SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
Commission File Number 0-22813
North Atlantic Acquisition Corp.
(Name of Small Business Issuer in Its Charter)
Delaware 13-3853272
- ----------------------- ----------------------------
(State of Incorporation) (Small Business Issuer
I.R.S. Employer I.D. Number)
5 East 59th Street, 3rd Floor
New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 486-4444
---------------------------------------------
(Issuer's Telephone Number Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value per share
Redeemable Class A Common Stock Purchase Warrants
Class B Common Stock, $.01 par value per share
Units of Class A Common Stock and Warrants
Check whether the Issuer (1) has 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 requirement for the past 90 days. Yes X No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. Yes X No___
Issuer's revenues for the fiscal year ended August 31, 1998 were $411,393.
As of December 1, 1998, the aggregate market value of the common stock held by
nonaffiliates of the Registrant was approximately $9,228,375.
As of December 1, 1998, there were 906,000 shares of Class A Common Stock, $.01
par value per share, and 150,000 shares of Class B Common Stock, $.01 par value
per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
Documents Incorporation by Reference: None.
PART I
Item 1. DESCRIPTION OF BUSINESS
General
North Atlantic Acquisition Corp. ("NAAC") was organized on August 9, 1995
as a Specialized Merger and Acquisition Allocated Risk Transaction company, to
acquire by purchase, merger, combination or otherwise ("Business Combination")
an operating business ("Target Business").
Since its inception, NAAC has not engaged in any substantive commercial
business and its sole activities have been to evaluate and select a suitable
Target Business and to structure, negotiate and consummate a Business
Combination with a Target Business. On August 27, 1997, NAAC consummated an
initial public offering ("IPO") in which it sold 800,000 Units at $10.00 per
Unit, each Unit consisting of one share of Class A Common Stock, $.01 par value
("Class A Common Stock"), and one Class A Common Stock Purchase Warrant ("Class
A Warrant"), and 150,000 shares of Class B Common Stock, $.01 par value ("Class
B Common Stock")at $10.00 per share. As more fully described below, on August
18, 1998, NAAC signed an Agreement and Plan of Merger and Reorganization to
acquire Moto Guzzi Corp., a leading Italian manufacturer of performance and
luxury motorcycles and motorcycle parts.
Characteristics of a Specialized Merger and Acquisition Allocated Risk
Transaction Company
A Specialized Merger and Acquisition Allocated Risk Transaction company has
certain shareholder protections not ordinarily found in companies. Immediately
after the consummation of the first Business Combination by NAAC, these special
provisions will no longer apply.
Offering Proceeds Held in Escrow Account
NAAC consummated the IPO on August 27, 1997 and received net proceeds,
after commissions and expenses, of approximately $8,100,000. Approximately
$8,000,000 of the net proceeds was placed in an escrow account with Chase
Manhattan Bank, N.A. ("Escrow Account") until the earlier of NAAC's (i)
consummation of a Business Combination or (ii) redemption of the Class A Common
Stock (other than the Class A Common Stock issued prior to the IPO "Pre-IPO
Shares"). As of November 30, 1998 there was approximately $8,520,995 in the
Escrow Account. The remaining net proceeds of the IPO which were not placed in
the Escrow Account have been used by NAAC to identify, evaluate and select a
suitable Target Business, to structure, negotiate and consummate a Business
Combination, and for general, administrative and organizational expenses.
Fair Market Value of Target Business
NAAC is not permitted to acquire a Target Business unless the fair market
value of such business (as determined by the NAAC board of directors based upon
standards generally accepted by the financial community, such as earnings and
earnings potential, cash flow and book value) is equal to at least 80% of the
net assets of NAAC at the time of such acquisition. The purpose of this
requirement is to ensure that a Business Combination will constitute a
significant acquisition.
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Stockholder Approval of Business Combination
NAAC, after signing a definitive agreement for the acquisition of a Target
Business, but prior to the consummation of any Business Combination, is required
to submit such transaction to the holders of the Class A Common Stock and Class
B Common Stock (together "Common Stock") for approval, even if the acquisition
would not ordinarily require stockholder approval under applicable state law.
NAAC will consummate a Business Combination only if at least two-thirds in
interest of the outstanding shares of Common Stock are voted in favor of the
Business Combination and will not consummate a Business Combination if more than
20% of the outstanding shares of Class A Common Stock (excluding the Pre-IPO
Shares), or more than 160,000 shares, are submitted to NAAC for redemption. See
below "Redemption Rights."
The stockholders who hold Pre-IPO Shares have agreed to vote their shares
(approximately 11.7% of the outstanding shares of Common Stock) in accordance
with the vote of the majority in interest of all other holders of Common Stock
on a proposal to approve a Business Combination. For this purpose they have
given their proxy to the current officers of NAAC.
Redemption Rights in Connection with Business Combination
Holders of Class A Common Stock, other than the stockholders of Pre-IPO
Shares, have the right to have NAAC redeem for cash up to a maximum of 20% of
the Class A Common Stock (up to 160,000 shares), other than the Pre-IPO shares,
in connection with a Business Combination upon its consummation. If a
specifically proposed Business Combination is not consummated, the right of
redemption terminates as to that transaction.
The per share redemption price will be determined by dividing the amount in
the Escrow Account (including earned interest) by the number of shares of Class
A Common Stock outstanding, excluding the Pre-IPO Shares. The stockholders of
Pre-IPO Shares do not have redemption rights with respect to those shares of
Class A Common Stock.
Escrow of the Pre-IPO Shares
The Pre-IPO Shares (approximately 11.7% of the outstanding shares) are held
in escrow with Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP, as escrow
agent, until the earlier of the consummation of the first Business Combination
or August 22, 1999. During such escrow period, the stockholders of Pre-IPO
Shares are unable to sell or otherwise transfer them, except (i) in a
transaction subsequent to the consummation of a Business Combination which is
offered to all NAAC stockholders and (ii) to family members or pursuant to the
laws of descent. Accordingly, the stockholders of Pre-IPO Shares cannot
separately negotiate the purchase of any portion of their Pre-IPO Shares as part
of a Business Combination.
Redemption Payment If No Business Combination
If NAAC does not consummate a Business Combination by August 22, 1999, NAAC
will distribute to the holders of Class A Common Stock with respect to their
shares (excluding the Pre- IPO Shares), the amount in the Escrow Account,
including any interest earned thereon. The stockholders of Pre-IPO Shares do not
have the right to participate in any redemption payment with respect to their
Pre-IPO Shares and their shares of Class A Common Stock will be cancelled. The
remaining assets of NAAC, if any, will be used to pay NAAC's liabilities and to
redeem the outstanding Series A Preferred Stock at its liquidation value. The
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Class B Common Stock will not receive any redemption payment. Following the
Class A Common Stock redemption and cancellation, the outstanding shares of
Class B Common Stock automatically will be exchanged for two shares of NAAC
Class A Common Stock. In this event, the holders of the Class B Common Stock
will be the sole shareholders of a public shell corporation with no assets.
Selection of a Target Business and Structuring of a Business Combination
Management of NAAC has substantial flexibility in identifying and selecting
a prospective Target Business. However, NAAC's flexibility is limited to the
extent that it must satisfy the fair market value test and obtain stockholder
approval. In evaluating a prospective Target Business, management will consider,
among other factors, the following: (i) costs associated with effecting the
Business Combination; (ii) equity interest in and opportunity for control of the
Target Business; (iii) growth potential of the Target Business; (iv) experience
and skill of management of and availability of additional personnel for the
Target Business; (v) capital requirements of the Target Business; (vi)
competitive position of the Target Business; (vii) stage of development of the
Target Business; (viii) degree of current or potential market acceptance of the
Target Business, (ix) proprietary features and degree of intellectual property
or other protection of the Target Business; (x) the financial condition of the
Target Business; and (xi) the regulatory environment in which the Target
Business operates. NAAC will retain an independent investment banking firm which
is a member in good standing of the NASD to assist the Company in identifying,
evaluating, structuring and negotiating potential Business Combinations. In
connection with its evaluation of a prospective Target Business, management will
conduct a due diligence review which will encompass, among other things, meeting
with incumbent management, inspecting the facilities, and reviewing the
financial, legal and other information which will be made available to NAAC.
