<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, 1998.
[ ] 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 (I.R.S. Employer
incorporation 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: 3,479,858 common shares outstanding as of
July 31, 1998.
Transitional Small Business Disclosure Format
(Check One):
Yes No X
------- -------
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Loss
Three and six months ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Stockholders' Equity
Six months ended June 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
2
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30 DEC. 31
1998 1997
UNAUDITED AUDITED
------------- -------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents.............................. $ 1,170,773 $ 348,991
Accounts receivable, less allowance for
doubtful accounts of $18,000 in 1997.................. - 285,623
Inventories............................................ - 6,395
Current portion of notes receivable.................... 305,000 100,000
Prepaid expenses and other............................. 127,936 103,087
------------ ------------
Total Current Assets 1,603,709 844,096
Notes receivable........................................ 1,336,131 881,960
Property and equipment, less accumulated depreciation
of $107,859 and $98,972................................ 133,715 149,946
Patents and purchased technologies, less accumulated
amortization of $82,453 and $268,787................... 1,628,467 1,797,128
Goodwill, less accumulated amortization of $658,169
and $603,793........................................... 2,121,848 2,652,391
Other intangible assets, less accumulated
amortization of $59,286 and $107,007................... 95,714 126,765
Other................................................... 243,207 292,291
------------ ------------
$ 7,162,791 $ 6,744,577
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt................... $ - $ 3,800
Accounts payable....................................... 81,266 248,362
Accrued expenses....................................... 243,198 207,302
Deferred dividends payable on preferred stock,
including accrued interest............................ 307,394 193,448
------------ ------------
Total current liabilities............................. 631,858 652,912
Long-term debt, less current maturities................. 500,000 503,178
Deferred dividends payable on preferred stock,
including accrued interest............................ - 13,985
------------ ------------
Total Liabilities..................................... 1,131,858 1,170,075
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 136,480 and 115,364 shares issued......... 13,647,981 11,536,406
Common stock, $.001 par value, 100,000,000 shares
authorized; 3,479,858 shares issued................... 31,320 31,320
Additional paid-in capital............................. 26,328,595 26,348,323
Accumulated deficit.................................... (33,811,631) (32,180,115)
Less notes receivable for sale of stock................ (165,332) (161,432)
------------ ------------
Total Stockholders' Equity............................ 6,030,933 5,574,502
------------ ------------
$ 7,162,791 $ 6,744,577
============ ============
</TABLE>
3
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues............................. $ - $1,094,674 $ 17,086 $ 2,268,129
Cost of revenues..................... - 774,043 10,755 1,501,624
---------- ---------- ----------- -----------
Gross profit.................... - 320,631 6,331 766,505
Selling, general and administrative
expenses........................... 551,218 1,156,741 1,181,987 2,278,661
---------- ---------- ----------- -----------
Operating loss.................. (551,218) (836,110) (1,175,656) (1,512,156)
Other Income (Expense):
Interest income.................. 8,396 43,045 11,665 74,361
Interest expense................. (20,030) (22,406) (40,166) (47,403)
Gain on sale of assets........... - - 369,679 -
Other............................ 297 (12,736) 495 (22,856)
---------- ---------- ----------- -----------
Total Other Income (Expense)......... (11,337) 7,903 341,673 4,102
---------- ---------- ----------- -----------
Net Loss............................. $(562,555) $ (828,207) $ (833,983) $(1,508,054)
========== ========== =========== ===========
Net Loss per share - basic and
assuming dilution.................. ($.39) ($.53) ($.47) ($.85)
========== ========== =========== ==========
Weighted average number of common
shares outstanding............... 3,479,858 3,180,329 3,479,858 3,120,862
========== ========== =========== ==========
</TABLE>
4
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
Preferred Common Stock Additional Notes
---------------------- -------------------- Paid-In Receivable
