<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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
Check whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- ------
As of June 10, 1999, the registrant had 27,408,785 shares of Common
Stock outstanding.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of April 30, 1999 and July 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months ended April 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended April 30, 1999 and 1998 6
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis 11
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE
"SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING THIS
STATEMENT FOR THE EXPRESS PURPOSE OF SUCH SAFE HARBOR WITH RESPECT TO ALL SUCH
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS REPORT
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN AND IN OTHER REPORTS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT,
THE WORDS "ANTICIPATES", "BELIEVES", "INTENDS", "FUTURE", AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING STATEMENTS TO RELFECT EVENTS OR CIRCUMSTANCES THAT
MAY ARISE AFTER THE DATE HEREOF.
Page 2
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - APRIL 30, 1999 AND JULY 31, 1998
ASSETS
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------------------- --------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 48,448 $ 60,563
Accounts receivable, net of allowance for
doubtful accounts of $10,000 and $28,811
at April 30, 1999 and July 31, 1998, respectively 62,637 46,029
Inventories, net 179,432 149,658
Due from officers/shareholders 5,580 138,198
Other current assets - 8,482
------------------ -----------------
Total current assets 296,097 402,930
------------------ -----------------
PROPERTY AND EQUIPMENT 1,837,406 1,837,406
Less--Accumulated depreciation and
amortization (539,184) (421,767)
------------------ -----------------
1,298,222 1,415,639
------------------ -----------------
TECHNOLOGY RIGHTS, net of accumulated
amortization of $700,000 and $400,000
at April 30, 1999 and July 31, 1998, respectively 500,000 800,000
OTHER ASSETS 393,752 432,909
ASSETS HELD FOR DISPOSAL 3,710,845 3,925,051
ASSETS OF DISCONTINUED OPERATIONS - 134,401
------------------ -----------------
$ 6,198,916 $ 7,110,930
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of those consdensod consolidated
balance sheets.
3
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - APRIL 30, 1999 AND JULY 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
----------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,130,202 $ 360,028
Accrued liabilities 595,962 145,770
Accrued professional fees 237,035 243,600
Amounts due to related parties 434,876 264,345
Current portion of notes payable 1,276,230 372,824
Current portion of capital lease obligations 22,344 22,344
Convertible debentures 1,675,000 75,000
Liabilities of discontinued operations - 356,366
Deposit on sale of discontinued operations - 300,000
----------------- ----------------
Total current liabilities 5,371,649 2,140,277
NOTES PAYABLE, net of current portion 1,019,408 1,587,955
CAPITAL LEASES OBLIGATIONS, net of current portion 253,780 283,084
----------------- ----------------
Total liabilities 6,644,837 4,011,316
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock:
Par value--$.001,
Authorized--10,000,000 shares
Issued and outstanding--378,061 shares 378 378
Series B Convertible Preferred Stock:
Par value--.001,
Authorized--500,000 shares
Liquidation value--$8.00 per share
None issued and outstanding - -
Series C Convertible Preferred Stock:
Par value--.001,
Authorized--2,000 shares
Liquidation value--$1,000 per share
None issued and outstanding - -
Common Stock:
Par value--$.001, Authorized--100,000,000 shares
Issued and outstanding -- 27,408,785 and 22,704,368 shares at
April 30, 1999 and July 31, 1998, respectively 27,409 22,704
Additional paid in capital 43,454,520 39,569,941
Stock subscriptions 13,320 63,440
Prepaid consulting (1,164,084) -
Deficit (42,777,464) (36,556,849)
----------------- ----------------
Total stockholders' equity (445,921) 3,099,614
----------------- ----------------
$ 6,198,916 $ 7,110,930
----------------- ----------------
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of those consdensod consolidated
balance sheets.
