-----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, HKfrfyWunz7XxNIoezPSvTV69quNo57JI5Dt23466O0D9wTInb7N1Bry4qDlSJVw AE5i1NpEfiKBFIZRTSa6Gw== 0001012870-99-001611.txt : 19990518 0001012870-99-001611.hdr.sgml : 19990518 ACCESSION NUMBER: 0001012870-99-001611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626024 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 3/31/99 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, 1999. [ ] 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 No X --- --- 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 30, 1999 ----- ----------------------------- Common stock, no par value 14,047,221 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...................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk .................................................... 17 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 ....................................... 19 Item 6. Exhibits and Reports on Form 8-K. ....................... 19 SIGNATURE ............................................... 20 PART I FINANCIAL INFORMATION Item 1. Financial Statements ATG INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 1999 1998 -------------- ------------ (Unaudited) Current assets: Cash and cash equivalents $ 2,549 $ 3,789 Accounts receivable, net 22,258 22,561 Prepayments and other current assets 3,621 2,096 -------------- ------------ Total current assets 28,428 28,446 Property and equipment, net 46,567 42,988 Intangible and other assets, net 7,748 8,135 -------------- ------------ Total assets $ 82,743 $ 79,569 ============== ============ Current liabilities: Short-term borrowings $ 9,440 $ 6,750 Current portion of long-term debt and capital leases 5,131 4,733 Accounts payable 6,238 6,096 Accrued liabilities 6,487 9,222 -------------- ------------ Total current liabilities 27,296 26,801 Long-term debt and capitalized leases, net 12,312 11,246 Deferred income taxes 777 777 -------------- ------------ Total liabilities 40,385 38,824 -------------- ------------ Common stock 41,991 41,517 Deferred compensation (122) (152) Retained earnings (deficit) 489 (620) -------------- ------------ Total shareholders' equity 42,358 40,745 -------------- ------------ Total liabilities and shareholders' equity $ 82,743 $ 79,569 ============== ============
ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, -------------------------------- 1999 1998 -------- ------- Revenue $ 12,944 $ 5,495 Cost of revenue 7,742 2,630 -------- ------- Gross profit 5,202 2,865 Sales, general & administrative expenses 3,064 1,697 Stock-based compensation expense 30 30 -------- ------- Operating income 2,108 1,138 Interest expense, net (258) (4) -------- ------- Income before provision for taxes 1,850 1,134 Provision for income taxes 740 464 -------- ------- Net income $ 1,110 $ 670 ======== ======= Net income per share Basic $ 0.08 $ 0.06 Fully diluted $ 0.08 $ 0.05 Weighted average shares Basic 14,018 11,516 Fully diluted 14,796 12,284
ATG INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended ------------------------------ March 31, March 31, 1999 1998 --------- --------- Cash flows from operating activities: Net income $ 1,109 $ 670 Adjustments to reconcile net income with cash flow from operations: Depreciation and amortization 539 492 Compensation expense for shares issued and options granted 30 30 Change in current assets and liabilities: Accounts receivable 303 (1,684) Prepayment and other current assets (1,099) (550) Accounts payable and accrued liabilities (2,593) (36) --------- --------- Net cash used in operating activities (1,711) (1,078) --------- --------- Cash flows from investing activities: Property and equipment acquisitions, net (3,499) (715) Other assets (658) (124) --------- --------- Net cash used in investing activities (4,157) (839) --------- --------- Cash flows from financing activities: Borrowing (repayment) of long-term debt and capital leases 1,464 (362) Short-term borrowing, net of repayments 2,690 1,000 Proceeds from issuance of common stock 474 - --------- --------- Net cash provided by financing activities 4,628 638 --------- --------- Decrease in cash and cash equivalents (1,240) (1,279) Cash and cash equivalents, beginning of period 3,789 2,586 --------- --------- Cash and cash equivalents, end of period $ 2,549 $ 1,307 ========= ========= Supplemental cash flow information Income taxes paid $ 1,347 $ 14 ========= ========= Interest paid $ 483 $ 277 ========= ========= Acquisition of equipment with capital leases $ - $ 906 ========= ========= Reclassification of machinery and equipment to inventory $ (426) $ (475) ========= ========= Reclassification of other assets to property and equipment $ 1,045 $ - ========= =========
ATG INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31,1999 (Unaudited) 1. Basis of Presentation 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 1998 Annual Report on Form 10-K. 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, 1999 and 1998. 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, 1999 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 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. 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, --------------------------- 1999 1998 ---- ---- Numerator - Basic and Diluted Income per share Net income $ 1,110 $ 670 ======= ======= Denominator - Basic Common shares outstanding 14,018 7,532 Conversion of mandatorily redeemable preferred stock - 3,984 ______ ------- 14,018 11,516 ------- ------- Basic income per share $ 0.08 $ 0.06 ======= ======= Denominator - Diluted Denominator - Basic 14,018 11,516 Common stock options 778 768 ------- ------- 14,796 12,284 ------- ------- Diluted income per share $ 0.08 $ 0.05 ======= =======
