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, 2000
[ ] 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)
69 Mall Drive, Commack, New York 11725
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 543-2800
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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, 2000, there were 7,347,689 shares
of the Registrant's Common Stock outstanding.
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<CAPTION>
ATEC GROUP, INC.
TABLE OF CONTENTS
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements......................................................1-7
Item 2 - Management Discussion & Analysis
of Financial Condition and Results of Operations..........................8-9
Item 3 - Quantitive and Qualitative Disclosures about Market Risk..................10-11
PART II OTHER INFORMATION REQUIRED IN REPORT
Item 1. - Legal Proceedings........................................................12
Item 2. - Changes in Securities and use of Proceeds................................12
Item 3. - Defaults Upon Senior Securities..........................................12
Item 4. - Submission of Matters to a Vote of Security Holders......................12
Item 5. - Other Information........................................................12
Item 6. - Exhibits and Report on Form 8k...........................................12
Signature Page.....................................................................13
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ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
30-Sep-00 30-Jun-00
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ASSETS
CURRENT ASSETS
Cash $ 1,602,040 $ 100,607
Accounts receivable, net 7,646,241 10,037,462
Inventories 2,094,683 2,356,825
Deferred taxes 459,456 459,456
Other current assets 1,043,154 1,594,027
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Total current assets 12,845,574 14,548,377
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PROPERTY AND EQUIPMENT, NET 517,929 532,238
GOODWILL, NET 1,300,609 1,346,149
OTHER ASSETS 102,014 63,753
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$ 14,766,126 $ 16,490,517
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving inventory line of credit $ 1,126,359 $ 2,173,776
Accounts payable 1,837,604 2,518,721
Accrued expenses 641,389 283,360
Other current liabilities 92,353 230,489
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Total liabilities 3,697,705 5,206,346
STOCKHOLDERS' EQUITY
Preferred stocks 310,582 310,582
Common stock 73,477 73,477
Additional paid-in capital 11,862,174 11,823,086
Discount on preferred stock (278,640) (278,640)
Retained earnings (deficit) (272,747) (17,909)
Treasury stock at cost (626,425) (626,425)
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Total stockholders' equity 11,068,421 11,284,171
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$ 14,766,126 $ 16,490,517
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1
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
2000 1999
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NET SALES $ 14,948,683 $ 20,188,643
COST OF SALES 12,758,337 16,370,936
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GROSS PROFIT 2,190,346 3,817,707
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OPERATING EXPENSES
Selling and administrative 2,556,968 3,351,696
Amortization of goodwill 45,540 22,500
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Total operating expenses 2,602,508 3,374,196
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INCOME FROM OPERATIONS (412,162) 443,511
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OTHER INCOME (EXPENSE)
Interest income 18,237 21,231
Interest expense (113) (13)
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Total other (expense) income 18,124 21,218
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (394,038) 464,729
PROVISION (BENEFIT) FOR INCOME TAXES (139,200) 194,600
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NET INCOME (LOSS) $ (254,838) $ 270,129
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED $ (0.04) $ 0.04
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,089,744 7,269,838
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,089,744 7,269,838
============ ============
2
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<CAPTION>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30
2000 1999
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<S> <C> <C>
Net cash provided by (used in) operating
activities $ 1,498,434 $ (797,269)
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Cash flows from investing activities:
Purchase of property and equipment (36,089) (81,045)
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Net cash (used in) provided by investing activities (36,089) (81,045)
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Cash flows from financing activities:
Purchase of common stock -- (301,905)
Contributed additional capital 39,088 --
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Net cash (used in) provided by financing activities 39,088 (301,905)
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Net increase (decrease) in cash 1,501,433 (1,180,219)
Cash and cash equivalents - Beginning of period 100,607 2,246,951
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Cash and cash equivalents - End of period $ 1,602,040 $ 1,066,732
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3
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ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDING SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Common Value Series Value Additional Discount on
Shares Common Preferred Preferred Paid-In Preferred
Issued Stock Issued Stock Capital Stock
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<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 2000 7,347,689 $ 73,477 319,429 $ 310,582 $ 11,823,086 ($ 278,640)
Contributed Capital 0 $ 39,088
Net Income for the Six months Ended
September 30, 2000
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BALANCE AT SEPTEMBER 30, 2000 7,347,689 $ 73,477 319,429 $ 310,582 $ 11,862,174 ($ 278,640)
========= ============ ============ ============ ============ ============
Retained Treasury Stock Total
Earnings ---------------------------- Stockholders'
(Deficit) Shares Amount Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at June 30, 2000 ($ 17,909) (257,945) ($ 626,425) $ 11,284,171
Contributed Capital $ 39,088
Net Income for the Six months Ended
September 30, 2000 ($ 254,838) (254,838)
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 ($ 272,747) (257,945) ($ 626,425) $ 11,068,421
============ ============ ============ ============
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 2000
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, 2000.
