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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended July 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to ____________
Commission file number 0-23268
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AMERICAN TECHNOLOGIES GROUP, INC.
---------------------------------
(Name of small business issuer in its charter)
NEVADA 95-4307525
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(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
1017 SOUTH MOUNTAIN AVENUE, MONROVIA, CA. 91016
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(Address of principal executive offices) (zip code)
Issuer's telephone number: (818) 357-5000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
------------
(Title of Class)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulations S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were $457,642.
As of October 23, 1996, the registrant had 17,181,200 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates was $20,801,205 computed by reference to the average closing bid
and asked prices on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
American Technologies Group, Inc., a Nevada corporation (the "Company" or
"ATG"), is a research and development company principally involved in
developing, through in-house research or acquisition, proprietary energy and
environmental systems and services which offer cost-effective solutions to
reduce, and in some cases eliminate, hazardous chemical by-products or emissions
resulting from industrial production and combustion processes.
Commercialized products which have been developed and/or acquired by ATG which
are now being marketed are:
Catalyst Additives for Hydrocarbon Fuels
ATG has developed and is marketing fuel additives which are validated to
significantly improve the efficiency and combustion of liquid propane gas (LPG),
compressed natural gas (CNG), methane gas, diesel fuel, and bunker C fuel oils.
These additives have direct application for many ocean-going ships, for most
stationary power generation facilities, for commercial trucking fleets, for
larger industrial furnaces, and for commercial and industrial users of
hydrocarbon based fuels in general and the suppliers of these same fuels in bulk
distribution systems. These additives have undergone tests at several larger
end-user facilities and the University of California, Los Angeles ("UCLA") has
also confirmed their efficacy through scientific research and experimentation.
The additives are based upon ATG's patent pending IETM crystal technology, a
form of crystallized liquid which exists at room temperatures and has unique
physical characteristics and electrical properties.
Automotive Combustion Air Enhancement Products
ATG has developed and is marketing its The Force-TM- products which use a novel
environmentally safe catalyst to enhance the combustion process in gasoline and
diesel fueled engines. The Force is the first in a new class of additives which
treats the air going into the engine to provide increased fuel efficiency,
increased power, and better starting. The products have been tested by Bob
Sikorsky, the New York Times automotive columnist, who has provided endorsements
for The Force as a consequence of the positive test results he obtained. The
Force products are also based upon ATG's patent pending IE crystal technology.
Gold and Tungsten Mining - New Concept Mining
ATG acquired New Concept Mining Inc., a Nevada Corporation ("New
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Concept"), which owned two Nevada mining properties, Manhattan (gold) and
Tempiute (tungsten). These two properties have a combined valuation in excess
of $100 million based upon independent evaluations of proven, probable and
possible ore reserves. In support of New Concept's mining operations, ATG has
developed a proprietary wastewater treatment process to reduce or eliminate the
hazardous effluent resulting from mining operations. This same technology also
allows the recovery of minerals and chemicals usually lost to the effluent
thereby potentially improving the profitability of the mining operations.
Publishing of Scientific Magazine - ATG Media
FINAL FRONTIER magazine is a space and science based publication for the
technology enthusiast, the educational sector, and those involved professionally
in space exploration. The magazine has a current readership in excess of
100,000, and advertisers such as Lockheed Martin, General Dynamics, Boeing, TRW,
and TimeLife Books. FINAL FRONTIER features technology updates and interviews
with leading experts, and offers for sale space collectibles and memorabilia
through various direct response programs. Countdown to Learning has recently
been introduced by FINAL FRONTIER to attract greater readership among high
school and college students through corporate subscription sponsorship programs.
CFC-free Refrigerants
ATG markets chlorofluorocarbon-free ("CFC-free") refrigerants in the United
States domestic marketplace which comply with the Montreal Protocol mandates
and are United States Environmental Protection Agency ("EPA") and American
Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE")
approved for installation in residential, commercial, industrial, and
institutional air conditioning and refrigeration systems. These refrigerant
blends offer superior performance and provide greater energy efficiencies
than currently used conventional and other CFC-free refrigerants. ATG's
current marketing efforts are predominantly focused upon commercial low
temperature applications such as frozen food warehouses, cryogenics, frozen
juice producers, supermarkets, and freezer installations for larger
institutional and industrial facilities.
ATG has five products currently in research and development. ATG focuses and
budgets to develop new products which can effectively compete to solve
environmental problems. The five products under development are: WaterDew-TM-,
BASER, wastewater treatment, IE crystal applications, and refrigerant additives.
WaterDew is a patent-pending distillation process invented by ATG which uniquely
solves operating problems normally associated with distillation systems.
WaterDew can inexpensively produce potable grade drinking water from
contaminated water sources, and WaterDew is currently in final product
design stages to
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compete with bottled water systems, distilled water suppliers, reverse
osmosis systems, and other filtration and water purification technologies.
BASER is designed to render toxic and radioactive wastes harmless and to also be
used for industrial cutting operations, surgical incisions, semi-conductor
etching and cleaning, and particle generation for propulsion systems. The
second BASER prototype continues to be tested at California Institute of
Technology ("CalTech"), and results have consistently supported proof of
concept and application for this technology.
Wastewater treatment technology is in final stages of development for initial on
site testing at New Concept's mines in Nevada. ATG intends to further
develop this technology for use in other contaminated liquid effluent
applications.
IE crystals are currently being tested for application in medicine and
enzyme production through scientific associations with leading authorities
in these fields.
Refrigerant additives are currently in development to synergestically
supplement existing refrigerant gases to increase system capacities,
improve thermal efficiencies and reduce costs associated with meeting
environmental mandates for the phaseout of CFC's and other ozone damaging
agents.
BUSINESS STRATEGY
ATG's focus is on research, new technology, and product development. ATG
pursues technologies at a rate that is consistent with the Company's available
economic and human resources. Once a technology is nearing commercialization,
the Company determines if the marketing, production and operational
responsibility for the product should be borne by the Company or shifted to a
marketing and manufacturing partner. As a result, ATG explores licensing
strategies or joint venture opportunities to commercialize its developed
technologies with existing companies that have the sales, marketing, production
and distribution expertise in the product industries to determine the best
strategy for long-term growth and value.
PRODUCT DESCRIPTIONS
CATALYST ADDITIVES FOR HYDROCARBON FUELS
ATG has been actively researching and developing a combustion enhancing
additive, based on ATG's liquid catalyst technology. The catalyst is based on
micron-sized highly charged clusters of water molecules called IE crystals,
which are formed using a proprietary process. The ATG IE crystal additive has
no environmentally damaging byproducts.
Regulation
The EPA requires registration of all additives used in gasoline and diesel fuel
in motor vehicles in accordance with the
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requirements of 40CFR79 "Fuels and Alcohol Registration".
All manufacturers of additives for motor vehicle fuels must register the
additive by filing EPA Form 3520-16 before commercial sale of the additive. In
May, 1994, in a final Rule, (Section 211(b) of the Clean Air Act), health
effects information was added to the EPA's motor vehicle fuel registration
program. All registrants of fuel additives are required to provide health
information and conduct toxicity testing, individually or in groups, unless
exempted by the Rule's small business provisions.
ATG's combustion enhancing IE crystal additive requires minimal health effects
testing, however any carrier, or stabilizing agents used to make the product
compatible with a given fuel type will have to be registered in accordance with
new EPA guidelines anticipated to be released in 1997.
ATG's fuel additives have successfully demonstrated performance in a number of
applications as follows:
COMPRESSED NATURAL GAS (CNG) ADDITIVE. A test was carried out by Dr. Selim
Senkan at UCLA to determine the effect of the IE crystal additive on the
combustion of methane, which comprises 80% of CNG. Controlled laboratory tests
in a combustion reactor tube showed that the presence of the IE crystal doubled
the percentage oxidation of methane. The quantity of the IE crystal additive
used to create this effect was 6000 parts per million.
PROPANE GAS (LPG) ADDITIVE. A similar controlled lab test was done at UCLA
on propane gas. Initial results showed improved oxidation rate comparable to
those achieved with methane. A potential customer of this product has purchased
a small quantity of this product to conduct its own laboratory and field tests.
This potential customer has reported to ATG that preliminary results have been
very favorable, however, there can be no assurance that further sales of this
product will occur.
GASOLINE AND DIESEL ADDITIVE. The use of the IE crystal as a gasoline and
diesel additive has been developed along two fronts. The first is an innovative
additive which is released into the air stream coming into the engine. This
additive has demonstrated significant reductions in fuel consumption and removal
of carbon deposits from combustion cylinders, over time. A commercial product
of this type already exists and is being sold by ATG, called The Force. The
second front is through introduction of the IE crystal through a carrier agent
directly into the fuels during the refining or bulk delivery processes. A
potential customer of each product has purchased a small quantity of the product
to conduct its own field tests. Both potential customer have reported to ATG
that preliminary results have been very favorable, however, there can be no
assurance that further sales of these products will occur.
BUNKER OIL ADDITIVE. An additive utilizing ATG's IE crystal
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for direct addition to diesel and bunker oil fuels is currently under
development.
AUTOMOTIVE COMBUSTION AIR ENHANCEMENT PRODUCTS
ATG has developed and continues to expand sales of an innovative automotive
aftermarket product called The Force. By the delivery of a combustion enhancer
through the airstream into an engine, the Company believes The Force produces a
more complete combustion of the fuel within the engine. The Force combines the
Company's proprietary combustion enhancer and the delivery system and is placed
adjacent to the engine's air filter. The delivery system releases the
combustion enhancer into the incoming air stream of the engine, where it may
enhance fuel combustion. With more complete combustion, less carbon deposits
occur and the engine operates more efficiently.
The Force is sold in two formulas. Formula One contains three power pacs which
are to be placed one per month or each 1,000 miles in the air intake system of
the motor vehicle. The purpose of Formula One is to release the Company's
combustion enhancer and improve performance. Formula Two performance pacs are
packaged four per box with each performance pac lasting three months or 3,000
miles. Formula Two performance pacs are intended to maintain the engine's
enhanced operating efficiency.
Dr. Selim Senkan, an internationally recognized expert on combustion chemistry
and a professor of chemical engineering at UCLA, has completed certain tests on
The Force. Dr. Senkan conducted combustion experiments using methane as a
prototype fuel. Methane is an important by-product formed in the combustion of
all hydrocarbon fuels and a major greenhouse gas. The tests revealed that
methane emissions can be significantly reduced, by as much as 50% in some cases,
in the presence of The Force when compared to similar conditions in the absence
of the performance enhancer. Further scientific studies on the performance
enhancer are underway.
In June, 1996, ATG entered into an agreement with King World Direct Inc. ("King
World") pursuant to which King World was to market The Force. In October, 1996,
ATG requested termination of the agreement as King World determined it lacked
sufficient in-house experience in the automotive area to properly market the
product. The agreement was terminated and ATG commenced developing its own
marketing campaign with Jim Scott, Bob Sikorsky and Jan Gildersleeve Studios
Inc., all who had previously consulted with King World on the marketing of The
Force. Ms. Gildersleeve is the former Senior Vice President of Ronco, Inc., one
of the oldest and largest television infomercial and telemarketing firms in the
United States. Jim Scott was principal marketing director for the marketing and
sales of Slick 50 when sales increased from approximately $2,000,000 per year to
over $100,000,000 per year in a three year period. Bob Sikorsky is the New York
Times syndicated columnist covering automobiles,
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both new and used, as well as the preeminent author on car care.
The new marketing program for The Force commenced with a radio advertising
campaign which will be supported by print advertising. Thereafter,
short-form television commercials are planned to commence with television and
radio informercials to follow. The informercials are under development and
are scheduled to run commencing in March, 1997, although there can be no
assurance to this effect.
The raw materials utilized to manufacture The Force are readily available from
numerous suppliers.
Regulation
The sale of aftermarket automobile devices is subject to regulation by the
California Air Resource Board ("CARB") and similar agencies in other states.
The Company conducted studies establishing the non-toxicity and non-polluting
nature of The Force and received CARB Executive Order No. D339 which permits
sale of The Force in California. As CARB's requirements are one of the most
stringent, CARB's Executive Order Number is normally accepted in all states.
The Company spent approximately $25,000 to obtain CARB's Executive Order Number
D339. In May, 1994, The Force was registered with the EPA in accordance with
the regulations for the Registration of Fuels and Fuel Additives.
GOLD AND TUNGSTEN MINING - NEW CONCEPT MINING
Pursuant to a Stock Purchase Agreement and Plan of Reorganization dated April
21, 1995, the Company acquired 100% of the outstanding capital of New Concept
for 1,101,450 shares of ATG Common Stock valued at $2.00 per share ($2,202,900
in the aggregate), based upon an independent appraisal of the value of the
Common stock on such date.
ATG acquired New Concept with the intention of making New Concept an
environmental mining company using ATG's wastewater treatment technologies. New
Concept will be used as a test-site incorporating all of ATG's wastewater
treatment technologies and to demonstrate the anticipated effectiveness and cost
savings associated with using these proprietary technologies. The technologies
are anticipated to not only clean the wastewater used in mining operations, but
may recover economically valuable metals such as zinc and mercury for resale,
although there can be no assurance to this effect. (See "- Mining Wastewater
Treatment.")
New Concept's assets consist of approximately $5,500,000 of mining and milling
equipment and patented and unpatented mill and lode mining claims subject to
notes due of approximately $1,189,197 at net present value. The mining claims
include approximately 1,850 acres in the Manhattan Mining District and
approximately 635 acres in the Tempiute Mining District in
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Nevada.
Manhattan Gold Property
Prior to the completion of the acquisition of New Concept, ATG commissioned an
independent resource evaluation and appraisal of these properties. The
evaluation of the Manhattan Mining District property resulted in 161,532 ounces
of gold as proven, probable or possible. The cost of obtaining these ore
reserves is estimated to be between $180 and $200 per ounce. Based upon the
current price of gold of approximately $385 per ounce, the gold reserves of New
Concept have a value of approximately $62,200,000, deducting average extraction
costs estimated at $190 per ounce, yields a net value of $31,500,000. There can
be no assurance that actual mining operations will achieve these results. This
evaluation did not assess the amount of silver on the property. New Concept
intends to acquire additional mining properties in the Manhattan Mining
District, although there can be no assurance that it will be successful.
The Manhattan mill commenced processing ore in September, 1996 with the first
gold poured in late October, 1996. The mill capacity is 200 tons of ore per
day.
Mining operations are subject to substantial state and federal regulations,
particularly in the environmental and safety areas. New Concept has obtained
all permits necessary to operate the mine at the Manhattan Mining District
property.
New Concept is discussing a joint venture with BattleMountain/ Hemlo Gold Mines
Inc. for further underground exploration in the Manhattan area and possible
joint drilling programs intended to establish additional gold reserves;
BattleMountain Gold has a substantial number of unpatented claim blocks
surrounding New Concept's claims.
Tempiute Tungsten Property
The property in the Tempiute Mining District has one of North America's larger
tungsten reserves with 1,610,000 units of tungsten as proven, probable or
possible. The current price of tungsten is approximately $55 - $65 per unit
with production costs of between $30 and $40 per unit. Based upon a price of
tungsten of $60 per unit, the reserves, if fully developed, recovered, milled
and sold, of which there can be no assurance, are estimated at $96,600,000. The
estimated cost of production is estimated at $56,350,000, which yields a net
value of the tungsten ore at the Tempiute property of approximately $40,250,000.
There can be no assurance that actual mining operations will achieve these
results.
New Concept intends to develop the Tempiute, Nevada tungsten property as soon as
approximately $1.5 million is available to commence construction of a mill and
begin underground mining.
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Once such funds are available, of which there can be no assurance, it is
estimated that it will take at least one year for the property to generate
revenue.
Tungsten is used in a wide variety of industrial applications where wear and
abrasion is a problem. Tungsten is alloyed with other metals for this
purpose and also is the base metal used in tungsten carbide, which is used in
many severe wear applications. The price of tungsten has risen steadily
since 1982 and is now in a commercially viable range to resume operations.
Prior to the crash of tungsten prices in 1981 from $130 to $36, the mine was
designed to support the extraction of 1,200 tons per day for 15 years. The
dramatic decline in tungsten prices was attributed to several major factors
including the commencing of sales of low cost ore by China, the largest
tungsten producer with approximately 70% to 75% of the worlds known tungsten
reserves, and the collapse of the world oil market. The petroleum industry
was one of the major users of tungsten for oil well drill bits and as a
catalyst in the refining process. The increase in the price of tungsten may
be attributable to a tightening of supply by China due to increased domestic
consumption. Tungsten is being utilized as a non-hazardous replacement for
lead shielding in various nuclear facilities representing significant
additional market potential.
Mining Wastewater Treatment
In the mining industry, impoundments or tailing ponds are used primarily to
dispose of hazardous metallic tailings from milling operations. These ponds
are designed to hold the mill tailings and also contain all runoff from rain
or snow that falls in the drainage area until a mining company has completed
mining in the area. At this point, the ponds are decontaminated and any
remaining hazardous waste is transported according to EPA, state and local
regulations to an appropriate waste management facility. This process is
extremely expensive and is a factor for companies when analyzing whether to
pursue a prospective mining project. ATG is developing and optimizing an
improved process for waste removal with greater efficiency than existing
wastewater cleaning products. (See "Research & Development -Wastewater
Treatment.")
