Summary of AMERICAN TECHNOLOGIES GROUP INC

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K for the year ended July 31, 2008. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

GENERAL OVERVIEW

From February 2002 through its acquisition of North Texas in September 2005, the Company largely had ceased its historical operations and incurred nominal operating expenses, primarily related to the maintenance of its corporate existence.

THE DISCUSSION BELOW REFLECTS THE FACT THAT THE COMPANY OWNED 100% OF OMAHA HOLDINGS INCLUDING THE OPERATING ASSETS OF, NORTH TEXAS AND WHITCO AT JULY 31, 2008, BUT SHOULD BE READ WITH CAUTION AS THE COMPANY NO LONGER OWNS ANY INTEREST IN THE OPERATING BUSINESSES OF NORTH TEXAS OR WHITCO.

On October 20, 2008, at a special meeting of shareholders, we received the approval of our shareholders to sell substantially all of the assets of Omaha Holdings Corp., to a subsidiary of Laurus Master Fund as described in our Definitive Proxy of September 16, 2008. The transaction as described in the Definitive Proxy was closed on October 21, 2008 resulting in the satisfaction of $13,580,810 plus accrued interest and fees payable to Laurus Fund and/or its affiliates and the satisfaction of the outstanding Gryphon Debt. As a result of the transaction, the Company is without operating assets.

Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various others assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

Revenue Recognition

Significant portions of North Texas' revenues are derived from construction and service projects. Revenues from fixed-price, cost-plus-fee, time and material and unit-price contracts are recognized using the percentage-of-completion method of accounting which recognizes income as work on a contract progresses. Recognition of revenues and profits generally are related to costs incurred in providing the services required under the contract. Earned revenue is the amount of cost incurred on the contract in the period plus the proportional amount of gross profit earned during the same period. This method is used because management considers total cost to be the best available measure of completion of construction contracts in progress. Provisions for estimated losses on construction contracts in progress are made in their entirety in the period in which such losses are determined without reference to the percentage complete. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to revenue and costs, and are recognized in the period in which the revisions are determined. Claims for additional revenue are not recognized until the period in which such claims are allowed. Direct contract costs include all direct labor, direct materials and some estimating costs and shop and equipment costs. Whitco revenues and product costs are recognized as the products are shipped to their customers.

Allowance For Doubtful Accounts

We estimate the collectability of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectability of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience.

Comparison of the Year Ended July 31, 2008 to the Year Ended July 31, 2007

Revenues

Revenues for the year ended July 31, 2008 were approximately $31,329,645 earned by North Texas and $3,150,695 earned by Whitco. Revenues for the year ended July 31, 2007 were approximately $28,864,548 earned by North Texas and $3,464,520 earned by Whitco. The increase in earned revenue for North Texas Steel of $2,465,097, or 8.5%, versus 2007, was attributable to an increase in completed contracts. The decrease in Whitco revenues of $313,825, or 9.1%, was due to a change in marketing strategy, which should benefit future periods.

Cost of Sales

Our cost of sales predominantly consists of labor, raw materials, outsourcing costs and absorbed indirect manufacturing costs.

Cost of sales for the year ended July 31, 2008 was approximately $26,627,126 for North Texas and resulted in a gross margin of approximately $4,702,519 or approximately 15% of revenues. Cost of sales for the year ended July 31, 2008 was approximately $2,985,912 for Whitco and resulted in a gross margin of approximately $164,783 or approximately 5% of revenues. Cost of sales for the year ended July 31, 2007 was approximately $24,559,018 for North Texas and resulted in a gross margin of approximately $4,305,530 or approximately 15% of revenues. Cost of sales for the year ended July 31, 2007 was approximately $3,193,508 for Whitco and resulted in a gross margin of approximately $272,988 or approximately 8% of revenues.

Selling, General and Administrative Expenses

For the year ended July 31, 2008, selling, general and administrative expenses totaled approximately $3,834,945, consisting primarily of administrative expenses and other expenses. For the year ended July 31, 2007, selling, general and administrative expenses totaled approximately $3,552,541, consisting primarily of administrative expenses and other expenses. The $282,404 increase, or 7.9%, from 2007 is primarily due to professional fees related to the restructuring.

Interest Expense

As the result of acquiring North Texas and Whitco in a highly leverage transaction, the Company's interest expenses are significant.

