UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
|_| TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number - 000-22813
MOTO GUZZI CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3853272
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
350 Park Avenue, New York, New York 10022
---------------------------------------------------
(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: (212) 644-4441
Former name, former address and former fiscal year, if changed since last
report.
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 |_| No |X|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by checkmark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Common stock, par value $.01 per share, 5,690,000 shares outstanding as of
November 15, 1999.
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
INDEX
Part I - Financial Information
Item 1. Financial Statements:
Balance sheets as of September 30, 1999 and December 31, 1998 ....... 3
Statements of operations for the three months ended September 30,
1999 and 1998 ....................................................... 5
Statements of operations for the nine months ended September 30,
1999 and 1998 ....................................................... 6
Statements of stockholders' equity and comprehensive income/(loss)
for the nine months ended September 30, 1999 ........................ 7
Statements of cash flows for the nine months ended September 30,
1999 and 1998 ....................................................... 8
Notes to financial statements ....................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................... 13
Part II - Other Information
Item 1. Legal Proceedings ................................................... 24
Item 2. Changes in Securities ............................................... 24
Item 3. Defaults Upon Senior Securities ..................................... 24
Item 4. Submission of Matters to a Vote of Security Holders ................. 24
Item 5. Other Information ................................................... 24
Item 6. Exhibits and Reports on Form 8-K .................................... 24
Signatures .................................................................. 25
2
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Dec. 31
1999 1999 1998
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..................................... $ 937 Lit. 1,704 Lit. 217
Receivables ................................................... 15,169 27,593 24,427
Trade, less allowance of Lit. 2,019 (1998 - Lit. 2,026) .... 10,471 19,047 16,288
Receivables from related parties ............................ 3,386 6,159 4,167
Other receivables ........................................... 1,312 2,387 3,972
Inventories ................................................... 21,511 39,129 37,682
Raw materials, spare parts and work-in-process .............. 13,870 25,229 22,880
Finished products ........................................... 7,642 13,900 14,802
Prepaid expenses .............................................. 293 533 341
-------- -------- --------
TOTAL CURRENT ASSETS .......................................... 37,910 68,959 62,667
-------- -------- --------
Property, plant and equipment ................................. 8,837 16,075 16,787
Land ........................................................ 415 755 755
Buildings ................................................... 1,482 2,696 2,696
Machinery and equipment ..................................... 22,595 41,100 38,949
-------- -------- --------
At cost ..................................................... 24,492 44,551 42,400
Less allowances for depreciation ............................ (15,655) (28,476) (25,613)
Goodwill, net of amortization of Lit. 195 (1998 - Lit 156) .... 37 67 106
Investments in affiliates ..................................... 358 651 651
Other assets .................................................. 222 403 466
-------- -------- --------
TOTAL ASSETS .................................................. $ 47,364 Lit. 86,155 Lit. 80,677
======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements
3
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Dec. 31
1999 1999 1998
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
LIABILITIES
Advances from banks ....................................... $ 14,514 Lit. 26,401 Lit. 27,063
Current portion of long-term debt ......................... 6,365 11,578 11,823
Loans due to parent company ............................... 1,772 3,224 3,082
Accounts payable .......................................... 17,574 31,968 28,278
Amounts due to related and affiliated parties ............. 45 82 1,257
Accrued expenses and other payables ....................... 3,734 6,792 6,357
-------- ------- -------
TOTAL CURRENT LIABILITIES ................................. 44,004 80,045 77,860
-------- ------- -------
Long-term debt, less current portion ...................... 1,437 2,613 2,986
Loans due to parent company ............................... -- -- 13,362
Termination indemnities ................................... 4,375 7,958 7,573
SHAREHOLDERS' DEFICIT ..................................... (2,452) (4,461) (21,104)
Convertible preferred stock, par value $0.01 per share:
Authorized 4,750,000 shares
94 Series A shares issued and converted
into 94,000 shares of common stock in 1999 ............. -- -- --
Common stock, par value $0.01 per share:
Authorized 20,250,000 shares;
5,690,000 (1998 - 3,328,047) shares outstanding ......... 55 100 59
Additional paid-in capital ................................ 21,731 39,529 11,011
Advances for share subscription ........................... 1,250 2,274 --
Cumulative translation adjustment ......................... 65 119 157
Accumulated deficit ....................................... (25,553) (46,483) (32,331)
-------- ------- -------
LIABILITIES AND SHAREHOLDERS' DEFICIT ..................... $ 47,364 Lit. 86,155 Lit. 80,677
======== ======= =======
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Statements of Operations
Three Months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Sept. 30
1999 1999 1998
US $'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales ..................................... $ 11,844 Lit. 21,545 Lit. 19,633
Cost of sales ................................. (10,483) (19,071) (16,936)
