<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
1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
[ ] 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 CORPORATE ISSUERS
State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 29,144,441 common shares outstanding as of
July 31, 1997.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes No X
-------- ---------
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets 3
June 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Loss 4
Three and six months ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Stockholders' Equity 5
Six months ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows 6
Six months ended June 30, 1997 and 1996 (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 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 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
2
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JUNE 30 DEC. 31
1997 1996
UNAUDITED AUDITED
------------- -------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents...................................... $ 1,085,253 $ 1,126,912
Accounts receivable, less allowance for
doubtful accounts of $129,411 and $125,000.................... 1,123,085 997,411
Inventories.................................................... 580,010 585,615
Prepaid expenses and other..................................... 390,877 270,200
------------ ------------
Total Current Assets.......................................... 3,179,225 2,980,138
Notes receivable................................................ 1,548,919 1,374,843
Property and equipment, less accumulated depreciation of
$444,176 and $375,158.......................................... 984,556 1,060,705
Patents and purchased technologies, less accumulated
amortization of $399,829 and $320,853.......................... 1,356,138 1,412,739
Goodwill, less accumulated amortization of $434,341
and $264,890................................................... 2,821,842 2,991,293
Other intangible assets, less accumulated
amortization of $104,365 and $79,570........................... 199,407 224,202
Other........................................................... 186,612 277,799
------------ ------------
$ 10,276,699 $ 10,321,719
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt........................... $ 160,500 $ 79,288
Accounts payable and accrued expenses.......................... 824,289 874,368
------------ ------------
Total current liabilities..................................... 984,789 953,656
Long-term debt, less current maturities......................... 687,184 821,631
Dividends payable on preferred stock............................ 101,277 -
------------ ------------
Total Liabilities............................................. 1,773,250 1,775,287
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 124,454 and 101,429 shares issued................. 12,445,447 10,765,447
Common stock, $.001 par value, 100,000,000 shares authorized;
29,144,441 and 27,111,497 shares issued....................... 29,147 27,114
Additional paid-in capital..................................... 24,727,577 23,809,619
Deficit........................................................ (28,541,190) (25,902,116)
Less notes receivable for sale of stock........................ (157,532) (153,632)
------------ ------------
Total Stockholders' Equity.................................... 8,503,449 8,546,432
------------ ------------
$ 10,276,699 $ 10,321,719
============ ============
</TABLE>
3
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1997 1996 1997 1996
------------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues...................................... $ 1,094,674 $ 1,440,769 $ 2,268,129 $ 2,303,768
Cost of revenues.............................. 774,043 1,365,646 1,501,624 1,961,500
----------- ----------- ----------- -----------
Gross profit............................. 320,631 75,123 766,505 342,268
Selling, general and administrative expenses.. 1,156,741 1,211,862 2,278,661 2,276,168
----------- ----------- ----------- -----------
Operating loss........................... (836,110) (1,136,739) (1,512,156) (1,933,900)
Other Income (Expense):
Interest income........................... 43,045 57,820 74,361 74,155
Interest expense.......................... (22,406) (45,520) (47,403) (207,823)
Other..................................... (12,736) 152 (22,856) 6,447
----------- ----------- ----------- -----------
Total Other Income (Expense).................. 7,903 12,452 4,102 (127,221)
----------- ----------- ----------- -----------
Net Loss...................................... $ (828,207) $(1,124,287) $(1,508,054) $(2,061,121)
=========== =========== =========== ===========
Net Loss per share ($.03) ($.05) ($.09) ($.09)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding........................... 28,623,530 23,267,085 28,087,762 22,784,376
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1996
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, 1996 101,429 $10,765,447 27,111,497 $27,114 $23,809,619 $(25,902,116)
Issuance of common stock
upon conversion of Series E
