SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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CURRENT REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 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 (IRS. 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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Securities registered pursuant to Section 12(b) of the Act:
Common Stock $.01 par value
Securities registered pursuant to Section 12(g) of the Act:
Series A Preferred Stock $.01 par value
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 requirement for the past 90 days.
YES [X] NO [ ]
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Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES [X] NO [ ]
On September 20, 2000, the aggregate market value of the voting common
equity of ATEC Group, Inc., held by non-affiliates of the Registrant was
$11,872,626* based on the closing price of $1.9375 for such common stock on said
date as reported by the American Stock Exchange. On such date, there were
7,347,689 shares of common stock of the Registrant outstanding.
* Excludes 1,219,882 shares of common stock beneficially owned by Surinder
Rametra, Ashok Rametra, George Eagan, James Charles and David Reback, the
officers and directors of the Company.
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FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
Certain statements in this Report, and the documents incorporated by
reference herein, constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause deviations in actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied. Such factors include but are not limited to
risks associated with the uncertainty of future financial results; additional
financing requirements; development of new products or mergers; the continued
ability to sustain integration of future acquisitions; the ability to hire and
retain key personnel; the continued development of our technical, manufacturing,
sales, marketing and management capabilities; relationships with and dependence
on third-party suppliers; anticipated competition; uncertainties relating to
economic conditions; uncertainties relating to government and regulatory
policies; uncertainties relating to customer plans and commitments; rapid
technological developments and obsolescence in the industries in which the
Company competes; potential performance issues with suppliers and customers;
governmental export and import policies; global trade policies; worldwide
political stability and economic growth; potential entry of new,
well-capitalized competitors into the markets; changes in the Corporate capital
structure and cost of capital; and uncertainties inherent in international
operations and foreign currency fluctuations. The words "believe, expect,
anticipate, intend and plan" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made.
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PART I
ITEM 1. BUSINESS
GENERAL
ATEC Group, Inc. ("the Company" or "ATEC") is a one-stop provider for 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 IP, high-speed
bandwidth, e-commerce, web hosting, ISP, ASP and Internet/Intranet solutions.
In furtherance of our efforts to provide end-to-end solutions to
clients, we continue to commit significant resources to establish our PC
manufacturing division, Nexar(R), which offers a line of branded computer
products built with state-of-the-art technology. Nexar manufactures
industry-standard PCs whose advanced and patented design enables clients to
affordably upgrade all major system components, minimizing upgrade cost. Nexar
provides unique 24 x 7 toll-free hardware and software support, including
off-the-shelf software.
Our e-commerce website, www.atecgroup.com, is designed to ensure our
clients seamless access, security, speed and ease of use. It employs a unique
and powerful search engine and database that was developed in-house and is
continually being reengineered. We plan to market this search engine and
e-commerce development capability as a new offering to our clients while
continuing our own expansion into the e-commerce marketplace. www.atecgroup.com
offers over 60,000 information technology (IT) products from major PC and
peripheral manufacturers along with access to comprehensive technical
specifications and availability on most of these products that allows buyers to
shop, compare and procure all their IT product needs through one place, easily
and quickly, making us a one-stop solution provider. The site also offers our
Nexar PC line of products directly to end-users and corporate clients.
Most industry experts agree that e-business will dramatically impact
traditional supply chains and distribution channels. E-marketers estimate
e-business revenues to exceed $3.5 trillion by the year 2002 and reach in excess
of $7.0 trillion by 2004, representing over 7% of all sales transactions
worldwide. With that in mind, we continually aim to be a part of the e-business
segment growth. No one, however, believes that existing relationships will
vanish overnight. Our goal is to continue to strengthen our presence in both the
business-to-business (B2B) and business-to-consumer (B2C) segments of
e-commerce, each of which is critical to strengthening our core business
objective of providing a one-stop, value-added service and product solution.
Together with our e-commerce solutions, we have created atecone.com, an
Internet Service Provider (ISP) providing boutique Internet solutions, including
virtual web, domain name hosting, DSL, ADSL, dial up, full and fractional T1 &
T3, web-based messaging services, Internet/Intranet design, and integration of
large and small e-commerce solutions. Looking ahead, we are focused on enhancing
our current e-commerce capabilities by developing in-house capabilities or
acquiring businesses currently involved in providing wireless, Internet and
telecommunication solutions and services.
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As the decision-making process that confronts organizations while
planning, selecting and implementing information technology solutions has grown
more complex, it became necessary for us to create an enterprise-focused team,
our Technology Integration Services (TIS) division, to streamline and strengthen
our core business. During the past fiscal year, we enhanced the TIS division
offerings by acquiring ICM International, Inc., a private company based in
Albany, NY. ICM is one of the leading Citrix server-based solution providers in
the Northeast. The acquisition of ICM opened new avenues for us such as turn-key
server-based computing, storage networks and complete end-to-end solutions,
including implementation, project management and program custom applications on
platforms such as Citrix, Microsoft NT, Netware, Linux, Unix, Java and others.
INDUSTRY
Complex computer information processing systems, the foundation on
which business and organizations now function, are continuously being
redesigned, modified and upgraded as new computer and telecommunications
technologies are introduced. Until the mid-1980s, either mid-range or mainframe
computer systems were used to manage an organization's mission-critical,
transaction-oriented functions, such as banking, credit transactions,
point-of-sale and airline reservations.
In the late 1980s, a new architecture for information processing called
"client/server" computing emerged, fueled by the growing intelligence in desktop
computers, expanding capabilities of software applications and growing
capabilities of networks. A client/server system typically consists of multiple
intelligent desktop client computers linked with high- performance server
computers by a LAN/WAN providing flexibility and mobility to a wide range of
applications. Most corporations today are seeking to reconfigure their existing
mainframe/mid-range computers (sometimes referred to as "legacy systems") to
operate in parallel with client/server networks. We believe that these two
information system models, legacy systems and client/server systems, will
continue to coexist, providing advantages for certain applications. Over the
past several years, the increase in performance of personal computers and the
development of a variety of effective business connectivity software programs
have led to an industry shift away from mainframe computer systems to
client/server systems.
The markets for information technology products and services are
expected to continue to experience significant growth over the next few years.
According to Data Quest Inc., a leading industry market research firm, the U.S.
market for personal computers is expected to increase from $80 billion in 1998
to $103 billion in 2001, a compound growth rate of 9%. We believe that the
leading factors driving the growth in the markets are the continued transition
to distributed computing technologies, such as client/server.
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BUSINESS STRATEGY
We as a value-added reseller, distribute products to major clients and
other resellers, and provide services such as consulting, procurement,
built-to-order, networking and hardware sales to our clients. We focus on
servicing small and medium-size enterprises (SME), which often do not have the
adequate IT personnel to procure, design, install or maintain complex systems to
incorporate continuously evolving technologies.
During 1998, the PC market underwent major changes as leading
manufacturers such as IBM, Compaq, Toshiba, Apple and Hewlett-Packard shifted
their focus away from the reseller channel towards direct marketing. Such
actions by the major manufacturers significantly affected the distribution
business due to the availability of products and competition on direct volume
sales. In response, we changed our focus to exit low margin distribution sales
and enter into complementary lines of business by:
o Enhancing our existing value added/system integration services into a
Technical Integration Services (TIS) division as the strategic marketing
arm to serve clients effectively;
o Expanding into Internet and e-solutions with atecone.net and atecgroup.com,
respectively;
o Acquiring the intellectual properties of Nexar and establishing a PC
manufacturing division;
o Enhancing our software development capabilities through offshore alliances;
and
o Creating a consolidated new corporate structure to streamline
administrative functions and stimulate future growth.
MARKETING STRATEGY
Our marketing strategy is to educate business clients about our ability
to provide a single source, end-to-end solution that reduces total cost of
ownership. In an effort to create a unique identity and distinguish ourselves
from the competition, we have committed our resources to assisting our clients
in the implementation of the latest changes in the IT industry.
We are an authorized dealer for leading manufacturers such as Compaq,
Gateway, Hewlett-Packard, Apple, Novell, Informix, Quest Communications, AMD,
Citrix, Microsoft, 3 COM, Toshiba, Oracle, Sybase, Intel, Computer Associates
and numerous others. We provide our clients with a variety of products from
microcomputers to client/servers to peripherals. To market our products, we
enjoy partnering relationships with major computer distributors, including
Ingram Micro, Tech Data, Synnex and others, which have multiple distribution
sites and collectively carry more than $1 billion in inventory at any given
point. Through these two relationships, manufacturers on the one hand and
distributors on the other, we offer our clients the best in information
technology products while reducing our inventory cost.
To succeed in this competitive environment and to achieve greater
client satisfaction, we offer our clients several distinct advantages:
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o A commitment to providing a single source, "end-to-end" solution to their
individual data processing needs;
o Low cost overhead structures, including limited inventory, extensive use of
warehousing of our allied distributors and automated management and
operating functions, thereby enabling us to hold costs down;
o Continual pursuit of new products and service offerings in response to
market conditions, and
o Responsive, expert service and support.
