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 June 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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.
North Atlantic Acquisition Corp., 5 East 59th Street, New York, NY 10022
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 $.01 per share, 5,496,000 shares outstanding as of
August 13, 1999.
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
INDEX
Part I - Financial Information
Item 1. Financial statements:
Balance sheets as of June 30, 1999 and December 31, 1998 .... 3
Statements of operations for the three months
ended June 30, 1999 and 1998 ................................ 5
Statements of operations for the six months ended
June 30, 1999 and 1998 ...................................... 6
Statements of stockholders' equity and comprehensive
income/(loss) for the six months ended June 30, 1999 ........ 7
Statements of cash flows for the six months ended
June 30, 1999 and 1998 ...................................... 8
Notes to financial statements ............................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 14
Part II - Other Information
Item 1. Legal Proceedings ................................................ 26
Item 2. Changes in Securities ............................................ 26
Item 3. Defaults Upon Senior Securities .................................. 26
Item 4. Submission of Matters to a Vote of Security Holders .............. 26
Item 5. Other Information ................................................ 26
Item 6. Exhibits and Reports on Form 8-K ................................. 26
Signatures ................................................................ 27
2
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 June 30 Dec. 31
1999 1999 1998
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 429 Lit. 807 Lit. 217
Receivables .............................................. 17,682 33,242 24,427
Trade, less allowance of Lit. 2,026 (1998 - Lit. 2,026) 12,855 24,168 16,288
Receivables from related parties ....................... 3,185 5,988 4,167
Other receivables ...................................... 1,642 3,086 3,972
Inventories .............................................. 21,212 39,878 37,682
Raw materials, spare parts and work-in-process ......... 13,953 26,231 22,880
Finished products ...................................... 7,259 13,647 14,802
Prepaid expenses ......................................... 286 537 341
-------- -------- --------
TOTAL CURRENT ASSETS ..................................... 39,609 74,464 62,667
-------- -------- --------
Property, plant and equipment ............................ 8,825 16,591 16,787
Land ................................................... 402 755 755
Buildings .............................................. 1,434 2,696 2,696
Machinery and equipment ................................ 21,631 40,667 38,949
-------- -------- --------
At cost ................................................ 23,467 44,118 42,400
Less allowances for depreciation ....................... (14,642) (27,527) (25,613)
Goodwill, net of amortization of Lit. 169 (1998 - Lit 156) 43 80 106
Investments in affiliates ................................ 346 651 651
Other assets ............................................. 246 463 466
-------- -------- --------
TOTAL ASSETS ............................................. $ 49,069 Lit. 92,249 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>
June 30 June 30 Dec. 31
1999 1999 1998
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
LIABILITIES
Advances from banks................................... $ 18,316 Lit. 34,434 Lit. 27,063
Current portion of long-term debt ..................... 5,924 11,138 11,823
Loans due to parent company ........................... 1,699 3,194 3,082
Accounts payable ...................................... 14,843 27,904 28,278
Amounts due to related and affiliated parties ......... 50 93 1,257
Accrued expenses and other payables ................... 4,411 8,290 6,357
-------- -------- --------
TOTAL CURRENT LIABILITIES ............................. 45,243 85,053 77,860
-------- -------- --------
Long-term debt, less current portion .................. 1,536 2,888 2,986
Loans due to parent company ........................... -- -- 13,362
Termination indemnities ............................... 4,157 7,817 7,573
SHAREHOLDERS' DEFICIT ................................. (1,866) (3,509) (21,104)
Convertible preferred stock, par value $0.01 per share:
Authorized 1,000,000 shares;
94 (1998 - none) shares outstanding;
Liquidation preference $9,400 ....................... -- -- --
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares;
5,496,000 (1998 - 3,328,047) shares outstanding ..... 52 98 59
Additional paid-in capital ............................ 20,702 38,290 11,011
Cumulative translation adjustment ..................... 108 203 157
Accumulated deficit ................................... (22,728) (42,730) (32,331)
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' DEFICIT ................. $ 49,069 Lit. 92,249 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 June 30, 1999 and 1998
<TABLE>
<CAPTION>
June 30 June 30 Dec. 31
1999 1999 1998
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales .................................. $ 12,662 Lit. 23,805 Lit. 22,403
Cost of sales .............................. (11,168) (20,997) (17,833)
---------- ---------- ----------
1,494 2,808 4,570
Selling, general and administrative expenses (2,944) (5,533) (4,548)
Research and development ................... (577) (1,085) (1,352)
---------- ---------- ----------
Operating loss ............................. (2,027) (3,810) (1,330)
Interest expense ........................... (649) (1,221) (1,220)
Other (expense)/income, net ................ (20) (37) 243
---------- ---------- ----------
Loss before income taxes ................... (2,696) (5,068) (2,307)
Income taxes ............................... (14) (26) (264)
---------- ---------- ----------
Net loss ................................... $ (2,710) (5,094) (2,571)
========== ========== ==========
LOSS PER SHARE: US $ Lire Lire
Basic ...................................... $ (0.49) Lit. (927) Lit. (773)
========== ========== ==========
Diluted .................................... $ (0.49) Lit. (927) Lit. (773)
========== ========== ==========
Weighted average number of common shares
outstanding during the period
Basic ...................................... No. 5,496,000 No. 5,496,000 No. 3,328,047
========== ========== ==========
