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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 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
AMERICAN TECHNOLOGIES GROUP, INC.
(Name of small business issuer in its charter)
NEVADA 95-4307525
(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
1017 SOUTH MOUNTAIN AVENUE, MONROVIA, CA. 91016
(Address of principal executive offices) (zip code)
Issuer's telephone number: (626) 357-5000
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
(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 ____
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
$505,894. As of November 1, 1999, the registrant had 31,081,614 shares of Common
Stock outstanding. The aggregate market value of the voting stock held by
non-affiliates was $8,066,287 computed by reference to the average of the low
bid and high ask prices on November 1, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WHICH WE BELIEVE ARE 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") was formed on September 27, 1988. The Company 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. Catalyst 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 the use of the
Company's proprietary catalyst technology including detergents and cosmetics.
The Company's efforts with its proprietary catalyst technology have yielded
commercial applications including The Force-Registered Trademark- airborne
combustion enhancers, bulk fuel additives, Screen Magic and household
cleaning and personal care products; however, there can be no assurance that
these products will be commercially successful. Market testing of a newly
developed product called Screen Magic has commenced at CompUSA. When used on
monitors, TV screens and other surfaces, Screen Magic cleans the surface and
prevents the buildup of static electricity for extended periods, thus
preventing dust from collecting on the surface. In the water purification
area, the Company's low temperature vacuum distillation system is undergoing
tooling design for a home use version for introduction to the marketplace by
the second calendar quarter of 2000.
The third core technology is the high energy particle beam which is proposed
to produce a beam of heavy particles. This beam functions in much the same
way as the common laser. The important difference is that the high energy
particle beam is
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composed of particles rather than light. By accelerating the beam, extremely
high energy levels are possible.
BUSINESS STRATEGY
ATG's focus is on the marketing and sale of proven technologies and products,
having shifted its focus from being almost exclusively on research and
development. Although research and development will always be a major portion
of ATG's strategy, management has determined that the promotion and sale of
products is where the main body of the Company's attention and effort should
be aimed. The promotional strategy of the Company is product-directed.
Certain of the products are being promoted through traditional media
channels while others are being marketed through strategic alliances and
opportunities with companies having existing structures and programs in the
promotion, marketing and sale of products related or similar to those of the
Company.
CORE TECHNOLOGIES
CATALYST TECHNOLOGY
After more than six 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 the Company's
proprietary catalyst.
The Company's catalyst results from a 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
- 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 catalyst.
The clusters are believed to be groups of water molecules configured in such
a way so as to produce a 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 and de-coking. For example, in internal
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combustion engines the clusters appear to attract 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.
ATG continues to identify catalyst variants and define potential commercial
applications, as well as perform its own tests and the commercial
applications of the technology. Potential customers also conduct independent
tests on the products. Current projects cover commercial applications in
numerous fields. For example, in the combustion enhancement field,
independent test are on going on the use the Company's catalyst as a bulk
fuel additive in gasoline and diesel fuels, in power generation using gas
turbines, a facilitator of de-coking and the production of carbon monoxide,
and in diesel power generating plants. Other diverse applications include use
the printing industry and as a catalyst for the extraction of essential oils
and nutrients from plants.
Dr. Selim Senkan, Chairman of the UCLA Department of Chemical Engineering,
studied the effects of certain catalyst solutions on carbon reduction in
internal combustion engines. His efforts identified an application of the
catalyst solution as a fuel additive for carbon reduction. It is believed
that the catalyst is particularly effective in hydrocarbon applications.
In some of these areas, substantial validation and testing is still required
to develop marketable products; in others, the products are ready for sale.
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 the catalyst technology will
perform in a commercially viable manner in all of the applications discussed
and even if such applications are commercialized, that they will be accepted
in the marketplace.
AUTOMOTIVE COMBUSTION AIR ENHANCEMENT PRODUCTS
The Force is an innovative automotive aftermarket product that utilizes the
Company's catalyst technology. By the delivery of a combustion enhancer
through the airstream into an engine, independent tests indicated that 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 enhances 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,
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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. The tests revealed that combustion of
methane can be significantly increased, 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.
The Company principally uses third parties to manufacture The Force. The raw
materials utilized to manufacture The Force are readily available from
numerous suppliers.
MARKETING
Because of the high cost of gasoline in Europe and Japan, these areas are
excellent markets for The Force. Significant inroads are expected in these
markets during the next 12 months. Domestically, the product is currently
being marketed under a private label to a network marketing company and
through other direct marketing channels. ATG plans to develop and run a full
half-hour infomercial early next year to develop consumer awareness and
acceptance of the product. Additionally, the Company is developing a national
network of professional manufacturers' representatives to take advantage of
that awareness and to insure that The Force is found on retail shelves
nationwide.
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.
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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 in connection with
obtaining 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 effects from compliance with current or future EPA or State
regulations.
CATALYST ADDITIVES FOR HYDROCARBON FUELS
ATG has developed a proprietary catalyst/enhancer which has diverse
applications in enhancing combustion of hydrocarbon fuels of all types. It is
also compatible with most existing chemical processes without requiring
retrofit or modification to current plant equipment. Further, because it is
water-based, it is environmentally friendly and has appeal to many
manufacturers as an alternative to the harsh chemicals currently in use. In
addition to its use in The Force, other applications of ATG's combustion
catalyst are discussed below.
- - - The catalyst, as a liquid fuel additive for bulk fuels, is being
aggressively marketed worldwide. Substantial testing and validation have
taken place to establish that the catalyst reduces carbon and harmful
emissions in the combustion process and increases fuel economy.
Additionally, AMES Testing at USC Medical Center has shown that the product
is non-carcinogenic or mutagenic, a significant validation for use of the
product in bulk fuels in lieu of dangerous oxygenates such as MTBE (which
is being outlawed in many states).
Specifically, the major markets on which ATG is currently focused for the
bulk fuel are:
- A foreign company has tested the catalyst combined with ethanol and
mixed with gasoline. The testing demonstrated significant reductions in
NOx and other emissions as a result of the use of the ATG catalyst.
Testing is now in the final stages.
- In October, 1999, ATG representatives conducted high-level meetings
with an Asian petroleum company. The company was presented with
documentation of the results of the use of the ATG catalyst in diesel
and gasoline applications and, as a result, is proceeding with
negotiations.
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- - - Initial tests in an Asian diesel electric generating plant have yielded
fuel savings of approximately 3%, a highly significant savings. One of
ATG's scientists will be on site during November and December,1999 to
validate the results and to prepare for final negotiations for the sale of
the catalyst for use in diesel power plants.
- - - One of the combustion enhancing catalysts is extremely effective in gas
turbines used in power generation. A major multinational company recently
tested the catalyst in gas turbines and the results were extremely
impressive, especially in the reduction of fuel consumption and NOx
emissions. Contract negotiations are anticipated to commence after final
tests are completed. Additionally, extremely noteworthy results were
obtained by a major Japanese company in a testing program funded by
them. ATG is currently in discussions on how to structure a commercial
relationship with the Japanese company.
Although the Company is in various stages of negotiations with several
parties, no assurance can be given that any final agreements will be executed.
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 gasoline fuel additive
with the EPA. The Company does not anticipate any negative effects 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 and is not carcinogenic.
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.
HOUSEHOLD CLEANING AND PERSONAL CARE PRODUCTS AND OTHER APPLICATIONS
As a component of personal care and household products, one of ATG's
catalysts is particularly effective in the enhancement of detergency and
enzyme activity. The cosmetic products all contain 51% cold pressed aloe gel,
known for is favorable enzymatic activity. The home care products take
advantage of the detergency-enhancing characteristics of the catalyst.
Consumer acceptance has been good for these environmentally safe,
biodegradable products.
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ATG had entered into a joint marketing venture for certain personal care and
household products. The party responsible for developing the distribution
network was unsuccessful and the venture failed. At the present time, the
Company is focusing its limited resources on marketing other products,
although it is exploring alternative distribution channels for these products.
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 which produces the
cleanest water.
From an operational point of view, several significant differences exist
among the technologies used. As an example, a small hole in a reverse osmosis
membrane can drastically reduce water quality, yet go unnoticed. Also, water
filters can become clogged and re-release contaminants back into the water,
unknown to the user. A distiller on the other hand, builds in a natural
barrier between the contaminated water source and the final purified water
since the denser contaminants remain in the contaminated water area rather
than being transported to the purified water area with the vaporized water.
DISTILLATION TECHNOLOGY
Distillation is the process by which the vapor released by a boiling liquid
is collected, cooled and turned back into a liquid. Distillation is generally
used to purify or separate the components of a liquid. 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.
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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.
Tooling design is under way and units are expected to be available for sale
during the 2nd calendar quarter of 2000. After introduction of the first
model, a countertop household unit, it is planned that an upgraded unit of
greater capacity and more features will be introduced in order to expand the
market to commercial users of distilled water.
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.
COMMODORE SEPARATION TECHNOLOGIES INC.
In an effort to expand the Company's involvement in the solutions for
polluted water, the Company recently resumed negotiations for the acquisition
of Commodore Separation Technologies, Inc. ("Commodore"). The terms of the
acquisitions will likely be substantially different than the previous
preliminary terms. Commodore is commercializing a proprietary separation
technology and recovery system known as SLiM-TM-. SLiM stands for Supported
Liquid Membrane. SLiM can selectively remove valuable substances from water
for reuse or toxic materials for safe disposal.
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.
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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. One potential
application for the particle beam technology is in the transmutation of
nuclear waste. In this instance, an ultrafast laser is focused on the beam,
creating nuclear fusion, with the subsequent release of neutrons. The
neutrons are then used to destroy the nuclear waste, rendering it harmless.
Recent advances in this field by other researchers, have verified ATG's
approach for neutron production and clearly demonstrates its efficacy.
A detailed proposal has been submitted to the U.S. Department of Energy to
undertake a pilot project for the production of large, commercially
significant quantities of neutrons using the beam. The Company is also
exploring joint venture opportunities with a number of international
companies.
The second potential application is the production of steam for powering
turbines and generators to create electrical power. This utility application
is a tremendous opportunity to safely start and stop fusion operations
without the attendant safety hazards of existing technologies. ATG's particle
beam technology is envisioned to compete in this area directly with fossil
fuel consuming and nuclear-powered electrical generating plants. ATG
envisions this application to ultimately be the most beneficial financially
to the firm.
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, be commercially viable.
HISTORY
The BASER particle beam project was initiated in the mid 1980's by Dr.
Shui-Yin Lo, ATG's Chief Scientist and a leading physicist in the field of
particle physics. In 1987 Dr. Lo 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.
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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 the California Institute of Technology ("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.
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.
Currently, the Company is seeking funding from the United States Department
of Energy to continue the research on particle beams.
DISCONTINUED OPERATIONS/ASSETS HELD FOR SALE
As a result of the Company's decision to focus its efforts on its three core
technologies, the Company has sold ATG Media, Inc. and has caused New Concept
to dispose of gold mill and gold properties in the Manhattan Mining District
of Nevada. In addition, preliminary terms for the sale of New Concept
tungsten property in Lincoln County Nevada have been reached.
In April, 1999, the Company sold the stock of ATG Media, Inc. to an unrelated
third party. This third party paid $1,000 in cash and agreed to assume ATG
Media's liabilities estimated at $340,000. In addition, at ATG's option, the
buyer will provide ATG $200,000 of various advertising and promotional
credits in ATG Media's publication, web site and other promotional venues on
favorable terms. In the event that all of the promotional credits are not
utilized by ATG prior to May 1, 2000, the residual purchase price shall be
paid in cash at the Company's option. Due to the contingent nature of the
promotion credits, the Company has taken 100 percent reserve against the
value of these credits.
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The Company sold the Manhattan gold mill and properties to Western Mine
Development for the assumption of the notes due (approximate total of
$956,000) on the property and the payment of $2,500,000 plus interest over
nine years against a 2% net smelter royalty and a $2.00 per ton charge for
all ore processed through the mill not from the property.
PATENTS
Our success will depend, in part, on whether we can obtain patent
and trademark protection for our technologies and products. We cannot
guarantee that we will be able to secure these protections. If we fail to do
so, there is no guarantee that our technologies will not be subject to
copying by other entities. This would result in a level of competition which
could well prevent us from being successful. Although we have taken steps,
including entering into confidentiality agreements with our employees and
third parties to protect our trade secrets and unpatented know-how, other
third parties may still be able to obtain such information.
The Company has applied for a number of patents covering its
particle beam, vacuum distiller and catalyst technologies. The status of the
Company's patent activities is as follows:
- Particle Beam Approved Patents
The Company has been granted 7 U.S. patents and 9 foreign patents on
particle beam technology. Additionally, there are 3 U.S. and 6 foreign
patent applications pending.
- Catalyst Technology
The Company has been granted 1 U.S. patent on the catalyst technology
and 7 U.S. patent applications are in various stages of prosecution.
Foreign patent applications to protect this technology are also in
progress.
- Vacuum Distiller
The Company has been granted 1 U.S. patent on the vacuum distiller
technology and there are 2 U.S. patent applications pending. Foreign
applications to protect the technology are also in process.
All of the Company's products currently offered for sale are
protected by patents in the U.S. The group of patent applications currently
in process have sufficient overlap to offer protection on the Company's
current commercial applications.
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.
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RESEARCH AND DEVELOPMENT
The Company has incurred approximately $665,377 and $1,251,790 in research
and development expenses during the years ended July 31, 1999 and 1998,
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 seventeen full-time employees and one part-time employee
(seventeen full-time employees and two part-time employee including employees
of its subsidiary). None of the Company's employees is subject to a
collective bargaining agreement nor has the Company experienced any work
stoppages. The Company believes that its employee relations are good.
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 2. DESCRIPTION OF PROPERTY.