PRODUCTS, SERVICES AND SOLUTIONS
We market a broad selection of products with a focus on microcomputers,
client/servers and peripherals manufactured by major vendors. Our subsidiaries
are authorized sales and service dealers for major IT manufacturers. The sales
of products by major manufacturers such as Apple, Compaq, Toshiba, Gateway,
Epson and Hewlett-Packard generated over 50% of our revenue for the year ended
June 30, 2000. The agreements with these vendors are generally renewed
periodically and permit termination by manufacturers without cause, generally
upon 30 to 90 days notice. These provisions are standard in the computer
reseller industry.
We evaluate product assortment based on technological advances,
availability and marketability of the products. We continually seek to expand
our product offerings in response to market conditions. Service and support is
performed with an emphasis on achieving higher profit margins while ensuring
quality service to our clients. We have excellent vendor/dealer relationships
with major national distributors, enabling us to source our products from
multi-distribution channels.
PC MANUFACTURING
Nexar(R), a division of ATEC with patented technologies, is an
innovative manufacturer of personal computers with a fundamentally different
approach to personal computing. Nexar manufactures PCs that allow for
customization of the system and enable end-users to affordably upgrade all major
system components, including future processors and technology advances.
Nexar has developed three lines of personal computers with
high-resolution, high-performance monitors, and is committed to continually
developing and introducing new product lines to keep ahead of technology. The
current product lines of Nexar are:
o ENABLE SERIES: This series captures the true essence of the PC, powered by
the latest class of processors, and is built to the rigorous standards of
ISO 9002 specifications. Superior quality and performance are combined to
create top value in the world of desktop computers. Enable is aimed at the
cost-conscious consumer.
o EMPOWER SERIES: These systems are built to the client's specifications
using widely accepted quality components and peripherals to ensure 100%
compatibility. This line is the ideal solution for clients who demand to
stay on the cutting edge of technology. The Empower line is aimed at
corporate users who require value and the flexibility of standard options
and components.
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o INFINITY SERIES: This series incorporates Nexar's patented XPA technology,
which uses standard components but allows for processor and memory upgrades
across processor generations from within the same PC footprint.
Nexar offers its products through our extended sales and marketing
group, national retail channels and directly through the our web sites:
www.nexarusa.com and WWW.ATECGROUP.COM.
E-COMMERCE
We launched our e-commerce website, www.atecgroup.com, in 1999. The
website ensures our clients seamless access, security, speed, flexibility and
ease of use. It employs unique and powerful search engines and a database that
has been developed in-house and features over 60,000 information technology
products. The site also provides our clients with technical specifications as
well as online availability on many products and incorporates daily updates and
is accessible through over 100 popular search engines worldwide including;
Yahoo, AltaVista, Lycos, Infoseek, Excite and several others. We are leveraging
our existing base of over 100,000 clients nationwide, as well as exploring
banner advertising on high-traffic search engines, to popularize our site. The
opening of the e-commerce site marks our entry into the explosive e-commerce
market.
Although the B2C e-commerce segment has received most of the media
attention over the past two years, the B2B segment is also growing rapidly.
Forrester Research has estimated that while the B2C market is expected to reach
$143.8 billion by 2004, B2B business in the U.S. could reach $2.7 trillion for
the same period, or a growth rate of 99% annually. We are focused and have
committed our resources to be a part of the growth in the e-commerce segment,
especially in B2B. In fiscal 2000, approximately 18% of our revenues were
derived from B2B transactions, which benefited bottom line profitability.
TECHNOLOGY INTEGRATION SERVICE
The microcomputer industry is characterized by numerous hardware
systems that utilize different and often incompatible standards for hardware and
software applications. Additionally, as new technologies in PCs,
telecommunication and wireless are introduced, organizations need to continually
redesign, upgrade and modify their existing systems. In response to growing IT
needs, we realized that the traditional system integration approach (trouble
shooting, networking, custom configuration of technology) was not sufficient.
Therefore, it became necessary for us to create an enterprise-focused team - our
Technology Integration Services (TIS) division. The TIS group is focused on
providing value-added solutions to allow customers to take advantage of the
technology they need without many of the obstacles required to implement them.
The services offered by TIS include:
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1. Technology fulfillment and management
2. Staff augmentation and outsourcing
3. Professional and network services-ATEC branded solutions
4. Server-based computing (Microsoft Terminal Server and Citrix
Metaframe)
5. Software solutions
6. E-commerce, Internet access, ISP and Internet integration
7. End-user support
8. Special technology and markets
INTERNET ACCESS - ATECONE.COM
As voice and high-speed data technologies continue to converge, our
goal is to be the one-stop provider to take advantage of this expanding market.
We provide access and all the necessary services to integrate LAN/WAN
consulting, voice over IP, Internet-based VPN design, turnkey Internet
provisioning, wireless communication, web design and web hosting. Along with the
above solutions, atecone.com provides boutique Internet solutions, including
virtual web, domain name hosting, web-based messaging services, DSL, ADSL,
dial-up, full and fractional T1 & T3 and integration of large and small
e-commerce solutions
SOFTWARE SOLUTIONS
We offer both project management capabilities and technical expertise
to deliver high-quality custom software to our clients. We provide a wide range
of services, including analysis, design, coding, testing, deployment,
implementation, training and maintenance.
COMPETITION
The microcomputer market is very competitive, and as such we compete
directly with major PC manufacturers, a variety of local and national
distributors, super stores, retailers, mail order houses and other entities that
offer computer products and services. We compete with these entities based on
our commitment to provide a cost-effective, single source, "end-to-end" solution
to our clients' IT needs. We attempt to competitively price hardware and
software items with our wide range of customer support and services; however, we
do not focus on pricing as our primary competitive strength. Rather, we believe
that our principal strength is our ability to offer clients complete and
cost-efficient solutions to their individual IT needs.
BACKLOG
We do not have a significant backlog, as we normally deliver and
install the computer products purchased by our clients within a short time of
the date of order.
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GOVERNMENTAL REGULATION AND CONTRACTS
We believe that we are in compliance with federal and state laws and
regulations that are applicable to our operations. We are not a party to any
government contract that represents a material portion of our revenue or that,
if terminated or renegotiated, would have a material adverse effect on our
business.
PATENTS AND TRADEMARKS
PATENTED TECHNOLOGY
The U.S. Patent & Trademark Office awarded Nexar a patent for its
advanced PC motherboard and chassis design. The patent addresses the Nexar PC's
Inverted Socket Process Architecture and design that place the processor, system
memory and cache sockets on the undercarriage of the motherboard and a "future
ready" XPA design that incorporates a highly innovative split motherboard
design. XPA is a substantial enhancement to our ISPA patent because it supports
multiple processor architectures. The XPA design separates the most stable
components of a PC from those components that are most susceptible to technology
obsolescence, easily enabling resellers and users to adapt to rapidly changing
technologies.
TRADEMARK
On May 11, 1999, the U.S. Patent and Trademark Office granted us a
trademark for Nexar. We currently use the Nexar mark on our line of computers.
The registration is enforceable for ten (10) years.
EMPLOYEES
As of September 28, 2000, there was an aggregate of approximately 93
employees, including 5 administrators, 19 staff persons, 13 managers, 27
full-time sales persons, 26 technical and 3 warehouse personnel. We have no
collective bargaining agreements and believe that relations with our employees
are good.
ITEM 2. PROPERTIES
Our headquarters and executive offices are located at 69 Mall Drive,
Commack, New York. This location occupies approximately 23,175 square feet
pursuant to a lease expiring in 2005, and provides for annual rental payments of
approximately $134,000, plus certain expenses. We also maintain a retail
location and warehouse facility in Albany, New York, consisting of approximately
8,050 square feet. The Albany facility lease expires on June 30, 2003 and
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requires annual rental payments of $108,192, plus all expenses and taxes
attributable to the operation of the premises. The Albany facility is leased
from a company controlled by Surinder and Ashok Rametra, officers and directors
of ATEC. The New York City operations are located at 143 West 29th Street, New
York, New York. This location occupies 7,000 square feet; 4,000 square feet is
leased on a month-to-month basis and requires annual rental payments of $48,000,
plus certain expenses and 3,000 square feet with required annual payments of
$36,000 per year, plus other expenses under a lease expiring in 2002. Our
Pinebrook, New Jersey facility occupies 5,328 square feet and requires annual
payments of approximately $41,026 per year, plus other expenses under a lease
expiring in 2002. Our Syracuse facility occupies 1,300 square feet and requires
annual rental payments of approximately $16,000 per year, plus other expenses
under a lease expiring in 2002.
We believe that our current facilities are suitable for our present and
projected needs. We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS
A third-party action was commenced against ATEC's predecessor
("Hillside Bedding") in the Supreme Court, Bronx County, in 1993. The action
results from a claim by a former employee who was allegedly injured while
operating a forklift during the course of his employment. The employee commenced
an action against the Company that maintained the forklift, Mid Hudson Clarklift
("MH"), seeking damages of $7,000,000 for the alleged failure of such company to
properly maintain and service the lift. MH instituted a third-party action
seeking judgment for all or part of any verdict or judgment that may be obtained
against MH. The case is presently in the discovery stages.
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 common stock from October 12, 1998, through May 19, 1999,
inclusive. The complaint charges ATEC 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. Plaintiffs seek to
recover damages on behalf of all class members.