Shares Amount Shares Amount Capital Deficit Stockholder Total
-------- ----------- --------- ------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 115,364 $11,536,406 3,479,858 $31,320 $26,348,323 $(32,180,115) $(161,432) $5,574,502
Issuance of Series G
Subseries II preferred
stock 14,000 1,400,000 - - - - - 1,400,000
Issuance of Series F & G
preferred stock in lieu
of cash dividends 7,116 711,575 - - - - - 711,575
Costs associated with
equity transactions - - - - (19,728) - - (19,728)
Interest on notes receivable
from stockholders - - - - - - (3,900) (3,900)
Dividends on preferred stock - - - - - (797,533) - (797,533)
Net loss for the period - - - - - (833,983) - (833,983)
------- ----------- --------- ------- ----------- ------------ --------- ----------
Balance June 30, 1998 136,480 $13,647,981 3,479,858 $31,320 $26,328,595 $(33,811,631) $(165,332) $6,030,933
======= =========== ========= ======= =========== ============ ========= ==========
Balance December 31, 1996 101,429 $10,765,447 3,012,388 $27,114 $23,809,619 $(25,902,116) $(153,632) $8,546,432
Issuance of common stock upon
conversion of Series E
preferred stock (25) (625,000) 225,883 2,033 622,967 - - -
Issuance of Series G
Subseries I preferred
stock 16,400 1,640,000 - - - - - 1,640,000
Issuance of Series F & G
preferred stock in lieu
of cash dividends 6,650 665,000 - - - - - 665,000
Costs associated with equity
transactions - - - - (76,138) - - (76,138)
Interest on notes receivable
from stockholders - - - - - - (3,900) (3,900)
Dividends on preferred stock - - - - - (759,891) - (759,891)
Deemed dividends on
preferred stock - - - - 371,129 (371,129) - -
Net loss for the period - - - - - (1,508,054) - (1,508,054)
------- ----------- --------- ------- ----------- ------------ --------- ----------
Balance June 30, 1997 124,454 $12,445,447 3,238,271 $29,147 $24,727,577 $(28,541,190) $(157,532) $8,503,449
======= =========== ========= ======= =========== ============ ========= ==========
</TABLE>
5
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1998 1997
------------ -------------
<S> <C> <C>
Net cash used in operating activities......................... $ (840,001) $(1,348,316)
---------- -----------
Cash flows from investing activities:
Cash received from sale of assets......................... 210,125 -
Payment of patent costs................................... (7,555) (22,375)
(Increase) decrease in notes receivable................... 124,010 (174,076)
Purchase of property and equipment........................ (38,091) (7,519)
---------- -----------
Net cash provided (used) in investing activities... 288,489 (203,970)
-----------
Cash flows from financing activities:
Issuance of preferred stock............................... 1,400,000 1,640,000
Repayment of notes payable and long-term debt............. (6,978) (53,235)
Payment of costs and fees of equity issuances............. (19,728) (76,138)
---------- -----------
Net cash provided by financing activities.......... 1,373,294 1,510,627
---------- -----------
Net increase (decrease) in cash and cash equivalents.......... 821,782 (41,659)
Cash and cash equivalents, beginning of period................ 348,991 1,126,912
---------- -----------
Cash and cash equivalents, end of period...................... $1,170,773 $ 1,085,253
========== ===========
</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 are included herein are unaudited and
have 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, 1997. The report of the
Company's independent auditors for the year ended December 31, 1997 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 basic net loss per common share is computed by dividing the net loss, plus
the dividends on preferred stock, by the weighted average number of common
shares outstanding. Preferred stock dividends include: (i) dividends stated in
the respective certificate of designations; 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.
For the three months and six months ended June 30, 1997, there were deemed
dividends totaling $85,747 and $371,129, respectively, on the Company's Series E
and Series G, Subseries I, preferred stock.
Diluted net loss per common share is computed by dividing the net loss, adjusted
on an as if converted basis, by the weighted average number of common shares
outstanding plus potential dilutive securities. For the three months and six
months ended June 30, 1998 and 1997, potential dilutive securities had an anti-
dilutive effect and were not included in the calculation of diluted net loss per
common share. These securities include options and warrants on 1,764,324 shares
of common stock, convertible debt and preferred stock convertible into 37,037
and 4,101,170 shares of common stock, respectively.
