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 May 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)
Delaware 46-0399408
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
104 East 25th Street, 10th Floor
New York, New York 10010
(Address of principal executive offices) (Zip Code)
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
June 30, 1995 was 5,821,770 shares of Common Stock.
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ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 1995
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Balance Sheets-
February 28, 1995 and May 31, 1995 (unaudited)
Consolidated Statements of Operations-
Three months ended May 31, 1994 and 1995 (unaudited)
Consolidated Statements of Stockholders' Equity-
Three months ended May 31, 1994 and 1995 (unaudited)
Consolidated Statements of Cash Flows-
Three months ended May 31, 1994 and 1995 (unaudited)
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION:
Signatures
Certificate of Merger
Exhibit 11 - Computation of Earnings Per Share -
Three Months Ended May 31, 1994 and 1995 (unaudited)
Exhibit 27 - Financial Data Schedule (unaudited)
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<TABLE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND MAY 31, 1995 (Unaudited)
<CAPTION>
February 28, May 31,
1995 1995
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,377,862 $ 478,903
Trade accounts receivable, less allowance for doubtful accounts
($535,886 at February 28, 1995 and $579,449 at May 31, 1995) 11,859,991 12,496,667
Costs in excess of billing on uncompleted contracts 447,000 1,198,900
Prepaid expenses and other current assets 431,791 284,634
Deferred income taxes 132,700 132,700
Due from related company 18,924
__________ __________
Total current assets 14,249,344 14,610,728
Property and Equipment, net 3,151,286 3,108,475
Goodwill, net of accumulated amortization
($137,470 at February 28, 1995 and $205,933 at May 31, 1995) 7,166,998 7,467,189
Covenants Not To Compete, net of accumulated amortization
($137,021 at February 28, 1995 and $163,937 at May 31, 1995) 317,979 301,063
Other Assets 123,615 124,754
__________ __________
$25,009,222 $25,612,209
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Short-term debt $ 88,720 $ 47,210
Current maturities of long-term debt 840,907 780,286
Accounts payable 1,963,484 1,831,192
Income taxes payable 128,250 343,392
Due to related company 39,969
Accrued compensation 2,053,797 1,433,627
Other accrued expenses 1,020,479 734,969
__________ _________
Total current liabilities 6,135,606 5,170,676
Long-Term Debt, less current maturities 3,892,766 4,593,248
Other Liabilities 1,087,056 1,036,224
Deferred Income Taxes 80,600 80,600
__________ __________
Total liabilities 11,196,028 10,880,748
__________ __________
Stockholders' Equity
Common stock, par value $.01 per share; authorized 20,000,000 shares;
issued and outstanding 5,738,018 shares at February 28, 1995 and
5,738,318 shares at May 31, 1995 57,380 57,383
Additional paid-in capital 7,484,453 7,507,589
Notes receivable - common stock (15,000) (15,000)
Retained earnings 6,286,361 7,181,489
__________ __________
13,813,194 14,731,461
__________ __________
$25,009,222 $25,612,209
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1994 AND 1995 (Unaudited)
<CAPTION>
1994 1995
<S> <C> <C>
REVENUES $ 8,167,900 $10,814,953
COST OF REVENUES 4,298,256 5,545,411
___________ ___________
Gross profit 3,869,644 5,269,542
OPERATING EXPENSES:
Selling 223,866 329,629
General and administrative 2,427,162 3,365,964
Provision for bad debts 39,975 47,400
___________ ___________
2,691,003 3,742,993
___________ ___________
Operating income 1,178,641 1,526,549
___________ ___________
NONOPERATING EXPENSE (INCOME):
Interest expense 65,128 109,508
Interest income (10,100) (43,772)
Other (301) (1,815)
___________ ___________
54,727 63,921
___________ ___________
Income before income taxes 1,123,914 1,462,628
INCOME TAX EXPENSE 434,400 567,500
___________ ___________
NET INCOME $ 689,514 $ 895,128
=========== ===========
EARNINGS PER COMMON SHARE AND DILUTIVE COMMON
EQUIVALENT SHARE:
Primary $ 0.13 $ 0.15
=========== ===========
Fully diluted $ 0.12 $ 0.15
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 5,481,022 6,123,312
=========== ===========
Fully diluted 5,560,619 6,123,312
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1994 AND 1995 (Unaudited)
1994
Notes
Additional Receivable
Common Stock 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
Continuing registration costs
applied against additional
