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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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-23268
AMERICAN TECHNOLOGIES GROUP, INC.
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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: (626) 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 $916,736.
As of October 31, 1998, the registrant had 23,725,587 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates was $15,033,743 computed by reference to the average of the
low bid and high ask prices on October 30, 1998.
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, 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. IE-TM- Technology, 2. Water Purification,
and 3. High Energy Particle Beams. 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 and combustion
processes. Additionally, many commercial products may be improved through IE
Technology including detergents, cosmetics and nutritional supplements.
The Company's efforts with IE Technology have yielded commercial applications
including household cleaning products and combustion enhancers. ATG anticipates
a coke formation suppresser and a descaler will be commercialized in fiscal
1999, although there can be no assurance to this affect. In the water
purification area, the Company's low pressure vacuum distillation system is
undergoing tooling design for a home use version for introduction to the
marketplace in mid-1999.
The third core technology is the high energy particle beam which is proposed to
produce a beam of heavy particles. This beam functions in much the same way as
the common laser. The important difference is that the high energy particle
beam is composed of particles rather than light. By accelerating the beam,
extremely high energy levels are possible. The development of the high energy
particle beam is being conducted through an ATG sponsored research program with
the California Institute of Technology.
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To maintain its focus on the Company's core technologies, the Company decided to
sell its wholly-owned subsidiary, ATG Media, Inc., a Minnesota corporation ("ATG
Media"), and to dispose of the mining property and equipment of New Concept
Mining, Inc., a Nevada corporation ("New Concept"). New Concept has entered
into a lease/purchase agreement for its Manhattan, Nevada gold properties and a
letter of intent for the sale of its Manhattan, Nevada gold mill. Negotiations
are on-going for the sale of its Tempiute, Nevada tungsten and garnet
properties. The Company has entered into an agreement for the sale of ATG Media
which transaction is anticipated to close prior to December 31, 1998.
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
IE TECHNOLOGY
After more than five years of self-funded research utilizing ATG's own
laboratory along with facilities at the University of California, Los Angeles,
and Zhongshan University in China, among others, ATG's scientists have developed
new commercial and industrial products from what their scientists have named IE
Technology.
ATG utilizes transmission electron microscopy, UV spectroscopy and atomic force
microscopy, among other methods, to validate its IE Technology.
ATG, through its own research projects and those conducted at various
universities on its behalf, continues to identify IE Technology variants and
define potential commercial applications. Current projects cover 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 IE Technology. Professors at UCLA are working with ATG on
applications for the enhancement of chemical processes and on medical
applications. Substantial research is still required to develop marketable
products, and it is ATG's present marketing strategy to apply the technology to
existing products with expectations of improving those products to competitive
advantage. There can be no assurance that IE Technology 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.
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ATG focuses its marketing for IE Technology products on existing commercial
product lines and industrial processes that can be improved through their use.
The Company targets industries for which consumers demand new and improved
methods and products that are environmentally safe. Such industries and
products include enzyme production, petrochemicals and fuels, plastics
production and detergents.
AUTOMOTIVE COMBUSTION AIR ENHANCEMENT PRODUCTS
The Force -Registered Trademark- is an innovative automotive aftermarket product
that utilizes IE Technology. 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 hydrocarbon fuels
and is a major greenhouse gas. The tests revealed that methane emissions can be
significantly reduced, by as much as 50% in some cases, in the presence of The
Force when compared to similar conditions in the absence of the performance
enhancer. Further scientific studies on the performance enhancer are underway
and there can be no assurance that the studies will achieve similar results.
A third party manufactures The Force for the Company. The raw materials
utilized to manufacture The Force are readily available from numerous suppliers.
The current marketing plan for The Force focuses on direct marketing,
professional installers 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 amongst the most
stringent in the nation, 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.
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CATALYST ADDITIVES FOR HYDROCARBON FUELS
ATG has been actively researching and developing a combustion enhancing fuel
additive based on IE Technology. The most recent testing in this area has been
focused on adding ATG's product to existing fuel additives to improve their
effectiveness. The Company believes that its additive is environmentally safe
and produces 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 conducted 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 favorable. However, there can be no assurance that further
sales of this product will occur.
GASOLINE AND DIESEL ADDITIVE. The development of ATG's product as a
gasoline and diesel additive has been pursued along two delivery methods. The
first is an innovative additive which is released into the air stream coming
into the engine. This additive has demonstrated reductions in fuel consumption
and, over time, removal of carbon deposits from combustion cylinders. The Force
is an example of a commercial product of this type. The second method 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 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."
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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. Under certain circumstances, 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. The Company does not anticipate that its fuel additive will be
subject to this testing, although there can be no assurance to this affect.
HOUSEHOLD CLEANING PRODUCTS
ATG's IE Technology is currently being applied to various detergents and
cleaning products including laundry detergent, dish liquid, window cleaner,
all-purpose cleanser, drain opener, toilet bowl cleaner and laundry pre-spotter.
ATG's marketing strategy is to identify existing products that might be improved
through the addition of ATG's product into their formulation. Each of these
products is all natural, contains no harmful chemicals and is fully
biodegradable. They are currently being marketed through 21st Century Global
Network, LLC, a Nevada limited liability company ("21st Century"), of which ATG
is a founding member. 21st Century markets its products, all of which currently
incorporate the IE Technology under the brand name Efficacy-TM- through a
multi-level marketing program.
AUTOMOTIVE CARE PRODUCTS
Under the terms of an agreement signed by ATG and Comtrad Industries in
September, 1998, ATG has developed a "Deluxe Car Care Kit" consisting of six
products - The Force Airborne Fuel Treatment, Wheel Cleaner, Tire Protectant,
Leather Cleaner, Window and Glass Cleaner and Car Wash Concentrate. Each of
these products is manufactured using IE Technology. Pursuant to this agreement,
a national media advertising and public relations campaign for the Deluxe Car
Care Kit was launched during October, 1998. In connection with this campaign,
Comtrad issued a purchase order to ATG for an initial purchase of the kits
totaling $155,000.
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
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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 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 when higher temperature liquids that 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
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, vacuum pumps in distillation
systems add significantly to manufacturing costs and increase maintenance costs.
Additionally, vacuum pumps are associated with high noise levels that make them
inappropriate for many applications.
The ATG 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, this distiller virtually eliminates scale
buildup and also avoids the extra costs and unreliability of a vacuum pump or
air injector. The simplicity of this design is intended to keep repair and
maintenance costs to a minimum. The distiller allows the home user the
advantages of low temperature vacuum distillation at an affordable price in a
unit that is simple and easy to maintain.
The distiller 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 volatile organic
compounds from the water to improve taste.
ATG has entered into an agreement with a major designer and manufacturer for the
distillation system. The manufacturer, Sunpentown, LTD of Taiwan, Republic of
China, anticipates bringing the first model to market by the middle of 1999.
Sunpentown will also distribute the unit in Asia.
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ATG is discussing the domestic marketing of the distiller with various companies
including several larger direct marketing firms which specialize in household
water purification equipment as well as with 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.
PARTICLE BEAMS
The particle beam project proposes to produce a beam of heavy particles known as
Bose-Einstein condensates. As a beam of particles, it functions in much the
same way as the common laser. The important difference is that it is composed
of heavy particles rather than light. By accelerating the beam, extremely high
energies are possible, and the beam could potentially have much more punching
power than today's strongest laser. The Company's research has included both
coherent and non-coherent particle beams. The Company has coined the term
"BASER" to refer to coherent beams.
According to Dr. Lo's particle beam theories, an extremely cold beam may be able
to break down molecules or even atoms and their nuclei, or be 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 to substantiate these potential
applications of particle beams or that particle beams can be produced at all.
No assurance can be given that the Company will develop particle beams 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.
HISTORY
The BASER particle beam project was initiated 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 a BASER beam 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").
On March 1, 1994, the Company entered into a License Agreement (the "BASER
Agreement") with B.W.N. Nuclear Waste Elimination Corporation, a Nevada
corporation ("NWEC"), a licensee of the BASER particle beam technology.
Thereafter, the
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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 particle beam sources and to analyze
the properties of the ionized clusters that are formed from the free expansion
of ionized superfluid helium produced by these sources.
In October, 1996, a paper was submitted to the Journal of Applied Physics in
which Dr. Lo details the results of his work on the particle beam 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 particle beam theory. This
significant milestone at CalTech implies that the particle beam corona source
may prove to be simpler, more compact, and more versatile than the
laser-detonation sources currently being developed by others for applications in
semiconductor etching. That the particle beam is shown to be a particle
generation source, another fundamental aspect of particle beam theory, implies
that the particle beam could be a means of space and rocket propulsion.
In October, 1998, a second paper was published by the journal detailing the
successful progress made at CalTech using the particle beam to generate charged
droplets of liquid helium, another of its fundamental features.
CURRENT RESEARCH
Under Dr. Lo's direction, research on the particle beam at CalTech is now
focused on the non-coherent beam and will continue through next year with the
goal of creating hydrogen and deuterium droplets. In order to expedite this
next phase of the particle beam research, UCLA has agreed to a collaborative
arrangement with ATG and CalTech in which superfluid cooling and cryostat
functioning for the particle beam 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 the BASER particle beam in its
application to the rendering of nuclear waste non-radioactive. With the
exception of the application of BASER particle beams 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. ATG issued NWEC 300,000 shares of Common Stock valued
at $3.00 per share as a one-time license fee under the NWEC Agreement.
Additionally, at such time as ATG receives an offer to purchase any
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application of the BASER particle beam technology for commercial utilization
or ATG commences the commercial utilization of any application of the BASER
particle beam 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 technology. If ATG does not spend at least
$100,000 on the development of BASER particle beams 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
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.
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DISCONTINUED OPERATIONS/ASSETS HELD FOR SALE
As a result of the Company's decision to focus its efforts on its three core
technologies, the Board authorized management to seek buyers or strategic
partners for ATG Media and New Concept.
To date, New Concept has entered into a Mining Lease and Option to Purchase
Agreement with Royal Gold, Inc., the largest U.S. based, publicly held gold
royalty company. Royal Gold has an exclusive mining lease for three patented
and 115 unpatented mining claims in the Manhattan Mining District of Nevada
for twenty years and so long thereafter as minerals are produced in
commercial quantities. In exchange, ATG will receive a 4% net royalty on all
smelted gold produced by Royal Gold from the property. Royal Gold will assume
landowner payments totaling $875,000 over a four year period ($100,000 of
which has been paid to landowners by Royal Gold through July 31, 1998) and
incur a minimum of $250,000 yearly for exploration and development costs on
the property. These payments are credited against royalty payments. Royal
Gold is also granted an option to purchase the property for $3,475,000 prior
to November 30, 2001. Royalty and landowner payments are credited against the
purchase price. Royal Gold may terminate the agreement at any time upon
written notice subject to satisfaction of all then due minimum exploration
and development costs.
The property covered by the agreement includes 3 patented and 115 unpatented
claims in the Manhattan Mining District of Nevada. Royal Gold may terminate at
any time upon written notice subject to satisfaction of all then due minimum
exploration and development costs.
A letter of Intent for the sale of New Concept's gold mill (the "Mill") at
Manhattan, Nevada has been executed for the sale of the Mill for net proceeds of
$1,450,000 payable at the rate of at least $15,000 per month with the remaining
balance due in 5 years. Negotiations are on-going for the sale of the Tempiute,
Nevada mineral property.
During 1998, ATG entered into an agreement with the Company's former
chairman, John Collins, whereby Mr. Collins will purchase ATG Media from the
Company for a purchase price of $500,000. The Company has received the
purchase price and anticipates that the remaining condition to closing the
sale will be satisfied by the end of December, 1998, although there can be no
assurance to this affect.
PATENTS
The Company has United States and various foreign patents pending covering its
combustion enhancer and United States patents have been granted 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, ten
more patent applications have been filed in the United States on applications of
the Company's IE Technology, such as descalants, new
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forms of structured materials, and enhancements for biological, biochemical,
and chemical reactions, applications are pending. Two of these patent
applications have been granted and the others are pending. PCT applications
on these new inventions have been or will be filed within the standard one year
deadline to protect future foreign business developments. There can be no
assurance that the other patents pending will be issued.
