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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 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
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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
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
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(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
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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 or 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
$3,083,216. As of October 31, 1997, the registrant had 21,253,442 shares of
Common Stock outstanding. The aggregate market value of the voting stock
held by non-affiliates was approximately $53,297,880 computed by reference to
the average closing bid and asked prices on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL 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. 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 REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
American Technologies Group, Inc., a Nevada corporation (the "Company" or
"ATG") formed September 27, 1988, is engaged in the development, through
research and acquisition, commercialization and sale of products and systems
using its patented and proprietary technologies. The Company concentrates
its technology discovery and development processes in three core technology
areas: 1. Nanotricity-TM-, 2. Water Purification, and 3. BASER-TM-. The
resulting products are intended to offer cost-effective solutions to reduce,
and in some cases eliminate, hazardous chemical by-products or emissions
resulting from industrial production and combustion processes. Additionally,
many commercial products may be improved through Nanotricity technology
including detergents, cosmetics and nutritional supplements.
The Company's efforts with Nanotricity have yielded commercial applications
including household cleaning products and combustion enhancers. ATG
anticipates that a coke formation suppressor and a descaler will be
commercialized in fiscal 1998, although there can be no assurance to this
affect. In the water purification area, the Company's WaterDew-TM- low
pressure vacuum distillation system is undergoing tooling design for a home
use version for introduction to the marketplace in early 1998.
The third core technology is the BASER. The BASER is a device that is
proposed to produce a coherent beam of heavy particles. This beam functions
in much the same way as the common laser. The important difference is that
the BASER is composed of particles rather than light. By accelerating the
beam, extremely high energy levels are possible. The BASER is being
developed in an ATG sponsored research program with the California Institute
of Technology.
In addition to the technological developments pursued by the Company, ATG
Media, Inc. ("ATG Media") a wholly owned subsidiary, publishes FINAL
FRONTIER-TM- MAGAZINE, a space and science based publication for the
technology enthusiast, the educational sector, and those involved
professionally in space exploration. ATG Media is currently being
restructured to become a communications medium for the Company's
technologies. Programs are now in place which will enable ATG Media to
produce and distribute unique educational materials, principally in the areas
of mathematics and the sciences, all of which will enhance public awareness
and understanding of ATG and its sciences.
ATG is currently in negotiations for the sale of all or part of its
interest in its other wholly owned subsidiary, New Concept Mining, Inc., a
Nevada
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corporation ("New Concept"), as the Company's current core technologies are
not applicable to the needs of the mining industry.
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.
CORE TECHNOLOGIES
NANOTRICITY
After more than four years of self-funded research utilizing ATG's own
laboratory along with university facilities at the California Institute of
Technology in Pasadena, University of California, Los Angeles, and Zhongshan
University in China, ATG's scientists have developed 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, use, and manipulation of strong electrical forces inherent in
certain molecular structures. Different molecular structures result
in different Nanotricity variants.
In one Nanotricity variant, ATG has discovered, identified, characterized and
secured patents on a novel structure of hydrogen and oxygen atoms which ATG
calls the IE-TM- crystal. ATG has isolated and manipulated nanometer
(billionths of a meter) sized structures that have unique electrical fields
which are much stronger than a magnetic field and extend only a few
billionths of a meter (nanometer) from their source. The structures contain
numerous molecules bound together by these same enormous forces.
The structures have been identified in photographs taken by a transmission
electron microscope. To accurately characterize these structures, it is
necessary to look for their electrical and other unique physical properties,
and ATG has measured different properties including: 1. dielectric
constants, 2. electromotive force (emf) using two identical electrodes, 3.
resistivity, 4. fluorescence, and 5. stability as a function of temperature.
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ATG, through its own research projects and those conducted at various
universities on its behalf, continues to identify Nanotricity variants and
develop commercial applications for the variants. Current projects cover
potential commercial applications in numerous fields. For example, initial
studies by the Company indicate that certain bacterial activities may be
increased as much as 200% through use of the technology. Professors at UCLA
are working with ATG on applications for the enhancement of chemical
processes and medical areas and ATG is currently working with an enzyme
producer to quantify the biological growth enhancement capabilities with
fungus, if any. Substantial research is still required to develop marketable
products, and it is ATG's present marketing thrust to apply the technology to
existing products with expectations of improving those products to
competitive advantage. There can be no assurance that Nanotricity has
applications as indicated, or other applications, and even if there are such
applications that these will be accepted in the marketplace or become
commercially viable.
ATG will focus its marketing efforts for Nanotricity products to existing
commercial product lines and for existing industrial processes which can be
improved through their use. Certain mainstream industries and products have
been targeted such as enzyme production, petrochemicals and fuels, plastics
production and detergents as well as other industries and products for which
consumer demand for new and improved methods and products which are
environmentally safe is strongest.
AUTOMOTIVE COMBUSTION AIR ENHANCEMENT PRODUCTS
The Force-Registered Trademark- is an innovative automotive aftermarket
product which utilizes IE crystals. 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 with its patented 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,
fewer carbon deposits occur and the engine operates more efficiently.
An internationally recognized expert on combustion chemistry and a professor
of chemical engineering at UCLA, has completed certain tests on The Force.
The professor 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
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are underway and there can be no assurance that the studies will achieve
similar results.
Manufacturing of The Force has recently been fully provided by a third party.
The raw materials utilized to manufacture The Force are readily available
from numerous suppliers. The current marketing is through direct marketing
and automotive warehouses.
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.
CATALYST ADDITIVES FOR HYDROCARBON FUELS
ATG has been actively researching and developing a combustion enhancing fuel
additive, based on Nanotricity technology. The most recent testing in this
area has been focused on adding ATG's product to existing fuel additives to
improve their effectiveness. ATG's additive has no environmentally damaging
by-products.
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 at UCLA
to determine the effect of the 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 additive doubled the percentage
oxidation of methane. The quantity of the additive used to create this effect
was 6,000 parts per million.
PROPANE GAS ("LPG") ADDITIVE. A similar controlled laboratory 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.
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GASOLINE AND DIESEL ADDITIVE. The development of ATG's product as a
gasoline and diesel additive has been pursued 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. The Force is an example of a commercial product of this type. The
second front is through introduction of the additive via 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 customers 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 for direct addition to bunker oil
fuels is currently under development.
Regulation
The EPA requires registration of all additives used in gasoline and diesel
fuel in motor vehicles in accordance with the 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 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.
HOUSEHOLD CLEANING PRODUCTS
ATG's Nanotricity technology is currently being applied to various detergents
and cleaning products including laundry detergent, dishwashing liquid, window
cleaner, all-purpose cleanser, drain opener and toilet bowl cleaner. ATG's
marketing thrust is to identify existing products which might be improved
through the addition of ATG's product into their formulation. ATG's products
have been shown to reduce the surface tension of water-detergent solutions
which may result in greater cleansing capabilities or cost reductions by
decreasing
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concentrations of surfactants (soaps) in products while still accomplishing
comparable cleaning. It is ATG's intention to focus on bio-degradable,
phosphate-free, chlorine-free, natural (example: coconut derived surfactants)
detergent products in order to offer viable alternatives to the commercial
cleaners which are currently available.
WATER PURIFICATION TECHNOLOGY
Water quality has become a major health issue in the US and other countries.
The World Health Organization has identified the lack of fresh clean water as
the number one problem facing our world during the next 50 years. This has
caused an increase in the world market demand for water treatment systems for
home use. There are numerous technologies currently being used to satisfy
this demand. Of the various technologies used in the purification of water
(such as distillation, reverse osmosis and filtration), distillation is the
only one that puts water through a cleansing phase-change from a liquid state
to a vapor state and then back again to a liquid state.
