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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 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
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AMERICAN TECHNOLOGIES GROUP, INC.
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(Name of small business issuer in its charter)
NEVADA 95-4307525
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(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
1017 SOUTH MOUNTAIN AVENUE, MONROVIA, CA. 91016
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(Address of principal executive offices) (zip code)
Issuer's telephone number: (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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Explanatory Note: This Amendment No 2. to Form 10-KSB amends Item 1.
Description of Business; Item 6. Management's Discussion and Analysis and Item
7. Financial Statements, Notes 5 and 7 to the Company's Consolidated Financial
Statements at July 31, 1998 and 1997. Amended portions are italicized.
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
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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.
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
MARCH 31, 1999.
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.
IE TECHNOLOGY REFERS TO THE COMPANY'S PROPRIETARY PROCESS WHICH PRODUCES
WATER SOLUTIONS CONTAINING WATER CLUSTERS THAT ARE STABLE AT ROOM
TEMPERATURE. ATG CAN PRODUCE DIFFERENT KINDS OF WATER SOLUTIONS FOR
DIFFERENT APPLICATIONS.
INDEPENDENT RESEARCHERS OBSERVE THESE WATER CLUSTERS BY DIFFERENT STANDARD
RESEARCH TOOLS INCLUDING:
- LASER AUTOCORRELATION
- ELECTRON MICROSCOPE
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- ATOMIC FORCE MICROSCOPE
- UV SPECTROSCOPY
THESE INSTRUMENTS CONFIRM THE PRESENCE IN OUR PREPARED WATER SOLUTIONS OF THE
WATER CLUSTERS WHICH ARE THE BASIS OF OUR IE TECHNOLOGY.
THE CLUSTERS ARE GROUPS OF WATER MOLECULES CONFIGURED IN SUCH A WAY SO AS TO
PRODUCE RELATIVELY LARGE PLUS/MINUS POLARITY. WE BELIEVE THIS POLARITY IS
WHAT GIVES THE CLUSTERS THEIR CATALYTIC PROPERTIES. TESTS INDICATE THAT
THESE WATER CLUSTERS IMPROVE THE PERFORMANCE OF VARIOUS CHEMICAL, PHYSICAL
AND BIOLOGICAL PROCESSES, INCLUDING COMBUSTION ENHANCEMENT, DESCALING, ENZYME
PROCESSES AND DE-COKING. FOR EXAMPLE, IN INTERNAL COMBUSTION ENGINES THE
CLUSTERS ATTRACTS HYDROCARBONS AND OXYGEN RESULTING IN A MORE COMPLETE
BURNING OF THE FUEL. THIS RESULTS IN IMPROVED EFFICIENCY AND REDUCED CARBON
DEPOSITS IN THE COMBUSTION CHAMBER. IN CERTAIN BIOLOGICAL APPLICATIONS
RELATED TO ENZYME PRODUCTION, THE CLUSTERS HAVE BEEN SHOWN TO SIGNIFICANTLY
IMPROVE ENZYME YIELD.
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.
DR. BENJAMIN BONAVIDA A UCLA PROFESSOR OF IMMUNOLOGY, STUDIED THE EFFECTS OF
IE SOLUTIONS ON THE HUMAN IMMUNE SYSTEM. HIS RESEARCH SHOWED POSSIBLE IE
SOLUTIONS APPLICATIONS IN THE AREA OF IMMUNOTHERAPY FOR TREATMENT OF CANCER
AND INFECTIOUS DISEASES. RESEARCH TO DATE HAS SHOWN THAT THE CLUSTERS EXERT
A POSITIVE INFLUENCE ON THE HUMAN IMMUNE SYSTEM. DR. BONAVIDA HAS SHOWN THAT
THE CATALYST SIGNIFICANTLY INCREASES THE PRODUCTION OF CYTOKINES WHICH
STIMULATE THE RESPONSE OF THE HUMAN IMMUNE SYSTEM. FURTHER RESEARCH, WHICH
IS CURRENTLY BEING CARRIED ON BY DR. BONAVIDA, IS REQUIRED TO REFINE THE
PRELIMINARY FINDINGS, BUT WE BELIEVE THAT THE CATALYST WILL BE SHOWN TO HAVE
APPLICATIONS IN THE TREATMENT OF CERTAIN HUMAN IMMUNE SYSTEM DEFICIENCY
DISORDERS.
DR. SELIM SENKAN, CHAIRMAN OF THE UCLA DEPARTMENT OF CHEMICAL ENGINEERING,
STUDIED THE EFFECTS OF IE SOLUTIONS ON CARBON REDUCTION IN INTERNAL
COMBUSTION ENGINES. HIS EFFORTS IDENTIFIED AN APPLICATION OF IE SOLUTIONS AS
A FUEL ADDITIVE FOR CARBON REDUCTION.
