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, 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 October 31, 2000
----- -------------------------------
Common stock, no par value 16,872,678
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.. 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 24
Item 2. Changes in Securities and Use of Proceeds................... 25
Item 3. Defaults Upon Senior Securities............................. 26
Item 4. Submission of Matters to a Vote of Security Holders......... 26
Item 5. Other Information........................................... 26
Item 6. Exhibits and Reports on Form 8-K............................ 27
SIGNATURE................................................... 28
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ATG INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2000 1999
---------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,170 $ 2,776
Accounts receivable, net 22,519 24,488
Prepayments and other current assets 4,364 5,396
--------- ---------
Total current assets 28,053 32,660
Property and equipment, net 99,421 80,428
Restricted cash 1,038 16,014
Intangible assets, net 2,163 2,203
Other assets, net 5,043 4,774
--------- ---------
Total assets $ 135,718 $ 136,079
========= =========
Current liabilities:
Short-term borrowings $ 25,250 $ 1,721
Current portion of long-term debt and capital leases 4,336 4,259
Accounts payable 10,738 11,649
Accrued liabilities 9,241 15,197
--------- ---------
Total current liabilities 49,565 32,826
Long-term debt and capitalized leases, net 35,909 56,595
--------- ---------
Total liabilities 85,474 89,421
--------- ---------
Common stock 47,264 42,137
Deferred compensation - (32)
Retained earnings 2,980 4,553
--------- ---------
Total shareholders' equity 50,244 46,658
--------- ---------
Total liabilities and shareholders' equity $ 135,718 $ 136,079
========= =========
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,
-------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenue $ 10,823 $ 16,617 $ 33,046 $ 45,621
Cost of revenue 6,468 10,457 20,341 28,007
-------- -------- -------- --------
Gross profit 4,355 6,160 12,705 17,614
Sales, general & administrative expenses 4,131 3,594 12,092 9,824
Stock-based compensation expense - 30 32 90
Restructuring charge - - 2,400 -
-------- -------- -------- --------
Operating income 224 2,536 (1,819) 7,700
Other income 421 - 841 -
Net interest income (expense) (525) (196) (1,642) (687)
-------- -------- -------- --------
Income before provision for taxes 120 2,340 (2,620) 7,013
Provision (benefit) for income taxes 48 936 (1,048) 2,805
-------- -------- -------- --------
Net income (loss) $ 72 $ 1,404 $ (1,572) $ 4,208
======== ======== ======== ========
Net income (loss) per share
Basic $ 0.00 $ 0.10 $ (0.10) $ 0.30
Fully diluted $ 0.00 $ 0.10 $ (0.10) $ 0.29
Weighted average shares
Basic 16,792 14,053 15,024 14,040
Fully diluted 17,317 14,556 15,024 14,624
4
ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
--------------------
Sept. 30, Sept, 30,
2000 1999
-------- --------
Cash flows from operating activities:
Net income (loss) $ (1,572) $ 4,208
Adjustments to reconcile net income with cash flow
from operations:
Depreciation and amortization 2,119 1,415
Compensation expense for shares issued and options granted 32 90
Change in current assets and liabilities:
Accounts receivable 1,969 (2,122)
Prepayment and other current assets 1,032 (1,305)
Accounts payable and accrued liabilities (6,869) 824
-------- --------
Net cash used in operating activities (3,289) 3,110
-------- --------
Cash flows from investing activities:
Property and equipment acquisitions (21,112) (15,860)
Resticted cash 14,827 -
Other assets (80) (1,975)
-------- --------
Net cash used in investing activities (6,365) (17,835)
-------- --------
Cash flows from financing activities:
Borrowing (repayment) of long-term debt and capital leases 3,142 19,435
Short-term borrowing (repayment), net (221) (6,750)
Proceeds from issuance of common stock 5,127 519
-------- --------
Net cash provided by financing activities 8,048 13,204
-------- --------
Decrease in cash and cash equivalents (1,606) (1,521)
Cash and cash equivalents, beginning of period 2,776 3,789
-------- --------
Cash and cash equivalents, end of period $ 1,170 $ 2,268
======== ========
Supplemental cash flow information:
Income taxes paid $ 65 $ 1,388
======== ========
Interest paid, net of capitalized interest $ 1,915 $ 857
======== ========
Acquisition of equipment with capital leases $ 696 $ 4,201
======== ========
Reclassification of machinery and equipment to inventory $ - $ (426)
======== ========
Reclassification of other assets to property and equipment $ - $ 1,325
======== ========
Reclassification of long-term debt to short-term borrowing $ 23,750 $ -
======== ========
5
ATG INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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, hazardous, and mixed wastes, 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 and nine months ended September 30, 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 and
nine months ended September 30, 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 net
