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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 September 30, 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 X No ____
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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 October 31, 1999
----- -------------------------------
Common stock, no par value 14,053,221
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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
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Page
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PART I. FINANCIAL INFORMATION
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 Operations 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..................................................18
Item 2. Changes In Securities And Use Of Proceeds..........................18
Item 3. Defaults Upon Senior Securities....................................18
Item 4. Submission Of Matters To A Vote Of Security Holders................18
Item 5. Other Information..................................................18
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)
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<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,268 $ 3,789
Accounts receivable, net 26,219 22,561
Prepayments and other current assets 3,826 2,096
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Total current assets 32,313 28,446
Property and equipment, net 58,409 42,988
Intangible and other assets, net 7,173 8,135
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Total assets $97,895 $79,569
======= =======
Current liabilities:
Short-term borrowings $ - $ 6,750
Current portion of long-term debt and capital leases 6,626 4,733
Accounts payable 8,377 6,096
Accrued liabilities 7,765 9,222
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Total current liabilities 22,768 26,801
Long-term debt and capitalized leases, net 28,788 11,246
Deferred income taxes 777 777
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Total liabilities 52,333 38,824
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Common stock 42,036 41,517
Deferred compensation (62) (152)
Retained earnings (deficit) 3,588 (620)
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Total shareholders' equity 45,562 40,745
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Total liabilities and shareholders' equity $97,895 $79,569
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ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue $16,617 $ 9,021 $45,621 $21,288
Cost of revenue 10,457 4,795 28,007 10,771
------- ------- ------- -------
Gross profit 6,160 4,226 17,614 10,517
Sales, general & administrative expenses 3,594 1,745 9,824 5,436
Stock-based compensation expense 30 30 90 90
------- ------- ------- -------
Operating income 2,536 2,451 7,700 4,991
Net interest income (expense) (196) 97 (687) 139
------- ------- ------- -------
Income before provision for taxes 2,340 2,548 7,013 5,130
Provision for income taxes 936 1,019 2,805 2,052
------- ------- ------- -------
Net income $ 1,404 $ 1,529 $ 4,208 $ 3,078
======= ======= ======= =======
Net income per share
Basic $0.10 $0.11 $0.30 $0.24
Fully diluted $0.10 $0.11 $0.29 $0.23
Weighted average shares
Basic 14,053 13,804 14,040 12,686
Fully diluted 14,556 14,480 14,624 13,412
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ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
Sept. 30, Sept. 30,
1999 1998
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Cash flows from operating activities:
Net income $ 4,208 $ 3,077
Adjustments to reconcile net income with cash flow
from operations:
Depreciation and amortization 1,415 605
Provision for doubtful accounts - 90
Compensation expense for shares issued and options granted 90 90
Change in current assets and liabilities:
Accounts receivable (2,122) (8,802)
Prepayment and other current assets (1,305) 590
Accounts payable and accrued liabilities 824 2,418
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Net cash provided (used) in operating activities 3,110 (1,932)
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Cash flows from investing activities:
Property and equipment acquisitions, net (15,860) (2,571)
Other assets (1,975) (417)
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Net cash used in investing activities (17,835) (2,988)
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Cash flows from financing activities:
Repayment of loan to related party - (1,280)
Borrowing (repayment) of long-term debt and capital leases 19,435 (1,161)
Short-term borrowing, net of repayments (6,750) (3,996)
Proceeds from issuance of common stock 519 15,665
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Net cash provided by financing activities 13,204 9,228
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Increase (decrease) in cash and cash equivalents (1,521) 4,308
Cash and cash equivalents, beginning of period 3,789 2,586
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Cash and cash equivalents, end of period $ 2,268 $ 6,894
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Supplemental cash flow information:
Income taxes paid $ 1,388 $ 105
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Interest paid $ 1,652 $ -
======== =======
Acquisition of equipment with capital leases $ 4,201 $ 906
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Reclassification of machinery and equipment to inventory $ (426) $ -
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Reclassification of other assets to property and equipment $ 1,325 $ -
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ATG INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30,1999
(Unaudited)
1. Business of the Company
ATG Inc. (the "Company" or "ATG") provides technical personnel and specialized
services and products primarily to the U.S. government and the nuclear power
industry throughout the United States. Services principally consist of
compaction, reduction, decontamination, vitrification and disposal of low-level
dry active nuclear and other hazardous waste, dewatering and thermal treatment
of ion exchange resins and site remediation and construction projects.
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 Annual Report on Form
10-K and Form 10-K/A for the year ended December 31, 1998 and the Audited
Consolidated Financial Statements included therein.
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 and nine months ended September 30, 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 and
nine months ended September 30, 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
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during the period. Dilutive potential common shares consist of the incremental
common shares issuable upon the exercise of stock options for all periods.
