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, 2000
[_] 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 $337,330. As
of October 20, 2000, the registrant had 49,199,778 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates was approximately $7,257,778 computed by reference to the average
of the low bid and high ask prices on October 20, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
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 Technologies. The products
resulting from development of the catalyst technology 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 and enhanced
through the use of the Company's proprietary catalyst technology including
detergents and cosmetics. The water purification technology is currently being
developed into a consumer distiller which is expected to reach the market during
the first half of calendar year 2001. The high energy particle technologies are
still in the relatively early stages of development, and commercial applications
are not expected to be developed for several years, if at all.
The Company's efforts with its proprietary catalyst technology have yielded
commercial applications including The Force(R) airborne combustion enhancers,
fuel additives including a liquid aftermarket additive, a liquid bulk fuel
additive and a two stroke engine additive, catalyst for gas turbines and diesel
power generating plants, Screen Magic and household cleaning and personal care
products; however, there can be no assurance that these products will be
commercially successful. 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 with introduction to
the market place anticipated to be during the first half of calendar year 2001.
2
<PAGE>
The third core technology relates to the use of novel methods and apparatus
for causing particles such as atoms and nuclei to engage in known useful
reactions such as nuclear fusion. One such method employs a high energy particle
beam. This beam functions in much the same way as the common laser. The
important difference is that the high energy particle beam is composed of
particles rather than light. By accelerating the beam, extremely high energy
levels are possible. The high energy particle beam technology is still in the
relatively early stages of development. Another more recently devised method
uses lasers to explode microdroplets into plasma clouds that collide at high
energies and result in fusion. This method also is in the early stage of
development and its commercial efficacy may be dependent upon the enhancement of
existing laser technologies. There can be no assurance that these particle
technologies will ever be commercially viable.
Business Strategy
ATG's focus has been redirected almost fully from research and development to
the marketing and sale of products. Although research and development will
always be a portion of ATG's strategy, the Board of Directors and management
have determined that the promotion and sale of products is where the main focus
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
though 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 what
are believed to be water solutions containing water clusters that are stable at
high temperature. ATG can produce different kinds of water solutions for
different applications.
Independent researchers observe these water clusters by different standard
research tools including:
o Laser autocorrelation
o Electron microscope
o Atomic force microscope
o UV spectroscopy
3
<PAGE>
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 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 on 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. Another
application includes use in the printing industry.
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. In the
bulk fuel market, large potential users generally require testing on their own
prior to making any decisions concerning wide-scale adoption of the catalysts.
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 indicate 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.
4
<PAGE>
Several studies have shown that The Force produces a more complete combustion of
gasoline in cars. The studies were not side by side comparisons with other
products. The most recent study was completed in October, 2000. This study was
conducted by Automotive Testing and Development Services, Inc., a CARB approved
independent laboratory for after market parts exemption testing. Automotive
Testing and Development Services has consistently ranked among the very top
independent test laboratories in the annual California Air Resource Board
("CARB") sponsored round-robin correlation test.
Automotive Testing and Development Services conducted a FTP-75 (Federal Test
Protocol) test on a medium duty diesel truck using a reformulated and improved
version of The Force. The tests were also conducted in strict accordance with
the provisions of 40 CFR 86 and California Title 13. The test resulted in
material reduction in total hydrocarbons, NOx, and CO and a significant
improvement in fuel efficiency, that is, an increase in miles per gallon.
Earlier studies include emission tests by the German laboratory DEKRA in July,
1993; laboratory tests by the Czech Republic in September, 1994; the Federal
Test on Emissions conducted by California Analytical Labs in Orange, California
in August, 1997; emission tests by a government of Japan facility, 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. Mr. Sikorsky is an expert in the field of automotive maintenance and
repair. He has written eight books on the subject of cars and automotive
maintenance. His book Drive It Forever is currently in its 16th printing. In the
book Mr. Sikorsky states "I've personally found this catalyst to be a great
product that really works."
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. Scientific studies on the
combustion enhancer are continuing.
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 Asia, these areas are
excellent markets for The Force. Significant inroads are expected in these
markets during the next 12 months. Domestically, a full one-half hour
infomercial is currently in production. This infomercial will air in selected
test markets in late 2000 and will go into wide-spread broadcast during the
first quarter of 2001 including selected international markets. 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.
5
<PAGE>
Competition
There are a substantial number of different after market combustion enhancement
products on the market, particularly liquid fuel additives. The Company is not
aware of any other airborne combustion enhancer similar to The Force. When the
Company introduces its liquid fuel additive it will face substantial competition
from numerous products and companies with significantly greater financial and
other resources. ATG's products are water based and environmentally benign.
The uniqueness of the products does not eliminate the need to compete for
product awareness by the public. ATG recognizes the need to establish public
awareness and product recognition among numerous competing products supported by
companies with substantially greater marketing resources. ATG continues its
efforts to achieve the necessary product recognition to successfully compete in
the combustion enhancement industry.
Regulation
The sale of aftermarket automobile devices is subject to regulation by 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 many 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.
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. Most recently, the Company
completed an eleven month test of the catalyst in a power generating station in
The Peoples' Republic of China. The success of this test resulted in ATG signing
an exclusive distribution agreement with the China National Water Resources and
Electric Power Materials and Equipment Co., Ltd. (China's second largest
company) to distribute the catalyst in power stations throughout that country.
Additionally, AMES Testing at USC Medical Center has shown that the product is
non-carcinogenic or mutagenic, a significant validation for use of the
6
<PAGE>
product in bulk fuels in lieu of dangerous oxygenates such as MTBE (which is
being outlawed in many states).
Although the Company has agreements for the sale of its catalyst products, no
assurance can be given that sales will result from these agreements.
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 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 environmental 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 Company's 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.
To date, these products have not been aggressively marketed by the Company. 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 and an
introductory order for certain of these products was recently received from a
customer in Japan.
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
7
<PAGE>
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.
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.
After delays due to limited funding and the need to modify the prototype prior
to completion of final tooling design, units are expected to be available for
sale during the second calendar quarter
8
<PAGE>
of 2001. 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 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 any marketing agreements. Marketing
mediums will be selected so as to obtain maximum exposure for the product to
consumers.
PARTICLE TECHNOLOGY PROJECTS
The Company has developed technologies that use particles such as atoms and
nuclei in beams or in lasered microcluster arrangements to cause reactions.
These reactions result in the transformation of matter or the release of energy
and useful particles such as neutrons. Potential applications include the
transmutation of nuclear waste to make it harmless and the generation of energy.
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 has coined the term "BASER" to
refer to particle beam technology some of which technology has been licensed
from a third party.
According to particle beam theories, an extremely cold beam of molecules or
atoms may be able to cause reactions, such as fusion, between atoms and their
nuclei and the release of energy and other particles such as neutrons. One
potential application for the particle beam technology is in the transmutation
of nuclear waste to render it harmless. Neutrons from fusion of light nuclides
induced by use of particle beams may be used to transmute radioactive waste
nuclides, such as the fission fragments left in spent nuclear reactor cores,
into shorter-lived nuclides that quickly decay to become harmless. There can be
no assurance that the high energy particle beam technology will ever be
commercially viable in this or any application.
The Company has more recently developed a separate and wholly-owned particle
technology employing a novel technique in which clusters of microdroplets made
of a substance having light nuclei are safely exploded into colliding plasma
clouds and thereby cause nuclear fusion. This technology therefore may be used
to render nuclear waste harmless by using the neutrons generated by such fusion
reactions. Recent advances in this field by other researchers have verified this
approach for neutron production. However, the economic viability of this
application may be dependent upon the enhancement of existing laser
technologies. There can be no assurance either that such developments will be
achieved or that the colliding plasma technology will ever be commercially
viable in this or any application.