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.
SEVERAL STUDIES HAVE SHOWN THAT THE FORCE PRODUCES A MORE COMPLETE COMBUSTION
OF CAR FUEL THE STUDIES WERE NOT SIDE BY SIDE COMPARISONS WITH OTHER
PRODUCTS. THESE STUDIES INCLUDE EMISSION TESTS BY THE GERMAN LABORATORY DEKRA
IN JULY, 1993; LABORATORY TESTS BY THE CZECH REPUBLIC IN SEPTEMBER, 1994; THE
FEDERAL TEST ON EMISSIONS CONDUCTED BY CALIFORNIA ANALYTICAL LABS IN ORANGE,
CALIFORNIA IN AUGUST, 1997; EMISSION TESTS BY THE JAPANESE AUTOMOTIVE
TRANSPORT ASSOCIATION IN 1997; AND EMISSION, POWER AND FUEL CONSUMPTION TESTS
CONDUCTED BY BOB SIKORSKY IN 1996.
MR. SIKORSKY IS A WELL KNOWN AUTHOR AND SYNDICATED NEW YORK TIMES NEWSPAPER
COLUMNIST. HE HAS WRITTEN EIGHT BOOKS ON THE SUBJECT OF CARS AND AUTOMOTIVE
MAINTENANCE. HIS BOOK DRIVE IT FOREVER IS CURRENTLY IN ITS 16TH PRINTING.
MR. SIKORSKY IS AN EXPERT IN THE FIELD OF AUTOMOTIVE MAINTENANCE AND REPAIR,
AND HAS A LOYAL FOLLOWING.
IN ADDITION, CERTAIN TESTS CONDUCTED BY DR. SENKAN, an internationally
recognized expert on combustion chemistry indicate that The Force produces a
MORE complete burning of fuel. Dr. Senkan 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 COMBUSTION ENHANCER CONTAINED IN The Force
when compared to similar conditions in the absence of the COMBUSTION enhancer.
Further scientific studies on the COMBUSTION 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.
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COMPETITION
THERE ARE A SUBSTANTIAL NUMBER OF DIFFERENT AFTERMARKET COMBUSTION ENHANCEMENT
PRODUCTS ON THE MARKET. THE COMPANY IS NOT AWARE OF ANY OTHER AIRBORNE
COMBUSTION ENHANCER SIMILAR TO THE FORCE. ATG'S PRODUCTS ARE WATER BASED AND
ENVIRONMENTALLY BENIGN.
THE UNIQUENESS OF THE PRODUCTS DOES NOT ELIMINATE THE NEED TO COMPETE FOR
PRODUCT AWARENESS BY THE PUBLIC. ATG RECOGNIZES THE NEED TO ESTABLISH PUBLIC
AWARENESS AND PRODUCT RECOGNITION AMONG NUMEROUS COMPETING PRODUCTS SUPPORTED BY
COMPANIES WITH SUBSTANTIALLY GREATER MARKETING RESOURCES. ATG CONTINUES ITS
EFFORTS TO ACHIEVE THE NECESSARY PRODUCT RECOGNITION TO SUCCESSFULLY COMPETE IN
THE COMBUSTION ENHANCEMENT INDUSTRY.
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. BY THIS ORDER, CARB DOES NOT CONFIRM THE
EFFECTIVENESS OF THE FORCE. As CARB's requirements are among 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. THE COMPANY
DOES NOT ANTICIPATE ANY NEGATIVE AFFECTS FROM COMPLIANCE WITH CURRENT OR FUTURE
EPA OR STATE REGULATIONS.
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 AND ON A PROPRIETARY BULK FUEL ADDITIVE. 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.
