-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FQG1SOrHS2CeLKZkuvo4P3MXgJe0oAL6lIF+Dp0jj5SYs/sgoSftH940Zt8wG8UQ 5qoGjUxrVXVazFnss8lWnA== 0001047469-99-024793.txt : 19990623 0001047469-99-024793.hdr.sgml : 19990623 ACCESSION NUMBER: 0001047469-99-024793 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN TECHNOLOGIES GROUP INC CENTRAL INDEX KEY: 0000878547 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLES & MOTOR VEHICLE PARTS & SUPPLIES [5010] IRS NUMBER: 954307525 STATE OF INCORPORATION: NV FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23268 FILM NUMBER: 99649607 BUSINESS ADDRESS: STREET 1: 1017 S MOUNTAIN AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 6263575000 MAIL ADDRESS: STREET 1: 425 EAST HUNTINGTON DR CITY: MONROVIA STATE: CA ZIP: 91016 10-Q 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ____________ Commission file number 0-23268 AMERICAN TECHNOLOGIES GROUP, INC. --------------------------------- (Name of small business issuer in its charter) NEVADA 95-4307525 ------ ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1017 SOUTH MOUNTAIN AVENUE, MONROVIA, CA. 91016 ----------------------------------------------- (Address of principal executive offices) (zip code) Issuer's telephone number: (626) 357-5000 Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ As of June 10, 1999, the registrant had 27,408,785 shares of Common Stock outstanding. TABLE OF CONTENTS
PAGE PART I FINANCIAL INFORMATION ITEM 1 Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of April 30, 1999 and July 31, 1998 3 Condensed Consolidated Statements of Operations for the Three and Nine Months ended April 30, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows for the Nine Months ended April 30, 1999 and 1998 6 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2 Management's Discussion and Analysis 11 PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K 14 Signatures 15
FORWARD-LOOKING STATEMENTS IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING THIS STATEMENT FOR THE EXPRESS PURPOSE OF SUCH SAFE HARBOR WITH RESPECT TO ALL SUCH FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS REPORT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN AND IN OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT, THE WORDS "ANTICIPATES", "BELIEVES", "INTENDS", "FUTURE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO RELFECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF. Page 2 AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - APRIL 30, 1999 AND JULY 31, 1998 ASSETS
April 30, July 31, 1999 1998 --------------------- -------------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 48,448 $ 60,563 Accounts receivable, net of allowance for doubtful accounts of $10,000 and $28,811 at April 30, 1999 and July 31, 1998, respectively 62,637 46,029 Inventories, net 179,432 149,658 Due from officers/shareholders 5,580 138,198 Other current assets - 8,482 ------------------ ----------------- Total current assets 296,097 402,930 ------------------ ----------------- PROPERTY AND EQUIPMENT 1,837,406 1,837,406 Less--Accumulated depreciation and amortization (539,184) (421,767) ------------------ ----------------- 1,298,222 1,415,639 ------------------ ----------------- TECHNOLOGY RIGHTS, net of accumulated amortization of $700,000 and $400,000 at April 30, 1999 and July 31, 1998, respectively 500,000 800,000 OTHER ASSETS 393,752 432,909 ASSETS HELD FOR DISPOSAL 3,710,845 3,925,051 ASSETS OF DISCONTINUED OPERATIONS - 134,401 ------------------ ----------------- $ 6,198,916 $ 7,110,930 ------------------ ----------------- ------------------ -----------------
The accompanying notes are an integral part of those consdensod consolidated balance sheets. 3 AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - APRIL 30, 1999 AND JULY 31, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, July 31, 1999 1998 ----------------- ---------------- (Unaudited) CURRENT LIABILITIES: Accounts payable $ 1,130,202 $ 360,028 Accrued liabilities 595,962 145,770 Accrued professional fees 237,035 243,600 Amounts due to related parties 434,876 264,345 Current portion of notes payable 1,276,230 372,824 Current portion of capital lease obligations 22,344 22,344 Convertible debentures 1,675,000 75,000 Liabilities of discontinued operations - 356,366 Deposit on sale of discontinued operations - 300,000 ----------------- ---------------- Total current liabilities 5,371,649 2,140,277 NOTES PAYABLE, net of current portion 1,019,408 1,587,955 CAPITAL LEASES OBLIGATIONS, net of current portion 253,780 283,084 ----------------- ---------------- Total liabilities 6,644,837 4,011,316 ----------------- ---------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series A Convertible Preferred Stock: Par value--$.001, Authorized--10,000,000 shares Issued and outstanding--378,061 shares 378 378 Series B Convertible