In October 1999, the Company 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 the 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last quarter of fiscal year 2000, we did not submit any
matter to the vote of our shareholders.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock is currently traded on the American Stock Exchange
under the symbol "TEC." The following table sets forth the high and low bid
prices for our common stock for the periods indicated as reported by the NASDAQ.
Such prices reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not necessarily represent actual transactions.
COMMON STOCK
High Low
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1998
Quarter ended 9/30........................ 7 15/3 3 15/16
Quarter ended 12/31....................... 8 1/8 3 1/4
1999
Quarter ended 3/31....................... 10 7/8 5 7/8
Quarter ended 6/30....................... 8 5/16 2 15/16
Quarter ended 9/30....................... 4 2
Quarter ended 12/31...................... 3 1/4 1 3/4
2000
Quarter ended 3/31....................... 7 2 3/8
Quarter ended 6/30....................... 4 15/16 2 1/8
On September 20, 2000, there were approximately 238 holders of record
of our common stock, 17 holders of record of Series A preferred shares and 3
holders of record of the Units. The number of record holders does not include
holders whose securities are held in street name.
We do not currently pay dividends on our common stock. It is
management's intention not to declare or pay dividends on our common stock, but
to retain earnings for the operation and expansion of our business.
The holders of our Series A preferred shares are entitled to certain
dividend payments upon declaration by the Board of Directors. (See "Item
8-Financial Statements").
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as and for each of the five years
in the period ended June 30, 2000, have been derived from audited financial
statements. This information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report and
"Management's Discussion and Analysis."
<TABLE>
<CAPTION>
Operating Data 2000 1999 1998 1997 1996
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $71,937,680 $107,435,617 $187,150,614 $100,841,362 $81,812,045
Income or (Loss) from
continuing operations $ 296,953 $ (4,299,228) $ 2,740,066 $ 1,667,898 $ 838,346
Income (Loss) per
common share:
Basic $ .04 $ (.62) $ .45 $ .28 $ .16
Diluted $ .04 $ (.62) $ .43 $ .28 $ .16
Balance Sheet Data
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Total Assets $16,490,517 $ 16,004,995 $ 26,634,164 $ 17,147,707 $13,322,133
Long-term obligations -- -- -- -- $ 228,322
Cash dividends per
common share Nil Nil Nil Nil Nil
</TABLE>
Results for fiscal 2000 reflected one-time charges totaling $284,000, including
approximately $186,200 in expenses related to a class-action lawsuit, $58,800 in
moving expenses for the relocation of the Company's headquarters and warehouse,
and $39,400 of costs related to a terminated merger with Applied Digital
Solutions. The net loss for fiscal 1999 included one-time charges of $696,000
for the start-up and financing of Nexar(R), our PC manufacturing division, and
$3,000,000 of goodwill for prior acquisitions.
Shares outstanding and earning per share for 1996 have been restated to reflect
the increase in shares issued upon the conversion of preferred stock due to
market price changes. All earnings per share reflect our one-for-five reverse
stock split in November 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
We are a leading system integrator and provider of a full line of IT
service products, as well as a single source, "end-to-end" solution provider for
the computer needs of businesses, professionals, government agencies and
educational institutions.
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RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Revenues for the fiscal year ended June 30, 2000 ("fiscal 2000")
decreased to $71.9 million from $107.4 million for the prior year, a decrease of
approximately 33%. This decrease is primarily attributable to our exit from the
low margin wholesale business. Our revenues are generated by sales of computer
hardware and software, and related support services. Gross profit for fiscal
2000 increased to $11.6 million from $11.1 million for 1999, a 5% increase due
to the higher margin revenues. Gross margin for fiscal 2000 improved to 16.1% as
compared to 10.3% for the prior year.
Fiscal 2000 operating expenses, exclusive of amortization of intangible
assets, decreased to $11.1 million as compared to $12.7 million for the prior
year.
Amortization of intangible assets decreased to $187,000 for the year
from $443,000 in the comparable 1999 period. In 1999 we incurred one-time
charges of $3,000,000 of goodwill for prior acquisitions. We also earned $63,000
of interest income and incurred $11,000 of interest expense in fiscal 2000 due
to our continued strong working capital position.
The provision for income taxes for 2000 was $102,000 as compared to a
benefit of $641,000 for 1999.
As a result of the above, we had net income of $297,000 for fiscal 2000
compared to net loss of $4,300,000 in fiscal 1999. For 2000, net income per
share was $.04 compared to a net loss of $.62 per share in the prior year. Basic
and diluted average shares outstanding were each approximately 7,200,000 for
fiscal 2000.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenues for the fiscal year ended June 30, 1999 ("fiscal 1999")
decreased to $107.4 million from $187.2 million for the prior year, a decrease
of approximately 43%. This decrease is primarily attributable to a significant
drop in sales in our distribution division and a major shift in the marketing
philosophy of large systems manufacturers who have decreased their distribution
network and increased direct selling to end-users and introduced built-to-order
systems, which resulted in less available product. Gross profit for fiscal 1999
decreased to $11.1 million from $13.7 million for 1998, a 19% decrease due to
the decreased revenues. Gross margin for fiscal 1999 was 10.3% as compared to
7.3% for the prior year.
Fiscal 1999 operating expenses, exclusive of amortization of intangible
assets, increased to $12.7 million as compared to $8.6 million for the prior
year. The 47% increase in operating expenses is related primarily to $2.5
million of additional salaries and expenses for the Y2K division, $700,000 of
start-up and financing costs related to the Nexar acquisition and additional
costs to develop e-commerce and hire additional personnel.
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Amortization of intangible assets increased to $443,000 for the year
from $308,000 in the comparable 1998 period, due to the Logix acquisition that
was consummated in April 1998. In addition, in 1999 we incurred one-time charges
of $3,000,000 of goodwill for prior acquisitions. We also earned $124,000 of
interest income and incurred $38,000 of interest expense in 1999 due to our
continued judicious use of working capital.
The provision for income taxes for 1999 was a benefit of $641,000 as
compared to an expense of $2,145,000 for 1998.
As a result of the above, the Company incurred a loss of $4,300,000 for
1999 compared to net income of $2,740,000 in 1998. For 1999, net loss per share
was $.62 compared to net income of $.43 per share in the prior year. Diluted net
loss per share, exclusive of the one-time charges for the impairment of goodwill
and the start-up costs (net of tax credits) for the Nexar division, amounted to
$.12. Basic and diluted average shares outstanding were 6,885,069 for 1999.
LIQUIDITY AND CAPITAL RESOURCES
The cash position was $101,000 at June 30, 2000, a decrease of
$2,146,000 as compared to June 30, 1999. Working capital at June 30, 2000, was
$9,342,000 as compared to working capital of $9,134,000 at June 30, 1999. The
major uses of cash resulted primarily from increases in inventory and
receivables ($2,617,000) and the purchase of treasury stock ($535,000). Cash
used for investing activities totaled $80,433. We believe that our resources are
adequate to meet our capital requirements over the next twelve months.
To accommodate our financial needs for inventory financing, we have
arranged lines of credit with two financial institutions in the aggregate amount
of $15,775,000. At June 30, 2000, our indebtedness to these institutions was
$2,174,000, or an increase of $239,000 compared to June 30, 1999. Substantially
all tangible and intangible assets are pledged as collateral for these
facilities.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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.
15
<PAGE>
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the names and ages of all current
directors and officers and the position held by them:
Name Age Position
---- --- --------
Surinder Rametra 60 Chairman of the Board and
Chief Executive Officer
Ashok Rametra 48 President, Secretary,
Treasurer and Director
James J. Charles 57 Chief Financial Officer and
Director
George Eagan 43 Director
David Reback 58 Director
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and qualified.
Surinder Rametra was appointed the Chief Executive Officer and Chairman
of the Board in June 1994. Prior to June 1994 Mr. Rametra was president of one
of our subsidiaries. Mr. Rametra received a Bachelor of Science Degree from the
Punjab Engineering College, India, and a Masters of Science Degree in
Engineering from the University of I.I.T., India in 1965 and 1969, respectively.
In 1976, Mr. Rametra received a Masters of Business Administration Degree in
Finance from New York University.
Ashok Rametra was appointed President in January 1999. Prior thereto he
was the Secretary, Treasurer, Chief Financial Officer and a Director since June
1994. From June 1994 to March 1995 Mr. Rametra also served as our president.
Prior to 1994, Mr. Rametra was the president of one of the Company's
subsidiaries. Mr. Rametra received a Bachelor of Science Degree from St. Johns
University in Accounting in 1980. Mr. Rametra is the brother of Surinder
Rametra.
17
<PAGE>
James J. Charles was appointed Chief Financial Officer in January 1999.
Prior to his appointment, he was a financial consultant to several public
companies (1994-1998), Chief Financial Officer of a printing company (1990-1994)
and a partner in the firm of Ernst & Young (1966-1990). He was appointed a
Director in September 2000.
George Eagan was appointed a Director in November 1997. Mr. Eagan
serves as president of Waterford Capital. Mr. Eagan has been in the financial
industry for the past twenty years working with both private and public
companies as a financial advisor. Mr. Eagan graduated with a Bachelor of Science
in Business Administration/Management from Alfred University and an MBA in
Finance from McGill University.