--------- --------- ---------
1,361 2,474 2,697
Selling, general and administrative expenses .. (2,458) (4,469) (4,045)
Reorganization expenses ....................... -- -- (1,852)
Research and development ...................... (314) (572) (852)
--------- --------- ---------
Operating loss ................................ (1,411) (2,567) (4,052)
Interest expense .............................. (652) (1,186) (1,080)
Other income, net ............................. 54 99 65
--------- --------- ---------
Loss before income taxes ...................... (2,009) (3,654) (5,067)
Income taxes .................................. (54) (99) (135)
--------- --------- ---------
Net loss ...................................... $ (2,063) Lit. (3,753) Lit. (5,202)
========= ========= =========
LOSS PER SHARE: US $ Lire Lire
Basic ......................................... $ (0.37) Lit. (667) Lit. (1,563)
========= ========= =========
Diluted ....................................... $ (0.37) Lit. (667) Lit. (1,563)
========= ========= =========
Weighted average number of common shares
outstanding during the period
Basic ......................................... No. 5,625,165 No. 5,625,165 No. 3,328,047
========= ========= =========
Diluted ....................................... No. 5,632,658 No. 5,632,658 No. 3,328,047
========= ========= =========
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Statements of Operations
Nine Months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Sept. 30
1999 1999 1998
US $'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales ...................................... $ 34,592 Lit. 62,923 Lit. 67,622
Cost of sales .................................. (31,619) (57,517) (55,691)
--------- --------- ---------
2,973 5,406 11,931
Selling, general and administrative expenses ... (7,655) (13,923) (11,906)
Reorganization expense ......................... -- -- (1,852)
Research and development ....................... (1,167) (2,123) (3,078)
--------- --------- ---------
Operating loss ................................. (5,849) (10,640) (4,905)
Interest expense ............................... (1,908) (3,471) (3,286)
Other income, net .............................. 68 124 199
--------- --------- ---------
Loss before income taxes ....................... (7,689) (13,987) (7,992)
Income taxes ................................... (91) (165) (616)
--------- --------- ---------
Net loss ....................................... $ (7,780) Lit. (14,152) Lit. (8,608)
========= ========= =========
LOSS PER SHARE: US $ Lire Lire
Basic .......................................... $ (1.54) Lit. (2,810) Lit. (2,587)
========= ========= =========
Diluted ........................................ $ (1.54) Lit. (2,810) Lit. (2,587)
========= ========= =========
Weighted average number of common shares
outstanding during the period
Basic .......................................... No. 5,037,077 No. 5,037,077 No. 3,328,047
========= ========= =========
Diluted ........................................ No. 5,145,826 No. 5,145,826 No. 3,328,047
========= ========= =========
</TABLE>
See Notes to Condensed Financial Statements
6
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Statements of Stockholders' Equity and Comprehensive Income/(Loss)
<TABLE>
<CAPTION>
Advances Additional
Common Stock Class A Preferred Stock for share paid-in Translation
Lire million Shares Amount Shares Amount subscription capital adjustment
------------ ------ ------ ------ ------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
At January 1, 1997................. 3,035,797 Lit.m 51 -- -- -- 8,086 23
Net loss........................... -- -- -- -- -- --
Translation adjustment............. -- -- -- -- -- 202
Issuance of shares................. 292,250 8 -- -- -- 2,925 --
--------- ---- ----- ----- ------ ------- ----
At December 31, 1997............... 3,328,047 Lit.m 59 -- -- -- 11,011 225
--
Net loss........................... -- -- -- -- -- --
Translation adjustment............. -- -- -- -- -- (68)
--------- ---- ----- ----- ------ ------- ----
At December 31, 1998............... 3,328,047 Lit.m 59 -- -- -- 11,011 157
Net loss........................... -- -- -- -- -- --
Translation adjustment............. -- -- -- -- -- (38)
Parent company debt exchange....... 871,953 16 -- -- -- 13,346
Issuance of shares in merger....... 1,296,000 23 94 -- -- 14,563 --
Conversion of preferred stock...... 94,000 -- (94) -- -- -- --
Issuance of shares for renewal of
Parent Company finance lines...... 100,000 2 -- -- -- 1,220 --
Less: Relating to future periods... -- -- -- -- (611) --
Advances for share subscription.... -- -- -- 2,274 -- --
--------- ---- ----- ----- ------ ------- ----
At September 30, 1999.............. 5,690,000 Lit.m 100 -- -- 2,274 39,529 119
==== ===== ===== ====== ======= ====
At September 30, 1999.............. $'000 55 -- 1,250 21,731 65
==== ===== ====== ======= ====
<CAPTION>
SHAREHOLDERS' Comprehensive
Accumulated (DEFICIT)/ Income/
Lire million deficit EQUITY (Loss)
------------ ------- ------ ------
<S> <C> <C> <C>
At January 1, 1997................. (1,463) 6,697
Net loss........................... (10,569) (10,569) (10,569)
Translation adjustment............. -- 202 202
Issuance of shares................. -- 2,933
-------- --------- ---------
At December 31, 1997............... (12,032) (737) (10,367)
Net loss........................... (20,299) (20,299) (20,299)
Translation adjustment............. -- (68) (68)
-------- --------- ---------
At December 31, 1998............... (32,331) (21,104) (20,367)
Net loss........................... (14,152) (14,152) (14,152)
Translation adjustment............. -- (38) (38)
Parent company debt exchange....... 13,362 --
Issuance of shares in merger....... -- 14,586 --
Conversion of preferred stock...... -- -- --
Issuance of shares for renewal of
Parent Company finance lines...... -- 1,222 --
Less: Relating to future periods... -- (611) --
Advances for share subscription.... -- -- --
-------- --------- ---------
At September 30, 1999.............. (46,483) (4,461) (14,190)
======== ========= =========
At September 30, 1999.............. (25,553) (2,452) (7,801)
======== ========= =========
</TABLE>
See Notes to Condensed Financial Statements
7
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Sept. 30
1999 1999 1998
US$'000 Lit.m. Lit.m.
