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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1999.
[ ] 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
0-23781
ATG INC.
(Exact name of registrant as specified in its charter)
California 94-2657762
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
47375 Fremont Boulevard
Fremont, California 94538
(Address of principal executive offices)
(510) 490-3008
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days:
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at April 30, 1999
----- -----------------------------
Common stock, no par value 14,047,221
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ATG INC.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The actual results of ATG Inc. (the "Company") could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Certain Business
Considerations" in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in, or incorporated by reference into,
this report on Form 10-Q and other documents and reports previously filed or
hereafter filed by the Company from time to time with the Securities and
Exchange Commission.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements .................................... 3
Condensed Consolidated Balance Sheets.................... 3
Condensed Consolidated Statements of Operations.......... 4
Condensed Consolidated Statements of Cash Flows.......... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations...................... 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk .................................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 17
Item 2. Changes In Securities And Use Of Proceeds ............... 17
Item 3. Defaults Upon Senior Securities ......................... 18
Item 4. Submission Of Matters To A Vote Of Security Holders ..... 18
Item 5. Other Information ....................................... 19
Item 6. Exhibits and Reports on Form 8-K. ....................... 19
SIGNATURE ............................................... 20
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ATG INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,549 $ 3,789
Accounts receivable, net 22,258 22,561
Prepayments and other current assets 3,621 2,096
-------------- ------------
Total current assets 28,428 28,446
Property and equipment, net 46,567 42,988
Intangible and other assets, net 7,748 8,135
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Total assets $ 82,743 $ 79,569
============== ============
Current liabilities:
Short-term borrowings $ 9,440 $ 6,750
Current portion of long-term debt and capital leases 5,131 4,733
Accounts payable 6,238 6,096
Accrued liabilities 6,487 9,222
-------------- ------------
Total current liabilities 27,296 26,801
Long-term debt and capitalized leases, net 12,312 11,246
Deferred income taxes 777 777
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Total liabilities 40,385 38,824
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Common stock 41,991 41,517
Deferred compensation (122) (152)
Retained earnings (deficit) 489 (620)
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Total shareholders' equity 42,358 40,745
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Total liabilities and shareholders' equity $ 82,743 $ 79,569
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</TABLE>
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ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1999 1998
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<S> <C> <C>
Revenue $ 12,944 $ 5,495
Cost of revenue 7,742 2,630
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Gross profit 5,202 2,865
Sales, general & administrative expenses 3,064 1,697
Stock-based compensation expense 30 30
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Operating income 2,108 1,138
Interest expense, net (258) (4)
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Income before provision for taxes 1,850 1,134
Provision for income taxes 740 464
-------- -------
Net income $ 1,110 $ 670
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Net income per share
Basic $ 0.08 $ 0.06
Fully diluted $ 0.08 $ 0.05
Weighted average shares
Basic 14,018 11,516
Fully diluted 14,796 12,284
</TABLE>
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ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,109 $ 670
Adjustments to reconcile net income
with cash flow from operations:
Depreciation and amortization 539 492
Compensation expense for shares
issued and options granted 30 30
Change in current assets and liabilities:
Accounts receivable 303 (1,684)
Prepayment and other current assets (1,099) (550)
Accounts payable and accrued liabilities (2,593) (36)
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Net cash used in operating activities (1,711) (1,078)
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Cash flows from investing activities:
Property and equipment acquisitions, net (3,499) (715)
Other assets (658) (124)
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Net cash used in investing activities (4,157) (839)
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Cash flows from financing activities:
Borrowing (repayment) of long-term debt and capital leases 1,464 (362)
Short-term borrowing, net of repayments 2,690 1,000
Proceeds from issuance of common stock 474 -
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Net cash provided by financing activities 4,628 638
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Decrease in cash and cash equivalents (1,240) (1,279)
Cash and cash equivalents, beginning of period 3,789 2,586
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Cash and cash equivalents, end of period $ 2,549 $ 1,307
========= =========
Supplemental cash flow information
Income taxes paid $ 1,347 $ 14
========= =========
Interest paid $ 483 $ 277
========= =========
Acquisition of equipment with capital leases $ - $ 906
========= =========
Reclassification of machinery and equipment to inventory $ (426) $ (475)
========= =========
Reclassification of other assets to property and equipment $ 1,045 $ -
========= =========
</TABLE>
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ATG INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,1999
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned and majority owned subsidiaries.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's 1998 Annual Report on
Form 10-K.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly, in all material
respects, the financial position, results of operations and cash flows for the
three months ended March 31, 1999 and 1998. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from those estimates. The results for the three months ended March 31, 1999 are
not necessarily indicative of the results for the full fiscal year.
2. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted net income
per share is computed giving effect to all dilutive potential common shares that
were outstanding during the period. Dilutive potential common shares consist of
the incremental common shares issuable upon the conversion of convertible
preferred stock (using the "if converted" method) and exercise of stock options
for all periods.
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A reconciliation of the numerator and denominator of basic and diluted income
per share is provided as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator - Basic and Diluted
Income per share
Net income $ 1,110 $ 670
======= =======
Denominator - Basic
Common shares outstanding 14,018 7,532
Conversion of mandatorily redeemable preferred stock - 3,984
______ -------
14,018 11,516
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Basic income per share $ 0.08 $ 0.06
======= =======
Denominator - Diluted
Denominator - Basic 14,018 11,516
Common stock options 778 768
------- -------
14,796 12,284
------- -------
Diluted income per share $ 0.08 $ 0.05
======= =======
</TABLE>
Diluted net income per share for the three months ended March 31, 1999, excludes
options and warrants to acquire 263,500 shares of stock which were anti-
dilutive.
3. Business Segments
Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". Statement 131
requires enterprises to report information about operating segments in annual
financial statements and selected information about reportable segments in
interim financial reports.
The Company manages its operations within two business segments: waste
processing, conducted by its Fixed Facilities Group (FFG); and field services,
conducted by its Field Engineering Group (FEG). The Company commenced
evaluating its business in these two segments in the fourth quarter of 1998. In
the first quarter of 1999, revenues from FFG totaled $10.3 million at a gross
profit of $4.8 million and revenues from FEG totaled $2.6 million at a gross
profit of $0.4 million. Total fixed assets employed in the business segments at
March 31, 1999 are: FFG - $46.14 million; FEG - $0.65 million; and other = $3.39
million.
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ATG INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion contains forward-looking statements that involve known
and unknown risks and uncertainties which may cause the Company's actual results
in future periods to differ materially from those indicated herein as a result
of certain factors, including those set forth under "Certain Business
Considerations." The Company undertakes no obligation to publicly release
updates or revisions to these statements.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's 1998
Annual Report on Form 10-K.
General
The Company is a radioactive and hazardous waste management company that offers
comprehensive treatment solutions for low level radioactive waste (LLRW), low
level mixed waste (LLMW) and other waste generated by the Department of Defense
(DOD), Department of Energy (DOE) and commercial entities such as nuclear power
plants, medical facilities and research institutions. The Company principally
derives its revenue from the waste treatment operations of its Fixed Facilities
Group and the on-site remediation services of its Field Engineering Group. The
Company focuses a significant portion of its business on SAFGLAS(TM)
vitrification of LLRW and on its newly acquired business interests in Tennessee
for treating ion exchange resins (IERs) and intends to focus increasingly on
LLMW processing in 1999.
Waste processing revenue from commercial entities, primarily nuclear power
plants, industrial concerns and medical and research institutions, has increased
in recent years and is expected to represent an increasing portion of the
Company's business. Revenue from waste treatment processing is generally
recognized upon the substantial completion of the waste treatment process.
Field engineering services are provided under fixed price, cost plus or unit
price contracts. Revenue from fixed price and cost plus contracts is recognized
utilizing the percentage of completion method of accounting; revenue from unit
price contracts is recognized as the units are processed and completed. Revenue
may also include non-refundable fees received under the terms of technology
transfer agreements.
The Company has historically relied upon the integration of proven technologies
with the Company's know-how and processes, and has not incurred significant
levels of research and development spending. Most of the research and
development activities conducted to date have related to the design and
construction of its fixed operating facilities,
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particularly in connection with the Company's SAFGLAS(TM) thermal treatment
system. The Company anticipates that its research and development efforts will
continue to be moderate and that the costs associated with future research and
development will not be material to the Company's results of operations.
The Company increasingly pursues multi-year and longer term contracts as a
method of achieving more predictable revenue, more consistent utilization of
equipment and personnel, and greater leverage of sales and marketing costs. The
Company currently focuses on large, multi-year site-specific and term contracts
in the areas of LLRW and LLMW treatment, environmental restoration and
decontamination and decommissioning of contaminated facilities, and has in
recent years been awarded a number of large government term contracts which, in
most cases, require several years to complete.
