<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 JUNE 30, 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: 26,088,221 common shares outstanding as of
July 15, 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
June 30, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Loss 4
Six months ended June 30, 1996 and 1995 (unaudited)
Three monhts ended June 30, 1996 and 1995 (unaudited) 5
Consolidated Statements of Stockholders' Equity 6
Six months ended June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows 7
Six months ended June 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 10
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
2
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30,
1996 DEC. 31,
ASSETS UNAUDITED 1995
------ --------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 2,808,784 $ 333,326
Certificates of deposit............................... - 200,000
Accounts receivables, less allowance for
doubtful accounts of $39,849 and $34,000............. 1,155,668 626,146
Inventories........................................... 487,982 329,902
Prepaid expenses and other............................ 495,179 374,623
------------ ------------
Total Current Assets 4,947,613 1,863,997
Note receivable........................................ 596,235 248,967
Property and equipment, less accumulated depreciation
of $426,956 and $272,240............................. 1,793,117 1,401,634
Patents and purchased technologies, less accumulated
amortization of $233,008 and $155,361................. 1,456,770 1,224,777
Goodwill, less accumulated amortization of $121,352
and $55,553........................................... 2,512,932 2,576,481
Other intangible assets, less accumulated
amortization of $55,339 and $38,900................... 248,433 144,872
Other.................................................. 520,313 423,991
------------ ------------
$12,075,413 $ 7,884,719
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------
Current Liabilities:
Short-term borrowings................................. $ 135,240 $ 1,111,658
Current maturities of long-term debt.................. 175,000 264,396
Accounts payable...................................... 899,317 974,400
Accrued expenses...................................... 421,183 895,506
Dividends payable..................................... 281,299 -
------------ ------------
Total current liabilities............................ 1,912,039 3,245,960
Long-term debt, less current maturities................ 749,534 3,535,461
Minority interest...................................... 16,488 16,488
------------ ------------
Total Liabilities.................................... 2,678,061 6,797,909
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 92,550 and 30 shares issued.............. 10,500,000 750,000
Common stock, $.001 par value, 50,000,000 shares
authorized; 25,788,221 and 23,927,285 shares issued... 25,790 23,927
Additional paid-in capital............................ 21,202,169 20,270,015
Deficit............................................... (22,164,387) (19,794,812)
Treasury stock, at cost, 450,000 shares............... (16,488) (16,488)
Less notes receivable for sale of stock............... (149,732) (145,832)
------------ ------------
Total Stockholders' Equity........................... 9,397,352 1,086,810
------------ ------------
$ 12,075,413 $ 7,884,719
============ ============
</TABLE>
3
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995
-------------- --------------
<S> <C> <C>
Revenues................................. $ 2,303,768 $ 1,172,573
Cost of revenues......................... 1,961,500 813,266
----------- -----------
Gross profit........................ 342,268 359,307
Expenses:
Selling, general and administrative
expenses........................... 2,115,497 1,938,735
Research and development expenses.... 160,671 412,240
----------- ---------
Total expenses........................... 2,276,168 2,350,975
----------- -----------
Operating loss...................... (1,933,900) (1,991,668)
Other Income (Expense):
Interest income...................... 74,155 167,045
Interest expense..................... (207,823) (47,222)
Equity in net loss of joint venture.. - (131,998)
Other................................ 6,447 1,272
----------- -----------
Total Other Income (Expense)............. (127,221) (10,903)
----------- -----------
Net Loss................................. $(2,061,121) $(2,002,571)
=========== ===========
Net Loss per share ($.09) ($.12)
====== ======
Weighted average number of common
shares outstanding...................... 22,784,376 16,983,973
========== ==========
</TABLE>
4
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30 JUNE 30
1996 1995
------------- -------------
<S> <C> <C>
Revenues.......................................... $ 1,440,769 $ 599,996
Cost of revenues.................................. 1,365,646 406,925
----------- -----------
Gross profit................................. 75,123 193,071
Expenses:
Selling, general and administrative expenses.. 1,137,500 1,122,404
Research and development expenses............. 74,362 157,176
----------- -----------
Total expenses.................................... 1,211,862 1,279,580
----------- -----------
Operating loss............................... (1,136,739) (1,086,509)
