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: June 30, 1996 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 ____
Check whether registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by court. 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; 2,546,689 common shares as of June 30,
1996.
Transitional small business disclosure format? Yes ____ No __X__
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
SUCCESSOR COMPANY PREDECESSOR COMPANY
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
----------------- -------------------
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 233,307 $ 44,607
Trade accounts receivable, net of allowance for
doubtful accounts of $339,440 at June 30,
1996 and at December 31, 1995 1,626,465 818,887
Other receivable 171,404 171,404
Inventories 128,746 145,356
Costs and estimated earnings in excess of
billings on uncompleted contracts 50,870
Other current assets 11,466 29,029
----------- -----------
Total current assets 2,222,258 1,209,283
PROPERTY AND EQUIPMENT
Land 695,792 92,510
Buildings and leasehold improvements 692,441 692,441
Machinery and equipment 1,211,914 1,211,914
Office furniture and equipment 159,923 153,945
Automobiles 11,666 11,666
----------- -----------
Totals 2,771,736 2,162,476
Less accumulated depreciation (1,108,431) (1,305,351)
----------- -----------
Net property and equipment 1,663,305 857,125
OTHER ASSETS
Patent rights, less accumulated amortization
of $2,500 97,500
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $10,480 410,424
Other 12,399 3,652
----------- -----------
Total other assets 520,323 3,652
----------- -----------
$ 4,405,886 $ 2,070,060
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
SUCCESSOR COMPANY PREDECESSOR COMPANY
JUNE 30, DECEMBER 31,
LIABILITIES AND EQUITY 1996 1995
----------------- -------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,159,812 $ 3,547,622
Trade accounts payable 1,190,311 878,422
Other accounts payable 393,428 393,428
Billings in excess of costs and estimated earnings on
uncompleted contracts 218,049 477,893
Accrued liabilities:
Taxes other than income 43,546 15,219
Warranty reserve 150,000 200,000
Compensation 54,995 42,198
Interest 13,910 170,378
Other 110,214
----------- -----------
Total current liabilities 3,334,265 5,725,160
LONG-TERM DEBT, NET OF CURRENT MATURITIES
Note payable to Bank 402,093
Mortgage note payable 473,004
Lease obligations 13,716 12,251
----------- -----------
Total Long-Term Debt 888,813 12,251
Total Liabilities 4,223,078 5,737,411
STOCKHOLDER'S EQUITY (DEFICIT)
Preferred stock, Series A Convertible, $.01 par
value; authorized 22,000 shares, 21,600
shares to be issued under Plan of
Reorganization 216
Common stock, no par value; authorized
5,000,000 shares; issued and outstanding
2,392,689 at December 31, 1995; shares to be
canceled under Plan of Reorganization 3,047,804
Common stock, $.01 par value; authorized
5,000,000 shares, 2,546,689 shares to be
issued under Plan of Reorganization 25,467
Retained earnings (deficit) 157,125 (6,715,155)
----------- -----------
Total stockholders' equity (deficit) 182,808 (3,667,351)
----------- -----------
$ 4,405,886 $ 2,070,060
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SUCCESSOR COMPANY PREDECESSOR COMPANY
----------------- -----------------------------------------------------
3 MONTHS ENDED 3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 1996 MARCH 31, 1996 JUNE 30, 1995 JUNE 30, 1995
----------------- -------------- -------------- -------------
Debtor-in-
Possession
-----------
<S> <C> <C> <C> <C>
REVENUES $ 1,686,381 $ 1,394,512 $ 913,321 $ 2,752,319
COST OF REVENUES 1,068,472 883,617 892,572 2,367,014
----------- ----------- ----------- -----------
Gross Profit 617,909 510,895 20,749 385,305
OPERATING COSTS 427,784 310,996 493,631 921,876
----------- ----------- ----------- -----------
Operating Income (Loss) 190,125 199,899 (472,882) (536,571)
OTHER INCOME (EXPENSE)
Royalty and services income 14,239 6,245 (2,135) (891)
Interest expense (contractual interest
for 3 months ended March 31, 1996
was $123,891) (57,264) (82,372) (115,081) (220,365)
Rental and other income 10,025 10,350 13,396 41,345
Write-down of patent (184,505) (184,505)
----------- ----------- ----------- -----------
