SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number 0-22710
ATEC GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3673965
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State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
69 Mall Drive, Commack, New York 11725
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 543-2800
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of the close of business on September 30, 2001, there were 7,347,689 shares
of the Registrant's Common Stock outstanding.
ATEC GROUP, INC.
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TABLE OF CONTENTS
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Page
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PART I Financial Information
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Item 1 - Financial Statements................................... 1-8
Item 2 - Management Discussion & Analysis
of Financial Condition and Results
of Operations.......................................... 9-10
Item 3 - Quantitive and Qualitative Disclosures about
Market Risk............................................ 11-12
PART II Other Information Required in Report
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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
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
30-Sep-01 30-Jun-01
============== ==============
ASSETS
Current Assets
Cash $ 870,375 $ 1,555,020
Accounts receivable, net 5,158,599 5,114,302
Inventories 1,522,675 1,666,633
Deferred taxes 516,710 581,510
Other current assets 491,336 585,634
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Total currrent assets $ 8,559,695 $ 9,503,099
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Property and equipment, net 376,229 420,255
Goodwill, net 1,134,177 1,134,177
Other assets 47,667 51,667
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$ 10,117,768 $ 11,109,198
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 495,481 $ 1,024,157
Accounts payable 1,593,029 2,177,391
Accrued expenses 872,801 555,785
Deferred income - 139,357
Other current liabilities 200,248 353,589
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Total liabilities $ 3,161,559 $ 4,250,279
Stockholders' equity
Preferred stocks 835,582 835,582
Common stock 73,477 73,477
Additional paid-in capital 11,864,674 11,864,674
Discount on preferred stock (742,740) (742,740)
Retained earnings (deficit) (4,445,753) (4,543,043)
Treasury stock at cost (629,031) (629,031)
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Total stockholders' equity 6,956,209 6,858,919
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$ 10,117,768 $ 11,109,198
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1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
2001 2000
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Net sales $ 12,048,185 $ 14,948,683
Cost of sales 9,713,694 12,758,337
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Gross profit 2,334,491 2,190,346
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Operating expenses
Selling and administrative 2,186,899 2,556,968
Amortization of goodwill - 45,540
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Total operating expenses 2,186,899 2,602,508
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Income from operations 147,592 (412,162)
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Other income (expense)
Interest income 14,498 18,237
Interest expense - (113)
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Total other (expense) income 14,498 18,124
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Income (loss) before provision for income taxes 162,090 (394,038)
Provision [benefit] for income taxes 64,800 (139,200)
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Net income (loss) 97,290 (254,838)
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Net earnings (loss) per share-basic and diluted 0.01 (0.04)
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Weighted average number of shares-basic 7,088,444 7,089,744
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Weighted average number of shares-diluted 7,088,444 7,089,744
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2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30
2001 2000
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Net cash provided by (used in) operating activities $ (682,602) $ 1,498,434
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Cash flows from investing activities:
Purchase of property and equipment (2,043) (36,089)
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Net cash (used in) provided by investing activities (2,043) (36,089)
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Cash flows from financing activities:
Purchase of common stock - -
Contributed additional capital 39,088
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Net cash (used in) provided by financing activities 0 39,088
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Net increase (decrease) in cash (684,645) 1,501,433
Cash and cash equivalents - Beginning of period 1,555,020 100,607
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Cash and cash equivalents - End of period $ 870,375 1,602,040
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3
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDING SEPTEMBER 30, 2001
Common Value Series Value Additional
Shares Common Preferred Preferred Paid-In
Issued Stock Issued Stock Capital
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Balance at June 30, 2001 7,347,689 $ 73,477 424,429 $ 835,582 $11,864,674
Capital Contribution 30,082
Costs related to Contributed (30,082)
Capital
Net Income for the Three months
Ended
September 30, 2001
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Balance at September 30, 2001 7,347,689 $ 73,477 424,429 $ 835,582 $11,864,674
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Discount on Retained Treasury Stock Total
Preferred Earnings ------------------------ Stockholders'
Stock (Deficit) Shares Amount Equity
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Balance at June 30, 2001 ($ 742,740) ($4,543,043) (259,245) ($ 629,031) $ 6,858,919
Capital Contribution 30,082
Costs related to Contributed (30,082)
Capital
Net Income for the Three months
Ended September 30, 2001 $ 97,290 97,290
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Balance at September 30, 2001 ($ 742,740) ($4,445,753) (259,245) ($ 629,031) $ 6,956,209
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4
PART 1
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FINANCIAL INFORMATION
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Item 1. Financial Statements.