Preferred Stock: Par value--.001, Authorized--500,000 shares Liquidation value--$8.00 per share None issued and outstanding - - Series C Convertible Preferred Stock: Par value--.001, Authorized--2,000 shares Liquidation value--$1,000 per share None issued and outstanding - - Common Stock: Par value--$.001, Authorized--100,000,000 shares Issued and outstanding -- 27,408,785 and 22,704,368 shares at April 30, 1999 and July 31, 1998, respectively 27,409 22,704 Additional paid in capital 43,454,520 39,569,941 Stock subscriptions 13,320 63,440 Prepaid consulting (1,164,084) - Deficit (42,777,464) (36,556,849) ----------------- ---------------- Total stockholders' equity (445,921) 3,099,614 ----------------- ---------------- $ 6,198,916 $ 7,110,930 ----------------- ---------------- ----------------- ----------------
The accompanying notes are an integral part of those consdensod consolidated balance sheets. 4 AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1999 AND 1998 (Unaudited)
For Three Months Ended April 30, For Nine Months Ended April 30, 1999 1998 1999 1998 ----------------- ----------------- ----------------- ---------------- REVENUES: Technology products $ 107,880 $ 84,981 $ 204,360 $ 623,881 Rental income 19,000 50,000 96,000 100,000 Other 14,355 26,325 126,386 99,651 ----------------- ---------------- ---------------- ---------------- Total operating revenues 141,235 161,306 426,746 823,532 ----------------- ---------------- ---------------- ---------------- OPERATING EXPENSES General and administrative 1,755,884 733,521 4,005,850 1,994,866 Marketing and product development 112,278 88,407 647,518 600,461 Research and development 169,286 225,094 519,943 871,515 Mining operations 35,495 20,551 117,570 115,863 Amortization of technology rights 100,000 100,000 300,000 300,000 Loss on impairment of assets held for sale 200,000 - 200,000 - ----------------- ---------------- ---------------- ---------------- Total operating expenses 2,372,943 1,167,573 5,790,881 3,882,705 ----------------- ---------------- ---------------- ---------------- OTHER (EXPENSE) INCOME Interest expense, net (108,281) (34,684) (845,396) (1,562,065) Loss on investment in a joint venture - - (39,341) - ----------------- ---------------- ---------------- ---------------- (108,281) (34,684) (884,737) (1,562,065) ----------------- ---------------- ---------------- ---------------- NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS (2,339,989) (1,040,951) (6,248,872) (4,621,238) LOSS ON DISCONTINUED OPERATIONS (NOTE 6) (24,368) (231,071) (201,943) (518,812) GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS 230,200 - 230,200 - ----------------- ---------------- ---------------- ---------------- 205,832 (231,071) 28,257 (518,812) ----------------- ---------------- ---------------- ---------------- NET LOSS BEFORE EXTRAORDINARE ITEM (2,134,157) (1,272,022) (6,220,615) (5,140,050) EXTRAORDINARY ITEM Gain on extinguishment of debt - 85,775 - 85,775 ----------------- ---------------- ---------------- ---------------- NET LOSS $ (2,134,157) $ (1,186,247) $ (6,220,615) $ (5,054,275) ----------------- ---------------- ---------------- ---------------- ----------------- ---------------- ---------------- ---------------- BASIC AND DILUTED NET LOSS PER SHARE Continuing operations $ (0.09) $ (0.05) $ (0.25) $ (0.21) Discontinued operations 0.01 (0.01) 0.00 (0.02) Extraordinary item 0.00 0.00 0.00 0.00 ----------------- ---------------- ---------------- ---------------- Net Loss $ (0.08) $ (0.06) $ (0.25) $ (0.23) ----------------- ---------------- ---------------- ---------------- ----------------- ---------------- ---------------- ---------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 26,850,333 22,441,203 25,070,103 21,662,736 ----------------- ---------------- ---------------- ---------------- ----------------- ---------------- ---------------- ----------------
The accompanying notes are an integral part of these condensed consolidated financial statments. 5 AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Unaudited)
Nine Months Ended April 30, 1999 1998 ----------------- ---------------- CASH FLOW FROM OPERATING ACTIVITIES: Net Loss $ (6,220,615) $ (5,054,275) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 431,623 419,390 Write-off of advances to officers and shareholders 136,698 - Stock issued as consideration for services 1,745,046 119,465 Imputed interest expense for notes payable and capital lease 42,502 - Interest and financing costs on convertible debt 624,121 1,471,771 Gain on disposal of discontinued operations (230,200) - Gain on extinguishment of debt - (85,775) Loss on impairment of assets held for sale 200,000 - Loss on investment in joint venture 39,341 - Loss on disposal of equipment - 10,161 Changes in assets and liabilities: Accounts receivable (16,608) 366,736 Inventories (29,774) (44,925) Other