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 December 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
________________________________________________________________________________
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, 1997, there were 5,821,462 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..............................................9-10
PART II Other Information Required in Report
Item 6 - Other Information...........................................11
Signature Page.......................................................12
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
December 31, 1997 June 30, 1997
----------------- -------------
ASSETS
Current Assets
Cash $ 3,552,916 $ 2,013,549
Accounts receivable, net 8,583,813 9,246,247
Inventories 3,343,480 1,382,236
Deferred taxes 37,249 37,249
Other current assets 327,643 441,469
----------------- -------------
Total currrent assets 15,845,101 13,120,750
Property and equipment, net 475,379 439,000
Goodwill, net 3,446,704 3,556,704
Other assets 82,264 31,253
----------------- -------------
$ 19,849,448 $ 17,147,707
================= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ -- $ 533,871
Revolving inventory line of credit 6,300,844 1,830,359
Accounts payable 3,944,392 4,447,595
Notes payable - related parties 127,967 127,967
Accrued expenses 504,136 777,385
Income taxes payable 2,397 1,029,016
Other current liabilities 139,110 621,412
----------------- -------------
Total liabilities 11,018,846 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 2,294,800 1,244,300
Less: Treasury stock at cost (654,851) (654,851)
----------------- -------------
Total stockholders' equity 8,830,602 7,780,102
----------------- -------------
$ 19,849,448 $ 17,147,707
================= =============
1
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
1997 1996
------------ ------------
Net sales $ 36,138,869 $ 25,783,789
Cost of sales 33,282,776 23,501,921
------------ ------------
Gross profit 2,856,093 2,281,868
------------ ------------
Operating expenses
Selling and administrative 1,840,963 1,604,318
Amortization of goodwill 60,000 73,068
------------ ------------
Total operating expenses 1,900,963 1,677,386
------------ ------------
Income from operations 955,130 604,482
------------ ------------
Other income (expense)
Miscellaneous income -- 6,786
Interest income 42,816 24,452
Interest expense (7,089) (48,878)
------------ ------------
Total other (expense) income 35,727 (17,640)
------------ ------------
Income (loss) before provision for income taxes 990,857 586,842
Provision for income taxes 411,460 223,018
------------ ------------
Net income (loss) $ 579,397 $ 363,824
============ ============
Basic and diluted earnings per share $ 0.10 $ 0.06
============ ============
Weighted average number of shares 5,963,168 5,632,148
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31,
1997 1996
------------ ------------
Net sales $ 69,211,424 $ 51,422,875
Cost of sales 63,654,305 46,760,545
------------ ------------
Gross profit 5,557,119 4,662,330
------------ ------------
Operating expenses
Selling and administrative 3,768,216 3,279,487
Amortization of goodwill 120,000 129,417
------------ ------------
Total operating expenses 3,888,216 3,408,904
------------ ------------
Income from operations 1,668,903 1,253,426
------------ ------------
Other income (expense)
Miscellaneous income 70,000 64,760
Interest income 77,222 43,845
Interest expense (13,665) (87,986)
------------ ------------
Total other (expense) income 133,557 20,619
------------ ------------
Income (loss) before provision for income taxes 1,802,460 1,274,045
Provision for income taxes 751,960 509,618
------------ ------------
Net income (loss) $ 1,050,500 $ 764,427
============ ============
Basic and diluted earnings per share $ 0.18 $ 0.14
============ ============
Weighted average number of shares 5,898,668 5,632,148
============ ============
3
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
1997 1996
----------- -----------
Net cash provided by (used in) operating activities ($2,823,669) $ 75,797
Cash flows from investing activities:
Purchase of Treasury Stock -- (694,863)
Purchase of property and equipment (107,449) (12,282)
----------- -----------
Net cash (used in) provided by investing activities (107,449) (707,145)
----------- -----------
Cash flows from financing activities:
Notes receivable - officer -- (8,000)
Long term borrowings -- (11,867)
Short term borrowings 4,470,485 (104,500)
----------- -----------
Net cash (used in) provided by financing activities 4,470,485 (124,367)
----------- -----------
Net increase (decrease) in cash 1,539,367 (755,715)
Cash and cash equivalents - Beginning of period 2,013,549 1,667,031
----------- -----------
Cash and cash equivalents - End of period $ 3,552,916 $ 911,316
=========== ===========
4
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 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 5,965,652 $346,380 380,579 $353,057 $6,806,216 ($315,000) $1,244,300
Net Income for the Six Months Ended
December 31, 1997 -- -- -- -- -- -- 1,050,500
--------- -------- ------- -------- ---------- --------- ----------
Balance at December 31, 1997 5,965,652 $346,380 380,579 $353,057 $6,806,216 ($315,000) $2,294,800
========= ======== ======= ======== ========== ========= ==========
<CAPTION>
Treasury Stock Total
------------------------- Stockholders'
Shares Amount Equity
---------- ----------- ----------
<S> <C> <C> <C>
Balance at June 30, 1997 (144,600) ($ 654,851) $7,780,102
Net Income for the Six Months Ended
December 31, 1997 1,050,500
---------- ----------- ----------
Balance at December 31, 1997 (144,600) ($ 654,851) $8,830,602
========== =========== ==========
</TABLE>
5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
SIX MONTHS ENDED DECEMBER 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 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
Authorized Outstanding Amount
---------- ----------- --------
December 31, 1997
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 December 1997, 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 December 31, 1997 were
280,000.