<S> <C> <C> <C>
Net loss ....................................... $(7,780) Lit. (14,152) Lit. (8,608)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ................ 1,712 3,115 2,950
Gain on sales of operating assets ............ 21 38 --
Termination indemnities, net ................. 212 385 (104)
Finance expense paid by issuance of shares ... 336 611 --
Reserves for inventory and tooling ........... -- -- 1,957
Other operating activities ................... (167) (303) 467
Changes in operating assets and liabilities:
Trade and other receivables .................. (420) (764) (3,957)
Related party receivables .................... (1,095) (1,992) (156)
Inventories .................................. (518) (943) (6,281)
Prepaid expenses ............................. (104) (190) (1,050)
Accounts payable and accrued expenses ........ 1,460 2,655 3,661
Related party payables ....................... (645) (1,174) 683
------- ------- -------
Net cash used by operating activities .......... (6,988) (12,714) (10,438)
------- ------- -------
Investing activities:
Proceeds from disposal of operating assets ... 50 91 --
Purchases of property, plant and equipment ... (1,295) (2,356) (5,647)
------- ------- -------
Net cash used in investing activities .......... (1,245) (2,265) (5,647)
------- ------- -------
Financing activities:
(Decrease)/Increase in advances from banks ... (634) (1,153) 1,995
Cash from merger with North Atlantic (Note) .. 8,799 16,006 --
Advances for share subscription .............. 1,250 2,274 --
Proceeds of long-term debt ................... 191 348 10,000
Principal payments of long-term debt ......... (566) (1,029) (981)
------- ------- -------
Net cash provided by financing activities ...... 9,040 16,446 11,014
------- ------- -------
Increase/(decrease) in cash .................... 807 1,467 (5,071)
Exchange movement on opening cash .............. 11 20 (84)
Cash, beginning of period ...................... 119 217 6,352
------- ------- -------
Cash, end of period ............................ $ 937 Lit. 1,704 Lit. 1,197
======= ======= =======
</TABLE>
Note: The Company also acquired payables and other accruals for Lit. 1,420
million, principally relating to merger expenses, on the merger with North
Atlantic Acquisition Corp. As part of the merger, Lit. 13,362 million of debt
due to the parent company was exchanged for 871,953 shares of the Company and
the Company also issued 30,000 shares with an estimated fair value of Lit. 591
million (US$ 330,000) in settlement of certain merger expenses.
8
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
1. Basis of Presentation.
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The merger with Moto
Guzzi Corp., described below, on March 5, 1999 has been treated as a
reverse acquisition of the Company. The reported balance sheets, results
of operations, statements of shareholders' equity and cash flows prior to
the date of the merger are those of Moto Guzzi Corp., with the components
of shareholders' equity restated retrospectively to reflect the Company's
shares issued in the merger. As the Company had no operating activities
prior to merger, the merger is not considered as a business combination as
defined by APB16 and no pro forma information is shown. Following the
merger, the Company has adopted the December 31 financial reporting year
of Moto Guzzi Corp. and financial statements are prepared using the
accounting principles of Moto Guzzi Corp.
For a summary of the Registrant's accounting principles, and other
footnote information, reference is made to the Proxy and Prospectus on
Form S-4, dated February 4, 1999. All adjustments necessary for the fair
presentation of the results of operations for the interim periods covered
by this report have been included. All of such adjustments are of a normal
and recurring nature. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the operating results
for the full year.
The primary financial statements are shown in Italian lire because all of
the Company's material operating entities are based and operate in Italy.
Translation of lire amounts into U.S. Dollar amounts is included solely
for the convenience of the readers of the financial statements and has
been made at the rate of Lire 1,819 to U.S. $1, the approximate exchange
rate at September 30, 1999. It should not be construed that the assets and
liabilities, expressed in U.S. dollar equivalents, can actually be
realized in or extinguished by U.S. dollars at that or any other rate.
2. Merger with Moto Guzzi Corp.
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 Guzzi Corp. would merge with and into the Company, with the Company
being the surviving corporation ("Merger"). TRG and its majority-owned
subsidiary, O.A.M. S.p.A., together owned all the outstanding common stock
of Guzzi Corp. prior to the merger. Guzzi Corp., through its wholly-owned
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.
9
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
2. Merger with Moto Guzzi Corp. (Continued)
The Merger was approved on March 4, 1999 and consummated on March 5, 1999.
On March 4, 1999 the Company's Class B shareholders also eliminated
authorization of the Company's Class B Common Stock and approved
conversion of each share of Class B Common Stock into 2 shares of Common
Stock and 2 Class A warrants. In accordance with the Merger Agreement, the
Company changed its name to Moto Guzzi Corporation and changed its common
stock ticker symbol to "GUZI".
The Merger has been treated as a reverse acquisition of the Company by
Guzzi Corp. The shareholders of Guzzi Corp. received an aggregate of
4,200,000 shares or approximately 76.4% of the post-Merger shares of the
Company, excluding any shares of the Company's formerly designated Class A
common stock issuable upon exercise of any options or warrants, and Guzzi
Corp., therefore, is the accounting acquiror. The cost of the acquisition
of the Company is based on the fair value of the Company's assets and
liabilities as of the date of the Merger of Lit. 14,586 million
(approximately $8,153,000 at the then prevailing exchange rate),
represented by Lit. 16,006 million in cash ($8,947,000) less Lit. 1,420
million ($794,000) of payables and accrued expenses, principally in
respect of merger expenses. Additionally, an aggregate of 30,000 shares of
common stock with a fair value of Lit. 591 million ($ 330,000) were
issuable to Graubard, Mollen & Miller, counsel to the Company, contingent
upon consummation of the Merger in payment of fees relating to the Merger
and 350,000 warrants with an exercise price of $10.00 were issued to the
Company's investment bankers.
3. Liquidity
Moto Guzzi has suffered recurring losses from operations and negative cash
flows during the last three years. The Merger in March 1999 raised
approximately $8 million which, however, is not sufficient to fund its
operations and cash flow needs through 1999. The Company has experienced
seasonal cash flow shortages in September through the end of October and
has accumulated arrearages to suppliers of approximately Lit. 7,000
million in this period. This amount is in addition to approximately Lit.
5,000 million of supplier payments for which the company habitually has
enjoyed extended credit terms beyond payment duedates, but for which no
formal arrangements for such extended credit terms exist. Moto Guzzi is
also not in compliance with certain covenants related to a Lit. 10,000
million credit facility which facility has been classified as a current
liability in the consolidated balance sheet. The Company is in
negotiations with the lender to define revised terms of this loan. There
can be no assurance that such negotiations will conclude on terms
satisfactory to the Company.