(33,000) (65,777) (288,325) (364,416)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
REORGANIZATION ITEM
AND EXTRAORDINARY GAIN 157,125 134,122 (761,207) (900,987)
REORGANIZATION ITEM,
PROFESSIONAL FEES 25,566
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 157,125 $ 108,556 ($ 761,207) ($ 900,987)
=========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE $ .06 $ .04 ($ .32) ($ .38)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 2,546,689 3,015,766 2,392,689 2,392,689
=========== =========== =========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUCCESSOR COMPANY PREDECESSOR COMPANY
----------------- ---------------------------------
3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 1996 MARCH 31, 1996 JUNE 30, 1995
----------------- -------------- -------------
Debtor-in-
Possession
----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,234,905 $ 777,708 $ 2,394,138
Cash paid to suppliers & employees (1,191,229) (1,021,749) (2,908,959)
Interest, rent and royalties received 24,264 17,453 48,997
Interest paid (61,063) (58,616) (221,152)
----------- ----------- -----------
Net cash provided by (used in) operating
activities 6,877 (285,204) 686,976
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,765) (1,213) (20,541)
Proceeds from restricted cash 39,500
Additions of other assets -- (8,747) --
----------- ----------- -----------
Net cash provided by (used in) investing
activities (4,765) (9,960) 18,959
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 700,000 300,000 1,450,000
Payments of long-term debt (512,897) (5,351) (785,735)
----------- ----------- -----------
Net cash provided by financing activities 187,103 294,649 664,265
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 189,215 (515) (3,752)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 44,092 44,607 41,384
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 233,307 $ 44,092 $ 37,632
=========== =========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN
OPERATING ACTIVITIES:
Net Income (loss) $ 157,125 $ 108,556 ($ 900,987)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 58,736 39,191 281,576
Stock issued for compensation 2,250 2,250
Gain on disposal of equipment (400)
Changes in assets and liabilities:
Receivables (540,235) (267,343) (63,338)
Inventories 20,712 (4,102) 33,085
Other current assets 13,958 10,355 53,963
Accounts payable and accrued liabilities (499) 431,433 (210,373)
Net increase (decrease) in billings related to
costs and estimated earnings on uncompleted
contracts 294,830 (605,544) 119,498
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 6,877 ($ 285,204) ($ 686,976)
=========== =========== ===========
See notes to financial statements.
</TABLE>
NORTH ATLANTIC TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. On February 1, 1996 the Company filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Plan of Reorganization
was approved on April 19, 1996, and amended on May 7, 1996. The
accompanying financial statements for the 3 months ended June 30, 1996 are
presented as if the Plan of Reorganization was effective as of April 1,
1996. The Plan of Reorganization provided that:
a) Subordinated Debenture Holders will receive one share of common stock
for each $1.50 owed by the Company. In addition, each debenture holder
will receive one share of convertible preferred stock at $0.01 par
value for each $100 of debenture debt of the Company, and
b) Each existing stockholder will be issued one share of common stock in
cancellation of three shares owned by the shareholder, effective for
shareholders of record on May 21, 1996.
c) $500,000 of the line of credit borrowings will be converted to a
five-year note bearing interest at a rate of up to 12%, with the
remainder, including an additional $200,000 in financing which become
available upon approval of the Plan, being financed under a new line of
credit at comparable rates with required monthly reductions of $25,000
commencing May 1, 1996. It has been subsequently agreed to defer
reduction of the line of credit in $25,000 increments until August 1,
1996. (On May 8, 1996 a note was signed with the foregoing terms.)
d) All other general creditors claims will be settled in full upon a
schedule to be agreed upon between the Company and its creditors.