Other Income (Expense):
Interest income............................... 57,820 80,432
Interest expense.............................. (45,520) (18,413)
Equity in net loss of joint venture........... - (49,163)
Other......................................... 152 10,726
----------- -----------
Total Other Income - net.......................... 12,452 23,582
----------- -----------
Net Loss.......................................... $(1,124,287) $(1,062,927)
=========== ===========
Net Loss per share ($.05) ($.06)
====== ======
Weighted average number of common shares
outstanding................................... 23,267,085 17,130,437
========== ==========
</TABLE>
5
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR SIX MONTHS ENDED JUNE 30, 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 - - 363,492 364 274,636 -
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 Series D
preferred stock (30) (750,000) 1,249,313 1,250 748,750 -
Issuance of Series E
preferred stock 50 1,250,000 - - - -
Issuance of Series F
preferred stock 92,500 9,250,000 - - - -
Costs & fees associated
with equity issuances - - - - (249,167) -
Interest on notes
receivable from
stockholders - - - - - -
Dividends on perferred - - - - - (308,454)
stock
Net loss for the period - - - - - (2,061,121)
--------- ------------ ---------- ---------- ----------- ------------
Balance June 30, 1996 92,550 $10,500,000 25,788,221 $25,790 $21,202,169 $(22,164,387)
========= ============ ========== ========== =========== ============
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 - - - - - -
Sale of common stock - - 1,403,000 1,403 1,134,394 -
Sale of EET shares (401k) - - 12,343 12 12,285 -
plan
Cancellation of treasury
stock - - (3,000) (3) (2,997) -
Interest in notes
receivable
from stockholders - - - - - -
Net loss for the period - - - - - (2,002,571)
--------- ------------ ---------- ---------- ----------- ------------
Balance June 30, 1995 - $ - 20,529,338 $20,528 $18,756,925 $(14,457,143)
========= ============ ========== ========== =========== ============
<PAGE>
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 - - - 275,000
Issuance of common stock
upon conversion of
convertible note and
accrued interest thereon - - - 158,184
Issuance of common stock
upon conversion of Series D
preferred stock - - - -
Issuance of Series E
preferred stock - - - 1,250,000
Issuance of Series F
preferred stock - - - 9,250,000
Costs & fees associated
with equity issuances - - - (249,167)
Interest on notes
receivable from
stockholders - - (3,900) (3,900)
Dividends on perferred
stock - - - (308,454)
Net loss for the period - - - (2,061,121)
-------- -------- ----------- -----------
Balance June 30, 1996 450,000 $(16,488) $(149,732) $ 9,397,352
======== ======== =========== ===========
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 (350,000) 12,824 - 12,824
Sale of common stock - - - 1,135,797
Sale of EET shares (401k)
plan - - - 12,297
Cancellation of treasury
stock (3,000) 3,000 - -
Interest in notes
receivable
from stockholders - - (3,922) (3,922)
Net loss for the period - - - (2,002,571)
-------- -------- ----------- -----------
Balance June 30, 1995 450,000 $(16,488) $(141,954) $ 4,161,868
======== ======== =========== ===========
</TABLE>
6
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995
----------------- -------------
<S> <C> <C>
Net cash used in operating activities..................... $(2,838,313) $(2,145,478)
----------- -----------
Cash flows from investing activities:
Increase in note receivable........................... (347,268) (79,000)
Increase in patents and purchased technology.......... (309,640) (79,037)
Purchase of property and equipment.................... (546,198) (66,000)
Investment in joint venture........................... - (144,982)
Payment for non-compete agreements.................... (120,000) (105,000)
----------- -----------
Net cash used in investing activities.... (1,323,106) (474,019)
----------- -----------
Cash flows from financing activities:
Issuance of common stock.............................. - 1,148,094
Issuance of preferred stock........................... 7,800,000 -
Issuance of notes payable and long-term debt.......... 250,000 -
Repayment of notes payable and long-term debt......... (1,385,927) (707,880)
Redemption of preferred stock......................... - (305,000)
Payment of dividends on preferred stock............... (27,151) -
Payments of costs and fees of equity issuances........ (200,045) -
Redemption of restricted certificate of deposit....... 200,000 -
Payment of dividend on preferred stock of subsidiary.. - (5,432)
----------- -----------
Net cash provided by financing activities...... 6,636,877 129,782
----------- -----------
Net increase (decrease) in cash........................... 2,475,458 (2,489,715)
Cash and cash equivalents, beginning of year.............. 333,326 3,266,518
----------- -----------
Cash and cash equivalents, end of year.................... $ 2,808,784 $ 776,803
=========== ===========
</TABLE>
7
<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
Series D Convertible Preferred Stock
- ------------------------------------
Since December 31, 1995 the 30 outstanding shares of Series D convertible
preferred stock have been converted into 1,249,313 shares of the Company's
common stock.