Excluding any requirement to repay this Lit. 10,000 million loan facility
on demand, management estimates that Moto Guzzi's financing requirements
through the end of the first quarter of 2000, if it is to continue to make
minimum necessary investments, will be approximately Lit 12,000 million, a
substantial part of which is required immediately to prevent component
delivery shortages which may result from the supplier arrearages described
above. If no financing is received before year end, the shortage of
liquidity could have the effect of curtailing operations to such point
that the Company would no longer be able to operate as a going concern.
As described below in Note 5, in August, 1999, certain directors and their
affiliates advanced $1.25 million (approximately Lit. 2.3 billion) in
August 1999. Moto Guzzi is actively discussing equity and debt
10
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
3. Liquidity (continued)
financing options with a number of parties, including possible business
combinations with larger entities which could result in a change in
control of the Company. There can be no assurance that any transaction
will occur or that the Company will be able to raise finance on
satisfactory terms, or at all. Accordingly, there is substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary should
the Company be unable to continue as a going concern.
4. Stock Options
On July 23, 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan") and the 1998 Plan for Outside Directors. Both Option Plans
were subject to stockholder approval and consummation of the Merger which
duly occurred in March 1999.
The 1998 Plan provides for the grant of options to purchase up to an
aggregate of 1,250,000 shares of the Company's common stock to be made to
employees, officers, directors and consultants of the Company and its
subsidiaries after the Merger. The 1998 Plan provides both for incentive
stock options ("Incentive Options"), and for options not qualifying as
Incentive Options ("Non Qualified Options"). The Company's Board or the
Committee will determine the exercise price for each share of the
Company's common stock purchasable under an Incentive or Non Qualified
Option (collectively "Options"). The exercise price of a Non Qualified
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). Options to purchase an aggregate of 255,000
shares of Common Stock at an exercise price of $10.625 were issued to
certain directors of the Company at the closing of the Merger. Options to
purchase an aggregate of 625,000 shares at an exercise price of $9.50 were
approved by the Board of Directors on March 8, 1999 for grant to
operational management employees, though none of these options have yet
been granted.
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 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 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. Options to purchase 100,000
shares of Common Stock at an exercise price of $10.625 were granted on the
closing of the Merger.
11
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
5. Potential Issue of Preferred Stock
To meet immediate financing needs in early August 1999, the Board of
Directors of the Company approved the issuance of units consisting of
preferred stock and fractional common stock warrants intended to raise up
to $5 million. As approved, each share of the preferred stock would have a
par value of $.01, a liquidation preference of $8.25, and would be
convertible into Common Stock on a share for share basis, subject to
protection against dilutive events.
In early August 1999, certain directors and their affiliates pledged $ 1.7
million and paid to the Company an aggregate of $ 1.25 million
(approximately Lit. 2.3 billion) in anticipation of subscribing to
definitive offering documentation. There can be no assurance that an
offering will in fact be made on the terms described above or at all, or
that, if made, will be fully subscribed for.
6. Shares issued to Parent company for ongoing provision of finance.
The Company owes O.A.M. S.p.A., the owner of approximately 61% of the
Company's common stock, an amount of approximately Lit. 3.2 billion in
respect of bridge financing made in anticipation of the closing of the
merger with NAAC. The loan was due and payable on closing of the merger on
March 5, 1999 and carries interest of 4% from April 1, 1999. Further,
O.A.M. S.p.A. has deposited funds at an Italian bank totalling Euro
2,050,000 (approximately Lit. 4.0 billion) to collateralize advances by
such bank to Moto Guzzi S.p.A. of approximately Lit. 4.0 billion. No cash
or other fees had been charged for this guarantee. In July 1999, the
Company agreed to issue 100,000 shares of Common Stock to O.A.M. S.p.A. on
condition that it agree to maintain both the loan and the funds
collateralizing Italian bank advances for a period of 1 year from April 1,
1999. O.A.M. S.p.A. also agreed to cancel 100,000 nominal warrants
received in the NAAC merger out of a total of 640,000 nominal warrants
received.
The fair value of the 100,000 shares of Common Stock to be issued to
O.A.M., based on market value at July 30, 1999 of $6.75 per share, is
$675,000, or Lit. 1,222 million at the then prevailing exchange rate. The
Company has accounted for these shares as finance expense and has recorded
Lit. 611 million as interest expense through September 30, 1999. The
balance of Lit. 611 million reflecting finance charges for future periods
is shown as a deduction against additional paid in capital as at September
30, 1999.
12
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Background
Until completion of its merger with Moto Guzzi Corp., Moto Guzzi Corporation,
formerly North Atlantic Acquisition Corp. ("North Atlantic") was a "blank check"
or "blind pool" company which was formed on August 9, 1995 to serve as a vehicle
to effect a merger, exchange of capital stock, asset acquisition or other
business combination (a "Business Combination") with an operating business (a
"Target Business"). The business objective of the Company was to effect a
Business Combination with a Target Business which the Company believed has
significant growth potential. As discussed in more detail in Note 2 to the
unaudited financial statements as at September 30, 1999, the Company merged with
Moto Guzzi Corp. on March 5, 1999.
Moto Guzzi Corp. was a Delaware corporation formed in 1996 to acquire Moto Guzzi
S.p.A., ("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.
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.
Sales had declined from 46,487 units in 1971 to a low of 3,274 in 1993. From
1994, Moto Guzzi Corp. started making the investments to rebuild its business.