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. 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
7
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
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 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
At the Annual Meeting of Stockholders held on May 12, 1998 (the "Annual
Meeting"), the Company's shareholders approved an amendment to the Company's
Restated Certificate of Incorporation to effect a reverse stock split providing
for nine (9) shares of the Company's outstanding stock to be converted into one
(1) new share of the Company's common stock. The reverse stock split was
effective for trading on May 13, 1998. Accordingly, the financial statements
and all per share data have been restated to reflect the reverse stock split.
Also at the Annual Meeting, the Company's stockholders' approved the issuance of
up to $2,000,000 of the Company's Series G Subseries II Cumulative Convertible
Preferred Stock ("Subseries II Shares"). The Subseries II Shares have
substantially the same terms as the Series G Subseries I Cumulative Convertible
Preferred Stock ("Subseries I Shares"), except that the initial conversion price
was determined based on a formula, and has been calculated to be $.86625. As of
June 30, 1998, the Company had sold 14,000 Subseries II Shares for cash proceeds
of $1,400,000.
In June 1998, the Company declared dividends of $675,310 on the outstanding
Series F Convertible Preferred Stock ("Series F Shares"), and $122,222 on the
outstanding Subseries I and Subseries II Shares. Per the terms of their
respective agreements, the holders of these shares elected to receive their
dividend payments as follows: the issuance of 5,922 Series F Shares, 1,006
Subseries I Shares, 188 Subseries II Shares, and a deferred dividend of $85,957.
SALE OF ASSETS
In March 1998, the Company completed the sale of certain assets of EET, Inc.
("EET") to an unrelated company. The assets sold related primarily to EET's
patented TechXTract technology used to provide on-site decontamination of
buildings and equipment contaminated with polychlorinated biphenyls, radioactive
isotopes or other toxic materials. The Company received consideration of
$200,000 cash and two notes receivable totaling $800,271. The first promissory
note is in the principal amount of $363,436, bears interest at 6% per annum, and
is payable in ten quarterly payments beginning September 30, 1998. The second
promissory note is in the principal
8
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
amount of $436,835, bears interest at 9 1/2% per annum, and is payable in twelve
annual payments beginning September 30, 2001. The Company recognized a gain of
approximately $370,000 on this transaction.
9
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: 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, 1997 for a list of certain important factors that may
cause actual results to differ materially from those described below.
The Company evaluates its portfolio of technologies on a periodic basis to
determine the best method to use for each technology's commercialization. The
Company realizes that the optimum development of its technologies may sometimes
necessitate licensing or selling a technology to an outside interest who is in a
better position to realize its full potential. As a result of this evaluation
in 1997, the Company has sold or licensed certain of its businesses and
technologies that had been sufficiently commercialized and which might better be
developed by outside interests with resources or capabilities in specific areas
related to those businesses. During 1997 and through the first quarter of 1998,
the Company completed the following transactions: (a) sold the technology to
manufacture air conditioner base support pads from recycled products and certain
related equipment of GAIA Technologies, Inc. (June 1997); (b) sold the net
assets of Industrial Pipe Fittings, Inc. (October 1997); (c) sold certain
assets of EET, Inc. that were used in its Waste Management Services division
(October 1997) and that related to EET's patented TechXTract technology (March
1998); and (d) licensed the Riserclad technology and sold certain assets of
Riserclad International, Inc. (December 1997).
The Company is currently focusing its resources on the commercialization of the
TieTek Composite Railroad Crossties. The Company anticipates using the proceeds
from the sale of its Series G, Subseries II, preferred stock to purchase the
necessary equipment and complete any leasehold improvements for its first
manufacturing facility, as well as fund its working capital requirements for
the short-term. It is anticipated that shipments of the railroad crosstie could
begin before the end of 1998. Until such time as the manufacturing facility is
completed, and shipments of the railroad crosstie have begun, the Company will
have little or no commercial operations or revenues.
