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: March 31, 1997 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 ___ No _X_
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 ___ No _X_
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date; 3,453,011 shares as of May 12, 1997.
Transitional small business disclosure format? Yes ____ No _X_
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 262,674 $ 199,982
Trade accounts receivable, net of allowance for
doubtful accounts of $107,058 and $100,000,
respectively 567,116 563,650
Inventories 186,049 170,275
Costs and estimated earnings in excess of billings on
uncompleted contracts 15,478 35,765
Other current assets 6,489 11,015
----------- -----------
Total current assets 1,037,806 980,687
PROPERTY AND EQUIPMENT
Land 695,792 695,792
Buildings and leasehold improvements 504,209 504,209
Machinery and equipment 480,928 480,214
Office furniture and equipment 28,633 27,920
----------- -----------
Totals 1,709,562 1,708,135
Less accumulated depreciation (172,439) (130,071)
----------- -----------
Net property and equipment 1,537,123 1,578,064
OTHER ASSETS
Patent rights, less accumulated amortization
of $10,000 and $7,500, respectively 90,000 92,500
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $41,919 and $31,439,
respectively 378,966 389,447
Other 11,893 12,399
----------- -----------
Total other assets 480,859 494,346
----------- -----------
$ 3,055,788 $ 3,053,097
=========== ===========
See notes to financial statements.
</TABLE>
NORTH ATLANTIC TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND EQUITY 1997 1996
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,048,925 $ 741,809
Trade accounts payable 891,176 1,058,399
Other accounts payable 8,044 21,202
Billings in excess of costs and estimated earnings on
uncompleted contracts 206,010 609,210
Accrued liabilities:
Taxes other than income 49,892 15,884
Warranty reserve 250,000 250,000
Compensation 36,400 30,072
Interest 25,556 7,576
----------- -----------
Total current liabilities 2,516,003 2,734,152
LONG-TERM DEBT, NET OF CURRENT MATURITIES
Note payable to Bank 333,320 355,093
Mortgage note payable 461,098 465,186
Lease obligations 6,291 6,291
----------- -----------
Total Long-Term Debt 800,709 826,570
Total Liabilities 3,316,712 3,560,722
STOCKHOLDER'S EQUITY (DEFICIT)
Preferred stock, Series A Convertible, $.01 par value;
authorized 22,000 shares, issued and outstanding
21,694 shares, total liquidation value, $542,350 216 216
Common stock, $.01 par value; authorized 5,000,000
shares, issued and outstanding 3,453,011 shares 34,530 22,530
Additional paid in capital 38,000
Retained earnings (deficit) (333,670) (530,371)
----------- -----------
Total stockholders' (deficit) (260,924) (507,625)
----------- -----------
$ 3,055,788 $ 3,053,097
=========== ===========
See notes to financial statements.
</TABLE>
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SUCCESSOR PREDECESSOR
COMPANY COMPANY
----------- -----------
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
----------- -----------
REVENUES $ 1,949,967 $ 1,394,512
COST OF REVENUES 1,205,027 782,682
----------- -----------
Gross Profit 744,940 611,830
OPERATING COSTS 502,571 411,931
----------- -----------
OPERATING PROFIT 242,369 199,899
OTHER INCOME (EXPENSE):
Royalty and services income 5,835 6,245
Interest expense (57,426) (82,372)
Rental and other income 5,925 10,350
----------- -----------
(45,666) (65,777)
----------- -----------
INCOME BEFORE
REORGANIZATION ITEMS
AND EXTRAORDINARY ITEM 196,703 134,122
REORGANIZATION ITEMS 1,380,468
----------- -----------
INCOME BEFORE
EXTRAORDINARY ITEM $ 196,703 $ 1,514,590
EXTRAORDINARY ITEM
GAIN ON CONVERSION OF DEBT 2,154,736
----------- -----------
NET INCOME $ 196,703 $ 3,669,326
=========== ===========
NET INCOME PER COMMON
SHARE
Income before reorganization items
and extraordinary item
$ .08 $ .13
Reorganization items 1.37
Extraordinary item 2.14
----------- -----------
Net income $ .08 $ 3.64
=========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 2,506,344 1,008,552
=========== ===========
See notes to financial statements
NORTH ATLANTIC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
----------- -----------
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,549,136 $ 777,708
Cash paid to suppliers & employees (1,783,255) (1,021,749)
Interest, rent and royalties received 5,925 17,453
Interest paid (39,446) (58,616)
----------- -----------
Net cash used in operating activities (267,640) (285,204)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,427) (1,213)
Additions of other assets 506 (8,747)
----------- -----------
