<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A NO. 1
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 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 January 10,
1996 was 7,795,789 shares of Common Stock after giving effect to the
cancellation of 33,130 shares as discussed in Note B to the financial
statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION:
Item 1 -- Financial Statements:
Consolidated Balance Sheets --
February 28, 1995 and November 30, 1995 (unaudited)................................................................ F-3
Consolidated Statements of Operations --
Three months and nine months ended November 30, 1994 and 1995 (unaudited).......................................... F-4
Consolidated Statements of Stockholders' Equity --
Nine months ended November 30, 1994 and 1995 (unaudited)........................................................... F-5
Consolidated Statements of Cash Flows --
Nine months ended November 30, 1994 and 1995 (unaudited)........................................................... F-6
Notes to Consolidated Financial Statements (unaudited).............................................................. F-7
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations....................... F-11
PART II -- OTHER INFORMATION:
Items 1-6............................................................................................................. F-17
Signatures............................................................................................................ F-18
Exhibit 11 -- Computation of Earnings Per Share --
Three months and nine months ended November 30, 1994 and 1995 (unaudited)............................................ F-19
Exhibit 27 -- Financial Data Schedule --
November 30, 1995 (unaudited)........................................................................................ F-20
</TABLE>
F-2
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND NOVEMBER 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1995 1995
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 1,377,862 $ 14,159,789
Trade accounts receivable, less allowance for doubtful accounts ($535,886 at February
28, 1995 and $354,778 at November 30, 1995)............................................ 11,859,991 13,089,323
Costs in excess of billings on uncompleted contracts.................................... 447,000 2,870,633
Prepaid expenses and other current assets............................................... 431,791 856,583
Deferred income taxes (Note D).......................................................... 132,700 339,259
------------ ------------
Total current assets................................................................ 14,249,344 31,315,587
Property and equipment, net (Note C)...................................................... 3,151,286 3,498,743
Goodwill, net of accumulated amortization (Note B)
($137,470 at February 28, 1995 and $357,038 at November 30, 1995)........................ 7,166,998 10,976,055
Covenants not to compete, net of accumulated amortization (Note B)
($137,021 at February 28, 1995 and $221,904 at November 30, 1995)........................ 317,979 280,596
Other assets.............................................................................. 123,615 281,763
------------ ------------
$ 25,009,222 $ 46,352,744
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................................................................... $ 88,720 $ 1,154,612
Current maturities of long-term debt.................................................... 840,907 484,657
Accounts payable........................................................................ 1,963,484 1,613,753
Income taxes payable.................................................................... 128,250 15,002
Due to related company (Note D)......................................................... 39,969 --
Accrued compensation.................................................................... 2,053,797 1,934,268
Other accrued expenses.................................................................. 1,020,479 1,037,080
------------ ------------
Total current liabilities............................................................. 6,135,606 6,239,372
Long-term debt, less current maturities................................................... 3,892,766 381,186
Other liabilities......................................................................... 1,087,056 800,430
Deferred income taxes..................................................................... 80,600 80,600
------------ ------------
Total liabilities..................................................................... 11,196,028 7,501,588
------------ ------------
Stockholders' Equity (Note D and F):
Common stock, par value $.01 per share; authorized 20,000,000 shares; issued and
outstanding 5,738,018 shares at February 28, 1995 and 7,794,860 shares at November 30,
1995................................................................................... 57,380 77,949
Additional paid-in capital.............................................................. 7,484,453 29,012,926
Notes receivable -- common stock........................................................ (15,000) (45,000)
Retained earnings....................................................................... 6,286,361 9,805,281
------------ ------------
13,813,194 38,851,156
------------ ------------
$ 25,009,222 $ 46,352,744
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------- ------------------------
1994 1995 1994 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................................... $9,228,737 $11,223,139 $26,117,849 $33,687,570
Cost of revenues.............................................................. 4,737,315 5,880,516 13,271,081 17,545,989
---------- ----------- ----------- -----------
Gross profit............................................................ 4,491,422 5,342,623 12,846,768 16,141,581