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2. EQUITY SECURITIES
CAPITAL STOCK
The Company's capital stock consists of the following:
Shares
Issued
Shares and
September 30, 2000 Authorized Outstanding Amount
----------- ------------ ------------
Preferred Stocks:
Series A cumulative convertible 29,233 8,371 $ 837
Series B convertible 12,704 1,458 145
Series C convertible 350,000 309,600 309,600
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Total preferred 319,429 $ 310,582
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Common Stock 70,000,000 7,347,689 $ 73,477
The 319,429 shares of preferred stock which are outstanding may be converted
into approximately 8200 shares of our common stock.
STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS
On August 15, 2000, the Board of Directors approved a resolution for the
issuance of 215,000 options with an exercise price of $1.625 per share. On
September 18, 2000, the Board of Directors approved a resolution for the
issuance of 1,400,000, common stock purchase, options with an exercise price of
$2.00 per share to certain officers and employees of the Company subject to
shareholder ratification. In October, 2000 the resolution to issue the 1,400,000
options was rescinded.
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.
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5. SEGMENT INFORMATION
The Company is comprised of four business segments. These segments consist of
the technology integration services (TIS), Business to Business (B to B),
software and manufacturing divisions. Set forth below are net sales, net income
(loss), capital expenditures, depreciation and identifiable assets of these
segments.
FOR THREE MONTHS ENDING
SEPTEMBER 30.
2000 1999
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NET SALES:
TIS $ 4,923,907 $ 9,816,417
B to B 8,981,715 8,770,972
Software -- 1,601,254
Manufacturing 1,043,061 --
Elimination of -- --
intersegment revenues
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$ 14,948,683 $ 20,188,643
NET INCOME (LOSS):
TIS $ (276,528) $ (13,765)
B to B 479,335 332,315
Software (27,514) 358,826
Manufacturing 6,205 (157,644)
Corporate (436,336) (249,603)
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$ (254,838) $ 270,129
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DEPRECIATION:
TIS $ 35,157 $ 25,925
B to B 7,508 5,285
Software -- 11,901
Manufacturing 899 1,142
Corporate 6,834 11,747
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$ 50,398 $ 56,000
============ ============
CAPITAL ADDITIONS:
TIS $ 36,089 $ (22,389)
B to B -- 114,753
Software -- --
Manufacturing -- --
Corporate -- (11,322)
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$ 36,089 $ 81,042
============ ============
IDENTIFIABLE ASSETS:
TIS $ 6,207,633 $ 8,471,782
B to B 4,335,873 4,123,314
Software 92,804 1,169,368
Manufacturing 1,646,617 20,321
Corporate 2,483,200 2,327,213
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$ 14,766,127 $ 16,111,998
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7
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ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ATEC GROUP, INC. AND SUBSIDIARIES
OVERVIEW
ATEC Group, Inc. ("Atec, our, we or us") is a one-stop provider of a full line
of information technology products and services to businesses, professionals,
government and educational institutions. We offer multiple solutions to our
clients that we believe generate loyalty and improve our ability to seek higher
margins. We have developed several core competencies, including system design,
software development, networking, server-based computing, help desk, wireless
telecommunications, voice over TP, high speed bandwidth e-commerce, web-hosting,
ISP, ASP and Internet/Intranet solutions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.
REVENUES
Our revenues for the first quarter ended September 30, 2000 declined to $14.9
million from $20.2 million for the prior year, a decrease of approximately 26%.
This decrease is attributable to a significant drop in sales in our software
division and a decline in hardware sales as our sales force focuses on service
oriented business. Revenues are generated by our sales of computer hardware and
software, and related support services. Gross margin for the period decreased to
$2.2 million for September 30, 2000 from $3.8 million for the comparable 1999
quarter, a 43% decrease due to lower sales in the software division. Gross
margins as a percentage of revenues for the quarter were 14.7% as compared to
18.9% for the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses for the three months ended,
September 30, 2000, exclusive of amortization of intangible assets, decreased to
$2.6 million as compared to $3.4 million for the comparable period in 1999. The
decrease is primarily for compensation expense and consulting fees in the
software division. The income tax benefit was $139,200 for the 2000 quarter as
compared to a provision of $194,600 for 1999 quarter.
