-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LlTVHtqmp7mwdOWxtqhDf4emB/DXuQrXlc2yEIam/HietCWL+cP95l2tGDHDb7FN Mb9HrfRGTVvUB8q9eMAiNw== 0000897101-96-000704.txt : 19960819 0000897101-96-000704.hdr.sgml : 19960819 ACCESSION NUMBER: 0000897101-96-000704 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960816 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH ATLANTIC TECHNOLOGIES INC CENTRAL INDEX KEY: 0000706021 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 411390785 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12768 FILM NUMBER: 96617014 BUSINESS ADDRESS: STREET 1: 8120 PENN AVE S STE 435 CITY: BLOOMINGTON STATE: MN ZIP: 55431 BUSINESS PHONE: 6128888553 MAIL ADDRESS: STREET 1: 8120 PENN AVE SOUTH STREET 2: STE 435 CITY: BLOOMINGTON STATE: MN ZIP: 55431 10QSB 1 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 quarterly period ended: June 30, 1996 or [ ] Transition report under Section 13 or l5(d) of the Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number: 2-85984-C North Atlantic Technologies, Inc. (Exact name of small business issuer as specified in its charter) Minnesota 41-1390785 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 8120 Penn Avenue South, Suite 435, Bloomington, Minnesota 5543l (Address of principal executive offices) (Zip Code) Issuer's telephone number 612-888-8553 Former name, former address and former fiscal year, if changed since last report) 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 ____ Check whether 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 court. Yes __X__ No ____ State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date; 2,546,689 common shares as of June 30, 1996. Transitional small business disclosure format? Yes ____ No __X__ PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS
NORTH ATLANTIC TECHNOLOGIES, INC. BALANCE SHEETS (UNAUDITED) SUCCESSOR COMPANY PREDECESSOR COMPANY JUNE 30, DECEMBER 31, ASSETS 1996 1995 ----------------- ------------------- CURRENT ASSETS Cash and equivalents $ 233,307 $ 44,607 Trade accounts receivable, net of allowance for doubtful accounts of $339,440 at June 30, 1996 and at December 31, 1995 1,626,465 818,887 Other receivable 171,404 171,404 Inventories 128,746 145,356 Costs and estimated earnings in excess of billings on uncompleted contracts 50,870 Other current assets 11,466 29,029 ----------- ----------- Total current assets 2,222,258 1,209,283 PROPERTY AND EQUIPMENT Land 695,792 92,510 Buildings and leasehold improvements 692,441 692,441 Machinery and equipment 1,211,914 1,211,914 Office furniture and equipment 159,923 153,945 Automobiles 11,666 11,666 ----------- ----------- Totals 2,771,736 2,162,476 Less accumulated depreciation (1,108,431) (1,305,351) ----------- ----------- Net property and equipment 1,663,305 857,125 OTHER ASSETS Patent rights, less accumulated amortization of $2,500 97,500 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $10,480 410,424 Other 12,399 3,652 ----------- ----------- Total other assets 520,323 3,652 ----------- ----------- $ 4,405,886 $ 2,070,060 =========== =========== See notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES, INC. BALANCE SHEETS (UNAUDITED) SUCCESSOR COMPANY PREDECESSOR COMPANY JUNE 30, DECEMBER 31, LIABILITIES AND EQUITY 1996 1995 ----------------- ------------------- CURRENT LIABILITIES Current maturities of long-term debt $ 1,159,812 $ 3,547,622 Trade accounts payable 1,190,311 878,422 Other accounts payable 393,428 393,428 Billings in excess of costs and estimated earnings on uncompleted contracts 218,049 477,893 Accrued liabilities: Taxes other than income 43,546 15,219 Warranty reserve 150,000 200,000 Compensation 54,995 42,198 Interest 13,910 170,378 Other 110,214 ----------- ----------- Total current liabilities 3,334,265 5,725,160 LONG-TERM DEBT, NET OF CURRENT MATURITIES Note payable to Bank 402,093 Mortgage note payable 473,004 Lease obligations 13,716 12,251 ----------- ----------- Total Long-Term Debt 888,813 12,251 Total Liabilities 4,223,078 5,737,411 STOCKHOLDER'S EQUITY (DEFICIT) Preferred stock, Series A Convertible, $.01 par value; authorized 22,000 shares, 21,600 shares to be issued under Plan of Reorganization 216 Common stock, no par value; authorized 5,000,000 shares; issued and outstanding 2,392,689 at December 