RESULTS OF OPERATIONS
Revenues
The Company sold or licensed most of its technologies during 1997 and is
currently focusing its resources on the commercialization of the TieTek
Composite Railroad Crosstie. The revenues of $17,086 for the six months ended
June 30, 1998 were recognized during the first quarter of 1998 and consisted
primarily of chemical sales of EET's TechXTract product. These revenues are
significantly less than the amount for the three months ended June 30, 1997 of
$1,094,674 and for the six months ended June 30, 1997 of $2,268,129 when the
Company derived revenues from its
10
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
subsidiaries IPF, Riserclad, and GAIA, in addition to EET. With the sale of the
TechXTract related assets of EET in March 1998, the Company does not anticipate
any future revenues until shipments commence for its railroad crossties later in
1998.
Gross Profit
The gross profit percentage of 37% for the six months ended June 30, 1998 was
recognized during the first quarter of 1998 on the sales of EET's TechXTract
chemicals. This gross profit percentage does not differ significantly from the
combined gross profit percentage from several of the Company's subsidiaries of
34% recognized in the six months ended June 30, 1997.
Selling, General & Administrative Expenses ("SGA")
SGA expenses decreased 52% to $551,218 for the current three month period
compared to the same period of the prior year, and decreased 48% to $1,181,987
for the current six month period compared to the same period of the prior year.
The reduction in SGA consists primarily of decreases in salary and other payroll
related costs. These reductions have been made possible by the implementation of
the Company's strategy to license or sell certain of its technologies or
products during 1997, and therefore reduce the corporate structure needed to
support the remaining businesses. Following the sale of EETs' TechXTract related
assets in March 1998, the Company reduced its SGA approximately $80,000 in the
second quarter of 1998 as compared with the first quarter of 1998. The Company
anticipates that SGA will remain at the current levels until sales of the TieTek
Composite Railroad Crosstie warrant additional increases.
Other Income and Expense
Included in Other Income and Expense is the gain on the sale of certain EET
assets of $369,679 that was recognized in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Through the year ended December 31, 1997 the Company had incurred operating
losses which could continue in the near term at expected levels of between
$100,000 to $200,000 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. Due to these factors, the report of the Company's independent
auditors for the year ended December 31, 1997 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
11
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
commercialization of the TieTek Composite Railroad Crosstie and its ability to
obtain adequate financing, as to which there can be no assurances.
Since June 1997 the Company licensed or sold most of its technologies. As a
result of these transactions, the Company received cash proceeds from the sale
of certain assets of $1,202,221, of which approximately $326,000 was used to
repay certain outstanding indebtedness of IPF. The Company also received
$100,000 cash as a license fee for the Riserclad technology. In addition, as
the technologies and businesses were licensed or sold, the Company reduced its
payroll costs significantly. The Company currently employs six employees.
Over the past two years the Company's principal source of capital has been a
group of venture capital investors led by NationsBanc Capital Corporation. The
initial round of financing was a private placement of shares of Series F
Cumulative Preferred Stock and warrants to purchase common stock, which raised
$6,550,000 in cash proceeds in April and May 1996. The Company completed a
second round of financing with many of the same venture capital investors in
March 1997 in a private placement of shares of Series G Cumulative Preferred
Stock - Subseries I, which raised $1,640,000 in cash proceeds.
At the Annual Meeting of Stockholders on May 12, 1998, the Company's
shareholders approved the issuance of up to $2,000,000 of the Company's Series G
Subseries II Cumulative Convertible Preferred Stock ("Subseries II Shares"). The
Subseries II Shares have substantially the same terms of the Series G Subseries
I Cumulative Convertible Preferred Stock ("Subseries I Shares"), except that the
initial conversion price was determined based on a formula which has been
calculated to be $.86625. As of June 30, 1998, the Company had sold 14,000
shares of the Subseries II Shares for cash proceeds of $1,400,000. The Company
anticipates completing the sale of the remaining $600,000 before the end of the
third quarter. The Company estimates that approximately $1,000,000 of these
funds will be used to purchase capital equipment and pay for leasehold
improvements to the manufacturing facility.
The Company is concentrating its resources on the development of its TieTek
Composite Railroad Crosstie business, and in that connection is in the process
of equipping a new plant in Houston, Texas in which to commence commercial
operations. Management of the Company anticipates that it will require initial
capital expenditures of approximately $1,000,000 related to this facility, with
additional potential capital expenditures of $5,000,000 to further expand the
plant's capacity during 1999 as warranted by market demand. In addition, with
the commencement of operations the Company's management anticipates that the
Company's net working capital requirements could increase up to $1,000,000
depending upon the operating capacity of the plant. Management's assessments of
capital expenditures and working capital requirements are only estimates, and
actual expenditures will likely vary from the estimates, and such variances
could be material.