4
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended April 30, For Nine Months Ended April 30,
1999 1998 1999 1998
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Technology products $ 107,880 $ 84,981 $ 204,360 $ 623,881
Rental income 19,000 50,000 96,000 100,000
Other 14,355 26,325 126,386 99,651
----------------- ---------------- ---------------- ----------------
Total operating revenues 141,235 161,306 426,746 823,532
----------------- ---------------- ---------------- ----------------
OPERATING EXPENSES
General and administrative 1,755,884 733,521 4,005,850 1,994,866
Marketing and product development 112,278 88,407 647,518 600,461
Research and development 169,286 225,094 519,943 871,515
Mining operations 35,495 20,551 117,570 115,863
Amortization of technology rights 100,000 100,000 300,000 300,000
Loss on impairment of assets held for sale 200,000 - 200,000 -
----------------- ---------------- ---------------- ----------------
Total operating expenses 2,372,943 1,167,573 5,790,881 3,882,705
----------------- ---------------- ---------------- ----------------
OTHER (EXPENSE) INCOME
Interest expense, net (108,281) (34,684) (845,396) (1,562,065)
Loss on investment in a joint venture - - (39,341) -
----------------- ---------------- ---------------- ----------------
(108,281) (34,684) (884,737) (1,562,065)
----------------- ---------------- ---------------- ----------------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS (2,339,989) (1,040,951) (6,248,872) (4,621,238)
LOSS ON DISCONTINUED OPERATIONS (NOTE 6) (24,368) (231,071) (201,943) (518,812)
GAIN ON DISPOSAL OF
DISCONTINUED OPERATIONS 230,200 - 230,200 -
----------------- ---------------- ---------------- ----------------
205,832 (231,071) 28,257 (518,812)
----------------- ---------------- ---------------- ----------------
NET LOSS BEFORE EXTRAORDINARE ITEM (2,134,157) (1,272,022) (6,220,615) (5,140,050)
EXTRAORDINARY ITEM
Gain on extinguishment of debt - 85,775 - 85,775
----------------- ---------------- ---------------- ----------------
NET LOSS $ (2,134,157) $ (1,186,247) $ (6,220,615) $ (5,054,275)
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
BASIC AND DILUTED NET LOSS PER SHARE
Continuing operations $ (0.09) $ (0.05) $ (0.25) $ (0.21)
Discontinued operations 0.01 (0.01) 0.00 (0.02)
Extraordinary item 0.00 0.00 0.00 0.00
----------------- ---------------- ---------------- ----------------
Net Loss $ (0.08) $ (0.06) $ (0.25) $ (0.23)
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 26,850,333 22,441,203 25,070,103 21,662,736
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statments.
5
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended April 30,
1999 1998
----------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $ (6,220,615) $ (5,054,275)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 431,623 419,390
Write-off of advances to officers and shareholders 136,698 -
Stock issued as consideration for services 1,745,046 119,465
Imputed interest expense for notes payable and capital lease 42,502 -
Interest and financing costs on convertible debt 624,121 1,471,771
Gain on disposal of discontinued operations (230,200) -
Gain on extinguishment of debt - (85,775)
Loss on impairment of assets held for sale 200,000 -
Loss on investment in joint venture 39,341 -
Loss on disposal of equipment - 10,161
Changes in assets and liabilities:
Accounts receivable (16,608) 366,736
Inventories (29,774) (44,925)
Other current assets 8,482 (7,286)
Accounts payable and accrued liabilities 1,213,801 (258,159)
----------------- ----------------
Net cash used in operating activities (2,055,583) (3,062,897)
----------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (67,206)
Investment in a joint venture - (105,000)
Other (184) (294,688)
----------------- ----------------
Net cash used in investing activities (184) (466,894)
----------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Advances to shareholders/officers (4,080) (72,273)
Advances from related parties 170,531 -
Proceeds from notes payable 325,000 -
Net proceeds from issuance of convertible debt 1,405,913 2,834,880
Payments on notes payable (11,947) (230,686)
Payments on capital lease obligation (50,000) (50,000)
Deposit on sale of discontinued operations 201,000 -
Net proceeds from issuance of stock - 81,427
----------------- ----------------
Net cash provided by financing activities 2,036,417 2,563,348
----------------- ----------------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 7,235 76,001
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,115) (890,442)
CASH AND CASH EQUIVALENTS, beginning of period 60,563 1,025,076
----------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 48,448 $ 134,634
----------------- ----------------
----------------- ----------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Stock issued for deposit on sale of discontinued operations $ 500,000 $ -
----------------- ----------------
----------------- ----------------
Stock issued for consulting service $ 2,901,250 $ 119,465
----------------- ----------------
----------------- ----------------
Stock issued for technology rights $ - $ 1,200,000
----------------- ----------------
----------------- ----------------
Convertible debenture issued for commission $ - $ 225,000
----------------- ----------------
----------------- ----------------
Notes issued for mining properties $ - $ 200,000
----------------- ----------------
----------------- ----------------
Conversion of debentures $ - $ 3,150,000
----------------- ----------------
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended
April 30, 1999 are not necessarily indicative of the results that may
be expected for the year ended July 31, 1999. For further information,
please refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended July 31, 1998.
2. ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
a. ORGANIZATION AND LINE OF BUSINESS
American Technologies Group, Inc. (the Company or ATG), a Nevada
corporation, is engaged in the development, commercialization and sale
of products and systems using its patented and proprietary
technologies. ATG also is involved in research and development of
proprietary energy and environmental systems and services which offer
cost-effective solutions to reduce, and in some cases eliminate,
hazardous chemical by-products or emissions resulting from industrial
production and combustion processes.
b. SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating
losses. The ability of the Company to operate as a going concern is
dependent upon its ability to (1) obtain sufficient additional capital,
(2) generate significant revenues through its existing assets and
operating business, and (3) overcome significant product development
issues. The Company plans to raise additional working capital through
private offerings of debt and equity. The successful outcome of future
activities cannot be determined at this time and there are no
assurances that if achieved, the Company will have sufficient funds to
execute its business plans or generate positive operating results.
These issues, among others, raise substantial doubt about the ability
of the Company to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be
unable to continue as a going concern.
c. NET LOSS PER SHARE
Net loss per common share is based upon the weighted average number of
common shares outstanding during the fiscal year. The Company has
adopted the provisions of SFAS No. 128, "Earnings Per Share" issued in
February 1997. Common share equivalents were not considered as they
would be anti-dilutive and had no impact on earnings per share for any
periods presented. However, the impact under the treasury method of
dilutive stock options would have been incremental shares of 69,127 and
972,781 for the nine months ended April 30, 1999 and 1998,
respectively.
Page 7
<PAGE>
d. RECLASSIFICATIONS
Certain amounts in the April 30, 1998 consolidated financial statements
have been reclassified to conform to current year presentation.
3. DEBENTURES
During the nine months ended April 30, 1999, the Company issued
pursuant to subscription agreements $1,050,000, in the aggregate, of 6
percent subordinated convertible debentures, maturing November 1, 2003.
Interest is due semi-annually commencing May 1, 1999 or upon
conversion. The principal and accrued interest are convertible into
shares of ATG's Common Stock at the lower of a fixed conversion price
of $0.62 or a variable conversion price equal to 75 percent of the
average closing bid price of ATG's Common Stock during the five trading
days preceding the date of conversion. The debentures include warrants
to purchase 105,000 shares of Common Stock at $0.75 per share. The
Company anticipates that all of the debentures (including interest)
will be converted into ATG's Common Stock. Imputed interest of $350,000
and financing costs of $194,087 were recorded as interest expense in
connection with the $1,050,000 of debentures in the accompanying
Consolidated Statements of Operations for the three and nine month
periods ended April 30, 1999.
In connection with the 6 percent subordinated convertible debentures,
the Company placed 5,000,000 shares of ATG's Common Stock in escrow to
be released to the extent due upon conversion of these debentures.