9
<PAGE>
A detailed proposal has been submitted to the U.S. Department of Energy to
undertake a pilot project for the production of quantities of neutrons using the
colliding plasma technology. While the official response to the Company's
somewhat revolutionary proposal did not result in funding, unofficially the
Company was applauded and encouraged to continue with its present efforts.
Consequently, discussions have continued at the highest levels of the DOE on a
favorable basis, although to date there has been no assurance that funding will
be provided for the project. The Company is also exploring joint venture
opportunities for development of the colliding plasma technology with a number
of entities.
The second potential application of ATG's particle technologies 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 hazard of existing
technologies. ATG's particle technologies are envisioned to compete in this area
directly with fossil fuel consuming and nuclear fission-powered electrical
generating plants. ATG envisions this application to be ultimately the most
beneficial financially to the firm.
No evidence exists to substantiate these potential applications of particle
technologies or that the particle technologies will achieve experimental
validity. No assurance can be given that the Company will develop the particle
technologies 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 these
technologies are 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. Presently, the Company is not devoting significant
management, scientific or financial resources on these technologies. 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 these technologies can or will ever be successfully developed, or if
developed, be commercially viable.
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, vacuum
distiller and catalyst technologies. The status of the Company's patent
activities is as follows:
o Particle Technology Patents
The Company has been granted 7 U.S. patents and 9 foreign patents on
particle technologies. Additionally, there are 3 U.S. and 6 foreign patent
applications pending.
10
<PAGE>
o 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. We are
examining whether protecting this technology as a trade secret may be more
appropriate than through patents and therefore we are not presently
pursuing additional patents on this technology.
o 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, patent applications or are maintained as trade secrets in the U.S.
There is also no assurance that, despite efforts to avoid doing so, the
Company's products do not infringe on the intellectual property rights of
others.
RESEARCH AND DEVELOPMENT
The Company has incurred approximately $599,812 and $665,377 in research and
development expenses during the years ended July 31, 2000 and 1999,
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 twelve full-time employees and one part-time employee employed
by a 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.
Item 2. Description of Property.
In August, 2000, the Company completed the sale of 1009, 1013 and 1017 South
Mountain Avenue, Monrovia, CA for an aggregate sale price of $1,300,000. The
Company has leased from the purchaser 1017 South Mountain Ave. which consists of
approximately 16,140 square feet of executive offices, research and development,
manufacturing and warehouse space at $9,222 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.
11
<PAGE>
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.
PERIOD HIGH BID LOW BID
------ -------- -------
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
August 1, 1999 - October 31, 1999 $0.48 $0.22
November 1, 1999 - January 31, 2000 $0.91 $0.20
February 1, 2000 - April 30, 2000 $0.63 $0.20
May 1, 2000 - July 31, 2000 $0.28 $0.13
Holders.
The Company has only one class of common equity, the Common Stock. As of October
20, 2000, there were 1,043 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.
12
<PAGE>
Recent Sales of Unregistered Securities.
In June, 2000, the Company issued 50,000 shares of Common Stock to each of Alan
Brooks, Larry Pressler, William Odom, Larry Schad and Charles McCarthy as
partial compensation for services as a Director of the Company in 2000. The
foregoing stock issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933 as transactions by an issuer not involving any
public offering. No underwriter was utilized in the offerings and no commissions
were paid.
Item 6. Management's Discussion and Analysis.
<TABLE>
<CAPTION>
Year Ended July 31
Balance Sheet: 2000 1999
<S> <C> <C>
Assets $3,327,328 $4,801,452
Liabilities $6,293,085 $6,402,721
Stockholders' (Deficit) Equity $(2,965,757) $(1,601,269)
Results of Operations:
Revenue
Technology Products and Licensing $258,759 $307,583
Other 78,571 198,311
Total Revenue 337,330 505,894
Operating Expenses
Technology Products 437,200 $878,343
Research and Development 599,812 665,377
Mining 74,184 1,495,497
Corporate 3,952,392 6,180,979
Total Expenses 5,063,587 9,220,196
Operating Loss (4,726,257) (8,714,302)
Other Expense, Net (2,048,168) (2,117,491)
Net Loss Before Discontinued Operations (6,774,425) (10,831,793)
Discontinued Operations -- 28,257
Extraordinary Item - Gain on Extinguishment of Debt 55,194 --
------------ ------------
Net Loss Attributable to Common Stockholders (6,719,231) $(10,803,536)
============ ============
Net Loss Per Common Share
Continuing Operations ($0.19) ($0.42)
============ ============
Weighted average number of common shares
outstanding 35,929,108 25,670,304
============ ============
</TABLE>
Total revenue decreased by $168,600 from $505,900 in fiscal 1999 to $337,300 in
fiscal 2000 due to decreases in sales of technology products of $48,800, lease
income of $50,000 and other income of $69,800. The marketing and promotion plan
for The Force has been more difficult and taken significantly longer to
implement than anticipated by management. Without sufficient
13
<PAGE>
funds to conduct a targeted advertising campaign and product launch, it is
extremely difficult to gain product awareness and generate sales. Also, bus and
truck fleet operators and other potential customers have been reluctant to try
the product without testing by a laboratory of their choice. However, management
believes breakthroughs will be made in the near future and the Company will see
greater revenue from technology products during fiscal 2001, although there can
be no assurance to this effect. To facilitate sales of The Force, the Company
has hired In-Finn-Ity Direct to produce an infomercial on The Force. The
infomercial is nearing completion and test airing is anticipated to begin in
late November, 2000. The infomercial is targeted to the niche
NASCAR(R)/SpeedVision(R) consumers with anticipated influence on truck and fleet
operators. The Company has an agreement with a manufacturer's representative
agency to promote The Force in certain states to its retail customers. This
retail distribution plan is to be coordinated with the release and airing of the
infomercial.
The Company also has agreements for the distribution of The Force and other
combustion enhancing products to the rail, bus, trucking, shipping and asphalt
paving industries. These agreements will be supported by the infomercial, and
are anticipated to begin to yield measurable sales prior to the end of calendar
year 2000.
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 as a loss based upon the estimated realizable
value of its mining properties.
Operating loss from continuing operations before tax effects decreased by
$4,057,400 from $10,831,800 in fiscal 1999 to $6,774,400 in fiscal 2000. The
decrease in operating loss is principally attributable to a decrease in general
and administrative expenses of $2,228,600 and elimination of loss of impairment
of assets held for sale of $1,338,600. In addition, marketing and product
expenses declined by $441,100 and interest expense declined by $30,000. The
decrease in general and administrative expense is principally the result of a
decrease in the amortization of prepaid non-cash (Common Stock) payments to
certain consultants in connection with the restructuring efforts of the Company.
These payments had been made to conserve cash. Cash used in operations declined
by $806,900 from fiscal 1999 to fiscal 2000. 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.
General and administrative expenses includes $609,300 and $585,300 in option
expense for fiscal 2000 and 1999, respectively, in accordance with FASB No. 123.
FASB No. 123 requires the accounting for stock-based compensation programs to be
reported within the financial statements on a fair value based method for
non-employees and encourages this method for employees. The Company will
continue to apply the provisions of Accounting Principles Board Opinion No. 25
for its employee stock options and will not recognize compensation cost for
14
<PAGE>
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.