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating relevant agreements and
preparing requisite documents for filing pursuant to applicable securities laws
and state "blue sky" and corporation laws) will not be ascertainable with any
degree of certainty until consummation of the Business Combination. Any costs
incurred in connection with the identification and evaluation of a prospective
Target Business with which a Business Combination is not ultimately consummated
will result in a loss to NAAC and reduce the amount of capital available to
otherwise complete a Business Combination or for the resulting entity to
utilize.
NAAC will use the net proceeds derived from the IPO, and may use additional
equity securities, debt securities or bank or other borrowings or a combination
thereof as consideration to effect a Business Combination. There currently are
no limitations on NAAC's ability to borrow funds for a Business Combination.
However, NAAC's limited resources and lack of operating history may make it
difficult to borrow funds. The amount and nature of any borrowings by NAAC will
depend on numerous considerations, including the Company's capital requirements,
potential lenders' evaluation of the Company's ability to meet debt service on
borrowings and the then prevailing conditions in the financial markets, as well
as general economic conditions. The Company does not have any arrangements with
any bank or financial institution to secure additional financing and there can
be no assurance that such arrangements if required will be obtainable or
otherwise in the best interests of the Company. The inability of the Company to
obtain the funds required to effect or facilitate a Business Combination, or to
provide funds for an additional infusion of capital into a Target Business, may
have material adverse effects on the Company's business prospects, including the
ability to effect a Business Combination.
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Proposed Business Combination
On August 18, 1998, NAAC, Moto Guzzi Corp., a Delaware corporation ("Guzzi
Corp."), and, for certain provisions, Trident Rowan Group, Inc., a Maryland
corporation ("TRG"), entered into an Agreement and Plan of Merger and
Reorganization ("Merger Agreement"), pursuant to which Guzzi Corp. would merge
with and into NAAC, with NAAC being the surviving corporation ("Merger"). TRG,
through its 84% owned subsidiary, O.A.M. S.p.A. ("OAM"), owns all the
outstanding common stock of Guzzi Corp. Guzzi Corp. also has outstanding
1,500,000 shares of preferred stock and warrants to purchase 1,500,000 shares of
its common stock. The Merger Agreement was amended on December 3, 1998 to change
certain of the terms relating to the consideration to be paid for Guzzi Corp.
and to modify the indemnification provisions.
The consummation of the Merger is subject to the terms and conditions of
the Merger Agreement and approval by the holders of the Common Stock of the
Merger and Merger Agreement at a stockholders meeting to be called for the
purpose ("Stockholders Meeting"). At the Stockholders Meeting, the holders of
the Common Stock also will be asked to approve certain changes to the
certificate of incorporation of NAAC, approve stock option plans for employees
and directors, and approve a recapitalization of the Class B Common Stock and to
elect eight persons to be members of the board of directors of NAAC after the
Merger. Implementation of each of these proposals is contingent on the
consummation of the Merger.
The Merger
Subject to the terms and conditions of the Merger Agreement, NAAC will
issue to the current holders of the common stock and preferred stock of Guzzi
Corp. an aggregate of 3,110,058 shares of Class A Common Stock and warrants
("Nominal Warrants") to purchase 592,400 shares of Class A Common Stock ("Merger
Consideration"). Simultaneously with the consummation of the Merger, TRG and OAM
have agreed to contribute to the capital of Guzzi Corp. certain intercompany
debt between each of those companies and Guzzi Corp. aggregating at September
30, 1998 approximately Lit. 12,919, plus the interest due thereon, in exchange
for the issuance of an aggregate of 871,953 shares of Class A Common Stock and
Nominal Warrants to purchase 166,080 shares of Class A Common Stock. NAAC will
also offer to the holders of the outstanding warrants of Guzzi Corp., the
opportunity to exchange them for an aggregate of 217,989 shares of Class A
Common Stock and Nominal Warrants to purchase 41,520 shares of Class A Common
Stock. The Merger Consideration is subject to being increased if NAAC has less
than $8,150,000 in cash assets at the time of the Merger, at the rate of one
share of Class A Common Stock for each $11.00 of shortfall, excluding any amount
used to pay for the redemption of Class A Common Stock.
The Nominal Warrants are exerciseable at $.01 per share, between April 1,
2000 and June 30, 2001, provided that the surviving corporation has either Lit.
7,140 million or Lit. 8,211 million of operating income in the fiscal year ended
December 31, 1999 or 2000, respectively.
To provide a fund for the indemnification of NAAC in the event of a breach
of a representation or warranty in the Merger Agreement, determined after the
Merger, 200,000 shares of Class A Common Stock issued as Merger Consideration in
the Merger will be deposited in escrow with TRG. Claims against the shares in
escrow must aggregate at least $600,000 before they may be made. The escrow is
for a maximum period ending approximately April 2000, unless there is an
outstanding claim for indemnification.
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The fees and expenses of the transaction attributable to NAAC will be paid
from the amount held in the Escrow Account. TRG will pay the fees and expenses
of the transaction attributable to Guzzi Corp.
The consummation of the Merger is conditioned upon various matters. The
obligations of NAAC, Guzzi Corp. and TRG are subject to various conditions,
including (i) the representations and warranties of NAAC, Guzzi Corp. and TRG
are true and correct in all material respects (as defined in the Merger
Agreement) at the consummation of the Merger, (ii) performance of and compliance
with the covenants, agreements and conditions, (iii) absence of any pending
claim, action, suit, investigation or governmental proceeding which would render
the Merger unlawful, and (iv) receipt of all necessary consents, approvals or
waivers. The obligation of NAAC to consummate the Merger is also subject to
approval of various matters by the stockholders of NAAC and approval by the
security holders of Guzzi Corp.
The Merger Agreement may be terminated by (i) mutual consent of NAAC and
Guzzi Corp. and TRG, (ii) by Guzzi Corp. if the cash assets of NAAC at the time
of the Merger are less than $8,000,000 (after various cash expenses of NAAC),
(iii) if the Merger is not consummated by February 18, 1999, (iv) if there is a
breach of any of the covenants, representations or warranties as of the
consummation of the Merger that have not been waived, or (v) the failure of the
stockholders of NAAC to approve the transaction or up to 20% of the NAAC
stockholders who are eligible to, and do, exercise their right to have their
Class A Common Stock redeemed at the time of the Merger.
Guzzi Corp.
Guzzi Corp., through its Moto Guzzi S.p.A subsidiary ("Moto Guzzi"), is a
leading Italian manufacturer, marketer and distributor of performance and luxury
motorcycles and motorcycle parts, marketed under the "Moto Guzzi(R)" brand name.
Guzzi Corp. is a Delaware corporation formed in 1996 to acquire Moto Guzzi, its
principal operating subsidiary and Moto America, Inc. ("Moto America"), the
exclusive U.S. importer and distributor of "Moto Guzzi" brand motorcycles and
parts.
Products and Distribution
Moto Guzzi, over a period of more than 75 years, earned a reputation as one
of the world's elite designers and manufacturers of performance and luxury
motorcycles. While Moto Guzzi's models vary in engine displacement from 350cc to
1,100cc, in recent years, Moto Guzzi has focused its product design, development
and sales efforts on the heavyweight segment of the market. This segment has
experienced rapid growth with global new heavyweight registrations, increasing
17% in 1997. As part of its business strategy, Moto Guzzi will evaluate
expansion of its product line to include lower-cost small displacement
motorcycles and scooters. At present, Moto Guzzi's primary product offerings
include the following models:
o California EV Guzzi's classic cruiser with a 1064cc engine and
traditional lines.
o Nevada Club A lower riding cruiser with a 744cc engine and chrome
accents.
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o V10 Centauro A performance touring bike with a powerful 992cc 4-valve
air-cooled engine.
o 1100 Sport Corsa A sleek sports bike with modern lines and a 1064cc
engine.
o Quota Guzzi's new entrant into the enduro segment.
o Police Bikes Variations of Moto Guzzi's models targeted at government
agencies, national and local police forces and highway
patrols.
