SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                              --------------------

                                    FORM 10-K
                              --------------------

                                 CURRENT REPORT

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the Fiscal Year Ended June 30, 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.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)


Delaware                                                      13-3673965
--------------------------------------------------------------------------------
(State or other jurisdiction of                             (IRS. Employer
 corporation or organization)                            Identification Number)

69 Mall Drive, Commack, New York                                 11725
--------------------------------------------------------------------------------
(Address of principal executive offices)                       (Zip Code)


Issuer's telephone number, including area code (631) 543-2800
                                               ---------------------------------

Securities registered pursuant to Section 12(b) of the Act:  Common Stock $.01
                                                             par value


Securities registered pursuant to Section 12(g) of the Act:   Series A Preferred
                                                              Stock $.01
                                                              par value



         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 requirement for the past 90 days.

                                 YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

                                 YES [X] NO [ ]

         On September 20, 2001, the aggregate market value of the voting common
equity of ATEC Group, Inc., held by non-affiliates of the Registrant $2,647,304*
was based on the closing price of $.45 for such common stock on said date as
reported by the American Stock Exchange. On such date, there were 7,347,689
shares of common stock of the Registrant outstanding.

         * Excludes 1,464,792 shares of common stock beneficially owned by
Surinder Rametra, Ashok Rametra, Praveen Bhutani, Stewart Benjamin, James
Charles and David Reback, the officers and directors of the Company.





                                       2


FORWARD-LOOKING STATEMENTS


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 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 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;
o        and uncertainties inherent in international operations and foreign
         currency fluctuations.

         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.

                                       3


                                     PART I
                                     ------

ITEM 1.  BUSINESS
         --------

GENERAL

         ATEC Group, Inc. ("the Company" or "ATEC") is a one-stop provider for 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 IP, e-commerce,
web hosting, , ASP and Internet/Intranet solutions. Recently we entered the IT
enabled services with an emphasis on call centers.

         In furtherance of our efforts to provide end-to-end solutions to
clients, we continue to commit resources to establish our PC manufacturing
division, Nexar(R), which offers a line of branded computer products built with
state-of-the-art technology, minimizing upgrade cost. Nexar provides unique 24 x
7 toll-free hardware and software support, including off-the-shelf software.

         Our e-commerce website, www.atecgroup.com, is designed to ensure our
clients seamless access, security, speed and ease of use. It employs a unique
and powerful search engine and database that was developed in-house and is
continually being reengineered. We plan to market this search engine and
e-commerce development capability as a new offering to our clients while
continuing our own expansion into the e-commerce marketplace. www.atecgroup.com
offers over 60,000 information technology (IT) products from major PC and
peripheral manufacturers along with access to comprehensive technical
specifications and availability on most of these products that allows buyers to
shop, compare and procure all their IT product needs through one place, easily
and quickly, making us a one-stop solution provider. The site also offers our
Nexar PC line of products directly to end-users and corporate clients.

         Most industry experts agree that e-business will dramatically impact
traditional supply chains and distribution channels. E-marketers estimate
e-business revenues to exceed $3.5 trillion by the year 2002 and reach in excess
of $7.0 trillion by 2004, representing over 7% of all sales transactions
worldwide. With that in mind, we continually aim to be a part of the e-business
segment growth. However, we believe that existing relationships will not vanish
overnight. Our goal is to continue to strengthen our presence in both the
business-to-business (B2B) and business-to-consumer (B2C) segments of
e-commerce, each of which is critical to strengthening our core business
objective of providing a one-stop, value-added service and product solution.

                                       4


         As the decision-making process that confronts organizations while
planning, selecting and implementing information technology solutions has grown
more complex, it became necessary for us to create an enterprise-focused team,
our Technology Integration Services (TIS) division, to streamline and strengthen
our core business. Our TIS trained support staff has opened new avenues for us
such as turn-key server-based computing, storage networks and complete
end-to-end solutions, including implementation, project management and program
custom applications on platforms such as Citrix, Microsoft NT, Netware, Linux,
Unix, Java and others.


INDUSTRY

         Complex computer information processing systems, the foundation on
which business and organizations now function, are continuously being
redesigned, modified and upgraded as new computer and telecommunications
technologies are introduced. Until the mid-1980s, either mid-range or mainframe
computer systems were used to manage an organization's mission-critical,
transaction-oriented functions, such as banking, credit transactions,
point-of-sale and airline reservations.

         In the late 1980s, a new architecture for information processing called
"client/server" computing emerged, fueled by the growing intelligence in desktop
computers, expanding capabilities of software applications and growing
capabilities of networks. A client/server system typically consists of multiple
intelligent desktop client computers linked with high- performance server
computers by a LAN/WAN providing flexibility and mobility to a wide range of
applications. Most corporations today are seeking to reconfigure their existing
mainframe/mid-range computers (sometimes referred to as "legacy systems") to
operate in parallel with client/server networks. We believe that these two
information system models, legacy systems and client/server systems, will
continue to coexist, providing advantages for certain applications. Over the
past several years, the increase in performance of personal computers and the
development of a variety of effective business connectivity software programs
have led to an industry shift away from mainframe computer systems to
client/server systems.

         The markets for information technology products and services are
expected to continue to experience significant growth over the next few years.
According to Data Quest Inc., a leading industry market research firm, the U.S.
market for personal computers is expected to increase from $80 billion in 1998
to $103 billion in 2001, a compound growth rate of 9%. We believe that the
leading factors driving the growth in the markets are the continued transition
to distributed computing technologies, such as client/server.

                                       5


BUSINESS STRATEGY

         We as a value-added reseller, distribute products to major clients and
other resellers, and provide services such as consulting, procurement,
built-to-order, networking and hardware sales to our clients. We focus on
servicing small and medium-size enterprises (SME), which often do not have the
adequate IT personnel to procure, design, install or maintain complex systems to
incorporate continuously evolving technologies.

         Since 1998, the PC market underwent major changes as leading
manufacturers such as IBM, Compaq, Toshiba, Apple and Hewlett-Packard shifted
their focus away from the reseller channel towards direct marketing. Such
actions by the major manufacturers significantly affected the distribution
business due to the availability of products and competition on direct volume
sales. In response, we changed our focus to exit low margin distribution sales
and enter into complementary lines of business by:

o        Enhancing our existing value added/system integration services into a
         Technical Integration Services (TIS) division as the strategic
         marketing arm to serve clients effectively;
o        Expanding into Internet and e-solutions with atecone.net and
         atecgroup.com, respectively;
o        Acquiring the intellectual properties of Nexar and establishing a PC
         manufacturing division;
o        Enhancing our software development capabilities through offshore
         alliances; and
o        Creating a consolidated new corporate structure to streamline
         administrative functions and stimulate future growth.


MARKETING STRATEGY

         Our marketing strategy is to educate business clients about our ability
to provide a single source, end-to-end solution that reduces total cost of
ownership. In an effort to create a unique identity and distinguish ourselves
from the competition, we have committed our resources to assisting our clients
in the implementation of the latest changes in the IT industry.

         We are an authorized dealer for leading manufacturers such as Compaq,
Gateway, Hewlett-Packard, Apple, Novell, Informix, Quest Communications, AMD,
Citrix, Microsoft, 3 COM, Toshiba, Oracle, Sybase, Intel, Computer Associates
and numerous others. We provide our clients with a variety of products from
microcomputers to client/servers to peripherals. To market our products, we
enjoy partnering relationships with major computer distributors, including
Ingram Micro, Tech Data and others, which have multiple distribution sites and
collectively carry more than $1 billion in inventory at any given point. Through
these two relationships, manufacturers on the one hand and distributors on the
other, we offer our clients the best in information technology products while
reducing our inventory cost.

         To succeed in this competitive environment and to achieve greater
client satisfaction, we offer our clients several distinct advantages:

o        A commitment to providing a single source, "end-to-end" solution to
         their individual data processing needs;

                                       6


o        Low cost overhead structures, including limited inventory, extensive
         use of warehousing of our allied distributors and automated management
         and operating functions, thereby enabling us to hold costs down;
o        Continual pursuit of new products and service offerings in response to
         market conditions, and
o        Responsive, expert service and support.


PRODUCTS, SERVICES AND SOLUTIONS

         We market a broad selection of products with a focus on microcomputers,
client/servers and peripherals manufactured by major vendors. Our subsidiaries
are authorized sales and service dealers for major IT manufacturers. The sales
of products by major manufacturers such as Apple, Compaq, Toshiba, Gateway,
Epson and Hewlett-Packard generated over 50% of our revenue for the year ended
June 30, 2001. The agreements with these vendors are generally renewed
periodically and permit termination by manufacturers without cause, generally
upon 30 to 90 days notice. These provisions are standard in the computer
reseller industry.

         We evaluate product assortment based on technological advances,
availability and marketability of the products. We continually seek to expand
our product offerings in response to market conditions. Service and support is
performed with an emphasis on achieving higher profit margins while ensuring
quality service to our clients. We have excellent vendor/dealer relationships
with major national distributors, enabling us to source our products from
multi-distribution channels.

PC Manufacturing

         Nexar(R), a division of ATEC with patented technologies, is an
innovative manufacturer of personal computers with a fundamentally different
approach to personal computing. Nexar manufactures PCs that allow for
customization of the system and enable end-users to affordably upgrade all major
system components, including future processors and technology advances.

         Nexar has developed three lines of personal computers with
high-resolution, high-performance monitors, and is committed to continually
developing and introducing new product lines to keep ahead of technology. The
current product lines of Nexar are:

     Enable Series: This series captures the true essence of the PC, powered by
     the latest class of processors, and is built to the rigorous standards of
     ISO 9002 specifications. Superior quality and performance are combined to
     create top value in the world of desktop computers. Enable is aimed at the
     cost-conscious consumer.

     Empower Series: These systems are built to the client's specifications
     using widely accepted quality components and peripherals to ensure 100%
     compatibility. This line is the ideal solution for clients who demand to
     stay on the cutting edge of technology. The

                                       7


     Empower line is aimed at corporate users who require value and the
     flexibility of standard options and components.

     Infinity Series: This series incorporates Nexar's patented XPA technology,
     which uses standard components but allows for processor and memory upgrades
     across processor generations from within the same PC footprint.

         Nexar offers its products through our extended sales and marketing
group, national retail channels and directly through our web sites:
www.nexarusa.com and www.atecgroup.com.