preferred stock (25) (625,000) 2,032,944 2,033 622,967 -
Issuance of Series G
preferred stock 16,400 1,640,000 - - - -
Issuance of Series F & G
preferred stock in lieu of
cash dividends 6,650 665,000 - - - -
Costs associated with
equity transactions - - - - (76,138) -
Interest on notes
receivable from
stockholders - - - - - -
Dividends on preferred stock - - - - - (759,891)
Deemed dividends on
preferred stock - - - - 371,129 (371,129)
Net loss for the period - - - - - (1,508,054)
--------- ------------- ---------- ------------ ------------ -------------
Balance June 30, 1997 124,454 $ 12,445,447 29,144,441 $ 29,147 $ 24,727,577 $ (28,541,190)
========= ============= ========== ============ ============ =============
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 and fees associated
with equity issuances - - - - (249,167) -
Interest on notes
receivable from
stockholders - - - - - -
Dividends on preferred
stock - - - - - (308,454)
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)
========= ============= ========== ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Notes
---------------------- Receivable
Shares Amount Stockholder Total
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 - - $(153,632) $ 8,546,432
Issuance of common stock
upon conversion of Series E
preferred stock - - - -
Issuance of Series G
preferred stock - - - 1,640,000
Issuance of Series F & G
preferred stock in lieu of cash
dividends - - - 665,000
Costs associated with
equity transactions - - - (76,138)
Interest on notes
receivable from
stockholders - - (3,900) (3,900)
Dividends on preferred
stock - - - (759,891)
Deemed dividends on
preferred stock - - - -
Net loss for the period - - - (1,508,054)
---------- --------- ----------- -----------
Balance June 30, 1997 - - $ (157,532) $ 8,503,449
========== ========= =========== ===========
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 and fees associated
with equity issuances - - - (249,167)
Interest on notes
receivable from
stockholders - - (3,900) (3,900)
Dividends on preferred
stock - - - (308,454)
Net loss for the period - - - (2,061,121)
---------- --------- ----------- -----------
Balance June 30, 1996 450,000 $ (16,488) $ (149,732) $ 9,397,352
========== ========= =========== ===========
</TABLE>
5
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1997 1996
------------- -------------
<S> <C> <C>
Net cash used in operating activities................... $(1,348,316) $(2,838,313)
----------- -----------
Cash flows from investing activities:
Increase in note receivable......................... (174,076) (347,268)
Increase in patents and purchased technology........ (22,375) (309,640)
Purchase of property and equipment.................. (7,519) (546,198)
Payment for non-compete agreements.................. - (120,000)
----------- -----------
Net cash used in investing activities.. (203,970) (1,323,106)
----------- -----------
Cash flows from financing activities:
Issuance of preferred stock......................... 1,640,000 7,800,000
Issuance of notes payable and long-term debt........ - 250,000
Repayment of notes payable and long-term debt....... (53,235) (1,385,927)
Payment of cash dividends on preferred stock........ - (27,151)
Payment of costs and fees of equity issuances....... (76,138) (200,045)
Redemption of restricted certificate of deposit..... - 200,000
----------- -----------
Net cash provided by financing activities.... 1,510,627 6,636,877
----------- -----------
Net increase (decrease) in cash......................... (41,659) 2,475,458
Cash and cash equivalents, beginning of period.......... 1,126,912 333,326
----------- -----------
Cash and cash equivalents, end of period................ $ 1,085,253 $ 2,808,784
=========== ===========
</TABLE>
6
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The interim financial statements 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 two years in the period ended December 31, 1996. The report of the
Company's independent auditors for the year ended December 31, 1996 contains an
explanatory paragraph as to the substantial doubt of the Company's ability to
continue as a going concern. No adjustments have been made to the accompanying
financial statements to give effect to this uncertainty. The interim results
reflected in the accompanying financial statements are not necessarily
indicative of the results of operations for a full fiscal year.
The loss per common share is computed by dividing the loss from operations, plus
the dividends on preferred stock, by the weighted average number of common
shares outstanding and common stock equivalents, if dilutive. Preferred stock
dividends include (i) dividends stated in the respective certificates of
designation, and (ii) dividends deemed to have been issued by virtue of a
conversion price that is computed at the date of conversion using a discount to
the market price of the Company's common stock. The deemed dividends are
included in the earnings per share calculation in order to comply with the SEC's
position regarding the accounting treatment of preferred stock issued with
certain conversion features.
In accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of", management reviews long-lived
assets and intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be fully
recoverable. As part of this assessment, management prepares an analysis of the
undiscounted cash flows for each product that has significant long-lived or
intangible asset values associated with it. This analysis for the asset values
as of June 30, 1997 indicated there was no impairment to these assets' carrying
values. Inherent in this analysis is an estimate of both future revenues and
profitability for these products. Management uses a wide variety of information
when preparing these estimates, including items such as the product's market
demand as exhibited by purchase orders, estimates of the market size, current
raw material availability and pricing, as well as management's ability and
willingness to fund the commercialization of the product. Given the early
stages of these products' commercialization, these estimates are subject to
revision in the future as additional information becomes available, or as the
Company's strategy regarding the future commercialization of certain products
changes. It is reasonably likely that a revision of an estimate could occur
that would result in an adjustment to the carrying value of an asset and such
adjustment
7
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
could be material to the operating results and financial position of
the Company. Any such adjustment would be included in the continuing operations
for that period.
STOCKHOLDERS' EQUITY
Through May 1997, twenty-five shares of Series E Convertible Preferred Stock
were converted into 2,032,944 shares of the Company's common stock. At this
time, there are no outstanding shares of the Series E convertible preferred
stock.
In March 1997, the Company issued 16,400 shares of Series G- Subseries I
Cumulative Convertible Preferred Stock ("Series G Shares") for cash proceeds of
$1,640,000. Dividends accrue on the Series G Shares at a per annum rate of
$13.50 per share and are payable semi-annually. The Company may elect to defer
the dividend payments until April 1999, in which case each holder may elect to
either (i) have such deferred dividends accrue interest at a per annum rate of
13.5%, or (ii) receive payment of the dividends in the form of additional Series
G Shares. The holders of the Series G Shares have certain liquidation
preferences. The Series G Shares may be converted into the Company's common
stock at the option of the holder at an initial conversion price, subject to
certain adjustments, of $.45 per share. On or after April 8, 2001, the Series G
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 G Shares at their face
value of $100 per share on or after April 8, 2004.
In June 1997, the Company declared dividends of $704,542 on the outstanding
shares of Series F Convertible Preferred Stock ("Series F Shares") and $55,350
on the Series G Shares. Per the terms of their respective agreements, the
holders of these shares elected to receive their dividend payments as follows:
the issuance of 6,117 Series F Shares, 469 Series G Shares, and a deferred
dividend of $102,277.
8
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information, the material contained in Management's
Discussion and Analysis of Financial Condition and results of Operations is
forward-looking. For the purpose of the safe harbor provisions for forward-
looking statements of the Private Securities Litigation Reform Act of 1995,
readers are urged to review the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996 for a list of certain important factors that may
cause actual results to differ materially from those described below.
RESULTS OF OPERATIONS
REVENUES
Six months ended June 30, 1997 compared with the six months ended June 30, 1996
Revenues for the six months ended June 30, 1997 of $2,268,129 decreased slightly
as compared to revenues of $2,303,768 for the same period of the prior year.
Revenues for Industrial Pipe Fittings, Inc. ("IPF") remained constant, even
though in the second quarter of 1996 they invoiced a large project with revenues
of approximately $400,000. Since it was acquired in late June 1996, Riserclad
International, Inc. ("Riserclad") did not report any revenues during the six
months ended June 30, 1996. The increase that occurred from Riserclad's
additional revenues in 1997, along with an increase in revenues from EET, Inc.
("EET") was offset by a decrease in revenues from GAIA Technologies, Inc.
("GAIA") for the six months ended June 30, 1997.
The reduction in GAIA's revenues occurred in both the A/C pad and porous pipe
product lines. A/C pad revenues were affected by the transition to a new
manufacturing vendor during this time. In addition, in June 1997, the Company
completed the sale of the A/C pad technology to a private company for cash, a
note receivable, and future royalty payments. See "Liquidity and Capital
Resources." The negotiation and consummation of this transaction caused an
interruption in the manufacturing and delivery of the AC pad product during the
second quarter of 1997. Porous pipe revenues have declined significantly since
last year. The Company has been discussing a licensing arrangement with a third
party vendor who would manufacture and sell the porous pipe product for a
royalty payment per foot sold. While these discussions are continuing, no
revenues are expected and the overhead associated with this product line has
been eliminated.
Three months ended June 30, 1997 compared with the three months ended June 30,
1996
Revenues for the three months ended June 30, 1997 of $1,094,674 decreased
$346,095 from revenues of $1,440,769 for the same period of the prior year.
This decrease occurred due to a reduction in revenues from GAIA (caused by the
consummation of the transaction described above) and a decrease in IPF's
revenues (caused by a large project that was invoiced in the second quarter of
1996 as described above). These decreases were partially offset by an increase
in EET's revenues for the three month period.