From an operational point of view, several significant differences exist
among the technologies used. As an example, a small hole in a reverse
osmosis membrane can drastically reduce water quality, yet go unnoticed.
Also, water filters can become clogged and re-release contaminants back into
the water, unknown to the user. A distiller on the other hand, builds in a
natural barrier between the contaminated water source and the final purified
water since the denser contaminants remain in the contaminated water area
rather than being transported to the purified water area with the vaporized
water.
DISTILLATION TECHNOLOGY
Distillation is the process by which the vapor released by a boiling liquid
is collected, cooled and turned back into a liquid. Distillation is
generally used to purify or separate the components of a liquid and has many
industrial and commercial applications besides potable water purification.
There are many variations in distillation technologies ranging from simple
direct distillation to low pressure vacuum distillation using vacuum pumps
and air or steam injection systems. Vacuum distillation of water has an
operational advantage because the water boils at a lower temperature, scaling
build-up from hard-water is usually decreased or eliminated, and this feature
can reduce operational maintenance costs.
Distillation is not without its problems however. The first problem is the
damage caused by scale buildup in a standard distiller in hard-water areas.
Scaling occurs whenever higher temperature liquids which contain precipitates
(alkaloids) are deposited on heating surfaces. Severe damage to boilers and
heating elements can occur within a short period of time from distilling hard
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water, resulting in a large reduction in distiller performance. The scale
buildup is not easy to remove and may require the use of specialized
chemicals. Energy efficiency is also sacrificed. Vacuum distillers have
been developed to avoid this scale problem because they boil the water at
temperatures which are generally below scale formation ranges. However, the
vacuum pumps in vacuum distillation systems add significantly to the
manufacturing costs of the system directly and through higher maintenance
costs. Additionally, vacuum pumps are associated with high noise levels
which make vacuum distillation systems inappropriate for many applications.
The ATG WaterDew distiller, however, through an innovative proprietary
method, achieves the advantages of vacuum distillation without requiring the
need for expensive and noisy vacuum pumps. As a result, the WaterDew
virtually eliminates scale buildup and also avoids the extra costs and
unreliability of a vacuum pump or air injector. The simplicity of design of
the WaterDew is intended to keep repair and maintenance costs to a minimum.
The WaterDew allows the home user the advantages of low temperature vacuum
distillation at an affordable price in a unit which is simple and easy to
maintain.
WaterDew can remove over 99% of sediment, dissolved solids, particles, salts
and heavy metals such as lead, copper and arsenic. 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.
At the current time, ATG has entered into agreements with two tooling
designers and manufacturers for the distillation system. One manufacturer
has delivered a working prototype of the WaterDew distiller fabricated with a
plastic casing, and the tooling design model for manufacturing is in its
final stages. The other manufacturer recently commenced design of the
distiller using a stainless steel case. Tooling is anticipated to be
completed by February 1998, and production of this distiller is anticipated
to commence in early 1998.
ATG is discussing marketing of the WaterDew with various companies including
several larger direct marketing firms which specialize in household water
purification equipment as well as from two firms which specialize in
televised advertising presentations for new products, however there can be no
assurance that the Company will enter into an agreement with any of the firms
or any firms at all. Marketing mediums will be selected so as to obtain
maximum exposure for the product to consumers.
THE BASER
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The BASER is a device that proposes to produce a coherent beam of heavy
particles. BASER is a name coined by Dr. S.Y. Lo, its inventor. The term
BASER stands for Boson Laser. In scientific terminology, the BASER is a
particle beam of Bose-Einstein condensates where all atomic waves behave
coherently as one. As a stable coherent beam of particles, the beam
functions in much the same way as the common laser. The important difference
is that it is composed of particles rather than light. By accelerating the
beam, extremely high energy levels are possible. The BASER could produce a
particle beam with more than a million times the punching power of today's
strongest laser.
History
The BASER was invented by Dr. Shui-Yin Lo, ATG's Chief Scientist and a
leading physicist in the field of particle physics. He began his early
research into the behavior of subatomic particles after he received a Ph.D.
in particle physics from the University of Chicago. The first patent
relating to the BASER was obtained by Dr. Lo in 1985 while he was a senior
lecturer at Australia's University of Melbourne. In 1987 he moved to
Southern California where he founded the Institute of Boson Studies (the
"Institute") with B.W.N. Nuclear Waste Elimination Corporation, a Nevada
corporation ("NWEC").
In 1993 NWEC ceased funding the Institute and as of March 1, 1994, the
Company entered into a License Agreement (the "BASER Agreement") with NWEC
for certain rights to the BASER technology. Thereafter the Company entered
into a 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
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 study is currently in its
third year. Dr. Lo, the Company's Director of Research and Development
participates in the research with CalTech.
In October, 1996 a paper was submitted to the Journal of Applied Physics in
which Dr. Lo details the results to date of his work on the BASER prototype
at CalTech. That journal published the paper in May, 1997. These results
confirmed that energetic helium beams can be generated by a pulsed corona
discharge, which is a fundamental process within 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 aspect of BASER theory, implies that BASER could
be a means of space and rocket propulsion. In October, 1997, a second paper
was submitted to the
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journal for review; this paper details the successful progress made at
CalTech using BASER to generate charged droplets of liquid helium, another
fundamental feature of BASER. The journal has not completed its peer review
process on the information and has not published the second paper at this
time.
Further, according to Dr. Lo's BASER 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 excessive heat. 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 expend funds to continue its research
in this area. The development of this technology is likely to require a
minimum of three to five years and 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.
Research on the BASER at CalTech will continue through next year with the
focus of creating hydrogen and deuterium droplets as the next major
milestones. In order to expedite this next phase of BASER research, UCLA has
agreed to a collaborative arrangement with ATG and CalTech in which
superfluid cooling and cryostat functioning for the BASER are separately
validated at UCLA, independent of the device at CalTech. The purpose is to
enable research to continue at two separate locations without interfering
with experiments in process at either site.
BASER Agreements
The BASER Agreement with NWEC grants the Company a 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
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. 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
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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 BASER Option was acquired
for $150,000.
Pursuant to the 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 (See "Patents"). 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.
Under the Research Agreement with CalTech, the Company will acquire a
nonexclusive, nontransferable, nonsublicensable, irrevocable license to any
invention or discovery reduced to practice. However, the Company has the
right
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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.
PUBLISHING OF SCIENTIFIC MAGAZINE - ATG MEDIA
ATG Media consists of three areas - magazine publishing, book publishing, and
retailing of space memorabilia and collectibles. ATG Media currently
publishes one magazine, FINAL FRONTIER. This is a publication which focuses
on space exploration, as opposed to astronomy. It has a circulation of
approximately 70,000 and a total readership of approximately 175,000.
Advertisers range from small businesses to major corporations such as Boeing,
Lockheed Martin and Hasbro Toys. Within the last six months, subscribership
has grown by approximately 25%. Contributors to the magazine include award
winning writers, present and former astronauts and space exploration and
policy experts.
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.
Sales of space memorabilia and collectibles have increased approximately 400%
over the last year. Each issue of Final Frontier contains a catalogue
section of approximately twelve pages. Plans are in progress to spin off a
stand-alone catalogue. During the past year, ATG Media entered the book
publishing arena with the publication of the fifteenth edition of DRIVE IT
FOREVER, a best-selling book by Bob Sikorsky, a nationally syndicated
automotive expert. Sales of this edition have reached approximately 15,000
units. Negotiations are currently in progress for the acquisition of several
other books for publication.
During the first year of ATG's ownership of ATG Media, the publishing company
was reorganized, 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
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of advertising revenue. Additionally, certain accounting difficulties with
FINAL FRONTIER'S fulfillment house 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.