paid-in capital (20,154) (20,154)
Net income 689,514 689,514
_________ _______ __________ ________ __________ __________
BALANCE, May 31, 1994 5,303,352 $53,034 $4,590,706 $(34,250) $3,719,355 $8,328,845
========= ======= ========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995
Notes
Additional Receivable
Common Stock 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 $2.13
per share, upon exercise
of stock options 300 3 636 639
Common stock commitment in
connection with asset
purchase 22,500 22,500
Net income 895,128 895,128
_________ _______ __________ ________ __________ __________
BALANCE, May 31, 1995 5,738,318 $57,383 $7,507,589 $(15,000) $7,181,489 $14,731,461
========= ======= ========== ======== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1994 AND 1995 (Unaudited)
<CAPTION>
1994 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 689,514 $ 895,128
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and leasehold amortization 138,479 170,133
Amortization of goodwill and covenants 44,644 95,379
Provision for bad debts 39,975 47,400
Other liabilities (50,832)
Gain on disposal of fixed assets (3,275)
Changes in operating assets and liabilities, net of
amounts acquired in acquisitions:
Accounts and notes receivable (367,720) (1,445,500)
Prepaid expenses and other assets (134,744) 147,542
Accounts payable and other liabilities 322,554 (1,077,940)
Income taxes payable (755,950) 215,142
_________ ___________
Net cash flows from operating activities (23,248) (1,006,823)
_________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of ConTest, Inc. (123,848)
Purchase of BSE Management, Inc. (198,626) (103,077)
Purchase of R.E. Blattert and Associates (53,068)
Purchase of property and equipment (120,226) (122,649)
Proceeds from sale of property and equipment 5,602
Other (19,086)
_________ ___________
Net cash flows from investing activities (318,852) (416,126)
_________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable 816,660
Proceeds from issuance of common stock 639
Principal payments on long-term debt and notes payable,
including capital lease obligations (217,915) (293,309)
Payments for continuing registration costs (20,154)
_________ ___________
Net cash flows from financing activities (238,069) 523,990
_________ ___________
Net change in cash and cash equivalents (580,169) (898,959)
CASH AND CASH EQUIVALENTS, Beginning of period 1,394,889 1,377,862
_________ ___________
CASH AND CASH EQUIVALENTS, End of period $ 814,720 $ 478,903
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 65,128 $ 109,508
========== ===========
Income taxes $1,190,350 $ 352,352
========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
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ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of normal
recurring accruals) necessary to present fairly, in all material respects,
the financial position as of May 31, 1995, and the results of operations
and the cash flows for the three months ended May 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 Form 10-K for the fiscal year
ended February 28, 1995.
Nature of Business - ATC Environmental Inc. and its subsidiaries are
environmental consulting firms 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
8.7% of total revenues during the three months ended May 31, 1995
as compared to 29.1% for the comparable prior period.
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.
Reclassifications - Certain reclassifications have been made to the prior
period's financial statements to conform to the current years presentation.
B. BUSINESS ACQUISITIONS
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 company having branch offices in the New England
states, New York and Pennsylvania. The seller has guaranteed the net
receivables purchased. The acquisition has been accounted for as a purchase.
Con-Test's assets and liabilities are included in the accompanying consolidated
balance sheet at fair value at the date of purchase.
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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 May 31, 1995, no additional
purchase consideration had been earned. The acquisition was accounted for
as a purchase. Blattert's assets and liabilities are included in the
accompanying consolidated balance sheet at fair value at the date of purchase.
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. The
acquisition was accounted for as a purchase. MES's assets and liabilities
acquired are included in the accompanying consolidated balance sheet at
fair value at the date of purchase.