Diluted net income per share for the three months ended March 31, 1999, excludes options and warrants to acquire 263,500 shares of stock which were anti- dilutive. 3. Business Segments Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Statement 131 requires enterprises to report information about operating segments in annual financial statements and selected information about reportable segments in interim financial reports. 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). The Company commenced evaluating its business in these two segments in the fourth quarter of 1998. In the first quarter of 1999, revenues from FFG totaled $10.3 million at a gross profit of $4.8 million and revenues from FEG totaled $2.6 million at a gross profit of $0.4 million. Total fixed assets employed in the business segments at March 31, 1999 are: FFG - $46.14 million; FEG - $0.65 million; and other = $3.39 million. 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 1998 Annual Report on Form 10-K. 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 newly acquired business interests in Tennessee for treating ion exchange resins (IERs) and intends to focus increasingly on LLMW processing in 1999. Waste processing 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 generally recognized upon the substantial completion of the waste treatment process. 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 may also include 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(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. 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 1999 was $12.9 million, up 136% from the $5.5 million recorded in the comparable quarter in the prior year. The Company recorded net income of $1.1 million, or $0.08 per share fully diluted, in the first quarter of fiscal 1999, compared to net income of $670,000, or $0.05 per share fully diluted, in the first quarter of fiscal 1998. The increase in revenue is principally attributable to new customers and service offerings resulting from the acquisition in December 1998 of assets and related businesses in Oak Ridge, Tennessee, and the increasing commercial utilization of the Company's SAFGLAS(TM) thermal treatment system. The new Tennessee operations have been combined with the Richland, WA waste processing operations to provide a broader range of customer service offerings. Customer waste needs are addressed and directed to the appropriate processing group to provide the most efficient and economical treatment of customer wastes. Gross Profit. Gross profit for the first quarter of fiscal 1999 was $5.2 million or 40.2% of revenue, compared to $2.9 million or 52.1% of revenue in the comparable quarter in 1998. The decrease in the gross profit percentage from year to year is related to the varying mixes of business during these periods. Overall gross profit on waste processing services of approximately 47% in the first quarter of 1999 is lower than the approximately 58% recognized in the full year of 1998 primarily due to the acquisition of the Tennessee operations. The Company has devoted significant time and effort in the first quarter of 1999 to, and continues to be engaged in, the process of integrating these new business services and evaluating processes that affect cost of operations. The fixed facilities operations generally have a larger percentage of fixed costs versus variable costs, so increases in utilization favorably impact gross profit; however, the first quarter of the year has typically been the lowest revenue quarter of the year and thus margins will tend to be lower in the waste processing group in this quarter. Overall gross profit on field service projects was approximately 14% in the first quarter of 1999 which is lower than the approximately 29% recognized in the full year of 1998. The principal reason for the difference is the mix of projects and stage of completion across the respective periods. Sales, General and Administrative Expenses. Sales, general and administrative expenses for the first quarter of fiscal 1999 were $3.1 million or 23.9% of revenue, compared to $1.7 million or 31.4% of revenue for the comparable period in 1998. The increases in spending from year to year reflect the growth in the Company's operations, addition of sales and administrative personnel related to the acquisition of the Tennessee operations 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. 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 1998 was approximately 38%. The Company is providing for income taxes in 1999 at a rate of 40% based on the estimated shift in state income taxes from 1998. Liquidity and Capital Resources Total cash and cash equivalents were $2.5 million at March 31, 1999, a decrease of $1.2 million from December 31, 1998. The working capital of the Company was approximately $1.1 million at March 31, 1999, a decrease of $0.5 million from December 31, 1998. Significant outlays of cash have been needed to acquire property and equipment and to pay liabilities for Federal and state income taxes as well as for treatment and disposal of legacy wastes assumed in the acquisition of the Tennessee businesses. Property and equipment acquisitions totaled $3.5 million for the three months ended March 31, 1999. The Company anticipates spending in excess of $20 million to construct a mixed waste treatment facility beginning in 1999. The Company has already invested approximately $4.5 million in the design and permitting of this facility. The Company has been approved for an industrial development bond in the State of Washington in the amount of $25 million to finance this construction. During the quarter ended March 31, 1999, the Company negotiated an expansion of its bank credit facility. The new credit facility provides a line of credit of $13.0 million and a letter of credit facility of $1.0 million. Borrowings, when made, bear interest at the prime rate, currently 7.75%. There was $9.4 million outstanding under this credit facility at March 31, 1999. 