GOLD AND TUNGSTEN MINING - NEW CONCEPT MINING
As a result of the Company's decision to focus its efforts on three core
areas plus publishing, the Board authorized management to seek buyers or
strategic partners for the subsidiary. Those negotiations are in process
although there can be no assurance that any agreement can be reached on terms
the Company considers favorable.
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, seven more patent
applications have been filed in the United States on applications of the
company's Nanotricity 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"), 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.
Patent applications for a "Method and Apparatus for Generating Nuclear Fusion
Energy by Coherent Bosons" were filed with the United States Patent Office
and the European Patent Office in 1991 and 1992, respectively. This early
application is one of several BASER patent applications. Due do concerns by
the patent examiners that the application does not clearly and completely
disclose the invention, in particular "that one skilled in the art" could
construct the invention based upon the application, the applications have
been denied.
13
<PAGE>
ATG continues to pursue the patents through the normal appeals processes.
ATG has also filed a new patent which will include recent advances in the
field of nuclear fusion generation to overcome the examiners' concerns.
RESEARCH AND DEVELOPMENT
The Company has incurred approximately $734,260 and $624,445 in research and
development expenses during the years ended July 31, 1997 and 1996,
respectively.
ATG's research staff continues to actively pursue development of new
applications of ATG's three core technologies as well as refinement of the
innovative science underlying the technologies.
EMPLOYEES
The Company has twenty-two full-time and two part-time employees
(twenty-seven full-time and three part-time employees including employees of
subsidiaries). The Company may employ an additional two employees and ATG
Media an additional two 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 research and development
facility occupy approximately 16,140 square feet at 1017 South Mountain
Avenue, Monrovia, CA. The offices of ATG Media and a manufacturing facility
occupy approximately 10,200 square feet and are located at 1009 - 1013 South
Mountain Avenue, Monrovia, CA. In June 1997, the Company acquired these
properties for an aggregate purchase price of $887,000 and has invested
approximately $200,000 in improvements to the properties. The property is
secured by a trust deed in favor of Pacific Far East Bank in the principal
amount of $481,250 with monthly payments of $4,780. Prior to the acquisition
of the properties, the Company leased 1017 South Mountain at a rental rate of
$6,133 per month.
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
14
<PAGE>
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.
15
<PAGE>
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.
PERIOD HIGH BID LOW BID
------ -------- --------
August 1 1995 - October 31, 1995 $ 3.50 $ 1.875
November 1, 1995 - January 31, 1996 $ 16.75 $ 1.125
February 1, 1996 - April 30, 1996 $ 16.75 $ 6.00
May 1, 1996 - July 31, 1996 $ 6.875 $ 2.875
August 1 1996 - October 31, 1996 $ 4.06 $ 1.44
November 1, 1996 - January 31, 1997 $ 3.19 $ 1.59
February 1, 1997 - April 30, 1997 $ 7.25 $ 1.875
May 1, 1997 - July 31, 1997 $ 4.625 $ 3.375
(b) Holders.
The Company has only one class of common equity, the Common Stock. As of
October 31, 1997, there were 841 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.
16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------
BALANCE SHEET: 1997 1996
- -------------- ---- ----
<S> <C> <C>
Assets $ 9,562,433 $ 9,720,788
Liabilities $ 3,617,570 $ 3,294,735
Stockholders' Equity $ 5,944,863 $ 6,426,053
------------ ------------
RESULTS OF OPERATIONS:
REVENUE
Technology Products $ 2,482,921 $ 151,603
Publishing 467,449 266,247
Other 132,846 39,792
------------ ----------
Total Revenue 3,083,216 457,642
------------ ------------
OPERATING EXPENSES
Technology Products, including research and development $ 2,740,666 1,452,122
Publishing, including goodwill amortization 1,914,578 917,138
Mining 1,676,548 578,189
Corporate 3,983,690 2,617,315
------------ ------------
Total Expenses 10,315,482 5,564,764
------------ ------------
Operating Loss (7,232,266) (5,107,122)
------------ ------------
Other Expense, Net (2,144,968) (761,767)
Benefit (Provision) for Income Taxes 597,000 260,200
------------ ------------
Net Loss Before Extraordinary Item (8,780,234) (5,608,689)
Extraordinary Item - Gain on Extinguishment of Debt - 540,000
------------ -------------
Net Loss (8,780,234) (5,068,689)
Accreted Dividend 857,143 -
------------ ------------
Net Loss Attributable to Common Stockholders ($9,637,377) ($5,068,689)
------------ ------------
------------ ------------
Net Loss Per Share $ (0.52) $ (0.34)
------------ ------------
------------ ------------
Weighted average number of common shares outstanding 18,640,000 14,729,961
------------ ------------
------------ ------------
</TABLE>
Fiscal 1997 saw the first year of significant operating revenues for the
Company. Revenue increased by $2,625,600, from $457,600 to $3,083,200 for
fiscal 1996 and 1997, respectively. The increased revenue is principally
attributable to increased sales of The Force and initial sales of certain
other products incorporating the Company's Nanotricy technology, in
particular, IE crystals. Notwithstanding the significant revenue increase,
the Company's net loss for fiscal 1997 was $3,711,500 more than the net loss
for fiscal 1996. The increased loss is principally the result of increased
marketing and product development expenses of $1,178,700, an accelerated
writeoff of goodwill of $792,700, increased mining expenses of $1,098,300,
increased interest costs related to convertible debentures of $1,879,100 and
non-cash charges of approximately $900,000 pertaining to stock option grants
for consulting services provided by non-employees pursuant to Financial
Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 123.
17
<PAGE>
Seventy-four percent of the sales in fiscal 1997 were attributable to one
customer. Subsequent to year end, the Company terminated its relationship
with the customer. New customers have been obtained to replace this customer
and the Company is negotiating distribution arrangements with various
additional parties.
The marketing and product development expenses increased from $827,700 in
fiscal 1996 to $2,006,400 in fiscal 1997. This increase is primarily
attributable to costs incurred in connection with product costs and
development.
Amortization of goodwill increased from $520,000 for fiscal 1996 to
$1,312,700 for fiscal 1997. This increase was the result of an additional
writedown of goodwill associated with ATG Media as projected undiscounted net
income over the remaining amortization life of the goodwill for ATG Media is
not expected to be sufficient to recover the remaining capitalized balance.
Mining expenses increased from $578,200 for fiscal 1996 to $1,676,500 for
fiscal 1997. The increase is attributable to increased personnel costs
related to test operation of the Company's mill at the Manhattan Mining
District and additional mill operations and certain non-capitalized
exploration expenses conducted to establish the viability of New Concept's
gold mill and mining properties to facilitate the sale of the property or the
locating of strategic partners. Discussions are underway with several
prospective purchasers or strategic partners, although there can be no
assurance that the negotiations will result in a transaction on favorable or
any terms.
SFAS 123 requires the accounting for stock-based compensation programs to be
reported within the financial statements on a fair value based method for
non-employees and encourages this method for employees. The Company will
continue to apply the provisions of Accounting Principles Board Opinion No.
25 for its employee stock options and will not recognize compensation cost
for options issued to employees. However, in accordance with SFAS No. 123,
pro-forma disclosure of net income and earnings per share as if the fair
value based method had been adopted for employee stock options has been
included in the footnotes to the consolidated financial statements. The
adoption of SFAS No. 123 in fiscal 1997 for non-employee stock options
granted in fiscal 1997 resulted in a charge to operations of approximately
$1,565,000. The adoption of SFAS 123 would not have had a material impact
for transactions with non-employees in fiscal 1996. In determining the
charge to operations for non-employee stock options, the Company applied a
valuation model which relies on several highly subjective assumptions,
including expected stock price volatility and estimated date of option
exercise. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models
may not necessarily provide a reliable single measure of the fair value of
its options.
