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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-23268
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AMERICAN TECHNOLOGIES GROUP, INC.
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(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
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
--- ---
As of June 12, 1996, the registrant had 16,115,139 shares of Common Stock
outstanding.
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TABLE OF CONTENTS
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PAGE
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PART 1 FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets as of July 31, 1995
and April 30, 1996 (unaudited) 3
Condensed Consolidated Statements of Operations for the Nine
and Three Months ended April 30, 1995 and 1996 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended April 30, 1995 and 1996 (unaudited) 6
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Operations 13
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1995 AND APRIL 30, 1996 (UNAUDITED)
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JULY 31, APRIL 30,
ASSETS 1995 1996
- - -------------------------------------------------------------------------------
(unaudited)
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CURRENT ASSETS
Cash and Cash Equivalents $ 86,019 $1,751,407
Accounts Receivable (net of $10,000 allowance) 93,633 50,174
Inventory 75,000 51,202
Marketable Securities 39,400 29,404
Advances to Stockholders/Officers - 2,500
Other Current Assets 37,632 37,657
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Total Current Assets 331,684 1,922,344
PROPERTY, EQUIPMENT AND MINERAL PROPERTIES
Buildings and Equipment 2,582,482 2,886,783
Mineral Properties 2,711,687 2,711,687
Accumulated Depreciation (142,147) (198,949)
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Net Property, Equipment and Mineral Properties 5,152,022 5,399,521
COMMERCIAL PROPERTY Held for Sale 2,623,535 -
GOODWILL, Net of Accumulated Amortization of
$1,227,717 in 1995 and $1,618,069 in 1996 2,139,023 1,749,023
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TOTAL ASSETS $10,246,264 $9,070,888
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
3
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1995 AND APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
- - -------------------------------------------------------------------------------
(unaudited)
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LIABILITIES
Accounts Payable and Accrued Expenses $ 1,279,063 $ 443,975
Notes Payable - Current Portion 3,058,792 69,238
Subscription Production Payable 40,720 40,720
Deferred Subscription Revenue - Current Portion 177,541 173,794
Due to Stockholders/Officers - 83,659
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Total Current Liabilities 4,556,116 811,386
Deferred Subscription Revenue 205,142 156,550
Due to Stockholders/Officers 104,659 -
Notes Payable - Long Term Portion 1,005,389 1,076,908
Deferred Tax Liability 1,347,224 1,347,224
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2,662,414 2,580,682
Total Liabilities 7,218,530 3,392,068
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STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock; Par Value
$.001; Authorized - 10,000,000 shares; Issued
and Outstanding-378,061 at July 31, 1995 and
378,061 at April 30, 1996 378 378
Series B Convertible Preferred Stock; Par Value
$.001; Liquidation Value - $8.00 per share
Authorized - 500,000 shares
None issued and outstanding - -
Common Stock - Par Value $.001
Authorized - 100,000,000 shares; Issued and
outstanding-12,945,865 at July 31, 1995 and
16,044,730 at April 30, 1996 12,946 16,040
Additional Paid in Capital 14,487,220 20,462,561
Stock Subscriptions 937,434 922,835
Deficit (12,410,244) (15,722,994)
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Total Stockholders' Equity 3,027,734 5,678,820
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,246,264 $9,070,888
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
4
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED APRIL 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
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NINE MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30,
------------------------- --------------------------
1995 1996 1995 1996
- - --------------------------------------------------------------------------------------------
(unaudited) (unaudited)
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REVENUES
Publishing $ 694,077 $ 168,562 $ 186,550 $ 116,024
Rental Property 103,988 39,180 31,511 --
Product Sales 52,338 67,671 12,901 17,982
Other 523,022 -- 449,436 --
----------- ----------- ----------- -----------
Total Revenues 1,373,425 275,413 680,398 134,006
COSTS AND EXPENSES
Publishing Operations 624,269 305,314 205,650 150,043
Rental Operations 239,203 120,026 112,968 --
Product Sales and Marketing 195,598 383,777 21,975 198,018
Research and Development 326,466 372,312 90,634 160,932
Officers' Compensation 359,881 430,319 157,367 171,259
General and Administrative 1,432,822 1,226,497 467,938 459,307
Amortization of Intangible Assets 393,915 390,000 131,305 130,000
Other -- 16,065 -- 52
----------- ----------- ----------- -----------
