SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2003
[ ] 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, 2003, there were 8,026,128
shares of the Registrant's Common Stock outstanding.
ATEC GROUP, INC.
TABLE OF CONTENTS
PART I Financial Information Page
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Item 1. Financial Statements ......................................... 1-9
Item 2. Managements Discussion & Analysis of
Financial Condition and Results of Operations ................ 10-14
Item 3. Quantitative and Qualitative Disclosures about Market ........ 14
Item 4. Controls and Procedures ...................................... 14
Item 4. Forward Looking Statements and Associated Risks .............. 15
PART II Other Information Required in Report
- ------- ------------------------------------
Item 1. Legal Proceedings ............................................ 16
Item 2. Changes in Securities and use of Proceeds .................... 16
Item 3. Defaults Upon Senior Securities .............................. 16
Item 4. Submission of Matters to a Vote of Security Holders .......... 16
Item 5. Other Information ............................................ 16
Item 6. Exhibits and Report on Form 8K ............................... 16
Signatures Page ....................................................... 17
Certifications ........................................................ 18-20
Exhibits .............................................................. 21-24
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
ASSETS 31-Mar-03 30-Jun-02
------------ ------------
Current Assets
Cash and cash equivalents $ 1,002,272 $ 1,382,722
Accounts receivable, net 3,940,999 3,166,078
Inventories 481,344 602,792
Deferred taxes 401,493 401,493
Other current assets 807,725 858,682
------------ ------------
Total currrent assets 6,633,833 6,411,767
------------ ------------
Property and equipment, net 188,140 290,040
Goodwill, net -- 864,961
Other assets 74,368 235,182
------------ ------------
$ 6,896,341 $ 7,801,950
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 520,543 $ 368,292
Accounts payable 1,231,296 1,114,071
Accrued expenses 480,898 585,795
Deferred income -- 26,976
Other current liabilities 381,931 654,182
------------ ------------
Total liabilities 2,614,668 2,749,316
------------ ------------
Stockholders' equity
Preferred stocks 806,913 835,582
Common stock 86,502 73,435
Additional paid-in capital 12,370,863 11,815,397
Discount on preferred stock (717,005) (742,740)
Retained earnings (deficit) (7,467,733) (6,219,452)
Treasury stock at cost (797,867) (709,588)
------------ ------------
Total stockholders' equity 4,281,673 5,052,634
------------ ------------
$ 6,896,341 $ 7,801,950
============ ============
1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31
2003 2002
----------- -----------
Net sales $ 9,856,564 $10,876,246
Cost of sales 8,330,885 9,655,189
----------- -----------
Gross profit 1,525,679 1,221,057
----------- -----------
Operating expenses
Selling and administrative 1,667,445 1,698,611
----------- -----------
Total operating expenses 1,667,445 1,698,611
----------- -----------
Loss from operations (141,766) (477,554)
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Other income (expense)
Miscelleneous income 2,500 4,679
Interest income 4,363 10,101
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Total other (expense) income 6,863 14,780
----------- -----------
Loss before provision for income taxes (134,903) (462,774)
Provision [benefit] for income taxes -- --
----------- -----------
Net loss $ (134,903) $ (462,774)
=========== ===========
Net earnings (loss) per share-basic and diluted $ (0.02) $ (0.07)
=========== ===========
Weighted average number of shares-basic 7,770,378 6,969,344
=========== ===========
Weighted average number of shares-diluted 7,770,378 6,969,344
=========== ===========
2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31
2003 2002
----------- -----------
Net sales $27,693,274 $30,543,770
Cost of sales 23,687,648 25,930,538
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Gross profit 4,005,626 4,613,232
----------- -----------
Operating expenses
Selling and administrative 4,261,516 5,216,481
Impairment of Goodwill and other assets 1,026,961 --
----------- -----------
Total(loss)operating expenses 5,288,477 5,216,481
----------- -----------
Income (loss) from operations (1,282,851) (603,249)
----------- -----------
Other income (expense)
Miscellaneous income 14,712 22,277
Interest income 19,858 34,641
Interest expense -- (268)
----------- -----------