Series E Convertible Preferred Stock
- ------------------------------------
In February and March, 1996 the Company issued 50 shares of Series E convertible
preferred stock ("Series E Shares") for proceeds of $1,250,000. 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
8
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Series F Convertible Preferred Stock
- ------------------------------------
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 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.
3. SUBSEQUENT EVENTS
In July 1996, the Company issued 750,000 shares of the Company's common stock
and warrants to purchase 750,000 shares of the Company's common stock for net
cash proceeds of $750,000. The warrants have an exercise price of $1.00 per
share and expire in July 1999.
9
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
- --------
Revenues increased $1,131,196 for the six months ended June 30, 1996 and
$840,774 for the three-month period ended June 30, 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 and increased revenues
from IPF.
Shipments of GAIA's air conditioner support pads began in February 1996, and
sales have increased steadily in each month. However, the Company has
experienced start-up related production issues that have limited revenues and
reduced gross profits during the first two quarters. As discussed below,
management entered into a new agreement on July 1, 1996 with the manufacturing
facility that produces GAIA's products; management believes this agreement
addresses many of the start-up issues and that revenue and gross profit
performance in the third quarter should improve.
IPF obtained and completed a large order for a pipeline system that contributed
$414,000 to revenues in the second quarter. Although the future occurrence of
orders of this magnitude cannot be guaranteed in the future, IPF has had the
opportunity to bid on several such projects that, if obtained, would contribute
to revenue in 1996.
The increase in the Company's revenues occurred despite the continued delay of
several projects that would use EET's TechXTract/TM/ decontamination technology.
Management of the Company still anticipates that these projects could be
completed during the remainder of 1996.
Gross profit
- ------------
The gross profit percentage for the six months ended June 30, 1996 decreased to
15% from 33% for the same period of the previous year. This decrease occurred
primarily during the second quarter of 1996, when the gross profit percentage
was 5% compared to 32% for the same quarter of the previous year. The erosion
in gross profit percentages was primarily the result of (i) the manufacturing
operations of GAIA, as discussed below, and (ii) IPF's completion of its
pipeline system order for revenue of $414,000 at margins that were bid lower
than IPF's recurring product sales. Management believes that the successful
completion of this project will lead to future contract awards with improved
gross profit percentages.
In May and June 1996, the Company operated the manufacturing activities of GAIA
under a new cost-sharing arrangement with a manufacturing facility in St.
Francisville, Louisiana. This arrangement, coupled with lower than expected
production rates, resulted in increased manufacturing costs. Additionally, an
unscheduled shut-down of production occurred during the second quarter to effect
renovations and repairs to major pieces of equipment. The combination of higher
manufacturing costs and unanticipated renovation expenses increased costs by
approximately $200,000, which in turn eliminated any gross profit for GAIA in
the second quarter. However, the
10
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
renovations and repairs made during the shutdown should significantly enhance
the production capabilities of this facility.
In order to alleviate any future erosion of GAIA's gross profits, effective
July 1, 1996, the Company entered into a new tolling arrangement with this
manufacturing facility whereby the Company pays a set price per pound of product
shipped. This arrangement should significantly improve the gross profit
percentage for GAIA, since all product costs will be variable based upon
shipments made to customers.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expense for the six months ended June 30,
1996 increased $176,762, and for the three months ended June 30, 1996 increased
$15,906, as compared with the same periods of the previous year. This is
primarily the result of (i) selling, general and administrative expenses of GAIA
which were not included in prior financial statements of the Company since it
was acquired on December 29, 1995 using the purchase method of accounting, (ii)
a decrease in the Company's corporate expenses, caused primarily by a decrease
in legal and professional fees, and (iii) a significant increase in direct
marketing expenses to enhance future revenue growth for all of the Company's
businesses.