12
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's current available assets, and the remainder of the proceeds from
the sale of the Subseries II Shares, may not be adequate to meet the Company's
liquidity requirements over the next twelve months. The Company will explore a
wide range of alternative financing sources for the remainder of its liquidity
requirements, and such sources could include equity, debt, leasing or licensing
arrangements. While management believes that financing will be available, there
can be no assurances to that effect. If the Company is unable to obtain the
required financing in a timely manner, the Company may be required to delay the
commercialization of the crosstie business.
For the six months ended June 30, 1998, the Company utilized net cash of
$840,001 in operating activities, primarily as a result of its operating losses
offset by the gain on the sale of certain EET assets. The Company generated net
cash of $288,489 from investing activities, primarily from the cash proceeds of
$200,000 from the sale of the EET assets and payments received on notes
receivable of $124,010. The Company generated $1,373,294 from financing
activities, reflecting the sale of $1,400,000 of the Company's Series G
Subseries II preferred stock.
The Company intends to update its current accounting software to a Year 2000
compliant version before the end of 1998. The Company does not anticipate any
significant conversion issues with regard to this, nor does it expect the cost
of such conversion to be significant.
13
<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, 1997. During the
three months ended June 30, 1998 there were no significant developments related
to these proceedings, other than as follows:
In July 1998, the Company entered into a Final Settlement Agreement with its
insurance company and a major customer of EET's with regard to an incident that
occurred at a disposal facility and which is more fully described in the
Company's Form 10QSB for the period ended September 30, 1997. The Company has
received full payment on the outstanding receivable from this customer, and as
part of the Final Settlement Agreement, was required to pay the deductible on
its insurance policy which had been previously been accrued.
Item 2: Changes in Securities:
Reverse Stock Split: Pursuant to approval by the Company's stockholders on May
12, 1998, the Company effectuated a Reverse Stock Split (the "Reverse Stock
Split") providing for each nine (9) shares of the Company's presently
outstanding Common Stock being converted into one (1) new share of the Company's
Common Stock. The reverse Stock Split was effected in order to increase the bid
price for the Company's Common Stock on the Nasdaq Small Cap Market to satisfy
the $1.00 minimum bid requirement in order to maintain the Company's listing on
the Nasdaq Small Cap Market. None of the other rights or preferences of the
Company's Common Stock were effected by the Reverse Stock Split.
Issuance of Preferred Stock: Pursuant to approval by the Company's stockholders
on May 12, 1998, the company issued and sold 14,000 shares of its Cumulative
Convertible Preferred Stock, Series G - Subseries II (the Subseries II Shares")
for proceeds of $1,400,000 to NationsBanc Capital Corporation and other
Institutional and Accredited Investors pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as amended, provided by
Section 4(2) thereof and the rules and regulations promulgated thereunder.
The Subseries II Shares are entitled to a cumulative dividend at a rate of 13.5%
payable semi-annually. The Company may elect to defer the dividend payments
until April 1999 in which case each holder may elect to either have such
deferred dividends accrue at a per annum rate of 13.5% or receive payment of the
dividend in the form of additional Subseries II Shares.
The Subseries II Shares are convertible, at the option of the holder, into
shares of common stock of the Company. The Subseries II Shares have an initial
conversion price of $.86625 and each Subseries II Share has a conversion or face
value of $100. The Subseries II Shares are initially convertible into that
number of shares of common stock which results from dividing the conversion
14
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Part II: Other Information
price in effect at the time of conversion into the conversion or face value.