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:
Pro forma
Three Months Ended May 31,
1994 1995
Revenues $10,333,423 $10,814,953
Net income $ 552,182 $ 895,128
Earnings per share (fully diluted) $ 0.10 $ 0.15
C. PROPERTY AND EQUIPMENT
Property and equipment is
comprised of the following:
February 28, May 31,
1995 1995
Office equipment $ 2,086,889 $ 2,155,308
Laboratory and field equipment 3,007,651 3,055,038
Transportation equipment 223,397 216,580
Leasehold improvements 537,698 545,543
__________ _________
5,855,635 5,972,469
Less accumulated depreciation (2,704,349) (2,863,994)
__________ __________
$ 3,151,286 $ 3,108,475
========== ==========
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D. SUBSEQUENT EVENT - 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 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. The merger will be accounted for in a manner
similar to a pooling of interests. Under this method of accounting,
recorded assets and liabilities of Aurora will be combined with ATC
and the results of operations of ATC and Aurora will also be combined
as of the effective date of the merger. After the merger, ATC will
be able to utilize Aurora's net operating loss carryforward, which
is approximately $970,000 at May 31, 1995. In addition, the
intercompany balance between ATC and Aurora was forgiven.
Pro Forma Financial Information - The following unaudited pro forma
information sets forth the results of operations of ATC and Aurora
as if the merger and ATC's purchase of Con-Test had occurred on
March 1, 1994:
Pro forma
Three Months Ended May 31,
1994 1995
Revenues $10,333,423 $10,814,953
Net income $ 550,148 $ 845,632
Earnings per share (fully diluted) $ 0.09 $ 0.13
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
Introduction
ATC is an environmental consulting firm that specializes in the
identification, assessment and testing of and corrective action for
complex environmental projects. ATC's strategy is to provide a
diversified set of consulting services including industrial
hygiene, environmental site assessments, ground water and soil
management, environmental compliance, environmental management,
lead based paint management, health and safety training and risk
analysis. Currently, a major portion of the ATC's revenues are
derived from industrial hygiene related services. ATC also
maintains independent analytical testing laboratories for analysis
of industrial waste water, drinking water for lead based paint
contamination, radon presence, and certain hazardous wastes in
support of its industrial hygiene, environmental management, and
lead based paint management consulting services. ATC has also
commenced providing services in the area of risk analysis and
computerized decision support and analysis.
The following is a discussion of ATC's merger with its parent
company and a description of ATC acquisitions in fiscal 1995. For
a complete discussion of the merger and terms of the acquisitions,
refer to the company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1995.
ATC and Aurora Merger
ATC and its parent, Aurora Environmental Inc. (Aurora), were merged
effective on June 29, 1995 with ATC as the surviving corporation pursuant
to an Agreement and Plan of Merger (the "Merger"), dated January 6, 1995.
The Merger was subject to various conditions including without
limitation stockholder approval of each respective corporation.
Stockholder approval of each of ATC and Aurora was obtained on June
29, 1995, and the Merger closed and was deemed effective as of the
close of business on the same date, which is also the date that a
Certificate of merger was deemed filed with the Department of State
of the State of Delaware. The final conversion ratio is .545 of a
share of ATC common stock for each 1.0 share of Aurora common
stock.
Prior to the Merger, Aurora owned approximately 57% of the
outstanding shares of ATC. As a result of the Merger, Aurora's
3,258,000 of ATC common stock have been canceled. In connection
with the Merger, ATC will issue 3,341,452 shares of common stock in
exchange for Aurora's stockholder's shares. Further, ATC is
obligated to issue up to an additional 604,950 shares upon the
exercise of certain ATC options/warrants to be issued in
replacement of previously outstanding Aurora options/warrants.
The Merger will be accounted for in a manner similar to a pooling
of interest. Under this method of accounting, recorded assets and
liabilities of Aurora will be combined with ATC and the results of
operations of ATC and Aurora will also be combined as of the
effective date of the merger. After the merger, ATC will be able
to utilize Aurora's net operating loss carryforward, which is
approximately $970,000 at May 31, 1995. In addition, the
intercompany balance between ATC and Aurora will be forgiven.
<PAGE>
<PAGE>
Acquisition of Assets on Con-Test, Inc.
As of October 1, 1994, ATC purchased certain assets and assumed
certain liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts
based environmental consulting company having branch offices in New
England, New York and Pennsylvania.