31, 1995; shares to be canceled under Plan of Reorganization 3,047,804 Common stock, $.01 par value; authorized 5,000,000 shares, 2,546,689 shares to be issued under Plan of Reorganization 25,467 Retained earnings (deficit) 157,125 (6,715,155) ----------- ----------- Total stockholders' equity (deficit) 182,808 (3,667,351) ----------- ----------- $ 4,405,886 $ 2,070,060 =========== =========== See notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) SUCCESSOR COMPANY PREDECESSOR COMPANY ----------------- ----------------------------------------------------- 3 MONTHS ENDED 3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED JUNE 30, 1996 MARCH 31, 1996 JUNE 30, 1995 JUNE 30, 1995 ----------------- -------------- -------------- ------------- Debtor-in- Possession ----------- REVENUES $ 1,686,381 $ 1,394,512 $ 913,321 $ 2,752,319 COST OF REVENUES 1,068,472 883,617 892,572 2,367,014 ----------- ----------- ----------- ----------- Gross Profit 617,909 510,895 20,749 385,305 OPERATING COSTS 427,784 310,996 493,631 921,876 ----------- ----------- ----------- ----------- Operating Income (Loss) 190,125 199,899 (472,882) (536,571) OTHER INCOME (EXPENSE) Royalty and services income 14,239 6,245 (2,135) (891) Interest expense (contractual interest for 3 months ended March 31, 1996 was $123,891) (57,264) (82,372) (115,081) (220,365) Rental and other income 10,025 10,350 13,396 41,345 Write-down of patent (184,505) (184,505) ----------- ----------- ----------- ----------- (33,000) (65,777) (288,325) (364,416) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE REORGANIZATION ITEM AND EXTRAORDINARY GAIN 157,125 134,122 (761,207) (900,987) REORGANIZATION ITEM, PROFESSIONAL FEES 25,566 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 157,125 $ 108,556 ($ 761,207) ($ 900,987) =========== =========== =========== =========== NET INCOME (LOSS) PER COMMON SHARE $ .06 $ .04 ($ .32) ($ .38) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,546,689 3,015,766 2,392,689 2,392,689 =========== =========== =========== =========== See notes to financial statements
NORTH ATLANTIC TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) SUCCESSOR COMPANY PREDECESSOR COMPANY ----------------- --------------------------------- 3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED JUNE 30, 1996 MARCH 31, 1996 JUNE 30, 1995 ----------------- -------------- ------------- Debtor-in- Possession ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 1,234,905 $ 777,708 $ 2,394,138 Cash paid to suppliers & employees (1,191,229) (1,021,749) (2,908,959) Interest, rent and royalties received 24,264 17,453 48,997 Interest paid (61,063) (58,616) (221,152) ----------- ----------- ----------- Net cash provided by (used in) operating activities 6,877 (285,204) 686,976 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,765) (1,213) (20,541) Proceeds from restricted cash 39,500 Additions of other assets -- (8,747) -- ----------- ----------- ----------- Net cash provided by (used in) investing activities (4,765) (9,960) 18,959 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 700,000 300,000 1,450,000 Payments of long-term debt (512,897) (5,351) (785,735) ----------- ----------- ----------- Net cash provided by financing activities 187,103 294,649 664,265 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 189,215 (515) (3,752) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,092 44,607 41,384 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 233,307 $ 44,092 $ 37,632 =========== =========== =========== RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES: Net Income (loss) $ 157,125 $ 108,556 ($ 900,987) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 58,736 39,191 281,576 Stock issued for compensation 2,250 2,250 Gain on disposal of equipment (400) Changes in assets and liabilities: Receivables (540,235) (267,343) (63,338) Inventories 20,712 (4,102) 33,085 Other current assets 13,958 10,355 53,963 Accounts payable and accrued liabilities (499) 431,433 (210,373) Net increase (decrease) in billings related to costs and estimated earnings on uncompleted contracts 294,830 (605,544) 119,498 ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 6,877 ($ 285,204) ($ 686,976) =========== =========== =========== See notes to financial statements.
