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 December 31, 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
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(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 December 31, 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..........................1-5
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, 1999 June 30, 1999
----------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 2,323,368 $ 2,246,951
Accounts receivable, net 9,414,396 8,666,500
Inventories 1,891,212 1,110,273
Deferred taxes 251,290 251,290
Other current assets 1,585,126 1,405,333
------------ ------------
Total currrent assets 15,465,392 13,680,347
------------ ------------
PROPERTY AND EQUIPMENT, NET 694,752 750,279
GOODWILL, NET 1,474,775 1,519,775
OTHER ASSETS 239,637 54,594
------------ ------------
$ 17,874,556 $ 16,004,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving inventory line of credit $ 1,867,676 $ 1,934,534
Accounts payable 3,464,322 1,709,763
Accrued expenses 452,013 669,738
Income taxes payable 285,800 --
Other current liabilities 242,078 232,768
------------ ------------
Total liabilities 6,311,889 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 91,518 (314,862)
Less: Treasury stock at cost (393,356) (91,451)
------------ ------------
Total stockholders' equity 11,562,667 11,458,192
------------ ------------
$ 17,874,556 $ 16,004,995
============ ============
1
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31
1999 1998
------------ ------------
NET SALES $ 17,531,550 $ 32,797,105
COST OF SALES 14,443,169 30,299,606
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GROSS PROFIT 3,088,381 2,497,499
------------ ------------
OPERATING EXPENSES
Selling and administrative 2,861,726 2,363,445
Amortization of goodwill 22,500 105,000
------------ ------------
Total operating expenses 2,884,226 2,468,445
------------ ------------
INCOME FROM OPERATIONS 204,155 29,054
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OTHER INCOME (EXPENSE)
Interest income 23,296 43,982
Interest expense -- (13,062)
------------ ------------
Total other (expense) income 23,296 30,920
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 227,451 59,974
PROVISION FOR INCOME TAXES 91,200 36,500
------------ ------------
NET INCOME (LOSS) $ 136,251 $ 23,474
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED $ 0.02 $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,301,374 7,192,285
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,301,374 7,192,285
============ ============
2
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ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31
1999 1998
------------ ------------
NET SALES $ 37,720,193 $ 67,617,938
COST OF SALES 30,814,105 61,864,395
------------ ------------
GROSS PROFIT 6,906,088 5,753,543
------------ ------------
OPERATING EXPENSES
Selling and administrative 6,213,422 5,243,547
Amortization of goodwill 45,000 180,000
------------ ------------
Total operating expenses 6,258,422 5,423,547
------------ ------------
INCOME FROM OPERATIONS 647,666 329,996
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 44,514 79,209
Interest expense -- (35,418)
------------ ------------
Total other (expense) income 44,514 43,791
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 692,180 373,787
PROVISION FOR INCOME TAXES 285,800 149,500
------------ ------------
NET INCOME (LOSS) $ 406,380 $ 224,287
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED $ 0.06 $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,301,374 7,192,285
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,301,374 7,192,285
============ ============
3
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<TABLE>
<CAPTION>
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 537,543 $ 8,353,635
Cash flows from investing activities:
Purchase of Treasury Stock (301,905) (40,800)
Increase in Loans Receivable (597,016)
Purchase of property and equipment (92,363) (11,302)
----------- -----------
Net cash (used in) provided by investing activities (394,268) (649,118)
----------- -----------
Cash flows from financing activities:
Decrease in bank overdraft (339,944)
Notes Payable - related Parties (2,967)
Short term borrowings (66,858) (5,453,072)
----------- -----------
Net cash (used in) provided by financing activities (66,858) (5,795,983)
----------- -----------
Net increase (decrease) in cash 76,417 1,908,534
Cash and cash equivalents - Beginning of period 2,246,951 1,784,850
----------- -----------
Cash and cash equivalents - End of period $ 2,323,368 $ 3,693,384
=========== ===========
</TABLE>
4
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<TABLE>
<CAPTION>
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDING DECEMBER 31, 1999
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, 1999 7,326,963 $73,270 330,009 $321,090 $11,758,235 ($288,090) ($314,862)
Purchase of Treasury Stock
Net Income for the Six months Ended
December 31, 1999 406,380
---------- -------- -------- -------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1999 7,326,963 $ 73,270 330,009 $321,090 $11,758,235 ($288,090) $ 91,518
========== ======== ======== ======== =========== ========== ===========
Treasury Total
---------------------------- Stockholders'
Shares Amount Equity
----------- ----------- -------------
<S> <C> <C> <C>
Balance at June 30, 1999 (18,000) ($91,451) $ 11,458,192
Purchase of Treasury Stock (123,900) ($301,905) ($301,905)
Net Income for the Six months Ended
December 31, 1999 406,380
----------- ----------- -------------
BALANCE AT DECEMBER 31, 1999 ($141,900) ($393,356) $ 11,562,667
=========== =========== =============
</TABLE>
5
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ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED DECEMBER 31, 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.
6
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2. EQUITY SECURITIES
CAPITAL STOCK
The Company's capital stock consists of the following:
Shares
Issued
Shares And
December 31, 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
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 December 31, 1999 were
3,324,825 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.