current assets 8,482 (7,286) Accounts payable and accrued liabilities 1,213,801 (258,159) ----------------- ---------------- Net cash used in operating activities (2,055,583) (3,062,897) ----------------- ---------------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of property and equipment - (67,206) Investment in a joint venture - (105,000) Other (184) (294,688) ----------------- ---------------- Net cash used in investing activities (184) (466,894) ----------------- ---------------- CASH FLOW FROM FINANCING ACTIVITIES: Advances to shareholders/officers (4,080) (72,273) Advances from related parties 170,531 - Proceeds from notes payable 325,000 - Net proceeds from issuance of convertible debt 1,405,913 2,834,880 Payments on notes payable (11,947) (230,686) Payments on capital lease obligation (50,000) (50,000) Deposit on sale of discontinued operations 201,000 - Net proceeds from issuance of stock - 81,427 ----------------- ---------------- Net cash provided by financing activities 2,036,417 2,563,348 ----------------- ---------------- NET CASH FLOWS FROM DISCONTINUED OPERATIONS 7,235 76,001 NET DECREASE IN CASH AND CASH EQUIVALENTS (12,115) (890,442) CASH AND CASH EQUIVALENTS, beginning of period 60,563 1,025,076 ----------------- ---------------- CASH AND CASH EQUIVALENTS, end of period $ 48,448 $ 134,634 ----------------- ---------------- ----------------- ---------------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Stock issued for deposit on sale of discontinued operations $ 500,000 $ - ----------------- ---------------- ----------------- ---------------- Stock issued for consulting service $ 2,901,250 $ 119,465 ----------------- ---------------- ----------------- ---------------- Stock issued for technology rights $ - $ 1,200,000 ----------------- ---------------- ----------------- ---------------- Convertible debenture issued for commission $ - $ 225,000 ----------------- ---------------- ----------------- ---------------- Notes issued for mining properties $ - $ 200,000 ----------------- ---------------- ----------------- ---------------- Conversion of debentures $ - $ 3,150,000 ----------------- ---------------- ----------------- ----------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AMERICAN TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended April 30, 1999 are not necessarily indicative of the results that may be expected for the year ended July 31, 1999. For further information, please refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB/A for the fiscal year ended July 31, 1998. 2. ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS a. ORGANIZATION AND LINE OF BUSINESS American Technologies Group, Inc. (the Company or ATG), a Nevada corporation, is engaged in the development, commercialization and sale of products and systems using its patented and proprietary technologies. ATG also is involved in research and development of proprietary energy and environmental systems and services which offer cost-effective solutions to reduce, and in some cases eliminate, hazardous chemical by-products or emissions resulting from industrial production and combustion processes. b. SIGNIFICANT BUSINESS RISKS Since its inception, the Company has incurred significant operating losses. The ability of the Company to operate as a going concern is dependent upon its ability to (1) obtain sufficient additional capital, (2) generate significant revenues through its existing assets and operating business, and (3) overcome significant product development issues. The Company plans to raise additional working capital through private offerings of debt and equity. The successful outcome of future activities cannot be determined at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plans or generate positive operating results. These issues, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. c. NET LOSS PER SHARE Net loss per common share is based upon the weighted average number of common shares outstanding during the fiscal year. The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share" issued in February 1997. Common share equivalents were not considered as they would be anti-dilutive and had no impact on earnings per share for any periods presented. However, the impact under the treasury method of dilutive stock options would have been incremental shares of 69,127 and 972,781 for the nine months ended April 30, 1999 and 1998, respectively. Page 7 d. RECLASSIFICATIONS Certain amounts in the April 30, 1998 consolidated financial statements have been reclassified to conform to current year presentation. 