NORTH ATLANTIC TECHNOLOGIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. On February 1, 1996 the Company filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. The Plan of Reorganization was approved on April 19, 1996, and amended on May 7, 1996. The accompanying financial statements for the 3 months ended June 30, 1996 are presented as if the Plan of Reorganization was effective as of April 1, 1996. The Plan of Reorganization provided that: a) Subordinated Debenture Holders will receive one share of common stock for each $1.50 owed by the Company. In addition, each debenture holder will receive one share of convertible preferred stock at $0.01 par value for each $100 of debenture debt of the Company, and b) Each existing stockholder will be issued one share of common stock in cancellation of three shares owned by the shareholder, effective for shareholders of record on May 21, 1996. c) $500,000 of the line of credit borrowings will be converted to a five-year note bearing interest at a rate of up to 12%, with the remainder, including an additional $200,000 in financing which become available upon approval of the Plan, being financed under a new line of credit at comparable rates with required monthly reductions of $25,000 commencing May 1, 1996. It has been subsequently agreed to defer reduction of the line of credit in $25,000 increments until August 1, 1996. (On May 8, 1996 a note was signed with the foregoing terms.) d) All other general creditors claims will be settled in full upon a schedule to be agreed upon between the Company and its creditors. Under the terms of the Plan of Reorganization, Debenture Holders will receive 1,447,366 newly-issued common shares, and 21,600 newly-issued redeemable preferred shares. The 3,292,689 shares of no par common stock will be canceled and replaced with 1,099,323 newly-issued common shares. The total outstanding common shares following the above common stock adjustments will be 2,546,689. If the adjustments occurred on January 1, 1996, supplemental earnings per share for the first quarter of 1996 would have been unchanged as reported at $.04. 2. Fresh Start Reporting Under the provisions of Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code", the Company was required to apply "fresh start" reporting since the reorganization value, as defined, was less than the total of all post-petition liabilities and pre-petition claims, and holders of voting shares immediately before confirmation of the Plan received less than fifty percent of the voting shares of the emerging entity. Under this concept, all assets and liabilities are restated to reflect the reorganization value of the reorganized entity, which approximates its fair value at the date of reorganization. The financial statements of the reorganized entity are referred to herein as the Successor Company and the financial statements of the Company up to the date the Plan was implemented are referred to herein as the Predecessor Company. To determine an estimate of its reorganization value, the Company utilized a combination of the estimated proceeds and recovery it would obtain from its assets and the value of its capital structure as perceived by the Company and others. Based upon these factors, the Company established a reorganization value (total assets less liabilities) of the reorganized entity of $25,683. The Company allocated the reorganization value to the net book value of tangible assets as follows: Land $603,282 Machinery and Equipment 268,759 Office Furniture and Equipment 13,107 Patent 100,000 -------- $985,148 ======== Under the provisions of Statement of Position 90-7, the difference between the reorganization value of the assets and the fair value assigned to specific tangible and identified intangible assets was reported as an intangible asset identified as "reorganization value in excess of amounts allocable to identified assets." This amount will be amortized over 10 years. In addition, the Accumulated Deficit of the Company was eliminated and its capital structure was recast in conformity with the approved Plan of Reorganization. As such, the Balance Sheet of the Company as of June 30, 1996 represents that of a Successor Company which, in effect, is a new entity with assets, liabilities and a capital structure having carrying values not entirely comparable with prior periods. The following table summarizes the adjustments required to record the reorganization of the Company and the issuance of various securities in connection with the implementation of the Plan. The presentation is presented as if the Plan of Reorganization was effective as of April 1, 1996.