Con-Test's primary services include industrial hygiene,
environmental and industrial health and safety, and lead based
paint management. It also maintained an analytical laboratory,
and has developed an extensive line of environmental facilities
management software which is presently in use by several industrial
firms and federal government agencies.
Acquisition of Certain Assets of Microbial Environmental Services,
Inc.
On January 4, 1995, ATC agreed to assume the service performance
obligations under certain contracts of Microbial Environmental
Services, Inc. ("MES"), a wholly-owned subsidiary of Pioneer Hi-
Bred International, Inc. MES was engaged in the business of
remediation of contaminated soils and water utilizing enhanced
naturally occurring biological processes. Their services also
included assessment of contaminated properties, design of bio-
remediation systems, management of bio-remediation projects and
monitoring of compliance with clean up standards. Further, ATC
agreed to assume 30% of MES's facility lease obligations in Des
Moines, Iowa.
Acquisition of Certain Assets of R.E. Blattert and Associates
On January 13, 1995, ATC acquired substantially all the assets
(excluding foreign business contracts) and assumed certain
specified liabilities of R.E. Blattert and Associates ("R.E.
Blattert"). There is a contingent earnout provision which provides
for additional purchase consideration up to a maximum of $850,000
over a four year period based on achieving agreed upon revenue and
earnings targets. R.E. Blattert's main area of expertise was in
groundwater resource management, but it also had significant
capability in the areas of environmental assessments, design and
remediation management, evaluation and management of solid and
hazardous waste, underground storage tank management, geotechnical
services, computer modeling, geophysical surveys, mapping studies
and forensic engineering.
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RESULTS OF OPERATIONS-FIRST QUARTER OF FISCAL 1995 VS FIRST QUARTER
OF FISCAL 1994
Revenues increased from $8,167,900 during the three months ended
May 31, 1994 to $10,814,953 for the three months ended May 31,
1995, an increase of $2,647,053 or 32.4%. This increase was
attributable to continued growth of ATC's existing branches and the
effect of acquisitions, which were offset by the effect of lower
revenues from significant customers, as summarized in the following
table:
Revenues for three months ended
Amount Percentage
Source May 31, 1994 May 31, 1995 of Change Change (1)
ATC
existing
branches $5,791,183 $7,077,609 $1,286,426 22.2%
NYCSCA &
Corps 2,376,717 939,750 (1,436,967) (60.5%)
Con-Test -0- 1,728,121 1,728,121 N/A
R.E. Blattert -0- 367,827 367,827 N/A
MES -0- 701,646 701,646 N/A
Total $8,167,900 $10,814,953 $2,647,053 32.4%
(1) The percentage of change is calculated by dividing the
applicable amount of the source change by the applicable
amount of source revenues for the three months ended May 31,
1994.
Strong growth in ATC existing branch locations was experienced as
ATC continues to penetrate its existing markets. The increase in
revenue from ATC existing branch offices in the three months ended
May 31, 1995, after adjusting for the effect of large projects for
significant customers, was 22.2%. As the amounts above indicate,
ATC is benefiting as anticipated from its acquisition of assets of
Con-Test which was effective October 1, 1994, acquisition of assets
of MES which was effective January 4, 1995 and acquisition of
assets of R.E. Blattert which was effective January 13, 1995.
Additionally, ATC continues to benefit from its acquisition of
assets of BSE Management, Inc. which was effective April 30, 1993.
During the three months ended May 31, 1995, the New York City
School Construction Authority ("NYCSCA") accounted for
approximately $596,147 or 5.5% of revenues as compared to $937,907
or 11.5% of revenues for the three months ended May 31, 1994.
During the three months ended May 31, 1995, ATC's revenues in
asbestos management consulting and testing services which were
provided to the NYCSCA as part of its New York City school asbestos
clean up program, decreased due to delays in the approval of program budget and
funding requests which resulted in diminished service levels. Since NYCSCA's
clean up program is ongoing and is expected to continue over a period of years,
ATC is providing and reasonably expects to continue to provide additional
asbestos and other industrial hygiene services to NYCSCA. Management
believes that revenues from the NYCSCA are expected to continue in future
periods. Actual revenues will be dependent upon many factors such as
scope of work necessary at particular sites, budgeting constraints,
competition and ATC's performance. Since May 31, 1995, additional funding
has been made available to the program which management believes will
result in higher revenue levels in the three months ended August 30, 1995
as compared to the three months ended May 31, 1995.