Global Distribution

         Global Distribution "GD" has been operating in this marketplace for
over 15 years. It enjoys direct relationships with a number of manufacturers
that seek out in advance when they have product that fit the Global Distribution
model. These manufactures include Cisco, IBM, Compaq, HP, NEC, Toshiba, View
Sonic and many others.

         Several studies highlight the fact that the majority of technology
users never fully utilize the capabilities of their installed systems. For those
times that IT professionals are seeking a less expensive way to implement a
project, Global Distribution acquires Brand Name, New, Fully Warranted Late Life
Cycle products that can be serviced by any authorized provider. These products
are acquired in volume and at costs typically 30-50% below market.

         Global Distribution is a B2B division of ATEC that offers a unique
combination of price and delivery to other resellers, retailers and enterprise
customers. Our low cost overhead structure - selective inventory, extensive use
of warehousing facilities of allied vendors and distributors - ensures cost
effective solutions.

Technology Integration Service

         The microcomputer industry is characterized by numerous hardware
systems that utilize different and often incompatible standards for hardware and
software applications. Further, as new technologies in PCs, telecommunication
and wireless are introduced, organizations need to continually redesign, upgrade
and modify their existing systems. In response to these growing IT requirements,
we recognize the need to go beyond the traditional system integration approach
(trouble shooting, networking, custom configuration of technology) and to create
an enterprise focused team: its Technology Integration Services (TIS) division.
The TIS group is focused on providing value-added solutions to allow customers
to take advantage of the technology they need without many of the obstacles
required to implement them. The services offered by TIS include:

                                       8



         1.       Technology fulfillment and management
         2.       Staff augmentation and outsourcing
         3.       Professional and network services-ATEC branded solutions
         4.       Server-based computing (Microsoft Terminal Server and Citrix
                  Metaframe)
         5.       Software solutions
         6.       E-commerce, Internet access, ISP and Internet integration
         7.       End-user support
         8.       Special technology and markets

Software Solutions

         We offer both project management capabilities and technical expertise
to deliver high-quality custom software to our clients. We provide a wide range
of services, including analysis, design, coding, testing, deployment,
implementation, training and maintenance.

IT Enabled Services

         In the global, digital economy, the biggest challenge faced by a
business enterprise is to reach, retain, acquire and service customers in a
shrinking world - thanks to the universal penetration of the Internet. Today's
empowered customer, regardless of the industry, company, or product has 3
expectations:

   o     Easy and immediate access to information,
   o     Personalized service,
   o     Prompt and efficient response and resolution of problems.

         Businesses are tapping into global availability of skilled resources
and technology to address these customer needs and achieving significant
improvements in cost, quality and time to deliver these services.

         IT-enabled services are parts of the value chain (business process and
services), which are sourced from a geographic area different from the location
of the end users. They are usually delivered over private or efficient public
networks and are frequently offered cross-border rather than from within the
same national borders of the end user.

         McKinsey predicts that the global IT-enabled services opportunity is
likely to grow to $142 billion by 2008. Customer interaction services, financial
processing, accounting services and data management services will account for
almost 90 percent of the market. According to IDC, worldwide spending on
customer relationship management services is expected to be about $90 billion
annually by 2003.

                                       9


ATEC's IT- enabled services include:

  o      Customer Interaction Center
             Customer Relationship Management
             Call Center / Contact Center
             Help Desk
             Telemarketing
             Market research

  o      Software Development & Maintenance

         A call center traditionally is defined as a physical location with
telecom links for incoming and outgoing calls and trained agents to carry out
sales and support activities.

         In today's market environment, a call center is really much more than
that. It leverages convergence technologies of the WWW, internet, computer,
telephony and CRM software to provide an integrated customer contact center with
the focus on meeting a customer's needs for easy access, personalized services
and fast response and resolution of problems. It collects valuable data about
the customers, which is used to further strengthen the customer relationship. It
acts as the central point for all forms of interaction between the company and
its customers - phone call, telemarketing, web site, email, fax, chat, on-line
support etc.

         ATEC's off-shore customer contact center combines data and voice
communication along with trained consultants to provide a variety of customer
interaction related functions such as marketing, selling, information
dispensing, technical support, help desk etc. A dedicated line circuit connects
the offshore contact center to ATEC's Commack headquarters.

         We entered this market in April 2001.


COMPETITION

         The microcomputer market is very competitive, and as such we compete
directly with major PC manufacturers, a variety of local and national
distributors, super stores, retailers, mail order houses and other entities that
offer computer products and services. We compete with these entities based on
our commitment to provide a cost-effective, single source, "end-to-end" solution
to our clients' IT needs. We attempt to competitively price hardware and
software items with our wide range of customer support and services; however, we
do not focus on pricing as our primary competitive strength. Rather, we believe
that our principal strength is our ability to offer clients complete and
cost-efficient solutions to their individual IT needs.

                                       10


BACKLOG

         We do not have a significant backlog, as we normally deliver and
install the computer products purchased by our clients within a short time of
the date of order.


GOVERNMENTAL REGULATION AND CONTRACTS

         We believe that we are in compliance with federal and state laws and
regulations that are applicable to our operations. We are not a party to any
government contract that represents a material portion of our revenue or that,
if terminated or renegotiated, would have a material adverse effect on our
business.



PATENTS AND TRADEMARKS

Patented Technology

         The U.S. Patent & Trademark Office awarded Nexar a patent for its
advanced PC motherboard and chassis design. The patent addresses the Nexar PC's
Inverted Socket Process Architecture and design that place the processor, system
memory and cache sockets on the undercarriage of the motherboard and a "future
ready" XPA design that incorporates a highly innovative split motherboard
design. XPA is a substantial enhancement to our ISPA patent because it supports
multiple processor architectures. The XPA design separates the most stable
components of a PC from those components that are most susceptible to technology
obsolescence, easily enabling resellers and users to adapt to rapidly changing
technologies.

Trademark

         On May 11, 1999, the U.S. Patent and Trademark Office granted us a
trademark for Nexar. We currently use the Nexar mark on our line of computers.
The registration is enforceable for ten (10) years.



EMPLOYEES

         As of September 14, 2001, there was an aggregate of approximately 106
employees, including 5 administrators, 20 staff persons, 13 managers, 35
full-time sales persons, 30 technical and 3 warehouse personnel. We have no
collective bargaining agreements and believe that relations with our employees
are good.

                                       11



ITEM 2.  PROPERTIES
         ----------

         Our headquarters and executive offices are located at 69 Mall Drive,
Commack, New York. This location occupies approximately 23,175 square feet
pursuant to a lease expiring in 2005, and provides for annual rental payments of
approximately $134,000, plus certain expenses. We also maintain a retail
location and warehouse facility in Albany, New York, consisting of approximately
8,050 square feet. The Albany facility lease expires on June 30, 2003 and
requires annual rental payments of $108,192, plus all expenses and taxes
attributable to the operation of the premises. The Albany facility is leased
from a company controlled by Surinder and Ashok Rametra, officers and directors
of ATEC. The New York City operations are located at 143 West 29th Street, New
York, New York. This location occupies 7,000 square feet; 4,000 square feet is
leased on a month-to-month basis and requires annual rental payments of $48,000,
plus certain expenses and 3,000 square feet with required annual payments of
$36,000 per year, plus other expenses under a lease expiring in 2002. Our
Pinebrook, New Jersey facility occupies 5,328 square feet and requires annual
payments of approximately $41,026 per year, plus other expenses under a lease
expiring in 2002. Our Syracuse facility occupies 1,300 square feet and requires
annual rental payments of approximately $16,000 per year, plus other expenses
under a lease expiring in 2002.

         We believe that our current facilities are suitable for our present and
projected needs. We do not own any real property.




ITEM 3.  LEGAL PROCEEDINGS
         -----------------

         On August 23, 1999, a class-action lawsuit was filed in the United
States District Court for the Eastern District of New York on behalf of all
persons who purchased common stock from October 12, 1998, through May 19, 1999,
inclusive. The complaint charges ATEC and certain of its officers and directors
with violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of
1934, as well as SEC Rule 10b-5 promulgated thereunder. Plaintiffs seek to
recover damages on behalf of all class members.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

         During the last quarter of fiscal year 2001, we did not submit any
matter to the vote of our shareholders.

                                       12



                                     PART II
                                     -------

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
         -------------------------------------------------------

                          PRICE RANGE OF COMMON STOCK

         Our common stock is currently traded on the American Stock Exchange
under the symbol "TEC." The following table sets forth the high and low bid
prices for our common stock for the periods indicated as reported by the NASDAQ
and AMEX. Such prices reflect inter-dealer prices, without retail mark-up,
markdown or commissions and may not necessarily represent actual transactions.




                                  COMMON STOCK

                                                                          High      Low
                                                                         ------    ------
                                                                             
1999
      Quarter ended 9/30................................................ $4.000    $2.000
      Quarter ended 12/31...............................................  3.250     1.750

2000
       Quarter ended 3/31...............................................  7.000     2.380
       Quarter ended 6/30...............................................  4.940     2.125
       Quarter ended 9/30...............................................  2.313     1.625
       Quarter ended 12/31..............................................  2.000      .438

2001
       Quarter ended 3/31...............................................  1.000      .370
       Quarter ended 6/30...............................................   .810      .380





         On September 20, 2001, there were approximately 247 holders of record
of our common stock, 17 holders of record of Series A preferred shares and 3
holders of record of the Units. The number of record holders does not include
holders whose securities are held in street name.

         We do not currently pay dividends on our common stock. It is
management's intention not to declare or pay dividends on our common stock, but
to retain earnings for the operation and expansion of our business.

         The holders of our Series A preferred shares are entitled to certain
dividend payments upon declaration by the Board of Directors. (See "Item
8-Financial Statements").

                                       13


ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

         The following selected financial data as and for each of the five years
in the period ended June 30, 2001, have been derived from audited financial
statements. This information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report and
"Management's Discussion and Analysis."