CONVERTIBLE SUBORDINATED PRE- DEBT REVERSE SUCCESSOR DECESSOR DISCHARGE STOCK SPLIT COMPANY'S COMPANY AND RELATED FOR EXISTING REORGANIZED PRE- ISSUANCE OF COMMON "FRESH START" BALANCE CONFIRMATION CAPITAL STOCK SHAREHOLDERS REPORTING SHEET ------------ ------------- ------------ ------------- ----------- CURRENT ASSETS $1,733,549 $1,733,549 PROPERTY AND EQUIPMENT (NET) 819,147 $ 885,148 1,704,295 OTHER ASSETS: Patent 100,000 100,000 Reorganization value in excess of amounts allocable to identifiable assets -- 420,904 420,904 Other 12,399 12,399 ---------- ---------- ----------- ---------- ---------- $2,565,095 $1,406,052 $3,971,147 ========== ========== =========== ========== ========== LIABILITIES NOT SUBJECT TO COMPROMISE: Current liabilities $3,930,507 $3,930,507 Lease obligations (long-term) 14,957 14,957 ---------- ---------- ----------- ---------- ---------- 3,945,464 3,945,464 LIABILITIES SUBJECT TO COMPROMISE: Convertible Subordinated Debentures and related interest payable 2,169,426 (2,169,426) -- ---------- ---------- ----------- ---------- ---------- Total Liabilities 6,114,890 (2,169,426) 3,945,464 STOCKHOLDERS' EQUITY (DEFICIT) Preferred Stock -- 216 216 Common Stock (no par) 3,056,804 (3,056,804) -- Common Stock ($.01 par) -- 14,474 10,993 25,467 Retained Earnings (Deficit) (6,606,599) 2,154,736 3,045,811 1,406,052 -- ---------- ---------- ----------- ---------- ---------- (3,549,795) 2,169,426 0 1,406,052 25,683 ---------- ---------- ----------- ---------- ---------- $2,565,095 $ 0 $ 0 $1,406,052 $3,971,147 ========== ========== =========== ========== ==========
3. The accompanying financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods presented have been made. The Company's financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Predecessor Company (see Note 4) incurred net losses for 1993, 1994 and 1995 and, as a result, financial resources have been strained. As of June 30, 1996, the Successor Company's current liabilities exceed current assets by $1,112,007. While the Company, through its Plan of Reorganization which was initially confirmed by the United States Bankruptcy Court on April 19, 1996 and amended on May 7, 1996, (See Note 1), has significantly reduced its debt commitments, the Successor Company's continuation as a going-concern is dependent on its ability to generate sufficient cash flow from operations, and obtain additional financing to meet its obligations on a timely basis. The Successor Company's business is currently dependent on large projects in the industrial sector. These projects involve long order cycles, and exact order placement dates are beyond the control of the Successor Company. While the Successor Company utilizes a progress billing procedure, there are periods of net cash outflows when cash flow is of concern. Both the Predecessor Company and the Successor Company have been able to manage normal operating cash flow through the use of internally generated funds and an established line of credit. 4. Earnings per share - when calculated on a fully diluted basis, per share amounts and average shares outstanding are identical to the amounts shown in the Statements of Operations. In January, 1996, 900,000 shares (300,000 on a post reverse split basis) of the Predecessor Company's common stock were issued at a market value of $.01 per share. The market value of the shares total $9,000 and is being charged to expense during 1996. 5. Preferred Stock - The Successor Company issued 21,600 shares of preferred stock, par value $.01 per share in connection with the discharge of the convertible subordinated debentures and related interest payable. Each preferred share is convertible, at the holder's option until June 1, 1999, and automatically after June 1, 1999, into one share of common stock. Each preferred share has a liquidation preference of $25 per share and may be redeemed at the Successor Company's option at any time prior to conversion into common stock, at $25 per share. 6. On July 10, 1996, the Company was notified of a claim in the amount of $542,738, which the Company erroneously believed to have been extinguished in the Bankruptcy Court action. The Company disputes the claim. On August 9, 1996, the Bankruptcy Court granted the Company's motion to enlarge the deadline for objecting to the filed claim and to assert a counter-claim. As a result, the merits of the claim and counter-claim, if pursued further, will be tried in the Bankruptcy Court in St. Paul, Minnesota. Although there can be no assurance, the Company believes that its defense of the claim and its counter-claim to be meritorious and that the matter will be settled without liability to the Company. Accordingly, no amount has been included as a