<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED AUGUST 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10583
ATC ENVIRONMENTAL INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 46-0399408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 EAST 25TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code:
(212) 353-8280
NONE
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
The number of shares issued of the Registrant's Common Stock, as of October 2,
1995 was 5,857,390 shares of Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION:
Item 1 -- Financial Statements:
Consolidated Balance Sheets --
February 28, 1995 and August 31, 1995 (unaudited).................................................................. F-3
Consolidated Statements of Operations --
Three months and six months ended August 31, 1994 and 1995 (unaudited)............................................. F-4
Consolidated Statements of Stockholders' Equity --
Six months ended August 31, 1994 and 1995 (unaudited).............................................................. F-5
Consolidated Statements of Cash Flows --
Six months ended August 31, 1994 and 1995 (unaudited).............................................................. F-6
Notes to Consolidated Financial Statements.......................................................................... F-7
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations....................... F-10
PART II -- OTHER INFORMATION F-16
Signatures............................................................................................................ F-17
Exhibit 11 -- Computation of Earnings Per Share --
Three months and six months ended August 31, 1994 and 1995 (unaudited)...............................................
Exhibit 27 -- Financial Data Schedule (unaudited).....................................................................
</TABLE>
F-2
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1995 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 1,377,862 $ 464,160
Trade accounts receivable, less allowance for doubtful accounts ($535,886 at February
28, 1995 and $630,982 at August 31, 1995).............................................. 11,859,991 13,761,747
Costs in excess of billings on uncompleted contracts.................................... 447,000 1,894,868
Prepaid expenses and other current assets............................................... 431,791 733,581
Deferred income taxes (Note E).......................................................... 132,700 482,700
------------ ------------
Total current assets................................................................ 14,249,344 17,337,056
Property and equipment, net (Note C)...................................................... 3,151,286 3,314,406
Goodwill, net of accumulated amortization
($137,470 at February 28, 1995 and $277,050 at August 31, 1995).......................... 7,166,998 7,496,934
Covenants not to compete, net of accumulated amortization
($137,021 at February 28, 1995 and $191,478 at August 31, 1995).......................... 317,979 273,522
Other assets.............................................................................. 123,615 277,103
------------ ------------
$ 25,009,222 $ 28,699,021
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................................................................... $ 88,720 $ 5,000
Current maturities of long-term debt.................................................... 840,907 1,190,816
Accounts payable........................................................................ 1,963,484 2,283,565
Income taxes payable.................................................................... 128,250 --
Due to related company (Note D)......................................................... 39,969 --
Accrued compensation.................................................................... 2,053,797 1,769,053
Other accrued expenses.................................................................. 1,020,479 854,981
------------ ------------
Total current liabilities............................................................. 6,135,606 6,103,415
Long-term debt, less current maturities................................................... 3,892,766 5,377,418
Other liabilities......................................................................... 1,087,056 883,283
Deferred income taxes..................................................................... 80,600 80,600
------------ ------------
Total liabilities..................................................................... 11,196,028 12,444,716
------------ ------------
Stockholders' Equity (Note D):
Common stock, par value $.01 per share; authorized 20,000,000 shares; issued and
outstanding 5,738,018 shares at February 28, 1995 and 5,857,390 shares at August 31,
1995................................................................................... 57,380 58,574
Additional paid-in capital.............................................................. 7,484,453 7,540,125
Notes receivable -- common stock........................................................ (15,000) (45,000)
Retained earnings....................................................................... 6,286,361 8,700,606
------------ ------------
13,813,194 16,254,305
------------ ------------
$ 25,009,222 $ 28,699,021
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED AUGUST 31, 1994 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
----------------------- ------------------------
1994 1995 1994 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................................... $8,721,212 $11,649,478 $16,889,112 $22,464,431
Cost of revenues.............................................................. 4,235,512 6,120,062 8,533,767 11,665,473
---------- ----------- ----------- -----------
Gross profit............................................................ 4,485,700 5,529,416 8,355,345 10,798,958
Operating expenses:
Selling..................................................................... 294,039 384,564 517,905 714,193
General and administrative.................................................. 2,501,390 2,986,647 4,928,552 6,352,611
Provision for bad debts..................................................... 45,375 71,815 85,350 119,215
---------- ----------- ----------- -----------
2,840,804 3,443,026 5,531,807 7,186,019
---------- ----------- ----------- -----------
Operating income........................................................ 1,644,896 2,086,390 2,823,538 3,612,939
---------- ----------- ----------- -----------
Nonoperating expense (income):
Interest expense............................................................ 64,911 139,959 130,039 249,467
Interest income............................................................. (12,116) (3,801) (22,216) (47,573)
Other....................................................................... (507) 28,615 (807) 26,800
---------- ----------- ----------- -----------
52,288 164,773 107,016 228,694
---------- ----------- ----------- -----------
Income before income taxes.............................................. 1,592,608 1,921,617 2,716,522 3,384,245
Income tax expense (Note E)................................................... 611,600 402,500 1,046,000 970,000
---------- ----------- ----------- -----------
Net income.................................................................... $ 981,008 $ 1,519,117 $ 1,670,522 $ 2,414,245
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Earnings per common share and dilutive common equivalent share:
Primary (Notes D and E)..................................................... $ 0.18 $ 0.23 $ 0.30 $ 0.38
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Fully diluted (Notes D and E)............................................... $ 0.18 $ 0.23 $ 0.30 $ 0.38
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average number of shares outstanding:
