-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KX9vamo3T5xkClG3MUsxReE3pJlZqOWquwvnhSZ3EVhHmEFCtGyP48EeG+KLgS4r NXcwQj4lZn1OZt6UlOve8g== 0001012870-00-002861.txt : 20000516 0001012870-00-002861.hdr.sgml : 20000516 ACCESSION NUMBER: 0001012870-00-002861 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATG INC CENTRAL INDEX KEY: 0001054000 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 942657762 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23781 FILM NUMBER: 633904 BUSINESS ADDRESS: STREET 1: 47375 FREMONT BLVD CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5104903008 MAIL ADDRESS: STREET 1: 47375 FREMONT BLVD CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000. [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______. Commission File Number 0-23781 ATG INC. (Exact name of registrant as specified in its charter) California 94-2657762 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 47375 Fremont Boulevard Fremont, California 94538 (Address of principal executive offices) (510) 490-3008 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days: Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at April 28, 2000 ----- ----------------------------- Common stock, no par value 14,104,457 1 ATG INC. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The actual results of ATG Inc. (the "Company") could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Certain Business Considerations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in, or incorporated by reference into, this report on Form 10-Q and other documents and reports previously filed or hereafter filed by the Company from time to time with the Securities and Exchange Commission. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements....................................... 3 Condensed Consolidated Balance Sheets...................... 3 Condensed Consolidated Statements of Operations............ 4 Condensed Consolidated Statements of Cash Flows............ 5 Notes to Condensed Consolidated Financial Statements....... 6 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations........................ 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................ 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................... 20 Item 2. Changes In Securities And Use Of Proceeds.................. 21 Item 3. Defaults Upon Senior Securities............................ 21 Item 4. Submission Of Matters To A Vote Of Security Holders........ 21 Item 5. Other Information.......................................... 21 Item 6. Exhibits and Reports on Form 8-K. ......................... 22 SIGNATURE.................................................. 23
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements ATG INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 31, December 31, 2000 1999 ----------- ------------ (Unaudited) Current assets: Cash and cash equivalents $ 458 $ 2,776 Accounts receivable, net 22,471 24,488 Prepayments and other current assets 5,496 5,396 -------- ------- Total current assets 28,425 32,660 Property and equipment, net 87,606 80,428 Restricted cash 9,586 16,014 Intangible assets, net 2,195 2,203 Other assets, net 4,756 4,774 -------- -------- Total assets $132,568 $136,079 ======== ======== Current liabilities: Short-term borrowings $ 2,680 1,721 Current portion of long-term debt and capital leases 4,270 4,259 Accounts payable 10,053 11,649 Accrued liabilities 12,706 15,197 -------- -------- Total current liabilities 29,709 32,826 Long-term debt and capitalized leases, net 56,163 56,595 -------- -------- Total liabilities 85,872 89,421 -------- -------- Common stock 42,139 42,137 Deferred compensation (2) (32) Retained earnings 4,559 4,553 -------- -------- Total shareholders' equity 46,696 46,658 -------- -------- Total liabilities and shareholders' equity $132,568 $136,079 ======== ========
3 ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, ------------------------ 2000 1999 --------- --------- Revenue $11,103 $12,944 Cost of revenue 6,687 7,742 Gross profit --------- --------- 4,416 5,202 Sales, general & administrative expenses 3,877 3,064 Stock-based compensation expense 30 30 --------- --------- Operating income 509 2,108 Net interest income (expense) (499) (258) --------- --------- Income before provision for taxes 10 1,850 Provision for income taxes 4 740 --------- --------- Net income $ 6 $ 1,110 ========= ========= Net income per share Basic $ 0.00 $ 0.08 Fully diluted $ 0.00 $ 0.08 Weighted average shares Basic 14,091 14,018 Fully diluted 15,032 14,796
ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended -------------------------------- March 31, March 31, 2000 1999 -------------- -------------- Cash flows from operating activities: Net income $ 6 $ 1,109 Adjustments to reconcile net income with cash flow from operations: Depreciation and amortization 610 539 Compensation expense for shares issued and options granted 30 30 Change in current assets and liabilities: Accounts receivable 2,017 303 Prepayment and other current assets (100) (1,099) Accounts payable and accrued liabilities (4,087) (2,593) -------------- -------------- Net cash used in operating activities (1,524) (1,711) -------------- -------------- Cash flows from investing activities: Property and equipment acquisitions (7,761) (3,499) Restricted cash 6,428 - Other assets (2) (658) Net cash used in investing activities -------------- -------------- (1,335) (4,157) -------------- -------------- Cash flows from financing activities: Borrowing (repayment) from related party 960 - Borrowing (repayment) of long-term debt and capital leases (420) 1,464 Short-term borrowing, net (1) 2,690 Proceeds from issuance of common stock 2 474 Net cash provided by financing activities -------------- ------------- 541 4,628 -------------- ------------- Decrease in cash and cash equivalents (2,318) (1,240) Cash and cash equivalents, beginning of period 2,776 3,789 -------------- -------------- Cash and cash equivalents, end of period $ 458 $ 2,549 ============== ============= Supplemental cash flow information: Income taxes paid $ 65 $ 1,347 ============== ============ Interest paid, net of capitalized interest $ 613 $ 311 ============== ============ Reclassification of machinery and equipment to inventory $ - $ (426) ============== ============ Reclassification of other assets to property and equipment $ - $ 1,045 ============== ============