liability or asset with respect to these claims in the Successor Company financial statements. PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On February 1, 1996, the Company filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. As stated in Note 1 to the financial statements, the Plan of Reorganization was approved on April 19, 1996, and amended on May 7, 1996. The Plan of Reorganization provided that: 1. Subordinated Debenture Holders will receive one share of common stock for each $1.50 owed by the Company. In addition, each debenture holder will receive one share of convertible preferred stock at $0.01 par value for each $100 of debenture debt of the Company, and 2. Each existing equity holder (of record as of May 21, 1996) will be issued one share of common stock in cancellation of three shares owned by the shareholder. 3. $500,000 of the line of credit borrowings will be converted to a five-year note bearing interest at a rate of up to 12%, with the remainder, including an additional $200,000 in financing which will become available upon approval of the plan, being financed under a new line of credit at comparable rates with required monthly reductions of $25,000 commencing May 1, 1996. (It has been subsequently agreed to defer reduction of the line of credit in $25,000 increments until August 1, 1996. On May 8, 1996 a note was signed with the foregoing terms.) 4. All other general creditors claims will be settled in full upon a schedule to be agreed upon between the Company and its creditors. The accompanying financial statements for the period subsequent to March 31, 1996 are presented as if the Plan of Reorganization, which became effective subsequent to March 31, 1996 was effective on April 1, 1996 and are prepared on the basis of "fresh start" reporting as required by SOP 90-7. Under this concept, all assets and liabilities are restated to reflect the reorganization value of the reorganized entity, which approximates its fair value at the date of reorganization. The financial statements of the reorganized entity are referred to herein as the Successor Company and the financial statements of the Company up to the date the Plan was implemented are referred to herein as the Predecessor Company. To determine an estimate of its reorganizational value, the Company utilized a combination of the estimated proceeds and recovery it would obtain from its assets and the value of its capital structure as perceived by the Company and others. Based upon these factors, the Company established a reorganization value (total assets less liabilities) of the reorganized entity of $25,683. As more fully described in Note 2 to the Financial Statements, the Accumulated Deficit of the Predecessor Company was eliminated and its capital structure was recast in conformity with the Plan of Reorganization. As such, the Balance Sheet of the Company as of June 30, 1996 represents that of a Successor Company which, in effect, is a new entity with assets and liabilities having carrying values not entirely comparable with prior periods. The following analysis compares the Successor Company (effective April 1, 1996) with the results of the Predecessor Company. With the exception of the Balance Sheet at June 30, 1996, which utilizes "Fresh Start" reporting, the comparison for the Statements of Operations for 1996 (Successor Company) and 1995 (Predecessor Company) are comparable except for interest expenses related to the convertible debentures and professional fees incurred in connection with the bankruptcy. GOING CONCERN The Company's financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Predecessor Company (see Note 4) incurred net losses for 1993, 1994 and 1995 and, as a result, financial resources have been strained. As of June 30, 1996, the Successor Company's current liabilities exceed current assets by $1,112,007. While the Company, through its Plan of Reorganization which was initially confirmed by the United States Bankruptcy Court on April 19, 1996 and amended on May 7, 1996, (See Note 1), has significantly reduced its debt commitments, the Successor Company's continuation as a going-concern is dependent on its ability to generate sufficient cash flow from operations, and obtain additional financing to meet its obligations on a timely basis. The Successor Company's business is currently dependent on large projects in the industrial sector. These projects involve long order cycles, and exact order placement dates are beyond the control of the Successor Company. While the Successor Company utilizes a progress billing procedure, there are periods of net cash outflows when cash flow is of concern. Both the Predecessor Company and the Successor Company have been able to manage