Primary..................................................................... 5,512,235 6,542,002 5,496,629 6,332,657
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Fully diluted............................................................... 5,512,235 6,542,002 5,536,427 6,332,657
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1994 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994
------------------------------------------------------------------
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------ PAID-IN - COMMON RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
--------- ------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994................................ 5,303,352 $53,034 $4,610,860 $(34,250) $3,029,841 $7,659,485
Sale of common stock at $1.88 to $8.00 per share, upon
exercise of stock options and warrants................. 82,776 828 616,457 -- -- 617,285
Continuing registration costs applied against additional
paid-in capital........................................ -- -- (64,744) -- -- (64,744)
Net income.............................................. -- -- -- -- 1,670,522 1,670,522
--------- ------- ---------- --------- ---------- ----------
Balance, August 31, 1994.................................. 5,386,128 $53,862 $5,162,573 $(34,250) $4,700,363 $9,882,548
--------- ------- ---------- --------- ---------- ----------
--------- ------- ---------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------ PAID-IN - COMMON RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
--------- ------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1995................................ 5,738,018 $57,380 $7,484,453 $(15,000) $6,286,361 $13,813,194
Sale of common stock at $1.83 to $2.13 per share, upon
exercise of stock options and warrants................. 33,000 330 60,309 -- -- 60,639
Issuance of common stock in connection with asset
purchase............................................... 2,920 29 22,471 -- -- 22,500
Net issuance of common stock and adjustments in
connection with the merger of Aurora Environmental Inc.
into ATC Environmental Inc. (Note D)................... 83,452 835 61,719 (30,000) -- 32,554
Continuing registration costs applied against additional
paid-in capital........................................ -- -- (88,827) -- -- (88,827)
Net income.............................................. -- -- -- -- 2,414,245 2,414,245
--------- ------- ---------- --------- ---------- -----------
Balance, August 31, 1995.................................. 5,857,390 $58,574 $7,540,125 $(45,000) $8,700,606 $16,254,305
--------- ------- ---------- --------- ---------- -----------
--------- ------- ---------- --------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31, 1994 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................................................................ $1,670,522 $ 2,414,245
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and leasehold amortization............................................................. 283,132 348,763
Amortization of goodwill and covenants.............................................................. 81,779 194,037
Provision for bad debts............................................................................. 85,350 119,215
Deferred income taxes............................................................................... -- (350,000)
Other liabilities................................................................................... -- (203,773)
Gain on disposal of fixed assets.................................................................... -- (8,388)
Changes in operating assets and liabilities, net of amounts acquired in acquisitions:
Accounts receivable and cost in excess of billings on uncompleted contracts....................... 202,321 (3,489,439)
Prepaid expenses and other assets................................................................. (111,950) (453,753)
Accounts payable and other liabilities............................................................ 414,514 (170,130)
Income taxes payable.............................................................................. (951,824) (128,250)
---------- -----------
Net cash flows from operating activities........................................................ 1,673,844 (1,727,473)
---------- -----------
Cash Flows From Investing Activities:
Purchase of BSE Management, Inc....................................................................... (457,327) (207,990)
Purchase of Con-Test, Inc............................................................................. -- (135,344)
Purchase of R.E. Blattert and Associates.............................................................. -- (38,146)
Purchase of property and equipment.................................................................... (431,149) (507,287)
Proceeds from sale of property and equipment.......................................................... -- 10,792
Other................................................................................................. -- (18,461)
---------- -----------
Net cash flows from investing activities........................................................ (888,476) (896,436)
---------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt and notes payable............................................ -- 2,175,000
Proceeds from issuance of common stock................................................................ 617,285 123,193
Principal payments on long-term debt and notes payable, including capital lease obligations........... (2,100,448) (499,159)
Payments for continuing registration costs............................................................ (64,744) (88,827)
---------- -----------
Net cash flows from financing activities........................................................ (1,547,907) 1,710,207
---------- -----------
Net change in cash and cash equivalents....................................................... (762,539) (913,702)
Cash and Cash Equivalents, Beginning of period.......................................................... 1,394,889 1,377,862
---------- -----------
Cash and Cash Equivalents, End of period................................................................ $ 632,350 $ 464,160
---------- -----------
---------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest............................................................................................ $ 130,039 $ 248,556
---------- -----------
---------- -----------
Income taxes........................................................................................ $1,997,824 $ 1,448,250
---------- -----------
---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A -- GENERAL
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATC
Environmental Inc. and its wholly-owned subsidiaries ("ATC" or the "Company").
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly, in all material respects, the
financial position as of August 31, 1995, and the results of operations and the
cash flows for the periods ended August 31, 1994 and 1995. These results of
operations are not necessarily indicative of the results to be expected for the
full year due to certain seasonality factors and the effects and timing of large
service projects.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes included in
the Company's financial statements for the fiscal year ended February 28, 1995,
which are included in the Company's Annual Report on Form 10-K.
NATURE OF BUSINESS
ATC is a national environmental consulting and engineering firm providing
assessment, monitoring, training, analytical and management services for
environmental projects. These services are provided nation-wide through a
network of regional offices. Because the Company conducts its operations in a
single industry, segment information is not presented.