In December 1998, the Company issued under a separate subscription
agreement $250,000, in the aggregate, of 3 percent subordinated
convertible debentures, maturing December 1, 2003. Interest is due upon
the maturity date. The principal and accrued interest are convertible
into 431,035 shares of ATG's Common Stock at a fixed conversion price
of $0.58 per share. Imputed interest of $56,034 was recorded as
interest expense in connection with the $250,000 of debentures in the
accompanying Consolidated Statements of Operations for the three and
nine month periods ended April 30, 1999.
In February, 1999, the Company issued a 3 percent subordinated
convertible debenture, maturing December 1, 2003 in the principal
amount of $300,000. Interest is due on the maturity date. The principal
and accrued interest are convertible into 600,000 shares of ATG's
Common Stock at a fixed conversion price of $0.50 per share. The
debentures include warrants to purchase 55,000 shares of Common Stock
at $0.75 per share. Imputed interest of $24,000 was recorded as
interest expense in connection with the $300,000 of debentures in the
accompanying Consolidated Statements of Operations for the three and
nine month periods ended April 30, 1999.
During the three months ended April 30, 1999, the Company received from
a debenture holder an 8 percent interest bearing loan with principal of
$175,000 due December 1999 and $150,000 due May 1999, respectively. The
loan includes warrants to purchase 25,000 shares of Common Stock at
$0.75 per share and 35,000 shares at $0.35 per share, which prices are
at or above market value on the date of issuance.
page 8
<PAGE>
4. CAPITAL STOCK
a. COMMON STOCK
During August 1998, the Company entered into two separate consulting
agreements for services. Under the terms of the agreements, the Company
issued 1,000,000 shares of ATG's Common Stock valued at $781,250 for
services which is amortized on a straight line basis over the terms of
the agreements expiring May 31, 1999 and July 31, 1999. During December
1998, the Company entered into three separate consulting agreements for
services. Under the terms of the agreements, the Company issued
3,000,000 shares of ATG's Common Stock valued at $2,080,000 for
services which is amortized on a straight line basis over the terms of
the agreements expiring July, 1999, September, 1999 and November 1999.
General and Administrative expenses include amortization expense of
$847,050 and $1,697,167 for the three and nine month periods ended
April 30, 1999 in the accompanying Consolidated Statements of
Operations. As of April 30, 1999, the remaining unamortized cost of
$1,164,084 is included in prepaid consulting under stockholders' equity
in the accompanying Consolidated Balance Sheets.
During November 1998, the Company issued 100,000 shares of Common Stock
valued at $40,000 to a consultant for a special project relating to
trading activity of the Company's Common Stock on the OTC Bulletin
Board.
During April 1999, the Company issued 561,798 shares of Common Stock to
a former officer of the Company for the deposit of $500,000 placed with
ATG pursuant to the agreement (see Note 6).
b. STOCK SUBSCRIPTIONS
During the nine months ended April 30, 1999, the Company issued 20,619
shares of Common Stock valued at $25,000 and 22,000 shares of Common
Stock valued at $33,000 which were included within stock subscriptions
as of July 31, 1998 and recorded a subscription of services for 4,000
shares valued at $7,879. As of April 30, 1999, the Company had not
issued (i) 6,000 shares of Common Stock owed for services rendered
through January 31, 1999, valued at $11,820 and (ii) 500 shares of
Common Stock sold under private placement for an aggregate of $1,500 in
cash received prior to July 31, 1997. These amounts have been included
within stock subscriptions in the accompanying Consolidated Balance
Sheets.
5. JOINT VENTURE
In February, 1998, the Company formed a joint venture with
approximately 25% ownership interest, which is accounted for in
accordance with the equity method. The joint venture markets various
personal and home care products containing the Company's proprietary
IE-TM- crystals. Sales of these products commenced in June, 1998. The
Company made an initial investment of $124,100 in the joint venture of
which losses of $82,059 had been recognized in fiscal 1998. Due to the
significant losses of the joint venture, the joint members agreed to
terminate its exclusive right to the Company' IE Crystal and to consent
to the withrawal of the Company as a member. The Company's remaining
investment in this joint venture of $39,341 was written off during the
nine months ended April 30, 1999.