Total other (expense) income 34,570 56,650
----------- -----------
Income (loss) before provision for income taxes (1,248,281) (546,599)
Provision (benefit) for income taxes -- --
----------- -----------
Net income (loss) $(1,248,281) $ (546,599)
=========== ===========
Net earnings (loss) per share-basic and diluted $ (0.16) $ (0.08)
=========== ===========
Weighted average number of shares-basic 7,770,378 7,026,937
=========== ===========
Weighted average number of shares-diluted 7,770,378 7,026,937
=========== ===========
3
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
2003 2002
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Net cash provided by (used in) operating activities $ (643,862) $ (423,011)
----------- -----------
Cash flows from investing activities:
Purchase of Treasury Stock (88,279) (54,375)
Purchase of property and equipment (3,560) (29,753)
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Net cash (used in) provided by investing activities (91,839) (84,128)
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Cash flows from financing activities:
Exercise of Stock options 203,000 --
Short term borrowings (repayments) 152,251 (632,235)
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Net cash (used in) provided by financing activities 355,251 (632,235)
Net increase (decrease) in cash (380,450) (1,139,374)
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Cash and cash equivalents - Beginning of Period 1,382,722 1,555,020
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Cash and cash equivalents - End of period $ 1,002,272 $ 415,646
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4
ATEC GROUP, INC
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDING MARCH 31, 2003
Common Value Series Value Additional
Shares Common Preferred Preferred Paid in
Issued Stock Issued Stock Capital
------------ ------------ ---------- ------------ ------------
Balance at June 30, 2002 7,304,971 $ 73,435 424,429 $ 835,582 $ 11,815,397
Contributed Capital 30,082
Stock issued for services 980,000 926 361,673
Costs related to Contributed Capital (30,082)
Purchase of Treasury Stock
Exercise of stock options and conversions of
preferred stock 365,302 12,141 (29,335) (28,669) 193,793
Net loss for the Nine months Ended
March 31, 2003
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Balance at March 31, 2003 8,650,273 $ 86,502 395,094 $ 806,913 $ 12,370,863
==============================================================================
Discount on Retained Treasury Stock Total
Preferred Earnings ------------------------- Stockholders'
Stock (Deficit) Shares Amount Equity
------------ ------------ -------- ------------ ------------
Balance at June 30, 2002 $ (742,740) $ (6,219,452) (378,345) $ (709,588) $ 5,052,634
Contributed Capital 30,082
Stock issued for services 362,599
Costs related to Contributed Capital (30,082)
Purchase of Treasury Stock (245,800) (88,279) (88,279)
Exercise of stock options and conversions of
preferred stock 25,735 203,000
Net loss for the Nine months Ended
March 31, 2003 (1,248,281) (1,248,281)
--------------------------------------------------------------------------------
Balance at March 31, 2003 $ (717,005) $ (7,467,733) (624,145) $ (797,867) $ 4,281,673
================================================================================
5
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED MARCH 31, 2003
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The accompanying interim unaudited consolidated financial statements include the
accounts of Atec Group, Inc. and its subsidiaries that 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, as amended, for the year ended June 30, 2002.
2. Proposed Acquisition and disposition of business:
on November 25, 2002:
1. we entered into a Capital Stock Exchange Agreement with Interpharm, Inc.,
a manufacturer of generic pharmaceuticals, and all of the shareholders of
Interpharm, pursuant to which, subject to approval from our stockholders,
we plan to acquire all of the issued and outstanding stock of Interpharm
(the "Acquisition"); and
2. entered into an Asset Purchase Agreement with Baar Group, an entity owned
by most of our current management, whereby Baar Group agreed to purchase
our assets and assume substantially all of our liabilities for a purchase
price of $4,278,184 (the net purchase price is $2.75 million in cash and
notes, the retention of approximately $1.2 million in cash and the
assumption of approximately $1.7 million in liabilities), subject to
certain adjustments at closing (the "Management Buyout").
