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, 1999
|_| 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 (631) 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, 1999, there were 7,326,963 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, 1999 June 30, 1999
------------------ -------------
ASSETS
Current Assets
Cash $ 1,066,732 $ 2,246,951
Accounts receivable, net 9,863,817 8,666,500
Inventories 1,103,534 1,110,273
Deferred taxes 251,290 251,290
Other current assets 1,499,434 1,405,333
------------ ------------
Total currrent assets 13,784,807 13,680,347
------------ ------------
Property and equipment, net 775,322 750,279
Goodwill, net 1,497,275 1,519,775
Other assets 54,594 54,594
------------ ------------
$ 16,111,998 $ 16,004,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 751,772 $ 1,934,534
Accounts payable 2,842,656 1,709,763
Accrued expenses 623,482 669,738
Income taxes payable 194,600 --
Other current liabilities 273,072 232,768
------------ ------------
Total liabilities 4,685,582 4,546,803
Stockholders' equity
Preferred stocks 321,090 321,090
Common stock 73,270 73,270
Additional paid-in capital 11,758,235 11,758,235
Discount on preferred stock (288,090) (288,090)
Retained earnings (44,733) (314,862)
Less: Treasury stock at cost (393,356) (91,451)
------------ ------------
Total stockholders' equity 11,426,416 11,458,192
------------ ------------
$ 16,111,998 $ 16,004,995
============ ============
1
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
1999 1998
------------ ------------
Net sales $ 20,188,643 $ 34,820,833
Cost of sales 16,370,936 31,564,789
------------ ------------
Gross profit 3,817,707 3,256,044
------------ ------------
Operating expenses
Selling and administrative 3,351,696 2,880,102
Amortization of goodwill 22,500 75,000
------------ ------------
Total operating expenses 3,374,196 2,955,102
------------ ------------
Income from operations 443,511 300,942
------------ ------------
Other income (expense)
Miscellaneous income -- 107
Interest income 21,231 35,120
Interest expense -13 (22,355)
------------ ------------
Total other (expense) income 21,218 12,872
------------ ------------
Income (loss) before provision for income taxes 464,729 313,814
Provision for income taxes 194,600 113,000
------------ ------------
Net income (loss) $ 270,129 $ 200,814
============ ============
Net earnings (loss) per share-basic and diluted $ 0.04 $ 0.03
============ ============
Weighted average number of shares-basic 7,269,838 6,840,027
============ ============
Weighted average number of shares-diluted 7,269,838 7,192,285
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 385,493 $ 2,498,409
Cash flows from investing activities:
Purchase of property and equipment (81,045) (5,958)
----------- -----------
Net cash (used in) provided by investing activities (81,045) (5,958)
----------- -----------
Cash flows from financing activities:
Purchase of common stock (301,905) --
Short term borrowings (1,182,762) (901,886)
----------- -----------
Net cash (used in) provided by financing activities (1,484,667) (901,886)
----------- -----------
Net increase (decrease) in cash (1,180,219) 1,590,565
Cash and cash equivalents - Beginning of period 2,246,951 1,784,850
----------- -----------
Cash and cash equivalents - End of period $ 1,066,732 $ 3,375,415
=========== ===========
</TABLE>
3
<PAGE>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDING SEPTEMBER 30, 1999
<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, 1999 7,326,963 $73,270 330,009 $321,090 $11,758,235 ($288,090)
Purchase of Treasury Stock
Net Income for the Quarter Ended
September 30, 1999
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 7,326,963 $73,270 330,009 $321,090 $11,758,235 ($288,090)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Retained Treasury Stock Total
Earnings -------------- Stockholders'
(Deficit) Shares Amount Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 ($314,862) (18,000) ($91,451) $11,458,192
Purchase of Treasury Stock (123,900) ($301,905) ($301,905)
Net Income for the Quarter Ended
September 30, 1999 270,129 $270,129
----------- ----------- ----------- -----------
Balance at September 30, 1999 ($314,862) (141,900) ($393,356) $11,426,416
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 1999
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 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, 1999.
5
<PAGE>
2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
September 30, 1999 Authorized Outstanding Amount
---------- ----------- ------
Preferred Stocks:
Series A cumulative convertible 29,233 8,451 $ 845
Series B convertible 12,704 1,458 145
Series C convertible 350,000 320,100 320,100
--------- ----------
Total preferred 330,009 $ 321,090
========= ==========
Common Stock 70,000,000 7,326,963 $ 73,270
Stock Option Plan and Common Stock Purchase Warrants
In October 1999, the Company awarded 260,000 common stock purchase options to
employees under the 1997 Stock Option Plan at an exercise price of $1.875 per
share (the market price on the date of grant). Total outstanding common stock
purchase options and warrants at September 30, 1999 were 3,000,325 at prices of
$1.875 to $15.00 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.
