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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 October 31, 1997
[ ] 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
AMERICAN TECHNOLOGIES GROUP, INC.
(Name of small business issuer in its charter)
NEVADA 95-4307525
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1017 SOUTH MOUNTAIN AVENUE, MONROVIA, CA. 91016
(Address of principal executive offices) (zip code)
Issuer's telephone number: (626) 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 December 19, 1997, the registrant had 21,274,692 shares of Common
Stock outstanding.
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TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheet as of October 31, 1997 and
July 31, 1997 3
Consolidated Statement of Operations for the Three Month
Periods ended October 31, 1997 and October 31, 1996 5
Consolidated Statement of Cash Flows for the Three Month
Periods ended October 31, 1997 and October 31, 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis 9
PART II OTHER INFORMATION
ITEM 2 Changes in Securities 11
ITEM 6 Exhibits and Reports on Form 8-K 11
Signatures 12
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF
THE "SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING
THIS STATEMENT FOR THE EXPRESS PURPOSE OF SUCH SAFE HARBOR WITH RESPECT TO
ALL SUCH FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS
REPORT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN AND IN
OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE
ANTICIPATED. IN THIS REPORT, THE WORDS "ANTICIPATES", "BELIEVES", "INTENDS",
"FUTURE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS
TO RELFECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF.
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American Technologies Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
October 31, July 31,
ASSETS 1997 1997
- -------------------------------------------------------------------------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $2,867,051 $1,033,108
Accounts receivable (net of $134,772 allowance) 61,422 445,230
Amounts due from officers/shareholders 148,175 148,375
Inventory 277,355 239,738
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Total current assets 3,354,003 1,866,451
PROPERTY, EQUIPMENT AND MINERAL PROPERTIES 7,868,588 7,687,852
Less accumulated depreciation (331,103) (290,388)
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Net property, equipment and mineral properties 7,537,485 7,397,464
OTHER ASSETS
Technology rights 1,200,000 -
Other assets 403,583 298,518
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Total other assets 1,603,583 298,518
TOTAL ASSETS $12,495,071 $9,562,433
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The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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American Technologies Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
October 31, July 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- -----------------------------------------------------------------------------
(unaudited)
LIABILITIES
Accounts payable $ 862,784 $ 994,620
Related party payables - 71,410
Deferred subscription revenue 165,401 105,043
Current portion of notes payable and capital leases 613,092 605,569
Other accrued liabilities 64,977 -
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Total current liabilities 1,706,254 1,776,642
Deferred tax liability 489,224 489,224
Deferred subscription revenue 51,938 101,260
Convertible debentures 3,225,000 -
Notes payable and capital leases 1,259,243 1,250,444
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5,025,405 1,840,928
Total liabilities 6,731,659 3,617,570
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STOCKHOLDERS' EQUITY
Series A Preferred - $ .001 par value, 10,000,000 378 378
authorized, Issued and outstanding 378,061 shares
Series B Preferred - $.001 par value, 500,000 authorized, - -
None issued and outstanding
Series C Preferred - $.001 par value, 2,000 authorized - -
None issued and outstanding
Common Stock: ATG - $.001 par value, 100,000,000 21,253 20,722
authorized, 20,721,789 issued and outstanding at
July 31, 1997 21,253,442 issued and outstanding at
October 31, 1997
Additional paid in capital 34,849,400 32,904,555
Stock subscriptions 134,794 135,518
Deficit (29,242,413) (27,116,310)
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Total stockholders equity 5,763,412 5,944,863
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,495,071 $ 9,562,433
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The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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American Technologies Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended
October 31,
-------------------
1997 1996
- ------------------------------------------------------------------------------
(unaudited)
REVENUES
Publishing $ 52,804 $ 90,026
Product Sales 467,836 56,830
Other 55,562 25,739
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Total Revenues 576,202 172,595
OPERATING EXPENSES
Publishing operations 155,379 96,976
Product sales and marketing 362,184 515,279
Mining operations 95,861 326,601
Research and development 359,115 287,926
General and administrative 620,645 651,645
Amortization of intangible assets - 130,000
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Total operating expenses 1,593,184 2,008,427
INTEREST EXPENSE (INCOME), NET 1,107,521 58,202
LOSS BEFORE PROVISION FOR INCOME TAXES 2,124,503 1,894,034
BENEFIT FOR INCOME TAXES 1,600 -