In connection with the issuance of convertible debt in fiscal 1997, interest
expense increased from $240,700 in fiscal 1996 to $2,119,800 in fiscal 1997.
The interest expense primarily consists of the discount from the market value
of the Common Stock received upon conversion of the debt instruments.
Additionally, in fiscal 1997, the
18
<PAGE>
Company recorded an accreted dividend in the amount of $857,100 in connection
with the discount from the market value of the Common Stock upon conversion
of the Series C Convertible Preferred Stock.
The issuance of the convertible debt and the Series C Preferred Stock was to
assure liquidity of the Company to pursue its product development and
marketing efforts. Subsequent to July 31, 1997, the Company issued an
additional $3,000,000 in convertible debt principally to finance the cost of
tooling construction for the WaterDew. These convertible debentures are
payable in cash or ATG Common Stock, at the option of the Company. In the
event that additional capital is needed, the Company believes that it could
obtain such capital on terms comparable to the terms of the convertible debt
previously issued, although there can be no assurance to this effect.
The Company's cash used in operations increased from $3,791,300 in fiscal
1996 to $4,459,900 for fiscal 1997. The primary source of working capital
was the sale of ATG stock for net proceeds of $6,734,400 and $1,170,200 in
fiscal years 1996 and 1997, respectively, and the issuance of convertible
debt in fiscal 1997 of $3,623,500. Subsequent to year end, the Company
issued $3,000,000 of 7.5 percent Convertible Debentures. 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.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets," requires
that long-lived assets and certain identifiable intangibles be reported at
the lower of the carrying amount or their estimated recoverable amount. The
adoption of the statement in fiscal 1997 resulted in no material impact to
the financial statements.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements follow.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
19
<PAGE>
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, 1997 and 1996, 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Technologies Group, Inc. and Subsidiaries as of July 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As explained in Note 5 to the consolidated financial statements, effective
August 1, 1996, the Company changed its method of accounting for stock-based
compensation for transactions with other than employees in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation".
ARTHUR ANDERSEN LLP
Los Angeles, California
November 10, 1997
20
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1997 AND 1996
ASSETS
1997 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,033,108 $ 2,486,313
Accounts receivable, net of allowance
for doubtful accounts of $134,772 and
$10,000 at July 31, 1997 and 1996, respectively 445,230 51,878
Inventories 239,738 44,373
Due from officers/shareholders 148,375 2,500
----------- -----------
Total current assets 1,866,451 2,585,064
----------- -----------
PROPERTY, EQUIPMENT AND MINERAL PROPERTIES 7,687,852 5,981,836
Less--Accumulated depreciation and
amortization (290,388) (240,135)
----------- -----------
7,397,464 5,741,701
----------- -----------
GOODWILL, net of accumulated amortization of
$3,141,740 and $1,747,717 at July 31, 1997
and 1996, respectively -- 1,394,023
OTHER ASSETS 298,518 --
----------- -----------
$ 9,562,433 $ 9,720,788
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated balance
sheets.
21
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 632,482 $ 215,395
Accrued liabilities 254,638 242,610
Accrued professional fees 107,500 124,621
Amounts due to related parties 71,410 118,990
Current portion of deferred subscription
revenue 105,043 110,094
Current portion of notes payable 585,342 165,740
Current portion of capital lease obligations 20,227 27,269
------------ ------------
Total current liabilities 1,776,642 1,004,719
Deferred subscription revenue, net
of current portion 101,260 132,644
Notes payable, net of current portion 945,016 840,020
Capital lease obligations, net of
current portion 305,428 231,128
Deferred tax liability 489,224 1,086,224
------------ ------------
Total liabilities 3,617,570 3,294,735
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock:
Par value--$.001,
Authorized--10,000,000 shares
Issued and outstanding-378,061 shares 378 378
Series B Convertible Preferred Stock:
Par value--$.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 shares
at July 31, 1996 -- 2
Common Stock:
Par value--$.001,
Authorized--100,000,000 shares
Issued and outstanding--20,721,789 and
16,220,264 shares at July 31, 1997
and 1996, respectively 20,722 16,220
Additional paid-in capital 32,904,555 23,117,088
Stock subscriptions 135,518 771,298
Deficit (27,116,310) (17,478,933)
------------ ------------
Total stockholders' equity 5,944,863 6,426,053
------------ ------------
$ 9,562,433 $ 9,720,788
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated balance
sheets.
22
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1997 AND 1996
1997 1996
----------- -----------
REVENUES:
Technology products $ 2,482,921 $ 151,603
Publishing 467,449 266,247
Other 132,846 39,792
----------- -----------
Total operating revenues 3,083,216 457,642
----------- -----------
OPERATING EXPENSES:
General and administrative 3,983,690 2,617,315
Marketing and product development 2,006,406 827,677
Research and development 734,260 624,445
Amortization of goodwill 1,312,723 520,000
Publishing operations 601,855 397,138
Mining operations 1,676,548 578,189
----------- -----------
Total operating expenses 10,315,482 5,564,764
----------- -----------
OTHER (EXPENSE) INCOME:
Interest expense, net (2,119,783) (240,677)
Other (25,185) 48,314
Unrealized loss on Marketable Securities -- (29,404)
Loss on sale of commercial property -- (540,000)
----------- -----------
(2,144,968) (761,767)
----------- -----------
Loss before income taxes and
extraordinary item (9,377,234) (5,868,889)
BENEFIT FOR INCOME TAXES 597,000 260,200
----------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEM (8,780,234) (5,608,689)
EXTRAORDINARY ITEM:
Gain on extinguishment of debt -- 540,000
----------- -----------
NET LOSS (8,780,234) (5,068,689)
ACCRETED DIVIDENDS 857,143 --
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(9,637,377) $(5,068,689)
----------- -----------
----------- -----------
NET LOSS PER SHARE $ (0.52) $ (0.34)
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,640,000 14,729,961
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
Series A Convertible Series C Convertible
Preferred Stock Preferred Stock
----------------- -----------------
Number Par Number Par
of Shares Value or Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
BALANCE, July 31, 1995 378,061 $378 -- --
Stock issued in conversion of 78,750 Series B Preferred
Stock subscriptions into Common Stock -- -- -- --
Stock issued for Series C Preferred Stock at $1,000 per share -- -- 2,000 2
Stock subscription canceled related to acquisition of Final Frontier -- -- -- --
Stock issued for services rendered, August 1995 through
July 1996 at prices ranging from $1.06 - $10.00 per share -- -- -- --
Stock issued for conversion of debt -- -- -- --
Issuance of stock for stock subscriptions purchased
during 1995 at $1.50 - $3.00 per share -- -- -- --
Proceeds from sale of stock through private placement offerings
from August 1995 through July 1996 at prices ranging from
$1.50 - $11.00 per share, net of offering costs of $784,185 -- -- -- --
Exercise of stock options -- -- -- --
Proceeds from sales of 232,063 shares of common stock
subscriptions through private placement offerings in 1996 -- -- -- --
Stock subscriptions 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
Stock issued in conversion of Series C Preferred Stock into
Common Stock, including accreted dividends of $857,143 -- -- (2,000) (2)
Stock issued in conversion of Debt, including interest
of $1,484,388, and net of $476,500 of offering costs -- -- -- --