Operating expenses:
Selling..................................................................... 250,653 392,631 768,558 1,106,824
General and administrative.................................................. 2,849,984 3,083,198 7,778,538 9,435,809
Provision for bad debts..................................................... 46,475 78,300 131,825 197,515
---------- ----------- ----------- -----------
3,147,112 3,554,129 8,678,921 10,740,148
---------- ----------- ----------- -----------
Operating income........................................................ 1,344,310 1,788,494 4,167,847 5,401,433
---------- ----------- ----------- -----------
Nonoperating expense (income):
Interest expense............................................................ 64,325 86,443 194,364 335,910
Interest income............................................................. (8,807) (106,064) (31,023) (153,637)
Other....................................................................... (9,251) (3,560) (10,059) 23,240
---------- ----------- ----------- -----------
46,267 (23,181) 153,282 205,513
---------- ----------- ----------- -----------
Income before income taxes.............................................. 1,298,043 1,811,675 4,014,565 5,195,920
Income tax expense (Note D and E)............................................. 502,000 707,000 1,548,000 1,677,000
---------- ----------- ----------- -----------
Net income.................................................................... $ 796,043 $ 1,104,675 $ 2,466,565 $ 3,518,920
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Earnings per common share and dilutive common equivalent share:
Primary (Notes D and E)..................................................... $ 0.13 $ 0.15 $ 0.44 $ 0.52
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Fully diluted (Notes D and E)............................................... $ 0.13 $ 0.15 $ 0.42 $ 0.52
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average number of shares outstanding:
Primary..................................................................... 5,925,496 7,542,528 5,639,584 6,735,948
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Fully diluted............................................................... 6,139,228 7,542,528 5,939,713 6,735,948
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 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 $5.00 per share, upon
exercise of stock options and warrants................. 16,380 164 48,958 -- -- 49,122
Sale of common stock at $8.00 per share, upon exercise
of Class B warrants.................................... 284,803 2,848 2,275,576 -- -- 2,278,424
Issuance of common stock in connection with Con-Test,
Inc. acquisition....................................... 116,526 1,165 491,740 -- -- 492,905
Continuing registration costs applied against additional
paid-in capital........................................ -- -- (81,730) -- -- (81,730)
Other................................................... -- -- -- 19,250 -- 19,250
Net income.............................................. -- -- -- -- 2,466,565 2,466,565
--------- ------- ---------- --------- ---------- -----------
Balance, November 30, 1994................................ 5,721,061 $57,211 $7,345,404 $(15,000) $5,496,406 $12,884,021
--------- ------- ---------- --------- ---------- -----------
--------- ------- ---------- --------- ---------- -----------
</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
Issuance of common stock in public offering at $12.00
per share, less expenses (Note F)...................... 1,970,000 19,700 21,608,289 -- -- 21,627,989
Sale of common stock at $1.83 to $10.00 per share, upon
exercise of stock options and warrants................. 33,600 336 64,503 -- -- 64,839
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
Common stock recovered in connection with Con-Test, Inc.
acquisition (Note B)................................... (33,130) (331) (139,682) -- -- (140,013)
Continuing registration costs applied against additional
paid-in capital........................................ -- -- (88,827) -- -- (88,827)
Net income.............................................. -- -- -- -- 3,518,920 3,518,920
--------- ------- ----------- --------- ---------- -----------
Balance, November 30, 1995................................ 7,794,860 $77,949 $29,012,926 $(45,000) $9,805,281 $38,851,156
--------- ------- ----------- --------- ---------- -----------
--------- ------- ----------- --------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................................................................ $2,466,565 $ 3,518,920
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and leasehold amortization............................................................. 599,789 543,991
Amortization of goodwill and covenants.............................................................. 104,797 304,450
Provision for bad debts............................................................................. 131,825 197,515
Deferred income taxes............................................................................... -- (206,559)
Other liabilities................................................................................... -- (281,522)
Gain on disposal of fixed assets.................................................................... -- (12,098)
Changes in operating assets and liabilities, net of amounts acquired in acquisitions:
Accounts receivable and cost in excess of billings on uncompleted contracts....................... (470,246) (3,712,216)
Prepaid expenses and other assets................................................................. (243,935) (550,843)
Accounts payable and other liabilities............................................................ (39,117) (1,020,947)