Results of Operations
Revenue and Net Income. Revenue for the first quarter of fiscal 1999 was $12.9
million, up 136% from the $5.5 million recorded in the comparable quarter in the
prior year. The Company recorded net income of $1.1 million, or $0.08 per share
fully diluted, in the first quarter of fiscal 1999, compared to net income of
$670,000, or $0.05 per share fully diluted, in the first quarter of fiscal 1998.
The increase in revenue is principally attributable to new customers and service
offerings resulting from the acquisition in December 1998 of assets and related
businesses in Oak Ridge, Tennessee, and the increasing commercial utilization of
the Company's SAFGLAS(TM) thermal treatment system. The new Tennessee operations
have been combined with the Richland, WA waste processing operations to provide
a broader range of customer service offerings. Customer waste needs are
addressed and directed to the appropriate processing group to provide the most
efficient and economical treatment of customer wastes.
Gross Profit. Gross profit for the first quarter of fiscal 1999 was $5.2
million or 40.2% of revenue, compared to $2.9 million or 52.1% of revenue in the
comparable quarter in 1998. The decrease in the gross profit percentage from
year to year is related to the varying mixes of business during these periods.
Overall gross profit on waste processing services of approximately 47% in the
first quarter of 1999 is lower than the approximately 58% recognized in the full
year of 1998 primarily due to the acquisition of the Tennessee operations. The
Company has devoted significant time and effort in the first quarter of 1999 to,
and continues to be engaged in, the process of integrating these new business
services and evaluating processes that affect cost of operations. The fixed
facilities operations generally have a larger percentage of fixed costs versus
variable costs, so increases in utilization favorably impact gross profit;
however, the first quarter of the year has typically been the lowest revenue
quarter of the year and thus margins will tend to be lower in the waste
processing group in this quarter. Overall gross profit on field service projects
was approximately 14% in the first quarter of 1999 which is lower than the
approximately 29% recognized in the full year of 1998. The principal reason for
the difference is the mix of projects and stage of completion across the
respective periods.
<PAGE>
Sales, General and Administrative Expenses. Sales, general and administrative
expenses for the first quarter of fiscal 1999 were $3.1 million or 23.9% of
revenue, compared to $1.7 million or 31.4% of revenue for the comparable period
in 1998. The increases in spending from year to year reflect the growth in the
Company's operations, addition of sales and administrative personnel related to
the acquisition of the Tennessee operations and the increased costs of being a
public company. The overall decrease in sales, general and administrative
expenses as a percentage of revenue is attributable to the Company's effort to
maintain a level of such costs that does not increase at the same rate as
revenue.
Provision for Income Taxes. The Company provides for income taxes during
interim periods at an estimated combined Federal and state annual rate to be
expected for the full year. The actual rate for 1998 was approximately 38%.
The Company is providing for income taxes in 1999 at a rate of 40% based on the
estimated shift in state income taxes from 1998.
Liquidity and Capital Resources
Total cash and cash equivalents were $2.5 million at March 31, 1999, a decrease
of $1.2 million from December 31, 1998. The working capital of the Company was
approximately $1.1 million at March 31, 1999, a decrease of $0.5 million from
December 31, 1998.
Significant outlays of cash have been needed to acquire property and equipment
and to pay liabilities for Federal and state income taxes as well as for
treatment and disposal of legacy wastes assumed in the acquisition of the
Tennessee businesses. Property and equipment acquisitions totaled $3.5 million
for the three months ended March 31, 1999. The Company anticipates spending in
excess of $20 million to construct a mixed waste treatment facility beginning in
1999. The Company has already invested approximately $4.5 million in the design
and permitting of this facility. The Company has been approved for an
industrial development bond in the State of Washington in the amount of $25
million to finance this construction.
During the quarter ended March 31, 1999, the Company negotiated an expansion of
its bank credit facility. The new credit facility provides a line of credit of
$13.0 million and a letter of credit facility of $1.0 million. Borrowings, when
made, bear interest at the prime rate, currently 7.75%. There was $9.4 million
outstanding under this credit facility at March 31, 1999.
The Company believes that its current cash and cash equivalents, together with
its credit facility and cash generated from operations, will be sufficient to
meet the Company's working capital requirements for the next 12 months.