David C. Reback was appointed a Director in November 1997. Since 1969,
Mr. Reback has been a partner with Reback & Potash, LLP, a law firm specializing
in litigation, appellate matters and real estate. Mr. Reback received a BA from
Syracuse University, and in 1965 he received a law degree from Syracuse
University College of Law.
Based solely upon a review of Forms 3, 4 and 5 furnished during the
most recent fiscal year, it is believed, except as discussed below, that there
were no Section 16(a) reports filed untimely during the years ended June 30,
2000 and 1999.
Surinder Rametra, an executive officer of ATEC, failed to report on his
Form 4 in March of 1999, the sale of 62,761 shares by his spouse, which shares
Mr. Rametra disclaims beneficial ownership. Additionally, Mr. Rametra failed to
report on his Form 4 for the month of April 1999, the sale of 2,900 shares by
his spouse, which shares Mr. Rametra disclaims beneficial ownership, and his
purchase of 7,500 shares for the month of September, 1999. Ashok Rametra, an
executive officer of ATEC, failed to report on his Form 4 in April of 1999, the
sale of 2,700 shares, the purchase of 5,000 shares in May of 1999, and 15,000
shares in September of 1999. The failure of the reporting persons to report was
inadvertent and has been corrected on a subsequent Form 4.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Summary Compensation Table for the years ended June 30, 2000, 1999
and 1998 is provided herein. This table provides compensation information on
behalf of the existing officers and directors who earned in excess of $100,000.
There are no Option/SAR Grants, Aggregated Option/SAR Exercises or Fiscal
Year-End Option/SAR Value Table for the years ended June 30, 2000, 1999 and/or
1998. There are no long-term incentive plan ("LTIP") awards, or stock option or
stock appreciation rights except as discussed below.
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
ANNUAL COMPENSATION AWARDS PAYOUTS
<TABLE>
<CAPTION>
Year Compen- Options/ LTIP
Name Position Ended Salary($) Bonus($) sation($) SARs Payouts
---- -------- ----- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Surinder Rametra CEO 6/30/00 $200,000 12,731 (3) NONE NONE
6/30/99 $202,733 15,262 (5) NONE NONE
6/30/98 $170,020 14,430 (1) NONE NONE
Ashok Rametra President 6/30/00 $200,000 $25,000 12,779 (4) NONE NONE
6/30/99 $174,980 11,652 (6) NONE NONE
6/30/98 $170,000 14,077 (2) NONE NONE
</TABLE>
(1) Major Medical $6372, Leased Auto $8,058
(2) Major Medical $4,380, Leased Auto $9,697
(3) Major Medical $3,941, Leased Auto $8,790
(4) Major Medical $5,611, Leased Auto $7,168
(5) Major Medical $6,472, Leased auto $8,790
(6) Major Medical $4,484, Leased auto $7,168
19
<PAGE>
Year End Option Table. The following table sets forth certain
information regarding the stock options held as of June 30, 2000, by the
individuals named in the above Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money-Options
Fiscal Year End (#) at Fiscal Year End (3)
Shares Acquired Value ---------------------------- ----------------------------
Name on Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Surinder Rametra (1) 0 0 1,047,000 0 $19,800 0
Ashok Rametra (2) 0 0 345,000 0 $26,400 0
</TABLE>
(1) Represents options to acquire: (i) 7,000 shares at $3.44 per share
exercisable through August 8, 2007; (ii) 500,000 shares at $5.50 per share
exercisable through March 28, 2008; (iii) 250,000 shares at $4.67 per share
exercisable through September 27, 2008; (iv) 140,000 shares at $4.26 per
share exercisable through June 29, 2009; and (v) 150,000 shares at $1.993
per share exercisable through November 7, 2009.
(2) Represents options to acquire: (i) 10,000 shares at $3.44 per share
exercisable through August 8, 2007; (ii) 35,000 shares at 3.7125 per share
exercisable through October 8, 2008; (iii) 100,000 shares at $6.80 per
share exercisable through December 14, 2008; and (iv) 200,000 shares at
$1.993 per share exercisable through November 7, 2009.
(3) Computation based on $2.125, which was the June 30, 2000, closing price for
our common stock.
Option Grant Table. The following table sets forth certain information
regarding the stock options granted during the fiscal year ended June 30, 2000,
by us to the individuals named in the above Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options
Granted to
Employees in Exercise Price Expiration
Name Granted (#) Fiscal Year $ / Share Date
---- ----------- ----------- --------- ----
Surinder Rametra 150,000 2 % $1.993 2009
Ashok Rametra 200,000 3 % $1.993 2009
20
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 20, 2000, certain
information with respect to the beneficial ownership of the voting securities by
(i) any person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act known by ATEC to be the beneficial owner of more
than 5% of our voting securities, (ii) each director, (iii) each executive
officer named in the Summary Compensation table appearing herein, and (iv) all
executive officers and directors as a group. The table also sets forth the
respective general voting power of such persons taking into account the voting
power of our common stock and preferred stock combined.
Name and Address Amount and Nature
of Beneficial of Beneficial Percentage of
Owner Ownership of Voting Stock
Outstanding Common Stock Outstanding(1)
----------- ------------ --------------
Ashok Rametra (2) 1,261,242 12.4%
1762 Central Avenue
Albany, NY 12205
Surinder Rametra (3) 2,140,640 21%
69 Mall Drive
Commack, NY 11725
James Charles (4) 305,000 3%
69 Mall Drive
Commack, NY 11725
George Eagan (5) 21,000 **
C/O 69 Mall Drive
Commack, NY 11725
David Reback (6) 25,000 **
C/O 69 Mall Drive
Commack, NY 11725
All directors and (2)(3)(4)(5)(6) 3,752,882 37%
executive/officers as a group (5 persons)
----------------
** Less than 1%
21
<PAGE>
(1) Computed based upon a total of 7,347,689 shares of common stock, 8,371
shares of Series A preferred stock, 1,458 shares of Series B preferred
stock, 309,600 shares of Series C preferred stock and options to
acquire 2,533,000 shares of common stock. Each share of common stock
and preferred stock possesses one vote per share. Accordingly, the
foregoing represents an aggregate of 10,200,118 votes.
(2) The foregoing figure reflects the ownership of 229,146 shares of common
stock by Mr. Rametra and 387,096 common shares owned by Mr. Rametra's
spouse and children. The foregoing amount also assumes the exercise by
Mr. Rametra of options to acquire 645,000 shares of the common stock.
Mr. Rametra disclaims beneficial ownership of shares of ATEC securities
owned by other members of the Rametra family.
(3) The foregoing figure reflects the ownership of 382,640 shares of common
stock by Mr. Rametra and 200,000 shares by Mr. Rametra's spouse and
11,000 shares jointly. In addition, the foregoing assumes the exercise
by Mr. Rametra of options to acquire 1,547,000 shares of ATEC common
stock. Mr. Rametra disclaims beneficial ownership of the shares of ATEC
securities owned by other members of the Rametra family, including
independent children.
(4) The foregoing figure reflects ownership of 10,000 shares of common
stock by Mr. Charles. The foregoing amount also assumes the exercise by
Mr. Charles of options to acquire 295,000 shares of common stock.
(5) The foregoing figure reflects options for the purchase of 21,000 shares
of common stock.
(6) The foregoing figure reflects options for the purchase of 25,000 shares
of common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Albany facility is leased from a company controlled by Surinder and
Ashok Rametra, officers and directors of ATEC. Our lease with this company
requires annual rental payments of approximately $108,000 per year plus all
expenses and taxes attributable to the operation of the premises. The Company
has not been a party to any significant transactions in the last fiscal year.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following financial statements of ATEC Group, Inc., are included:
Independent Auditor's Report
Consolidated Balance Sheet as at June 30, 2000 and 1999
Consolidated Statements of Operations for the years ended June 30,
2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended June 30,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2000, 1999 and 1998
Notes to Financial Statements
(2) OTHER SCHEDULES
All other schedules are omitted since the required information is not
present or is not present in an amount sufficient to require submission of
schedules, or because the information required is included in the financial
statements and notes thereto.
(3) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
See Exhibit Index.
(d) Not Applicable.
23
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2000
I N D E X
---------
Page No.
--------
INDEPENDENT AUDITORS' REPORT ..................................... F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as at June 30, 2000 and 1999 ... F-2
Consolidated Statements of Operations
For the Years Ended June 30, 2000, 1999 and 1998 ........ F-3
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2000, 1999 and 1998 ........ F-4 - F-5
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 2000, 1999 and 1998 ........ F-6 - F-8
NOTES TO FINANCIAL STATEMENTS .................................... F-9 - F-23
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and have therefore been omitted or
the required information is shown in the Financial Statements or the Notes
thereto.
<PAGE>
[WSL LOGO OMITTED]
WEINICK
SANDERS
LEVENTHAL & CO., LLP
1515 Broadway
NEW YORK, N.Y. 10036-5788
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
212-869-3333
FAX 212-764-3080
WWW.WSLCO.COM
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
ATEC Group, Inc.
