U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For quarterly period ended: September 30, 1995 or
___ Transition report under Section 13 or l5(d) of the Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 2-85984-C
North Atlantic Technologies, Inc.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1390785
(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
8120 Penn Avenue South, Suite 435, Bloomington, Minnesota 5543l
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 612-888-8553
___________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required 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 ___.
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. 2,392,689 common shares as of October
31, 1995.
Transitional business format? Yes ___ No _X_
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
ASSETS 1995 1994
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 26,116 $ 41,384
Trade accounts receivable, net of allowance for.
doubtful accounts of $90,000 at Sept. 30, 1995
and $60,000 at December 3l, 1994. 1,255,573 1,118,676
Other receivable, net 171,404 200,933
Inventories 159,365 203,789
Costs and estimated earnings in excess of billings on
uncompleted contracts 25,750 239,943
Other current assets 47,159 88,051
Total current assets 1,685,367 1,892,776
PROPERTY AND EQUIPMENT
Land 92,510 92,510
Machinery and equipment 1,210,095 1,195,553
Furniture and office equipment 153,945 168,012
Buildings and leasehold improvements 683,476 676,176
Vehicles 11,666 11,666
Totals 2,151,692 2,143,917
Less accumulated depreciation (1,265,410) (1,160,040)
Net property and equipment 886,282 983,877
OTHER ASSETS
Patent rights, net of amortization 0 196,043
Other assets 3,651 3,626
Restricted cash 0 39,500
Total Other Assets 3,651 239,169
TOTALS $ 2,575,300 $ 3,115,822
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
LIABILITIES AND EQUITY 1995 1994
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ 3,306,713 $ 2,773,802
Trade accounts payable 799,954 1,013,067
Other accounts payable 425,050 409,765
Billings in excess of costs and estimated earnings on
uncompleted contracts 25,600 115,271
Accrued liabilities:
Taxes other than income 42,387 23,732
Warranty reserve 200,000 175,000
Interest 106,805 36,213
Compensation 47,473 10,529
Bonuses 928 965
Income taxes 57 57
Total current liabilities 4,954,967 4,558,401
LONG-TERM DEBT, net of current maturities 498,848 23,030
COMMITMENTS
STOCKHOLDER'S DEFICIT
Common stock, no par value:
Authorized 5,000,000 shares
Issued and outstanding 2,392,689 at
Sept. 30, 1995 and at December 31, 1994 3,047,804 3,047,804
Accumulated deficit (5,926,319) (4,513,413)
Total stockholders' deficit (2,878,515) (1,465,609)
TOTALS $ 2,575,300 $ 3,115,822
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended Sept.30 9 Months Ended Sept.30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $ 464,898 $ 1,938,444 $ 3,217,217 $ 5,874,584
COST OF SALES 429,105 1,415,296 2,796,119 4,467,522
GROSS PROFIT 35,793 523,148 421,098 1,407,062
OPERATING COSTS 418,962 403,410 1,340,838 1,187,819
OPERATING INCOME (LOSS) (383,169) (119,738) (919,740) 219,243
OTHER INCOME (EXPENSE)
Services income, net (16,939) (3,730) (25,882) 309,764
Royalty income 2,109 1,979 10,161 12,306
Interest income -- 1,115 2,446 3,996
Interest expense (124,870) (98,898) (345,235) (296,119)
Rental and other income 10,950 11,553 49,849 30,335
Write down of patent -- -- (184,505) --
Total other, net (128,750) (87,981) (493,166) 60,282
INCOME (LOSS) BEFORE
INCOME TAXES (511,919) 31,757 (1,412,906) 279,525
PROVISION FOR INCOME TAXES -- 1,000 -- 7,000
NET INCOME(LOSS) $ (511,919) $ 30,757 $(1,412,906) $ 272,525
NET INCOME (LOSS) PER
COMMON AND COMMON
EQUIVALENT SHARE: ($ .21) $ .01 ($ .59) $ .11
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES 2,392,689 2,392,689 2,392,689 2,392,689
</TABLE>
See accompanying notes to financial statements .