Net cash used in investing activities (921) (9,960)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Line of Credit 310,000 300,000
Payments of long-term debt (28,747) (5,351)
Proceeds from issuance of common stock 50,000
----------- -----------
Net cash provided by financing activities 331,253 294,649
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 62,692 (515)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 199,982 44,607
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 262,674 $ 44,092
=========== ===========
RECONCILIATION OF NET (LOSS) INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net (loss) Income 196,703 $ 3,669,326
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 55,349 39,191
Gain on extinguishment of debt and affect of
fresh start reporting (3,560,770)
Stock issued for compensation 2,250
Changes in assets and liabilities:
Receivables (3,466) (267,343)
Inventories (15,774) (4,102)
Other current assets 4,526 10,355
Accounts payable and accrued liabilities (122,065) 431,433
Net increase (decrease) in billings related to
costs and estimated earnings on
uncompleted contacts (382,913) (605,544)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ($ 267,640) ($ 285,204)
=========== ===========
</TABLE>
See notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES, INC.
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 financial
statements for the three months ended March 31, 1996 are presented as if
the Plan was effective as of April 1, 1996. The Plan provided that:
a) Holders of the Company's 12.5% Subordinated Convertible Debentures due
in 1995 (the Debentures) received one share of common stock for each
$1.50 of Debenture debt owed by the Company. In addition, each
Debenture holder received one share of convertible preferred stock at
$0.01 par value for each $100 of Debenture debt of the Company.
b) Each existing stockholder was 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 were converted in May 1996 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 became
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 was subsequently agreed to defer reduction
of the line of credit in $25,000 increments until August 1, 1996 and in
October 1996 it was agreed that the reduction would be only $10,000 per
month for the remainder of 1996. (see Note 15).)
d) All other general creditors' claims were settled in full upon a
schedule agreed upon between the Company and its creditors.
Under the terms of the Plan, subject to the delivery of Debentures to the
Company for cancellation, Debenture holders are entitled to receive up to
1,447,366 newly issued common shares, and up to 21,694 newly issued
convertible preferred shares.
The 3,292,689 shares of no par common stock outstanding as of May 21, 1996
have been canceled and replaced with 1,097,563 newly issued common shares.
All share data within the report have been restated to reflect this 3-for-1
reverse stock split.
The total outstanding common shares following the above common stock
adjustments were 2,544,929. If the adjustments occurred on January 1, 1996,
supplemental earnings per share for the first quarter of 1996 would have
been $1.44 in total.
2. FRESH START REPORTING
Under the provisions of SOP No. 90-7, the Company was required to apply
"fresh start" reporting since the reorganization value, as defined, was
less than the total of all postpetition liabilities and allowed claims, and
holders of voting shares immediately before confirmation of the Plan
received less than 50% 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 Company or the Successor
Company, and the financial statements of the entity 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 on these factors, the Company established a
reorganization value (total assets less liabilities) of the reorganized
entity of $25,665. 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 SOP No. 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
identifiable assets." This amount is being amortized over ten years.
In addition, the accumulated deficit of the Company was eliminated, and its
capital structure was recast in conformity with the approved Plan. As such,
the balance sheet of the Company as of December 31, 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 comparable
with prior periods. The net effect of all fresh start reporting adjustments
resulted in income of $1,406,034 which is included within the
Reorganization Item in the statement of operations of the Predecessor
Company for the three months ended March 31, 1996, net of legal costs of
$25,556 relating to the bankruptcy proceedings.
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 was effective as of April 1, 1996.