normal operating cash flow through the use of internally generated funds and an established line of credit. RESULTS OF OPERATIONS Revenues of $1,686,381 reflect an increase of 85% from the $913,321 in revenues reported for the comparable 3 month period in 1995. Gross profit improved significantly in 1996 to 37% from 2% in 1995. The improvement in gross profit in 1996 reflects the increase in demand for the Company's products (following order delays beginning in late 1994), a better utilization of the manufacturing facility lowering production overhead per project, and improved project pricing. Operating costs as a percent of revenues for the first quarter were 25% in 1996 and 54% in 1995. The reduced level of revenue in 1995 accounts for the disparity in the percentage comparison between 1996 and 1995. In terms of total dollars, both periods contained significant legal expenditures. Other differences between the two periods reflect reduced engineering staffing expenses and research and development costs in 1996. Interest expense for the second quarter was $57,264 in 1996 and $115,081 in 1995. The change of $57,817 is accounted for by interest expense on subordinated debentures which was discharged pursuant to the approved Plan of Reorganization. LIQUIDITY AND CAPITAL RESOURCES The working capital position of the Company is $1,112,007 which improved by $1,084,952 at June 30, 1996, and was accounted for by an increase in accounts receivable of $540,000, the reclassification of a portion of the mortgage payable to long term in the amount of approximately $490,000, and a reduction in inventories of approximately $315,000. In addition, a reclassification of $500,000 of the line of credit to a term loan ($90,000 of which is considered current), and an increase in the line of credit in the amount of $200,000 accounted for a net increase in working capital of $210,000. As of June 30, 1996, the Company was fully drawn on its available line of credit in the amount of $1,150,000, which includes approximately $100,000 in certain standby letters of credit. There are no assurances that any further funding will be available from current sources, or that the current sources (when renewed) will be sufficient. If these resources are insufficient, other sources of funding would need to be developed. There are also no assurances that such funding would be available or that the terms of such funding would be on terms acceptable to the Company. The Company believes that the Plan of Reorganization, specifically the conversion of the debentures to equity and the cancellation of the debenture interest, and the improvement in the global marketplace for its products will strengthen its position as a going concern. However, the Company's ability to continue as a going concern is subject to a number of risks and uncertainties including, among others, the Company's ability to generate sufficient funds from operations and the overall demand for the Company's product, which is subject to general economic, competitive and industry - specific conditions. PART 2 - OTHER INFORMATION Item 1. Legal Proceedings. On February 1, 1996, North Atlantic Technologies, Inc. (the "Company") filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, District of Minnesota (the "Bankruptcy Court"), case No. 3-96-0526. On April 19, 1996, the Bankruptcy Court entered an Order confirming the Company's Amended Plan of Reorganization dated March 8, 1996 (the "Plan"), and the Company's Second Amended Disclosure Statement dated March 13, 1996 (the "Disclosure Statement"). On April 26, 1996, the Company filed a Motion to Amend the Plan of Reorganization which was granted by the Bankruptcy Court on May 7, 1996. The amendment was not substantive, and dealt only with the mechanics of the contemplated reorganization transactions. On July 10, 1996, the Company was notified of a claim of Lentjes mce Anlagen-und Rohrleitungsbau GmbH in the amount of $542,738, which the Company erroneously believed to have been extinguished in the Bankruptcy Court action. The Company disputes the claim. On August 9, 1996, the Bankruptcy Court granted the Company's motion to enlarge the deadline for objecting to the filed claim and to assert a counter-claim. As a result, the merits of the claim and counter-claim, if pursued further, will be tried in the Bankruptcy Court in St. Paul, Minnesota. Although there can be no assurance, the Company believes that its defense of the claim and its counter-claim to be meritorious and that the matter will be settled without liability to the Company. Item 2. Changes in Securities. On April 19, 1996, the Bankruptcy Court entered an Order confirming the Plan and approved on May 7, 1996, a Motion to Amend the Plan. Under