Total Costs and Expenses 3,572,154 3,244,310 1,187,837 1,269,611
MINING DEVELOPMENT LOSS -- 511,513 -- 246,528
OTHER INCOME (EXPENSE)
Other Income (Expense) -- 167,663 -- 15,025
Loss on Sale of Commercial Property -- (540,000) -- --
----------- ----------- ----------- -----------
Other Income (Expense), Net -- (372,337) -- 15,025
LOSS BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 2,198,729 3,852,747 507,439 1,367,108
PROVISION FOR STATE INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEM 2,198,729 3,852,747 507,439 1,367,108
EXTRAORDINARY ITEM -
GAIN ON EXTINGUISHMENT OF DEBT -- 540,000 -- --
----------- ----------- ----------- -----------
NET LOSS $ 2,198,729 $ 3,312,747 $ 507,439 $ 1,367,108
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER SHARE
Loss Before Extraordinary Item $ 0.20 $ 0.27 $ 0.04 $ 0.09
Extraordinary Item -- (0.04) -- --
----------- ----------- ----------- -----------
Net Loss $ 0.20 $ 0.23 $ 0.04 $ 0.09
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 11,064,760 14,169,446 12,643,782 15,447,045
----------- ----------- ----------- -----------
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
5
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 (UNAUDITED)
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NINE MONTHS ENDED
APRIL 30,
----------------------------
1995 1996
- - ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $(2,198,729) $(3,312,747)
Adjustments to reconcile net loss to net cash used:
Depreciation and Amortization 508,832 446,802
Interest Income on Collateralized CD 11,959 --
Revaluation of Marketable Securities 30,876 --
Loss on Sale of Property and Equipment 1,144 --
Stock issued for Debt Reduction -- 371,160
Stock issued as Consideration for Services 529,897 435,397
Changes in Assets and Liabilities:
Certificate of Deposit 304,017 --
Accounts Receivable (58,973) 5,130
Inventory (57,740) --
Other Current Assets 65,744 611
Accounts Payable and Accrued Expenses 22,850 (982,733)
Note Payable Due to Stockholders/Officers (23,427) (19,500)
Other Current Liabilities -- (93,810)
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Net Cash Provided by/(Used in) Operating Activities (863,550) (3,149,690)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Building Improvements (51,887) --
Purchase of Property and Equipment (1,584,632) (304,301)
Proceeds from Sale of Property and Equipment 7,800 --
Proceeds from Sale of Commercial Properties -- 500,117
Proceeds from Sale of Marketable Securities -- 9,996
Purchase of Leasehold Improvement (69,985) --
Investment in New Concept Mining, Inc. (2,851,450) --
Purchase of final 15% of Final Frontier, Inc. (390,000) --
Advances to Stockholders/Officers -- (4,000)
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Net Cash Provided by/(Used in) Investing Activities (4,940,154) 201,872
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Notes Payable (354,296) (347,122)
Net Proceeds from Stock Issuance 4,345,374 4,960,328
Net Proceeds from Issuance of Notes Payable 1,489,000 --
----------- -----------
Net Cash Provided by/(Used in) Financing Activities 5,480,078 4,613,206
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NET INCREASE (DECREASE) IN CASH (323,626) 1,665,388
CASH AND CASH EQUIVALENTS, Beginning of Period 436,895 86,019
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CASH AND CASH EQUIVALENTS, End of Period $ 113,269 $ 1,751,407
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
6
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AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three month and the nine month periods ended April 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended July 31, 1996. For further information please refer to the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended July 31, 1995.
2. 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 it acquired the publishing
business of Final Frontier Publishing, Inc. Also in fiscal 1995, and
subsequent periods, the Company has realized revenue from certain of
its environmental solutions products.
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).
7
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ATG is principally involved in developing technological solutions to
environmental problems. The activities include, among others, the
distribution of non-CFC refrigerants, the development and
commercialization of products designed to improve the combustion from
the burning of fossil fuels, a device which utilizes helium clusters
to produce a high energy beam capable of remediation of toxic waste
(Baser Technology), technologies for the clean-up and filtering of
oil and gas production water, waste water and sewage, and a device
for desalinization of water.
In September 1995, the Company entered into a non-exclusive
Distribution Agreement with Greencool Technology, Inc., whereby the
Company obtained the rights to distribute certain non-CFC
refrigerants in the United States. The Distribution Agreement
requires attainment of certain minimum sales quantities by the
Company as well as equal sharing of profits, as defined by the
parties. The Company shall be offered first right of refusal to a
similar distribution agreement for Mexico providing it complies with
the terms of the agreement. The Agreement expires on December 31,
1997 and provides for a three year renewal option by agreement of the
parties.