In June 1997, the Company acquired 1009, 1013 and 1017 South Mountain Avenue,
Monrovia, CA for an aggregate purchase price of $887,000 and has invested
approximately $200,000 in improvements to the properties. The property is
secured by a trust deed in favor of Point Center Financial Inc. securing a
note in the principal amount of $877,500 due June 1, 2000 with monthly
interest only payments of $9,470. In addition, a note payable to an officer
in the amount $135,000 due December 31, 1998 and $1,500,000 principal amount
of convertible debentures are secured by the property.
The Company's principal executive offices and research and development
facility occupy approximately 16,140 square feet at 1017 South Mountain
Avenue, Monrovia, CA.
The Company leases 1009 and 1013 South Mountain Avenue, Monrovia, CA. to an
unrelated party under a one year lease expiring May 31, 2000 for $4,750 per
month.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation or proceedings and is
not aware of any material litigation or proceeding threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION.
The Company's Common Stock is traded in the over-the-counter market and has
been quoted on the National Association of Securities Dealers Automated
Quotation System since August 24, 1994, under the symbol "ATEG." The
following quotations represent interdealer prices, without retail mark-ups,
mark-downs, or commissions, and may not represent actual transactions. The
information was obtained from Yahoo Finance Historical Quotes.
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
<S> <C> <C>
August 1, 1997 - October 31, 1997 $ 4.50 $ 2.55
November 1, 1997 - January 31, 1998 $ 3.00 $ 0.97
February 1, 1998 - April 30, 1998 $ 3.20 $ 0.97
May 1, 1998 - July 31, 1998 $ 2.30 $ 0.97
August 1, 1998 - October 31, 1998 $ 1.47 $ 0.38
November 1, 1998 - January 31, 1999 $ 0.86 $ 0.55
February 1, 1999 - April 30, 1999 $ 0.80 $ 0.27
May 1, 1999 - July 31, 1999 $ 0.88 $ 0.23
</TABLE>
HOLDERS.
The Company has only one class of common equity, the Common Stock. As of
November 1, 1999, there were 964 record holders of the Common Stock.
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore.
The Company currently intends to retain future earnings, if any, to fund its
operations and development and does not anticipate paying dividends in the
foreseeable future.
At such time as dividends may be declared, the Company's Series A Convertible
Preferred Stock is entitled to receive a dividend 10% higher than that paid
on the Common Stock.
14
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES.
In July, 1999, the Company issued to (i) William J. Rogers Jr. and George
Garcy in settlement of a dispute regarding a consulting agreement an
aggregate of 650,000 shares of Common Stock, subject to adjustment based upon
the market value for the common stock at a later date; (ii) Boru Enterprises
and MacCaughern Trade Development in payment of consulting services an
aggregate of 700,000 shares of Common Stock; and (iii) Comtrad Industries,
Inc. and The Spectrum Group in payment of indebtedness an aggregate of
614,738 shares of Common Stock. The foregoing stock issuances was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 as a
transaction by an issuer not involving any public offering. No underwriter
was utilized in the offering and no commissions were paid.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
BALANCE SHEET: 1999 1998
<S> <C> <C>
Assets $ 4,801,452 $ 7,110,930
Liabilities $ 6,402,721 $ 4,011,316
Stockholders' (Deficit) Equity $ (1,601,269) $ 3,099,614
RESULTS OF OPERATIONS:
REVENUE
Technology Products and Licensing $ 307,583 $ 723,569
Other 198,311 193,167
Total Revenue 505,894 916,736
OPERATING EXPENSES
Technology Products $ 878,343 $ 637,889
Research and Development 665,377 1,251,790
Mining 1,495,497 2,330,500
Corporate 6,180,979 4,301,279
Total Expenses 9,220,196 8,521,458
Operating Loss (8,714,302) (7,604,722)
Other Expense, Net (2,117,491) (1,747,626)
Benefit for Income Taxes 487,624
-
Net Loss Before Discontinued Operations (10,831,793) (8,864,724)
Discontinued Operations 28,257 (575,815)
------------- ------------
Net Loss Attributable to Common Stockholders $ (10,803,536) $ (9,440,539)
------------- ------------
Net Loss Per Common Share
Continuing Operations ($0.42) ($0.40)
------------- ------------
Discontinued Operations ($0.00) ($0.03)
------------- ------------
Weighted average number of common shares outstanding 25,670,304 21,922,748
------------- ------------
</TABLE>
15
<PAGE>
Although revenue for fiscal 1999 declined significantly from fiscal 1998,
$505,900 as compared to $916,700, almost $257,000 of revenue in fiscal 1998
was received from laundry products sold to TradeNet Marketing Inc.
("TradeNet") while no revenue came from that source in fiscal 1999.
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.
Pursuant to the Board of Director's strategic plan of focusing on core
technologies, the Company has disposed of certain non-core businesses
- - -publishing and gold mining. 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 $1,338,600 during fiscal 1999 and $2,145,000
during fiscal 1998 as a loss based upon the estimated realizable value of its
mining properties.
Operating loss for continuing operations before tax effects increased by
$1,479,500 from $9,352,300 in fiscal 1998 to $10,831,800 in fiscal 1999. The
increase in operating loss is attributable to the decline by approximately
$410,000 in revenue ($257,000 in fiscal 1998 revenue was attributable to
TradeNet sales of laundry products), and increases in expenses, principally
interest expense of $450,900, general and administrative expenses of
$1,870,700, and marketing and product development expenses $240,500,
partially offset by declines in research and development expense of $586,400
and loss on impairment of assets held for sale of $806,400. The increase in
general and administrative expense is principally the result of non-cash
(Common Stock) payments to certain consultants in connection with the
restructuring efforts of the Company. Cash used in operations declined by
$1,123,400 from fiscal 1998 to fiscal 1999. The use of non-cash consideration
for certain services conserves cash; however, the payee requires higher
payment due to the risk associated with receiving common stock instead of
payment in cash. Management believes that had cash been available to pay for
all services, the operating loss would have been less.
Reflecting the implementation of the strategic direction set by the Board of
Directors during the prior fiscal year, total operating expenses increased by
$698,700 from $8,521,500 in fiscal 1998 to $9,220,200 in fiscal 1999. The
increase was principally due to increases of $1,870,700 in general and
administrative expenses (primarily non-cash consulting expenses and
settlement cost), partially offset by decreased marketing and product
development expenses of $346,000 and decreased mining expenses of $835,000.
General and administrative expenses includes $583,300 and $933,900 in option
expense for fiscal 1999 and 1998, 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
16
<PAGE>
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 1999, interest
expense increased from $1,627,300 in fiscal 1998 to $2,078,200 in fiscal
1999. The interest expense primarily consists of the discount from the market
value of the Common Stock to be received upon conversion of the debt
instruments.
The Company's cash used in operations decreased by $1,123,400 from $3,981,400
in fiscal 1998 to $2,858,000 for fiscal 1999. In fiscal 1998, the primary
sources of working capital were 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. In fiscal 1999, the primary sources of
working capital were the net proceeds from the issuance of convertible debt
of $2,750,000, proceeds from short term loans and officer/stockholder
advances aggregating $430,300 and an increase in accounts payable and accrued
liabilities of $596,100.
Included in Total Assets at July 31, 1999 is technology rights valued at
$400,000 net of $800,000 of amortization expense. These technology rights
pertain to the Clean Air Pac which is used by the Company in The Force
combustion enhancer. During fiscal 1999, the Company received approximately
$220,000 in revenue from sales of The Force.
At July 31, 1999, current assets were $962,600, $559,700 more than the
$402,900 in current assets at July 31, 1998, due primarily to increases in
cash and cash equivalents. Subsequent to 1999 fiscal year-end, the Company
issued $500,000 in convertible debentures.
The Company was recently advised that First Liberty Securities, Ltd. had
cease doing business in the United States and would not sell the Company's
securities under the July, 1999 underwriting agreement. As a result, the
Company has commenced negotiations for a non-convertible secured loan of up
to $6,000,000 (the "Loan"). Other sources of working capital are also being
pursued. Assuming the successful completion of the Loan transaction and
anticipated increased sales of its products based upon existing customer
communications, the Company anticipates that it will be able to continue its
operations at the current level through the end of fiscal 2000; however,
there can be no assurance to this effect. The inability to secure the Loan or
obtain
17
<PAGE>
alternative financing would have a material adverse effect on the Company.
Any alternative 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.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company, including the notes thereto and
reports of the independent auditors thereon, are attached hereby as exhibits
following page number 32.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company as of July 31, 1999 are
listed below, together with brief accounts of their business experience and
certain other information. Subsequent to July 31, 1999, vacancies on the Board
of Directors were filled with Messrs. Schad and Hennen.
<TABLE>
<CAPTION>
NAME AGE PRESENT OFFICE OR POSITION YEAR FIRST ELECTED DIRECTOR
- - ---- --- -------------------------- ---------------------------
<S> <C> <C> <C>
Lawrence J. Brady 60 Chairman of the Board of 1997
Directors, Chief Executive
Officer
Shui-Yin Lo 58 Director of Research and 1993
Development and a Director
William Odom 67 Director 1997
Charles McCarthy 61 Director 1998
Alan Brooks 51 Director 1999
James Hennen 56 Director 1999
Lawrence Pressler 57 Director 1999
Lawrence Schad 54 Director 1999
</TABLE>
LAWRENCE J. BRADY: became President and a Director in March, 1997. In December,
1997, he became Chief Executive Officer and Chairman of the Board. From 1994
until he joined the Company, Mr. Brady was an independent consultant except for
a five month period during which he served as president of Chantal
Pharmaceutical Corp. From 1991 to 1994 Mr. Brady served as a director and
founder of Capitoline International Group, Ltd., a consulting firm. He was a
Senior Vice President of Hill & Knowlton Public Affairs Worldwide from 1987 to
1991 and Director of International Marketing for Sanders Associates, a Lockheed
subsidiary from 1985 to 1987.
Mr. Brady served as Assistant Secretary of Commerce for Trade Administration in
the Reagan Administration, responsible for administering federal government
export and import trade regulation functions, which included high technology
export control and enforcement programs, the anti-dumping and countervailing
duty laws and the anti-boycott and foreign trade zone programs. He has completed
all requirements for a Ph.D. in International Economics and International
Affairs except for his dissertation.
19
<PAGE>
SHUI-YIN LO: became Director of Research and Development and a Director in June,
1993. From January, 1987 until June, 1993, he was Chief Executive Officer of the
Institute of Boson Studies Inc., a privately funded research company. Dr. Lo
received his Ph.D. in physics in 1966 from the University of Chicago. He has
been a visiting scholar at numerous universities and institutes including
Stanford University, California, Oxford University, England, Institute for
Theoretical Physics, Berlin University, Germany and the Institute of High Energy
Physics, Beijing, China.
WILLIAM ODOM: is Director of National Security Studies for the Hudson Institute
and an adjunct professor at Yale University. As Director of the National
Security Agency from 1985 to 1988 he was responsible for signal intelligence and
communications security for the United States. He has many other senior national
security positions in the military and the executive branch of the United States
government, including in the Carter White House. Mr. Odom also serves as a
director of American Science and Engineering, Inc., V-ONE Corporation and
Nichols Research Corporation.
CHARLES MCCARTHY: is Counsel to the law firm of O'Conner & Hannan, a Washington
D.C. and Minneapolis, Minnesota based law firm. Previously, he served as
trial attorney for the Securities and Exchange Commission in the Division of
Enforcement and as Blue Sky Commissioner for the District of Columbia. Mr.
McCarthy recently completed a four year term as General Counsel to the
National Association of Corporate Directors and was Director of the National
Blue Ribbon Commission on the proposed proxy reform and their impact on
executive compensation in the United States. Mr. McCarthy also serves as a
director of Avitar Technologies, Inc.
LAWRENCE PRESSLER: has been a partner in the law firm of O'Connor & Hannan, a
Washington D.C. and Minneapolis, Minnesota based law firm since 1998. From 1996
to 1998 Mr. Pressler was affiliated with the law firm of Pressler & Associates.
From 1975-1996, he served as a member of the U.S. Congress, 18 years of which
were in the U.S. Senate. He authored the Telecommunications Act of 1996 as well
as various aviation, pipeline, transportation, satellite, foreign policy,
business and trade legislation during his time in Congress. He is a former
Rhodes Scholar at Oxford, England and a Harvard Law School graduate. Mr.
Pressler also serves as a director of Global Light Telecommunications, Inc.
LAWRENCE SCHAD: is a principal of the 11 lawyer firm of Beeler, Schad & Diamond,
P.C. of Chicago, Illinois which he founded in 1980. His primary practice area
are business, commercial and consumer fraud litigation, commercial matters, and
business planning and strategy.
ALAN BROOKS: became a Managing Director of Cone, Rose, Thatcher Ltd. in
June, 1999. From May, 1991 through March, 1999 he served as CEO and/or
Chairman of Interfund Resources Ltd. He also acted as President and a
director of Aviation Resources, Inc. from May, 1996 to February, 1999. Mr.
Brooks is also a Director and advisor to Bromar Capital Management, Ltd. and
MCAP Investments Group, Ltd. as well as a Partner of Allied Capital Partners,
Ltd. Mr. Brooks specializes in marketing, mergers and acquisitions and LBO's,
and has structured financings for a wide variety of companies and government
organizations throughout the world.
20
<PAGE>
JAMES HENNEN: has been a design, engineering and management consultant since
1984. He has worked for a variety of industries and companies including Shell,
British Petroleum, Phillips Petroleum, AGIP, Heerema International, Big river
Grille and Brewing Works, FLR Hosiery, Willwear Shaw Industries, Burlington
Industries and Tapistron. His projects were located in the U.S., Europe, the
Pacific Rim and the Mid-East. From 1974-1984 Mr. Hennen was Vice President of
Operations for Jardine Matheson, Inc. working in the Pacific Rim and Mid-East.
Directors are elected annually at the Company's annual meeting of shareholders.
The term of each person currently serving as a director will continue until the
Company's next annual meeting or until a successor is duly elected and
qualified.
Executive officers are appointed annually by the Board of Directors and serve at
the discretion of the Board, except to the extent that provisions of employment
agreements may govern.