6. DISCONTINUED OPERATIONS
On June 23, 1998, the Company entered into an agreement with a former
officer-shareholder to sell the stock of ATG Media, Inc. for $500,000.
The closing date was initially set as August 15, 1998, but had been
extended by mutual agreement of the parties. The transaction was
contingent on the sale of 2,250,000 shares of the former officer's
Common Stock to an unrelated third party
Page 9
<PAGE>
for proceeds of at least $2,000,000. If the former officer's stock was
not purchased, the Company was obligated to return the amount of
purchase price paid in cash or shares of ATG's Common Stock valued at
$0.89 per share. In April 1999, the transaction was canceled and the
Company issued 561,798 shares of Common Stock to the former officer for
the deposit of $500,000 pursuant to the agreement.
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 $300,000. 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. The gain on the sale recorded was $230,020 in the
accompanying Consolidated Statements of Operations for the three and
nine months ended April 30, 1999. Due to the contingent nature of the
promotion credits, the Company has taken 100 percent reserve against
the value of these credits.
Loss from operations of discontinued operations are $24,368 and
$231,071 for the three months ended April 30, 1999 and 1998,
respectively, and $201,943 and $518,812 for the nine months ended April
30, 1999 and 1998, respectively.
7. ASSETS HELD FOR SALE
Included in assets held for sale in the accompanying Consolidated
Balance Sheets are the Tempiute property of $360,000, the Manhattan
gold property of $2,083,030 and Manhattan mill properties of
$1,267,814, net of impairment. The Company wrote down $200,000 of
impairment on the Tempiute property based on preliminary offers to
purchase the property during the quarter ended April 30, 1999. The
Company no longer plans to develop these properties but plans to sell,
lease or otherwise dispose of its investment.
In November 1997, the Company entered into a Mining Lease and Option to
Purchase Agreement with Royal Gold, Inc. In April, 1999, Royal Gold
advised the Company that it was exercising its right to terminate the
agreement. In addition, in April, 1999, the Company was advised that
NewGold, Inc. was unable to fulfill its obligations regarding the
purchase of the Manhattan gold mill. Subsequent to the cancellation of
the contracts, the Company entered into a letter of intent to sell
these properties (see Note 9).
8. RELATED PARTY TRANSACTIONS
Included in amounts due to related parties in the accompanying
Consolidated Balance Sheets is $142,500 in short term borrowings from
related parties as of April 30, 1999. In consideration of these
borrowings, the Company granted an option to purchase 75,000 shares of
ATG's Common Stock at $0.40 per share.
9. SUBSEQUENT EVENTS
Subsequent to April 30, 1999, the Company entered into a letter of
intent to sell 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.
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management is continuing its on going efforts to refocus the Company's
activities on its core technologies, along with new product development,
including new applications for its IE technology, and commercialization of those
applications which are already perfected. Management believes that these efforts
have started to have positive effect in the quarter ended April 30, 1999.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
APRIL 30, 1999 AND 1998
Revenue decreased by $20,100 from $161,300 to $141,200 for the three months
ended April 30, 1998 and April 30, 1999, respectively, due to declines in rental
and other income partially offset by a 27% increase in revenue ($22,900) from
the sale of technology products (The Force-Registered Trademark-). The Force is
the Company's principal commercial product. This increase in sales results from
the substantial efforts of management to focus on product sales.
The implementation of the strategic direction set by the Board of Directors
during the prior fiscal year has resulted in certain increases in operating
costs. Most of these costs have been non-cash as several consultants retained
to assist the Company in redefining itself to only focusing on its core
technologies agreed to be paid with shares of the Company's common stock.