ATG Media, Inc., develops and markets space and technology related
publications, books and merchandise for the space professional, space
enthusiast and educational markets. ATG Media'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.
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating
losses. The ability of the Company to operate as a going concern is
dependent upon: 1) its ability to obtain sufficient additional
capital in the short term, 2) generate significant revenue through
its existing assets and operating businesses 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 or public offerings, as well as, attain a
listing of its stock for trading in the NASDAQ SmallCap Market. The
successful outcome of these 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
its business plans or generate positive operating results. The
financial statements do not include any adjustments relating to the
recoverability and classification of assets carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
8
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3. COMMERCIAL PROPERTIES AND REAL ESTATE OPERATIONS
In fiscal 1994, the Company purchased from a bank a rental property in
Pasadena, California for $550,546 including improvement costs. The Company
recorded a loss of $44,710 on this property in fiscal 1994.
In November 1995, the Company sold this property for net proceeds of
approximately $447,000. The sale generated a loss of approximately $45,000,
which was recorded in fiscal 1995. The property has been classified within
commercial properties held for sale in the accompanying July 31, 1995
consolidated balance sheet.
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. In December 1995, with respect
to the commercial property and note payable, 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. The Company incurred a loss of
approximately $1,000,000 by transferring the property offset by a 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 consolidated statement of
operations in fiscal 1995. The $540,000 gain on the extinguishment of debt
has been reflected in the accompanying statement of operations as a
extraordinary item.
4. CAPITAL STOCK
a. COMMON STOCK
During the nine months ended April 30, 1996, the Company issued a total
of 2,899,306 shares of common stock for a combination of cash, services
and debt reduction valued at a total of $6,004,180. An additional
206,135 shares were issued upon the conversion of certain Series B
Preferred Stock. At April 30, 1996 there were 16,044,730 shares of
common stock outstanding.
b. PREFERRED STOCK
ATG has authorized preferred stock of 50,000,000 shares, with a par
value of $0.001 per share. The preferred stock may be issued from time
to time in series having such designated preferences and rights,
qualifications and limitations as the Board of directors may determine.
The Company has designated a series of preferred stock called Series A
Convertible Preferred Stock and has authorized 10,000,000 shares. 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 April 30, 1996, 378,061 shares of Series A Stock
were outstanding, no shares having been converted.
9
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The Company has designated a second series of preferred stock called
Series B Convertible Preferred Stock and authorized 500,000 shares. 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. During the nine months ended April 30,
1996, a total of 77,204 shares were converted into 206,135 shares
($2.67 per share) of ATG Common Stock. As of April 30, 1996, a total of
35,296 Series B Preferred Stock shares were reserved for issuance at an
outstanding value of $349,620 which has been included in stock
subscriptions in the accompanying consolidated balance sheets.
c. STOCK OPTION PLANS
During fiscal 1994, the Company adopted the 1993 Incentive Stock Option
Plan (ISO Plan) and the 1993 Non-Statutory Stock Option Plan (NSO 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 ISO
Plan, and to non-employees under the NSO Plan. Under the ISO 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 ISO Plan), shall be at least
one hundred and 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 in December 2002.
As of April 30, 1996, there were options for 1,273,000 shares
outstanding under the ISO Plan with exercise prices ranging from $1.50
to $6.25 per share; options for 130,000 shares outstanding under the NSO
Plan with exercise prices ranging from $1.50 to $5.00 per share; options
for 1,360,000 shares outstanding in conjunction with various employment
agreements with exercise prices ranging from $1.50 to $3.00 per share;
and, options for 1,575,000 shares outstanding associated with
miscellaneous agreements with exercise prices ranging from $0.25 to
$10.00 per share. The outstanding options have varying vesting schedules
and a weighted average exercise price of approximately $3.00 per share.
In addition, the options for 160,000 shares are performance based.
d. STOCK SUBSCRIPTIONS
As of April 30, 1996 the Company had not issued 219,530 shares of Common
Stock subscribed to for cash, services and debt reduction for an
aggregate of approximately $573,215. This amount has been included
within stock subscriptions in the accompanying condensed consolidated
balance sheet at April 30, 1996.
