<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, 2000
[_] 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.)
14315 West Hardy Road, Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
(281) 847-0029
(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: 4,992,805 common shares outstanding as of
April 30, 2000
Transitional Small Business Disclosure Format
(Check One):Yes ______ No X
---
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Loss
Three months ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 (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 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
</TABLE>
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
March 31, Dec. 31,
2000 1999
unaudited audited
--------- -------
<S> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents............................................ $ 664,442 $ 284,498
Accounts receivable.................................................. 6,423 132
Inventories.......................................................... 31,897 41,159
Current portion of notes receivable.................................. 20,000 20,000
Prepaid expenses and other........................................... 48,627 49,732
------------ ------------
Total Current Assets.............................................. 771,389 395,521
Notes receivable....................................................... 120,000 120,000
Property and equipment, less accumulated depreciation
of $187,250 and $184,423............................................. 1,036,577 1,024,404
Patents and purchased technologies, less accumulated
amortization of $389,432 and $367,187 ............................... 1,368,321 1,390,567
Goodwill, less accumulated amortization of
$1,080,021 and $1,053,073............................................ 1,699,996 1,726,945
Other.................................................................. 102,559 73,056
------------ ------------
$ 5,098,842 $ 4,730,493
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Notes payable........................................................ $ 732,500 $ 567,500
Accounts payable..................................................... 49,785 155,938
Accrued expenses..................................................... 248,305 253,060
------------ ------------
Total current liabilities......................................... 1,030,590 976,498
Deferred dividends payable on preferred stock,
including accrued interest........................................ 96,697 164,851
------------ ------------
Total Liabilities................................................. 1,127,287 1,141,349
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 136,007 and 148,585 shares issued..................... 13,600,712 14,858,477
Common stock, $.001 par value, 50,000,000 shares
authorized; 4,992,805 and 4,260,275 shares issued................. 4,993 4,261
Additional paid-in capital........................................... 31,851,466 29,471,037
Accumulated deficit.................................................. (41,485,616) (40,744,631)
------------ ------------
Total Stockholders' Equity........................................ 3,971,555 3,589,144
------------ ------------
$ 5,098,842 $ 4,730,493
============ ============
</TABLE>
3
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31 March 31
2000 1999
-------- --------
<S> <C> <C>
Revenues.......................................................... $ 2,542 $ 127,901
Cost of revenues ................................................. 2,835 216,371
---------- ----------
Gross loss ..................................................... (293) (88,470)
Selling, general and administrative expenses ..................... 417,942 483,319
---------- ----------
Operating loss.................................................. (418,235) (571,789)
---------- ----------
Other Income (Expense):
Interest income ................................................. 11,019 11,436
Interest expense ................................................ (51,902) (20,645)
Other............................................................ 1,175 -
---------- ----------
Total Other Expense - net....................................... (39,708) (9,209)
---------- ----------
Net Loss ......................................................... $ (457,943) $ (580,998)
========== ==========
Computation of net loss per share:
Net loss before dividends on preferred stock ..................... $ (457,943) $ (580,998)
Dividends on preferred stock ..................................... (283,042) (60,057)
---------- ----------
Net loss applicable to common stockholders ....................... $ (740,985) $ (641,055)
========== ==========
Weighted average number of common
shares outstanding .............................................. 4,573,188 3,552,620
========== ==========
Net loss per share - basic and assuming dilution ................. ($ .16) ($.18)
========== ==========
</TABLE>
4
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Preferred Common Stock Additional
--------------------- ------------------------- Paid-In
Shares Amount Shares Amount Capital Deficit Total
------- ------ ------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 148,585 $14,858,477 4,260,275 $ 4,261 $29,471,037 $(40,744,631) $3,589,144
Issuance of Series H
preferred stock 7,752 775,210 - - - - 775,210
Issuance of common stock
upon conversion
of Series F and G
preferred stock (20,330) (2,032,975) 636,564 637 2,032,338 - -
Issuance of common stock
upon conversion
of dividends in arrears
