<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 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: 31,318,726 common shares outstanding as of
April 30, 1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes No X
--- ---
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets 3
March 31, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Loss 4
Three months ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Stockholders' Equity 5
Three months ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows 6
Three months ended March 31, 1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
2
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31 DEC. 31
1998 1997
ASSETS UNAUDITED AUDITED
- ------ ------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 244,621 $ 348,991
Accounts receivables, less allowance for
doubtful accounts of $17,860 and $18,000............. 7,430 285,623
Inventories........................................... - 6,395
Current portion of notes receivable................... 191,529 100,000
Prepaid expenses and other............................ 126,016 103,087
------------ ------------
Total Current Assets 569,596 844,096
Notes receivable....................................... 1,573,202 881,960
Property and equipment, less accumulated depreciation
of $107,792 and $98,972.............................. 124,814 149,946
Patents and purchased technologies, less accumulated
amortization of $295,406 and $268,787................. 1,665,515 1,797,128
Goodwill, less accumulated amortization of $579,396
and $603,793.......................................... 2,200,621 2,652,391
Other intangible assets, less accumulated
amortization of $51,443 and $107,007.................. 103,558 126,765
Other.................................................. 267,809 292,291
------------ ------------
$ 6,505,115 $ 6,744,577
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt.................. 3,500 3,800
Accounts payable...................................... 170,140 248,362
Accrued expenses...................................... 313,047 207,302
Deferred dividends payable on preferred stock,
including accrued interest........................... 199,976 193,448
------------ ------------
Total current liabilities............................ 686,663 652,912
Long-term debt, less current maturities................ 502,869 503,178
Deferred dividends payable on preferred stock,
including accrued interest........................... 14,458 13,985
------------ ------------
Total Liabilities.................................... 1,203,990 1,170,075
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 115,364 shares issued.................... 11,536,406 11,536,406
Common stock, $.001 par value, 100,000,000 shares
authorized; 31,318,726 shares issued.................. 31,320 31,320
Additional paid-in capital............................ 26,348,323 26,348,323
Accumulated deficit................................... (32,451,542) (32,180,115)
Less notes receivable for sale of stock............... (163,382) (161,432)
------------ ------------
Total Stockholders' Equity........................... 5,301,125 5,574,502
------------ ------------
$ 6,505,115 $ 6,744,577
============ ============
</TABLE>
3
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31 MARCH 31
1998 1997
----------- ------------
<S> <C> <C>
Revenues.......................................... $ 17,086 $1,173,455
Cost of revenues.................................. 10,755 727,581
---------- ----------
Gross profit................................. 6,331 445,874
Selling, general and administrative expenses...... 630,769 1,121,920
---------- ----------
Operating loss............................... (624,438) (676,046)
---------- ----------
Other Income (Expense):
Interest income............................... 3,269 31,316
Interest expense.............................. (20,136) (24,997)
Gain on sale of assets........................ 369,679 -
Other......................................... 199 (10,119)
---------- ----------
Total Other Income (Expense)...................... 353,011 (3,800)
---------- ----------
Net Loss.......................................... $ (271,427) $ (679,846)
========== ==========
Net Loss per share - basic and assuming dilution . $ (.01) $ (.04)
========== ==========
Weighted average number of common shares
outstanding .................................... 31,318,726 27,551,995
========== ==========
</TABLE>
4
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 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 31,318,726 $31,320 $26,348,323 $(32,180,115) $(161,432) $5,574,502
Interest on notes
receivable from
stockholders - - - - - - (1,950) (1,950)
Net loss for the period - - - - - (271,427) - (271,427)
--------- ----------- ---------- ---------- ----------- ------------ ----------- ----------
