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 March 31, 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.
- --------------------------------------------------------------------------------
(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 March 31, 2000, there were 7,326,963 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
March 31, 2000 June 30, 1999
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 1,508,541 $ 2,246,951
Accounts receivable, net 8,352,218 8,666,500
Inventories 2,095,112 1,110,273
Deferred taxes 251,290 251,290
Other current assets 1,559,077 1,405,333
------------ ------------
Total currrent assets 13,766,238 13,680,347
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PROPERTY AND EQUIPMENT, NET 637,638 750,279
Goodwill, net 1,410,370 1,519,775
Other Assets 282,180 54,594
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$ 16,096,426 $ 16,004,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving inventory line of credit $ 2,204,855 $ 1,934,534
Accounts payable 1,249,360 1,709,763
Accrued expenses 332,632 669,738
Income taxes payable 365,742
Other current liabilities 246,986 232,768
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Total liabilities 4,399,575 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 225,702 (314,862)
Less: Treasury stock at cost (393,356) (91,451)
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Total stockholders' equity 11,696,851 11,458,192
------------ ------------
$ 16,096,426 $ 16,004,995
============ ============
1
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31
2000 1999
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NET SALES $ 15,592,963 $ 22,839,467
COST OF SALES 13,109,451 19,589,956
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GROSS PROFIT 2,483,512 3,249,511
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OPERATING EXPENSES
Selling and administrative 2,189,130 3,128,001
Amortization of goodwill 94,970 47,094
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Total operating expenses 2,284,100 3,175,095
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INCOME FROM OPERATIONS 199,412 74,416
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OTHER INCOME (EXPENSE)
Interest income 6,364 28,219
Interest expense (5,122) (1,739)
Miscellaneous 9,730
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Total other (expense) income 10,972 26,480
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INCOME BEFORE PROVISION FOR INCOME TAXES 210,384 100,896
PROVISION FOR INCOME TAXES 76,200 40,300
------------ ------------
NET INCOME $ 134,184 $ 60,596
============ ============
NET EARNINGS PER SHARE
BASIC AND DILUTED $ 0.02 $ 0.01
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,185,063 8,201,818
============ ============
Weighted average number of shares-diluted 7,185,063 8,201,818
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31
2000 1999
------------ ------------
NET SALES $ 53,313,156 $ 90,457,405
COST OF SALES 43,923,556 81,454,351
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GROSS PROFIT 9,389,600 9,003,054
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OPERATING EXPENSES
Selling and administrative 8,402,552 8,371,548
Amortization of goodwill 139,970 227,094
------------ ------------
Total operating expenses 8,542,522 8,598,642
------------ ------------
INCOME FROM OPERATIONS 847,078 404,412
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 50,878 107,429
Interest expense (5,122) (37,157)
Miscellaneous 9,730
------------ ------------
Total other (expense) income 55,486 70,272
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INCOME BEFORE PROVISION FOR INCOME TAXES 902,564 474,684
PROVISION FOR INCOME TAXES 362,000 189,800
------------ ------------
NET INCOME $ 540,564 $ 284,884
============ ============
NET EARNINGS PER SHARE
BASIC AND DILUTED $ 0.08 $ 0.04
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,247,013 7,975,613
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,247,013 7,975,613
============ ============
3
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (610,463) $ 3,220,602
Cash flows from investing activities:
Purchase of Nexar Technology (967,564)
Purchase of property and equipment (96,363) (160,200)
----------- -----------
Net cash (used in) provided by investing activities (96,363) (1,127,764)
----------- -----------
Cash flows from financing activities:
Exercise of Options and Warrants 574,001
Short term borrowings 270,321 (4,104,920)
Purchase of Treasury Stock (301,905) (40,800)
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Net cash (used in) provided by financing activities (31,584) (3,571,719)
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Net increase (decrease) in cash (738,410) (1,478,881)
Cash - Beginning of period 2,246,951 1,784,850
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Cash - End of period $ 1,508,541 $ 305,969
=========== ===========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDING MARCH 31, 2000
Discount
Common Value Series Value Additional on Retained Treasury Stock Total
Shares Common Preferred Preferred Paid-In Preferred Earnings ------------------- Stockholders'
Issued Stock Issued Stock Capital Stock (Deficit) Shares Amount Equity
--------- --------- ------- -------- ----------- --------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <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) ($314,862) (18,000) ($ 91,451) $ 11,458,192
Purchase of Treasury Stock (123,900) (301,905) (301,905)
Net Income for the
Nine months Ended
March 31, 2000 540,564 540,564
--------- --------- ------- -------- ----------- --------- -------- -------- --------- -----------
Balance at March 31, 2000 7,326,963 $ 73,270 330,009 $321,090 $11,758,235 ($288,090) $225,702 (141,900) ($393,356) $11,696,851
========= ========= ======= ======== =========== ========= ======== ======== ========= ===========
</TABLE>
5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
NINE MONTHS ENDED MARCH 31, 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 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, 1999.
2. Planned Acquisition
On May 4, 2000 we signed a letter of intent to be acquired by Applied Digital
Solutions, Inc. (ADS) in an all stock transaction. Under the terms of the letter
of intent, ADS would acquire all the outstanding shares of the Company, payable
in shares of ADS common stock, at a rate of 1.25 shares of ADS common stock for
each share of ATEC Group common stock. The transaction is subject to various
terms and conditions, including the execution of a definitive acquisition
agreement, completion of due diligence, ATEC shareholder approval and approval
of relevant government agencies.