A reconciliation of the numerator and denominator of basic and diluted net
income per share is provided as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
--------------------------------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Numerator - Basic and Diluted
Income per share
Net income $ 1,404 $ 1,529 $ 4,208 $ 3,078
======= ======= ======= =======
Denominator - Basic
Common shares outstanding 14,053 13,804 14,040 12,686
------- ------- ------- -------
Basic net income per share $ 0.10 $ 0.11 $ 0.30 $ 0.24
======= ======= ======= =======
Denominator - Diluted
Denominator - Basic 14,053 13,804 14,040 12,686
Common stock options 503 676 584 726
------- ------- ------- -------
14,556 14,480 14,624 13,412
------- ------- ------- -------
Diluted net income per share $ 0.10 $ 0.11 $ 0.29 $ 0.23
======= ======= ======= =======
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Diluted net income per share for the three months ended September 30, 1999,
excludes options and warrants to acquire 559,000 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 third quarter of 1999, revenues from FFG totaled $12.0 million at a gross
profit of $6.1 million, and revenues from FEG totaled $4.6 million at a gross
profit of $0.1 million. For the nine months ended September 30, 1999, revenues
from FFG totaled $34.9 million at a gross profit of $16.7 million, and revenues
from FEG totaled $10.7 million at a gross profit of $0.9 million. Total fixed
assets employed in the business segments at September 30, 1999, are: FFG - $58.6
million; FEG - $0.7 million; and other - $3.5 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 and Form 10-K/A.
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 currently 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 on LLMW processing. During the
quarter ended June 30, 1999, the Company was successful in processing the permit
application for its LLMW processing facility in Richland, WA, and in the quarter
ended September 30, 1999, the Company began construction of the new processing
facility.
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.
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, 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.
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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 third quarter of fiscal 1999 was $16.6
million, an increase of 84% from the $9.0 million recorded in the comparable
quarter in the prior year. The Company recorded net income of $1.4 million, or
$0.10 per share fully diluted, in the third quarter of fiscal 1999, compared to
net income of $1.5 million, or $0.11 per share fully diluted, in the third
quarter of fiscal 1998. For the nine months ended September 30, 1999 revenue was
$45.6 million, an increase of 114% from the $21.3 million recorded for the same
period in 1998. The Company recorded net income of $4.2 million, or $0.29 per
share fully diluted, for the nine months ended September 30, 1999, compared to
net income of $3.1 million, or $0.23 per share fully diluted, for the same
period in 1998.
The increase in revenue is principally attributable to new customers and service
offerings resulting from the acquisition of assets and related businesses in Oak
Ridge, Tennessee, and the increasing commercial utilization of the Company's
SAFGLAS(TM) thermal treatment system. The newly acquired Tennessee operations
have been integrated with the Richland, Washington waste processing operations
to provide a broad range of customer service offerings. Customer waste needs are
addressed and directed to the appropriate processing location to provide the
most efficient and economical treatment of customer wastes.
Revenue for the third quarter of 1999 was impacted by an unscheduled shutdown of
the SAFGLAS(TM) thermal treatment system and the related bulk-processing unit
(BPU) at the Company's facilities in Richland, Washington. Both the glass
melter and BPU units ceased operation on September 5, 1999, due to the failure
of a SAFGLAS(TM) glass drain. Approximately 100 gallons of hot glass were
released into the containment area under the glass melter. This release did not
result in any safety hazards or environmental releases, but it did cause some
damage to electrical and cooling water service components that were located in
the release area. All systems have been repaired and insurance claims have been
filed with the Company's insurance carriers for both physical repairs and
business interruption. Both the SAFGLAS(TM) thermal treatment system and BPU
returned to full operational status on September 28, 1999.
Gross Profit. Gross profit for the third quarter of fiscal 1999 was $6.2
million, or 37% of revenue, compared to $4.2 million, or 47% of revenue, in the
comparable quarter in 1998.
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Gross profit for the nine months ended September 30, 1999, was $17.6 million, or
39% of revenue, compared to $10.5 million, or 49% of revenue, for the comparable
period in 1998.
The changes in the gross profit percentage from year to year are related to the
varying mixes of business during these periods. Overall gross profit on waste
processing services was approximately 51% in the three months and 48% in the
nine months ended September 30, 1999. The current period gross profit
percentages for waste services are lower than the 58% recorded in the full year
of 1998, due to the acquisition of the Tennessee operations. The full
integration of the new business lines are proceeding as planned as many
customers are using services that were previously not available. The Company is
continuing its evaluation of the processes that affect the 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. Utilization of the Company's waste treatment services by its customers
has typically been less in the first two quarters of the year, as compared with
the last two quarters, and thus margins will tend to be lower in the waste
processing group during the periods of less utilization. Gross profit for the
third quarter of 1999 was impacted by a decrease in utilization due to an
unscheduled shutdown of the Company's SAFGLAS(TM) thermal treatment system and
BPU in Richland, Washington. (See discussion under Revenue and Net Income.)