Moto Guzzi sells its products worldwide through a network of wholly and
partially owned importers and independent dealers. In Italy, Moto Guzzi
maintains a network of over 140 independent distributors. In Germany, Moto Guzzi
owns 25%, and has an option to buy a total of 90%, of MGI GmbH, which is the
exclusive importer-distributor of Moto Guzzi motorcycles and parts in that
country. In France, Moto Guzzi owns 100% of its importer-distributor. In the
United States, Guzzi Corp.'s wholly owned Moto America subsidiary serves as the
exclusive importer- distributor and maintains a national network of 100 dealers.
Moto Guzzi's sales by region are:
Year Ended December 31,
-----------------------
Geographic Area 1997 1996 1995
- --------------- ---- ---- ----
Italy.......................... 37% 37% 35%
Europe (Other than Italy)...... 46% 43% 49%
United States.................. 13% 7% 6%
Elsewhere...................... 4% 13% 10%
History and Recent Developments
Established in 1921, Moto Guzzi is one of the oldest motorcycle brands in
the world. Between 1921 and 1966, Moto Guzzi operated as an independent
privately owned entity. In 1972, Moto Guzzi was acquired by de Tomaso Industries
("de Tomaso"), the predecessor of TRG. Because management attention was
principally focused on de Tomaso's other operating units, especially the luxury
automobile manufacturer, Maserati, and limited investment was made in Moto
Guzzi's product design and development activities and manufacturing operations,
sales declined from a high of 46,487 units in 1971 to 3,274 units in 1993. Moto
Guzzi has experienced continuous losses for the last eleven years, including a
loss of Lit. 10,569 million for the fiscal year ended December 31, 1997 and Lit.
8,608 million for the nine months ended September 30, 1998 and has not generated
cash from operations for over three years.
In 1994, TRG retained Temporary Integrated Management S.p.A., a temporary
management service, to stabilize Moto Guzzi's operations and to begin the
process of developing a business plan to restore Moto Guzzi to financial health.
In 1996, Mario Tozzi-Condivi was hired as President of Moto Guzzi. Mr.
Tozzi-Condivi had previously been an independent consultant to automotive
distributors and dealers in the United Kingdom, Italy, Singapore and South
Africa for more than ten years and was Chairman of the Board of Maserati U.K.
Ltd. Since 1994, and more recently during 1997 and 1998, Moto Guzzi has
recruited new senior management that includes:
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Dino Falciola, General Manager, who joined Moto Guzzi in November of 1997; Nick
Speyer, Chief Financial Officer, who joined Moto Guzzi in November of 1998;
Gianluca Lanaro, Director of Marketing, who joined Moto Guzzi in May 1995; and
Louisa Brenna, Director of Purchasing, who joined Moto Guzzi in January, 1997.
The new management team has focused its efforts on increasing sales and the
efficiency of Moto Guzzi's production process. Capital expenditures increased
from Lit. 1,801 million in 1995 to Lit. 3,887 million in 1997. In the nine month
period ended September 30, 1998, capital expenditures totaled Lit. 5.6 billion
versus Lit. 2.4 billion during the comparable period in 1997. To enhance sales
volumes by ensuring that new products meet Moto Guzzi's quality, design and
technical standards, investment in new product design and development has
recently been increased. Research and development expenditures rose to Lit.
3,125 million in 1997 from Lit. 602 million in 1995. In the nine month period
ended September 30, 1998, investment in research and development totalled Lit.
3,078 million versus Lit. 1,393 million for the comparable period in 1997.
Selling, general and administrative expense increased from Lit. 7,486 million in
1995 to Lit. 13,824 in 1997, reflecting higher staff costs associated with the
recruitment and employment of the new management team as well as higher
marketing and sales expenditures. To fund its operations in 1997 and 1998, Guzzi
Corp. sold shares of preferred stock and common stock purchase warrants in a
private placement which raised approximately $5.2 million and borrowed or
obtained capital from Italian financial institutions and from Guzzi Corp.'s
affiliated entities, TRG and OAM. Partly as a result of the increased
investment, unit sales volumes increased from a low of 3,274 in 1993 to 6,052 in
the last four quarters ended September 30, 1998, and Moto Guzzi added two new
models, the "Centauro" and "Quota," to its product offerings. During this
period, Moto Guzzi has also experienced improvement in its cost structure, with
gross margins improving from 13.7% in 1993 to 17.6% during the nine months ended
September 30, 1998.
Strategy
Moto Guzzi's strategy is to increase sales volumes and gross profits by (i)
focusing on the breadth, quality and design of its product offerings, (ii)
increasing its marketing activities, (iii) enhancing its distribution network,
and (iv) leveraging its brand name. Moto Guzzi believes that its reputation and
rich tradition as a technological innovator and quality manufacturer provides a
solid foundation. Moto Guzzi has built a loyal customer base over the past 77
years through the outstanding performance and reliability of its motorcycles, as
well as its strong distribution network. The current customer base ranges from
professional motorcycle enthusiasts to government agencies, police departments
and highway patrols around the world. While public administration sales have
traditionally been a stable source of revenue for Moto Guzzi, its management
believes that there are unexploited growth opportunities in this market and
plans to refocus its sales and marketing efforts in this product category.
Guzzi Corp. intends to build on its existing product family platforms and
to develop new platforms which will be the basis for the Company's next
generation of motorcycles. New power trains, which represent a significant part
of planned development activities, typically require at least three years'
development time. In the interim, new motorcycles based on the current product
platforms will be periodically introduced. The focus of these intermediate
offerings will be significant improvements in quality, performance and
refinement.
The U.S. market represents the largest expansion opportunity for Moto
Guzzi. Between 1996 and 1997, U.S. registrations of new heavyweight motorcycles
increased by 14.8% to 190,200 units. Moto Guzzi plans to implement an aggressive
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marketing campaign targeted at U.S. consumers that is designed to build brand
value and name recognition and to emphasize the technical and design strengths
of Moto Guzzi's motorcycles.
In the United States, Moto Guzzi also plans to expand and enhance its
distribution network. In addition to increasing the size and quality of its
dealer network, Moto Guzzi also plans to introduce new sales incentives programs
for dealers and a floor plan financing program. Other innovations that either
have been or are expected to be introduced in the U.S. include customer purchase
financing and an extended, three year warranty program.
Finally, Moto Guzzi plans to leverage the "Moto Guzzi" brand by expanding
into new products, markets and services that also offer the opportunity to
enhance its brand awareness and brand image. Moto Guzzi currently sells a
limited line of non-motorcycle merchandise. In the future, Moto Guzzi plans to
introduce a range of branded accessories such as hats, jackets, shirts and
luggage. Moto Guzzi also plans to exploit opportunities to license the "Moto
Guzzi" brand name to manufacturers and suppliers of other products and services.
If Guzzi Corp. were to proceed on all of the projects it is currently
evaluating, it estimates that approximately Lit. 50 billion of development and
capital expenditure would be required over the next five years. Additionally,
Moto Guzzi will have to make up to Lit. 20 billion of capital investments over
the next few years to refurbish its plant to make it more competitive and for
investments in information technology and systems. As cash flows from operations
are not anticipated to be sufficient to entirely finance such expenditures,
Guzzi Corp.'s actual product development programs will be, in part, determined
by its ability to obtain further financing. It is anticipated that, if the
Merger is consummated, the immediate capital requirements would be satisfied by
the funds available in the Escrow Account and certain other funds. The immediate
capital requirements include repayment of Lit 6 billion in interim financing
incurred by Moto Guzzi in October 1998, repayment of up to $800,000 in
intercompany debt to TRG and OAM and payment of supplier arrearages which at
October 31, 1998 amounted to Lit 5.5 billion.
Item 2. DESCRIPTION OF PROPERTIES
The Company's executive office is located at 5 East 59th Street, 3rd Floor,
New York, New York 10022 and its telephone number is (212) 486-4444.
Pursuant to an oral agreement, Mitchell & Co., a corporation controlled by
David J. Mitchell, a stockholder of the Company and, currently, the Company's
Chairman and Chief Executive Officer, has agreed that it will make office space
and services available to the Company, as may be required until the consummation
of a Business Combination. NAAC pays $2,500 per month for these services.
The Company believes that this facility is adequate to meet its needs in
the foreseeable future pending the consummation of a Business Combination.
ITEM 3. LEGAL PROCEEDINGS
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fiscal year ended
August 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The NAAC Class A Common Stock, Class A Warrants, Class B Common Stock and
Units are traded in the over-the-counter market and quoted on the OTC Bulletin
Board under the symbols NACQA, NACQW, NACQB, NACQU, respectively.