SIGNIFICANT CUSTOMERS
Revenues from two customers comprised approximately 9.7% of total revenues
during the six months ended August 31, 1995 as compared to 25.0% for the six
months ended August 31, 1994.
CREDIT FACILITIES
During the quarter ended August 31, 1995, the Company extended its credit
facilities with Atlantic Bank of New York by a total of $500,000. At August 31,
1995, the Company had borrowed the additional $500,000, which is due October 31,
1995.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
On March 1, 1996, the Company intends to adopt Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of." Management anticipates that the adoption
of SFAS No. 121 will not have a material effect on the Company's financial
statements.
EARNINGS PER SHARE DATA
Earnings per common share and dilutive common equivalent share have been
computed by using the weighted average number of shares outstanding during each
period. Outstanding dilutive stock warrants and options are included in the
computation of weighted average number of shares.
F-7
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's financial
statements to conform to the current years presentation.
NOTE B -- BUSINESS ACQUISITIONS
The following acquisitions have been accounted for as purchases. The
acquired company's assets and liabilities are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The acquired
company's operations subsequent to acquisition are included in the accompanying
consolidated statement of operations.
CON-TEST, INC.
On October 1, 1994, ATC acquired substantially all of the assets and
liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based environmental
consulting and engineering company having branch offices in the New England
states, New York and Pennsylvania. The seller has guaranteed the net receivables
purchased.
On September 28, 1995, the Company served the seller with a notice of
set-off pursuant to the purchase agreement. Under this set-off, ATC is entitled
to recover shares of its Common Stock originally issued to the seller, valued at
the closing price of the stock at the date of the claim, equal to the net
uncollected receivables acquired in the purchase. The net uncollected
receivables were approximately $460,000 and accordingly the Company expects to
recover approximately 32,000 shares of its Common Stock previously issued in the
acquisition.
The effect of this transaction on the financial position of ATC will be to
reduce the recorded net accounts receivable, reduce Common Stock and additional
paid in capital and to increase goodwill. This transaction will be recorded in
the Company's third quarter.
R.E. BLATTERT & ASSOCIATES
On January 13, 1995, ATC acquired substantially all of the assets and
liabilities of R.E. Blattert & Associates ("Blattert"), an environmental
consulting firm having geologic, environmental engineering and water resource
expertise with offices in Indiana and Iowa. The seller has guaranteed the net
receivables purchased. In addition, the purchase agreement provides for the
seller to receive additional purchase consideration up to a maximum of $850,000
over a four-year period based on achieving agreed upon earnings targets. These
contingent payments will be recorded as goodwill if subsequently earned. At
August 31, 1995, no additional purchase consideration had been earned.
MICROBIAL ENVIRONMENTAL SERVICES, INC.
On January 4, 1995, ATC acquired certain operations of Microbial
Environmental Services, Inc. ("MES"). ATC agreed to assume service performance
obligations under certain contracts and a lease obligation of MES. In
consideration, MES assigned accounts receivable to ATC. ATC additionally
purchased certain field and laboratory equipment from MES and paid a finder's
fee to an unrelated party.
F-8
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information sets forth the results of
operations of ATC as though the purchase of Con-Test had occurred at March 1,
1994:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------ ------------------------
1994 1995 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................... $10,649,263 $11,649,478 $20,697,020 $22,464,431
Net income................. $ 1,096,901 $ 1,519,117 $ 1,821,644 $ 2,414,245
Earnings per share (fully
diluted).................. $ 0.19 $ 0.23 $ 0.32 $ 0.38
Weighted average shares
(fully diluted)........... 5,628,791 6,542,002 5,652,983 6,332,657
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1995 1995
------------ -----------
<S> <C> <C>
Office equipment................................... $ 2,086,889 $ 2,411,606
Laboratory and field equipment..................... 3,007,651 3,155,673
Transportation equipment........................... 223,397 216,580
Leasehold improvements............................. 537,698 571,260
------------ -----------
5,855,635 6,355,119
Less accumulated depreciation...................... (2,704,349) (3,040,713)
------------ -----------
$ 3,151,286 $ 3,314,406
------------ -----------
------------ -----------
</TABLE>
NOTE D -- MERGER OF ATC AND AURORA
ATC and its parent, Aurora Environmental Inc. ("Aurora") were merged
pursuant to an agreement (the "Merger Agreement") approved by a majority of
shareholders of each company on June 29, 1995, with ATC being the surviving
corporation. Under the Merger Agreement, ATC exchanged .545 of a share of ATC
Common Stock for each of Aurora's 6,131,104 shares of stock outstanding. ATC's
common shares held by Aurora of 3,258,000 were cancelled. Actual common shares
outstanding increased by 83,452 shares and the fully diluted weighted average
shares outstanding increased by 408,566 and 204,283 for the three and six months
ended August 31, 1995, respectively, representing the dilutive effect of the
converted Aurora shares, options and warrants. The merger has been accounted for
in a manner similar to a pooling of interests. Under this method of accounting,
recorded assets and liabilities of Aurora were combined with those of ATC and
the results of operations of ATC and Aurora were combined as of the effective
date of the merger. In addition, the intercompany balance between ATC and Aurora
was forgiven.
