SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from_____ to _____
Commission File Number 0-22710
ATEC GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3673965
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(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
69 Mall Drive, Commack, New York 11725
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 543-2800
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of the close of business on December 31, 2000, there were 7,347,689 shares of
the Registrant's Common Stock outstanding.
ATEC GROUP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements................................. 1-9
Item 2 - Managements Discussion & Analysis of Financial
Condition and Results of Operations.................. 9-10
Item 3 - Quantitive and Qualitative Disclosures about
Market Research...................................... 11-12
PART II OTHER INFORMATION REQUIRED IN REPORT
Item 1 - Legal Proceedings.................................... 13
Item 2 - Changes in Securities and use of Proceeds............ 13
Item 3 - Defaults Upon Senior Securities...................... 13
Item 4 - Submission of Matters to a Vote of Security Holders.. 13
Item 5 - Other Information.................................... 13
Item 6 - Exhibits and Report on Form 8k....................... 13
Signature Page................................................ 14
i
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
30-Dec-00 30-Jun-00
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 515,309 $ 100,607
Accounts receivable, net 7,023,901 10,037,462
Inventories 2,731,307 2,356,825
Deferred taxes 934,456 459,456
Other current assets 1,218,322 1,594,027
------------ ------------
Total current assets 12,423,295 14,548,377
------------ ------------
PROPERTY AND EQUIPMENT, NET 471,014 532,238
GOODWILL, NET 1,255,069 1,346,149
OTHER ASSETS 102,714 63,753
------------ ------------
$ 14,252,092 $ 16,490,517
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving inventory line of credit $ 1,133,652 $ 2,173,776
Accounts payable 1,676,071 2,518,721
Accrued expenses 590,312 283,360
Other current liabilities 195,001 230,489
------------ ------------
Total liabilities 3,595,036 5,206,346
STOCKHOLDERS' EQUITY
Preferred stocks 310,582 310,582
Common stock 73,477 73,477
Additional paid-in capital 11,872,174 11,823,086
Discount on preferred stock (278,640) (278,640)
Retained earnings (deficit) (694,112) (17,909)
Treasury stock at cost (626,425) (626,425)
------------ ------------
Total stockholders' equity 10,657,056 11,284,171
------------ ------------
$ 14,252,092 $ 16,490,517
============ ============
1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31
2000 1999
------------ ------------
NET SALES $ 13,435,283 $ 17,531,550
COST OF SALES 11,631,337 14,443,169
------------ ------------
GROSS PROFIT 1,803,946 3,088,381
------------ ------------
OPERATING EXPENSES
Selling and administrative 2,526,986 2,861,726
Amortization of goodwill 45,540 22,500
------------ ------------
Total operating expenses 2,572,526 2,884,226
------------ ------------
INCOME FROM OPERATIONS (768,580) 204,155
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 12,814 23,296
Interest expense (1,399)
------------ ------------
Total other (expense) income 11,415 23,296
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (757,165) 227,451
PROVISION [BENEFIT] FOR INCOME TAXES (335,800) 91,200
------------ ------------
NET INCOME (LOSS) ($421,365) $ 136,251
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED (0.06) 0.02
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,089,744 7,301,374
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,089,744 7,301,374
============ ============
2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31
2000 1999
------------ ------------
NET SALES $ 28,383,966 $ 37,720,193
COST OF SALES 24,389,674 30,814,105
------------ ------------
GROSS PROFIT 3,994,292 6,906,088
------------ ------------
OPERATING EXPENSES
Selling and administrative 5,083,954 6,213,422
Amortization of goodwill 91,080 45,000
------------ ------------
Total operating expenses 5,175,034 6,258,422
------------ ------------
INCOME FROM OPERATIONS (1,180,742) 647,666
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 31,051 44,514
Interest expense (1,512)
------------ ------------
Total other (expense) income 29,539 44,514
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (1,151,203) 692,180