SECTION 16(b) BENEFICIAL OWNERSHIP COMPLIANCE
Based upon the Company's review of the reports on Form 3, Form 4 or Form 5
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, Messrs. Pressler and Brooks each failed to timely file one Form 3.
ADVISORY BOARD:
The Company's Advisory Board consists of renowned scientists or businessmen in
technological fields who have agreed to be available for scientific or other
consultations when needed. Board members will be compensated at individually
determined hourly rates and will be granted options to acquire 2,500 shares of
Common Stock at fair market value on the date of grant. The following is summary
background information on the nine people who are serving on the Advisory Board.
There can be no assurance that these people will actually serve on the Advisory
Board for any particular length of time.
JAMES S.I. LO: holds a Ph.D. in clinical biochemistry from the University of
Toronto (1975). He is currently a Clinical Assistant Professor, Department of
Pathology, Health Sciences Center at Brooklyn, New York State University and is
a Clinical Biochemist at Brookdale Hospital and Medical Center, Brooklyn, New
York. Dr. S.I. Lo is the brother of Dr. S.Y. Lo, a director of the Company.
CHARLES YOUNG: holds a Ph.D. in physics from the Massachusetts Institute of
Technology (1977). He is currently a staff physicist at the Stanford Linear
Accelerator Center where he has been employed since 1978.
21
<PAGE>
ANMIN LIU: holds a B.S. in civil engineering from Chuan Yuan University in
Taiwan and an M.S. in Sanitary Engineering from Colorado State University,
(1970). Since 1989 he has been the Engineer Manager at the Hyperion Wastewater
Treatment Plant of the City of Los Angeles where he responsible for engineering
and operations, including the multi-billion dollar expansion program ongoing at
the plant. He has supervised the start up of two of the four wastewater plants
operated by the City of Los Angeles.
GARY A. WILLIAMS: holds a Ph.D. in Physics from the University of California,
Berkeley (1974). Since 1984 he has been a Professor of Physics at the University
of California, Los Angeles. From 1978 to 1982 he was a Alfred P. Sloan
Foundation Fellow.
ED ROSE: holds a B.S. in Civil Engineering/Engineering Geology from the
University of Southern California (1956). He is currently an independent
consultant providing project and construction management services. For over 25
years he was employed by Bechtel Corporation retiring as a project manager. His
professional affiliations include the American Society of Civil Engineers and
the National Society of Professional Engineers.
DANIEL C. TSUI: holds a Ph.D. in Electrical Engineering from the University of
Chicago (1967). Since 1982 he has been a Professor of electrical engineering at
Princeton University. He is a member of the National Academy of Sciences,
Academia Sinica, Fellow of The American Physical Society, American Association
for the Advancement of Science. In 1984, he received the Oliver E. Buckley
Condensed Matter Physics Prize of The American Physical Society.
VIJAY K. DHIR: holds a Ph.D. in Mechanical Engineering from the University of
Kentucky, Lexington (1972). Since 1991 he has been a Professor , Mechanical,
Aerospace and Nuclear Engineering Department, University of California, Los
Angeles. Dr. Dhir has served as a referee of numerous journals and has acted as
a consultant to many entities including the Nuclear Regulatory Commission,
Rockwell International, General Electric Corporation, Los Alamos National
Laboratory and Brookhaven National Laboratory.
WILLIAM MACKENZIE (KEN) CURRIE: holds a Ph.D. in Experimental Nuclear Physics
from Glasgow University, Scotland (1961). He is well recognized for his
contributions in renewable energy programs for Great Britain and the United
States. He has been pivotal in developing corporate business and scientific
relationships among United States governmental agencies, national laboratories
and the World Bank.
REINHARD BRUCH: holds a Ph.D. in Physics from the Free University of Berlin,
Germany. Since 1991 he has been a Professor of Physics at the University of
Nevada, Reno. Dr. Bruch has authored over 160 publications and his recent
collaborations include Lawrence Livermore National Laboratory, University of
Uppsala, Max-Plank Institute for Quantenoptik, University of Pierre and Marie
Currie and Texas A&M University.
22
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The tables and discussion below set forth information about the compensation
awarded to, earned by or paid to the Company's executive officers during the
fiscal years ended July 31, 1997, 1998, and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
NAME & PRINCIPAL POSITION YEAR ANNUAL SALARY STOCK OPTIONS
------------------------- ---- ------------- -------------
<S> <C> <C> <C>
Lawrence Brady 1999 $273,100(1) 500,000(2)
Chairman of the Board and
Chief Executive Officer 1998 181,712 500,000(3)
1997 55,000(4) 500,000(5)
Shui-Yin Lo 1999 $187,690(6) 225,000(2)
Director of Research &
Development and a Director 1998 163,882 -
1997 151,576 250,000(7)
45,000(8)
Jim Nicastro 1999 $153,337 225,000(2)
Vice President
1998 161,632 -
1997 161,632 250,000(7)
40,000(8)
John M. Dab 1999 $156,614(9) 160,000(2)
General Counsel and
Secretary 1998 157,283 -
1997 145,333 20,000(8)
</TABLE>
-----------------
(Footnotes are on the following page.)
23
<PAGE>
OPTIONS GRANTED IN FISCAL 1999
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in
Name Granted Fiscal 1999 Exercise Price Expiration Date
---- ------- ----------- -------------- -----------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 500,000 26.9 0.75 December 31, 2007
Shui-Yin Lo 225,000 12.1 0.75 December 31, 2007
Jim Nicastro 225,000 12.1 0.75 December 31, 2007
John Dab 160,000 8.6 0.75 December 31, 2007
</TABLE>
- - ----------------------------
(Footnotes from prior page.)
(1) Includes $93,100 in forgiveness of indebtedness.
(2) The exercise price of these options is $0.75 per share, the estimated fair
market value on the date of grant. One half of the options have vested and one
quarter of the options vest on each of January 1, 2000 and 2001.
(3) The exercise price of these options is $0.75 per share, the estimated fair
market value on the date of repricing. The options vest at the rate of 25% per
year commencing January, 1998.
(4) Does not include $40,000 paid to Mr. Brady as consulting fees prior to his
employment by the Company.
(5) The exercise price of these options is $0.75 per share, the estimated fair
market value on the date of repricing. One quarter of the options vested and the
unvested portion was canceled and replaced with the option granted in fiscal
1998.
(6) Includes $27,923 in forgiveness of indebtedness.
(7) The exercise price of these options is $0.75 per share, the estimated fair
market value on the date of repricing. One half of the options have vested and
one quarter of the options vest in each of March, 2000 and 2001.
(8) The exercise price of these options is $0.75 per share, the estimated fair
market value on the date of repricing. Three quarters of the options have vested
and one quarter of the options vest in January, 2000.
(9) Includes $2,500 in forgiveness of indebtedness.
24
<PAGE>
OPTION VALUES AT JULY 31, 1999
<TABLE>
<CAPTION>
Number of Securities Underlying Value of in-the-money Options
Options at July 31, 1999 at July 31, 1999
----------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 625,000 500,000 0 0
Shui-Yin Lo 1,208,750* 186,750 0 0
Jim Nicastro 543,000 185,000 0 0
John M. Dab 205,000 145,000 0 0
</TABLE>
---------------
* Includes 450,000 options grant to Dr. Lo in connection with the sale to the
Company of certain technology rights.
Effective January 1, 1999, the Company entered into one year employment
agreements with Messrs. Brady, Dab and Nicastro and Dr. Lo at annual salaries
of $180,000, $155,000, $155,500 and $160,000, respectively. As additional
compensation, Messrs. Brady, Dab and Nicastro and Dr. Lo were granted options
to purchase 400,000, 100,000, 150,000 and 150,000 shares of Common Stock,
respectively, at $0.75 per share under their employment agreements. The
options vest one-half on January 1, 1999, and one quarter on each of January
1, 2000 and 2001.
Each employment agreement provides for early termination by the Company for
"cause," which includes final conviction of the employee of a felony
involving willful conduct materially detrimental to the Company or the final
adjudication of the employee in a civil proceeding for acts or omissions to
act involving willful conduct detrimental to the Company, and for "good
reason" by the employee, which includes the diminution of employee's title,
responsibilities or status, or reduction in pay or benefits. In addition,
each agreement provides for the payment of three months salary if the
employee terminates his employment in connection with a Change of Control as
defined in the agreement or one year's salary in the event the Company
terminates the employee during the period commencing 90 days before and
ending 180 days after the Change of Control. Change of Control is defined as
an event or series of events that would be required to be described as a
change in control of the Company in a proxy or information statement
distributed by the Company pursuant to Section 14 of the Securities Exchange
Act of 1934 in response to Item 6(e) of Schedule 14A promulgated hereunder,
or any substitute provision which may hereafter be promulgated thereunder or
otherwise adopted.
Directors of the Company who are employees do not receive compensation for
serving as such; non-employee Directors receive $7,500 and an option to
purchase 25,000 shares of Common Stock at the fair market value on the day of
appointment (or anniversary thereof) per year which vest at the rate of 2,000
shares per month with 3,000 shares vesting in the twelfth month. All
Directors hold office until the next annual meeting of the shareholders or
until their successors have been duly elected and qualified. All officers
serve at the discretion of the Board of Directors.
25
<PAGE>
The Company has no retirement, pension or similar programs at the present
time. The creation of any such plan, however, will be at the discretion of
the Board of Directors of the Company. The Board of Directors may, in the
future, adopt such employee benefit and executive compensation programs as it
deems advisable and consistent with the best interests of the shareholders
and the financial condition and potential of the Company.
STOCK OPTION PLANS
The Company's 1993 Incentive Stock Option Plan and 1993 Non-Statutory Stock
Option Plan (the "Option Plans") provide for the granting of Incentive Stock
Options, within the meaning of Section 422b of the Internal Revenue Code of
1986, as amended, to employees and Non-Statutory Stock Options to employees,
non-employee directors, or consultants or independent contractors who provide
valuable services to the Company. At October 31, 1999, 1,550,125 shares of
Common Stock were reserved for issuance under the Option Plans. The Option
Plans were approved by the shareholders in November, 1993.
The Option Plans are administered by the Board of Directors or, if the Board
so designates, a Stock Option Committee consisting of at least two members of
the Board of Directors. The Board or the Stock Option Committee, as the case
may be, has the discretion to determine when and to whom options will be
issued, the number of shares subject to option and the price at which the
options will be exercisable. The Board or the Stock Option Committee will
also determine whether such options will be Incentive Stock Option or
Non-Statutory Stock Options and has full authority to interpret the Option
Plans and to establish and amend the rules and regulations relating thereto.
Under the Incentive Stock Option Plan, the exercise price of an Incentive
Stock Option shall not be less than the fair market value of the Common Stock
on the date the option is granted. However, the exercise price of an
Incentive Stock Option granted to a ten percent (10%) stockholder (as defined
in the Incentive Stock Option Plan), shall be at least 110% of the fair
market value of Common Stock on the date the option is granted; exercise
prices of options granted under the Non-Statutory Stock Option Plan may be
less than fair market value. The maximum aggregate number of shares which may
be covered by options under the Option Plans is 10% of the total outstanding
shares of Common Stock.
Incentive Stock Options covering 1,089,000 shares exercisable at $0.75 per
share and Non-Statutory Stock Options covering 15,000 shares exercisable at
$3.00 per share, 20,000 shares exercisable at $1.70 per share, 30,000 shares
exercisable at $1.50 per share, 25,000 shares exercisable at $0.72 per share
and 50,000 shares exercisable at $0.30 per share have been granted and not
canceled or exercised. As of October 31, 1999, Options covering an additional
1,558,036 shares may be issued under the Option Plans.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of November 1, 1999
concerning the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the directors of the Company, and (iii)
all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Ownership (1) Percent of Class
- - ---------------- --------------------------------------------- ----------------
<S> <C> <C>
Gaines P. Campbell, Jr. 6,986,034 (2, 3) 18.4
1341 Birmingham Highway
Chattanooga, TN 37419
Lawrence J. Brady (4) 643,000 (5) 2.0
Shui-Yin Lo (4) 1,209,783 (6) 3.7
Charles McCarthy (4) 65,000 (3) *
William Odom (4) 50,000 (3) *
Alan Brooks (4) 18,000 (3) *
James Hennen (4) 24,500 (7) *
Lawrence Pressler (4) 18,000 (3) *
Lawrence Schad (4) 1,149,600 (8) *
Jim Nicastro (4) 555,900 (9) 1.8
John M. Dab (4) 219,500 (10) *
All officers and 3,953,466 8.3
directors as a group
(10 People) (3) (5) (6) (7) (8) (9)
</TABLE>
- - ------------------------------------
* Less than 1 percent.
(1) Except as reflected below, each of the persons included in the table has
sole voting and investment power over the shares respectively owned, subject to
the rights of spouses under applicable community property laws.
(2) 3,600,000 of these shares are issuable upon conversion of debentures
redeemable by the Company through December 31, 1999.
(3) Represents shares issuable upon exercise of options or warrants.
(4) The address of each of these persons is c/o ATG, 1017 South Mountain
Avenue., Monrovia, CA 91016.
(5) Includes 625,000 shares issuable upon exercise of options.
(6) Includes 1,208,750 shares issuable upon exercise of options.
(7) Includes 6,000 shares issuable upon exercise of options.
(8) Includes 114,500 shares of held by Mr. Schad's children under the Uniform
Gift to Minors Act, 172,000 shares held by a trust for which Mr. Schad serves
as a trustee with no beneficial interest and 6,000 shares issuable upon
exercise of options.
(9) Includes 3,900 shares held by Mr. Nicastro's wife and 543,000 shares
issuable upon exercise of options.
(10) Includes 4,500 shares of Common Stock held of record by Mr. Dab's children
under the Uniform Gift to Minors Act and 205,000 shares issuable upon exercise
of options.
27
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PARTICLE BEAM 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 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.