We have audited the accompanying consolidated balance sheets of ATEC Group, Inc.
and Subsidiaries as at June 30, 2000 and 1999, and the related consolidated
statements of operations, cash flows, and stockholders' equity for each of the
three years ended June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above pre-sent
fairly, in all material respects, the consolidated financial position of ATEC
Group, Inc. and Subsidiaries as at June 30, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years
ended June 30, 2000, in conformity with generally accepted accounting
principles.
s/s: WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
August 18, 2000, except for Note 13, as
to which the date is September 18, 2000
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
June 30,
------------------------------
2000 1999
------------ ------------
Current assets:
Cash $ 100,607 $ 2,246,951
Accounts receivable - net 10,037,462 8,666,500
Inventories 2,356,825 1,110,273
Deferred taxes 459,456 251,290
Other current assets 1,594,027 1,405,333
------------ ------------
Total current assets 14,548,377 13,680,347
Property and equipment - net 532,238 750,279
Goodwill - net 1,346,149 1,519,775
Other assets 63,753 54,594
------------ ------------
$ 16,490,517 $ 16,004,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Revolving lines of credit $ 2,173,776 $ 1,934,534
Accounts payable 2,518,721 1,709,763
Accrued expenses 283,360 669,738
Other current liabilities 230,489 232,768
------------ ------------
Total current liabilities 5,206,346 4,546,803
------------ ------------
Stockholders' equity:
Preferred stocks 310,582 321,090
Common stock 73,477 73,270
Additional paid-in capital 11,823,086 11,758,235
Discount on preferred stocks (278,640) (288,090)
Deficit (17,909) (314,862)
------------ ------------
11,910,596 11,549,643
Less: Treasury stock - at cost 626,425 91,451
------------ ------------
Total stockholders' equity 11,284,171 11,458,192
------------ ------------
$ 16,490,517 $ 16,004,995
============ ============
See accompanying notes to financial statements.
F-2
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended June 30,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 71,937,680 $ 107,435,617 $ 187,150,614
Cost of sales 60,353,009 96,317,894 173,485,484
------------- ------------- -------------
Gross profit 11,584,671 11,117,723 13,665,130
------------- ------------- -------------
Operating expenses:
Selling and administrative 10,824,623 12,679,751 8,439,618
Research and development 234,557 10,525 180,759
Amortization of goodwill 186,626 442,577 308,015
------------- ------------- -------------
Total operating expenses 11,245,806 13,132,853 8,928,392
------------- ------------- -------------
Income (loss) from operations 338,865 (2,015,130) 4,736,738
------------- ------------- -------------
Other income (expense):
Impairment of long-lived assets -- (2,999,075) --
Interest income 62,789 124,171 164,417
Interest expense (11,467) (37,630) (80,341)
Other income (expense) 8,291 (12,895) 64,286
------------- ------------- -------------
Total other income (expense) 59,613 (2,925,429) 148,362
------------- ------------- -------------
Income (loss) before income taxes 398,478 (4,940,559) 4,885,100
Provision for (benefit from) income taxes 101,525 (641,331) 2,145,034
------------- ------------- -------------
Net income (loss) $ 296,953 ($ 4,299,228) $ 2,740,066
============= ============= =============
Earnings (loss) per common share:
Basic $ .04 ($ .62) $ .45
============= ============= =============
Diluted $ .04 ($ .62) $ .43
============= ============= =============
Weighted average shares outstanding:
Basic 7,177,432 6,885,069 6,079,045
============= ============= =============
Diluted 7,221,927 6,885,069 6,338,151
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended June 30,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 296,953 ($4,299,228) $ 2,740,066
----------- ----------- -----------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 274,877 254,982 173,950
Amortization of goodwill 186,626 442,577 308,015
Settlements of accrued liabilities -- -- (70,000)
Loss on abandonment of leasehold improvements 1,438 -- --
Compensatory element of issuances of capital stock 5,250 24,000 142,500
Loss on impairment of long-lived assets -- 2,999,075 --
Provision for doubtful accounts 42,216 469,211 --
Deferred taxes (208,166) (214,041) --
Changes in assets and liabilities:
Accounts receivable (1,413,178) 8,498,921 (8,468,573)
Inventories (1,246,552) 680,422 (408,459)
Other current assets (188,694) (828,656) (135,208)
Other assets -- -- (42,159)
Revolving lines of credit 239,242 (5,064,178) 5,168,353
Accounts payable 808,958 (2,444,380) (293,452)
Accrued expenses (386,378) (496,332) 388,685
Income taxes payable -- (790,882) (238,134)
Other current liabilities (2,279) 175,711 (564,355)
----------- ----------- -----------
Total adjustments (1,886,640) 3,706,430 (4,038,837)
----------- ----------- -----------
Net cash used in operating activities (1,589,687) (592,798) (1,298,771)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (58,274) (437,235) (293,034)
Security deposits (9,159) 18,818 --
Addition to goodwill (13,000) (792,804) --
----------- ----------- -----------
Net cash used in investing activities (80,433) (1,211,221) (293,034)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of capital stock 58,750 2,700,482 1,682,033
Purchase of treasury stock (534,974) (91,451) --
Repayments to related parties -- (2,967) (125,000)
Bank overdraft -- (339,944) (193,927)
----------- ----------- -----------
Net cash provided by (used in) financing activities (476,224) 2,266,120 1,363,106
----------- ----------- -----------
Net increase (decrease) in cash (2,146,344) 462,101 (228,699)
Cash at beginning of year 2,246,951 1,784,850 2,013,549
----------- ----------- -----------
Cash at end of year $ 100,607 $ 2,246,951 $ 1,784,850
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended June 30,
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year:
Income taxes $ 50,170 $1,466,801 $2,422,543
========== ========== ==========
Interest $ 11,467 $ 37,630 $ 83,182
========== ========== ==========
Supplemental Schedules of NonCash
Operating and Financing Transactions:
Issuance of common stock for services $ 5,250 $ 24,000 $ 142,500
========== ========== ==========
Issuance of shares of common in
connection with the acquisition of
90% of the outstanding shares of
capital stock of Logix, resulting in
the recording of goodwill $ -- $ -- $ 907,748
========== ========== ==========
Retirement of treasury shares $ -- $ -- $ 654,851
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Discount on
---------------------- ------------------------ Paid-In Preferred
Shares Amount Shares Amount Capital Stocks
------- ----------- --------- ----------- ----------- -----------
(1) (1) (1)
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1997 380,579 $ 353,057 5,965,652 $ 59,657 $ 7,092,939 ($ 315,000)
Shares issued to stockholders
of ACS -- -- 100,701 1,007 (1,007) --
Shares issued to stockholders
of CONY -- -- 94,930 949 (949) --
Shares issued in accordance with
employment agreement -- -- 11,130 111 79,889 --
Shares issued for the conversion
of Preferred Series C (6,550) (6,550) 131 1 654 5,895
Shares issued for options
exercised -- -- 68,000 680 291,820 --
Sale of common stock -- -- 327,720 3,277 1,386,256 --
Shares issued for the acquisition
of Logix Solutions, Inc. -- -- 252,000 2,520 777,168 --
Retirement of treasury shares -- -- (144,600) (1,446) (653,405) --
Shares issued for services -- -- 25,000 250 62,250 --
Net income for the year -- -- -- -- -- --
------- ----------- --------- ----------- ----------- -----------
Balance at June 30, 1998 374,029 $ 346,507 6,700,664 $ 67,006 $ 9,035,615 ($ 309,105)
------- ----------- --------- ----------- ----------- -----------
Retained Treasury Stock Total
Earnings ----------------------- Stockholders'
(Deficit) Shares Amount Equity
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at July 1, 1997 $ 1,244,300 (144,600) ($ 654,851) $ 7,780,102
Shares issued to stockholders
of ACS -- -- -- --
Shares issued to stockholders
of CONY -- -- -- --
Shares issued in accordance with
employment agreement -- -- -- 80,000
Shares issued for the conversion
of Preferred Series C -- -- -- --
Shares issued for options
exercised -- -- -- 292,500
Sale of common stock -- -- -- 1,389,533
Shares issued for the acquisition
of Logix Solutions, Inc. -- -- -- 779,688
Retirement of treasury shares -- 144,600 654,851 --
Shares issued for services -- -- -- 62,500
Net income for the year 2,740,066 -- -- 2,740,066
----------- -------- ----------- -----------
Balance at June 30, 1998 $ 3,984,366 -- $ -- $13,124,389
----------- -------- ----------- -----------
</TABLE>
(l) Adjusted to reflect a one for five reverse stock split on November 18, 1997.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Discount on
---------------------- ----------------------- Paid-In Preferred
Shares Amount Shares Amount Capital Stocks
------- ------------ --------- ---------- ----------- -----------
(1) (1) (1)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998
(carried forward) 374,029 $ 346,507 6,700,664 $ 67,006 $ 9,035,615 ($ 309,105)
Purchase of treasury stock -- -- -- -- -- --
Shares issued for warrants
exercised -- -- 206,943 2,070 679,227 --
Shares issued for options
exercised -- -- 405,058 4,051 2,015,134 --
Shares issued in accordance
with employment agreement -- -- 9,697 97 23,903 --
Shares issued for conversion
of Preferred Series A and C (44,020) (25,417) 4,601 46 4,356 21,015
Net loss for the year -- -- -- -- -- --
------- ------------ --------- ---------- ----------- -----------
Balance at June 30, 1999 330,009 $ 321,090 7,326,963 $ 73,270 $11,758,235 ($ 288,090)
======= ============ ========= ========== =========== ============
Retained Treasury Stock Total
Earnings ---------------------- Stockholders'
(Deficit) Shares Amount Equity
----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1998
(carried forward) $ 3,984,366 -- $ -- $ 13,124,389
