-----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, ElcOaOHpxVB408g0RKkWEYptJ/6Ze7ND6wSPqKdiMTGtRUoJ1Cd96ZVwb6RTKSOb DlrKncjTlDHrg18fIP945w== 0001012870-98-002906.txt : 19981118 0001012870-98-002906.hdr.sgml : 19981118 ACCESSION NUMBER: 0001012870-98-002906 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98750010 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 FOR QUARTER ENDED 09/30/1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998. [_] 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 October 31, 1998 ----- ------------------------------- Common stock, no par value 13,846,909 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 Company's actual results 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......................... 9 Item 3 Quantitative and Qualitative Disclosures about Market Risk.. 16 PART II OTHER INFORMATION Item 1. Legal Proceedings........................................... 17 Item 2. Changes In Securities And Use Of Proceeds................... 17 Item 3. Defaults Upon Senior Securities............................. 18 Item 4. Submission Of Matters To A Vote Of Security Holders......... 18 Item 5. Other Information........................................... 18 Item 6. Exhibits and Reports on Form 8-K............................ 19 SIGNATURE................................................... 20 2 ATG INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, December 31, 1998 1997 ----------------- ------------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 6,894 $ 2,586 Accounts receivable, net 14,647 5,935 Prepayments and other current assets 887 1,477 ----------------- ------------------ Total current assets 22,428 9,998 PROPERTY AND EQUIPMENT, NET 25,019 22,104 INTANGIBLE AND OTHER ASSETS, NET 4,802 4,428 DEFERRED INCOME TAXES 697 697 ----------------- ------------------ TOTAL ASSETS $ 52,946 $ 37,227 ================= ================== CURRENT LIABILITIES: Short-term borrowings $ - $ 3,996 Current portion of long-term debt and capital leases 1,638 1,380 Accounts payable 3,419 3,246 Accrued liabilites 3,189 944 Payable to related parties - 1,280 ----------------- ------------------ Total current liabilities 8,246 10,846 LONG-TERM DEBT AND CAPITALIZED LEASES, NET 5,689 6,202 DEFERRED INCOME TAXES 467 467 ----------------- ------------------ Total liabilities 14,402 17,515 ----------------- ------------------ MANDATORILY REDEEMABLE PREFERRED STOCK - 19,416 ----------------- ------------------ COMMON STOCK 41,418 6,337 DEFERRED COMPENSATION (182) (272) ACCUMULATED DEFICIT (2,692) (5,769) ----------------- ------------------ Total shareholders' equity 38,544 296 ----------------- ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 52,946 $ 37,227 ================= ==================
3 ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ REVENUE $ 9,021 $ 4,424 $ 21,288 $ 10,756 COST OF REVENUE 4,795 1,791 10,771 5,226 ------------ ------------ ------------ ------------ Gross profit 4,226 2,633 10,517 5,530 SALES, GENERAL & ADMINISTRATIVE EXPENSES 1,745 1,916 5,436 4,999 STOCK-BASED COMPENSATION EXPENSE 30 29 90 87 ------------ ------------ ------------ ------------ Operating income 2,451 688 4,991 444 INTEREST INCOME, NET 97 4 139 55 ------------ ------------ ------------ ------------ Income before provision for taxes 2,548 692 5,130 499 PROVISION FOR INCOME TAXES 1,019 - 2,052 1 ------------ ------------ ------------ ------------ NET INCOME $ 1,529 $ 692 $ 3,078 $ 498 ============ ============ ============ ============ NET INCOME PER SHARE Basic $ 0.11 $ 0.06 $ 0.24 $ 0.04 Fully diluted $ 0.11 $ 0.06 $ 0.23 $ 0.04 WEIGHTED AVERAGE SHARES Basic 13,804 11,516 12,686 11,516 Fully diluted 14,480 12,284 13,412 12,284
4 ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
NINE MONTHS ENDED ------------------------------ SEPT. 30, SEPT. 30, 1998 1997 ------------ ----------- Cash flows from operating activities: Net income $ 3,077 $ 498 Adjustments to reconcile net income with cash flow from operations: Depreciation and amortization 605 516 Provision for doubtful accounts 90 30 Compensation expense for shares issued and options granted 90 87 Income tax benefit - - Change in current assets and liabilities: Accounts receivable (8,802) (660) Prepayments and other current assets 590 (137) Accounts payable and accrued liabilities 2,418 (473) Deferred income taxes - - ------------ ------------- Net cash used in operating activities (1,932) (139) ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment acquisitions, net (2,571) (2,214) Other assets (417) (539) ------------ ------------- Net cash used in investing activities (2,988) (2,753) ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of loan to related party (1,280) - Repayment of long-term debt and capital leases (1,161) (821) Borrowing/(Repayment) of short-term credit line (3,996) (218) Proceeds from issuance of preferred stock, net - 1,473 Proceeds from issuance of common stock, net 15,665 - ------------ ------------- Net cash provided by financing activities 9,228 434 ------------ ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,308 (2,458) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,586 2,969 ------------ ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,894 $ 511 ============ ============= SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid $ 105 $ 1 ============ ============= Interest paid, net of interest capitalized $ - $ - ============ ============= Acquisition of equipment with capital leases $ 906 $ 3,792 ============ ============= Compensation expense for shares issued and options granted $ 90 $ 87 ============ =============