The licensor of the BASER technology which the Company has sublicensed from
NWEC is Apricot which is 50% owned by Dr. Shui-Yin Lo, a director of the
Company.
On July 22, 1994, the Company entered into a Technology Acquisition Agreement
with Shui-Yin Lo, the Company's Director of Research and Development and a
member of the Board of Directors. For $150,000, the Company acquired an
option to acquire a 50% interest in Apricot or 100% of the technology
underlying BASERs as invented by Dr. Lo, if he reacquires such rights. The
exercise price for the option is 10,000 shares of Common Stock. The 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. 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 defined
below, the exercise price will include such shares. Under the Technology
Acquisition Agreement the Company also acquired from Shui-Yin Lo exclusive
right, title and interest to the 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. The consideration for the Invention is an option to acquire
450,000 shares of Common Stock at $3.00 per share, and, at such time as ATG
receives an offer to purchase the Invention as developed by ATG for
commercial utilization or ATG commences commercial utilization of any
application of
28
<PAGE>
the Invention developed by ATG, ATG will (i) issue to Lo 1,700,000 shares of
Series A Stock and (ii) pay to Lo a royalty at the rate of 7.5% of ATG's net
profit from the exploitation of the Invention. If Dr. Lo receives the
1,700,000 shares of Series A Stock as part of the exercise price for the
BASER rights, then Dr. Lo will not receive such shares if the Invention is
commercialized in accordance with the foregoing criteria.
Certain officers of the Company are employed pursuant to written employment
agreements the principal terms of which are described under "Item 10
Executive Compensation."
Advances to Mr. Brady, Dr. Lo and Mr. Dab totaling $123,523 were forgiven in
January, 1999.
The Company is indebted to Michael Kobrin, Vice President of Strategic
Planning and Development, in the amount of $240,000. Payments are due in
installments of approximately $40,000 per month, commencing August 1999 and
end in February 2000. This loan is secured by the personal property of the
Company and a junior interest in the Company's office buildings in Monrovia,
California. In connection with this indebtedness, Mr. Kobrin was granted
options to purchase a total of 175,000 shares of Common Stock at exercise
prices between $0.25 and $0.40 per share.
Mr. Brooks is a principal and officer of two firms which provided consulting
services to the Company. Prior to Mr. Brooks becoming a director of the
Company, these firms were issued 3,000,000 shares of Common Stock valued at
$2,161,250 for the consulting services.
29
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <S>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (2)
3.4 September 3, 1997 Amendments to Bylaws (3)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (2)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (2)
4.4 Certificate of Determination of Rights and Preferences of
Series C Convertible Preferred Stock (2)
4.5 Form of 6% Convertible Debenture. (4)
4.6 Form of 3% Convertible Debenture issued to Gaines P. Campbell,
Jr. (4)
4.7 Secured Convertible Debenture issued to Gaines P. Campbell,
Jr. (4)
4.8 Form of Secured Redeemable Convertible Debenture issued to
Gaines P. Campbell, Jr. (4)
4.9 Subscription Agreement dated July 22, 1999 by and between the
Company and Gaines P. Campbell, Jr. (4)
10.1 1993 Incentive Stock Option Plan and 1993
Non-Statutory Stock Option Plan (1)
10.2 Clean Air Pac Agreement effective November 1, 1992, By and
Between American Technologies Group, Inc., Rod Quinn,
Loren Zanier, Robert Carroll and David Gann (1)
10.3 License Agreement dated as of March 1, 1994 by and between
American Technologies Group, Inc. and B.W.N. Nuclear Waste
Elimination Corporation (3)
</TABLE>
30
<PAGE>
<TABLE>
<S> <S>
10.4 Research Agreement dated April 25, 1994 by and between
American Technologies Group, Inc. and California Institute of
Technology (3)
10.5 Technology Acquisition Agreement entered into as of July 22,
1994 by and between the Company and Shui-Yin Lo (5)
10.6 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (2)
10.7 Amended Employment Agreement dated as of November 1, 1995, by
and between Hugo Pomrehn and American Technologies Group, Inc.
(2)
10.8 Agreement dated June 23, 1998 between the Registrant and
John R. Collins regarding ATG Media, Inc. (6)
10.9 Form of Executive Employment Agreement effective January 1,
1999.
22 List of Subsidiaries of the Registrant.
23.1 Consent of Corbin & Wertz.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
</TABLE>
- - ---------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form 10-SB, Commission File Number 0-23268.
(2) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on February 16, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on November 13, 1997.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, Commission File Number 333-68327.
(5) Previously filed as an exhibit to the Company's Form 8-K Current Report
filed with the Commission on August 15, 1994.
(6) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on November 14, 1998.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of the
period covered by this Report.
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN TECHNOLOGIES GROUP, INC.
By: /S/ LAWRENCE J. BRADY
-------------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
Date: November 15, 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.
<TABLE>
<S> <C> <C>
/s/ Lawrence J. Brady Chairman of the Board, November 15, 1999
--------------------- Chief Executive Officer
Lawrence J. Brady
/s/ YAN LIN Chief Financial Officer November 15, 1999
----------- Chief Accounting Officer
Yan Lin
----------------- Director November , 1999
William Odom
/s/ SHUI-YIN LO Director and Director of November 15, 1999
--------------- Research and Development
Shui-Yin Lo
/s/ Lawrence Pressler
------------------- Director November 15, 1999
Lawrence Pressler
/s/ Charles Mccarthy Director November 15, 1999
--------------------
Charles McCarthy
/s/ Alan Brooks Director November 15, 1999
---------------
Alan Brooks
/s/ James Hennen
---------------- Director November 15, 1999
James Hennen
/s/ Lawrence Schad
---------------- Director November 15, 1999
Lawrence Schad
</TABLE>
32
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1999 AND 1998
WITH
INDEPENDENT AUDITORS' REPORT THEREON
<PAGE>
INDEPENDENT AUDITORS' REPORT
To American Technologies Group, Inc.:
We have audited the accompanying consolidated balance sheet of American
Technologies Group, Inc. (a Nevada corporation) and subsidiaries as of July
31, 1999, and the related consolidated statements of operations,
stockholders' (deficit) equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Technologies Group, Inc. and subsidiaries as of July 31, 1999, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, since its inception, the
Company has incurred significant operating losses. The ability of the Company
to operate as a going concern is dependent upon its ability to (1) obtain
sufficient additional capital, (2) generate significant revenues through its
existing assets and operating business, and (3) overcome significant product
development issues. These issues, among others, raise substantial doubt about
the ability of the Company to continue as a going concern. Management's plans
in regards to these matters are also described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
CORBIN & WERTZ
Irvine, California
November 9, 1999
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Technologies Group, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of American Technologies Group, Inc. (a
Nevada corporation) and subsidiaries for the year ended July 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of American Technologies Group, Inc. and subsidiaries for the year
ended July 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, since its inception, the
Company has incurred significant operating losses. The ability of the Company
to operate as a going concern is dependent upon its ability to (1) obtain
sufficient additional capital, (2) generate significant revenues through its
existing assets and operating business, and (3) overcome significant product
development issues. These issues, among others, raise substantial doubt about
the ability of the Company to continue as a going concern. Management's plans
in regards to these matters are also described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 10, 1998
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS 1999
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 710,175
Accounts receivable, net of allowance for doubtful
accounts of $10,000 47,130
Inventories, net 180,538
Other current assets 24,800
---------------
Total current assets 962,643
---------------
Property and equipment, net of accumulated
depreciation and amortization of $577,418 1,261,100
Note receivable, net of imputed interest of $824,000 1,676,000
Technology rights, net of accumulated amortization
of $800,000 400,000
Intangible assets, net of accumulated amortization of
$349,788 217,215
Other assets 176,609
Assets held for sale 107,885
---------------
$ 4,801,452
===============
</TABLE>
Continued
F-2
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - CONTINUED
JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
1999
----------------
<S> <C>
Current liabilities:
Accounts payable $ 602,728
Accrued interest payable 227,801
Accrued payroll and related liabilities 190,171
Accrued professional fees 162,382
Other accrued liabilities 162,387
Amounts due to related parties 556,358
Current portion of notes payable 1,675,894
Current portion of convertible debentures 75,000
---------------
Total current liabilities 3,652,721
Convertible debentures, net of current portion 2,750,000
---------------
Total liabilities 6,402,721
---------------
Commitments and contingencies
Stockholders' deficit:
Series A convertible preferred stock, $.001 par value; 10,000,000 shares
authorized; 378,061 shares
issued and outstanding 378
Series B convertible preferred stock, $.001 par value;
500,000 shares authorized; liquidation value at $8.00
per share; none issued and outstanding -
Series C convertible preferred stock, $.001 par value;
2,000 shares authorized; liquidation value at $1,000
per share; none issued and outstanding -
Common stock, $.001 par value; 100,000,000 shares
authorized; 29,373,523 shares issued and
outstanding 29,374
Additional paid-in capital 46,122,777
Stock subscriptions 196,820
Prepaid consulting expenses (590,233)
Accumulated deficit (47,360,385)
---------------
Total stockholders' deficit (1,601,269)
---------------
$ 4,801,452
===============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-3
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Revenues:
Technology products and licensing fees $ 307,583 $ 723,569
Other 198,311 193,167
--------------- ----------------
Total operating revenues 505,894 916,736
--------------- ----------------
Operating expenses:
General and administrative 6,180,979 4,301,279
Marketing and product development 878,343 637,889
Research and development 665,377 1,251,790
Mining operations 156,913 185,500
Loss on impairment of assets held for sale 1,338,584 2,145,000
--------------- ----------------
Total operating expenses 9,220,196 8,521,458
--------------- ----------------
Other (expense) income:
Interest expense, net (2,078,150) (1,627,336)
Loss on investment in joint venture (39,341) (82,059)
Other - (38,231)
--------------- ----------------
Total other (expense) income (2,117,491) (1,747,626)
--------------- ----------------
Loss from continuing operations before income tax
benefit and discontinued operations (10,831,793) (9,352,348)
Benefit for income taxes - 487,624
--------------- ----------------
Net loss from continuing operations before discontinued
operations (10,831,793) (8,864,724)
--------------- ----------------
Discontinued operations:
Loss from discontinued operations (200,943) (575,815)
Gain on disposal of discontinued operations 229,200 -
--------------- ----------------
Total discontinued operations 28,257 (575,815)
--------------- ----------------
Net loss attributable to common stockholders $ (10,803,536) $ (9,440,539)
=============== ================
Basic and fully diluted net loss per common share:
Continuing operations $ (0.42) $ (0.40)
Discontinued operations (0.00) (0.03)
--------------- ----------------
Net loss $ (0.42) (0.43)
=============== ================
Weighted average number of common shares outstanding 25,670,304 21,922,748
=============== ================
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-4
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------------- ----------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1997 378,061 $ 378 20,721,789 $ 20,722 $ 32,904,555
Stock issued in conversion of debt,
including interest and financing
costs of $1,471,771 - - 1,378,676 1,379 4,230,392
Stock issued for technology rights - - 500,000 500 1,199,500
Stock issued for services rendered - - 55,370 55 119,410
Stock cancelled for services rendered - - (3,000) (3) 3
Issuance of stock for stock subscriptions
purchased during 1997 - - 1,533 1 4,598
Exercises of stock options and warrants - - 50,000 50 88,550
Stock subscriptions of 45,990 shares
cancelled for refunds and services - - - - 89,069
Stock subscriptions of 22,619 shares of
common stock through trade for services - - - - -
Expenses relating to the granting of stock
options - - - - 933,864
Net loss - - - - -
------------ ------------ ----------- ------------ -------------
Balance, July 31, 1998 378,061 378 22,704,368 22,704 39,569,941
</TABLE>
<TABLE>
<CAPTION>
PREPAID
STOCK CONSULTING
SUBSCRIPTIONS EXPENSES DEFICIT TOTAL
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance, August 1, 1997 $ 135,518 $ - $ (27,116,310) $ 5,944,863
Stock issued in conversion of debt,
including interest and financing
costs of $1,471,771 - - - 4,231,771
Stock issued for technology rights - - - 1,200,000
Stock issued for services rendered - - - 119,465
Stock cancelled for services rendered - - - -
Issuance of stock for stock subscriptions
purchased during 1997 (4,599) - - -
Exercises of stock options and warrants - - - 88,600
Stock subscriptions of 45,990 shares
cancelled for refunds and services (96,419) - - (7,350)
Stock subscriptions of 22,619 shares of
common stock through trade for services 28,940 - - 28,940
Expenses relating to the granting of stock
options - - - 933,864
Net loss - - (9,440,539) (9,440,539)
--------------- ------------- ------------- -------------
Balance, July 31, 1998 63,440 - (36,556,849) 3,099,614
</TABLE>
F-5
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY - CONTINUED
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------------- ----------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Stock issued for services rendered - - 4,800,000 4,800 3,278,450
Interest expense recognized for discounted
conversion feature and detachable
warrants related to convertible
debentures - - - - 1,334,227
Stock issued in settlement of accounts
payable - - 614,738 615 473,117
Expenses related to granting of stock
options - - - - 585,297
Common shares subscribed due to exercise
of stock option - - - - -
Common shares subscribed for private
placement - - - - -
Shares issued to former officer-shareholder
for refund of $500,000 deposit on
abandoned sale of ATG Media - - 561,798 562 499,438
Issuance of stock for stock subscriptions
from prior years - - 42,619 43 57,957
Issuance of stock for settlement of claim - - 650,000 650 324,350
Stock subscription cancelled - - - - -
Amortization of prepaid consulting
expenses - - - - -
Net loss - - - - -
------------ ------------ ----------- ------------- ---------------
Balance, July 31, 1999 378,061 $ 378 29,373,523 $ 29,374 $ 46,122,777
============ ============ =========== ============= ===============
</TABLE>
<TABLE>
PREPAID
STOCK CONSULTING
SUBSCRIPTIONS EXPENSES DEFICIT TOTAL
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Stock issued for services rendered - (3,243,250) - 40,000
Interest expense recognized for discounted
conversion feature and detachable
warrants related to convertible
debentures - - - 1,334,227
Stock issued in settlement of accounts
payable - - - 473,732
Expenses related to granting of stock
options - - - 585,297
Common shares subscribed due to exercise
of stock option 150,000 - - 150,000
Common shares subscribed for private
placement 42,880 - - 42,880
Shares issued to former officer-shareholder
for refund of $500,000 deposit on
