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, 2001
[ ] 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, 2001 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................................... 1-8
Item 2 - Managements 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
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 8-K........................ 13
Signature Page.................................................. 14
PART I
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
31-Dec-01 30-Jun-01
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 2,209,908 $ 1,555,020
Accounts receivable, net 2,501,033 5,114,302
Inventories 1,547,114 1,666,633
Deferred taxes 581,510 581,510
Other current assets 543,160 585,634
------------ ------------
Total currrent assets 7,382,725 9,503,099
------------ ------------
PROPERTY AND EQUIPMENT, NET 333,218 420,255
GOODWILL, NET 1,134,177 1,134,177
OTHER ASSETS 47,667 51,667
------------ ------------
$ 8,897,787 $ 11,109,198
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving inventory line of credit $ 392,814 $ 1,024,157
Accounts payable 1,086,226 2,177,391
Accrued expenses 407,046 555,785
Deferred Revenue - 139,357
Other current liabilities 290,982 353,589
------------ ------------
Total liabilities 2,177,068 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) (4,626,868) (4,543,043)
Treasury stock at cost (683,406) (629,031)
------------ ------------
Total stockholders' equity 6,720,719 6,858,919
------------ ------------
$ 8,897,787 $ 11,109,198
============ ============
1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31
2001 2000
------------ ------------
NET SALES $ 7,619,339 $ 13,435,283
COST OF SALES 6,561,655 11,631,337
------------ ------------
GROSS PROFIT 1,057,684 1,803,946
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OPERATING EXPENSES
Selling and administrative 1,330,971 2,526,986
Amortization of goodwill - 45,540
------------ ------------
Total operating expenses 1,330,971 2,572,526
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INCOME (LOSS) FROM OPERATIONS (273,287) (768,580)
------------ ------------
OTHER INCOME (EXPENSE)
Miscellaneous income 17,598
Interest income 10,042 12,814
Interest expense (268) (1,399)
------------ ------------
Total other (expense) income 27,372 11,415
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (245,915) (757,165)
PROVISION (BENEFIT) FOR INCOME TAXES (64,800) (335,800)
------------ ------------
NET INCOME (LOSS) $ (181,115) $ (421,365)
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED $ (0.03) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,021,644 7,089,744
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,021,644 7,089,744
============ ============
2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31
2001 2000
------------ ------------
NET SALES $ 19,667,524 $ 28,383,966
COST OF SALES 16,275,349 24,389,674
------------ ------------
GROSS PROFIT 3,392,175 3,994,292
------------ ------------
OPERATING EXPENSES
Selling and administrative 3,517,870 5,083,954
Amortization of goodwill - 91,080
------------ ------------
Total operating expenses 3,517,870 5,175,034
------------ ------------
INCOME(LOSS) FROM OPERATIONS (125,695) (1,180,742)
------------ ------------
OTHER INCOME (EXPENSE)
Miscellaneous income 17,598 -
Interest income 24,540 31,051
Interest expense (268) (1,512)
------------ ------------
Total other income (expense) 41,870 29,539
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (83,825) (1,151,203)
PROVISION(BENEFIT) FOR INCOME TAXES - (475,000)
------------ ------------
NET INCOME (LOSS) $ (83,825) $ (676,203)
============ ============
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED $ (0.01) $ (0.10)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 7,055,044 7,089,744
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 7,055,044 7,089,744
============ ============
3
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31
2001 2000
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Net cash provided by (used in) operating activities $ 1,340,606 $ 1,466,130
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Cash flows from investing activities:
Purchase of Treasury Stock (54,375) -
Purchase of property and equipment 0 (11,301)
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Net cash (used in) provided by investing activities (54,375) (11,301)
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Cash flows from financing activities:
Short term borrowings (repayments) (631,343) (1,040,127)
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Net cash (used in) provided by financing activities (631,343) (1,040,127)
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Net increase (decrease) in cash 654,888 414,702
Cash and cash equivalents - Beginning of Period 1,555,020 100,607
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Cash and cash equivalents - End of period $ 2,209,908 $ 515,309
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4
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDING DECEMBER 31, 2001
Common Value Series Value Additional Discount on Retained
Shares Common Preferred Preferred Paid in Preferred Earnings
Issued Stock Issued Stock Capital Stock (Deficit)
------ ----- ------ ----- ------- ----- ---------
Balance at June 30, 2001 7,347,689 $73,477 424,429 $835,582 $11,864,674 ($742,740) ($4,543,043)
Contributed Capital 30,082
Costs related to Contributed Capital (30,082)
Purchase of Treasury Stock
Net Loss for the Six months Ended
December 31, 2001 ($83,825)
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BALANCE AT DECEMBER 31, 2001 7,347,689 $73,477 424,429 $835,582 $11,864,674 ($742,740) ($4,626,868)
=====================================================================================
Treasury Stock Total
----------------- Stockholders'
Shares Amount Equity
------ ------ ------
Balance at June 30, 2001 (259,245) ($629,031) $6,858,919
Contributed Capital 30,082
Costs related to Contributed Capital (30,082)
Purchase of Treasury Stock (119,100) ($54,375) (54,375)
Net Loss for the Six months Ended
December 31, 2001 (83,825)
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BALANCE AT DECEMBER 31, 2001 (378,345) ($683,406) $6,720,719
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5
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED DECEMBER 31, 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 accounting
principles generally accepted 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 accounting
principles generally accepted 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.