Interest expense declined by $30,000 from $2,078,200 in fiscal 1999 to
$2,048,200 in fiscal 2000. 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 and fair value of warrants per FASB 123
aggregating $1,638,300 in fiscal 2000 and $1,334,200 in fiscal 1999.
The Company's cash used in operations decreased by $806,900 from $2,858,000 in
fiscal 1999 to $2,051,100 in fiscal 2000. 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. In fiscal 2000, the primary sources of working capital were net
proceeds from the issuance of convertible debt of $934,800 and net proceeds from
the issuance of stock and stock subscriptions of $390,500.
At July 31, 2000, current assets were $287,500, $675,100 less than the $962,600
in current assets at July 31, 1999, due primarily to a decreases in cash and
cash equivalents of $706,200 partially offset by an increase in accounts
receivable of $34,500.
Subsequent to 2000 fiscal year-end, the Company issued $500,000 in convertible
debentures and received $253,400 upon the exercise of certain warrants. In
addition, the Company received $121,800 in net cash proceeds from the sale of
the office and warehouse facilities it owned for $1,300,000. The remaining
proceeds from the sale, after payment of the costs of sale, were paid to the
mortgagor ($975,100) and certain other debt holders ($107,600) whose interests
were secured by the property.
The availability of up to $16.5 million from two financing sources during the
first half of fiscal 2001 is expected to relieve the Company of its continuing
financial constraints and enable the Company expand its marketing efforts.
Going Concern
The Company's independent public accountants have stated in their report
included in this Form 10-KSB that the Company has incurred operating losses in
the last two years, has a working capital deficit and significant stockholders
deficit. These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
15
<PAGE>
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 27.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
16
<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, 2000 are
listed below, together with brief accounts of their business experience and
certain other information.
<TABLE>
<CAPTION>
Name Age Present Office or Position Year First Elected Director
---- --- -------------------------- ---------------------------
<S> <C> <C> <C>
Lawrence J. Brady 61 Chairman of the Board of 1997
Directors, Chief Executive Officer
William Odom 68 Director 1997
Charles McCarthy 62 Director 1998
Alan Brooks 52 Director 1999
Lawrence Pressler 58 Director 1999
Lawrence Schad 55 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.
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
Chairman of the Board of American Science and Engineering, Inc. and as a
director of V-ONE Corporation.
Charles McCarthy: is a graduate of Georgetown University Law Center, where he
qualified for membership on its law journal. Presently, he 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
17
<PAGE>
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. and a number of privately held companies.
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.
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. Messrs. Schad, McCarthy and General Odom serve on the Company's Audit
Committee.
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, Mr. Schad failed to timely file one Form 3 and two Form 4s.
Advisory Board:
The Company no longer maintains a formal Advisory Board. However, prior Advisory
Board members are still available for consultation by the Company if necessary.
18
<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, 1998, 1999, and 2000.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Name & Principal Position Year Annual Salary Stock Options
------------------------- ---- ------------- -------------
Lawrence Brady 2000 $180,000 --
Chairman of the Board and
Chief Executive Officer 1999 273,100(1) 500,000(2)
1998 181,712 500,000(3)
Shui-Yin Lo 2000 $115,605(4) --
Director of Research &
Development and a Director 1999 187,690(5) --
1998 163,882 250,000(6)
45,000(6)
Jim Nicastro 2000 $113,317(4) --
Vice President
1999 153,337 --
1998 161,632 250,000(6)
40,000(6)
John M. Dab 2000 $154,000 --
General Counsel and
Secretary 1999 156,614(7) 160,000(8)
1998 157,283 --
----------
(1) Includes $93,100 in forgiveness of indebtedness.
(2) The exercise price of 400,000 of these options is $0.75 per share, the
estimated fair market value on the date of grant. In fiscal 2000 the
exercise price of 100,000 of these options was reduced from $0.75 to $0.25
per share, which amount is no greater than the estimated fair market value
on the date of repricing. Three quarter of these options have vested and
one quarter of the options vest on January 1, 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) Includes cash paid in lieu of vacation upon separation from the Company
during fiscal 2000.
(5) Includes $27,923 in forgiveness of indebtedness.
(6) These options have expired without exercise as a result of separation from
the Company during fiscal 2000.
(7) Includes $2,500 in forgiveness of indebtedness.
(8) The exercise price of 100,000 of these options is $0.75 per share, the
estimated fair market value on the date of grant. In fiscal 2000 the
exercise price of 60,000 of these options was reduced from $0.75 to $0.25
per share, which amount is no greater than the estimated fair market value
on the date of repricing. Three quarter of these options have vested and
one quarter of the options vest on January 1, 2001.
19
<PAGE>
OPTIONS GRANTED IN FISCAL 2000
No stock options were granted to employees during fiscal 2000, however options
outstanding under the Company's 1993 Incentive Stock Option Plan and 1993
Non-Statutory Stock Option Plan were repriced from $0.75 to $0.25 per share in
order to maintain the incentive to employees.. The following table presents
information regarding the repricing of options held be certain executives.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Repriced
Underlying Options Held
Repriced by Employees
Name Options Granted in Fiscal 2000 Exercise Price Expiration Date
---- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 100,000 15.2 $0.25 December 31, 2007
Shui-Yin Lo -- -- -- --
Jim Nicastro -- -- -- --
John Dab 160,000 24.4 $0.25 December 31, 2007
</TABLE>
OPTION VALUES AT JULY 31, 2000
<TABLE>
<CAPTION>
Number of Securities Underlying Value of in-the-money Options
Options at July 31, 2000 at July 31, 2000
------------------------ ----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lawrence J. Brady 875,000 250,000 $0 $0
Shui-Yin Lo 1,062,500* 0 0 0
Jim Nicastro 0 0 0 0
John M. Dab 250,000 100,000 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 agreement automatically renews for consecutive a one year terms if
not terminated within 60 days of the end of a term. During fiscal 2000, Dr. Lo
and Mr. Nicastro separated from the Company.
20
<PAGE>
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. 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. In lieu of the $7,500 cash
payment for calendar 1999, each of the non-employee Directors was given 50,000
shares of common stock valued at $0.12 per share. For calendar 2000, each ofthe
non-employee Directors was paid by issuance of 150,000 shares of
common stock at an average price per share of approximately $0.18 per Director.
All Directors hold office until the next annual meeting of the shareholders or
until their successors have been duly elected and qualified. All officers serve
at the discretion of the Board of Directors.
The Company has no retirement, pension or similar programs at the present time.
The creation of any such plan, however, will be at the discretion of the Board
of Directors of the Company. The Board of Directors may, in the future, adopt
such employee benefit and executive compensation programs as it deems advisable
and consistent with the best interests of the shareholders and the financial
condition and potential of the Company.
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 20, 2000, 2,221,500 shares of
Common Stock were reserved for issuance upon exercise of stock options granted
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
21
<PAGE>
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.
As of July 31, 2000, Incentive Stock Options covering 391,500 shares exercisable
at $0.25 per share and Non-Statutory Stock Options covering 265,000 shares
exercisable at $0.75 per share and 265,000 shares exercisable at $0.25 per share
have been granted and not canceled or exercised. As of October 20, 2000, Options
covering an additional 2,698,448 shares may be issued under the Option Plans.