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. 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.
Due to 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. ATG continues to pursue the patents through the normal
appeals processes.
In May, 1998, ATG filed a patent application covering recent advances in the
field of nuclear fusion generation through non-coherent beams.
There is also no assurance that, despite efforts to avoid doing so, the
Company's products do not infringe on the intellectual property rights of
others.
RESEARCH AND DEVELOPMENT
The Company has incurred approximately $1,251,790 and $734,260 in research and
development expenses during the years ended July 31, 1998 and 1997,
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.
In June 1997, the Company acquired 1009, 1013 and 1017 South Mountain Avenue,
Monrovia, CA for an aggregate purchase price of $887,000 and has invested
approximately $200,000 in improvements to the properties. The property is
secured by
12
<PAGE>
a trust deed in favor of Point Center Financial Inc. securing a note in the
principal amount of $877,5000 due June 1, 2000 with monthly interest only
payments of $9,470. In addition, a note payable to an officer in the amount
$135,000 due December 31, 1998 is secured by the property. Interest on the note
was paid in the form of an option to purchase 75,000 shares of Common Stock at
$0.40 a share expiring September 2007.
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 shipping facility of 21st Century occupy
approximately 10,200 square feet and are located at 1013 South Mountain Avenue,
Monrovia, CA. Upon completion of the dale of ATG Media, ATG Media will vacate
its current location and the Company intends to lease the premises to a third
party, although there can be no assurance to this affect. 21st Century
currently pays $2,500 month.
The Company leases 1009 South Mountain Avenue, Monrovia, CA. to an unrelated
party under a one year lease expiring March, 1999 for $2,000 per month with the
option to renew for up to 4 additional one year terms at progressively higher
lease rates. The lessee has an option to purchase the property for $230,000
during the initial lease term.
New Concept Mining owns 100 acres of patented land and 2035 acres of unpatented
mining claims in the Manhattan Mining District most of which is subject to the
lease to Royal Gold. The property is improved with a mill, office building and
laboratory. In the Tempiute Mining District, New Concept owns 200 acres of
patented land and 435 acres of unpatented mining claims improved with a 40,000
square foot mill building and 14,000 square feet of office and workshop
buildings. New Concept has a total of 153 unpatented mining claims which
require the annual payment of $100 per claim to the Bureau of Land Management.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation or proceedings and is not
aware of any material litigation or proceeding threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<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 Yahoo Finance Historical Quotes.
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
------ -------- -------
<S> <C> <C>
August 1 1996 - October 31, 1996 $ 4.05 $ 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
August 1 1997 - October 31, 1997 $ 4.50 $ 2.55
November 1, 1997 - January 31, 1998 $ 3.00 $ 0.97
February 1, 1998 - April 30, 1998 $ 3.20 $ 0.97
May 1, 1998 - July 31, 1998 $ 2.30 $ 0.97
</TABLE>
(b) Holders.
The Company has only one class of common equity, the Common Stock. As of
October 31, 1998, there were 907 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.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET:
Assets $ 7,110,930 $ 9,562,433
Liabilities $ 4,011,316 $ 3,617,570
Stockholders' Equity $ 3,099,614 $ 5,944,863
------------ ------------
RESULTS OF OPERATIONS:
REVENUE
Technology Products $ 723,569 $ 2,482,921
Other 193,167 132,846
------------ ------------
Total Revenue 916,736 2,615,767
------------ ------------
OPERATING EXPENSES
Technology Products, including research and development $ 1,889,679 $ 2,740,666
Mining 2,330,500 1,676,548
Corporate 4,301,279 3,772,303
------------ ------------
Total Expenses 8,521,458 8,189,517
------------ ------------
Operating Loss (7,604,722) (5,573,750)
------------ ------------
Other Expense, Net (1,747,626) (2,134,105)
Benefit for Income Taxes 487,624 597,000
------------ ------------
Net Loss Before Extraordinary Item (8,864,724) (7,110,855)
------------ ------------
Net Loss (9,440,539) (8,780,234)
------------ ------------
Accreted Dividend - 857,143
------------ ------------
Net Loss Attributable to Common Stockholders ($9,440,539) ($9,637,377)
------------ ------------
------------ ------------
Net Loss Per Share
Continuing Operations ($0.40) ($0.43)
------------ ------------
------------ ------------
Discontinued Operations ($0.03) ($0.09)
------------ ------------
------------ ------------
Weighted average number of common shares outstanding 21,922,748 18,640,000
------------ ------------
------------ ------------
</TABLE>
Although revenue for fiscal 1998 declined significantly from fiscal 1997,
$916,700 as compared to $2,615,800, almost $2,000,000 of fiscal 1997 revenues
were received from laundry products sold to TradeNet Marketing Inc. ("TradeNet")
while only $257,000 in fiscal 1998 revenues came from that source. The
Company's decision to stop selling products to TradeNet resulted in the
significant decline in revenue however the Company has directed its efforts
towards marketing a greater variety of products through a larger distribution
network. Further, management believes the expenses incurred and reputation
damage suffered as a result of the activities of TradeNet have exceeded the
benefit of the revenue and views the termination of TradeNet as a positive event
in the Company's history. Further, when comparing revenue between
15
<PAGE>
fiscal 1998 and fiscal 1997, without regard to the revenue from TradeNet,
revenue declined less than five percent during a year amnagement completely
changed the Company's direction as discussed below. This nominal decline
during the transition from a focus on research to a dynamic program
incorporating marketing, product development and research is a favorable
result.
Pursuant to the Board of Director's new strategic plan and the refocusing on
core technologies, efforts to dispose of the Company's non-core businesses,
publishing and mining, were increased. As a result of these activities and in
accordance with Statement of Financial Accounting Standards ("FASB") No. 121,
"Accounting for the Impairment of Long-Lived Assets," which requires that
long-lived assets and certain identifiable intangibles be reported at the lower
of the carrying amount or their estimated recoverable amount, the Company
incurred an expense of $2,145,000 as a loss based upon the expected realizable
value on the mining properties held for sale. Further, mining expenses were
reduced $1,491,000 from $1,676,500 in fiscal 1997 to $185,500 in fiscal 1998.
Operating loss per share for fiscal 1997 and 1998, assuming a constant number
of shares outstanding and excluding the revenue and expenses of mining and
publishing as well as revenue from sales to TradeNet and estimated expenses
incurred in connection with such revenue, is the same. Taking into account
costs associated with the change of Management and that current management
redefined the Company's marketing strategy and introduced new products the
consistency in operating results is a positive achievement.
Total operating expenses increased $332,000 from $8,189,500 in fiscal 1997 to
$8,521,500 in fiscal 1998. This increase is principally the result of
$654,000 in increased mining expenses due to an impairment charge caused by
the book value of certain mining assets exceeding net realizable value,
$400,000 in amortization of technology rights included in general and
administrative expenses and increased research and development expenses of
$517,500, partially offset by decreased marketing and product development
expenses of $1,368,500.
General and administrative expenses includes $759,000 and $900,000 in
option expense for fiscal 1998 and 1997, respectively, in accordance with FASB
No. 123. FASB No. 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 FASB 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. In determining the
charge to operations for non-employee stock options, the Company applied a
valuation model which relies on several highly subjective
16
<PAGE>
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 decreased from $2,108,900 in fiscal 1997 to $1,627,300 in fiscal 1998.
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 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 Company's cash used in operations decreased $442,100 from $4,423,500 in
fiscal 1997 to $3,981,400 for fiscal 1998. In fiscal 1997, the primary
source of working capital was the issuance of convertible debt of $3,623,500
and the sale of ATG stock for net proceeds of $1,170,200. In fiscal 1998,
the primary source of working capital was net proceeds from the issuance of
convertible debt of $2,835,000 and the refinancing of the mortgage on the
Company's office in the amount of $401,300.
At July 31, 1998 current assets were $402,900, $1,309,600 less than the
$1,712,500 in current assets at July 31, 1997. However, subsequent to 1998
fiscal year-end, the Company issued $500,000 in convertible debt and presently
anticipates issuing an additional $500,000 in convertible debt. Further, the
Company is in negotiations for a financing of up to $5,000,000 of debt
convertible into shares of Common Stock at a discount to market. The placement
agreement is anticipated to be completed prior to November 30, 1998 and will
provide for the Company to receive up to $500,000 per month upon request.
Assuming the availability of the line of credit and increased sale of its
product based upon customer contract commitments, the Company anticipates
that it will be able to continue its operations at the current level for at
least one year, however, there can be no assurance to this effect. The
inability to secure the Debt Facility or obtain alternative financing would
have a material adverse effect on the Company. Any additional financing,
including the Debt Facility, may involve substantial dilution to the
interests of the Company's then existing shareholders.
YEAR 2000 COMPLIANCE
The Company has determined that no modifications or replacements are
necessary so that its computer software will recognize dates beyond December
31, 1999 ("Year 2000 Compliant"). There can be no assurance that the systems
of other companies with which the Company currently does business or will do
business with in the future will be Year 2000 Compliant, however the outside
supplier of certain payroll services has notified the Company that it is Year
2000 Compliant.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements follow.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
17
<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,
1998 and 1997, 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, since its inception, the Company has incurred
significant operating losses. The ability of the Company to operate as a going
concern is dependent upon its ability to (1) obtain sufficient additional
capital, (2) generate significant revenues through its existing assets and
operating business, and (3) overcome significant product development issues.