10
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5. GREENCOOL AGREEMENT
In September 1995, the Company entered into a non-exclusive Distribution
Agreement with Greencool Technology, Inc., whereby the Company obtained the
rights to distribute certain non-CFC refrigerants in the United States. The
Distribution Agreement requires attainment of certain minimum sales
quantities by the Company as well as equal sharing of profits, as defined,
between the parties. Greencool maintains the option to terminate the
Agreement should the minimum sales quantities not be achieved. The Company
shall be offered the right of first refusal to a similar distribution
agreement for Mexico providing it complies with the terms of the Agreement
and meets the minimum sales requirements. The Agreement expires on
December 31, 1997 and provides for a three year renewal option by the parties.
The Company has entered into option agreements with five parties in
connection with their assistance in acquiring the Distribution Agreement.
These agreements grant the parties options to acquire an aggregate of
800,000 shares of ATG Common Stock at an exercise price of $3.00 per share
over a period of two years.
Subsequent to entering into the Distribution Agreement with Greencool, the
Company was notified by legal counsel to Gu Cooling Systems Ltd., ("GCSL")
that an injunction order had been granted in Ontario Court (Canada) which
states in part that marketing of the refrigerants in the United States shall
be done by GCSL on a non-exclusive basis. ATG has been assured by Greencool
and Mr. Gu, the inventor of the refrigerants and controlling shareholder of
GCSL, that this injunction does not affect Greencool or ATG as the rights to
the refrigerants held by Greencool were obtained in a manner that does not
violate the injunction. In the event that the injunction adversely affects
the right of the Company to market the refrigerants in the United States, the
Company will have a claim against Greencool for damages as a result of a
breach by Greencool of its representations in the Distribution Agreement.
6. EMPLOYMENT AGREEMENTS
In November 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 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 as to 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.
In November 1995, the Company entered into an amended employment agreement
with one of its officers. Under the amended agreement, the officer received
an option to purchase 500,000 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. Subsequently, options on 250,000 shares were
canceled as part of a reduction of options for senior management.
11
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In November 1995, the Company entered into an employment agreement with one
of its officers. 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. Under the Agreement, the individual
received an option to purchase 600,000 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 after termination of the employment
agreement prior to the expiration date. Subsequently, options on 500,000
shares were canceled as part of a reduction of options for senior management.
7. DIXIE AND SELIG AGREEMENTS
In December 1995, the Company entered into a consulting agreement with Dixie
Exploration Corporation, a Nevada corporation, expiring in July 1996 whereby
ATG agreed to issue Dixie 50,000 shares of ATG Common Stock for services
rendered. In conjunction with the agreement, Dixie eliminated the remaining
balance due from ATG on a note payable of $23,500 and Anthony Selig
eliminated $50,000 due under the original $125,000 note payable.
8. SUBSEQUENT EVENTS
In December 1993, in connection with efforts to market The Force-TM- in
Mexico, the Company entered into an agreement with Mario E. Moya Ibanez,
pursuant to which he was to provide various services in exchange for which he
was issued 100,000 shares of the Company's common stock. Subsequently,
Mr. Moya was unable to perform his obligations under the agreement, and ATG
abandoned its marketing efforts in Mexico in November 1994. At that time, the
100,000 shares issued to Mr. Moya were canceled. In May 1996, the Company was
notified that Mr. Moya maintains that the shares are validly issued. The
Company is currently in discussions with Mr. Moya's attorney in an effort to
resolve this matter. There can be no assurance that a resolution, if any, can
be achieved without a cost to the Company.
In June 1996, the Company entered into an exclusive marketing agreement for
The Force-TM- product line with King World Direct, Inc., a Delaware
corporation. The agreement grants King World the worldwide (subject to
certain restrictions) right and license to distribute The Force-TM- and
related products for consumer use. The agreement has a term of three years,
with certain extension provisions, and commits King World to test marketing
the product within eighteen months of the signing date of the agreement
through a two minute commercial or infomercial. The agreement also grants
King World warrants to purchase up to 1,608,434 shares of the Company's
common stock at $5.82 per share. These warrants vest at a rate of 10% for
every 250,000 units of the product sold. Additional warrants will be granted
equal to the difference between 10% of the outstanding common shares and
1,608,434 shares of common stock. The exercise price for these additional
warrants shall be the average closing bid price over the previous
twenty (20) trading days before the issuance of the warrants.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The Company acquired 85 percent of the outstanding capital stock in Final
Frontier as of July 1994, and acquired the remaining 15 percent in fiscal
year 1995. In April 1995, ATG acquired 100 percent of the outstanding stock
of New Concept Mining. 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 entities became
majority-owned subsidiaries.