NOTE E -- UTILIZATION OF AURORA NET OPERATING LOSS CARRYFORWARD
As a result of the merger, ATC will be able to utilize Aurora's net
operating loss carryforward, which resulted in a one-time reduction of income
tax expense of approximately $350,000 ($0.05 per share) that is reflected in the
second quarter's operating results.
F-9
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE F -- PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information sets forth the results of
operations of ATC and Aurora as if the merger of Aurora and ATC's purchase of
Con-Test had occurred on March 1, 1994:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------ ------------------------
1994 1995 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $10,649,263 $11,649,478 $20,697,020 $22,464,431
Net income.................. $ 1,090,759 $ 1,506,977 $ 1,813,468 $ 2,368,523
Earnings per share (fully
diluted)................... $ 0.18 $ 0.22 $ 0.29 $ 0.35
Weighted average shares
(fully diluted)............ 6,184,258 6,734,515 6,205,113 6,729,340
</TABLE>
NOTE G -- SUBSEQUENT EVENT -- COMMON STOCK OFFERING
On September 8, 1995, the Company filed a Registration Statement with the
Securities and Exchange Commission for the sale of 2,400,000 shares of Common
Stock of which 1,700,000 are to be sold by ATC, while the remaining are to be
sold by an officer/director of ATC.
The Company plans to utilize a portion of the net proceeds of the proposed
public offering to repay the debt outstanding under its credit facilities. At
September 30, 1995, $5,500,000 was outstanding under these credit facilities. It
is anticipated that a substantial portion of the remaining net proceeds of the
offering will be utilized to expand the Company's operations through strategic
acquisitions of companies with complementary services, products or technologies,
as well as through internal expansion. In addition, the net proceeds of the
offering will be available for general working capital purposes.
F-10
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
MERGER OF AURORA INTO ATC
Effective June 29, 1995, ATC Environmental Inc. ("ATC") and its parent,
Aurora Environmental Inc. ("Aurora"), were merged pursuant to an agreement
approved by the majority of shareholders of each company, with ATC as the
surviving corporation (the "Aurora Merger"). Prior to the Aurora Merger, Aurora
was a holding company which owned approximately 57% of ATC's outstanding Common
Stock and had substantially no other assets. In connection with the merger, each
outstanding share of Aurora Common stock was exchanged for .545 shares of ATC
Common Stock. ATC issued 3,341,452 shares of ATC Common Stock in exchange for
6,131,104 shares of Aurora's common stock, and issued options and warrants
entitling the holders thereof to purchase up to 604,950 shares of ATC Common
Stock upon exercise in replacement of previously outstanding options and
warrants to purchase Aurora's common stock. As a result of the Aurora Merger,
ATC anticipates that it will be able to utilize Aurora's net operating loss
carryforward to reduce its taxable income and accordingly recorded a one-time
reduction in income tax expense of approximately $350,000 ($.05 per share) in
the second quarter of fiscal 1996.
ACQUISITION OF ASSETS OF CON-TEST
Effective October 1, 1994, ATC purchased certain assets and assumed certain
liabilities of Con-Test, Inc. ("Con-Test") a Massachusetts-based environmental
consulting and engineering company with branch offices in Massachusetts,
Connecticut, Vermont, Rhode Island, New York and Pennsylvania. Con-Test's
primary services included industrial hygiene, environmental and industrial
health and safety, and lead-based paint management. It also maintained an
analytical laboratory and had developed a line of environmental facilities
management software used by several industrial firms and federal government
agencies. The total consideration for this acquisition was approximately
$7,760,000, consisting of $2,100,000 in cash, restricted shares of Common Stock
valued at $493,000, $535,000 in a three-year promissory note, $4,500,000 of
assumed liabilities and $132,000 for direct acquisition costs. Certain of this
consideration is contingent upon collection of outstanding receivables acquired
by ATC. Immediately upon acquiring the assets of Con-Test, the Company
instituted several cost-saving measures, including the elimination of certain
employees and facilities, to improve Con-Test's operations and integrate it with
the existing operations of the Company. On September 28, 1995, the Company
served the seller with a notice of set-off pursuant to the purchase agreement.
Under this set-off, ATC is entitled to recover shares of its Common Stock
orginally issued to the seller, valued at the closing price of the stock at the
date of the claim, equal to the net uncollected receivables acquired in the
purchase. The net uncollected receivables were approximately $460,000 and
accordingly the Company expects to recover approximately 32,000 shares of its
Common Stock previously issued in the acquisition. The effect of this
transaction on the financial position of ATC will be to reduce the recorded net
accounts receivable, reduce Common Stock and additional paid in capital and to
increase goodwill. This transaction will be recorded in the Company's third
quarter.
OTHER RECENT ACQUISITIONS
On January 4, 1995, ATC agreed to assume the service performance obligations
under certain contracts of Microbial Environmental Services, Inc. ("MES"). MES
was engaged in the business of remediation of contaminated soils and water
utilizing enhanced naturally occurring biological processes. The services
provided by MES also included assessment of contaminated properties, design of
bio-remediation systems, management of bio-remediation projects and monitoring
of compliance with clean up standards.
On January 13, 1995, ATC acquired certain assets and assumed certain
specified liabilities of R.E. Blattert and Associates ("R.E. Blattert"). R.E.