These transactions are described in greater detail in our Definitive Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission on
May 2, 2003.
6
3. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
March 31, 2003 Authorized Outstanding Amount
---------- ----------- --------
Preferred Stocks:
Series A cumulative convertible 29,233 7,631 $ 763
Series B convertible 12,704 1,458 145
Series C convertible 350,000 281,005 281,005
Series J convertible 105,000 105,000 525,000
--------- --------
Total preferred 395,094 $806,913
========= ========
Common Stock 70,000,000 8,650,273 $ 86,503
========= ========
4. Computation of Earnings (Loss) Per Share
Earnings (Loss) per share are based on the weighted average number of common and
common equivalent shares outstanding.
5. Impairment of Goodwill and Deferred Compensation
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.
On November 25, 2002 we entered into an agreement to sell our computer
operations to an entity owned by most of our current management. Management
performed a current impairment evaluation due to the change in circumstances. As
a result of this evaluation the Company has concluded that there was an
impairment of our goodwill of $864,961. Deferred Compensation of $162,000 also
was impaired.
7
6. Income Taxes
The Company's income tax provision consists of the following:
Current tax provision (benefit) 2003 2002
-------- --------
Federal $ -- $ --
State -- --
-------- --------
Deferred tax provision (benefit)
Federal -- --
State -- --
-------- --------
Income tax provision (benefit) $ -- $ --
======== ========
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.
March 31, June 30,
2003 2002
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Net operating loss carry forward $1,879,341 $1,879,341
Allowance for bad debts 146,086 134,836
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Total deferred tax assets 2,025,427 2,014,177
Less: Valuation allowance for deferred tax assets 1,623,934 1,612,684
---------- ----------
Total $ 401,493 $ 401,493
========== ==========
8
7. 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 FOR NINE MONTHS ENDING
MARCH 31, MARCH 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales:
TIS $ 6,530,662 $ 6,029,936 $ 16,002,082 $ 13,522,183
B to B 3,325,902 4,598,142 11,691,192 16,287,603
Software -- 152 -- 1,538
Manufacturing -- 248,016 -- 732,446
------------ ------------ ------------ ------------
$ 9,856,564 $ 10,876,246 $ 27,693,274 $ 30,543,770
============ ============ ============ ============
Net income (loss):
TIS $ 438,682 $ (132,351) $ 4,498 $ (476,041)
B to B (73,751) 265,122 (429,271) 1,549,820
Software -- (10,573) -- (54,888)
Manufacturing -- (331,777) -- (678,892)
Corporate (499,834) (253,195) (823,508) (886,598)
------------ ------------ ------------ ------------
$ (134,903) $ (462,774) $ (1,248,281) $ (546,599)
============ ============ ============ ============
Depreciation:
TIS $ 32,512 $ 41,706 $ 87,041 $ 111,206
B to B 1,913 2,609 5,736 7,826
Software -- -- -- --
Manufacturing -- 722 -- 2,167
Corporate (9,031) 1,359 12,684 12,234
------------ ------------ ------------ ------------
$ 25,292 $ 46,396 $ 105,461 $ 133,433
============ ============ ============ ============
Capital additions
TIS $ -- 29,753 560 29,753
B to B -- -- --
Software -- -- --
Manufacturing -- -- --
Corporate -- -- 3000 --
------------ ------------ ------------ ------------
0 29,753 3560 29,753
============ ============ ============ ============
Identifiable
assets:
TIS $ 4,416,731 $ 5,340,418 $ 4,416,731 $ 5,340,418
B to B 1,170,878 2,385,254 1,170,878 2,385,254
Software 3,853 3,853 3,853 3,853
Manufacturing -- 256,651 -- 256,651
Corporate 1,304,879 932,766 1,304,879 932,766
------------ ------------ ------------ ------------
$ 6,896,341 $ 8,918,942 $ 6,896,341 $ 8,918,942
============ ============ ============ ============
9
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.