Under the terms of the Plan of Reorganization, Debenture Holders will
receive 1,447,366 newly-issued common shares, and 21,600 newly-issued
redeemable preferred shares.
The 3,292,689 shares of no par common stock will be canceled and replaced
with 1,099,323 newly-issued common shares.
The total outstanding common shares following the above common stock
adjustments will be 2,546,689. If the adjustments occurred on January 1,
1996, supplemental earnings per share for the first quarter of 1996 would
have been unchanged as reported at $.04.
2. Fresh Start Reporting
Under the provisions of Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code", the Company was
required to apply "fresh start" reporting since the reorganization value,
as defined, was less than the total of all post-petition liabilities and
pre-petition claims, and holders of voting shares immediately before
confirmation of the Plan received less than fifty percent of the voting
shares of the emerging entity. Under this concept, all assets and
liabilities are restated to reflect the reorganization value of the
reorganized entity, which approximates its fair value at the date of
reorganization. The financial statements of the reorganized entity are
referred to herein as the Successor Company and the financial statements of
the Company up to the date the Plan was implemented are referred to herein
as the Predecessor Company.
To determine an estimate of its reorganization value, the Company utilized
a combination of the estimated proceeds and recovery it would obtain from
its assets and the value of its capital structure as perceived by the
Company and others. Based upon these factors, the Company established a
reorganization value (total assets less liabilities) of the reorganized
entity of $25,683. The Company allocated the reorganization value to the
net book value of tangible assets as follows:
Land $603,282
Machinery and Equipment 268,759
Office Furniture and Equipment 13,107
Patent 100,000
--------
$985,148
========
Under the provisions of Statement of Position 90-7, the difference between
the reorganization value of the assets and the fair value assigned to
specific tangible and identified intangible assets was reported as an
intangible asset identified as "reorganization value in excess of amounts
allocable to identified assets." This amount will be amortized over 10
years.
In addition, the Accumulated Deficit of the Company was eliminated and its
capital structure was recast in conformity with the approved Plan of
Reorganization. As such, the Balance Sheet of the Company as of June 30,
1996 represents that of a Successor Company which, in effect, is a new
entity with assets, liabilities and a capital structure having carrying
values not entirely comparable with prior periods.
The following table summarizes the adjustments required to record the
reorganization of the Company and the issuance of various securities in
connection with the implementation of the Plan. The presentation is
presented as if the Plan of Reorganization was effective as of April 1,
1996.
<TABLE>
<CAPTION>
CONVERTIBLE
SUBORDINATED
PRE- DEBT REVERSE SUCCESSOR
DECESSOR DISCHARGE STOCK SPLIT COMPANY'S
COMPANY AND RELATED FOR EXISTING REORGANIZED
PRE- ISSUANCE OF COMMON "FRESH START" BALANCE
CONFIRMATION CAPITAL STOCK SHAREHOLDERS REPORTING SHEET
------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $1,733,549 $1,733,549
PROPERTY AND
EQUIPMENT (NET) 819,147 $ 885,148 1,704,295
OTHER ASSETS:
Patent 100,000 100,000
Reorganization value in
excess of amounts allocable
to identifiable assets -- 420,904 420,904
Other 12,399 12,399
---------- ---------- ----------- ---------- ----------
$2,565,095 $1,406,052 $3,971,147
========== ========== =========== ========== ==========
LIABILITIES NOT SUBJECT
TO COMPROMISE:
Current liabilities $3,930,507 $3,930,507
Lease obligations
(long-term) 14,957 14,957
---------- ---------- ----------- ---------- ----------
3,945,464 3,945,464
LIABILITIES SUBJECT TO
COMPROMISE:
Convertible Subordinated
Debentures and related
interest payable 2,169,426 (2,169,426) --
---------- ---------- ----------- ---------- ----------
Total Liabilities 6,114,890 (2,169,426) 3,945,464
STOCKHOLDERS' EQUITY
(DEFICIT)
Preferred Stock -- 216 216