Income taxes payable.............................................................................. (1,062,386) (113,248)
---------- -----------
Net cash flows from operating activities........................................................ 1,487,292 (1,332,557)
---------- -----------
Cash Flows From Investing Activities:
Purchase of Hill International, Inc. Subsidiaries..................................................... -- (2,517,950)
Purchase of BSE Management, Inc....................................................................... (745,324) (207,990)
Purchase of Con-Test, Inc............................................................................. (2,243,058) (169,044)
Purchase of R.E. Blattert and Associates.............................................................. -- (34,375)
Purchase of property and equipment.................................................................... (579,085) (711,031)
Proceeds from sale of property and equipment.......................................................... -- 13,681
Other................................................................................................. -- (43,320)
---------- -----------
Net cash flows from investing activities........................................................ (3,567,467) (3,670,029)
---------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt and notes payable............................................ 2,225,000 2,585,125
Proceeds from issuance of common stock, net of expenses............................................... 2,327,546 21,755,382
Principal payments on long-term debt and notes payable, including capital lease obligations........... (3,739,965) (6,467,167)
Payments for continuing registration costs............................................................ (81,730) (88,827)
---------- -----------
Net cash flows from financing activities........................................................ 730,851 17,784,513
---------- -----------
Net change in cash and cash equivalents....................................................... (1,349,324) 12,781,927
Cash and Cash Equivalents, Beginning of period.......................................................... 1,394,889 1,377,862
---------- -----------
Cash and Cash Equivalents, End of period................................................................ $ 45,565 $14,159,789
---------- -----------
---------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest............................................................................................ $ 194,364 $ 332,797
---------- -----------
---------- -----------
Income taxes........................................................................................ $2,661,440 $ 1,646,957
---------- -----------
---------- -----------
</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, the results of operations and the cash flows for the periods
presented herein. 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 9.0% of total revenues
during the nine months ended November 30, 1995 as compared to 21.0% for the nine
months ended November 30, 1994.
CREDIT FACILITIES
During the quarter ended August 31, 1995, the Company extended its credit
facilities with Atlantic Bank of New York ("Atlantic") to $5,500,000, which had
been borrowed by the Company as of September 1995. All outstanding borrowings
were repaid from proceeds of the common stock offering in October 1995. The
Company did not renew its agreement with Atlantic and is pursuing a new credit
line with another bank.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's financial
statements to conform to the current years presentation.
F-7
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
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 statements of operations.
HILL BUSINESSES
In November 1995 ATC purchased certain assets and assumed certain
liabilities of Kaselaan & D'Angelo Associates, Inc., Hill Environmental, Inc.
(formerly the environmental division of Gibbs & Hill, Inc.) and Particle
Diagnostics, Inc., wholly owned subsidiaries of Hill International, Inc.
(collectively the "Hill Businesses").
The Hill Businesses provide environmental consulting and engineering
services, including asbestos management, industrial hygiene and indoor air
quality consulting, environmental auditing and permitting, environmental
regulatory compliance, water and wastewater engineering, solid waste landfill
management and analytical laboratory services. Services were provided from
operating facilities located in New York City, Boston and Willingboro, New
Jersey. ATC will integrate these locations into existing, or new facilities.
The purchase price was comprised of:
Amounts Paid to Seller:
<TABLE>
<S> <C>
Cash.......................... $ 2,571,950
Letter of credit, net of
imputed interest, due April
30, 1996..................... 700,000
Note payable at 8.75%
interest, due April 30,
1996......................... 300,000
Liabilities assumed........... 360,543
Direct expenses related to
acquisition.................. 113,775
-------------
$ 4,046,268
-------------
-------------
</TABLE>
In addition, the company issued to certain selling shareholders, 50,000
stock options to purchase restricted common stock at $13.25 per share as
consideration for non compete agreements.
The assets and liabilities of the Hill Businesses are included in the
accompanying consolidated balance sheet at fair value at the date of purchase.
The initial purchase price allocation is summarized as follows:
<TABLE>
<S> <C>
Costs in excess of billings on
uncompleted contracts, net of
unrealizable amounts......... $ 620,000
Property and equipment........ 175,000
Covenants not to compete...... 37,500
Other assets.................. 30,572
Goodwill...................... 3,183,196
-------------
$ 4,046,268
-------------
-------------
</TABLE>
The company is contingently liable to reimburse up to $150,000 of certain
facility lease costs if incurred by Hill International, Inc.