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 predecessor ("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 alternate 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.
On August 23, 1999, a class action lawsuit was filed in the United States
District Court for the Eastern District of New York on behalf of all persons who
purchased our common stock from October 12, 1998, through May 19, 1999,
inclusive. The complaint charges the Company and certain of its officers and
directors with violations of Sections 10 (b) and 20 (a) of the Securities
Exchange Act of 1934, as well as SEC Rule 10b-5 promulgated thereunder.
Plaintiff seeks to recover damages on behalf of all class members.
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 PC manufacturer of Nexar XPA technology, a leading
system integrator and provider of a full line of information technology products
and services. As a one-stop company for the computer needs of businesses,
professionals, government agencies and educational institutions, ATEC enters the
new millennium with a technological arsenal that includes Y2K remediation
solutions, computer hardware, software, connectivity devices, multimedia
products, data communication via satellite, video conferencing, system
integration networking, high speed data transmission, graphic arts, Internet and
Intranet.
RESULTS OF OPERATIONS
September 30, 1999 compared to September 30, 1998
The Company's revenues for the first quarter ended September 30, 1999 declined
to $20.2 million from $34.8 million for the prior year, a decrease of
approximately 42%. This decrease is attributable to a significant drop in sales
in our distribution division and a major shift in the marketing philosophy of
large systems manufacturers who are gradually decreasing their distribution
network and increasingly selling directly to end-users and introducing
build-to-order systems. Revenues are generated by the Company's sales of
computer hardware and software, and related support services. Gross margin for
the period increased to $3.8 million for September 30, 1999 from $3.3 million
for the comparable 1998 quarter, a 15% increase due to higher margin sales in
the software division. Gross margins as a percentage of revenues for the quarter
were 18.9% as compared to 9.3% for the prior year.
September 30, 1999 operating expenses exclusive of amortization of intangible
assets increased to $3.4 million as compared to $2.9 million for the prior year.
The increase is primarily for additional employees and compensation.
Amortization of intangible assets decreased to $22,500 for the quarter from
$75,000 in the comparable 1998 period. The provision for income taxes was
$194,600 for the 1999 quarter as compared to $113,000 for 1998 quarter.
As a result of the above, the Company's net income was $270,129 for the three
months ended September 30, 1999 compared to $200,814 for the 1998 quarter. For
the September 30, 1999 quarter, net income per share was $.04 compared to $.03
in the prior year. Average diluted outstanding were 7,269,838 for 1999 and
7,192,285 for 1998.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $1,066,732 at September 30, 1999, a decrease of
$1,180,219 as compared to June 30, 1999. The Company's working capital at
September 30, 1999 was $9,099,225 as compared to a working capital of $9,133,544
at June 30, 1999. Net cash provided by operating activities was $385,493. Cash
used for investing activities totaled $81,045 for the purchase of property and
equipment. During the period the company purchased 123,900 common shares for
$301,905.
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, 1999, indebtedness of the Company to Deutsche Financial was
$751,772 a decrease of $1,182,762 compared to June 30, 1999. 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, 1999
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, 1999:
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 11, 1999
By: /s/ James J. Charles
------------------------------------------
James J. Charles, Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of ATEC Group, Inc. as at and for the three
months ended September 30, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,066,732
<SECURITIES> 0
<RECEIVABLES> 10,413,817
<ALLOWANCES> 550,000
<INVENTORY> 1,103,534
<CURRENT-ASSETS> 13,784,807
<PP&E> 1,743,739
<DEPRECIATION> 968,417
<TOTAL-ASSETS> 16,111,998
<CURRENT-LIABILITIES> 4,685,582
<BONDS> 0
0
321,090
<COMMON> 73,270
<OTHER-SE> 11,032,056
<TOTAL-LIABILITY-AND-EQUITY> 16,111,998
<SALES> 20,188,643
<TOTAL-REVENUES> 20,188,643
<CGS> 16,370,936
<TOTAL-COSTS> 16,370,936
<OTHER-EXPENSES> 3,357,976
<LOSS-PROVISION> (5,011)
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 464,729
<INCOME-TAX> 194,600
<INCOME-CONTINUING> 270,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,129
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