Operating Data                      2001             2000             1999             1998             1997
--------------               --------------   --------------   ---------------  ---------------  ---------------
                                                                                  
Net Sales                    $   53,051,120   $   71,937,680   $   107,435,617  $   187,150,614  $   100,841,362
Income or (Loss) from
continuing operations        $   (4,525,134)  $      296,953   $    (4,299,228) $     2,740,066  $     1,667,898
Income (Loss) per
common share:
Basic                        $         (.64)  $          .04   $          (.62) $           .45  $           .28

Diluted                      $         (.64)  $          .04   $          (.62) $           .43  $           .43


Balance Sheet Data

Total Assets                 $   11,109,198   $   16,490,517   $    16,004,995  $    26,634,164  $    17,147,707
Long-term obligations               Nil              Nil               Nil              Nil              Nil
Cash dividends per
common share                        Nil              Nil               Nil              Nil              Nil



Results for fiscal 2001 includes charges of $325,000 related to the temporary
control of the Company by Applied Digital Solutions and the settlement of
litigation of $625,000.

Results for fiscal 2000 reflected one-time charges totaling $284,000, including
approximately $186,200 in expenses related to a class-action lawsuit, $58,800 in
moving expenses for the relocation of the Company's headquarters and warehouse,
and $39,400 of costs related to a terminated merger with Applied Digital
Solutions.

All earnings per share reflect our one-for-five reverse stock split in November
1997.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
         -------------

Background

         We are a leading system integrator and provider of a full line of IT
service products, as well as a single source, "end-to-end" solution provider for
the computer needs of businesses, professionals, government agencies and
educational institutions.

                                       14



RESULTS OF OPERATIONS

Fiscal 2001 compared to Fiscal 2000

         Revenues for the fiscal year ended June 30, 2001 ("fiscal 2001")
decreased to $53.1 million from $71.9 million for the prior year, a decrease of
approximately 26%. This decrease is primarily attributable to a significant drop
in sales in our TIS division and a $2.3 million decline in our former Y2K
consulting group. Gross profit for fiscal 2001 decreased to $6.3 million from
$11.6 million for 2000, a 46% decrease due to the decreased revenues. Gross
margin for fiscal 2001 was 12% as compared to 16% for the prior year.

         Fiscal 2001 operating expenses, exclusive of amortization of intangible
assets, decreased to $10.6 million as compared to $11.1 million for the prior
year. The 4% decrease in operating expenses is related primarily to decreased
costs in our former Y2K consulting group.

         Amortization of intangible assets was essentially unchanged in 2001. We
incurred a one-time charge of $23,000 for impaired Goodwill. We also earned
$52,000 of interest income and incurred $1,500 of interest expense in 2001.

         The provision for income taxes for 2001 was $38,000 as compared to an
expense of $102,000 for 2000. The current year benefit from income taxes was
reduced by a reserve against our deferred tax asset of $1,438,000.

         As a result of the above, the Company incurred a loss of $4,525,134 for
2001 compared to net income of $296,953 in 2000. For 2001, basic and diluted net
loss per share was $.64 compared to basic and diluted net income of $.04 per
share in the prior year. Basic and diluted average shares outstanding were
7,088,603 for 2001.

Fiscal 2000 compared to Fiscal 1999

         Revenues for the fiscal year ended June 30, 2000 ("fiscal 2000")
decreased to $71.9 million from $107.4 million for the prior year, a decrease of
approximately 33%. This decrease is primarily attributable to our exit from the
low margin wholesale business. Our revenues are generated by sales of computer
hardware and software, and related support services. Gross profit for fiscal
2000 increased to $11.6 million from $11.1 million for 1999, a 5% increase due
to the higher margin revenues. Gross margin for fiscal 2000 improved to 16.1% as
compared to 10.3% for the prior year.

         Fiscal 2000 operating expenses, exclusive of amortization of intangible
assets, decreased to $11.1 million as compared to $12.7 million for the prior
year.

         Amortization of intangible assets decreased to $187,000 for the year
from $443,000 in the comparable 1999 period. In 1999 we incurred one-time
charges of $3,000,000 of goodwill for prior acquisitions. We also earned $63,000
of interest income and incurred $11,000 of interest expense in fiscal 2000 due
to our continued strong working capital position.

                                       15


         The provision for income taxes for 2000 was $102,000 as compared to a
benefit of $641,000 for 1999.

         As a result of the above, we had net income of $297,000 for fiscal 2000
compared to net loss of $4,300,000 in fiscal 1999. For 2000, net income per
share was $.04 compared to a net loss of $.62 per share in the prior year. Basic
and diluted average shares outstanding were each approximately 7,200,000 for
fiscal 2000.



LIQUIDITY AND CAPITAL RESOURCES

         The cash position was $1,555,020 at June 30, 2001, an increase of
$1,454,413 as compared to June 30, 2000. Working capital at June 30, 2001, was
$5,253,000 as compared to working capital of $9,342,000 at June 30, 2000. The
major sources of cash were derived primarily from reductions of inventory on
hand and accounts receivable ($4,968,000). Cash used for investing activities
totaled $105,000. We believe that our resources are adequate to meet our capital
requirements over the next twelve months.

         To accommodate our financial needs for inventory financing, we have
arranged lines of credit with two financial institutions in the aggregate amount
of $15,775,000. At June 30, 2001, our indebtedness to these institutions was
$1,024,000, or a decrease of $1,149,600 compared to June 30, 2000. Substantially
all tangible and intangible assets are pledged as collateral for these
facilities. In September 2001 we eliminated the $15,000,000 line and our assets
are no longer pledged as collateral.




ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
         ---------------------------------------------------------

         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.

                                       16


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------

         Our consolidated financial statements, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-1.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.
         --------------------

         NONE




















                                       17


                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------

                                            MANAGEMENT

         Directors and Officers

         The following table sets forth the names and ages of all current
directors and officers and the position held by them:

                  Name                      Age        Position
                  ----                      ---        --------

                  Surinder Rametra          61         Chairman of the Board and
                                                       Chief Executive Officer

                  Ashok Rametra             49         President, Secretary,
                                                       Treasurer and Director

                  James J. Charles          58         Chief Financial Officer
                                                       and Director

                  Praveen Bhutani           54         Director

                  David C. Reback           59         Director

                  Stewart Benjamin          37         Director

         Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and qualified.

         Surinder Rametra was appointed the Chief Executive Officer and Chairman
of the Board in June 1994. Prior to June 1994 Mr. Rametra was president of one
of our subsidiaries. Mr. Rametra received a Bachelor of Science Degree from the
Punjab Engineering College, India, and a Masters of Science Degree in
Engineering from the University of I.I.T., India in 1965 and 1969, respectively.
In 1976, Mr. Rametra received a Masters of Business Administration Degree in
Finance from New York University.

         Ashok Rametra was appointed President in January 1999. Prior thereto he
was the Secretary, Treasurer, Chief Financial Officer and a Director since June
1994. From June 1994 to March 1995 Mr. Rametra also served as our president.
Prior to 1994, Mr. Rametra was the president of one of the Company's
subsidiaries. Mr. Rametra received a Bachelor of Science

                                       18


Degree from St. Johns University in Accounting in 1980. Mr. Rametra is the
brother of Surinder Rametra.

         James J. Charles was appointed Chief Financial Officer in January 1999.
Prior to his appointment, he was a financial consultant to several public
companies (1994-1998), Chief Financial Officer of a printing company (1990-1994)
and a partner in the firm of Ernst & Young (1966-1990). He was appointed a
Director in September 2000.

         Praveen Bhutani was appointed a Director in May 2001. Mr. Bhutani was
the founder of Ultra Spec Cables, Inc. and The Options Group, Inc. He serves
both companies as the Chief Executive Officer since 1992. Prior to 1992 he held
various executive positions. Mr. Bhutani has Bachelor and Master degrees in
finance from the Delhi College, Delhi, India.

         Stewart Benjamin was appointed a Director in May 2001. Mr. Benjamin is
a certified public accountant in the State of New York. From January 1996 to the
present, Mr. Benjamin has been self-employed as a sole practitioner under the
name of Stewart H. Benjamin, CPA, P.C. From 1985 through December 1995, Mr.
Benjamin was employed as a staff accountant in both private industry and local
public accounting firms. Mr. Benjamin received a Bachelor of Business
Administration degree from Pace University in 1985.

         David C. Reback was appointed a Director in November 1997. Since 1969,
Mr. Reback has been a partner with Reback & Potash, LLP, a law firm specializing
in litigation, appellate matters and real estate. Mr. Reback received a BA from
Syracuse University, and in 1965 he received a Juris Doctor's degree from
Syracuse University College of Law.

         Based solely upon a review of Forms 3, 4 and 5 furnished during the
most recent fiscal year, it is believed, except as discussed below, that there
were no Section 16(a) reports filed untimely during the years ended June 30,
2000 and 1999.









                                       19


ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

         The Summary Compensation Table for the years ended June 30, 2001, 2000
and 1999 is provided herein. This table provides compensation information on
behalf of the existing officers and directors who earned in excess of $100,000.
There are no Option/SAR Grants, Aggregated Option/SAR Exercises or Fiscal
Year-End Option/SAR Value Table for the years ended June 30, 2001, 2000 and/or
1999. There are no long-term incentive plan ("LTIP") awards, or stock option or
stock appreciation rights except as discussed below.




