<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1935 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number: 0-16217
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0041789
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4710 BELLAIRE BOULEVARD, SUITE 301, BELLAIRE, TEXAS 77401
(Address of principal executive offices) (Zip Code)
(713) 662-2699
(Issuer's telephone number)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the 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 a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 24,900,632 common shares outstanding as of
May 14, 1996.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes [ ] No [X]
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets 3
March 31, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Loss 4
Three months ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Stockholders' Equity 5
Three months ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows 6
Three months ended March 31, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
2
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
MAR. 31, 1996 MAR. 31
PROFORMA 1996 DEC. 31
ASSETS SEE NOTES UNAUDITED 1995
------- ------------- ------------- -------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 5,464,059 $ 154,409 $ 333,326
Certificates of deposit............................... 200,000 200,000 200,000
Accounts receivables, less allowance for
doubtful accounts of $30,250 and $34,000............. 660,572 660,572 626,146
Inventories........................................... 458,734 458,734 329,902
Prepaid expenses and other............................ 454,803 454,803 374,623
------------ ------------ ------------
Total Current Assets................................. 7,238,168 1,928,518 1,863,997
Note receivable........................................ 439,199 439,199 248,967
Property and equipment, less accumulated depreciation
of $334,597 and $272,240............................. 1,718,468 1,718,468 1,401,634
Patents and purchased technologies, less accumulated
amortization of $193,734 and $155,361................. 1,196,446 1,196,446 1,224,777
Goodwill, less accumulated amortization of $88,459
and $55,553........................................... 2,545,825 2,545,825 2,576,481
Other intangible assets, less accumulated
amortization of $46,338 and $38,900................... 137,434 137,434 144,872
Other.................................................. 425,424 425,424 423,991
------------ ------------ ------------
$ 13,700,964 $ 8,391,314 $ 7,884,719
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings................................. $ 51,353 $ 1,101,353 $ 1,111,658
Current maturities of long-term debt.................. 420,000 420,000 264,396
Accounts payable...................................... 689,121 689,121 974,400
Accrued expenses...................................... 755,079 945,429 895,506
------------ ------------ ------------
Total current liabilities............................ 1,915,553 3,155,903 3,245,960
Long-term debt, less current maturities................ 770,057 3,470,057 3,535,461
Minority interest...................................... 16,488 16,488 16,488
------------ ------------ ------------
Total Liabilities.................................... 2,702,098 6,642,448 6,797,909
------------ ------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 50 and 80 shares issued
(92,550 proforma).................................... 10,968,750 1,718,750 750,000
Common stock, $.001 par value, 50,000,000 shares
authorized; 24,890,216 and 23,927,285 shares issued... 24,891 24,891 23,927
Additional paid-in capital............................ 20,901,145 20,901,145 20,270,015
Deficit............................................... (20,731,650) (20,731,650) (19,794,812)
Treasury stock, at cost, 450,000 shares............... (16,488) (16,488) (16,488)
Less notes receivable for sale of stock............... (147,782) (147,782) (145,832)
------------ ------------ ------------
Total Stockholders' Equity........................... 10,998,866 1,748,866 1,086,810
------------ ------------ ------------
$ 13,700,964 $ 8,391,314 $ 7,884,719
============ ============ ============
</TABLE>
3
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues................................. $ 862,999 $ 572,578
Cost of revenues......................... (595,854) (380,034)
----------- -----------
Gross profit........................ 267,145 192,544
Expenses:
Selling, general and administrative
expenses........................... 977,997 842,640
Research and development expenses.... 86,309 255,063
----------- -----------
Total expenses........................... 1,064,306 1,097,703
----------- -----------
Operating loss...................... (797,161) (905,159)
Other Income (Expense):
Interest income...................... 16,335 86,614
Interest expense..................... (162,303) (28,809)
Equity in net loss of joint venture.. - (82,835)
Other................................ 6,291 (9,456)
----------- -----------
Total Other Income (Expense)............. (139,677) (34,486)
----------- -----------
Net Loss................................. $ (936,838) $ (939,645)
=========== ===========
Net Loss per share....................... ($.04) ($.06)
=========== ===========
Weighted average number of common shares
outstanding ............................. 22,301,669 16,843,753