PUBLISHING OF SCIENTIFIC MAGAZINE - ATG MEDIA
Pursuant to a Stock Purchase Agreement and Plan of Reorganization dated as of
July 29, 1994, the Company acquired approximately 70% of the outstanding capital
stock (the "Stock") of ATG Media bringing the Company's ownership interest in
ATG Media to approximately 85%. In consideration of the sale of the Stock to
the Company, the Company issued an aggregate of 221,625 shares of Series B
Convertible Preferred Stock (the "Series B Stock"). Holders of beneficial
interest in 188,908 shares of Series B Stock converted such shares into an
aggregate of 507,276 shares of Common Stock. Pursuant to a Stock Purchase
Agreement entered
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into as of August 15, 1994, the Company acquired the remaining 15% of the
outstanding capital stock of ATG Media on substantially the same terms as the
prior 70% interest. The sellers of this 15% elected to convert their Series B
Stock into Common Stock and therefore were issued 130,000 shares of Common
Stock. The purchase price was based upon on an independent valuation for the
FINAL FRONTIER magazine published by ATG Media and the Board's assessment of the
value of ATG Media's other ventures. As a result of certain overstatements in
the number of subscribers and other irregularities discovered in the disclosures
made by the prior owners of ATG Media, one seller agreed to the cancellation of
75,000 shares of Common Stock received by the seller upon conversion of his
Series B Stock. The Company is negotiating with certain other sellers for the
cancellation of some of the consideration paid by ATG for the Stock, although
there can be no assurance that any shares will be canceled.
ATG's decision to acquire a media division was based on the recognition that
FINAL FRONTIER had a unique position in the scientific and business community.
Specifically, the magazine could interview scientists and administrators in
government and government laboratories and industry in areas of general
scientific interest and areas where ATG has a specific interest. Through this
contact, ATG can and has been able to commence meaningful discussions about its
research and products.
ATG Media develops and markets space related publications, books and merchandise
for the space professional, space enthusiast and educational markets. ATG
Media's principal publication is FINAL FRONTIER which was first published in
1986 and has an international circulation of approximately 70,000 and an
international readership of approximately 100,000. Advertisers include Lockheed
Martin, General Dynamics, Boeing, TRW, Time Life Books and Omega watches. FINAL
FRONTIER covers space and scientific exploration and technology utilizing full
color photography. Contributors include award winning writers, former
astronauts and science writers who provide first hand knowledge and behind the
scenes coverage of space exploration.
During the first year of ATG's ownership of ATG Media, the publishing company
was reorganized through the replacement of all employees with people who have a
proven track record in their field, past due debt was reduced and the direction
of the magazine was expanded to make it appeal to a broader readership. On
behalf of ATG Media, the Company settled an aggregate of approximately $395,000
due to The Miner Group, the printer of FINAL FRONTIER, for $55,000 in cash and
121,197 shares of ATG Common Stock at an average price of $2.81 per share
($340,000 in the aggregate). During this transitional period, which lasted most
of calendar 1995, two issues of FINAL FRONTIER were not printed resulting in an
approximate 20% decline in subscribers and an associated loss of advertising
revenue. Additionally, payment issues with FINAL FRONTIER'S fulfillment house
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contributed to loss of subscriptions. ATG Media has since terminated the
fulfillment house and has engaged a new fulfillment house. The revamped FINAL
FRONTIER was relaunched with a January/February, 1996 issue.
FINAL FRONTIER is now positioned to continue publishing and engage in marketing
activities intended to increase circulation. Marketing efforts include direct
mailing and soliciting of corporate sponsors for Countdown to Learning, an ATG
Media marketing promotion designed to increase readership among high schools.
Each issue will feature a three-to-ten page catalogue in the back of the
magazine selling hard-to-find or limited edition collectibles and specialty
products that are created by ATG Media for its readership and collectors.
Increased circulation, if any, may increase the number of catalog sales although
a free-standing catalog version is being designed for placement at popular
science and space museums and attractions. Additionally, ATG Media intends to
offer the catalogue free by mail after testing it in several magazines.
CFC-FREE REFRIGERANTS
Pursuant to a Distribution Agreement dated as of September 6, 1995, the Company
acquired from Greencool Technology, Inc., a Delaware corporation ("Greencool"),
the right to distribute in the United States, on a non-exclusive basis, certain
refrigerants known as R-405A, R-411A, R-411B and R-411C as developed by
Greencool. The Distribution Agreement contains certain minimum and maximum
purchase amounts, provides for the equal sharing of the profits from their sale
and expires on December 31, 1997 subject to a three year renewal option by the
parties. The foregoing refrigerants are CFC-free replacements for the
refrigerants known as R-12, R-22, R500, and R502. R-12 is generally used in
vehicle air conditioning and some medium temperature refrigeration systems; R-22
is principally used in air conditioning and freezer applications; and R-502 is
used principally for low temperature freezer and cryogenic applications. In
addition to the absence of CFC's, the new refrigerants improve efficiency in
most cooling systems. Additional testing is being conducted to quantify the
performance characteristics of these substitute refrigerants. These
refrigerants are registered with the American Society of Heating, Refrigerating
and Air-Conditioning Engineers.
On January 30, 1996, the Company entered into a Distribution Agreement with
Beijing Huazhao Green Energy Engineering Co. Ltd. of the Peoples Republic of
China which gave the Company the right to market the refrigerants in India. The
Company is also negotiating for the right to sell the refrigerant in other
territories.
In connection with the acquisition of the rights to the refrigerants under the
Distribution Agreement, the Company granted options to purchase a total of
800,000 shares of Common
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Stock at $3.00 per share to five consultants.
Regulation
The refrigeration industry is in a period of evolution because of the new
environmental mandates issued by the EPA to protect the ozone layer and minimize
the effect of global warming. Initially targeted for elimination by the EPA are
CFC refrigerants which have a high Ozone Depletion Potential ("ODP") and
hydro-chlorofluorocarbon ("HCFCs") which have a moderate ODP. Recognizing that
the industry will need time to prepare for the elimination of these products,
the EPA prohibited CFC production after January 1, 1996 with a gradual phase-out
of HCFCs thereafter. In accordance with the Clean Air Act of 1990, the EPA has
enacted regulations that prohibit U.S. production of HCFC-22 for new equipment
in 2010 with total phase-out in 2020, and HCFC-123 for new equipment in 2020
with total phase-out in 2030.
R-411A and R-411B have been accepted by the EPA as substitutes for R-22 and
R-502, respectively, and both are currently rated A1/A2 by ASHRAE for toxicity
and flammability The application for R-405A was rejected because of the
presence in R-405A of perflourocarbons. Greencool has advised ATG that it
intends to resubmit its application for R405A for re-evaluation. R411C has been
approved by EPA and is under evaluation and tentatively approved by ASHRAE as
another application specific refrigerant to replace R22 and R502 in applications
in which an A1/A1 rating is required.
Product description
The ATG refrigerants have the following characteristics:
pure drop-in replacement refrigerants which require no modification to the
existing, installed chilling equipment for utilization and compatibility
(e.g. change in oils, seals, etc.) which is contrary to the labor-intensive
procedure required for the addition of the competitive CFC-free
refrigerants of E.I. DuPont de Nemours ("DuPont") and AlliedSignal Inc.
("AlliedSignal");
increases chilling equipment's cooling capacity for most end-users; and
improves energy-efficiency which result in energy savings of as much as
35%.
End-users can replace their existing refrigerants with ATG's products and
recover the cost for the refrigerants and their installation in approximately 12
months due to the increased energy savings. Together with Hudson Technologies,
Inc. ("Hudson") with whom ATG has a Refrigerant Management Agreement as
described below, ATG can provide total refrigerant management that is
cost-effective and efficient, including: products for the cooling systems;
refrigerant reclaiming;
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removing/transporting old refrigerants; installation and optimization of new
refrigerants in the systems; and computerized management of all refrigerants and
mechanical systems.
Manufacturing
Greencool delivers its product to ATG from China, although ATG is investigating
manufacturing capabilities in the United States in the event that Greencool is
unable to supply the products.
Marketing
While ATG's refrigerant products have broad-based industrial applications, the
Company has identified specific target markets with which to concentrate its
initial marketing efforts. Historically, the frozen food industry incurs high
costs of refrigeration to maintain and transport its products nationwide and its
leading companies are knowledgeable about refrigeration issues because of the
significant impact utility expenses have on their profitability. As a result,
ATG has designed a two-phased marketing strategy to initially focus on sales to
the large multi-site food distribution, food processing, and food sales
facilities located in the Midwest, Mid-Atlantic, Southeast and Southwest regions
of the United States and then expand into other markets nationwide. Specific
market segments have been defined according to air conditioning usage patterns
or refrigeration equipment requirements.
The highest priority market is extended refrigeration: run times exceed
5,000 hours per year using high pressure CFC refrigerants such as R-12 and
R-502 for low temperature applications (below 40 degrees Fahrenheit).
Examples of extended refrigeration would be supermarket freezers and other
constant process cooling/refrigeration applications which operate
continuously on a daily basis.
The second priority market is extended cooling: run times exceed 5,000 hours
per year, using high pressure HCFC refrigerants such as R-22 for medium
temperature applications (between 40 and 70 degrees Fahrenheit). Examples
would be food processing, food distribution and medium temperature process
which operate continuously on a daily basis.
ATG's strategy is to educate the market and provide end-users with a sound
refrigerant management plan for making the transition to cost-effective
refrigerants that are within EPA compliance and which can be used with existing
installed equipment. The plan will help to minimize capital outlays and
operating costs while achieving these goals: compliance with applicable laws
and regulations, continuity of supply and service, reduced emissions, increased
recycling, and energy savings.
ATG has established a nationwide network of wholesale
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distributors, direct sellers, installers and contact agents to market the
Company's refrigerant products. Additionally, ATG is seeking specific strategic
partners who have a concentration of sales representatives and access to the
facility managers and other decision-making personnel at companies within its
target market.
ATG markets its refrigerant products based on a return on investment rather than
unit cost and are being sold at premium prices because of the energy savings and
resulting cost savings that they provide. ATG's sales program consists of
conducting demonstrations for pre-qualified sales leads and arranging a
commitment from the end-users to buy ATG's refrigerant management services after
a demonstration is proven successful as established by mutual consent with
defined parameters. A roll-out program is then designed for that end-user for
their network of sites and shipping vehicles which detail the technical
training, on-going equipment maintenance, ordering procedure and distribution
protocol. Flexible pricing schedules have been established by ATG for its
wholesalers and direct retail sales to benefit orders of significant volume.
Specific targets of opportunity for ATG refrigerants are supermarket chains,
hotels, large industrial complexes, food processors and office buildings that
use refrigeration equipment using the CFC products R22 and R502. Because of the
phase-out of the CFC refrigerants, there is a proliferation of alternative
CFC-free refrigerants available on the market. The ATG refrigerants require
approximately 20% less energy than the other alternative products to perform the
same chilling function.
Market/Competition
The U.S. refrigerant market is comprised of eight recognized manufacturers.
DuPont, based in Wilmington, Delaware, is the original manufacturer of freon
refrigerants. Of the 350 million pound (approximately $3.5 billion) U.S.
refrigerant market, Dupont has the largest market share (70%) with $42.2 billion
in 1995 sales. AlliedSignal, based in Morristown, New Jersey, has the next
largest market share (15%) with $14.4 billion in sales in 1995.
Distribution
The typical form of distribution for the refrigerant industry is through local
wholesalers and large national warehousers. The refrigerant industry demands
that distributors provide quick turnaround and have refrigerants readily
available because of the quick degradation of their products. Therefore, in
order to meet a regional or national client's needs, a strong distribution
network needs to be in place to service customers effectively.
ATG has entered into an agreement with Hudson to warehouse, bottle, and
distribute ATG's products for a pre-determined fee.
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The scope of Hudson's national coverage provides ATG with full coverage of its
target markets as well as major urban cities. ATG is establishing local
distribution simultaneously with client sales in order to supplement the network
that has been established through the relationship with Hudson to support all
future client business.
PATENTS
The Company has United States and various foreign patents pending covering
its combustion enhancer and United States patents have been granted and
foreign patents are pending for the Delivery System, one of the components of
The Force. Since December, 1993, a series of patent applications have been
filed with the United States patent office by Dr. Shui-Yin Lo, the Company's
Director of Research and Development, and assigned to the Company for nominal
consideration. These applications delineate the foundation of a new kind of
material, one of which is the combustion enhancer used in The Force. In
1995, Dr. Lo and Dr. Wang filed two patent applications relating to the low
pressure distillation of water which were assigned to the Company for nominal
consideration. During late 1995 and to the present, five more patent
applications have been filed in the United States on applications of the
company's IE Crystal technology, such as descalants, new forms of structured
materials, and enhancements for biological, biochemical, and chemical
reactions. PCT applications on these new inventions have been or will be
filed within the standard one year deadline to protect future foreign
business developments. These patent applications are pending. There can be
no assurance that such patents pending will be issued. In addition, five
United States patents have been granted relating to the BASER; four are held
by Apricot, S.A., a Luxembourg corporation ("Apricot") (see "Research and
Development - The BASER"), and one is held by the Company. There is also no
assurance that, despite efforts to avoid doing so, the Company's products do
not infringe on the intellectual property rights of others.
RESEARCH AND DEVELOPMENT
The Company has incurred approximately $599,104 and $484,788 in research and
development expenses during the years ended July 31, 1996 and 1995,
respectively.
The BASER
As of March 1, 1994, the Company entered into a License Agreement (the "BASER
Agreement") with B.W.N. Nuclear Waste Elimination Corporation, a Nevada
corporation ("NWEC"), for the sublicense to exploit all rights to certain
technology relating to helium cluster beams and other particle beams and their
sources ("BASERs") in their application to the rendering of nuclear waste
non-radioactive. With the exception of the application of BASERs for the
production of power and energy, if ATG identifies additional applications for
the BASER technology, commences
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research and development efforts with respect to such applications and notifies
NWEC of its intent to develop such applications, then such applications will
come within the terms of the sublicense, subject to ATG marketing the
application within five years of its notification to NWEC of its intent to
develop the application. (See "Certain Relationships and Related
Transactions.") The ability of this technology to render nuclear waste
non-radioactive, or whether any other commercial application of the technology
is possible, has yet to be determined and is highly speculative. Moreover, the
development of this technology is likely to require a minimum of three to five
years and the expenditure of substantial sums of money, likely to be in excess
of $10,000,000, on research and development. Even assuming the Company can
devote the necessary time and funds to such research and development, of which
there can be no assurance, there can be no guarantee that the technology can or
will ever be successfully developed, or if developed, commercially viable.
Under the terms of the BASER Agreement, ATG issued NWEC 300,000 shares of Common
Stock valued at $3.00 per share as a one-time license fee. Additionally, at
such time as ATG receives an offer to purchase any application of the BASER
technology for commercial utilization or ATG commences the commercial
utilization of any application of the BASER technology, other than for the
production of power, ATG will issue 1,700,000 shares of Series A Stock to NWEC.
Further, there is a periodic royalty payment due to NWEC in the amount of 10% of
ATG's net sales from ATG's exploitation of BASERs. ATG is responsible for
maintaining all patents currently in place on the BASER. If ATG does not spend
at least $100,000 on the development of BASERs during each fiscal year after the
fiscal year ending July 31, 1994, the BASER Agreement will terminate. To date,
ATG has satisfied this requirement.
On July 22, 1994, pursuant to a Technology Acquisition Agreement, the Company
purchased an option to acquire either Shui-Yin Lo's 50% interest in Apricot,
the principal licensor of BASERs, or 100% of the technology underlying BASERs
as invented by Dr. Lo, if he reacquires such rights (the "BASER Option").
The exercise price for the BASER Option is 10,000 shares of Common Stock and
a royalty of 5% of ATG's net profit, if any, from the exploitation of BASERs
through July 21, 1999. Additionally, if Dr. Lo has not received 1,700,000
shares of Series A Stock in connection with the Company's purchase of the
Invention, as hereinafter defined, the exercise price of the BASER Option
will include such shares. The BASER Option expires one year after Lo's
delivery to the Company of current audited financial statements of Apricot or
evidence of unencumbered titled to the BASERs. The cost of the BASER Option
is $150,000 payable at the rate of a minimum of $1,000 per month. As of
October 31, 1996, the Company had paid Dr. Lo $92,000 of this amount.
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Pursuant to the July 22, 1994 Technology Acquisition Agreement, the Company also
acquired from Shui-Yin Lo exclusive right, title and interest to an invention
(the "Invention") entitled "Method and Apparatus for Generating Nuclear Fusion
Energy by Coherent Bosons" for which application for Letters Patent of the
United States was filed on December 2, 1991. In exchange for the Invention, the
Company granted Lo an Option to acquire 450,000 shares of Common Stock at $3.00
per share, fair market value of the Common Stock on the date of grant, and, at
such time as ATG receives an offer to purchase the Invention as developed by ATG
for commercial utilization or ATG commences commercial utilization of any
application of the Invention developed by ATG, ATG agreed to (i) issue to Lo
1,700,000 shares of Series A Stock and (ii) pay to Lo a royalty at the rate of
7.5% of ATG's net profit from the exploitation of the Invention. If Dr. Lo
receives the 1,700,000 shares of Series A Stock upon exercise of the BASER
Option, then Dr. Lo will not receive 1,700,000 shares of Series A Stock if the
Invention is commercialized in accordance with the foregoing criteria.