In November 1995, First Fidelity Bank, N.A. and United Jersey Bank, N.A.,
(the "Seller Banks"), filed a lawsuit against Hill International Inc. and
certain selling shareholders (the "Sellers"), alleging the transaction
constituted a default under Seller's loan agreement with the Seller Banks and
the transfer of consideration proceeds by Seller following the sale was
unlawful. In December 1995, the Seller Banks named ATC a party to the lawsuit,
asserting that the Seller Banks still hold a security interest in the assets
purchased. The action filed seeks recovery of the assets sold to ATC.
F-8
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
In the Company's opinion, the 'replevin' action filed, is being used by the
Seller Banks to obtain a portion of the sale proceeds direct from ATC. If this
were to occur, ATC would in turn seek to cancel the letter of credit and note
payable or otherwise recover any amounts paid from Sellers. Additional costs
incurred, or expected to be incurred, if any, as a result of this action or the
contingent facility lease costs, are expected to be accounted for as additional
purchase consideration and would not have a material adverse impact on ATC's
financial position or future results 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.
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 recovered
33,130 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 plus certain other costs
incurred by ATC.
The effect of this transaction on the financial position of ATC was to
reduce the recorded net accounts receivable of $461,136, reduce Common Stock and
additional paid in capital by a total of $140,013 and to increase goodwill by
$321,123.
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
November 30, 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.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
NOVEMBER
FEBRUARY 28, 30,
1995 1995
------------ -----------
<S> <C> <C>
Office equipment................................... $ 2,086,889 $ 2,672,326
Laboratory and field equipment..................... 3,007,651 3,217,224
Transportation equipment........................... 223,397 235,584
Leasehold improvements............................. 537,698 608,729
------------ -----------
5,855,635 6,733,863
Less accumulated depreciation...................... (2,704,349) (3,235,120)
------------ -----------
$ 3,151,286 $ 3,498,743
------------ -----------
------------ -----------
</TABLE>
F-9
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
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. 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.
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 was reflected in
the second quarter's operating results.
NOTE E -- PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information sets forth the results of
operations of ATC as if the merger of Aurora and ATC's purchase of Con-Test and
the Hill Businesses had occurred on March 1, 1994:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------ ------------------------
1994 1995 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $12,903,371 $14,161,016 $39,335,087 $43,749,123
Net income.................. $ 460,590 $ 1,306,717 $ 2,556,976 $ 4,312,677
Earnings per share (fully
diluted)................... $ 0.07 $ 0.17 $ 0.39 $ 0.62
Weighted average shares
(fully diluted)............ 6,787,815 7,542,528 6,640,103 7,003,329
</TABLE>
NOTE F -- COMMON STOCK OFFERING
On October 10, 1995, the Company filed a Registration Statement with the
Securities and Exchange Commission for the sale of 1,800,000 shares of Common
Stock of which 1,700,000 were sold by ATC, while the remaining were sold by an
officer/director of ATC. On October 30, 1995, the Company sold an additional
270,000 shares to cover over-allotments under the same terms and conditions as
the public offering.
The Company utilized a portion of the net proceeds of the public offering to
repay the debt outstanding under its credit facilities. As of the date of the
offering, $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
- --------------------------------------------------------------------------------
ACQUISITION OF ASSETS OF HILL INTERNATIONAL INC. SUBSIDIARIES
On November 10, 1995 ATC purchased certain assets and assumed certain
liabilities of the subsidiary companies at Hill International, Inc. that
provided environmental consulting and engineering services (collectively the
"Hill Businesses"). These services include asbestos management, industrial
hygiene and indoor air quality consulting, environmental auditing and
permitting, environmental regulatory compliance, water and wastewater
engineering, solid waste and landfill management, hazardous waste management and
analytical laboratory services. The consideration for this acquisition paid to
the Seller consisted of $2,571,950 in cash, $1,000,000 in payment obligations
(net of inputed interest) due April 1996 and 50,000 stock options. In addition,
the Company assumed liabilities of $360,543 and incurred expenses of $113,775.
ATC is also contingently liable for $150,000 of certain facility lease costs and
could incur other costs in connection with a dispute between Hill International,
Inc. and its banks (See Note B to financial statements). The Hill Businesses
operated from facilities located in New York City, Boston and Willingboro, New
Jersey. The Boston and New York offices will eventually be integrated with ATC's
existing operations, and ATC will benefit from other cost-saving measures taken,
including the elimination of certain employees previously with the Hill
Businesses.