                           SUMMARY COMPENSATION TABLE

                For the Years Ended June 30, 2001, 2000 and 1999
                       Annual Compensation Awards Payouts

                                  Year                               Compen-       Options/ LTIP
Name                Position      Ended      Salary($)    Bonus($)   sation($)     SARs     Payouts
----               ------------   -------    ---------    --------   ---------     ------   -------
                                                                          
Surinder Rametra   CEO            6/30/01    $108,915                  8,464(1)    NONE     NONE
                                  6/30/00    $200,000                 12,731(3)    NONE     NONE
                                  6/30/99    $202,733                 15,262(5)    NONE     NONE


Ashok Rametra      President      6/30/01    $215,077     $50,000     10,766(2)    none     NONE
                                  6/30/00    $200,000     $25,000     12,779(4)    NONE     NONE
                                  6/30/99    $174,980                 11,652(6)    NONE     NONE






(1)      Major Medical $3,531, Leased Auto $4,933
(2)      Major Medical $3,058, Leased Auto $7,708
(3)      Major Medical $3,941, Leased Auto $8,790
(4)      Major Medical $5,611, Leased Auto $7,168
(5)      Major Medical $6,472, Leased auto $8,790
(6)      Major Medical $4,484, Leased auto $7,168







                                       20




         Year End Option Table. The following table sets forth certain
information regarding the stock options held as of June 30, 2001, by the
individuals named in the above Summary Compensation Table.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE

                                                          Securities Underlying                Value of Unexercised
                                                          Unexercised Options at               In-the-Money-Options
                                                            Fiscal Year End (#)               at Fiscal Year End (3)
                     Shares Acquired   Value             ----------------------------      -----------------------------
Name                 on exercise (#)   Realized($)       Exercisable   Unexercisable      Exercisable   Unexercisable
----                ---------------   ----------         ------------  --------------     -----------  -------------

                                                                                      
Surinder Rametra(1)        0               0              1,047,000       1,250,000             0       $   312,500
Ashok Rametra(2)           0               0                345,000       1,000,000             0           250.000



(1)  Represents options to acquire: (i) 7,000 shares at $3.44 per share
     exercisable through August 8, 2007; (ii) 500,000 shares at $5.50 per share
     exercisable through March 28, 2008; (iii) 250,000 shares at $4.67 per share
     exercisable through September 27, 2008; (iv) 140,000 shares at $4.26 per
     share exercisable through June 29, 2009; (v) 150,000 shares at $1.993 per
     share exercisable through November 7, 2009 and (vi) 1,250,000 shares at
     $.56 per share exercisable through April 23, 2011.
(2)  Represents options to acquire: (i) 10,000 shares at $3.44 per share
     exercisable through August 8, 2007; (ii) 35,000 shares at 3.7125 per share
     exercisable through October 8, 2008; (iii) 100,000 shares at $6.80 per
     share exercisable through December 14, 2008; (iv) 200,000 shares at $1.993
     per share exercisable through November 7, 2009 and (v) 1,000,000 shares at
     $.563 per share excisable through November 14, 2010.
(3)  Computation based on $.81, which was the June 30, 2001, closing price for
     our common stock.

         Option Grant Table. The following table sets forth certain information
regarding the stock options granted during the fiscal year ended June 30, 2000,
by us to the individuals named in the above Summary Compensation Table.



                        OPTION GRANTS IN LAST FISCAL YEAR

                                       % of Total
                                       Options
                                       Granted to
                                       Employees in   Exercise Price  Expiration
Name                   Granted (#)     Fiscal Year    $ / Share       Date
----                   -----------     -----------    ---------       ----

Surinder Rametra        1,250,000      44%            $.56            2011
Ashok Rametra           1,000,000      35%            $.563           2010


                                       21




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

         The following table sets forth as of September 20, 2000, certain
information with respect to the beneficial ownership of the voting securities by
(i) any person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act known by ATEC to be the beneficial owner of more
than 5% of our voting securities, (ii) each director, (iii) each executive
officer named in the Summary Compensation table appearing herein, and (iv) all
executive officers and directors as a group. The table also sets forth the
respective general voting power of such persons taking into account the voting
power of our common stock and preferred stock combined.

Name and Address              Amount and Nature
of Beneficial                 of Beneficial            Percentage of
Owner                         Ownership of             Voting Stock
Outstanding                   Common Stock             Outstanding(1)
-----------                   ------------             --------------

Ashok Rametra (2)             1,261,242                         12.4%
1762 Central Avenue
Albany, NY  12205

Surinder Rametra (3)          2,140,640                           21%
69 Mall Drive
Commack, NY  11725

James Charles (4)               305,000                            3%
69 Mall Drive
Commack, NY  11725

Praveen Bhutani                 244,910                            **
69 Mall Drive
Commack, NY  11725

David Reback (5)                 25,000                            **
69 Mall Drive
Commack, NY  11725

Stewart Benjamin                     _                             **
69 Mall Drive
Commack, NY  11725


All directors and             3,752,882                            37%
(2)(3)(4)(5)(6)
executive/officers as a group
(5 persons)
    ---------------
**  Less than 1%

                                       22


(1)      Computed based upon a total of 7,347,689 shares of common stock, 8,371
         shares of Series A preferred stock, 1,458 shares of Series B preferred
         stock, 309,600 shares of Series C preferred stock and options to
         acquire 2,533,000 shares of common stock. Each share of common stock
         and preferred stock possesses one vote per share. Accordingly, the
         foregoing represents an aggregate of 10,200,118 votes.
(2)      The foregoing figure reflects the ownership of 229,146 shares of common
         stock by Mr. Rametra and 387,096 common shares owned by Mr. Rametra's
         spouse and children. The foregoing amount also assumes the exercise by
         Mr. Rametra of options to acquire 645,000 shares of the common stock.
         Mr. Rametra disclaims beneficial ownership of shares of ATEC securities
         owned by other members of the Rametra family. Excludes non-vested
         options to purchase 1,000,000 shares of common stock.
(3)      The foregoing figure reflects the ownership of 382,640 shares of common
         stock by Mr. Rametra and 200,000 shares by Mr. Rametra's spouse and
         11,000 shares jointly. In addition, the foregoing assumes the exercise
         by Mr. Rametra of options to acquire 1,547,000 shares of ATEC common
         stock. Mr. Rametra disclaims beneficial ownership of the shares of ATEC
         securities owned by other members of the Rametra family, including
         independent children. Excludes non-vested options to purchase 1,250,000
         shares of common stock
(4)      The foregoing figure reflects ownership of 10,000 shares of common
         stock by Mr. Charles. The foregoing amount also assumes the exercise by
         Mr. Charles of options to acquire 295,000 shares of common stock.
         Excludes non-vested options to purchase 300,000 shares of common stock.
(5)      The foregoing figure reflects options for the purchase of 25,000 shares
         of common stock.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

         Our Albany facility is leased from a company controlled by Surinder and
Ashok Rametra, officers and directors of ATEC. Our lease with this company
requires annual rental payments of approximately $108,000 per year plus all
expenses and taxes attributable to the operation of the premises. The Company
has not been a party to any significant transactions in the last fiscal year.



                                       23


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
         ----------------------------------------------------------------

(a)      (1)      FINANCIAL STATEMENTS

         The following financial statements of ATEC Group, Inc., are included:

                  Independent Auditor's Report
                  Consolidated Balance Sheet as at June 30, 2001 and 2000
                  Consolidated Statements of Operations for the years
                    ended June 30, 2001, 2000 and 1999
                  Consolidated Statements of Cash Flows for the years
                    ended June 30, 2001, 2000 and 1999
                  Consolidated Statements of Stockholders' Equity for
                    the years ended June 30, 2001, 2000 and 1999
                  Notes to Financial Statements

         (2)      OTHER SCHEDULES

         All other schedules are omitted since the required information is not
present or is not present in an amount sufficient to require submission of
schedules, or because the information required is included in the financial
statements and notes thereto.

         (3)      EXHIBITS

         None.

(b)      REPORTS ON FORM 8-K

         November 2000
         May 2001

(c)      EXHIBITS

         See Exhibit Index.

(d)      Not Applicable.



                                       24


         SIGNATURES
         ----------

         Pursuant to the requirements of Section 13 or 15(d) 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.



                                            By:  /s/ JAMES J. CHARLES
                                                 -------------------------------
                                                 James J. Charles, Chief
                                                 Financial Officer and Director
Dated:   September 28, 2001


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.


/s/ SURINDER RAMETRA                                          September 28, 2001
-----------------------------------------------------
Surinder Rametra, Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)


/s/ ASHOK RAMETRA                                             September 28, 2001
-----------------------------------------------------
Ashok Rametra, President, Secretary, Treasurer and
Director


/s/ STEWART BENJAMIN                                          September 28, 2001
-----------------------------------------------------
Stewart Benjamin, Director


/s/ DAVID REBACK                                              September 28, 2001
-----------------------------------------------------
David Reback, Director

/s/ PRAVEEN BHUTANI                                           September 28, 2001
-----------------------------------------------------
Praveen Bhutani, Director



                                       25



Exhibits


Number   Description
21.1     List of Subsidiaries
















                                       26

                        ATEC GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2001








                        ATEC GROUP, INC. AND SUBSIDIARIES

                                  JUNE 30, 2001




                                    I N D E X
                                    ---------


                                                                        Page No.
                                                                        --------


INDEPENDENT AUDITORS' REPORT .....................................        F-1


FINANCIAL STATEMENTS:


     Consolidated Balance Sheets as at June 30, 2001 and 2000 ....        F-2


     Consolidated Statements of Operations
        For the Years Ended June 30, 2001, 2000 and 1999 .........        F-3


     Consolidated Statements of Cash Flows
        For the Years Ended June 30, 2001, 2000 and 1999 .........    F-4 - F-5


     Consolidated Statements of Stockholders' Equity
        For the Years Ended June 30, 2001, 2000 and 1999 ..........       F-6



NOTES TO FINANCIAL STATEMENTS .....................................   F-7 - F-22





All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and have therefore been omitted or
the required information is shown in the Financial Statements or the Notes
thereto.






[graphic omitted] WEINICK
                     SANDERS                                       1515 Broadway
                      LEVENTHAL & CO., LLP            NEW YORK, N.Y.  10036-5788
--------------------------------------------------------------------------------
              CERTIFIED PUBLIC ACCOUNTANTS                          212-869-3333
                                                                FAX 212-764-3080
                                                                   WWW.WSLCO.COM


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


Stockholders and Board of Directors
ATEC Group, Inc.


We have audited the accompanying consolidated balance sheets of ATEC Group, Inc.
and Subsidiaries as at June 30, 2001 and 2000, and the related consolidated
statements of operations, cash flows, and stockholders' equity for each of the
three years ended June 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above pre-sent
fairly, in all material respects, the consolidated financial position of ATEC
Group, Inc. and Subsidiaries as at June 30, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.