abandoned sale of ATG Media - - - 500,000
Issuance of stock for stock subscriptions
from prior years (58,000) - - -
Issuance of stock for settlement of claim - - - 325,000
Stock subscription cancelled (1,500) - - (1,500)
Amortization of prepaid consulting
expenses - 2,653,017 - 2,653,017
Net loss - - (10,803,536) (10,803,536)
--------------- ------------- -------------- -------------
Balance, July 31, 1999 $ 196,820 $ (590,233) $ (47,360,385) $ (1,601,269)
=============== ============= ============== =============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-6
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (10,803,536) $ (9,440,539)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 574,593 654,592
Amortization of prepaid consulting expenses 2,653,017 -
Write-off of advances to officers and stockholders 138,198 80,000
Stock issued and subscribed as consideration for
Services, settlement of claims and accounts
payable 845,112 148,405
Imputed interest expense for notes payable and
capital leases 81,913 44,984
Imputed interest expense on convertible debentures 1,334,227 1,471,771
Stock options issued to consultants and employees 585,297 933,864
Gain on disposal of discontinued operations (229,200) -
Deferred taxes - (489,224)
Loss on impairment of assets held for sale 1,338,584 2,145,000
Loss on investment in a joint venture 39,341 82,059
Loss on disposal of equipment - 10,159
Changes in operating assets and liabilities:
Accounts receivable (1,101) 346,637
Inventories (30,880) (3,316)
Other current assets (16,318) (8,482)
Accounts payable and accrued liabilities 596,071 (150,258)
Amounts due to related parties 36,713 192,935
--------------- ----------------
Net cash used in operating activities (2,857,969) (3,981,413)
--------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (1,368) (179,678)
Investment in a joint venture - (121,400)
Other - (191,408)
--------------- ----------------
Net cash flows used in investing activities (1,368) (492,486)
--------------- ----------------
Cash flows from financing activities:
Advances from/to officers/stockholders, net 255,300 (69,823)
Proceeds from issuance of convertible debentures 2,750,000 2,835,000
Proceeds from mortgage refinancing - 401,333
Net proceeds from notes payable 175,000 -
Payments on notes payable (13,586) (130,121)
Payments on capital lease obligations (50,000) (20,227)
Deposit on sale of discontinued operations 200,000 300,000
Net proceeds from issuance of stock and stock subscriptions 185,000 81,250
--------------- ----------------
Net cash provided by financing activities 3,501,714 3,397,412
--------------- ----------------
</TABLE>
Continued
F-7
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Net cash flows from discontinued operations 7,235 111,974
Net change in cash and cash equivalents 649,612 (964,513)
Cash and cash equivalents, beginning of year 60,563 1,025,076
--------------- ----------------
Cash and cash equivalents, end of year $ 710,175 $ 60,563
=============== ================
Supplemental disclosure of cash flow information -
Cash paid during the year for
Interest $ 146,724 $ 118,200
=============== ================
Income taxes $ 1,600 $ 1,600
=============== ================
Supplemental disclosure of non-cash investing and
financing activities:
Stock issued for refund of deposit on abandoned sale
of discontinued operations $ 500,000 $ -
=============== ================
Conversion of debt to common stock $ - $ 2,760,000
=============== ================
Stock issued for technology rights $ - $ 1,200,000
=============== ================
Property and equipment acquired with notes payable $ - $ 200,000
=============== ================
Reduction of carrying value of property and equipment
with notes payable and accounts payable $ - $ 112,954
=============== ================
Financing costs funded by notes payable $ - $ 40,055
=============== ================
Sale/abandonment of interest in mining assets, net
of impairment $ 2,440,000
Assumption/release of notes payable and capital
lease obligations 764,000
----------------
Non-interest bearing note receivable, net of
imputed interest $ 1,676,000
===============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-8
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
NOTE 1 - ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
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. 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. The Company's proprietary catalyst
technology may improve many commercial products including detergents and
cosmetics.
In 1994, ATG acquired 100 percent of the common stock of Final Frontier
Publishing, Inc. ("Final Frontier"-now ATG Media, Inc.), a Minnesota
corporation. Final Frontier develops and markets space and technology
related-publications, books and merchandise for the space professional, space
enthusiast and educational markets. Final Frontier's principal publication is
Final FrontierTM Magazine which was first published in 1986. In fiscal 1998, the
Company decided to divest and discontinue operations for Final Frontier so as to
more fully focus its resources on its core environmental technology, and in 1999
has completely divested itself of this subsidiary (see Note 10).
In 1995, ATG acquired 100 percent of the common stock of New Concept Mining,
Inc., a Nevada corporation ("New Concept Mining"). New Concept Mining was formed
for the purpose of acquiring mineral properties with the long-term goal of
developing and mining these properties. Prior to fiscal 1997, the mineral
properties were non-producing, either never mined or mining activities ceased in
excess of ten years ago. In fiscal 1997, the Company began limited operations on
certain properties. However, in fiscal 1998, the Company decided not to invest
any additional significant funds to develop its mining properties so as to more
fully focus its resources on its core environmental technology and is in the
process of selling off its mining properties and related milling equipment (see
Note 8).
SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating losses. The
ability of the Company to operate as a going concern is dependent upon its
ability (1) to obtain sufficient additional capital, (2) generate significant
revenues through its existing assets and operating business, and (3) overcome
significant product development issues. The Company plans to raise additional
working capital through private offerings of debt and equity. The successful
outcome of future activities cannot be determined at this time and there are no
assurances that if achieved, the Company will have sufficient funds to 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATG, and its
wholly owned subsidiaries, New Concept Mining, and ATG Media. All material
intercompany profits, transactions and balances have been eliminated in
consolidation. ATG Media is no longer a subsidiary as of July 31, 1999.
F-9
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash balances are maintained at various banks. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As
of July 31, 1999, the Company had balances in banks which were $598,570 in
excess of the FDIC limits.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist primarily of purchased product and supplies.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR ASSETS TO BE
DISPOSED OF," the Company reviews, as circumstances dictate, the carrying amount
of its mineral properties, intangible assets and other facilities. The purpose
of these reviews is to determine whether the carrying amounts are recoverable.
Recoverability is determined by examining and comparing respective carrying
amounts versus expected revenue streams from the related businesses. The amount
of impairment, if any, is measured based on the excess of the carrying value
over the fair value.
As discussed in Notes 1 and 8, during 1998, the Company decided not to invest
any additional significant funds to develop its mining properties and is
seeking buyers for the properties and related milling equipment. Based upon
preliminary offers received to date, the Company has recognized during 1999
and 1998, impairment losses of $1,338,584 and $2,145,000, respectively, in
the carrying value of assets held for sale due to carrying value of these
assets being in excess of estimated sale price.
Management believes that the impairment losses recorded on long-lived assets,
including mining and intangible assets, are adequate. However, there can be no
assurance that market conditions will not change or needs for existing products
will continue which could result in an additional asset impairments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated or amortized over
the estimated useful lives of the assets using the straight-line method.
Equipment is depreciated over lives from 3 to 7 years. Buildings are depreciated
over 30 years. Equipment used for research activities are capitalized only if
they have alternative uses within the Company. No depreciation or amortization
was recognized for mining buildings or equipment as the buildings and equipment
have not yet been placed in service and are currently being held for disposal
(see Note 8).
Ordinary repairs and maintenance costs are charged to current operations, while
improvements and betterments which prolong the useful life of the asset are
capitalized and depreciated over their estimated useful lives.
F-10
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PATENTS
Patent costs are included in other assets, and consist primarily of legal and
other direct costs incurred by the Company in its efforts to obtain domestic and
foreign patents on its products. Periodic review is made of the economic value
of patents and adjustments to cost are made as needed where value is reduced.
Patents are amortized on a straight-line basis over periods not exceeding 7
years.
INTANGIBLE ASSETS
The Company capitalizes tooling and product refinement costs for technologies
that are determined to be ready for market. The capitalized costs are amortized
over five years. Periodic review is made if the economic value of such costs and
adjustments are made as needed where the value is reduced.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109, deferred
income taxes are the result of the expected future tax consequences of temporary
differences between the financial statement and tax bases of assets and
liabilities. Generally, deferred income taxes are classified as current or
non-current in accordance with the classification of the related asset or
liability. Those not related to an asset or liability are classified as current
or non-current depending on the periods in which the temporary differences are
expected to reverse. A valuation allowance is provided against deferred income
tax assets in circumstances where management believes the recoverability of a
portion of the assets is not reasonably assured.
REVENUE RECOGNITION
The Company recognizes revenue for its technology products upon shipment of
goods to its customers.
RESEARCH AND DEVELOPMENT ACTIVITIES
All costs of new technology acquisition and research and development are charged
to operations as incurred.
CONTINUING DEVELOPMENT AND INITIAL MARKETING COSTS FOR NEW PRODUCTS
All costs of continuing development of new products for commercial applications
and the initial marketing costs are charged to operations as incurred.
Adaptations of existing technologies into new products are capitalized as
incurred and amortized over a five-year period. Periodic review is made of the
economic value of such costs and adjustments are made as needed where the value
is reduced.
F-11
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NON-MONETARY EXCHANGES
Accounting for the transfer or distribution of non-monetary assets or
liabilities is based on the fair value of the assets or liabilities received or
surrendered, whichever is more clearly evident. Where the fair value of the
non-monetary asset received or surrendered cannot be determined with reasonable
accuracy, the recorded book value of the non-monetary assets are used.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
NET LOSS PER SHARE
Net loss per common share is based upon the weighted average number of common
shares outstanding during the fiscal year under the provisions of Statement of
Financial Accounting Standards No. 128, "EARNINGS PER SHARE." 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
129,237 and 939,008 for fiscal year ended July 31, 1999 and 1998, respectively.
STOCK OPTIONS
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") issued in October 1995.
In accordance with provisions of SFAS 123, the Company applies APB Opinion 25
and related interpretations in accounting for its employee stock option plans
and, accordingly, does not recognize compensation expense for options issued to
employees when the grant price is equal to or more than the market price.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The adoption of SFAS 130 has not
materially impacted the Company's financial position or results of operations as
the Company has no items of comprehensive income.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information" (see Note 14). SFAS 131 changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
F-12
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet at their fair value. This statement, as amended SFAS 137, is
effective for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not expect the adoption of this
standard to have a material impact on its results of operations, financial
position or cash flows as it currently does not engage in any derivative or
hedging activities.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 ("SOP 98-5"), "REPORTING THE COSTS OF START-UP
ACTIVITIES." SOP 98-5 requires that all non-governmental entities expense the
costs of start-up activities, including organization costs as those costs are
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company does not expect the adoption of
this standard to have a material effect on its results of operations, financial
position or cash flows.
RECLASSIFICATIONS
Certain amounts in the July 31, 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Summary of property and equipment as of July 31, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Corporate:
Land $ 431,000
Property and equipment 1,407,518
---------------
1,838,518
Less accumulated depreciation (577,418)
---------------
$ 1,261,100
===============
</TABLE>
F-13
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 4 - NOTES PAYABLE
Notes payable are summarized as follows as of July 31, 1999:
<TABLE>
<S> <C>
Note payable to financial institution with monthly
payments of interest at 12.95%, with a balloon
payment of $877,500 due June 1, 2000, secured by
real property $ 877,500
Note payable to Anthony Selig 605,207
Note payable to Gaines Campbell, interest at 8.5%,
due December 31, 1999 175,000
Other 18,187
---------------
1,675,894
Less current portion (1,675,894)
---------------
$ -
===============
</TABLE>
Notes payable of $125,000 and $600,000 were issued to Anthony Selig in
conjunction with the acquisition of the mining properties, which are secured by
a first deed of trust on the property and equipment sold by Mr. Selig. The
$125,000 note payable carries an interest rate of 9.5 percent. The $600,000 note
payable was non-interest bearing through June 14, 1996 and was recorded at its
discounted present value of $486,773, with principal payments of $120,000 due
each year beginning on June 14, 1996, through June 14, 2000. During 1998, the
above notes were amended and the outstanding principal amounts are due with
$100,000 of principal and accrued interest payments in fiscal 1999 and the
remaining principal plus accrued interest due March 15, 2000.
During the current year, the Company sold the mining property and equipment in
the Manhattan mining area securing the Anthony Selig notes (see Note 8). The
purchaser is currently negotiating with Selig to reschedule the payment terms of
the notes. The purchaser's payments to Selig on the notes will be recognized as
income by the Company and will reduce the amount due on the notes. The sales
agreement did not specifically mention the assumption of these notes by the
buyer. In the letter of intent to purchase these properties, the assumption of
these notes was specifically mentioned as part of the contemplated transaction.
Management is currently in negotiations with the buyer to resolve this matter.
At July 31, 1999, the release of these notes as part of the sale of these
properties is not assured; as a result this liability is reflected on the
accompanying consolidated balance sheet at July 31, 1999.