Depending on its rate of growth and profitability, the Company may require
additional equity or debt financing to meet its
<PAGE>
future working capital or capital expenditure needs and it will require equity
or debt financing to construct its mixed waste facility. There can be no
assurance that such additional financing will be available or, if available,
that such financing can be obtained on terms satisfactory to the Company.
Year 2000 Impact
The year 2000 (Y2K) computer issue relates to computer software that utilizes a
two-digit field versus a four-digit field for the calendar year identification.
Unless corrected, some computer programs and the systems that are dependent upon
these programs may be unable to function properly after December 31, 1999. An
uncorrected condition could subject the Company to potentially significant legal
liabilities, although the Company currently has no reason to believe that these
consequences are likely to ensue.
The Company is not highly dependent on internal computer systems and does not,
as a general matter, interact electronically with its customers or suppliers.
The Company has been reviewing and is continuing to review and update its
existing software programs and interfaces for Y2K compliance. Substantially all
of the Company's software is provided by third party suppliers and the Company
has been upgrading to Y2K compliant versions of this software. To date the
costs for upgrading to Y2K compliant systems has been less than $100,000 and the
costs to complete this effort are expected to be less than an additional
$100,000. The final upgrades are currently expected to be implemented in the
third quarter of 1999 and undergo testing thereafter. The Company believes
that, as a result of these measures, its systems will be substantially compliant
by the year 2000. If there continue to be deficiencies after testing, the
Company believes it will be able to conduct its business without significant
interruption using already compliant systems.
The Company has been surveying and is continuing to survey its major service
providers as to their Y2K readiness. Responses to date indicate substantial
compliance by such providers with ongoing programs in effect.
The costs associated with upgrading internal systems to more current versions of
vendor supplied software have not been material to date. The Company believes
that it is unlikely to experience a material adverse impact on its financial
condition or results of operations due to Y2K compliance issues. Since the Y2K
updating is still ongoing, the full range of potential complications and the
full potential impact of the Y2K issue on the Company's business, operations and
financial condition is not known at this time.
Certain Business Considerations
The Company's business is subject to the following risks and uncertainties, in
addition to those described elsewhere.
<PAGE>
Dependence on Government Licenses, Permits and Approvals
The radioactive and hazardous waste management industry is highly regulated.
The Company is required to have federal, state and local governmental licenses,
permits and approvals for its waste treatment facilities and services. The
Company is currently processing a permit application for its LLMW processing
facility in Richland, WA. There can be no assurance as to the successful
outcome of any pending application by the Company for any such license, permit
or approval, and the Company's existing licenses, permits and approvals are
subject to revocation or modification under a variety of circumstances. Failure
to obtain timely, or to comply with the conditions of, applicable licenses,
permits or approvals could adversely affect the Company's business, financial
condition and results of operations. As its business expands and as it
introduces new technologies or modifies existing technologies, the Company will
be required to obtain additional operating licenses, permits or approvals. It
may be required to obtain additional operating licenses, permits or approvals if
new environmental legislation or regulations are enacted or promulgated or
existing legislation or regulations are amended, re-interpreted or enforced
differently than in the past. Any new requirements which raise compliance
standards may require the Company to modify its waste treatment technologies to
conform to more stringent regulatory requirements. There can be no assurance
that the Company will be able to continue to comply with all of the
environmental and other regulatory requirements applicable to its business.