Stock canceled related to acquisition of Final Frontier -- -- -- --
Stock issued for services rendered at prices ranging
from $1.65 - $8.00 per share -- -- -- --
Stock canceled for services rendered -- -- -- --
Issuance of stock for stock subscriptions purchased during 1996 -- -- -- --
Proceeds from sale of stock through private placement
offerings at prices ranging from $1.33 - $4.00 per
share, net of $237,712 offering costs -- -- -- --
Exercise of stock option -- -- -- --
Proceeds from sales of 3,983 shares of common
stock subscriptions through private placement
offerings in 1997 at $3.00 per share -- -- -- --
Stock subscriptions of 8,333 shares of Common Stock through
trade for services in 1997 at $2.00 - $3.15 per share -- -- -- --
Additional paid-in capital-stock options -- -- -- --
Net Loss -- -- -- --
------- ---- ------ -------
BALANCE, July 31, 1997 378,061 $378 -- --
------- ---- ------ -------
------- ---- ------ -------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
24
<PAGE>
<TABLE>
<CAPTION>
Common Stock
------------------- Additional
Number Par paid-in Stock
of Shares Value Capital Subscriptions Deficit Total
---------- ------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1995 12,945,865 $12,946 $14,487,220 $937,434 ($12,410,244) $3,027,734
Stock issued in conversion of 78,750 Series B
Preferred Stock subscriptions into Common Stock 206,135 206 629,794 (630,000) -- --
Stock issued for Series C Preferred Stock at $1,000
per share -- -- 1,999,998 -- -- 2,000,000
Stock subscription canceled related to acquisition
of Final Frontier -- -- -- (225,000) -- (225,000)
Stock issued for services rendered, August 1995
through July 1996 at prices ranging from
$1.06 - $10.00 per share 435,574 436 1,004,936 -- -- 1,005,372
Stock issued for conversion of debt 296,750 296 729,504 -- -- 729,800
Issuance of stock for stock subscriptions purchased
during 1995 at $1.50 - $3.00 per share 14,400 14 22,172 (22,186) -- --
Proceeds from sale of stock through private placement
offerings from August 1995 through July 1996 at
prices ranging from $1.50 - $11.00 per share, net
of offering costs of $784,185 2,292,290 2,293 4,155,743 -- -- 4,158,036
Exercise of stock options 29,250 29 87,721 2,500 -- 90,250
Proceeds from sales of 232,063 shares of common stock
subscriptions through private placement offerings
in 1996 -- -- -- 552,450 -- 552,450
Stock subscriptions 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 16,220,264 16,220 23,117,088 771,298 (17,478,933) 6,426,053
Stock issued in conversion of Series C Preferred
Stock into Common Stock, including accreted
dividends of $857,143 1,490,702 1,491 894,069 -- (857,143) 38,415
Stock issued in conversion of Debt, including
interest of $1,484,388, and net of $476,500 of
offering costs 2,173,122 2,173 5,105,715 -- -- 5,107,888
Stock canceled related to acquisition of Final
Frontier (27,100) (27) (81,273) -- -- (81,300)
Stock issued for services rendered at prices ranging
from $1.65 - $8.00 per share 228,001 228 548,125 -- -- 548,353
Stock canceled for services rendered (15,000) (15) (69,985) -- -- (70,000)
Issuance of stock for stock subscriptions purchased
during 1996 178,600 179 668,051 (668,230) -- --
Proceeds from sale of stock through private placement
offerings at prices ranging from $1.33 - $4.00 per
share, net of $237,712 offering costs 448,200 448 1,124,540 -- -- 1,124,988
Exercise of stock option 25,000 25 33,225 -- -- 33,250
Proceeds from sales of 3,983 shares of common
stock subscriptions through private placement
offerings in 1997 at $3.00 per share -- -- -- 11,950 -- 11,950
Stock subscriptions of 8,333 shares of Common
Stock through trade for services in 1997 at
$2.00 - $3.15 per share -- -- -- 20,500 -- 20,500
Additional paid-in capital-stock options -- -- 1,565,000 -- -- 1,565,000
Net Loss -- -- -- -- (8,780,234) (8,780,234)
---------- ------- ----------- ------------- ------------- ----------
BALANCE, July 31, 1997 20,721,789 $20,722 $32,904,555 $135,518 ($27,116,310) $5,944,863
---------- ------- ----------- ------------- ------------- ----------
---------- ------- ----------- ------------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
25
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1997 AND 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(8,780,234) $(5,068,689)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,409,350 630,315
Provision for doubtful accounts 124,772 -
Loss on sale of marketable securities - 29,404
Gain on extinguishment of debt - (540,000)
Loss due to impairment of commercial property - 540,000
Stock issued as consideration for services 498,853 1,510,095
Imputed interest expense for notes payable
and capital leases 80,847 120,666
Imputed interest on convertible debt 1,522,803 -
Stock options issued to consultants
at fair value 900,000 -
Interest expense for stock options issued
with convertible debentures 665,000 -
Deferred taxes (597,000) (261,000)
Loss on disposal of equipment 25,185 -
Changes in assets and liabilities:
Accounts receivable (518,124) 41,755
Inventories (195,365) 31,039
Other current assets - 9,150
Accounts payable and accrued liabilities 411,994 (705,157)
Amounts due to related parties 28,420 10,989
Deferred subscription revenue (36,435) (139,945)
----------- -----------
Net cash used in operating activities (4,459,934) (3,791,378)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,145,874) (394,637)
Proceeds from sale of marketable securities - 9,996
Other (309,368) -
----------- -----------
Net cash used in investing activities (1,455,242) (384,641)
----------- -----------
26
<PAGE>
1997 1996
----------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Advances to shareholders/officers $ (145,875) $ (2,500)
Payments of notes payable to
shareholders/officers (76,000) (54,000)
Net proceeds from issuance of convertible debt 3,623,500 --
Payments of notes payable (59,842) (86,600)
Payments on capital lease obligations (50,000) (15,000)
Net proceeds from issuance of stock and
stock subscriptions 1,170,188 6,734,413
----------- ----------
Net cash provided by financing activities 4,461,971 6,576,313
----------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,453,205) 2,400,294
CASH AND CASH EQUIVALENTS, beginning of period 2,486,313 86,019
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 1,033,108 $2,486,313
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during fiscal 1997 and 1996 for:
Interest $ 506 $ 38,716
Income taxes $ 1,600 $ 1,600
----------- ----------
----------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of debt to Common Stock $ 4,100,000 $ --
----------- ----------
----------- ----------
Capital lease obligation incurred in connection
with lease purchase option on mining property $ 82,773 $ 264,960
----------- ----------
----------- ----------
Stock issued for the extinguishment of debt $ -- $ 447,500
----------- ----------
----------- ----------
Property and equipment acquired with notes payable $ 538,078 $ --
----------- ----------
----------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
1. 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.
In 1994, ATG acquired 100 percent of the common stock of Final Frontier
Publishing, Inc. (Final Frontier-now ATG Media, Inc.), a Minnesota
corporation. 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 FrontierTM Magazine which was first published in 1986.
In 1995, ATG acquired 100 percent of the common stock of New Concept
Mining, Inc., a Nevada corporation (New Concept Mining). New Concept
Mining was formed for the purpose of acquiring mineral properties with
the long-term goal of developing and mining these properties. Prior to
fiscal 1997, the mineral properties were non-producing, either never
mined or mining activities ceased in excess of ten years ago. In fiscal
1997, the Company began limited operations on certain properties.
However, the Company has decided not to invest any additional
significant funds to develop its mining properties so as to more fully
focus its resources on its core environmental technology and publishing
businesses (see Note 6).
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, and (3) overcome significant product
development issues.