Dr. Shui-Yin Lo , a leading physicist and researcher in the field of particle
physics, began conducting research into the behavior of coherent subatomic
particles in the early 1980s. His research has produced certain results that
indicate that it may be possible to create a stable beam of coherent heavy
particles known as bosons. Dr. Lo refers to this beam as a BASER because it is
like a laser (which stands for Light Amplification by the Stimulated Emission of
Radiation) but instead of light utilizes bosons. Dr. Lo theorizes that by
accelerating the coherent bosons in a BASER, extremely high levels of directed
energy may occur, however, there can be no assurance to this effect. According
to the theory, the extremely cold beam may be able to break down molecules or
even atoms and their nuclei or used for rock drilling, medical surgery or
precision cutting of metals without distortion or loss of heat treat properties.
The foregoing potential applications are based upon the theories of Dr. Lo. No
evidence exists substantiating these potential applications of BASERs or that
BASERs can be produced at all. No assurance can be given that the Company will
develop BASERs or that if developed, they will have any of the above stated
capabilities or any commercial applications at all; however, the Company intends
to raise funds to continue its research in this area.
The Company entered into the Research Agreement with CalTech for a one year term
commencing May 1, 1994, although actual performance by CalTech was delayed until
July, 1995. The Research Agreement is based on a proposal by CalTech for a
three year, $517,406 study to characterize the BASER source and to analyze the
properties of the ionized clusters that are formed from the free expansion of
ionized superfluid helium produced by this source. The second year of the
research program commenced in January, 1996, with a commitment by the Company of
$234,974 in funding. Dr. Lo, the Company's Director of Research and
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Development will participate in the research with CalTech. The Company will
acquire a nonexclusive, nontransferable, nonsublicensable, irrevocable license
to any invention or discovery reduced to practice under the Research Agreement.
However, the Company has the right to the first offer of an exclusive-royalty
bearing license for such invention or discovery upon terms to be negotiated at
the time of the offer. Additionally, if any invention or discovery results in
part from the expenditure of research funds of the United States government,
which may occur, the United States government will have certain rights thereto.
In October 1996 a paper was submitted by Professor Mitchio Okumura of CalTech to
the Journal of Applied Physics in which he details the results to date of his
work on the BASER prototype at CalTech. That journal has not yet announced
whether or not it will publish the paper. These results confirmed that
energetic helium beams can be generated by a pulsed corona discharge, which is a
fundamental of the BASER theory and patent. This significant milestone at
CalTech implies that the BASER corona source may prove to be simpler, more
compact, and more versatile than the laser-detonation sources currently being
developed for applications in semiconductor etching. That BASER is shown to be
a particle generation source, another fundamental of BASER theory, implies that
BASER could be a means of space and rocket propulsion. Research continues at
CalTech on BASER.
NEW STABLE FORM OF WATER
The Company has achieved the discovery, identification and characterization of a
novel crystal of water, stable at room temperature and pressure. Normal ice
occur at below freezing but not at room temperature. ATG created a cluster of
stable ice, which it calls the IE crystal (ice that is formed under an electric
field). This discovery is the result of a joint venture research program with
ATG and Prof. Li Wen Chung and Prof. Xu Cheng of Zhongshan University in China.
ATG has been involved in four years of self-funded research to isolate and
manipulate nanometer sized molecule electrical forces inherent in nanosized
particles. These electric fields, although only extending a few billionths of a
meter, are analogous to forces generated by 100,000 volts applied across one
millimeter. Because of the many long-term ill effects that have been linked
with certain chemical industrial processes, ATG began its own research into
alternative ways of creating the bonding energies necessary for chemical
reactions. By utilizing ATG's own laboratory, along with university facilities
at CalTech in Pasadena, UCLA and Zhongshan University in China, ATG's scientists
have developed numerous new commercial and industrial products from what their
scientists have named Nanotricity, a combination of the word nanometer and
electricity. Nanotricity is defined as the study of, use and manipulation of
strong electrical forces inherent in certain molecular structures.
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The IE crystals of water have potential applications in numerous fields.
Initial studies by the Company indicate that IE crystals may increase some
bacteria growth by more than 300%. Professors Senkan and Bonavida of UCLA are
working with ATG on applications of IE crystals to the enhancement of chemical
processes and medical areas, respectively, and ATG is currently performing tests
with a Florida based enzyme producer to quantify the biological growth
enhancement capabilities of IE crystals with fungus, if any. Substantial
research is still required to develop marketable products incorporating IE
crystals. There can be no assurance that IE crystals have applications as
indicated, or any applications, and even if IE crystals do have such
applications that such applications will be accepted in the marketplace or be
commercially viable.
DISTILLATION TECHNOLOGY
Recognizing the worldwide need for clean drinking water, ATG recently developed
a new vacuum distillation technology contained in ATG's WaterDew Distiller for
the home-use and small office markets. The WaterDew Model 2400 Distiller
removes over 99% of sediment, dissolved solids, particles, salts and heavy
metals such as lead, copper, arsenic, and many others from water and has
immediate applications in the home-use market. Additionally, the distiller can
be combined with a carbon post-filter to remove VOC's (volatile organic
compounds) from the water to make it more tasteful if that is desired. A
standard ultra violet sterilizer light is provided to ensure no bacteria growth
occurs in the product water. The WaterDew Model 2400 Distiller can produce up
to 24 gallons of clean water per day.
The vacuum distiller has significant advantages over standard distillation
systems, as it boils the water at 80-100 degrees Fahrenheit instead of 212
degrees Fahrenheit, which significantly reduces the energy needed. Because of
the low distillation temperature, the distiller requires a minimal power source
and may eliminate most of the scaling problems encountered in other distillers.
ATG is negotiating with two tooling designers and manufacturers for the
distillation system at the current time. ATG is also discussing marketing for
the WaterDew with various companies.
Wastewater Treatment Systems
The wastewater equipment developed by ATG facilitates the economic operation of
New Concept's mills. The equipment enables the clean-up of chemicals used in
the mining process and those naturally occurring in the mine ore. The
competitive water purification products are expensive and complicated whereas
ATG's product is designed to be inexpensive and easy to operate.
The main advantage of the technology's design is the use of a
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novel settling system, up to five times more efficient than current
state-of-the-art equipment resulting in significantly lower capital costs for a
given installation. This product addresses and may solve a long standing
problem in a wide variety of industries where removal of hazardous materials,
oil and grease residuals are required. Currently, the only existing method to
remove emulsions are the addition of expensive chemicals. The ATG product
offers a low-cost alternative which leaves no residual chemicals in the
discharge stream.
The US market for environmental products is large, about 40% of the $130 billion
world total. The US market for water treatment products is estimated at $5
billion per year. All companies who use water in processing or production of
goods, such as pulp and paper, chemical processing and mining, are a candidate
for the water treatment equipment. Cost studies have indicated that
incorporation of the wastewater treatment technology can reduce disposal costs
as much as 50%, although there can be no assurance to this effect.
The Company intends to use the installation of the water purification system on
New Concept's mines as a demonstration of the system to produce clean water from
mining operations. The successful use of the water purification system by New
Concept is anticipated to attract other mining companies to the use of the
system, although there can be no assurance that the system will produce clean
water from mining operations or, that if it does so, that mining companies will
desire to use the system.
EMPLOYEES
The Company has twenty-one employees (fifty-two including employees of
subsidiaries). The Company may employ an additional two employees and the
subsidiaries an additional six employees during the next fiscal year.
None of the Company's employees is subject to a collective bargaining agreement
nor has the Company experienced any work stoppages. The Company believes that
its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices and manufacturing facility occupy
approximately 16,140 square feet at 1017 South Mountain Avenue, Monrovia, CA.
The rental rate is $6,133.20 per month. The lease term expires on June 30,
1997. The lease grants ATG a right of first refusal for the purchase of the
property.
In December 20, 1995, the Company completed the sale of a building located in
Pasadena, California (the "Property") purchased in November, 1993 for use as its
corporate
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headquarters. The sale of the Property resulted in a net loss of approximately
$45,000. The Company realized approximately $155,167 from the sale of the
Property after payment of costs of sale and retirement of debt secured by the
Property. The funds were applied to the payment of certain obligations due to
the Internal Revenue Service. Additionally, on November 15, 1995, the Company
entered into a Deed in Lieu of Foreclosure transferring a three story office
building at 363 S. Park Avenue, Pomona, California and an adjacent lot of
approximately 20,000 square feet paved for parking (the "Rental Property") to
Topa Thrift and Loan ("Topa") along with 130,000 shares of the Company's Common
Stock in exchange for cancellation of all indebtedness to Topa totaling
$2,435,212. The transfer resulted in a net loss of approximately $460,000.
New Concept Mining owns 100 acres of patented land and 2035 acres of unpatented
mining claims in the Manhattan Mining District. The property is improved with a
mill, office building and laboratory. In the Tempiute Mining District, New
Concept owns 200 acres of patented land and 435 acres of unpatented mining
claims improved with a 40,000 square foot mill building and 14,000 square feet
of office and workshop buildings. New Concept has a total of 153 unpatented
mining claims which require the annual payment of $100 per claim to the Bureau
of Land Management.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation or proceedings and is not
aware of any material litigation or proceeding threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The Company's Common Stock is traded in the over-the-counter market and has been
quoted on the National Association of Securities Dealers Automated Quotation
System since August 24, 1994, under the symbol "ATEG." The following quotations
represent interdealer prices, without retail mark-ups, mark-downs, or
commissions, and may not represent actual transactions. The information was
obtained from the Data Transaction Network.
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PERIOD HIGH BID LOW BID
------ -------- -------
August 24, 1994 - October 31, 1994 $ 5.00 $ 3.00
November 1, 1994 - January 31, 1995 $ 3.75 $ 2.75
February 1, 1995 - April 30, 1995 $ 3.25 $ 1.75
May 1, 1995 - July 31, 1995 $ 3.375 $ 2.00
August 1, 1995 - October 31, 1995 $ 3.25 $ 1.875
November 1, 1995 - January 31, 1996 $16.75 $ 1.125
February 1, 1996 - April 30, 1996 $16.00 $ 6.25
May 1, 1996 - July 31, 1996 $ 6.50 $ 2.875
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(b) Holders.
The Company has only one class of common equity, the Common Stock. As of
October 23, 1996, there were 809 record holders of the Common Stock.
(c) Dividends
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore.
The Company currently intends to retain future earnings, if any, to fund its
operations and development and does not anticipate paying dividends in the
foreseeable future.
At such time as dividends may be declared, the Company's Series A Convertible
Preferred Stock is entitled to receive a dividend 10% higher than that paid on
the Common Stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Year Ended July 31
------------------
BALANCE SHEET 1996 1995
- ------------- ---- ----
ASSETS $ 9,981,788 $ 10,246,264
Liabilities $ 3,555,735 $ 7,218,530
Stockholders' Equity $ 6,426,053 $ 3,027,734
RESULTS OF OPERATIONS
- ---------------------
REVENUE
Environmental Solutions $ 151,603 $ 867,860
Publishing 266,247 775,005
Mining - -
Rental 39,792 134,430
------------- -------------
Total Revenue 457,642 1,777,295
EXPENSES
Environmental Solutions 1,452,122 1,105,074
Publishing 917,138 2,166,115
Mining 578,189 95,202
Rental 16,386 178,485
Corporate 2,600,929 1,864,986
------------- -------------
Total Expenses 5,564,764 5,409,862
------------- -------------
Operating Loss (5,107,122) (3,632,567)
Other Expense, Net (761,767) (890,761)
Benefit (Provision) for Income Taxes 260,200 (800)
Extraordinary Item - Gain on
Extinguishment of Debt 540,000
------------- --------------
NET LOSS $ (5,068,689) $ (4,524,128)
------------- -------------
------------- -------------
As of July 1994, ATG acquired 85 percent of the outstanding capital stock of
Final Frontier. The remaining 15 percent of Final Frontier was acquired in
fiscal year 1995. In April 1995, the Company acquired 100 percent of the
outstanding capital stock of New Concept. These acquisitions were accounted
for using the purchase method of accounting with the results of operations
being included in consolidated operations at the date the entity became a
majority-owned subsidiary.
Total assets decreased by $264,500 from $10,246,300 to $9,981,800 at July 31,
1995 and 1996, respectively. This decrease was the net result of increases
in current assets of $2,514,400 (primarily cash and cash equivalents) and
Property, Eqiupment and Mineral Properties of $687,700, which were offset by
a decrease in commercial properties held for sale, which were disposed of in
1996 ($2,623,500), and amortization of intangible assets during the year
($520,000).
Total liabilities decreased by $3,662,800 from $7,218,500 to $3,555,700 at July
31, 1995 and 1996, respectively. This
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decrease was the result of a reduction in accounts payable ($701,600), which
was comprised of a combination of negotiated cash payments and write-offs,
and decreases in current and long term notes payable ($3,043,700) resulting
from the disposal of commercial properties.
The Company's consolidated revenue decreased by $1,319,700 from $1,777,300 to
$457,600 for the years ended July 31, 1995 and 1996, respectively. This
decrease in revenue was primarily attributable to the absence of a one-time
technology license fee ($799,000) earned during the last fiscal year; reduced
publishing revenue associated with lower magazine sales, attributable to
certain cash flow difficulties and disputes with the printer and fulfillment
house discussed below; and, the lack of rental income due to the cessation of
this business activity during November and December, 1995. ATG's
consolidated loss increased $544,600 from $4,524,100 to $5,068,700 for the
years ended July 31, 1995 and 1996 respectively. This increased loss was a
result of the lower revenue levels in 1996 versus 1995 and increased
operating expenses, including $578,200 associated with New Concept Mining.
Revenue from environmental solution products decreased $716,300 from $867,900
to $151,600 for the years ended July 31, 1995 and 1996, respectively. This
decrease was directly attributable to the absence of a one-time technology
license fee of $799,000 associated with the Company's now discontinued water
treatment technology for oil and gas well wastewater, and was somewhat offset
by increased sales of the Company's combustion enhancer, The Force. The
Company has not generated significant sales from The Force since commencement
of its test marketing in November 1993. Since that time, the Company has
tested various marketing approaches and distribution channels for The Force
and sales have been gradually increasing. The Company has budgeted $400,000
in connection with the commencement of a marketing campaign designed to
create the market awareness and acceptance required to generate significant
product sales, although there can be no assurance that significant sales will
result from the marketing effort. During the last year, the Company has
received several modest sized purchase orders for its CFC-free product line
as a result of its initial marketing efforts, and management anticipates
additional orders in the future, although there can be no assurance that this
will occur.
The environmental solutions business segment incurred a loss of $237,200 and
$1,300,500 for the years ended July 31, 1995 and 1996, respectively. The
increased loss resulted from the absence of the technology licensing fee
discussed above, combined with somewhat higher general and development costs.
General and
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development costs, inclusive of research expense, increased $139,600 in the
current year, primarily as a result of higher research and development
expenditures associated with the Company's line of CFC-free products.
Publishing operations of FINAL FRONTIER resulted in a loss of $650,900 in the
year ended July 31, 1996, as compared to a loss of $1,391,100 realized in the
same period of the prior year. The decrease in loss is primarily
attributable to a $707,700 reduction in goodwill amortization expense from
$1,227,700 to $520,000 in the years ended July 31, 1995 and 1996,
respectively. Revenue for this segment decreased $508,800 from $775,000 to
$266,200 for the years ended July 31, 1995 and 1996, due to cash flow
difficulties encountered by ATG, which resulted in two issues of the magazine
not being released during the year ended July 31, 1996 and subscription
renewals and advertising revenue not being pursued. The impact of lower
revenue was offset by the associated $373,200 reduction of direct operating
expenses to $397,100 for the period ended July 31, 1996 as compared to
$770,300 in the same period last year. The cash flow difficulties were
largely eliminated in December 1995, and the magazine was redesigned and
relaunched with a January/February 1996 issue, however, the Company is
attempting to rebuild its circulation and advertising base back to previous
levels. Since the magazine was relaunched, revenue has been increasing, and
management believes that this business will reach a break-even level of
operations, excluding goodwill amortization, sometime in fiscal 1997,
although there can be no assurance that this will occur.
The Company's New Concept Mining subsidiary incurred a loss of $578,200 in
the year ended July 31, 1996, as compared to a loss of $95,200 realized in
the same period last year. The increase in loss is a direct result of owning
and developing the mine for a full twelve months this fiscal year versus four
months last fiscal year (ATG purchased New Concept Mining in April, 1995).
In addition, expenditures have increased in order to bring the mine into
production. Initial production at the mine occurred in early November, 1996,
with initial revenue anticipated during the same month. Once the mine
reaches full production, management believes that this business segment will
achieve break-even operations, excluding capital expenditure requirements and
depreciation expense, although there can be no assurance that this will occur.
The Company's corporate overhead expenses increased $386,000 from $1,865,000
to $2,251,000 in the years ended July 31, 1995 and 1996, respectively. This
increase is attributable to increased officer salary expense, resulting from
additions to the executive management team, and increased consulting, travel
and support expenses associated with providing the Company with the necessary
infrastructure.