22
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of October 20, 2000
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 7,006,034(2) 12.5
1341 Birmingham Highway
Chattanooga, TN 37419
Lawrence J. Brady (3) 1,393,000(4) 2.8
Charles McCarthy (3) 280,000(5) *
William Odom (3) 257,500(6) *
Alan Brooks (3) 225,000(7) *
Lawrence Pressler (3) 225,000(7) *
Lawrence Schad (3) 2,000,400(8) 4.0
John M. Dab (3) 364,500(9) *
All officers and 4,380,900 8.6
directors as a group
(6 people) (4) (5) (6) (7) (8)
</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) These shares are issuable upon exercise of options or warrants.
(3) The address of each of these persons is c/o ATG, 1017 South Mountain
Avenue., Monrovia, CA 91016.
(4) Includes 1,375,000 shares issuable upon exercise of options.
(5) Includes 80,000 shares issuable upon exercise of options
(6) Includes 57,500 shares issuable upon exercise of options
(7) Includes 25,000 shares issuable upon exercise of options.
(8) Includes 115,300 shares held by Mr. Schad's children under the Uniform Gift
to Minors Act, 183,000 shares held by a trust for which Mr. Schad serves as
a trustee with no beneficial interest and 25,000 shares issuable upon
exercise of options. Also includes 309,000 shares held by Mr. Schad's wife
and 250,000 shares issuable upon exercise of a warrant also held by Mr.
Schad's wife.
(9) Includes 4,500 shares of Common Stock held of record by Mr. Dab's children
under the Uniform Gift to Minors Act and 350,000 shares issuable upon
exercise of options.
23
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Particle Technology 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 former director of the
Company.
On July 22, 1994, the Company entered into a Technology Acquisition Agreement
with Shui-Yin Lo, the Company's former Director of Research and Development and
a former 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 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
24
<PAGE>
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.
The foregoing agreements regarding the BASER do not cover an invention of the
Company embodied in certain patent applications regarding non-coherent particle
beams.
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 $220,000. 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 300,000 shares of Common Stock
at exercise prices between $0.12 and $0.40 per share.
Mr. Brooks is a principal and officer of two firms which provided
consulting services to the Company. In fiscal 1999, 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.
25
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
3.3 Amended and Restated Bylaws (2)
3.4 September 3, 1997 Amendments to Bylaws (3)
4.1 Specimen of Common Stock (1)
4.2 Certificate of Determination of Rights and Preferences of
Series A Convertible Preferred Stock (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 the Company, Rod Quinn, Loren Zanier, Robert
Carroll and David Gann (1)
10.3 License Agreement dated as of March 1, 1994 by and between the Company and B.W.N. Nuclear Waste Elimination
Corporation (3)
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)
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
10.9 Form of Executive Employment Agreement effective January 1, 1999. (7)
21 List of Subsidiaries of the Registrant.
23 Consent of Corbin & Wertz.
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.
(7) Previously filed as an exhibit to the Company's Form 10-KSB Annual Report
filed with the Commission on November 15, 1999.
(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.
27
<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: October 27, 2000
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, October 27, 2000
--------------------- Chief Executive Officer
Lawrence J. Brady
/s/ Yan Lin Acting Chief Financial Officer October 27, 2000
--------------------- Acting Chief Accounting Officer
Yan Lin
/s/ William Odom Director October 27, 2000
---------------------
William Odom
/s/ Lawrence Pressler Director October 27, 2000
---------------------
Lawrence Pressler
/s/ Charles McCarthy Director October 27, 2000
---------------------
Charles McCarthy
/s/ Alan Brooks Director October 27, 2000
---------------------
Alan Brooks
Director October , 2000
---------------------
Lawrence Schad
</TABLE>
28
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of July 31, 2000
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,
2000, and the related consolidated statements of operations, stockholders'
(deficit) equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American
Technologies Group, Inc. and subsidiaries as of July 31, 2000, and the results
of their operations and their cash flows for each of the years in the two-year
period 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 totaling over $47 million, and at July 31,
2000, has a working capital deficit of $6,005,600 and is in default on its
convertible debentures. The ability of the Company to operate as a going concern
is dependent upon its ability to (1) obtain sufficient additional debt and/or
equity capital, and (2) generate significant revenues through its existing
assets and operating business. 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
October 25, 2000
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
ASSETS July 31, 2000
-----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 3,950
Accounts receivable, net of allowance for doubtful accounts of $10,000 81,596
Inventories, net 173,939
Other current assets 28,000
----------
Total current assets 287,485
Property and equipment, net of accumulated depreciation and
amortization of $723,583 1,124,388
Note receivable, net of unamortized imputed interest of $824,000 1,676,000
Other assets 239,455
----------
$3,327,328
==========
</TABLE>
--------------------------------------------------------------------------------
Continued...
F-2
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - CONTINUED
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT July 31, 2000
-----------------
<S> <C>
Current liabilities:
Accounts payable $ 657,257
Accrued interest payable 442,961
Accrued payroll and related liabilities 278,394
Accrued professional fees 301,436
Other accrued liabilities 184,265
Amounts due to related parties 598,817
Notes payable 1,704,955
Convertible debentures 2,125,000
------------
Total current liabilities 6,293,085
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,
44,955,772 shares issued and outstanding 44,956
Additional paid-in capital 51,235,676
Stock subscriptions 6,750
Prepaid consulting expenses (173,901)
Accumulated deficit (54,079,616)
------------
Total stockholders' deficit (2,965,757)
------------
$ 3,327,328
============
</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
================================================================================
<TABLE>
<CAPTION>
Years Ending July 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Technology products and licensing fees $ 258,759 $ 307,583
Other 78,571 198,311
------------ ------------
Total operating revenues 337,330 505,894
------------ ------------
Operating expenses:
General and administrative 3,952,392 6,180,979
Marketing and product development 437,200 878,343
Research and development 599,812 665,377
Mining operations 74,183 156,913
Loss on impairment of assets held for sale -- 1,338,584
------------ ------------
Total operating expenses 5,063,587 9,220,196
------------ ------------
Other (expense) income:
Interest expense, net (2,048,168) (2,078,150)
Loss on investment in joint venture -- (39,341)
------------ ------------
Total other (expense) income (2,048,168) (2,117,491)
------------ ------------
Net loss from continuing operations (6,774,425) (10,831,793)
Discontinued operations:
Loss from discontinued operations -- (200,943)
Gain on disposal of discontinued operations -- 229,200
------------ ------------
Total discontinued operations -- 28,257
------------ ------------
Net loss before extraordinary item (6,774,425) (10,803,536)
Extraordinary item - gain on extinguishment of debt 55,194 --
------------ ------------
Net loss attributable to common stockholders $ (6,719,231) $(10,803,536)
============ ============
Basic and fully diluted net loss per common share:
Continuing operations $ (0.19) $ (0.42)
Discontinued operations (0.00) (0.00)
Extraordinary item (0.00) (0.00)
------------ ------------
Net loss $ (0.19) $ (0.42)
============ ============
Weighted average number of common shares outstanding 35,929,108 25,670,304
============ ============
</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, 2000 and 1999
================================================================================
<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, 1998 378,061 $ 378 22,704,368 $ 22,704 $ 39,569,941
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
<CAPTION>
Prepaid
Stock Consulting
Subscriptions Expenses Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, August 1, 1998 $ 63,440 $ -- $(36,556,849) $ 3,099,614
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>
--------------------------------------------------------------------------------
Continued . . .
