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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
[ ] 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
Check whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of March 15, 1999, the registrant had 26,846,987 shares of Common
Stock outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of January 31, 1999 and July 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three and Six Months ended January 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the Six Months ended January 31, 1999 and 1998 6
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis 11
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF
THE "SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING THIS
STATEMENT FOR THE EXPRESS PURPOSE OF SUCH SAFE HARBOR WITH RESPECT TO ALL
SUCH FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS
REPORT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN AND IN
OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE
ANTICIPATED. IN THIS REPORT, THE WORDS "ANTICIPATES", "BELIEVES", "INTENDS",
"FUTURE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS
TO RELFECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF.
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JANUARY 31, 1999 AND JULY 31, 1998
ASSETS
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January 31, July 31,
1999 1998
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(Unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ 119,056 $ 60,563
Accounts receivable, net of allowance for
doubtful accounts of $10,000 and $28,811
at January 31, 1999 and July 31, 1998, respectively 31,363 46,029
Inventories, net 178,127 149,658
Due from officers/shareholders 1,720 138,198
Notes receivable, net 49,450 -
Other current assets - 8,482
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Total current assets 379,716 402,930
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PROPERTY AND EQUIPMENT 1,837,406 1,837,406
Less--Accumulated depreciation and
amortization (500,254) (421,767)
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1,337,152 1,415,639
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NOTES RECEIVABLE, net of current portion 1,218,100 -
TECHNOLOGY RIGHTS, net of accumulated
amortization of $600,000 and $400,000
at January 31, 1999 and July 31, 1998, respectively 600,000 800,000
OTHER ASSETS 397,126 432,909
ASSETS HELD FOR DISPOSAL 2,643,030 3,925,051
ASSETS OF DISCONTINUED OPERATIONS 127,602 134,401
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$ 6,702,726 $ 7,110,930
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</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JANUARY 31, 1999 AND JULY 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
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(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 877,774 $ 360,028
Accrued liabilities 228,918 145,770
Accrued professional fees 224,740 243,600
Amounts due to related parties 559,288 264,345
Current portion of notes payable 388,900 372,824
Current portion of capital lease obligations 22,344 22,344
Convertible debentures 1,375,000 75,000
Liabilities of discontinued operations 374,961 356,366
Deposit on sale of discontinued operations 500,000 300,000
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Total current liabilities 4,551,925 2,140,277
NOTES PAYABLE, net of current portion 1,586,625 1,587,955
CAPITAL LEASES OBLIGATIONS, net of current portion 246,990 283,084
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Total liabilities 6,385,540 4,011,316
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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--26,824,987 and
22,704,368 shares at January 31, 1999
and at July 31, 1998, respectively 26,825 22,704
Additional paid in capital 42,898,104 39,569,941
Stock subscriptions 46,320 63,440
Prepaid consulting (2,011,133) -
Deficit (40,643,308) (36,556,849)
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Total stockholders' equity 317,186 3,099,614
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$ 6,702,726 $ 7,110,930
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</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
4
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended January 31, For Six Months Ended January 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES:
Technology products $ 55,548 $ 107,875 $ 96,480 $ 538,900
Rental income 13,500 50,000 77,000 50,000
Other 50,708 17,764 112,031 73,326
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Total operating revenues 119,756 175,639 285,511 662,226
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OPERATING EXPENSES
General and administrative 1,448,727 691,915 2,249,967 1,261,345
Marketing and product development 416,565 204,995 535,239 512,054
Research and development 181,439 287,305 350,657 646,421
Mining operations 54,526 27,108 82,076 122,969
Amortization of technology rights 100,000 200,000 200,000 200,000
----------- ----------- ----------- -----------
Total operating expenses 2,201,257 1,411,323 3,417,939 2,742,789
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME
Interest expense, net (563,159) (419,860) (737,115) (1,527,381)
Loss on investment in a joint venture - - (39,341) -
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(563,159) (419,860) (776,456) (1,527,381)
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NET LOSS FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS (2,644,660) (1,655,544) (3,908,884) (3,607,944)
DISCONTINUED OPERATIONS (NOTE 6) (100,831) (86,381) (177,575) (260,084)
----------- ----------- ----------- -----------
NET LOSS $(2,745,491) $(1,741,925) $(4,086,459) $(3,868,028)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS PER SHARE