Common Stock (no par) 3,056,804 (3,056,804) --
Common Stock ($.01 par) -- 14,474 10,993 25,467
Retained Earnings
(Deficit) (6,606,599) 2,154,736 3,045,811 1,406,052 --
---------- ---------- ----------- ---------- ----------
(3,549,795) 2,169,426 0 1,406,052 25,683
---------- ---------- ----------- ---------- ----------
$2,565,095 $ 0 $ 0 $1,406,052 $3,971,147
========== ========== =========== ========== ==========
</TABLE>
3. 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 Company's 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. The Predecessor Company (see
Note 4) incurred net losses for 1993, 1994 and 1995 and, as a result,
financial resources have been strained. As of June 30, 1996, the Successor
Company's current liabilities exceed current assets by $1,112,007. While
the Company, through its Plan of Reorganization which was initially
confirmed by the United States Bankruptcy Court on April 19, 1996 and
amended on May 7, 1996, (See Note 1), has significantly reduced its debt
commitments, the Successor Company's continuation as a going-concern is
dependent on its ability to generate sufficient cash flow from operations,
and obtain additional financing to meet its obligations on a timely basis.
The Successor Company's business is currently dependent on large projects
in the industrial sector. These projects involve long order cycles, and
exact order placement dates are beyond the control of the Successor
Company. While the Successor Company utilizes a progress billing procedure,
there are periods of net cash outflows when cash flow is of concern. Both
the Predecessor Company and the Successor Company have been able to manage
normal operating cash flow through the use of internally generated funds
and an established line of credit.
4. 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 Statements of Operations.
In January, 1996, 900,000 shares (300,000 on a post reverse split basis) of
the Predecessor Company's common stock were issued at a market value of
$.01 per share. The market value of the shares total $9,000 and is being
charged to expense during 1996.
5. Preferred Stock - The Successor Company issued 21,600 shares of preferred
stock, par value $.01 per share in connection with the discharge of the
convertible subordinated debentures and related interest payable. Each
preferred share is convertible, at the holder's option until June 1, 1999,
and automatically after June 1, 1999, into one share of common stock. Each
preferred share has a liquidation preference of $25 per share and may be
redeemed at the Successor Company's option at any time prior to conversion
into common stock, at $25 per share.
6. On July 10, 1996, the Company was notified of a claim in the amount of
$542,738, which the Company erroneously believed to have been extinguished
in the Bankruptcy Court action. The Company disputes the claim. On August
9, 1996, the Bankruptcy Court granted the Company's motion to enlarge the
deadline for objecting to the filed claim and to assert a counter-claim. As
a result, the merits of the claim and counter-claim, if pursued further,
will be tried in the Bankruptcy Court in St. Paul, Minnesota. Although
there can be no assurance, the Company believes that its defense of the
claim and its counter-claim to be meritorious and that the matter will be
settled without liability to the Company. Accordingly, no amount has been
included as a liability or asset with respect to these claims in the
Successor Company financial statements.
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On February 1, 1996, the Company filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. As stated in Note 1 to the
financial statements, the Plan of Reorganization was approved on April 19, 1996,
and amended on May 7, 1996. The Plan of Reorganization provided that:
1. Subordinated Debenture Holders will receive one share of common stock for
each $1.50 owed by the Company. In addition, each debenture holder will
receive one share of convertible preferred stock at $0.01 par value for
each $100 of debenture debt of the Company, and
2. Each existing equity holder (of record as of May 21, 1996) will be issued
one share of common stock in cancellation of three shares owned by the
shareholder.