and accrued interest - - 77,537 77 250,390 (242,124) 8,343
Issuance of common stock
upon conversion
of deferred dividends and
accrued interest - - 18,429 18 72,691 - 72,709
Costs associated with
equity transactions - - - - (36,420) - (36,420)
Deemed dividends on
preferred stock - - - - 40,918 (40,918) -
Deemed interest on
convertible note - - - - 20,512 - 20,512
Net loss for the period - - - - - (457,943) (457,943)
------- ----------- --------- ------- ----------- ------------ ----------
Balance March 31, 2000 136,007 $13,600,712 4,992,805 $ 4,993 $31,851,466 $(41,485,616) $3,971,555
======= =========== ========= ======= =========== ============ ==========
Balance December 31, 1998 147,468 $14,746,815 3,558,502 $ 3,559 $26,979,759 $(36,934,862) $4,795,271
Issuance of Series G
Subseries III
preferred stock 4,190 419,000 - - - - 419,000
Issuance of common stock
upon conversion of Series
F preferred stock (2,252) (225,183) 46,046 46 225,137 - -
Costs associated with
equity transactions - - - - (13,911) - (13,911)
Deemed dividends on
preferred stock - - - - 60,057 (60,057)
Net loss for the period - - - - - (580,998) (580,998)
------- ----------- --------- ------- ----------- ------------ ----------
Balance March 31, 1999 149,406 $14,940,632 3,604,548 $ 3,605 $27,251,042 $(37,575,917) $4,619,362
======= =========== ========= ======= =========== ============ ==========
</TABLE>
5
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
March 31 March 31
2000 1999
-------- ---------
<S> <C> <C>
Net cash used in operating activities............................................................ $(508,846) $(512,704)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment.............................................................. (15,000) (19,563)
Payment of patent costs......................................................................... - (38,970)
Decrease in notes receivable.................................................................... - 9,825
--------- ---------
Net cash used in investing activities............................................................ (15,000) (48,708)
--------- ---------
Cash flows from financing activities:
Issuance of preferred stock..................................................................... 757,000 419,000
Proceeds from convertible note payable.......................................................... 165,000 -
Payment of costs and fees of equity issuances................................................... (18,210) (11,961)
--------- ---------
Net cash provided by financing activities...................................................... 903,790 407,039
--------- ---------
Net increase (decrease) in cash and cash equivalents............................................. 379,944 (154,373)
Cash and cash equivalents, beginning of period................................................... 284,498 719,212
--------- ---------
Cash and cash equivalents, end of period......................................................... $ 664,442 $ 564,839
========= =========
</TABLE>
6
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
(1) 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 ended December 31, 1999 included in the Company's Annual
Report on Form 10-KSB for the year then ended. The report of the Company's
independent auditors for the year ended December 31, 1999 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.
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, 2000 and 1999 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, warrants, convertible debt, and
preferred stock convertible into an aggregate of approximately 8,200,000 shares
of common stock.
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. Substantially all of such assets are related to the TieTek
Crossties. Inherent in this analysis is an estimate of both future revenues and
profitability for these products. Management uses a wide variety of information
when performing this review, 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 the TieTek Crosstie 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.
7
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
(2) Stockholders' Equity
At the Annual Meeting of Stockholders held on May 12, 1998, the Company's
stockholders 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, all outstanding common stock and all per share data
included in the accompanying financial statements have been retroactively
adjusted to reflect the reverse stock split. In addition, all outstanding
common stock options and warrants and their exercise prices, along with the
preferred stock conversion prices, have been adjusted to reflect the reverse
stock split.
In March 2000 the Company issued 7,752 shares of its Series H Convertible
Preferred Stock (Series H) for cash proceeds of $757,000. The Series H earns a
dividend of 10% per annum, is convertible into the Company's common stock at
$1.85 per share and has certain liquidation preferences.
In March 1999, the Company issued 4,190 shares of its Series G Subseries III
Cumulative Convertible Preferred Stock ("Subseries III Shares") for cash
proceeds of $419,000. In May 1999, the Company issued an additional 4,550
Subseries III Shares for $455,000 in cash proceeds. The Subseries III Shares
have substantially the same terms as the Series G Subseries I and Series G
Subseries II Cumulative Convertible Preferred Stock ("Subseries I and Subseries
II Shares"), except that the initial conversion price for the Subseries III
Shares is $1.50, and such conversion price can never be adjusted below $1.25.