The following table sets forth the range of high and low closing trading
prices for the Class A Common Stock, Class A Warrants, Class B Common Stock and
Units for the period since August 22, 1997 the date of the IPO, as reported by
the OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer automated
quotation system sponsored and operated by the NASD for equity securities not
included in the Nasdaq System. Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Class A Class B Class A
Units Common Stock Common Stock Warrants
----- ------------ ------------ --------
High Low High Low High Low High Low
---- --- ----- ------ ---- --- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended August 31, 1997:
Fourth Quarter (from August 22, 1997).... 10.00 9.25 N/A N/A 10.00 10.00 N/A N/A
Year Ended August 31, 1998:
First Quarter............................ 10.125 9.00 8.375 8.375 10.50 9.25 .50 .50
Second Quarter........................... 10.00 8.875 8.500 8.375 10.00 9.25 .50 .50
Third Quarter............................ 9.25 9.00 9.00 8.50 9.75 9.25 .50 .50
Fourth Quarter........................... 9.313 9.13 9.375 8.625 9.75 9.375 .50 .50
Year Ending August 31, 1999: 9.75 9.313 9.375 8.625 9.75 9.375 .75 .50
First Quarter............................
</TABLE>
Holders
As of December 8, 1998, there were twenty-one holders of record of the
Class A Common Stock and one holder of record of the Class B Common Stock.
Because Units are separable into Class A Common Stock and Class A Warrants, a
transfer of Units is recorded by NAAC's transfer agent only as a transfer of
Class A Common Stock and Class A Warrants. Consequently, the number of holders
of record of Units is not available. Since the majority of the shares of Class A
Common Stock and Class B Common Stock is held in street name, NAAC believes that
there is a substantial number of beneficial holders of the shares.
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Dividends
The Company has paid no dividends on its shares of Common Stock since its
organization on August 9, 1995. The Company does not expect to pay any dividends
prior to the consummation of a Business Combination and anticipates that for the
foreseeable future any earnings will be retained for use in its business and,
accordingly, does not anticipate the payment of cash dividends.
Sales of Unregistered Securities
During the fiscal year ended August 31, 1998, NAAC has not sold any
unregistered securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Forward Looking Statements
When used in this Form 10-KSB and in future filings by NAAC with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"management expects," or "the company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward- looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties, some of
which are described below, that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated events or
circumstances occurring after the date of such statements.
Fiscal Year 1998
NAAC is a Specialized Merger and Acquisition Allocated Risk Transaction
company, the objective of which is to acquire a Target Business in a Business
Combination. Since its inception in 1995, NAAC has engaged in organizational
activities, completing the IPO and identifying and evaluating Target Businesses
with which it might effect a Business Combination. In March 1998, NAAC began
evaluating and negotiating a Business Combination with Guzzi Corp. which
resulted in the signing of the Merger Agreement on August 18, 1998, as amended
December 3, 1998. Since August 18, 1998, NAAC has been engaged in preparing the
required documentation for the Stockholders Meeting at which the Merger and
Merger Agreement and certain other proposals will be submitted for stockholder
vote and approval. Except for its efforts to identify a Target Business and
effect a Business Combination, NAAC has not engaged in any business activities
during the fiscal year ended August 31, 1998.
On August 27, 1997, NAAC consummated the IPO and raised net proceeds of
approximately $8,100,000, after payment of underwriting discounts, the
underwriter's non-accountable expense allowance, and other offering costs. NAAC
deposited approximately $8,000,000 of the offering proceeds in the Escrow
Account. At November 30, 1998, the Escrow Account amounted to $8,520,995.
Cumulative interest earned on the Escrow Account and other funds was an
aggregate of approximately $411,000 as of August 31, 1998. All income through
August 31, 1998 has been from interest.
11
<PAGE>
During fiscal year 1998, substantially all of the working capital
requirements and the expenses of NAAC have been attributable to the
identification, evaluation and selection of a suitable Target Business and to
structure and consummate the acquisition of Guzzi Corp. NAAC has incurred and
accrued costs of approximately $268,000 in connection with its business
activities through August 31, 1998. Of this amount, $203,000 is attributable to
general and administrative expenses and debt costs and $65,000 is attributable
to income taxes due on the interest earned on the funds in the Escrow Account
and working capital funds. NAAC is incurring additional costs in connection with
the proposed Merger. NAAC will satisfy its working capital needs from existing
cash balances, and if a Business Combination is consummated, from the funds in
the Escrow Account and payment of the exercise price of $300,000 of the Class B
Options held by Messrs. Mitchell and McMillen, officers of NAAC, which they have
agreed to exercise upon consummation of the Merger. If the Merger, or any other
Business Combination is not consummated, and NAAC effects the redemption of the
Class A Common Stock (other than the Pre-IPO Shares) using the funds in the
Escrow Account, the assets of NAAC will not be sufficient to pay all of its
accounts payable, taxes due and accrued expenses. The report of the independent
certified public accountants of NAAC states that there are several factors which
raise substantial doubt about NAAC's ability to continue as a going concern.
NAAC anticipates that upon consummation of the Merger with Guzzi Corp., it
will have available for working capital from the Escrow Account and other
resources of about $8,000,000. The immediate capital needs of the post-Merger
company include the repayment of approximately Lit 6 billion (approximately $3.6
million) in interim financing incurred by Moto Guzzi in October 1998, repayment
of up to $800,000 in intercompany debt to TRG and OAM, and payment of
substantial supplier arrearages. In addition to the immediate capital needs of
Guzzi Corp., the longer-term capital requirements of Moto Guzzi include
approximately Lit 70 billion (approximately $42 million) of capital improvements
to existing plant and machinery, purchasing of new machinery and business
systems, design and research expenses and working capital to support expanded
operations. It is expected that this capital will come from bank financing and
the additional sale of securities. There is no assurance that any financing will
be available.
If NAAC does not consummate a Business Combination by August 22, 1999, the
Class A Common Stock (other than the Pre-IPO Shares) will be redeemed by
distribution of the Escrow Account proceeds, inclusive of any interest thereon,
to the holders of those shares of Class A Common Stock. The per-share redemption
price is equal to the amount in the Escrow Account, including interest earned
thereon, divided by the number of shares of Class A Common Stock held by
stockholders entitled to share in the Escrow Account. The Pre-IPO Shares do not
participate in the funds held in the Escrow Account and those shares of Class A
Common Stock will be cancelled at the time of redemption. The assets of NAAC, if
any, other than the escrowed assets, will be used to pay NAAC's liabilities and
to redeem the outstanding Series A Preferred Stock of NAAC at its liquidation
value. Upon redemption and cancellation of the Class A Common Stock, each share
of Class B Common Stock will automatically be exchanged for two shares of Class
A Common Stock, and the holders of this stock will be the stockholders of a
public shell corporation.
Holders of Class A Common Stock (excluding the Pre-IPO Shares) have the
right to redeem their shares in connection with a Business Combination, provided
that if more than 20% of the shares are to be redeemed, the Business Combination
will not be consummated and the right of redemption will terminate until such
time as another acquisition is submitted for approval of the NAAC stockholders.
12
<PAGE>
Year 2000
NAAC has evaluated the potential impact of the situation commonly referred
to as the "Year 2000 Issue" ("Y2K"). Y2K concerns the inability of information
systems, primarily computer software programs, to properly recognize and process
date sensitive information relating to the year 2000 and beyond. Many of the
world's computer systems currently record years in a two-digit format. Such
computer systems will be unable to property interpret dates beyond the year
1999, which could lead to business disruptions in the U.S. and internationally.
The potential costs and uncertainties associated with Y2K will depend on a
number of factors, including software, hardware and the nature of the industry
in which a company operates.
To ensure that the Company's computer systems are Y2K compliant, NAAC has
reviewed each of its systems and programs over the past year. NAAC does not have
any internal systems or operations that may be affected by Y2K. NAAC believes
its only exposure to the Y2K issue is in connection with the Escrow Account.
NAAC believes that the Chase Manhattan Bank N.A. systems relating to the Escrow
Account are Y2K compliant or will be Y2K compliant prior to the year 2000. NAAC
does not believe it will incur any expenses associated with the Y2K compliance.