Overall gross profit on field service projects was approximately 1% in the three
months and 9% in the nine months ended September 30, 1999, which is lower than
the 29% recognized in the full year of 1998. The principal reason for the
difference is the different mix of projects and stage of completion during these
periods. Specifically, during the third quarter of 1999, the Company was
impacted by a large revenue volume of fixed price contracts that are currently
estimated to breakeven upon completion.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses for the third quarter of fiscal 1999 were $3.6 million or 22% of
revenue, compared to $1.7 million or 19% of revenue for the comparable period in
1998. These expenses for the nine months ended September 30, 1999 were $9.8
million or 22% of revenue, compared to $5.4 million or 26% 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. For the nine months ending September
30, 1999, 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.
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Liquidity and Capital Resources
Total cash and cash equivalents were $2.3 million at September 30, 1999, a
decrease of $1.5 million from December 31, 1998. The working capital of the
Company was approximately $9.5 million at September 30, 1999, an increase of
$7.9 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 $6.7 million
for the three months ended September 30, 1999. The Company anticipates spending
in excess of $20 million to construct a Low Level Mixed Waste treatment
facility. The Company has already invested approximately $6.4 million in the
design, permitting, and construction of this facility. As of November 9, 1999,
the Company has completed an agreement with a consortium of banks (the Banks)
for a total credit facility in the amount of $45 million.
The credit facility includes a letter of credit in support of tax-exempt Solid
Waste Revenue Bonds (the Bonds) in the aggregate face amount of $26.5 million.
The Bonds were issued on November 10, 1999, with a variable interest rate of
3.70%. The proceeds are to be applied exclusively for the construction of a Low
Level Mixed Waste facility in Richland, Washington. In addition, the agreement
with the Banks includes a five year long-term revolving working capital line of
credit in the amount of $18 million, including a letter of credit facility of
$5.0 million. Borrowings, when made, bear a variable interest rate based on
certain financial ratio criteria. The Company currently qualifies for the base
rate plus 0.75%, or 9.5%. The Company under its prior credit facility had
borrowings of $12.9 million outstanding at September 30, 1999, that were
transferred to this new credit facility and classified as long-term. The credit
agreement requires the Company to comply with certain covenants including
capital asset acquisition limits, limits on additional debt, minimum levels of
tangible net worth, dividend payment restrictions and maintenance of certain
financial ratios.
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 future working capital or
capital expenditure needs. 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
Many currently installed computer systems, software applications and other
control devices (collectively, "Systems") are coded to accept only two digit
entries in the date
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code field. As the year 2000 approaches, these code fields will need to accept
four digit entries to distinguish years beginning with "19" from those beginning
with "20". As a result, the Systems used by many companies may need to be
modified to comply with year 2000 requirements. ATG relies on its internal
Systems in operating and monitoring all major aspects of its business, including
its manufacturing processes, engineering management controls, financial systems
(such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks and
telecommunications equipment and products. ATG also relies on the external
Systems of its suppliers and other organizations with which it does business.
Based on a review of its Systems and the nature of the corrections needed to
make the Systems compliant, the Company believes there is minimal risk that the
Systems will be non-compliant on January 1, 2000. However, despite the efforts
thus far to address the year 2000 impact, the Company cannot guarantee that all
internal and external systems will be compliant, or that its business will not
be materially adversely affected by any such non-compliance.
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Certain Business Considerations
The Company's business is subject to the following risks and uncertainties, in
addition to those described elsewhere.
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. There can
be no assurance as to the successful outcome of any 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
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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 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
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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 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. 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 financing will be satisfactory 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
15
<PAGE>
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 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 shutdowns of its facilities for short periods of time in the
past, including, most recently, an unscheduled shutdown of the SAFGLAS(TM)
thermal treatment system and BPU for 23 days in September 1999. In the event
that any of the Company's principal waste treatment systems were to be shutdown
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 or LLMW 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,
16
<PAGE>
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 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no change to the disclosure made in the Company's 1998 Form 10-K
and 10-K/A.
17
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None.
18
<PAGE>
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 *
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.
19
<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: November 15, 1999 By: /s/ Steven J. Guerrettaz
------------------------
Steven J. Guerrettaz
Vice President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Description
-------------- -------------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE REPORT OF FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,268
<SECURITIES> 0
<RECEIVABLES> 26,476
<ALLOWANCES> 257
<INVENTORY> 0
<CURRENT-ASSETS> 32,313
<PP&E> 62,820
<DEPRECIATION> 4,411
<TOTAL-ASSETS> 97,895
<CURRENT-LIABILITIES> 22,768
<BONDS> 0
0
0
<COMMON> 42,036
<OTHER-SE> 3,526
<TOTAL-LIABILITY-AND-EQUITY> 97,895
<SALES> 45,621
<TOTAL-REVENUES> 45,621
<CGS> 28,007
<TOTAL-COSTS> 28,007
<OTHER-EXPENSES> 9,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (857)
<INCOME-PRETAX> 7,013
<INCOME-TAX> 2,805
<INCOME-CONTINUING> 4,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,208
<EPS-BASIC> .30
<EPS-DILUTED> .29
</TABLE>