These issues, among others, raise substantial doubt about the ability of the
Company to continue as a going concern. Management's plans in regards to these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
As explained in Note 6 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, 1998
18
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 60,563 $ 1,025,076
Accounts receivable, net of allowance
for doubtful accounts of $28,800 and
$134,800 at July 31, 1998 and 1997,
respectively 46,029 392,666
Inventories, net 149,658 146,342
Due from officers/shareholders 138,198 148,375
Other current assets 8,482 -
----------- -----------
Total current assets 402,930 1,712,459
----------- -----------
PROPERTY AND EQUIPMENT 1,837,406 1,686,334
Less--Accumulated depreciation and
amortization (421,767) (281,980)
----------- -----------
1,415,639 1,404,354
----------- -----------
TECHNOLOGY RIGHTS, net of accumulated
amortization of $400,000 at July 31, 1998 800,000 -
OTHER ASSETS 432,909 298,518
ASSETS HELD FOR SALE 3,925,051 5,983,005
ASSETS OF DISCONTINUED OPERATIONS 134,401 164,097
----------- -----------
$ 7,110,930 $ 9,562,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
19
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JULY 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 360,028 $ 564,697
Accrued liabilities 145,770 254,638
Accrued professional fees 243,600 107,500
Amounts due to related parties 264,345 71,410
Current portion of notes payable 372,824 585,342
Current portion of capital lease obligations 22,344 20,227
Convertible debentures 75,000 -
Liabilities of discontinued
operations 356,366 274,088
Deposit on sale of discontinued operations 300,000 -
------------ ------------
Total current liabilities 2,140,277 1,877,902
Notes payable, net of current portion 1,587,955 945,016
Capital lease obligations, net of
current portion 283,084 305,428
Deferred tax liability - 489,224
------------ ------------
Total liabilities 4,011,316 3,617,570
------------ ------------
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
Liquidation value--$1,000 per share
None issued and outstanding - -
Common Stock:
Par value--$.001,
Authorized--100,000,000 shares
Issued and outstanding--22,704,368 and
20,721,789 shares at July 31, 1998
and 1997, respectively 22,704 20,722
Additional paid-in capital 39,569,941 32,904,555
Stock subscriptions 63,440 135,518
Deficit (36,556,849) (27,116,310)
------------ ------------
Total stockholders' equity 3,099,614 5,944,863
------------ ------------
$ 7,110,930 $ 9,562,433
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
20
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Technology products $ 723,569 $ 2,482,921
Other 193,167 132,846
----------- -----------
Total operating revenues 916,736 2,615,767
----------- -----------
OPERATING EXPENSES:
General and administrative 4,301,279 3,772,303
Marketing and product development 637,889 2,006,406
Research and development 1,251,790 734,260
Mining operations 185,500 1,676,548
Loss on impairment of assets held for sale 2,145,000 -
----------- -----------
Total operating expenses 8,521,458 8,189,517
----------- -----------
OTHER (EXPENSE) INCOME:
Interest expense, net (1,627,336) (2,108,920)
Loss on investment in Joint Venture (82,059) -
Other (38,231) (25,185)
----------- -----------
(1,747,626) (2,134,105)
----------- -----------
Loss from continuing operations before
income tax benefit and
discontinued operations (9,352,348) (7,707,855)
BENEFIT FOR INCOME TAXES 487,624 597,000
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS (8,864,724) (7,110,855)
DISCONTINUED OPERATIONS (NOTE 9) (575,815) (1,669,379)
----------- -----------
NET LOSS (9,440,539) (8,780,234)
ACCRETED DIVIDENDS - 857,143
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(9,440,539) $(9,637,377)
----------- -----------
----------- -----------
BASIC AND DILUTED
NET LOSS PER SHARE
Continuing operations $ (0.40) $ (0.43)
Discontinued operations (0.03) (0.09)
----------- -----------
Net loss $ (0.43) $ (0.52)
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,922,748 18,640,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
Series A Convertible Series C Convertible
Preferred Stock Preferred Stock
--------------------------- --------------------------
Number Par Number Par
of Shares Value of Shares Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
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 - - - -
Compensation expense related to stock options - - - -
Net Loss - - - -
--------- ------------ ---------- ------------
BALANCE, July 31, 1997 378,061 378 - -
Stock issued in conversion of Debt, including interest
and financing costs of $1,471,771 - - - -
Stock issued for technology rights - - - -
Stock issued for services rendered at prices ranging
from $1.92 - $3.10 per share - - - -
Stock canceled for services rendered - - - -
Issuance of stock for stock subscriptions purchased during 1997 - - - -
Exercises of stock options and warrants
at prices ranging from $1.33 - $2.12 per share - - - -
Stock subscriptions of 45,990 shares canceled for
refunds and services - - - -
Stock subscriptions of 22,619 shares of Common Stock through
trade for services in 1998 at $1.21 - $1.97 per share - - - -
Compensation expense related to stock options - - - -
Net Loss - - - -
--------- ------------ ---------- ------------
BALANCE, July 31, 1998 378,061 $ 378 - $ -
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
<CAPTION>
Common Stock
------------------ Additional Retained
Number Par paid-in Stock Sub- earnings
of Shares Value Capital scriptions (deficit) Total
--------- ------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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
Compensation expense related to 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
Stock issued in conversion of Debt, including interest
and financing costs of $1,471,771 1,378,676 1,379 4,230,392 - - 4,231,771
Stock issued for technology rights 500,000 500 1,199,500 - - 1,200,000
Stock issued for services rendered at prices ranging
from $1.92 - $3.10 per share 55,370 55 119,410 - - 119,465
Stock canceled for services rendered (3,000) (3) 3 - - -
Issuance of stock for stock subscriptions purchased during 1997 1,533 1 4,598 (4,599) - -
Exercises of stock options and warrants
at prices ranging from $1.33 - $2.12 per share 50,000 50 88,550 - - 88,600
Stock subscriptions of 45,990 shares canceled for
refunds and services - - 89,069 (96,419) - (7,350)
Stock subscriptions of 22,619 shares of Common Stock through
trade for services in 1998 at $1.21 - $1.97 per share - - - 28,940 - 28,940
Compensation expense related to stock options - - 933,864 - - 933,864
Net Loss - - - - (9,440,539) (9,440,539)
---------- ------- ----------- -------- ------------ -----------
BALANCE, July 31, 1998 22,704,368 $22,704 $39,569,941 $ 63,440 $(36,556,849) $ 3,099,614
---------- ------- ----------- -------- ------------ -----------
---------- ------- ----------- -------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
22
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(9,440,539) $ (8,780,234)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 654,592 1,409,350
Provision for doubtful accounts - 124,772
Write-off of advances to officers
and shareholders 80,000 -
Stock issued and subscribed as
consideration for services 148,405 498,853
Imputed interest expense for notes payable
and capital leases 44,984 80,847
Interest and financing costs
on convertible debt 1,471,771 1,522,803
Stock options issued to consultants and
employees 933,864 900,000
Interest expense for stock options issued
with convertible debentures - 665,000
Deferred taxes (489,224) (597,000)
Loss on impairment of assets held for sale 2,145,000 -
Loss on investment in Joint Venture 82,059 -
Loss on disposal of equipment 10,159 25,185
Changes in assets and liabilities:
Accounts receivable 346,637 (518,124)
Inventories (3,316) (195,365)
Other current assets (8,482) -
Accounts payable and accrued liabilities (150,258) 411,994
Amounts due to related parties 192,935 28,420
----------- -----------
Net cash used in operating activities (3,981,413) (4,423,499)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (179,678) (1,145,874)
Investment in a Joint Venture (121,400) -
Other (191,408) (309,368)
----------- -----------
Net cash used in investing activities (492,486) (1,455,242)
----------- -----------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Advances to officers/shareholders, net $ (69,823) $ (145,875)
Payments of notes payable to
shareholders/officers - (76,000)
Net proceeds from issuance of convertible debt 2,835,000 3,623,500
Net proceeds from Mortgage refinancing 401,333 -
Payments of notes payable (130,121) (59,842)
Payments on capital lease obligations (20,227) (50,000)
Deposit on sale of discontinued operations 300,000 -
Net proceeds from issuance of stock and
stock subscriptions 81,250 1,170,188
----------- -----------
Net cash provided by financing activities 3,397,412 4,461,971
----------- -----------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 111,974 (44,467)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (964,513) (1,461,237)
CASH AND CASH EQUIVALENTS, beginning of period 1,025,076 2,486,313
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 60,563 $ 1,025,076
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during fiscal 1998 and 1997 for:
Interest $ 118,200 $ 506
Income taxes $ 1,600 $ 1,600
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of debt to Common Stock $ 2,760,000 $ 4,100,000
----------- -----------
----------- -----------
Stock issued for technology rights $ 1,200,000 $ -
----------- -----------
----------- -----------
Capital lease obligation incurred in connection
with lease purchase option on mining property $ - $ 82,733
----------- -----------
----------- -----------
Property and equipment acquired with
notes payable $ 200,000 $ 538,078
----------- -----------
----------- -----------
Reduction of carrying value of property and
equipment with notes payable and
accounts payable $ 112,954 $ -
----------- -----------
----------- -----------
Financing costs funded by notes payable $ 40,055 $ -
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
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 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 Frontier-TM- Magazine which was first published in
1986. In fiscal 1998, the Company decided to divest and discontinue
operations for Final Frontier so as to more fully focus its resources
on its core environmental technology (See Note 9).
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, in fiscal
1998, 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 to sell off its mining
properties and related milling equipment (See Note 7).
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating losses.
The ability of the Company to operate as a going concern is dependent upon
its ability (1) to obtain sufficient additional capital, (2) generate
significant revenues through its existing assets and operating business,
and (3) overcome significant product development issues. The Company plans
to raise additional working capital through private offerings of debt and
equity. The successful outcome of future activities cannot be determined at
this time and there are no assurances that if achieved, the Company will
have sufficient funds to
25
<PAGE>
execute their business plans or generate positive operating results.
These issues, among others, raise substantial doubt about the ability
of the Company to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification
of liabilities that might result should the Company be unable to
continue as a going concern.
c. CONCENTRATION RISK
The Company had one customer that represented 28 percent and 74 percent of
total revenues for fiscal 1998 and 1997, respectively. During fiscal 1998,
the Company discontinued sales to this customer and expects to replace this
customer with other customers. 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 at July 31, 1997 are time certificate
of deposits of $1,021,000.
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. Equipment is depreciated over lives from 3 to 7 years. Buildings
are depreciated over 30 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 and are currently being held for disposal (See Note 7).
26
<PAGE>
Ordinary repairs and maintenance costs are charged to current operations,
while improvements and betterments which prolong the useful life of the
asset are capitalized and depreciated over their estimated useful lives.
Summary of property and equipment for fiscal year 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 431,000 $ 431,000
Property and equipment 1,406,406 1,255,334
---------- ----------
$1,837,406 $1,686,334
---------- ----------
---------- ----------
</TABLE>
f. REVENUE RECOGNITION
The Company recognizes revenue for its technology products upon shipment of
goods to its customers.
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
Patents cost 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 periods not exceeding 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.
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."
27
<PAGE>
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. The Company has adopted
the provisions of SFAS No. 128, "Earnings Per Share" issued in February
1997. Common share equivalents were not considered as they would be
anti-dilutive and had no impact on earnings per share for any periods
presented. However, the impact under the treasury method of dilutive
stock options would have been incremental shares of 939,008 and 808,833
for fiscal year ended July 31, 1998 and 1997, respectively.
l. LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
In accordance with SFAS 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 mineral properties,
intangible assets and other facilities. The purpose of these reviews is
to determine whether the carrying amounts are recoverable. Recoverability
is determined by examining and comparing respective carrying amounts
versus expected 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.
As discussed in Notes 1 and 7, during 1998, the Company decided to
discontinue its development of its mining properties and seek buyers for
the properties and related milling equipment. Based upon preliminary offers
received to date, the Company has recognized an impairment loss of
$2,145,000 in the carrying value of assets held for sale due to carrying
value of these assets being in excess of estimated sale price.
During 1997, the Company recognized an impairment loss of $792,723 in the
carrying value of goodwill associated with the purchase of Final Frontier,
due to projected undiscounted cash flows of ATG Media being insufficient to
recover the carrying value at July 31, 1997.
Management believes that the impairment losses recorded on long-lived
assets, including mining and intangible assets, are adequate. However,
there can be no assurance that market conditions will not change or needs
for existing products will continue which could result in additional
asset impairments.
m. RECLASSIFICATIONS
Certain amounts in the July 31, 1997 consolidated financial statements have
been reclassified to conform to current year presentation.
28
<PAGE>
n. 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.
o. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
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. These new standards
will not have a material impact on the consolidated financial statements.
3. DEBT
Notes payable are summarized as follows as of July 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Anthony Selig $ 608,225 $ 555,000
North Tem, net of imputed interest
of $72,767 and $84,828 at
July 31, 1998 and 1997, respectively 127,233 115,172
Crown, net of imputed interest
of $25,126 and $58,049 at
July 31, 1998 and 1997, respectively 314,874 331,951
Note payable with monthly payments
of interest at 12.95 percent, with a
balloon payment of $877,500 due
June 1, 2000, secured by property 877,500 481,250
Other 32,947 46,985
---------- ----------
1,960,779 1,530,358
Current portion 372,824 585,342
---------- ----------
$1,587,955 $ 945,016
---------- ----------
---------- ----------
Maturities of notes payable at July 31, 1998, are as follows:
1999 $ 372,824
2000 1,587,955
----------
$1,960,779
----------
----------
</TABLE>
29
<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 beginning on June 14, 1996
through June 14, 2000. During 1998, the above notes were amended and the
outstanding principal amounts are due with $100,000 of principal and
accrued interest payments in fiscal 1999 and the remaining principal
plus accrued interest due March 15, 2000.
In fiscal 1997, in connection with a consulting agreement with Dixie
Exploration Corp. (Dixie - A Company owned by Anthony Selig), the
Company issued 20,000 shares of common stock (valued at $1.80) 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 related to the issuance of these shares for fiscal
1997.
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. Subsequent to year end, the Company did not make the payment due
on October 5, 1998 and is currently in default.