F-14
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 5 - CONVERTIBLE DEBENTURES
Convertible debentures are summarized as follows as of July 31, 1999:
<TABLE>
<S> <C>
Convertible debentures, 7.5% $ 75,000
Subordinated convertible debentures, 3% 700,000
Subordinated convertible debentures, 6% 1,050,000
Secured convertible debentures, 8.5% 1,000,000
---------------
2,825,000
Less current portion (75,000)
---------------
$ 2,750,000
===============
</TABLE>
Maturities of convertible debentures at July 31, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ending
July 31,
-----------------------
<S> <C>
2000 $ 75,000
2001 -
2002 -
2003 1,000,000
2004 1,750,000
---------------
$ 2,825,000
================
</TABLE>
In October 1997, the Company issued $3,225,000 of 7.5% convertible debentures,
maturing October 15, 1999. Accrued interest on these convertible debentures is
due on the earlier of conversion or maturity and both the accrued interest and
the principal are payable in cash or the Company's Common Stock at the Company's
discretion. The conversion price is equal to the lower of the average closing
bid price of the common stock for the five trading days prior to the closing or
75 percent of the average closing bid price of the common stock for the five
trading days prior to conversion. In connection with the anticipated 25 percent
discount from market, the Company recorded imputed interest of $1,075,000 in
fiscal 1998. During fiscal 1998, an aggregate of $3,150,000 of Debentures plus
accrued interest of $6,771 were converted into 1,378,676 shares of common stock.
As of July 31, 1999, $75,000 of the debentures are outstanding, which are in
default currently as the remaining balance was not repaid as of October 15,
1999.
F-15
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 5 - CONVERTIBLE DEBENTURES, CONTINUED
During fiscal year 1999 the Company issued pursuant to subscription agreements
$1,050,000 of 6% subordinated convertible debentures, maturing November 1, 2003.
Included with these convertible debentures were 105,000 detachable stock
warrants to acquire common stock at an exercise price of $0.75 per share.
Interest payments will be paid semi-annually commencing May 1, 1999 or upon
conversion. Interest payments may be satisfied by issuing shares of the
Company's common stock in an amount equal to the interest accrued divided by the
conversion price. The conversion price is equal to the lower of 115% of the
average market price of the Common Stock for the five trading days prior to the
closing ($0.62) or 75% of the average closing market price prior to conversion
(or interest payment dates). As part of the agreements, the Company may at its
discretion redeem the debentures at 120% of the principal amount owed plus
accrued interest. The conversion feature and the warrants vest immediately. In
connection with the anticipated 25% discount on the conversion and the fair
value of the warrants, the Company has recorded imputed interest expense of
$388,449 during 1999. The Company also recorded financing costs of $194,087 as
additional interest expense in 1999. The Company has placed 5,000,000 shares of
common stock in escrow to be released upon conversion of these debentures. These
debentures are subordinated to all other non-subordinated debt, and have
registration rights and antidilution rights as described in the agreements.
In December 1998, the Company issued under a separate subscription agreement a
$250,000 subordinated convertible debenture bearing an interest rate of 3%,
maturing December 1, 2003. All interest on this debentures will be paid on the
maturity date. The conversion price is fixed at $0.58 per share and the
conversion feature vests immediately. As part of the agreement the Company may
at its discretion redeem the debentures at 120% of the principal amount owed
plus accrued interest. In connection with the discounted conversion feature, the
Company has recorded imputed interest expense of $56,034 during fiscal year
1999. These debentures are subordinated to all other non-subordinated debt, and
have registration rights and antidilution rights as described in the agreements.
During fiscal year 1999, the Company issued $450,000 of 3% subordinated
convertible debentures maturing December 1, 2003. Included with these
convertible debentures were 70,000 detachable stock warrants to acquire common
stock at an exercise price of $0.75 per share. All interest on these debentures
will be paid on the maturity date. The conversion price is fixed at $0.50 per
share. As part of the agreement the Company may at its discretion redeem the
debentures at 120% of the principal amount owed plus accrued interest. The
conversion feature and the warrants vest immediately. In connection with the
discounted conversion feature and the fair value of the warrants, the Company
has recorded imputed interest expense of $66,198 during 1999. These debentures
are subordinated to all other non-subordinated debt, and have registration
rights and antidilution rights as described in the agreements.
F-16
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 5 - CONVERTIBLE DEBENTURES, CONTINUED
In July 1999, the Company issued a $1,000,000 secured convertible debenture
bearing an interest rate of 8.5%, maturing June 3, 2003. Included with the
convertible debenture were 300,000 detachable stock warrants to acquire
common stock at an exercise price of $0.75 per share. The agreement specifies
that monthly interest will be paid on the last day of each month commencing
August 31, 1999. The conversion price ranges from $0.25 to $0.35 per share.
The conversion feature as to $600,000 of the total debenture and warrants
vest immediately. The Company may redeem $400,000 of the total debenture at
135% of the principal amount plus accrued interest if it completes a
$4,000,000 offering prior to December 31, 1999. If not redeemed by such date
the conversion features as to this portion of the debenture vest immediately.
In connection with the discounted conversion feature and the fair value of
the warrants, the Company has recorded imputed interest expense of $781,009
during 1999. This convertible debenture is secured with substantially all
patents and pending patents relating to a certain technology of the Company,
certain trademarks of the Company, and a subordinated interest in the
Company's office buildings in Monrovia, California. These debentures are
subordinated to all other non-subordinated debt, and have registration rights
and antidilution rights as described in the agreements.
All of the convertible debentures are subject to certain non-financial
covenants. The covenants are generally in regards to maintaining the Company's
stock listing on an exchange or over-the-counter market, and keeping current on
all other debt.
NOTE 6 - TECHNOLOGY RIGHTS
In fiscal year 1998, 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, to
the Clean Air Pac which is used by the Company in The Force(R) airborne fuel
treatment. The technology rights are amortized based on the straight-line basis
over a period of three years. Included in general and administrative expenses is
amortization expense of $400,000 for each of the years ended July 31, 1999 and
1998.
NOTE 7 - CAPITAL STOCK
COMMON STOCK
The Company issued 4,800,000 and 55,370 shares of common stock for services
rendered valued at $3,283,250 and $119,465 during 1999 and 1998, respectively.
All shares issued were valued at the average estimated market value at date of
issuance.
PREFERRED STOCK
ATG authorized preferred stock is 50,000,000 shares, par value $0.001 per share.
The preferred stock may be issued from time to time in series having such
designated preferences and rights, qualifications and to such limitations as the
Board of Directors may determine.
The Company has authorized 10,000,000 shares of Series A Convertible Preferred
Stock ("Series A Stock"). The Series A Stock receives a ten percent higher
dividend than the common stock, is entitled to one vote per share, shares
equally with the common stock upon liquidation and is convertible into one share
of common stock at any time at least five years after issuance upon the payment
of $3.00 per share. As of July 31, 1999, 378,061 shares of Series A Stock were
outstanding, no shares having been converted.
F-17
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 7 - CAPITAL STOCK, CONTINUED
The Company has authorized 500,000 shares of Series B Convertible Preferred
Stock ("Series B Stock"). The Series B Stock has a liquidation preference of
$8.00 per share, is entitled to one vote per share and is convertible upon
holders request without the payment of any additional consideration during
the first year following issuance into the number of shares of Common Stock
equal to the quotient of $8.00 per share and the Market Value per Share for
the ten trading days immediately preceding conversion and in subsequent years
into one share of Common Stock for each share of Series B stock. As of July
31, 1999, there are no Series B Stock issued and outstanding.
The Company has authorized 2,000 shares of Series C Convertible Preferred
Stock ("Series C Stock"). The Series C Stock has a liquidation preference of
$1,000 per share, an 8 percent coupon payable at the time of conversion,
converts to Common Stock at a 30 percent discount from the fair market value
at the date of conversion, is non-voting and is convertible upon holders
request without the payment of any additional consideration. As of July 31,
1999, there are no Series C Stock issued and outstanding.
STOCK OPTION PLANS
The Company has adopted the 1993 Incentive Stock Option Plan ("Incentive
Plan") and the 1993 Non-Statutory Stock Option Plan ("Non-Statutory Plan") to
grant options to purchase up to a maximum of ten percent of the total
outstanding common stock of the Company. Options are issued at the discretion
of the Board of Directors to employees only under the Incentive Plan and to
employees and non-employees under the Non-Statutory Plan. Under the Incentive
Plan, the exercise price of an incentive stock option shall not be less than
the fair market value of the Common Stock on the date the option is granted.
However, the exercise price of an incentive stock option granted to a ten
percent stockholder (as defined in the Incentive Plan), shall be at least
110% of the fair market value of common stock on the date the option is
granted. Exercise prices of options granted under the Non-Statutory Plan may
be less than fair market value. Each option expires at the date fixed by the
Board of Directors upon issuance but in no event more than ten years. The
plans expire December 2002.
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average Exercise
Number of Shares Exercise Price Price Per
Per Share Share
---------------- -------------- -------------
<S> <C> <C> <C>
Outstanding at August 1, 1997 1,796,000 $ 2.58 $1.50 - 6.25
Granted 736,000 2.44 1.50 - 3.30
Exercised - - -
Canceled (948,000) 2.57 1.50 - 5.00
----------- ------------- -------------
Outstanding at July 31, 1998 1,584,000 2.51 1.50 - 6.25
Granted 980,125 0.73 0.30 - 0.75
Exercised - - -
Canceled (1,014,000) 1.88 0.75 - 6.25
----------- ------------- -------------
Outstanding at July 31, 1999 1,550,125 $ 0.78 $ 0.30 - 3.00
=========== ============= =============
</TABLE>
F-18
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 7 - CAPITAL STOCK, CONTINUED
The weighted average fair value of options granted is $0.58 and $0.41 per share
at July 31, 1999 and 1998, respectively.
The following summarizes information about stock options outstanding at July 31,
1999:
<TABLE>
<CAPTION>
Options Outstanding Weighted Average Options Exercisable
------------------------------------------------------- --------------------------------
Weighted
Number of Remaining Average Number of Weighted
Range of Exercise Shares Contractual Exercise Shares Average
Price Outstanding Life (Years) Price Exercisable Exercise Price
- - ----------------------- ---------------- ---------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$0.30 - $0.75 1,485,125 6.6 $ 0.73 1,115,125 $ 0.74
$1.50 - $3.00 65,000 7.2 1.90 56,500 2.04
</TABLE>
Transactions involving options and warrants not covered by the plans are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Per Price Per
Shares Share Share
------------- ------------ -------------
<S> <C> <C> <C>
Outstanding at August 1, 1997 4,407,898 $ 2.90 $1.08-10.07
Granted 2,459,875 1.92 0.97-3.50
Exercised (50,000) 1.99 1.33-2.12
Canceled (782,000) 2.88 2.00-3.00
------------- ------------ -------------
Outstanding at July 31, 1998 6,035,773 2.53 0.97-10.07
Granted 3,329,000 0.77 0.25-1.50
Exercised (500,000) 0.30 0.30
Canceled (872,500) 1.23 0.35-3.00
------------- ------------ -------------
Outstanding at July 31, 1999 7,992,273 $ 1.32 $ 0.25-4.06
============= ============ =============
</TABLE>
The weighted average fair value of non-plan stock options and warrants
granted is $0.63 and $1.41 per share at July 31, 1999 and 1998, respectively.
F-19
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 7 - CAPITAL STOCK, CONTINUED
The following table summarizes information about non-plan stock option and
warrants outstanding at July 31, 1999.
<TABLE>
<CAPTION>
Options and Warrants Outstanding Weighted Average Options and Warrants
Exercisable
------------------------------------------------------- --------------------------------
Weighted
Number of Remaining Average Number of Weighted
Range of Exercise Shares Contractual Exercise Shares Average
Price Outstanding Life (Years) Price Exercisable Exercise Price
- - ----------------------- ---------------- ---------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$0.25 - $0.98 4,976,116 6.3 $0.73 3,638,616 $0.75
$1.00 - $4.06 3,016,157 4.7 2.29 2,426,157 2.51
</TABLE>
On December 14, 1998, the Board of Directors approved a repricing of
approximately 4,130,000 options held by employees to $0.75. The options were
exercisable at prices ranging from $1.50 to $10.07 prior to the repricing. No
compensation expense was recorded as a result of this transaction, as the
fair value on the date of repricing equaled the price of the options.
If the Company had elected to recognize compensation expense based on the
fair value of the options granted at grant date as prescribed by SFAS 123,
net loss and loss per share would have been increased to the pro forma
amounts indicated in the table below:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Net loss attributable to common stockholders, as reported $ (10,803,536) $ (9,440,539)
Net loss attributable to common stockholders, pro forma $ (12,348,609) $ (10,615,359)
Loss per share, as reported $ (0.42) $ (0.43)
Loss per share, pro forma $ (0.48) $ (0.48)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to July 31, 1995, the resulting pro forma compensation expense
may not be representative of the cost to be expected in future years.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Expected dividend yield 0% 0%
Weighted average expected stock price volatility 186% 112%
Risk free interest rate 5-6% 5-6%
Expected life of option 1 to 3 years 1 to 5 years
</TABLE>
Total expense charged against operations for options granted to non-employees
(in accordance with SFAS 123) was approximately $548,000 and $759,000 for
fiscal year 1999 and 1998, respectively. Total expense charged against
operations in fiscal year 1999 and 1998 for options granted to employees and
non-employees at grant prices lower than market price at the date of grant
(in accordance with APB Opinion 25) was approximately $37,000 and $175,000,
respectively.
F-20
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 7 - CAPITAL STOCK, CONTINUED
STOCK SUBSCRIPTIONS
As of July 31, 1999, the Company had not issued 646,000 shares of Common
Stock sold under private placements and for services at prices ranging from
$0.25 -$1.50 per share totaling $196,820. During 1999, 42,619 shares valued
at $58,000 relating to prior year subscriptions were issued.
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 common stock valued at $781,250 for services which
amount was 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 common
stock valued at $2,080,000 for services which amount is being 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 expenses of $2,653,017 in the accompanying consolidated
statement of operations related to these stock issuances. As of July 31, 1999
the remaining unamortized cost of $590,223 is included in prepaid consulting
expenses in the stockholders' equity section in the accompanying consolidated
balance sheet.
During fiscal year 1999 pursuant to other arrangements, the Company issued
800,000 shares of common stock valued at $422,000 to consultants.
During April 1999, the Company issued 561,798 shares of common stock to a
former officer of the Company for a deposit of $500,000 paid to ATG pursuant
to a sales agreement that was subsequently cancelled (see Note 10).