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The Company's cash flow used in operations increased from $1,470,899 to
$3,793,878 for the years ended July 31, 1995 and 1996, respectively. The
primary source of working capital was the sale of ATG Common Stock for net
proceeds of $1,606,571 and $6,734,413 in fiscal years 1995 and 1996,
respectively. Subsequent to year end, the Company issued $700,000 of 8
percent Convertible Debentures and agreed to sell $1,400,000 of additional
securities. As a result, the Company anticipates that it will be able to
continue its operations at the current level for at least one year without
the sale of additional securities or generating significant revenues from
existing operations, however, there can be no assurance to this effect.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements follow.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Technologies Group, Inc.:
We have audited the accompanying consolidated balance sheets of AMERICAN
TECHNOLOGIES GROUP, INC. (a Nevada corporation) AND SUBSIDIARIES as of July 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American
Technologies Group, Inc. and Subsidiaries as of July 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 13, 1996
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Page 28
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1996 and 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 2,486,313 $ 86,019
Accounts receivable, net of allowance
for doubtful accounts of $10,000 at
July 31, 1996 and 1995 51,878 93,633
Marketable securities - 39,400
Inventories 43,961 75,000
Due from shareholders 2,500 -
Other current assets 412 37,632
----------- -----------
Total current assets 2,585,064 331,684
----------- -----------
PROPERTY, EQUIPMENT AND MINERAL PROPERTIES:
Buildings and equipment 3,005,189 2,582,482
Mineral properties 2,976,647 2,711,687
----------- -----------
5,981,836 5,294,169
Less--Accumulated depreciation and
amortization (240,135) (142,147)
----------- -----------
5,741,701 5,152,022
----------- -----------
COMMERCIAL PROPERTIES HELD FOR SALE - 2,623,535
GOODWILL, net of accumulated amortization of
$1,747,717 and $1,227,717 at July 31, 1996
and 1995, respectively 1,394,023 2,139,023
DEFERRED TAX ASSET 261,000 -
----------- -----------
$ 9,981,788 $10,246,264
========== ===========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
Page 29
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 606,856 $ 1,308,457
Accrued liabilities 4,028 11,326
Due to stockholder/officer 76,000 -
Current portion of deferred subscription revenue 110,094 177,541
Current portion of notes payable 180,472 3,058,792
Current portion of capital lease obligations 27,269 -
----------- -----------
Total current liabilities 1,004,719 4,556,116
Deferred subscription revenue, net
of current portion 132,644 205,142
Due to stockholder/officer - 104,659
Notes payable, net of current portion 840,020 1,005,389
Capital lease obligations 231,128 -
Deferred tax liability 1,347,224 1,347,224
----------- -----------
Total liabilities 3,555,735 7,218,530
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock:
Par value--$.001, Authorized--10,000,000 shares
Issued and outstanding--
378,061 shares at July 31, 1996 and 1995 378 378
Series B Convertible Preferred Stock:
Par value--$.001, Authorized--500,000 shares
Liquidation value--$8.00 per share
None issued and outstanding - -
Series C Convertible Preferred Stock:
Par value--$.001, Authorized--2,000 shares
Issued and outstanding--2,000 and none shares
at July 31, 1996 and 1995, respectively 2 -
Common stock:
Par value--$.001, Authorized--100,000,000 shares
Issued and outstanding--16,220,264 and 12,945,865
shares at July 31, 1996 and 1995, respectively 16,220 12,946
Additional paid-in capital 23,117,088 14,487,220
Stock subscriptions 771,298 937,434
Deficit (17,478,933) (12,410,244)
----------- -----------
Total stockholders' equity 6,426,053 3,027,734
----------- -----------
$ 9,981,788 $10,246,264
=========== ===========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
Page 30
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
1996 1995
------------- -------------
REVENUES:
Publishing $ 266,247 $ 775,005
License fee for environmental solution - 799,000
Product sales 151,603 68,860
Rental property 39,792 134,430
---------- ----------
Total operating revenues 457,642 1,777,295
---------- ----------
OPERATING EXPENSES:
Rental property 16,386 178,485
Publishing operations 397,138 770,302
Officers compensation 724,004 519,839
Marketing and product development 827,677 448,391
Research and development 624,445 484,788
General and administrative 1,876,925 1,746,979
Amortization of goodwill 520,000 1,227,717
Mining operations 578,189 33,361
---------- ----------
Total operating expenses 5,564,764 5,409,862
---------- ----------
OTHER INCOME (EXPENSE):
Realized gain on sale of Marketable Securities - 56,945
Other income 48,314 69,536
Unrealized holding loss on Marketable Securities (29,404) (262,061)
Loss on sale of commercial property (540,000) (45,000)
Loss due to impairment of rental property - (460,000)
Interest expense (240,677) (250,181)
---------- ----------
Other income (expense), net (761,767) (890,761)
---------- ----------
Loss before provision for income
taxes and extraordinary item 5,868,889 4,523,328
BENEFIT (PROVISION) FOR INCOME TAXES 260,200 (800)
---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEM 5,608,689 4,524,128
EXTRAORDINARY ITEM:
Gain on extinguishment on debt 540,000 -
---------- ----------
NET LOSS $5,068,689 $4,524,128
========== ==========
NET LOSS PER SHARE $ .34 $ .40
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,729,961 11,419,407
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 31
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Series A Convertible Series C Convertible
Preferred Stock Preferred Stock Common Stock
Number Par Number Par Number Par
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1994 160,000 $ 160 - $ - 10,388,168 $10,388
Stock issued in conversion of 111,704 Series B
Preferred Stock subscriptions into Common
Stock at $3.00 per share - - - - 301,141 301
Balance of Series B Preferred Stock
Subscriptions at $3.00 per share - - - - - -
Stock issued in acquisition of 15 percent interest
in Final Frontier, August 1994 at $3.00 per
share - - - - 130,000 130
Stock issued under CAP Agreement
September 1994 218,061 218 - - - -
Stock issued in acquisition of 100 percent interest
in New Concept Mining, April 1995 at
$2.00 per share - - - - 1,101,450 1,101
Stock issued for services rendered, August 1994
through July 1995
at $1.50 - $3.00 per share - - - - 129,072 129
at $3.30 - $4.00 per share - - - - 18,362 18
at $4.01 - $4.25 per share - - - - 1,016 1
Stock issued for extinguishment of debt
at $3.00 per share - - - - 11,840 12
Stock issued to corporate officer for compensation
at $3.00 per share - - - - 20,000 20
Issuance of stock for stock subscriptions purchased
during 1994 at $3.00 per share - - - - 115,580 116
Proceeds from sale of stock through private place-
ment offerings August 1994 through July 1995:
at $1.50 per share - - - - 349,900 350
at $3.00 per share - - - - 163,750 164
at $3.20 - $3.92 per share - - - - 145,067 145
at $4.00 - $4.20 per share - - - - 70,519 71
Private Placements offering costs
Proceeds from sale of 23,340 shares of common
stock subscriptions through private placement
offerings July, 1995 at $1.50 - $3.00 per share - - - - - -
Net loss - - - - - -
------- ---- ----- ----- ---------- ------
BALANCE, July 31, 1995 378,061 378 - - 12,945,865 12,946
</TABLE>
<TABLE>
<CAPTION>
Additional
paid-in Stock
Capital Subscriptions Deficit Total
------- ------------- ------- -----
<S> <C> <C> <C> <C>
BALANCE, July 31, 1994 $8,742,149 $2,119,940 $(7,886,116) $2,986,521
Stock issued in conversion of 111,704 Series B
Preferred Stock subscriptions into Common
Stock at $3.00 per share 893,330 (893,631) - -
Balance of Series B Preferred Stock
Subscriptions at $3.00 per share - 20,432 - 20,432
Stock issued in acquisition of 15 percent interest
in Final Frontier, August 1994 at $3.00 per
share 389,870 - - 390,000
Stock issued under CAP Agreement
September 1994 - - - 218
Stock issued in acquisition of 100 percent interest
in New Concept Mining, April 1995 at
$2.00 per share 2,201,799 - - 2,202,900
Stock issued for services rendered, August 1994
through July 1995
at $1.50 - $3.00 per share 183,138 - - 183,267
at $3.30 - $4.00 per share 62,174 - - 62,192
at $4.01 - $4.25 per share 4,240 - - 4,241
Stock issued for extinguishment of debt
at $3.00 per share 35,508 - - 35,520
Stock issued to corporate officer for compensation
at $3.00 per share 59,980 - - 60,000
Issuance of stock for stock subscriptions purchased
during 1994 at $3.00 per share 346,624 (346,740) - -
Proceeds from sale of stock through private place-
ment offerings August 1994 through July 1995:
at $1.50 per share 524,500 - - 524,850
at $3.00 per share 491,086 - - 491,250
at $3.20 - $3.92 per share 533,095 - - 533,240
at $4.00 - $4.20 per share 285,631 - - 285,702
Private Placements offering costs (265,904) - - (265,904)
Proceeds from sale of 23,340 shares of common
stock subscriptions through private placement
offerings July, 1995 at $1.50 - $3.00 per share - 37,433 - 37,433
Net loss - - (4,524,128) (4,524,128)
---------- ------- ---------- ---------
BALANCE, July 31, 1995 14,487,220 937,434 (12,410,244) 3,027,734
---------- ------- ---------- ---------
</TABLE>
<PAGE>
Page 32
<TABLE>
<CAPTION>
Series A Convertible Series C Convertible
Preferred Stock Preferred Stock Common Stock
Number Par Number Par Number Par
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Stock issued in conversion of 78,750 Series B
Preferred Stock subscriptions into Common
Stock - - - - 206,135 206
Stock issued for Series C Preferred Stock
at $1,000 per share - - 2,000 2 - -
Stock subscription cancelled related to
acquisition of Final Frontier - - - - - -
Stock issued for services rendered, August 1995
through July 1996
at $1.06 - 1.25 per share - - - - 110,000 110
at $1.50 per share - - - - 156,338 156
at $1.82 - 3.00 per share - - - - 266,197 266
at $6.00 - $10.00 per share - - - - 33,039 39
Stock issued for conversion of debt - - - - 166,750 167
Issuance of stock for stock subscriptions purchased
during 1995 at $1.50 - $3.00 per share - - - - 14,400 14
Proceeds from sale of stock through private place-
ment offerings August 1995 through July 1996:
at $1.50 per share - - - - 742,843 743
at $1.60 per share - - - - 1,250,000 1,250
at $2.03 - $3.00 per share - - - - 108,822 109
at $7.00 per share - - - - 45,500 46
at $8.00 per share - - - - 53,425 54
at $8.50 - $8.60 per share - - - - 44,000 44
at $9.00 - $9.50 per share - - - - 15,491 15
at $10.00 - $11.00 per share - - - - 32,209 32
Private Placements offering costs - - - - - -
Exercise of Stock Options - - - - 29,250 29
Proceeds from sale of 232,063 shares of common
stock subscriptions through private placement
offerings in 1996 - - - - - -
Stock subscription of 75,800 shares of common
stock through trade for services in 1996 - - - - - -
Net loss - - - - - -
------- ---- ----- ---- ---------- -------
BALANCE, July 31, 1996 378,061 $378 2,000 $ 2 16,220,264 $16,220
======= ==== ===== ==== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Additional
paid-in Stock
Capital Subscriptions Deficit Total
------- ------------- ------- -----
<S> <C> <C> <C> <C>
Stock issued in conversion of 78,750 Series B
Preferred Stock subscription into Common
Stock 629,794 (630,000) - -
Stock issued for Series C Preferred Stock
at $1,000 per share 1,999,998 - - 2,000,000
Stock subscription cancelled related to
acquisition of Final Frontier - (225,000) - (225,000)
Stock issued for services rendered, August 1995
through July 1996
at $1.06 - 1.25 per share 118,390 - - 118,500
at $1.50 per share 234,351 - - 234,507
at $1.82 - 3.00 per share 686,839 - - 687,105
at $6.00 - $10.00 per share 239,527 - - 239,560
Stock issued for conversion of debt 455,333 - - 455,500
Issuance of stock for stock subscriptions purchased
during 1995 at $1.50 - $3.00 per share 22,172 (22,186) - -
Proceeds from sale of stock through private place-
ment offerings August 1995 through July 1996:
at $1.50 per share 1,113,522 - - 1,114,265
at $1.60 per share 1,998,750 - - 2,000,000
at $2.03 - $3.00 per share 239,062 - - 239,171
at $7.00 per share 318,454 - - 318,500
at $8.00 per share 427,346 - - 427,400
at $8.50 - $8.60 per share 374,456 - - 374,500
at $9.00 - $9.50 per share 144,880 - - 144,895
at $10.00 - $11.00 per share 323,458 - - 323,490
Private Placements offering costs (784,385) - - (784,185)
Exercise of Stock Options 87,721 - - 87,750
Proceeds from sale of 232,063 shares of common
stock subscriptions through private placement
offerings in 1996 - 554,950 - 554,950
Stock subscription of 75,800 shares of common
stock through trade for services in 1996 - 156,100 - 156,100
Net loss - - (5,068,689) (5,068,689)
----------- -------- ------------ ----------
BALANCE, July 31, 1996 $23,117,088 $771,298 $(17,478,933) $6,426,053
=========== ======== ============ ==========
</TABLE>
<PAGE>
Page 33
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1996 1995
------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(5,068,689) $(4,524,128)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 630,315 1,377,435
Loss on sale of marketable securities, net 29,404 205,116
Loss on sale of property and equipment - 3,467
Gain on extinguishment of debt (540,000) -
Loss due to impairment of commercial property 540,000 -
Loss on commercial properties held for sale - 505,000
Stock issued as consideration for services 1,510,095 309,918
Interest expense added to principal balances 135,397 135,583
Deferred Taxes (261,000) -
Changes in assets and liabilities, net of
effect of purchase of New Concept Mining, Inc.
during fiscal year 1995:
Accounts receivable 41,755 42,738
Inventories 31,039 -
Other current assets 6,650 21,661
Accounts payable and accrued liabilities (701,601) 716,582
Accounts payable stockholder/officer (7,298) (23,471)
Subscription production payable - (239,182)
Deferred subscription revenue (139,945) (1,618)
----------- -----------
Net cash used in operating activities (3,793,878) (1,470,899)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (394,637) (209,772)
Proceeds from sale of property and equipment - 2,500
Purchase of marketable securities - (301,461)
Proceeds from sale of marketable securities 9,996 87,820
Cash received from purchase of New Concept
Mining, Co. - 470
----------- -----------
Net cash used in investing activities (384,641) (420,443)
----------- -----------
<PAGE>
Page 34
- 2 -
1996 1995
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments from stockholder/officer $ (54,000) $ -
Payments of notes payable (86,600) (66,106)
Payments on capital lease obligations (15,000) -
Net proceeds from issuance of stock and
stock subscriptions 6,734,413 1,606,571
----------- -----------
Net cash provided by financing
activities 6,578,813 1,540,465
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,400,294 (350,877)
CASH AND CASH EQUIVALENTS, beginning of period 86,019 436,896
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,486,313 $ 86,019
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION --
Cash paid during fiscal 1996 and 1995 for:
Interest $ 38,716 $ 164,599
Taxes 800 800
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligation incurred in connection
with lease purchase option on mining property $ 264,960 $ -
=========== ===========
Stock issued for the extinguishment of
debt during fiscal 1996 and 1995 $ 447,500 $ 35,520
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 35
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
1. ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
a. ORGANIZATION AND LINE OF BUSINESS
American Technologies Group, Inc. (the Company or ATG) was formed on
September 27, 1988, and merged with an inactive publicly owned company
named One Stop Printing, Inc., a Minnesota corporation, formerly General
Cybernetics Corporation. General Cybernetics Corporation was incorporated
in September 1968 and was merged with and changed its name to One Stop
Printing, Inc. in December 1972. In February 1991, First Western
Acquisitions, Inc. (FWA), a newly-formed Nevada Corporation, acquired
effective control of the Company in a reverse merger transaction with the
inception of the new entity beginning in February 1991 using the name ATG.
Prior to February 1991, the Company was inactive. ATG was in the
development stage until July 1994 at which time they acquired the
publishing business of Final Frontier Publishing, Inc.
In July 1994, ATG acquired an 85 percent interest in Final Frontier
Publishing, Inc. (Final Frontier-now ATG Media, Inc.), a Minnesota
corporation. The Final Frontier acquisition was accounted for by the
purchase method of accounting with the results of operations of Final
Frontier consolidated with the results of the Company from the date of
acquisition (July 29, 1994). In August 1994, ATG completed the acquisition
of the remaining 15 percent interest of Final Frontier at which time it
became a wholly-owned subsidiary.
In April 1995, ATG acquired 100 percent of the Common Stock of New Concept
Mining, Inc. (New Concept Mining), a Nevada corporation. The acquisition of
New Concept Mining was accounted for by the purchase method of accounting
with the results of operations of New Concept Mining consolidated with the
results of the Company from the date of acquisition (April 21, 1995).
ATG is a research and development company principally involved in
developing, through in-house research or acquisition, proprietary energy
and environmental systems and services which offer cost-effective solutions
to reduce, and in some cases eliminate,
<PAGE>
Page 36
hazardous chemical by-products or emissions resulting from industrial
production and combustion processes.
Final Frontier develops and markets space and technology related
publications, books and merchandise for the space professional, space
enthusiast and educational markets. Final Frontier's principal publication
is Final Frontier Magazine which was first published in 1986.
New Concept Mining was formed for the purpose of acquiring mineral
properties with the long-term goal of developing and mining these
properties. The mineral properties acquired are currently non-producing
and have either never been mined or mining activities were ceased in excess
of ten years ago. Subsequent to year end, New Concept Mining began
operations at its Manhattan Project.
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating losses.
The ability of the Company to successfully carrying out its business plan
is dependent upon (1) its ability to obtain sufficient additional capital,
(2) generate significant revenues through its existing assets and operating
business which it has acquired, (3) develop its mineral properties which
are currently non-producing and have either never been mined or mining
activities were ceased in excess of ten years ago, and (4) overcome
significant product development issues.
The Company plans to raise additional working capital through private
offerings, as well as to attain listing on a national exchange. The
successful outcome of future activities cannot be determined at this time
and there are no assurances that if achieved, the Company will have
sufficient funds to develop its mineral properties and execute their
business plans or generate positive operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATG, and its
wholly owned subsidiaries, including Final Frontier and New Concept Mining.