On November 25, 2002, we:
1. entered into a Capital Stock Exchange Agreement with Interpharm, Inc., a
manufacturer of generic pharmaceuticals, and all of the shareholders of
Interpharm, pursuant to which, subject to approval from our stockholders,
we plan to acquire all of the issued and outstanding stock of Interpharm
(the "Acquisition"); and
2. entered into an Asset Purchase Agreement with Baar Group, an entity owned
by most of our current management, whereby Baar Group agreed to purchase
our assets and assume substantially all of our liabilities for a purchase
price of $4,278,184, subject to certain adjustments at closing (the
"Management Buyout").
These transactions are described in greater detail in our Definitive Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission on
May 2, 2003 (the "Proxy Statement").
The following discussion relates to our current business. For similar
information related to the business of Interpharm, please see "Management's
Discussions and Analysis of Financial Condition and Results of Operations"
commencing on page 25 of the Proxy Statement.
Results of Operations
Three months ended March 31, 2003, compared to three months ended March 31,
2002.
Our revenues for the third quarter ended Mach 31, 2003 were $9.8 million
compared to $10.9 million for the prior year, a decrease of approximately 10%.
Of this decrease, $1.3 million was attributable to hardware sales by our BtoB
division. That decrease was offset by an increase of $500,000 or 8% in the TIS
division. Revenues are generated by our sales of computer hardware and software,
and related support services. Gross margin for the period increased to $1.5
million for the quarter ended March 31, 2003 from $1.2 million for the
comparable 2002 quarter, a 25% increase. Gross margins as a percentage of
revenues for the quarter were 15% as compared to 11% for the prior year, when we
experienced lower margins on hardware sales.
Selling, general and administrative expenses for the three months ended, March
31, 2003 were $1.7 million as compared to $1.7 million for the comparable period
in 2002. The income tax benefit was $0 for the 2003 quarter as compared to $0
for 2002 quarter.
As a result of the above, our net loss was $134,903 for the three months ended
March 31, 2003 compared to net loss of $462,774 for the 2002 quarter. For the
March 31, 2003 quarter, net loss per share was $.02 compared to net loss of $.07
in the prior year. Average shares outstanding were 7,770,378 for 2003 and
6,969,344 for 2002.
10
Nine Months Ending March 31, 2003 compared to March 31, 2002.
Our revenues for the nine months ending March 31, 2003 decreased to $27.7
million from $30.5 million for the prior year, a decrease of approximately 9%.
This decrease is attributable to a significant drop in sales of $4.6 million in
our B2B division offset by a $2.5 million increase in sales in our TIS division.
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
million for March 31, 2003 from $4.6 million for the comparable 2002 period.
Gross margin as a percentage of revenues for the nine months ending March 31,
2003 were 14% as compared to 15% for the prior year.
Selling, general and administrative expenses for the nine months March 31, 2003
decreased $.9 million or 17% to $4.3 million as compared to $5.2 million for the
prior year. The decrease is primarily due to lower compensation expense of
$789,000 due to a reduction of 20 employees and changes in accounting estimates
for litigation claims totaling $101,000 for legal matters that were settled in
the period. During the period we incurred an impairment of our goodwill of
$864,961 and other assets of $162,000 as a result of the Asset Purchase
agreement with Baar Group.
As a result of the above, our net loss was $1,248,281 for the nine months ended
March 31, 2003 compared to net loss of $546,599 for the 2002 quarter. For the
nine months ended March 31, 2003, net loss per share was $.16 compared to net
loss per share of $.08 in the prior year. Average shares outstanding were
7,770,378 for 2003 and 7,026,937 for 2002.