Balance March 31, 1998 115,364 $11,536,406 31,318,726 $ 31,320 $26,348,323 $(32,451,542) $ (163,382) $5,301,125
========= =========== ========== ========== =========== ============ =========== ==========
Balance December 31, 1996 101,429 $10,765,447 27,111,497 $27,114 $23,809,619 $(25,902,116) $(153,632) $8,546,432
Issuance of common stock
upon conversion of
Series E preferred
stock (12) (300,000) 991,121 991 299,009 - - -
Issuance of Series G
preferred stock 16,400 1,640,000 - - - - - 1,640,000
Interest on notes
receivable from
stockholders - - - - - - (1,950) (1,950)
Deemed dividends on
preferred stock - - - - 285,382 (285,382) - -
Net loss for the period - - - - - (679,846) - (679,846)
--------- ----------- ---------- ---------- ----------- ------------ ----------- ----------
Balance March 31, 1997 117,817 $12,105,447 28,102,618 $ 28,105 $24,394,010 $(26,867,344) $ (155,582) $9,504,636
========= =========== ========== ========== =========== ============ =========== ==========
</TABLE>
5
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1998 1997
------------ -----------
<S> <C> <C>
Net cash used in operating activities........................ $(296,205) $ (653,783)
--------- ----------
Cash flows from investing activities:
Cash received from sale of assets........................ 200,000 -
Payment of patent costs.................................. (7,556) (2,987)
Increase in note receivable.............................. - (122,359)
Purchase of property and equipment....................... (-) (4,310)
--------- ----------
Net cash provided (used) in investing activities.. 192,444 (129,656)
--------- ----------
Cash flows from financing activities:
Issuance of preferred stock.............................. - 1,640,000
Repayment of notes payable and long-term debt............ (609) (18,139)
--------- ----------
Net cash provided (used) by financing activities.. (609) 1,621,861
--------- ----------
Net increase (decrease) in cash and cash equivalents......... (104,370) 838,422
Cash and cash equivalents, beginning of period............... 348,991 1,126,912
--------- ----------
Cash and cash equivalents, end of period..................... $ 244,621 $1,965,334
========= ==========
</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 quarter ended March 31, 1997, there were deemed dividends totaling
$285,382 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 ended
March 31, 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 15,878,916 shares of
common stock, convertible debt and preferred stock convertible into 333,333 and
15,200,000 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.
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 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.
8
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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, 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 Crosstie. The Company anticipates using the proceeds
from the proposed 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. Revenues for the first quarter of 1998 of $17,086
consisted primarily of chemical sales of EET's TechXTract product. These
revenues are significantly less than the amount for the first quarter of 1997 of
$1,173,455 when the Company derived revenues from its 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
9
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 three months ended March 31, 1998 on
sales of EET's TechXTract chemicals does not differ significantly from the
combined gross profit percentage from several of the Company's subsidiaries of
38% recognized in the three months ended March 31, 1997.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES ("SGA")
SGA expenses decreased 44% to $630,769 for the current three month period, from
$1,121,920 for the three months ended March 31, 1997. 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 anticipates its SGA expenses to decrease during the second quarter
of 1998, and then remain constant until sales of the TieTek Composite Railroad
Crosstie warrant additional increases.
OTHER INCOME AND EXPENSE
Included in Other Income and Expense for the three months ended March 31, 1998
is the gain on the sale of certain EET assets of $369,679.
LIQUIDITY AND CAPITAL RESOURCES
Through the 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
commercialization of the TieTek Composite Railroad Crosstie and its ability to
obtain adequate financing, as to which there can be no assurances.
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
10
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
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. Currently, the Company employs six full time and
one part-time employee. However, even with the reductions in overhead, the
Company will need additional cash in order to fund its working capital and the
costs anticipated for the commercialization of the TieTek Composite Railroad
Crosstie.