Continuing operations $ (0.11) $ (0.08) $ (0.16) $ (0.17)
Discontinued operations (0.00) (0.00) (0.01) (0.01)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Loss $ (0.11) $ (0.08) $ (0.17) $ (0.18)
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----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,036,944 21,317,082 24,217,235 21,100,134
----------- ----------- ----------- -----------
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</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
5
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
1999 1998
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CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $(4,086,459) $(3,868,028)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 287,958 279,312
Write-off of advances to officers and shareholders 136,698 -
Stock issued as consideration for services 897,996 4,235
Imputed interest expense for notes payable and capital lease 36,478 37,766
Interest and financing costs on convertible debt 600,121 1,471,771
Loss on investment in joint venture 39,341 -
Loss on disposal of equipment - 10,161
Changes in assets and liabilities:
Accounts receivable 14,666 332,737
Inventories (28,469) 7,063
Other current assets 8,482 -
Accounts payable and accrued liabilities 582,034 (469,687)
Amounts due to related parties 152,443 -
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Net cash used in operating activities (1,358,711) (2,194,670)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (188,117)
Other assets (3,557) (210,997)
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Net cash used in investing activities (3,557) (399,114)
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CASH FLOW FROM FINANCING ACTIVITIES:
Advances to shareholders/officers (220) (73,848)
Advances from related parties 142,500 -
Net proceeds from issuance of convertible debt 1,105,913 2,834,880
Proceeds from notes receivable 5,000 -
Payments on notes payable (7,826) (45,853)
Payments on capital lease obligation (50,000) (50,000)
Deposit on sale of discontinued operations 200,000 -
Net proceeds from issuance of stock - 82,017
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Net cash provided by financing activities 1,395,367 2,747,196
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NET CASH FLOWS FROM DISCONTINUED OPERATIONS 25,394 (7,019)
NET INCREASE IN CASH AND CASH EQUIVALENTS 58,493 146,393
CASH AND CASH EQUIVALENTS, beginning of period 60,563 1,025,076
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CASH AND CASH EQUIVALENTS, end of period $ 119,056 $ 1,171,469
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Stock issued for technology rights $ - $ 1,200,000
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Convertible debenture issued for commission $ - $ 225,000
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Notes issued for mining properties $ - $ 200,000
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Conversion of debentures $ - $ 500,000
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Sale of assets held for disposal for notes receivable, net $ 1,272,500 $ -
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</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
6
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AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended
January 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended July 31, 1999. For further information,
please refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended July 31, 1998.
2. ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
a. ORGANIZATION AND LINE OF BUSINESS
American Technologies Group, Inc. (the Company or ATG), a Nevada
corporation, is engaged in the development, commercialization and sale
of products and systems using its patented and proprietary
technologies. ATG also is involved in research and development of
proprietary energy and environmental systems and services which offer
cost-effective solutions to reduce, and in some cases eliminate,
hazardous chemical by-products or emissions resulting from industrial
production and combustion processes.
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating
losses. The ability of the Company to 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. 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
execute its 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. 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 32,746 and
1,435,793 for the six months ended January 31, 1999 and 1998,
respectively.
Page 7
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d. RECLASSIFICATIONS
Certain amounts in the January 31, 1998 consolidated financial
statements have been reclassified to conform to current year
presentation.
3. DEBENTURES
During the six months ended January 31, 1999, the Company issued
pursuant to subscription agreements $1,050,000, in the aggregate, of 6
percent subordinated convertible debentures, maturing November 1, 2003.
Interest is due semi-annually commencing May 1, 1999 or upon
conversion. The principal and accrued interest are convertible into
shares of ATG's Common Stock at the lower of a fixed conversion price
of $0.62 or a variable conversion price equal to 75 percent of the
average closing bid price of ATG's Common Stock during the five trading
days preceding the date of conversion. The debentures include warrants
to purchase 105,000 shares of Common Stock at $0.75 per share. The
Company anticipates that all of the debentures (including interest)
will be converted into ATG's Common Stock. Imputed interest of $350,000
and financing costs of $194,087 were recorded as interest expense in
connection with the $1,050,000 of debentures in the accompanying
Consolidated Statements of Operations for the three and six month
periods ended January 31, 1999.