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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 company has purchased a small
quantity of this product to conduct its own laboratory and field tests. This
company 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 THREE 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 AS AN
AFTERMARKET FUEL ADDITIVE. THIS METHOD IS STILL IN THE EARLY STAGES OF
DEVELOPMENT. The THIRD method is through introduction of the additive via a
carrier agent directly into the fuels during the refining or bulk delivery
processes. THE COMPANY IS CURRENTLY TESTING A BULK FUEL ADDITIVE FORMULA CALLED
F420. THE FORCE HAS UNDER GONE SUBSTANTIAL TESTING. SEVERAL PETROLEUM
COMPANIES have purchased a small quantity of the BULK FUEL ADDITIVE to conduct
THEIR own field tests OF THIS PRODUCT. These companies 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." All manufacturers of additives for motor vehicle fuels
must register the additive by filing EPA Form 3520-16 before commercial sale of
the additive. ATG'S HAS REGISTERED ITS F420 ADDITIVE WITH THE EPA. THE COMPANY
DOES NOT ANTICIPATE ANY NEGATIVE AFFECTS FROM COMPLIANCE WITH CURRENT OR FUTURE
EPA OR STATE REGULATIONS. Under certain circumstances, registrants of fuel
additives are required to provide health information and conduct toxicity
testing, individually or in groups, unless exempted by CERTAIN small business
provisions. The Company does not anticipate that its fuel additive will be
subject to this testing, HOWEVER THE F420 ADDITIVE WAS SUBJECTED TO AMES TESTING
AT THE UNIVERSITY OF SOUTHERN CALIFORNIA MEDICAL CENTER WHICH CONFIRMED THAT THE
ADDITIVE DOES NOT CAUSE CELL MUTATION.
BULK FUEL ADDITIVES ARE GENERALLY NOT REGULATED BY THE STATE BUT ARE SUBJECT TO
EPA REGISTRATION AND SIGNIFICANT INDUSTRY STANDARDS. EXTENSIVE TESTING IS
REQUIRED TO MEET THESE INDUSTRY REGULATIONS PRIOR TO SALE OF THE ADDITIVE AND
THERE IS NO GUARANTEE THAT NEW BULK ADDITIVE PRODUCTS CAN MEET ALL OF THESE
INDUSTRY REGULATIONS.
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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 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.
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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.
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.
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.
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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"). THE INSTITUTE WAS A RESEARCH COMPANY FOR APRICOT, S.A., A
LUXEMBOURG CORPORATION ("APRICOT"), TO WHICH DR. LO ASSIGNED CERTAIN RIGHTS
TO THE BASER. DR. LO OWNS 50% OF APRICOT.
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 FROM
APRICOT. Thereafter, the Company entered into a Research Agreement with
CalTech for a one year term commencing May 1, 1994, although actual
performance by CalTech was delayed until July, 1995. The Research Agreement
is based on a proposal by CalTech for a three year study to characterize
particle beam sources and to analyze the properties of the
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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. IN JUNE, 1994, 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 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
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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 for $150,000 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.
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.
12
<PAGE>
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.
IN JANUARY, 1999, NEW CONCEPT COMPLETED THE SALE TO NEWGOLD, INC. OF ITS gold
mill (the "Mill") at Manhattan, Nevada 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. AT JANUARY 31, 1996, THE DATE OF ITS LAST AUDITED BALANCE SHEET,
NEWGOLD HAD A SIGNIFICANT WORKING CAPITAL DEFICIENCY. THE REPORT OF
NEWGOLD'S INDEPENDENT ACCOUNTANTS ON ITS JANUARY 31, 1996 FINANCIAL
STATEMENTS CONTAINED A STATEMENT EXPRESSING DOUBT ABOUT THE ABILITY OF
NEWGOLD CONTINUING AS A GOING CONCERN. 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 MARCH, 1999, 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
13
<PAGE>
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 forms of structured materials, and enhancements for
biological, biochemical, and chemical reactions. THE PATENT APPLICATION
COVERING THE USE OF IE TECHNOLOGY AS A DESCALANT HAS BEEN GRANTED. AS TO THE
PATENT APPLICATION COVERING THE USE OF IE TECHNOLOGY AS A FUEL ADDITIVE, THE
COMPANY HAD RECEIVED WRITTEN NOTICE THAT ALL EXAMINER'S OBJECTIONS HAD BEEN
OVERCOME BUT SUBSEQUENTLY ATG RECEIVED A NOTICE THAT THE PATENT APPLICATION
WILL BE SUBJECT TO A FINAL OFFICE ACTION WHICH THE COMPANY RECEIVED. THE
REMAINING PATENT APPLICATIONS 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, 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
14
<PAGE>
a collective bargaining agreement nor has the Company experienced any work
stoppages. The Company believes that its employee relations are good.
ADVISORY BOARD
THE COMPANY HAS RECRUITED AN ADVISORY BOARD CONSISTING OF SCIENTISTS OR
BUSINESSMEN IN TECHNOLOGICAL FIELDS. ADVISORY BOARD MEMBERS HAVE AGREED TO BE
AVAILABLE FOR SCIENTIFIC OR OTHER CONSULTATIONS WHEN NEEDED AND ARE CONSULTED BY
MANAGEMENT WHEN THE EXPERTISE OF A MEMBER WOULD BE BENEFICIAL TO THE COMPANY.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
<TABLE>
YEAR ENDED JULY 31
-------------------------------
BALANCE SHEET: 1998 1997
-------------- ----------- -----------
<S> <C> <C>
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 Discontinued Operations (8,864,724) (7,110,855)
Discontinued Operations (575,815) (1,669,379)
----------- -----------
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
15
<PAGE>
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 fiscal 1998 and fiscal 1997, without
regard to the revenue from TradeNet, revenue declined less than five percent
during a year management 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.