Accordingly, at this time, each Subseries II Share is convertible into 115
shares of common stock of the Company. Commencing April 5, 2001, each Subseries
II Share is convertible into that number of shares of common stock which results
from dividing the lesser of (i) the conversion price in effect at the time of
conversion and (ii) 90% of the average closing bid prices of the Company's
common stock as reported on the Nasdaq SmallCap Market during the twenty (20)
days preceding the date of conversion into the conversion of face value. The
conversion price is subject to adjustment for, among other things, additional
issuances of common stock or securities convertible into common stock of the
Company for consideration less than the conversion price in effect at the time
of the issuance of such common stock or securities, stock splits, stock
dividends and reclassifications. The face or conversion value of the Subseries
II Shares is not subject to adjustment except in connection with a
recapitalization.
Item 3: Defaults upon Senior Securities: None
Item 4: Submission of Matters to a Vote of Security Holders:
On May 12, 1998, the Company held its Annual Meeting of Stockholders (the
"Meeting"). At the Meeting, Donovan W. Boyd and Henry W. Sullivan were re-
elected as directors of the Company to serve until the 2001 Annual Meeting of
Stockholders. With respect to the election of Mr. Boyd, 36,470,422 shares were
voted in favor and 464,898 shares were withheld. With respect to the election
of Mr. Sullivan, 36,735,678 shares were voted in favor and 199,642 shares were
withheld.
At the Meeting, the Company's stockholders also approved the following
proposals:
(1) an amendment to the Company's Restated Certificate of Incorporation to
effect a reverse stock split providing for nine (9) shares of the Company's
presently outstanding common stock being converted into one (1) new share
of the Company's common stock. At the Meeting, 36,387,387 shares were
voted for, 472,499 shares were voted against and 35,434 shares abstained
with respect to this proposal;
(2) the issuance of up to $2 million of the Company's Cumulative Convertible
Preferred Stock, Series G - Subseries II in a private placement
transaction. At the Meeting, 23,348,970 shares were voted for, 534, 623
shares were voted against and 13,051,727 shares abstained with respect to
this proposal; and
(3) the ratification of BDO Seidman, LLP to serve as the Company's independent
auditors for the fiscal year ending December 31, 1998. At the Meeting,
36,670,099 shares were voted for, 93,033 shares were voted against and
172,188 shares abstained with respect to this proposal.
15
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Part II: Other Information
Item 5: Other Information: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(3.1) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company;
(4.5) Certificate of Designation of the Cumulative Convertible
Preferred Stock, Series G - Subseries II;
(10.31) Form of Joinder to Stockholders' Agreement dated as of May 21,
1998;
(10.32) Form of Stock Purchase Agreement for an Additional Closing
dated as of May 21, 1998 by and among the Company, its operating
subsidiaries, NationsBanc Capital Corporation and certain other
Investors.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report of Form 8-K on April 14, 1998, regarding
the sale of certain assets of its subsidiary, EET, Inc.
16
<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 13, 1998 /s/ Tim B. Tarrillion
----------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
Date: August 13, 1998 /s/ Judith Knight Shields
----------------------------------------
Judith Knight Shields
Chief Financial Officer and Chief Accounting Officer
17
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
The undersigned, desiring to amend the Certificate of Incorporation of
North American Technologies Group, Inc., a Delaware corporation (the
"Corporation"), pursuant to Section 242 of the Delaware General Corporation law,
DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Corporation, by unanimous approval at
a meeting of the directors, evidenced by board resolutions and
approval of the requisite vote of each class of stockholders, has
duly adopted the following resolution proposing and declaring
advisable the following amendment to the Restated Certificate of
Incorporation:
RESOLVED, that Article IV of the Restated Certificate of
Incorporation of the Corporation, as amended to date, be amended to
add the following Section:
"All of the shares of Common Stock, $0.001 par value, of the
Corporation issued and outstanding, or held as treasury shares,
immediately prior to the time this Amendment becomes effective
shall be and are by this means automatically reclassified and
changed (without further act) into fully paid and nonassessable
shares of Common Stock, $0.001 par value, the number of which shall
equal the quotient derived from dividing the number of such shares
by 9. The shares of Common Stock returned to the Corporation as a
result of the reclassification and change shall be returned to
available capital. This Amendment shall become effective without
increasing or decreasing the amount of stated capital or paid-in
surplus of the Corporation, and shall constitute a 9 for one
reverse stock split, provided no fractional shares of less than one
share shall be issued. The holders of fractional share interests of
less than one share that occur as a result of the foregoing
reclassification and change shall be paid in cash by the
Corporation the value of their fractional share based upon the
average of the low bid price of the Corporation's Common Stock
during the ten (10) trading days prior the effective date of the
Amendment."