In December 1998, the Company issued under a separate subscription
agreement $250,000, in the aggregate, of 3 percent subordinated
convertible debentures, maturing December 1, 2003. Interest is due upon
the maturity date. The principal and accrued interest are convertible
into 431,035 shares of ATG's Common Stock at a fixed conversion price
of $0.58. Imputed interest of $56,034 was recorded as interest expense
in connection with the $250,000 of debentures in the accompanying
Consolidated Statements of Operations for the three and six month
periods ended January 31, 1999.
In connection with the 6 percent subordinated convertible debentures,
the Company placed 2,500,000 shares of ATG's Common Stock in escrow to
be released to the extent due upon conversion of these debentures.
4. CAPITAL STOCK
a. COMMON STOCK
During August 1998, the Company entered into two separate consulting
agreements for services. Under the terms of the agreements, the Company
issued 1,000,000 shares of ATG's Common Stock valued at $781,250 for
services which is amortized on a straight line basis over the terms of
the agreements expiring May 31, 1999 and July 31, 1999. During December
1998, the Company entered into three separate consulting agreements for
services. Under the terms of the agreements, the Company issued
3,000,000 shares of ATG's Common Stock valued at $2,080,000 for
services which is amortized on a straight line basis over the terms of
the agreements expiring July, 1999, September, 1999 and November 1999.
General and Administrative expenses include amortization expense of
$636,055 and $850,117 for the three and six month periods ended January
31, 1999 in the accompanying Consolidated Statements of Operations. As
of January 31, 1999, the remaining unamortized cost of $2,011,133 is
included in prepaid consulting under stockholders' equity in the
accompanying Consolidated Balance Sheets.
During November 1998, the Company issued 100,000 shares of Common Stock
valued at $40,000 to a consultant for a special project relating to
trading activity of the Company's Common Stock on the OTC Bulletin
Board.
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b. STOCK SUBSCRIPTIONS
During the six months ended January 31, 1999, the Company issued 20,619
shares of Common Stock valued at $25,000 which were included within
stock subscriptions as of July 31, 1998 and recorded a subscription of
services for 4,000 shares valued at $7,879. As of January 31, 1999, the
Company had not issued (i) 6,000 shares of Common Stock owed for
services rendered through January 31, 1999, valued at $11,820 and (ii)
22,500 shares of Common Stock sold under private placement for an
aggregate of $34,500 in cash received prior to July 31, 1997. These
amounts have been included within stock subscriptions in the
accompanying Consolidated Balance Sheets.
5. JOINT VENTURE
In February, 1998, the Company formed a joint venture with
approximately 25% ownership interest, which will be accounted for in
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 $39,341 for the six months ended January 31, 1999. The
net assets of the joint venture were approximately $787,000 as of
December 31, 1998.
As of January 31, 1999, the Company had approximately $10,000 in
accounts receivable due from the joint venture. Included in the
Consolidated Statements of Operations is $7,500 and $15,000 of rental
income relating to the joint venture during the three and six months
ended January 31, 1999.
6. 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 January 31, 1999, the Company
has received $500,000 of the purchase price, which is included in
current liabilities in the accompanying Consolidated Balance Sheets.
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 $100,831 and
$86,381 for the three months ended January 31, 1999 and 1998,
respectively, and $177,575 and $260,084 for the six months ended
January 31, 1999 and 1998, respectively. The Company estimates that the
sales price less the carrying value and costs of disposal will not
result in a loss on the disposal.
7. ASSETS HELD FOR SALE
Included in assets held for sale in the accompanying Consolidated
Balance Sheets are the Tempiute property of $560,000 and the Manhattan
gold property of $2,083,030. The Company no longer plans to develop
these properties but plans to sell, lease or otherwise dispose of its
investment. The Manhattan gold property has been leased to Royal Gold,
Inc.
On January 5, 1999, the Company completed the sale of its Manhattan,
Nevada mill properties and equipment to Newgold, Inc. for $1,450,000
payable over a period of five years. The
Page 9
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accompanying Consolidated Balance Sheets as of January 31, 1999
includes a note receivable of $1,445,000 net of discount of $177,450.
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.
8. RELATED PARTY TRANSACTIONS
Included in amounts due to related parties in the accompanying
Consolidated Balance Sheets is $142,500 in short term borrowings from
related parties as of January 31, 1999. In consideration of these
borrowings, the Company granted an option to purchase 75,000 shares
of ATG's Common Stock at $0.40 per share.
