SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3673965
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(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, 1998, there were 6,700,664 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.....................1-4
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
<TABLE>
<CAPTION>
UNAUDITED AUDITED
September 30, 1998 June 30, 1997
------------------- -------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 3,375,415 $ 1,784,850
Accounts receivable, net 10,549,140 17,634,632
Inventories 2,293,944 1,790,695
Deferred taxes 37,249 37,249
Other current assets 331,645 576,677
------------------- -------------------
Total currrent assets 16,587,393 21,824,103
------------------- -------------------
Property and equipment, net 538,660 568,026
Goodwill, net 4,116,188 4,168,623
Other assets 67,912 73,412
------------------- -------------------
$ 21,310,153 $ 26,634,164
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ -- $ 339,944
Revolving inventory line of credit 6,096,826 6,998,712
Accounts payable 1,171,054 4,154,143
Notes payable - related parties 2,967 2,967
Accrued expenses 641,903 1,166,070
Income taxes payable 113,000 790,882
Other current liabilities -- 57,057
------------------- -------------------
Total liabilities 8,025,750 13,509,775
Stockholders' equity
Preferred stocks 346,507 346,507
Common stock 67,006 67,006
Additional paid-in capital 9,035,615 9,035,615
Discount on preferred stock (309,105) (309,105)
Retained earnings 4,185,180 3,984,366
Less: Treasury stock at cost (40,800) --
------------------- -------------------
Total stockholders' equity 13,284,403 13,124,389
------------------- -------------------
$ 21,310,153 $ 26,634,164
=================== ===================
</TABLE>
1
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Net sales $ 34,820,833 $ 33,072,555
Cost of sales 31,564,789 30,371,529
------------------- -------------------
Gross profit 3,256,044 2,701,026
------------------- -------------------
Operating expenses
Selling and administrative 2,880,102 1,927,253
Amortization of goodwill 75,000 60,000
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Total operating expenses 2,955,102 1,987,253
------------------- -------------------
Income from operations 300,942 713,773
------------------- -------------------
Other income (expense)
Miscellaneous income 107 70,000
Interest income 35,120 34,406
Interest expense (22,355) (6,576)
------------------- -------------------
Total other (expense) income 12,872 97,830
------------------- -------------------
Income (loss) before provision for income taxes 313,814 811,603
Provision for income taxes 113,000 340,500
------------------- -------------------
Net income (loss) $ 200,814 $ 471,103
=================== ===================
Net earnings (loss) per share-basic and diluted $ 0.03 $ 0.08
=================== ===================
Weighted average number of shares-basic 6,840,027 5,871,719
=================== ===================
Weighted average number of shares-diluted 7,192,285 5,871,719
=================== ===================
</TABLE>
2
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 2,498,409 $ (981,400)
Cash flows from investing activities:
Purchase of property and equipment (5,958) (29,161)
------------------- -------------------
Net cash (used in) provided by investing activities (5,958) (29,161)
------------------- -------------------
Cash flows from financing activities:
Notes receivable - officer -- (10,000)
Short term borrowings (901,886) 268,652
------------------- -------------------
Net cash (used in) provided by financing activities (901,886) 258,652
------------------- -------------------
Net increase (decrease) in cash 1,590,565 (751,909)
Cash and cash equivalents - Beginning of period 1,784,850 2,013,549
------------------- -------------------
Cash and cash equivalents - End of period $ 3,375,415 $ 1,261,640
=================== ===================
</TABLE>
3
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998
<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, 1998 6,700,684 $67,006 374,029 $346,507 $9,035,615
Purchase of Treasury Stock
Net Income for the Quarter Ended
September 30, 1998 -- -- -- -- --
Balance at September 30, 1998 6,700,684 $67,006 374,029 $346,507 $9,035,615
--------- ------- ------- -------- ----------
<CAPTION>
Discount on Retained Treasury Stock Total
Preferred Earnings ---------------- Stockholders'
Stock (Deficit) Shares Amount Equity
--------- ---------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 ($309,105) $3,984,366 0 $0 $13,124,389
Purchase of Treasury Stock (8,000) 40,800 (40,800)
Net Income for the Quarter Ended
September 30, 1998 -- 200,814 200,814
Balance at September 30, 1998 ($309,105) $4,185,180 (8,000) $40,800 $13,284,403
--------- ---------- ------ ------- -----------
</TABLE>
4
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 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, 1998.