=========== ===========
</TABLE>
4
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
Preferred Common Stock Additional
------------------------- ------------------------ Paid-In
Shares Amount Shares Amount Capital Deficit
---------- ------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 30 $ 750,000 23,927,285 $23,927 $20,270,015 $(19,794,812)
Stock issued for services
or settlement of liability - - 300,000 300 223,610 -
Issuance of common stock
upon conversion of
convertible note and
accrued interest thereon - - 248,131 249 157,935 -
Issuance of common stock
upon conversion of 10
shares of Series D
preferred stock (10) (250,000) 414,800 415 249,585 -
Issuance of Series E
preferred stock 50 1,218,750 - - - -
Interest on notes
receivable from
stockholders - - - - - -
Net loss for the period - - - - - (936,838)
--------- ------------ ---------- ------- ----------- ------------
Balance March 31, 1996 70 $1,718,750 24,890,216 $24,891 $20,901,145 $(20,731,650)
========= ============ ========== ======= =========== ============
Balance December 31, 1994 80 - 18,692,489 $18,692 $17,613,667 $(12,454,572)
Issuance of common stock
upon conversion Series A, B
and C convertible preferred
stock (80) - 424,506 424 (424) -
Issuance of common stock
from treasury - - - - - (150,000)
Sale of common stock - - 98,000 98 230,202 -
Sale of EET shares (401k)
plan - - 12,343 12 12,285 -
Cancellation of treasury
stock - - (3,000) (3) (2,997) -
Interest in notes receivable
from stockholders - - - - - -
Net loss for the period - - - - - (939,645)
--------- ------------ ---------- ------- ----------- ------------
Balance March 31, 1995 - $ - 19,224,338 $19,223 $17,852,733 $(13,394,217)
========= ============ ========== ======= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Notes
------------------ Receivable
Shares Amount Stockholder Total
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance December 31, 1995 450,000 $(16,488) $(145,832) $1,086,810
Stock issued for services
or settlement of liability - - - 223,910
Issuance of common stock
upon conversion of
convertible note and
accrued interest thereon - - - 158,184
Issuance of common stock
upon conversion of 10
shares of Series D
preferred stock - - - -
Issuance of Series E
preferred stock - - - 1,218,750
Interest on notes
receivable from
stockholders - - (1,950) (1,950)
Net loss for the period - - - (936,838)
------- -------- ----------- ----------
Balance March 31, 1996 450,000 $(16,488) $(147,782) $1,748,866
======= ======== =========== ==========
Balance December 31, 1994 803,000 $(32,312) $(138,032) $5,007,443
Issuance of common stock
upon conversion Series A, B
and C convertible preferred
stock - - - -
Issuance of common stock
from treasury 5,496 - - 5,496
Sale of common stock - - - 230,300
Sale of EET shares (401k)
plan - - - 12,297
Cancellation of treasury
stock (3,000) 3,000 - -
Interest in notes
receivable from stockholders - - (1,950) (1,950)
Net loss for the period - - - (939,645)
------- -------- ----------- ----------
Balance March 31, 1995 650,000 $(23,816) $(139,982) $4,313,941
======= ======== =========== ==========
</TABLE>
5
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
MAR. 31 MAR. 31
1996 1995
------------- -------------
<S> <C> <C>
Net cash used in operating activities..................... $(1,058,402) $(1,308,386)
----------- -----------
Cash flows from investing activities:
Increase in note receivable........................... (190,232) (129,795)
Payment of patent costs............................... (10,042) (3,057)
Purchase of property and equipment.................... (379,191) (55,738)
Investment in joint venture........................... - (52,708)
----------- -----------
Net cash used in investing activities.... (579,465) (241,298)
----------- -----------
Cash flows from financing activities:
Issuance of common stock.............................. - 242,601
Issuance of preferred stock........................... 1,218,750 -
Issuance of notes payable and long-term debt.......... 250,000 -
Repayment of notes payable and long-term debt......... (9,800) (712,500)
Redemption of preferred stock......................... - (305,000)
Payment of dividend on preferred stock of subsidiary.. - (5,432)
----------- -----------
Net cash provided by financing activities...... 1,458,950 (780,331)
----------- -----------
Net increase (decrease) in cash........................... (178,917) (2,330,015)
Cash and cash equivalents, beginning of year.............. 333,326 3,266,518
----------- -----------
Cash and cash equivalents, end of year.................... $ 154,409 $ 936,503
=========== ===========
</TABLE>
6
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial information of North American Technologies Group, Inc. and
its subsidiaries (the "Company") which is included herein is unaudited and has
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB. In the
opinion of management, these interim financial statements include all the
necessary adjustments to fairly present the results of the interim periods, and
all such adjustments are of a normal recurring nature. The interim financial
statements should be read in conjunction with the audited financial statements
for the three years in the period ended December 31, 1995. The interim results
reflected in the accompanying financial statements are not necessarily
indicative of the results of operations for a full fiscal year.