                                    s/s:  WEINICK SANDERS LEVENTHAL & CO., LLP


New York, N. Y.
August 17, 2001






                        ATEC GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                   A S S E T S
                                   -----------

                                                                        June 30,
                                                             ------------------------------
                                                                   2001             2000
                                                             --------------  --------------
                                                                       
Current assets:
  Cash                                                       $    1,555,020  $      100,607
  Accounts receivable - net                                       5,114,302      10,037,462
  Inventories                                                     1,666,633       2,356,825
  Deferred taxes                                                    581,510         459,456
  Other current assets                                              585,634       1,594,027
                                                             --------------  --------------
        Total current assets                                      9,503,099      14,548,377

Property and equipment - net                                        420,255         532,238

Goodwill - net                                                    1,134,177       1,346,149

Other assets                                                         51,667          63,753
                                                             --------------  --------------
                                                             $   11,109,198  $   16,490,517
                                                             ==============  ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
  Revolving lines of credit                                  $    1,024,157  $    2,173,776
  Accounts payable                                                2,177,391       2,518,721
  Accrued expenses                                                  555,785         283,360
  Deferred income                                                   139,357             -
  Other current liabilities                                         353,589         230,489
                                                             --------------  --------------
        Total current liabilities                                 4,250,279       5,206,346
                                                             --------------  --------------
Stockholders' equity:
  Preferred stocks                                                  835,582         310,582
  Common stock                                                       73,477          73,477
  Additional paid-in capital                                     11,864,674      11,823,086
  Discount on preferred stocks                                     (742,740)       (278,640)
  Deficit                                                        (4,543,043)        (17,909)
                                                             --------------  --------------
                                                                  7,487,950      11,910,596
  Less:  Treasury stock - at cost                                   629,031         626,425
                                                             --------------  --------------
        Total stockholders' equity                                6,858,919      11,284,171
                                                             --------------  --------------
                                                             $   11,109,198  $   16,490,517
                                                             ==============  ==============

                 See accompanying notes to financial statements.


                                      F-2



                        ATEC GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                         For the Years Ended June 30,
                                                 -----------------------------------------------
                                                      2001             2000             1999
                                                 -------------    -------------    -------------
                                                                          
Net sales                                        $  53,051,120    $  71,937,680    $ 107,435,617

Cost of sales                                       46,767,529       60,353,009       96,317,894
                                                 -------------    -------------    -------------
Gross profit                                         6,283,591       11,584,671       11,117,723
                                                 -------------    -------------    -------------
Operating expenses:
  Selling and administrative                        10,489,929       10,824,623       12,679,751
  Research and development                             157,595          234,557           10,525
  Amortization of goodwill                             189,327          186,626          442,577
                                                 -------------    -------------    -------------
Total operating expenses                            10,836,851       11,245,806       13,132,853
                                                 -------------    -------------    -------------

Income (loss) from operations                       (4,553,260)         338,865       (2,015,130)
                                                 -------------    -------------    -------------
Other income (expense):
  Impairment of long-lived assets                      (22,645)             -         (2,999,075)
  Interest income                                       52,101           62,789          124,171
  Interest expense                                      (1,512)         (11,467)         (37,630)
  Other income (expense)                                38,450            8,291          (12,895)
                                                 -------------    -------------    -------------
Total other income (expense)                            66,394           59,613       (2,925,429)
                                                 -------------    -------------    -------------

Income (loss) before income taxes                   (4,486,866)         398,478       (4,940,559)

Provision for (benefit from) income taxes               38,268          101,525         (641,331)
                                                 -------------    -------------    -------------
Net income (loss)                                ($  4,525,134)   $     296,953    ($  4,299,228)
                                                 =============    =============    =============

Earnings (loss) per common share:
  Basic                                              ($.64)           $ .04            ($.62)
                                                      ====            =====             ====
  Diluted                                            ($.64)           $ .04            ($.62)
                                                      ====            =====             ====

Weighted average shares outstanding:
  Basic                                              7,088,603        7,177,432        6,885,069
                                                 =============    =============    =============
  Diluted                                            7,088,603        7,221,927        6,885,069
                                                 =============    =============    =============


                 See accompanying notes to financial statements.


                                      F-3



                        ATEC GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                     For the Years Ended June 30,
                                                           ------------------------------------------------
                                                                2001             2000             1999
                                                           -------------    -------------    -------------
                                                                                    
Cash flows from operating activities:
  Net income (loss)                                        ($  4,525,134)   $     296,953    ($  4,299,228)
                                                           -------------    -------------    -------------
  Adjustments to reconcile net income (loss) to net
      cash provided by (used in) operating activities:
    Depreciation and amortization                                228,665          274,877          254,982
    Amortization of goodwill                                     189,327          186,626          442,577
    Loss on abandonment of leasehold improvements                    -              1,438              -
    Compensatory element of issuances of capital stock               -              5,250           24,000
    Loss on impairment of long-lived assets                       22,645              -          2,999,075
    Provision for doubtful accounts                              645,535           42,216          469,211
    Deferred income                                              139,357              -                -
    Deferred taxes                                              (122,054)        (208,166)        (214,041)
    Changes in assets and liabilities:
      Accounts receivable                                      4,277,625       (1,413,178)       8,498,921
      Inventories                                                690,192       (1,246,552)         680,422
      Other current assets                                     1,008,393         (188,694)        (828,656)
      Revolving lines of credit                               (1,149,619)         239,242       (5,064,178)
      Accounts payable                                          (341,330)         808,958       (2,444,380)
      Accrued expenses                                           333,325         (386,378)        (496,332)
      Income taxes payable                                           -                -           (790,882)
      Other current liabilities                                  123,100           (2,279)         175,711
                                                           -------------    -------------    -------------
  Total adjustments                                            6,045,161       (1,886,640)       3,706,430
                                                           -------------    -------------    -------------
Net cash provided by (used in) operating activities            1,520,027       (1,589,687)        (592,798)
                                                           -------------    -------------    -------------
Cash flows from investing activities:
  Purchase of property and equipment                            (116,682)         (58,274)        (437,235)
  Security deposits                                               12,086           (9,159)          18,818
  Addition to goodwill                                               -            (13,000)        (792,804)
                                                           -------------    -------------    -------------
Net cash used in investing activities                           (104,596)         (80,433)      (1,211,221)
                                                           -------------    -------------    -------------
Cash flows from financing activities:
  Capital contribution                                            41,588              -                -
  Issuance of capital stock                                          -             58,750        2,700,482
  Purchase of treasury stock                                      (2,606)        (534,974)         (91,451)
  Repayments to related parties                                      -                -             (2,967)
  Bank overdraft                                                     -                -           (339,944)
                                                           -------------    -------------    -------------
Net cash provided by (used in) financing activities               38,982         (476,224)       2,266,120
                                                           -------------    -------------    -------------

Net increase (decrease) in cash                                1,454,413       (2,146,344)         462,101

Cash at beginning of year                                        100,607        2,246,951        1,784,850
                                                           -------------    -------------    -------------
Cash at end of year                                        $   1,555,020    $     100,607    $   2,246,951
                                                           =============    =============    =============


                 See accompanying notes to financial statements.


                                      F-4



                        ATEC GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


                                                   For the Years Ended June 30,
                                            ------------------------------------------
                                                2001            2000          1999
                                            ------------   ------------   ------------
                                                                 
Supplemental Disclosures of Cash
  Flow Information:
  Cash paid during the year for:

  Income taxes                              $     88,510   $     50,170   $  1,466,801
                                            ============   ============   ============

  Interest                                  $      1,512   $     11,467   $     37,630
                                            ============   ============   ============

Supplemental Schedules of Noncash
  Operating and Financing Transactions:

  Issuance of common stock for services     $        -     $      5,250   $     24,000
                                            ============   ============   ============
  Issuance of Preferred Stock Series J
    convertible in connection with
    settlement of a lawsuit                 $     60,900   $        -     $        -
                                            ============   ============   ============



See accompanying notes to consolidated financial statements.



                                      F-5



                        ATEC GROUP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999


                                                Preferred Stock              Common Stock          Additional
                                            ----------------------      ------------------------     Paid-In
                                             Shares       Amount         Shares       Amount         Capital
                                            -------   ------------      ---------   ------------   ------------
                                                                                    
Balance at July 1, 1998                     374,029   $    346,507      6,700,664   $     67,006   $  9,035,615

Purchase of treasury stock                      -              -              -              -              -

Shares issued for warrants
  exercised                                     -              -          206,943          2,070        679,227

Shares issued for options
  exercised                                     -              -          405,058          4,051      2,015,134

Shares issued in accordance
  with employment agreement                     -              -            9,697             97         23,903

Shares issued for conversion
  of Preferred Series A and C               (44,020)       (25,417)         4,601             46          4,356

Net loss for the year                           -              -              -              -              -
                                            -------   ------------      ---------   ------------   ------------
Balance at June 30, 1999                    330,009        321,090      7,326,963         73,270     11,758,235

Purchase of treasury stock                      -              -              -              -              -

Shares issued for services                      -              -            2,500             25          5,225

Shares issued for options
  exercised                                     -              -           18,000            180         58,570

Shares issued for conversion
  of Preferred Series A and C               (10,580)       (10,508)           226              2          1,056

Net income for the year                         -              -              -              -              -
                                            -------   ------------      ---------   ------------   ------------
Balance at June 30, 2000                    319,429        310,582      7,347,689         73,477     11,823,086

Purchase of treasury stock                      -              -              -              -              -

Capital contribution                            -              -              -              -           41,588

Issuance of convertible
  Preferred Stock Series J                  105,000        525,000            -              -              -

Net loss for the year                           -              -              -              -              -
                                            -------   ------------      ---------   ------------   ------------
Balance at June 30, 2001                    424,429   $    835,582      7,347,689   $     73,477   $ 11,864,674
                                            =======   ============      =========   ============   ============





                                       Discount on      Retained            Treasury Stock            Total
                                        Preferred       Earnings        ------------------------    Stockholders'
                                         Stocks         (Deficit)        Shares        Amount         Equity
                                       ------------   ------------      ---------   ------------   ------------
                                                                                    
Balance at July 1, 1998                ($   309,105)  $  3,984,366            -     $        -     $ 13,124,389

Purchase of treasury stock                      -              -          (18,000)       (91,451)       (91,451)

Shares issued for warrants
  exercised                                     -              -              -              -          681,297

Shares issued for options
  exercised                                     -              -              -              -        2,019,185

Shares issued in accordance
  with employment agreement                     -              -              -              -           24,000

Shares issued for conversion
  of Preferred Series A and C                21,015            -              -              -              -

Net loss for the year                           -       (4,299,228)           -              -       (4,299,228)
                                       ------------   ------------      ---------   ------------   ------------
Balance at June 30, 1999                   (288,090)      (314,862)       (18,000)       (91,451)    11,458,192

Purchase of treasury stock                      -              -         (239,945)      (534,974)      (534,974)

Shares issued for services                      -              -              -              -            5,250

Shares issued for options
  exercised                                     -              -              -              -           58,750

Shares issued for conversion
  of Preferred Series A and C                 9,450            -              -              -              -

Net income for the year                         -          296,953            -              -          296,953
                                       ------------   ------------      ---------   ------------   ------------
Balance at June 30, 2000                   (278,640)       (17,909)      (257,945)      (626,425)    11,284,171

Purchase of treasury stock                      -              -           (1,300)        (2,606)        (2,606)

Capital contribution                            -              -              -              -           41,588

Issuance of convertible
  Preferred Stock Series J                 (464,100)           -              -              -           60,900

Net loss for the year                           -       (4,525,134)           -              -       (4,525,134)
                                       ------------   ------------      ---------   ------------   ------------
Balance at June 30, 2001               ($   742,740)  ($ 4,543,043)      (259,245)  ($   629,031)  $  6,858,919
                                       ============   ============       ========   ============   ============


                 See accompanying notes to financial statements.