7
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5. LITIGATION
On or about August 23, 1999 and October 14, 1999, respectively, two putative
shareholder class actions were filed in the United States District Court for the
Eastern District of New York on behalf of all persons whom purchased our common
stock from October 12, 1998, through May 19, 1999, inclusive. The complaint
charges us and certain of our officers and directors of violations of sections
10(b) and 20(a) of the Exchange Act, 15 U.S.C. ss.ss. 78j(b) & 781(a), and SEC
Rule 10b-5, 17 C.F.R. ss. 240.10b-5, promulgated thereunder. The actions have
been consolidated. Plaintiffs seek to represent all persons who purchased our
common stock between October 12, 1998 and May 19, 1999. Plaintiffs allege that
we and the individual defendants issued a series of allegedly false and
misleading statements regarding our growth plans and that we were purportedly
positioning ourself for a sale to a larger company. Plaintiffs seek to recover
damages on behalf of all plaintiffs.
In October 1999, we commenced an action against defendants, Rita Dozal, Frank
Dozal and Michelle O'Mahoney for breach of contract alleging damages in the
aggregate of $2,131,365 against defendants. It is alleged that defendants
breached the terms of the contract by selling shares underlying certain options
before they were entitled to do so under the terms of the contract. In December
1999, the defendants counter claimed for $9,800,000 in damages for: (a)
fraudulent and economic coercion; (b) breach of contract; and (c) wrongful
termination of employment against Rita Dozal. The action was filed in the
Supreme Court, New York County. The action is still in the preliminary stage and
discovery has not commenced.
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 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
THREE MONTHS ENDING DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
The Company's revenues for the second quarter ended December 31, 1999
decreased to $17.5 million from $32.7 million for the prior year, a decrease of
approximately 46%. 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 that 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 $3.1 million for December 31, 1999 from $2.5 million for
the comparable 1998 quarter, a 24% increase due to higher margin sales in the
software division. Gross margins as a percentage of revenues for the quarter
were 17.6% as compared to 7.6% for the prior year.
December 31, 1999 operating expenses exclusive of amortization of
intangible assets increased to $2.8 million as compared to $2.4 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
$105,000 in the comparable 1998 period. The provision for income taxes was
$91,200 for the 1999 quarter as compared to $36,500 for the 1998 quarter.
As a result of the above, the Company's net income was $136,251 for the
three months ended December 31, 1999 compared to $23,474 for the 1998 quarter.
For the December 31, 1999 quarter, basic and diluted net income per share was
$.02 compared to $.00 in the prior year. Average diluted shares outstanding were
7,301,374 for 1999 and 7,192,285 for 1998.
9
<PAGE>
SIX MONTHS ENDING DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Revenues for the six months ended December 31, 1999 decreased to $37.7
million from $67.6 million for the prior year, a decrease of approximately 44%.
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 that 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
$6.9 million for December 31, 1999 from 5.7 million for the comparable 1998
quarter, a 21% increase due to higher margin sales in the software division.
Gross margins as a percentage of revenues for the quarter were 18% as compared
to 9% for the prior year.
December 31, 1999 operating expenses for the six months, exclusive of
amortization of intangible assets, increased to $6.2 million as compared to $5.2
million for the prior year. The increase is primarily for additional employees
and compensation. Amortization of intangible assets decreased to $45,000 from
$180,000 in the comparable 1998 period. The provision for income taxes was
$285,800 for the 1999 period as compared to $149,500 for the prior year.
As a result of the above, the Company's net income increased to
$406,380 for the six months ended December 31, 1999 as compared to $224,287 for
the prior year. Primary and diluted net income per share was $.06 compared to
$.03 for the prior year. Average diluted shares outstanding were 7,301,374 for
1999 and 7,192,285 for 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position was $2,323,368 at December 31, 1999, an
increase of $76,417 as compared to June 30, 1999. The Company's working capital
at December 31, 1999 was $9,153,503 as compared to working capital of $9,133,544
at June 30, 1999. Net cash provided by operating activities was $235,638. Cash
used for investing activities totaled $92,363 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 $7 million. At December
31, 1999, indebtedness of the Company to Deutsche Financial was $1,867,676 a
decrease of $66,858 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
December 31, 1999
PART II
Item 6. Exhibits and Reports on form 8-K
a) Exhibits - none
b) Reports on Form 8-K: - NONE
11
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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)
Dated: February 14, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,323,368
<SECURITIES> 0
<RECEIVABLES> 9,414,396
<ALLOWANCES> 0
<INVENTORY> 1,891,212
<CURRENT-ASSETS> 15,465,392
<PP&E> 694,752
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,874,556
<CURRENT-LIABILITIES> 6,311,889
<BONDS> 0
0
33,000
<COMMON> 73,270
<OTHER-SE> 11,456,397
<TOTAL-LIABILITY-AND-EQUITY> 17,874,556
<SALES> 37,720,193
<TOTAL-REVENUES> 37,720,193
<CGS> 30,814,105
<TOTAL-COSTS> 37,072,527
<OTHER-EXPENSES> (44,514)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 692,180
<INCOME-TAX> 285,800
<INCOME-CONTINUING> 406,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 406,380
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