During March and June 1995, the Company acquired 100% of the outstanding stock
of EET, Inc. ("EET") and Industrial Pipe Fittings, Inc. ("IPF"). In addition,
in December 1995, the Company acquired certain assets of GAIA Technologies, Inc.
and its affiliates (collectively "GAIA"). The acquisition of EET and IPF were
accounted for as poolings-of-interests, and accordingly the financial statements
for all periods prior to the acquisitions have been restated to combine the
previously separate entities. The acquisition of GAIA was accounted for using
the purchase method of accounting, and accordingly the results of its operations
are included from the acquisition date.
The loss per common share is computed by dividing the loss by the weighted
average number of common shares outstanding and common stock equivalents, if
dilutive.
2. STOCKHOLDERS' EQUITY
In February and March, 1996 the Company issued 50 shares of Series E convertible
preferred stock ("Series E Shares") for net proceeds of $1,218,750. The Series
E holders have certain liquidation preferences, and are not entitled to any
dividends. At the option of the Series E holders, the preferred stock may be
converted into the Company's common stock using a conversion rate computed as
the lesser of (a) a calculated value utilizing a discount to the market price of
the Company's common stock, as defined or (b) $1.50 per share. One-fourth of
the Series E Shares can be converted after August 9, 1996, with another one-
fourth available for conversion every three months thereafter. In addition, the
Company at its option may redeem any of the Series E Shares still outstanding
after February 16, 1999 at $25,000 per share.
3. SUBSEQUENT EVENTS
In April and May, 1996, the Company issued 92,500 shares of Series F convertible
preferred stock ("Series F Preferred") and stock purchase warrants to purchase
9,250,000 shares of the Company's
7
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common stock ("Series F Warrants"). Cash proceeds of $6,550,000 were received
for issuance of 65,500 Series F shares and 6,550,000 Series F Warrants. The
remaining 27,000 Series F shares and 2,700,000 Series F Warrants were issued in
exchange for the surrender of (a) $2,700,000 in principal amount of the 13.5%
convertible subordinated debentures and (b) 2,700,000 warrants. The Series F
Warrants have an exercise price of $1.00 per share, subject to certain
adjustments, and expire on April 8, 2004.
Dividends accrue on the Series F Shares at a per annum rate of $13.50 per share
and are payable semi-annually. The Company may elect to defer and accrue the
dividend payments during the first three years, in which case, each holder may
elect to receive payment of the dividend in the form of additional Series F
Shares. All accrued but unpaid dividends accrue interest at a per annum rate of
13.5%. The holders of the Series F Shares have certain liquidation preferences.
The Series F Shares may be converted into the Company's common stock at the
option of the holder using a conversion rate, subject to certain adjustments, of
$1.00 per share. On or after April 8, 2001, the Series F Shares can be
converted at the holder's option using the lesser of (a) the current conversion
price; or (b) a calculated value utilizing a discount to the market price of the
Company's common stock, as defined. Subject to certain conversion rights, the
Company may redeem the Series F Shares at face value on or after April 8, 2004.
Of the proceeds received from the Series F Shares, $1,050,000 was used to repay
the outstanding note issued in connection with the purchase of GAIA. Because of
the significance of the Series F preferred stock issuance, a proforma balance
sheet presentation has been provided to show the effect of the issuance,
repayment of the $1,050,000 note, and repayment of certain accrued interest on
the 13.5% convertible subordinated debentures, as if such events occurred at
March 31, 1996.
8
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The results of operations for the three months ended March 31, 1995 has been
restated to include the historical financial results of Industrial Pipe
Fittings, Inc. ("IPF") which was acquired on June 30, 1995 in a transaction
accounted for as a pooling-of-interests. See also the Notes to the Consolidated
Financial Statements.