NET LOSS
As a result of the above, our net loss was $254,838 for the three months ended
September 30, 2000 compared to net income of $270,129 for the 1999 quarter. For
the September 30, 2000 quarter, net loss per share was $.04 compared to income
of $.04 in the prior year. Average diluted shares outstanding were 7,089,744 for
2000 and 7,269,838 for 1999.
8
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LIQUIDITY AND CAPITAL RESOURCES.
Our cash position was $1,602,040 at September 30, 2000, an increase of
$1,501,433 as compared to June 30, 2000. Our working capital at September 30,
2000 was $9,147,869 as compared to a working capital of $9,342,031 at June 30,
2000. Net cash provided by operating activities was $1,498,434. Cash used for
investing activities totaled $36,089 for the purchase of property and equipment.
To accommodate our financial needs for inventory financing, Deutsche Financial
Service granted us a credit line in the amount of $15 million. At September 30,
2000, our indebtedness to Deutsche Financial was $1,126,359, a decrease of
$1,047,417, as compared to June 30, 2000. Substantially all of our tangible and
intangible assets are pledged as collateral for this credit line.
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ITEM 3 - QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
We presently do not use any derivative financial instruments to hedge our
exposure to adverse fluctuations in interest rates, fluctuations in commodity
prices or other market risks, nor do we invest in speculative financial
instruments. Borrowings under our line of credit are at Prime plus a quarter
percent, which is adjusted monthly. Our interest income is sensitive to changes
in the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments.
Due to the nature of ATEC's borrowings and short-term investments, we have
concluded that there is no material risk exposure and, therefore, no
quantitative tabular disclosures are required.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements in this Quarterly Report on Form 10-Q about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "will," "will
likely result," "expect," "will continue," "anticipate," "estimate," "intend,"
"plan," "projection," "would," "should" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties which could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Report and our Annual Report on Form 10-K, as
amended, for the year ended June 30, 2000. The following cautionary statements
identify important factors that could cause our actual results to differ
materially from those projected in the forward-looking statements made in this
prospectus. Among the key factors that have a direct bearing on our results of
operations are:
o general economic and business conditions; the existence or absence of
adverse publicity; changes in, or failure to comply with, government
regulations; changes in marketing and technology; change in political,
social and economic conditions;
o increased competition in the computer industry and general risks of the
Internet;
o success of acquisitions and operating initiatives; changes in business
strategy or development plans; management of growth;
o availability, terms and deployment of capital;
o costs and other effects of legal and administrative proceedings;
o dependence on senior management; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs;
o development risks; risks relating to the availability of financing; and
o other factors referenced in this Report and the Form 10-K, as amended.
10
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Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
11
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ATEC GROUP, INC. AND SUBSIDIARIES
Other Information
September 30, 2000
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings - None
Item 2. - Changes in Securities and use of Proceeds - None
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders - None
Item 5. - Other Information
On October 31, 2000 Surinder Rametra, our Chairman and Chief
Executive Officer retired. Ashok Rametra, our President, has assumed
the additional role of Chief Executive Officer of Atec.
Surinder Rametra and his spouse entered into a stock purchase
agreement to sell their security ownership in Atec to Applied Digital
Solutions. Pursuant to the stock purchase agreement, Mr. Rametra and
his spouse delivered to Applied an irrevocable proxy for all of their
shares in Atec. The term of the proxy continues until such time as the
stock purchase agreement is consummated or terminated in accordance
with its terms. All prior proxies given by Mr. Surinder are revoked and
no subsequent proxies shall be given.
James Charles, our Chief Financial Officer was appointed as a director
in September 2000. On October 31, 2000, David Reback and George Eagan,
our independent directors resigned. Richard J. Sullivan, David A.
Loppert, Scott Silverman and Kristin M. Sickorez were appointed
directors of Atec. Messrs. Sullivan, Loppert, Silverman and Ms.
Sickorez are independent to Atec. Mr. Sullivan is the Chairman and
Chief Operating Officer of Applied Digital Solutions, Inc. Mr. Loppert
is the Chief Financial Officer of Applied Digital, Inc. Mr. Silverman
is President of Millennum Capital Consultants, Inc. Ms. Sickorez is a
sales associate with Robertson Stephens in Boston, Massachusetts.
Item 6. - Exhibits and Report on Form 8K - None
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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)
Date: November 14, 2000
By: /s/ JAMES J. CHARLES
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James J. Charles, Chief Financial Officer
(Duly authorized to sign on behalf of registrant)
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