COMMON STOCK OFFERING
Effective October 1995, the Company sold 1,970,000 shares of common stock at
an offering price of $12.00 per share and received $21,628,000 net of
underwriting and other related expenses. The Company used $5,500,000 to repay
bank debt and will use the remainder to expand the Company's operations through
acquisitions and internal growth and for general working capital purposes.
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. ATC common shares held by Aurora of
3,258,000 were cancelled. Actual common shares outstanding increased by 83,452
shares. 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.
FY 1995 ACQUISITIONS
Con-Test, Inc. -- 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
F-11
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
a line of environmental facilities management software used by several
industrial firms and federal government agencies. 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.
Microbial Environment Services, Inc. -- 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.
R.E. Blattert and Associates -- 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1995 COMPARED WITH THREE MONTHS ENDED
NOVEMBER 30, 1994
Revenues in the three months ended November 30, 1995 increased 21.6% to
$11,223,139, compared with $9,228,737 in the three months ended November 30,
1994. This increase was primarily attributable to the positive effect of
acquisitions completed during the second half of fiscal 1995 and from the
acquisition of the Hill Businesses in November 1995. During the three months
ended November 30, 1995, increased revenues from certain existing operations
were largely offset by lower revenues due to the completion of certain work for
a significant customer.
Revenues in the three months ended November 30, 1995 from ATC's branch
offices having comparable operations in the three months ended November 30, 1994
increased 10.8% to $8,302,979, compared with $7,496,764 in the three months
ended November 30, 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 16.0% to $7,213,089 in the three months ended November 30, 1995,
compared with $6,217,144 in the three months ended November 30, 1994. In the
three months ended November 30, 1995, ATC continued to penetrate its existing
markets and benefitted from the acquisitions of certain assets of the Hill
Businesses, Con-Test, MES and R.E. Blattert. Revenues attributable to operations
resulting from these acquisitions totaled $2,920,160, or 26.0% of revenues, for
the three months ended November 30, 1995.
Revenues in the three months ended November 30, 1995 earned directly from
the New York City School Construction Authority (the "NYCSCA") decreased 4.3% to
$858,257, compared with $896,754 in the three months ended November 30, 1994. As
a percentage of revenues, revenues from the NYCSCA decreased to 7.6% in the
three months ended November 30, 1995, compared with 9.7% in the three months
ended November 30, 1994.
Revenues in the three months ended November 30, 1995 from the Army Corps of
Engineers (the "Corps") decreased 39.5% to $231,633, compared with $382,866 in
the three months ended November 30, 1994. As a percentage of revenues, revenues
from the Corps decreased to 2.0% in the three months ended November 30, 1995,
compared with 4.1% in the three months ended November 30, 1994. The Company's
revenues from the Corps relate to certain asbestos management services and
decreased due to the completion of most phases of the current project during the
first nine months of fiscal 1996. Revenues from the Corps are expected to
continue at current levels for the remainder of fiscal 1996 and work on this
project is
F-12
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
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 November 30, 1995 increased 12.8% to
$5,342,623, compared with $4,491,422 in the three months ended November 30,
1994. Gross margin decreased to 47.6% in the three months ended November 30,
1995, compared with 48.7% in the three months ended November 30, 1994. ATC's
gross margin decreased due to higher subcontract and project costs. The gross
margin for the quarter ended November 30, 1994 was higher than normal due to the
profitability level of several large, high margin projects.
Operating expenses in the three months ended November 30, 1995 increased
12.9% to $3,554,129, compared with $3,147,112 in the three months ended November
30, 1994. Operating expenses decreased as a percentage of revenues to 31.7% in
the three months ended November 30, 1995, compared with 34.1% in the three
months ended November 30, 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 12.9% to $1,873,895, or 16.7% of revenues,
in the three months ended November 30, 1995 compared with $1,659,734, or 18.0%
of revenues, in the three months ended November 30, 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 and administrative expenses resulting from the growth in operations and
increased employee levels. Additionally, in the three months ended November 30,
1995, amortization of goodwill and intangibles increased to $110,413, compared
with $42,695 in the three months ended November 30, 1994 reflecting the
additional goodwill amortization resulting from acquisitions.