Revenues
- --------
Revenues increased $290,000 for the three-month period ended March 31, 1996.
This increase is the result of the revenues generated from new product lines of
GAIA (air-conditioner condenser support pads and porous pipe) and IPF (tapping
saddles).
Shipments of GAIA's products began in February 1996. Initial market reaction to
the support pads has been encouraging. However, revenues from the support pads
were limited during the first quarter by the production capabilities of the new
manufacturing line. Management believes these start-up issues will be corrected
in the near term and that production rates should meet design rates as those
problems are solved.
The increase in revenue from GAIA and IPF was partially offset by a decline in
EET's extraction revenue due to the postponement of several projects. These
projects are expected to begin in the second quarter.
Gross profit
- ------------
The gross profit percentage for the three months ended March 31, 1996 decreased
to 31% from 34% for the same period of the previous year. This decrease
occurred primarily because of the costs arising from the increased manufacturing
capacity at IPF and the start-up costs related to its fabricated fittings
business. The manufacturing facilities were expanded during the first quarter
and a new YTL machine was purchased and installed in January 1996. IPF's gross
profit percentage is expected to increase in the future as sales increase to
absorb the excess capacity currently available at their facilities.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expense for the three-month period ended
March 31, 1996 increased approximately $135,000 over the same period for the
previous year, primarily as a result of the selling, general and administrative
expenses of GAIA, which were over $200,000 for the quarter and were not included
in prior financial statements of the Company since it was acquired on
9
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION
AND RESULTS OF OPERATIONS
December 29, 1995 using the purchase method of accounting. The increase in
expenses relating to GAIA was offset by a decline of approximately $60,000 in
the Company's corporate expenses, caused primarily by a decrease in legal and
professional fees.
Research and development
- ------------------------
Research and development expense for the three-month period ended March 31, 1996
decreased $169,000 from the same period of the previous year. This is primarily
the result of the completion or termination of various consulting arrangements
during the first quarter of 1995.
Other income and expense
- ------------------------
Other expense increased $105,000 for the three months ended March 31, 1996
compared with the same period of the previous year. This is primarily the result
of increased interest expense arising from the $2,700,000 13.5% convertible
subordinated debenture and the $1,050,000 note incurred from the acquisition of
GAIA. Neither of these obligations were outstanding during the first quarter of
1995. The convertible subordinated debentures and related warrants were
surrendered on April 8, 1996 in exchange for 27,000 shares of Series F
convertible preferred stock and warrants to purchase 2,700,000 shares of Company
common stock, while the $1,050,000 was repaid in April 1996 from the proceeds
received from the issuance of the Series F preferred stock. See Notes to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash decreased $178,917 from December 31, 1995 to March 31, 1996
to a balance of $154,409. This decrease in cash was comprised of the following:
net cash used in operating activities of $1,058,402; net cash used in investing
activities of $579,465; and net cash provided from financing activities of
$1,458,950. See also the Consolidated Statements of Cash Flows for the
components of each of the preceding categories.
Since December 31, 1995 the Company has received cash of $1,218,750 and
$6,550,000 from the issuance of 50 shares of Series E and 65,500 shares of
Series F convertible preferred stock. In addition, the $2,700,000 13.5%
convertible subordinated debenture and its related warrants were surrendered in
exchange for 27,000 shares of the Series F preferred stock. The holders of the
Series F shares also received warrants to purchase 9,250,000 shares of Company
common stock at an exercise price of $1.00, subject to certain adjustments.
From the proceeds received of the Series F described above, $1,050,000 was used
to repay the outstanding note incurred in connection with the acquisition of
GAIA. The accrued interest due to
10
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION
AND RESULTS OF OPERATIONS
the holders of the 13.5% subordinated debentures of approximately $198,000 was
repaid simultaneous with the conversion into the Series F Shares. Pursuant to
the terms of his agreement, the balance due to Mr. Parrott of $219,000 was
repaid in April, 1996.
The Company is a defendant in several legal actions which, if decided against
the Company, could have a material adverse effect on the financial condition of
the Company. The Company has not established a reserve for any losses that
might result from these lawsuits.