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 8
percent Debentures plus accrued and imputed interest were converted into
424,496 shares of common stock in fiscal 1997. Imputed interest of $187,550
was recorded as interest expense in connection with the 20 percent discount
from market as of July 31, 1997.
In November, 1996, the Company issued $1,400,000 of 7 percent Convertible
Debentures (7 percent Debentures), maturing November 1,
30
<PAGE>
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 in fiscal 1997.
Imputed interest of $618,796 was recorded as interest expense in
connection with the 30 percent discount from market as of July 31, 1997.
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 in fiscal 1997. Imputed interest of $678,042 was recorded as
interest expense in connection with the 25 percent discount from market as
of July 31, 1997.
In fiscal 1997, 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.
In October, 1997, the Company issued $3,225,000 of 7.5 percent Convertible
Debentures (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 are payable in
cash or the Company's Common Stock at the Company's discretion. The
conversion price is equal to the lower of the average closing bid price of
the Common Stock for the five trading days prior to the closing or 75
percent of the average closing bid price of the Common Stock for the five
trading days prior to conversion. In connection with the anticipated 25
percent discount from market, the Company recorded imputed interest of
$1,075,000 in fiscal 1998. During fiscal 1998, an aggregate of $3,150,000
of Debentures plus accrued interest of $6,771 were converted into 1,378,676
shares of Common Stock. As of July 31, 1998, $75,000 of the Debentures were
outstanding.
5. TECHNOLOGY RIGHTS
On November 1, 1992, the Company acquired from four inventors 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.
Under the 1992 agreement pursuant to which the Company acquired the right
to use the Clean Air Pac, the Company was required to pay a 1.25 percent
cash royalty plus up to one million shares of Series A Convertible
Preferred Stock to BWN based upon sales of The Force. On August 5, 1997,
in exchange for 500,000 shares of Common Stock valued at
31
<PAGE>
$1,200,000, the Company acquired all remaining interests and royalty
rights of Robert W. Carroll and BWN Oil Investments Corporation, a
Nevada corporation (together BWN), to the Clean Air Pac which is used
by the Company in The Force(R) airborne fuel treatment. The technology
rights are amortized based on the straight line basis over a period of
three years. Included in selling and general expenses is amortization
expense of $400,000 for the year ended July 31, 1998.
6. CAPITAL STOCK
a. COMMON STOCK
The Company issued 55,370 and 213,001 shares of common stock for
services rendered valued at $119,465 and $478,353 during 1998 and 1997,
respectively. All shares issued were valued at the average 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 (Series A 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, 1998, 378,061
shares of Series A Stock were outstanding, no shares having been converted.
The outstanding shares were issued under the CAP agreement (See Note 5).
The Company has authorized 500,000 shares of Series B Convertible Preferred
Stock (Series B Stock). The Series B Stock has a liquidation preference of
$8.00 per share, is entitled to one vote per share and is convertible upon
holders request without the payment of any additional consideration during
the first year following issuance into the number of shares of Common Stock
equal to the quotient of $8.00 per share and the Market Value per Share for
the ten trading days immediately preceding conversion and in subsequent
years into one share of Common Stock for each share of Series B stock. As
of July 31, 1998, there are no Series B Stock issued and outstanding.
The Company has authorized 2,000 shares of Series C Convertible Preferred
Stock (Series C 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 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.
32
<PAGE>
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 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.
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price Exercise Price
of Shares Per Share Per Share
--------- ---------- ----------------
<S> <C> <C> <C>
Outstanding at July 31, 1996 1,414,000 $3.02 $1.50 - $6.25
Granted 513,000 $1.70 $1.70
Exercised - - -
Canceled 131,000 $4.01 $1.50 - $6.25
--------- ----- -------------
Outstanding at July 31, 1997 1,796,000 $2.58 $1.50 - $6.25
Granted 736,000 $2.44 $1.50 - $3.30
Exercised - - -
Canceled 948,000 $2.57 $1.50 - $5.00
--------- ----- -------------
Outstanding at July 31, 1998 1,584,000 $2.51 $1.50 - $6.25
--------- ----- -------------
--------- ----- -------------
</TABLE>
At July 31, 1998 and 1997, 1,374,063 and 311,875 options, respectively,
have vested and have a weighted average exercisable price of $2.60 and
$2.84 per share and an exercise price ranging from $1.50 to $6.25 per
share at July 31, 1998 and 1997, respectively. The weighted average
fair value of options granted is $0.41 and $1.86 per share at July 31,
1998 and 1997, respectively.
As of July 31, 1998, outstanding options have an estimated
weighted-average remaining contractual life of 5.62 years.
33
<PAGE>
Transactions involving options and warrants not covered by the plans are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price Exercise Price
of Shares Per Share Per Share
--------- --------- --------------
<S> <C> <C> <C>
Outstanding at July 31, 1996 3,375,800 $2.83 $1.00 -$10.07
Granted 2,514,698 $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 4,407,898 $2.90 $1.08 -$10.07
Granted 2,459,875 $1.92 $0.97 - $3.50
Exercised 50,000 $1.99 $1.33 - $2.12
Canceled 782,000 $2.88 $2.00 - $3.00
--------- ----- -------------
Outstanding at July 31, 1998 6,035,773 $2.53 $0.97 -$10.07
--------- ----- -------------
--------- ----- -------------
</TABLE>
As of July 31, 1998 and 1997, 4,414,773 and 1,980,398, respectively,
options and warrants have vested and have a weighted average exercisable
price and an exercise price ranging from $0.97 to $0.07 per share at
July 31, 1998 and 1997 of $2.76 and $3.06 per share and an exercise price
ranging from $0.97 to $0.07 per share, respectively. The weighted-average
fair value of options granted is $1.41 and $1.98 per share at July 31,
1998 and 1997, respectively. As of July 31, 1998, outstanding options
have an estimted weighted-average remaining contracted life of 6.36 years.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) 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 when the grant price is equal to or more than the market price.
If 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 income and earnings per share would have been reduced to the pro
forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Net loss attributable to Common
stockholders - as reported $(9,440,539) $(9,637,377)
Net loss attributable to Common
stockholders - pro forma $(10,615,359) $(10,628,216)
Loss per share - as reported $(0.43) $(0.52)
Basic and diluted loss per share pro-forma $(0.48) $(0.57)
</TABLE>
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.
34
<PAGE>
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:
<TABLE>
<S> <C>
Expected dividend yield 0%
Expected stock price volatility 112%
Risk free interest rate 5-6%
Expected life of option 1 to 5 years
</TABLE>
Total expense charged against operations for options granted to
non-employees (in accordance with SFAS No. 123) was approximately $759,000
and $900,000 for fiscal year 1998 and 1997, respectively. Total expense
charged against operations in fiscal year 1998 for options granted to
employees and non-employees at grant prices lower than market price at the
date of grant was approximately $175,000.
d. STOCK SUBSCRIPTIONS
As of July 31, 1998, the Company had not issued 45,119 shares of Common
Stock sold under private placements and for services at prices ranging from
$1.21 - $3.00 per share totaling $63,440. During 1998, 1,533 shares valued
at $4,599 relating to prior year subscriptions were issued.
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.
During 1998, 30,000 warrants were exercised and 80,000 warrants were
canceled.
f. FINAL FRONTIER
In fiscal year 1997, due to the lower than expected operating results of
Final Frontier, certain previous shareholders of Final Frontier agreed to
return 27,100 shares of Common Stock valued at $81,300. The Company reduced
goodwill recorded on this transaction and stockholders equity by $81,300
for fiscal 1997 as reflected in the accompanying consolidated financial
statements.
7. MINERAL PROPERTIES
a. MANHATTAN PROJECT
In a series of transactions commencing on November 2, 1994, New Concept
Mining purchased mining claims located in the Manhattan Mining District,
Nye Country, Nevada (Manhattan) for $10,000 and a $490,000 non-interest
bearing note (See 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 (See Note 3). New Concept Mining no longer
plans to develop this property but instead plans to sell, lease or
otherwise dispose of its investment.
35
<PAGE>
b. MINING LEASE
In connection with their plans to dispose of the property, in November,
1997, New Concept Mining, a wholly-owned subsidiary of the Company,
entered into a Mining Lease and Option to Purchase Agreement with Royal
Gold, Inc. (Royal Gold). Royal Gold has an exclusive mining lease for three
patented and 115 unpatented mining claims in the Manhattan Mining District
of Nevada for twenty years and so long thereafter as minerals are produced
in commercial quantities. In exchange, ATG will receive a 4% net royalty on
all smelted gold produced by Royal Gold from the property. Royal gold will
assume landowner payments totaling $875,000 over a four year period
($100,000 of which has been paid to landowners by Royal Gold through July
31, 1998 and accounted for as other income) and incur a minimum of $250,000
yearly for exploration and development costs on the property. These
payments are credited against royalty payments. Royal Gold is also granted
an option to purchase the property for $3,475,000 prior to November 30,
2001. Royalty and landowner payments are credited against the purchase
price.
c. 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). In
the December 1994 transaction with Mr. Selig, as 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.
New Concept Mining no longer plans to develop this property but plans to
sell, lease or otherwise dispose of its investment. As of July 31, 1998,
the Company has not entered into any finalized agreements to sell or
otherwise dispose of its investment. However, management has received
non-binding offers which indicate that the carrying amount of these assets
will exceed net realizable value by $2,145,000. Therefore, the Company has
recorded an impairment charge of $2,145,000 in the July 31, 1998
accompanying statement of operations.
d. ASSETS HELD FOR SALE
As of July 31, 1998 and 1997, respectively, assets held for sale, net of
impairment write-down consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Tempiute property $ 560,000 $ 755,000
Manhattan property
and equipment 3,365,051 5,228,005
---------- ----------
$3,925,051 $5,983,005
---------- ----------
---------- ----------
</TABLE>
8. JOINT VENTURE
In February, 1998, the Company formed a joint venture with approximately
27% ownership interest, which will be accounted for in
36
<PAGE>
accordance with the equity method. The joint venture markets various
personal and home care products containing the Company's proprietary
IE-TM- crystals. Sales of these products commenced in June 1998. The
Company made an initial investment of $124,100 in the joint venture. The
Company's share of net loss from this joint venture was approximately
$82,000 during the year ended July 31, 1998. The net assets of the joint
venture were approximately $76,000 as of July 31, 1998.
As of July 31, 1998, the Company had approximately $40,000 in accounts
receivable due from the joint venture. Included in the Consolidated
Statement of Operations are $36,000 of sales and $53,000 of other income
relating to the joint venture during the year ended July 31, 1998.
9. DISCONTINUED OPERATIONS
On June 23, 1998, the Company entered into an agreement with a former
officer-shareholder to sell the stock of ATG Media, Inc. for $500,000. The
closing date was initially set as August 15, 1998, but has been extended by
the parties. The sale is contingent on the sale of 2,250,000 shares of the
former officer's common stock to an unrelated third party for proceeds of
at least $2,000,000. If the former officer's stock is not purchased, the
Company is obligated to return the amount of purchase price paid in cash or
shares of ATG's Common Stock valued at $0.89 per share. As of July 31,
1998, the Company received $300,000 of the purchase price, which is
included in current liabilities in the accompanying financial statements.
Included in assets of discontinued operations are inventories and accounts
receivable. Included in liabilities of discontinued operations are accounts
payable and deferred subscription revenue.
Loss from operations of discontinued operations are approximately $576,000
and $1,669,000 for fiscal 1998 and 1997, respectively. The Company
estimates that the purchase price less the carrying value and costs of
disposal will not result in a loss on the disposal.
10. 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.
During fiscal 1998 and 1997, the Company incurred expenses to related
parties and shareholders principally for consulting fees of approximately
$666,000 and $992,000, respectively.
During 1998, the Company issued Mr. Robert Carrol and BWN 500,000 shares
for technology rights (see Note 5).
Included in amounts due to related parties is $135,000 due to an officer
secured by property.
11. INCOME TAXES
A Federal benefit for income taxes of $487,624 and $597,000 were recorded
in fiscal year 1998 and 1997, respectively, due to a write-down of the book
value of mining property and equipment and 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.