Liquidity and Capital Resources
Our cash position was $1,002,272 at March 31, 2003, a decrease of $380,450 as
compared to June 30, 2002. Our working capital at March 31, 2003 was $4,019,165
as compared to a working capital of $3,662,451 at June 30, 2002. Net cash used
by operating activities was $643,862. Cash used for investing activities totaled
$91,839 for the purchase of Treasury Stock and fixed assets. During the period
employees exercised common stock purchase options that provided cash of
$203,000. We also increased our short-term borrowings $152,251.
To accommodate our financial needs for inventory financing, IBM Credit granted
us a credit line in the amount of $750,000. At March 31, 2003, our indebtedness
to IBM Credit was $520,543, an increase of $152,251, as compared to June 30,
2002.
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Note 1 to the consolidated financial statements in the
amended Annual Report on Form 10-K for the fiscal year ended June 30, 2002
describes the significant accounting policies and methods used in the
preparation of the consolidated financial statements. Estimates are used for,
but not limited to, the accounting for the allowance for doubtful accounts,
inventory allowances, and goodwill impairments. Actual results could differ from
these estimates. The following critical accounting policies are impacted
significantly by judgments, assumptions and estimates used in the preparation of
the consolidated financial statements.
11
The allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical experience, our estimates of
the recoverability of amounts due us could be adversely affected.
Inventory purchases and commitments are based upon future demand
forecasts. If there is a sudden and significant decrease in demand for our
products or there is a higher risk of inventory obsolescence because of rapidly
changing technology and customer requirements, we may be required to increase
our inventory allowances and our gross margin could be adversely affected.
We perform goodwill impairment tests on an annual basis and between annual
tests in certain circumstances. In assessing the recoverability of the Company's
goodwill, the Company must make various assumptions regarding estimated future
cash flows and other factors in determining the fair values of the respective
assets. As a result of the asset purchase agreement entered into between the
Company and Baar Group on November 25, 2002, we have recorded an impairment
charge of $864,961 relating to our goodwill in the period, which had a material
impact on our results of operations.
Issues And Uncertainties
The following issues and uncertainties, among others, should be considered
in evaluating the Company's financial outlook. The following issues and
uncertainties relate to the Company's current business operations. On May 29,
2003, at the annual meeting of Stockholders, the Company's stockholders will be
requested to approve the sale of our current business and the acquisition of
Interpharm Inc., a manufacturer of generic pharmaceuticals. For issues and
uncertainties related to the Company's possible future pharmeceutical business,
see description of Interpharm commencing on page 9 of the Company's Definitive
Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on May 2, 2003.
The computer industry is characterized by a number of potentially adverse
business conditions, including pricing pressures, evolving distribution
channels, market consolidation and a decline in the rate of growth in sales of
personal computers. Heightened price competition among various hardware
manufacturers may result in reduced per unit revenue and declining gross profit
margins. As a result of the intense price competition within our industry, we
have experienced increasing pressure on our gross profit and operating margins
with respect to our sale of products. Our inability to compete successfully on
the pricing of products sold, or a continuing decline in gross margins on
products sold due to adverse industry conditions or competition, may have a
material adverse effect on our business, financial condition and results of
operations.
An integral part of our strategy is to increase our value-added services
revenue. These services generally provide higher operating margins than those
associated with the sale of products. This strategy requires us, among other
things, to attract and retain highly skilled technical employees in a
competitive labor market, provide additional training to our sales
representatives and enhance our existing service management system. We cannot
predict whether we will be successful in increasing our focus on providing
value-added services, and the failure to do so may have a material adverse
effect on our business, results of operations and financial condition.
To date, our revenues have been based primarily upon sales in the New York
Metropolitan area and Albany, New York. Our strategy, encompassing the expansion
of service offerings and the expansion of existing offices, has challenged and
will continue to challenge our senior management and infrastructure. We cannot
predict our ability to respond to these challenges. If we fail to effectively
manage our planned growth, there may be a material adverse effect on our
business, results of operations and financial condition.