income per share is provided as follows (in thousands, except per share data):
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
----------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Numerator - Basic and Diluted
Income per share
Net income (loss) $ 72 $ 1,404 ($1,572) $ 4,208
======== ======= ======= =======
Denominator - Basic
Common shares outstanding 16,792 14,053 15,024 14,040
-------- ------- ------- -------
Basic net income (loss) per share ($ 0.00) $ 0.10 ($ 0.10) $ 0.30
======== ======= ======= =======
Denominator - Diluted
Denominator - Basic 16,792 14,053 15,024 14,040
Common stock options and warrants 525 503 -- 584
-------- ------- ------- -------
17,317 14,556 15,024 14,624
-------- ------- ------- -------
Diluted net income (loss) per share ($ 0.00) $ 0.10 ($ 0.10) $ 0.29
======== ======= ======= =======
Diluted net income per share for the three months and nine months ended
September 30, 2000, excludes options and warrants to acquire 956,000 and
1,053,000 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 September 30, 2000 FFG FEG Other Total
--- --- ----- -----
Revenue.............................................. $ 9.2 $1.6 $ -- $10.8
Gross Profit......................................... 4.1 0.3 -- 4.4
Sales, general & administrative expenses............. 4.1
Other Income......................................... 0.4
Interest expense, net................................ (0.5)
Provision for income taxes........................... 0.1
------
Net income....................................... 0.1
======
Segment assets....................................... 101.7 0.7 3.5 $105.9
Expenditures for long-lived assets................... 6.8 -- -- $ 6.8
======
Three months ended September 30, 1999 FFG FEG Other Total
--- --- ----- -----
Revenue.............................................. $ 12.0 $4.6 $ -- $ 16.6
Gross Profit......................................... 6.1 0.1 -- 6.2
Sales, general & administrative expenses............. 3.6
Interest expense, net................................ (0.2)
Provision for income taxes........................... 1.0
------
Net income....................................... 1.4
======
Segment assets....................................... 58.6 0.7 3.5 $ 62.8
Expenditures for long-lived assets................... 6.6 -- 0.1 $ 6.7
======
Nine months ended September 30, 2000 FFG FEG Other Total
--- --- ----- -----
Revenue.............................................. $ 26.8 $6.2 $ -- $ 33.0
Gross Profit......................................... 11.5 1.2 -- 12.7
Sales, general & administrative expenses............. 12.1
Restructuring Charge................................. 2.4 2.4
Other Income......................................... 0.8
Interest expense, net................................ (1.7)
Provision (benefit) for income taxes................ (1.1)
------
Net income (loss)................................ (1.6)
======
Segment assets....................................... 101.7 0.7 3.5 $105.9
Expenditures for long-lived assets................... 6.8 -- -- $ 6.8
======
Nine months ended September 30, 1999 FFG FEG Other Total
--- --- ----- -----
Revenue.............................................. $ 34.9 $10.7 $ -- $ 45.6
Gross Profit......................................... 16.7 0.9 -- 17.6
Sales, general & administrative expenses............. 9.9
Interest expense, net................................ (0.7)
Provision for income taxes........................... 2.8
------
Net income....................................... $ 4.2
======
Segment assets....................................... 58.6 0.7 3.5 $ 62.8
Expenditures for long-lived assets................... 6.6 -- 0.1 $ 6.7
======
8
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 is reviewing the guidance.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. An Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The Company does not believe the adoption of FIN 44 will have
a material impact on statement of operations.
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
9
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.
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
Restructuring Charge.
During the quarter ended June 30, 2000, the Company announced and completed a
restructuring plan, which included a workforce reduction of approximately 110
employees. The plan was primarily aimed at improving cost efficiencies and
waste processing processes. The Company recorded a total charge of $ 2.4
million which included non cash charges of $800,000 for equipment taken out of
service and $500,000 for a write-down of the maintenance supply inventory. The
restructuring charge also included charges of $692,000 for severance costs and
$408,000 for plant consolidation costs, of which $307,000 remains unpaid at
September 30, 2000.
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. The announced workforce reduction was
completed by the end of the second quarter of fiscal 2000. At the same time, the
Company's Q-CEP thermal process is being replaced by a more cost effective non-
thermal resin decontamination process. See the section entitled Revenue and Net
Income for further discussion.