Research and development
- ------------------------
Research and development expense for the six months ended June 30, 1996
decreased $251,569, and for the three months ended June 30, 1996 decreased $
82,814, as compared to the same periods of the previous year. This is primarily
the result of the completion or termination of various consulting arrangements
during the first six months of 1995.
Other income and expense
- ------------------------
Other expense increased $117,129 for the six months ended June 30, 1996 as
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 six months
of 1995, and both debt instruments were repaid early in the second quarter of
1996. 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.
11
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash increased $2,475,458 from December 31, 1995 to June 30, 1996
to a balance of $2,808,784. This increase in cash was comprised of the
following: net cash used in operating activities of $2,838,313 ; net cash used
in investing activities of $1,323,106; and net cash provided from financing
activities of $6,636,877. 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 $1,250,000 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.
The Series F preferred stock provides for the payment of quarterly dividends at
the annual rate of $13.50 per share, payable in cash or, at the election of the
holder, in additional shares of Series F preferred stock. On July 10, 1996 the
Company issued 2,703 additional shares of Series F preferred stock in payment of
the accrued dividends payable of $272,456 at June 30, 1996.
In July 1996, the Company received $750,000 in cash from the issuance of 750,000
shares of the Company's common stock and warrants to purchase 750,000 shares of
the Company's common stock. The warrants have an exercise price of $1.00 and
expire in July 1999.
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 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. In addition, in June
1996 the Company acquired the patents and technologies of MPT Services, Inc. for
a purchase price of approximately $290,000.
12
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
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.
On July 23, 1996, the Company entered into a mediated settlement of its
litigation with James Impero, which provided for the dismissal of all legal
claims each has pending against the other and a financial settlement with terms
that management believes are favorable to the Company.
ITEM 2: CHANGES IN SECURITIES:
As described below, at the 1996 Annual Meeting of Stockholders (the "Annual
Meeting"), the Certificate of Incorporation of the Company was amended to
increase the number of shares of Common Stock the Company is authorized to issue
from 50 to 100 million, to classify the members of the Board of Directors into
three classes, and to require a supermajority vote of stockholders in certain
circumstances to further amend the Certificate of Incorporation.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES: None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting, a proposal to amend the Certificate of Incorporation to
provide for a classification of the Board of Directors was approved by a vote of
19,371,182 for and 248,361 against with 61,739 shares abstaining on such matter.
At the Annual Meeting, a proposal to amend the Certificate of Incorporation to
require a supermajority vote to stockholders to approve amendments to certain
provisions of the Company's Certificate of Incorporation was approved by a vote
of 19,227,693 for and 354,670 against, with 48,919 shares abstaining on such
matter.
13
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
At the Annual Meeting, the following nominees for director to be elected by the
stockholders received the number of votes set opposite their names,
constituting, in each case, a plurality of the votes cast at the Annual Meeting
for election of the nine directors to be elected by the stockholders:
<TABLE>
<CAPTION>
<S> <C>
William T. Aldrich 28,856,146
----------
David M. Daniels 28,863,046
----------
Edwin H. Knight 26,863,096
----------
Donovan W. Boyd 26,866,246
----------
Mark E. Leyerle 26,858,846
----------
Christopher W. Roser 26,854,853
----------
Tim B. Tarrillion 26,866,056
----------
Douglas C. Williamson 26,866,296
----------
Robert H. Chaney 26,861,596
----------
</TABLE>
At the Annual Meeting, a proposal to amend the Certificate of Incorporation to
authorize additional common stock was approved by a vote of 25,753,382 for and
452,393 against, with 87,957 shares abstaining on such matter.
At the Annual Meeting, the appointment of BDO Seidman LLP as independent
auditors for the Company and its subsidiaries for the 1996 fiscal year was
approved by a vote of 26,811,989 for and 48,262 against, with 76,581 shares
abstaining on such matter.