                                      F-6

                        ATEC GROUP, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

                          JUNE 30, 2001, 2000, AND 1999

NOTE 1-  GENERAL AND ACCOUNTING POLICIES:

         (a)      Organization and Presentation of Financial Statements:

                  ATEC Group, Inc. (the "Company" or "ATEC") was incorporated
         under the laws of the State of Delaware on July 17, 1992. The
         accompanying consolidated financial statements include the accounts of
         ATEC Group, Inc. and all of its wholly owned subsidiaries and a 90%
         owned subsidiary. All significant intercompany transactions and
         balances have been eliminated.

         (b)      Principal Business Activity:

                  The Company is an "end to end" provider of a full line of
         computer and information technology products and services to business,
         professionals, government agencies and educational institutions. The
         Company focuses on system design, high-speed data transmission,
         LAN/WAN, video conferencing, internet/intranet technology, digital arts
         solutions, PC manufacturing, E-commerce and internet access services
         for its customers.

         (c)      Basis of Presentation:

                  The accompanying consolidated financial statements have been
         prepared in accordance with accounting principles generally accepted in
         the United States of America.

         (d)      Summary of Significant Accounting Policies:

                  (1)      Inventories:

                  Inventories are stated at the lower of cost or market using
         the first-in, first-out method. Inventories consist of microcomputer
         hardware, software and related peripherals, accessories and finished
         products.

                                      F-7






NOTE 1-  GENERAL AND ACCOUNTING POLICIES:  (Continued)

         (d)      Summary of Significant Accounting Policies:

                  (2)      Property and Equipment:

                  Property and equipment are carried at cost less accumulated
         depreciation. When assets are sold or retired, the cost and related
         accumulated depreciation is eliminated from the accounts, and any
         resulting gain or loss is reflected in income for the period. The cost
         of maintenance and repairs is charged to expense as incurred.
         Significant renewals and replacements which substantially extend the
         lives of the assets are capitalized.

                  Depreciation is computed on either straight-line or
         accelerated methods over useful lives ranging from 5 to 10 years.
         Leasehold improvements are amortized over the shorter of the useful
         life of the improvement or the life of the related lease.

                  (3)      Goodwill:

                  The Company amortizes goodwill over its estimated period of
         benefit, ranging from five to fifteen years. The goodwill is
         periodically reviewed to evaluate the future economic benefits and/or
         potential impairments which may effect recorded values.

                  (4)      Revenue Recognition:

                  The Company recognizes revenue at the time products are
         shipped to its customers, or when sales are made on a "cash and carry"
         basis.

                  (5)      Research and Development Costs:

                  Research and development costs are charged to expense as
         incurred.

                  (6)      Income Taxes:

                  The Company adopted Statement of Financial Accounting
         Standards No. 109 "Accounting for Income Taxes" which utilizes a
         balance sheet approach for financial accounting and reporting of income
         taxes, and requires that deferred tax assets and liabilities be
         established at income tax rates expected to apply to taxable income in
         periods in which the deferred tax asset or liability is expected to be
         settled or realized.

                                       F-8



NOTE 1-  GENERAL AND ACCOUNTING POLICIES:  (Continued)

         (d)      Summary of Significant Accounting Policies:  (Continued)

                  (7)      Concentrations of Credit Risk:

                  Financial instruments that potentially subject the Company to
         significant concentrations of credit risk consist principally of cash
         and trade accounts receivable. The Company places its cash with high
         credit quality financial institutions which at times, may be in excess
         of the FDIC insurance limit.

                  Concentrations of credit risk with respect to trade accounts
         receivable are generally limited due to the large number of customers
         comprising the Company's customer base. A substantial portion of the
         Company's revenue is derived from customers located in the northeastern
         region of the United States. An economic downturn in the geographic
         region could have an adverse effect on the Company's operations.
         Management continually reviews its trade receivables credit risk and
         has adequately allowed for potential losses.

                  (8)      Use of Estimates:

                  The preparation of financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect certain reported amounts and disclosures. Accordingly, actual
         results could differ from those estimates.

                  (9)      Asset Impairment:

                  The Company adopted Statement of Financial Accounting
         Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
         and for Long-Lived Assets to be Disposed of". This statement requires
         that the Company recognize an impairment loss in the event that facts
         and circumstances indicate that the carrying amount of an asset may not
         be recoverable, and an estimate of future undiscounted cash flows is
         less than the carrying amount of the asset. Property and equipment is
         evaluated separately within each subsidiary. The recoverability of
         goodwill is evaluated on a separate basis for each acquisition. Based
         on an evaluation of its goodwill at June 30, 2001 and 1999, the Company
         determined that $22,645 and $2,999,075, respectively, of goodwill, net
         of accumulated amortization, associated with the Company's prior
         acquisitions was impaired.


                                      F-9


NOTE 1-  GENERAL AND ACCOUNTING POLICIES:  (Continued)

         (d)      Summary of Significant Accounting Policies:  (Continued)

                  (10)     Earnings Per Share:

                  The Company adopted Statement of Financial Accounting
         Standards No. 128, "Earnings Per Share". Basic earnings per share is
         based on the weighted average of all common shares issued and
         outstanding, and is calculated by dividing net income available to
         common stockholders by the weighted average shares outstanding during
         the period. Diluted earnings per share is calculated by dividing net
         income available to common stockholders by the weighted average number
         of common shares used in the basic earnings per share calculation plus
         the number of common shares that would be issued assuming conversion of
         all potentially dilutive securities outstanding. For the years ended
         June 30, 2001 and 1999, diluted earnings per share are not presented as
         it is anti-dilutive. Below is the calculation of basic and diluted
         earnings per share for each of the past three fiscal years:




                                                   For the Years Ended June 30,
                                            -----------------------------------------
                                               2001            2000           1999
                                            -----------    -----------    -----------
                                                                 
Net income (loss) available to
  common stockholders                       $(4,525,134)   $   296,953    $(4,299,228)
                                            ===========    ===========    ===========

Weighted average shares
  outstanding - basic                         7,088,603      7,177,432      6,885,069
Employee stock options                              -           18,392            -
Acquisition options                                 -           17,945            -
Convertible preferred stock                         -            8,158            -
                                            -----------    -----------    -----------
Weighted average shares
  outstanding - diluted                       7,088,603      7,221,927      6,885,069
                                            ===========    ===========    ===========
Earnings (loss) per common share:
  Basic                                         ($.64)        $ .04          ($.62)
                                                 ====         =====           ====
  Diluted                                       ($.64)        $ .04          ($.62)
                                                 ====         =====           ====

(11)     New Accounting Pronouncements:



                  In June 2001, the Financial Accounting Standards Board issued
         Statement NO. 141, ACCOUNTING FOR BUSINESS COMBINATIONS, and Statement
         No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These Statements modify
         accounting for business combinations after June 30, 2001 and will
         affect the Company's treatment of goodwill at the start of fiscal year
         2002. SFAS No. 141 prohibits pooling-of-interests accounting for
         acquisitions. SFAS No. 142 requires that goodwill existing at the date
         of adoption be reviewed for possible impairment and the impairment
         tests be periodically repeated, with impaired assets written-down to
         fair value. Additionally, existing goodwill must be assessed and
         classified consistent with the Statements' criteria. The Company will
         adopt FASB No. 142 beginning July 1, 2001, at which time amortization
         of goodwill will cease. At this time, the Company has not determined
         the complete impact of these Statements. However, for the year ended
         June 30, 2001, the Company has recognized $189,327 of goodwill
         amortization.

                                      F-10

NOTE 2 - ACQUISITIONS.

         (a)      Logix Solutions, Inc.:

                  On April 7, 1998, the Company, pursuant to the terms of a
         stock purchase agreement, acquired 90% of the issued and outstanding
         capital stock of Logix Solutions, Inc. ("Logix"), a Colorado
         corporation, which provides solutions to the Y2K problem. In
         consideration for the shares acquired, the Company issued the following
         securities:

         1.       252,000 shares of common stock;

         2.       Options to purchase up to 548,700 shares of common stock
                  exerciseable at a price of $4.74 per share, expiring on
                  October 10, 1999;

         3.       Options to purchase up to 176,000 shares of common stock
                  exerciseable at a price of $7.50 per share, expiring on
                  October 10, 1999;

         4.       Options to purchase up to 252,000 shares of common stock
                  exercisable at a price of $10 per share, expiring on December
                  31, 2000;

         5.       $400,000 in cash.

                  The acquisition was accounted for as a purchase and resulted
         in goodwill of $1,307,748. The remaining unamortized goodwill of
         approximately $1,140,000 was reserved due to impairment in fiscal 1999.

         (b)      Nexar Technologies, Inc.:

                  On January 15, 1999 the Company purchased the trademarks and
         patents of Nexar Technologies, Inc. resulting in goodwill of $405,805.
         In May 1999, the Company registered the trademark for the "Nexar" brand
         name.


                                     F-11




NOTE 3-  EQUITY SECURITIES.

                  The Company's authorized and issued capital stock at June 30,
         2001 and 2000 consists of the following:

                                                       Shares Issued
                                           Shares            or
                                         Authorized     Outstanding     Amount
                                        -----------      ---------   ------------
                                                            
June 30, 2001:
--------------
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                            100,000,000      7,347,689   $     73,477
                                                         =========   ============

June 30, 2000:
--------------
Preferred Stocks:
  Series A cumulative
    convertible                              29,233          8,371   $        837
  Series B convertible                       12,704          1,458            145
  Series C convertible                      350,000        309,600        309,600
                                                         ---------   ------------
        Total preferred                                    319,429   $    310,582
                                                         =========   ============
Common stock                             70,000,000      7,347,689   $     73,477
                                                         =========   ============


         (a)      Common Stock:

                  The Company's Board of Directors approved the increase of the
         number of authorized shares of the Company's common stock to
         100,000,000 shares. The par value of the common stock is $.01.