Blattert's main area of expertise was in groundwater resource management.
F-11
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
EXERCISE OF CLASS B WARRANTS
Between August 1, 1994 and September 30, 1994, the Company received gross
proceeds of $2,278,424 from the exercise of 284,803 of the 285,817 issued and
outstanding Class B Common Stock Purchase Warrants ("Class B Warrants"), which
were exercised at an exercise price of $8.00 per share. Upon exercise, each
Class B Warrant holder received one share of Common Stock and one Class C
Warrant. The Class B Warrants that were not exercised expired as of September
30, 1994. The Class B Warrants were issued by the Company in 1990 in connection
with an exchange offer pursuant to which holders of the Company's then
outstanding Common Stock Purchase Warrants received Class B Warrants in addition
to other consideration.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1995 COMPARED WITH THREE MONTHS ENDED AUGUST
31, 1994
Revenues in the three months ended August 31, 1995 increased 33.6% to
$11,649,478, compared with $8,721,212 in the three months ended August 31, 1994.
This increase was primarily attributable to the positive effect of acquisitions
completed during the second half of fiscal 1995. During the three months ended
August 31, 1995, increased revenues from certain existing operations were offset
by lower revenues due to the completion of certain work for a significant
customer.
Revenues in the three months ended August 31, 1995 from ATC's branch offices
having comparable operations in the three months ended August 31, 1994 increased
4.1% to $9,075,427, compared with $8,721,212 in the three months ended August
31, 1994. If revenues from certain large projects for two significant customers
discussed below are eliminated in each period, ATC's revenues from existing
branch offices having comparable operations would have increased 14.0% to
$7,842,330 in the three months ended August 31, 1995, compared with $6,882,140
in the three months ended August 31, 1994. In the three months ended August 31,
1995, ATC continued to penetrate its existing markets and benefitted from the
acquisitions of certain assets of Con-Test, MES and R.E. Blattert. Revenues
attributable to operations resulting from these acquisitions totaled $2,574,051,
or 22.1% of revenues, for the three months ended August 31, 1995.
Revenues in the three months ended August 31, 1995 earned directly from the
New York City School Construction Authority (the "NYCSCA") decreased 6.4% to
$820,639, compared with $876,513 in the three months ended August 31, 1994. As a
percentage of revenues, revenues from the NYCSCA decreased to 7.0% in the three
months ended August 31, 1995, compared with 10.1% in the three months ended
August 31, 1994.
Revenues in the three months ended August 31, 1995 from the Army Corps of
Engineers (the "Corps") decreased 57.1% to $412,458, compared with $962,559 in
the three months ended August 31, 1994. As a percentage of revenues, revenues
from the Corps decreased to 3.5% in the three months ended August 31, 1995,
compared with 11.0% in the three months ended August 31, 1994. The Company's
revenues from the Corps relate to certain asbestos management services and
decreased due to the completion of the larger phases of the project during the
first six months of fiscal 1995. Revenues from the Corps are expected to
continue at current levels for the remainder of fiscal 1996 and work on this
project is expected to continue through 1999 as part of the federal Base
Realignment and Closure project. However, no assurance can be made as to the
amount of revenues, if any, that ATC will receive from the Corps in the future
once current projects are completed.
Gross profit in the three months ended August 31, 1995 increased 23.3% to
$5,529,416, compared with $4,485,700 in the three months ended August 31, 1994.
Gross margin decreased to 47.5% in the three months ended August 31, 1995,
compared with 51.4% in the three months ended August 31, 1994. ATC's
F-12
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
gross margin decreased due to higher field labor costs and higher subcontract
and project costs. The gross margin for the quarter ended August 31, 1994 was a
record high due to the profitability level of several large, high margin
projects.
Operating expenses in the three months ended August 31, 1995 increased 21.2%
to $3,443,026, compared with $2,840,804 in the three months ended August 31,
1994. Operating expenses decreased as a percentage of revenues to 29.6% in the
three months ended August 31, 1995, compared with 32.6% in the three months
ended August 31, 1994. The decrease in operating expenses as a percentage of
revenue is the result of ATC's ability to service its greater revenue levels
without corresponding increases in fixed and administrative costs. Employee
costs increased only 9.3% to $1,601,014, or 13.7% of revenues, in the three
months ended August 31, 1995 compared with $1,465,031, or 16.8% of revenues, in
the three months ended August 31, 1994. These increases in total cost were due
to employees hired in connection with the expansion of ATC's operations. Other
increases in operating expenses resulted from higher facility costs, equipment
and supply costs and administrative expenses resulting from the growth in
operations and increased employee levels. Additionally, in the three months
ended August 31, 1995, amortization of goodwill and intangibles increased to
$98,658, compared with $37,135 in the three months ended August 31, 1994
reflecting the additional goodwill amortization resulting from acquisitions.
Operating income in the three months ended August 31, 1995 increased 26.8%
to $2,086,390, compared with $1,644,896 in the three months ended August 31,
1994. Operating income decreased as a percentage of revenues to 17.9% in the
three months ended August 31, 1995, compared with 18.9% in the three months
ended August 31, 1994.
Nonoperating expenses in the three months ended August 31, 1995 increased
215.1% to $164,773 compared with $52,288 in the three months ended August 31,
1994. The increase in nonoperating expenses is primarily attributable to higher
interest expenses due to increased borrowings.