F-5
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY-CONTINUED
For The Years Ended July 31, 2000 and 1999
================================================================================
<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 in conversion of debt, including accrued
interest of $8,588, net of issuance costs of $65,229 -- -- 9,451,552 9,451 1,633,908
Interest expense recognized for discounted conversion
feature and detachable warrants related to
convertible debentures -- -- -- -- 1,629,657
Stock issued in settlement of accounts payable -- -- 24,000 24 9,119
Stock issued under reset rights -- -- 496,491 496 (496)
Stock issued for services rendered -- -- 2,381,491 2,381 636,203
Expenses related to granting of stock options -- -- -- -- 620,418
Exercise of stock options and warrants -- -- 824,381 825 117,175
Stock issued for cash -- -- 1,758,334 1,759 270,741
Issuance of stock for stock subscriptions from prior years -- -- 646,000 646 196,174
Stock subscribed for services -- -- -- -- --
Amortization of prepaid consulting expenses -- -- -- -- --
Net loss -- -- -- -- --
---------- ------------ ------------ ------------ ------------
Balance, July 31, 2000 378,061 $ 378 44,955,772 $ 44,956 $ 51,235,676
========== ============ ============ ============ ============
<CAPTION>
Prepaid
Stock Consulting
Subscriptions Expenses Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stock issued in conversion of debt, including accrued
interest of $8,588, net of issuance costs of $65,229 -- -- -- 1,643,359
Interest expense recognized for discounted conversion feature
and detachable warrants related to convertible debentures -- -- -- 1,629,657
Stock issued in settlement of accounts payable -- -- -- 9,143
Stock issued under reset rights -- -- -- --
Stock issued for services rendered -- (219,109) -- 419,475
Expenses related to granting of stock options -- -- -- 620,418
Exercise of stock options and warrants -- -- -- 118,000
Stock issued for cash -- -- -- 272,500
Issuance of stock for stock subscriptions from prior years (196,820) -- -- --
Stock subscribed for services 6,750 -- -- 6,750
Amortization of prepaid consulting expenses -- 635,441 -- 635,441
Net loss -- -- (6,719,231) (6,719,231)
------------ ------------ ------------ ------------
Balance, July 31, 2000 $ 6,750 $ (173,901) $(54,079,616) $ (2,965,757)
============ ============ ============ ============
</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
================================================================================
<TABLE>
<CAPTION>
Years Ending July 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,719,231) $(10,803,536)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 775,265 574,593
Amortization of prepaid consulting expenses 635,441 2,653,017
Write-off of advances to officers and stockholders -- 138,198
Stock issued and subscribed as consideration for services
and settlement of claims and accounts payable 435,368 845,112
Imputed interest expense for notes payable and capital
leases -- 81,913
Imputed interest expense on convertible debentures
and accrued interest converted to common stock 1,638,245 1,334,227
Stock options issued to consultants and employees 609,304 585,297
Gain on disposal of discontinued operations -- (229,200)
Loss on impairment of assets held for sale -- 1,338,584
Loss on investment in a joint venture -- 39,341
Gain on extinguishment of debt (55,194) --
Changes in operating assets and liabilities:
Accounts receivable (8,466) (1,101)
Inventories 6,599 (30,880)
Other current assets 3,953 (16,318)
Accounts payable and accrued liabilities 518,845 596,071
Amounts due to related parties 108,767 36,713
------------ ------------
Net cash used in operating activities (2,051,104) (2,857,969)
------------ ------------
Cash flows used in investing activities:
Purchases of property and equipment (9,453) (1,368)
------------ ------------
Cash flows from financing activities:
Advances to officers/stockholders, net -- 255,300
Proceeds from issuance of convertible debentures,
net of issuance costs of $65,229 in fiscal 2000 934,771 2,750,000
Proceeds from notes payable 47,250 175,000
Payments on notes payable (18,189) (13,586)
Payments on capital lease obligations -- (50,000)
Deposit on sale of discontinued operations -- 200,000
Net proceeds from issuance of stock and stock
subscriptions 390,500 185,000
------------ ------------
Net cash provided by financing activities 1,354,332 3,501,714
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
Continued...
F-7
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
================================================================================
<TABLE>
<CAPTION>
Years Ending July 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net cash flows from discontinued operations -- 7,235
Net change in cash and cash equivalents (706,225) 649,612
Cash and cash equivalents, beginning of year 710,175 60,563
------------ ------------
Cash and cash equivalents, end of year $ 3,950 $ 710,175
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 231,700 $ 146,724
============ ============
Income taxes $ 800 $ 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 $ 1,700,000 $ --
============ ============
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
============ ============
Cancellation of debt by repricing of option $ 66,307 $ --
============ ============
</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
For The Years Ended July 31, 2000 and 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 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 9).
Significant Business Risks
Since its inception, the Company has incurred significant operating losses
totaling over $47 million, and at July 31, 2000, has a working capital deficit
of $6,005,600 and is in default on its convertible debentures (see Note 6). The
ability of the Company to operate as a going concern is dependent upon its
ability (1) to obtain sufficient additional debt and/or equity capital and (2)
generate significant revenues through its existing assets and operating
business. The Company plans to raise additional working capital through private
offerings of debt and equity (see Note 17 for recent capital raising
activities). 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 their business plans or generate positive operating
results. These issues, among others, raise substantial doubt about the ability
of the Company to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of ATG and its wholly
owned subsidiary, New Concept Mining. All material intercompany profits,
transactions and balances have been eliminated in consolidation.
--------------------------------------------------------------------------------
F-9
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. The
carrying amounts of the Company's cash and cash equivalents, marketable
securities, trade payables, accrued expenses, and notes payable approximate
their estimated fair value due to the short-term maturities of those financial
instruments. The estimated fair value of amounts due related parties is not
ascertainable as the underlying transactions were between related parties. Also,
the estimated value of convertible debentures is not determinable as equivalent
financial instruments are not easily identifiable.
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.
From time to time, the Company has balances in banks that are 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.
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 impairment losses during 2000 and 1999 of $0 and
$1,338,584, respectively, in the carrying value of assets held for sale due to
carrying value of these assets being in excess of estimated sale price (see Note
9).
As a result, management believes that the impairment losses recorded on
long-lived assets, including mining assets (see Note 9) and patents, are
adequate. However, there can be no assurance that market conditions will not
change or needs for existing products will continue which could result in
additional asset impairments.
--------------------------------------------------------------------------------
F-10
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 three to seven years. Buildings are
depreciated over 30 years. Equipment used for research activities is 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 9).
Subsequent to July 31, 2000, the Company sold its building and related
improvements for $1,300,000 in a sale-leaseback transaction. The net book value
of the asset was approximately $950,000 (approximately 85% of the net fixed
asset balance at July 31, 2000) and generated a gain of approximately $250,000
(see Note 17).
Patents
Net patent costs of $169,455 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 seven years.
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 in under Staff Accounting Bulletin 101 ("SAB 101"),
"Revenue Recognition," issued by the Securities and Exchange Commission in
December 1999. SAB 101 outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
Securities and Exchange Commission. The Company's adoption of SAB 101 did not
have a material impact on its financial position and results of operations.
--------------------------------------------------------------------------------
F-11
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
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
2,203,359 and 129,237 for fiscal year ended July 31, 2000 and 1999,
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.
--------------------------------------------------------------------------------
F-12
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Extraordinary Item
In May 2000, the Company granted 200,000 options to a related party in exchange
for cancellation of a payable of $66,307. The value of the options at the date
of grant was $11,113, which resulted in a gain on extinguishment of debt of
$55,194 that is shown as an extraordinary item in the accompanying consolidated
statement of operations.
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.