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. Year 2000 Impact The year 2000 (Y2K) computer issue relates to computer software that utilizes a two-digit field versus a four-digit field for the calendar year identification. Unless corrected, some computer programs and the systems that are dependent upon these programs may be unable to function properly after December 31, 1999. An uncorrected condition could subject the Company to potentially significant legal liabilities, although the Company currently has no reason to believe that these consequences are likely to ensue. The Company is not highly dependent on internal computer systems and does not, as a general matter, interact electronically with its customers or suppliers. The Company has been reviewing and is continuing to review and update its existing software programs and interfaces for Y2K compliance. Substantially all of the Company's software is provided by third party suppliers and the Company has been upgrading to Y2K compliant versions of this software. To date the costs for upgrading to Y2K compliant systems has been less than $100,000 and the costs to complete this effort are expected to be less than an additional $100,000. The final upgrades are currently expected to be implemented in the third quarter of 1999 and undergo testing thereafter. The Company believes that, as a result of these measures, its systems will be substantially compliant by the year 2000. If there continue to be deficiencies after testing, the Company believes it will be able to conduct its business without significant interruption using already compliant systems. The Company has been surveying and is continuing to survey its major service providers as to their Y2K readiness. Responses to date indicate substantial compliance by such providers with ongoing programs in effect. The costs associated with upgrading internal systems to more current versions of vendor supplied software have not been material to date. The Company believes that it is unlikely to experience a material adverse impact on its financial condition or results of operations due to Y2K compliance issues. Since the Y2K updating is still ongoing, the full range of potential complications and the full potential impact of the Y2K issue on the Company's business, operations and financial condition is not known at this time. 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 is currently processing a permit application for its LLMW processing facility in Richland, WA. There can be 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 or modifies existing 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 and its recently acquired technologies for treatment of ion exchange resin 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 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 capital in order to implement its long-term business plan. In particular, the Company will need approximately $20 million to finance the construction of the LLMW facility in Richland, WA. The Company is currently considering tax exempt industrial bond financing for this facility. 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 Company's 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 and the number of commercial nuclear utility power plants utilizing the Company's services. Also, in December 1998, the Company acquired new business lines that are anticipated to contribute to increased growth in 1999 and beyond. The Company is currently pursuing a business plan 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. The Company has experienced shut downs 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 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 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 The Company considered the provisions of Financial Reporting Release No. 48, "Disclosure about Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments". The Company had no derivative financial or commodity instruments at March 31, 1999. The Company's line of credit has an interest rate based on the bank's reference rate that may fluctuate over time based on changes in the economic environment. The Company is subject to interest rate risk, and could be subjected to increased interest payments if market interest rates fluctuate. In management's view, an effective increase or decrease of 10% in such interest rates would not have a material adverse effect on the Company's results of operations. 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 $ 1,336,000 Total expenses $ 2,915,000 Net proceeds of the offering $15,658,000 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. Use of Proceeds: - ---------------- Construction of plant, buildings and facilities $ 1,300,000 Purchase and installation of machinery and equipment $ 3,089,000 Purchase of real estate $ - 0 - Acquisition of other businesses $ 2,261,000 Repayment of indebtedness $ 4,800,000 Working capital $ 4,208,000 Temporary investments $ - 0 - Other purposes > $100,000 $ - 0 - - Total $15,658,000 All of the uses of proceeds have been directly paid to others and none have been payments, either direct or indirect, to directors, officers, 10% shareholders or affiliates of the Company. The proceeds from the public offering have been completely used as of December 31, 1998. 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. 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 Amendment to Credit Agreement dated April 1, 1999 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. (**) Incorporated by reference to exhibits filed with the Registrant's Form 8-K dated December 1, 1998. 