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, 1998 ---------- ----------- ------
- ------------------
Preferred Stocks:
Series A cumulative convertible 29,233 29,121 $ 2,912
Series B convertible 12,704 1,458 145
Series C convertible 350,000 343,450 343,450
---------- ----------
Total preferred 374,029 $ 346,507
========== ==========
Common Stock 70,000,000 6,700,664 $ 67,006
Stock Option Plan and Common Stock Purchase Warrants
In October 1998, the Company awarded 195,000 common stock purchase options to
employees under the 1997 Stock Option Plan at an exercise price of $3.375 per
share (the market price on the date of grant). On October 7, 1998, the Company
entered into a Financial Advisory and Investment Banking agreement with Prime
Charter Ltd. and issued 125,000 common stock purchase warrants at $3.50 per
share. Total outstanding common stock purchase options and warrants at September
30, 1998 were 7,350,630 at prices of $4.25 to $10.00 per share.
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 have
been restated to reflect the 1 for 5 stock split in November 1997.
4. Goodwill
Goodwill is being amortized over its estimated period of benefit, not exceeding
fifteen years.
6
<PAGE>
5. Litigation
A lawsuit was commenced against the Company's predessor ("Hillside Bedding") 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.
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, 1998 compared to September 30, 1997
The Company's revenues for the first quarter ended September 30, 1998 increased
to $34.8 million from $33.0 million for the prior year, an increase of
approximately 5%. This increase is 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 $3.3 million for
September 30, 1998 from $2.7 million for the comparable 1997 quarter, a 20%
increase due to the increased revenues and higher margin sales. Gross margins as
a percentage of revenues for the quarter were 9.3% 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.
September 30, 1998 operating expenses exclusive of amortization of intangible
assets increased to $2.9 million as compared to $1.9 million for the prior year.
The increase is for expenses attributable to the Logix Solutions increasing
division personnel from five employees to over 30 and charges related to a
terminated merger. Amortization of intangible assets increased to $75,000 for
the quarter from $60,000 in the comparable 1997 period. The provision for income
taxes was $113,000 for the 1998 quarter as compared to $340,500 for 1997
quarter.
As a result of the above, the Company's net income was $200,814 for the three
months ended September 30, 1998 compared to $471,103 for the 1997 quarter. For
the September 30, 1998 quarter, net income per share was $.03 compared to $.08
in the prior year. The decrease in net income is attributed to costs related to
a terminated acquisition ($30,400) and losses of $371,840 for the software
division net of tax benefit or $.06 per share. Shares outstanding increased due
to the April 1998 acquisition of Logix Solutions and shares sold in a private
placement. Average diluted outstanding were 7,192,285 for 1998 and 5,871,718 for
1997.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $3,375,415 at September 30, 1998, an increase of
$1,590,565 as compared to June 30, 1998. The Company's working capital at
September 30, 1998 was $8,561,643 as compared to a working capital of $8,314,328
at June 30, 1998. The increase in working capital primarily resulted from
increased profits. Net cash provided by operating activities was $2,498,409 due
to decreases in accounts receivable and liabilities. Cash used for investing
activities totaled $5,958 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, 1998, indebtedness of the Company to Deutsche Financial was
$6,096,826, a decrease of $901,886 compared to June 30, 1998. Substantially all
company tangible and intangible assets are pledged as collateral for this
facility.
9
<PAGE>
Atec Group, Inc. and Subsidiaries
Other Information
September 30, 1998
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, 1998:
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, 1998
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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,375,415
<SECURITIES> 0
<RECEIVABLES> 10,463,340
<ALLOWANCES> 85,800
<INVENTORY> 2,293,944
<CURRENT-ASSETS> 16,587,393
<PP&E> 1,382,224
<DEPRECIATION> (843,564)
<TOTAL-ASSETS> 21,310,153
<CURRENT-LIABILITIES> 8,025,750
<BONDS> 0
346,507
0
<COMMON> 67,006
<OTHER-SE> 12,870,890
<TOTAL-LIABILITY-AND-EQUITY> 21,310,153
<SALES> 34,820,833
<TOTAL-REVENUES> 34,820,833
<CGS> 31,564,789
<TOTAL-COSTS> 2,955,102
<OTHER-EXPENSES> (35,227)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,355
<INCOME-PRETAX> 313,814
<INCOME-TAX> 113,000
<INCOME-CONTINUING> 200,814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,814
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