9
<PAGE>
GROSS PROFIT
The gross profit percentage for the six months ended June 30, 1997 of 34%
improved significantly as compared to the gross profit percentage of 15% for the
same period of the previous year. In addition, the gross profit percentage for
the three month period ended June 30, 1997 of 29% improved from 5% for the same
period of the previous year.
These improved gross profit percentages reflect better performance for both the
three months and six months in EET's TechXTract product line, IPF's business,
and the addition of the gross profits from Riserclad's business. Also, in the
three months ended June 30, 1996 the manufacturing operations of GAIA
experienced depressed margins, which were corrected in subsequent quarters.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES ("SGA")
SGA expenses of $2,278,661 for the six months ended June 30, 1997 was virtually
equal to the SGA expense for the six months ended June 30, 1996 of $2,276,168.
In addition, SGA expenses for the three month period ended June 30, 1997 of
$1,156,741 decreased $55,121 as compared with the same period of the previous
year. These decreases in SGA occurred even though there was the addition of
Riserclad's overhead, due to reductions in corporate and other subsidiary SGA.
Since the beginning of 1997, the Company has reduced its salary costs by over
$800,000 on an annual basis. The successful implementation of the Company's
strategy to license or sell certain of its technologies or products, as
discussed in Liquidity and Capital Resources, would further reduce the Company's
SGA expenses.
OTHER INCOME AND EXPENSE
Interest expense decreased in both the six months and three months ended June
30, 1997 due to the exchange in April 1996 of $2,700,000 in convertible
debentures for Series F preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
The continued progress that has occurred in the development of the prototype
synthetic railroad cross-ties ("Cross-ties") provides the Company with the
opportunity to exercise the TieTek purchase option and exploit the market
potential for this product. The Company intends to evaluate the results of its
Cross-tie manufacturing run scheduled for the third quarter of 1997 before
electing to exercise its purchase option. However, based upon the existing
data, the Company is optimistic about this product's future prospects. In order
to generate the cash resources needed to commercialize the Cross-tie business,
the Company is exploring the possibility of licensing or selling some of its
existing product lines and technologies. The Company has recently completed the
sale of its air-conditioner base support pad technology, in an arrangement that
will provide both future cash funding to the Company in addition to reducing its
current overhead structure. (See additional discussion below.) Revenues for all
other business segments have increased for the six month period
10
<PAGE>
ended June 30, 1997, and the gross profit percentages have also shown
considerable improvement. Given the improved performance of the business
segments in revenues and gross profits, the Company believes it is now
appropriate to consider licensing or selling certain of its other product lines
or technologies. Such a strategy would also allow the Company to further reduce
its ongoing SGA expenses. The Company intends to pursue these possibilities in
the short term as it determines the best combination of technologies and product
lines for the future success of the Company. The Company is currently
negotiating with several companies concerning the sale or license of certain of
its technologies, but no definitive agreements have been signed as of the date
of this report, and no assurance can be made that any such agreements will be
finalized. The Company expects that the successful implementation of this
strategy would result in a reduction of revenues as the particular technology is
licensed or sold, a corresponding reduction in the overhead costs associated
with the technology, and an increase in cash reserves based upon the terms of
each particular agreement.
As of the date of this report, the Company has had preliminary discussions
regarding the terms under which certain of the Company's product lines and
technologies might be sold or licensed. However, there can be no assurances that
any agreements will be reached, or if reached, will provide the cash needed to
fund the remaining technologies and products, or provide a reasonable return on
the investment that the Company has already made in these technologies and
products.
Through the quarter ended June 30, 1997 the Company has incurred operating
losses which could continue in the near term at expected levels of between
$200,000 to $300,000 per month. The Company has historically met its working
capital requirements through financing transactions involving the private
placement of equity securities or equity equivalents, the issuance of
convertible debentures, and through the license of its technologies. Operating
revenues have not historically provided a meaningful source of working capital
for the Company. The Company believes that the successful implementation of the
strategy (as described above) of licensing or selling certain product lines or
technologies, concurrently with the reduction of both business segment and
corporate overhead, would provide the Company with the resources needed to fund
its current operating requirements and capitalize on its remaining technologies.