5 ATG INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (Unaudited) 1. Business of the Company ATG Inc. (the "Company" or "ATG") provides technical personnel and specialized services and products primarily to the U.S. government and the nuclear power industry throughout the United States. Services principally consist of compaction, reduction, decontamination, vitrification and disposal of low-level dry active nuclear and other hazardous waste, dewatering and thermal treatment of ion exchange resins and site remediation and construction projects. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 1999 and the Audited Consolidated Financial Statements included therein. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position, results of operations and cash flows for the three months ended March 31, 2000 and 1999. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The results for the three months ended March 31, 2000 are not necessarily indicative of the results for the full fiscal year. 2. Net Income Per Share Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding 6 during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options for all periods. A reconciliation of the numerator and denominator of basic and diluted income per share is provided as follows (in thousands, except per share data):
Three Months Ended March 31, ---------------------- 2000 1999 ------- ------- Numerator - Basic and Diluted Income per share Net income $ 6 $ 1,110 ======= ======= Denominator - Basic Common shares outstanding 14,091 14,018 ------- ------- Basic net income per share $ 0.00 $ 0.08 ======= ======= Denominator - Diluted Denominator - Basic 14,091 14,018 Common stock options 941 778 ------- ------- 15,032 14,796 ------- ------- Diluted net income per share $ 0.00 $ 0.08 ======= =======
Diluted net income per share for the three months ended March 31, 2000, excludes options and warrants to acquire 575,500 shares of stock which were anti- dilutive. 3. Business Segments The Company manages its operations within two business segments: waste processing, conducted by its Fixed Facilities Group (FFG); and field services, conducted by its Field Engineering Group (FEG). FFG processes customer waste utilizing the Company's thermal and non-thermal technologies. FEG performs remediation, construction and various engineering services for customers under long-term contracts. The Company segregates revenue and gross profit by business segment. Selling, general and administrative expenses are not allocated to the business segments. 7 Segment Information (dollars in millions) - ---------------------
Three months ended March 31, 2000 FFG FEG Other Total -------- -------- --------- ------- Revenue....................................... $ 8.6 $2.5 $ -- $11.1 Gross Profit................................. 3.9 0.5 -- 4.4 Sales, general & administrative expenses...... 3.9 Stock-based compensation...................... -- Interest expense, net......................... (0.5) Provision for income taxes.................... ----- Net income.................................. $ 0.0 ===== Segment assets................................ 88.8 0.7 3.5 $93.0 Expenditures for long-lived assets............ 7.8 -- -- $ 7.8 ===== Three months ended March 31, 1999 FFG FEG Other Total -------- -------- --------- ------- Revenue....................................... $10.3 $2.6 $ -- $12.9 Gross Profit.................................. 4.8 0.4 -- 5.2 Sales, general & administrative expenses...... 3.1 Stock-based compensation...................... -- Interest expense, net......................... (0.3) Provision for income taxes.................... 0.7 ----- Net income.................................. $ 1.1 ===== Segment assets................................ 46.1 0.7 3.4 $50.2 Expenditures for long-lived assets............ 4.1 -- -- $ 4.1 =====
4. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. The Company believes that adoption of this pronouncement will have no material impact on the Company's financial position and results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC. The Company believes that adopting SAB 101 will not have a material impact on the Company's financial position and results of operations. 