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NET LOSS $2,126,103 $1,894,034
NET LOSS PER SHARE $ 0.10 $ 0.12
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,856,670 16,373,334
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The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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American Technologies Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended
October 31,
-------------------
1997 1996
- ------------------------------------------------------------------------------
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $(2,126,103) $(1,894,034)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 40,715 151,565
Stock issued as consideration for services 4,235 223,100
Imputed interest expense for notes payable 20,899 34,006
Imputed interest on convertible debt 1,075,000 -
Changes in assets and liabilities:
Accounts receivable 383,808 (58,227)
Advances to stockholders/officers 200 (81,750)
Inventories (37,617) (66,405)
Other current assets (105,065) (14,695)
Accounts payable and accrued liabilities (138,269) (53,952)
Deferred subscription revenue 11,036 (4,495)
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Net cash used in operating activities (871,161) (1,764,887)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (180,736) (143,215)
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Net cash used in investing activities (180,736) (143,215)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on notes payable (4,577) -
Payments on capital lease - (50,000)
Payments due stockholder/officer - (18,000)
Net proceeds from issuance of convertible debenture 2,834,880 563,500
Net proceeds from issuance of stock and stock
subscription 55,537 365,484
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Net cash provided by financing activities 2,885,840 860,984
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,833,943 (1,047,118)
CASH AND CASH EQUIVALENTS, Beginning of Period 1,033,108 2,486,313
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CASH AND CASH EQUIVALENTS, End of Period $2,867,051 $1,439,195
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Stock issued for technology rights $1,200,000 $ -
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The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
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 period ended October 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended July 31,
1998. For further information, please refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB/A for the year ended July 31, 1997.
2. ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
a. ORGANIZATION AND LINE OF BUSINESS
American Technologies Group, Inc. (the Company or ATG), a Nevada
Corporation, is engaged in the development, commercialization and sale of
products and systems using its patented and proprietary technologies. ATG
also is involved in research and development, through research or
acquisition of 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.
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating
losses. The ability of the Company to successfully carry 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 and (3) overcome significant product
development issues.
The Company plans to raise additional working capital as needed through
private offerings, as well as 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 further develop its business plans or generate
positive operating results.
3. DEBENTURES
In October 1997, the Company issued $3,225,000 of 7.5 percent Convertible
Debentures, maturing October 15, 1999. Accrued interest on these
convertible debentures is due on the earlier of conversion or maturity and
both the accrued interest and the principal is payable in cash or ATG
Common Stock at the Company's discretion. Up to one-third of the original
principal amount of the Debentures is convertible into Common Stock
commencing 45 days after issuance, up to two-thirds of the original
principal amount of the Debentures is convertible into Common Stock
commencing 75 days after issuance and up to 100 percent of the original
principal amount of the Debentures is convertible into Common Stock
commencing 105 days after issuance, at the sole option of the holder. The
conversion price is equal to the lesser of 75 percent of the average
closing bid price of the Common Stock for the five trading days prior to
conversion or the average
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price on the closing date. The Company anticipates that all of the
debentures (including interest) will be converted into ATG Common Stock.
Therefore, imputed interest of $1,075,000 was recorded as interest expense
in connection with the 25 percent discount from market on the $3,225,000
of debentures. Subsequent to October 31, 1997, debentures in the principal
amount of $425,000 were converted into 415,558 shares of Common Stock.
4. TECHNOLOGY RIGHTS
On August 5, 1997, in exchange for 500,000 shares of Common Stock valued
at $1,200,000, the Company acquired all remaining interests and royalty
rights of Robert W. Carroll and BWN Oil Investments Corporation, a
Nevada corporation (together BWN), to the "clean air pac" which is used
by the Company in The Force-Registered Trademark- airborne fuel
treatment. Under the 1992 agreement pursuant to which the Company
acquired the right to use the clean air pac, the Company was required to
pay a 1.25% cash royalty plus up to one million shares of Series A
Convertible Preferred Stock to BWN based upon sales of The Force.