Operating expenses increased by $1,205,400 from $1,167,600 to $2,373,000 for
the three months ended April 30, 1998 and April 30, 1999, respectively. The
increase was due to increases of $1,022,400 in general and administrative
expense (due to additional consulting expenses including prepaid services and
settlement cost accrual), $23,900 in marketing and product development,
$14,900 in mining expense and $200,000 in loss on impairment of mining
properties partially offset by a decrease of $55,800 in research and
development expenses.
ATG's net loss for the third quarter of fiscal 1999 increased by $948,000 to
$2,134,200 from $1,186,200. The increase is principally due to increased
operating expenses and other expenses of $1,279,000, offset by decreases of
$206,700 in losses from discontinued operations and a gain from disposal of
discontinued operations of $230,200.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
APRIL 30, 1999 AND 1998
Revenue decreased by $396,800 from $823,500 to $426,700 for the nine months
ended April 30, 1998 and April 30, 1999, respectively, principally due to the
Company's decision to stop selling IE crystals for use in laundry products by
TradeNet Marketing Inc. and the continuing transition from pure research and
development to commercialization and sales of products.
Reflecting the implementation of the strategic direction set by the Board of
Directors during the prior fiscal year, operating expenses increased by
$1,908,200 from $3,882,700 to $5,790,900 for the nine months ended April 30,
1998 and April 30, 1999, respectively. The increase was principally due to
increases of $2,011,000 in general and administrative expense (due to additional
consulting expenses including prepaid services and settlement cost), $47,000 in
marketing and product development costs and $200,000 in loss on impairment of
mining properties partially offset by decreases of $351,600 in research and
development.
Other expenses for the nine months ended April 30, 1999 decreased by $677,400 to
$884,700 from 1,562,100 for the corresponding period of fiscal 1998 due to a
decrease in interest expense.
ATG's net loss for the nine months ended April 30, 1999 increased by $1,166,300
to $6,220,600 from $5,054,300 for the corresponding period of fiscal 1998. The
increased loss is principally due to increased
Page 11
<PAGE>
operating expenses of $1,908,200 and a decrease in revenues of $396,800
partially offset by decreases in other expenses of $677,400 and losses from
discontinued operations of $316,900 and a gain from disposal of discontinued
operations of $230,200.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred significant operating losses. The
ability of the Company to operate as a going concern is dependent upon its
ability to (1) obtain sufficient additional capital, (2) generate significant
revenues through its existing assets and operating business, and (3) overcome
significant product development issues. The Company plans to raise additional
working capital through private offerings of debt and equity. The successful
outcome of future activities cannot be determined at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its business plans or generate positive operating results. These issues, among
others, raise substantial doubt about the ability of the Company to continue as
a going concern.
Total assets decreased by $912,000 from $7,110,900 at July 31, 1998 to
$6,198,900 at April 30, 1999. This decrease was principally the net result of
amortization of technology rights of $300,000, write-off of amounts due from
officers/shareholders of $136,700, impairment loss on mining properties of
$200,000 and disposal of assets of discontinued operations of $134,400 partially
offset by increases in net inventories of $29,800.
Total liabilities increased by $2,633,500 from $4,011,300 to $6,644,800 at July
31, 1998 and April 30, 1999, respectively. This increase was due principally to
increases in accounts payable of $770,200, accrued liabilities of $450,200,
amounts due to related parties of $170,600, convertible debentures of $1,600,000
and notes payable of $334,900 partially offset by decreases in deposit on sale
of a subsidiary of $300,000 and liabilities of discontinued operations of
$356,400.
The Company's working capital deficiency at April 30, 1999 increased by
$3,338,200 to $5,075,600 from $1,737,400 at July 31, 1998. This increase is
principally the result of continuing operating losses incurred by the Company
which have been financed by increases in convertible debentures of $1,600,000,
accounts payable and accrued liabilities of $1,220,400, amounts due to related
parties of $170,600 and current portion of notes payable of $903,400 partially
offset by decreases in deposit on sale of a subsidiary of $300,000 and
liabilities of discontinued operations of $356,400. The Company anticipates that
$1,600,000 in convertible debentures will be converted into Common Stock during
fiscal 1999.