11
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is a party to several material legal proceedings that have been
reported on its Annual Report on Form 10-K for the year ended December 31, 1995.
During the quarter ended March 31, 1996, the status of these legal proceedings
were subject to change in the manner identified hereafter:
As previously reported, the litigation between the Company and Biotrace
International, Inc. ("Biotrace") was referred to binding arbitration before
the American Arbitration Association. On May 6, 1996 the arbitrator entered an
award for the Company on its claims against Biotrace in the amount of $1.8
million and denied all claims of Biotrace against the Company. As of the date
of this report, there is no information as to whether Biotrace intends to appeal
the arbitrator's ruling. Because the Company is uncertain of its ability to
collect the amount awarded, no financial statement treatment has been given with
respect to this development.
ITEM 2: CHANGES IN SECURITIES:
On April 8, 1996, the Company issued 82,000 shares of Series F Convertible
Preferred Stock ("Series F Shares") and warrants to acquire 8,200,000 shares of
the Company's common stock ("Series F Warrants"). In May, 1996, an additional
10,500 Series F Shares and 1,050,000 Series F Warrants were issued. The Series
F Warrants have an exercise price of $1.00 per share, subject to certain
adjustments, and expire on April 8, 2004.
Dividends accrue on the Series F Shares at a per annum rate of $13.50 per share
and are payable semi-annually. The Company may elect to defer and accrue the
dividend payments during the first three years, in which case, each holder may
elect to receive payment of the dividend in the form of additional Series F
Shares. The holders of the Series F Shares have certain liquidation
preferences. The Series F Shares may be converted into Company common stock at
the option of the holder using a conversion rate, subject to certain
adjustments, of $1.00 per share. On or after April 8, 2001, the Series F Shares
can be converted at the holder's option at the lower of (a) the then-current
conversion price, or (b) a calculated value utilizing a discount to the market
price, as defined, of the Company's common stock. The Company may redeem the
Series F Shares at face value on or after April 8, 2004.
Each Series F Share entitles the holder thereof to the number of votes equal to
the number of shares of common stock into which such Series F Share may be
converted from time to time. In addition, the Company has agreed to cause its
Board of Directors to be increased to nine positions, four of which may be
filled by nominees selected by the holders of the
12
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
Series F Shares.
The preferred stock purchase agreement and the certificates of designation for
the Series F Shares contain covenants which, if breached by the Company, provide
for certain remedies. Certain of these covenants are considered outside the
Company's control. These covenants include, among other things, that the Company
obtain a minimum net worth, as defined in the agreement, by December 31, 2000.
For breach of these covenants that are outside of the Company's control the
remedy allows the Series F holders to convert their shares into the Company's
common stock using a conversion rate computed as the lesser of (a) the
conversion price, as adjusted; or (b) a calculated value utilizing a discount to
the market price, as defined, of the Company's common stock. Also, the stock
purchase agreement contains certain covenants that are considered within the
control of the Company. These covenants, among other things, require the
delivery of financial information and restrict the Company from incurring
additional debt if, immediately upon the incurrence of such debt, the Company's
debt to equity ratio exceeds a certain ratio, as defined by the agreement. For
breach of these covenants that are within the Company's control the remedies
allow the Series F holders to elect a majority of the Company's Board of
Director's and to either (i) convert their shares into the Company's common
stock using a conversion rate computed as the lesser of (a) the conversion
price, as adjusted; or (b) a calculated value utilizing a discount to the market
price, as defined; or (ii) request the Company to redeem their shares. If the
Series F holders elect redemption, the shares will be redeemed at the greater of
(a) the fair market value, as defined; or (b) the initial purchase price, plus
unpaid dividends and interest, if any. At the Company's option, the shares may
be redeemed with cash or a three year promissory note.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES: None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
ITEM 5: OTHER INFORMATION
Management is not aware of any events required to be reported hereunder.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS: # 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K: None
13
<PAGE>
SIGNATURE
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 American Technologies Group, Inc.
Date: May 14, 1996 /s/ Judith Knight Shields
------------------------------------------
Judith Knight Shields
Chief Financial Officer and
Chief Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 154,409
<SECURITIES> 200,000
<RECEIVABLES> 690,822
<ALLOWANCES> (30,250)
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0
1,718,750
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</TABLE>