ITEM 7. FINANCIAL STATEMENTS
The financial statements listed in Item 13 are included in this report
beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The current directors and officers of the Company are as follows:
Name Age Position
David J. Mitchell 37 Chairman of the Board,
Chief Executive Officer, Director
C. Thomas McMillen 45 Secretary, Treasurer, Director
A.J. Nassar 41 Director
David J. Mitchell has been Chairman of the Board, Chief Executive Officer
and a director of the Company since October 1996. He also has been President of
Mitchell & Company, Ltd., a New York-based merchant banking firm, since January
1991 when he founded it. Mr. Mitchell is a director of Kellstrom Industries,
Inc. and Bogen Communications International, Inc., both of which are traded on
The Nasdaq National Market, as well as several private companies.
C. Thomas McMillen has been Chairman and Chief Executive Officer of
Complete Wellness Centers, Inc., a physician practice management company founded
13
<PAGE>
by him, since November 1994. He has been a director, Treasurer and Secretary of
the Company since October 1996. Mr. McMillen has been president of McMillen &
Company, Inc., a health care consulting firm, since January 1993. He served as
Chief Administrative Officer of CliniCorp, Inc. from November 1993 to March 1994
where he was responsible for a turnaround effort that resulted in CliniCorp's
first profit for the quarter ended November 1994. Until December 1994, Mr.
McMillen was a director of CliniCorp, which filed for bankruptcy in June 1996.
Mr. McMillen serves on the Board of Directors of Commodore Applied Technologies,
Inc., Kellstrom, Inc., CHG, Inc. and UC Television Network Corp.
A.J. Nassar has served as President, Chief Executive Officer, Treasurer and
a Director of The Maxim Group, Inc. since December 1990. From 1986 to 1990, Mr.
Nassar served as Vice President and Chief Operating Officer of Kenny Carpet and
Linoleum, Inc., a multistore retail carpet chain in western New York. He was
previously employed by Trend Carpet Mills and Queen Carpet Mills, both of which
are carpet manufacturers, where he was responsible for cultivating new markets
in the northeastern United States. In addition, Mr. Nassar has served as a
managing partner of K.K.N. Investment, a privately held real estate development
and holding company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires officers, directors and persons
who beneficially own more than 10% of a registered class of equity securities of
NAAC ("10% stockholders") to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and 10%
stockholders also are required to furnish NAAC with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms
furnished to it, and written representations that no other reports were
required, NAAC believes that during the fiscal year ended August 31, 1998, each
of its officers, directors and 10% stockholders complied with the Section 16(a)
reporting requirements.
ITEM 10. EXECUTIVE COMPENSATION
Compensation
No executive officer of NAAC has received from NAAC since its inception any
cash compensation for services rendered. David J. Mitchell and C. Thomas
McMillen, in consideration for their services as directors and officers of NAAC
were each granted options to purchase an aggregate of 50,000 units, each unit
consisting of one share of Class A Common Stock and one Class A Warrant, at an
exercise price of $12.50 per unit, until the third anniversary of a Business
Combination and options to purchase an aggregate of 15,000 shares of Class B
Common Stock at $10.00 per share until the consummation of the first Business
Combination of NAAC, which each has agreed to exercise at the consummation of
the Merger. Directors receive reimbursement for any out-of-pocket expenses
incurred in connection with NAAC's business. The Company does not pay directors'
fees.
NAAC Board Meetings and Committees
During the fiscal year ended August 31, 1998, the NAAC board of directors
met on one occasion. All the members of the NAAC board of directors attended the
meeting. The NAAC board of directors has established no committees. The NAAC
board of directors has no compensation policies required to be disclosed as none
of its executive officers receives any compensation.
14
<PAGE>
Directors serve for a term of one year after election or until their earlier
resignation or their successor is elected or appointed and qualified.
Stock Option Plans
On July 23, 1998, the NAAC board of directors approved the 1998 Stock
Option Plan ("1998 Plan") and the Outside Directors' Stock Option Plan
("Directors Plan"). The 1998 Plan provides for stock options for up to 1,250,000
shares of Class A Common Stock which may be granted to employees, officers,
directors and consultants of NAAC and its subsidiaries. The Directors Plan
provides for stock options for up to 400,000 shares of Class A Common Stock.
Stock options under the Directors Plan will be granted on an automatic basis
each January 2, beginning January 2, 2000, to each non-employee director as of
that date, at the rate of 12,500 shares of Class A Common Stock, exercisable at
the then market price of a share of Class A Common Stock.
Both plans must be approved by the holders of the Common Stock and
implementation of both plans is contingent on consummation of the Merger. No
stock options have been granted under either plan. However, if the Merger is
consummated, an aggregate of 625,000 shares of Class A Common Stock will be
subject to options under the 1998 Plan to be granted to executive officers of
the post-Merger company and its subsidiaries.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of December 1, 1998 based on
information obtained from the persons named below. With respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known to be the owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director and (iii) all executive officers and directors as a group.
<TABLE>
<CAPTION>
Percent
of Class A
Common
Stock
Class A Class B Beneficially
Name Common Stock Common Stock Owned
- ---- ------------ ------------ ------
<S> <C> <C> <C>
David J. Mitchell(1)........................ 172,500(2) 15,000(3) 16.2%
C. Thomas McMillen(1)....................... 172,500(2) 15,000(3) 16.2%
A.J. Nassar(1).............................. 115,000(4) -0- 9.5%
Barry Rubenstein............................ 218,000(5) 32,000 21.1%
The Maxim Group, Inc........................ 100,000 - 0 - 8.3%
All NAAC officers and directors as a group 460,000(6) 30,000(5) 30.1%
(3 persons)...............................
</TABLE>
- ------------------------------------
* Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes
voting or investment power with respect to securities. Shares of common
stock issuable upon the exercise of options or warrants currently
15
<PAGE>
exercisable, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants but are not deemed outstanding for computing the
percentage ownership of any other person.
(1) The address of each of Messrs. Mitchell and McMillen is c/o Mitchell &
Company, 3rd Floor 5 East 59th Street, New York New York 10022. The address
of Mr. Nassar is c/o The Maxim Group, Inc., 210 Townpark Drive, Kennesaw,
Georgia 30144.
(2) Includes 50,000 shares of Class A Common Stock and the 50,000 shares of
Class A Common Stock underlying a like number of Class A Warrants issuable
upon exercise of the Class A Options. Also includes 60,000 shares of Class
A Common Stock issuable upon (i) conversion of the Class B Common Stock and
(ii) exercise of the Class A Warrants, both of which underlie the Class B
Common Stock subject to the Class B Options.
(3) Represents the Class B Common Stock issuable upon exercise of the Class B
Option.
(4) Includes 100,000 shares of Class A Common Stock owned by The Maxim Group,
Inc. of which Mr. Nassar is the President and Chief Executive Officer and a
Director.
(5) Includes 128,000 shares of Class A Common Stock issuable upon (i)
conversion of the Class B Common Stock and (ii) exercise of the Class A
Warrants, both of which underlie the Class B Common Stock.
(6) Includes the Class A Common Stock and Class B Common Stock set forth in
Notes (2) and (3) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NAAC pays $2,500 per month to Mitchell & Company, Ltd. for office space and
office services. David J. Mitchell, a director, and currently the Chairman of
the Board, and Chief Executive Officer of NAAC, controls Mitchell & Company,
Ltd. NAAC management believes that this arrangement is on terms at least as
favorable as would be available from an unaffiliated third party. This agreement
will terminate upon consummation of the Merger.
Mr. David Mitchell and Mr. Thomas McMillen, directors of the Company, have
each received options to purchase up to 15,000 shares, or up to 30,000 in the
aggregate, of the Company's Class B Stock at an exercise price of up to
$300,000. The options will expire, if not sooner exercised upon consummation of
the first Business Combination of NAAC. Each of Messrs. Mitchell and McMillen
has agreed to exercise these options in connection with the proposed Merger.