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 third quarter of fiscal 2000 was $10.8
million, a decrease of 35% from the $16.6 million recorded in the comparable
quarter in the prior year. The Company recorded a net income of $72,000 or
$0.00 per share fully diluted in the third quarter of fiscal 2000, compared to
net income of $1.4 million, or $0.10 per share fully diluted, in the third
quarter of fiscal 1999. For the nine months ended September 30, 2000 revenue was
$33.0 million, a decrease of 28% from the $45.6 million recorded for the same
period in 1999. The Company recorded a net loss of $1.6 million, or $0.10 per
share for the nine months ended September 30, 2000, compared to net income of
$4.2 million, or $0.29 per share fully diluted, for the same period in 1999. The
nine months ended September 30, 2000 includes a pre-tax $2.4 million
restructuring charge related to the Tennessee plant consolidation and workforce
reduction and an $841,000 gain from the sale and leaseback of the Company's
corporate offices.
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 was completed by the end of the second quarter of 2000. The
second quarter of fiscal 2000 was the final quarter in which revenues were
impacted by this deep discounted pricing due to South Carolina legislation that
removes the site operator's ability to set pricing and places that authority
with a multi-state appointed oversight board. During April 2000, the Company
announced the consolidation of its Oak Ridge, Tennessee, operations and a
workforce reduction of 110 employees. The announced workforce reduction was
completed by the end of the second quarter of fiscal 2000. At the same time, the
Company's Q-CEP thermal process was being replaced by a more cost effective non-
thermal resin decontamination process. The Company's transition to the non-
thermal resin decontamination process continued during the third quarter of
fiscal 2000 and is scheduled to be completed and operational in the fourth
quarter of fiscal 2000. As a result of the restructuring, the Company recorded a
$2.4 million charge in the second quarter of fiscal 2000 related to the plant
consolidation and workforce reduction.
12
Gross Profit. Gross profit for the third quarter of fiscal 2000 was $4.4
million or 40% of revenue, compared to $6.2 million or 37% of revenue in the
comparable quarter in 1999. Gross profit for the nine months ended September 30,
2000, was $12.7 million, or 38% of revenue, compared to $17.6 million, or 39% of
revenue, for the comparable period 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 44% in the three months and 43% in the
nine months ended September 30, 2000, compared to 51% in the three months and
48% in the nine months ended September 30, 1999. The decrease in the three
months ended September 30, 2000, is principally due to LLRW thermal capacity
constraints at the Richland, Washington facilities which caused certain waste
streams to be processed non-thermally resulting in increased waste disposal
charges that unfavorably impacted gross profit. The Company has completed Phase
II of its Richland LLRW thermal facility equipment upgrade that brought
increased capacity online at the end of the third quarter of fiscal 2000. The
decrease in the nine months ended September 30, 2000, was further impacted by
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 19% in the
three months and 20% in the nine months ended September 30, 2000, compared to 1%
in the three months and 9% in the nine months ended September 30, 1999. The
principal reason for the difference is the mix of projects and stage of
completion as many projects were utilizing fewer subcontractor services in the
current periods and the Company's margin is typically higher for contract
services provided by the Company as compared to utilizing subcontractor
services. In addition, during the third quarter of 1999, the Company was
impacted by a large revenue volume of fixed price contracts that were estimated
to breakeven upon completion.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses for the third quarter of fiscal 2000 were $4.1 million or 38% of
revenue, compared to $3.6 million or 22% of revenue for the comparable period in
1999. These expenses for the nine months ended September 30, 2000 were $12.1
million or 37% of revenue, compared to $9.8 million or 22% 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.
13
Restructuring Charge. During April 2000, the Company announced the consolidation
of its Oak Ridge, Tennessee, operations and a workforce reduction of 110
employees along with replacing its Q-CEP thermal process with a more cost
effective non-thermal resin decontamination process. The announced workforce
reduction was completed by the end of the second quarter of fiscal 2000
resulting in the Company recording a $2.4 million charge in the second quarter
of fiscal 2000 related to the plant consolidation and workforce reduction, of
which an accrued liability of $307,000 remains unpaid at September 30, 2000. See
the section entitled Revenue and Net Income for further discussion.