No Assurance of Successful Development, Commercialization or Acceptance of
Technologies
The Company is in the process of developing, refining and implementing its
technologies for the treatment of LLRW, LLMW and other wastes. The Company's
future growth will be dependent in part upon the acceptance and implementation
of these technologies, particularly its recently developed vitrification
technologies for the thermal treatment of LLRW and LLMW and its recently
acquired technologies for treatment of ion exchange resin waste streams. There
can be no assurance that successful development of all these technologies will
occur in the near future, or even if successfully developed, that the Company
will be able to successfully commercialize such technologies. The successful
commercialization of the Company's vitrification technologies may depend in part
on ongoing comparisons with other competing technologies and more traditional
treatment, storage and disposal alternatives, as well as the continuing high
cost and limited availability of commercial disposal options. There can be no
assurance that the Company's vitrification and related technologies will prove
to be commercially viable or cost-effective, or if commercially viable and cost-
effective, that the Company will be successful in timely securing the requisite
regulatory licenses, permits and approvals for such technologies or that such
technologies will be selected for use in future waste treatment projects. The
Company's LLMW thermal treatment contract with the DOE's-Hanford Reservation
requires the Company to obtain all of the required licenses, permits and
approvals for, and to build and place in operation, its LLMW treatment facility
by
<PAGE>
November 10, 2000. The Company's inability to develop, commercialize or secure
the requisite licenses, permits and approvals for its waste treatment
technologies on a timely basis could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Environmental Laws and Regulations
A substantial portion of the Company's revenue is generated as a result of
requirements arising under federal and state laws, regulations and programs
related to protection of the environment. Environmental laws and regulations
are, and will continue to be, a principal factor affecting demand for the
services offered by the Company. The level of enforcement activities by
federal, state and local environmental protection agencies and changes in such
laws and regulations also affect the demand for such services. If the
requirements of compliance with environmental laws and regulations were to be
modified in the future, particularly those relating to the transportation,
treatment, storage or disposal of LLRW, LLMW or other wastes, the demand for the
Company's services, and its business, financial condition and results of
operations, could be materially adversely affected.
Dependence on Federal Government; Limits on Government Spending; Government
Contracting
The Company expects that the percentage of its revenue attributable to federal
government contracts will continue to be substantial for the foreseeable future.
The Company's government contracts generally are subject to cancellation, delay
or modification at the sole option of the government at any time, to annual
funding limitations and public sector budget constraints and, in many cases, to
actual delivery orders being released.
The Company is dependent on government appropriations to fund many of its
contracts. Efforts to reduce the federal budget deficit could adversely affect
the availability and timing of government funding for the clean-up of DOE, DOD
and other federal government sites. The failure by the government to fund
future restoration of such sites could have an adverse effect on the Company's
business, financial condition and results of operations.
As a provider of services to federal and other government agencies, the Company
also faces risks associated with government contracting, which include
substantial fines and penalties for, among other matters, failure to follow
procurement integrity and bidding rules and employing improper billing practices
or otherwise failing to follow prescribed cost accounting standards. Government
contracting requirements are complex, highly technical and subject to varying
interpretations. As a result of its government contracting business, the
Company has been, and expects to be in the future, the subject of audits, and
may in the future be subject to investigations, by government agencies. Failure
to comply with the terms of one or more of its government contracts could result
in damage to the
<PAGE>
Company's business reputation and the Company's suspension or disqualification
from future government contract projects for a significant period of time. The
fines and penalties which could result from noncompliance with applicable
standards and regulations, or the Company's suspension or disqualification,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Need for Additional Capital
The Company believes that it will need additional capital in order to implement
its long-term business plan. In particular, the Company will need approximately
$20 million to finance the construction of the LLMW facility in Richland, WA.
The Company is currently considering tax exempt industrial bond financing for
this facility. There can be no assurance that the Company will be successful in
raising the requisite amount of capital when needed, or, that if successful, the
terms of the financing will be favorable to the Company. If the Company is not
successful in raising such additional capital, it will need to curtail or scale
back its planned expansion, which could adversely affect the Company's business,
financial condition and results of operations.
Seasonality and Fluctuation in Quarterly Results
The Company's revenue is dependent on its contract backlog and the timing and
performance requirements of each contract. Revenue in the first and second
quarters has historically been lower than in the third and fourth quarters, as
the Company's customers have tended to ship waste during the months in which
transportation is less likely to be adversely affected by weather conditions.
The Company's revenue is also affected by the timing of its clients' planned
remediation activities and need for waste treatment services, which generally
increase during the third and fourth quarters. Due to this variation in demand,
the Company's quarterly results fluctuate. Accordingly, specific quarterly or
interim results should not be considered indicative of results to be expected
for any future quarter or for the full year. Due to the foregoing factors, it
is possible that in future quarters, the Company's operating results will not
meet the expectations of securities analysts and investors. In such event, the
price of the Company's common stock could be materially adversely affected.