9. SUBSEQUENT EVENT
During February, 1999, the Company issued a 3 percent subordinated
convertible debenture, maturing December 1, 2003 in the principal
amount of $300,000. Interest is due on the maturity date. The principal
and accrued interest are convertible into 600,000 shares of ATG's
Common Stock at a fixed conversion price of $0.50 per share. The
debentures include warrants to purchase 55,000 shares of Common Stock
at $0.75 per share. In addition, the Company received an 8 percent
interest bearing loan with principal of $175,000 in March 1999 and
issued 25,000 warrants in connection with this loan.
Page 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management continues its efforts to refocus the Company's activities on its core
technologies, along with new product development, including new applications for
its IE-TM- technology, and commercialization of those applications which were
already perfected.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JANUARY 31, 1999 AND 1998
Revenue decreased by $55,800 from $175,600 to $119,800 for the three months
ended January 31, 1998 and January 31, 1999, respectively, principally due to
the continuing transition from pure research and development to
commercialization and sales of products.
Reflecting the implementation of the strategic direction set by the Board of
Directors during the prior fiscal year, operating expenses increased by $790,000
from $1,411,300 to $2,201,300 for the three months ended January 31, 1998 and
January 31, 1999, respectively. The increase was due to increases of $756,800 in
general and administrative expense (due to additional consulting expenses
including prepaid services), $211,600 in marketing and product development and
$27,400 in mining expense partially offset by decreases of $105,900 in research
and development and $100,000 in amortization of technology rights.
ATG's net loss for the second quarter of fiscal 1999 increased by $1,003,600 to
$2,745,500 from $1,741,900 for the second quarter of fiscal 1998. The increase
is due to increased operating and other expenses of $933,300, an increase of
$14,500 in losses from discontinued operations and a decrease in revenues of
$55,800.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JANUARY 31, 1999 AND 1997
Revenue decreased by $376,700 from $662,200 to $285,500 for the six months
ended January 31, 1998 and January 31, 1999, respectively, principally due to
the Company's decision to stop selling IE crystals for use in laundry
products by TradeNet Marketing Inc. and the continuing transition from pure
research and development to commercialization and sales of products.
Reflecting the implementation of the strategic direction set by the Board of
Directors during the prior fiscal year, operating expenses increased by $675,100
from $2,742,800 to $3,417,900 for the six months ended January 31, 1998 and
January 31, 1999, respectively. The increase was due to increases of $988,700 in
general and administrative expense (due to additional consulting expenses
including prepaid services) and $23,100 in marketing and product development
partially offset by decreases of $295,700 in research and development and
$40,900 in mining expense.
Other expenses for the six months ended January 31, 1999 decreased by $750,900
to $776,500 from $1,527,400 for the corresponding period of fiscal 1998 due to a
decrease in interest expense.
ATG's net loss for the six months ended January 31, 1999 increased by $218,500
to $4,086,500 from $3,868,000 for the corresponding period of fiscal 1998. The
increased loss is principally due to increased operating expenses of $675,100
and a decrease in revenues of $376,700 partially offset by decreases in other
expenses of $750,900 and losses from discontinued operations of $82,500.
LIQUIDITY AND CAPITAL RESOURCES
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. 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 execute its 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.
Total assets decreased by $408,200 from $7,110,900 at July 31, 1998 to
$6,702,700 at January 31, 1999. This decrease was principally the net result
of decreases in accounts receivable of $14,600, write-off of amounts due
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from officers/shareholders of $136,700, other assets of $35,800, unamortized
technology rights of $200,000 and assets held for disposal of $1,282,100
partially offset by increases in cash of $58,500, net inventories of $28,500,
notes receivable of $1,267,600. The increase in notes receivable reflects the
completion of the sale of the Manhattan, Nevada mill to NewGold, Inc.
Total liabilities increased by $2,374,200 from $4,011,300 to $6,385,500 at
July 31, 1998 and January 31, 1999, respectively. This increase was due
principally to increases in accounts payable of $517,800, accrued liabilities
of $83,100, amounts due to related parties of $295,000, convertible
debentures of $1,300,000 and deposits of $200,000.