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ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying interim unaudited consolidated financial statements include the
accounts of Atec Group, Inc. and its subsidiaries which are hereafter referred
to as (the "Company"). All intercompany accounts and transactions have been
eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles in the United States of America 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, 2001.
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2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
September 30, 2001 Authorized Outstanding Amount
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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
Series J convertible 105,000 105,000 525,000
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Total preferred 424,429 $ 835,582
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Common Stock 70,000,000 7,347,689 $ 73,477
The 424,429 shares of preferred stock, which are outstanding, may be converted
into approximately 113,000 shares of our common stock.
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
The Company adopted Financial Accounting Standard Board (FASB) number 142
(SFAS142) effective July 1, 2001. SFAS142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. Under SFAS142,
goodwill will be tested annually and whenever events or circumstances occur
indicating that goodwill might be impaired. In connection with the adoption of
SFAS142 we have performed a transitional goodwill impairment assessment and
found that there was no impairment.
6
5. Income Taxes
The Company's income tax provision consists of the following:
Current tax provision (benefit) 2001 2000
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Federal $ - ( $134,000)
State - ( 5,200)
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- ( 139,200)
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Deferred tax provision (benefit)
Federal 55,100 -
State 9,700 -
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64,800 -
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Income tax provision (benefit) $ 64,800 ( $139,200)
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The deferred tax benefit results from differences in recognition of
expenses for tax and financial statement purposes and for minimum tax provision
for the various state and local taxing authorities where the Company and its
subsidiaries are subject to tax. The Company has deferred tax assets consisting
of the following temporary difference.
September 31 June 30
2001 2000
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Net operating loss carry forward $1,469,200 $1,524,000
Allowance for bad debts 485,510 485,510
Total deferred tax assets $1,954,710 $2,009,510
Less: Valuation allowance for deferred tax assets 1,438,000 1,438,000
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Total $ 516,710 $ 571,510
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6. 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 is net sales, net
income (loss), capital expenditures, depreciation and identifiable assets of
these segments.
FOR THREE MONTHS ENDING
SEPTEMBER 30.
2001 2000
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Net sales:
TIS $ 4,580,852 $ 4,923,907
Global Distribution 7,195,749 8,981,715
Software - -
Manufacturing 271,584 1,043,061
Elimination of
intersegment revenues - -
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$ 12,048,185 $ 14,948,683
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Net Income (loss):
TIS $ (156,643) $ (276,528)
Global Distribution 829,499 479,335
Software (23,715) (27,514)
Manufacturing (93,341) 6,205
Corporate (458,510) (436,336)
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$ 97,290 $ (254,838)
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Depreciation:
TIS $ 33,898 $ 35,157
Global Distribution 2,609 7,508
Software - -
Manufacturing 722 899
Corporate 6,797 6,834
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$ 44,026 $ 50,398
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Capital additions:
TIS $ 2,043 $ 36,089
Global Distribution - -
Software - -
Manufacturing - -
Corporate - -
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$ 2,043 $ 36,089
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Identifiable assets:
TIS $ 3,708,618 $ 6,207,633
Global Distribution 4,260,477 4,335,873
Software 3,853 92,804
Manufacturing 941,223 1,646,617
Corporate 1,203,597 2,483,200
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$ 10,117,768 $ 14,766,127
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8
Item 2 - Managements Discussion and Analysis of Financial Condition and Results
of operations.