37
<PAGE>
Net temporary differences of the consolidated group at July 31, 1998 and
1997, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-forward $10,709,000 $ 7,304,000
Short term deferred tax assets 201,000 232,000
Long term deferred tax assets 1,855,000 1,588,000
Valuation allowances (11,417,776) (8,266,000)
----------- -----------
1,347,224 858,000
----------- -----------
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)
----------- -----------
----------- -----------
</TABLE>
As of July 31, 1998, the Company had approximately $9,818,000 of Federal
net operating loss carryforwards, which will expire in fiscal years ending
2006 to 2013. Differences between accounting and tax losses consist
primarily of differences in the accounting and tax treatment of research
and development and purchases acquired through the issuance of stock. Under
SFAS 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 assets
consist primarily of differences in accounting between book and tax for
losses on marketable equity securities, deferred revenue, compensation
expense and impairment in the carrying value of assets. 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 1998, could have a material adverse impact on the Company's
consolidated financial position or results of operations.
38
<PAGE>
12. 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.
Maximum payments (excluding potential bonuses) under all employment
agreements for fiscal 1999 is approximately $457,000.
b. CAPITAL LEASES
The Company leases certain mining properties which qualify as capital
leases. Minimum lease payments under the terms of the lease agreement are
as follows:
<TABLE>
<S> <C>
Year Ending July 31,
1999 $ 50,000
2000 50,000
2001 50,000
2002 235,000
--------
385,000
Less: amounts representing
interest 79,572
Current portion less interest 22,344
--------
$283,084
--------
--------
</TABLE>
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, 1998, approximately $430,000 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
39
<PAGE>
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 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 as discussed above. The
acquired option expires one year after evidence of unencumbered title to
the Baser Technology is provided to the Company.
e. CONSULTING AGREEMENT
On June 2, 1998, the Company entered into a consulting agreement for
services. Included in Stock Subscriptions are 20,619 subscribed shares
valued at $25,000 for a retainer for services which were issued
subsequent to year end. Under the term of the agreement, the Company
issued 500,000 shares of ATG Common Stock subsequent to year end.
Additionally, the agreement calls for a monthly retainer of $10,000 and
expires May 31, 1999.
13. INDUSTRY SEGMENT INFORMATION
The Company's principal remaining business segment is Technology Products (The
Force, Waste Water Treatment).
Financial information about industry segments as of and for the year ended July
31, 1998 and 1997, is as follows:
40
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating revenues:
Technology products $ 723,569 $2,482,921
Corporate 40,305 -
Mining 152,862 132,846
---------- ----------
Total operating revenues $ 916,736 $2,615,767
---------- ----------
---------- ----------
Operating Loss:
Technology products, including
research and development $1,166,113 $ 257,745
Mining-including impairment 2,177,638 1,543,702
Corporate expenses 4,260,974 3,772,303
---------- ----------
Net operating loss $7,604,722 $5,573,750
---------- ----------
---------- ----------
Identifiable assets
Technology products $1,575,512 $1,073,456
Assets of discontinued operations 134,401 164,097
Mining assets held for sale 3,925,051 5,983,005
Corporate and other 1,475,966 2,341,875
---------- ----------
Total $7,110,930 $9,562,433
---------- ----------
---------- ----------
</TABLE>
Operating loss is revenues minus operating expenses.
Identifiable assets by segment are assets used in or otherwise identifiable with
the Company's operations in each segment.
14. SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
During October and November 1998, the Company issued $500,000 in
aggregate of 6 percent convertible subordinated debentures, maturing
November 1, 2003. Interest is payable semiannually commencing May 1,
1999 or upon conversion. The principal and accrued interest is
convertible into shares of ATG Common Stock at the lower of a fixed
conversion price equal to 115 percent of the average closing bid
price of the Common Stock during the five trading days preceding the date
of issuance or a variable conversion price equal to 75 percent of the
average closing bid price of ATG Common Stock during the five trading days
preceding the date of conversion. The debentures include warrants to
purchase 50,000 shares of ATG Common Stock at $0.75 per share.
CONSULTING AGREEMENT
During August 1998, the Company entered into a consulting agreement for
services. Under the terms of the agreement, the Company issued 500,000
shares of ATG Common Stock.
41
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company as of July 31, 1998 are
listed below, together with brief accounts of their business experience and
certain other information. Subsequent to July 31, 1998, Mr. Kingon resigned
and Mr. McCarthy was appointed to fill the resulting vacancy on the Board of
Directors.
<TABLE>
<CAPTION>
Name Age Present Office or Position Year First Elected Director
- ---- --- -------------------------- ---------------------------
<S> <C> <C> <C>
Lawrence J. Brady 59 Chairman of the Board of 1997
Directors, Chief Executive
Officer
Shui-Yin Lo 57 Director of Research and 1993
Development and a Director
William Odom 66 Director 1997
Terry Wachsner 49 Director 1997
Alfred Kingon 66 Director 1997
Charles McCarthy 59 Director 1998
Harold Rapp 52 Chief Operating Officer ---
Chief Financial Officer
</TABLE>
LAWRENCE J. BRADY: became President and a Director in March, 1997. In
December, 1997, he became Chief Executive Officer and Chairman of the Board.
From 1994 until he joined the Company, Mr. Brady was an independent consultant
except for a five month period during which he served as president of Chantal
Pharmaceutical Corp. From 1991 to 1994 Mr. Brady served as a director and
founder of Capitoline International Group, Ltd., a consulting firm. He was a
Senior Vice President of Hill & Knowlton Public Affairs Worldwide from 1987 to
1991 and Director of International Marketing for Sanders Associates, a Lockheed
subsidiary from 1985 to 1987.
Mr. Brady served as Assistant Secretary of Commerce for Trade Administration in
the Reagan Administration, responsible for administering federal government
export and import trade regulation functions, which included high technology
export control and enforcement programs, the anti-dumping and countervailing
duty laws and the anti-boycott and foreign trade zone programs. He has
completed all requirements for a Ph.D. in International Economics and
International Affairs except for his dissertation.
42
<PAGE>
SHUI-YIN LO: became Director of Research and Development and a Director in
June, 1993. From January, 1987 until June, 1993, he was Chief Executive Officer
of the Institute of Boson Studies Inc., a privately funded research company.
Dr. Lo received his Ph.D. in physics in 1966 from the University of Chicago. He
has been a visiting scholar at numerous universities and institutes including
Stanford University, California, Oxford University, England, Institute for
Theoretical Physics, Berlin University, Germany and the Institute of High Energy
Physics, Beijing, China.
HAROLD RAPP: has been Chief Operating Officer since March, 1997, and Chief
Financial Officer/Treasurer since December, 1997. Mr. Rapp was formerly a
principal and Executive Vice President of Baltres-Valentio Associates, a larger
Arizona based consulting engineering firm, whose clients included, Intel,
Signetics, AT&T, Heitman Properties, Motorola, Carborundum and Arizona State
University. He is a successful inventor of vacuum distillation and desalination
technology who served on ATG's Advisory Board prior to formerly joining the
Company in March, 1997.
WILLIAM ODOM: is Director of National Security Studies for the Hudson Institute
and an adjunct professor at Yale University. As Director of the National
Security Agency from 1985 to 1988 he was responsible for signal intelligence and
communications security for the United States. He has many other senior
national security positions in the military and the executive branch of the
United States government, including in the Carter White House. Mr. Odom also
serves as a director of American Science and Engineering, Inc., V-ONE
Corporation and Nichols Research Corporation.
TERRY WACHSNER: is President of Kennedy Wilson Management, one of the
largest commercial property management firms in the United States. He has
held the position since 1994 and had other positions with the firm since
1982. He is a member of The National Advisory Council of Building Owners and
Managers Association International.
CHARLES MCCARTHY: is Counsel to the law firm of O'Conner & Hannan, a Washington
D.C. and Minneapolis, Minnesota based law firm. Previously, he served as
managing partner of several law firms. Mr. McCarthy recently completed a four
year term as General Counsel to the National Association of Corporate Directors.
Directors are elected annually at the Company's annual meeting of shareholders.
The term of each person currently serving as a director will continue until the
Company's next annual meeting or until a successor is duly elected and
qualified.
Executive officers are appointed annually by the Board of Directors and serve at
the discretion of the Board, except to the extent that provisions of employment
agreements may govern.
43
<PAGE>
SECTION 16(b) BENEFICIAL OWNERSHIP COMPLIANCE
Based upon the Company's review of the reports on Form 3, Form 4 or Form 5
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, Lawrence J. Brady, Terry Wachsner, William Odom and Harold Rapp failed
to timely file one Form 5 as to 2, 2, 2 and 1 transactions, respectively.
Additionally, Lawrence J. Brady, John Collins and David Gann failed to timely
file 2, 1 and 1 Form 4, respectively, and John Collins and David Gann failed to
file 1 Form 4.
ADVISORY BOARD:
The Company's Advisory Board consists of renowned scientists or businessmen in
technological fields who have agreed to be available for scientific or other
consultations when needed. Board members will be compensated at individually
determined hourly rates and will be granted options to acquire 2,500 shares of
Common Stock at fair market value on the date of grant. Presently, ten
individuals have agreed to serve as Advisors and the Company is discussing
appointment to the Advisory Board with additional people. The following is
summary background information on the twelve people who have agreed to serve on
the Advisory Board. There can be no assurance that these people will actually
serve on the Advisory Board for any particular length of time.
JAMES S.I. LO: holds a Ph.D. in clinical biochemistry from the University of
Toronto (1975). He is currently a Clinical Assistant Professor, Department of
Pathology, Health Sciences Center at Brooklyn, New York State University and is
a Clinical Biochemist at Brookdale Hospital and Medical Center, Brooklyn, New
York. Dr. S.I. Lo is the brother of Dr. S.Y. Lo, a director of the Company.
CHARLES YOUNG: holds a Ph.D. in physics from the Massachusetts Institute of
Technology (1977). He is currently a staff physicist at the Stanford Linear
Accelerator Center where he has been employed since 1978.
ANMIN LIU: holds a B.S. in civil engineering from Chuan Yuan University in
Taiwan and an M.S. in Sanitary Engineering from Colorado State University,
(1970). Since 1989 he has been the Engineer Manager at the Hyperion Wastewater
Treatment Plant of the City of Los Angeles where he responsible for engineering
and operations, including the multi-billion dollar expansion program ongoing at
the plant. He has supervised the start up of two of the four wastewater plants
operated by the City of Los Angeles.
BENJAMIN BONAVIDA: holds a Ph.D. in Immunochemistry from the University of
California, Los Angeles (1968). Since 1983 he has been a Professor, Department
of Microbiology and Immunology at the UCLA School of Medicine. Since 1974 he
has been a member of the American Association of Cancer Research and since 1973
he has been a member of the American Association of Immunologists, Federation of
the American Societies for Experimental Biology. Doctor Bonavida periodically
serves on
44
<PAGE>
various National Institutes of Health study sections.
GARY A. WILLIAMS: holds a Ph.D. in Physics from the University of California,
Berkeley (1974). Since 1984 he has been a Professor of Physics at the
University of California, Los Angeles. From 1978 to 1982 he was a Alfred P.
Sloan Foundation Fellow.
ED ROSE: holds a B.S. in Civil Engineering/Engineering Geology from the
University of Southern California (1956). He is currently an independent
consultant providing project and construction management services. For over 25
years he was employed by Bechtel Corporation retiring as a project manager. His
professional affiliations include the American Society of Civil Engineers and
the National Society of Professional Engineers.
DANIEL C. TSUI: holds a Ph.D. in Electrical Engineering from the University of
Chicago (1967). Since 1982 he has been a Professor of electrical engineering at
Princeton University. He is a member of the National Academy of Sciences,
Academia Sinica, Fellow of The American Physical Society, American Association
for the Advancement of Science. In 1984, he received the Oliver E. Buckley
Condensed Matter Physics Prize of The American Physical Society.