8 5. Commitments and Contingencies In June 1992, the Company entered into a contract with the U.S. Army under which the Company acted as the prime contractor to "surface clear" expended ordnance from a firing range at Fort Irwin, California (the "Fort Irwin Contract"). In March 1997, a piece of ordnance exploded on the premises of a scrap metal dealer (the "Scrap Dealer") in Fontana, California. An employee of the Scrap Dealer died in the accident. Although the Scrap Dealer had purchased expended ordnance and other military scrap metal from a number of military facilities, including Fort Irwin, the Scrap Dealer indicated that the ordnance which exploded was purchased from Fort Irwin. The U.S. Army contended that a subcontractor to the Company on the Fort Irwin Contract (the "Subcontractor") had improperly certified ordnance cleared from the Fort Irwin firing range as free of hazardous and explosive material prior to the sale of such ordnance to the Scrap Dealer. As a result, the U.S. Army terminated the Fort Irwin Contract for default, and demanded repayment from the Company of alleged reprocurement costs totaling $945,000. The Company believes it fully complied with the terms of the Fort Irwin Contract and applicable laws and regulations and challenged the default termination in an action against the U.S. Army filed in the Court of Federal Claims in July 1997. In July 1998, the U.S. Army and the Company settled the matter. The termination for default was rescinded and the Company agreed to no longer bid on surface- clearing work at active U.S. Army firing ranges. In connection with the accident, in March 1998 a wrongful death civil action was filed in San Bernardino County Superior Court against the Subcontractor, a supervisory employee of the Subcontractor, the owners of the premises occupied by the Scrap Dealer, and the Company, seeking damages in excess of $8 million, including exemplary damages of $5 million. A second action was filed at the same time in San Bernardino County Superior Court against the same defendants by three other persons alleging physical injuries and emotional distress caused by the accident. The Company has tendered the defense of each of these actions to its insurance carrier, which is presently handling the matters for the Company, and the Company intends to vigorously contest all of the claims asserted in these actions. The Company believes that it acted properly with respect to the Fort Irwin Contract, and that it should not be liable for the injuries caused by the accident. The Company also intends to seek indemnification from the Subcontractor for the full amount of any costs, damages and liabilities which may be incurred by the Company in connection with or as a result of these lawsuits. The Subcontractor has advised the Company that the Subcontractor's comprehensive general liability insurance policy covers the claims asserted against the Subcontractor, and that the policy coverage limit is $7 million per occurrence. Although the Company believes that all of the claims asserted against the Company are without legal merit, the outcome of these lawsuits is uncertain. Any judgment of liability against the Company, especially to the extent damages exceed or are not covered by insurance or are not recoverable by the Company from the Subcontractor, could have a material adverse effect on the Company's business, financial condition and results of operations. 9 From time to time the Company is a party to litigation or administrative proceedings relating to claims arising from its operations in the normal course of business. Management of the Company, on the advice of counsel, believes that the ultimate resolution of litigation currently pending against the Company is unlikely, either individually or in the aggregate, to have a material adverse effect on the Company's business, financial condition or results of operations. 6. Subsequent Events During April 2000, the Company announced the consolidation of its Oak Ridge, Tennessee, operations and a workforce reduction of 110 employees. At the same time, the Company's Q-CEP process is being replaced by a more cost effective non-thermal resin decontamination process. As a result, the Company expects to take an approximate $2.4 million charge in the second quarter of fiscal 2000 related to the plant consolidation and workforce reduction. 10 ATG INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements that involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from those indicated herein as a result of certain factors, including those set forth under "Certain Business Considerations." The Company undertakes no obligation to publicly release updates or revisions to these statements. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 1999 Annual Report on Form 10-K and Form 10-K/A. General The Company is a radioactive and hazardous waste management company that offers comprehensive treatment solutions for low level radioactive waste (LLRW), low level mixed waste (LLMW) and other waste generated by the Department of Defense (DOD), Department of Energy (DOE) and commercial entities such as nuclear power plants, medical facilities and research institutions. The Company principally derives its revenue from the waste treatment operations of its Fixed Facilities Group and the on-site remediation services of its Field Engineering Group. The Company focuses a significant portion of its business on SAFGLAS(TM) vitrification of LLRW and on its business interests in Tennessee for treating ion exchange resins (IERs) and on LLMW processing. During April 2000, the Company announced the consolidation of its Oak Ridge, Tennessee, operations and a workforce reduction of 110 employees. At the same time, the Company's Q-CEP process is being replaced by a more cost effective non-thermal resin decontamination process. As a result, the Company expects to take an approximate $2.4 million charge in the second quarter of fiscal 2000 related to the plant consolidation and workforce reduction. The Company has historically relied upon the integration of proven technologies with the Company's know-how and processes, and has not incurred significant levels of research and development spending. Most of the research and development activities conducted to date have related to the design and construction of its fixed operating facilities, particularly in connection with the Company's SAFGLAS(TM) thermal treatment system. The Company anticipates that its research and development efforts will continue to be moderate and that the costs associated with future research and development will not be material to the Company's results of operations. 