         (b)      Treasury Stock:

                           From time to time, the Board of Directors authorizes
                 a common stock buy-back program. During the years ended June
                 30, 2001 and 2000, the Company purchased 1,300 and 239,945
                 shares of the Company's common stock at a cost of $2,606 and
                 $534,974, respectively.

                                      F-12


NOTE 3-  EQUITY SECURITIES.  (Continued)

         (c)      Preferred Stock:

                  At June 30, 2001 and 2000, ATEC had four and three authorized
         series of preferred stock, respectively; Series A Cumulative
         Convertible (par value $.10), Series B Convertible (par value $.10),
         Series C Convertible (par value $1) and Series J Convertible (par value
         $.01) (hereinafter referred to as the "A", "B", "C" and "J" shares,
         respectively). The authorized and issued shares for each of the Series
         at June 30, 2001 and 2000 are described in detail in Note 3 above.

                  The A shares have an annual dividend rate of 10% of the par
         value, which is cumulative. They are senior to all other series or
         classes of capital stock. At June 30, 2001, the A shareholders were due
         $1,334 in dividends in arrears. The B shares have a non-cumulative
         stated annual dividend rate of $1 each and are senior to all but the
         rights of the A shareholders. The C and J shares have no dividend
         rights, except as may be authorized at the sole discretion of the
         Company's Board of Directors.

                  Each of the A, B and C shares has the right to one vote on all
         matters in which shareholders are entitled to vote. The holders of
         Series J shares shall not be entitled to any voting rights. Each of the
         A, B and C shares carry dissolution rights amounting to $100, $10 and
         $5 per share, respectively. The A shares grant the Company the right to
         redeem such shares at a price of $100 per share. The A, B, C and J
         shares may be converted into shares of common stock at an exchange rate
         of five, five, fifty and five shares, respectively, for each share of
         common stock or approximately 29,200 shares.

                  The J shares have a maturity date of three years from the
         applicable issuance date. The shares have a mandatory conversion, if
         any time on or after the applicable issuance date the closing price of
         the common stock of the Company for three consecutive trading days is
         equal to or greater than five dollars. All of the outstanding shares
         shall then be automatically converted to common stock.


         (d)      Warrants:

                  At June 30, 2001, ATEC had outstanding warrants entitling the
         holders to purchase common stock as follows:

                       Number of   Exercise     Expiration
                        Shares      Price          Date
                       ---------   --------    -------------
                        18,000       3.75      July 22, 2002
                        60,000       3.75      July 22, 2002

                  The warrants are not valued in the financial statements as the
         amounts are immaterial.

                                      F-13


NOTE 3-  EQUITY SECURITIES.  (Continued)

         (e)      Options:

                  At June 30, 2001, there were 7,602,087 options to acquire
         shares of ATEC's common stock outstanding, comprised of both qualified
         and non-qualified options as those terms are defined by Internal
         Revenue Codes.



                  The following table summarizes the activity relating to the
         option grants:

                                                             For the Years Ended June 30,
                                ----------------------------------------------------------------------------------
                                         2001                          2000                          1999
                                ----------------------        ----------------------        ----------------------
                                             Weighted                      Weighted                      Weighted
                                              Average                       Average                       Average
                                             Exercise                      Exercise                      Exercise
                                  Shares       Price            Shares       Price            Shares       Price
                                ---------   ----------        ---------   ----------        ---------   ----------
                                                                                      
Outstanding at
 beginning of year              2,527,614   $     4.39        2,602,072   $     5.26        6,786,630   $     7.68
Granted                         6,218,500         1.05          789,500         2.26          826,500         4.40
Exercised                             -         -               (18,000)        3.26         (405,058)        4.99
Expired                          (314,027)        8.52         (765,700)        5.30          (70,000)        4.71
Cancelled                        (830,000)         .57          (80,258)        3.46       (4,536,000)        8.75
                                ---------                     ---------                     ---------
Outstanding at
 end of year                    7,602,087   $     1.81        2,527,614   $     4.39        2,602,072   $     5.26
                                =========   ==========        =========   ==========        =========   ==========
Exercisable at
 end of year                    5,058,787   $     2.45        1,604,114   $     5.44        1,875,572   $     5.73
                                =========   ==========        =========   ==========        =========   ==========





                  The following table summarizes information concerning
         currently outstanding and exercisable stock options:

                                        Options Outstanding                                  Options Exercisable
                              ------------------------------------------------        ------------------------------
                                                   Weighted
                                 Number            Average            Weighted          Number              Weighted
                               Outstanding         Remaining          Average         Exercisable           Average
        Range of                   at              Contractual        Exercise            at                Exercise
     Exercise Prices          June 30, 2001           Life             Price          June 30, 2001          Price
     ---------------          -------------        -----------        --------        ---------------       -------

                                                                                               
      $.40 - $6.80              7,602,087             4.66             $1.81             5,058,787            $2.45





                                      F-14


NOTE 4-  ACCOUNTING FOR STOCK - BASED COMPENSATION.

                  In accordance with Statement of Financial Accounting Standard
         No. 123, the following information is provided. The weighted average
         fair value of all stock options at date of grant was $3.19, $3.22 and
         $1.99 per option for options granted during the years ended June 30,
         2001, 2000 and 1999, respectively. Additionally, the weighted average
         fair value of employee stock options granted in the years ended June
         30, 2001, 2000 and 1999 was $1.93, $2.01 and $.40, per option,
         respectively. The weighted average fair value of options was determined
         based on the Black-Scholes model, utilizing the following weighted
         average assumptions:

                                         For the Years Ended June 30,
                                      --------------------------------
                                        2001         2000        1999
                                      --------    ---------   --------
         Expected term:
           All stock options          10 years    10 years    10 years
          Interest rate                  4.00%       5.00%       5.00%
          Volatility                    85.00%      93.27%      78.40%
          Dividends                      None        None        None

                  Had ATEC accounted for its stock options by recording
         compensation expense based on the fair value at the grant date on a
         straight-line basis over the vesting period, stock-based compensation
         costs would have reduced pre-tax income by $1,155,001 ($860,477 net of
         taxes), $986,845 ($735,200 net of taxes), and $2,044,716 ($1,318,533
         net of taxes) for the years ended June 30, 2001, 2000 and 1999,
         respectively. The pro forma effect on diluted earnings per common share
         would have been a reduction of $.12, $.10 and $.19 for the years ended
         June 30, 2001, 2000 and 1999, respectively. The pro forma effect on
         basic earnings per common share would have been a reduction of $.12,
         $.10 and $.19 for the years ended June 30, 2001, 2000 and 1999,
         respectively.

NOTE 5-  OPERATING LEASES.

                  ATEC conducts its operations under various noncancellable
         operating leases expiring at various dates through 2005. Future minimum
         rent payments, net of annual sublease rental income of $80,548 are as
         follows:


                   For the Year
                   Ending June 30,
                   ---------------
                        2002           $299,514
                        2003            219,769
                        2004            151,120
                        2005            143,395
                                       --------
                   Total minimum
                   annual rental       $813,798
                                       ========


                  Total rent expense for the years ended June 30, 2001, 2000 and
         1999 amounted to $456,060, $460,084 and $404,350, respectively.

                                      F-15


NOTE 6-  REVOLVING LINES OF CREDIT.

                  At June 30, 2001, ATEC and its subsidiaries have agreements
         with two financial institutions, whereby certain inventory purchases
         are financed. The first line grants the Company terms and charges no
         interest for 40 days and thereafter at rates ranging from prime plus
         1/4% to 6-1/2% per annum. Borrowings under this line may be up to
         $15,000,000. The line is collateralized by all the assets of the
         Company. At June 30, 2001 and 2000, the borrowings under this line
         amounted to $709,586 and $2,087,375. The second line grants the Company
         terms and charges interest at the prime rate. Borrowings under this
         line may be up to $775,000. This line is collateralized by the
         inventory, subject to a prior lien. At June 30, 2001 and 2000, the
         borrowings under this line amounted to $314,571 and $86,401.

NOTE 7 - LITIGATION.

                  On August 23, 1999, a class action lawsuit was filed on behalf
         of all persons who purchased the Company's common stock from October
         12, 1998 through May 19, 1999, inclusive. The complaint charges ATEC
         and certain of its officers and directors with violations of Sections
         10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC
         Rule 10b-5 promulgated thereunder. Plaintiff seeks to recover damages
         on behalf of all class members.

NOTE 8 - INCOME TAXES.

                  The Company's income tax provision consists of the following:

                                          2001           2000           1999
                                       ----------     ----------     ----------
Current tax provision (benefit):
  Federal                              $  112,036     $  188,675     ($ 362,696)
  State                                    48,286        121,016        (64,594)
                                       ----------     ----------     ----------
                                          160,322        309,691       (427,290)
                                       ----------     ----------     ----------
Deferred tax provision (benefit):
  Federal                                (100,085)      (170,696)      (175,514)
  State                                   (21,969)       (37,470)       (38,527)
                                       ----------     ----------     ----------
                                         (122,054)      (208,166)      (214,041)
                                       ----------     ----------     ----------
Income tax provision (benefit)         $   38,268     $  101,525     ($ 641,331)
                                       ==========     ==========     ==========

                                      F-16


NOTE 8 - INCOME TAXES.  (Continued)



                  A reconciliation of the above effective tax rate to the
         federal statutory rate is as follows:

                                     2001                        2000                     1999
                             ----------------------   -----------------------  -----------------------
                                                %                         %                       %
                                              -----                     -----                   -----
                                                                              
Tax at statutory             ($ 1,526,000)    (34.0)  $   135,483        34.0  ($ 1,679,790)    (34.0)
State income tax, net of
  federal tax benefit            (114,000)     (2.5)      (56,023)      (14.0)      (78,608)     (1.6)

Effect of nondeduct-
    ability of:
  Amortization and
    impairment
    of goodwill                    72,000       1.6        54,089        13.6     1,170,163      23.7
  Tax expense and loss
    limitations                    16,000       0.4        55,472        13.9        (8,257)     (0.2)

Effect of net operating
  loss carryforward                   -          -        (72,519)      (18.2)          -          -

Valuation allowance for
  deferred tax assets           1,438,000      32.0           -           -             -          -

Other                             152,268       3.4       (14,977)       (3.8)      (44,839)     (0.8)
                             ------------     -----   -----------        ----  ------------     -----
                             $     38,268       0.9   $   101,525        25.5  ($   641,331)    (12.9)
                             ============     =====   ===========        ====  ============     =====


                  The deferred tax benefit results from differences in
         recognition of expense 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 differences.