5 ATG INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. 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 Registration Statement on Form S-1 (Commission File No. 333-46107), which was declared effective on May 6, 1998. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position, results of operations and cash flows for the three months and nine months ended September 30, 1998 and 1997. 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 nine months ended September 30, 1998 are not necessarily indicative of the results for the full fiscal year. 2. NET INCOME PER SHARE The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), effective December 31, 1997. SFAS 128 requires the presentation of basic and diluted earnings 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 during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the conversion of convertible preferred stock (using the "if converted" method) and exercise of stock options for all periods. Basic and diluted net income per share are computed using the weighted average number of shares of Common Stock outstanding and the incremental inclusion of 3,983,595 shares of Common Stock issuable upon the conversion of preferred stock. 6 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 Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Numerator - Basic and Diluted Income per share Net income $ 1,529 $ 692 $ 3,078 $ 498 ======== ========= ======== ======== Denominator - Basic Common shares outstanding 13,804 7,532 12,686 7,532 Conversion of mandatorily redeemable preferred stock __ 3,984 __ 3,984 -------- --------- -------- -------- 13,804 11,516 12,686 11,516 -------- --------- -------- -------- Basic income per share $ 0.11 $ 0.06 $ 0.24 $ 0.04 ======== ========= ======== ======== Denominator - Diluted Denominator - Basic 13,804 11,516 12,686 11,516 Common stock options 686 768 726 768 -------- --------- -------- -------- 14,480 12,284 13,412 12,284 -------- --------- -------- -------- Diluted income per share $ 0.11 $ 0.06 $ 0.23 $ 0.04 ======== ========= ======== ========
Diluted net income per share for the three months ended September 30, 1998, excludes options and warrants to acquire 378,500 shares of stock which were anti-dilutive. 7 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period, resulting from transactions and other events and circumstances from nonowner sources. The Company has adopted the provisions of SFAS No. 130 as of January 1, 1998. For all periods presented, there was no comprehensive income. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and utilized by the chief operating decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS No. 131 is effective for the Company in 1998. The Company currently evaluates its operations as one segment. 4. CERTAIN RECLASSIFICATIONS Certain reclassifications have been made to prior year financial statements to conform to current classifications. 8 ATG INC 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 Registration Statement on Form S-1 (Commission File No. 333-46107). GENERAL The Company is a radioactive and hazardous waste management company that offers comprehensive treatment solutions for LLRW, LLMW and other waste generated by the DOD, 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. Revenue from commercial entities, primarily nuclear power plants, industrial concerns and medical and research institutions, has increased in recent years and is expected to represent an increasing portion of the Company's business. Revenue from waste treatment processing is recognized as waste is received and processed. Field engineering services are provided under fixed price, cost plus or unit price contracts. Revenue from fixed price and cost plus contracts is recognized utilizing the percentage of completion method of accounting; revenue from unit price contracts is recognized as the units are processed and completed. Revenue also includes non-refundable fees received under the terms of technology transfer agreements. 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 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. The Company increasingly pursues multi-year and longer term contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and 9 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 D&D, and has in recent years been awarded a number of large government term contracts which, in most cases, require several years to complete. RESULTS OF OPERATIONS Revenue and Net Income. Revenue for the third quarter of fiscal 1998 was $9.0 million, up 104% from the $4.4 million recorded in the comparable quarter in the prior year. The Company recorded net income of $1.5 million, or $0.11 per share, in the third quarter of fiscal 1998, compared to net income of $692,000, or $0.06 per share, in the third quarter of fiscal 1997. For the nine months ended September 30, 1998, revenue was $21.3 million, up 98% from $10.8 million for the same period in 1997. The Company recorded net income of $3.1 million, or $0.23 per share, for the nine months ended September 30, 1998, compared to net income of $498,000, or $0.04 per share, for the same period in 1997. The increase in revenue is principally attributable to the increasing commercial utilization of the Company's SAFGLAS thermal treatment system. The SAFGLAS system began treating customer waste streams in late 1997 and