Income tax expense in the three months ended August 31, 1995 was $402,500,
compared with $611,600 in the three months ended August 31, 1994. The income tax
expense reflects a one-time benefit of $350,000 resulting from the merger of
Aurora into ATC which will allow ATC to utilize Aurora's net operating loss
carryforwards as offsets to its future taxable income. During the three months
ended August 31, 1995, after adjusting for the one-time tax benefit, and the
three months ended August 31, 1994, the Company's effective tax rates were 39.2%
and 38.4%, respectively.
As a result of the foregoing, net income in the three months ended August
31, 1995 increased 54.9% to $1,519,117, or $.23 per share on a fully diluted
basis, compared with $981,008 or $.18 per share on a fully diluted basis, in the
three months ended August 31, 1994. Excluding the impact of the one-time tax
benefit of $350,000, net income and fully diluted earnings per share would have
been $1,169,117 and $.18, respectively, for the three months ended August 31,
1995. The fully diluted weighted average number of shares outstanding increased
1,029,767 shares to 6,542,002 shares primarily due to an increase in shares,
options and warrants outstanding as a result of the Aurora merger effective June
29, 1995, the exercise of the Class B warrants and the issuance of shares in
connection with the acquisition of Con-Test. Net income increased as a
percentage of revenues to 13.0% in the three months ended August 31, 1995,
compared with 11.2% in the three months ended August 31, 1994.
SIX MONTHS ENDED AUGUST 31, 1995 COMPARED WITH SIX MONTHS ENDED AUGUST 31,
1994
Revenues in the six months ended August 31, 1995 increased 33.0% to
$22,464,431 compared with $16,889,112 in the six months ended August 31, 1994.
This increase was primarily attributable to the positive effect of acquisitions
completed during the second half of fiscal 1995. During the six months ended
F-13
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
August 31, 1995, increased revenues from certain existing operations were offset
by lower revenues from a significant customer due to delays in funding for
certain projects and the completion of certain work for another significant
customer.
Revenues in the six months ended August 31, 1995 from ATC's branch offices
having comparable operations in the six months ended August 31, 1994 increased
1.2% to $17,092,786, compared with $16,889,112 in the six months ended August
31, 1994. If revenues from certain large projects for two significant customers
discussed below are eliminated in each period, ATC's revenues from existing
branch offices having comparable operations would have increased 17.7% to
$14,919,939 in the six months ended August 31, 1995, compared with $12,673,323
in the six months ended August 31, 1994. In the six months ended August 31,
1995, ATC continued to penetrate its existing markets and benefitted from the
acquisitions of certain assets of Con-Test, MES and R.E. Blattert. Revenues
attributable to operations resulting from these acquisitions totaled $5,371,645,
or 23.9% of revenues, for the six months ended August 31, 1995.
Revenues in the six months ended August 31, 1995 earned directly from the
NYCSCA decreased 21.9% to $1,416,786, compared with $1,814,420 in the six months
ended August 31, 1994. As a percentage of revenues, revenues from the NYCSCA
decreased to 6.3% in the six months ended August 31, 1995, compared with 10.7%
in the six months ended August 31, 1994. During the first quarter of fiscal
1996, delays in the approval of the NYCSCA's program budget and funding requests
for the New York City school construction and maintenance program resulted in
diminished service levels in asbestos management consulting and testing services
and, consequently, lower revenues to ATC under this program. The NYCSCA's
construction and maintenance program is ongoing and is expected to continue over
a period of years. ATC believes it has established a strong relationship with
the NYCSCA and expects to continue to provide asbestos and other industrial
hygiene services to the NYCSCA over the next several years; however, no
assurance can be made regarding the amount of revenues, if any, that ATC will
receive from the NYCSCA in the future once current projects are completed. ATC's
revenues under programs such as this one are not predictable and will be
dependent upon many factors such as the scope of work necessary at particular
sites, budgeting constraints and the timing of projects.
Revenues in the six months ended August 31, 1995 from the Corps decreased
68.5% to $756,061, compared with $2,401,369 in the six months ended August 31,
1994. As a percentage of revenues, revenues from the Corps decreased to 3.4% in
the six months ended August 31, 1995, compared with 14.2% in the six months
ended August 31, 1994. The Company's revenues from the Corps relates to certain
asbestos management services and decreased due to the completion of the larger
phases of the project during the six months ended August 31, 1994. Revenues from
the Corps are expected to continue at current levels for the remainder of fiscal
1996 and work on this project is expected to continue through 1999 as part of
the federal Base Realignment and Closure project. However, no assurance can be
made as to the amount of revenues, if any, that ATC will receive from the Corps
in the future once current projects are completed.
Gross profit in the six months ended August 31, 1995 increased 29.2% to
$10,798,958, compared with $8,355,345 in the six months ended August 31, 1994.
Gross margin decreased to 48.1% in the six months ended August 31, 1995,
compared with 49.5% in the six months ended August 31, 1994. ATC's gross margin
decreased due to higher field labor cost and higher subcontract and project
costs. The gross margin for the six months ended August 31, 1994 was higher due
to the profitability level of several high margin projects.