VIJAY K. DHIR: holds a Ph.D. in Mechanical Engineering from the University of
Kentucky, Lexington (1972). Since 1991 he has been a Professor , Mechanical,
Aerospace and Nuclear Engineering Department, University of California, Los
Angeles. Dr. Dhir has served as a referee of numerous journals and has acted as
a consultant to many entities including the Nuclear Regulatory Commission,
Rockwell International, General Electric Corporation, Los Alamos National
Laboratory and Brookhaven National Laboratory.
WILLIAM MACKENZIE (KEN) CURRIE: holds a Ph.D. in Experimental Nuclear Physics
from Glasgow University, Scotland (1961). He is well recognized for his
contributions in renewable energy programs for Great Britain and the United
States. He has been pivotal in developing corporate business and scientific
relationships among United States governmental agencies, national laboratories
and the World Bank.
REINHARD BRUCH: holds a Ph.D. in Physics from the Free University of Berlin,
Germany. Since 1991 he has been a Professor of Physics at the University of
Nevada, Reno. Dr. Bruch has authored over 160 publications and his recent
collaborations include Lawrence Livermore National Laboratory, University of
Uppsala, Max-Plank Institute for Quantenoptik, University of Pierre and Marie
Currie and Texas A&M University.
45
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The tables and discussion below set forth information about the compensation
awarded to, earned by or paid to the Company's executive officers during the
fiscal years ended July 31, 1996, 1997, and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Name & Principal Position Year Annual Salary Stock Options
------------------------- ---- ------------- -------------
<S> <C> <C> <C>
Lawrence Brady 1998 $181,712 500,000 (1)
Chairman of the Board and
Chief Executive Officer 1997 55,000 (2) 500,000 (3)
1996 -- --
John Collins 1998 $ 92,381 --
Former: Chairman of the
Board, Chief Executive 1997 252,492 250,000 (4)
Officer and Treasurer 70,000 (5)
1996 189,459 97,500 (6)
Shui-Yin Lo 1998 $163,882 --
Director of Research &
Development and a Director 1997 151,576 250,000 (4)
45,000 (7)
1996 136,625 40,000 (8)
Harold Rapp 1998 $157,530 400,000 (1)
Chief Operating Officer and
Chief Financial Officer 1997 51,800 (9) 100,000 (4)
1996 (10) --
Jim Nicastro 1997 $161,632 --
Vice President
1997 161,632 250,000 (4)
40,000 (7)
1996 164,497 600,000 (11)
24,500 (8)
John M. Dab 1998 $157,283 --
General Counsel and
Secretary 1997 145,333 20,000 (7)
1996 67,308 (12) 90,000 (13)
25,000 (8)
</TABLE>
----------------------
(Footnotes are on the following page.)
46
<PAGE>
(Footnotes from prior page.)
(1) The exercise price of these options is $1.50 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing January, 1998.
(2) Does not include $40,000 paid to Mr. Brady as consulting fees prior to his
employment by the Company.
(3) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. One quarter of the options vested and the
unvested portion was canceled and replace with the option granted in fiscal
1998.
(4) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing March, 1997.
(5) The exercise price of these options is $1.87 per share, 10% above the
estimated fair market value on the date of grant. The options vest at the rate
of 25% per year commencing January, 1998.
(6) The exercise price of these options is $1.65 per share, 10% above the
estimated fair market value on the date of grant. The options vest at the rate
of 25% per year commencing August, 1996.
(7) The exercise price of these options is $1.70 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing January, 1998.
(8) The exercise price of these options is $1.50 per share, the estimated fair
market value on the date of grant. The options vest at the rate of 25% per year
commencing August, 1996.
(9) Does not include $33,200 paid to Mr. Rapp as consulting fees prior to his
employment by the Company.
(10) Does not include $35,000 paid to Mr. Rapp as consulting fees during the
fiscal year.
(11) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant; 500,000 options were voluntarily surrendered
in March, 1996.
(12) Does not include $64,250 paid to Mr. Dab during the fiscal year as legal
fees prior to his employment by the Company.
(13) The exercise price of these options is $3.00 per share, the estimated fair
market value on the date of grant. Options for 30,000 shares of Common Stock
have vested and 30,000 options vest upon the occurrence of certain events
relating to sales of The Force and 30,000 options vest upon listing of the
Company's Common Stock on a stock exchange.
47
<PAGE>
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in
Name Granted Fiscal 1998 Exercise Price Expiration Date
---- -------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 500,000 46.5 1.50 December 31, 2007
Harold Rapp 400,000 37.2 1.50 December 31, 2007
</TABLE>
<TABLE>
<CAPTION>
OPTION VALUES AT JULY 31, 1998
Number of Securities Underlying Value of in-the-money Options
Options at July 31, 1998 at July 31, 1998
------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 250,000 375,000 0 0
Shui-Yin Lo 1,012,500* 157,500 0 0
Harold Rapp 160,000 360,000 0 0
Jim Nicastro 351,875 151,125 0 0
John M. Dab 113,750 76,250 0 0
John Collins 623,125 0 0 0
</TABLE>
___________________
* Includes 450,000 options grant to Dr. Lo in connection with the sale to the
Company of certain technology rights.
Effective January 1, 1998, the Company entered into one year employment
agreements with Messrs. Brady, Rapp, Dab and Nicastro and Dr. Lo at annual
salaries of $180,000, $165,000, $154,000, $153,450 and $159,880, respectively.
As additional compensation, Messrs. Brady and Rapp were granted options to
purchase 500,000 shares of Common Stock and 400,000 shares of Common Stock,
respectively, at $1.50 per share under their employment agreements. The options
vest in quarterly installments on January 1, 1998, 1999, 2000 and 2001.
Each employment agreement provides for early termination by the Company for
"cause," which includes final conviction of the employee of a felony involving
willful conduct materially detrimental to the Company or the final adjudication
of the employee in a civil proceeding for acts or omissions to act involving
willful conduct detrimental to the Company, and for "good reason" by the
employee, which includes the diminution of employee's title, responsibilities or
status, or reduction in pay or benefits. In addition, each agreement provides
for the payment of three months salary if the employee
48
<PAGE>
terminates his employment in connection with a Change of Control as defined in
the agreement or one year's salary in the event the Company terminates the
employee during the period commencing 90 days before and ending 180 days after
the Change of Control. Change of Control is defined as an event or series of
events that would be required to be described as a change in control of the
Company in a proxy or information statement distributed by the Company pursuant
to Section 14 of the Securities Exchange Act of 1934 in response to Item 6(e)
of Schedule 14A promulgated hereunder, or any substitute provision which may
hereafter be promulgated thereunder or otherwise adopted.
Directors of the Company who are employees do not receive compensation for
serving as such; non-employee Directors receive $7,500 and an option to purchase
25,000 shares of Common Stock at the fair market value on the day of appointment
(or anniversary thereof) per year which vest at the rate of 2,000 shares per
month with 3,000 shares vesting in the twelfth month. All Directors hold office
until the next annual meeting of the shareholders or until their successors have
been duly elected and qualified. All officers serve at the discretion of the
Board of Directors.
The Company has no retirement, pension or similar programs at the present time.
The creation of any such plan, however, will be at the discretion of the Board
of Directors of the Company. The Board of Directors may, in the future, adopt
such employee benefit and executive compensation programs as it deems advisable
and consistent with the best interests of the shareholders and the financial
condition and potential of the Company.
49
<PAGE>
STOCK OPTION PLANS
The Company's 1993 Incentive Stock Option Plan and 1993 Non-Statutory Stock
Option Plan (the "Option Plans") provide for the granting of Incentive Stock
Options, within the meaning of Section 422b of the Internal Revenue Code of
1986, as amended, to employees and Non-Statutory Stock Options to employees,
non-employee directors, or consultants or independent contractors who provide
valuable services to the Company. At October 31, 1998, 1,584,000 shares of
Common Stock were reserved for issuance under the Option Plans. The Option
Plans were approved by the shareholders in November, 1993.
The Option Plans are administered by the Board of Directors or, if the Board so
designates, a Stock Option Committee consisting of at least two members of the
Board of Directors. The Board or the Stock Option Committee, as the case may
be, has the discretion to determine when and to whom options will be issued, the
number of shares subject to option and the price at which the options will be
exercisable. The Board or the Stock Option Committee will also determine
whether such options will be Incentive Stock Option or Non-Statutory Stock
Options and has full authority to interpret the Option Plans and to establish
and amend the rules and regulations relating thereto.
Under the Incentive Stock Option Plan, the exercise price of an Incentive Stock
Option shall not be less than the fair market value of the Common Stock on the
date the option is granted. However, the exercise price of an Incentive Stock
Option granted to a ten percent (10%) stockholder (as defined in the Incentive
Stock Option Plan), shall be at least 110% of the fair market value of Common
Stock on the date the option is granted; exercise prices of options granted
under the Non-Statutory Stock Option Plan may be less than fair market value.
The maximum aggregate number of shares which may be covered by options under the
Option Plans is 10% of the total outstanding share of Common Stock.
Incentive Stock Options covering 50,000 shares exercisable at $6.25 per share,
11,000 shares exercisable at $5.00 per share, 337,000 shares exercisable at
$3.00 per share, 227,000 shares exercisable at $1.70 per share and 165,250
shares exercisable at $1.50 per share and Non-Statutory Stock Options covering
140,000 shares exercisable at $3.30 per share, 322,500 shares exercisable at
$3.00 per share, 35,000 shares exercisable at $1.87 per share, 87,500 shares
exercisable at $1.70 per share, 73.125 shares exercisable at $1.65 per share and
135,625 shares exercisable at $1.50 per share have been granted and not canceled
or exercised. As of October 31, 1998, Options covering an additional 788,559
shares may be issued under the Option Plans.
50
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of November 1, 1998
concerning the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the directors of the Company, and (iii)
all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent
Name and Address of Beneficial Ownership (1) of Class
- ---------------- --------------------------- --------
<S> <C> <C>
Lawrence J. Brady (2) 268,000 (3) 1.1
Shui-Yin Lo (2) 1,023,000 (4) 4.2
Charles McCarthy (2) 16,000 (5) *
William Odom (2) 32,000 (5) *
Terry Wachsner (2) 32,000 (5) *
Harold Rapp (2) 151,500 (6) *
Jim Nicastro (2) 398,900 (7) 1.6
John M. Dab (2) 134,500 (8) *
All officers and 2,025,900 7.8
directors as a group
(8 persons) (5) (6) (7) (8) (9)
</TABLE>
- -------------------------------
* Less than 1 percent.
(1) Except as reflected below, each of the persons included in the table has
sole voting and investment power over the shares respectively owned, subject to
the rights of spouses under applicable community property laws.
(2) The address of each of these persons is c/o American Technologies Group,
Inc., 1017 South Mountain Avenue., Monrovia, CA 91016.
(3) Includes 250,000 shares issuable upon exercise of options.
(4) Includes 197,500 shares issuable upon exercise of Incentive Stock Options
and 825,000 shares issuable upon exercise of other options.
(5) Represents shares issuable upon exercise of options.
(6) Includes 150,000 shares issuable upon exercise of options.
(7) Includes 3,900 shares held by Mr. Nicastro's wife and 133,000 shares
issuable upon exercise of Incentive Stock Options and 250,000 shares issuable
upon exercise of other options.
(8) Includes 4,500 shares of Common Stock held of record by Mr. Dab's children
under the Uniform Gift to Minors Act and 90,000 shares issuable upon exercise of
options granted under the Company's Stock Option Plans and 30,000 shares
issuable upon exercise of another option.
51
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The licensor of the BASER technology which the Company has sublicensed from NWEC
is Apricot which is 50% owned by Dr. Shui-Yin Lo, a director of the Company.