The principal source of working capital during the nine month period ending
April 30, 1999 was the sale of $1,600,000 of principal amount of convertible
debentures, short term loan of $325,000 and deposit on sale of a subsidiary of
$200,000. During the comparable period in 1998, the principal source of working
capital was the sale of $3,225,000 of principal amount of convertible
debentures.
Subsequent to April 30, 1999, the Company continued to finance its operations
with debt and equity. Negotiations are ongoing for a bridge loan with net
proceeds of $1,300,000 leading to a secondary public offering of Preferred Stock
of the Company for $10,000,000, both in connection with the Company's proposed
acquisition of Commodore Separation Technologies Inc. The proposed transaction
with Commodore Separation Technologies is discussed below. The Company's
continued operations are dependent upon obtaining some financing, of which there
can be no assurance.
In January, 1999, the Company signed a letter of intent which effectuates its
acquisition of Commodore Separation Technologies, although the transaction is
structured as a merger. Execution of the definitive agreement is dependent upon
the Company having adequate financial resources to meet its operating expenses
during the remainder of the calendar year. Commodore Separation Technologies is
commercializing a proprietary separation technology and recovery system known as
SLiM-TM-. SLiM stands
Page 12
<PAGE>
for Supported Liquid Membrane. SLiM can selectively remove from water valuable
substances for reuse or toxic materials for safe disposal.
If the transaction is completed as proposed, the existing shareholders of
American Technologies would own approximately 80.1 percent of the Company and
the shareholders of Commodore Separation Technologies would own approximately
19.9 percent of the Company. In addition, the Commodore Separation Technologies
shareholders will receive one third of the after tax profit of the existing
business of Commodore Separation Technologies.
Statements included in this Management's Discussion and Analysis or Plan of
Operation and elsewhere in this Form 10-QSB, in future filings by the Registrant
with the Securities and Exchange Commission and in the Registrant's press
releases and oral statements made with the approval of authorized executive
officers, if the statements are not historical or current facts, should be
considered "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Registrant wishes to caution the reader not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.
Page 13
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
( c ) In April, 1999, the Company issued 561,798 shares of Common Stock to
John R. Collins in lieu of the repayment of $500,000 paid by Mr. Collins on
deposit against the purchase of ATG Media, Inc. The sale of ATG Media, Inc.
to Mr. Collins was not completed due to the failure of certain conditions
to closing. The foregoing stock issuance 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. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule
- ------------------------------
(b) REPORTS ON FORM 8-K.
None
Page 14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Lawrence J. Brady
----------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
Date: June 21, 1999
By: /s/ Harold Rapp
---------------
Harold Rapp
Chief Financial Officer
Date: June 21, 1999
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 48,448
<SECURITIES> 0
<RECEIVABLES> 68,217
<ALLOWANCES> 0
<INVENTORY> 179,432
<CURRENT-ASSETS> 296,097
<PP&E> 5,548,251<F1>
<DEPRECIATION> (539,184)
<TOTAL-ASSETS> 6,198,916
<CURRENT-LIABILITIES> 5,371,649
<BONDS> 1,273,188
0
378
<COMMON> 27,409
<OTHER-SE> (473,708)
<TOTAL-LIABILITY-AND-EQUITY> 6,198,916
<SALES> 204,360
<TOTAL-REVENUES> 426,746
<CGS> 0<F2>
<TOTAL-COSTS> 5,790,881
<OTHER-EXPENSES> 39,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 845,396
<INCOME-PRETAX> (6,248,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,248,872)
<DISCONTINUED> 28,257
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,220,615)
<EPS-BASIC> (0.25)<F3>
<EPS-DILUTED> (0.25)
<FN>
<F1>Includes assets held for sale
<F2>Not calculated
<F3>Includes discontinued operations
</FN>
</TABLE>