Purchase of treasury stock -- (18,000) (91,451) (91,451)
Shares issued for warrants
exercised -- -- -- 681,297
Shares issued for options
exercised -- -- -- 2,019,185
Shares issued in accordance
with employment agreement -- -- -- 24,000
Shares issued for conversion
of Preferred Series A and C -- -- -- --
Net loss for the year (4,299,228) -- -- (4,299,228)
----------- -------- ---------- ------------
Balance at June 30, 1999 ($ 314,862) (18,000) ($ 91,451) $ 11,458,192
=========== ======== ========== ============
</TABLE>
(l) Adjusted to reflect a one for five reverse stock split on November 18, 1997.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Discount on
---------------------- ----------------------- Paid-In Preferred
Shares Amount Shares Amount Capital Stocks
------- ------------ --------- ---------- ----------- -----------
(1) (1) (1)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999
(carried forward) 330,009 $ 321,090 7,326,963 $ 73,270 $ 11,758,235 ($ 288,090)
Purchase of treasury stock -- -- -- -- -- --
Shares issued for services -- -- 2,500 25 5,225 --
Shares issued for options
exercised -- -- 18,000 180 58,570 --
Shares issued for conversion
of Preferred Series A and C (10,580) (10,508) 226 2 1,056 9,450
Net income for the year -- -- -- -- -- --
------- ------------ --------- ---------- ----------- -----------
Balance at June 30, 2000 319,429 $ 310,582 7,347,689 $ 73,477 $ 11,823,086 ($ 278,640)
======= ============ ========= ========== =========== ===========
Retained Treasury Stock Total
Earnings ---------------------- Stockholders'
(Deficit) Shares Amount Equity
----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999
(carried forward) ($ 314,862) (18,000) ($ 91,451) $ 11,458,192
Purchase of treasury stock -- (239,945) (534,974) (534,974)
Shares issued for services -- -- -- 5,250
Shares issued for options
exercised -- -- -- 58,750
Shares issued for conversion
of Preferred Series A and C -- -- -- --
Net income for the year 296,953 -- -- 296,953
----------- -------- ---------- ------------
Balance at June 30, 2000 ($ 17,909) (257,945) ($ 626,425) $ 11,284,171
=========== ======== ========== ============
</TABLE>
(l) Adjusted to reflect a one for five reverse stock split on November 18, 1997.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ATEC GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000, 1999, AND 1998
NOTE 1 - GENERAL AND ACCOUNTING POLICIES:
(a) Organization and Presentation of Financial Statements:
ATEC Group, Inc. (the "Company" or "ATEC") was
incorporated under the laws of the State of Delaware on July
17, 1992. The accompanying consolidated financial statements
include the accounts of ATEC Group, Inc. and all of its wholly
owned subsidiaries and a 90% owned subsidiary. All significant
intercompany transactions and balances have been eliminated.
(b) Principal Business Activity:
The Company is an "end to end" provider of a full
line of computer and information technology products and
services to business, professionals, government agencies and
educational institutions. The Company focuses on system
design, high-speed data transmission, LAN/WAN, video
conferencing, internet/intranet technology, digital arts
solutions, PC manufacturing, E-commerce and internet access
services for its customers.
(c) Summary of Significant Accounting Policies:
(1) Inventories:
Inventories are stated at the lower of cost or
market using the first-in, first-out method. Inventories
consist of microcomputer hardware, software and related
peripherals, accessories and finished products.
(2) Property and Equipment:
Property and equipment are carried at cost less
accumulated depreciation. When assets are sold or retired, the
cost and related accumulated depreciation is eliminated from
the accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and
replacements which substantially extend the lives of the
assets are capitalized.
Depreciation is computed on either straight-line or
accelerated methods over useful lives ranging from 5 to 10
years. Leasehold improvements are amortized over the shorter
of the useful life of the improvement or the life of the
related lease.
F-9
<PAGE>
NOTE 1 - GENERAL AND ACCOUNTING POLICIES. (Continued)
(c) Summary of Significant Accounting Policies. (Continued)
(3) Goodwill:
The Company amortizes goodwill over its estimated
period of benefit, ranging from five to fifteen years. The
goodwill is periodically reviewed to evaluate the future
economic benefits and/or potential impairments which may
effect recorded values.
(4) Revenue Recognition:
The Company recognizes revenue at the time products
are shipped to its customers, or when sales are made on a
"cash and carry" basis.
(5) Research and Development Costs:
Research and development costs are charged to
expense as incurred.
(6) Income Taxes:
The Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes"
which utilizes a balance sheet approach for financial
accounting and reporting of income taxes, and requires that
deferred tax assets and liabilities be established at income
tax rates expected to apply to taxable income in periods in
which the deferred tax asset or liability is expected to be
settled or realized.
(7) Concentrations of Credit Risk:
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist
principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial
institutions which at times, may be in excess of the FDIC
insurance limit.
Concentrations of credit risk with respect to trade
accounts receivable are generally limited due to the large
number of customers comprising the Company's customer base. A
substantial portion of the Company's revenue is derived from
customers located in the northeastern region of the United
States. An economic downturn in the geographic region could
have an adverse effect on the Company's operations. Management
continually reviews its trade receivables credit risk and has
adequately allowed for potential losses.
(8) Use of Estimates:
The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-10
<PAGE>
NOTE 1 - GENERAL AND ACCOUNTING POLICIES. (Continued)
(c) Summary of Significant Accounting Policies. (Continued)
(9) Asset Impairment:
The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This statement requires that the Company recognize an
impairment loss in the event that facts and circumstances
indicate that the carrying amount of an asset may not be
recoverable, and an estimate of future undiscounted cash flows
is less than the carrying amount of the asset. Property and
equipment is evaluated separately within each subsidiary. The
recoverability of goodwill is evaluated on a separate basis
for each acquisition. At June 30, 1999, based on an evaluation
of its goodwill, the Company determined that $2,999,075 of
goodwill, net of accumulated amortization, associated with two
of the Company's prior acquisitions was impaired.
(10) Earnings Per Share:
The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic
earnings per share is based on the weighted average of all
common shares issued and outstanding, and is calculated by
dividing net income available to common stockholders by the
weighted average shares outstanding during the period. Diluted
earnings per share is calculated by dividing net income
available to common stockholders by the weighted average
number of common shares used in the basic earnings per share
calculation plus the number of common shares that would be
issued assuming conversion of all potentially dilutive
securities outstanding. For the year ended June 30, 1999,
diluted earnings per share is not presented as it is
anti-dilutive. All historical earnings per share data have
been restated to conform to this presentation. Below is the
calculation of basic and diluted earnings per share for each
of the past three fiscal years:
For the Years Ended June 30,
----------------------------------------
2000 1999 1998
----------- ----------- -----------
Net income (loss) available to
common stockholders $ 296,953 ($4,299,228) $ 2,740,066
=========== =========== ===========
Weighted average shares
outstanding - basic 7,177,432 6,885,069 6,079,045
Employee stock options 18,392 -- 95,706
Acquisition options 17,945 -- 93,776
Warrants -- -- 56,486
Convertible preferred stock 8,158 -- 13,138
----------- ----------- -----------
Weighted average shares
outstanding - diluted 7,221,927 6,885,069 6,338,151
=========== =========== ===========
Earnings (loss) per common share:
Basic $ .04 ($ .62) $ .45
=========== =========== ===========
Diluted $ .04 ($ .62) $ .43
=========== =========== ===========
F-11
<PAGE>
NOTE 2 - ACQUISITIONS.
(a) Global Trading & Leasing Corporation:
On November 19, 1997, the Company acquired 100% of
the issued and outstanding capital stock of Global Trading &
Leasing Corporation ("Global"), a New York corporation, for
$29,751 in cash. The purchase of Global resulted in additional
goodwill of $12,186.
(b) Logix Solutions, Inc.:
On April 7, 1998, the Company, pursuant to the terms
of a stock purchase agreement, acquired 90% of the issued and
outstanding capital stock of Logix Solutions, Inc. ("Logix"),
a Colorado corporation, which provides solutions to the Y2K
problem. In consideration for the shares acquired, the Company
issued the following securities:
1. 252,000 shares of common stock;
2. Options to purchase up to 548,700 shares of common
stock exerciseable at a price of $4.74 per share,
expiring on October 10, 1999;
3. Options to purchase up to 176,000 shares of common
stock exerciseable at a price of $7.50 per share,
expiring on October 10, 1999;
4. Options to purchase up to 252,000 shares of common
stock exercisable at a price of $10 per share,
expiring on December 31, 2000;
5. $400,000 in cash.
The acquisition was accounted for as a purchase and
resulted in goodwill of $1,307,748. The remaining unamortized
goodwill of approximately $1,140,000 was reserved due to
impairment in fiscal 1999.
(c) Nexar Technologies, Inc.:
On January 15, 1999 the Company purchased the
trademarks and patents of Nexar Technologies, Inc. resulting
in goodwill of $405,805. In May 1999, the Company registered
the trademark for the "Nexar" brand name.