Partly as a result of the increased investment, unit sales volumes increased to
5,647 in 1998. Despite revenue growth, Moto Guzzi incurred losses and had cash
outflows from operations for each of the years 1994 through 1998 including a net
loss of Lit. 20,299 million in 1998. To fund its operations, Moto Guzzi borrowed
or obtained capital from Italian financial institutions and from affiliated
entities, Trident Rowan Group, Inc. and its affiliate O.A.M. S.p.A. The two
companies collectively owned a 100% interest in Moto Guzzi Corp. until late 1996
and early 1997 when Moto Guzzi Corp. sold shares of preferred stock and common
stock purchase warrants in a private placement which raised approximately $5.2
million.
In 1998, Moto Guzzi Corp. explored various forms of financing, including an
initial public equity offering to provide working capital and make the necessary
investments to grow its business. In July 1998, it concluded that merger with
North Atlantic was an appropriate method of raising part of such finance and in
August 1998 it entered into agreement whereby it would merge with and into North
Atlantic.
13
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Strategy
The Company'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 Company 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.
In the future, the Company plans to introduce a range of branded accessories
such as hats, jackets, shirts and luggage. Moto Guzzi Corporation also plans to
exploit opportunities to license the "Moto Guzzi(R)" brand name to manufacturers
and suppliers of other products and services.
Recent Events
The closing of the merger with the Company on March 5, 1999 provided needed
liquidity to Moto Guzzi. A lack of liquidity had led to component supply
shortages in the last quarter of 1998 and the first two months of 1999.
Production and sales were stabilized by May 1999 and 1,900 units were produced
in the second quarter of 1999. Consolidated sales units were 1,823 in the second
quarter of 1999, an increase of 19.8% over the corresponding 1998 quarter.
In late March 1999, Ing. Mario Scandellari joined the company as Managing
Director of Moto Guzzi. Ing. Scandellari has had a successful executive career
both in the motorcycle industry, initially with Harley Davidson and then
Cagiva/Ducati, as well as in turnaround situations. Ing. Scandellari was named
Chief Operating Officer of the Company in May 1999.
In April 1999, Moto Guzzi introduced its California Jackal model. This "stripped
down" model highlights the elegance of Moto Guzzi's unique engine and design.
Reduced weight further enhances handling. Also in April, Moto Guzzi's California
Special model was awarded second place in the "cruiser" category by the premier
Italian motorcycle magazine "Motociclismo".
14
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
In July, Moto Guzzi introduced its V-11 Sport motorcycle, a "retro sport" model
with an innovative six-speed gearbox. This motorcycle has been greeted
enthusiastically by the trade press with many comparing it with the Company's
legendary V-7 Sport from the 1970's. Shipments of this new model are scheduled
to begin in September 1999.
On July 27, Moto Guzzi S.p.A. concluded labor negotiations resulting in a
temporary employee downsizing program commencing September 1999. The program
will last two years while the Company restructures production processes,
overhauls its plant, grows production volumes and improves productivity. These
enhancements will enable the Company to return to current employment levels with
significantly increased productivity and volumes.
Results of Operations for the 3 Months Ended
September 30, 1999 compared to September 30, 1998
<TABLE>
<CAPTION>
3 Months 3 Months
Sept. 30 Sept. 30
1999 1998
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 21,545 100.0% 19,633 100.0%
Cost of sales (19,071) (88.5%) (16,936) (86.3%)
------- -------
2,474 11.5% 2,697 13.7%
Selling, general and administrative expenses (4,469) (20.7%) (4,045) (20.6%)
Reorganization expense -- -- (1,852) (9.4%)
Research & development (572) (2.7%) (852) (4.3%)
------- -------
Operating (loss)/profit (2,567) (11.9%) (4,052) (20.6%)
Interest expense (1,186) (5.5%) (1,080) (5.5%)
Other income, net 99 0.5% 65 0.3%
------- -------
Loss before income taxes (3,654) (16.9%) (5,067) (25.8%)
Income tax expense (99) (0.5%) (135) (0.7%)
------- -------
Net loss (3,753) (17.4%) (5,202) (26.5%)
======= =======
</TABLE>
Net sales increased by Lit.1.9 billion or 9.7% from Lit. 19.6 billion to Lit.
21.5 billion while sales units increased 13.5% from 1,302 in 1998 to 1,608 in
1999. The average unit sales price fell in 1999 compared to 1998 as a result of
a change in the sales mix. In 1999, the Company's Jackal and Nevada models
represented a significant component of third quarter 1999 sales, along with the
V-11 Sport, which shipped from September. The Jackal is a stripped down cruiser
motorcycle with a lower price point and the Nevada is Moto Guzzi's 750cc "entry
level" model. In 1998, the Company sold a larger number of its more expensive
Centauro and fully-equipped California models.
Gross margins decreased from Lit. 2.7 billion or 13.7% in the second quarter of
1998 to Lit. 2.5 billion or 11.5% in the third quarter of 1999. The decrease is
principally due to the sales mix; the Jackal and Nevada models generate lower
margins than the Centauro and California models which were large components in
the 1998 product mix.
15
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Selling, general and administrative expenses increased by 10.4% to Lit. 4.5
billion in 1999 compared to Lit. 4.0 billion in 1998. The principal factor for
the increase was expenses at Moto America which increased by Lit. 316 million or
63% reflecting a new management team installed in April 1999 and expenses
related to building and motivating the sales network.
In 1998, the Company recorded reorganization expenses of Lit. 1,852 million in
the third quarter to reflect charges related to an aborted move to a new plant
and for changes in the product plan made pursuant to the termination of this
move.
Interest expense increased by Lit. 0.1 billion to Lit. 1.2 billion in 1999
compared to 1998. This reflects the effects of lower interest rates in 1999
offset by a Lit. 0.3 billion interest charge on parent company financing as
described in Note 5 to the interim financial statements.