there has been a steady increase in the volume being processed. At the end of 1997, the Company had general service agreements in place with only 4 nuclear power reactors, a key target customer base for the SAFGLAS technology. There are currently general service agreements in place to service over 50 nuclear power reactors. In addition to the increase in waste for thermal treatment utilizing SAFGLAS, these same customers are sending the Company increasing volumes of waste to be treated through non-thermal means. Gross Profit. Gross profit for the third quarter of fiscal 1998 was $4.2 million or 46.8% of revenue, compared to $2.6 million or 59.5% of revenue in the comparable quarter in 1997. Gross profit for the nine months ended September 30, 1998, was $10.5 million or 49.4% of revenue, compared to $5.5 million or 51.4% of revenue for the comparable period in 1997. The decrease in the gross profit percentage from year to year is related to the varying mixes of business during these periods. In 1997 the Company entered into two technology transfer agreements that provided for the transfer of rights to the processes and technology of the Company on an exclusive basis in selected Asian territories. Total revenue of approximately $2 million was derived from these transfer agreements which increased the gross profit percentage substantially for the nine months ended September 30, 1997. The fixed facilities operations generally have a larger percentage of fixed costs versus variable costs, so increases in utilization favorably impact gross profit. The SAFGLAS treatment system is part of fixed facilities and thus margins have improved with the growth in revenue discussed above. 10 Sales, General and Administrative Expenses. Sales, general and administrative expenses for the third quarter of fiscal 1998 were $1.8 million or 19.7% of revenue, compared to $1.9 million or 44% of revenue for the comparable period in 1997. Such expenses for the nine months ended September 30, 1998, were $5.5 million or 26 % of revenue, compared to $5.1 million or 47.3% of revenue for the comparable period in 1997. The increases in spending from year to year reflect the growth in the Company's operations, addition of sales personnel to market and sell SAFGLAS services and the increased costs of being a public company. The overall decrease in sales, general and administrative expenses as a percentage of revenue is attributable to the Company's effort to maintain a level of such costs that does not increase at the same rate as revenue. Provision for Income Taxes. In 1998, the Company is providing for income taxes at a combined Federal and State rate of approximately 40%. In prior years the Company realized the benefit of net operating loss carryforwards. All net operating loss carryforwards were fully recognized by the end of 1997. LIQUIDITY AND CAPITAL RESOURCES During the quarter ended June 30, 1998, the Company completed its initial public offering with the sale of 2,185,000 shares of common stock. The net proceeds of the offering were approximately $15.7 million. Approximately $4.0 million of the proceeds were used to pay off bank lines of credit. Total cash and cash equivalents were $6.9 million at September 30, 1998, an increase of $4.3 million from December 31, 1997. The working capital of the Company was approximately $14.2 million at September 30, 1998, an increase of $15.0 million from December 31, 1997. The increases are attributable to the proceeds of the initial public offering and cash flow from operations. Significant outlays of cash have been needed to acquire property and equipment and to secure or expand regulatory licenses, permits and approvals, primarily for the Company's fixed facilities operations in Richland, Washington. Property and equipment acquisitions totaled $1.4 million and $4.3 million for the three months and nine months ended September 30, 1998, respectively. The Company anticipates that continued expansion of its Richland LLRW facilities will be financed from the net proceeds of the initial public offering or through debt financing. The Company further anticipates spending in excess of $15 million to construct a mixed waste treatment facility beginning in 1999. The Company has already invested approximately $3 million in the design and permitting of this facility. The Company has applied for an industrial development bond in the State of Washington to finance this construction. During the quarter ended June 30, 1998, the Company negotiated an expansion of its bank credit facility. The new credit facility provides a line of credit of $8.0 million and a letter of credit facility of $1.0 million. Borrowings, when made, bear interest at the prime rate, currently 8%. There were no outstanding borrowings as of September 30, 1998. 11 The Company believes that its current cash and cash equivalents, together with its credit facility and cash generated from operations, will be sufficient to meet the Company's working capital requirements for the next 12 months. Depending on its rate of growth and profitability, the Company may require additional equity or debt financing to meet its future working capital or capital expenditure needs and it will require equity or debt financing to construct its mixed waste facility. 