Operating income in the three months ended November 30, 1995 increased 33.0%
to $1,788,494, compared with $1,344,310 in the three months ended November 30,
1994. Operating income increased as a percentage of revenues to 15.9% in the
three months ended November 30, 1995, compared with 14.6% in the three months
ended November 30, 1994.
Nonoperating income in the three months ended November 30, 1995 increased to
$23,181 compared with nonoperating expenses of $46,267 in the three months ended
November 30, 1994. The increase in nonoperating expense (income) is primarily
attributable to interest income earned on the net offering proceeds invested in
short term investments offset partially by higher interest expenses due to
increased borrowings existing prior to the common stock offering.
Income tax expense in the three months ended November 30, 1995 was $707,000,
compared with $502,000 in the three months ended November 30, 1994. During the
three months ended November 30, 1995 and 1994, the Company's effective tax rates
were 39.0% and 38.7%, respectively.
As a result of the foregoing, net income in the three months ended November
30, 1995 increased 38.8% to $1,104,675, or $0.15 per share on a fully diluted
basis, compared with $796,043 or $0.13 per share on a fully diluted basis, in
the three months ended November 30, 1994. The fully diluted weighted average
number of shares outstanding increased 1,029,767 shares to 7,542,528 shares
primarily due to an increase in shares issued from the Common Stock Offering and
from shares, options and warrants outstanding as a result of the Aurora merger
effective June 29, 1995, the exercise of 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 9.8% in the three months ended November 30, 1995,
compared with 8.6% in the three months ended November 30, 1994.
F-13
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED NOVEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED NOVEMBER
30, 1994
Revenues in the nine months ended November 30, 1995 increased 29.0% to
$33,687,570 compared with $26,117,849 in the nine months ended November 30,
1994. This increase was primarily attributable to the positive effect of
acquisitions completed during the second half of fiscal 1995 and from the
acquisition of the Hill Businesses in November. During the nine months ended
November 30, 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 nine months ended November 30, 1995 from ATC's branch
offices having comparable operations in the nine months ended November 30, 1994
increased 4.1% to $25,395,765, compared with $24,385,876 in the nine months
ended November 30, 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 18.3% to $22,352,317 in the nine months ended November 30, 1995,
compared with $18,890,467 in the nine months ended November 30, 1994. In the
nine months ended November 30, 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 $8,291,805, or 24.6% of revenues, for the nine months ended
November 30, 1995.
Revenues in the nine months ended November 30, 1995 earned directly from the
NYCSCA decreased 24.2% to $2,055,754, compared with $2,711,174 in the nine
months ended November 30, 1994. As a percentage of revenues, revenues from the
NYCSCA decreased to 6.1% in the nine months ended November 30, 1995, compared
with 10.4% in the nine months ended November 30, 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 nine months ended November 30, 1995 from the Corps decreased
64.5% to $987,694, compared with $2,784,235 in the nine months ended November
30, 1994. As a percentage of revenues, revenues from the Corps decreased to 2.9%
in the nine months ended November 30, 1995, compared with 10.7% in the nine
months ended November 30, 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 nine months ended November 30, 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 nine months ended November 30, 1995 increased 25.6% to
$16,141,581, compared with $12,846,768 in the nine months ended November 30,
1994. Gross margin decreased to 47.9% in the nine months ended November 30,
1995, compared with 49.2% in the nine months ended November 30, 1994. ATC's
gross margin decreased due to higher subcontract and project costs. The gross
margin for the nine months ended November 30, 1994 was higher due to the
profitability level of several high margin projects.
F-14
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
Operating expenses in the nine months ended November 30, 1995 increased
23.7% to $10,740,148 compared with $8,678,921 in the nine months ended November
30, 1994. Operating expenses decreased as a percentage of revenues to 31.9% in
the nine months ended November 30, 1995, compared with 33.2% in the nine months
ended November 30, 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 22.4% to $5,474,121, or 16.2% of revenues, in the nine months ended
November 30, 1995 compared with $4,473,134, or 17.1% of revenues, in the nine
months ended November 30, 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, travel and
administrative expenses resulting from the growth in operations and increased
employee levels. Additionally, in the nine months ended November 30, 1995,
amortization of goodwill and intangibles increased to $304,450, compared with
$104,797 in the nine months ended November 30, 1994, reflecting the additional
goodwill amortization resulting from acquisitions.