Mr. Mitchell and the other directors of the Company may be deemed to be
"promoters" of the Company.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization, dated August 18, 1995 (Exhibit
2.1) (1)
2.2 First Amendment to Agreement and Plan of Reorganization, dated
December 3, 1998 (Exhibit 2.2)(1)
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(Exhibit 3.1)(2)
16
<PAGE>
3.2 By-laws of the Registrant (Exhibit 3.2)(2)
4.1 Warrant Agency Agreement dated May 28, 1996 between American Stock
Transfer & Company and the Registrant (Exhibit 4.2)(2)
4.2 Form of Representative's Warrant Agreement of Registrant (Exhibit
4.5)(2)
4.3 Form of Class A Common Stock Certificate of Registrant (Exhibit
4.1)(2)
4.4 Form of Class B Stock Certificate of the Registrant (Exhibit 4.4)(2)
4.5 Form of Class A Common Stock Purchase Warrant Certificate of the
Registrant (Exhibit 4.3)(2)
4.6 Form of Warrant (Nominal Warrant) to Purchase Shares of Class A Common
Stock (Exhibit 4.6)(1)
10.1 Underwriting Agreement (Exhibit 1.1)(2)
10.2 Form of Escrow Agreement for proceeds from sale of Units (Exhibit
10.1)(2)
10.3 Amended and Restated License Agreement, dated May 9, 1997, between
Bright Capital, Ltd. and the Company (Exhibit 10.3)(2)
10.4 Management Unit Purchase Option Plan (Exhibit 10.4)(1) 10.5-- Form of
Class B Stock Option Agreement (Exhibit 10.5)(2)
10.6 Form of Registration Rights Agreement, undated (Exhibit 10.6)(1)
10.7 Form of Escrow Agreement for outstanding Common Stock (Exhibit
10.2)(2)
10.8 Form of Subscription Agreement, dated August 29, 1995 between the
Company and Investors (Exhibit 10.8)(1)
10.9 Form of Escrow Agreement for Class A Common Stock to be dated the
Merger Effective Time (Exhibit 10.9)(1)
27.1* Financial Data Schedule
- -----------------------------------------
* Filed herewith.
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-65267).
17
<PAGE>
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-2
(No. 33-80647) declared effective August 22, 1997.
(b) Reports on Form 8-K
On August 18, 1998, the Registrant signed an Agreement and Plan of Merger
and Reorganization which was reported under Item 5 on Form 8-K filed on
August 25, 1998.
18
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1998 AND 1997
F-1
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONTENTS
PAGE
Report of independent certified public accountants.......................F-3
Financial statements:
Balance sheet.........................................................F-4
Statements of operations..............................................F-5
Statements of stockholders' equity....................................F-6
Statements of cash flows..............................................F-7
Notes to financial statements...................................F-9 - F-17
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of North Atlantic Acquisition Corp.
New York, New York
We have audited the accompanying balance sheet of North Atlantic Acquisition
Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development
stage) as of August 31, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1998 and
1997, and the period September 1, 1995 (date of inception) to August 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Atlantic Acquisition
Corp. as of August 31, 1998, and the results of its operations and its cash
flows for the years ended August 31, 1998 and 1997, and the period September 1,
1995 (date of inception) to August 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 2 to the
financial statements, the Company is unable to use escrow funds to pay general
and administrative expenses and merger costs. Currently, the Company has
insufficient funds to pay its liabilities and its future general and
administrative expenses and merger costs, nor has the Company completed its
pending merger (see Note 3). These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BDO SEIDMAN, LLP
New York, New York
October 12, 1998
F-3
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
ASSETS
August 31,
1998
Current:
Cash...................................................... $ 1,079
Cash held in escrow....................................... 324
Investment in United States Government Treasury
securities held in escrow (Notes 2 and 5)................ 8,408,801
Deferred merger costs..................................... 105,000
----------
$8,515,204
==========
LIABILITIES
Liabilities:
Accrued expenses.......................................... $ 174,496
Total liabilities..................................... 174,496
Commitments (Note 6)
Common Stock subject to possible redemption, 160,000
shares at redemption value (Note 2)........................... 1,681,825
Stockholders' equity (Notes 1, 2, 4 and 8):
Convertible preferred stock, $.01 par value--shares
authorized 1,000,000, outstanding 94;
liquidation value--$9,400............................. 1
Subscription receivable................................... (100)
Class A common Stock, $.01 par value--shares authorized
10,000,000; outstanding 906,000....................... 9,060
Class B common stock, $.01 par value--shares authorized
250,000; issued and outstanding 150,000............... 1,500
Additional paid-in capital................................ 6,586,948
Retained earnings during the development stage............ 61,474
----------
Total stockholders' equity............................ $8,515,204
==========
See accompanying notes to financial statements.
F-4
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
Period from
September 1, 1995
Year Ended August 31, (inception) to
1998 1997 August 31, 1998
---- ---- -----------------
Interest income...................... $ 411,393 $ - $411,393
General and administrative expenses
and debt costs...................... 133,089 38,920 203,094
Income taxes......................... 65,000 - 65,000
---------- -------- --------
Net income (loss).................... $ 213,304 $(38,920) $143,299
========== ======== ========
Net income (loss) per common
share--basic and diluted............ $ .20 $ (.33)
========== ========
Weighted average common
shares outstanding.................. 1,056,000 119,014
========== ========
See accompanying notes to financial statements.
F-5
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retainednal
Preferred Stock Common Stock Common Stock Additional During the Total
Subscription Paid-In Development Stockholders'
Shares Amount Receivable Shares Amount Shares Amount Capital Stage Equity
------ ------ ----------- ------ ------ ------ ------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of founders'
shares.............. - $ - $ - 86,000 $ 860 - $ - $ 7,740 $ - $ 8,600
Sale of common stock - - - 20,000 200 - - 44,800 - 45,000
Subscription
receivables....... 94 1 (9,400) - - - - 9,399 - -
Net loss............ - - - - - - - - (31,085) (31,085)
------ ------- -------- -------- ------ ------- ------- -------- ------- ---------
Balance, August 31,
1996................ 94 1 (9,400) 106,000 1,060 - - 61,939 (31,085) 22,515
Net loss............ - - - - - - - - (38,920) (38,920)
Sale of common stock,
net............... - - - 800,000 8,000 150,000 1,500 8,125,009 - 8,134,509
Reclassification to
redeemable
common stock...... - - - - - - - (1,600,000) - (1,600,000)
------ ------- -------- -------- ------ ------- ------- -------- ------- ---------
Balance, August 31,
1997................ 94 1 (9,400) 906,000 9,060 150,000 1,500 6,586,948 (70,005) 6,518,104
Subscription paid... - - 9,300 - - - - - - 9,300
Net income.......... - - - - - - - - 213,304 213,304
Accretion to
redemption value
of common stock... - - - - - - - - (81,825) (81,825)
------ ------- -------- -------- ------ ------- ------- -------- --------- ----------
Balance, August 31, 94 $ 1 $ (100) 906,000 $ 9,060 150,000 $ 1,500 $6,586,948 $ 61,474 $6,658,883
====== ====== ======== ======== ====== ======= ======= ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Year Ended August 31, September 1, 1995
--------------------- (inception) to
1998 1997 August 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss).................................... $ 213,304 $ (38,920) $ 143,299
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization of deferred debt costs............... - - 9,800
Amortization of discount on notes payable......... - 17,088 35,000
Changes in assets and liabilities:
Accrued expenses................................ (7,935) 84,332 (63,303)
Interest on receivable on investments........... 271,654) - (123,555)
------------ ------------- -------------
Net cash provided by (used in)operating
activities.................................. 66,285 62,500 941
------------ ------------- -------------
Cash flows from investing activities:
Purchase of treasury securities in escrow............ (10,634,874) (7,998,324) (18,634,198)
Sale of treasury securities in escrow................ 10,497,051 - 10,495,375
Decrease (increase) in cash held in escrow........... 1,352 (1,676) 1,352
------------ ------------- ------------
Net cash used in investing activities....... (137,471) (8,000,000) (8,137,471)
------------ ------------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock................... - 8,134,509 8,188,109
Subscription paid.................................... 9,300 - 9,300
Deferred costs:
Registration...................................... - 177,792 90,000
Merger costs...................................... (105,000) - (105,000)
Debt.............................................. - - (9,800)
Repayment of notes payable........................ (100,000) - (100,000)
Proceeds from issuance of notes payable.............. - - 65,000
------------ ------------- ------------
Net cash provided by (used in)financing activities (195,700) 8,312,301 8,137,609
------------ ------------- ------------
Net increase (decrease) in cash........................ (399,456) 374,801 1,079
Cash, beginning of period.............................. 400,535 25,734 -
------------ ------------- ------------
Cash, end of period.................................... $ 1,079 $ 400,535 $ 1,079
============ ============= ============
Supplemental disclosures for cash flow
information:
Cash paid for:
Interest.......................................... $ - $ - $ -
Taxes............................................. - - -
</TABLE>
In fiscal 1996, the Company received a note for subscribed preferred stock
amounting to $9,400, which is a noncash financing activity.