3. DEBENTURES During the nine months ended April 30, 1999, the Company issued pursuant to subscription agreements $1,050,000, in the aggregate, of 6 percent subordinated convertible debentures, maturing November 1, 2003. Interest is due semi-annually commencing May 1, 1999 or upon conversion. The principal and accrued interest are convertible into shares of ATG's Common Stock at the lower of a fixed conversion price of $0.62 or a variable conversion price equal to 75 percent of the average closing bid price of ATG's Common Stock during the five trading days preceding the date of conversion. The debentures include warrants to purchase 105,000 shares of Common Stock at $0.75 per share. The Company anticipates that all of the debentures (including interest) will be converted into ATG's Common Stock. Imputed interest of $350,000 and financing costs of $194,087 were recorded as interest expense in connection with the $1,050,000 of debentures in the accompanying Consolidated Statements of Operations for the three and nine month periods ended April 30, 1999. In connection with the 6 percent subordinated convertible debentures, the Company placed 5,000,000 shares of ATG's Common Stock in escrow to be released to the extent due upon conversion of these debentures. In December 1998, the Company issued under a separate subscription agreement $250,000, in the aggregate, of 3 percent subordinated convertible debentures, maturing December 1, 2003. Interest is due upon the maturity date. The principal and accrued interest are convertible into 431,035 shares of ATG's Common Stock at a fixed conversion price of $0.58 per share. Imputed interest of $56,034 was recorded as interest expense in connection with the $250,000 of debentures in the accompanying Consolidated Statements of Operations for the three and nine month periods ended April 30, 1999. In February, 1999, the Company issued a 3 percent subordinated convertible debenture, maturing December 1, 2003 in the principal amount of $300,000. Interest is due on the maturity date. The principal and accrued interest are convertible into 600,000 shares of ATG's Common Stock at a fixed conversion price of $0.50 per share. The debentures include warrants to purchase 55,000 shares of Common Stock at $0.75 per share. Imputed interest of $24,000 was recorded as interest expense in connection with the $300,000 of debentures in the accompanying Consolidated Statements of Operations for the three and nine month periods ended April 30, 1999. During the three months ended April 30, 1999, the Company received from a debenture holder an 8 percent interest bearing loan with principal of $175,000 due December 1999 and $150,000 due May 1999, respectively. The loan includes warrants to purchase 25,000 shares of Common Stock at $0.75 per share and 35,000 shares at $0.35 per share, which prices are at or above market value on the date of issuance. page 8 4. CAPITAL STOCK a. COMMON STOCK During August 1998, the Company entered into two separate consulting agreements for services. Under the terms of the agreements, the Company issued 1,000,000 shares of ATG's Common Stock valued at $781,250 for services which is amortized on a straight line basis over the terms of the agreements expiring May 31, 1999 and July 31, 1999. During December 1998, the Company entered into three separate consulting agreements for services. Under the terms of the agreements, the Company issued 3,000,000 shares of ATG's Common Stock valued at $2,080,000 for services which is amortized on a straight line basis over the terms of the agreements expiring July, 1999, September, 1999 and November 1999. General and Administrative expenses include amortization expense of $847,050 and $1,697,167 for the three and nine month periods ended April 30, 1999 in the accompanying Consolidated Statements of Operations. As of April 30, 1999, the remaining unamortized cost of $1,164,084 is included in prepaid consulting under stockholders' equity in the accompanying Consolidated Balance Sheets. During November 1998, the Company issued 100,000 shares of Common Stock valued at $40,000 to a consultant for a special project relating to trading activity of the Company's Common Stock on the OTC Bulletin Board. During April 1999, the Company issued 561,798 shares of Common Stock to a former officer of the Company for the deposit of $500,000 placed with ATG pursuant to the agreement (see Note 6). b. STOCK SUBSCRIPTIONS During the nine months ended April 30, 1999, the Company issued 20,619 shares of Common Stock valued at $25,000 and 22,000 shares of Common Stock valued at $33,000 which were included within stock subscriptions as of July 31, 1998 and recorded a subscription of services for 4,000 shares valued at $7,879. As of April 30, 1999, the Company had not issued (i) 6,000 shares of Common Stock owed for services rendered through January 31, 1999, valued at $11,820 and (ii) 500 shares of Common Stock sold under private placement for an aggregate of $1,500 in cash received prior to July 31, 1997. These amounts have been included within stock subscriptions in the accompanying Consolidated Balance Sheets. 