Total assets of the Company were $9,070,900 as of April 30, 1996,
representing a $1,174,400 decrease over total assets of $10,246,300 at July
31, 1995. This change is attributed to increases in cash on-hand of
$1,665,400 and buildings and equipment of $304,300. These increases were
offset by the sale of commercial properties which were carried at $2,623,500
as of July 31, 1995, but sold in the nine month period ended April 30, 1996,
amortization of goodwill related to ATG Media of $390,000, and reductions in
accounts receivable ($35,500), inventory ($23,800) and marketable securities
($10,000).
Total liabilities of $3,392,100 at April 30, 1996 decreased $3,826,400 from
liabilities of $7,218,500 at July 31, 1995. This decrease is primarily
attributable to a reduction in accounts payable of $835,100 and, a reduction
in short term debt of $2,905,900 principally associated with the commercial
properties sold and returned in the nine months ended April 30, 1996. These
reductions were slightly offset by an increase in the net present value of
long term notes associated with New Concept Mining.
The Company's consolidated revenue for the three months ended April 30, 1996
was $134,000 compared to $680,400 in the similar period last year. This
decrease in revenue was attributed to the absence of a one-time technology
license fee ($409,000) booked during this period last year; reduced
publishing revenue associated with lower magazine sales, attributable to
certain cashflow 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 in November and December, 1995. ATG's consolidated
loss for the three months ended April 30, 1996 totaled $1,367,100 as compared
to $507,400 in the same period the prior year. Overall operating expenses
increased by $81,800, as a result of increased R&D and product marketing
expenses associated with the Company's line of non-CFC refrigerants, which
were somewhat offset by reduced publishing and rental operations expenses. In
addition, the Company incurred expenses associated with its New Concept
Mining subsidiary of $246,500 in the current period.
The Company's consolidated revenue for the nine months ended April 30, 1996
was $275,400 compared to $1,373,400 in revenue generated in the same period
last year. This decrease in revenue is primarily attributable to reduced
revenue from its publishing operations, which released only two magazines
during the nine months ended April 30, 1996 due to certain cash flow
difficulties described further below. Revenue from rental property was also
reduced, in part due to the sale of the commercial properties in November and
December 1995. Also, other revenue was reduced due to the absence of a
one-time technology license fee ($409,000) earned during this period last
year. ATG's consolidated loss for the nine months ended April 30, 1996 was
$3,312,700 as compared to $2,198,700 in the same period last year. Reductions
in overall operating expenses were more than offset by reduced publishing,
rental and other revenue, and the addition of $511,500 in expenses associated
with New Concept Mining.
13
<PAGE>
Revenue from environmental solution products was $18,000 for the three months
ended April 30, 1996 as compared to $12,900 for the like period last year.
Revenue from this same segment was $67,700 for the nine months ended April
30, 1996 as compared to $52,300 for the same period in the prior year. The
Company has not generated significant sales from The Force-TM- since
commencement of its test marketing in November 1993. Since that time, the
Company has tested various marketing approaches for The Force-TM- and sales
have been gradually increasing. Substantial funds are needed to launch a
widespread marketing program which may create wider market awareness and
acceptance of the product. In an effort to accelerate the desired increase in
sales, management intends to seek a strategic partner to help market The
Force-TM-. In June 1996, the Company entered into a marketing agreement for
The Force-TM- with King World Direct Inc., however, there can be no assurance
that the King World agreement will result in any sales of The Force-TM-, or
that The Force-TM- will ever be widely accepted in the marketplace (see Note
8 - Subsequent Events above). The Company has recently received several
purchase orders for it's non-CFC product line, and anticipates additional
purchase orders as a result of its initial marketing efforts.
The environmental solutions segment, inclusive of all R&D expenditures,
incurred a loss of $341,000 in the three month period ended April 30, 1996 as
compared to $99,700 for the same period last year. This increase in loss was
a primarily a result of higher product sales and marketing costs associated
with The Force-TM- and the Company's line of non-CFC refrigerants, as well as
higher R&D costs in the period. For the nine month period ended April 30,
1996, this segment incurred a loss of approximately $688,400 as compared to a
loss of $469,700 during the same period in the prior year.