3. $500,000 of the line of credit borrowings will be converted to a five-year
note bearing interest at a rate of up to 12%, with the remainder, including
an additional $200,000 in financing which will become available upon
approval of the plan, being financed under a new line of credit at
comparable rates with required monthly reductions of $25,000 commencing May
1, 1996. (It has been subsequently agreed to defer reduction of the line of
credit in $25,000 increments until August 1, 1996. On May 8, 1996 a note
was signed with the foregoing terms.)
4. All other general creditors claims will be settled in full upon a schedule
to be agreed upon between the Company and its creditors.
The accompanying financial statements for the period subsequent to March 31,
1996 are presented as if the Plan of Reorganization, which became effective
subsequent to March 31, 1996 was effective on April 1, 1996 and are prepared on
the basis of "fresh start" reporting as required by SOP 90-7. Under this
concept, all assets and liabilities are restated to reflect the reorganization
value of the reorganized entity, which approximates its fair value at the date
of reorganization. The financial statements of the reorganized entity are
referred to herein as the Successor Company and the financial statements of the
Company up to the date the Plan was implemented are referred to herein as the
Predecessor Company.
To determine an estimate of its reorganizational value, the Company utilized a
combination of the estimated proceeds and recovery it would obtain from its
assets and the value of its capital structure as perceived by the Company and
others. Based upon these factors, the Company established a reorganization value
(total assets less liabilities) of the reorganized entity of $25,683.
As more fully described in Note 2 to the Financial Statements, the Accumulated
Deficit of the Predecessor Company was eliminated and its capital structure was
recast in conformity with the Plan of Reorganization. As such, the Balance Sheet
of the Company as of June 30, 1996 represents that of a Successor Company which,
in effect, is a new entity with assets and liabilities having carrying values
not entirely comparable with prior periods.
The following analysis compares the Successor Company (effective April 1, 1996)
with the results of the Predecessor Company. With the exception of the Balance
Sheet at June 30, 1996, which utilizes "Fresh Start" reporting, the comparison
for the Statements of Operations for 1996 (Successor Company) and 1995
(Predecessor Company) are comparable except for interest expenses related to the
convertible debentures and professional fees incurred in connection with the
bankruptcy.
GOING CONCERN
The Company's 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. The Predecessor Company (see Note 4) incurred
net losses for 1993, 1994 and 1995 and, as a result, financial resources have
been strained. As of June 30, 1996, the Successor Company's current liabilities
exceed current assets by $1,112,007. While the Company, through its Plan of
Reorganization which was initially confirmed by the United States Bankruptcy
Court on April 19, 1996 and amended on May 7, 1996, (See Note 1), has
significantly reduced its debt commitments, the Successor Company's continuation
as a going-concern is dependent on its ability to generate sufficient cash flow
from operations, and obtain additional financing to meet its obligations on a
timely basis. The Successor Company's business is currently dependent on large
projects in the industrial sector. These projects involve long order cycles, and
exact order placement dates are beyond the control of the Successor Company.
While the Successor Company utilizes a progress billing procedure, there are
periods of net cash outflows when cash flow is of concern. Both the Predecessor
Company and the Successor Company have been able to manage normal operating cash
flow through the use of internally generated funds and an established line of
credit.
RESULTS OF OPERATIONS
Revenues of $1,686,381 reflect an increase of 85% from the $913,321 in revenues
reported for the comparable 3 month period in 1995. Gross profit improved
significantly in 1996 to 37% from 2% in 1995. The improvement in gross profit in
1996 reflects the increase in demand for the Company's products (following order
delays beginning in late 1994), a better utilization of the manufacturing
facility lowering production overhead per project, and improved project pricing.
Operating costs as a percent of revenues for the first quarter were 25% in 1996
and 54% in 1995. The reduced level of revenue in 1995 accounts for the disparity
in the percentage comparison between 1996 and 1995. In terms of total dollars,
both periods contained significant legal expenditures. Other differences between
the two periods reflect reduced engineering staffing expenses and research and
development costs in 1996.