5. JOINT VENTURE In February, 1998, the Company formed a joint venture with approximately 25% ownership interest, which is accounted for in accordance with the equity method. The joint venture markets various personal and home care products containing the Company's proprietary IE-TM- crystals. Sales of these products commenced in June, 1998. The Company made an initial investment of $124,100 in the joint venture of which losses of $82,059 had been recognized in fiscal 1998. Due to the significant losses of the joint venture, the joint members agreed to terminate its exclusive right to the Company' IE Crystal and to consent to the withrawal of the Company as a member. The Company's remaining investment in this joint venture of $39,341 was written off during the nine months ended April 30, 1999. 6. DISCONTINUED OPERATIONS On June 23, 1998, the Company entered into an agreement with a former officer-shareholder to sell the stock of ATG Media, Inc. for $500,000. The closing date was initially set as August 15, 1998, but had been extended by mutual agreement of the parties. The transaction was contingent on the sale of 2,250,000 shares of the former officer's Common Stock to an unrelated third party Page 9 for proceeds of at least $2,000,000. If the former officer's stock was not purchased, the Company was obligated to return the amount of purchase price paid in cash or shares of ATG's Common Stock valued at $0.89 per share. In April 1999, the transaction was canceled and the Company issued 561,798 shares of Common Stock to the former officer for the deposit of $500,000 pursuant to the agreement. In April 1999, the Company sold the stock of ATG Media, Inc. to an unrelated third party. This third party paid $1,000 in cash and agreed to assume ATG Media's liabilities estimated at $300,000. In addition, at ATG's option, the buyer will provide ATG $200,000 of various advertising and promotional credits in ATG Media's publication, web site and other promotional venues on favorable terms. In the event that all of the promotional credits are not utilized by ATG prior to May 1, 2000, the residual purchase price shall be paid in cash at the Company's option. The gain on the sale recorded was $230,020 in the accompanying Consolidated Statements of Operations for the three and nine months ended April 30, 1999. Due to the contingent nature of the promotion credits, the Company has taken 100 percent reserve against the value of these credits. Loss from operations of discontinued operations are $24,368 and $231,071 for the three months ended April 30, 1999 and 1998, respectively, and $201,943 and $518,812 for the nine months ended April 30, 1999 and 1998, respectively. 7. ASSETS HELD FOR SALE Included in assets held for sale in the accompanying Consolidated Balance Sheets are the Tempiute property of $360,000, the Manhattan gold property of $2,083,030 and Manhattan mill properties of $1,267,814, net of impairment. The Company wrote down $200,000 of impairment on the Tempiute property based on preliminary offers to purchase the property during the quarter ended April 30, 1999. The Company no longer plans to develop these properties but plans to sell, lease or otherwise dispose of its investment. In November 1997, the Company entered into a Mining Lease and Option to Purchase Agreement with Royal Gold, Inc. In April, 1999, Royal Gold advised the Company that it was exercising its right to terminate the agreement. In addition, in April, 1999, the Company was advised that NewGold, Inc. was unable to fulfill its obligations regarding the purchase of the Manhattan gold mill. Subsequent to the cancellation of the contracts, the Company entered into a letter of intent to sell these properties (see Note 9). 8. RELATED PARTY TRANSACTIONS Included in amounts due to related parties in the accompanying Consolidated Balance Sheets is $142,500 in short term borrowings from related parties as of April 30, 1999. In consideration of these borrowings, the Company granted an option to purchase 75,000 shares of ATG's Common Stock at $0.40 per share. 9. SUBSEQUENT EVENTS Subsequent to April 30, 1999, the Company entered into a letter of intent to sell the Manhattan gold mill and properties to Western Mine Development for the assumption of the notes due (approximate total of $956,000) on the property and the payment of $2,500,000 plus interest over nine years against a 2% net smelter royalty. Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Management is continuing its on going efforts to refocus the Company's activities on its core technologies, along with new product development, including new applications for its IE technology, and commercialization of those applications which are already perfected. Management believes that these efforts have started to have positive effect in the quarter ended April 30, 1999. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 Revenue decreased by $20,100 from $161,300 to $141,200 for the three months ended April 30, 1998 and April 30, 1999, respectively, due to declines in rental and other income partially offset by a 27% increase in revenue ($22,900) from the sale of technology products (The Force-Registered Trademark-). The Force is the Company's principal commercial product. This increase in sales results from the substantial efforts of management to focus on product sales. The implementation of the strategic direction set by the Board of Directors during the prior fiscal year has resulted in certain increases in operating costs. Most of these costs have been non-cash as several consultants retained to assist the Company in redefining itself to only focusing on its core technologies agreed to be paid with shares of the Company's common stock. Operating expenses increased by $1,205,400 from $1,167,600 to $2,373,000 for the three months ended April 30, 1998 and April 30, 1999, respectively. The increase was due to increases of $1,022,400 in general and administrative expense (due to additional consulting expenses including prepaid services and settlement cost accrual), $23,900 in marketing and product development, $14,900 in mining expense and $200,000 in loss on impairment of mining properties partially offset by a decrease of $55,800 in research and development expenses. ATG's net loss for the third quarter of fiscal 1999 increased by $948,000 to $2,134,200 from $1,186,200. The increase is principally due to increased operating expenses and other expenses of $1,279,000, offset by decreases of $206,700 in losses from discontinued operations and a gain from disposal of discontinued operations of $230,200. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 Revenue decreased by $396,800 from $823,500 to $426,700 for the nine months ended April 30, 1998 and April 30, 1999, respectively, principally due to the Company's decision to stop selling IE crystals for use in laundry products by TradeNet Marketing Inc. and the continuing transition from pure research and development to commercialization and sales of products. Reflecting the implementation of the strategic direction set by the Board of Directors during the prior fiscal year, operating expenses increased by $1,908,200 from $3,882,700 to $5,790,900 for the nine months ended April 30, 1998 and April 30, 1999, respectively. The increase was principally due to increases of $2,011,000 in general and administrative expense (due to additional consulting expenses including prepaid services and settlement cost), $47,000 in marketing and product development costs and $200,000 in loss on impairment of mining properties partially offset by decreases of $351,600 in research and development. Other expenses for the nine months ended April 30, 1999 decreased by $677,400 to $884,700 from 1,562,100 for the corresponding period of fiscal 1998 due to a decrease in interest expense. ATG's net loss for the nine months ended April 30, 1999 increased by $1,166,300 to $6,220,600 from $5,054,300 for the corresponding period of fiscal 1998. The increased loss is principally due to increased Page 11 operating expenses of $1,908,200 and a decrease in revenues of $396,800 partially offset by decreases in other expenses of $677,400 and losses from discontinued operations of $316,900 and a gain from disposal of discontinued operations of $230,200. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has incurred significant operating losses. The ability of the Company to operate as a going concern is dependent upon its ability to (1) obtain sufficient additional capital, (2) generate significant revenues through its existing assets and operating business, and (3) overcome significant product development issues. The Company plans to raise additional working capital through private offerings of debt and equity. The successful outcome of future activities cannot be determined at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plans or generate positive operating results. These issues, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Total assets decreased by $912,000 from $7,110,900 at July 31, 1998 to $6,198,900 at April 30, 1999. This decrease was principally the net result of amortization of technology rights of $300,000, write-off of amounts due from officers/shareholders of $136,700, impairment loss on mining properties of $200,000 and disposal of assets of discontinued operations of $134,400 partially offset by increases in net inventories of $29,800. Total liabilities increased by $2,633,500 from $4,011,300 to $6,644,800 at July 31, 1998 and April 30, 1999, respectively. This increase was due principally to increases in accounts payable of $770,200, accrued liabilities of $450,200, amounts due to related parties of $170,600, convertible debentures of $1,600,000 and notes payable of $334,900 partially offset by decreases