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. Significant estimates made by management include
the collectibility of notes and accounts receivable and the realizability of
inventories and long-lived assets. 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 has not yet determined the impact of
the adoption of this standard on its results of operations, financial position
or cash flows.
--------------------------------------------------------------------------------
F-13
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44") "Accounting
for Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion 25." FIN 44 clarifies the application of APB 25 for (a) the definition
of employee for purposes of applying APB 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence for various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
provisions cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of these provisions of FIN 44 prior to June 30,
2000 did not have a material effect on the financial statements. The Company
does not expect that the adoption of the remaining provisions will have a
material effect on the financial statements.
Reclassifications
Certain amounts in the July 31, 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Summary of property and equipment as of July 31, 2000 is as follows:
Land $ 431,000
Property and equipment 1,416,971
-----------
1,847,971
Less accumulated depreciation and amortization (723,583)
-----------
$ 1,124,388
===========
Subsequent to July 31, 2000, the Company sold its land and building with a net
book value of approximately $950,000 to a third party in a sale-leaseback
transaction (see Note 17).
NOTE 4 - NOTE RECEIVABLE
During fiscal year 1999, the Company sold its interest in a mining property and
its remaining gold mines (see Note 9) for a non-interest bearing note of
$2,500,000 which was 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. During fiscal year 2000, management determined not to amortize the
discount to interest income until payments are received. Based on prior
transactions with this note holder, management believes the note is collectible.
However, there can be no assurance that industry or economic conditions will not
change which could result in this note becoming completely or partially
uncollectible.
--------------------------------------------------------------------------------
F-14
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 5 - NOTES PAYABLE
Notes payable are summarized as follows as of July 31, 2000:
Note payable to financial institution with monthly payments of
interest at 12.95% and a balloon payment of $877,500. This amount
was paid after year-end (see Note 17). $877,500
Note payable to Anthony Selig (see below) 605,205
Note payable to Gaines Campbell, interest at 8.0%, due on demand 175,000
Revolving line of credit with a bank, borrowings of up to $50,000
with minimum monthly interest payments at the bank's prime rate
plus 2% (totaling 11.5% at July 31, 2000), guaranteed by certain
officers of the Company 47,250
----------
$1,704,955
==========
Notes payable of $125,000 and $600,000 were issued to Anthony Selig in
conjunction with the Company's acquisition of the mining properties, which are
secured by a first deed of trust on the property and equipment acquired. 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 were 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 1999, the Company sold the mining property and equipment in the Manhattan
mining area securing the Anthony Selig notes (see Note 9). Although the buyer
agreed to assume this note, the Company did not receive a legal release from
Selig. As a result, the Company has left this note on its books and will
recognize additional gain on sale of assets as the buyer pays on the notes. To
date, the Company is not aware of the buyer making any payments on the note and
has not recognized any income.
NOTE 6 - CONVERTIBLE DEBENTURES
Convertible debentures are summarized as follows as of July 31, 2000:
Convertible debentures, 7.5% $ 75,000
Subordinated convertible debentures, 3% 550,000
Secured subordinated convertible debentures, prime plus 0.5%
(totaling 10% at July 31, 2000) 500,000
Secured subordinated convertible debentures, 8.5% 1,000,000
---------
2,125,000
--------------------------------------------------------------------------------
F-15
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 6 - CONVERTIBLE DEBENTURES, continued
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. As of July 31, 1999, $75,000 of the debentures
are outstanding, which are currently in default as the remaining balance was not
repaid as of October 15, 1999.
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. 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. During fiscal year 2000, all of these
convertible debentures and related accrued interest of $1,717 were converted
into 5,819,662 shares of common stock of the Company. The conversion price was
based on the average of the market price for the five trading days prior to the
conversion, discounted 25%, as provided in the debenture 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 debenture 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 debenture 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 1999.
This debenture is subordinated to all other non-subordinated debt, and has
registration rights and antidilution rights related to any conversions to common
stock as discussed in the agreement.
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 fiscal 1999. These
debentures are subordinated to all other non-subordinated debt, and have
registration rights and antidilution rights related to any conversions to common
stock as discussed in the agreements. During fiscal year 2000, $150,000 of these
subordinated convertible debentures were converted into 300,000 shares of common
stock of the Company.
--------------------------------------------------------------------------------
F-16
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 6 - 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 and warrants vest immediately. In connection with the
discounted conversion feature and the fair value of the warrants, the Company
recorded imputed interest expense of $781,009 during fiscal 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
related to any conversions to common stock as discussed in the agreements.
In September 1999, the Company issued a $500,000 secured convertible debenture
bearing interest at prime rate plus 0.5% per year (10% as of July 31, 2000),
maturing December 31, 2003. The conversion price is fixed at $0.25 per share and
the conversion feature vests January 1, 2000. This convertible debenture plus
another debenture in the principal amount of $1,000,000 issued in July 1999 is
secured by the catalyst technology of the Company. The debenture agreement for
these debentures also contains antidilution provisions and registration rights.
In connection with the discount conversion feature for both debentures, the
Company has recorded imputed interest expense of $662,000 during fiscal 2000.
These debentures are subordinated to all other non-subordinated debt, and have
registration rights and antidilution rights related to any conversions to common
stock as discussed in the agreements.
In January 2000, the Company issued $250,000 of 7% convertible debentures,
maturing January 14, 2003. The Company recorded debt issuance costs of $32,614
as an offset to the note payable related to this transaction. Accrued interest
on these convertible debentures is due on the earlier of conversion or maturity.
The conversion price is equal to the lower of $0.23 per share or 72.5% of the
average of the lowest three trading prices during the ten trading day period
prior to conversion. Included with these convertible debentures were 500,000
detachable stock warrants to acquire common stock at an exercise price of the
lower of $0.174 or 72.5% of the average of the lowest three trading prices
during the ten trading days immediately prior to exercise of the warrants. The
conversion feature and the warrants vest immediately. In connection with the
discount conversion feature and the fair value of the warrants, the Company has
recorded imputed interest expense of $212,583 during fiscal 2000. During fiscal
year 2000, all of these convertible debentures plus related accrued interest of
$4,780 were converted into 2,223,661 shares of common stock of the Company. The
conversion price was based on $0.0943 per share (72.5% of the average of the
lowest three trading prices during the ten trading day period prior to the
conversion), as provided in the debenture agreement. These debentures have
registration rights and antidilution rights related to any conversions to common
stock as discussed in the agreements.
--------------------------------------------------------------------------------
F-17
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 6 - CONVERTIBLE DEBENTURES, continued
In February 2000, the Company issued $250,000 of 7% convertible debentures,
maturing February 18, 2003. The Company recorded debt issuance costs of $32,615
as an offset to this note payable related to this transaction. Accrued interest
on these convertible debentures is due on the earlier of conversion or maturity.
The conversion price is equal to the lower of $0.345 per share or 72.5% of the
average of the lowest three trading prices during the ten trading day period
prior to conversion. Included with these convertible debentures were 500,000
detachable stock warrants to acquire common stock at an exercise price of the
lower of $0.23 or 72.5% of the average of the lowest three trading prices during
the ten trading days immediately prior to exercise of the warrants. The
conversion feature and the warrants vest immediately. In connection with the
discount conversion feature and the fair value of the warrants, the Company has
recorded imputed interest expense of $212,583 during fiscal 2000. During fiscal
2000, all of the convertible debentures plus related accrued interest of $2,091
were converted into 1,108,229 shares of common stock of the Company. The
conversion price was based on $0.227 per share (72.5% of the average of the
lowest three trading prices during the ten trading days immediately prior to the
exercise of the warrant), as provided in the agreement. These debentures have
registration rights and antidilution rights related to any conversions to common
stock as discussed in the agreements.