Interest expense decreased by $387,319 for the year ended July 31, 2008 to $1,161,250, when compared to $1,548,569 for the year ended July 31, 2007. The decrease is primarily due to lower average revolver borrowings. Financing expense was $5,708,961 and $3,490,754 for the years ended July 31, 2008 and 2007, respectively. Included in financing expenses was non-cash amortization related to notes payable discount of $2,574,928 and $3,190,754 for the years ended July 31, 2008 and 2007, respectively. Financing expenses increase of $2,218,207 was due to an increase in loan default fees of $3,283,666 offset primarily by a decrease in non-cash amortization related to notes payable discount of $615,826.

Liquidity and Capital Resources

The Company's current operations are insufficient to service its existing debt and pay the administrative expenses incurred in connection with being a public enterprise, including legal and accounting services.

As a result of our failure to timely pay our current obligations due to Laurus Master Fund, Ltd. ("Laurus") under our Securied Convertible Term B Note in the amount of $2,000,000, we received notification on January 31, 2008 from Laurus that certain events of default had occurred and are continuing beyond any applicable cure or grace period with respect to all of our secured obligations due to Laurus. We also received a letter from LV Administrative Services, Inc. ("LV Administrative Services"), acting in the capacity of administrative and collateral agent for Laurus, that demands the immediate payment of all past due amounts owed to Laurus by February 1, 2008. The amounts demanded totaled $13,580,810 ($10,350,000 in principal amortization, $96,777 in accrued interest, and $3,134,033 in Default Fees). We did not make such payments, and, accordingly, Laurus (as well as Gryphon Master Fund, LTD ("GMF"), and GSSF Master Fund, LP ("GSSF")) may take all steps it deems necessary to protect their interests, including the enforcement and exercise of any and all of its rights, remedies, liens and security interests available to it.

In connection with our financing with Laurus, we executed a pledge agreement in favor of Laurus granting them a first priority security interest in the common stock of each of our subsidiaries. We also executed a security agreement that granted Laurus a first priority security interest in all the respective goods, inventory, contractual rights and general intangibles, receivables, documents, instruments, chattel paper, intellectual property owned by us and each of our subsidiaries. The security agreement and stock pledge agreement state that if an "event of default" occurs under any agreement with Laurus, it has the right to take possession of the collateral, to operate our business using the collateral, and has the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the collateral, at public or private sale or otherwise to satisfy its obligations under these agreements. As a consequence of our default, Laurus has the right to pursue any of the remedies set forth in the pledge and security agreements. Likewise, GMF and GSSF have similar remedies available to them.

As a result of our default and ongoing losses, our Board and management has determined that it is advisable and in the best interests of the Company and its stockholders to sell all or substantially all of the assets of Omaha Holdings Corp., a wholly owned subsidiary of Company to a subsidiary of Laurus Master Fund, which assets consist primarily of the issued and outstanding stock of two wholly owned subsidiaries of Omaha Holdings Corp. ("Sale"). Thus, on April 4, 2008, the Board approved the Sale by majority vote and resolved to refer the matter to our stockholders for their approval.

The purpose of the Sale is to eliminate in excess of $13.5 principal amount of indebtedness and accrued and unpaid interest thereon owed by us to Laurus Master Fund, as well as over $800,000 of indebtedness due to Gryphon Fund for a total value of indebtedness of approximately $14.3 million as of June 1, 2008. We have not generated adequate revenues with which to service such debt and we have no realistic independent ability to do so. Absent the Sale, we would have faced a foreclosure proceeding which would have put a further strain on our otherwise very limited available financial resources.

Off- Balance Sheet Arrangements

We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.

Inflation

The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standard Board ("FASB") issued Statement No. 141(R), "Business Combinations." Statement No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired in the business combination. The statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. Statement No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company will adopt these provisions for any business combination after August 1, 2009. The adoption of Statement No. 141(R) may have an impact on the Company's accounting for future business combinations once adopted.

In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." Statement No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. This statement does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in Statement No. 157, "Fair Value Measurements," and Statement No. 107, "Disclosures about Fair Value of Financial Instruments." Statement No. 159 is effective as of the beginning of fiscal years beginning after November 15, 2007. The Company adopted Statement No. 159, effective August 1, 2008, and does not anticipate a material impact to its financial position and results of operations.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." Statement No. 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company adopted Statement No. 157, effective August 1, 2008, and does not anticipate a material impact to its financial position and results of operations.