5. CAPITAL STOCK
a. COMMON STOCK
During the three months ended October 31, 1997, the Company issued 120
shares of Common Stock for services rendered valued at $360. All shares
issued were valued at estimated market value at date of issuance.
b. STOCK SUBSCRIPTIONS
During the three months ended October 31, 1997, the Company issued 1,533
shares of Common Stock valued at $4,600 which were included within stock
subscriptions as of July 31, 1997. As of October 31, 1997, the Company
had not issued (i) 32,783, shares of Common Stock owed for services
rendered prior to October 31, 1997, valued at $68,924 and (ii) 36,957
shares of Common Stock sold under private placements during fiscal 1997
for an aggregate of $65,870 in cash received prior to July 31, 1997.
These amounts have been included within stock subscriptions in the
accompanying consolidated balance sheets.
6. SUBSEQUENT EVENT
In November, 1997, New Concept Mining Inc., a wholly-owned subsidiary of
the Company, entered into a Mining Lease and Option to Purchase Agreement
with Royal Gold, Inc. (Royal Gold) pursuant to which Royal Gold is
granted an option to purchase three patented and 115 unpatented mining
claims in the Manhattan Mining District of Nevada for $3,475,000 prior to
November 20, 2001. Subject to the exercise of the option, Royal Gold has
an exclusive mining lease for twenty years and so long thereafter as
minerals are produced in commercial quantities. In exchange, Royal Gold
will assume landowner payments totaling $875,000 over a four year period
($50,000 of which has already been paid to a landowner by Royal Gold) and
incur a minimum of $250,000 yearly for exploration and development costs
on the property. Furthermore, ATG will receive a 4% net royalty on all
smelted gold produced by Royal Gold from the property.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Total assets increased by $2,932,700 from $9,562,400 to $12,495,100 at July
31, 1997 and October 31, 1997, respectively. This increase was the net result
of an increase in current assets of $1,487,600, primarily consisting of a
cash increase of $1,833,900 partially offset by a decrease in receivables of
$383,800 and an increase of Other Assets of $2,932,600 primarily consisting
of newly acquired technology rights ($1,200,000).
Total liabilities increased by $3,114,100 from $3,617,600 to $6,731,700 at
July 31, 1997 and October 31, 1997, respectively. This increase was
principally the result of the sales of $3,225,000 in debt instruments.
The Company's consolidated revenue increased by $403,600 from $172,600 to
$576,200 for the quarters ended October 31, 1996 and 1997, respectively.
This increase in revenue was primarily attributable to an increase in product
sales of $411,000 consisting principally of The Force.
Operating expenses decreased by $415,200 from $2,008,400 to $1,593,200 for
the quarters ended October 31, 1996 and 1997, respectively. This decrease in
operating expenses was primarily attributable to decreases of expenses for
product sales and marketing ($153,100), mining operations ($230,700) and
amortization of intangible assets ($130,000). Net interest expense increased
by $1,049,300, primarily related to the increase in debt instruments.
ATG's consolidated loss increased $232,100 from $1,894,000 to $2,126,100 for
the quarters ended October 31, 1996 and 1997, respectively. This increased
loss was the result of increased non-cash interest expense related to the
discount from the market value of the Common Stock issuable upon conversion
of all of the debt instruments. Without this non-cash interest expense, the
consolidated loss decreased $842,900 from $1,894,000 to $1,051,100 for the
quarters ended October 31, 1996 and 1997, respectively.
Loss from New Concept Mining Inc. (New Concept) decreased $314,400 from
$427,900 to $113,500 for the quarters ended October 31, 1996 and 1997,
respectively. This decrease is the result of suspension of mining and
milling activities at New Concept gold properties in the Manhattan mining
district. It is anticipated the future expenses related to operation of New
Concept will be significantly less than prior periods due to the suspension
of mining activities and the agreement with Royal Gold (see financial
statement note 6, Subsequent Event).