All material intercompany profits, transactions and balances have been
eliminated in consolidation.
b. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents are time certificate of deposits at
July 31, 1996 of approximately $2,051,000.
c. MARKETABLE SECURITIES
Cost of marketable securities are calculated using the specific
identification method and are stated at the lower of cost or market.
d. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of material, labor and manufacturing overhead.
<PAGE>
Page 37
e. NON-MONETARY EXCHANGES
Accounting for the transfer or distribution of non-monetary assets or
liabilities is based on the fair value of the assets or liabilities
received or surrendered, whichever is more clearly evident. Where the fair
value of the non-monetary asset received or surrendered cannot be
determined with reasonable accuracy, the recorded book value of the
non-monetary assets are used.
f. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost (or in the case of New Concept
Mining at fair market value at acquisition) and are depreciated or
amortized over the estimated useful lives of the assets using the
straight-line method. Mining buildings are depreciated over 10 years and
equipment over lives from 3 to 7 years. Equipment used for research
activities are capitalized only if they have alternative uses within the
Company. No depreciation or amortization was recognized for mining
buildings or equipment as the buildings and equipment have not yet been
placed in service.
Ordinary repairs and maintenance costs are charged to current operations,
while improvements and betterments which prolong the useful life of the
asset are capitalized and depreciated over their estimated useful lives.
g. REVENUE RECOGNITION
The Company recognizes revenue for its environmental solutions products
upon shipment of goods.
Sales of subscriptions to magazines are recorded as unearned revenue at the
time the order is received. Proportionate shares of the unearned revenue
are recognized as revenue when subscriptions are fulfilled.
Rental revenues are recognized on an accrual basis with an allowance for
possible losses due to non-payment.
h. RESEARCH AND DEVELOPMENT ACTIVITIES
All costs of new technology acquisition and further research and
development are charged to operations as incurred.
i. CONTINUING DEVELOPMENT AND INITIAL MARKETING COSTS FOR NEW PRODUCTS
All costs of continuing development of new products for commercial
applications and the initial marketing are charged to operations as
incurred.
j. STATEMENTS OF CASH FLOWS
The Company prepares its Statements of Cash Flows using the indirect method
as defined under Statement of Financial Accounting Standards
<PAGE>
Page 38
No. 95, "Statement of Cash Flows."
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
k. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share is based upon weighted average number of
common shares outstanding during the fiscal year. Common share equivalents
are not considered as they would be anti-dilutive. The Company has
adjusted the earnings for fiscal year 1996 by $6,575 relating to Series C
Convertible Preferred Stock 8 percent coupon payable.
l. MINERAL EXPLORATION AND DEVELOPMENT
Exploration expenditures are charged to operations in the period incurred.
Significant payments for exploration properties are capitalized. If no
minable ore body is discovered, previously capitalized costs are expensed.
Upon commencement of principal operations, mineral properties will be
amortized using the units of depletion method, utilizing estimates of
recoverable ore reserves.
m. GOODWILL
Goodwill includes distribution rights, contracts, subscription and
advertising lists and other intangibles acquired in connection with the
acquisition of Final Frontier (Notes 1 and 7). These costs are being
amortized over their estimated useful lives of six years. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining useful life of intangible assets may warrant
revision or that the remaining balance of intangible assets may not be
recoverable. When factors indicate that intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the
related business's undiscounted net income over the remaining life of the
intangible assets in measuring whether the intangible assets are
recoverable.
Due to cash flow difficulties encountered by ATG in fiscal 1995 and
disputes with the printers of the magazine and fulfillment house, one issue
of the magazine was not printed in fiscal year 1995 and two issues were not
printed in fiscal 1996. Also, customer subscription renewals were not
pursued on a timely basis. This resulted in the loss of approximately 20
percent of the acquired subscription and advertising base. Therefore, for
the year ended July 31, 1995, amortization expense includes an additional
charge of $670,000 to write off 20 percent of the unamortized goodwill in
recognition of the loss of these acquired assets. The cash flow
difficulties were partially eliminated during fiscal year 1996 (Note 5) and
the disputes with both the printer and fulfillment house have been resolved
resulting in reissuance of the magazine during fiscal 1996.
n. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
The Statement of Financial Accounting Standards No. 121, "Accounting for
<PAGE>
Page 39
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," must be adopted for fiscal years beginning after December 15,
1995. The Company is scheduled to adopt the new standard no later than in
the fiscal year ending July 31, 1997. The effects of new Financial
Accounting Standards No. 121 have not yet been determined.
The Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," is effective for transactions entered into
fiscal years that begin after December 15, 1995. The effects of new
Financial Accounting Standards No. 123 have not yet been determined.
o. RECLASSIFICATIONS
Certain amounts in the July 31, 1995 financial statements have been
reclassified to conform to current year presentation.
p. USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 from
those estimates.
3. MARKETABLE SECURITIES
A shareholder of ATG (Robert W. Carroll) was also a shareholder in BWN Oil
Investments Corporation (BWN) and Western Resource Technologies, Inc. (WRT).
BWN and WRT jointly developed several oil and gas properties under an
arrangement until 1991 when BWN filed for creditor protection under Chapter 11
of the U.S. Bankruptcy Code. In fiscal year 1993, the Company entered into
several agreements with BWN and WRT in order to negotiate various settlement
agreements between these parties through its affiliation with Robert W. Carroll.
In March 1993, as part of the settlement reached between the parties, the
Company acquired WRT warrants in exchange for $220,000 in cash and 709,517
shares of ATG Common Stock. During fiscal 1995, the Company sold the remaining
WRT warrants for proceeds of $87,820 and a realized gain of $56,945.
In fiscal 1995, the Company purchased 52,000 shares of the common stock of WRT
for $301,461 which had a market value of $39,400 and at July 31, 1995, and had
recorded an unrealized holding loss of $262,061 in fiscal 1995. The Company had
50,000 shares on hand as of July 31, 1996, which were written down to zero at
July 31, 1996 and have recorded an unrealized holding loss of $29,404 in fiscal
1996.
4. COMMERCIAL PROPERTIES HELD FOR SALE
In fiscal 1994, the Company purchased from a bank a commercial property in
Pasadena, California for $550,546. During fiscal 1996, the Company sold this
property for net proceeds of approximately $462,000. The loss on sale of
$45,000 was charged to operations during fiscal 1995.
<PAGE>
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In May 1991, the Company purchased from T/S Financial Services, Inc. (T/S) a
four story commercial building in Pomona, California for an adjusted appraised
value of $3,200,000. In connection with this acquisition, the Company paid cash
of $44,000, assumed obligations of $2,103,167 and issued 1,119,620 shares of ATG
Common Stock to T/S. Rental property operating results for the year ended
July 31, 1995 included revenues of $134,430, depreciation of $553,303 (including
a $460,000 depreciation charge to reduce the value of the property to its
estimated realizable value), interest of $163,008, and other operating expenses
of $85,182, for a net loss of $667,063. During fiscal year 1996, in connection
with an agreement with the mortgage holder (Note 5), the building and related
debt was returned to the mortgage holder.
5. DEBT
Notes payable are summarized as follows as of July 31, 1996 and 1995:
1996 1995
------ ------
Anthony Selig, net of imputed
interest of $14,732 and $36,242 at
July 31, 1996 and 1995, respectively $ 569,732 $ 688,758
North Tem, net of imputed interest
of $95,744 and $105,626 at
July 31, 1996 and 1995, respectively 104,256 94,374
Crown, net of imputed interest
of $83,496 and 128,730 at
July 31, 1996 and 1995, respectively 346,504 341,270
Teledyne, net of imputed interest
of $2,883 at July 31, 1995 - 47,117
Thrift and loan-secured by rental
property - 2,320,086
Promissory bank note - 291,122
Miner Group - 254,000
Dixie - 27,454
---------- ----------
1,020,492 4,064,181
Current portion 180,472 3,058,792
---------- ----------
$ 840,020 $1,005,389
========== ==========
Maturities of notes payable at July 31, 1996 are as follows:
1997 $ 180,472
1998 105,479
1999 412,215
2000 218,070
2001 -
Thereafter 104,256
----------
$1,020,492
==========
In November 1995, with respect to the rental property and note payable described
in Note 4, the Company entered into an Agreement with a thrift and loan to issue
a deed in lieu of foreclosure and to discharge the related note payable. In
accordance with the Agreement, the property was transferred to the lender and
the parties agreed to settle, dismiss, covenant not to sue and to release one
another in full with respect to certain claims and obligations. In addition,
the lender received 130,000 shares of ATG Common Stock. In 1995 the Company
incurred a loss of approximately $1,000,000 by transferring the property offset
by an extraordinary gain of approximately $540,000 realized by satisfaction of
the outstanding note payable and related issuance of stock. The resulting net
loss of approximately $460,000 was recorded in the accompanying consolidated
statement of operations in fiscal 1995. In 1996, the Company recognized the
above extraordinary gain on the extinguishment of debt and a corresponding
operating loss on the transfer of the property to the lender.
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In April 1995, the Company entered into an agreement with The Miner Group,
Limited (Miner Group) in settlement of $344,000 due for printing services
rendered. Under the agreement, ATG issued the Miner Group 31,197 shares of
ATG common stock in satisfaction of a $70,000 claim ($2.24 per share) and
issued a revolving promissory note of $285,000. In addition, ATG placed
90,000 shares of ATG Common Stock in an escrow account for delivery to the
Miner Group, at its option, at any time in satisfaction of the balance due
under the revolving note. In December 1995, the Company entered into a
settlement with The Miner Group to repay the $285,000 note and other costs
incurred whereby The Miner Group received $55,000 in cash and 90,000 shares
of ATG Common Stock (valued at $3.00 per share) in complete satisfaction of
amounts due for the note payable and the printing services rendered. These
shares were issued at estimated market value at the date of settlement and
resulted in no gain or loss on the extinguishment of debt. In addition, ATG
is required to include these shares as well as shares previously issued to
The Miner Group in any registration statement filed with the Securities and
Exchange Commission. In the event a registration statement is not declared
effective, ATG shall issue to The Miner Group an additional 1,500 shares of
ATG Common Stock on October 31, 1996 and each month thereafter until such
registration is declared effective up to a maximum of 12,000 shares.
The following notes were assumed in the New Concept Mining acquisition:
ANTHONY SELIG
In connection with the New Concept Mining acquisition, notes payable of
$125,000 and $600,000 were issued to Anthony Selig which are secured by
a first deed of trust on the property and equipment sold by Mr. Selig.
The $125,000 note payable carries an interest rate of 9.5 percent. The
$600,000 note payable is non-interest bearing through June 14, 1996 and
was recorded at its discounted present value of $486,773 with principal
payments of $120,000 due each year on June 14, 1996 through June 14,
2000. In addition, a $44,000 (recorded at its discounted present value
of $27,000) non-interest bearing note was issued to Dixie Exploration
Corp. (Dixie-A company owned by Anthony Selig).
In fiscal 1996 the Company repaid the Dixie note in full ($29,500 at its
net present value) and reduced the principal amount of notes payable to
Anthony Selig by $126,894 and interest of $33,800 by a cash payment of
$6,000 and issuing 76,750 shares of ATG common stock valued at
approximately $2.40 per share (estimated market value at date of
settlement).
In addition, in connection with a consulting agreement with Dixie, the
Company issued 13,250 shares of common stock (valued at $2.00 per share) as
full satisfaction for consultation services rendered in connection with
mining operations. Included in mining expenses in the July 31, 1996
statement of operations is $26,500 related to the issuance of these shares.
<PAGE>
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NORTH TEM
The note payable requires payments of $20,000 on October 5, 1998, $5,000
each quarter beginning January 5, 2000 through July 5, 2005 and the
remaining balance of $65,000 on October 5, 2005. The outstanding
discounted present value on this note at July 31, 1996 was $104,256. In
addition, North Tempiute Mining and Development Corporation (North Tem) is
entitled to receive a 2.5 percent net smelter royalty on all mining output
from the property.
CROWN
The non-interest bearing note payable to Crown Resources Corporation
(Crown) requires the Company to make payments to Crown of $50,000 on May 2,
1997 and each succeeding anniversary date until May 2, 1999 when the
remaining unpaid balance of $340,000 is due.
TELEDYNE
A non-interest bearing $50,000 note payable to Teledyne Industries, Inc.
(Teledyne) was paid on March 8, 1996
There is no stated interest rate for the notes payable to North Tem, Crown
and Teledyne. These notes are recorded at their net present values and
discounted at 10.6 percent.
6. CAPITAL STOCK
a. COMMON STOCK
The Company issued 565,575 and 148,450 shares of common stock for services
rendered valued at $1,279,672 and $249,700 during 1996 and 1995,
respectively. All shares issued were valued at estimated market value at
date of issuance.
b. PREFERRED STOCK
ATG authorized preferred stock is 50,000,000 shares, par value $0.001 per
share. The preferred stock may be issued from time to time in series
having such designated preferences and rights, qualifications and to start
limitations as the Board of Directors may determine.
The Company has authorized 10,000,000 shares of Series A Convertible
Preferred Stock. The Series A Stock receives a ten percent higher dividend
than the Common Stock, is entitled to one vote per share, shares equally
with the Common Stock upon liquidation and is convertible into one share of
Common Stock at any time at least five years after issuance upon the
payment of $3.00 per share. As of July 31, 1996, 378,061 shares of Series A
Stock were outstanding, no shares having been converted. The outstanding
shares were issued under the CAP agreement (Note 7).
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The Company has authorized 500,000 shares of Series B Convertible Preferred
Stock. The Series B Convertible Preferred Stock has a liquidation
preference of $8.00 per share, is entitled to one vote per share and is
convertible upon holders request without the payment of any additional
consideration during the first year following issuance into the number of
shares of Common Stock equal to the quotient of $8.00 per share and the
Market Value per Share for the ten trading days immediately preceding
conversion and in subsequent years into one share of Common Stock for each
share of Series B stock. Of the 224,204 Series B Preferred Stock
subscriptions originally issued in connection with the Final Frontier
acquisition, 111,704 shares were converted into 301,141 shares of ATG Common
Stock in fiscal year 1995 and 78,750 were converted in fiscal year 1996 into
206,135 shares of Common Stock. Also, in fiscal year 1996, 28,125 shares
were canceled (Note 7).
The Company has authorized 2,000 shares of Series C Convertible Preferred
Stock. The Series C Convertible Preferred Stock has a liquidation
preference of $1,000 per share, an 8 percent coupon payable at the time of
conversion, is non-voting and is convertible upon holders request without
the payment of any additional consideration. Subsequent to year end, all
of the Series C Convertible Preferred stock was converted into 1,490,702
shares of ATG Common Stock.
c. STOCK OPTION PLANS
During fiscal 1994, the Company adopted the 1993 Incentive Stock Option
Plan (Incentive Plan) and the 1993 Non-Statutory Stock Option Plan
(Non-Statutory Plan) to grant options to purchase up to a maximum of ten
percent of the total outstanding Common Stock of the Company. Options are
issued at the discretion of the Board of Directors to employees only under
the Incentive Plan and to non-employees under the Non-Statutory Plan.
Under the Incentive Plan, the exercise price of an Incentive Stock Option
shall not be less than the fair market value of the Common Stock on the
date the option is granted. However, the exercise price of an Incentive
Stock Option granted to a ten percent stockholder (as defined in the
Incentive Stock Option Plan), shall be at least one hundred ten percent of
the fair market value of Common Stock on the date the option is granted.
Exercise prices of options granted under the Non-Statutory Plan may be less
than fair market value. Each option expires at the date fixed by the Board
upon issuance but in no event more than ten years. The plans expire
December 2002.
<PAGE>
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Transactions involving the plans are summarized as follows:
Number Exercise Price
of Shares Per Shares
--------- --------------
Outstanding at July 31, 1994 759,500 $3.00 - $ 3.30
Granted 315,500 $3.00 - $ 3.30
Exercised - -
Canceled - -
--------- --------------
Outstanding at July 31, 1995 1,075,000 $3.00 - $ 3.30
Granted 564,500 $1.50 - $ 6.25
Exercised 29,250 $ 3.00
Canceled 208,250 $1.50 - $ 3.00
--------- --------------
Outstanding at July 31, 1996 1,402,000 $1.50 - $ 6.25
========= ==============
As of July 31, 1996, 698,500 of these options have vested.
d. STOCK SUBSCRIPTIONS
During fiscal 1995, the Company issued 115,580 shares of ATG Common Stock
valued at $346,740 which were included within stock subscription as of July
31, 1994. As of July 31, 1996, the Company had not issued 319,007 shares
of Common Stock sold under private placements at prices ranging from
$1.50 - $8.00 per share for an aggregate of $711,050 in cash received prior
to July 31, 1996 and 5,625 shares of Series B Preferred Stock issued in
connection with the acquisition of Final Frontier valued at $45,000. These
amounts have been included within stock subscriptions in the accompanying
consolidated balance sheets.
7. ACQUISITION OF NEW TECHNOLOGY AND BUSINESS INVOLVING RELATED PARTIES
a. NEW CONCEPT MINING
On April 21, 1995, the Company acquired New Concept Mining for 1,101,450
shares of ATG Common Stock (valued at $2.00 per share which was the fair
market value at date of issuance based on an independent appraisal) in
exchange for all the outstanding common stock of New Concept Mining. ATG
assumed all of the outstanding liabilities of New Concept Mining as of
April 21, 1995 and agreed to invest up to $1,500,000 into the Company to
fund its mining operations. ATG also agreed to provide water-treatment
technology to recover mineral ore and waste processed by the milling
operations. The acquisition was accounted for using the purchase method of
accounting with results of operations of New Concept Mining being included
in consolidated operations from the date of acquisition.