Operating expenses in the six months ended August 31, 1995 increased 29.9%
to $7,186,019 compared with $5,531,807 in the six months ended August 31, 1994.
Operating expenses decreased as a percentage of revenues to 32.0% in the six
months ended August 31, 1995, compared with 32.8% in the six months ended August
31, 1994. The decrease in operating expenses as a percentage of revenue is the
result of ATC's ability to service greater revenue levels without corresponding
increases in fixed and administrative costs. Employee costs increased 26.7% to
$3,630,992, or 16.2% of revenues, in the six months ended August 31, 1995
F-14
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
compared with $2,866,910, or 17.0% of revenues, in the six months ended August
31, 1994. These increases in employee costs were due to employees hired in
connection with the expansion of ATC's operations. Other increases in operating
expenses resulted from higher facility costs, equipment and supply costs and
administrative expenses resulting from the growth in operations and increased
employee levels. Additionally, in the six months ended August 31, 1995,
amortization of goodwill and intangibles increased to $194,037, compared with
$81,779 in the six months ended August 31, 1994, reflecting the additional
goodwill amortization resulting from acquisitions.
Operating income in the six months ended August 31, 1995 increased 28.0% to
$3,612,939, compared with $2,823,538 in the six months ended August 31, 1994.
Operating income decreased as a percentage of revenues to 16.1% in the six
months ended August 31, 1995, compared with 16.7% in the six months ended August
31, 1994.
Nonoperating expenses in the six months ended August 31, 1995 increased
113.7% to $228,694 compared with $107,016 in the six months ended August 31,
1994. The increase in nonoperating expenses is primarily attributable to higher
interest expenses due to increased borrowings.
Income tax expense in the six months ended August 31, 1995 was $970,000,
compared with $1,046,000 in the six months ended August 31, 1994. The income tax
expense reflects a one-time benefit of $350,000 resulting from the merger of
Aurora into ATC which will allow ATC to utilize Aurora's net operating loss
carryforwards as offsets to its future taxable income. During the six months
ended August 31, 1995, after adjusting for the one-time tax benefit, and the six
months ended August 31, 1994, the Company's effective tax rates were 39.0% and
38.5%, respectively.
As a result of the foregoing, net income in the six months ended August 31,
1995 increased 44.5% to $2,414,245, or $.38 per share on a fully diluted basis,
compared with $1,670,522 or $.30 per share on a fully diluted basis, in the six
months ended August 31, 1994. Excluding the impact of the one-time tax benefit
of $350,000, net income and fully diluted earnings per share would have been
$2,064,245 and $.33, respectively, for the six months ended August 31, 1995. The
fully diluted weighted average number of shares outstanding increased 796,230
shares to 6,332,657 shares primarily due to an increase in shares, options and
warrants outstanding as a result of the Aurora Merger effective June 29, 1995,
the exercise of the Class B warrants and the issuance of shares in connection
with the acquisition of Con-Test. Net income as a percentage of revenues was
10.7% in the six months ended August 31, 1995, compared with 9.9% in the six
months ended August 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1995, working capital was $11,233,641 compared with working
capital of $8,113,738 at February 28, 1995, an increase of $3,119,903. This
increase in working capital is primarily a result of ATC's acquisitions of
current assets of R.E. Blattert and MES, increases in billed and unbilled
receivables and the reduction of current liabilities using long-term borrowings
under the Company's revolving credit facility with the Atlantic Bank of New York
("Atlantic").
During the six months ended August 31, 1995, net cash flows used in
operating activities were $1,727,473, primarily due to an increase in billed and
unbilled receivables. Net cash flows used in investing activities were $896,436,
resulting from the Con-Test and R.E. Blattert acquisitions, additional
contingent purchase obligations in connection with the BSE acquisition and
purchases of property and equipment. Net cash flows provided by financing
activities were $1,710,207, primarily representing proceeds from an $2,175,000
increase in outstanding debt under the Company's credit facilities with
Atlantic, less payments made on long-term debt and notes payable of $499,159.
During the six months ended August 31, 1994, net cash flows provided by
operating activities were $1,673,844. Net cash flows used in investing
activities were $888,476 consisting of the payment of contingent purchase
obligations related to the acquisition of BSE and the purchase of property and
equipment. Also
F-15
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
during this period, net cash flows used in financing activities were $1,547,907,
primarily for principal payments on long-term debt and notes payable of
$2,100,448 which were offset by proceeds from issuance of common stock of
$617,285.
In fiscal 1995, ATC increased its revolving credit facility with Atlantic to
$5,000,000. The note underlying ATC's credit facility with Atlantic, which is
currently due September 30, 1996 (the "Note"), provides that Atlantic is not
obligated to make loans to ATC if doing so would cause the aggregate outstanding
principal amount of all loans under the Note to exceed the borrowing base
prescribed in the Note. The Note contains certain representations, warranties,
affirmative covenants, negative covenants and financial covenants. Events of
default under the Note include, but are not limited to, a change in control of
ATC or any guarantor. As of September 30, 1995, ATC is in compliance with all
covenants under the Note, with advances of $5,000,000 outstanding at September
30, 1995. Although the Company intends to use a portion of the proceeds of the
proposed public offering to repay in full the outstanding debt under its credit
facilities, the Company intends to maintain a revolving credit facility
following such offering.