PROVISION [BENEFIT] FOR INCOME TAXES (475,000) 285,800
------------ ------------
NET INCOME (LOSS) ($676,203) $ 406,380
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED (0.10) 0.06
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,089,744 7,301,374
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,089,744 7,301,374
============ ============
3
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31
2000 1999
----------- -----------
Net cash provided by (used in) operating
activities $ 1,466,130 $ 537,543
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Cash flows from investing activities:
Purchase of Treasury Stock -- (301,905)
Increase in Loans Receivable --
Purchase of property and equipment (11,301) (92,363)
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Net cash (used in) provided by (11,301) (394,268)
----------- -----------
investing activities
Cash flows from financing activities:
Short term borrowings (1,040,127) (66,858)
----------- -----------
Net cash (used in) provided by financing
activities (1,040,127) (66,858)
----------- -----------
Net increase (decrease) in cash 414,702 76,417
Cash and cash equivalents - Beginning of Period 100,607 2,246,951
----------- -----------
Cash and cash equivalents - End of period $ 515,309 $ 2,323,368
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4
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDING DECEMBER 31, 2000
Common Value Series Value Additional Discount on Retained Treasury Stock Total
Shares Common Preferred Preferred Paid-In Preferred Earnings ------------------- Stockholders'
Issued Stock Issued Stock Capital Stock (Deficit) Shares Amount Equity
--------- -------- ------- ---------- ----------- ---------- ---------- --------- --------- -----------
Balance at
June 30, 2000 7,347,689 $ 73,477 319,429 $ 310,582 $11,823,086 ($278,640) ($ 17,909) (257,945) ($626,425) $11,284,171
Contributed Capital $ 49,088 $ 49,088
Net Loss for the
Six months Ended
December 31, 2000 ($676,203) (676,203)
------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2000 7,347,689 $ 73,477 319,429 $ 310,582 $11,872,174 ($278,640) ($694,112) (257,945) ($626,425) $10,657,056
============================================================================================================
5
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED DECEMBER 31, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements include the
accounts of Atec Group, Inc. and its subsidiaries which are hereafter referred
to as (the "Company"). All intercompany accounts and transactions have been
eliminated in consolidation.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's report on Form 10-K
for the year ended June 30, 2000.
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2. EQUITY SECURITIES
CAPITAL STOCK
The Company's capital stock consists of the following:
Shares
Issued
Shares and
December 31, 2000 Authorized Outstanding Amount
---------- ----------- ------
Preferred Stocks:
Series A cumulative convertible 29,233 8,371 $ 837
Series B convertible 12,704 1,458 145
Series C convertible 350,000 309,600 309,600
--------- --------
Total preferred 319,429 $310,582
========= ========
Common Stock 70,000,000 7,347,689 $ 73,477
The 319,429 shares of preferred stock, which are outstanding, may be converted
into approximately 8,200 shares of our common stock.
STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS
On August 15, 2000, the Board of Directors approved a resolution for the
issuance of 215,000 options with an exercise price of $1.625 per share .On
November 14, 2000 the Board of Directors approved a resolution for the issuance
of 2,850,000 common stock purchase options to certain officers, directors and
employees of the Company subject to shareholder ratification. The shareholders
ratified the resolution on January 9, 2001. The exercise price is $.563 per
share.
3. COMPUTATION OF EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding.
4. GOODWILL
Goodwill is being amortized over its estimated period of benefit, not exceeding
fifteen years.
7
5. SEGMENT INFORMATION
The Company is comprised of four business segments. These segments
consist of the technology integration services (TIS), Business to Business (B to
B), software and manufacturing divisions. Set forth below are net sales, net
income (loss), capital expenditures, depreciation and identifiable assets of
these segments.