Management is currently in negotiations with certain holders of the Company's
Series F and G convertible preferred stock ("Holders") regarding an additional
investment in the Company. The preliminary discussions have indicated that the
Holders, through a new subseries of the Series G preferred stock, would fund up
to $2,000,000 before the end of the second quarter of 1998. The new subseries
of preferred stock would have approximately the same terms as the Series G,
Subseries I, convertible preferred stock issued in 1997, except that the
conversion price would be 90% of the average of the closing bid prices for the
Company's common stock for the for the ten days preceding and including June 12,
1998. As of the date of this report, no definitive agreement has been reached
with the Holders, and there can be no assurances that the transaction will be
completed or that the Holders will approve subsequent fundings. The proposed
transaction has been submitted to the Company's stockholders for approval at the
1998 Annual Meeting of Stockholders to be held on May 12, 1998, as required by
applicable NASDAQ rules. The transaction is also subject to negotiation of
definitive documentation with respect to the transaction and customary
conditions. Accordingly, there can be no assurances that the transaction will
be completed or the Holders will approve subsequent fundings. If the Company is
unable to obtain financing from the Holders in a timely manner for the railroad
crosstie business, it will need to pursue other financing or licensing
strategies.
For the three months ended March 31, 1998, the Company utilized net cash of
$296,205 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 $192,444 from investing activities, primarily from the cash proceeds of
$200,000 from the sale of the EET assets.
11
<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 March 31, 1998 there were no significant developments related
to these proceedings.
ITEM 2: CHANGES IN SECURITIES:
On March 26, 1998, the Company's Board of Directors unanimously approved and
determined to submit to the stockholders of the Company at the 1998 Annual
Meeting of Stockholders an amendment (the "Amendment") to the Company's Restated
Certificate of Incorporation to effect a reverse stock split (the "Reverse Stock
Split").
The Reverse Stock Split will be effective in accordance with a formula based
upon the trading price of the Company's Common Stock during the ten (10) days
prior to filing of the Amendment. Under this formula, the Reverse Stock Split
will be effected pursuant to a ratio calculated by dividing $1.50 by the average
of the low bid prices of the Company's Common Stock as reported on the NASDAQ
SmallCap Market (the "SmallCap Market") during the ten (10) trading days prior
to the filing of the Amendment. In the event that the ratio results in a
fractional number, it will be rounded to the next closest whole number;
provided, however, if the fraction is .5 it shall be rounded up to the closest
whole number. For example, if the average of the low bid prices of the
Company's Common Stock during the ten (10) trading days prior to the filing of
the Amendment was $.25 per share, the Reverse Stock Split will result in each
six (6) shares of the Company's presently outstanding Common Stock being
converted into one (1) new share of the Company's Common Stock (the "New Common
Stock"). By way of further example, if the average of the low bid prices of the
Company's Common Stock during the ten (10) trading days prior to the filing of
the Amendment was $.20 per share, the Reverse Stock Split will result in each
eight (8) shares of the Company's presently outstanding Common Stock being
converted into (1) share of New Common Stock. The Reverse Stock Split shall not
affect the number of shares of Series F and G Preferred Stock outstanding,
although the conversion rates of the Series F and G Preferred Stock to Common
Stock will be proportionately adjusted.
The Board of Directors has also unanimously approved and determined to submit to
the stockholders of the Company for approval a proposal to issue and sell up to
$2 million of cumulative convertible preferred stock in a private placement
transaction (the "Private Placement").
The cumulative convertible preferred stock will be issued under the terms of a
Master Certificate of Designation of Cumulative Convertible Preferred Stock,
Series G (the "Master Certificate of Designation") and Designation of Subseries
("Designation of Subseries") and will be designated as Cumulative Convertible
Preferred Stock, Series G - Subseries II (the "Subseries II Shares"). The
12
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
Master Certificate of Designation sets forth the general rights and preferences
of the Subseries II Shares.