Management of Growth
Since 1994, the Company has experienced significant growth, attributable in
large part to an increase in the number and size of contracts awarded and the
number of commercial nuclear utility power plants utilizing the Company's
services. Also, in December 1998, the Company acquired new business lines that
are anticipated to contribute to increased growth in 1999 and beyond. The
Company is currently pursuing a business plan intended to expand its business
domestically and internationally. The Company's historical growth has placed,
and any future growth may place, significant demands on its operational,
managerial and financial resources. There can be no assurance that the
Company's current management and systems will be adequate to address any future
expansion of the
<PAGE>
Company's business. In such event, any inability to manage the Company's growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
Equipment Performance; Safety and License Violations
The Company's ability to perform under current waste treatment contracts and to
successfully bid for future contracts is dependent upon the consistent
performance of its waste treatment systems at its fixed facilities in conformity
with safety and other requirements of the licenses under which the Company
operates. The Company's fixed facilities are subject to frequent routine
inspections by the regulatory authorities issuing such licenses. The Company
has experienced shut downs of its facilities for short periods of time in the
past. In the event that any of the Company's principal waste treatment systems
were to be shut down for any appreciable period of time, either due to equipment
breakdown or as the result of regulatory action in response to an alleged safety
or other violation of the terms of the licenses under which the Company
operates, the Company's business, financial condition and results of operations
could be materially adversely affected.
Competition
In general, the market for radioactive and hazardous waste management services
is highly competitive. The Company faces competition in its principal current
and planned business lines from both established domestic companies and foreign
companies attempting to introduce European waste treatment technologies into the
United States. Many of the Company's competitors have greater financial,
managerial, technical and marketing resources than the Company. To the extent
that competitors possess or develop superior or more cost-effective waste
treatment solutions or field service capabilities, or otherwise possess or
acquire competitive advantages compared to the Company, the Company's ability to
compete effectively could be materially adversely affected. Any increase in the
number of licensed commercial LLRW treatment facilities or disposal sites in the
United States or any decrease in the treatment or disposal fees charged by such
facilities or sites could increase the competition faced by the Company or
reduce the competitive advantage of certain of the Company's treatment
technologies.
International Expansion
A key component of the Company's long-term growth strategy is to expand its
business into selected Pacific Rim markets. There can be no assurance that the
Company or its strategic alliance partners will be able to market its
technologies or services successfully in foreign markets. In addition, there
are certain risks inherent in foreign operations, including general economic
conditions in each country, varying regulations applicable to the Company's
business, seasonal reductions in business activities, fluctuations in foreign
currencies or the U.S. Dollar, expropriation, nationalization, war,
insurrection, terrorism and other political risks, the overlap of different tax
structures, risks of
<PAGE>
increases in taxes, tariffs and other governmental fees and involuntary
renegotiation of contracts with foreign governments. In particular, recent
economic instability in certain Pacific Rim countries could substantially impede
the Company's targeted expansion into that region. In such event, the Company's
business, financial condition and results of operations could be materially
adversely affected. There can be no assurance that laws or administrative
practices relating to taxation, foreign exchange or other matters of foreign
countries within which the Company operates or will operate will not change. Any
such change could have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Key Personnel
The Company's future success depends on its continuing ability to attract,
retain and motivate highly qualified managerial, technical and marketing
personnel. The Company is highly dependent upon the continuing contributions
of its key managerial, technical and marketing personnel. The Company's
employees may voluntarily terminate their employment with the Company at any
time, and competition for qualified technical personnel, in particular, is
intense. The loss of the services of any of the Company's managerial, technical
or marketing personnel could materially adversely affect the Company's business,
financial condition and results of operations.
Focus on Larger Projects
The Company increasingly pursues large, multi-year contracts as a method of
achieving more predictable revenue, more consistent utilization of equipment and
personnel, and greater leverage of sales and marketing costs. These larger
projects impose significant risks if actual costs are higher than those
estimated at the time of bid. A loss on one or more of such larger contracts
could have a material adverse effect on the business, financial condition and
results of operations of the Company. In addition, failure to obtain, or delay
in obtaining, targeted large, multi-year contracts could result in significantly
less revenue to the Company than anticipated.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company considered the provisions of Financial Reporting Release No. 48,
"Disclosure about Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Qualitative Information
about Market Risk Inherent in Derivative Financial Instruments, Other Financial
Instruments and Derivative Commodity Instruments". The Company had no
derivative financial or commodity instruments at March 31, 1999. The Company's
line of credit has an interest rate based on the bank's reference rate that may
fluctuate over time based on changes in the economic environment. The Company
is subject to interest rate risk, and could be subjected to increased interest
payments if market interest rates fluctuate. In management's view, an effective
increase or decrease of 10% in such interest rates would not have a material
adverse effect on the Company's results of operations.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
(a), (b), and (c). Not applicable.