ITEM 5: OTHER INFORMATION: None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2) Amended and Restated Certificate of Incorporation
27) Financial Data Schedule
(B) REPORTS ON FORM 8-K: None
14
<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: August 13, 1996 /s/ Tim B. Tarrillion
-----------------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
/s/ Judith Knight Shields
-----------------------------------------------
Judith Knight Shields
Chief Financial Officer and Chief Accounting Officer
15
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
IT IS HEREBY CERTIFIED THAT:
1. The present name of the corporation is North American Technologies
Group, Inc. (the "Corporation"). The Corporation was originally incorporated
under the name of "Mail Boxes Coast to Coast, Inc." on December 24, 1986. A
Certificate of Merger was filed on January 16, 1987 merging "Mail Boxes Coast to
Coast, Inc.", a California corporation with and into the Corporation.
Certificates of Amendment were filed on August 10, 1992, January 29, 1993 and
June 27, 1996. A Certificate of Correction was filed on December 9, 1992.
2. The Certificate of Incorporation of the Corporation as heretofore
amended is hereby restated and integrated in its entirety by striking out
Articles First through Eleventh thereof and by substituting in lieu thereof new
Articles First through Tenth which are set forth hereinafter in this Restated
Certificate of Incorporation, as heretofore amended, and are hereby restated and
integrated into the single instrument which is hereinafter set forth and which
is titled the "Restated Certificate of Incorporation of North American
Technologies Group, Inc." This restatement of the Certificate of Incorporation
does not further amend the provisions of the Corporation's Certificate of
Incorporation as heretofore amended and there is no discrepancy between the
provisions contained therein and the provisions of this restatement.
3. The restatement of the Certificate of Incorporation of the Corporation
certified to herein has been duly adopted pursuant to the resolutions of the
Board of Directors of the Corporation in accordance with the provisions of
Sections 141(f) and 245 of the General Corporation Law of the State of Delaware.
The facts set forth are certified to be true and correct.
4. This Restated Certificate of Incorporation shall become effective upon
the filing hereof with the Secretary of State of the State of Delaware.
5. The Certificate of Incorporation of the Corporation, as restated
herein, shall at the effective time of this Restated Certificate of
Incorporation read as follows:
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
ARTICLE I
The name of the Corporation is North American Technologies Group, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Guarantee and Trust Company, 11th Floor, Rodney North,
Wilmington, Delaware 19801.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any
lawful activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is one hundred million (100,000,000)
shares of common stock, par value $.001 per share, and ten million (10,000,000)
shares of preferred stock, par value $.001 (the "Preferred Stock"), of which 50
shares are designated as Series E Convertible Preferred Stock and 150,000 shares
are designated as Cumulative Convertible Preferred Stock, Series F, with the
designations, preferences, voting powers, relative, participating, optional or
other special rights and privileges, and qualifications, limitations and
restrictions as set forth on Attachments A and B, respectively.
The Board of Directors of the Corporation is hereby authorized to issue by
resolution, from time to time, undesignated shares of Preferred Stock in any one
or more series and to fix the number of shares in each series and the
designations, powers, preferences and relative, participating, optional or other
special rights thereof and the qualifications, limitations, or restrictions
thereon, including, without limitation, any of the following: (i) provisions
relating to voting rights of each share in such series, including multiple or
fractional votes per share; (ii) provisions relating to the call or redemption
thereof, including, without limitation, the times and prices for such calls or
redemptions and provisions relating to sinking funds therefor and the retirement
thereof, if any; (iii) provisions relating to the right to receive dividends,
including, without limitation, participation in dividends with shares of any
other class or series of capital stock of the Corporation and/or preferential
dividends, the rate of such dividends, whether such dividends shall be
cumulative or noncumulative and the conditions upon which such dividends shall
be accrued and paid, and any preferential rights
<PAGE>
thereto or rights in relation to dividends payable on any other classes or
series of stock of the Corporation; (iv) the rights thereof upon the dissolution
of, or upon any distribution of the assets of the Corporation; and (v) except as
otherwise explicitly prohibited by this Certificate of Incorporation, provisions
relating to the conversion thereof into, or the exchange thereof into, or the
exchange thereof for shares of any class or any other series of the same class
of stock of the Corporation or exchange for any other security of the
Corporation or any other company.
ARTICLE V
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as they case may be, and also on the
Corporation.
ARTICLE VI
The original By-Laws shall be adopted by the Incorporator of the
Corporation. Thereafter, the Board of Directors or the stockholders may make,
amend or repeal By-Laws in such manner as may be by law or therein provided, but
any By-Law made by the Board of Directors is subject to amendment or repeal by
the stockholders of the Corporation.