In connection with the sale of the Series H shares in March 2000, the Company
recognized deemed dividends of $40,918 and in connection with the sale of the
Subseries III Shares in March 1999, the Company recognized deemed dividends of
$60,057.
In the first quarter 2000, holders of the Company's Series F and G Cumulative
Convertible Preferred Stock converted 20,330 Series F and G shares into 636,564
shares of the Company's common stock. Through March 31, 1999, certain holders of
the Company's Series F Cumulative Convertible Preferred Stock converted 2,252
Series F Shares into 46,046 shares of the Company's Common Stock. In May 1999,
an additional 518.8173 Series F Shares were converted into 11,493 shares of the
Company's Common Stock.
At March 31, 2000, the conversion rates of the Company's Series F, Series G-I,
II and III and Series H convertible preferred stock were $3.78, $2.36, $0.87,
$1.50 and $1.85, respectively.
8
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
3) TieTek Royalty
In December 1997, in association with the acquisition of TieTek, Inc., the
Company entered into a fifteen-year royalty agreement (TieTek Royalty Agreement)
providing for royalty payments calculated on gross profits of TieTek payable to
the former owners of TieTek. One of the former owners is a director and officer
of the Company and another is a former director of the Company.
The TieTek Royalty Agreement provides for the payment of an alternate minimum
royalty beginning March 1999 in the event the Company does not expeditiously
proceed with the construction of a plant as defined in the royalty agreement.
The alternate minimum royalty obligation is $162,500 per calendar quarter until
the Company begins commercial sales of product. Management believes that it has
complied with the terms of the agreement and no minimum royalty is due. The
Company has therefore neither paid nor accrued any alternate minimum royalty.
In October 1999, the Company was informed by certain royalty holders that they
disagree with the Company's interpretation of the royalty agreement and believe
that an alternate minimum royalty is due and have requested that it be paid.
The Company is in discussions with representatives of the royalty holders and is
attempting to reach an amicable resolution of the issue.
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, 1999 for a list of certain important factors that may
cause actual results to differ materially from those described below.
The Company is currently focused on the commercialization of the TieTek
Composite Railroad Crosstie through its wholly owned subsidiary, TieTek, Inc.
(TieTek). The Company sold or licensed its other technologies after the
decision to focus its resources on the TieTek Crosstie.
RESULTS OF OPERATIONS
Revenues
During the fourth quarter of 1998, the Company commenced production of its
crossties pursuant to a manufacturing agreement with a private company located
in Delaware. The Company believes that these production runs demonstrated the
ability of the TieTek crosstie to satisfy the customers' requirements. As of
December 31, 1998, the Company had produced approximately 5,000 crossties
utilizing the Company's small-scale molding and cooling equipment and the
private company's facility and personnel. In March 1999, the Company
manufactured approximately 1,000 crossties pursuant to this same manufacturing
agreement. No crossties have been manufactured since the first quarter of 1999.
Shipments of crossties from these production runs generated $127,901 in revenue
for the three months ended March 31, 1999. The Company had an inventory of
approximately 1,300 crossties as of March 31, 1999 and less than 100 at March
31, 2000.
The Company had revenues of $2,542 in the first quarter of 2000 from the sale of
crossties in inventory.
Gross Profit
The production of TieTek Crossties in Delaware under the manufacturing agreement
resulted in a negative gross margin, reflecting expected start-up costs, the
small scale and labor intensive nature of this initial manufacturing run, the
tolling fee paid to the manufacturer, and the purchase of low
10
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
volumes of raw materials in the spot market. The production runs provided
critical design and operating information for the full scale, automated new
plant. Gross margin improvement will depend upon continuous operation,
production efficiencies, economies of scale and strategic raw material
purchasing. To address these needs, the Company has designed its new
manufacturing facility in Houston, Texas to utilize an automated molding
machine, and has hired an experienced purchasing manager. These actions are
expected to result in acceptable margins once commercial production volumes are
achieved.
Selling, General & Administrative Expenses (SGA)
SGA expenses decreased 14% to $417,942 for the three months ended March 31, 2000
compared to the three months ended March 31, 1999. This reduction consists
primarily of decreases in salary and other payroll related costs, insurance and
depreciation and amortization associated with the Company's product lines that
have been sold or disposed. The Company anticipates that SGA will remain at the
current levels until production of the TieTek Crossties requires additional
increases. The Company anticipates an increase in staff to support TieTek's
manufacturing plant in mid 2000. The Company currently has four employees.