SECOND: That the aforesaid amendment has been duly adopted in accordance
with Section 242 of the Delaware General Corporation Law.
THIRD: That this amendment shall become effective on May 13, 1998.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by, Tim B. Tarrillion, its Chief Executive Officer, and
Judith Knight Shields, its Chief Financial Officer this 12th day of May, 1998.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Tim B. Tarrillion
----------------------
Tim B. Tarrillion
Chief Executive Officer
By: /s/ Judith Knight Shields
--------------------------
Judith Knight Shields
Chief Financial Officer
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES G - SUBSERIES II
Tim B. Tarrillion and Judith Knight Shields do hereby certify that they are
the President and Secretary, respectively, of North American Technologies Group,
Inc., a Delaware corporation (hereinafter referred to as the "Corporation" or
the "Company"); that, pursuant to the Corporation's Restated Certificate of
Incorporation, Section 151 of the Delaware General Corporation Law and the
Master Certificate of Designation relating to the Company's Cumulative
Convertible Preferred Stock, Series G (the "Master Certificate of Designation");
the Board of Directors of the Corporation adopted the following resolutions on
March 25, 1998, 1998; and that none of the Series G Cumulative Convertible
Preferred Stock - Subseries II has been issued.
Pursuant to the terms of the Master Certificate of Designation, there is
hereby created a subseries of Preferred Stock designated as Cumulative
Convertible Preferred Stock, Series G - Subseries II (the "Series G Preferred -
Subseries II"), which shall consist of 25,000 shares. The Series G Preferred-
Subseries II shall have the preferences, voting powers, relative, participating,
optional or other special rights and privileges, and the qualifications,
limitations and restrictions as provided below and as provided in the Master
Certificate of Designation.
The initial conversion price (the "Conversion Price") of the Series G
Preferred - Subseries II shares shall be the lesser of (i) 90% of the average of
the closing bid prices of the Company's common stock as reported on the Nasdaq
SmallCap MarketSM during the ten (10) trading days preceding an including June
12, 1998; or (ii) the Subseries Conversion Price for the outstanding shares of
Series G Preferred - Subseries I in effect immediately prior to the issuance of
any Series G Preferred - Subseries II shares. The Conversion Price shall be
subject to adjustment pursuant to the terms of the Master Certificate of
Designation.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
of Subseries to be duly executed by its President and attested to by its
Secretary, this 12th day of May, 1998.
NORTH AMERICAN TECHNOLOGIES, GROUP, INC.
DATE: May 12, 1998 /s/ Tim B. Tarrillion
--------------------------------------------------------
Tim B. Tarrillion, President and Chief Executive Officer
DATE: May 12, 1998 /s/ Judith Knight Shields
----------------------------------
Judith Knight Shields, Secretary
<PAGE>
EXHIBIT 10.31
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
JOINDER TO STOCKHOLDERS' AGREEMENT
----------------------------------
This Joinder to Stockholders' Agreement is entered into this 21st day of
May 1998 by the signatories hereto (the "Additional Investors")
WHEREAS, the Additional Investors have received copies of that certain
Stockholders' Agreement dated as of April 5, 1996 by and among North American
Technologies Group, Inc., a Delaware corporation (the "Company"), the Management
Stockholders and the Investors, Amendment No. 1 to the Stockholders' Agreement
and Amendment No. 2 to the Stockholders' (collectively the "Agreement"); and
WHEREAS, the Additional Investors have purchased shares of the Company's
Convertible Cumulative Preferred Stock, Series G-Subseries II (the "Subseries II
Shares") pursuant to the terms of that certain Stock Purchase Agreement dated as
of March 31, 1997 by and among the Company and the other signatories thereto and
that certain Stock Purchase Agreement For An Additional Closing by and among the
Company and the other signatories thereto which require the Additional Investors
to become parties to the Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements and convenants contained in the Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned Additional Investor hereby agrees to be a party to
the Agreement and to be bound by and entitled to the benefits of all of the
terms and conditions contained therein.