the terms of the Plan each shareholder received one share of common stock for each three shares owned of its no par common stock ("Old Common Stock"), which is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, issued and outstanding as of the date of the Plan's confirmation. On May 21, 1996, the 3,292,689 shares of Old Common Stock which were issued and outstanding as of the record date were canceled and became void, and 1,099,323 shares of newly-authorized $0.01 par value common stock were issued in replacement ("New Common Stock"). In addition, in accordance with the Plan, the Company's issued and outstanding 12.5 percent Subordinated Convertible Debentures ("Debentures") become exchangeable for a combination of New Common Stock and newly-authorized preferred stock ("Preferred Stock"). On May 9, 1996 the Company declared the exchange which became effective at the close of business on May 31, 1996 for Debenture holders of record as of the close of business on May 21, 1996. In exchange for their Debentures, holders will receive a total of 1,447,366 shares of New Common Stock and a total of 21,600 shares of Preferred Stock. Each share of Preferred Stock will be convertible into one share of New Common Stock voluntarily through June 1, 1999, and will automatically become New Common stock after June 1, 1999. Holders of shares of Preferred Stock will have one vote for each share of Preferred Stock held, and will be entitled to cast that vote as a class on all matters brought to a vote before the holders of Preferred Stock, and with all other capital stock holders on all matters brought before the Company's shareholders generally. After giving effect to the Plan, the collective ownership interest in the Company of holders of shares of the Company's Old Common Stock will effectively decrease from 100% to approximately 43%. In the case of a liquidation of the Company, holders of Preferred Stock will be entitled to receive up to $25 in value from the assets available for distribution to equity stock holders before any distribution may be made to holders of New Common Stock. Dividends will be paid on the Preferred Stock at the discretion of the Board of Directors. However, dividends may not be paid on New Common Stock unless like dividends per share are paid on Preferred Stock. Item 3. Defaults Upon Senior Securities. Upon confirmation of the Plan by the Bankruptcy Court the Company's two defaults have been eliminated. From November 15, 1995 through the Plan confirmation date the Company had also been in default under the terms of the Indenture dated December 31, 1985 which governs the Company's outstanding Debentures. From November 15, 1995 through the Plan confirmation date the Company had also been in default under the terms of the Company's Line of Credit Agreement with first Bank, N.A., as amended. Item 4. Submission of Matters to a Vote of Security Holders. (a) On May 30, 1996, the annual meeting of the shareholders of the Company was held at the Crowne Plaza Northstar Hotel, 618 Second Avenue South, Minneapolis, Minnesota. (b) All members of the Board of Directors were elected at the annual meeting. See (c) below for the names of such members. (c) The only matter voted upon at the annual meeting was the election of the members of the Board of Directors. Share entitled to vote were 3,292,689, shares represented by shareholders present in person (no proxies were solicited or recorded) were 1,835,677, and the number of votes cast for, against or withheld, as well as abstentions, with respect to the election of directors is set forth below. Information on broker non-votes was not applicable.
Votes Cast Number of Votes Cast Against or Number of Broker Non in Favor Withheld Abstentions Votes ---------- ---------- ----------- ---------- Election of the following members of the Company's Board of Directors Louis R. Wagner 1,811,744 2,800 22,033 N/A Bruce A. Watson 1,515,884 295,860 24,833 N/A John O. Goodwyne 1,515,884 295,860 24,833 N/A Demetrius G. Jelatis 1,811,744 0 24,833 N/A
(d) Not Applicable. 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 SIGNATURE Dated: August 16, 1996 In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. North Atlantic Technologies, Inc. /s/Bruce A. Watson August 16, 1996 - ----------------------------------- Bruce A. Watson Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and principal accounting officer). EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JUN-30-1996 233,307 0 1,965,905 339,440 128,746 2,222,258 2,771,736 1,108,431 4,405,886 3,334,265 0 0 216 25,467 0 4,405,886 1,686,381 1,686,381 1,068,472 427,784 24,264 0 57,264 157,125 0 157,125 0 0 0 157,125 .06 .06
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