Other Income and (Expense)
Total other expense increased to $39,708 in the first quarter of 2000 due to an
increase in interest expense from additional short term borrowings and the
recognition of deemed interest of $20,512 on the issuance of debt in January
2000 which is convertible into shares of the Company's common stock at a price
less than market price on the date of issuance.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, the Company continued to incur a cash
flow deficit averaging $100,000 to $200,000 per month. This deficit reflects
primarily the pre-commercial operations of the TieTek Composite Railroad
Crosstie business and corporate overhead. As of March 31, 2000, the Company had
a deficit working capital balance of $259,201 including a cash balance of
$664,442.
The Company has made significant progress towards the full commercial production
of the TieTek Crosstie, including the production of approximately 5,000
crossties during the fourth quarter of 1998 and approximately 1,000 crossties
during the first quarter of 1999. No crossties have been produced since the
first quarter of 1999. The Company anticipates building production capacity in
mid 2000 to meet anticipated demand. This will require significant
expenditures, including the cost of hiring
11
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
and training a workforce to operate the plant. The start-up period can be
expected to result in accelerated short-term operating losses compared with the
low level of activity during the past year.
Historically, the Company has met its working capital requirements through
financing transactions involving the private placement of equity securities or
equity equivalents, the issuance of convertible debt, and the proceeds from the
sale or license of its technologies. Over the past three years, the Company's
principal source of capital has been through the issuance of Cumulative
Convertible Preferred Stock as follows:
. In 1997, the Company issued shares of Series G Cumulative Convertible
Preferred Stock, Subseries I (the Subseries I Shares) for cash proceeds of
$1,640,000.
. In 1998, the Company issued shares of Series G Cumulative Convertible
Preferred Stock, Subseries II (the Subseries II Shares) for cash proceeds
of $1,975,000 and professional services of $25,000.
. In March 1999, the Company issued shares of Series G Cumulative Convertible
Preferred Stock, Subseries III (the Subseries III Shares) for cash proceeds
of $413,000 and a payment to a financial advisor of $6,000. In May 1999,
the Company issued additional Subseries III Shares for cash proceeds of
$466,000 and payments to a financial advisor of $15,000.
The Series G - Subseries I, II and III Shares, (collectively the G Shares) are
entitled to an annual cumulative dividend of 13.5% and are convertible into
shares of the Company's Common Stock at conversion prices, as of March 31, 2000,
of $2.36, $0.87, and $1.50 per share, respectively. In accordance with the
certificates of designation for the G Shares, the Company has deferred all
preferred stock dividends, or satisfied such dividends through the issuance of
additional shares of preferred stock. However, pursuant to the terms of the G
Shares, the Company cannot defer dividends after April 5, 1999.
In March 2000, the Company issued 7,752 shares of its Series H Cumulative
Convertible Preferred Stock raising $757,000. The Series H Preferred ranks pari
parsu with the Series F and G Preferred, earns dividends at 10% per year and is
convertible at the option of the holder and redeemable by the Company at $1.85
per share subject to certain adjustments.
Given the Company's expected financial condition, it is unlikely the Company
will be in a position to pay cash dividends on its Preferred Stock in the near
future. Therefore, these dividends will accumulate, and must be paid, together
with interest thereon, prior to the payment of any distributions to the common
stockholders. The Company does not anticipate any such distributions in the
foreseeable future. As of March 31, 2000, $1.3 million of dividends and interest
were in arrears on all series of the Company's preferred stock.
12
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is presently in negotiations to raise $500,000 through a private
placement of 500,000 shares of its common stock. This transaction is expected to
close in the second quarter 2000.
In the first quarter of 1999, the Company raised $419,000 through the sale of
its Series G - Subseries III Shares. Additional financing will be necessary in
order to meet working capital requirements and to commence manufacturing
operations. The Company anticipates that its first automated manufacturing
line, with a capacity of approximately 10,000 crossties per month, will require
additional capital expenditures of approximately $2,000,000 and additional
working capital of approximately $1,800,000. Through April 30, 2000, the
Company had made payments totaling over $1,000,000 for manufacturing equipment.