On July 22, 1994, the Company entered into a Technology Acquisition Agreement
with Shui-Yin Lo, the Company's Director of Research and Development and a
member of the Board of Directors. For $150,000, the Company acquired an option
to acquire a 50% interest in Apricot or 100% of the technology underlying BASERs
as invented by Dr. Lo, if he reacquires such rights. The exercise price for the
option is 10,000 shares of Common Stock and a royalty of 5% of ATG's net profit,
if any, from the exploitation of BASERs through July 21, 1999. Additionally, if
Dr. Lo has not received 1,700,000 shares of Series A Stock in connection with
the Company's purchase of the Invention, the exercise price will include such
shares. Under the Technology Acquisition Agreement the Company acquired from
Shui-Yin Lo exclusive right, title and interest to the Invention for an Option
to acquire 450,000 shares of Common Stock at $3.00 per share, and, at such time
as ATG receives an offer to purchase the Invention as developed by ATG for
commercial utilization or ATG commences commercial utilization of any
application of the Invention developed by ATG, ATG agreed to (i) issue to Lo
1,700,000 shares of Series A Stock and (ii) pay to Lo a royalty at the rate of
7.5% of ATG's net profit from the exploitation of the Invention. If Dr. Lo
receives the 1,700,000 shares of Series A Stock as part of the exercise price
for the BASER rights, then Dr. Lo will not receive such shares if the Invention
is commercialized in accordance with the foregoing criteria.
Certain officers of the Company are employed pursuant to written employment
agreements the principal terms of which are described under "Item 10 Executive
Compensation."
In connection with the resignation of John Collins from his positions with the
Company, the Company and Mr. Collins entered into a Consulting Agreement at a
monthly rate of approximately $22,200 with a term expiring July 31, 1998 and
thereafter until the sale of ATG Media is completed on an as needed basis at a
rate to be determined on a project by project basis.
52
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (2)
3.4 September 3, 1997 Amendments to Bylaws (3)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (4)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (2)
4.4 Certificate of Determination of Rights and Preferences of
Series C Convertible Preferred Stock (2)
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 License Agreement dated as of March 1, 1994 by and between
American Technologies Group, Inc. and B.W.N. Nuclear Waste
Elimination Corporation (4)
10.4 Research Agreement dated April 25, 1994 by and between American
Technologies Group, Inc. and California Institute of Technology (4)
10.4 Technology Acquisition Agreement entered into as of July 22, 1994
by and between the Company and Shui-Yin Lo (5)
10.6 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (2)
10.7 Amended Employment Agreement dated as of November 1, 1995, by
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
and between Hugo Pomrehn and American Technologies Group, Inc. (2)
10.8 Agreement dated June 23, 1998 between the Registrant and
John R. Collins regarding ATG Media, Inc.
10.9 Form of Executive Employment Agreement effective January 1, 1998.
22 List of Subsidiaries of the Registrant (2)
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 the Company's Form 10-KSB Annual Report
filed with the Commission on February 16, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 13, 1997.
(4) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on June 17, 1994.
(5) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 14, 1994.
(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.
54
<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/ Lawrence J. Brady
---------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
Date: November 12, 1998
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/ Lawrence J. Brady
-------------------------------
Lawrence J. Brady
Chairman of the Board, Chief
Executive Officer and Treasurer
Date: November 12, 1998
-------------------------------
William Odom
Director
Date: November , 1997
/s/ Shui-Yin Lo
-------------------------------
Shui-Yin Lo
Director and
Director of Research
Date: November 12, 1998
/s/ Terry Wachsner
-------------------------------
Terry Wachsner
Director
Date: November 12, 1998
/s/ Charles McCarthy
-------------------------------
Charles McCarthy
Director
Date: November 12, 1998
55
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (2)
3.4 September 3, 1997 Amendments to Bylaws (3)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (4)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (2)
4.4 Certificate of Determination of Rights and Preferences of
Series C Convertible Preferred Stock (2)
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 License Agreement dated as of March 1, 1994 by and between
American Technologies Group, Inc. and B.W.N. Nuclear Waste
Elimination Corporation (4)
10.4 Research Agreement dated April 25, 1994 by and between American
Technologies Group, Inc. and California Institute of Technology (4)
10.4 Technology Acquisition Agreement entered into as of July 22, 1994
by and between the Company and Shui-Yin Lo (5)
10.6 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (2)
10.7 Amended Employment Agreement dated as of November 1, 1995, by
and between Hugo Pomrehn and American Technologies Group, Inc. (2)
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
10.8 Agreement dated June 23, 1998 between the Registrant and
John R. Collins regarding ATG Media, Inc.
10.9 Form of Executive Employment Agreement effective January 1, 1998.
22 List of Subsidiaries of the Registrant (2)
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 the Company's Form 10-KSB Annual Report
filed with the Commission on February 16, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 13, 1997.
(4) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on June 17, 1994.
(5) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 14, 1994.
57
<PAGE>
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of this 23rd
day of June, 1998 by and between AMERICAN TECHNOLOGIES GROUP, INC., a Nevada
corporation ("ATG"), and JOHN R. COLLINS ("Collins").
1. SALE OF ATG MEDIA. For and in consideration of the payment of Five
Hundred Thousand Dollars ($500,000), ATG shall sell, transfer and convey to
Collins all right, title and interest in and to ATG Media, Inc., a Minnesota
corporation ("Media"). The purchase price shall be paid prior to August 14,
1998. Within 30 days of the Closing, Collins shall change the name of Media so
as to not include any reference to "ATG."
2. CLOSING. The Closing shall occur upon receipt by Collins of
$2,000,000 from the sale of certain securities by him to Cone, Rose Thatcher,
Ltd. In the event that Collins does not receive such amount by August 14, 1998,
at Collins' option, ATG shall return to Collins such amount of the purchase
price paid to ATG or the number of shares of ATG common stock determined by
dividing such portion of the purchase price by $0.89.
3. FINANCIAL CONDITION OF MEDIA. ATG represents that the financial
information attached as Exhibit A to the Amendment to Agreement dated May 6,
1998 (the "Amendment") is accurate and complete in all material respects as of
such date. ATG will cause Media to be operated in its normal course through the
Closing. ATG shall take such action and pay such amounts as may be necessary to
assure that the liabilities of Media on the Closing are no greater than as set
forth in Exhibit A. ATG shall be responsible for payroll and payroll taxes for
the current Media employees through the Closing. Except as specifically
represented by ATG herein, Collins is purchasing Media in an "as is," "where is"
condition.
4. POST-CLOSING OPERATION OF MEDIA. Media may occupy its current
premises for no more than 30 days after the Closing, rent free. However, prior
to the expiration of such 30 day period, Media shall vacate the premises.
5. CONSULTING FEES. The obligation of the parties under Sections 4 and 5
of the Consulting Agreement and Release dated November 20, 1997 (the "Consulting
Agreement") shall remain in effect until the Closing. Past due fees thereunder
shall be paid at the time as the purchase price for media is paid by Collins in
a simultaneous transaction.
6. COLLINS' ATG STOCK. The obligations of the parties under Section 1 of
the Amendment are hereby canceled. Collins represents and warrants, however,
that he has irrevocably directed the sale of two million, two hundred fifty
thousand (2,250,000) shares of ATG Common Stock for a total of Two Million
Dollars ($2,000,000) and provided adequate documentation as to the disposition
of the balance of his share holdings.
<PAGE>
7. COLLINS ATG STOCK OPTIONS. Omitted.
8. REGISTRATION RIGHTS. If at any time Collins desires to exercise some
or all of the options to purchase 375,000 shares of ATG Common Stock (the
"Shares") included within the ATG Options before such options' expiration,
Collins shall so notify ATG in writing and as soon as practicable thereafter ATG
shall file a registration statement on Form S-8 or other applicable form with
the Securities and Exchange Commission covering the Shares, at Collins' expense
which shall not exceed Five Thousand Dollars ($5,000). However, in the event
that an exemption from registration of the Shares is available within 4 months
of the date of the request for registration, then ATG need not register the
Shares.
9. RATIFICATION OF CONSULTING AGREEMENT. Except as specifically modified
in this Agreement, the Amendment and the Consulting Agreement are hereby
ratified and confirmed. In the event of any conflict in the provisions of this
Agreement and those contained in the Amendment or the Consulting Agreement, the
provisions of this Agreement shall control. While all non-conflicting
provisions of that agreement are so ratified and confirmed herein, specific
reference is made to the general mutual release provisions contained therein, as
well as the waiver provisions of that Agreement, which are specifically
reiterated herein for emphasis, so that both parties have a clarion
understanding of that repetition, for purposes of unambiguous reinforcement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
/s/ John Collins
---------------------
John R. Collins
American Technologies Group, Inc.
a Nevada corporation
By: /s/ Lawrence J. Brady
--------------------------
Lawrence J. Brady
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (THIS "AGREEMENT") IS MADE AND ENTERED INTO
AS OF JANUARY 1, 1998 BY AND BETWEEN AMERICAN TECHNOLOGIES GROUP, INC., A NEVADA
CORPORATION ("EMPLOYER"), AND [NAME] ("EMPLOYEE"), AND IS MADE WITH RESPECT
TO THE FOLLOWING FACTS:
RECITALS
A. WHEREAS, Employer desires to continue the services of Employee as
[TITLE] (together, "[TITLE]"); and
B. WHEREAS, Employee is willing to provide such services to Employer.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration the receipt of which
is hereby acknowledged, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. EMPLOYMENT.
----------
1.1 TITLE, BOARD MEMBERSHIPS. Employer hereby engages Employee and
Employee hereby accepts employment with Employer, to perform Employee's services
as [TITLE] of Employer and such other services as may be required of Employee
under this Agreement, on the terms and conditions hereinafter set forth.
Employee further agrees to accept election and to serve during all or any part
of the Term (as that term is defined in Section 2 hereof) of this Agreement as
an officer and/or director of Employer and of any subsidiary or affiliate of
Employer, without compensation therefor, except as set forth in this Agreement,
if elected to any such position by the shareholders of Employer or by the Board
of Directors of Employer (the "Board") or of any subsidiary or affiliate, as the
case may be.
1.2 DUTIES, PLACE OF EMPLOYMENT. Employee shall perform all duties
customarily performed by Employees employed in the capacity of [TITLE] of
companies engaged in the business of Employer and shall use and devote his full
time and efforts in the discharge of his duties. Employee shall perform his
duties at Employer's principal Employee offices in Los Angeles County, but shall
travel to and from such county as may be reasonably required in the performance
of such duties. Subject to the terms of this Agreement, Employee shall comply
promptly and faithfully with Employer's reasonable instructions, directions,
requests, rules and regulations. Employer shall not be deemed to have waived
the right to require Employee to perform any duties hereunder by assigning
Employee to any other duties or services.
2. TERM. The term ("Term") of this Agreement shall commence as of the
date hereof and shall continue until December 31, 1998 and thereafter shall
automatically renew for consecutive one year terms unless (i) terminated by
written
<PAGE>
notice given by either party to the other at least sixty (60) days prior
to the end of the initial term or any subsequent one year term or (ii)
terminated sooner pursuant to Section 5 of this Agreement. If the Term is
extended pursuant to this Section 2, during such period of extension Employer
shall pay Employee all compensation to which Employee is entitled under this
Agreement.
3. COMPENSATION. During the Term as full compensation for all services
to be performed by Employee pursuant to this Agreement, Employer agrees to pay
Employee the base salary and bonuses set forth in this Section 3, in addition to
such other benefits and compensation as are provided elsewhere in this
Agreement.
3.1 BASE SALARY. Employee shall be entitled to an annual base salary
of $_______. The base salary shall be paid to Employee bi-weekly during the
Term.