The Company plans to raise additional working capital through private
offerings (see Note 11), 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,
28
<PAGE>
the Company will have sufficient funds to execute its business plans or
generate positive operating results. Management believes that funds on
hand and raised in placements subsequent to year end will be sufficient
to fund its operating needs through at least July 31, 1998.
c. CONCENTRATION RISK
During fiscal 1997, the Company had one customer that represents 74 percent
of total revenues. Subsequent to fiscal 1997, the Company discontinued
sales to this customer and expects to replace this customer with other
customers during fiscal 1998. Failure to secure other customers would have
a material adverse affect on the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATG, and its
wholly owned subsidiaries, 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, 1997 and 1996, of approximately $1,021,000 and $2,051,000,
respectively.
c. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist primarily of purchased product and supplies.
d. 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.
e. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost 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
29
<PAGE>
life of the asset are capitalized and depreciated over their estimated
useful lives.
Summary of property, equipment and mineral properties for fiscal year 1997
and 1996 are as follows:
1997 1996
Corporate:
Land $ 500,000 $ --
Property and equipment 1,204,847 511,748
---------- ----------
1,704,847 511,748
Mining:
Mineral exploration and
development properties 3,057,677 2,976,647
Buildings, machinery
and equipment 2,925,328 2,493,441
---------- ----------
5,983,005 5,470,088
Total property equipment ---------- ----------
and mineral properties $7,687,852 $5,981,836
---------- ----------
---------- ----------
f. REVENUE RECOGNITION
The Company recognizes revenue for its technology 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.
g. RESEARCH AND DEVELOPMENT ACTIVITIES
All costs of new technology acquisition and research and development are
charged to operations as incurred.
h. PATENTS AND TRADEMARK
Patent and trademark costs included in other assets, consist primarily of
legal and other direct costs incurred by the Company in its efforts to
obtain domestic and foreign patents on its products. Periodic review is
made of the economic value of patents and adjustments to cost are made as
needed where value is reduced. Patents are amortized on a straight line
basis over 7 years.
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 costs are charged to operations as
incurred. Adaptations of existing technologies into new products is
capitalized as incurred and amortized over a five year period. Periodic
review is made of the economic value of such costs and adjustments are made
as needed where the value is reduced.
30
<PAGE>
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 (SFAS) No. 95,
"Statement of Cash Flows."
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
k. NET LOSS PER SHARE
Net loss per common share is based upon the weighted average number of
common shares outstanding during the fiscal year. Common share
equivalents are not considered as they would be anti-dilutive.
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 (Note 1). These costs were 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.
Due to cash flow difficulties encountered by ATG in fiscal 1995 and
disputes with the printer 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, in fiscal 1995, amortization expense included an
additional charge of $670,000 to write off 20 percent of the unamortized
goodwill in recognition of the loss of these acquired assets. During
1997, the Company recognized an additional impairment of $792,723 in the
carrying value of goodwill due to current and projected undiscounted cash
flows of ATG Media being insufficient to recover the carrying value at
July 31, 1997.
n. LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Assets to be
Disposed of," the Company reviews, as circumstances dictate, the carrying
amount of its intangible assets and other facilities. The purpose of these
reviews is to determine whether the carrying amounts
31
<PAGE>
are recoverable. Recoverability is determined by examining intangibles
and comparing respective carrying amounts versus revenue streams from
the related businesses. The amount of impairment, if any, is measured
based on the excess of the carrying value over the fair value.
Management believes that no impairment of the carrying value of long-lived
assets, including mining and intangible assets, other than mentioned above,
has occurred. However, there can be no assurance that needs for existing
products will continue unchanged and product development programs will be
successful.
o. RECLASSIFICATIONS
Certain amounts in the July 31,1996 consolidated 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.
q. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of
Information about Capital Structure" is effective for fiscal years ending
after December 15, 1997. The Company will adopt the new standards in the
fiscal year ending July 31, 1998. The effects of these new standards have
not yet been determined.
SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure
About Segments of an Enterprise and Related Information" are effective for
fiscal years beginning after December 15, 1997. The Company will adopt the
new standards in the fiscal year ending July 31, 1999. The effects of
these new standards have not yet been determined.
32
<PAGE>
3. DEBT
Notes payable are summarized as follows as of July 31, 1997 and 1996:
1997 1996
---------- ----------
Anthony Selig $ 555,000 $ 555,000
North Tem, net of imputed interest
of $84,828 and $95,744 at
July 31, 1997 and 1996, respectively 115,172 104,256
Crown, net of imputed interest
of $58,049 and $93,496 at
July 31, 1997 and 1996, respectively 331,951 346,504
Note payable due in 83 monthly payments
of principal and interest at prime
(8.5 percent at July 31, 1997) plus
1.75 percent, with a balloon payment
of approximately $415,000 due July 1,
2004, secured by property. 481,250 --
Other 46,985 --
---------- ----------
1,530,358 1,005,760
Current portion 585,342 165,740
---------- ----------
$ 945,016 $ 840,020
---------- ----------
---------- ----------
Maturities of notes payable at July 31, 1997, are as follows:
1998 $ 585,342
1999 462,993
2000 26,642
2001 11,200
2002 12,403
Thereafter 431,778
----------
$1,530,358
----------
----------
In November 1995, with respect to certain rental property purchased in 1991,
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
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.
33
<PAGE>
The following notes were assumed in the New Concept Mining acquisition:
ANTHONY SELIG
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 was 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. During 1997, the above notes were amended and the
outstanding principal amounts are due on or before July 31, 1998. 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 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 20,000 and 13,250 shares of common stock (valued at $1.80
and $2.00 per share) for 1997 and 1996 respectively, as full satisfaction
for consultation services rendered in connection with mining operations.
Included in mining expenses in the consolidated statement of operations is
$36,000 and $26,500 related to the issuance of these shares for fiscal 1997
and 1996, respectively.
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. 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 each
succeeding anniversary date until May 2, 1999, when the remaining unpaid
balance of $340,000 is due.
There is no stated interest rate for the notes payable to North Tem, and
Crown. These notes are recorded at their net present values at a discount
of 10.6 percent.
4. CONVERTIBLE DEBENTURES
In September 1996, the Company issued $700,000 of 8 percent Convertible
Debentures (8 percent Debentures), maturing September 30, 1998, with a
conversion price equal to 80 percent of the average closing bid price
for the five trading days prior to conversion of the common stock. The
34
<PAGE>
8 percent Debentures plus accrued and imputed interest were converted
into 424,496 shares of common stock. Imputed interest of $187,550 was
recorded as interest expense in connection with the 20 percent discount
from market.
In November, 1996, the Company issued $1,400,000 of 7 percent Convertible
Debentures (7 percent Debentures), maturing November 1, 1999, with a
conversion price equal to 70 percent of the average closing bid price
of the common stock for the five trading days prior to conversion. The
7 percent Debentures plus accrued and imputed interest were converted
into 1,046,967 shares of common stock. Imputed interest of $618,796 was
recorded as interest expense in connection with the 30 percent discount
from market.
In March, 1997, the Company issued $2,000,000 of 7.5 percent Convertible
Debentures (7.5 percent Debentures) maturing March 1, 2000 with a
conversion price equal to the lower of 120 percent of market price on
the closing or 75 percent of the average closing bid price of the common
stock for the five trading days prior to conversion. The 7.5 percent
Debentures plus accrued and imputed interest were converted into 701,659
shares of common stock. Imputed interest of $678,042 was recorded as an
interest expense in connection with the 25 percent discount from market.
In addition the Company recognized interest expense of approximately
$665,000 related to options granted to non-employees in connection with
the convertible debentures. The options are recorded at their fair
market value in accordance with SFAS 123.
5. CAPITAL STOCK
a. COMMON STOCK
The Company issued 213,001 and 435,574 shares of common stock for services
rendered valued at $478,353 and $1,005,372 during 1997 and 1996,
respectively. All shares issued were valued at the 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 such
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, 1997, 378,061 shares of
Series A Stock were outstanding, no shares having been converted. The
outstanding shares were issued under the CAP agreement (Note 9).