ARTICLE VII
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
<PAGE>
ARTICLE VIII
(a) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity while
serving as a director, officer, employee or agent shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred
in this Article shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service as or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(b) If a claim under paragraph (a) of this Article is not paid in full by
the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against he
Corporation to recover the unpaid amount of the claim and, if successful, in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered by the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of providing such defense shall be on the
Corporation.
<PAGE>
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard or conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
(c) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ARTICLE IX
(a) Except as otherwise fixed by or pursuant to provisions hereof
relating to the rights of the holders of any class or series of stock having a
preference over common stock as to dividends or upon liquidation to elect
additional Directors under specified circumstances, the number of Directors of
the Corporation shall be fixed from time to time by affirmative vote of a
majority of the Directors then in office. The Directors, other than those who
may be elected by the holders of any classes or series of stock having a
preference over the common stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three class, as nearly equal in number as possible, as shall be provided in the
manner specified in the By-Laws of the corporation, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1997, another class to be originally elected for a term expiring as the annual
meeting of stockholders to be held in 1998, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, with each class to hold office until its successor is elected and
qualified. At each annual meeting of the stockholders of the Corporation after
fiscal year 1996, the successors of the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. Election of directors need not be by written ballot unless so
provided in the By-Laws of the Corporation.
<PAGE>
(b) Except as otherwise fixed by or pursuant to provisions hereof relating
to the rights of the holders of any class or series of stock having a preference
over common stock as to dividends or upon liquidation to elect additional
Directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
Directors than in office, even though less then a quorum of the Board of
Directors. Any Director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of any incumbent director.
(c) Except as otherwise fixed by or pursuant to provisions hereof relating
to the rights of the holders of any class or series of stock having a preference
over common stock as to dividends or upon liquidation to elect additional
Directors under specified circumstances, any Director may be removed from office
only for cause and only by the affirmative vote of the holders of two-thirds of
the combined voting power of the then outstanding shares of stock entitled to
vote generally in the election of Directors, voting together as a single class.
(d) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the consent of the Board of Directors shall be required to
alter, amend, adopt any provisions inconsistent with or repeal this Article IX.
ARTICLE X
Amendments to the Certificate of Incorporation of the Corporation shall
require the affirmative vote of two-thirds of the holders of a majority of the
combined voting power of the then outstanding shares of stock entitled to vote
on any proposed amendment to the Certificate of Incorporation. Notwithstanding
the foregoing, in the event that a resolution to amend the Certificate of
Incorporation of the Corporation is adopted by the affirmative vote of at least
eighty percent (80%) of the Board of Directors approval of the amendment shall
only require the affirmative vote of the holders of a majority of the combined
voting power of the then outstanding shares of stock entitled to vote generally
on such amendment, voting together as a single class.
<PAGE>
IN WITNESS WHEREOF, THE CORPORATION HAS CAUSED THIS RESTATED
CERTIFICATE OF INCORPORATION TO BE EXECUTED BY ITS DULY AUTHORIZED OFFICERS,
THIS 12TH DAY OF AUGUST, 1996.
/s/ DAVID M. DANIELS /s/ TIM B. TARRILLION
- --------------------------------- -------------------------------------
SECRETARY PRESIDENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,808,784
<SECURITIES> 0
<RECEIVABLES> 1,195,517
<ALLOWANCES> 39,849
<INVENTORY> 487,982
<CURRENT-ASSETS> 4,947,613
<PP&E> 2,220,073
<DEPRECIATION> 426,956
<TOTAL-ASSETS> 12,075,413
<CURRENT-LIABILITIES> 1,912,039
<BONDS> 749,534
0
10,500,000
<COMMON> 25,790
<OTHER-SE> (1,128,438)
<TOTAL-LIABILITY-AND-EQUITY> 12,075,413
<SALES> 2,303,768
<TOTAL-REVENUES> 2,303,768
<CGS> 1,961,500
<TOTAL-COSTS> 1,961,500
<OTHER-EXPENSES> 2,276,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,823
<INCOME-PRETAX> (2,061,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,061,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,061,121)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