The results of operations on a pro forma basis, assuming New Concept Mining
was acquired on August 1, 1994 are not material to ATG.
<PAGE>
Page 45
b. FINAL FRONTIER
On July 25, 1993, the Company acquired a fifteen percent interest in Final
Frontier. On July 29, 1994, the Company entered into an agreement with
shareholders of Final Frontier whereby it acquired an additional seventy
percent interest. In August 1994, the Company completed the acquisition of
the remaining fifteen percent of Final Frontier for 130,000 shares of ATG
Common Stock valued at $390,000. In connection with these agreements, the
Company paid cash of $40,800, issued 262,625 shares of ATG Common Stock
(valued at $3.00 per share which was the estimated fair market value at
date of issuance) and 224,204 shares of Series B Convertible Preferred
Stock (valued at $8.00 per share which was the estimated fair market value
at date of issuance) to the shareholders of Final Frontier. The
acquisition was accounted for using the purchase method of accounting with
results of operations of Final Frontier being included in consolidated
operations from the date Final Frontier became a majority-owned subsidiary
of ATG (July 29, 1994). The purchase price of $2,622,307 and the excess of
liabilities assumed over the fair market value of net tangible assets of
$744,433 was allocated to goodwill. In fiscal year 1996, due to the lower
than expected operating results of Final Frontier, certain previous
shareholders of Final Frontier agreed to return certain of the Series B
Preferred Stock rights issued to them valued at $225,000. The Company has
reduced goodwill recorded on this transaction and stockholders equity by
$225,000 as reflected in the accompanying consolidated financial
statements.
c. BASER AGREEMENTS
On March 1, 1994, the Company entered into a license agreement with BWN
Nuclear Waste Elimination Corporation (NWEC), a Nevada corporation
partially owned by Robert W. Carroll, for the sublicense to exploit all
rights to certain technologies relating to helium cluster beams and other
particle beams (Basers) in their application to the rendering of nuclear
waste non-radioactive. NWEC originally licensed these rights under an
agreement with Apricot S.A. (Apricot), a Luxembourg corporation fifty
percent owned by Dr. Shui-Yin Lo, an officer/ stockholder of ATG, in
February 1994. Excluded in the assignment is exploitation of the project
in the area of power and energy. For the Baser exploitation rights, the
Company issued to NWEC 300,000 shares of ATG Common Stock valued at
$900,000 ($3.00 per share which was the estimated market value at date of
issuance) for the Baser rights which was expensed in fiscal year 1994 since
the Baser Technology is an unproven theory. At such time as ATG receives
an offer to purchase any application of the Baser Technology for commercial
use, ATG will issue up to 1,700,000 shares of ATG Series A Convertible
Preferred Stock to NWEC. NWEC will also be entitled to a ten percent
royalty on ATG's net sales from exploitation of Basers. In the event ATG
does not spend at least $100,000 on the development of Basers during each
fiscal year, the agreement will terminate.
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On July 22, 1994, the Company purchased an option to acquire either a fifty
percent interest in Apricot or one hundred percent of the underlying Baser
Technology if reacquired from NWEC. For such option, the Company issued a
nine year option to acquire 450,000 shares of ATG Common Stock at an
exercise price of $3.00 per share and agreed to pay $150,000 in monthly
installments of $1,000 commencing October 1994. In fiscal 1995, the
Company received an extension on the commencement of these installments
until December 1995. During fiscal 1996, the company accelerated payments
to purchase this option. The balance due at July 31, 1996 is included in
the accompanying consolidated balance sheets as amounts due to
stockholders/officers at its discounted present value. Additionally,
should ATG receive an offer to purchase the Baser Technology for commercial
utilization, ATG is required to issue 1,700,000 shares of ATG Series A
Convertible Preferred Stock and pay quarterly royalties of seven and one
half percent of net profits (as defined) to Dr. Lo. The exercise price for
the option acquired by ATG is 10,000 shares of ATG Common Stock, a royalty
of five percent of ATG's net profits, if any, from the exploitation of
Basers through July 21, 1999 and issuance of the Series A Preferred Stock
discussed above. The acquired option expires one year after delivery to
the Company of current audited financial statements of Apricot or evidence
of unencumbered title to the Baser Technology, neither of which have
occurred as of July 31, 1996.
d. CALTECH AGREEMENT
On May 1, 1994, the Company entered into a one year agreement with the
California Institute of Technology (Caltech) for the testing and
development of Baser Technology for $167,374. The Company has the right to
the first offer of an exclusive royalty bearing license for such invention
or discovery reduced to practice under this agreement upon terms to be
negotiated at the time of the offer. Additionally, if any invention or
discovery results in part from the expenditure of research funds of the
United States government, the United States government will have certain
rights thereto. In January 1996, the Company approved continuation of the
research program with Caltech for the amount of $234,974 in the period from
January through December 1996.
e. CAP AGREEMENT
On November 1, 1992, the Company acquired the patent technology from
inventors of technology for a method of increasing engine efficiency for
$200,000 (Clean Air Pac or CAP) and a fee of five percent of the wholesale
sales price of the CAP system. Additionally, the Company will issue
400,000 shares of Series A Preferred Stock for each $1,000,000 in revenues
from sales of the product up to $10,000,000 in revenue. Under the
agreement, if by October 31, 1996, the Company has not had at least
$10,000,000 in gross sales from the CAP system, the inventors may obtain
the exclusive license to market and distribute the CAP system worldwide
from the Company, for a twenty percent royalty on gross sales. During
fiscal 1994 and 1995, the Company accelerated share issuance to certain
inventors totaling 160,000 and 218,061 shares of ATG Series A Convertible
Preferred Stock, respectively.
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8. WRT LICENSE AGREEMENT
In fiscal 1995, the Company granted a non-exclusive license to WRT to use and
commercialize the water purification system for the removal of heavy metals,
soluble hydrocarbons and other contaminants which ATG licenses from Zhongshou
University, China. This license is limited to the application of this
technology for removal of contaminants from brine produced by oil and gas wells
along the 200 mile wide strip centered on the United States coast of the Gulf of
Mexico from the Rio Grande River east to Pensacola, Florida. In addition, WRT
received a ten percent ownership interest in all remaining worldwide rights to
the technology for this use for consideration of $799,000 which was received and
included in revenues in fiscal 1995.
9. MINERAL PROPERTIES
The mineral properties are summarized as follows as of July 31, 1996 and
1995 which include the amounts allocated to the properties as part of
ATG's purchase of New Concept Mining in April 1995:
1996 1995
------ ------
Manhattan Project $1,933,094 $1,668,134
Tempiute Project 1,043,553 1,043,553
---------- ----------
$2,976,647 $2,711,687
========== ==========
a. MANHATTAN PROJECT
On November 2, 1994, New Concept Mining purchased an option to buy mining
claims from Crown for $10,000. The claims are located in the Manhattan
Mining District, Nye Country, Nevada (Manhattan). New Concept Mining
exercised its option in February 1995 and purchased the property in
exchange for a non-interest bearing note of $490,000 (Note 5). In December
1994, New Concept Mining purchased the Keystone and April Fool Mining
claims, Whitecap tailings, and mining and milling equipment in Manhattan
from Anthony Selig in exchange for two notes payable totaling $725,000
(Note 5). These combined mining claims include approximately 850 acres in
the Manhattan Mining District. New Concept Mining intends to develop
existing mining claims to extract gold. The Company has obtained a
preliminary independent resource evaluation of the property which estimates
gold ore reserves at approximately 161,532 ounces. This amount has not
been segregated between reserve categories (proven, probable and possible)
and is prior to applying any necessary discount factors. During 1996 New
Concept Mining entered into a lease purchase agreement for the purchase of
property for mining purposes in the Manhattan area. The corresponding
lease payments are included in capital lease obligation at its discounted
net present value of $258,397.
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b. TEMPIUTE PROJECT
On October 5, 1994, New Concept Mining purchased mining claims from North
Tem for a non-interest bearing note of $200,000 (Note 5). In addition,
North Tem is entitled to a 2.5 percent net smelter royalty (as defined).
These claims are located in the Tempiute Mining District, Lincoln County,
Nevada. In the December 1994 transaction with Mr. Selig, discussed above,
New Concept Mining also received equipment and a mill for the Tempiute
site. On March 8, 1995, New Concept Mining purchased mining claims and
mill sites from Teledyne for a non-interest bearing note of $50,000 and a
down payment of $50,000. Anthony Selig, through his company Dixie, paid
the $50,000 downpayment to Teledyne in exchange for a note payable of
$50,000 (Note 5) from New Concept Mining. The Teledyne claims are adjacent
to the North Tem claims. These combined mining claims include
approximately 600 acres in the Tempiute Mining District. New Concept
Mining intends to develop existing mining claims to extract tungsten. New
Concept Mining has obtained a preliminary independent resource evaluation
of the property which estimates tungsten ore reserves at approximately
1,617,292 units. This amount has not been segregated between reserve
categories (proven, probable and possible) and is prior to applying any
necessary discount factors.
10. RELATED PARTY TRANSACTIONS
The Company entered into various agreements with Robert W. Carroll, a
shareholder of ATG, one or more of his relatives, or entities controlled by him,
including the BWN/WRT settlement agreements (Note 3), the purchase of
residential property (Note 4) and the Baser and CAP agreements (Note 7). In
addition, the Company paid Mr. William Carroll $30,000 and $50,437 as consulting
fees in fiscal 1996 and 1995, respectively.
Dr. Shui-Yin Lo is a member of the Board of Directors and Director of Research
and Development of the Company. Dr. Lo owns 6,033 shares of ATG Common Stock.
He received an option to purchase 450,000 shares of ATG Common Stock and a
$150,000 note receivable in accordance with the Baser agreements (Note 7).
<PAGE>
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During fiscal 1996, the Company incurred expenses to related parties
including attorney fees of approximately $67,200 and consulting fees of
approximately $30,000.
11. EMPLOYMENT AGREEMENTS
During fiscal 1994, the Company negotiated amended and restated employment
agreements with three of its officer/directors. The agreements expire in
December 1996 and grant each individual an option for the purchase of 500,000
shares of ATG Common Stock at a price of $3.00 per share which was the fair
market value at date of grant. These options expire in December 2003 and vest
at the rate of twenty-five percent per year commencing January 1, 1994. Each
employee is prohibited from competing with the Company for a three year period
commencing from termination of the agreement.
During April 1995, the Company entered into an employment agreement with an
officer. The agreement expires in April 1998 and grants an option for the
purchase of 40,000 shares of ATG Common Stock at a price of the lower of $3.00
per share (equal to or greater than market at date of grant) or $1.00 less than
the average of the closing bid and asked prices for the Common Stock over the
preceding thirty trading days. Upon each of the two anniversaries of the
commencement of the agreement, additional options will be granted to purchase
40,000 shares of ATG Common Stock at an exercise price of $1.00 less than the
average of the closing bid and asked prices for the Common Stock over the
preceding thirty trading days. The options terminate five years after grant
date. In addition, the employee agrees not to compete with the Company during
the term of this agreement and for three years thereafter.
During fiscal 1995, the Company entered into an amended employment agreement
with one of its officer/directors. The agreement expires in December 1998 and
prohibits the employee from competing with the Company for a three year period
commencing from termination of the agreement. In addition, the employee
relinquishes all rights as an inventor under the CAP Agreement (Note 7) in
exchange for an option to purchase 400,000 shares of ATG Common Stock at an
exercise price of $1.50 per share. The option vests for 100,000 shares upon
granting with the remaining 300,000 shares, if at all, upon the execution by the
Company of an agreement with a major automobile products company to distribute
the Company's combustion enhancing products. The option terminates December 31,
2004. In addition, the officer shall receive a sales commission of .5 percent
of net revenue received by the Company from a license of future combustion
enhancing products and a sales commission of 1.25 percent of net revenue
received by the Company from sales of its current combustion enhancing product.
During fiscal 1996, the Company entered into an amended employment agreement
with one of its officers. Under the amended agreement, the officer received an
option to purchase 250,000 shares of ATG Common Stock at an exercise price of
$3.00 per share. The option expires in October 2004 and vests at the rate of
twenty five percent per year.
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During fiscal 1996, the Company entered into an amended employment agreement
with one of its officers. The amended agreement expires in December 1998 and
prohibits the employee from competing with the Company for a three year
period upon termination of the amended agreement. Under the amended
agreement, the individual received an option to purchase 100,000 shares of
ATG Common Stock at an exercise price of $3.00 per share. The option
terminates upon the earlier of nine years after granting or thirty days of
termination of the amended agreement prior to the expiration date.
During 1995, the Company entered into an employment agreement with one of its
officers. The Agreement expires in February 1999 and grants an option to
purchase 90,000 shares of ATG Common Stock at $3.00 per share (equal to or
greater than market at the date of grant). The options expire nine years
after the grant date. As additional consideration the agreement includes
10,000 shares of ATG Common Stock at inception of the agreement.
In connection with the acquisition of New Concept Mining, the Company assumed
four year employment agreements with two officers. Pursuant to the employment
agreements, these individuals will receive a combined base salary of $124,000
until the Company has one mill generating positive cash flow from operations (as
defined), at which time, combined base salaries will increase to $146,000.
Annual increases in base salaries and bonuses, if any, are subject to the
discretion of the Board of Directors. In addition, these individuals agree not
to compete with the Company during the term of the agreements and for three
years thereafter.
Minimum payments under all employment agreements are as follows as of July 31,
1996:
Year Ending July 31,
1997 $ 976,000
1998 812,000
1999 386,000
----------
$2,174,000
==========
12. INCOME TAXES
A Federal benefit for income taxes of $261,000 was recorded in fiscal 1996,
due to the losses incurred by New Concept Mining subsequent to the New
Concept Mining acquisition, which can be offset against the mineral
properties basis differences established in connection with the New Concept
Mining acquisition. A provision of $800 was made for minimum state income
taxes during fiscal years 1996 and 1995, respectively.
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Net temporary differences of the consolidated group at July 31, 1996 and 1995
consisted of the following:
1996 1995
-------- --------
Deferred tax assets:
Net operating loss carryforward $ 5,543,000 $ 3,720,000
Short term deferred tax assets 30,000 -
Long term deferred tax assets 608,000 4,000
Valuation allowances (5,920,000) (3,724,000)
----------- -----------
261,000 -
----------- -----------
Deferred tax liabilities:
Buildings and equipment basis differences (587,000) (587,000)
Mineral properties basis differences (760,224) (760,224)
----------- -----------
(1,347,224) (1,347,224)
----------- -----------
Net deferred tax liability $(1,086,224) $(1,347,224)
=========== ===========
As of July 31, 1996, the Company had approximately $14,300,000 of Federal net
operating loss carry forwards, which will expire in fiscal years ending 2006 to
2011. Differences between accounting and tax losses consist primarily of
differences in the accounting and the treatment of research and development
technology purchases acquired through the issuance of stock. Under Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes", the
Company has recorded valuation allowances against the realization of its
deferred tax assets as there is no assurance that the net operating losses will
be utilized to reduce the amount of future taxes due, if any. Deferred tax
liabilities relate principally to the differences in basis for financial
reporting purposes and tax purposes of mining property and equipment and mineral
rights acquired in connection with the New Concept Mining acquisition.
A corporation that undergoes a "change of ownership" pursuant to Section 382 of
the Internal Revenue Code is subject to limitations on the amount of its net
operating loss carryforwards which may be used in the future. In addition, the
use of certain other deductions attributable to events occurring in periods
before such an ownership change that are claimed within the five year period
after such ownership change may also be limited (such deductions, together with
net operating loss carryforwards, "pre-change losses"). No assurance can be
given that an ownership change will not occur as a result of other transactions
entered into by the Company, or by certain other parties over which the Company
has no control. If a "change in ownership" for income tax purposes occurs, the
Company's ability to use "pre-change losses" could be postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax periods beyond 1996, could have a material adverse impact on the
Company's consolidated financial position or results of operations.
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13. COMMITMENTS AND CONTINGENCIES
a. OPERATING LEASES
The Company leases its facility under an operating lease agreement that
expires in June 1997 and has other operating leases that expire in January
2000. Under this agreement, the Company has an option to extend the lease
through June 2000. The lease requires that the Company also pay for
certain insurance coverages throughout the term of the lease. The
aggregate minimum future commitments under operating leases are as
follows:
Year Ending July 31,
1997 $ 90,100
1998 22,700
1999 22,700
2000 22,700
2001 11,300
--------
$169,500
========
Rent expense charged to operations in fiscal 1996 and 1995 was $87,097 and
$70,628, respectively.
b. CAPITAL LEASES
The Company leases certain mining properties which qualifies as a capital
lease (Note 9). Minimum lease payments under the terms of the lease
agreement are as follows:
Year Ending July 31,
1997 $ 50,000
1998 235,000
--------
285,500
Less: amounts representing
interest 26,603
Current portion 27,269
--------
$231,128
========
c. MINING
The Company is subject to certain payment provisions of the Mining Law of
1872, as amended, in order to maintain its interest in its unpatented
mining claims. These provisions include an annual holding fee of $100 per
unpatented claim which must be paid for each year before September 1.