The Company has authorized 500,000 shares of Series B Convertible Preferred
Stock. The Series B Convertible Preferred Stock has a
35
<PAGE>
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 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. In fiscal year
1996, 28,125 shares were canceled.
The Company has authorized 2,000 shares of Series C Convertible Preferred
Stock. The Series C Stock has a liquidation preference of $1,000 per
share, an 8 percent coupon payable at the time of conversion, converts to
Common Stock at a 30 percent discount from the fair market value at the
date of conversion, is non-voting and is convertible upon holders request
without the payment of any additional consideration. During 1997 all of
the outstanding Series C Convertible Preferred Stock was converted into
1,490,702 shares of Common Stock. Accreted dividends of $857,143 was
recorded in connection with the 30 percent discount to market.
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 employees and 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 of Directors upon issuance but in
no event more than ten years. The plans expire December 2002.
36
<PAGE>
Transactions involving the plans are summarized as follows:
Weighted
Average
Exercise
Number Price Exercise Price
of Shares Per Share Per Shares
--------- --------- --------------
Outstanding at July 31, 1995 1,085,000 $3.06 $3.00 - $3.30
Granted 641,500 $3.75 $1.50 - $9.50
Exercised 29,250 $3.00 $3.00
Canceled 283,250 $4.60 $1.50 - $9.50
--------- -------- -------------
Outstanding at July 31, 1996 1,414,000 $3.02 $1.50 - $9.50
Granted 1,863,000 $2.65 $1.70 - $3.00
Exercised -- -- --
Canceled 131,000 $4.01 $1.50 - $6.25
--------- -------- -------------
Outstanding at July 31, 1997 3,146,000 $2.76 $1.50 - $6.25
--------- -------- -------------
--------- -------- -------------
At July 31, 1997 and 1996, 649,375 and 415,875 options, respectively, have
vested and have a weighted average exercisable price at July 31, 1997 and
1996 of $2.84 and $3.04 per share, respectively.
Transactions involving options not covered by the plans are summarized as
follows:
Weighted
Average
Exercise
Number Price Exercise Price
of Shares Per Share Per Shares
--------- --------- --------------
Outstanding at July 31, 1995 810,000 $2.95 $2.18 - $3.00
Granted 3,325,800 $2.83 $0.25 -$10.07
Exercised 10,000 $0.25 $0.25
Canceled 750,000 $3.00 $3.00
--------- -------- -------------
Outstanding at July 31, 1996 3,375,800 $2.83 $1.00 -$10.07
Granted 1,164,698 $3.01 $1.08 - $4.06
Exercised 25,000 $1.33 $1.33
Canceled 1,457,600 $2.90 $1.00 -$10.00
--------- -------- -------------
Outstanding at July 31, 1997 3,057,898 $2.86 $1.33 -$10.07
--------- -------- -------------
--------- -------- -------------
As of July 31, 1997 and 1996, 1,642,898 and 328,800, respectively options have
vested and have a weighted average exercisable price at July 31, 1997 and
1996 of $3.06 and $3.50 price per share, respectively.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," issued in October 1995.
In accordance with provisions of SFAS No. 123, the Company applies APB
Opinion 25 and related interpretations in accounting for its employee stock
option plans and, accordingly, does not recognize compensation expense for
options issued to employees. If
37
<PAGE>
the Company had elected to recognize compensation expense based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
loss and earnings per share would have been reduced to the pro forma amounts
indicated in the table below:
1997 1996
------------ -----------
Net loss attributable to Common
stockholders - as reported $ (9,637,377) $(5,068,689)
Net loss attributable to Common
stockholders - pro forma $(10,628,216) $(5,630,089)
Loss per share - as reported $(0.52) $(0.34)
Loss per share pro-forma $(0.57) $(0.38)
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to July 31, 1995, the resulting pro-forma
compensation expense may not be representative of the cost to be expected in
future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
Expected dividend yield 0%
Expected stock price volatility 30-149%
Risk free interest rate 6%
Expected life of option 1 to 5 years
Total expense charged against operations in fiscal year 1997 for options
granted to non-employees (in accordance with SFAS No. 123) was approximately
$900,000. The adoption of SFAS No. 123 would not have had a material impact
for transactions with non-employees in fiscal year 1996.
d. STOCK SUBSCRIPTIONS
As of July 31, 1997, the Company had not issued 70,023 shares of Common Stock
sold under private placements and for services at prices ranging from $1.50 -
$8.00 per share totaling $135,518. During 1997, 178,600 shares valued at
$668,230 relating to prior years were issued, 3,983 shares valued at $11,950
were issued for cash and 8,333 shares valued at $20,500 were issued for
services.
e. STOCK WARRANTS
At December 2, 1996, the Company entered into an agreement with a consultant
for future services in exchange for 160,000 warrants to purchase 160,000
shares of the Company's Common Stock exercisable at $2.12 per share. The
warrants will expire in five years and vest at various times as defined in
the agreement. At July 31, 1997, 80,000 warrants have vested. Subsequent to
year end the agreement was terminated.
f. FINAL FRONTIER
In fiscal year 1996 and 1997, 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 and 27,100 shares of Common
38
<PAGE>
Stock valued at $81,300, respectively. The Company has reduced goodwill
recorded on this transaction and stockholders equity by $225,000 and
$81,300 for fiscal 1996 and 1997, respectively, as reflected in the
accompanying consolidated financial statements.
6. MINERAL PROPERTIES
At July 31, 1997, the mining operations of the Company were in the process
of being readied for sale. The Company has made the strategic decision
to find parties that would either invest in and operate the mining
properties, purchase substantially all of the properties outright or
lease and operate the properties. Accordingly, no future significant
investments in the properties are presently contemplated by the Company.
Subsequent to year end, the Company has entered into negotiations with
various parties exploring these options although no finalized agreements
have been reached. There are no assurances that the Company will enter
into any agreements pertaining to its mineral properties or if executed
that the terms will be favorable to the Company.
The mineral properties are summarized as follows as of July 31, 1997 and
1996, which include the amounts allocated to the properties as part of
ATG's purchase of New Concept Mining in April, 1995:
1997 1996
---------- ----------
Manhattan Project $2,014,124 $1,933,094
Tempiute Project 1,043,553 1,043,553
---------- ----------
$3,057,677 $2,976,647
---------- ----------
---------- ----------
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 3). 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 3). These combined mining claims include approximately 850
acres in the Manhattan Mining District. New Concept Mining no longer plans
to develop this property but instead plans to sell, lease or otherwise
dispose of it's investment. Management has reviewed its costs, expected
cash flows and ore reserves and expects to recover at least the cost value
of the properties. The Company obtained an independent resource evaluation
of the property during fiscal 1997 which estimates gold ore reserves at
approximately 1,012,000 ounces (238,000 ounces proven-probable and 774,000
ounces possible). 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 $325,655.
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<PAGE>
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 3). 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. 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 no longer plans to
develop this property but plans to sell, lease or otherwise dispose of it's
investment. As of July 31, 1997, the Company has not entered into any
agreements to sell or otherwise dispose of its investment. Management has
reviewed its costs, expected cash flows and ore reserve and expects to
recover at least cost value of the property. 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.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company issued Mr. Robert W. Carroll (a shareholder) 33,000
shares at $3.03 per share for consulting services. The Company paid Mr. William
Carroll $30,000 in consulting fees in fiscal 1996.
During fiscal 1997 and 1996, the Company incurred expenses to related parties
and shareholders principally for consulting fees of approximately $992,000
and $737,000, respectively.
8. INCOME TAXES
A Federal benefit for income taxes of $597,000 and $261,000 were recorded in
fiscal year 1997 and 1996, respectively, 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.