FOR THREE MONTHS ENDING FOR SIX MONTHS ENDING
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales:
TIS $ 3,974,492 9,761,186 8,898,399 19,577,603
B to B 8,919,953 7,077,454 17,901,668 15,848,426
Software -- 692,910 -- 2,294,164
Manufacturing 540,838 -- 1,583,899 --
Elimination of -- -- -- --
inter-segment revenues -- --
------------ ------------ ------------ ------------
$ 13,435,283 17,531,550 28,383,966 37,720,193
============ ============ ============ ============
Net income (loss):
TIS $ (523,026) 444,899 (793,726) 265,009
B to B 575,571 489,754 1,026,928 536,994
Software (69,153) 218,751 (94,578) 386,277
Manufacturing (202,922) (300,634) (197,532) (313,778)
Corporate (201,835) (716,520) (617,295) (468,122)
------------ ------------ ------------ ------------
$ (421,365) 136,250 (676,203) 406,380
============ ============ ============ ============
Depreciation:
TIS 36,324 60,200 71,481 86,125
B to B 6,861 15,090 14,369 20,375
Software 6,431 5,099 6,431 17,000
Manufacturing 899 5,858 1,798 7,000
Corporate 5,393 5,643 12,227 17,390
------------ ------------ ------------ ------------
$ 55,908 91,890 106,306 147,890
============ ============ ============ ============
Identifiable assets:
TIS $ 6,105,529 9,425,514 6,105,529 9,425,514
B to B 4,133,682 4,068,147 4,133,682 4,068,147
Software 86,374 255,202 86,374 255,202
Manufacturing 1,969,332 14,463 1,969,332 14,463
Corporate 1,957,175 3,793,667 1,957,175 3,793,667
------------ ------------ ------------ ------------
$ 14,252,092 17,556,993 14,252,092 17,556,993
============ ============ ============ ============
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6. SUBSEQUENT EVENTS
In January 2001 we settled two legal actions. One case alleging breach of
contract and claiming approximately $1,680,000 was settled for approximately
$300,000. The other involved a complaint against several former employees and
stockholders for violating their option agreements and a counterclaim in excess
of $9 million for various alleged courses of actions. This case was settled for
$26,500 and the complaint was withdrawn.
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ATEC GROUP, INC. AND SUBSIDIARIES
OVERVIEW
ATEC Group, Inc. ("Atec, our, we or us") is a one-stop provider of a
full line of information technology products and services to businesses,
professionals, government and educational institutions. We offer multiple
solutions to our clients that we believe generate loyalty and improve our
ability to seek higher margins. We have developed several core competencies,
including system design, software development, networking, server-based
computing, help desk, wireless telecommunications, voice over TP, high speed
bandwidth e-commerce, web-hosting, ISP, ASP and Internet/Intranet solutions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000, COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1999.
Our revenues for the second quarter ended December 31, 2000 declined to $13.4
million from $17.5 million for the prior year, a decrease of approximately 23%.
This decrease is attributable to a drop in sales in our software division and a
decline in hardware sales by our TIS division as our sales force focuses on
service oriented business. Revenues are generated by our sales of computer
hardware and software, and related support services. Gross margin for the period
decreased to $1.8 million for December 31, 2000 from $3.1 million for the
comparable 1999 quarter, a 42% decrease due to lower sales in the TIS and
software divisions. Gross margins as a percentage of revenues for the quarter
were 13% as compared to 18% for the prior year.
Selling, general and administrative expenses for the three months ended,
December 31, 2000, exclusive of amortization of intangible assets, decreased to
$2.5 million as compared to $2.9 million for the comparable period in 1999. The
decrease is primarily for compensation expense, consulting fees and overhead in
the software division. The income tax benefit was $335,800 for the 2000 quarter
as compared to a provision of $91,200 for 1999 quarter.
9
As a result of the above, our net loss was $421,365 for the three months ended
December 31, 2000 compared to net income of $136,251 for the 1999 quarter. For
the December 31, 2000 quarter, net loss per share was $.06 compared to income of
$.02 in the prior year. Average diluted shares outstanding were 7,089,744 for
2000 and 7,301,374 for 1999.
SIX MONTHS ENDING DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999.
Our revenues for the six months ending December 31, 2000 decreased to $28.4
million from $37.7 million for the prior year, a decrease of approximately 25%.
This decrease is attributable to a significant drop in sales in our TIS and
software divisions. Revenues are generated by the Company's sales of computer
hardware and software, and related support services. Gross margin for the period
decreased to $4.0 million for December 31, 2000 from $6.9 million for the
comparable 1999 quarter, a 42% decrease due to the loss of higher margin sales
in the software division. Gross margin as a percentage of revenues for the
quarter were 14% as compared to 18% for the prior year.