THE COMPANY HAS ENTERED INTO A DISTRIBUTION AGREEMENT WITH HUNGAROFEK, A
HUNGARIAN CORPORATION, PURSUANT TO WHICH HUNGAROFEK IS TO PURCHASE A MINIMUM OF
$100,000 OF THE FORCE PER MONTH FOR 12 MONTHS. DURING JANUARY, 1999, HUNGAROFEK
PLACED PURCHASE ORDERS FOR APPROXIMATELY $72,000 OF THE FORCE. THE COMPANY
ANTICIPATES HUNGAROFEK MEETING ITS PURCHASE MINIMUM PURCHASE COMMITMENT STARTING
IN MARCH, 1999. IN ADDITION TO SALES TO HUNGAROFEK, SALES OF THE FORCE TO
SEVERAL OTHER DISTRIBUTORS IS ANTICIPATED TO BE A MINIMUM OF $25,000 PER MONTH.
AS A RESULT OF THESE SALES ARRANGEMENTS AND CONTINUED EFFORTS TO LIMIT
EXPENDITURES, THE COMPANY ANTICIPATED THAT THE MONTHLY OPERATING LOSSES OF THE
COMPANY WILL BE REDUCED BY JULY 31, 1999.
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
16
<PAGE>
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
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.
INCLUDED IN TOTAL ASSETS AT JULY 31, 1998 IS TECHNOLOGY RIGHTS VALUED AT
$800,000 NET OF $400,000 OF AMORTIZATION EXPENSE FOR THE YEAR THEN ENDED. THESE
TECHNOLOGY RIGHTS PERTAIN TO THE CLEAN AIR PAC WHICH IS USED BY THE COMPANY IN
THE FORCE COMBUSTION ENHANCER. DURING FISCAL 1998, THE COMPANY RECEIVED
$591,000 IN REVENUE FROM SALES OF THE FORCE.
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
17
<PAGE>
discount to market (the "Debt Facility"). AN ALTERNATIVE SOURCE OF FUNDS IS
A PROPOSED $1,300,000 BRIDGE FINANCING (THE "BRIDGE FINANCING") WHICH IS A
CONDITION TO THE COMPLETION OF THE PROPOSED MERGER WITH COMMODORE SEPARATION
TECHNOLOGIES, INC.
Assuming the availability of the Debt Facility OR THE BRIDGE FINANCING and
anticipated increased sale of its product based upon existing customer
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 THE
BRIDGE FINANCING or obtain alternative financing would have a material adverse
effect on the Company. Any additional financing, including the Debt Facility
AND THE BRIDGE FINANCING, may involve substantial dilution to the interests of
the Company's then existing shareholders.
Year 2000 Compliance
MANY COMPUTER SYSTEMS WERE NOT DESIGNED TO HANDLE ANY DATES BEYOND THE YEAR
1999, AND THEREFORE COMPUTER HARDWARE AND SOFTWARE MAY NEED TO BE MODIFIED PRIOR
TO THE YEAR 2000 IN ORDER TO REMAIN FUNCTIONAL. ATG HAS COMPLETED A YEAR 2000
COMPLIANCE REVIEW OF OUR INTERNAL SYSTEMS AND IS NOT AWARE OF ANY MATERIAL COSTS
OR OPERATIONAL ISSUES ASSOCIATED WITH YEAR 2000 ISSUES AFFECTING INTERNAL
SYSTEMS. TO DATE ATG HAS NOT INCURRED AND DOES NOT BELIEVE THAT IT WILL INCUR
SIGNIFICANT OPERATING EXPENSES OR BE REQUIRED TO INVEST HEAVILY IN COMPUTER
SYSTEMS IMPROVEMENTS TO BE YEAR 2000 COMPLIANT. HOWEVER, ATG MAY EXPERIENCE
SIGNIFICANT UNANTICIPATED PROBLEMS AND COSTS CAUSED BY UNDETECTED ERRORS OR
DEFECTS IN INTERNAL SYSTEMS. THE WORST-CASE SCENARIO IF SUCH PROBLEMS OCCUR
WOULD BE THE INABILITY TO SHIP PRODUCTS AND PERFORM ACCOUNTING FUNCTIONS AS WELL
AS THE LOSS OF RESEARCH RESULTS AND FINANCIAL RECORDS.