In connection with obtaining $1,000,000 in convertible debentures during fiscal
2000, the Company granted 5,581,650 warrants to consultants and finders. Of the
5,581,650 warrants, 2,481,650 have fixed exercise prices ranging from $0.122 to
$0.75 per share and expire between November 2003 and June 2005. The remaining
warrants have variable prices ranging from the lesser of $0.174 per share or the
average trading price of the stock on the date of exercise to the lessor of
$0.35 per share or 76% of the average trading price of the stock at the date of
exercise as defined in the agreements and expire between January 2003 and May
2005. The Company recorded imputed interest expense of $542,491 related to these
warrants using the Black Scholes valuation model (see Note 8) based on the value
of the warrants on the date of grant for all of the warrants. The incremental
difference between the grant date fair value and year end fair value is
insignificant for these variable warrants plus the 1,000,000 variable warrants
issued to debt holders in fiscal 2000 (see above) and has therefore not been
recorded at July 31, 2000.
All of the convertible debentures are subject to certain non-financial
covenants. The covenants include maintaining the Company's stock listing on an
exchange or over-the-counter market and keeping current on all other debt. The
Company is not in compliance with all of the non-financial covenants as of July
31, 2000; therefore, all convertible debt is shown as current.
NOTE 7 - 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, 2000 and
1999. The technology rights are fully amortized as of July 31, 2000.
--------------------------------------------------------------------------------
F-18
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 8 - CAPITAL STOCK
Common Stock
The Company issued 2,381,491 and 4,800,000 shares of common stock for services
rendered valued at $638,584 and $3,283,250 during 2000 and 1999, respectively.
All shares issued were valued at the average estimated market value at date of
issuance. Shares issued for future services are recorded to prepaid consulting
expenses and are amortized to expense over the life of the related agreement.
In fiscal 2000, the Company sold 1,758,334 shares of common stock for $272,500
to various investors. As part of these transactions, the Company issued warrants
to acquire 1,583,334 shares of common stock at $0.25 per share to the investors
that were valued at approximately $150,000 under SFAS 123 (see below) and
recorded to expense.
In fiscal 1999, the Company issued 650,000 shares in a settlement of a claim,
recording expense of $325,000. As part of the settlement, the Company agreed to
issue additional shares if the per share value declined. As a result, the
Company issued 496,491 additional shares in fiscal 2000 under this reset right
that was not recorded as an additional expense by the Company.
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, 2000, 378,061 shares of Series A Stock were
outstanding, no shares having been converted.
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, 2000,
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 eight 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, 2000, there are no
Series C Stock issued and outstanding.
--------------------------------------------------------------------------------
F-19
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 8 - CAPITAL STOCK, continued
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:
Weighted
Average Exercise
Number of Exercise Price
Shares Price Per Share Per Share
---------- --------------- -------------
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
Granted 213,750 0.64 0.30 - 0.75
Exercised -- -- --
Canceled (842,375) 0.80 0.30 - 3.00
---------- ------ -------------
Outstanding at July 31, 2000 921,500 $ 0.39 $ 0.25 - 0.75
========== ====== =============
The weighted average fair value of options granted is $0.16 and $0.58 per share
at July 31, 2000 and 1999, respectively.
On May 3, 2000, the Board of Directors approved a repricing of 656,500 options
held by employees to $0.25 per share. The options were exercisable at $0.75 per
share prior to the repricing. No compensation expense was recorded as a result
of this transaction as the fair value on the date of repricing was less than the
price of the options. However, under FIN 44, these options will be subject to
variable plan accounting in the future and any subsequent fluctuations in the
fair value of the stock above $0.25 per share will result in a corresponding
fluctuation in compensation expense for these options. As of July 31, 2000, no
additional compensation expense is required as the fair value of the stock is
less than $0.25.
--------------------------------------------------------------------------------
F-20
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 8 - CAPITAL STOCK, continued
On December 14, 1998, the Board of Directors approved a repricing of
approximately 4,130,000 options held by employees to $0.75 per share. 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.
The following summarizes information about stock options outstanding at July 31,
2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted
Average Weighted
Number of Remaining Average Number of Weighted
Range of Exercise Shares Contractual Exercise Shares Average
Prices Outstanding Life (Years) Price Exercisable Exercise Price
----------------- ----------- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.25 656,500 2.81 $0.25 553,000 $0.25
$0.75 265,000 3.29 $0.75 265,000 $0.75
</TABLE>
Transactions involving options and warrants not covered by the plans are
summarized as follows:
Weighted
Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
---------- ------ ------------
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
Granted 9,104,984 0.16 0.12- 0.75
Exercised (824,381) 0.14 0.14- 0.20
Canceled (2,328,113) 1.64 0.19- 4.00
---------- ------ ------------
Outstanding at July 31, 2000 13,944,763 $ 0.57 $ 0.12- 4.06
========== ====== ============
The weighted average fair value of non-plan stock options and warrants granted
is $0.11 and $0.63 per share at July 31, 2000 and 1999, respectively.
On May 24, 2000, the Board of Directors approved a repricing of approximately
2,074,000 warrants held by consultants to $0.19 per share. The warrants were
exercisable at $0.75 to $3.00 per share prior to the repricing. The incremental
value under SFAS 123 as a result of the repricing was insignificant and was thus
not recorded at July 31, 2000. All of the related shares were either exercised
or cancelled at July 31, 2000, so no future adjustment is required pursuant to
variable plan accounting.
--------------------------------------------------------------------------------
F-21
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 8 - CAPITAL STOCK, continued
In addition, as discussed in Note 6, the Company has 4,100,000 warrants issued
to noteholders and consultants that contain variable pricing terms. They are
included in the table below based on their exercise price at July 31, 2000. No
additional expense has been recorded for the ending values of warrants at July
31, 2000 as the differences are insignificant.
The following table summarizes information about non-plan stock option and
warrants outstanding at July 31, 2000:
<TABLE>
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
------------------------------------------------- --------------------------------
Weighted
Average Weighted
Number of Remaining Average Number of Weighted
Range of Exercise Shares Contractual Exercise Shares Average
Prices Outstanding Life (Years) Price Exercisable Exercise Price
----------------- ----------- ------------ --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.12 - $0.50 8,546,490 2.47 $0.16 8,046,490 $0.16
$0.75 - $0.98 3,522,116 5.17 0.75 3,154,616 0.75
$1.00 - $1.88 1,266,401 1.61 1.40 809,401 1.37
$2.12 - $4.06 609,756 2.02 3.43 609,756 3.43
</TABLE>
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>
2000 1999
-------------- --------------
<S> <C> <C>
Net loss attributable to common stockholders, as reported $ (6,719,231) $ (10,803,536)
Net loss attributable to common stockholders, pro forma $ (7,421,269) $ (12,348,609)
Loss per share, as reported $ (0.19) $ (0.42)
Loss per share, pro forma $ (0.21) $ (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 or warrant granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Expected dividend yield 0% 0%
Weighted average expected stock price volatility 165% 186%
Risk free interest rate 6.5% 5-6%
Expected life of option 1 to 3 years 1 to 3 years
</TABLE>
--------------------------------------------------------------------------------
F-22
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 8 - CAPITAL STOCK, continued
Total consulting expense charged to operations for options or warrants granted
to non-employees (in accordance with SFAS 123) was approximately $609,000
(excluding approximately $11,000 not recorded to expense related to the
extinguishment of debt - see Note 2) and $548,000 for fiscal year 2000 and 1999,
respectively. Total interest expense charged to operations for options or
warrants granted to non-employees in connection with debt financing (in
accordance with SFAS 123) was approximately $779,000 and $237,000 for fiscal
2000 and 1999, respectively. Total expense charged to operations in fiscal year
2000 and 1999 for options granted to employees at grant prices lower than market
price at the date of grant (in accordance with APB Opinion 25) was approximately
$0 and $37,000, respectively.