The publishing business segment incurred a loss of $164,000 in the three
months ended April 30, 1996 as compared to a loss of $150,400 in the same
period last year. This increased loss was due to reduced revenue for the
period resulting from fewer magazine issues being published, offset by lower
operating expenses. Publishing operations resulted in a loss of approximately
$526,800 during the nine months ended April 30, 1996 as compared to a loss of
$324,100 in the same period last year. This increase in the operating loss is
a result of reduced publishing revenue which was somewhat offset by reduced
operating expenses. Due to cash flow difficulties encountered by ATG, three
issues of the magazine were not released and subscription renewals and
advertising revenue were not pursued which resulted in a $507,500 reduction
in overall revenue compared to the same period last year. The cash flow
difficulties were partially 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 base back to previous levels.
Since the magazine was relaunched, revenue has been increasing, and
management believes that this business segment will reach a break-even
level of operations, excluding goodwill amortization, during fiscal 1997,
although there can be no assurance that this will occur.
For the three months ended April 30, 1996, the Company's New Concept Mining
subsidiary incurred a loss of $246,500. For the nine month period ended April
30, 1996 this segment incurred a loss of $511,500. ATG purchased New Concept
Mining in April 1995 and anticipates that the cost of operations has been
funded by the cash investments ATG has received. Despite temporary delays
involving certain permitting issues, the Company is completing its mill and
lab facilities, and stockpiling ore, and anticipates that ore production will
begin by August or September, 1996. Once the mine reaches full production,
management believes that this business segment will achieve break-even
operations, excluding capital expenditure requirements, although there can be
no assurance that this will occur.
The Company did not have any rental property operations in the three months
ended April 30, 1996, and incurred a loss of $81,500 in the three months
ended April 30, 1995. The Company incurred a loss of $80,800 and $135,200 in
the nine month periods ended April 30, 1996 and 1995, respectively. In
November and December 1995 the Company entered into a deed in lieu of
foreclosure transferring the property to the holder of the note. In addition,
the Company sold its remaining commercial property, resulting in a complete
divestiture of all real estate associated operations.
14
<PAGE>
For the three months ended April 30, 1996 corporate overhead expenses
increased slightly to $630,500 from $625,300 in the like period last year.
Corporate overhead costs decreased to $1,642,800 in the nine month period
ended April 30, 1996 from $1,792,700 in the same period last year. Early in
the current nine month period, the Company had reduced certain overhead
charges including non-officer payroll, consulting, legal and travel expenses
relative to the prior year.
The Company's cash flow used in operations increased to $3,149,700 from
$863,550 for the nine months ended April 30, 1996 and 1995, respectively. The
primary sources of working capital included the sale of ATG Common Stock for
net cash proceeds of $4,960,300 and proceeds from the sale of commercial
property of $500,200. These sources of working capital were offset by the
reduction of accounts payable balances of $982,700, the purchase of certain
fixed assets of $304,300 and the payment of notes payable of $347,100, as
well as the Company's operating loss. During the nine month period ended
April 30, 1996, the Company was able to obtain reductions in the amounts owed
certain creditors of approximately $146,000 in addition to acceptance of ATG
Common Stock for full or partial payments of sums due of approximately
$806,600 in the aggregate. Although, the Company anticipates that it will be
able to continue operations at the current level for the remainder of the
fiscal year (July 31, 1996), additional funds will need to be raised in the
near future in order to continue operations at present levels. However, there
can be no assurance that the Company will be able to raise the funds needed
to continue operations at current levels and execute its overall business
plan, or that it will be able to generate positive operating results.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
16
<PAGE>
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,
Chief Executive Officer and
Treasurer
Date: June 13, 1996
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE
MONTHS ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,751,407
<SECURITIES> 29,404
<RECEIVABLES> 50,174
<ALLOWANCES> 10,000
<INVENTORY> 51,202
<CURRENT-ASSETS> 1,922,344
<PP&E> 2,886,783
<DEPRECIATION> 198,949
<TOTAL-ASSETS> 7,070,888
<CURRENT-LIABILITIES> 811,386
<BONDS> 1,076,908
0
378
<COMMON> 21,401,436
<OTHER-SE> (15,722,994)
<TOTAL-LIABILITY-AND-EQUITY> 9,070,888
<SALES> 275,413
<TOTAL-REVENUES> 275,413
<CGS> 0
<TOTAL-COSTS> 3,244,310
<OTHER-EXPENSES> 372,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,852,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,312,747)
<DISCONTINUED> (540,000)
<EXTRAORDINARY> 540,000
<CHANGES> 0
<NET-INCOME> (3,312,747)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