THERE CAN BE NO ASSURANCE THAT THE SYSTEMS OF OTHER COMPANIES WITH WHICH ATG
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. ALL OTHER SUPPLIERS CAN BE READILY
REPLACED IF THE SUPPLIER SHOULD HAVE YEAR 2000 DIFFICULTIES.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 $1,200,000, the Company acquired
all remaining interests and royalty rights of Robert W. Carroll and BWN Oil
Investments Corporation, a Nevada corporation (together BWN), to the Clean
Air Pac which is used by the Company in The Force-Registered Trademark-
airborne fuel treatment. THIS ELIMINATED THE OBLIGATION TO ISSUE
ADDITIONAL SHARES OF SERIES A PREFERRED STOCK AND PAY CASH ROYALTIES IN
CONNECTION WITH SALES OF THE FORCE. The technology rights are amortized
based on the straight line basis over a period of three years. INCLUDED IN
THE CONSOLIDATED BALANCE SHEET IS AN UNAMORTIZED BALANCE OF $800,000 AS OF
JULY 31, 1998. Included in selling and general expenses is amortization
expense of $400,000 for the year ended July 31, 1998.
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.
19
<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. IN ADDITION,
ROYAL GOLD HAS AGREED TO FUND CERTAIN OBLIGATIONS OF NEW CONCEPT RELATED TO
THE LEASED MINING CLAIMS TOTALING $875,000 OVER A FOUR YEAR PERIOD
($100,000 OF WHICH HAVE BEEN PAID BY ROYAL GOLD through July 31, 1998 and
accounted for as other REVENUES). THESE PAYMENTS ARE TO FUND REPAYMENT OF
CERTAIN DEBTS INCLUDING INTEREST AND OTHER PROPERTY PAYMENTS (COLLECTIVELY,
LANDOWNER PAYMENTS). IN ADDITION, ROYAL GOLD IS TO 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 $4,350,000, LESS ANY
LANDOWNER PAYMENTS AND ROYALTIES PAID BY ROYAL GOLD, prior to November 30,
2001.
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.
d. IMPAIRMENT
New Concept Mining no longer plans to develop their mining properties 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. IN ADDITION TO THE NON-BINDING
OFFERS, THE COMPANY HAS PREVIOUSLY OBTAINED AN EVALUATION OF ALL OF ITS
MINING AND MILL EQUIPMENT FROM AN INDEPENDENT THIRD PARTY AND AN
EXPLORATION AND PRE-PRODUCTION MINE AND DEVELOPMENT REPORT ALSO FROM AN
INDEPENDENT THIRD PARTY. THE DEVELOPMENT REPORT ESTIMATES GOLD ORE
RESERVES AS 1,012,000 OUNCES (238,000 OUNCES PROVEN-PROBABLE AND 774,000
OUNCES POSSIBLE). SINCE THE DATE OF THE
20
<PAGE>
DEVELOPMENT REPORT, ROYAL GOLD HAS CONDUCTED ITS OWN EXPLORATORY DRILL
PROGRAM ON THE PROPERTY AND ADJACENT PROPERTY. THE COMPANY HAS NOT
RECEIVED A REPORT ON THE DRILL PROGRAM. HOWEVER, BASED ON THE NON-BINDING
OFFERS, THE EVALUATION OF ITS MINING AND MILL EQUIPMENT AND THE
DEVELOPMENT REPORT, THE COMPANY BELIEVES THAT THE IMPAIRMENT CHARGES
RECORDED AT JULY 31, 1998 ARE SUFFICIENT TO REDUCE THE CARRYING VALUE OF
THESE ASSETS TO NET REALIZABLE VALUE.
e. 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>
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>
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Amendment No. 2 to its report on Form 10-KSB for the fiscal year
ended July 31, 1998 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: March 3, 1999
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.
Signature Title Date
/s/ Lawrence J. Brady Chairman of the Board, March 3, 1999
--------------------- Chief Executive Officer
Lawrence J. Brady
/s/ Harold Rapp Chief Financial Officer March 3, 1999
---------------
Harold Rapp
/s/ Yan Lin Controller March 3, 1999
-----------
Yan Lin
/s/ William Odom Director March 3, 1999
----------------
William Odom
/s/ Shui-Yin Lo Director and Director of March 3, 1999
--------------- Research and Development
Shui-Yin Lo
/s/ Terry Wachsner Director March 3, 1999
------------------
Terry Wachsner
/s/ Charles McCarthy Director March 3, 1999
--------------------
Charles McCarthy
22