6
2. EQUITY SECURITIES
CAPITAL STOCK
The Company's capital stock consists of the following:
Shares
Issued
Shares and
December 31, 2001 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
Series J convertible 105,000 105,000 525,000
--------- --------
Total preferred 424,429 $835,582
========= ========
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.
Stock Option Plan
On November 27, 2001, the Board of Directors approved a resolution for the
issuance of 1,186,300 options with an exercise price $0.45 per share to certain
employees and directors of the Company and 1,500,000 options with an exercise
price of $0.50 per share to certain officers.
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.
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) depreciation and identifiable assets of these segments.
FOR THREE MONTHS ENDING FOR SIX MONTHS ENDING
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales:
TIS $ 2,911,395 $ 3,974,492 $ 7,492,247 $ 8,898,399
B to B 4,493,711 8,919,953 11,689,460 17,901,668
Software 1,386 - 1,386 -
Manufacturing 212,847 540,838 484,431 1,583,899
------------ ------------ ------------ ------------
$ 7,619,339 $ 13,435,283 $ 19,667,524 $ 28,383,966
============ ============ ============ ============
Net income (loss):
TIS $ (187,012) $ (523,026) $ (343,655) $ (793,726)
B to B 455,199 575,571 1,284,698 1,026,928
Software (20,636) (69,153) (44,351) (94,578)
Manufacturing (253,774) (202,922) (347,115) (197,532)
Corporate (174,892) (201,835) (633,402) (617,295)
------------ ------------ ------------ ------------
$ (181,115) $ (421,365) $ (83,825) $ (676,203)
============ ============ ============ ============
Depreciation:
TIS $ 35,601 $ 36,324 $ 69,499 $ 71,481
B to B 2,608 6,861 5,217 14,369
Software - 6,431 - 6,431
Manufacturing 723 899 1,445 1,798
Corporate 4,078 5,393 10,875 12,227
------------ ------------ ------------ ------------
$ 43,010 $ 55,908 $ 87,036 $ 106,306
============ ============ ============ ============
Identifiable assets:
TIS $ 3,388,540 $ 6,105,529 $ 3,388,540 $ 6,105,529
B to B 2,187,264 4,133,682 2,187,264 4,133,682
Software 3,853 86,374 3,853 86,374
Manufacturing 707,335 1,969,332 707,335 1,969,332
Corporate 2,610,795 1,957,175 2,610,795 1,957,175
------------ ------------ ------------ ------------
$ 8,897,787 $ 14,252,092 $ 8,897,787 $ 14,252,092
============ ============ ============ ============
6. SUBSEQUENT EVENT
On January 31, 2002 the Company decided to close its IT Enabled Services
division and transferred it to Surinder Rametra, the Company's Chairman. This
call center division was in the development stage. Mr. Rametra will give ten
percent of the pre-tax profits (if any) to the Company for a period of three
years to January 31, 2005.
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
THREE MONTHS ENDED DECEMBER 31, 2001, COMPARED TO THREE MONTHS ENDED DECEMBER
31, 2000.
Our revenues for the second quarter ended December 31, 2001 declined to
$7.6 million from $13.4 million for the prior year, a decrease of approximately
43%. This decrease is attributable to a decline in hardware sales by our B2B and
TIS divisions. We believe that the decline in sales was due to weakness in
corporate technology spending in the fourth quarter and a significant decline in
the New York Metropolitan economy following the events of September 11. Revenues
are generated by our sales of computer hardware and software, and related
support services. Gross margin for the period decreased to $1.1 million for
December 31, 2001 from $1.8 million for the comparable 2000 quarter, a 39%
decrease due to lower sales in the TIS division. Gross margins as a percentage
of revenues for the quarter were 14 % as compared to 13% for the prior year.