During the three months ended May 31, 1995, revenues from the Army
Corps of Engineers ("Corps"), amounted to approximately $343,603 or
3.2% of revenues, as compared to approximately $1,438,810 or 17.6% of
revenues for the comparable period of the prior year. These revenues
relate to certain asbestos management services. Revenues are expected
to continue at diminished levels for the remainder of fiscal 1996 when
compared to similar periods of the prior fiscal year.
Gross profit, which is service fee revenue less cost of revenues
for the three months ended May 31, 1994 and the three months ended
May 31, 1995 was $3,869,644 and $5,269,542, respectively, and the
gross profit percentage was 47.4% and 48.7%, respectively. During
the three months ended May 31, 1995, ATC's margins improved due to
lower subcontract and outside laboratory expenses as a percentage
of revenue.
Operating expenses (which include selling, general and
administrative and provision for bad debts) for the three months
ended May 31, 1994 and 1995 were $2,691,003 and $3,742,993,
respectively. ATC's operating expenses expressed as a percentage
of revenues were 33.0% and 34.6%, respectively. Operating expenses
as a percentage of gross revenues have increased primarily due to
increased labor costs. Employee salaries and wages and related
employment costs such as payroll taxes and employee insurance
benefits represent the largest component of operating expenses.
Employee costs increased approximately $535,000 in the three months
ended May 31, 1995 as compared to the three months ended 1994.
This correlates to a 35% increase in the number of employees.
These increases were due to employees hired in connection with the
Con-Test and other acquisitions and increases from the growth in
services in existing ATC branch offices. Other increases in
operating expenses resulted from higher facility costs, supplies,
and travel which resulted from the increased revenue and employee
levels. Additionally, amortization of goodwill and intangibles
increased from $44,644 in the three months ended May 31, 1994 to
$95,379 in the three months ended May 31, 1995 reflecting the
additional goodwill from the BSE contingent purchase payments and
acquisitions of Con-Test, R.E. Blattert and MES.
Other nonoperating expenses increased from $54,727 in the three
months ended May 31, 1994 to $63,921 in the three months ended May
31, 1995. This increase can be attributed to an increase in net
interest expense due to increased borrowings.
Income tax expense was $434,400 in the three months ended May 31,
1994 and $567,500 in the three months ended May 31, 1995
representing an effective tax rate of approximately 39% for both
periods.
Net income was $689,514 in the three months ended May 31, 1994
compared to $895,128 in the three months ended May 31, 1995. The
increase is due to increased revenues and operating profits
resulting from recent acquisitions.
Impact of Inflation
ATC believes that inflation and changing prices have not had a
material impact on ATC's operations.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1995 working capital was $9,440,052 as compared to
working capital of $8,113,738 at February 28, 1995, an increase of
$1,326,314. This increase in working capital is in part a result
of ATC's acquisition of assets of R.E. Blattert and MES, and the
reduction of liabilities from proceeds of notes to the bank.
During the three months ended May 31, 1995, net cash of
approximately $1,007,000 was used in operations, representing
increases in accounts receivable and payments of accounts payable
and accrued liabilities in excess of the net income for the period.
Accounts receivable increased due to increased billings by MES to
governmental agencies, where payments are made through stale
environmental funds and increases of costs in excess of billings
due to work on projects where billings are linked to project
completions or milestone events. Liabilities decreased primarily
due to the payment of accrued compensation. During the three
months ended May 31, 1995, net cash of approximately $416,000 was
used in investing activities in connection with the Con-Test and
R.E. Blattert acquisitions, additional contingent contract payments
in connection with the BSE acquisition, and purchases of property
and equipment. Net cash from financing activities was
approximately $524,000, primarily representing proceeds from an
$800,000 increase in notes payable to a bank less payments made on
long term debt and notes payable of $293,000.