Operating income in the nine months ended November 30, 1995 increased 29.6%
to $5,401,433, compared with $4,167,847 in the nine months ended November 30,
1994. Operating income as a percentage of revenues was 16.0% in the nine months
ended November 30, 1995 and 1994.
Nonoperating expenses in the nine months ended November 30, 1995 increased
34.1% to $205,513 compared with $153,282 in the nine months ended November 30,
1994. The increase in nonoperating expenses is primarily attributable to higher
interest expenses due to increased borrowings offset partially by interest
income earned on the net offering proceeds invested in short term investments.
Income tax expense in the nine months ended November 30, 1995 was
$1,677,000, compared with $1,548,000 in the nine months ended November 30, 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
nine months ended November 30, 1995, after adjusting for the one-time tax
benefit, and the nine months ended November 30, 1994, the Company's effective
tax rates were 39.0% and 38.6%, respectively.
As a result of the foregoing, net income in the nine months ended November
30, 1995 increased 42.7% to $3,518,920, or $0.52 per share on a fully diluted
basis, compared with $2,466,565 or $0.42 per share on a fully diluted basis, in
the nine months ended November 30, 1994. Excluding the impact of the one-time
tax benefit of $350,000, net income and fully diluted earnings per share would
have been $3,168,920 and $0.47, respectively, for the nine months ended November
30, 1995. The fully diluted weighted average number of shares outstanding
increased 796,235 shares to 6,735,948 shares primarily due to an increase in
shares issued from the Common Stock Offering and from shares, options and
warrants outstanding as a result of the Aurora Merger effective June 29, 1995,
the exercise of Class B warrants and the issuance of shares in connection with
the acquisition of Con-Test. Net income as a percentage of revenues was 10.4% in
the nine months ended November 30, 1995, compared with 9.4% in the nine months
ended November 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995, working capital was $25,075,215 compared with working
capital of $8,113,738 at February 28, 1995, an increase of $16,961,477. This
increase in working capital is primarily a result of the net proceeds of the
Common Stock Offering after repayment of outstanding bank debt and 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 nine months ended November 30, 1995, net cash flows used in
operating activities were $1,332,557, primarily due to an increase in billed and
unbilled receivables. Net cash flows used in investing activities were
$3,670,029, resulting from the acquisitions of the Hill Businesses, Con-Test and
R.E. Blattert,
F-15
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
- --------------------------------------------------------------------------------
additional contingent purchase obligations in connection with the BSE
acquisition and purchases of property and equipment. Net cash flows provided by
financing activities were $17,784,513, primarily representing the net offering
proceeds of the Common Stock Offering plus the proceeds from a $2,585,125
increase in debt, primarily bank debt under the Company's credit facilities,
less payments made on long-term debt and notes payable of $6,467,167.
During the nine months ended November 30, 1994, net cash flows provided by
operating activities were $1,487,292. Net cash flows used in investing
activities were $3,567,467 consisting of the payment to acquire Con-Test plus
contingent purchase obligations related to the acquisition of BSE and the
purchase of property and equipment. Also during this period, net cash flows from
financing activities were $730,851, primarily from issuance of common stock of
$2,327,546, most arising from the sale of Class B warrants and proceeds from
increased bank debt less principal payments on long-term debt and notes payable
of $3,739,965.
In fiscal 1995, ATC increased its revolving credit facility with Atlantic to
$5,500,000. The Company repaid its outstanding debt under its credit facilities.
The credit facilities with Atlantic were not renewed as the Company is
negotiating a new credit line. One bank has indicated an interest in extending a
$20,000,000 revolving credit facility and the Company is continuing discussions
of possible terms and covenants.
In October 1995 the Company sold 1,970,000 shares in a common stock
offering. The Company utilized a portion of the net proceeds of the offering to
repay the debt outstanding under its 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.
Management believes that as a result of the net proceeds received from the
Common Stock Offering and, upon the completion of a new bank credit line
agreement, ATC's working capital, 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:
FIRST FIDELITY BANK, N.A., ET AL
V. HILL INTERNATIONAL, INC. ET
AL, Superior Court of New Jersey,
Law Division, Burlington County,
Docket No. Bur-L-03400-95, filed
December 19, 1995. On December
19, 1995, a second amended
complaint was filed in the
above-entitled action which
joined the company as a defendant
and included a count against the
company seeking recovery of
certain assets which the company
recently purchased from Hill
International, Inc. on the
grounds that plaintiff banks hold
security interests in the assets
and that Hill is in default under
the security agreement creating
such alleged security interests.