(d). Use of Proceeds
The following use of proceeds information is being disclosed with respect to the
Registration Statement on Form S-1 (Commission File No. 333-46107) which was
declared effective on May 6, 1998. This offering was managed by Van Kasper &
Company.
Class of securities Common stock
Shares registered 2,185,000
Aggregate offering price $18,572,500
Selling Shareholders None
All of the shares registered pursuant to the Registration Statement were sold
for the aggregate offering price and the offering has terminated.
<PAGE>
Offering Expenses:
- ------------------
Underwriting discounts and commissions $ 1,300,000
Finders fees - 0 -
Expenses paid to underwriters $ 279,000
Other expenses $ 1,336,000
Total expenses $ 2,915,000
Net proceeds of the offering $15,658,000
All of the expenses of the offering were direct payments made to others and
there were no direct or indirect payments to directors, officers, 10%
shareholders or affiliates of the Company.
Use of Proceeds:
- ----------------
Construction of plant, buildings and facilities $ 1,300,000
Purchase and installation of machinery and equipment $ 3,089,000
Purchase of real estate $ - 0 -
Acquisition of other businesses $ 2,261,000
Repayment of indebtedness $ 4,800,000
Working capital $ 4,208,000
Temporary investments $ - 0 -
Other purposes > $100,000 $ - 0 -
-
Total $15,658,000
All of the uses of proceeds have been directly paid to others and none have been
payments, either direct or indirect, to directors, officers, 10% shareholders or
affiliates of the Company. The proceeds from the public offering have been
completely used as of December 31, 1998.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Final bankruptcy court bid dated November 13, 1998**
2.2 Form of letter agreement dated December 1, 1998, among the
purchasers and the Trustee**
3.1 Articles of Incorporation of the Company *
3.2 Bylaws of the Company *
3.3 Certificate of Amendment of Articles of Incorporation *
4.1 Specimen Common Stock Certificate *
10.43 Amendment to Credit Agreement dated April 1, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
______
(*) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-46107) which became effective
May 6, 1998.
(**) Incorporated by reference to exhibits filed with the Registrant's Form
8-K dated December 1, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATG INC.
Date: May 14, 1999 By: /s/ Steven J. Guerrettaz
------------------------
Steven J. Guerrettaz
Vice President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Description
-------------- -------------------
10.43 Amendment to Credit Agreement
dated April 1, 1999
27.1 Financial Data Schedule
<PAGE>
Exhibit 10.43
Sanwa
Bank
California
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST Amendment to CREDIT AGREEMENT (the "Amendment") is made and
entered into as of April 1, 1999, by and between SANWA BANK CALIFORNIA (the
"Bank") and ATG INC. (the "Borrower") with respect to the following:
This Amendment shall be deemed to be a part of and subject to that certain
Credit Agreement dated as of December 28, 1998, as it may be amended from time
to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. Modification of Line of Credit Facility. Section 2.02 of the Agreement is
modified and amended as follows: The dollar amount provided for in section
2.02 of the Agreement, which is currently $9,500,000.00, is hereby modified
and changed to be $13,000,000.00.
2. Modification of Repayment of Principal. Section 2.02 D of the Agreement is
modified and amended as follows: The date provided for in section 2.02 D of
the Agreement, which is currently June 30, 1999, is hereby modified and
changed to be September 1, 1999.
3. Modification of Expiration of the Line of Credit Facility. Section 2.02 H
of the Agreement is modified and amended as follows: The date provided for
in section 2.02 H of the Agreement, which is currently June 30, 1999, is
hereby modified and changed to be September 1, 1999.
4. Modification of Letter of Credit Facility. Section 2.03 of the Agreement is
modified and amended as follows: The dollar amount provided for in section
2.03 of the Agreement, which is currently $3,000,000.00, is hereby modified
and changed to be $3,500,000.00. The dollar amounts provided for in section
2.03, which are currently $9,500,000.00, are hereby modified and changed to
be $13,000,000.00.
5. Modification of Expiration of Facility. Section 2.03 B of the Agreement is
modified and amended as follows: The date provided for in section 2.03 B of
the Agreement, which is currently June 30, 1999, is hereby modified and
changed to be September 1, 1999.