3.2 COMMITMENT PAYMENTS. As further consideration for the commitment
and obligations of Employee hereunder, Employer shall issue to Employee an
option (the "Option") to purchase ____________ shares of Common Stock (the
"Shares") at an exercise price of $____ per share (the Option and the Shares are
hereinafter referred to collectively as the "Securities"). The Option shall
expire on December 31, 2006 and vest 25% immediately and 25% on each of January
1, 1999, 2000 and 2001, provided the Agreement is in effect on such vesting
date. Notwithstanding the foregoing, to the extent not previously exercisable,
the Option shall become exercisable in its entirety in the event that (i) there
occurs a Change in Control of Employer (as hereafter defined) (ii) Employer
concludes the sale of substantially all of its assets other than in a
transaction which is intended primarily to effect a corporate reorganization
without material change in beneficial ownership of the material business of
Employer or (iii) Employee is terminated by Employer other than for Cause (as
hereafter defined). The option agreement shall be in the form of Exhibit A,
attached hereto. Employee understands that the Option and the shares of Common
Stock underlying the Option have not been registered under federal or state
securities laws and may not be transferred without registration thereunder or
pursuant to an exemption therefrom.
3.3 BONUS. Nothing herein contained shall preclude the Board of
Directors of Employer from authorizing the payment to Employee of a bonus,
whether in cash or capital stock, based upon Employee's performance or other
reasonable criteria. The payment of such additional compensation shall not
operate as an amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future period or be
deemed to affect the base salary in any manner.
3.4 ADDITIONAL BENEFITS.
(a) MEDICAL INSURANCE. Employer shall provide Employee during
the Term with group accident, medical, dental and hospital insurance coverage,
2
<PAGE>
provided however, that such insurance shall only be provided when determined by
the Board of Directors to be within the financial resources of the Company.
(b) BENEFITS GENERALLY OFFERED. In addition to any other
compensation or benefits to be received by Employee pursuant to the terms of
this Agreement, Employee shall be entitled to participate, to the extent
allowable in accordance with his status, in all employee benefits offered from
time to time by Employer to its senior officers; including, but not limited to,
stock option plans, group life, disability and any other insurance and profit
sharing plans.
4. VACATION. Employee shall be entitled to two (2) weeks paid vacation
for each year worked during the Term.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. Employee's employment under the terms of
this Agreement may be terminated immediately, at the option of Employer, for
"Cause" as that term is defined in Section 6.2(a).
5.2 TERMINATION FOR DISABILITY. Employee's employment under the
terms of this Agreement may be terminated immediately, at the option of
Employer, for "Disability" as that term is defined in Section 6.2(b).
5.3 TERMINATION BY DEATH. Employee's employment under the terms of
this Agreement shall be terminated upon the death of Employee.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
6.1 PAYMENTS. In the event of the termination of Employee's
employment under this Agreement by Employer, other than termination for "Cause,"
or if Employee voluntarily terminates his employment within 90 days prior to or
180 days after a Change of Control (the "Change of Control Period"), Employee
shall have no duty to mitigate and Employer shall upon such termination pay to
Employee (i) three months base salary and (ii) continue payment of health
benefits for a period of three months (together, the "Severance Benefits"),
provided, however, if Employer terminates Employee's employment during the
Change of Control Period, then Employer shall pay Employee Severance Benefits
for a period of one year.
6.2 DEFINITIONS.
(a) CAUSE. Termination by the Board of Employee's employment
for "Cause" shall mean a termination upon (i) the good faith determination of
the Board that Employee has failed to perform fully or faithfully Employee's
obligation under this Agreement, (ii) the final conviction of Employee of any
felony, or a misdemeanor involving theft, fraud, dishonesty, misrepresentation
or willful conduct materially
3
<PAGE>
injurious, harmful or detrimental to Employer; (iii) Employee commits an act or
omits to take action in bad faith or to the detriment of Employer, (iv) Employee
fails or refuses to comply with the policies, standards or regulations of
Employer or (v) Employee violates any of the warranties contained in Section 9
hereof. For the purposes of this Section 6.2(a), "final conviction" and shall
be and mean a conviction or an adjudication, as the case may be, that is no
longer appealable due to the passage of time or otherwise, and with respect to
which a final judgment has been entered on the judgment roles of the court in
which the action was commenced. Further, for the purposes of this Section
6.2(a), no act or omission to act on Employee's part shall be considered
"Willful" unless done, or omitted to be done, by Employee in bad faith and
without reasonable belief that Employee's act or omission was in the best
interest of Employer.
(b) DISABILITY. Termination of Employee's employment for
"Disability" shall mean a termination following absence from Employee's
full-time duties with Employer for one hundred eighty (180) consecutive days
as a result of Employee's incapacity due to physical or mental illness and
Employee's failure to return to the full-time performance of Employee's duties
within thirty (30) days after written notice of termination is given to
Employee.
(c) CHANGE IN CONTROL. The term "Change in Control" means an
event or series of events that would be required to be described as a change in
control of Employer in a proxy or information statement distributed by Employer
pursuant to Section 14 of the Securities Exchange Act of 1934 in response to
Item 6(e) of Schedule 14A promulgated thereunder, or any substitute provision
which may hereafter be promulgated thereunder or otherwise adopted.
7. TRADE SECRETS. The parties acknowledge and agree that during the Term
and in the course of the discharge of his duties hereunder, Employee shall have
access to and become acquainted with information concerning the operations of
Employer, including, without limitation, financial, sales, customer, supplier,
operations, personnel and other information that is owned by Employer and
regularly used in the operation of Employer's business and that this information
constitutes Employer's trade secrets. Employee agrees that he shall not
disclose any such trade secrets, directly or indirectly, to any other person or
use any of them in any way either during the Term or at any time thereafter,
except as required in the course of his employment hereunder.
8. NON-COMPETITION. During the term hereof, and for three years
thereafter, Employee shall not, directly or indirectly, whether as an employee,
employer, consultant, agent, officer, principal, partner, stockholder, director
or any other individual or representative capacity, engage or participate in any
business that is in competition in any manner with the business of Employer.
9. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES. Employee hereby warrants
and represents to Employer and Employer as follows, each of which representation
and warranty is material and is being relied upon by Employer and
4
<PAGE>
Employer and each of which is true at and as of the date hereof and as of the
issuance of the Shares and each such issuance:
9.1 INVESTMENT INTENT. Employee is acquiring the Option for his own
account and not with a view to its resale or distribution and that he is
prepared to hold the Option for an indefinite period and has no present
intention to sell, distribute or grant any participating interests in the
Securities. Employee hereby acknowledges the fact that the Securities will not
be registered under the Securities Act of 1933, as amended (the "1933 Act") or
applicable state securities laws.
9.2 RESTRICTED SECURITIES. that Employee has been informed that the
Securities may not be resold or transferred unless first registered under
applicable Federal and State securities laws or unless an exemption from such
registration is available. Accordingly, Employee hereby acknowledges that he is
prepared to hold the Securities for an indefinite period of time.
9.3 EMPLOYEE'S KNOWLEDGE. that Employee has a preexisting business
or personal relationship with Employer, that he is aware of the business affairs
and financial condition of Employer and that he has such knowledge and
experience in business and financial matters with respect to companies in
business similar to Employer to enable Employee to evaluate the risks of the
prospective investment and to make an informed investment decision with respect
thereto. Employee further acknowledges that Employer has made available to
Employee the opportunity to ask questions and receive answers from Employer
concerning the terms and conditions of the issuance of the Securities and that
Employee could be reasonably assumed to have the capacity to protect his own
interests in connection with such investment.
9.4 SPECULATIVE INVESTMENT. that Employee realizes that his purchase
of the Securities will be a speculative investment and that Employee is able,
without impairing his financial condition, to hold the Securities for an
indefinite period of time and to suffer a complete loss of his investment.
9.5 NO INCONSISTENT OBLIGATIONS. Employee is under no contractual or
other restriction or obligation, compliance with which is inconsistent with the
execution of this Agreement, the performance of Employee's obligations hereunder
or the other rights of Employer hereunder; and
9.6 NO INFIRMITY. Employee is under no physical or mental disability
that would hinder the performance of Employee's obligations under this
Agreement.
10. PERSONAL NATURE. This Agreement is personal, being entered into upon
the singular skill, qualifications and experience of Employee. Employee shall
not assign this Agreement or any rights, benefits, duties or obligations
hereunder without the express written consent of Employer. Employee hereby
grants to Employer the right to use Employee's name, likeness and/or biography
in connection with the
5
<PAGE>
services performed by Employee hereunder and in connection with the advertising
or exploitation of any project with respect to which Employee performs services
hereunder.
11. NOTICES. Any and all notices or other communications required or
permitted by this Agreement or by law shall be deemed duly served and given when
actually received by personal delivery or by certified mail, return receipt
requested, with first class postage prepaid thereon, to the party to whom such
notice or communication is directed, addressed as follows:
EMPLOYER: AMERICAN TECHNOLOGIES GROUP, INC.
1017 S. Mountain Avenue
Monrovia, CA 91016
EMPLOYEE: NAME
1017 S. Mountain Avenue
Monrovia, CA 91016
Each of the parties hereto may change its address for purposes of this
Section 11 by giving written notice of such change in the manner provided for in
this Section 11.
12. GOOD FAITH. All approvals and consents required to be given by any
party to this Agreement shall be given or withheld in good faith and may not be
unreasonably withheld. Each party hereto shall use due diligence in its attempt
to accomplish any act required to be accomplished by that party.
13. ATTORNEY'S FEES AND EXPENSES. In the event that it should become
necessary for any party to this Agreement to bring an action, including
arbitration, either at law or in equity, to enforce or interpret the terms of
this Agreement, the prevailing party in such action shall be entitled to recover
its reasonable attorneys' fees and expenses as a part of any judgment therein,
in addition to any other award which may be granted.
14. APPLICABLE LAW/VENUE. This Agreement is executed and intended to be
performed in the State of California and the laws of such state shall govern its
interpretation and effect. If suit is instituted by any party hereto by any
other party hereto for any cause or matter arising from or in connection with
the respective rights or obligations of the parties hereunder, the sole
jurisdiction and venue for such action shall be the Superior Court of the State
of California in and for the County of Los Angeles.
15. INTEGRATED AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter of this Agreement and
supersedes all prior employment agreements between the parties and all such
prior
6
<PAGE>
employment agreements shall be deemed voluntarily terminated by the mutual
consent of the parties hereto and shall be of no further force or effect.
16. SEVERABILITY. Any provision in this Agreement which is, by competent
judicial authority, declared illegal, invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating the
remaining provisions hereof or affecting the legality, validity or
enforceability of such provision in any other jurisdiction. The parties hereto
agree to negotiate in good faith to replace any illegal, invalid or
unenforceable provision of this Agreement with a legal, valid and enforceable
provision that, to the extent possible, will preserve the economic bargain of
this Agreement, or otherwise to amend this Agreement, including the provision
relating to choice of law, to achieve such result.
16. WAIVER No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EMPLOYEE: __________________________________
[NAME]
EMPLOYER: American Technologies Group, Inc.,
a Nevada corporation
By: ______________________________
Title:
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 60,563
<SECURITIES> 0
<RECEIVABLES> 46,029
<ALLOWANCES> 0
<INVENTORY> 149,658
<CURRENT-ASSETS> 402,930
<PP&E> 5,762,457<F1>
<DEPRECIATION> 421,767
<TOTAL-ASSETS> 7,110,930
<CURRENT-LIABILITIES> 2,140,277
<BONDS> 0
0
378
<COMMON> 22,704
<OTHER-SE> 3,076,532
<TOTAL-LIABILITY-AND-EQUITY> 7,110,930
<SALES> 723,569
<TOTAL-REVENUES> 916,736
<CGS> 0<F2>
<TOTAL-COSTS> 8,521,458
<OTHER-EXPENSES> 120,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,627,336
<INCOME-PRETAX> (9,352,348)
<INCOME-TAX> 487,624<F3>
<INCOME-CONTINUING> (8,864,724)
<DISCONTINUED> (575,815)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,440,539)
<EPS-PRIMARY> (0.43)<F4>
<EPS-DILUTED> (0.43)
<FN>
<F1>INCLUDE ASSETS HELD FOR SALE
<F2>NOT CALCULATED
<F3>BENEFIT FOR INCOME TAX
<F4>INCLUDE CONTINUING AND DISCONTINUING OPERATIONS
</FN>
</TABLE>