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended September 30
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 2,809,791 $ 5,110,402
Cash paid to suppliers & employees (3,632,835) (4,715,679)
Interest, rent and royalties received 62,056 46,637
Interest paid (274,643) (233,448)
Taxes paid -- (801)
Net cash (used in) provided by operating
activities (1,035,631) 207,111
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27,866) (148,974)
Proceeds from restricted cash 39,500 57,169
Net cash provided by (used in)
investing activities 11,634 (91,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,800,000 339,425
Payments of long-term debt (791,271) (481,367)
Net cash (used in) provided by financing
activities 1,008,729 (141,942)
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,268) (26,636)
CASH AND CASH EQUIVALENTS, beginning of period 41,384 49,888
CASH AND CASH EQUIVALENTS, end of period $ 26,116 $ 23,252
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Net Income (loss) $(1,412,906) $ 272,525
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 321,879 184,036
Gain on disposal of equipment (400) --
Changes in assets and liabilities:
Receivables (107,368) (1,031,373)
Inventories 44,424 (79,194)
Other current assets 40,892 22,398
Accounts payable and accrued liabilities (46,674) 780,412
Net change in billings related to costs and
estimated earnings on uncompleted contracts 124,522 58,307
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $(1,035,631) $ 207,111
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. The accompanying financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of the
results of operations for the periods presented have been made.
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As a result of net losses in the past two
years, the Company's financial resources have been strained. As of
September 30, 1995, current liabilities exceed current assets by $3,269,600
and the Company has a net capital deficiency of $2,878,515. The company's
continuation as a going concern is dependent on raising additional cash to
meet its obligations due on November 15, 1995. At this time, it appears
that cash to meet those obligations will not be available and that the
company will reorganize under bankruptcy law provisions or liquidate.
2. Earnings per share - when calculated on a fully diluted basis, per share
amounts and average shares outstanding are identical to the amounts shown
in the Statement of Operations.
3. Litigation - In June 1994, the Company was named as a third-party defendant
in a lawsuit commenced, during July 1993, by a customer of the Company to
recover monies from a third-party who had purchased one of the Company's
heat exchangers from the Company's customer. In September 1995, this
lawsuit was settled out of court. Terms of the settlement call for the
Company to provide replacement heat exchanger equipment which the Company
estimates will have a cost of $15,000.
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company continues to struggle in a very sluggish market for its product. The
domestic market remains stagnant and major international projects continue to
experience delays. These factors have resulted in significant reductions in our
manufacturing operations over the past three months.
Sales for the three and nine months ended September 30, 1995 were $464,898 and
$3,217,217, respectively. These sales levels were down 76% and 67% from the same
periods in 1994. The decreased production activity in 1995 resulted in fixed
factory overhead being spread over fewer sales, thereby driving down gross
profit margins. A net loss of $511,919 was realized for the three months ended
September 30, 1995 versus net income of $30,757 in the third quarter last year.
Likewise, a loss of $1,412,906 was incurred for the first nine months of 1995
versus net income of $272,525 for the first nine months of 1994. As a result of
continuing losses incurred by the Company, included in the loss for the second
quarter of 1995 was a $184,505 charge to operations for the write down to $0 of
the carrying value of the Company's patents on its heat exchanger technology.
This adjustment was made after discussions with the Company's outside auditors
regarding the implication of Fiinancial Accounting Standards No. 121 relating to
accounting for the impairment of long-lived assets.
The capital goods market for energy conservation equipment is very soft. While
overall new inquiry levels remain at acceptable levels, customers are reluctant
to commit the dollars to place purchase orders. With rare exceptions, orders are
not being lost to competitors. Orders totaling $2,138,000 have been booked to
date in 1995, resulting in a decrease in backlog from $2,227,000 at December 31,
1994 to $1,148,000 at November 3, 1995.
Operating costs for the three months ended September 30, 1995 increased by
$15,552 from 1994 levels to $418,962 . Similarly, operating costs for the nine
months ended September 30, 1995 increased $153,019 from 1994 levels to
$1,340,838. Legal fees and health insurance costs account for most of the
increase. Legal and expert witness fees were $116,000 higher for the first nine
months of 1995 compared to 1994. The Company was a third party defendant in a
breach of warranty suit until recently when the suit was settled out of court.