Interest expense for the second quarter was $57,264 in 1996 and $115,081 in
1995. The change of $57,817 is accounted for by interest expense on subordinated
debentures which was discharged pursuant to the approved Plan of Reorganization.
LIQUIDITY AND CAPITAL RESOURCES
The working capital position of the Company is $1,112,007 which improved by
$1,084,952 at June 30, 1996, and was accounted for by an increase in accounts
receivable of $540,000, the reclassification of a portion of the mortgage
payable to long term in the amount of approximately $490,000, and a reduction in
inventories of approximately $315,000. In addition, a reclassification of
$500,000 of the line of credit to a term loan ($90,000 of which is considered
current), and an increase in the line of credit in the amount of $200,000
accounted for a net increase in working capital of $210,000.
As of June 30, 1996, the Company was fully drawn on its available line of credit
in the amount of $1,150,000, which includes approximately $100,000 in certain
standby letters of credit. There are no assurances that any further funding will
be available from current sources, or that the current sources (when renewed)
will be sufficient. If these resources are insufficient, other sources of
funding would need to be developed. There are also no assurances that such
funding would be available or that the terms of such funding would be on terms
acceptable to the Company.
The Company believes that the Plan of Reorganization, specifically the
conversion of the debentures to equity and the cancellation of the debenture
interest, and the improvement in the global marketplace for its products will
strengthen its position as a going concern. However, the Company's ability to
continue as a going concern is subject to a number of risks and uncertainties
including, among others, the Company's ability to generate sufficient funds from
operations and the overall demand for the Company's product, which is subject to
general economic, competitive and industry - specific conditions.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings.
On February 1, 1996, North Atlantic Technologies, Inc. (the "Company")
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, District of Minnesota
(the "Bankruptcy Court"), case No. 3-96-0526. On April 19, 1996, the Bankruptcy
Court entered an Order confirming the Company's Amended Plan of Reorganization
dated March 8, 1996 (the "Plan"), and the Company's Second Amended Disclosure
Statement dated March 13, 1996 (the "Disclosure Statement"). On April 26, 1996,
the Company filed a Motion to Amend the Plan of Reorganization which was granted
by the Bankruptcy Court on May 7, 1996. The amendment was not substantive, and
dealt only with the mechanics of the contemplated reorganization transactions.
On July 10, 1996, the Company was notified of a claim of Lentjes mce
Anlagen-und Rohrleitungsbau GmbH in the amount of $542,738, which the Company
erroneously believed to have been extinguished in the Bankruptcy Court action.
The Company disputes the claim. On August 9, 1996, the Bankruptcy Court granted
the Company's motion to enlarge the deadline for objecting to the filed claim
and to assert a counter-claim. As a result, the merits of the claim and
counter-claim, if pursued further, will be tried in the Bankruptcy Court in St.
Paul, Minnesota. Although there can be no assurance, the Company believes that
its defense of the claim and its counter-claim to be meritorious and that the
matter will be settled without liability to the Company.
Item 2. Changes in Securities.
On April 19, 1996, the Bankruptcy Court entered an Order confirming the
Plan and approved on May 7, 1996, a Motion to Amend the Plan. Under the terms of
the Plan each shareholder received one share of common stock for each three
shares owned of its no par common stock ("Old Common Stock"), which is
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended, issued and outstanding as of the date of the Plan's confirmation. On
May 21, 1996, the 3,292,689 shares of Old Common Stock which were issued and
outstanding as of the record date were canceled and became void, and 1,099,323
shares of newly-authorized $0.01 par value common stock were issued in
replacement ("New Common Stock").