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 14, 1999 By: /s/ Steven J. Guerrettaz ------------------------ Steven J. Guerrettaz Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) EXHIBIT INDEX Exhibit Number Exhibit Description -------------- ------------------- 10.43 Amendment to Credit Agreement dated April 1, 1999 27.1 Financial Data Schedule EX-10.43 2 AMENDMENT TO CREDIT AGREEMENT DATED APRIL 1, 1999 Exhibit 10.43 Sanwa Bank California FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST Amendment to CREDIT AGREEMENT (the "Amendment") is made and entered into as of April 1, 1999, by and between SANWA BANK CALIFORNIA (the "Bank") and ATG INC. (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Credit Agreement dated as of December 28, 1998, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. Modification of Line of Credit Facility. Section 2.02 of the Agreement is modified and amended as follows: The dollar amount provided for in section 2.02 of the Agreement, which is currently $9,500,000.00, is hereby modified and changed to be $13,000,000.00. 2. Modification of Repayment of Principal. Section 2.02 D of the Agreement is modified and amended as follows: The date provided for in section 2.02 D of the Agreement, which is currently June 30, 1999, is hereby modified and changed to be September 1, 1999. 3. Modification of Expiration of the Line of Credit Facility. Section 2.02 H of the Agreement is modified and amended as follows: The date provided for in section 2.02 H of the Agreement, which is currently June 30, 1999, is hereby modified and changed to be September 1, 1999. 4. Modification of Letter of Credit Facility. Section 2.03 of the Agreement is modified and amended as follows: The dollar amount provided for in section 2.03 of the Agreement, which is currently $3,000,000.00, is hereby modified and changed to be $3,500,000.00. The dollar amounts provided for in section 2.03, which are currently $9,500,000.00, are hereby modified and changed to be $13,000,000.00. 5. Modification of Expiration of Facility. Section 2.03 B of the Agreement is modified and amended as follows: The date provided for in section 2.03 B of the Agreement, which is currently June 30, 1999, is hereby modified and changed to be September 1, 1999. 6. Modification of Additional Indebtedness. Section 6.11 of the Agreement is modified and amended as follows: The dollar amount provided for in section 6.11 of the Agreement, which is currently $2,000,000.00, is hereby modified and changed to be $8,000,000.00. 7. Modification of Loans. Section 6.12 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 6.12 Loans. Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities or subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrowers business as presently conducted. 8. Modification of Liens and Encumbrances. Section 6.13 of the Agreement is modified and amended as follows: The dollar amount provided for in section 6.13 of the Agreement, which is currently $2,000,000.00, is hereby modified and changed to be $8,000,000.00. 9. Modification of Debt to Net Worth Ratio. Section 6.16 B of the Agreement is modified and amended as follows: The ratio provided for in section 6.16 B of the Agreement, which is currently 1.00 to 1.00, is hereby modified and changed to be 1.50 to 1.00. 10. Modification of Profitability. Section 6.16 E of the Agreement is deleted in its entirety and the following is substituted in lieu thereof. Section 6.16 E. Profitability. The Borrower shall not show a net loss in any fiscal quarter. 11. Modification of Capital Expense: Section 6.18 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 6.18 Capital Expenses. Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for leases which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $5,000,000 in any one fiscal year. 12. Change in Revocation or Limitation of Guaranty: Section 7.06 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof. Section 7.06 Revocation or Limitation of Guaranty. Any guaranty shall be revoked or limited or its enforceability or validity shall be contested by any guarantor, by operation of law, legal proceeding or otherwise or any guarantor who is a natural person shall die or any covenant under the guaranty shall be breached. 13. Conditions Precedent. As a condition precedent to the effectiveness of this Amendment, Borrower agrees to pay to Bank a fee of $8,000.00. 14. Representations and Warranties. The Borrower hereby reaffirms the representations and warranties contained in the Agreement and represents that no event, which with notice or lapse of time, could become an Event of Default, has occurred or is continuing. 15. Confirmation of Other Terms and Conditions of the Agreement. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. 16. Governing Law. This Amendment shall be governed and construed in accordance with the laws of the State of California to which jurisdiction the parties hereto hereby consent and submit. 17. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA BY: /s/ John Norawong BY: /s/ Doreen Chiu ------------------------ ---------------------- NAME: John Norawong, Assistant NAME: Doreen Chiu, President Vice President ADDRESS: 47375 Fremont Boulevard Fremont, CA 94538 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 3-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 MAR-31-1999 3,789 2,549 0 0 22,866 22,563 305 305 0 0 28,446 28,428 46,060 50,178 3,072 3,611 79,569 82,743 26,801 27,296 0 0 0 0 0 0 41,517 41,991 (772) 367 79,569 82,743 35,900 12,944 35,900 12,944 19,816 7,742 19,816 7,742 7,742 3,094 210 0 (15) (311) 8,305 1,850 3,156 740 5,149 1,110 0 0 0 0 0 0 5,149 1,110 .40 .08 .38 .08
-----END PRIVACY-ENHANCED MESSAGE-----