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 March 31, 2002
[ ] 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 March 31, 2002, 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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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 - Quantitative and Qualitative Disclosures about
Market Research....................................... 11
PART II Other Information Required in Report
Item 1 - Legal Proceedings..................................... 12
Item 2 - Changes in Securities and use of Proceeds............. 12
Item 3 - Defaults Upon Senior Securities....................... 12
Item 4 - Submission of Matters to a Vote of Security Holders... 12
Item 5 - Other Information..................................... 12
Item 6 - Exhibits and Report on Form 8K........................ 12
Signature Page................................................. 13
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
31-Mar-02 30-Jun-01
------------ ------------
ASSETS
Current Assets
Cash $ 415,646 $ 1,555,020
Accounts receivable, net 4,879,332 5,114,302
Inventories 826,822 1,666,633
Deferred taxes 581,510 581,510
Other current assets 717,213 585,634
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Total current assets 7,420,523 9,503,099
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Property and equipment, net 316,575 420,255
Goodwill, net 1,134,177 1,134,177
Other assets 47,667 51,667
------------ ------------
$ 8,918,942 $ 11,109,198
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 391,922 $ 1,024,157
Accounts payable 1,591,690 2,177,391
Accrued expenses 454,220 555,785
Deferred Revenue -- 139,357
Other current liabilities 223,165 353,589
------------ ------------
Total liabilities 2,660,997 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) (5,089,642) (4,543,043)
Less: Treasury stock at cost (683,406) (629,031)
------------ ------------
Total stockholders' equity 6,257,945 6,858,919
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$ 8,918,942 $ 11,109,198
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1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31
2002 2001
------------ ------------
Net sales $ 10,876,246 $ 14,096,629
Cost of sales 9,655,189 12,790,010
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Gross profit 1,221,057 1,306,619
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Operating expenses
Selling and administrative 1,698,611 3,140,214
Amortization of goodwill -- 47,493
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Total operating expenses 1,698,611 3,187,707
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Loss from operations (477,554) (1,881,088)
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Other income
Interest income 10,101 11,399
Miscellaneous 4,679 --
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Total other income 14,780 11,399
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Loss before benefit from income taxes (462,774) (1,869,689)
Benefit from income taxes -- (733,400)
------------ ------------
Net loss $ (462,774) $ (1,136,289)
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Net loss per share
basic and diluted $ (0.07) $ (0.16)
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Weighted average number of shares-basic 6,969,344 7,089,744
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Weighted average number of shares-diluted 6,969,344 7,089,744
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2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31
2002 2001
------------ ------------
Net sales $ 30,543,770 $ 42,480,595
Cost of sales 25,930,538 37,179,684
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Gross profit 4,613,232 5,300,911
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Operating expenses
Selling and administrative 5,216,481 8,224,168
Amortization of goodwill -- 138,573
------------ ------------
Total operating expenses 5,216,481 8,362,741
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Loss from operations (603,249) (3,061,830)
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Other income (expense)
Interest income 34,641 42,450
Interest expense (268) (1,512)
Miscellaneous 22,277 --
------------ ------------
Total other (expense) income 56,650 40,938
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Loss before benefit from income taxes (546,599) (3,020,892)
Benefit from income taxes -- (1,208,400)
------------ ------------
Net loss $ (546,599) $ (1,812,492)
============ ============
Net loss per share
basic and diluted $ (0.08) $ (0.26)
============ ============
Weighted average number of shares-basic 7,026,937 7,089,744
============ ============
Weighted average number of shares-diluted 7,026,937 7,089,744
============ ============
3
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
2002 2001
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Net cash provided by (used in) operating activities $ (423,011) $ 1,211,034
Cash flows from investing activities:
Purchase of property and equipment (29,753) (92,184)
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Net cash (used in) provided by investing activities (29,753) (92,184)
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Cash flows from financing activities:
Short term borrowings (632,235) (662,931)
Purchase of Treasury Stock (54,375) --
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Net cash (used in) provided by financing activities (686,610) (662,931)
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Net increase (decrease) in cash (1,139,374) 455,919
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Cash - Beginning of period 1,555,020 100,607
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Cash - End of period $ 415,646 $ 556,526
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4
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDING MARCH 31, 2002
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, 2001 7,347,689 $73,477 424,429 $835,582 $11,864,674 ($742,740) ($4,543,043) (259,245) ($629,031) $6,858,919
Contributed Capital $30,082 30,082
Costs related to
Contributed Capital ($30,082) (30,082)
Purchase of Treasury
Stock (119,100) ($54,375) (54,375)
Net Loss for the
Nine months Ended ($546,599) ($546,599)
March 31, 2002
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Balance at
March 31, 2002 7,347,689 $73,477 424,429 $835,582 $11,864,674 ($742,740) ($5,089,642) (378,345) ($683,406) $6,257,945
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5
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED MARCH 31, 2002
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 inter-company 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.
2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
March 31, 2002 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
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Total preferred 424,429 $ 835,582
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Common Stock 70,000,000 7,347,689 $ 73,477
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The 424,429 shares of preferred stock, which are outstanding, may be converted
into approximately 113,000 shares of our common stock.
6
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.
The Company has agreed to enter into employment and consulting agreements that
will require the issuance of 1,000,000 shares of common stock. It is anticipated
that these agreements will become effective in the quarter ending June 30, 2002.