6
<PAGE>
3. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares And
March 31, 2000 Authorized Outstanding Amount
---------- ----------- ------
Preferred Stocks:
Series A 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
All of the Preferred Stocks convert into 16,311 shares of the Company's Common
Stock.
Stock Option Plan and Common Stock Purchase Warrants
In October 1999, the Company awarded 234,500 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). In November 1999 the Company
issued 150,000 common stock purchase options to the Chairman and 200,000 common
stock purchase options to the President at an exercise price of $1.99. Total
outstanding common stock purchase options and warrants at March 31, 2000 were
3,324,825 at prices of $1.875 to $15.00 per share.
4. Computation of Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding.
5. Goodwill
Goodwill is being amortized over its estimated period of benefit, not exceeding
fifteen years.
7
<PAGE>
6. Litigation
See 10-Q for the period ending December 31, 1999.
8
<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. As a one-stop company for
the computer needs of businesses, professionals, government agencies and
educational institutions, ATEC Group offers computer hardware and software,
system integration networking, graphic arts, Internet and Intranet. The company
is positioned for growth through its capabilities as a PC manufacturer of Nexar
Technology, in software development and e-commerce.
Results of Operations
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
The Company's revenues for the third quarter ended March 31, 2000 decreased to
$15.6 million from $22.8 million for the prior year, a decrease of approximately
32%. This decrease is primarily attributable to the Company exiting its
low-margin distribution business. Revenues are generated by the Company's sales
of computer hardware and software, and related support services. Gross margin
for the period decreased to $2.5 million for March 31, 2000 from $3.2 million
for the comparable 1999 quarter. Gross margins as a percentage of revenues for
the three months were 16% as compared to 14% for the prior year. The increase is
attributable to growth in service, integration and web-based solutions. 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.
Operating expenses for the three months exclusive of amortization of intangible
assets decreased to $2.2 million as compared to $3.1 million for the prior year.
The decrease is primarily for contract labor working on Y2k in the previous
year. Amortization of intangible assets increased to $94,970 for the quarter
from $47,094 in the comparable 1999 period. The provision for income taxes was
$76,200 for the 2000 quarter as compared to $40,300 for the 1999 quarter.
As a result of the above, the Company's net income was $134,184 for the three
months ended March 31, 2000 compared to $60,596 for the 1999 quarter. For the
March 31, 2000 quarter, basic and diluted net income per share was $.02 compared
to $.01 in the prior year. Average diluted shares outstanding were 7,185,063 for
2000 and 8,201,818 for 1999.
9
<PAGE>
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
Revenues for the nine months ended March 31, 2000 decreased to $53.3 million
from $90.5 million for the prior year, a decrease of approximately 41%. This
decrease is attributable to the Company exiting its low-margin business.
Revenues are generated by the Company's sales of computer hardware and software,
and related support services. Gross margin for the period increased to $9.4
million for March 31, 2000 from 9.0 million for the comparable 1999 quarter due
to higher margin sales. Gross margins as a percentage of revenues for the
quarter were 18% as compared to 10% for the prior year.
Operating expenses for the nine months, exclusive of amortization of intangible
assets, were $8.4 million in 2000 and 1999. Amortization of intangible assets
decreased to $139,970 from $227,094 in the comparable 1999 period. The provision
for income taxes was $362,000 for the 2000 period as compared to $189,800 for
the prior year.
As a result of the above, the Company's net income increased to $540,564 for the
nine months ended March 31, 2000 as compared to $284,884 for the prior year.
Primary and diluted net income per share was $.08 compared to $.04 in the prior
year. Average diluted shares outstanding were 7,247,013 for 2000 and 7,975,613
for 1999.
Liquidity and Capital Resources
The Company's cash position was $1,508,541 at March 31, 2000, a decrease of
$738,410 as compared to June 30, 1999. The Company's working capital at March
31, 2000 was $9,366,663 as compared to working capital of $9,133,544 at June 30,
1999. Net cash used by operating activities was $610,463. Cash used for
investing activities totaled $96,363 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 of $15 million. At March 31, 2000,
indebtedness of the Company to Deutsche Financial was $2,204,855 an increase of
$270,321 compared to June 30, 1999. Substantially all company tangible and
intangible assets are pledged as collateral for this facility.
10
<PAGE>
ATEC Group, Inc. and Subsidiaries
Other Information
March 31, 2000
PART II
Item 6. Exhibits and Reports on form 8-k
a) Exhibits - none
b) Reports on Form 8-K:
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: May 12, 2000 By: /s/ JAMES J. CHARLES
-----------------------------------------
James J. Charles, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000893970
<NAME> ATEC GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAY-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,508,541
<SECURITIES> 0
<RECEIVABLES> 8,352,218
<ALLOWANCES> 0
<INVENTORY> 2,095,112
<CURRENT-ASSETS> 13,766,238
<PP&E> 637,638
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,096,426
<CURRENT-LIABILITIES> 4,399,575
<BONDS> 0
0
33,000
<COMMON> 73,270
<OTHER-SE> 11,590,581
<TOTAL-LIABILITY-AND-EQUITY> 16,096,426
<SALES> 53,313,156
<TOTAL-REVENUES> 53,313,156
<CGS> 43,923,556
<TOTAL-COSTS> 52,466,078
<OTHER-EXPENSES> (55,486)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 902,564
<INCOME-TAX> 362,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540,564
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