IN WITNESS WHEREOF, this Joinder to Stockholders' Agreement has been duly
executed by the undersigned Additional Investor as of this 21st day of May,
1998.
ADDITIONAL INVESTORS:
By:_______________________________________
<PAGE>
EXHIBIT 10.32
STOCK PURCHASE AGREEMENT FOR AN ADDITIONAL CLOSING
Reference is hereby made to that certain Stock Purchase Agreement (the
"Purchase Agreement"), dated as of March 31, 1997, by and among North American
Technologies Group, Inc., a Delaware corporation (the "Company"), its operating
subsidiaries, EET Holdings, Inc. (formerly known as "EET, Inc."), NATK IPF, Inc.
(formerly known as "Industrial Pipe Fittings, Inc."), GAIA Technologies, Inc.
and NATK RII, Inc. (formerly known as "Riserclad International, Inc."),
NationsBanc Capital Corporation and certain other Investors. Capitalized terms
used and not otherwise defined herein shall have the meanings ascribed thereto
in the Purchase Agreement.
The Purchase Agreement provides that, subject to the terms thereof, the
Company may sell and issue additional shares of Subseries of Series G Shares to
Additional Investors. The parties hereto, intending to be legally bound hereby,
agree as follows:
1. Purchase of Subseries II Shares. At the Additional Closing, the
Additional Investors signatory hereto shall purchase the number of shares of
Series G Shares, Subseries II (the "Subseries II Shares") set forth on Exhibit 2
hereto.
2. Joinder of Additional Investors. Any Additional Investor who is not
already a party to the Purchase Agreement hereby agrees to the Purchase
Agreement and to be bound thereby as if originally a party thereto.
3. Representations and Warranties Continue to be True. The
representations and warranties of the parties hereto continue to be true and
correct as of the date hereof, except as disclosed on the Schedules attached
hereto.
4. Continuing Validity of Purchase Agreement. Except as modified hereby
and by the Partial Waiver and Consent of the Series F Preferred and Series G
Preferred Holders dated as of March 26, 1998, the Purchase Agreement is in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of May 21, 1998.
THE COMPANY:
NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By: /s/ Tim B. Tarrillion
-------------------------------
Name: Tim B. Tarrillion
-----------------------------
Title: President
<PAGE>
OPERATING SUBSIDIARIES:
EET HOLDINGS, INC. (formerly known as "EET, Inc.")
By: /s/ Tim B. Tarrillion
--------------------------------
Tim B. Tarrillion, President
Address for notices:
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699 Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
NATK IPF, INC.
(formerly known as "Industrial Pipe Fittings,
Inc.")
By: /s/ Tim B. Tarrillion
---------------------------------
Tim B. Tarrillion, President
Address for notices:
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699 Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
GAIA TECHNOLOGIES, INC.
By: /s/ Tim B. Tarrillion
-----------------------------------
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699 Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
NATK RII, INC.
(formerly known as "Riserclad International,
Inc.")
By: /s/ Tim B. Tarrillion
----------------------
Tim B. Tarrillion, President
Address for notices:
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699 Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
<PAGE>
TIETEK, INC.
By: /s/ Tim B. Tarrillion
----------------------
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699 Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
<PAGE>
NATIONSBANC CAPITAL CORPORATION,
a Texas corporation
By: /s/ Douglas C. Williamson
--------------------------
Name: Douglas C. Williamson
Title: Senior Vice President
AEON MANAGEMENT ESTABLISHMENT
By: /s/ Dr iur Alex Wiederkehr
---------------------------
Name: Dr iur Alex Wiederkehr
Title: Managing Director
BRUCE F. HARRISON, TRUSTEE OF THE BRUCE F.
HARRISON TESTAMENTARY TRUST UNDER THE LAST WILL
AND TESTAMENT OF DAN J. HARRISON, JR.
By: /s/ Bruce F. Harrison
----------------------
Name: Bruce F. Harrison
DAVID S. HOLLAND
By: /s/ David S. Holland
--------------------
Name: David S. Holland
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