The Subseries II Shares are a newly designated subseries of the Company's Series
G Preferred Stock. All shares of Series G Preferred Stock are issued in
subseries pursuant to a Master Certificate of Designation which sets forth the
general rights and preferences applicable to all shares of Series G Preferred
Stock and a certificate of designation of subseries applicable to a specific
subseries. One of the principal features of the Series G Preferred Stock is
that they are convertible into shares of Common Stock at any time at the option
of the holder thereof. The Conversion Value of all shares of Series G Preferred
Stock (the "Series G Conversion Value") is $100 per share. The Series G
Conversion Value shall not be subject to adjustment (except in connection with a
Recapitalization). The initial conversion price applicable to a particular
subseries of Series G Preferred Stock (the "Subseries Conversion Price") is set
forth in the applicable certificate of designation of subseries. The Subseries
Conversion Price is subject to adjustment for, among other things, additional
issuances of Common Stock or securities convertible into Common Stock for
consideration less than the Subseries Conversion Price in effect at the time of
the issuance of such Common Stock or securities, stock splits, stock dividends
and reclassifications.
Each share of Series G Preferred Stock is initially convertible, at the option
of the holder thereof, into that number of shares of Common Stock which results
from dividing the Subseries Conversion Price in effect for such series at the
time of conversion into the Series G Conversion Value. For example, if on the
date of conversion the Subseries Conversion Price was $.25, each Subseries II
Share would be convertible into 400 shares of Common Stock. Commencing April 5,
2001, each share of Series G Preferred Stock is convertible, at the option of
the holder thereof, into that number of shares of Common Stock which results
from dividing the lesser of (i) the Subseries Conversion Price in effect for
such series at the time of conversion and (ii) 90% of the average closing bid
price of the Company's Common Stock during the twenty (20) days preceding the
date of conversion into the Series G Conversion Value. For example, if on the
date of conversion the Subseries Conversion Price was $.25, and 90% of the
average closing bid price of the Company's Common Stock during the twenty (20)
days preceding the date of conversion was $.20 each Subseries II Share would be
convertible into 500 shares of Common Stock.
Upon conversion, all accrued or declared but unpaid dividends (including any
interest accrued thereon calculated as of the date of conversion) on the Series
G Preferred Stock shall either be paid in cash, to the extent permitted by
applicable law or, at the option of the holder, converted into the number of
shares of Common Stock which results from dividing the Subseries Conversion
Price in effect at such time into the aggregate of all accrued or declared but
unpaid dividends (including any interest accrued thereon calculated as of the
date of conversion).
The Series G Preferred Stock are issued at the Conversion Value of $100 per
share and are entitled
13
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NORTH AMERICAN TECHNOLOGIES GROUP, INC.
PART II: OTHER INFORMATION
to a cumulative dividend at a rate of 13.5% of the Conversion Value payable
semi-annually. At the option of the holder, the dividends are payable in
additional shares of Series G Preferred Stock of the same Subseries. Commencing
April 5, 2004, outstanding shares of Series G Preferred Stock are redeemable at
the option of the Company by payment to the holder thereof the Conversion Value
plus any and all accrued and declared but unpaid dividends.
Although the Company believes that the Reverse Stock Split and the Private
Placement will be approved, there can of course be no assurance to that effect.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES: None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
ITEM 5: OTHER INFORMATION: None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
(10.28) Asset Purchase Agreement, dated as of March 30, 1998, by and
among EET, Inc. and Active Environmental Technologies, Inc.,
incorporated by reference to the Company's Current Report on Form 8-K,
dated as of April 14, 1998, filed under the Securities Exchange Act of
1934 ( the "April 1998 Form 8-K").
(10.29) Promissory Note, dated March 30, 1998, issued by Active
Environmental Services, Inc. in the principal amount of $363,436,
incorporated by reference to the April 1998 Form 8-K.
(10.30) Promissory Note, dated March 30, 1998, issued by Active
Environmental Services, Inc., in the principal amount of $436,835,
incorporated by reference to the April 1998 Form 8-K.
(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.
14
<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: May 12, 1998 /s/ Judith Knight Shields
----------------------------------------------------
Judith Knight Shields
Chief Financial Officer and Chief Accounting Officer
15
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