The primary source of working capital during the three months ended October
31, 1997 was the issuance of $3,225,000 of 7.5 percent Convertible Debentures
for net proceeds of $2,834,900. In the comparable period in 1996, the
primary source of working capital was the sale of $700,000 of 8 percent
Convertible Debentures for net proceeds of $563,000 and net proceeds from the
sale of stock and stock subscriptions
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of $365,500. The Company anticipates that it will be able to continue its
operations at the current level for the remainder of the fiscal year without
the sale of additional securities or generating significant revenues from
existing operations, however, there can be no assurance to this effect.
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PART II
OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) During the three months ended October 31, 1997, an aggregate of one
thousand, three hundred seventy (1,370) shares of Common Stock were issued to
two individuals in consideration of services rendered valued at Four
Thousand, Two Hundred Thirty-Five Dollars ($4,235). In addition, five
hundred thousand (500,000) shares of Common Stock were issued to one
corporation in connection with the acquisition of certain technology valued
at One Million, Two Hundred Thousand Dollars ($1,200,000). These
transactions are claimed to be exempt from registration under the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) thereof, as
transactions not involving a public offering, in that the purchasers had full
access to all material information concerning the Company and were acquiring
the shares for investment and not with a view to distribution. There were no
underwriting discounts or commissions paid in connection with the issuance of
the Common Stock nor was any advertising or other form of general
solicitation used by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
4.5 Form of 7.5% Convertible Debenture
(b) REPORTS ON FORM 8-K.
The Company filed one Report on Form 8-K dated October 16, 1997 reporting
under Item 9.
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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/ Lawrence J. Brady
----------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
Date: December 22, 1997
By: /s/ Harold Rapp
----------------------
Harold Rapp
Chief Financial Officer
Date: December 22, 1997
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EXHIBIT 4.4
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY
NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT IN ACCORDANCE WITH
REGULATION S UNDER THE ACT, OR AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
No. US $
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FORM OF
AMERICAN TECHNOLOGIES GROUP, INC.
7.5% CONVERTIBLE DEBENTURE DUE OCTOBER 15, 1999
THIS DEBENTURE is one of a duly authorized issue of $_________ in
Debentures of American Technologies Group, Inc., a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") designated as
its 7.5% Convertible Debenture Due October 15, 1999.
FOR VALUE RECEIVED, the Company promises to pay to _________, the
registered holder hereof (the "Holder"), the principal sum of Three Million and
00/100 (US $3,000,000) Dollars on October 15, 1999 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears on
the Maturity Date or if earlier, on each Conversion Date (as hereinafter
defined) at the rate of 7.5% per annum accruing from the date of initial
issuance. Accrual of interest shall commence on the first such business day to
occur after the date hereof until payment in full of the principal sum has been
made or duly provided for. Subject to the provisions of Section 4 below, the
principal of, and interest on, this Debenture are payable at the option of the
Company, in shares of Common Stock of the Company or in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time. The Company will pay the principal of and interest upon this
Debenture on the Maturity Date, less any amounts required by law to be deducted,
to the registered holder of this Debenture as of the tenth day prior to the
Maturity Date and addressed to such holder as the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Debenture to the extent of the sum represented by such
check plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US $10,000) and integral multiples thereof. The Debentures are exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same. No service
charge will be made for such registration or transfer
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or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including opinions that the issuance of the Debenture in such
other name does not and will not cause a violation of the Act or any applicable
state or foreign securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
4. The Holder of this Debenture is entitled, at its option, to convert at
any time (a) one-third (1/3rd) of the principal amount of the Debenture
commencing forty-five (45) days after the closing of sale of the debenture (the
"Closing"); (b) one-third (1/3rd) commencing seventy-five (75) days after the
closing of the Debenture; and (c) the remaining one-third (1/3rd) commencing one
hundred five (105) days after the closing of the Debenture, provided that the
principal amount is at least US $10,000 (unless if at the time of such election
to convert the aggregate principal amount of all Debentures registered to the
Holder is less that Ten Thousand Dollars (US $10,000), then the whole amount