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. CERTAIN BUSINESS CONSIDERATIONS The Company's business is subject to the following risks and uncertainties, in addition to those described elsewhere. Dependence on Government Licenses, Permits and Approvals The radioactive and hazardous waste management industry is highly regulated. The Company is required to have federal, state and local governmental licenses, permits and approvals for its waste treatment facilities and services. There is no assurance as to the successful outcome of any pending application by the Company for any such license, permit or approval, and the Company's existing licenses, permits and approvals are subject to revocation or modification under a variety of circumstances. Failure to obtain timely, or to comply with the conditions of, applicable licenses, permits or approvals could adversely affect the Company's business, financial condition and results of operations. As its business expands and as it introduces new technologies, the Company will be required to obtain additional operating licenses, permits or approvals. It may be required to obtain additional operating licenses, permits or approvals if new environmental legislation or regulations are enacted or promulgated or existing legislation or regulations are amended, re-interpreted or enforced differently than in the past. Any new requirements which raise compliance standards may require the Company to modify its waste treatment technologies to conform to more stringent regulatory requirements. There can be no assurance that the Company will be able to continue to comply with all of the environmental and other regulatory requirements applicable to its business. No Assurance of Successful Development, Commercialization or Acceptance of Technologies The Company is in the process of developing, refining and implementing its technologies for the treatment of LLRW, LLMW and other wastes. The Company's future growth will be dependent in part upon the acceptance and implementation of these technologies, particularly its recently developed vitrification technologies for the thermal treatment of LLRW and LLMW. 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 12 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 December 31, 1999. The Company's inability to develop, commercialize or secure the requisite licenses, permits and approvals for its waste treatment technologies on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Environmental Laws and Regulations A substantial portion of the Company's revenue is generated as a result of requirements arising under federal and state laws, regulations and programs related to protection of the environment. Environmental laws and regulations are, and will continue to be, a principal factor affecting demand for the services offered by the Company. The level of enforcement activities by federal, state and local environmental protection agencies and changes in such laws and regulations also affect the demand for such services. If the requirements of compliance with environmental laws and regulations were to be modified in the future, particularly those relating to the transportation, treatment, storage or disposal of LLRW, LLMW or other wastes, the demand for the Company's services, and its business, financial condition and results of operations, could be materially adversely affected. Dependence on Federal Government; Limits on Government Spending; Government Contracting The Company expects that the percentage of its revenue attributable to federal government contracts will continue to be substantial for the foreseeable future. The Company's government contracts generally are subject to cancellation, delay or modification at the sole option of the government at any time, to annual funding limitations and public sector budget constraints and, in many cases, to actual delivery orders being released. The Company is dependent on government appropriations to fund many of its contracts. Efforts to reduce the federal budget deficit could adversely affect the availability and timing of government funding for the clean-up of DOE, DOD and other federal government sites. The failure by the government to fund future restoration of such sites could have an adverse effect on the Company's business, financial condition and results of operations. 13 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 capital in order to implement its long-term growth strategy. There can be no assurance that the Company will be successful in raising the requisite amount of capital when needed, or, that if successful, the terms of the financing will be favorable to the Company. If the Company is not successful in raising such additional capital, it will need to curtail or scale back its planned expansion, which could adversely affect the Company's business, financial condition and results of operations. Seasonality and Fluctuation in Quarterly Results The Company's revenue is dependent on its contract backlog and the timing and performance requirements of each contract. Revenue in the first and second quarters has historically been lower than in the third and fourth quarters, as the Company's customers have tended to ship waste during the months in which transportation is less likely to be adversely affected by weather conditions. The Company's revenue is also affected by the timing of its clients' planned remediation activities and need for waste treatment services, which generally increase during the third and fourth quarters. Due to this variation in demand, the Company's quarterly results fluctuate. Accordingly, specific quarterly or interim results should not be considered indicative of results to be expected for any future quarter or for the full year. Due to the foregoing factors, it is possible that in future quarters, the Company's operating results will not meet the expectations of securities analysts and investors. In such event, the price of the Common Stock could be materially adversely affected. 