Substantially,
all of subsidiary company tangible and intangible assets are pledged as
collateral for this facility.
11
<PAGE>
ATEC Group, Inc. and Subsidiaries
Other Information
March 31, 1998
PART II
Item 5. Other Information
In February 1998, Balwinder Singh Bathla's term as President of the Company
expired. On such expiration, Surinder Rametra, Chairman and Chief Executive
Officer assumed the additional role as President.
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, 1998:
NONE
12
<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 7, 1998 By: s/Ashok Rametra
-------------------------------------
Ashok Rametra, in the capacity
of Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,433,977
<SECURITIES> 0
<RECEIVABLES> 13,456,631
<ALLOWANCES> (105,800)
<INVENTORY> 2,500,772
<CURRENT-ASSETS> 22,934,611
<PP&E> 1,209,276
<DEPRECIATION> (750,237)
<TOTAL-ASSETS> 26,838,079
<CURRENT-LIABILITIES> 17,422,950
<BONDS> 0
0
353,057
<COMMON> 346,380
<OTHER-SE> 8,715,691
<TOTAL-LIABILITY-AND-EQUITY> 26,838,078
<SALES> 114,490,400
<TOTAL-REVENUES> 114,490,400
<CGS> 105,864,629
<TOTAL-COSTS> 5,651,547
<OTHER-EXPENSES> (170,057)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,865
<INCOME-PRETAX> 3,144,281
<INCOME-TAX> 1,509,255
<INCOME-CONTINUING> 1,635,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,635,026
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