In fiscal 1996, the Company has recorded a $90,000 liability relating to the
purchase of a license agreement, which is a noncash financing activity.
See accompanying notes to financial statements.
F-7
<PAGE>
NORTH ATLANTIC ACQUISITION CORP.
(FORMERLY ORION ACQUISITION CORP. I)
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern which contemplates the consummation of
the pending merger (see Note 3). If the pending merger is not consummated, the
Company will be unable to pay its liabilities and its future general and
administrative expenses and merger costs.
Management cannot be assured that the Company will be able to continue as a
going concern due to the uncertainty in completing the pending merger. The
Company's continued existence is dependent upon its ability to complete the
pending merger.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Income Taxes
North Atlantic Acquisition Corp. (the "Company" or "NAAC") follows
Financial Accounting Standards Board ("FASB") Statement No. 109 Accounting for
Income Taxes. This statement requires that deferred income taxes be recorded
following the liability method of accounting and be adjusted periodically when
income tax rates change.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which provides for
the calculation of "basic" and "diluted" earnings per share. This Statement,
effective for financial statements issued for periods ending after December 15,
1997, requires restatement of all prior-period EPS data presented. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
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which they have a dilutive effect, the effect of common shares issuable upon
exercise of stock options. All periods presented have been restated to comply
with the provisions of SFAS No. 128.
Basic and diluted net earnings/loss per share are based upon the weighted
average number of common shares outstanding. Diluted earnings/loss per share did
not include the assumed exercise of common stock options and warrants because
the effect was anti-dilutive.
Accounting for Stock-based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation". Beginning in 1996, SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages, but does
not require, the recognition of employee compensation expense related to stock
compensation based on the fair value of the equity instrument granted. Companies
that do not adopt the fair value recognition provisions of SFAS No. 123 and
continue to follow the existing APB Opinion No. 25 rules to recognize and
measure compensation will be required to disclose the pro forma amounts of net
income and earnings per share that would have been reported had the Company
elected to follow the fair value recognition rules of SFAS No. 123. The Company
has elected to continue to use the intrinsic value-based method of APB Opinion
No. 25, and has adopted the disclosure requirements of SFAS No. 123.
2. ORGANIZATION AND BUSINESS OPERATIONS
The Company was incorporated in Delaware on August 9, 1995 to acquire an
operating business. Operations did not occur until September; accordingly,
financial statements have been presented commencing on September 1, 1995.
The Registration Statement for the Company's Initial Public Offering (the
"Offering") became effective August 22, 1997. The Company consummated the
Offering on August 27, 1997 and raised net proceeds of approximately $8,100,000
(see Note 4). The Company's management has broad discretion with respect to the
specific application of the net proceeds of this Offering, although
substantially all of the net proceeds of this Offering are intended to be
generally applied toward consummating a business combination (see Note 3) with
an operating business ("Business Combination"). There is no assurance that the
Company will be able to successfully effect a Business Combination. An aggregate
of $8,000,000 of the net proceeds was placed in an escrow account which has been
invested in short-term United States Government Securities, including treasury
bills and cash and cash equivalents ("Proceeds Escrow Account"), subject to
release at the earlier of (i) consummation of its first Business Combination or
(ii) redemption of the Class A stock (see below). The remaining proceeds from
the Offering will be used to pay for business, legal and accounting, due
diligence on prospective acquisitions, costs relating to the public offering and
continuing general and administrative expenses in addition to other expenses.
The Company, prior to the consummation of any Business Combination, will
submit such transaction to the Company's stockholders for their approval, even
if the nature of the acquisition is such as would not ordinarily require
stockholder approval under applicable state law. All of the Company's prior
stockholders, including all directors and the Company's executive officers, have
agreed to vote their respective shares of Class A stock in accordance with the
vote of the majority of the shares voted by all other stockholders of the
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Company ("nonaffiliated public stockholders") with respect to any such Business
Combination. A Business Combination will not be consummated unless approved by a
vote of two-thirds of the shares of common stock owned by nonaffiliated public
stockholders.
At the time the Company seeks stockholder approval of any potential
Business Combination, the Company will offer ("Redemption Offer") each of the
nonaffiliated public Class A stockholders the right, for a specified period of
time not less than 20 calendar days, to redeem his shares of Class A stock. The
per share redemption price will be determined by dividing the amount in the
escrow account (including all interest earned thereon) by the number of shares
of Class A stock held by such nonaffiliated public stockholders. In connection
with the Redemption Offer, if nonaffiliated public stockholders holding less
than 20% or 160,000 shares of the Class A stock elect to redeem their shares,
the Company may proceed with such Business Combination. If nonaffiliated public
stockholders holding 20% or more of the Class A stock elect to redeem their
shares, the Company will not proceed with such potential Business Combination
and will not redeem such shares. Accordingly, a portion of the net proceeds from
the Offering (20% of the cash and treasury securities held in escrow) has been
classified as common stock subject to possible redemption in the accompanying
balance sheet at the estimated value.
Class A stock subject to possible redemption are carried at redemption
value and are presented outside of stockholders' equity. Changes in the carrying
value of these shares are charged or credited directly to stockholders' equity.
All shares of the escrowed stock outstanding immediately prior to the date
of the Offering have been placed in escrow until the earlier of (i) the
occurrence of the first Business Combination, (ii) 18 months from the effective
date of the Offering or (iii) 24 months from the effective date of the Offering
(August 22, 1999) if prior to the expiration of such 18 month period the Company
has become a party to a letter of intent or a definitive agreement to effect a
Business Combination, in which case such period shall be extended six months.
During the escrow period, the holders of escrowed shares of Class A stock will
not be able to sell or otherwise transfer their respective shares of Class A
stock (with certain exceptions), but will retain all other rights as
stockholders of the Company, including, without limitation, the right to vote
escrowed shares of Class A stock, subject to their agreement to vote their
shares in accordance with a vote of a majority of the shares voted by
nonaffiliated public stockholders with respect to a Business Combination or
liquidation proposal.
If the Company does not effect a Business Combination within 18 months from
the effective date or 24 months from the effective date if the extension
criteria have been satisfied, the Company will distribute the amount held in the
Escrow Account to all non-affiliated public stockholders in respect of their
Class A stock. The Class A stock of the affiliated stockholders will be
cancelled. After the redemption and cancellation of the Class A stock, the
assets of NAAC, if any, will be used to pay its liabilities and redeem the
outstanding Series A preferred stock at its liquidation value. Thereafter each
outstanding share of Class B stock will be exchanged for two shares of Class A
stock and the holders will be the sole stockholders of a public shell.
3. PENDING MERGER
On August 18, 1998, the Company, Moto Guzzi Corp., a Delaware corporation
("Guzzi Corp."), and for certain provisions, Trident Rowan Group, Inc., a
Maryland corporation ("TRG"), entered into a definitive Agreement and Plan of
Merger and Reorganization, as amended ("Merger Agreement"), pursuant to which
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Guzzi Corp. would merge with and into NAAC, with NAAC being the surviving
corporation ("Merger"). TRG and its partially-owned subsidiary, O.A.M. S.p.A.
together own all the outstanding common stock of Guzzi Corp. Guzzi Corp., is a
leading Italian manufacturer, marketer and distributor of performance and luxury
motorcycles and motorcycles parts, marketed under the "Moto Guzzi(Registered)"
brand name.