During the three months ended May 31, 1994, the Company's
operations used cash. Net cash flows from changes in operating
assets and liabilities included a use of cash as a result of an
increase in accounts receivable as a result of the Company's
continued revenue growth and payment of current taxes due. This
was partially offset by an increase in payables and the Company's
continued strong operating results. During this period, net cash
was used in investing activities toward the payment of additional
contingent obligations related to the acquisition of BSE and to
purchase property and equipment. Also during this period, cash was
used in financing activities primarily for principal payment on
long term debt and notes payable.
ATC's standard credit policy is that all amounts are due upon
receipt of invoice. ATC generally does not provide extended
payment terms to customers; however, a significant portion of
receivables are not collected within 30 days. ATC's collections on
accounts receivable averaged 101 days, and 91 days for the three
months ended May 31, 1995, and 1994, respectively. (The 1995
calculation, adjusted to exclude uncollected purchased accounts
receivable of Con-Test and R.E. Blattert and excluding receivables
assigned to the Company by MES is 95 days). ATC's clients are
diversified and, except for the NYCSCA and the Army Corps of
Engineers, ATC is not dependent upon any major customers, industry
or geographical area. Management believes that these factors,
along with its aggressive collection policies and advanced credit
checks are the reasons why ATC has not experienced significant
losses on the collection of accounts receivable.
ATC may open additional offices in the future at presently
undetermined sites based upon potential sales growth and whether 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 such as the acquisition of
assets from Con-Test as of October 1, 1994 and may add additional
offices through acquisitions in the future, although no assurances
can be given in this regard.
At various times in the past, ATC's liquidity and cash resources
have been substantially attributable to externally rather than
internally generated funds as a result of the completion of ATC's
initial public offering in June, 1988, capital lease transactions,
financing from the exercise of outstanding options and warrants and
institutional financing. In fiscal 1995, ATC increased its credit
facilities with the Atlantic Bank of New York to approximately
$5,000,000. Management believes that ATC's working capital, credit
facilities with the Atlantic Bank of New York, and anticipated
funds generated internally from operations are sufficient to
finance ATC's internal expansion activities, to make
payments as they come due on ATC's completed acquisitions and to
meet ATC's short-term and long-term liquidity requirements.
The Note underlying ATC's credit facility, which is currently due
September 30, 1996, provides that the Bank 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 as defined in the Note. The Note contains certain
representations, warranties, affirmative covenants, negative
covenants and financial covenants so long as the Note remains
unpaid or the Bank shall have any commitments under the Notes. As
of May 31, 1995, ATC is in compliance with all covenants under the
Note. Events of default under the Note include but are not limited
to a change in control of ATC or any guarantor.
Class C Warrants
Under the original terms of ATC's Class C Warrants, each Class C
Warrant entitles the holder to purchase one share of ATC's Common
Stock at a purchase price of $10.00.
On June 30, 1994, ATC extended the expiration date of its Class C
Warrants until September 30, 1996. As of May 1, 1995, there were
570,620 Class C Warrants issued and outstanding.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Not Applicable
Item 2. Changes in Securities:
Not Applicable
Item 3. Defaults Upon Senior Securities:
Not Applicable
Item 4. 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 ATC
approved the Plan of Merger by a vote of 4,362,904
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:
2 Agreement and Plan of Merger dated as of
January 6, 1995 by and between Aurora and the
Issuer (incorporated by reference to Exhibit
2(a) filed as an Exhibit to the Form S-4
Registration Statement, File No. 33-88380 and
included as an attachment to the Prospectus
which forms a part of said Registration
Statement).
2 Certificate of Merger
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
No Form 8-K's were filed or required to be filed for
the three months ended May 31, 1995, however, a Form
8-K relating to the merger of ATC and Aurora,
dated June 29, 1995 was filed in July 1995
<PAGE>
<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.
ATC ENVIRONMENTAL INC.
(Registrant)
Dated: July 17, 1995 /s/ Morry F. Rubin
MORRY F. RUBIN, President and
Chief Executive Officer
Dated: July 17, 1995 /s/ Richard L. Pruitt
RICHARD L. PRUITT, Vice President
and Principal Accounting Officer
<PAGE>
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 am 06/29/1995
950140016 - 7146186
Certificate of Merger
of
Aurora Environmental Inc.
into and with
ATC Environmental Inc.