<TABLE>
<CAPTION>
CONVERTIBLE
SUBORDINATED REVERSE SUCCESSOR
PREDESSOR DEBT 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 420,886 420,886
Other 12,399 12,399
----------- -----------
$ 2,565,095 $-- $-- $ 1,406,034 $ 3,971,129
=========== =========== =========== =========== ===========
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 10,975 25,449
Accumulated deficit (6,606,599) 2,154,736 3,045,829 $ 1,406,034
----------- ----------- ----------- -----------
(3,549,795) 2,169,426 -- 1,406,034 25,665
----------- ----------- ----------- ----------- -----------
$ 2,565,095 $ -- $ -- $ 1,406,034 $ 3,971,129
=========== =========== =========== =========== ===========
</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 2) incurred net losses for the year ended December 31, 1995 of
$2,201,742, and the Successor Company incurred a loss for the nine months
ended December 31, 1996 of $530,371. As a result, financial resources have
been strained. As of March 31, 1997, the Successor Company's current
liabilities exceed current assets by $1,528,197. While the Company, through
its Plan, which was confirmed by the United States Bankruptcy Court, 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.
Management is attempting to obtain bridge financing from a major investor.
Management has also recently implemented a significant cost reduction and
cost containment program, and has revised the Company's pricing strategy
for its products.
The accompanying financial statements include adjustments related to the
implementation of the Plan of Reorganization and the adoption of fresh
start reporting. However, the financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
4. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share".
This statement specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS). This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. This statement replaces the presentation of
primary EPS with a presentation of basic EPS. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. The
Company does not believe the adoption of SFAS No. 128 will have a material
impact on the financial statements.
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues of $1,949,967 for the three months ended March 31, 1997 of the
Successor Company reflect an increase of 40% from the $1,394,512 in revenues
reported for the comparable 3 month period of the Predecessor Company in 1996.
The Company believes that the increase in revenues was due in part to the
increased confidence of the customers about the continued existence of the
company.
Gross profit margins for the three months ended March 31, 1997 of the Successor
Company were 38% as compared to 44% for the same period last year of the
Predecessor Company. The first quarter of 1996 included a reduction of reserve
estimates resulting in a 7% favorable gross profit impact for that quarter.
Operating costs of the Successor Company for the three months ended March 31,
1997 increased $90,640 over the same period in 1996 of the Predecessor Company.
The increase was due partly to increased commissions on an increased revenue
base. Also contributing to the increase were additional expenses related to the
reorganization.
Interest expense of the Successor Company for the three months ended March 31,
1997 was $57,426 as compared to $82,373 for the same period in 1996 of the
Predecessor Company. The first three months of 1996 included $20,761 of interest
related to the Subordinated Convertible Debentures which were canceled in
exchange for common and preferred stock as part of the reorganization.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit position of the Successor Company was ($1,478,197)
at March 31, 1997 which was an improvement of $275,268 over the year ended
December 31, 1996.
In March 1997, the Company issued a major shareholder 1,200,000 shares of common
stock in exchange for which the shareholder (i)paid to the Company $50,000;
(ii)waived his rights to receive the interest rate differential payments with
respect to payments made to the Bank in February through May 1997 (which
interest rate differential payments were estimated to equal a total of
approximately $14,000); and (iii)agreed to consent to an increase in the line of
credit to $1,250,000 and an abatement of the $25,000 monthly reduction in the
line of credit until after June 1, 1997.
The Company believes that the conversion of the Debentures into equity and the
cancellation of the Debenture interest, and the improvement of demand 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.
IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". This
statement specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS). This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. This statement replaces the presentation of primary EPS with a
presentation of basic EPS. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. The Company does not believe the
adoption of SFAS No. 128 will have a material impact on the financial
statements.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Item 6. Exhibits and Reports on form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Dated: May 14, 1997
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/ Allen R. Karson May 14, 1997
- -------------------
Allen R. Karson
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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 262,674
<SECURITIES> 0
<RECEIVABLES> 674,174
<ALLOWANCES> 107,058
<INVENTORY> 186,049
<CURRENT-ASSETS> 1,037,806
<PP&E> 1,709,562
<DEPRECIATION> 172,439
<TOTAL-ASSETS> 3,055,788
<CURRENT-LIABILITIES> 2,516,003
<BONDS> 0
0
216
<COMMON> 34,530
<OTHER-SE> (333,670)
<TOTAL-LIABILITY-AND-EQUITY> 3,055,788
<SALES> 1,949,967
<TOTAL-REVENUES> 1,949,967
<CGS> 1,234,052
<TOTAL-COSTS> 1,234,052
<OTHER-EXPENSES> (11,260)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,426
<INCOME-PRETAX> 196,703
<INCOME-TAX> 0
<INCOME-CONTINUING> 196,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,703
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