The Merger will be treated as a reverse acquisition of the Company by Guzzi
Corp. In a reverse acquisition, the shareholders of NAAC will own, after the
Merger, less than 50% of the post-Merger shares. The shareholders of Guzzi Corp.
will receive approximately 76.4% of the post-Merger shares of the Company,
excluding any shares of the Company's Class A common stock issuable upon
exercise of any options or warrants, and Guzzi Corp. , therefore, will be the
accounting acquirer. The cost of the acquisition of the Company will be based on
the fair value of the Company's assets and liabilities as of the date of the
Merger (which amounts approximate book value). The Company anticipates
completing the merger by February 1, 1999. The Merger is subject to shareholder
approval and certain other conditions.
4. PUBLIC OFFERING
On August 27, 1997, the Company consummated the Offering and sold 800,000
units ("Units") and 150,000 shares of Class B exchangeable common stock. Each
Unit consists of one share of the Company's Class A common stock and one Class A
redeemable common stock purchase warrant ("Class A Warrant"). Each Class A
Warrant entitles the holder to purchase from the Company one share of Class A
stock at an exercise price of $9.00; each Class B Stock entitles the holder to
receive two Units in exchange 90 days after the date of a Business Combination.
The Class A Warrants are redeemable, as a class, in whole and not in part, at a
price of $.05 per warrant upon 30 days' notice at any time provided that the
Company's stockholders have approved a Business Combination and the last sale
price of the Class A stock has been $11.00 or higher for 10 of the trading days
prior to the day on which the Company gives notice of redemption.
Concurrent with the Offering, the Company amended and restated its
certificate of incorporation to increase its authorized common stock to
10,250,000 shares, of which 10,000,000 shares are designated Class A stock Class
A stock and 250,000 shares are designated Class B stock. The Company also
increased its authorized preferred stock to 1,000,000 shares.
5. UNITED STATES TREASURY SECURITIES HELD IN ESCROW
Treasury securities held in escrow at August 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
MATURITY INTEREST MATURITY
COST AMOUNT RATE DATE
<S> <C> <C> <C> <C> <C>
Treasury bill $6,423,585 $6,478,000 5.23% October 27, 1998
Treasury note $1,985,216 2,018,000 5.00 February 15, 1998
---------- ----------- ----
Total Treasury securities held in escrow $8,408,801 $8,496,000
========== ==========
</TABLE>
At August 31, 1998, the cost of each of the above-listed treasury
securities approximated its market value.
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6. COMMITMENTS
The Company has entered into an oral agreement with David J. Mitchell,
Chairman and Chief Executive Officer, to lease office space, as well as certain
office and secretarial services. The Company pays $2,500 per month to Mr.
Mitchell for such services. The expense was $30,000 and $20,000 for 1998 and
1997, respectively.
7. INCOME TAXES
The fiscal 1998 income tax provision of $65,000 is net of a benefit of
$27,000 due to the utilization of the prior years net operating loss carry
forwards. The tax expense consists of federal, current income taxes.
8. STOCKHOLDERS' EQUITY
(a) Private Placement
In November 1995, the Company completed a private offering to a limited
group of investors which consisted, in the aggregate, of $100,000 in unsecured
promissory notes bearing interest at 8% per annum. The notes were payable upon
the earlier of May 1998 or the completion of an initial public offering. As of
August 31, 1998, the notes, together with accrued interest, were repaid. In
addition, the Company also issued to the private placement investors 20,000
shares of common stock for $10,000. The notes were recorded at a discount of
$35,000 for financial reporting purposes as a result of additional fair value
attributed to the common stock issued to the private placement shareholders. The
effective interest rate on the notes was approximately 45%.
(b) Preferred Stock
The Company is authorized to issue 1,000,000 shares of "blank check"
preferred stock with such designations, voting and other rights and preferences
as may be determined from time to time by the Board of Directors.
The Company has outstanding 94 shares of Series A preferred stock, owned by
CDIJ Capital Partners, L.P., an indirect affiliate of Bright Licensing Corp. The
purchase price for such shares, $100.00 per share or $9,400 in the aggregate, is
payable to the Company, without interest, upon the earlier of November 15, 1996
or the closing of the Offering. As of August 31, 1998, $9,300 has been received
by the Company. The Series A preferred stock is nonvoting, does not bear a
dividend and has a liquidation value of $100.00 per share. Each share of Series
A preferred stock will be convertible into 1,000 shares of common stock for a
period one year following the consummation of a Business Combination. In the
event that a Business Combination does not occur within 18 months from the
effective date or 24 months from the effective date if the extension criteria
are satisfied, the Series A preferred stock will be redeemed by the Company for
its liquidation value.
(c) Options
The Company granted options to purchase 100,000 Units to the founders, in
consideration for their service as directors, and officers of the Company. The
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options are exercisable for a period of three years from the date of a Business
Combination at an exercise price of $12.50 per Unit. The options are fully
vested. The shares issuable upon exercise of the options and underlying warrants
may not be sold or otherwise transferred until 120 days after the first Business
Combination.
In October 1996, the Company cancelled the 100,000 options and granted
additional options to purchase 133,333.3 Units to the Company's two new
directors and to a founder. The options are exercisable for a period of three
(3) years from the date of a Business Combination at an exercise price of $12.50
per Unit.
The Company has granted options to purchase 30,000 shares of the Company's
Class B stock to two directors at an exercise price of $10.00 per share. The
options will expire, if not sooner exercised, upon consummation of a Business
Combination.
On July 23, 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan"), subject to stockholder approval and consummation of the Merger. The 1998
Plan provides for the grant of options to purchase up to an aggregate of
1,250,000 shares of the Company's Class A common stock to be made to employees,
officers, directors and consultants of the Company and its subsidiaries after
the Merger. An aggregate of 625,000 of such options will be granted at the
effective time of the Merger. The 1998 Plan provides both for incentive stock
options ("Incentive Options"), and for options not qualifying as Incentive
Options ("Nonqualified Options"). The Company's Board or the Committee will
determine the exercise price for each share of the Company's Class A common
stock purchasable under an Incentive or Nonqualified Option (collectively
"Options"). The exercise price of a Nonqualified Option may be less than 100% of
the fair market value on the last trading day before the date of the grant. The
exercise price of an Incentive Option may not be less than 100% of the fair
market value on the last trading day before the date of grant (or, in the case
of an Incentive Option granted to a person possessing at the time of grant more
than 10% of the total combined voting power of all classes of stock of the
Company, not less than 110% of such fair market value). Options may only be
granted within a ten-year period commencing on July 23, 1998 and Incentive
Options may only be exercised within ten years of the date of the grant (or
within five years in the case of an Incentive Option granted to a person who, at
the time of the grant, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of its parent or any
subsidiary).
The 1998 Plan for Outside Directors provides for the grant of non-incentive
options to purchase up to an aggregate of 400,000 shares of the Company's Class
A common stock, to the non-employee directors of the Company, each grant to be
on the effective date of the Merger and on each January 2, beginning January 2,
2000, of options to purchase 12,500 shares of Company's Class A common stock.
The options will expire upon the earlier of ten years following date of grant or
three months following the date on which the grantee ceases to serve as a
director.
(d) Warrants
Class A Warrants entitle the holder to purchase one share of Class A common
stock at a price of $9.00 per share. These warrants will become separable and
transferable and can be redeemed by the Company at a price of $.05 per warrant
any time after the consummation of a Business Combination.
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The underwriters engaged by the Company in the Offering received a warrant
to purchase 80,000 shares of Class A common stock with 80,000 Class A Warrants,
at an exercise price of $11.00 per share and warrant and to purchase 15,000
shares of Class B common stock for $11.00 per share.
Upon closing of the pending merger the Company will issue a warrant to
Allen & Company (Fairness Opinion) to purchase 350,000 shares of Class A common
stock at an exercise price of $10.00 per share. The Warrant may be exercisable
at any time prior to July 1, 2003.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 or 15(d) 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 on the
12th day of December, 1998.
Date: December 12, 1998
NORTH ATLANTIC ACQUISITION CORP. II
/s/ David J. Mitchell
-----------------------------------
David J. Mitchell
Chairman of the Board
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/ David J. Mitchell Chairman of the Board December 12, 1998
- ------------------------ and Chief Executive Officer
David J. Mitchell (Principal Executive Officer)
/s/ Thomas McMillen Secretary, Treasurer December 12, 1998
- ------------------------ and Director
Thomas McMillen (Chief Accounting Officer and
Principal Accounting Officer)
_______________________ Director December , 1998
A.J. Nassar
<PAGE>
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