<PAGE>
Page 53
The Company has assumed annual lease payments of $20,000 related to the
mining claims purchased from Crown. The agreement may be renewed each year
with the payment of the annual lease amount. These payments reduce amounts
due under the Crown note payable. In addition, in connection with the
acquisition of the Crown mining claims, the Company is obligated to pay
production royalties on certain claims of three to five percent (as
defined) for all ores and minerals mined and sold. Lease payments made
from inception of these leases and advance royalties paid may be used to
offset royalties due, if any. As of July 31, 1996, approximately $330,000
of lease payments and advance royalties have been made which may be used to
offset any future royalties.
14. INDUSTRY SEGMENT INFORMATION
The Company's principal business segments are Environmental Solutions (The
Force, Waste Water Treatment), Publishing (Final Frontier) and Mining (New
Concept Mining). These segments are described in Notes 1 and 7.
Financial information about industry segments as or for the year ended
July 31, 1996 and 1995 is as follows:
1996 1995
-------- --------
Operating revenues:
Environmental solutions $ 151,603 $ 867,860
Publishing 266,247 775,005
Mining - -
Rental 39,792 134,430
----------- -----------
Total operating revenues $ 457,642 $ 1,777,295
=========== ===========
Operating Loss:
Environmental solutions,
including research and development $1,300,519 $ 237,214
Publishing 650,891 1,391,110
Mining 578,189 95,202
Rental (23,406) 44,055
Corporate expenses 2,600,929 1,864,986
----------- -----------
Net operating loss $ 5,107,122 $ 3,632,567
=========== ===========
Identifiable assets
Environmental solutions $ 301,766 $ 407,368
Publishing, including goodwill 1,448,404 2,237,543
Mining 5,520,059 4,865,480
Corporate and other 2,711,559 2,735,873
----------- -----------
Total $ 9,981,788 $10,246,264
=========== ===========
<PAGE>
Page 54
Operating loss is revenue minus operating expenses. Amortization of intangible
assets has been included as a publishing expense.
Identifiable assets by segment are assets used in or otherwise identifiable with
the Company's operations in each segment.
15. SUBSEQUENT EVENTS
In September 1996, the Company issued 100,000 shares of ATG Common Stock in full
settlement of a dispute with a former consultant.
In September 1996, the Company issued $700,000 of 8 percent Convertible
Debentures, maturing September 30, 1998. The accrued interest is due quarterly
and both the accrued interest and the principal is payable in cash or ATG Common
Stock at the company's discretion. The debentures are convertible into ATG
Common Stock commencing 45 days after issuance up to 50 percent and after 75
days 100 percent of the original principal amount. The conversion price is
equal to 80 percent of the average closing bid price of the Common Stock.
In November 1996, the Company agreed to issued $1,400,000 of additional
securities with a 7 percent coupon. The accrued interest is due quarterly
and both the accrued interest and the principal is payable in cash or ATG
Common Stock at the company's discretion. The securities are convertible
into ATG Common Stock commencing 60 days after issuance up to 33 1/3 percent,
after 90 days 66 2/3 percent and after 120 days 100 percent of the original
principal amount. The conversion price is equal to 70 percent of the average
closing bid price of the Common Stock.
<PAGE>
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company as of July 31, 1996 are
listed below, together with brief accounts of their business experience and
certain other information.
Year First
Present Elected
Name Age Office or Position Director
- ---- --- ------------------ --------
John Collins 45 Chairman of the Board of 1991
Directors, Chief Executive
Officer and Treasurer
Hugo Pomrehn 58 Director, President and 1996
Chief Operating Officer
Shui-Yin Lo 54 Director of Research 1993
and Development
and a Director
David Gann 47 Director of Marketing 1993
and Public Relations,
President, ATG Media
and a Director
Bill Foster 49 President, New Concept ---
Mining, Inc.
JOHN COLLINS: has been Chief Executive Officer, Treasurer, and Director of the
Company since July, 1991, and also served as President from that date until June
1993. From 1983 until July 1991, Mr. Collins operated New Image Public
Relations, which he co-founded. New Image provided financial public relations
and consulting services to emerging public companies, as well as other services.
HUGO POMREHN: has been President since April, 1995 and a director and Chief
Operating Officer since November, 1995. From June, 1993, until March 1995, he
was a Senior Vice President at PLG Inc., a risk management consulting firm. In
1992, Mr. Pomrehn served as Under Secretary of Energy. He was the third ranking
official at the U.S. Department of Energy, which employs approximately 170,000
federal and contractor personnel and has an
<PAGE>
Page 56
annual budget of $20 billion. At the Department of Energy, he was responsible
for defense programs, environmental restoration and waste management, as well as
nuclear energy development and operation.
Prior to his nomination, he was Vice President and Manager
of the Los Angeles Office for Bechtel Corporation where he was principally
employed since 1967 in positions of increasing responsibility. Mr. Pomrehn's
assignments included Assistant Chief Nuclear and Environmental Systems Engineer;
Project Engineer on the Arizona Nuclear Power Plant at Palo Verde, Arizona; and
Project Manager of the Korean Nuclear Projects. From 1986 to 1988, Mr. Pomrehn
was Site Director for the Browns Ferry Nuclear Power Plant operated by the
Tennessee Valley Authority. Subsequent to this assignment, he was named Vice
President and General Manger of the Bechtel/Kraftwerk Union Alliance providing
maintenance, modification and inspection services to U.S. operating nuclear
power plants.
SHUI-YIN LO: became Director of Research and Development and a Director in
June, 1993. From January, 1987 until June, 1993, he was Chief Executive Officer
of the Institute of Boson Studies Inc., a privately funded research company.
Dr. Lo received his Ph.D. in physics in 1966 from the University of Chicago. He
has been a visiting scholar at numerous universities and institutes including
Stanford University, California, Oxford University, England, Institute for
Theoretical Physics, Berlin University, Germany and the Institute of High Energy
Physics, Beijing, China.
DAVID GANN: was appointed Vice President of the Company in January, 1993, and
became President and Director in June, 1993. Upon the hiring of Mr. Pomrehn in
April, 1995, Mr. Gann relinquished his position as President and was appointed
Director of Marketing. In November, 1995 he became President of ATG Media. He
was President of Catalytic Solution Inc. from July, 1990 to October, 1992, at
which time it was acquired by the Company. From 1987 to 1990, Mr. Gann worked
as a technical consultant to Los Angeles area banks for the disposal of high
tech equipment. Mr. Gann received a Bachelor of Science degree in 1972 from
Central Missouri State University. He did post-graduate work in Biology in 1975
at the University of Tampa and in physics in 1982 at Central Missouri State
University.
BILL FOSTER: has worked in the oil/gas and mining areas for the last sixteen
years. Mr. Foster has been President and a Director of New Concept since its
inception in 1994 and retained such positions after ATG's acquisition of New
Concept in April, 1995. Upon ATG's acquisition of Catalytic Solutions, Inc. in
October, 1992, where Mr. Foster was Chief Executive Officer since 1990, he
served in various capacities for ATG, including oil and gas
<PAGE>
Page 57
operations and marketing. In 1986 he became the President of Mexican Gold and
Silver Co., a position he still holds. He was the President of Mid-Continent
Mining and Exploration from 1982-1986 and was involved in several heap leach
mining operations in the Western United States.
Directors are elected annually at the Company's annual meeting of shareholders.
The term of each person currently serving as a director will continue until the
Company's next annual meeting or until a successor is duly elected and
qualified.
Executive officers are appointed annually by the Board of Directors and serve at
the discretion of the Board, except to the extent that provisions of employment
agreements may govern.
SECTION 16(b) BENEFICIAL OWNERSHIP COMPLIANCE
Based upon the Company's review of the reports on Form 3, Form 4 or Form 5
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, Shui-Yin Lo failed to file two Form 4s and one Form 5 as to an
aggregate of four transactions; each of John Collins, Hugo Pomrehn and James
Nicastro failed to timely file four Form 4s and one Form 5 as to an aggregate of
five, four and four transactions respectively; David Gann failed to file six
Form 4s and one Form 5 as to an aggregate of seven transactions; Bill Foster
failed to file seven Form 4s and one Form 5 as to an aggregate of twenty-one
transactions.
<PAGE>
Page 58
ADVISORY BOARD:
The Company's Advisory Board consists of renowned scientists or businessmen in
technological fields who have agreed to be available for scientific or other
consultations when needed. Board members will be compensated at individually
determined hourly rates and will be granted options to acquire 2,500 shares of
Common Stock at fair market value on the date of grant. Presently, nine
individuals have agreed to serve as Advisors and the Company is discussing
appointment to the Advisory Board with additional people. The following is
summary background information on the nine people who have agreed to serve on
the Advisory Board. There can be no assurance that these people will actually
serve on the Advisory Board for any particular length of time.
RANDALL HAWKINS: holds a Ph.D. from the University of California, Los Angeles,
in Biomed Physics (1985). At present he is the Chief, Nuclear Medicine Program,
and Vice Chair, Department of Radiology, at the University of California, San
Francisco, where his appointment as Professor in Residence of Radiology and
Bioengineering is pending. He has been honored with memberships in Phi Beta
Kappa; Sigma Pi Sigma; Pi Mu Epsilon; and, received the NIH New Investigator
Research Award, 1981-84.
S.T. YAU: holds a Ph.D., from the University of California, Berkeley (1971) and
Ph.D., from Harvard University (Honorary Harvard Degree). He is currently a
Professor of Mathematics at Harvard University. Dr. Yau has received numerous
honors and awards, and holds a number of honorary positions including, the
Humbolt Foundation Senior Scientist Award, the J.S. Guggenheim Memorial
Foundation Fellowship and Member, and a seat on the Board of Mathematical
Sciences of the National Academy of Sciences.
S.I. LO: holds a Ph.D. in clinical biochemistry from the University of Toronto
(1975). He is currently a Clinical Assistant Professor, Department of
Pathology, Health Sciences Center at Brooklyn, New York State University and is
a Clinical Biochemist at Brookdale Hospital and Medical Center, Brooklyn, New
York. Dr. S.I. Lo is the brother of Dr. S.Y. Lo, a director of the Company.
ALFRED Y. WONG: holds a Ph.D. in plasma physics from Princeton University
(1962). He is currently the director of the Plasma Physics Department at the
University of California, Los Angeles, and the HIPAS Observatory, an outdoor
plasma physics laboratory in Fairbanks, Alaska which he designed at a cost of
$7,000,000 in 1980. Dr. Wong has received numerous honors and awards,
<PAGE>
Page 59
including American Physical Society Award for Excellence in Plasma Physics and
the Chairmanship of the Pacific Rim Environmental Research Group.
CHARLES YOUNG: holds a Ph.D. in physics from the Massachusetts Institute of
Technology (1977). He is currently a staff physicist at the Stanford Linear
Accelerator Center where he has been employed since 1978.
ANMIN LIU: holds a B.S. in civil engineering from Chuan Yuan University in
Taiwan and an M.S. in Sanitary Engineering from Colorado State University,
(1970). Since 1989 he has been the Engineer Manager at the Hyperion Wastewater
Treatment Plant of the City of Los Angeles where he responsible for engineering
and operations, including the multi-billion dollar expansion program ongoing at
the plant. He has supervised the start up of two of the four wastewater plants
operated by the City of Los Angeles.
S.Y. CHENG: holds a Ph.D. in Mathematics from the University of California,
Berkeley (1974). Since 1981 he has been a Professor of Mathematics at the
University of California, Los Angeles where he was Vice-Chairman of the
department from 1988 to 1990. In 1976 he was the Alfred Sloan Fellow and in
1989 he was the J.C. Wong Fellow.
ED ROSE: holds a B.S. in Civil Engineering/Engineering Geology from the
University of Southern California (1956). He is currently an independent
consultant providing project and construction management services. For over 25
years he was employed by Bechtel Corporation retiring as a project manager. His
professional affiliations include the American Society of Civil Engineers and
the National Society of Professional Engineers.
DANIEL C. TSUI: holds a Ph.D. in Electrical Engineering from the University of
Chicago (1967). Since 1982 he has been a Professor of electrical engineering at
Princeton University. He is a member of the National Academy of Sciences,
Academia Sinica, Fellow of The American Physical Society, American Association
for the Advancement of Science. In 1984, he received the Oliver E. Buckley
Condensed Matter Physics Prize of The American Physical Society.
<PAGE>
Page 60
ITEM 10. EXECUTIVE COMPENSATION.
The tables and discussion below set forth information about the compensation
awarded to, earned by or paid to the Company's executive officers during the
fiscal years ended July 31, 1994, 1995 and 1996
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
Other Annual
Name & Principal Position Year Salary Compensation Stock Options
John Collins 1996 $189,459 0 97,500 (1)
Chairman of the Board,
Chief Executive Officer 1995 208,225 0 65,000 (2)
and Treasurer
1994 173,300 0 75,000 (3)
500,000 (4)(5)
Hugo Pomrehn 1996 $121,666 0 50,000 (6)
President Chief Operating 40,000 (7)
Officer and a Director 500,000 (4)(5)
1995 - -
40,000 (8)
1994 - -
-
Shui-Yin Lo 1996 $136,625 0 40,000 (6)
Director of Research &
Development and a 1995 120,120 0 60,000 (9)
Director
1994 120,052 16,550 (10) 575,000 (4)(5)
David Gann 1996 $151,272 0 400,000 (11)
Director of Marketing 20,000 (6)
and a Director
1995 139,756 0 40,000 (9)
1994 171,972(8) 0 575,000 (4)(5)
Jim Nicastro 1996 $164,497 0 600,000 (12)
Vice President- 24,500 (6)
Administration
1994 155,081 0 20,000 (9)
1994 47,545(13) 0 68,500 (4)
- ------------------------------------
(Footnotes are on the following page.)
<PAGE>
Page 61
OPTIONS GRANTED IN FISCAL 1996
<TABLE>
<CAPTION>
Number of Securities Percent of Total Options
Underlying Options Granted to Employees in
Name Granted Fiscal 1996 Exercise Price Expiration Date
---- ------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
John Collins 97,500 7.2 1.65 August, 2004
Hugo Pomrehn 40,000 0.3 3.00 August, 2004
50,000 0.4 1.50 October, 2001
250,000(1) 18.4 3.00 October, 2004
Shui-Yin Lo 40,000 0.3 3.00 August, 2004
David Gann 400,000 29.5 1.50 October, 2004
20,000 0.1 1.50 August, 2004
Jim Nicastro 24,500 0.2 1.50 August, 2004
100,000(2) 7.4 3.00 October, 2004
</TABLE>
- -------------------------------
(1) Does not include 250,000 of these options surrendered during the fiscal
year. (See "Certain Relationships and Related Transactions.")
(2) Does not include 500,000 of these options surrendered during the fiscal
year. (See "Certain Relationships and Related Transactions.")
- -------------------------------
(Footnotes from prior page.)
(1) The exercise price of these options is $1.65 per share, 10% above the
estimated fair market value on the date of grant. The options vest at the rate
of 25% per year commencing August, 1995.
(2) The exercise price of these options is $3.30 per share, 10% above the
estimated fair market value on the date of grant. The options vest at the rate
of 25% per year commencing August, 1994.
(3) The exercise price of these options is $3.30 per share, 10% above the
estimated fair market value on the date of grant. The options vest at the rate
of 25% per year commencing January, 1994.
(4) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing January, 1994.
(5) 250,000 options were surrendered in March, 1996 (see "Certain Relationships
and Related Transactions.").
(6) The exercise price of these options is $1.50 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing August, 1995.
(7) The exercise price of these options is $2.18 per share, One Dollar less
than the average of the closing bid and asked prices of the Common Stock over
the thirty trading days prior to the date of grant.
(8) The exercise price of these options is $10.067 per share, One Dollar less
than the average of the closing bid and asked prices of the Common Stock over
the thirty trading days prior to the date of grant.
(9) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing August, 1994.
(10) Represents 11,033 shares of Common Stock valued at $1.50 per share.
(11) The exercise price of these options is $1.50 per share the estimated fair
market value on the date of grant. Options for 100,000
<PAGE>
Page 62
shares of Common Stock have vested and the remaining options vested upon the
occurrence certain events relating to sales of The Force.
(12) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. 500,000 options were surrendered in March,
1996 (see "Certain Relationships and Related Transactions.").
(13) Does not include $66,328 paid to Mr. Nicastro during the fiscal year as
consulting fees prior to his employment by the Company.
<PAGE>
Page 63
OPTION VALUES AT JULY 31, 1996
Number of Securities Underlying Value of in-the-money Options
Options at July 31, 19961 at July 31, 1996
------------------------- ------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
John Collins 363,125 124,375 $ 142,453 $ 129,985
Shui-Yin Lo 346,250 78,750 $ 144,844 $ 74,531
Hugo Pomrehn 217,500 202,500 $ 133,113 $ 117,188
David Gann 431,250 353,750 $ 319,219 $ 605,156
Jim Nicastro 167,500 45,500 $ 72,000 $ 44,625
- ---------------
Effective January 1, 1994, the Company entered into employment agreements
with Mr. Collins, Mr. Gann and Dr. Lo at weekly salaries of $3,850, $3,425
and $2,310, respectively, with annual increases of the lesser of 10% and the
change in the Consumer Price Index. As amended, the 500,000 shares of Series
A Stock issued to each were canceled and replaced with an option to purchase
500,000 shares of Common Stock at $3.00 per share, the estimated fair market
value of the Common Stock as of January 1, 1994. The options expire in
December, 2003 and vest at the rate of 25% per year commencing as of January
1, 1994. Subsequently, ATG and Mr. Gann entered into a new employment
agreement the term of which commenced December 1, 1995. Mr. Gann's new
agreement provides for an annual salary of $157,000 plus a sales commission
of 0.5% of net revenue received by ATG from a licensee of ATG's combustion
enhancing products and a sales commission of 1.25% of net revenue received by
ATG from other sales of The Force.