Pursuant to Section 251 of the General Corporation Law
of the State of Delaware
ATC Environmental Inc., a corporation formed under the laws of
the State of Delaware, desiring to merge Aurora Environmental Inc.,
into and with ATC Environmental Inc., with ATC Environmental Inc.,
as the surviving corporation pursuant to the provision of Section
251 of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY as follows:
FIRST: That ATC Environmental Inc., is a corporation formed
under the Laws of the State of Delaware and its and its Certificate
of Incorporation was filed in the office of the Secretary of State
on DECEMBER 14, 1987.
SECOND: That Aurora Environmental Inc., is a corporation
formed under the Laws of the State of Delaware and its Certificate
of Incorporation was filed in the office of the Secretary of State
on NOVEMBER 3, 1987.
THIRD: That an Agreement and Plan of Merger dated as of
January 6, 1995, between ATC Environmental Inc., and Aurora
Environmental Inc., has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in
accordance with Section 251 of the General Corporation Law of the
State of Delaware.
FOURTH: That the name of the Surviving Corporation is ATC
Environmental Inc..
FIFTH: That the Certificate of Incorporation of ATC
Environmental Inc., as heretofore amended, shall continue to be the
Certificate of Incorporation of the Surviving Corporation until
said Certificate of Incorporation has been amended.
SIXTH: That the executed Agreement and Plan of Merger is on
file at the principal place of business of ATC Environmental Inc.,
the Surviving Corporation, at 104 East 25th Street, New York, New
York, 10010.
SEVENTH: That a copy of the executed Agreement and Plan of
Merger will be furnished by ATC Environmental Inc., the Surviving
Corporation, on request, and without cost, to any stockholder of
any constituent corporation.
IN WITNESS WHEREOF, said ATC Environmental Inc., has caused
this Certificate to be executed by its officers thereunto duly
authorized this 29th day of June, 1995.
ATC ENVIRONMENTAL INC.
by /s/ Morry F. Rubin
Morry F. Rubin, President
ATTEST:
/s/ George Rubin
George Rubin, Secretary
<PAGE>
<PAGE>
Exhibit 11
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MAY 31, 1994 AND 1995 (Unaudited)
1994 1995
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares
of common stock outstanding 5,303,352 5,738,298
Additional shares assuming
exercise of dilutive stock
options and stock warrants 177,670 385,014
________ _________
Total average common and
common equivalent
shares outstanding 5,481,022 6,123,312
========= =========
Net income $ 689,514 $ 895,128
========= =========
Earnings per common share and
dilutive common equivalent share $ 0.13 $ 0.15
========= =========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares
of common stock outstanding 5,303,352 5,738,298
Additional shares assuming
exercise of dilutive stock
options and stock warrants 257,267 385,014
_________ _________
Total average common
and common equivalent
shares outstanding 5,560,619 6,123,312
========= =========
Net income $ 689,514 895,128
========= =========
Earnings per common share and
dilutive common equivalent share $ 0.12 $ 0.15
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> MAY-31-1995
<CASH> 478,903
<SECURITIES> 0
<RECEIVABLES> 14,275,016
<ALLOWANCES> 579,449
<INVENTORY> 0
<CURRENT-ASSETS> 14,610,728
<PP&E> 5,972,469
<DEPRECIATION> 2,863,994
<TOTAL-ASSETS> 25,612,209
<CURRENT-LIABILITIES> 5,170,676
<BONDS> 0
<COMMON> 57,383
0
0
<OTHER-SE> 14,674,078
<TOTAL-LIABILITY-AND-EQUITY> 25,612,209
<SALES> 0
<TOTAL-REVENUES> 10,814,953
<CGS> 0
<TOTAL-COSTS> 5,545,411
<OTHER-EXPENSES> 3,650,006
<LOSS-PROVISION> 47,400
<INTEREST-EXPENSE> 109,508
<INCOME-PRETAX> 1,462,628
<INCOME-TAX> 567,500
<INCOME-CONTINUING> 895,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895,128
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
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