11 The Company increasingly pursues multi-year and longer term contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. The Company currently focuses on large, multi-year site-specific and term contracts in the areas of LLRW and LLMW treatment, environmental restoration and decontamination and decommissioning of contaminated facilities, and has in recent years been awarded a number of large government term contracts which, in most cases, require several years to complete. Results of Operations Revenue and Net Income. Revenue for the first quarter of fiscal 2000 was $11.1 million, a decrease of 14% from the $12.9 million recorded in the comparable quarter in the prior year. The Company recorded net income of $6,000 or $0.00 per share fully diluted, in the first quarter of fiscal 2000, compared to net income of $1.1 million, or $0.08 per share fully diluted, in the first quarter of fiscal 1999. The decrease in revenue is principally attributable to a major shortfall in spent ion exchange resin receipts at the Company's facility in Oak Ridge, Tennessee. The facility processes spent ion exchange resins from nuclear power plants, reducing the volume of waste going to final disposal. The processed resin waste is disposed of at the Barnwell waste disposal site in South Carolina. The operator of the Barnwell site offered customers a very deep discount to dispose of the resins without volume reduction, prior to the sale of the Barnwell operations in May 2000. The deep discount program by the Barnwell disposal site is anticipated by the Company to continue through the second quarter of 2000. A repeat of the deep discount program is considered to be unlikely past the second quarter of 2000 due to pending governmental legislation. Gross Profit. Gross profit for the first quarter of fiscal 2000 was $4.4 million or 40% of revenue, compared to $5.2 million or 40% of revenue in the comparable quarter in 1999. The gross profit percentage may change from year to year and is related to the varying mixes of business during these periods. Overall gross profit on waste processing services was approximately 46% in the first quarter of 2000 compared to 47% in the first quarter of 1999. The decrease is due to decreased utilization of the Tennessee fixed facilities as discussed previously under the section entitled Revenue and Net Income. The fixed facilities operations generally have a larger percentage of fixed costs versus variable costs, so increases in utilization favorably impact gross profit while decreases in utilization unfavorably impact gross profit. Overall gross profit on field service projects was approximately 20% in the first quarter of 2000 compared to 14% in the first quarter of 1999. The principal reason for the difference is the mix of projects and stage of completion as many projects were utilizing less subcontractor services in the current period and the Company's margin is typically higher for contract services provided by the Company as compared to utilizing subcontractor services. 12 Sales, General and Administrative Expenses. Sales, general and administrative expenses for the first quarter of fiscal 2000 were $3.9 million or 35% of revenue, compared to $3.1 million or 24% of revenue for the comparable period in 1999. The increase in spending from year to year is principally due to an increase in infrastructure at the Company's Richland facility. The increased infrastructure is required for the Company to meet its contractual obligations regarding the start-up of its mixed waste processing operations. The overall increase in sales, general and administrative expenses as a percentage of revenue is principally due to decreased utilization of the Tennessee fixed facilities as discussed previously under the section entitled Revenue and Net Income. Provision for Income Taxes. The Company provides for income taxes during interim periods at an estimated combined Federal and state annual rate to be expected for the full year. The actual rate for 1999 was approximately 40% and the Company and is providing for income taxes at this same rate. Liquidity and Capital Resources Total cash and cash equivalents were $458,000 at March 31,2000, a decrease of $2.3 million from December 31, 1999. The working capital of the Company was approximately $194,000 at March 31, 2000, a decrease of $3.1 million from December 31, 1999. The working capital excludes restricted cash of $9.6 million and accounts payable of $1.5 million at March 31, 2000, and restricted cash of $16.0 million and accounts payable of $3.5 million at December 31, 1999, that are exclusively for the construction of the Company's Low Level Mixed Waste facility. Significant outlays of cash have been needed to acquire property and equipment and to secure or expand regulatory licenses, permits and approvals, primarily for improvements to the Company's LLRW facility and construction of the LLMW facility in Richland, Washington and for improvements to its fixed facilities in Oak Ridge, Tennessee. Property and equipment acquisitions totaled $7.8 million for the three months ended March 31, 2000. In addition, the Company used approximately $1.6 million of cash during the first quarter of fiscal 2000 relating to the waste acquisition accrued liability associated with its 1999 purchase accounting for its acquisition of the assets of Molten