F-12
<PAGE>
NOTE 3 - EQUITY SECURITIES.
(a) Reverse Stock Split:
On November 18, 1997, the Company's shareholders
approved a reverse split of the Company's $.01 par value
common stock, resulting in the exchange of one share of common
stock for each five shares then outstanding. All share and per
share information included in these consolidated financial
statements have been adjusted to reflect this reverse split
retroactively to the beginning of all periods presented.
(b) Capital Stock:
The Company's authorized and issued capital stock at
June 30, 2000 and 1999 consists of the following:
Shares Issued
Shares or
Authorized Outstanding Amount
---------- ----------- ----------
June 30, 2000:
--------------
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
--------- ----------
Total preferred 319,429 $ 310,582
========= ==========
Common stock 70,000,000 7,347,689 $ 73,477
========= ==========
June 30, 1999:
--------------
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
========= ==========
(c) Treasury Stock:
From time to time, the Board of Directors authorizes
a common stock buy-back program. During the years ended June
30, 2000 and 1999, the Company purchased 239,945 and 18,000
shares of the Company's common stock at a cost of $534,974 and
$91,451, respectively.
F-13
<PAGE>
NOTE 3 - EQUITY SECURITIES. (Continued)
(d) Preferred Stock:
At June 30, 2000 and 1999, ATEC had three authorized
series of preferred stock; Series A Cumulative Convertible
(par value $.10), Series B Convertible (par value $.10) and
Series C Convertible (par value $1) (hereinafter referred to
as the "A", "B" and "C" Shares, respectively). The authorized
and issued shares for each of the Series at June 30, 2000 and
1999 are described in detail in Note 3(b) above.
Each of the A, B and C shares has the right to one
vote on all matters in which shareholders are entitled to
vote. The A, B and C shares may be converted into shares of
common stock at an exchange rate of five, five and fifty
shares, respectively, for each share of common stock or
approximately 8,200 shares. Each of the A, B and C shares
carry dissolution rights amounting to $100, $10 and $5 per
share, respectively. The A shares grant the Company the right
to redeem such shares at a price of $100 per share.
The A shares have an annual dividend rate of 10% of
the par value, which is cumulative. They are senior to all
other series or classes of capital stock. At June 30, 2000,
the A shareholders were due $1,334 in dividends in arrears.
The B shares have a non-cumulative stated annual dividend rate
of $1 each and are senior to all but the rights of the A
shareholders. The C shares have no dividend rights, except as
may be authorized at the sole discretion of the Company's
Board of Directors.
(e) Warrants:
At June 30, 2000, ATEC had outstanding warrants
entitling the holders to purchase common stock as follows:
Number of Exercise Expiration
Shares Price Date
--------- -------- ----------
253 15.00 May 14, 2001
18,000 3.75 July 22, 2002
60,000 3.75 July 22, 2002
The warrants are not valued in the financial
statements as the amounts are immaterial.
F-14
<PAGE>
NOTE 3 - EQUITY SECURITIES.(Continued)
(f) Options:
At June 30, 2000, there were 2,527,614 options to
acquire shares of ATEC's common stock outstanding, comprised
of both qualified and non-qualified options as those terms are
defined by Internal Revenue Codes.
The following table summarizes the activity relating
to the option grants:
<TABLE>
<CAPTION>
For the Years Ended June 30,
-------------------------------------------------------------------------------
2000 1999 1998
---------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,602,072 $5.26 6,786,630 $7.68 160,000 $3.75
Granted 789,500 2.26 826,500 4.40 6,694,630 7.73
Exercised (18,000) 3.26 (405,058) 4.99 (68,000) 4.30
Expired (765,700) 5.30 (70,000) 4.71 -- --
Cancelled (80,258) 3.46 (4,536,000) 8.75 -- --
--------- --------- ---------
Outstanding at
end of year 2,527,614 $4.39 2,602,072 $5.26 6,786,630 $7.67
========= ===== ========= ===== ========= =====
Exercisable at
end of year 1,604,114 $5.44 1,875,572 $5.73 3,568,000 $6.63
========= ===== ========= ===== ========= =====
</TABLE>
The following table summarizes information
concerning currently outstanding and exercisable stock
options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at Contractual Exercise at Exercise
Exercise Prices June 30, 2000 Life Price June 30, 2000 Price
--------------- ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$1.875 - $10.00 2,527,614 7.54 $4.39 1,604,114 $5.44
</TABLE>
F-15
<PAGE>
NOTE 4 - ACCOUNTING FOR STOCK - BASED COMPENSATION.
In accordance with Statement of Financial Accounting
Standard No. 123, the following information is provided. The
weighted average fair value of all stock options at date of
grant was $3.19, $3.22 and $1.99 per option for options
granted during the years ended June 30, 2000, 1999 and 1998,
respectively. Additionally, the weighted average fair value of
employee stock options granted in the years ended June 30,
2000, 1999 and 1998 was $1.93, $2.01 and $.40, per option,
respectively. The weighted average fair value of options was
determined based on the Black-Scholes model, utilizing the
following weighted average assumptions:
<TABLE>
<CAPTION>
For the Years Ended June 30,
-------------------------------------------
2000 1999 1998
---------- -------- -----------------
<S> <C> <C> <C>
Expected term:
All stock options 2-10 years 10 years 6 months-10 years
Employee stock options 10 years 10 years 10 years
Interest rate 5.00% 5.00% 5.00%
Volatility 93.27% 78.40% 78.40%
Dividends None None None
</TABLE>
Had Atec accounted for its stock options by
recording compensation expense based on the fair value at the
grant date on a straight-line basis over the vesting period,
stock-based compensation costs would have reduced pre-tax
income by $986,845 ($735,200 net of taxes), $2,044,716
($1,318,533 net of taxes), and $3,922,560 ($2,200,556 net of
taxes) for the years ended June 30, 2000, 1999 and 1998,
respectively. The pro forma effect on diluted earnings per
common share would have been a reduction of $.10, $.19 and
$.36 for the years ended June 30, 2000, 1999 and 1998,
respectively. The pro forma effect on basic earnings per
common share would have been a reduction of $.10, $.19 and
$.35 for the years ended June 30, 2000, 1999 and 1998,
respectively.
NOTE 5 - OPERATING LEASES.
Atec conducts its operations under various
noncancellable operating leases expiring at various dates
through 2005. Future minimum rent payments, net of annual
sublease rental income of $120,000 are as follows:
For the Year Ending
June 30,
-------------------
2001 $ 314,268
2002 299,514
2003 219,769
2004 151,120
2005 143,395
----------
Total minimum
annual rental $1,128,066
==========
Total rent expense for the years ended June 30,
2000, 1999 and 1998 amounted to $460,084, $404,350 and
$305,554, respectively.
F-16
<PAGE>
NOTE 6 - REVOLVING LINES OF CREDIT.
At June 30, 2000, ATEC and its subsidiaries have
agreements with two financial institutions, whereby certain
inventory purchases are financed. The first line grants the
Company terms and charges no interest for 40 days and
thereafter at rates ranging from prime plus 1/4% to 6-1/2% per
annum. Borrowings under this line may be up to $15,000,000.
The line is collateralized by all the assets of the Company.
At June 30, 2000 and 1999, the borrowings under this line
amounted to $2,087,375 and $1,933,883. The second line grants
the Company terms and charges interest at the prime rate.
Borrowings under this line may be up to $775,000. This line is
collateralized by the inventory. At June 30, 2000 and 1999,
the borrowings under this line amounted to $6,401 and $651.
NOTE 7 - LITIGATION.
A third party lawsuit was commenced against the
Company's predecessor ("Hillside Bedding") in 1993 by Mid
Hudson Clarklift ("MH") as a result of a claim against them by
a former employee of the Company who sustained an injury while
operating a forklift maintained by MH. The lawsuit consists of
four alternative causes of action each for $5,000,000 and one
cause of action by the former employee's wife for $2,000,000.
MH is seeking judgement for all or part of any verdict or
judgement which may be obtained against them. The lawsuit is
in the discovery stages.
Two actions were commenced against the Company
alleging breach of contract seeking damages of approximately
$1,680,000. The lawsuits are in the preliminary discovery
stage. In management's opinion the lawsuits have no merit.
On August 23, 1999, a class action lawsuit was filed
on behalf of all persons who purchased the Company's common
stock from October 12, 1998 through May 19, 1999, inclusive.
The complaint charges Atec 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.
In September 1999, ATEC filed a complaint against
several former employees and stockholders alleging that
defendants engaged in short sales of the Company's stock in
violation of an option agreement. The defendants have filed a
counterclaim in excess of $9 million for various alleged
causes of action. The complaint and the counterclaim are both
in the discovery stages. Management believes the counterclaim
has no merit and Atec will vigorously defend itself.
F-17
<PAGE>
NOTE 8 - INCOME TAXES.