Stock Subscriptions
As of July 31, 2000, the Company had not issued 15,000 shares of common stock
for services at $0.45 per share totaling $6,750. During 2000, 646,000 shares
valued at $196,820 relating to prior year subscriptions were issued.
NOTE 9 - ASSETS HELD FOR SALE
Included in other assets at July 31, 2000 in the accompanying consolidated
balance sheet is 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).
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 the 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.
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 $0 and $24,600 in fiscal years 2000 and 1999,
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.
--------------------------------------------------------------------------------
F-23
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 9 - ASSETS HELD FOR SALE, continued
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% (see Note 3). The note is payable in installments from
January 1, 2002 to January 1, 2008. The Company recognized impairment losses on
these properties of $0 and $925,000 during fiscal year 2000 and 1999,
respectively. 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 10 - 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 marketed various personal and home care products
containing the Company's proprietary catalyst technology. Sales of these
products commenced in June 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 11 - 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.
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 were approximately $202,000 for fiscal 1999.
The Company recognized a gain on the sale of $229,200 in fiscal 1999 due to the
release of liabilities in excess of assets.
--------------------------------------------------------------------------------
F-24
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company has $220,000 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 were due in installments of approximately $40,000 per
month, commencing August 1999 and ending in February 2000. This loan is secured
by the personal property of the Company. The Company is in discussions with the
officer/shareholder to modify the terms of this loan. The remaining balance of
$378,817 due to related parties is unsecured, due on demand, and bear no
interest.
During fiscal 2000 and 1999, the Company incurred expenses to related parties
and shareholders principally for consulting fees of approximately $0 and
$2,640,000, 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. There have been no shares granted
under this agreement through July 31, 2000.
During fiscal 1997, the Company completed payments of $150,000, in the
aggregate, to Dr. Lo (a former 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 or shares granted through July 31, 2000 in conjunction with this
agreement. The acquired option expires one year after evidence of unencumbered
title to the Baser Technology is provided by the Company.
NOTE 13 - INCOME TAXES
A provision for income taxes of $1,000 (representing minimum state taxes) were
recorded in fiscal years 2000 and 1999, respectively.
--------------------------------------------------------------------------------
F-25
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 13 - INCOME TAXES, continued
Net temporary differences that give rise to deferred tax assets and liabilities
recognized in the balance sheet are as follows:
Deferred tax assets:
Net operating loss carryforward $ 20,108,000
Long-term deferred tax assets 318,000
Valuation allowances (20,426,000)
------------
Net deferred tax asset $ --
============
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, 2000, the Company has approximately $50,000,000 of federal
operating loss carryforwards that will expire in fiscal years ending 2006
through 2020 and approximately $25,000,000 of California state net operating
loss carryforwards, which will expire in fiscal years ending 2001 through 2005.
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 fiscal 2000 and 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 14 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has employment agreements with several principal officers and
employees. The agreements call for minimum salary levels. Minimum payments under
all employment agreements for fiscal 2001 are approximately $457,000. The
agreements are cancelable by the Company for cause.
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 or results of operations.
--------------------------------------------------------------------------------
F-26
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 14 - COMMITMENTS AND CONTINGENCIES, continued
Contingent Sale
In May 2000, the Company shipped product to a foreign customer. Since the
collectibility of this $3.7 million sale is uncertain, the sale was not recorded
in fiscal 2000 and will only be recorded in the future upon its collection by
the Company. The related costs of goods shipped have been expensed as the
Company's ability to have the product returned is questionable.
NOTE 15 - 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, 2000 and 1999, is as follows:
2000 1999
---------- ----------
Operating revenues:
Technology products $ 258,759 $ 307,583
Corporate 57,854 127,879
Mining 20,717 70,432
---------- ----------
Total operating revenues $ 337,330 $ 505,894
========== ==========
Operating loss:
Technology products, including research
and development $ 799,174 $1,236,137
Mining, including impairment 53,466 1,425,065
Corporate expenses 3,873,617 6,053,100
---------- ----------
Net operating loss $4,726,257 $8,714,302
========== ==========
Identifiable assets:
Technology products $ 473,300 $1,138,165
Mining assets held for sale 70,000 107,885
Corporate and other 2,784,028 3,555,402
---------- ----------
Total $3,327,328 $4,801,452
========== ==========
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-27
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 16 - MAJOR CUSTOMERS
The Company sells a substantial portion of its technology products to three
customers. During fiscal 2000 and 1999, the Company's sales to these three
customers approximated 54% and 30%, respectively of total sales and 71% and 49%,
respectively, of technology product sales. At July 31, 2000, amounts due from
these three customers included in accounts receivable are $57,234.
NOTE 17 - SUBSEQUENT EVENTS
On August 4, 2000, the Company issued 125,000 restricted shares of common stock
in exchange for $10,000 to an outside party.
On August 25, 2000, the Company entered into a sale-leaseback transaction
with an unrelated party for total consideration of $1,300,000, recognizing a
gain of approximately $250,000. As a result of the sale, the Company paid its
note payable of $877,500 (see Note 5) and the related accrued interest. The gain
on the sale will be deferred and recognized over the life of the lease. The
future minimum payments under the lease are as follows:
Years Ending
July 31,
------------
2001 $ 111,000
2002 115,000
2003 119,000
2004 123,000
2005 127,000
---------
$ 595,000
=========
On September 6, 2000, the Company issued $500,000 of 8% convertible debentures,
maturing September 5, 2002. Accrued interest on these convertible debentures is
due on the earlier of conversion or maturity. The conversion price is equal to
75% of the average of the lowest three trading prices during the fifteen trading
days prior to conversion. Included with these convertible debentures were
500,000 detachable stock warrants to acquire stock at an exercise price of $0.09
per share. The conversion feature and the warrants vest immediately. The value
of the warrants and the beneficial conversion feature will be recorded as
imputed interest to be included in interest expense in first quarter of fiscal
2001. These debentures have registration rights and antidilution rights related
to any conversions to common stock as discussed in the agreements.
On September 6, 2000, the board of directors granted the non-employee directors
750,000 shares at $0.12 per share as compensation for services rendered as board
members. The value of the shares of $90,000 will be accounted for under APB
Opinion 25.
--------------------------------------------------------------------------------
F-28
<PAGE>
AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 2000 and 1999
================================================================================
NOTE 17 - SUBSEQUENT EVENTS, continued
On September 14, 2000, warrant holders exercised 3,369,006 warrants at exercise
prices ranging from $0.072 to $0.09 per share in exchange for $262,368.
On October 13, 2000, the Company entered into an agreement with a related party
to reprice an option to purchase 50,000 shares to $0.10 per share from $0.50 per
share in exchange for forgiveness of $125,000 due to the option holder. The gain
will be recorded as an extraordinary item and the repriced options will be
accounted for in the future under variable plan accounting.
F-29
<PAGE>