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.
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 six months ended December 31, 1996 have been restated to reflect the
increase in shares issued upon the conversion of preferred stock due to market
price changes and 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>
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
December 31, 1997 compared to December 31, 1996
The Company's revenues for the second quarter ended December 31, 1997 increased
to $36.1 million from $25.7 million for the prior year, an increase of
approximately 40%. 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 $2.8
million for December 31, 1997 from $2.3 million for the comparable 1996 quarter,
a 22% increase due to the increased revenues. Gross margins as a percentage of
revenues for the six months were 7.9% as compared to 8.8% 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, and training.
December 31, 1997 operating expenses exclusive of amortization of intangible
assets increased to $1.8 million as compared to $1.6 million for the prior year.
The increase resulted from increased operating expenses to support the sales
growth.
The provision for income taxes was $411,460 for the 1997 quarter as compared to
$223,018 for 1996 period.
As a result of the above, the Company's net income increased to $579,397 for the
three months ended December 31, 1997 compared to $363,824 for the 1996 quarter.
For the December 31, 1997 quarter, basic and diluted net income per share was
$.10 compared to $.06 in the prior year. Average shares outstanding were
5,963,168 for 1997 and 5,632,148 for 1996.
9
<PAGE>
Revenues for six months ended December 31, 1997 increased to $69.2 million from
$51.4 million for the prior year, an increase of approximately 35%. This
increase is primarily attributed to internal growth. Gross margins increased to
$5.6 million as compared to $4.7 million for the comparable period of the prior
year. Gross margins as a percentage of revenues for the six months were 8% as
compared to 9.1% for the prior year. The slight decline in gross margins are the
result of higher wholesale revenues. Operating expenses increased to $3.7
million as compared to $3.3 million for the prior year. The 12% increase is
attributed to increased operating expenses related to the Company's growth. The
provision for income taxes was $751,960 for 1997 as compared to $509,618 for the
prior year.
As a result of the above, the Company's net income increased to $1,050,500 for
the six months ended December 31, 1997 as compared to $764,427 for the prior
year. Primary and diluted net income per share was $.18 compared to $.14 in the
prior year. Average shares outstanding were 5,898,668 for 1997 and 5,632,148 for
1996.
Liquidity and Capital Resources
The Company's cash position was $3,552,916 at December 31, 1997, an increase of
$1,539,367 compared to June 30, 1997. The Company's working capital at December
31, 1997 was $4,826,255 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 $4,470,485. Cash used for
investing activities totaled $107,449 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
December 31, 1997, indebtedness of the Company to Deutsche Financial was $6.3
million, an increase of $4.5 million compared to June 30, 1997. Substantially,
all of subsidiary company tangible and intangible assets are pledged as
collateral for this facility.
10
<PAGE>
ATEC Group, Inc. and Subsidiaries
Other Information
December 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 December 31, 1997:
NONE
11
<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 13, 1998 By: s/Surinder Rametra
-----------------------------
Surinder Rametra, in the capacity of both
Chairman and Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,552,916
<SECURITIES> 0
<RECEIVABLES> 8,478,013
<ALLOWANCES> (105,800)
<INVENTORY> 3,343,480
<CURRENT-ASSETS> 15,845,101
<PP&E> 1,173,569
<DEPRECIATION> (698,190)
<TOTAL-ASSETS> 19,849,448
<CURRENT-LIABILITIES> 11,018,846
<BONDS> 0
0
353,057
<COMMON> 346,380
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,849,448
<SALES> 69,211,424
<TOTAL-REVENUES> 69,211,424
<CGS> 63,654,305
<TOTAL-COSTS> 3,888,216
<OTHER-EXPENSES> (147,222)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,665
<INCOME-PRETAX> 1,802,460
<INCOME-TAX> 751,960
<INCOME-CONTINUING> 1,050,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,050,500
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