Other Income. During the second quarter of fiscal 2000, the Company completed
the sale and leaseback of its corporate offices in Fremont, California,
resulting in a pre-tax gain of $1.7 million. The gain is being recognized in
equal increments of approximately $420,000 each over the next four quarters
beginning in the second quarter of fiscal 2000. The Company has recorded
$841,000 of gain for the nine months ended September 30, 2000.
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 $1.2 million at September 30, 2000, a
decrease of $1.6 million from December 31, 1999. The working capital deficit of
the Company was approximately $20.5 million at September 30, 2000, a decrease of
$23.8 million from working capital of $3.3 million at December 31, 1999. The
working capital excludes restricted cash of $1.0 million and accounts payable of
$1.0 million at September 30, 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. The decrease
in working capital is due to the reclassification of $23.75 million of long-term
debt to short-term borrowing pursuant to the lender's credit facility
forbearance and consent agreement with the Company, dated June 1, 2000. See the
section entitled Credit Facility for further discussion.
During June and July 2000, the Company completed a $5.5 million private
placement of 2.75 million shares of common stock at $2 per share. On June 30,
2000, the Company completed the first tranche of the private placement by
issuing 2.62 million shares of common stock for an aggregate price of $5.24
million. On July 7, 2000, the Company completed the second tranche of the
private placement, issuing 130,000 shares of common stock for an aggregate
puchase price of $260,000. In connection with the private placement, the company
issued warrants to purchase a total of 192,500 shares of common stock. The
warrants are exercisable at a price of $2.75, subject to adjustment for certain
events, and expire on June 30, 2005. See Part II, Item 2, "Changes in Securities
and Use
14
of Proceeds." The Company received a total of approximately $5.1 million in net
proceeds from this private placement.
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 and the restructuring of
its fixed facilities in Oak Ridge, Tennessee. Property and equipment
acquisitions totaled $21.1 million for the nine months ended September 30, 2000.
In addition, the Company used approximately $3.2 million of cash during the nine
months ended September 30, 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").
Credit Facility.
In November 1999, ATG completed an agreement with a consortium of banks for a
credit facility in the amount of $45 million. The credit facility includes a
letter of credit in support of tax-exempt Solid Waste Revenue Bonds in the
aggregate face amount of $26.5 million. The bonds were issued during November
1999, and bear interest at a floating rate (5.60% at September 30, 2000), based
upon prevailing market conditions, which is redetermined every seven days. The
bonds are due October 31, 2014 and may be prepaid at any time without penalty.
The proceeds are to be applied exclusively for the construction of low-level
mixed waste facility in Richland, Washington. The credit facility also includes
a five year revolving working capital line of credit, due October 2004, in the
amount of $18 million, including a letter of credit facility of $5 million.
Borrowings, when made, bear a variable interest rate based on certain financial
ratio criteria. The credit facility is collateralized by accounts receivable,
inventory and equipment.
The credit facility agreement requires ATG 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 December 31, 1999, ATG was in violation of certain
financial ratio covenants. ATG has obtained a waiver, subsequent to year-end, in
respect of these violations as of December 31, 1999. In connection with the
waiver, the banks agreed to revise and lower certain financial ratio covenants
that ATG failed to meet as of December 31, 1999, and substitute the new
covenants, for which the Company was in compliance, for the original violated
covenants, and revise and lower certain financial covenants for each of the
quarterly periods in the year ended December 31, 2000, and increase the
borrowings available to ATG by $6 million, for a total of $24 million, through
June 30, 2000. The borrowing limit subsequent to June 30, 2000 is $18 million.
In addition, the interest rate applied to the working capital facility was
revised.
At March 31, 2000 ATG was in violation of the revised financial ratios under the
credit facility. Pursuant to a forbearance and consent agreement dated as of
June 1, 2000, the
15
lenders agreed to forbear in the exercise of any of their rights or remedies
with respect to March 31, 2000 through June 30, 2000.
At June 30, 2000 ATG was in violation of the revised financial ratios under the
credit facility. Furthermore, at June 30, 2000, ATG failed to make a required
payment of principal in the approximate amount of $5,750,000 as a mandatory
paydown under the revolving credit facility, so as to bring total borrowings
under that facility to the $18 million limit. ATG currently has borrowings of
$23.75 million and is paying interest at the default rate of 12.75%.