in deposit on sale of a subsidiary of $300,000 and liabilities of discontinued operations of $356,400. The Company's working capital deficiency at April 30, 1999 increased by $3,338,200 to $5,075,600 from $1,737,400 at July 31, 1998. This increase is principally the result of continuing operating losses incurred by the Company which have been financed by increases in convertible debentures of $1,600,000, accounts payable and accrued liabilities of $1,220,400, amounts due to related parties of $170,600 and current portion of notes payable of $903,400 partially offset by decreases in deposit on sale of a subsidiary of $300,000 and liabilities of discontinued operations of $356,400. The Company anticipates that $1,600,000 in convertible debentures will be converted into Common Stock during fiscal 1999. The principal source of working capital during the nine month period ending April 30, 1999 was the sale of $1,600,000 of principal amount of convertible debentures, short term loan of $325,000 and deposit on sale of a subsidiary of $200,000. During the comparable period in 1998, the principal source of working capital was the sale of $3,225,000 of principal amount of convertible debentures. Subsequent to April 30, 1999, the Company continued to finance its operations with debt and equity. Negotiations are ongoing for a bridge loan with net proceeds of $1,300,000 leading to a secondary public offering of Preferred Stock of the Company for $10,000,000, both in connection with the Company's proposed acquisition of Commodore Separation Technologies Inc. The proposed transaction with Commodore Separation Technologies is discussed below. The Company's continued operations are dependent upon obtaining some financing, of which there can be no assurance. In January, 1999, the Company signed a letter of intent which effectuates its acquisition of Commodore Separation Technologies, although the transaction is structured as a merger. Execution of the definitive agreement is dependent upon the Company having adequate financial resources to meet its operating expenses during the remainder of the calendar year. Commodore Separation Technologies is commercializing a proprietary separation technology and recovery system known as SLiM-TM-. SLiM stands Page 12 for Supported Liquid Membrane. SLiM can selectively remove from water valuable substances for reuse or toxic materials for safe disposal. If the transaction is completed as proposed, the existing shareholders of American Technologies would own approximately 80.1 percent of the Company and the shareholders of Commodore Separation Technologies would own approximately 19.9 percent of the Company. In addition, the Commodore Separation Technologies shareholders will receive one third of the after tax profit of the existing business of Commodore Separation Technologies. Statements included in this Management's Discussion and Analysis or Plan of Operation and elsewhere in this Form 10-QSB, in future filings by the Registrant with the Securities and Exchange Commission and in the Registrant's press releases and oral statements made with the approval of authorized executive officers, if the statements are not historical or current facts, should be considered "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Registrant wishes to caution the reader not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Page 13 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ( c ) In April, 1999, the Company issued 561,798 shares of Common Stock to John R. Collins in lieu of the repayment of $500,000 paid by Mr. Collins on deposit against the purchase of ATG Media, Inc. The sale of ATG Media, Inc. to Mr. Collins was not completed due to the failure of certain conditions to closing. The foregoing stock issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as a transaction by an issuer not involving any public offering. No underwriter was utilized in the offering and no commissions were paid. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. 27 Financial Data Schedule - ------------------------------ (b) REPORTS ON FORM 8-K. None Page 14 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN TECHNOLOGIES GROUP, INC. By: /s/ Lawrence J. Brady ---------------------- Lawrence J. Brady Chairman of the Board and Chief Executive Officer Date: June 21, 1999 By: /s/ Harold Rapp --------------- Harold Rapp Chief Financial Officer Date: June 21, 1999 Page 15 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS. 9-MOS JUL-31-1999 AUG-01-1998 APR-30-1999 48,448 0 68,217 0 179,432 296,097 5,548,251 (539,184) 6,198,916 5,371,649 1,273,188 0 378 27,409 (473,708) 6,198,916 204,360 426,746 0 5,790,881 39,241 0 845,396 (6,248,872) 0 (6,248,872) 28,257 0 0 (6,220,615) (0.25) (0.25) Includes assets held for sale Not calculated Includes discontinued operations
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