Metals Technology, Inc. (the "MMT Assets"). The Company has a credit facility with a consortium of banks (the Banks). The credit facility agreement requires the Company to comply with certain covenants, including capital asset acquisition limits, limits on additional debt, minimum levels of tangible net worth, dividend payment restrictions and maintenance of certain financial ratios. At March 31, 2000 the Company was in violation of certain financial ratio covenants. The Company is working with the Banks to obtain a waiver in respect to these violations as of March 31, 2000. The Company utilized a significant amount of cash and line of credit borrowings to finance acquisition of property and equipment, the waste acquisition accrued liability of 13 the MMT Assets, and normal operations of the Company. The Company is currently reviewing additional sources of potential working capital. The Company believes that its current cash and cash equivalents, together with its credit facility, cash generated from operations, and additional sources of working capital to which it has access will be sufficient to meet the Company's working capital requirements for the next 12 months. Depending on its rate of growth and profitability, the Company may require additional equity or debt financing to meet its future working capital or capital expenditure needs. There can be no assurance that such additional financing will be available or, if available, that such financing can be obtained on terms satisfactory to the Company. In the event that the Company is not successful in obtaining additional sources of working capital and financing on terms satisfactory to the Company, then the Company's business, financial condition, and results of operations could be materially adversely affected. Certain Business Considerations The Company's business is subject to the following risks and uncertainties, in addition to those described elsewhere. Dependence on Government Licenses, Permits and Approvals The radioactive and hazardous waste management industry is highly regulated. The Company is required to have federal, state and local governmental licenses, permits and approvals for its waste treatment facilities and services. The Company must complete its thermal demonstration testing to receive approval to become fully operational at its LLMW processing facility in Richland, WA. There can be no assurance as to the successful outcome of any pending application or demonstration testing by the Company for any such license, permit or approval, and the Company's existing licenses, permits and approvals are subject to revocation or modification under a variety of circumstances. Failure to obtain timely, or to comply with the conditions of, applicable licenses, permits or approvals could adversely affect the Company's business, financial condition and results of operations. As its business expands and as it introduces new technologies, the Company will be required to obtain additional operating licenses, permits or approvals. It may be required to obtain additional operating licenses, permits or approvals if new environmental legislation or regulations are enacted or promulgated or existing legislation or regulations are amended, re-interpreted or enforced differently than in the past. Any new requirements which raise compliance standards may require the Company to modify its waste treatment technologies to conform to more stringent regulatory requirements. There can be no assurance that the Company will be able to continue to comply with all of the environmental and other regulatory requirements applicable to its business. No Assurance of Successful Development, Commercialization or Acceptance of Technologies The Company is in the process of developing, refining and implementing its technologies for the treatment of LLRW, LLMW and other wastes. The Company's future growth will be dependent in part upon the acceptance and implementation of these technologies, particularly its recently developed vitrification technologies for the thermal treatment of 14 LLRW and LLMW and its recently acquired technologies for treatment of IER waste streams. There can be no assurance that successful development of all these technologies will occur in the near future, or even if successfully developed, that the Company will be able to successfully commercialize such technologies. The successful commercialization of the Company's vitrification technologies may depend in part on ongoing comparisons with other competing technologies and more traditional treatment, storage and disposal alternatives, as well as the continuing high cost and limited availability of commercial disposal options. There can be no assurance that the Company's vitrification and related technologies will prove to be commercially viable or cost-effective, or if commercially viable and cost-effective, that the Company will be successful in timely securing the requisite regulatory licenses, permits and approvals for such technologies or that such technologies will be selected for use in future waste treatment projects. The Company's LLMW thermal treatment contract with the DOE's-Hanford Reservation requires the Company to obtain all of the required licenses, permits and approvals for, and to build and place in operation, its LLMW treatment facility by November 10, 2000. The Company's inability to develop, commercialize or secure the requisite licenses, permits and approvals for its waste treatment technologies on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Environmental Laws and Regulations A substantial portion of the Company's revenue is generated as a result of requirements arising