The success of our strategy depends in large part upon our ability to
attract and retain highly skilled technical personnel and sales representatives,
including independent sales representatives, in a very competitive labor market.
Our ability to grow our service offerings has been somewhat limited by a
shortage of qualified personnel, and we cannot assure you that we will be able
to attract and retain such skilled personnel and representatives. The loss of a
significant number of our existing technical personnel or sales representatives,
difficulty in hiring or retaining additional technical personnel or sales
representatives, or reclassification of our sales representatives as employees
12
may have a material adverse effect on our business, results of operations and
financial condition.
The computer industry is characterized by intense competition. We directly
compete with local, regional and national systems integrators, value-added
resellers and distributors as well as with certain computer manufacturers that
market through direct sales forces and/or the Internet. The computer industry
has recently experienced a significant amount of consolidation through mergers
and acquisitions, and manufacturers of personal computers may increase
competition by offering a range of services in addition to their current product
and service offerings. In the future, we may face further competition from new
market entrants and possible alliances between existing competitors. Moreover,
additional suppliers and manufacturers may choose to market products directly to
end users through a direct sales force and/or the Internet rather than or in
addition to channel distribution, and may also choose to market services, such
as repair and configuration services, directly to end-users. Some of our
competitors have or may have, greater financial, marketing and other resources,
and may offer a broader range of products and services, than us. As a result,
they may be able to respond more quickly to new or emerging technologies or
changes in customer requirements, benefit from greater purchasing economies,
offer more aggressive hardware and service pricing or devote greater resources
to the promotion of their products and services. We may not be able to compete
successfully in the future with these or other current or potential competitors.
Our business is dependent upon our relationships with major manufacturers
and distributors in the computer industry. Many aspects of our business are
affected by our relationships with major manufacturers, including product
availability, pricing and related terms, and reseller authorizations. The
increasing demand for personal computers and ancillary equipment has resulted in
significant product shortages from time to time, because manufacturers have been
unable to produce sufficient quantities of certain products to meet demand. In
addition, many manufacturers have adopted "just in time" manufacturing
principles that can reduce the immediate availability of a wide range of
products at any one time. We cannot predict that manufacturers will maintain an
adequate supply of these products to satisfy all the orders of our customers or
that, during periods of increased demand, manufacturers will provide products to
us, even if available, or at discounts previously offered to us. In addition, we
cannot assure you that the pricing and related terms offered by major
manufacturers will not adversely change in the future. Our failure to obtain an
adequate supply of products, the loss of a major manufacturer, the deterioration
of our relationship with a major manufacturer or our inability in the future to
develop new relationships with other manufacturers may have a material adverse
effect on our business, financial condition and results of operations. On May 3,
2002, the Hewlett-Packard Company and Compaq Computer Corporation merged. ATEC
sells the products of both companies and we believe that we have strong
relationships with both companies. While we do not believe that there will be a
material adverse effect on our business, financial condition and results of
operations as a result of this merger, there can be no assurance that such a
material adverse effect will not occur.
The markets for our products and services are characterized by rapidly
changing technology and frequent introduction of new hardware and software
products and services. This may render many existing products and services
noncompetitive, less profitable or obsolete. Our continued success will depend
on our ability to keep pace with the technological developments of new products
and services and to address increasingly sophisticated customer requirements.
Our success will also depend upon our abilities to address the technical
requirements of our customers arising from new generations of computer
technologies, to obtain these new products from present or future suppliers and
vendors at reasonable costs, to educate and train our employees as well as our
customers with respect to these new products or services and to integrate
effectively and efficiently these new products into both our internal systems
and systems developed for our customers. We may not be successful in
identifying, developing and marketing product and service developments or
enhancements in response to these technological changes. Our failure to respond
effectively to these technological changes may have a material adverse effect on
our business, financial condition and results of operations.