NOTE 8 - ASSETS HELD FOR SALE
As of July 31, 1999 assets held for sale, net of impairment write-down,
consists of the following:
<TABLE>
<S> <C>
Tempiute property $ 70,000
Property and equipment 37,885
---------------
$ 107,885
===============
</TABLE>
Included in assets held for sale at July 31, 1999 in the accompanying
consolidated balance sheet are the mining property referred to as the
Tempiute property with a remaining book value of $70,000, net of impairment
of $324,847 recognized during fiscal year 1999 (based on the estimated
realizable value as indicated in non-binding offer to buy this property), and
one vehicle with a book value of $37,885.
F-21
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 8 - ASSETS HELD FOR SALE, CONTINUED
During fiscal year 1999 the Company terminated its capital lease for certain
mining property in the Manhattan mining area. The lease agreement specified
that the lease was cancelable at any time by the lessee. The Company
recognized impairment losses of $64,000 during fiscal year 1999, bringing net
book value of the property equal to the remaining amount owed on the lease of
approximately $283,000. Due to the impairment losses recognized prior to the
termination, no gain or loss was recognized on the termination of this lease.
No expenses were incurred with the termination of this lease.
During fiscal year 1999 the Company terminated a purchase agreement for a
mining property in the Tempiute mining area, and the related note payable for
this purchase (North Tem). The purchase agreement specified that the purchase
may be cancelled by the Company at any time. The Company recognized current
impairment losses of approximately $24,600 and $195,000 in fiscal years 1999
and 1998, respectively, related to this property. The aggregate impairment
reduced the value of the property to the remaining amount of debt and accrued
interest remaining on the related note prior to termination of the agreement
of approximately $140,000 (net of imputed interest). Accordingly, no gain or
loss was recognized on the termination of the agreement.
During fiscal year 1999, the Company sold its interest in the Manhattan mill
and the remaining gold mines to Western Mine Development for a
non-interest-bearing note of $2,500,000 which has been discounted to
$1,676,000 based upon an imputed interest rate of 10%. The note is payable in
installments from January 1, 2002 to January 1, 2008. The Company recognized
impairment losses on these properties of $925,000 and $1,950,000 during
fiscal year 1999 and 1998, respectively. The Purchase Option Agreement (and
related note payable) to Crown was cancelled by the Company prior to the
sale, the balance of which was approximately $340,000 (net of imputed
interest). The cumulative impairment losses reduced the book value of these
properties to the amount realized on the sale and liability released;
accordingly, no gain or loss was recognized on this transaction.
NOTE 9 - JOINT VENTURE
In February, 1998, the Company formed a joint venture (with an approximate
27% ownership interest), which was accounted for in accordance with the
equity method. The joint venture markets various personal and home care
products containing the Company's proprietary catalyst. Sales of these
products commenced in June 1998. The Company made an initial investment of
$121,400 in the joint venture. The Company's share of net loss from this
joint venture was approximately $82,000 during the year ended July 31, 1998.
During fiscal year 1999, the joint venture ceased operations due to
significant losses. The Company recognized a loss for its remaining basis in
the Joint Venture of approximately $39,000.
NOTE 10 - DISCONTINUED OPERATIONS
On June 23, 1998, the Company entered into a sales agreement with a former
officer/stockholder to sell the stock of ATG Media for $500,000. The Company
received $500,000 in cash as a deposit, but subsequently terminated the
agreement and issued 561,798 shares of the common stock to the former
officer/stockholder for the deposit pursuant to the terms of the agreement.
F-22
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 10 - DISCONTINUED OPERATIONS, CONTINUED
On April 30, 1999, the Company entered into a sales agreement with Space
Frontiers.com, Inc., an unrelated company, to sell its entire interest in ATG
Media. The Company received $1,000 cash and a release of all liabilities
associated with ATG Media (approximately $340,000). The sale also guaranteed
the Company certain advertising rights on the buyer's web pages, but due to
uncertainties regarding the value of this advertising, the Company has not
recognized this as part of the consideration for the sale.
Loss from operations of ATG Media are approximately $202,000 and $576,000 for
fiscal 1999 and 1998, respectively. The Company recognized a gain on the sale
of $229,200 in fiscal 1999 due to the release of liabilities in excess of
assets.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company wrote off $138,198 of advances due from officers/shareholders
which amount has been recorded as compensation expense during fiscal 1999.
The Company has $240,000 of related party payables due to an
officer/shareholder. In consideration for obtaining payment extensions in
1999, the Company granted options to purchase a total of 175,000 shares of
common stock ranging from $0.25 to $0.40, which vest immediately and expire
in 2009. The Company has recognized imputed interest expense of $50,886
(equal to the estimated fair value of the options) in connection with these
options during fiscal 1999. Payments are due in installments of approximately
$40,000 per month, commencing August 1999 and end in February 2000. This loan
is secured by the personal property of the Company. The remaining balance of
$316,558 due to related parties is unsecured, due on demand, and bear no
interest.
During fiscal 1999 and 1998, the Company incurred expenses to related parties
and shareholders principally for consulting fees of approximately $2,640,000
and $666,000, respectively.
On March 1, 1994, the Company entered into a license agreement with BWN
Nuclear Waste Elimination Corporation (NWEC), a Nevada corporation partially
owned by Robert W. Carroll, for the sublicense to exploit all rights to
certain technologies relating to helium cluster beams and other particle
beams (Basers) in their application to the rendering of nuclear waste
non-radioactive. At such time as ATG receives an offer to purchase any
application of the Baser Technology for commercial use, ATG will issue up to
1,700,000 shares of ATG Series A Convertible Preferred Stock to NWEC. NWEC
will also be entitled to a ten percent royalty on ATG's net sales from
exploitation of Basers. In the event ATG does not spend at least $100,000 on
the development of Basers during each fiscal year, the agreement will
terminate.
During fiscal 1997, the Company completed payments of $150,000, in the
aggregate, to Dr. Lo (an officer/shareholder) to purchase an option for the
rights to certain Baser technology. Additionally, should ATG receive an offer
to purchase the Baser Technology for commercial utilization, ATG is required
to issue 1,700,000 shares of ATG Series A Convertible Preferred Stock and pay
quarterly royalties of seven and one half percent of net profits (as defined)
to Dr. Lo. The exercise price for the option acquired by ATG is 10,000 shares
of ATG Common Stock, a royalty of five percent of ATG's net profits, if any,
from the exploitation of Basers through July 21, 1999, and issuance of the
Series A Preferred Stock as discussed above. There have been no options
exercised through July 31, 1999 in conjunction with this agreement. The
acquired option expires one year after evidence of unencumbered title to the
Baser Technology is provided to the Company.
F-23
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 12 - INCOME TAXES
A provision for income taxes of $1,000 (representing minimum state taxes) and
a benefit for income taxes of $489,624 were recorded in fiscal years 1999 and
1998, respectively.
Net temporary differences that give rise to deferred tax assets and liabilities
recognized in the balance sheet are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carry-forward $ 17,578,000
Short term deferred tax assets 52,000
Long term deferred tax assets 66,000
Valuation allowances (17,696,000)
---------------
$ -
===============
Net deferred tax asset (liability) $ -
===============
</TABLE>
The Company has recorded a valuation allowance to fully offset its deferred
tax assets because the realization of the deferred tax assets is uncertain.
As of July 31, 1999, the Company has approximately $40,000,000 of federal net
operating loss carryforwards which will expire in fiscal years ending from
2006 through 2020. In the event the Company were to experience a greater than
50% change in ownership as defined in Section 382 of the Internal Revenue
Code, the amount of net operating loss carryforwards that are available to
offset future income could be severely limited.
The difference between the tax provision recorded for financial statements
purposes for July 31, 1999 and the tax benefit determined by multiplying the
Company's pre-tax loss by the federal statutory rate is due primarily to
current year losses for which no tax benefit was recorded.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has employment agreements with several principal officers and
employees. The agreements call for minimum salary levels. Maximum payments
under all employment agreements for fiscal 2000 is approximately $457,000.
The agreements are cancelable by the Company for cause.
F-24
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 13 - COMMITMENTS AND CONTINGENCIES, CONTINUED
LITIGATION
The Company is involved in various lawsuits against the Company, arising in the
normal course of business. Management believes that any financial responsibility
that may be incurred in settlement of such claims and lawsuits would not be
material to the Company's financial position.
NOTE 14 - INDUSTRY SEGMENT INFORMATION
The Company's principal remaining business segment is Technology Products (The
Force and Waste Water Treatment among others).
Financial information about industry segments as of and for the years ended July
31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Operating revenues:
Technology products $ 307,583 $ 723,569
Corporate 127,879 40,305
Mining 70,432 152,862
--------------- ----------------
Total operating revenues $ 505,894 $ 916,736
=============== ================
Operating loss:
Technology products, including research
and development $ 1,236,137 $ 1,166,110
Mining, including impairment 1,425,065 2,177,638
Corporate expenses 6,053,100 4,260,974
--------------- ----------------
Net operating loss $ 8,714,302 $ 7,604,722
=============== ================
Identifiable assets:
Technology products $ 1,138,165 $ 1,575,512
Assets of discontinued operations - 134,401
Mining assets held for sale 107,885 3,925,051
Corporate and other 3,555,402 1,475,966
--------------- ----------------
Total $ 4,801,452 $ 7,110,930
=============== ================
</TABLE>
Operating loss is revenues minus operating expenses.
Identifiable assets by segment are assets used in or otherwise identifiable
with the Company's operations in each segment.
F-25
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1999
NOTE 15 - MAJOR CUSTOMERS
The Company sells a substantial portion of its products to three customers.
During fiscal 1999 the Company's sales to these three customers aggregated to
$149,090 which was approximately 80% of total sales. At July 31, 1999,
amounts due from these three customers included in trade accounts receivables
were $41,417.
The Company had one customer that represented 28% of sales in 1998. During
fiscal 1998, the Company discontinued sales to this customer. No amount was
receivable from this customer at July 31, 1998.
NOTE 16 - SUBSEQUENT EVENTS
On September 20, 1999, the Company issued a $500,000 secured convertible
debenture bearing interest rate at prime rate plus 0.5% per year, (8.75%
as of the date of issuance), maturing December 31, 2003. The conversion price
is fixed at $0.25 per share and the conversion feature vests January 1, 2000.
As part of the agreement, the Company may at its discretion redeem the
debentures at 135% of the principal amount owed plus accrued interest. This
convertible debentures are secured by the catalyst technology of the Company.
The debenture agreement also contains anti-dilution provisions and certain
non-financial covenants.
As of October 19, 1999 a note holder elected to convert $100,000 of a 6%
convertible debenture into 529,100 shares of common stock of the Company.
Also on November 3, 1999 the note holder elected to convert $50,000 of a 6%
convertible debenture into 284,900 shares of common stock of the Company.
Both conversion prices were based on the average of the market price for the
five days prior to the conversion discounted 25%, as stipulated in the
debenture agreements.
F-26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (2)
3.4 September 3, 1997 Amendments to Bylaws (3)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (2)
4.3 Certificate of Determination of Rights and Preferences of
Series B Convertible Preferred Stock (2)
4.4 Certificate of Determination of Rights and Preferences of
Series C Convertible Preferred Stock (2)
4.5 Form of 6% Convertible Debenture. (4)
4.6 Form of 3% Convertible Debenture issued to Gaines P. Campbell,
Jr. (4)
4.7 Secured Convertible Debenture issued to Gaines P. Campbell,
Jr. (4)
4.8 Form of Secured Redeemable Convertible Debenture issued to
Gaines P. Campbell, Jr. (4)
4.9 Subscription Agreement dated July 22, 1999 by and between the
Company and Gaines P. Campbell, Jr. (4)
10.1 1993 Incentive Stock Option Plan and 1993
Non-Statutory Stock Option Plan (1)
10.2 Clean Air Pac Agreement effective November 1, 1992, By and
Between American Technologies Group, Inc., Rod Quinn,
Loren Zanier, Robert Carroll and David Gann (1)
10.3 License Agreement dated as of March 1, 1994 by and between
American Technologies Group, Inc. and B.W.N. Nuclear Waste
Elimination Corporation (3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4 Research Agreement dated April 25, 1994 by and between
American Technologies Group, Inc. and California Institute of
Technology (3)
10.5 Technology Acquisition Agreement entered into as of July 22,
1994 by and between the Company and Shui-Yin Lo (5)
10.6 Employment Agreement effective as of April 1, 1995, by and
between Hugo Pomrehn and American Technologies Group, Inc. (2)
10.7 Amended Employment Agreement dated as of November 1, 1995, by
and between Hugo Pomrehn and American Technologies Group, Inc.
(2)
10.8 Agreement dated June 23, 1998 between the Registrant and
John R. Collins regarding ATG Media, Inc. (6)
10.9 Form of Executive Employment Agreement effective January 1,
1999.
22 List of Subsidiaries of the Registrant.
23.1 Consent of Corbin & Wertz.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
</TABLE>
- - ---------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form 10-SB, Commission File Number 0-23268.
(2) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on February 16, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on November 13, 1997.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, Commission File Number 333-68327.
(5) Previously filed as an exhibit to the Company's Form 8-K Current Report
filed with the Commission on August 15, 1994.
(6) Previously filed as an exhibit to the Company's Form 10-KSB Annual
Report filed with the Commission on November 14, 1998.
2
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into as of January 1, 1999 by and between AMERICAN TECHNOLOGIES GROUP, INC.,
a Nevada corporation ("Employer"), and ___________ ("Employee"), and is made
with respect to the following facts:
RECITALS
A. WHEREAS, Employer desires to continue the services of Employee as
Chief Executive Officer and President (together, "CEO"); and
B. WHEREAS, Employee is willing to provide such services to Employer.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and other good and valuable consideration the
receipt of which is hereby acknowledged, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. EMPLOYMENT.