In addition, in accordance with the Plan, the Company's issued and
outstanding 12.5 percent Subordinated Convertible Debentures ("Debentures")
become exchangeable for a combination of New Common Stock and newly-authorized
preferred stock ("Preferred Stock"). On May 9, 1996 the Company declared the
exchange which became effective at the close of business on May 31, 1996 for
Debenture holders of record as of the close of business on May 21, 1996. In
exchange for their Debentures, holders will receive a total of 1,447,366 shares
of New Common Stock and a total of 21,600 shares of Preferred Stock. Each share
of Preferred Stock will be convertible into one share of New Common Stock
voluntarily through June 1, 1999, and will automatically become New Common stock
after June 1, 1999. Holders of shares of Preferred Stock will have one vote for
each share of Preferred Stock held, and will be entitled to cast that vote as a
class on all matters brought to a vote before the holders of Preferred Stock,
and with all other capital stock holders on all matters brought before the
Company's shareholders generally.
After giving effect to the Plan, the collective ownership interest in
the Company of holders of shares of the Company's Old Common Stock will
effectively decrease from 100% to approximately 43%. In the case of a
liquidation of the Company, holders of Preferred Stock will be entitled to
receive up to $25 in value from the assets available for distribution to equity
stock holders before any distribution may be made to holders of New Common
Stock. Dividends will be paid on the Preferred Stock at the discretion of the
Board of Directors. However, dividends may not be paid on New Common Stock
unless like dividends per share are paid on Preferred Stock.
Item 3. Defaults Upon Senior Securities.
Upon confirmation of the Plan by the Bankruptcy Court the Company's two
defaults have been eliminated. From November 15, 1995 through the Plan
confirmation date the Company had also been in default under the terms of the
Indenture dated December 31, 1985 which governs the Company's outstanding
Debentures. From November 15, 1995 through the Plan confirmation date the
Company had also been in default under the terms of the Company's Line of Credit
Agreement with first Bank, N.A., as amended.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On May 30, 1996, the annual meeting of the shareholders of the
Company was held at the Crowne Plaza Northstar Hotel, 618 Second Avenue South,
Minneapolis, Minnesota.
(b) All members of the Board of Directors were elected at the annual
meeting. See (c) below for the names of such members.
(c) The only matter voted upon at the annual meeting was the election
of the members of the Board of Directors. Share entitled to vote were 3,292,689,
shares represented by shareholders present in person (no proxies were solicited
or recorded) were 1,835,677, and the number of votes cast for, against or
withheld, as well as abstentions, with respect to the election of directors is
set forth below. Information on broker non-votes was not applicable.
<TABLE>
<CAPTION>
Votes Cast Number of
Votes Cast Against or Number of Broker Non
in Favor Withheld Abstentions Votes
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Election of the following
members of the Company's Board
of Directors
Louis R. Wagner 1,811,744 2,800 22,033 N/A
Bruce A. Watson 1,515,884 295,860 24,833 N/A
John O. Goodwyne 1,515,884 295,860 24,833 N/A
Demetrius G. Jelatis 1,811,744 0 24,833 N/A
</TABLE>
(d) Not Applicable.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Dated: August 16, 1996
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.
/s/Bruce A. Watson August 16, 1996
- -----------------------------------
Bruce A. Watson
Chief Executive Officer
(principal executive officer) and
Chief Financial Officer (principal
financial officer and principal
accounting officer).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 233,307
<SECURITIES> 0
<RECEIVABLES> 1,965,905
<ALLOWANCES> 339,440
<INVENTORY> 128,746
<CURRENT-ASSETS> 2,222,258
<PP&E> 2,771,736
<DEPRECIATION> 1,108,431
<TOTAL-ASSETS> 4,405,886
<CURRENT-LIABILITIES> 3,334,265
<BONDS> 0
0
216
<COMMON> 25,467
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,405,886
<SALES> 1,686,381
<TOTAL-REVENUES> 1,686,381
<CGS> 1,068,472
<TOTAL-COSTS> 427,784
<OTHER-EXPENSES> 24,264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,264
<INCOME-PRETAX> 157,125
<INCOME-TAX> 0
<INCOME-CONTINUING> 157,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,125
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