Selling, general and administrative expenses for the three months
ended, December 31, 2001 decreased to $1.3 million as compared to $2.5 million
for the comparable period in 2000. The decrease is primarily due to lower
compensation expense and consulting fees. The income tax benefit was $64,800 for
the 2001 quarter as compared to $335,800 for 2000 quarter.
As a result of the above, our net loss was $181,115 for the three
months ended December 31, 2001 compared to net loss of $421,365 for the 2000
quarter. For the December 31, 2001 quarter, net loss per share was $.03 compared
to net loss of $.06 in the prior year. Average diluted shares outstanding were
7,021,644 for 2001 and 7,089,744 for 2000.
9
SIX MONTHS ENDING DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000.
Our revenues for the six months ending December 31, 2001 decreased to
$19.7 million from $28.4 million for the prior year, a decrease of approximately
31%. This decrease is attributable to a significant drop in sales in our B2B and
TIS divisions. We believe that the decline in sales was due to weakness in
corporate technology spending and the significant decline in the economy of the
New York Metropolitan area following the events of September 11, 2001. Revenues
are generated by the Company's sales of computer hardware and software, and
related support services. Gross margin for the period decreased to $3.4 million
for December 31, 2001 from $4.0 for the comparable 2000 quarter. Gross margin as
a percentage of revenues for the quarter were 17% as compared to 14% for the
prior year.
December 31, 2001 operating expenses for the six months decreased to
$3.5 million as compared to $5.1 million for the prior year. The decrease is
primarily due to lower compensation expense and consulting fees. The income tax
benefit was $0 for the 2001 period as compared to a benefit of $475,000 for the
prior year.
As a result of the above, our net loss was $83,825 for the six months
ended December 31, 2001 compared to net loss of $676,203 for the 2000 quarter.
For the December 31, 2001 quarter, net loss per share was $.01 compared to net
loss per share of $.10 in the prior year. Average diluted shares outstanding
were 7,055,044 for 2001 and 7,089,744 for 2000.
LIQUIDITY AND CAPITAL RESOURCES.
Our cash position was $2,209,908 at December 31, 2001, an increase of
$654,888 as compared to June 30, 2001. Our working capital at December 31, 2001
was $5,205,658 as compared to a working capital of $5,252,820 at June 30, 2001.
Net cash provided by operating activities was $1,340,606. Cash used for
investing activities totaled $54,375 for the purchase of Treasury Stock.
To accommodate our financial needs for inventory financing, IBM Credit
granted us a credit line in the amount of $750,000. At December 31, 2001, our
indebtedness to IBM Credit was $392,814, a decrease of $631,343, as compared to
June 30, 2001.
10
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, 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 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.
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, 2001
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 - On
December 18, 2001 we held our annual meeting of stockholders for the
following purposes:
(i) to elect Surinder Rametra, Ashok Rametra, James Charles, David
Reback, Stewart Benjamin and Praveen Bhutani as members to the
board of directors and
(ii) to ratify and approve Weinick Sanders Leventhal & Co., LLP, as
our independent public accountants, to audit our financial
statements for the year ending June 30, 2002.
The votes cast for each of the foregoing matters was as follows:
(i) Election of Board of Directors
Nominees Favor Withhold Authority
-------- ----- ------------------
Ashok Rametra 6,067,488 177,394
James Charles 6,085,548 157,329
Surinder Rametra 6,082,488 160,389
Stewart Benjamin 6,111,487 155,290
David Reback 6,111,487 154,790
Praveen Bhutani 6,107,308 158,969
(ii) Appointment of Weinick Sanders Leventhal & Co., LLP.
Votes in Favor Votes Against Abstain
-------------- ------------- -------
6,102,647 150,720 12,910
Item 5. - Other Information - None
Item 6. - Exhibits and Report on Form 8k - On January 3, 2002 we filed
a Current Report on form 8K reporting the employment of a new Chief
Executive Officer.
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, 2002
By: /s/ JAMES J. CHARLES
--------------------------------
James J. Charles, Chief Financial Officer
(Duly authorized to sign on behalf
of registrant)
14