                                                                June 30,
                                                     ---------------------------
                                                          2001           2000
                                                     ------------   ------------
         Net operating loss carryforward             $  1,524,000   $    177,743
         Allowance for bad debts                          485,510        281,713
                                                     ------------   ------------
         Total deferred tax assets                      2,009,510        459,456
         Less:  Valuation allowance for
                  deferred tax assets                   1,438,000            -
                                                     ------------   ------------
         Total                                       $    571,510   $    459,456
                                                     ============   ============

                                      F-17


NOTE 9 - RELATED PARTY TRANSACTIONS.

                  The Company has an operating lease for space at its Albany,
         N.Y. location with a partnership which is controlled by the Company's
         CEO and its President. The lease runs through June 30, 2003 at a
         minimum annual rent of $108,192, plus applicable expenses and taxes.

                  The Company also periodically enters into transactions with
         entities which are owned or controlled by officers of the Company. All
         such transactions were immaterial in the aggregate, when compared to
         the results of operations taken as a whole, for all periods presented.



NOTE 10- OTHER FINANCIAL INFORMATION.

         (a)      Accounts receivable - Net:

                  Accounts receivable, net at June 30, 2001 and 2000 consists of
         the following:


                                                      2001           2000
                                                 ------------   ------------
         Accounts receivable                     $  6,357,064   $ 10,634,689
         Allowance for doubtful accounts,
           returns and discounts                   (1,242,762)      (597,227)
                                                 ------------   ------------
                                                 $  5,114,302   $ 10,037,462
                                                 ============   ============

                  For the years ended June 30, 2001, 2000 and 1999, $71,949,
         ($14,783) and $897,356, respectively, was recovered or charged to bad
         debt expense.

         (b)      Other Current Assets:

                  Other current assets consist of the following at June 30, 2001
         and 2000:

                                                      2001           2000
                                                 ------------   ------------
         Receivables from suppliers              $    140,546   $    505,594
         Prepaid expenses                             242,811        134,167
         Prepaid and refundable
           income taxes                               167,930        639,077
         Sundry loans                                  34,347        315,189
                                                 ------------   ------------
                                                 $    585,634   $  1,594,027
                                                 ============   ============


                                      F-18


NOTE 10- OTHER FINANCIAL INFORMATION.  (Continued)

         (c)      Goodwill - Net:

                  Goodwill, net at June 30, 2001 and 2000 consists of the
         following:

                                                      2001           2000
                                                 ------------   ------------
         Cost                                    $  5,727,573   $  5,727,573
         Less:  Impairment                          3,021,720      2,999,075
                                                 ------------   ------------
                                                    2,705,853      2,728,498
         Less:  Accumulated amortization            1,571,676      1,382,349
                                                 ------------   ------------
                                                 $  1,134,177   $  1,346,149
                                                 ============   ============

                  Amortization charged to operations for the years ended June
         30, 2001, 2000 and 1999 amounted to $189,327, $186,626 and $442,577,
         respectively.

         (d)      Property and Equipment:

                  Property and equipment are carried at cost and consist of the
         following at June 30, 2001 and 2000:

                                                      2001           2000
                                                 ------------   ------------
         Leasehold improvements                  $    563,573   $    470,905
         Furniture and fixtures                       244,293        234,855
         Office equipment                             887,852        873,276
         Automobiles                                  110,598        110,598
                                                 ------------   ------------
                                                    1,806,316      1,689,634
         Less:  Accumulated depreciation
                  and amortization                  1,386,061      1,157,396
                                                 ------------   ------------
                                                 $    420,255   $    532,238
                                                 ============   ============

                  Depreciation and amortization charged to operations for the
         years ended June 30, 2001, 2000 and 1999 amounted to $228,665, $274,877
         and $254,982, respectively.

                                      F-19

NOTE 10- OTHER FINANCIAL INFORMATION.  (Continued)

         (e)      Other Current Liabilities:

                  Other current liabilities consist of the following at June 30,
         2001 and 2000:

                                                      2001           2000
                                                 ------------   ------------
         Payroll taxes payable                   $     38,592   $     53,192
         Sales tax payable                             33,295         84,428
         Customers with credit balances               281,702         92,869
                                                 ------------   ------------
                                                 $    353,589   $    230,489
                                                 ============   ============

         (f)      Transactions with Major Customers and Suppliers:

                  In each of the three years ended June 30, 2001, the Company
         did not have sales to any one customer which represented 10% or more of
         the Company's net sales during a fiscal year.

                  During the years ended June 30, 2001, 2000 and 1999, two
         suppliers accounted for 45%, 55% and 65% of the Company's purchases,
         respectively. At June 30, 2001, these two suppliers accounted for 59%
         of accounts payable.

         (g)      Deferred Compensation Plan:

                  The Company has 401(k) deferred compensation plans to which
         the Company may make discretionary contributions. The Company expense
         for these plans amounting to approximately, $45,000, $-0- and $47,000
         for the years ended June 30, 2001, 2000 and 1999, respectively.

NOTE 11- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.

                  The Financial Accounting Standards Board periodically issues
         new accounting standards in a continuing effort to improve the quality
         of financial information and to promote uniformity in its presentation.
         Management has reviewed all such pronouncements made in the last fiscal
         year and concluded that none have a material impact on the Company's
         presentation of its financial position, results of operations and cash
         flows.

                                      F-20


NOTE 12- SEGMENT INFORMATION.

                  The Company is comprised of four business segments. These
         segments consist of the technology integration services (TIS), Business
         to Business (B to B), software and manufacturing divisions. Set forth
         below are net sales, net income (loss), capital expenditures,
         depreciation and identifiable assets of these segments.




                                              For the Years Ended June 30,
                                  ------------------------------------------------------
                                        2001                2000                 1999
                                  --------------      --------------      --------------
                                                                 
Net sales:
  TIS                             $   17,437,079      $   32,579,527      $   42,218,303
  B to B                              33,525,488          35,311,719          65,134,311
  Software                                   -             2,330,065           2,539,703
  Manufacturing                        2,088,552           2,005,201             869,958
  Elimination of
    intersegment revenues                    -              (288,832)         (3,326,658)
                                  --------------      --------------      --------------
                                  $   53,051,119      $   71,937,680      $  107,435,617
                                  ==============      ==============      ==============
Net income (loss):
  TIS                             $   (2,403,235)     $   (1,011,907)     $   (1,202,830)
  B to B                                (332,780)          1,316,876          (1,537,103)
  Software                               (13,985)            337,216            (388,202)
  Manufacturing                       (1,385,735)           (207,959)           (192,275)
  Corporate                             (389,399)           (137,273)           (978,818)
                                  --------------      --------------      --------------
                                  $   (4,525,134)     $      296,953      $   (4,299,228)
                                  ==============      ==============      ==============

Depreciation:
  TIS                             $      165,649      $      166,388      $      128,624
  B to B                                  29,887              32,506              53,233
  Software                                   -                21,350              35,106
  Manufacturing                            3,933               5,545               3,368
  Corporate                               29,196              49,088              34,651
                                  --------------      --------------      --------------
                                  $      228,665      $      274,877      $      254,982
                                  ==============      ==============      ==============
Capital additions:
  TIS                             $      107,793      $       52,150      $      253,807
  B to B                                   8,889               6,124              41,832
  Software                                   -                   -               400,000
  Manufacturing                              -                13,000             392,804
  Corporate                                  -                   -               141,596
                                  --------------      --------------      --------------
                                  $      116,682      $       71,274      $    1,230,039
                                  ==============      ==============      ==============
Identifiable assets:
  TIS                             $      825,454      $    7,091,035      $    7,205,285
  B to B                               3,765,364           6,566,091           4,202,432
  Software                               943,240             112,461           1,153,567
  Manufacturing                          911,199           1,947,502             563,082
  Corporate                            4,663,941             773,428           2,880,629
                                  --------------      --------------      --------------
                                  $   11,109,198      $   16,490,517      $   16,004,995
                                  ==============      ==============      ==============


                  During the years ended June 30, 2001, 2000, and 1999, one
         customer accounted for -0-%, 81.6% and $27.6%, respectively of the
         software segment.

                  During the years ended June 30, 2001, 2000, and 1999, one
         customer accounted for 68.3%, 30.5% and 13.5%, respectively of the
         manufacturing segment.

                                      F-21




NOTE 13- SUPPLEMENTAL FINANCIAL INFORMATION
         FOR THE THREE MONTHS ENDED (UNAUDITED):

                              September 30,         December 31,          March 31,           June 30,
                                   2000                 2000                2001                2001
                             ---------------     ---------------     ---------------     ---------------
                                                                             
Net sales                    $    14,948,683     $    13,435,283     $    14,096,629     $    10,570,525
                             ===============     ===============     ===============     ===============
Gross profit                 $     2,190,346     $     1,803,946     $     1,306,619     $       982,680
                             ===============     ===============     ===============     ===============
Net loss                     $      (254,838)    $      (421,365)    $    (1,136,289)    $    (2,712,642)
                             ===============     ===============     ===============     ===============
Loss per share:
  Basic                           ($0.04)             ($0.06)            ($0.16)             ($0.38)
                                  ======              ======             ======              ======
  Diluted                         ($0.04)             ($0.06)            ($0.16)             ($0.38)
                                  ======              ======             ======              ======




                              September 30,         December 31,         March 31,           June 30,
                                    1999                1999                2000                2000
                             ---------------     ---------------     ---------------     ---------------
                                                                             
Net sales                    $    20,188,643     $    17,531,550     $    15,592,963     $    18,624,524
                             ===============     ===============     ===============     ===============
Gross profit                 $     3,817,707     $     3,088,381     $     2,483,512     $     2,195,071
                             ===============     ===============     ===============     ===============
Net income (loss)            $       270,129     $       136,251     $       138,184     $      (247,611)
                             ===============     ===============     ===============     ===============

Earnings (loss) per share:
  Basic                           $0.04               $0.02               $0.02              ($0.03)
                                  =====               =====               =====              ======
  Diluted                         $0.04               $0.02               $0.02              ($0.03)
                                  ======              =====               =====              ======


                                      F-22