The plaintiffs in this action are
First Fidelity Bank, N.A. and
United Jersey Bank, N.A. The
primary defendants are Hill
International, Inc. and certain
of its subsidiaries, and Irvin
Richter, David Richter, Janice
Richter and William Doyle. Irvin
Richter and David Richter are
officers and stockholders of
Hill. The company has been
involved since its joinder in
discussions with the parties in
an effort to settle this claim.
The company believes that the
action will in any case not have
a material impact on the
company's financial position or
income for the reasons stated in
Note B to the financial
statements hereto.
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:
On December 14, 1995, ATC held
its annual meeting of
stockholders at which time the
following individuals were
re-elected as directors by the
votes indicated.
</TABLE>
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES AGAINST
------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
George Rubin 5,697,705 28,416
Morry T. Rubin 5,697,694 28,207
Richard L. Pruitt 5,697,594 28,203
Richard S. Greenberg, Esq. 5,697,526 30,375
Julia S. Heckman 5,697,634 28,267
</TABLE>
<TABLE>
<S> <C> <C>
In addition, ATC's stockholders
approved an amendment to the 1933
Incentive and Non- Qualified
Stock Option Plan increasing the
number of shares covered by the
Plan from 200,000 shares to
500,000 shares by a vote of
5,566,781 in favor, 95,920
against and 32,519 abstaining.
</TABLE>
<TABLE>
<S> <C> <C>
Item 5. OTHER INFORMATION:
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
11 -- Computation of
Earnings Per Share
Three months and nine
months ended November 30,
1995 (Unaudited)
27 -- Financial Data
Schedule
November 30, 1995
(Unaudited)
(b) Reports on Form 8-K:
A Form 8-K dated November 10,
1995 - date of earliest event
reported - was filed during the
three months ended November 30,
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: January 15, /s/ MORRY F. RUBIN
1996 --------------------
MORRY F. RUBIN,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Dated: January 15, /s/ RICHARD L.
1996 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
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
NOVEMBER 30, NOVEMBER 30,
-------------------------- --------------------------
1994 1995 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares of common stock
outstanding........................................... 5,613,016 6,738,257 5,413,501 6,091,458
Additional shares assuming exercise of dilutive stock
options and stock warrants............................ 312,480 804,271 226,083 644,490
------------ ------------ ------------ ------------
Total average common and common equivalent shares
outstanding....................................... 5,925,496 7,542,528 5,639,584 6,735,948
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income............................................... $ 796,043 $ 1,104,675 $ 2,466,565 $ 3,518,920
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common and dilutive common equivalent
share................................................... $ 0.13 $ 0.15 $ 0.44 $ 0.52
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares of common stock
outstanding........................................... 5,613,016 6,738,527 5,413,501 6,091,458
Additional shares assuming exercise of dilutive stock
options and stock warrants............................ 526,212 804,271 526,212 644,490
------------ ------------ ------------ ------------
Total average common and common equivalent shares
outstanding....................................... 6,139,228 7,542,528 5,939,713 6,735,948
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income............................................... $ 796,043 $ 1,104,675 $ 2,466,565 $ 3,518,920
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common and dilutive common equivalent
share................................................... $ 0.13 $ 0.15 $ 0.42 $ 0.52
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-END> NOV-30-1995
<CASH> 14,159,789
<SECURITIES> 0
<RECEIVABLES> 16,314,734
<ALLOWANCES> 354,778
<INVENTORY> 0
<CURRENT-ASSETS> 31,315,587
<PP&E> 6,793,863
<DEPRECIATION> 3,235,120
<TOTAL-ASSETS> 46,352,744
<CURRENT-LIABILITIES> 6,239,372
<BONDS> 381,186
0
0
<COMMON> 77,949
<OTHER-SE> 38,773,207
<TOTAL-LIABILITY-AND-EQUITY> 46,352,744
<SALES> 0
<TOTAL-REVENUES> 11,223,139
<CGS> 0
<TOTAL-COSTS> 5,880,516
<OTHER-EXPENSES> 3,366,205
<LOSS-PROVISION> 78,300
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</TABLE>