6. Modification of Additional Indebtedness. Section 6.11 of the Agreement is
modified and amended as follows: The dollar amount provided for in section
6.11 of the Agreement, which is currently $2,000,000.00, is hereby modified
and changed to be $8,000,000.00.
7. Modification of Loans. Section 6.12 of the Agreement is deleted in its
entirety and the following is substituted in lieu thereof: Section 6.12
Loans. Not make any loans or advances or extend credit to any third
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Borrower,
except for credit extended in the ordinary course of the Borrowers
business as presently conducted.
<PAGE>
8. Modification of Liens and Encumbrances. Section 6.13 of the Agreement is
modified and amended as follows: The dollar amount provided for in section
6.13 of the Agreement, which is currently $2,000,000.00, is hereby modified
and changed to be $8,000,000.00.
9. Modification of Debt to Net Worth Ratio. Section 6.16 B of the Agreement
is modified and amended as follows: The ratio provided for in section 6.16
B of the Agreement, which is currently 1.00 to 1.00, is hereby modified
and changed to be 1.50 to 1.00.
10. Modification of Profitability. Section 6.16 E of the Agreement is deleted
in its entirety and the following is substituted in lieu thereof. Section
6.16 E. Profitability. The Borrower shall not show a net loss in any fiscal
quarter.
11. Modification of Capital Expense: Section 6.18 of the Agreement is deleted in
its entirety and the following is substituted in lieu thereof: Section 6.18
Capital Expenses. Not make any fixed capital expenditure or any commitment
therefor, including, but not limited to, incurring liability for leases
which would be, in accordance with generally accepted accounting principles,
reported as capital leases, or purchase any real or personal property in an
aggregate amount exceeding $5,000,000 in any one fiscal year.
12. Change in Revocation or Limitation of Guaranty: Section 7.06 of the
Agreement is deleted in its entirety and the following is substituted in
lieu thereof. Section 7.06 Revocation or Limitation of Guaranty. Any
guaranty shall be revoked or limited or its enforceability or validity shall
be contested by any guarantor, by operation of law, legal proceeding or
otherwise or any guarantor who is a natural person shall die or any covenant
under the guaranty shall be breached.
13. Conditions Precedent. As a condition precedent to the effectiveness of this
Amendment, Borrower agrees to pay to Bank a fee of $8,000.00.
14. Representations and Warranties. The Borrower hereby reaffirms the
representations and warranties contained in the Agreement and represents
that no event, which with notice or lapse of time, could become an Event of
Default, has occurred or is continuing.
15. Confirmation of Other Terms and Conditions of the Agreement. Except as
specifically provided in this Amendment, all other terms, conditions and
covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower
hereby covenants and agrees to perform and observe all terms, covenants and
agreements provided for in the Agreement, as hereby amended.
16. Governing Law. This Amendment shall be governed and construed in accordance
with the laws of the State of California to which jurisdiction the parties
hereto hereby consent and submit.
17. Counterparts. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA
BY: /s/ John Norawong BY: /s/ Doreen Chiu
------------------------ ----------------------
NAME: John Norawong, Assistant NAME: Doreen Chiu, President
Vice President
ADDRESS:
47375 Fremont Boulevard
Fremont, CA 94538
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 3,789 2,549
<SECURITIES> 0 0
<RECEIVABLES> 22,866 22,563
<ALLOWANCES> 305 305
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,446 28,428
<PP&E> 46,060 50,178
<DEPRECIATION> 3,072 3,611
<TOTAL-ASSETS> 79,569 82,743
<CURRENT-LIABILITIES> 26,801 27,296
<BONDS> 0 0
0 0
0 0
<COMMON> 41,517 41,991
<OTHER-SE> (772) 367
<TOTAL-LIABILITY-AND-EQUITY> 79,569 82,743
<SALES> 35,900 12,944
<TOTAL-REVENUES> 35,900 12,944
<CGS> 19,816 7,742
<TOTAL-COSTS> 19,816 7,742
<OTHER-EXPENSES> 7,742 3,094
<LOSS-PROVISION> 210 0
<INTEREST-EXPENSE> (15) (311)
<INCOME-PRETAX> 8,305 1,850
<INCOME-TAX> 3,156 740
<INCOME-CONTINUING> 5,149 1,110
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,149 1,110
<EPS-PRIMARY> .40 .08
<EPS-DILUTED> .38 .08
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