under federal and state laws, regulations and programs related to protection of the environment. Environmental laws and regulations are, and will continue to be, a principal factor affecting demand for the services offered by the Company. The level of enforcement activities by federal, state and local environmental protection agencies and changes in such laws and regulations also affect the demand for such services. If the requirements of compliance with environmental laws and regulations were to be modified in the future, particularly those relating to the transportation, treatment, storage or disposal of LLRW, LLMW or other wastes, the demand for the Company's services, and its business, financial condition and results of operations, could be materially adversely affected. Dependence on Federal Government; Limits on Government Spending; Government Contracting The Company expects that the percentage of its revenue attributable to federal government contracts will continue to be substantial for the foreseeable future. The Company's government contracts generally are subject to cancellation, delay or modification at the sole option of the government at any time, to annual funding limitations and public sector budget constraints and, in many cases, to actual delivery orders being released. The Company is dependent on government appropriations to fund many of its contracts. Efforts to reduce the federal budget deficit could adversely affect the availability and 15 timing of government funding for the clean-up of DOE, DOD and other federal government sites. The failure by the government to fund future restoration of such sites could have an adverse effect on the Company's business, financial condition and results of operations. As a provider of services to federal and other government agencies, the Company also faces risks associated with government contracting, which include substantial fines and penalties for, among other matters, failure to follow procurement integrity and bidding rules and employing improper billing practices or otherwise failing to follow prescribed cost accounting standards. Government contracting requirements are complex, highly technical and subject to varying interpretations. As a result of its government contracting business, the Company has been, and expects to be in the future, the subject of audits, and may in the future be subject to investigations, by government agencies. Failure to comply with the terms of one or more of its government contracts could result in damage to the Company's business reputation and the Company's suspension or disqualification from future government contract projects for a significant period of time. The fines and penalties which could result from noncompliance with applicable standards and regulations, or the Company's suspension or disqualification, could have a material adverse effect on the Company's business, financial condition and results of operations. Need for Additional Capital The Company believes that it will need additional financing for working capital and capital expenditure requirements in order to implement its long- term business plan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". The Company successfully obtained approximately $27 million to finance the construction of its LLMW facility in Richland, Washington through the issuance of tax-exempt Solid Waste Revenue Bonds. There can be no assurance that the Company will successfully complete construction of the facility with the capital financing that it has raised or that if additional capital is required that it will be obtained on terms that are advantageous to the Company. If the Company is not successful in raising additional capital, it will need to curtail or scale back its planned expansion, which could materially adversely affect the Company's business, financial condition and results of operations. Seasonality and Fluctuation in Quarterly Results The Company's revenue is dependent on its contract backlog and the timing and performance requirements of each contract. Revenue in the first and second quarters has historically been lower than in the third and fourth quarters, as the Company's customers have tended to ship waste during the months in which transportation is less likely to be adversely affected by weather conditions. The Company's revenue is also affected by the timing of its clients' planned remediation activities and need for waste treatment services, which generally increase during the third and fourth quarters. Due to this variation in demand, the Company's quarterly results fluctuate. Accordingly, specific quarterly or interim results should not be considered indicative of results to be expected for any future quarter or for the full year. Due to the foregoing factors, it is possible that in future 16 quarters, the Company's operating results will not meet the expectations of securities analysts and investors. In such event, the price of the Common Stock could be materially adversely affected. Management of Growth Since 1994, the Company has experienced significant growth, attributable in large part to an increase in the number and size of contracts awarded. In December 1998, the Company acquired new business lines that contributed to increased growth in 1999. Also in 1999, the Company began construction of its new LLMW facility that is anticipated to contribute to increased growth in 2000 and beyond. The Company is currently pursuing a business plan intended to further expand its business domestically and internationally. The Company's historical growth has placed, and any future growth may place, significant demands on its operational, managerial