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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
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Three months ended September 30, 2001, compared to three months ended September
30, 2000.
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Revenues
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Our revenues for the first quarter ended September 30, 2001 declined to $12
million from $14.9 million for the prior year, a decrease of approximately 19%.
This decrease is attributable to a decline in hardware sales as our sales force
focuses on service oriented business. Revenues are generated by our sales of
computer hardware and software, and related support services. Gross margin for
the period increased to $2.3 million for September 30, 2001 from $2.2 million
for the comparable 2000 quarter, a 5% increase due to increased service sales.
Gross margins as a percentage of revenues for the quarter were 19 % as compared
to 14.7% for the prior year.
Selling, general and administrative expenses.
---------------------------------------------
Selling, general and administrative expenses for the three months ended,
September 30, 2001, decreased to $2.2 million as compared to $2.6 million for
the comparable period in 2000. The decrease is primarily for compensation
expense and consulting fees.
Net Income
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As a result of the above, our net income was $97,290 for the three months ended
September 30, 2001 compared to net loss of $254,838 for the 2000 quarter. For
the September 30, 2001 quarter, net income per share was $.01 compared to a loss
of $.04 in the prior year. Average diluted shares outstanding were 7,088,444 for
2001 and 7,089,744 for 2000.
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Liquidity and capital resources.
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Our cash position was $870,375 at September 30, 2001, a decrease of $684,645 as
compared to June 30, 2001. Our working capital at September 30, 2001 was
$5,398,136 as compared to a working capital of $5,252,820 at June 30, 2001. Net
cash used by operating activities was $682,602. Cash used for investing
activities totaled $2,043 for the purchase of property and equipment.
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ITEM 3 - Quantitive and Qualitive Disclosures About Market Risk
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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.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued FASB
Statements Nos. 141 and 142 (SFAS 141 and SFAS142), " Business Combinations" and
"Goodwill and Other Intangible Assets," respectively. SFAS 141 replaces APB 16
and eliminates pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of intangible assets
and accounting for negative goodwill. SFAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Under SFAS
142, goodwill will be tested annually and whenever events or circumstances occur
indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are required
to be adopted for fiscal years beginning after December 15, 2001 but must be
applied to all business combinations completed after June 30, 2001. Upon
adoption of SFAS 142, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets
acquired prior to July 1, 2001 that do not meet the criteria for recognition
under SFAS 141 will be reclassified to goodwill.
Companies are required to adopt SFAS 142 for fiscal years beginning after
December 15, 2001, but early adoption is permitted. In connection with the
adoption of SFAS 142, we have performed a transitional goodwill impairment
assessment and found that there was no impairment.
In August 2001, the FASB issued Statement No. 143 ("SFAS 143"), "Accounting for
Asset Retirement Obligations," which is effective for fiscal years beginning
after June 15, 2002. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of Tangible long-lived assets and the
associated asset retirement costs. The Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development, and (or) the normal
operation of long-lived assets, except for certain obligations of lessees. We do
not expect the adoption of SFAS 143 will have a significant impact on our
financial position and results of operations.
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Special Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "will," "will
likely result," "expect," "will continue," "anticipate," "estimate," "intend,"
"plan," "projection," "would," "should" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties which could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Report and our Annual Report on Form 10-K, for
the year ended June 30, 2001. 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 herein. 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.
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.
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Atec Group, Inc. and Subsidiaries
Other
Information
September 30, 2000
PART II
OTHER INFORMATION
Item 1.- Legal Proceedings - None
Item 2.- Changes in Securities and use of Proceeds - None
Item 3.- Defaults Upon Senior Securities - None
Item 4.- Submission of Matters to a Vote of Security Holders - None
Item 5.- Other Information - None
Item 6.- Exhibits and Report on Form 8k - None
13
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATEC GROUP, INC.
(Registrant)
Date: November 13, 2001
By: /s/ JAMES J. CHARLES
---------------------------------
James J. Charles,
Chief Financial Officer
(Duly authorized to sign on
behalf of registrant)
14