The Company's working capital deficiency at January 31, 1999 increased by
$2,434,800 to $4,172,200 from $1,737,400 at July 31, 1998. This increase is
principally the result of increases in convertible debentures of $1,300,000,
accounts payable of $517,800, amounts due to related parties of
$295,000 and deposit on sale of subsidiaries of $200,000. The Company
anticipates that $1,300,000 in convertible debentures will be converted into
Common Stock during fiscal 1999. In such event, the Company's working capital
position will improve as will the amount of shareholders' equity.
The principal source of working capital during the six month period ending
January 31, 1999 was the sale of $1,300,000 of principal amount of
convertible debentures. During the comparable period in 1998, the principal
source of working capital was the sale of $3,225,000 of principal amount of
convertible debentures.
Subsequent to January 31, 1999, the Company continued to finance its
operations with debt. As of March 15, 1999, the Company had sold an
additional $300,000 of principal amount of convertible debentures and
received a $175,000 loan bearing interest at 8 percent per annum. In
connection with these debt instruments, the Company issued an aggregate of
80,000 warrants to purchase ATG's Common Stock at $0.75 per share. In
addition, negotiations are ongoing for a bridge loan with net proceeds of
$1,300,000 leading to a secondary private or public offering of undetermined
securities of the Company for $10,000,000, both in connection with the
Company's proposed merger with Commodore Separation Technologies Inc. The
proposed transaction with Commodore Separation Technologies is discussed
below. The Company's continued operations are dependent upon obtaining some
financing, of which there can be no assurance.
In January, 1999, the Company signed a letter of intent which effectuates its
acquisition of Commodore Separation Technologies, although the transaction is
structured as a merger. Commodore Separation Technologies is commercializing
a proprietary separation technology and recovery system known as SLiM-TM-.
SLiM stands for Supported Liquid Membrane. SLiM can selectively remove from
water valuable substances for reuse or toxic materials for safe disposal.
If the transaction is completed as proposed, the existing shareholders of
American Technologies would own approximately 80.1 percent of the surviving
company and the shareholders of Commodore Separation Technologies would own
approximately 19.9 percent of the surviving company. In addition, the
Commodore Separation Technologies shareholders will receive one third of the
after tax profit of the existing business of Commodore Separation
Technologies.
Statements included in this Management's Discussion and Analysis or Plan of
Operation and elsewhere in this Form 10-QSB, in future filings by the
Registrant with the Securities and Exchange Commission and in the
Registrant's press releases and oral statements made with the approval of
authorized executive officers, if the statements are not historical or
current facts, should be considered "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Registrant
wishes to
Page 12
<PAGE>
caution the reader not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
Page 13
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
4.6 Form of 3% Convertible Debenture *
27 Financial Data Schedule
- ------------------------------
* Previously filed as Exhibit 4.3 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on February 10, 1999.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K was filed during the period covered by this
quarterly report. The Form 8-K was dated January 5, 1999 and reported an event
under Item 2.
Page 14
<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: March 16, 1999
By: /s/ Harold Rapp
-----------------------------
Harold Rapp
Chief Financial Officer
Date: March 16, 1999
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 119,056
<SECURITIES> 0
<RECEIVABLES> 1,298,913<F4>
<ALLOWANCES> 0
<INVENTORY> 178,127
<CURRENT-ASSETS> 379,716
<PP&E> 4,480,436<F1>
<DEPRECIATION> 500,254
<TOTAL-ASSETS> 6,702,726
<CURRENT-LIABILITIES> 4,551,925
<BONDS> 1,833,615
0
378
<COMMON> 26,825
<OTHER-SE> 289,983
<TOTAL-LIABILITY-AND-EQUITY> 6,702,726
<SALES> 96,480
<TOTAL-REVENUES> 285,511
<CGS> 0<F2>
<TOTAL-COSTS> 3,417,939
<OTHER-EXPENSES> 39,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 737,115
<INCOME-PRETAX> (3,908,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,908,884)
<DISCONTINUED> (177,575)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,086,459)
<EPS-PRIMARY> (0.17)<F3>
<EPS-DILUTED> (0.17)
<FN>
<F1>Include Assets held for sale
<F2>Not calculated
<F3>Include discontinued operations
<F4>Include noncurrent notes receivable
</FN>
</TABLE>