The Company has obtained shareholder approval to raise up to $5,000,000 in
additional funds, and has signed an engagement letter with an investment banking
firm to provide financial advisory and investment banking services in
conjunction with the completion of a second manufacturing line and raw material
handling capability in Houston. However, as of the date of this Report, the
Company has no commitments for financing and there can be no assurance that the
Company will be able to obtain financing on terms reasonably attractive to the
Company, if at all. Expansion of the plant's capacity as warranted by market
demand will require additional capital expenditures. 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.
Due to these uncertainties, the report of the Company's independent public
accountants for the year ended December 31, 1999 contains an explanatory
paragraph as to the substantial doubt about the Company's ability to continue as
a going concern. If the Company is unsuccessful in obtaining financing for its
initial facility, the Company may attempt to contract for the continued
manufacture of its crossties from third parties.
Impact of Year 2000 Problem
Like other entities, the Company could be adversely affected if the computer
systems the Company, its suppliers or customers use do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
issue. Additionally, this issue could impact non-computer devices such as
production equipment, elevators, etc. While the Company's project to assess and
correct Y2K related issues has been completed, and the Company has not
experienced any Y2K related events, interactions with other companies' systems
make it difficult to conclude that there will not be future effects.
Consequently, at this time, management cannot provide assurances that the Year
2000 issue will not have an impact on the Company's future operations. Through
the date of the report, the Company has had no material impact from the Y2K
issue.
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, 1999. During the
three months ended March 31, 2000 there were no significant developments related
to these proceedings.
Item 2: Changes in Securities:
In January 2000 the Company borrowed $165,000 from a private entity and issued a
note payable due January 18, 2001 which is convertible into shares of the
Company's common stock. The convertible note was issued to 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. Since the conversion rate at the time of
issuance of the note was below the market price of the Company's common stock,
the Company recorded "deemed interest" in the amount of $20,512.
In March 2000, the Company issued 7,752 shares of its Convertible Preferred
Stock, Series H (the "Series H Shares") for cash proceeds of $757,000. These
shares have been issued to 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. No broker's commissions were paid in connection with these
issuances, although payments of $36,420 were made to a financial advisor for
services provided in connection with these transactions.
Item 3: Defaults upon Senior Securities:
The certificates of designations for the Series F and Series G Cumulative
Convertible Preferred Stock provide that after April 5, 1999 the Company may no
longer defer the payment of cash dividends, and the holders no longer have the
ability to receive such deferred dividends through the issuance of additional
preferred shares. Due to the capital requirements necessary to expand the
Company's business, it is unlikely that the Company will be able to pay cash
dividends in the near future. Commencing with the June 30, 1999 dividend
payment date, and continuing for so long as the Company is unable to pay cash
dividends, the Series F and Series G dividends will accumulate in arrears.
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:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
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 11, 2000 /s/ Henry W. Sullivan
--------------------------------------------------
Henry W. Sullivan
President and Chief Executive Officer
Date: May 11, 2000 /s/ Russell L. Allen
--------------------------------------------------
Russell L. Allen
Treasurer and Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF NORTH AMERICAN TECHNOLOGIES GROUP, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 1999 UNAUDITED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 664,442 284,498
<SECURITIES> 0 0
<RECEIVABLES> 6,423 132
<ALLOWANCES> 0 0
<INVENTORY> 31,897 41,159
<CURRENT-ASSETS> 771,389 395,521
<PP&E> 1,223,827 1,208,827
<DEPRECIATION> 187,250 184,423
<TOTAL-ASSETS> 5,098,842 4,730,493
<CURRENT-LIABILITIES> 1,050,590 976,498
<BONDS> 0 0
0 0
13,600,712 14,858,477
<COMMON> 4,993 4,261
<OTHER-SE> (9,634,150) (11,273,594)
<TOTAL-LIABILITY-AND-EQUITY> 5,098,842 4,730,493
<SALES> 2,542 127,901
<TOTAL-REVENUES> 2,542 127,901
<CGS> 2,835 216,371
<TOTAL-COSTS> 417,942 483,319
<OTHER-EXPENSES> 39,708 9,209
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,902 20,645
<INCOME-PRETAX> (457,943) (580,998)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (457,943) (580,998)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