and financial resources. There can be no assurance that the Company's current management and systems will be adequate to address any future expansion of the Company's business. In such event, any inability to manage the Company's growth effectively could have a material adverse effect on the Company's business, financial condition and results of operations. Equipment Performance; Safety and License Violations The Company's ability to perform under current waste treatment contracts and to successfully bid for future contracts is dependent upon the consistent performance of its waste treatment systems at its fixed facilities in conformity with safety and other requirements of the licenses under which the Company operates. The Company's fixed facilities are subject to frequent routine inspections by the regulatory authorities issuing such licenses. The Company's SAFGLAS(TM) system was shutdown from September 5 to September 28, 1999 due to an equipment failure, and the Company has experienced other shutdowns of its facilities for short periods of time in the past. In the event that any of the Company's principal waste treatment systems were to be shut down for any appreciable period of time, either due to equipment breakdown or as the result of regulatory action in response to an alleged safety or other violation of the terms of the licenses under which the Company operates, the Company's business, financial condition and results of operations could be materially adversely affected. Competition In general, the market for radioactive and hazardous waste management services is highly competitive. The Company faces competition in its principal current and planned business lines from both established domestic companies and foreign companies attempting to introduce European waste treatment technologies into the United States. Many of the Company's competitors have greater financial, managerial, technical and marketing resources than the Company. To the extent that competitors possess or develop superior or more cost-effective waste treatment solutions or field service capabilities, or otherwise possess or acquire competitive advantages compared to the 17 Company, the Company's ability to compete effectively could be materially adversely affected. Any increase in the number of licensed commercial LLRW and/or LLMW treatment facilities or disposal sites in the United States or any decrease in the treatment or disposal fees charged by such facilities or sites could increase the competition faced by the Company or reduce the competitive advantage of certain of the Company's treatment technologies. International Expansion A key component of the Company's long-term business plan is to expand its business into selected Pacific Rim markets. There can be no assurance that the Company or its strategic alliance partners will be able to market its technologies or services successfully in foreign markets. In addition, there are certain risks inherent in foreign operations, including general economic conditions in each country, varying regulations applicable to the Company's business, seasonal reductions in business activities, fluctuations in foreign currencies or the U.S. Dollar, expropriation, nationalization, war, insurrection, terrorism and other political risks, the overlap of different tax structures, risks of increases in taxes, tariffs and other governmental fees and involuntary renegotiation of contracts with foreign governments. In particular, recent economic instability in certain Pacific Rim countries could substantially impede the Company's targeted expansion into that region. In such event, the Company's business, financial condition and results of operations could be materially adversely affected. There can be no assurance that laws or administrative practices relating to taxation, foreign exchange or other matters of foreign countries within which the Company operates or will operate will not change. Any such change could have a material adverse effect on the Company's business, financial condition and results of operation. Dependence on Key Personnel The Company's future success depends on its continuing ability to attract, retain and motivate highly qualified managerial, technical and marketing personnel. The Company is highly dependent upon the continuing contributions of its key managerial, technical and marketing personnel. The Company's employees may voluntarily terminate their employment with the Company at any time, and competition for qualified technical personnel, in particular, is intense. The loss of the services of any of the Company's managerial, technical or marketing personnel could materially adversely affect the Company's business, financial condition and results of operations. Focus on Larger Projects The Company increasingly pursues large, multi-year contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. These larger projects impose significant risks if actual costs are higher than those estimated at the time of bid. A loss on one or more of such larger contracts could have a material adverse effect on the business, 18 financial condition and results of operations of the Company. In addition, failure to obtain, or delay in obtaining, targeted large, multi-year contracts could result in significantly less revenue to the Company than anticipated. 