As a result of the above factors, net loss in the quarter ended September 30,
1999 decreased to Lit. 3.8 billion compared to Lit. 5.2 billion in the
comparable 1998 quarter.
Results of Operations for the 9 Months Ended
September 30, 1999 compared to September 30, 1998
<TABLE>
<CAPTION>
9 Months 9 Months
Sept. 30 Sept. 30
1999 1998
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 62,923 100.0% 67,622 100.0%
Cost of sales (57,517) (91.4%) (55,691) (82.4%)
------- ------
5,406 8.6% 11,931 17.6%
Selling, general and administrative expenses (13,923) (22.1%) (11,906) (17.5%)
Reorganization expense -- (1,852) (2.7%)
Research & development (2,123) (3.4%) (3,078) (4.6%)
------- ------
Operating (loss)/profit (10,640) (16.9%) (4,905) (7.3%)
Interest expense (3,471) (5.5%) (3,286) (4.9%)
Other income, net 124 0.2% 199 0.3%
------- ------
Loss before income taxes (13,987) (22.2%) (7,992) (11.8%)
Income tax expense (165) (0.3%) (616) (0.9%)
------- ------
Net loss (14,152) (22.5%) (8,608) (12.7%)
======= ======
</TABLE>
Net sales for the nine month period ending September 30, 1999 decreased by Lit.
4.7 billion or 6.9% from Lit. 67.6 billion in the corresponding 1998 period to
Lit. 62.9 billion due to changes in the sales mix, as described above and
recognition in the first half of 1998 of Lit. 3.8 billion of net sales resulting
from an unusual public administration order. Sales and production through April
1999 were also significantly affected by a disruption in the supply of
components due to liquidity
16
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
difficulties. Sales units increased 0.8% from 4,611 units in 1998 to 4,649 units
in 1999. Excluding the exceptional 1998 public administration order, sales units
would have increased 8.1% in 1999 compared to 1998 and the decrease in net sales
would have been 1.3%.
Gross margins decreased from Lit.11.9 billion or 17.6% in the first nine months
of 1998 to Lit. 5.4 billion or 8.6% in the first nine months of 1999. The
decrease is principally due to the altered product mix, the exceptional public
administration order in the first quarter of 1998 and the significantly
decreased production levels in the first part of 1999 resulting from the
disruption in the supply of components. The consequence of lower production
levels through April 1999 is that fixed production costs were absorbed over
lower production volumes, reducing gross margin.
Selling, general and administrative expenses increased by 16.9% to Lit. 13.9
billion in 1999 compared to Lit. 11.9 billion in 1998. Expenses at Moto America
increased by Lit. 0.7 billion or 45.6% due to the installation of the new
management team in the second quarter and expenses related to a more aggressive
approach in advertising products and motivating sales. Italy and corporate costs
increased Lit 1.2 billion or 12.4% reflecting expenses in connection with the
launch of the California Jackal and costs connected with being a public company.
As described above, the Company recorded reorganization expense of Lit.1,852
million in 1998 which charge does not appear in 1999.
Interest expense increased from Lit. 3.3 billion to Lit. 3.5 billion as a result
of the effects of lower interest rates being offset by a Lit. 0.6 billion charge
on parent company debt, as described above and Note 5 to the Interim Financial
Statements.
As a result of the above factors, net loss for the nine month period ended
September 30, 1999 increased to Lit. 14.2 billion compared to Lit. 8.6 billion
in the comparable period in 1998.
17
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Financial Resources
Operations
Cash outflows from operations in the 9 months ended September 30, 1999 were Lit.
12.7 billion compared to Lit. 10.4 billion in the corresponding 1998 period. In
addition to losses from operations, significant working capital movements
contributed to outflows. Receivables increased Lit. 2.8 billion (1998 - Lit. 4.1
billion) due to seasonal factors. Inventories increased Lit. 0.9 billion (1998
increase Lit. 6.3 billion) principally due to increases in components and
work-in-progress in Italy more than offsetting reduction of finished goods
inventory in the U.S. and France. Trade and other payables increased Lit. 2.7
billion (compared to a 1998 increase of Lit. 3.7 billion) principally reflecting
delays of payments to suppliers at the end of August and in September 1999 due
to seasonal factors, as discussed elsewhere.
Investment activities
Capital expenditures principally related to tooling for the California Jackal
model, introduced in April 1999, the V-11 Sport model, which will be introduced
in September 1999 and routine capital maintenance expenditure.
Financing Activities
Cash from the March 1999 merger of Lit. 16 billion reflects the approximately
$8.9 million of cash in the Company at closing. Approximately Lit. 1.4 billion
of liabilities and accruals, principally for merger expenses were also acquired,
most of which were paid shortly after closing, so that net cash acquired was
approximately Lit. 14.6 billion. In August 1999, certain directors and their
affiliates advanced $ 1.25 million (Lit. 2.3 billion) for subscription to a
potential preferred stock issue - See Note 5 to Interim financial statements.
Future liquidity needs
To enable substantial further growth in production and sales, the Company's
strategic plan contemplates total investments in research and product
development of some Lit. 50 billion (approximately $28 million) in the five year
period from 1999 through 2003. The plan also contemplates investments of Lit. 20
billion (approximately $11 million) in production plant and machinery and
information systems. Much of the production machinery at Moto Guzzi's facility
is aged and in need of extensive modification, improvement or replacement. Moto
Guzzi believes that the existing plant at Mandello del Lario, Italy has a
potential production capacity that will be sufficient for its needs for at least
the next three/four years and is not actively seeking any other alternatives at
the present time. Moto Guzzi will have to make significant investments in the
existing plant in order that it can operate competitively. Such required
modernization may result in production interruptions.