The company has requested that the banks grant a forbearance in respect of the
violations described above beyond June 30, 2000. As one of the conditions to
granting a forbearance, the banks requested that the company deposit into a
segregated account the amount of $1,500,000 to finance the completion and
demonstration testing of the company's new low level mixed waste facility in
Richland, Washington which is currently under construction. Consequently, on
August 11, 2000, the Company obtained a short-term loan in the amount of
$1,500,000 from an individual lender. The loan bears interest at a rate of 12%
per annum and is due on December 15, 2000. The company anticipates that it will
need to obtain additional financing or obtain an extension on the due date in
order to repay the loan.
ATG will not be able, without obtaining concessions from the banks or new
financing, to make the mandatory paydown of approximately $5,750,000 required
under the credit facility, or to comply with the current financial covenants set
forth in the agreements governing the credit facility.
As of November 14, 2000, the banks have not granted a forbearance in respect of
the violations of the credit agreement beyond June 30, 2000. The lenders could
elect at any time to enforce their rights and remedies under the credit
agreement. The banks' remedies could include a demand for repayment of all
outstanding loans, which raises substantial doubt about the ability of the
company to continue as a going concern if it cannot obtain additional cash to
repay or restructure the debt. The Company is continuing to negotiate with the
lenders to modify the financial covenants and the time frame for the mandatory
paydown. The Company is seeking alternative forms of financing in order to make
the mandatory paydown. ATG is also reviewing its business plan with its
financial advisors and lenders with the objective of seeking appropriate
accommodations and to ascertain what actions can be taken to enhance liquidity
and thereby generate cash to assist in paying the Company's debt service. The
Company is also evaluating potential changes in its capital structure and
additional financial resources. We cannot assure you that we will be successful
in any of the foregoing endeavors. If ATG is unable to service its indebtedness,
the company may be required to alter its business plans, restructure or
refinance its indebtedness or seek additional equity capital. There can be no
assurance that we could accomplish these objectives on favorable terms, if at
all.
16
We will not have sufficient cash generated from operations to meet our working
capital requirements for the next twelve months unless we are able to negotiate
accommodations from our lenders or refinance our indebtedness.
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 accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is effective for ATG in
fiscal year 2000 and will not require retroactive restatement of prior period
financial statements. The adoption of SFAS 133 will not have a material impact
on our financial position and results of operations.
In December 1999, the Securities 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 is reviewing the impact of the guidance.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB 25 (the
"Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The Company does not believe the adoption of FIN 44 will have
a material impact on statement of operations.
17
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,
Washington. 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.
18
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 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. Before the Company can acquire all required licenses,
permits and approvals for the LLMW treatment facility and place this facility in
operation, it must complete demonstration testing of the facility. Demonstration
testing is scheduled to be completed during the month of December 2000. The DOE
has been notified of the schedule for completion of demonstration testing and
consequential violation of the November 10, 2000 deadline. To date, the DOE has
not notified the Company of any corrective actions and the Company has not
obtained a waiver as to this violation. 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
19
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 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
20
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 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
21
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 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.
22
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.
23
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At September 30, 2000, there was no material change to the disclosures made
under Item 7A of the Company's 1999 annual report on 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
24
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
During June and July 2000, the Company completed a $5.5 million private
placement of 2.75 million shares of common stock at $2 per share. On June 30,
2000, the Company completed the first tranche of the private placement by
issuing 2.62 million shares of common stock for an aggregate price of $5.24
million. On July 7, 2000, the Company completed the second tranche of the
private placement, issuing 130,000 shares of common stock for an aggregate
purchase price of $260,000. In connection with the private placement, the
Company issued to the placement agent or its designees warrants to purchase a
total of 192,500 shares of common stock. The warrants are exercisable at a
price of $2.75 per share, subject to adjustment for certain events, and expire
on June 30, 2005.
The Company believes that the issuances of common stock and warrants described
above were exempt from the registration requirements of the Securities Act by
virtue of Section 4(2) thereof and Rule 506 of Regulation D thereunder, and by
virtue of Section 4(6) thereof. Prospective investors, all of whom were pre-
existing clients of the placement agent, were solicited by the placement agent
without any general advertising or general solicitation. Each investor
represented to the Company that it was an accredited investor and was acquiring
the securities for investment and without a view to distribution. The
securities were issued subject to legend condition. Investors were provided with
25
disclosure about the Company and were given the opportunity to ask questions of
and receive answers from the Company prior to investing.
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.
26
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 *
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.
27
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 17, 2000 By: /s/ Danyal F. Mutman
------------------------
Danyal F. Mutman
Vice President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
28
EXHIBIT INDEX
Exhibit Number Exhibit Description
-------------- -------------------
27.1 Financial Data Schedule