14 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. The Company is currently pursuing a growth strategy intended to expand its business domestically and internationally. The Company's historical growth has placed, and any future growth may place, significant demands on its 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. 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 Company, the Company's ability to compete effectively could be materially adversely affected. Any increase in the number of licensed commercial LLRW treatment facilities or disposal sites in the United States or any decrease in the treatment or disposal fees charged by such facilities or sites could increase the competition faced by the Company or reduce the competitive advantage of certain of the Company's treatment technologies. International Expansion A key component of the Company's long-term growth strategy is to expand its business into selected Pacific Rim markets. There can be no assurance that the Company or its 15 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 operations. Dependence on Key Personnel The Company's future success depends on its continuing ability to attract, retain and motivate highly qualified managerial, technical and marketing personnel. The Company is highly dependent upon the continuing contributions of its key managerial, technical and marketing personnel. The Company's employees may voluntarily terminate their employment with the Company at any time, and competition for qualified technical personnel, in particular, is intense. The loss of the services of any of the Company's managerial, technical or marketing personnel could materially adversely affect the Company's business, financial condition and results of operations. Focus on Larger Projects The Company increasingly pursues large, multi-year contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. These larger projects impose significant risks if actual costs are higher than those estimated at the time of bid. A loss on one or more of such larger contracts could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, failure to obtain, or delay in obtaining, targeted large, multi-year contracts could result in significantly less revenue to the Company than anticipated. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a), (b), and (c). Not applicable. (d). Use of Proceeds The following use of proceeds information is being disclosed with respect to the Registration Statement on Form S-1 (Commission File No. 333-46107) which was declared effective on May 6, 1998. This offering was managed by Van Kasper & Company. Class of securities Common stock Shares registered 2,185,000 Aggregate offering price $18,572,500 Selling Shareholders None All of the shares registered pursuant to the Registration Statement were sold for the aggregate offering price and the offering has terminated. Offering Expenses: - ------------------ Underwriting discounts and commissions $ 1,300,000 Finders fees - 0 - Expenses paid to underwriters $ 279,000 Other expenses $ 1,335,000 Total expenses $ 2,914,000 Net proceeds of the offering $15,659,000 All of the expenses of the offering were direct payments made to others and there were no direct or indirect payments to directors, officers, 10% shareholders or affiliates of the Company. 17 Use of Proceeds (estimated): - ---------------------------- Construction of plant, buildings and facilities $ 765,000 Purchase and installation of machinery and equipment $ 1,532,000 Purchase of real estate $ - 0 - Acquisition of other businesses $ - 0 - Repayment of indebtedness $ 4,800,000 Working capital $ 4,208,000 Temporary investments $ 4,354,000 Other purposes greater than or equal to $100,000 $ - 0 - Total $15,659,000 All of the uses of proceeds have been directly paid to or invested with others and none have been payments, either direct or indirect, to directors, officers, 10% shareholders or affiliates of the Company. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION None. 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 3.1 Articles of Incorporation of the Company * 3.2 Bylaws of the Company * 3.3 Certificate of Amendment of Articles of Incorporation * 4.1 Specimen Common Stock Certificate * 27.1 Financial Data Schedule (b) Reports on Form 8-K None ______ (*) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1 (No. 333-46107) which became effective May 6, 1998. 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATG INC. Date: November 16, 1998 By: /s/ Steven J. Guerrettaz ------------------------ Steven J. Guerrettaz Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) 20 EXHIBIT INDEX Exhibit Number Exhibit Description -------------- ------------------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 9-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 SEP-30-1998 2,586 6,894 0 0 8,554 14,832 119 185 0 0 12,498 22,428 24,944 28,170 2,840 3,151 37,227 52,946 10,846 8,246 0 0 19,416 0 0 0 6,337 41,418 (6,041) (2,874) 37,227 52,946 19,107 21,288 19,107 21,288 11,172 10,771 11,172 10,771 6,947 5,436 73 90 58 139 973 5,130 (45) 2,052 1,018 3,078 0 0 0 0 0 0 1,018 3,078 0.09 0.24 0.08 0.23
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