The Company's income tax provision consists of the
following:
<TABLE>
<CAPTION>
2000 1999 1998
--------- -------- ----------
<S> <C> <C> <C>
Current tax provision (benefit):
Federal $ 188,675 ($362,696) $1,651,331
State 121,016 (64,594) 493,703
--------- -------- ----------
309,691 (427,290) 2,145,034
Deferred tax provision (benefit)
relating to temporary differences (208,166) (214,041) --
--------- -------- ----------
Income tax provision (benefit) $ 101,525 ($641,331) $2,145,034
========= ======== ==========
</TABLE>
A reconciliation of the above effective tax rate to
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------- -------------------- -------------------
% % %
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory 34.0 $ 135,483 (34.0) ($1,679,790) 34.0 $ 1,660,934
State income tax
and NOLs, net of
federal tax benefit (14.0) (56,023) (1.6) (78,608) 6.8 333,667
Effect of nondeduct-
ability of:
Amortization and
impairment
of goodwill 13.6 54,089 23.7 1,170,163 2.1 104,725
Tax expense and loss
limitations 13.9 55,472 (.2) (8,257) (.1) (9,738)
Effect of net operating
loss carryforward (18.2) (72,519) -- -- -- --
Other (3.8) (14,977) (.8) (44,839) 1.1 55,456
---- --------- ---- ---------- ---- -----------
25.5 $ 101,525 (12.9) ($ 641,331) 43.9 $ 2,145,044
==== ========= ==== ========== ==== ===========
</TABLE>
The Company's deferred tax assets amounted to
$459,456 and $251,290 at June 30, 2000 and 1999, which
resulted from the temporary differences relating to the
allowance for doubtful accounts and NOL carryforwards.
F-18
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS.
In the normal course of business the Company
periodically borrows funds from stockholder/officers and pays
interest on those loans at rates which are comparable to those
which could be obtained from third parties. Interest charged
to operations on such loans for the years ended June 30, 2000,
1999 and 1998 amounted to $-0-, $-0- and $13,542,
respectively.
The Company has an operating lease for space at its
Albany, N.Y. location with a partnership which is controlled
by the Company's CEO and its President. The lease runs through
June 30, 2003 at a minimum annual rent of $108,192, plus
applicable expenses and taxes.
The Company also periodically enters into
transactions with entities which are owned or controlled by
officers of the Company. Such transactions are in the normal
course of business and are on terms at least as favorable as
those which could be obtained from third parties. All such
transactions were immaterial in the aggregate, when compared
to the results of operations taken as a whole, for all periods
presented.
NOTE 10 - OTHER FINANCIAL INFORMATION.
(a) Accounts receivable - Net:
Accounts receivable, net at June 30, 2000 and 1999
consists of the following:
2000 1999
----------- ----------
Accounts receivable $10,634,689 $9,221,511
Allowance for doubtful
accounts, returns and
discounts (597,227) (555,011)
----------- ----------
$10,037,462 $8,666,500
=========== ==========
For the years ended June 30, 2000, 1999 and 1998,
($14,783), $897,356 and $21,000, respectively, was recovered
or charged to bad debt expense.
F-19
<PAGE>
NOTE 10 - OTHER FINANCIAL INFORMATION. (Continued)
(b) Other Current Assets:
Other current assets consist of the following at
June 30, 2000 and 1999:
2000 1999
---------- ----------
Receivables from suppliers $ 505,594 $ 118,009
Prepaid expenses 134,167 92,352
Prepaid and refundable
income taxes 639,077 1,007,422
Sundry loans 315,189 187,550
---------- ----------
$1,594,027 $1,405,333
========== ==========
(c) Goodwill - Net:
Goodwill, net at June 30, 2000 and 1999 consists of
the following:
2000 1999
---------- ----------
Goodwill, net of impairment
of $2,999,075 $2,728,498 $2,715,498
Accumulated amortization 1,382,349 1,195,723
---------- ----------
$1,346,149 $1,519,775
========== ==========
Amortization charged to operations for the years
ended June 30, 2000, 1999 and 1998 amounted to $186,626,
$442,577 and $308,015, respectively.
(d) Property and Equipment:
Property and equipment are carried at cost and
consist of the following at June 30, 2000 and 1999:
2000 1999
---------- ----------
Leasehold improvements $ 470,905 $ 478,439
Furniture and fixtures 234,855 226,573
Office equipment 873,276 847,084
Automobiles 110,598 110,598
---------- ----------
1,689,634 1,662,694
Less: Accumulated depreciation
and amortization 1,157,396 912,415
---------- ----------
$ 532,238 $ 750,279
========== ==========
Depreciation and amortization charged to operations
for the years ended June 30, 2000, 1999 and 1998 amounted to
$274,877, $254,982 and $173,950, respectively.
F-20
<PAGE>
NOTE 10 - OTHER FINANCIAL INFORMATION. (Continued)
(e) Other Current Liabilities:
Other current liabilities consist of the following
at June 30, 2000 and 1999:
2000 1999
-------- --------
Payroll taxes payable $ 53,192 $153,658
Sales tax payable 84,428 72,919
Security deposit payable -- 3,151
Customers with credit balances 92,489 3,040
-------- --------
$230,109 $232,768
======== ========
(f) Transactions with Major Customers and Suppliers:
In each of the three years ended June 30, 2000, the
Company did not have sales to any one customer which
represented 10% or more of the Company's net sales during a
fiscal year.
During the year ended June 30, 2000, three suppliers
accounted for 55% of the Company's purchases. During the years
ended June 30, 1999 and 1998, four and two suppliers accounted
for 65% and 50% of the Company's purchases, respectively.
(g) Deferred Compensation Plan:
The Company has 401(k) deferred compensation plans
to which the Company may make discretionary contributions. The
Company made contributions to these plans amounting to
approximately, $-0-, $47,000, and $30,000 for the years ended
June 30, 2000, 1999 and 1998, respectively.
NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board
periodically issues new accounting standards in a continuing
effort to improve the quality of financial information and to
promote uniformity in its presentation. Management has
reviewed all such pronouncements made in the last fiscal year
and concluded that none have a material impact on the
Company's presentation of its financial position, results of
operations and cash flows.
F-21
<PAGE>
NOTE 12 - 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.
<TABLE>
<CAPTION>
For the Years Ended
June 30,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales:
TIS $ 32,579,527 $ 42,218,303 $ 54,792,660
B to B 35,311,719 65,134,311 133,287,410
Software 2,330,065 2,539,703 590,380
Manufacturing 2,005,201 869,958 --
Elimination of
intersegment revenues (288,832) (3,326,658) (1,519,836)
------------- ------------- -------------
$ 71,937,680 $ 107,435,617 $ 187,150,614
============= ============= =============
Net income (loss):
TIS ($ 1,011,907) ($ 1,202,830) $ 924,932
B to B 1,316,876 (1,537,103) 1,972,071
Software 337,216 (388,202) (45,292)
Manufacturing (207,959) (192,275) --
Corporate (137,273) (978,818) (111,645)
------------- ------------- -------------
$ 296,953 ($ 4,299,228) $ 2,740,066
============= ============= =============
Depreciation:
TIS $ 166,388 $ 128,624 $ 112,616
B to B 32,506 53,233 56,487
Software 21,350 35,106 4,581
Manufacturing 5,545 3,368 --
Corporate 49,088 34,651 266
------------- ------------- -------------
$ 274,877 $ 254,982 $ 173,950
============= ============= =============
Capital additions:
TIS $ 52,150 $ 253,807 $ 181,628
B to B 6,124 41,832 63,393
Software -- 400,000 48,013
Manufacturing 13,000 392,804 --
Corporate -- 141,596 --
------------- ------------- -------------
$ 71,274 $ 1,230,039 $ 293,034
============= ============= =============
Identifiable assets:
TIS $ 7,091,035 $ 7,205,285 $ 9,032,784
B to B 6,566,091 4,202,432 14,620,357
Software 112,461 1,153,567 810,850
Manufacturing 1,947,502 563,082 --
Corporate 773,428 2,880,629 1,847,795
------------- ------------- -------------
$ 16,490,517 $ 16,004,995 $ 26,311,786
============= ============= =============
</TABLE>
During the years ended June 30, 2000, 1999, and
1998, one customer accounted for 81.6%, 27.6% and 24.9%,
respectively of the software segment.
During the years ended June 30, 2000, 1999, and
1998, one customer accounted for 30.5%, 13.5% and -0-%,
respectively of the manufacturing segment.
F-22
<PAGE>
NOTE 13 - SUBSEQUENT EVENTS.
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 to certain employees and
directors as recommended by the compensation committee.
Additionally, on September 18, 2000, the Board of Directors
approved a resolution for the issuance of 1,400,000 options
with an exercise price $2.00 per share to certain officers and
employees of the Company.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ JAMES J. CHARLES
--------------------------------------
James J. Charles, Chief Financial Officer
and Director
Dated: September 28, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ SURINDER RAMETRA September 28, 2000
-----------------------------------------------------
Surinder Rametra, Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
/s/ ASHOK RAMETRA September 28, 2000
-----------------------------------------------------
Ashok Rametra, President, Secretary, Treasurer and
Director
/s/ GEORGE EAGAN September 28, 2000
--------------------------
George Eagan, Director
/s/ DAVID REBACK September 28, 2000
--------------------------
David Reback, Director
24
<PAGE>
EXHIBITS
NUMBER DESCRIPTION
21.1 List of Subsidiaries
27.1 Financial Data Schedule
25