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 NINE MONTHS ENDING
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales:
TIS $ 6,029,936 $ 5,523,692 $ 13,522,183 $ 14,422,092
B to B 4,598,142 8,187,377 16,287,603 26,089,045
Software 152 -- 1,538 --
Manufacturing 248,016 385,560 732,446 1,969,458
------------ ------------ ------------ ------------
$ 10,876,246 $ 14,096,629 $ 30,543,770 $ 42,480,595
============ ============ ============ ============
Net income (loss):
TIS $ (132,351) $ 332,065 $ (476,041) $ (461,661)
B to B 265,122 (458,469) 1,549,820 568,459
Software (10,573) 11,948 (54,888) (82,630)
Manufacturing (331,777) (453,557) (678,892) (651,089)
Corporate (253,195) (568,276) (886,598) (1,185,571)
------------ ------------ ------------ ------------
$ (462,774) $ (1,136,289) $ (546,599) $ (1,812,492)
============ ============ ============ ============
Depreciation:
TIS $ 41,706 $ 34,257 $ 111,206 $ 105,738
B to B 2,609 5,838 7,826 20,207
Software -- 3,215 -- 9,646
Manufacturing 722 899 2,167 2,697
Corporate 1,359 9,646 12,234 21,873
------------ ------------ ------------ ------------
$ 46,396 $ 53,855 $ 133,433 $ 160,161
============ ============ ============ ============
Capital additions:
TIS $ 29,753 33,213 29,753 $ 83,295
B to B -- 7,425 -- 8,889
Software -- -- -- --
Manufacturing -- -- -- --
Corporate -- -- -- --
------------ ------------ ------------ ------------
$ 29,753 40,638 29,753 $ 92,184
============ ============ ============ ============
Identifiable assets:
TIS $ 5,340,418 $ 5,784,046 $ 5,340,418 $ 5,784,046
B to B 2,385,254 4,550,623 2,385,254 4,550,623
Software 3,853 141,597 3,853 141,597
Manufacturing 256,651 1,408,610 256,651 1,408,610
Corporate 932,766 2,206,707 932,766 2,206,707
------------ ------------ ------------ ------------
$ 8,918,942 $ 14,091,583 $ 8,918,942 $ 14,091,583
============ ============ ============ ============
8
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 March 31, 2002 compared to March 31, 2001
------------------------------------------------------------
Our revenues for the third quarter ended March 31, 2002 were $10.9 million
compared to $14.1 million for the prior year, a decrease of approximately 23%.
This decrease is attributable to a drop in hardware sales by our TIS and
distribution divisions. Revenues are generated by our sales of computer hardware
and software, and related support services. Gross margin for the period
decreased to $1.2 million for March 31, 2002 from $1.3 million for the
comparable 2001 quarter, a 7% decrease due to lower sales. Gross margins as a
percentage of revenues for the three months were 11% as compared to 9% for the
prior year.
Selling, general and administrative expenses for the three months ended, March
31, 2002 decreased to $1.7 million as compared to $3.1 million for the prior
year. The decrease of $1.4 million is primarily due to reduced salary expenses
of $454,114, provision for doubtful accounts of $585,330 and legal/accounting
expenses of $140,546. The income tax benefit was $0 for the 2002 quarter as
compared to a benefit of $733,400 for 2001 quarter.
As a result of the above, our net loss was $462,774 for the three months ended
March 31, 2002 compared to net loss of $1,136,289 for the 2001 quarter. For the
March 31, 2002 quarter, net loss per share was $.07 compared to a net loss of
$.16 in the prior year. Average diluted shares outstanding were 6,969,344 for
2002 and 7,089,744 for 2001.
9
Nine Months Ended March 31, 2002 compared to March 31, 2001
-----------------------------------------------------------
Our revenues for the nine months ended March 31, 2002 were $30.5 million
compared to $42.5 million for the prior year, a decrease of approximately 28%.
This decrease is attributable to a significant drop in sales in our TIS and
distribution 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 $4.6 million for March 31, 2002 from $5.3 million for
the comparable 2001 quarter, a 13% decrease due to the lower sales in the TIS
and distribution divisions. Gross margins as a percentage of revenues for the
period were 15% as compared to 12% for the prior year.
March 31, 2002 operating expenses for the nine months decreased to $5.2 million
as compared to $8.3 million for the prior year. The decrease of $3.1 million is
primarily due to reduced salary expenses of $1,048,767, reduced provision for
bad debt of $785,330, amortization expense $138,573 and legal/accounting
expenses of $565,642. The income tax benefit was $0 for the 2002 period as
compared to a benefit of $1,208,400 for the prior year.
As a result of the above, our net loss was $546,599 for the nine months ended
March 31, 2002 compared to a net loss of $1,812,492 for the comparable 2001
quarter. For the nine months ending March 31, 2002, net loss per share was $.08
compared to loss of $.26 in the prior year. Average diluted shares outstanding
were 7,026,937 for 2002 and 7,089,744 for 2001.
Liquidity and Capital Resources
Our cash position was $415,646 at March 31, 2002, a decrease of $1,139,374, as
compared to June 30, 2001. Our working capital at March 31, 2002 was $4,760,000
as compared to working capital of $5,253,000 at June 30, 2001. Net cash used by
operating activities was $423,011.
To accommodate our financial needs for inventory financing, IBM Credit granted
us a credit line in the amount of $750,000. At March 31, 2002, our indebtedness
to IBM Credit was $391,922, a decrease of $632,235, as compared to June 30,
2001.
10
ITEM 3 - QUANTATIVE 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.
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 the 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.
11
Atec Group, Inc. and Subsidiaries
Other Information
March 31, 2002
PART II
OTHER INFORMATION
Item 1. - None - Legal Proceedings
Item 2. - None - Changes in Securities and use of Proceeds
Item 3. - None - Defaults Upon Senior Securities
Item 4. - None - Submission of Matters to a Vote of Security Holders
Item 5. - None - Other Information
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.
12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATEC GROUP, INC.
(REGISTRANT)
Dated: May 13, 2002 By: /s/ JAMES J. CHARLES
-----------------------------------------
James J. Charles, Chief Financial Officer
13