1.1 TITLE, BOARD MEMBERSHIPS. Employer hereby engages
Employee and Employee hereby accepts employment with Employer, to perform
Employee's services as CEO of Employer and such other services as may be
required of Employee under this Agreement, on the terms and conditions
hereinafter set forth. Employee further agrees to accept election and to
serve during all or any part of the Term (as that term is defined in Section
2 hereof) of this Agreement as an officer and/or director of Employer and of
any subsidiary or affiliate of Employer, without compensation therefor,
except as set forth in this Agreement, if elected to any such position by the
shareholders of Employer or by the Board of Directors of Employer (the
"Board") or of any subsidiary or affiliate, as the case may be.
1.2 DUTIES, PLACE OF EMPLOYMENT. Employee shall perform all
duties customarily performed by Employees employed in the capacity of CEO of
companies engaged in the business of Employer and shall use and devote his
full time and efforts in the discharge of his duties. Employee shall perform
his duties at Employer's principal Employee offices in Los Angeles County,
but shall travel to and from such county as may be reasonably required in the
performance of such duties. Subject to the terms of this Agreement, Employee
shall comply promptly and faithfully with Employer's reasonable instructions,
directions, requests, rules and regulations. Employer shall not be deemed to
have waived the right to require Employee to perform any duties hereunder by
assigning Employee to any other duties or services.
<PAGE>
2. TERM. The term ("Term") of this Agreement shall commence as
of the date hereof and shall continue until December 31, 1999 and thereafter
shall automatically renew for consecutive one year terms unless (i)
terminated by written notice given by either party to the other at least
sixty (60) days prior to the end of the initial term or any subsequent one
year term or (ii) terminated sooner pursuant to Section 5 of this Agreement.
If the Term is extended pursuant to this Section 2, during such period of
extension Employer shall pay Employee all compensation to which Employee is
entitled under this Agreement.
3. COMPENSATION. During the Term as full compensation for all
services to be performed by Employee pursuant to this Agreement, Employer
agrees to pay Employee the base salary and bonuses set forth in this Section
3, in addition to such other benefits and compensation as are provided
elsewhere in this Agreement.
3.1 BASE SALARY. Employee shall be entitled to an annual
base salary of _____________ Dollars. The base salary shall be paid to
Employee bi-weekly during the Term.
3.2 COMMITMENT PAYMENTS. As further consideration for the
commitment and obligations of Employee hereunder, Employer shall issue to
Employee an option (the "Option") to purchase ________ shares of Common Stock
(the "Shares") at an exercise price of $0.75 per share (the Option and the
Shares are hereinafter referred to collectively as the "Securities"). The
Option shall expire on December 31, 2007 and vest 50% immediately and 25% on
each of January 1, 2000 and 2001, provided Employee is employed by, or is a
consultant to, Employer or an affiliate of Employer on such vesting date.
Notwithstanding the foregoing, to the extent not previously exercisable, the
Option shall become exercisable in its entirety in the event that (i) there
occurs a Change in Control of Employer (as hereafter defined) (ii) Employer
concludes the sale of substantially all of its assets other than in a
transaction which is intended primarily to effect a corporate reorganization
without material change in beneficial ownership of the material business of
Employer or (iii) Employee is terminated by Employer other than for Cause (as
hereafter defined). The option agreement shall be in the form of Exhibit A,
attached hereto. Employee understands that the Option and the shares of
Common Stock underlying the Option have not been registered under federal or
state securities laws and may not be transferred without registration
thereunder or pursuant to an exemption therefrom.
2
<PAGE>
3.3 BONUS. Nothing herein contained shall preclude the
Board of Directors of Employer from authorizing the payment to Employee of a
bonus, whether in cash or capital stock, based upon Employee's performance or
other reasonable criteria. The payment of such additional compensation shall
not operate as an amendment obligating Employer to make any similar payment
or to pay additional compensation at any future time or for any future period
or be deemed to affect the base salary in any manner.
3.4 ADDITIONAL BENEFITS.
(a) MEDICAL INSURANCE. Employer shall provide
Employee during the Term with group accident, medical, dental and hospital
insurance coverage, provided however, that such insurance shall only be
provided when determined by the Board of Directors to be within the financial
resources of the Company.
(b) BENEFITS GENERALLY OFFERED. In addition to any
other compensation or benefits to be received by Employee pursuant to the
terms of this Agreement, Employee shall be entitled to participate, to the
extent allowable in accordance with his status, in all employee benefits
offered from time to time by Employer to its senior officers; including, but
not limited to, stock option plans, group life, disability and any other
insurance and profit sharing plans.
4. VACATION. Employee shall be entitled to two (2) weeks paid
vacation for each year worked during the Term.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. Employee's employment under the
terms of this Agreement may be terminated immediately, at the option of
Employer, for "Cause" as that term is defined in Section 6.2(a).
5.2 TERMINATION FOR DISABILITY. Employee's employment under
the terms of this Agreement may be terminated immediately, at the option of
Employer, for "Disability" as that term is defined in Section 6.2(b).
5.3 TERMINATION BY DEATH. Employee's employment under the
terms of this Agreement shall be terminated upon the death of Employee.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
6.1 PAYMENTS. In the event of the termination of Employee's
employment under this Agreement by Employer, other than termination for "Cause,"
or if Employee voluntarily
3
<PAGE>
terminates his employment within 90 days prior to or 180 days after a Change
of Control (the "Change of Control Period"), Employee shall have no duty to
mitigate and Employer shall upon such termination pay to Employee (i) three
months base salary and (ii) continue payment of health benefits for a period
of three months (together, the "Severance Benefits"), provided, however, if
Employer terminates Employee's employment during the Change of Control
Period, then Employer shall pay Employee Severance Benefits for a period of
one year.
6.2 DEFINITIONS.
(a) CAUSE. Termination by the Board of Employee's
employment for "Cause" shall mean a termination upon (i) the good faith
determination of the Board that Employee has failed to perform fully or
faithfully Employee's obligation under this Agreement, (ii) the final
conviction of Employee of any felony, or a misdemeanor involving theft,
fraud, dishonesty, misrepresentation or willful conduct materially injurious,
harmful or detrimental to Employer; (iii) Employee commits an act or omits to
take action in bad faith or to the detriment of Employer, (iv) Employee fails
or refuses to comply with the policies, standards or regulations of Employer
or (v) Employee violates any of the warranties contained in Section 9 hereof.
For the purposes of this Section 6.2(a), "final conviction" and shall be and
mean a conviction or an adjudication, as the case may be, that is no longer
appealable due to the passage of time or otherwise, and with respect to which
a final judgment has been entered on the judgment roles of the court in which
the action was commenced. Further, for the purposes of this Section 6.2(a),
no act or omission to act on Employee's part shall be considered "Willful"
unless done, or omitted to be done, by Employee in bad faith and without
reasonable belief that Employee's act or omission was in the best interest of
Employer.
(b) DISABILITY. Termination of Employee's
employment for "Disability" shall mean a termination following absence from
Employee's full-time duties with Employer for one hundred eighty (180)
consecutive days as a result of Employee's incapacity due to physical or
mental illness and Employee's failure to return to the full-time performance
of Employee's duties within thirty (30) days after written notice of
termination is given to Employee.
(c) CHANGE IN CONTROL. The term "Change in
Control" means an event or series of events that would be required to be
described as a change in control of Employer in a proxy or information
statement distributed by Employer pursuant to Section 14 of the Securities
Exchange Act of 1934 in response to Item 6(e) of Schedule 14A promulgated
thereunder, or any
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substitute provision which may hereafter be promulgated thereunder or
otherwise adopted.
7. TRADE SECRETS. The parties acknowledge and agree that
during the Term and in the course of the discharge of his duties hereunder,
Employee shall have access to and become acquainted with information
concerning the operations of Employer, including, without limitation,
financial, sales, customer, supplier, operations, personnel and other
information that is owned by Employer and regularly used in the operation of
Employer's business and that this information constitutes Employer's trade
secrets. Employee agrees that he shall not disclose any such trade secrets,
directly or indirectly, to any other person or use any of them in any way
either during the Term or at any time thereafter, except as required in the
course of his employment hereunder.
8. NON-COMPETITION. During the term hereof, and for three
years thereafter, Employee shall not, directly or indirectly, whether as an
employee, employer, consultant, agent, officer, principal, partner,
stockholder, director or any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
with the business of Employer.
9. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES. Employee hereby
warrants and represents to Employer and Employer as follows, each of which
representation and warranty is material and is being relied upon by Employer
and Employer and each of which is true at and as of the date hereof and as of
the issuance of the Shares and each such issuance:
9.1 INVESTMENT INTENT. Employee is acquiring the Option for
his own account and not with a view to its resale or distribution and that he
is prepared to hold the Option for an indefinite period and has no present
intention to sell, distribute or grant any participating interests in the
Securities. Employee hereby acknowledges the fact that the Securities will
not be registered under the Securities Act of 1933, as amended (the "1933
Act") or applicable state securities laws.
9.2 RESTRICTED SECURITIES. that Employee has been informed
that the Securities may not be resold or transferred unless first registered
under applicable Federal and State securities laws or unless an exemption
from such registration is available. Accordingly, Employee hereby
acknowledges that he is prepared to hold the Securities for an indefinite
period of time.
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9.3 EMPLOYEE'S KNOWLEDGE. that Employee has a preexisting
business or personal relationship with Employer, that he is aware of the
business affairs and financial condition of Employer and that he has such
knowledge and experience in business and financial matters with respect to
companies in business similar to Employer to enable Employee to evaluate the
risks of the prospective investment and to make an informed investment
decision with respect thereto. Employee further acknowledges that Employer
has made available to Employee the opportunity to ask questions and receive
answers from Employer concerning the terms and conditions of the issuance of
the Securities and that Employee could be reasonably assumed to have the
capacity to protect his own interests in connection with such investment.
9.4 SPECULATIVE INVESTMENT. that Employee realizes that his
purchase of the Securities will be a speculative investment and that Employee
is able, without impairing his financial condition, to hold the Securities
for an indefinite period of time and to suffer a complete loss of his
investment.
9.5 NO INCONSISTENT OBLIGATIONS. Employee is under no
contractual or other restriction or obligation, compliance with which is
inconsistent with the execution of this Agreement, the performance of
Employee's obligations hereunder or the other rights of Employer hereunder;
and
9.6 NO INFIRMITY. Employee is under no physical or mental
disability that would hinder the performance of Employee's obligations under
this Agreement.
10. PERSONAL NATURE. This Agreement is personal, being entered
into upon the singular skill, qualifications and experience of Employee.
Employee shall not assign this Agreement or any rights, benefits, duties or
obligations hereunder without the express written consent of Employer.
Employee hereby grants to Employer the right to use Employee's name, likeness
and/or biography in connection with the services performed by Employee
hereunder and in connection with the advertising or exploitation of any
project with respect to which Employee performs services hereunder.
11. NOTICES. Any and all notices or other communications
required or permitted by this Agreement or by law shall be deemed duly served
and given when actually received by personal delivery or by certified mail,
return receipt requested, with first class postage prepaid thereon, to the
party to whom such notice or communication is directed, addressed as follows:
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EMPLOYER: AMERICAN TECHNOLOGIES GROUP, INC.
1017 S. Mountain Avenue
Monrovia, CA 91016
EMPLOYEE:
1017 S. Mountain Avenue
Monrovia, CA 91016
Each of the parties hereto may change its address for purposes of
this Section 11 by giving written notice of such change in the manner
provided for in this Section 11.
12. GOOD FAITH. All approvals and consents required to be given
by any party to this Agreement shall be given or withheld in good faith and
may not be unreasonably withheld. Each party hereto shall use due diligence
in its attempt to accomplish any act required to be accomplished by that
party.
13. ATTORNEY'S FEES AND EXPENSES. In the event that it should
become necessary for any party to this Agreement to bring an action,
including arbitration, either at law or in equity, to enforce or interpret
the terms of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable attorneys' fees and expenses as a part of
any judgment therein, in addition to any other award which may be granted.
14. APPLICABLE LAW/VENUE. This Agreement is executed and
intended to be performed in the State of California and the laws of such
state shall govern its interpretation and effect. If suit is instituted by
any party hereto by any other party hereto for any cause or matter arising
from or in connection with the respective rights or obligations of the
parties hereunder, the sole jurisdiction and venue for such action shall be
the Superior Court of the State of California in and for the County of Los
Angeles.
15. INTEGRATED AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter of this Agreement
and supersedes all prior employment agreements between the parties and all
such prior employment agreements shall be deemed voluntarily terminated by
the mutual consent of the parties hereto and shall be of no further force or
effect.
16. SEVERABILITY. Any provision in this Agreement which is, by
competent judicial authority, declared illegal, invalid or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such illegality, invalidity or unenforceability without invalidating the
remaining provisions hereof or affecting the legality, validity or
enforceability of
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such provision in any other jurisdiction. The parties hereto agree to
negotiate in good faith to replace any illegal, invalid or unenforceable
provision of this Agreement with a legal, valid and enforceable provision
that, to the extent possible, will preserve the economic bargain of this
Agreement, or otherwise to amend this Agreement, including the provision
relating to choice of law, to achieve such result.
16. WAIVER No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
No waiver shall be binding unless executed in writing by the party making the
waiver.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
EMPLOYEE:
----------------------------------
EMPLOYER: American Technologies Group, Inc.,
a Nevada corporation
By:
------------------------------
Title:
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EXHIBIT 22
LIST OF SUBSIDIARIES
NEW CONCEPT MINING, INC.,
a Nevada corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Technologies Group
We hereby consent to the incorporation by reference in the previously
filed Registration Statements on Form S-8 (File Nos. 333-49605 and 333-31157)
of our report dated November 9, 1999, appearing in the Annual Report on Form
10-KSB of American Technologies Group, Inc. and subsidiaries for the year
ended July 31, 1999.
CORBIN & WERTZ
Irvine, California
November 15, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Technologies Group, Inc.:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 2-333-49605 and 2-333-31157.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
November 15, 1999