However, if management is not able to implement its strategy, or management's
estimates and expectations as to its ability to generate cash and reduce
overhead are incorrect and losses continue at historic rates, the Company would
need to secure additional capital. There can be no assurances that such capital
will be available, if at all, on terms attractive to the Company. Due to these
uncertainties, the report of the Company's independent auditors for the year
ended December 31, 1996 contains an explanatory paragraph as to the substantial
doubt about the Company's ability to continue as a going concern. The Company's
long-term viability and growth will depend upon the successful commercialization
of its technologies and its ability to obtain adequate financing, as to which
there can be no assurances.
For the six months ended June 30, 1997, the Company utilized net cash of
$1,348,316 in operating activities, primarily as a result of its operating
losses. The Company utilized net cash of $203,970 in investing activities,
primarily from the investment in the TieTek note receivable of $174,076.
For the six months ended June 30, 1997, the Company generated net cash of
$1,510,677 from financing activities, primarily from the issuance in March 1997
of 16,400 Series G Shares for $1,640,000. Dividends accrue on the Series G
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 until April
1999, in which case, each holder may elect to receive payment of the dividend in
the form of additional Series G Shares. The Company elected to defer the
dividend payment due June 30, 1997 of $55,350. Of this amount, $46,912 was paid
through the issuance of 469 Series G Shares, while
11
<PAGE>
the balance of $ 8,437 will accrue interest at 13.5%. The Company also elected
to defer the dividend payment due June 30, 1997 on the Series F Shares of
$704,542. Of this amount, $611,702 was paid through the issuance of 6,117 Series
F Shares, while the balance of $92,840 will accrue interest at 13.5%.
In June 1997, the Company completed the sale of the air-conditioner base support
pad ("A/C pad") technology to a private company. The Company received cash of
$25,000, a note receivable of $550,000, and future royalty payments up to a
maximum of $1,000,000. The note bears interest at prime less 2 %, and is
payable quarterly based upon the number of pads sold by the company during such
quarter. However, a minimum of $50,000 is due by June 30, 1998, with a minimum
of $100,000 due annually thereafter, until paid in full. The note is secured by
equipment.
12
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is a party to legal proceedings that have been reported in its
Annual Report on Form 10-KSB for the year ended December 31, 1996.
During the six months ended June 30, 1997, there were no material changes
in the status of these legal proceedings.
ITEM 2: CHANGES IN SECURITIES: None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES: None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The annual meeting of the stockholders of the Company was held on Thursday,
June 12, 1997 (the "Meeting"). At the Meeting, the stockholders ratified
the appointment of BDO Seidman LLP to serve as the Company's independent
auditors with 35,841,937 shares voting for, 43,339 against and 23,021
abstaining. At the Meeting, stockholders also elected David M. Daniels and
Edwin H. Knight to serve as directors until the 2000 annual meeting of
stockholders. With respect to the election of Mr. Daniels, 35,572,063
shares voted for and 337,234 against. With respect to the election of Mr.
Knight, 35,561,306 shares voted for and 347,991 against.
ITEM 5: OTHER INFORMATION: None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
(27) Financial Data schedule
(B) REPORTS ON FORM 8-K:
The Company filed a report of Form 8-K on June 13, 1997 regarding Item
5, Other Events.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
North American Technologies Group, Inc.
Date: August 8, 1997 /s/ Judith Knight Shields
---------------------------------------
Judith Knight Shields
Chief Financial Officer and Chief
Accounting Officer
14
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,085,253
<SECURITIES> 0
<RECEIVABLES> 1,252,496
<ALLOWANCES> 129,411
<INVENTORY> 580,010
<CURRENT-ASSETS> 3,179,225
<PP&E> 1,428,732
<DEPRECIATION> 444,176
<TOTAL-ASSETS> 10,276,699
<CURRENT-LIABILITIES> 984,789
<BONDS> 687,184
0
12,445,447
<COMMON> 29,147
<OTHER-SE> (3,971,145)
<TOTAL-LIABILITY-AND-EQUITY> 10,276,699
<SALES> 2,268,129
<TOTAL-REVENUES> 2,268,129
<CGS> 1,501,624
<TOTAL-COSTS> 1,501,624
<OTHER-EXPENSES> 2,278,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,403
<INCOME-PRETAX> (1,508,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,508,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,508,054)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
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