The Company expects that, over the next four years, significant further capital
will be required to complete the planned overhaul. While anticipated increases
in sales during the period, if realized, would provide a significant portion of
the needed capital, anticipated internally generated cash and currently
available bank financing, in the aggregate, will not be sufficient to enable the
Company to increase production and sales rapidly enough to generate the
remaining needed capital. Moreover, in the four years ended December 31, 1998,
Moto Guzzi has not generated cash from operations.
18
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
In February 1998 Moto Guzzi obtained a Lit. 10,000 million 10 year credit
facility, drawn down in April 1998, with principal repayments commencing from
the third year. The terms of the loan included covenants relating to the share
capital and equity (according to local Italian accounting principles) of Moto
Guzzi S.p.A as at December 31, 1998. Due to the losses in 1998 and delays in
closing the merger, Moto Guzzi is not in compliance with these covenants, the
consequence of which is that the lender can request immediate repayment of the
loan. The loan is classified as a current liability in the balance sheet as at
March 31, 1999. The Company has advised the lender of the non-compliance and is
in discussions to renegotiate the terms of the loan. No assurance can be given
that these negotiations will successfully conclude on terms satisfactory to the
Company.
The Company has experienced seasonal cash flow shortages in September through
the end of October and has accumulated arrearages to suppliers of approximately
Lit. 7,000 million in this period. This amount is in addition to approximately
Lit. 5,000 million of supplier payments for which the company habitually has
enjoyed extended credit terms beyond due payment dates, but for which no formal
arrangements for such extended credit terms exist.
Excluding any requirement to repay this Lit. 10,000 million loan facility on
demand, management estimates that Moto Guzzi's financing requirements through
the end of the first quarter of 2000, if it is to continue to make minimum
necessary investments, will be approximately Lit 12,000 million, a substantial
part of which is required immediately to prevent component delivery shortages
which may result from the supplier arrearages described above. If no financing
is received before year end, the shortage of liquidity could have the effect of
curtailing operations to such point that the Company would no longer be able to
operate as a going concern.
As described in Note 5 to the unaudited financial statements, in August, 1999,
certain directors and their affiliates advanced $1.25 million (approximately
Lit. 2.3 billion) in August 1999. Moto Guzzi is actively discussing equity and
debt financing options with a number of parties, including possible business
combinations with larger entities which could result in a change in control of
the Company. There can be no assurance that any transaction will occur or that
the Company will be able to raise finance on satisfactory terms, or at all.
Accordingly, there is substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
19
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Potential effects of the year 2000 on the Company's business
Many older computer systems and electronic devices are based on software systems
which, because of how dates are stored and manipulated, assume that all years
occur only in the 20th century. Consequently, after December 31, 1999, such
devices may not function correctly. The Company, like many other businesses and
individuals, is potentially subject to adverse consequences arising both from
the incorrect functioning of any systems used in its own business such as
accounting, production control, inventory and automated equipment and also from
the incorrect functioning of systems of suppliers, customers, utilities, banks
and financial institutions and others with whom it interacts in the normal
course of its business.
The following discussion of the effect of the Year 2000 on the Company's systems
is based on management's best estimates, which were derived using numerous
assumptions of future events, including the continuing availability of basic
utilities and other resources, the availability of trained personnel at
reasonable cost, and the ability of third parties to cure noncompliant software
and hardware. There can be no guarantee that these assumptions will prove
accurate, and accordingly the actual results may materially differ from those
anticipated.
In analyzing its exposure to operational interruption resulting from the advent
of January 1, 2000, management of the Company segmented its data processing
systems into three segments: Production Planning and Logistics; Accounting; and
Production Equipment.
Production Planning and Logistics
Moto Guzzi has completed its assessment of all data processing devices involved
in production planning and logistics and has concluded that these systems are
Year 2000 compliant.
Accounting
The Company's operations do not have unique or custom-tailored requirements for
their accounting systems. Nonetheless, their accounting systems were not Year
2000 compliant. In connection partly with routine system upgrade and
maintenance, and partly accelerated upgrade related to the Year 2000 problem,
all of Moto Guzzi's accounting systems were upgraded during the summer of 1999
to Year 2000 compliant status.
20
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Production Equipment
Moto Guzzi believes it has identified all of the items of production machinery
and related equipment which are critical to uninterrupted operations, and, in
December, 1998 began to conduct a comprehensive inventory of all such items
which incorporate electronic devices, or which process dates in their ordinary
operation, to determine whether such operations will be affected by the Year
2000 problem. Moto Guzzi has completed its analysis of production machinery, has
operated approximately 90% of these machines requiring intervention and expects
to complete all remaining upgrades by year end.
Customer or Supplier Compliance
The Company does not engage in material electronic data interchange with any of
its customers or component suppliers. An electronic interface is maintained with
one of Moto Guzzi's financial institutions. The Company's motorcycle dealers are
not believed to be heavily dependent upon computer systems other than in
connection with their accounting systems.
Moto Guzzi has not yet completed polling its suppliers and customers to
determine their own state of Year 2000 compliance, which process is being
completed in November 1999. On completion, the Company will evaluate the level
of exposure Moto Guzzi faces should it be determined that Year 2000 compliance
has not been achieved, and does not seem to be timely capable of achievement.
Contingency Planning
Moto Guzzi has not established a contingency plan to deal with the advent of
January 1, 2000 without its own systems having been rendered Year 2000
compliant, because management does not believe that Moto Guzzi faces a material
risk that such an event is likely to occur, or, if it occurs, will result in
significant interruption in its operations. Moto Guzzi has not yet established a
contingency plan in the event a critical service or component supplier or
customer will not achieve Year 2000 compliance. Moto Guzzi will reassess the
need to establish such a contingency plan if, following its assessment of its
customer and suppliers, it appears that one or more critical customers or
suppliers will have to curtail business with Moto Guzzi because of that customer
or supplier's own Year 2000 exposure. Nevertheless, Moto Guzzi assumes that if a
supplier, whether of utility services, such as electricity, or of components,
cannot provide it with written assurance of compliance, that compliance will not
be achieved. If, in the reasonably possible, if unlikely, event that critical
services are affected, such as utilities, telecommunications or banking or if
components are unavailable and cannot be obtained from other sources which are
compliant, Moto Guzzi will have to curtail its operations.