Effective as of April 1, 1995, the Company entered into an employment with Mr.
Pomrehn at a base salary of $120,000 per year. In addition, the agreement
requires the granting of an option to purchase 40,000 shares of Common Stock as
of that date at $2.18 per share and each anniversary thereof during the term of
the agreement at $1.00 less than the average of the closing bid and asked prices
for the Common Stock over the preceding 30 trading days. Each option will
terminate upon the earlier of five years after granting or thirty days after
termination of the agreement prior to the expiration its term. Effective as of
November 1, 1995, Mr. Pomrehn's employment agreement was amended to include Mr.
Pomrehn serving as ATG's Chief Operating Officer and a Director. In
consideration of the increased responsibilities, Mr. Pomrehn was granted an
option to purchase 500,000 shares of Common Stock at a price of $3.00 per share.
The option expires in October, 2004 and vests at the rate of 25% per year
commencing as of November 1, 1995. Subsequently, 250,000 of such options were
canceled. (See "Certain Relationships and Related Transactions.")
Effective November 1, 1995, with a term commencing December 1, 1995, the Company
entered into an employment agreement with Mr. Nicastro at an annual salary of
$155,000, with annual increases of the lesser of 10% and the change in the
Consumer Price Index. Mr. Nicastro waived all earned and unpaid compensation
except for $6,500 which is to be paid as subsequently agreed. In addition Mr.
Nicastro was granted an option to purchase 600,000 shares of Common Stock at
$3.00 per share. Subsequently, 250,000 of such options were canceled. (See
"Certain Relationships and Related Transactions.") The option expires on the
earlier of October 31, 2004, or thirty days after termination of the agreement
prior to the expiration its term.
Each employment agreement has a three year term and expires on December 31,
1996, except for Mr. Gann's, Mr. Pomrehn's and Mr. Nicastro's which expire on
November 30, April 30, and November 30, 1998, respectively, subject to early
termination for "cause" by the Company, which includes final
<PAGE>
Page 64
conviction of the employee of a felony involving willful conduct materially
detrimental to the Company or the final adjudication of the employee in a civil
proceeding for acts or omissions to act involving willful conduct detrimental to
the Company, and for "good reason" by the employee, which includes the
diminution of employee's title, responsibilities or status, or reduction in pay
or benefits.
Directors of the Company do not receive compensation for serving as such and
hold office until the next annual meeting of the shareholders or until their
successors have been duly elected and qualified. All officers serve at the
discretion of the Board of Directors.
The Company has no retirement, pension or similar programs at the present time.
The creation of any such plan, however, will be at the discretion of the Board
of Directors of the Company. The Board of Directors may, in the future, adopt
such employee benefit and executive compensation programs as it deems advisable
and consistent with the best interests of the shareholders and the financial
condition and potential of the Company.
STOCK OPTION PLANS
The Company's 1993 Incentive Stock Option Plan and 1993 Non-Statutory Stock
Option Plan (the "Option Plans") provide for the granting of Incentive Stock
Options, within the meaning of Section 422b of the Internal Revenue Code of
1986, as amended, to employees and Non-Statutory Stock Options to employees,
non-employee directors, or consultants or independent contractors who provide
valuable services to the Company. At October 23, 1996, 1,412,000 shares of
Common Stock were reserved for issuance under the Option Plans. The Option
Plans were approved by the shareholders in November, 1993.
The Option Plans are administered by the Board of Directors or, if the Board so
designates, a Stock Option Committee consisting of at least two members of the
Board of Directors. The Board or the Stock Option Committee, as the case may
be, has the discretion to determine when and to whom options will be issued, the
number of shares subject to option and the price at which the options will be
exercisable. The Board or the Stock Option Committee will also determine
whether such options will be Incentive Stock Option or Non-Statutory Stock
Options and has full authority to interpret the Option Plans and to establish
and amend the rules and regulations relating thereto.
Under the Incentive Stock Option Plan, the exercise price of an Incentive Stock
Option shall not be less than the fair market value of the Common Stock on the
date the option is granted. However, the exercise price of an Incentive Stock
Option granted to a ten percent (10%) stockholder (as defined in the Incentive
Stock Option Plan), shall be at least 110% of the fair market value of Common
Stock on the date the option is granted, exercise prices of options granted
under the Non-Statutory Stock Option Plan may be less than fair market value.
The maximum aggregate number of shares which may be covered by options under the
Option Plans is 10% of the total outstanding share of Common Stock.
Incentive Stock Options covering 100,000 shares exercisable at $6.25 per share,
52,000 shares exercisable at $5.00 per share, 140,000 shares exercisable at
$3.30 per share, 654,500 shares exercisable at $3.00 per share, 97,500 shares
exercisable at $1.65 per share and 238,000 shares exercisable at $1.50 per share
and Non-Statutory Stock Options covering 45,000 exercisable at $5.00 per share,
55,000 shares exercisable at $3.00 per share and 30,000 shares exercisable at
$1.50 per share have been granted. As of October 23, 1996, Options covering an
additional 326,120 shares may be issued under the Option Plans.
<PAGE>
Page 65
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of October 23, 1996
concerning the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the directors of the Company, and (iii)
all directors and executive officers of the Company as a group:
Amount and Nature Percent
Name and Address of Beneficial Ownership (1) of Class
- ---------------- --------------------------- --------
John Collins (2) 5,233,379 (3) 29.7
T/S Financial Services Inc. 1,102,564 (4) 6.4
P.O. Box 335
Moorpark, CA 93020
David Gann (2) 290,100 (5) 1.7
Shui -Yin Lo (2) 876,033 (6) 4.9
Hugo Pomrehn (2) 361,933 (7) 2.1
All officers and 7,240,797 37.9
directors as a group
(5 persons) (3) (5) (6) (7) (8)
- -------------------------------
(1) Except as reflected below, each of the persons included in the table has
sole voting and investment power over the shares respectively owned, subject to
the rights of spouses under applicable community property laws.
(2) The address of each of these persons is c/o American Technologies Group,
Inc., 1017 South Mountain Avenue., Monrovia, CA 91016.
(3) Includes 30,000 shares of Common Stock held of record by Mr. Collins'
children under the Uniform Gift to Minors Act, 6,334 shares held of record by
Mr. Collins' wife, 172,500 shares issuable upon exercise of Incentive Stock
Options and 250,000 shares issuable under another option. Also included are
1,102,564 shares of Common Stock held of record by T/S for which Mr. Collins
holds a proxy but not financial interest.
(4) These shares are subject to a proxy in favor of Mr. Collins.
(5) Includes 75,100 shares held of record by immediate family members of Mr.
Gann, 115,000 shares issuable upon exercise of Incentive Stock Options and,
100,000 shares issuable upon exercise of other options.
(6) Includes 140,000 shares issuable upon exercise of Incentive Stock Options
held by Dr. Lo and 30,000 shares issuable upon exercise of Incentive Stock
Options held by Dr. Lo's wife and 700,000 shares issuable upon exercise of other
options.
(7) Includes 6,933 shares held of record by the Hugo Pomrehn Family Trust of
which Mr. Pomrehn serves as Trustee, 25,000 shares issuable upon exercise of
Incentive Stock Options and 330,000 shares issuable upon exercise of other
options
(8) Includes 1,866 shares of Common Stock held of record by an officer's
children under the Uniform Gift to Minors Act and 83,500 shares issuable upon
exercise of Incentive Stock Options.
<PAGE>
Page 66
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The licensor of the BASER technology which the Company has sublicensed from NWEC
is Apricot which is 50% owned by Dr. Shui-Yin Lo, a director of the Company.
On July 22, 1994, the Company entered into a Technology Acquisition Agreement
with Shui-Yin Lo, the Company's Director of Research and Development and a
member of the Board of Directors. For $150,000 payable at the rate of a
minimum of $1,000 per month, of which $92,000 was paid as of October 30, 1996,
the Company acquired an option to acquire a 50% interest in Apricot or 100% of
the technology underlying BASERs as invented by Dr. Lo, if he reacquires such
rights. The exercise price for the option is 10,000 shares of Common Stock and
a royalty of 5% of ATG's net profit, if any, from the exploitation of BASERs
through July 21, 1999. Additionally, if Dr. Lo has not received 1,700,000
shares of Series A Stock in connection with the Company's purchase of the
Invention, the exercise price will include such shares. Under the Technology
Acquisition Agreement the Company acquired from Shui-Yin Lo exclusive right,
title and interest to the Invention for an Option to acquire 450,000 shares of
Common Stock at $3.00 per share, and, at such time as ATG receives an offer to
purchase the Invention as developed by ATG for commercial utilization or ATG
commences commercial utilization of any application of the Invention developed
by ATG, ATG agreed to (i) issue to Lo 1,700,000 shares of Series A Stock and
(ii) pay to Lo a royalty at the rate of 7.5% of ATG's net profit from the
exploitation of the Invention. If Dr. Lo receives the 1,700,000 shares of
Series A Stock as part of the exercise price for the BASER rights, then Dr. Lo
will not receive such shares if the Invention is commercialized in accordance
with the foregoing criteria.
Bill Foster, the President of New Concept, has either been an employee or
consultant to ATG since October, 1992. He last served as an employee in
December, 1994 with the title of Vice President. Mr. Foster owned one third of
the capital stock of New Concept and received 367,150 shares of Common Stock in
exchange therefore upon ATG's acquisition of New Concept.
As part of the employment agreement entered into as of November 1, 1995 by
and between the Company and David Gann, Mr. Gann relinquished all of his
rights under the Cap Agreement in exchange for an option to purchase 400,000
shares of Common Stock at $1.50 per share, 100,000 of which vested
immediately and 300,000 vest, if at all, upon the execution by the Company of
an agreement with a major automobile products company to distribute the
Company's combustion enhancing products.
With the intention of reducing the dilutive impact of the exercise of stock
options on the shares of Common Stock held by the public shareholders of the
Company, the Directors of the Company, John Collins, Hugo Pomrehn, Shui-Yin
Lo and David Gann, each voluntarily surrendered 250,000 stock options
exercisable at $3.00 per share and Jim Nicastro surrendered 500,000 stock
options exercisable at $3.00 per share.
<PAGE>
Page 67
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS Sequentially
Exhibit Numbered
No. Description Page
- ------- --------------------------------- ------------
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (5)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and
Preferences of Series A Convertible Preferred
Stock (2)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (5)
4.4 Certificate of Determination of Rights and
Preferences of Series C Convertible Preferred
Stock (5)
10.1. 1993 Incentive Stock Option Plan and 1993
Non-Statutory Stock Option Plan (1)
10.2 Clean Air Pac Agreement Effective November 1, 1992,
By and Between American Technologies Group, Inc.,
Rod Quinn,Loren Zanier, Robert Carroll and David Gann (1)
10.3 Employment Agreement effective as of January 1, 1994,
by and between John Collins and American Technologies
Group, Inc. (1)
10.4 Employment Agreement effective as of January 1, 1994,
by and between Shui-Yin Lo and American Technologies
Group, Inc. (1)
10.5 Standard Industrial/Commercial Single-Tenant Lease -
Gross for 1017 South Mountain Avenue, Monrovia,
California, dated May 11, 1994 (2)
10.6 License Agreement dated as of March 1, 1994 by and
between American Technologies Group, Inc. and B.W.N.
Nuclear Waste Elimination Corporation (2)
10.7 Research Agreement dated April 25, 1994 by and between
American Technologies Group, Inc. and California
Institute of Technology (2)
10.8 Technology Acquisition Agreement entered into as of
July 22, 1994 by and between the Company and Shui-Yin Lo (3)
10.9 Distribution Agreement between Greencool Technology, Inc.
and the Company entered into as of September 6, 1995. (5)
10.10 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (5)
10.11 Amended Employment Agreement dated as of November 1, 1995, by
and between Hugo Pomrehn and American Technologies Group, Inc. (5)
<PAGE>
Page 68
10.12 Employment Agreement effective as of November 1, 1995, by and
between Jim Nicastro and American Technologies Group, Inc. (5)
10.13 Employment Agreement effective as of December 1, 1995, by and
between David Gann and American Technologies Group, Inc. (5)
10.14 Stock Purchase Agreement and Plan of Reorganization made
as of April 21, 1995 by and among the Company, Bill Foster,
Jay Schofield and Jay Schofield, Trustee. (4)
10.15 Distribution Agreement (India) between Beijing Huazhao Green
Energy Engineering Co. Ltd. and the Company entered into as of
January 30, 1996. (5)
22 List of Subsidiaries of the Registrant (5)
_____________________________
(Footnotes to Exhibit List.)
(1) Previously filed as an exhibit to the Company's Form 10-SB Registration
Statement filed with the Securities and Exchange Commission (the "Commission")
on January 24, 1994 (the "Registration Statement").
(2) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on June 17, 1994.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 14, 1994.
(4) Previously filed as an exhibit to the Company's Form 8-K Current Report
filed with the Commission on April 29, 1995.
(5) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on February 16, 1996.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of the
period covered by this Report.
<PAGE>
Page 69
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN TECHNOLOGIES GROUP, INC.
By:/s/ John Collins
----------------
John Collins
Chairman of the Board and
Chief Executive Officer
Date: November 15, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ John Collins
-------------------------
John Collins
Chairman of the Board,
Chief Executive Officer and
Treasurer
Date: November 15, 1996
/s/ David Gann
--------------------------
David Gann
Director and
Director of Marketing
Date: November 15, 1996
/s/ Shui-Yin Lo
--------------------------
Shui-Yin Lo
Director and
Director of Research
Date: November 15, 1996
/s/ Hugo Pomrehn
--------------------------
Hugo Pomrehn
Director and President
Date: November 15, 1996
<PAGE>
Page 70
EXHIBIT INDEX
Sequentially
Exhibit Numbered
No. Description Page
- ------- ------------------------- ------------
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (5)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (2)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (5)
4.4 Certificate of Determination of Rights and Preferences of
Series C Convertible Preferred Stock (5)
10.1 1993 Incentive Stock Option Plan and 1993
Non-Statutory Stock Option Plan (1)
10.2 Clean Air Pac Agreement Effective November 1, 1992, By and
Between American Technologies Group, Inc., Rod Quinn,
Loren Zanier, Robert Carroll and David Gann (1)
10.3 Employment Agreement effective as of January 1, 1994, by and
between John Collins and American Technologies Group, Inc. (1)
10.4 Employment Agreement effective as of January 1, 1994, by and
between Shui-Yin Lo and American Technologies Group, Inc. (1)
10.5 Standard Industrial/Commercial Single-Tenant Lease -
Gross for 1017 South Mountain Avenue, Monrovia, California,
dated May 11, 1994 (2)
10.6 License Agreement dated as of March 1, 1994 by and between
American Technologies Group, Inc. and B.W.N. Nuclear
Waste Elimination Corporation (2)
10.7 Research Agreement dated April 25, 1994 by and between American
Technologies Group, Inc. and California Institute of Technology (2)
10.8 Technology Acquisition Agreement entered into as of July 22, 1994
by and between the Company and Shui-Yin Lo (3)
10.9 Distribution Agreement between Greencool Technology, Inc. and the
Company entered into as of September 6, 1995. (5)
<PAGE>
Page 71
10.10 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (5)
10.11 Amended Employment Agreement dated as of November 1, 1995, by
and between Hugo Pomrehn and American Technologies Group, Inc. (5)
10.12 Employment Agreement effective as of November 1, 1995, by and
between Jim Nicastro and American Technologies Group, Inc. (5)
10.13 Employment Agreement effective as of December 1, 1995, by and
between David Gann and American Technologies Group, Inc. (5)
10.14 Stock Purchase Agreement and Plan of Reorganization made
as of April 21, 1995 by and among the Company, Bill Foster,
Jay Schofield and Jay Schofield, Trustee. (4)
10.15 Distribution Agreement (India) between Beijing Huazhao Green Energy
Engineering Co. Ltd. and the Company entered into as of January 30,
1996. (5)
22 List of Subsidiaries of the Registrant (5)
________________________
(1) Previously filed as an exhibit to the Company's Form 10-SB Registration
Statement filed with the Securities and Exchange Commission (the
"Commission") on January 24, 1994 (the "Registration Statement").
(2) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on June 17, 1994.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 14, 1994.
(4) Previously filed as an exhibit to the Company's Form 8-K Current Report
filed with the Commission on April 29, 1995.
(5) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on February 16, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 2,486,313
<SECURITIES> 0
<RECEIVABLES> 315,790
<ALLOWANCES> 0
<INVENTORY> 43,961
<CURRENT-ASSETS> 2,846,064
<PP&E> 7,375,859<F4>
<DEPRECIATION> 240,135
<TOTAL-ASSETS> 9,981,788
<CURRENT-LIABILITIES> 3,555,735
<BONDS> 0
0
380
<COMMON> 16,220
<OTHER-SE> 6,409,453
<TOTAL-LIABILITY-AND-EQUITY> 9,981,788
<SALES> 417,850
<TOTAL-REVENUES> 457,642
<CGS> 0<F3>
<TOTAL-COSTS> 5,564,764
<OTHER-EXPENSES> 521,090
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,677
<INCOME-PRETAX> (5,868,889)
<INCOME-TAX> (260,200)<F1>
<INCOME-CONTINUING> (5,608,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 540,000
<CHANGES> 0
<NET-INCOME> (5,068,689)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Benefit/Provision for income tax
<F2>Not calculated
<F3>Not calculated
<F4>Includes goodwill net $1,394,023
</FN>
</TABLE>