December 31, 2000 operating expenses for the six months, exclusive of
amortization of intangible assets, decreased to $5.1 million as compared to $6.2
million for the prior year. The decrease is primarily for compensation expense
and consulting fees of $975,000 in the software division. Amortization of
intangible assets increased to $91,080 from $45,000 in the comparable 1999
period. The income tax benefit was $475,000 for the 2000 period as compared to a
provision of $285,800 for the prior year.
As a result of the above, our net loss was $676,203 for the six months ended
December 31, 2000 compared to net income of $406,380 for the 1999 quarter. For
the December 31, 2000 quarter, net loss per share was $.10 compared to income of
$.06 in the prior year. Average diluted shares outstanding were 7,089,744 for
2000 and 7,301,374 for 1999.
LIQUIDITY AND CAPITAL RESOURCES.
Our cash position was $515,309 at December 31, 2000, an increase of $414,702 as
compared to June 30, 2000. Our working capital at December 31, 2000 was
$8,828,259 as compared to a working capital of $9,342,031 at June 30, 2000. Net
cash provided by operating activities was $1,466,130. Cash used for investing
activities totaled $11,301 for the purchase of property and equipment.
To accommodate our financial needs for inventory financing, Deutsche Financial
Service granted us a credit line in the amount of $15 million. At December 31,
2000, our indebtedness to Deutsche Financial was $1,133,652, a decrease of
$1,040,127, as compared to June 30, 2000. Substantially all of our tangible and
intangible assets are pledged as collateral for this credit line.
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ITEM 3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We presently do not use any derivative financial instruments to hedge our
exposure to adverse fluctuations in interest rates, fluctuations in commodity
prices or other market risks, nor do we invest in speculative financial
instruments. Borrowings under our line of credit are at Prime plus a quarter
percent, which is adjusted monthly. Our interest income is sensitive to changes
in the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments.
Due to the nature of ATEC's borrowings and short-term investments, we have
concluded that there is no material risk exposure and, therefore, no
quantitative tabular disclosures are required.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements in this Quarterly Report on Form 10-Q about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "will," "will
likely result," "expect," "will continue," "anticipate," "estimate," "intend,"
"plan," "projection," "would," "should" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Report and our Annual Report on Form 10-K, as
amended, for the year ended June 30, 2000. The following cautionary statements
identify important factors that could cause our actual results to differ
materially from those projected in the forward-looking statements made in this
prospectus. Among the key factors that have a direct bearing on our results of
operations are:
o general economic and business conditions; the existence or absence of
adverse publicity; changes in, or failure to comply with, government
regulations; changes in marketing and technology; change in political,
social and economic conditions;
o increased competition in the computer industry and general risks of the
Internet;
o success of acquisitions and operating initiatives; changes in business
strategy or development plans; management of growth;
o availability, terms and deployment of capital;
o costs and other effects of legal and administrative proceedings;
o dependence on senior management; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs;
o development risks; risks relating to the availability of financing; and
o other factors referenced in this Report and the Form 10-K, as amended.
11
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
12
ATEC GROUP, INC. AND SUBSIDIARIES
Other Information
December 31, 2000
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings - In January 2001 we settled two legal
actions. One case alleging Breach of contract and claiming
approximately $1,680,000 was settled for approximately $300,000. The
other involved a complaint against several former employees and
stockholders for violating their option agreements and a counterclaim
in excess of $9 million for various alleged courses of action. This
case was settled for $26,500 and the complaint was withdrawn.
Item 2. - Changes in Securities and use of Proceeds - None
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders - None
Item 5. - Other Information - None
Item 6. - Exhibits and Report on Form 8k - On November 29, 2000, we
filed a Current Report on form 8K reporting a change in control of the
Registrant.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATEC GROUP, INC.
(Registrant)
Date: February 13, 2001
By: /s/ JAMES J. CHARLES
-----------------------------------------
James J. Charles, Chief Financial Officer
(Duly authorized to sign on behalf of
registrant)
14