Net temporary differences of the consolidated group at July 31, 1997 and 1996,
consisted of the following:
40
<PAGE>
1997 1996
----------- -----------
Deferred tax assets:
Net operating loss carry-forward $ 7,304,000 $ 5,543,000
Short term deferred tax assets 232,000 30,000
Long term deferred tax assets 1,588,000 608,000
Valuation allowances (8,266,000) (5,920,000)
----------- -----------
858,000 261,000
----------- -----------
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 $ (489,224) $(1,086,224)
----------- -----------
----------- -----------
As of July 31, 1997, the Company had approximately $6,746,000 of Federal net
operating loss carryforwards, which will expire in fiscal years ending 2006 to
2012. Differences between accounting and tax losses consist primarily of
differences in the accounting and tax 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 carry forwards 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. 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 certain tax attributes
could be postponed or reduced, possibly resulting in accelerated or
additional tax payments which, with respect to tax periods beyond 1997, could
have a material adverse impact on the Company's consolidated financial
position or results of operations.
9. COMMITMENTS AND CONTINGENCIES
a. EMPLOYMENT AGREEMENTS
The Company has employment agreements with several principal officers and
employees. The agreements call for minimum salary levels as well as, in
some cases, bonuses, royalties and commissions.
41
<PAGE>
Maximum payments (excluding potential bonuses, royalties and commissions)
under all employment agreements for fiscal 1998 is approximately $526,000.
b. CAPITAL LEASES
The Company leases certain mining properties which qualifies as a capital
lease (Note 6). Minimum lease payments under the terms of the lease
agreement are as follows:
Year Ending July 31,
1998 50,000
1999 50,000
2000 50,000
2001 50,000
2002 235,000
--------
435,000
Less: amounts representing
interest (109,345)
--------
Current portion 20,227
--------
$305,428
--------
--------
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.
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, 1997, approximately $380,000
of lease payments and advance royalties have been made which may be used to
offset any future royalties.
d. 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. 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
42
<PAGE>
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.
During fiscal 1997, the Company completed payments of $150,000 in the
aggregate, to Dr. Lo (an officer/shareholder) to purchase an option for
the rights to certain Baser technology. 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 evidence of
unencumbered title to the Baser Technology is provided to the Company.
e. CAP AGREEMENT
On November 1, 1992, the Company acquired from four investors the patented
technology for a method of disbursing an airborne combustion enhancer into
an engine 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 agreement
called for the potential issuance of Series A Preferred Stock based upon
the achievement of certain revenue levels. During fiscal 1994 and 1995,
the Company issued 160,000 and 218,061 shares of Series A Preferred Stock,
respectively, under this agreement. In fiscal 1996, an inventor's rights
were acquired in exchange for an option to acquire 400,000 shares of Common
Stock.
Subsequent to July 31, 1997, in exchange for 500,000 shares of Common
Stock, the Company acquired the remaining rights and now owns all rights to
the CAP technology.
10. INDUSTRY SEGMENT INFORMATION
The Company's principal business segments are Technology Products (The Force,
Waste Water Treatment), Publishing (Final Frontier) and Mining (New Concept
Mining).
Financial information about industry segments as of and for the year ended
July 31, 1997 and 1996, is as follows:
43
<PAGE>
1997 1996
----------- -----------
Operating revenues:
Technology products $ 2,482,921 $ 151,603
Publishing 467,449 266,247
Mining 132,846 --
Rental -- 39,792
----------- -----------
Total operating revenues $ 3,083,216 $ 457,642
----------- -----------
----------- -----------
Operating Loss:
Technology products, including
research and development $ 257,745 $ 1,300,519
Publishing 1,447,129 650,891
Mining 1,543,702 578,189
Rental -- (23,406)
Corporate expenses 3,983,690 2,600,929
----------- -----------
Net operating loss $ 7,232,266 $ 5,107,122
----------- -----------
----------- -----------
Identifiable assets
Technology products $ 1,073,456 $ 301,766
Publishing, including goodwill 164,097 1,448,404
Mining 5,904,695 5,520,059
Corporate and other 2,420,185 2,450,559
----------- -----------
Total $ 9,562,433 $ 9,720,788
----------- -----------
----------- -----------
Operating loss is revenues 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.
11. SUBSEQUENT EVENTS
In October 1997, the Company issued $3,000,000 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 lessor of 75 percent of the
average closing bid price of the Common Stock for the five trading days prior
to conversion or the average price on the closing date. The Company
anticipates that all of the debentures (including interest) will be converted
into ATG Common Stock.
44
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company intends to file a Definitive Proxy Statement (the "Proxy
Statement") within 120 days of the completion of the Company's fiscal year
ended July 31, 1997. The information required by this item is incorporated
by reference from the Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Proxy Statement.
45
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) EXHIBITS Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (5)
3.4 September 3, 1997 Amendments to Bylaws
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)
46
<PAGE>
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)
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)
27 Financial Data Schedule
</TABLE>
- ---------------------------
(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
Reportg 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.
47
<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 and
Chief Executive Officer
Date: November 13, 1997
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 13, 1997
/s/ Hugo Pomrehn
-------------------
Hugo Pomrehn
Vice Chairman of the Board
Date: November 13, 1997
/s/ Lawrence J. Brady
------------------- -------------------
Lawrence J. Brady Alfred Kingon
Director and President Director
Date: November 13, 1997
/s/ David Gann
------------------- -------------------
David Gann William Odom
Director and Director
Director of Marketing
Date: November 13, 1997
/s/ Shui-Yin Lo
------------------- -------------------
Shui-Yin Lo Terry Wachsner
Director and Director
Director of Research
Date: November 13, 1997
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (5)
3.4 September 3, 1997 Amendments to Bylaws
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)
49
<PAGE>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
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
27 Financial Data Schedule
</TABLE>
- ------------------------------
(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 8-K Current Report
filed with the Commission on August 15, 1994.
(4) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 14, 1994.
(5) Previously filed as an exhibit to the Company's Form 8-K Current Report
filed with the Commission on April 29, 1995.
50
<PAGE>
EXHIBIT 3.4
SEPTEMBER 3, 1997
AMENDMENTS TO BYLAWS
ARTICLE I, Section 2 - the principal address of the Company is changed
to 1017 S. Mountain Ave., Monrovia, CA 91016.
ARTICLE II, Section 2 - the date of the Annual Meeting is changed to
the first Monday of December.
ARTICLE III, Section 2 - the number of directors of the Company shall
be a minimum of 1 and a maximum of nine (9).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 1,033,108
<SECURITIES> 0
<RECEIVABLES> 593,605
<ALLOWANCES> 0
<INVENTORY> 239,738
<CURRENT-ASSETS> 1,866,451
<PP&E> 7,986,370<F1>
<DEPRECIATION> 290,388
<TOTAL-ASSETS> 9,562,433
<CURRENT-LIABILITIES> 3,617,570
<BONDS> 0
0
378
<COMMON> 20,722
<OTHER-SE> 5,923,763
<TOTAL-LIABILITY-AND-EQUITY> 9,562,433
<SALES> 3,083,216
<TOTAL-REVENUES> 3,083,216
<CGS> 0<F2>
<TOTAL-COSTS> 10,315,482
<OTHER-EXPENSES> 25,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,119,783
<INCOME-PRETAX> (9,377,234)
<INCOME-TAX> 597,000<F3>
<INCOME-CONTINUING> 8,780,234
<DISCONTINUED> 0
<EXTRAORDINARY> 857,143<F4>
<CHANGES> 0
<NET-INCOME> (9,637,377)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> 0<F2>
<FN>
<F1>INCLUDES GOODWILL 298,518 NET
<F2>NOT CALCULATED
<F3>BENEFIT FOR INCOME TAX
<F4>ACCRETED DIVIDENDS
</FN>
</TABLE>