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk There had been no change to the disclosures made in the Company's 1999 Form 10-K and 10-K/A. PART II OTHER INFORMATION Item 1. Legal Proceedings In June 1992, the Company entered into a contract with the U.S. Army under which the Company acted as the prime contractor to "surface clear" expended ordnance from a firing range at Fort Irwin, California (the "Fort Irwin Contract"). In March 1997, a piece of ordnance exploded on the premises of a scrap metal dealer (the "Scrap Dealer") in Fontana, California. An employee of the Scrap Dealer died in the accident. Although the Scrap Dealer had purchased expended ordnance and other military scrap metal from a number of military facilities, including Fort Irwin, the Scrap Dealer indicated that the ordnance which exploded was purchased from Fort Irwin. The U.S. Army contended that a subcontractor to the Company on the Fort Irwin Contract (the "Subcontractor") had improperly certified ordnance cleared from the Fort Irwin firing range as free of hazardous and explosive material prior to the sale of such ordnance to the Scrap Dealer. As a result, the U.S. Army terminated the Fort Irwin Contract for default, and demanded repayment from the Company of alleged reprocurement costs totaling $945,000. The Company believes it fully complied with the terms of the Fort Irwin Contract and applicable laws and regulations and challenged the default termination in an action against the U.S. Army filed in the Court of Federal Claims in July 1997. In July 1998, the U.S. Army and the Company settled the matter. The termination for default was rescinded and the Company agreed to no longer bid on surface-clearing work at active U.S. Army firing ranges. In connection with the accident, in March 1998 a wrongful death civil action was filed in San Bernardino County Superior Court against the Subcontractor, a supervisory employee of the Subcontractor, the owners of the premises occupied by the Scrap Dealer, and the Company, seeking damages in excess of $8 million, including exemplary damages of $5 million. A second action was filed at the same time in San Bernardino County Superior Court against the same defendants by three other persons alleging physical injuries and emotional distress caused by the accident. The Company has tendered the defense of each of these actions to its insurance carrier, which is presently handling the matters for the Company, and the Company intends to vigorously contest all 20 of the claims asserted in these actions. The Company believes that it acted properly with respect to the Fort Irwin Contract, and that it should not be liable for the injuries caused by the accident. The Company also intends to seek indemnification from the Subcontractor for the full amount of any costs, damages and liabilities which may be incurred by the Company in connection with or as a result of these lawsuits. The Subcontractor has advised the Company that the Subcontractor's comprehensive general liability insurance policy covers the claims asserted against the Subcontractor, and that the policy coverage limit is $7 million per occurrence. Although the Company believes that all of the claims asserted against the Company are without legal merit, the outcome of these lawsuits is uncertain. Any judgment of liability against the Company, especially to the extent damages exceed or are not covered by insurance or are not recoverable by the Company from the Subcontractor, could have a material adverse effect on the Company's business, financial condition and results of operations. From time to time the Company is a party to litigation or administrative proceedings relating to claims arising from its operations in the normal course of business. Management of the Company, on the advice of counsel, believes that the ultimate resolution of litigation currently pending against the Company is unlikely, either individually or in the aggregate, to have a material adverse effect on the Company's business, financial condition or results of operations. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information None. 21 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 2.1 Final bankruptcy court bid dated November 13, 1998** 2.2 Form of letter agreement dated December 1, 1998, among the purchasers and the Trustee** 3.1 Articles of Incorporation of the Company * 3.2 Bylaws of the Company * 3.3 Certificate of Amendment of Articles of Incorporation * 4.1 Specimen Common Stock Certificate * 10.43 Credit and reimbursement agreement, dated November 1, 1999, among ATG Inc., Sanwa Bank California and Keybank National Association *** 10.44 Loan agreement , dated November 1, 1999, between Port of Benton Economic Development Corporation and ATG Inc. *** 27.1 Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K, dated February 22, 2000, was filed during the first quarter of 2000, regarding the credit and reimbursement agreement, dated November 1, 1999, among ATG Inc., Sanwa Bank California and Keybank National Association; and the loan agreement , dated November 1, 1999, between Port of Benton Economic Development Corporation and ATG Inc. ______ (*) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1 (No. 333-46107) which became effective May 6, 1998. (**) Incorporated by reference to exhibits filed with the Registrant's Form 8-K dated December 1, 1998. (***) Incorporated by reference to exhibits filed with the Registrant's Form 8-K dated February 22, 2000. 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATG INC. Date: May 15, 2000 By: /s/ Danyal F. Mutman -------------------- Danyal F. Mutman Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) 23 EXHIBIT INDEX Exhibit Number Exhibit Description -------------- ------------------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 458 0 23,993 1,522 0 28,425 92,984 5,378 132,568 29,709 0 0 0 42,139 4,557 132,568 11,103 11,103 6,687 6,687 3,907 0 (613) 10 4 6 0 0 0 6 .00 .00
-----END PRIVACY-ENHANCED MESSAGE-----