Total Cost to Achieve Year 2000 Compliance
Moto Guzzi has, to date, spent an inconsequential amount directly attributable
to Year 2000 compliance, exclusive of routine personnel expenses. Moto Guzzi
does not expect that the aggregate cost for Moto Guzzi to achieve Year 2000
compliance will exceed approximately Lit. 500 million ($302,000), an amount
which is not considered material to Moto Guzzi's operations. Because so many
factors are beyond the control of Moto Guzzi, however, there can be no assurance
that these costs will not be exceeded. In the worst case scenario where
essential services are lost or critical components are no longer supplied, Moto
Guzzi will curtail its operations, in which event, the loss of revenues will
greatly exceed Year 2000 remediation expenses.
21
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Potential effects of the European Common Currency on the Company's business
The Company's businesses are substantially located and operate in Italy. On
January 1, 1999, Italy was admitted as one of 11 European countries in the new
European common currency, the Euro.
The European Common Currency is expected to have significant effects on the
Company's business. Among many potential economic factors, the common currency
is expected to increase competition within the common currency zone. Because the
adoption of the Euro will require competitive businesses located in different
participating countries to price their products in a single currency, the
historical ability of such companies to increase or reduce prices without
affecting operating results in their home countries' currencies will be largely
eliminated.
The uniform currency will also likely result in the establishment of new
Euro-based pricing points, e.g., Euro 9,999 or Euro 19,999. These new pricing
points may differ from the current prices charged for such products, which could
be advantageous or disadvantageous to a company, depending upon whether the
Euro-based price point is higher or lower than the prices charged before the
adoption of the uniform currency. Moto Guzzi will have to re-evaluate its
pricing policies and model specifications to most competitively deal with the
new pricing points.
Moto Guzzi also expects that the introduction of the Euro will increase
consolidation within industries and industry sectors, as currency translation
risks and competitive opportunities diminish within the common currency zone.
National regulatory barriers are also likely to fall as participating countries
harmonize their rules to promote intra-member commerce and cross-border
information exchange.
The combination of pricing transparency and consolidation is likely to increase
competition within the common currency zone generally. To the extent that
competitors of Moto Guzzi participate in the expected consolidation, Moto Guzzi
may in the future face competitors which are even larger and better capitalized
than the competitors it faces now.
22
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Additionally, interest rates are likely to stabilize across the common currency
zone. Interest rates in Italy have fallen since 1997, partly in anticipation and
response to the Euro introduction.
Moto Guzzi has not yet fully evaluated the ramifications of the adoption of the
uniform currency because national European currencies continue to function as
more dominant benchmarks for pricing and commercial transactions with customers
and suppliers in the first months of the phasing in of the Euro. Adoption of the
Euro is expected to take place over a two year transition phase in which both
the Lira and the Euro are valid currencies for business transaction in Italy.
Moto Guzzi also makes significant export sales outside the proposed common
currency zone and the prices of certain commodities used in its manufacturing
processes may be affected by the value of the Euro. The implementation of the
Euro within the common currency zone could have unanticipated consequences on
the economics of participant countries which could affect demand for the
company's products.
Adoption of the Euro is expected to take place over a two year transition phase
in which initially both the Lira and the Euro would be valid currencies for
business transactions in Italy.
The European Common Currency could have a significant effect on Moto Guzzi's
accounting systems which could require significant modification or replacement.
Management believes that Moto Guzzi's businesses do not have unique or
custom-tailored requirements for accounting systems and that it could rapidly
and inexpensively change to "off-the-shelf" systems at an appropriate time if
existing systems prove not to be adequate. The Company is not able to evaluate
these matters or the effects on international financial and payment systems with
which it interacts at the present time. The Company will address these issues
during the current year and in 2000 as further guidelines and information become
available. Adoption of the Euro would also lead to the Company reporting its
results in that currency instead of the Italian Lira from some point in the
future, yet to be defined.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 22, 1999 Moto Guzzi Corporation
By Mark S. Hauser
-----------------------
Mark S. Hauser
Executive Chairman
By Nick Speyer
-----------------------
Nick Speyer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements dated September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 937,000
<SECURITIES> 0
<RECEIVABLES> 16,243,000
<ALLOWANCES> 1,074,000
<INVENTORY> 21,511,000
<CURRENT-ASSETS> 37,910,000
<PP&E> 24,492,000
<DEPRECIATION> 15,655,000
<TOTAL-ASSETS> 47,364,000
<CURRENT-LIABILITIES> 44,004,000
<BONDS> 1,437,000
0
0
<COMMON> 55,000
<OTHER-SE> (2,507,000)
<TOTAL-LIABILITY-AND-EQUITY> 47,364,000
<SALES> 34,592,000
<TOTAL-REVENUES> 34,592,000
<CGS> 31,619,000
<TOTAL-COSTS> 8,822,000
<OTHER-EXPENSES> (68,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,908,000
<INCOME-PRETAX> (7,689,000)
<INCOME-TAX> 91,000
<INCOME-CONTINUING> (7,780,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,780,000)
<EPS-BASIC> (1.54)
<EPS-DILUTED> (1.54)
<FN>
* Dollar amounts are based on conversion rate of 1,819 Lire to the Dollar
which prevailed on September 30, 1999
</FN>
</TABLE>