The settlement calls for the Company to provide replacement heat exchanger
equipment which the Company estimates will have a cost of $15,000. The Company
provides basic health coverage to its employees through a self-funded medical
plan. Several significant claims occurred which, while below the reinsurance
threshold, increased the Company's expense for the first nine months of 1995
compared to 1994 by $33,000.
In the three months ended September 30, 1994 and the first nine months of 1994,
engineering service fees of $0 and $319,580, respectively, were earned under a
contract to provide such services to Lentjes Anlagen, a German manufacturing
company. No services were provided under the contract during the first nine
months of 1995 nor are there projects under discussion that will lead to
engineering fees in the near future.
LIQUIDITY AND CAPITAL RESOURCES
The continued operating losses experienced during the three months ended
September 30, 1995 and the continued difficulty the Company has experienced in
obtaining orders for its products raise substantial questions with respect to
the Company's ability to continue in operation. This is complicated by the
November 15, 1995, maturity of the Company's $1,993,000 subordinated debentures
and the maturity of the Company's $1,450,000 line of credit which has been
extended to January 2, 1996.
The line of credit has been guaranteed by a principal shareholder of the Company
who was also a member of the Board of Directors of the Company until June 12,
1995. In June 1995, the Company obtained a $500,000 loan from the guarantor of
the line of credit. The loan carries an interest rate of 12 percent and is
repayable in installments with a balloon payment due in June 2000. The loan is
secured by a mortgage on the Company's land and production facility located in
St. Paul, Minnesota. The proceeds of the loan were applied to working capital
including a temporary reduction in the amount of the line of credit used.
The operating losses incurred over the past nine months have resulted in the
Company's stockholder's deficit reaching $2,878,515 as of September 30, 1995.
The continued operating losses and the Company's inability to obtain additional
significant orders for its product have had a material adverse effect on the
willingness of the guarantor of the Company's line of credit to agree to assist
the Company in obtaining an increase in the amount of the line of credit or
otherwise provide funding necessary to meet the Company's on-going factory
overhead and operating expenses.
The Company's continuation as a going concern is dependent on raising additional
cash to meet its obligations coming due on November 15, 1995. At this time, it
appears that cash to meet those obligations will not be available and that the
Company will reorganize under bankruptcy law provisions or liquidate.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1994, the Company was named as a third-party defendant in a
lawsuit commenced, during July 1993, by a customer of the Company to
recover monies from a third-party who had purchased one of the
Company's heat exchangers from the Company's customer. In September
1995, this lawsuit was settled out of court. Terms of the settlement
call for the Company to provide replacement heat exchanger equipment
which the Company estimates will have a cost of $15,000.
Reference is made to the Company's annual report on Form 10-KSB and
its quarterly reports on Form 10-QSB for the periods ended March 31,
and June 30, 1995.
Other than the developments reported above, there have been no
material developments with respect to legal proceedings involving the
Company or the commencement of any additional material legal
proceedings involving the Company.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
Exhibit 27 - Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTH ATLANTIC TECHNOLOGIES, INC.
Date 11/14/95 /s/ Bruce A. Watson
Bruce A. Watson
President and Chief Executive Officer
Date 11/14/95 /s/ David R. Paulin
David R. Paulin
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 26,116
<SECURITIES> 0
<RECEIVABLES> 1,345,573
<ALLOWANCES> (90,000)
<INVENTORY> 185,115
<CURRENT-ASSETS> 1,685,367
<PP&E> 2,151,692
<DEPRECIATION> 1,265,410
<TOTAL-ASSETS> 2,575,300
<CURRENT-LIABILITIES> 4,954,967
<BONDS> 498,848
<COMMON> 3,047,804
0
0
<OTHER-SE> (5,926,319)
<TOTAL-LIABILITY-AND-EQUITY> 2,575,300
<SALES> 3,217,217
<TOTAL-REVENUES> 3,217,217
<CGS> 2,796,119
<TOTAL-COSTS> 1,340,838
<OTHER-EXPENSES> 147,931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 345,235
<INCOME-PRETAX> (1,412,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,412,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,412,906)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