thereof) into shares of Common Stock of the Company at a conversion price for
each share of Common Stock (the "Conversion Price") equal to the lesser of (a)
100% of the Market Price (as defined below) on the Closing, or (b) 75% the
Market Price on the Conversion Date. Anything herein to the contrary
notwithstanding, the Holder shall be deemed to have given a notice of conversion
on the Maturity Date with respect to all outstanding Debentures, to which a
notice of conversion is not then in effect as of the Maturity Date (a "Maturity
Date Conversion"). For purposes of this Section 4, the "Market Price" shall be
the average closing bid price of the Common Stock on the five (5) trading days
immediately preceding the Closing or the Conversion Date (as defined below), as
may be applicable, as reported by the National Association of Securities
Dealers, or the closing bid price on the over-the-counter market on such date
or, in the event the Common Stock is listed on a stock exchange, the Market
Price shall be the closing price on the exchange on such date, as reported in
the Wall Street Journal. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of the Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion (as
above provided) hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. Interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in
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cash or Common Stock upon conversion. No fraction of Shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The date on which
notice of conversion is given (the "Conversion Date") shall be deemed to be (i)
the date on which the Holder has delivered this Debenture, with the conversion
notice duly executed, to the Company or, if earlier, the date set forth in such
notice of conversion if the Debenture is received by the Company within three
(3) business days therefrom, or (ii) with respect to a Maturity Date Conversion,
the Maturity Date. Facsimile delivery of the conversion notice shall be
accepted by the Company at telephone number (818) 357-4464. Certificates
representing Common Stock upon conversion will be delivered within three (3)
business days from the date the notice of conversion is delivered to the
Company.
5. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein proscribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company.
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
7. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee shall amend this Debenture to provide that it
may thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen
(15) days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture, less all amounts required by
law to be deducted, upon which tender of payment following such notice, the
right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under
<PAGE>
circumstances which will not result in a violation of the Act or any applicable
state Blue Sky or foreign laws or similar laws relating to the sale of
securities.
9. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based ON FORUM NON COVENIENS, to the bringing of any such
proceeding in such jurisdictions.
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture; or
b. Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by the Company in connection with the execution and
delivery of this Debenture or the Subscription Agreement shall be
false or misleading in any material respect at the time made; or
c. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture and
such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure; or
d. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
e. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
f. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
g. Any final unappealable money judgment, writ or warrant of
attachment, or similar process in excess of Fifty Thousand
($50,000) Dollars in the
<PAGE>
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
h. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
i. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: October 15, 1997
AMERICAN TECHNOLOGIES GROUP, INC.
By:
--------------------
Its:
--------------
ATTEST:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of AMERICAN TECHNOLOGIES GROUP, INC., according to the conditions hereof, as of
the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933 and is not converting
the Debenture on behalf of any U.S. Person.
Date of Conversion*:
---------------------------------------------
Applicable Conversion Price:
-------------------------------------
Signature:
-------------------------------------------------------
[Name]
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
* This original Debenture and Notice of Conversion must be received by the
Company by the third business date following the Date of Conversion.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of Operations
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 2,867,051
<SECURITIES> 0
<RECEIVABLES> 209,597
<ALLOWANCES> 0
<INVENTORY> 277,355
<CURRENT-ASSETS> 3,354,003
<PP&E> 7,868,588
<DEPRECIATION> 331,103
<TOTAL-ASSETS> 12,495,071
<CURRENT-LIABILITIES> 1,706,254
<BONDS> 0
0
378
<COMMON> 21,253
<OTHER-SE> 34,849,400<F1>
<TOTAL-LIABILITY-AND-EQUITY> 12,495,071
<SALES> 520,640
<TOTAL-REVENUES> 576,202
<CGS> 0
<TOTAL-COSTS> 1,593,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,107,521
<INCOME-PRETAX> (2,124,503)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (2,126,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,126,103)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
<FN>
<F1>24 Additional paid in capital
</FN>
</TABLE>