13
Rapid product improvement and technological change characterize the
computer industry. This results in relatively short product life cycles and
rapid product obsolescence, which can place inventory at considerable valuation
risk. Certain of our suppliers provide price protection to us, which is intended
to reduce the risk of inventory devaluation due to price reductions on current
products. Certain of our suppliers also provide stock balancing to us pursuant
to which we are able to return unsold inventory to a supplier as a partial
credit against payment for new products. There are often restrictions on the
dollar amount of inventory that we can return at any one time. Price protection
and stock balancing may not be available to us in the future, and, even if
available, these measures may not provide complete protection against the risk
of excess or obsolete inventories. Certain manufacturers have reduced the period
for which they provide price protection and stock balancing rights. Although we
maintain a sophisticated proprietary inventory management system, we cannot
assure you that we will continue to successfully manage our existing and future
inventory. Our failure to successfully manage our current or future inventory
may have a material adverse effect on our business, financial conditions and
results of operations.
As a result of the rapid changes that are taking place in computer and
networking technologies, product life cycles are short. Accordingly, our product
offerings change constantly. Prices of products change, with generally higher
prices early in the life cycle of the product and lower prices near the end of
the product's life cycle. The computer industry has experienced rapid declines
in average selling prices of personal computers. In some instances, we have been
able to offset these price declines with increases in units shipped. There can
be no assurance that average-selling prices will not continue to decline or that
we will be able to offset declines in average selling prices with increases in
units shipped.
ITEM 3 - Quantitative 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.
ITEM 4 - Controls and Procedures
ATEC management, including the Chief Executive Officer and Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this quarterly report has been made
known to them in a timely fashion. There have been no significant changes in
internal controls, or in other factors that could significantly affect internal
controls, subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
14
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
Certain statements in this Report, and the documents incorporated by reference
herein, constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors (collectively, "Factors") which may cause deviations in actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied. Such Factors related
to our current business operations include but are not limited to:
o risks associated with the uncertainty of future financial results;
o additional financing requirements;
o development of new products or mergers;
o the continued ability to sustain integration of future acquisitions;
o the ability to hire and retain key personnel;
o the continued development of our technical, manufacturing, sales,
marketing and management capabilities;
o relationships with and dependence on third-party suppliers;
o anticipated competition;
o uncertainties relating to economic conditions;
o uncertainties relating to government and regulatory policies;
uncertainties relating to customer plans and commitments;
o rapid technological developments and obsolescence in the industries in
which the Company competes;
o potential performance issues with suppliers and customers;
o governmental export and import policies;
o global trade policies;
o worldwide political stability and economic growth; potential entry of new,
well-capitalized competitors into the markets;
o changes in the Corporate capital structure and cost of capital;
Whether and when we complete the Acquisition and/or the Management Buyout
clearly will materially affect our forward-looking statements. For disclosure
about material Factors related to Interpharm's business operations, see
"Forward-Looking Statements" commencing on page 33 of the Proxy Statement.
The words "believe, expect, anticipate, intend and plan" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made.
15
Atec Group, Inc. and Subsidiaries
Other
Information
March 31, 2003
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 Reports on Form 8-K
Exhibits
--------
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.3 Certification of President pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Reports on Form 8-K - None
16
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: May 14, 2003
By: /s/ James J. Charles
----------------------
James J. Charles,
Chief Financial Officer
(Duly authorized to sign on
behalf of registrant)
17
CERTIFICATION
I, Balwinder Singh Bathla, Chief Executive Officer of ATEC Group, Inc. (the
"Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
May 14, 2003
/s/ Balwinder Singh Bathla
- ---------------------------
Chief Executive Officer
18
CERTIFICATION
I, James J. Charles, Chief Financial Officer of ATEC Group, Inc. (the
"Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
May 14, 2003
/s/ James J. Charles
- --------------------------
Chief Financial Officer
19
CERTIFICATION
I, Ashok Rametra, President of ATEC Group, Inc. (the "Registrant"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation
Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
May 14, 2003
/s/ Ashok Rametra
- --------------------------
President
20
Exhibits
Number Description
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.3 Certification of President pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21