During the second quarter of fiscal 1996 the Company extended its credit
facility with Atlantic to provide an additional $500,000 in borrowings, all of
which was outstanding at August 31, 1995. These additional borrowings are due
October 31, 1995.
On September 8, 1995, the Company filed a Registration Statement with the
Securities an Exchange Commission for the sale of 2,400,000 shares of Common
Stock, including 1,700,000 shares to be sold by ATC. The Company plans to
utilize a portion of the net proceeds of the proposed public offering to repay
the debt outstanding under its credit facilities. At September 30, 1995,
$5,500,000 was outstanding under these credit facilities. It is anticipated that
a substantial portion of the remaining net proceeds of the offering will be
utilized to expand the Company's operations through strategic acquisitions of
companies with complementary services, products or technologies, as well as
through internal expansion. In addition, the net proceeds of the offering will
be available for general working capital purposes.
The Company's working capital and liquidity will increase substantially upon
receipt of the net proceeds from the offering. Management believes that
following this offering ATC's working capital, the revolving credit facility
with Atlantic and anticipated funds generated internally from operations and the
offering will be sufficient to finance ATC's anticipated growth through
acquisitions and internal expansion, to make payments as they come due on ATC's
completed acquisitions and to meet ATC's short-term and long-term liquidity
requirements.
ATC may open additional offices in the future at presently undetermined
sites based upon potential sales growth and upon a determination of whether or
not an office can meet management's profitability objective. In addition, ATC
has added regional offices in the recent past as a result of the completion of
certain acquisitions and may add additional offices through acquisitions in the
future.
On March 1, 1996, the Company intends to adopt Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Management
anticipates the adoption of SFAS No. 121 will not have a material effect on the
Company's financial statements.
F-16
<PAGE>
PART II -- OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. LEGAL PROCEEDINGS:
Not Applicable
Item 2. CHANGES IN SECURITIES:
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS:
A special meeting of stockholders
was held June 29, 1995 for the
purpose of approving the merger
of Aurora Environmental Inc. into
ATC, with ATC being the surviving
corporation. The stockholders of
Item 4.
ATC approved the Plan of Merger
by a vote of 4,341,764 shares in
favor, 10,530 shares against and
10,070 abstaining from voting.
Item 5. OTHER INFORMATION:
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits;
11 Computation of Earnings
Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
A Form 8-K dated June 29, 1995 -
date of earliest event was filed
during the three months ended
August 31, 1995.
</TABLE>
F-17
<PAGE>
ATC ENVIRONMENTAL INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
ATC ENVIRONMENTAL,
INC.
--------------------
(Registrant)
Dated: October 6, /s/ MORRY F. RUBIN
1995 --------------------
MORRY F. RUBIN,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Dated: October 6, /s/ RICHARD L.
1995 PRUITT
--------------------
RICHARD L. PRUITT,
VICE PRESIDENT AND
PRINCIPAL ACCOUNTING
OFFICER
</TABLE>
F-18
<PAGE>
EXHIBIT 11
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
AUGUST 31, AUGUST 31,
-------------------------- --------------------------
1994 1995 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares of common stock
outstanding........................................... 5,324,136 5,797,818 5,313,744 5,768,058
Additional shares assuming exercise of dilutive stock
options and stock warrants............................ 188,099 744,184 182,885 564,599
------------ ------------ ------------ ------------
Total average common and common equivalent shares
outstanding....................................... 5,512,235 6,542,002 5,496,629 6,332,657
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income............................................... $ 981,008 $ 1,519,117 $ 1,670,522 $ 2,414,245
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common and dilutive common equivalent
share................................................... $ 0.18 $ 0.23 $ 0.30 $ 0.38
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted earnings per share:
Weighted average number of shares of common stock
outstanding........................................... 5,324,136 5,797,818 5,313,744 5,768,058
Additional shares assuming exercise of dilutive stock
options and stock warrants............................ 188,099 744,184 222,683 564,599
------------ ------------ ------------ ------------
Total average common and common equivalent shares
outstanding....................................... 5,512,235 6,542,002 5,536,427 6,332,657
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income............................................... $ 981,008 $ 1,519,117 $ 1,670,522 $ 2,414,245
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common and dilutive common equivalent
share................................................... $ 0.18 $ 0.23 $ 0.30 $ 0.38
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> AUG-31-1995
<CASH> 464,160
<SECURITIES> 0
<RECEIVABLES> 14,392,729
<ALLOWANCES> 630,982
<INVENTORY> 0
<CURRENT-ASSETS> 17,337,056
<PP&E> 6,355,119
<DEPRECIATION> 3,040,713
<TOTAL-ASSETS> 28,699,021
<CURRENT-LIABILITIES> 5,853,415
<BONDS> 0
<COMMON> 58,574
0
0
<OTHER-SE> 16,195,731
<TOTAL-LIABILITY-AND-EQUITY> 28,699,021
<SALES> 0
<TOTAL-REVENUES> 22,464,431
<CGS> 0
<TOTAL-COSTS> 11,665,473
<OTHER-EXPENSES> 7,046,031
<LOSS-PROVISION> 119,215
<INTEREST-EXPENSE> 249,467
<INCOME-PRETAX> 3,384,245
<INCOME-TAX> 970,000
<INCOME-CONTINUING> 2,414,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,414,245
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