Diluted .................................... No. 5,603,791 No. 5,603,791 No. 3,328,047
========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
#260313.v1
5
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Statements of Operations
Six Months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
June 30 June 30 June 30
1999 1999 1998
US $'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales .................................. $ 22,010 Lit. 41,378 Lit. 47,989
Cost of sales .............................. (20,449) (38,446) (38,755)
---------- ---------- ----------
1,561 2,932 9,234
Selling, general and administrative expenses (5,030) (9,454) (7,861)
Research and development ................... (825) (1,551) (2,226)
---------- ---------- ----------
Operating loss ............................. (4,294) (8,073) (853)
Interest expense ........................... (1,215) (2,285) (2,206)
Other income, net .......................... 13 25 134
---------- ---------- ----------
Loss before income taxes ................... (5,496) (10,333) (2,925)
Income taxes ............................... (35) (66) (481)
---------- ---------- ----------
Net loss ................................... $ (5,531) (10,399) (3,406)
========== ========== ==========
LOSS PER SHARE: US $ Lire Lire
Basic ...................................... $ (1.17) Lit. (2,193) Lit. (1,023)
========== ========== ==========
Diluted .................................... $ (1.17) Lit. (2,193) Lit. (1,023)
========== ========== ==========
Weighted average number of common shares
outstanding during the period
Basic ...................................... No. 4,741,409 No. 4,741,409 No. 3,328,047
========== ========== ==========
Diluted .................................... No. 4,901,065 No. 4,901,065 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>
Common Stock Class A Preferred Stock Additional
------------ ----------------------- paid-in Translation
Lire million Shares Amount Shares Amount capital adjustment
--------- --------- --------- --------- --------- ---------
<S> <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 ..... -- -- -- -- -- 46
Parent company debt exchange 871,953 16 -- -- 13,346
Issuance of shares in merger 1,296,000 23 94 -- 14,563 --
--------- --------- --------- --------- --------- ---------
At June 30, 1999 ........... 5,496,000 Lit.m 98 94 -- 38,920 203
========= ========= ========= ========= =========
At June 30, 1999 ........... $'000 52 -- 20,702 108
========= ========= ========= =========
<CAPTION>
SHAREHOLDERS' Comprehensive
Accumulated (DEFICIT)/ Income/
Lire million deficit EQUITY (Loss)
--------- --------- ---------
<S> <C> <C> <C>
At January 1, 1997 ......... (1,463) 6,697
SNet loss ................... (10,569) (10,569) (10,569)
Translation adjustment ..... -- 202 202
Issuance of shares ......... -- 2,933 --
--------- --------- ---------
At December 31, 1997 ....... (12,032) (737) (10,367)
Net loss ................... (20,299) (20,299) (20,299)
Translation adjustment ..... -- (68) (68)
--------- --------- ---------
At December 31, 1998 ....... (32,331) (21,104) (20,367)
Net loss ................... (10,399) (10,399) (10,399)
Translation adjustment ..... -- 46 46
Parent company debt exchange 13,362
Issuance of shares in merger -- 14,586
--------- --------- ---------
At June 30, 1999 ........... (42,730) (3,509) (10,353)
========= ========= =========
At June 30, 1999 ........... (22,728) (1,866) (5,507)
========= ========= =========
</TABLE>
See Notes to Condensed Financial Statements
7
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Condensed Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
June 30 June 30 June 30
1999 1999 1998
US$'000 Lit.m. Lit.m.
<S> <C> <C> <C>
Net loss .................................... $ (5,531) Lit. (10,399) Lit. (3,406)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ............. 1,014 1,907 1,465
Gain on sales of operating assets ......... 1 2
Termination indemnities, net .............. 130 244 (176)
Other operating activities ................ (158) (297) 176
Changes in operating assets and liabilities:
Trade and other receivables ............... (3,470) (6,524) (7,838)
Related party receivables ................. (968) (1,819) 1,386
Inventories ............................... (819) (1,540) (5,831)
Prepaid expenses .......................... (102) (191) (804)
Accounts payable and accrued expenses ..... (742) (1,395) 5,208
Related party payables .................... -- -- 395
-------- -------- --------
Net cash used by operating activities ....... (10,645) (20,012) (9,425)
-------- -------- --------
Investing activities:
Purchases of property, plant and equipment (846) (1,591) (5,115)
-------- -------- --------
Net cash used in investing activities ....... (846) (1,591) (5,115)
-------- -------- --------
Financing activities:
Increase in advances from banks ........... 3,733 7,018 6,454
Cash from merger with North Atlantic (Note) 8,514 16,006 --
Proceeds of long-term debt ................ -- -- 10,000
Principal payments of long-term debt ...... (457) (859) (825)
-------- -------- --------
Net cash provided by financing activities ... 11,790 22,165 15,629
-------- -------- --------
Increase/(decrease) in cash ................. 299 562 1,089
Exchange movement on opening cash ........... 15 28 6
Cash, beginning of period ................... 115 217 6,352
-------- -------- --------
Cash, end of period ......................... $ 429 Lit. 807 Lit. 7,447
======== ======== ========
</TABLE>
Note: The Company also acquired payables and other accruals for Lit. 1,420
million, principally relating to merger expenses, on 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 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 six months ended
June 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 1,880 to U.S. $1, the approximate exchange
rate at June 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 $8 million which, however, is not sufficient to fund its
operations and cash flow needs through 1999. Moto Guzzi is also not in
compliance with certain covenants related to a Lit. 10,000 million credit
facility which facility has been classified as a current liability in the
consolidated balance sheet. The Company is in negotiations with the lender
to define revised terms of this loan. There can be no assurance that such
negotiations will conclude on terms satisfactory to the Company.
Excluding any requirement to repay this Lit. 10,000 million loan facility
on demand, management estimates that Moto Guzzi's financing requirements
through the end of the first quarter of 2000, if it is to continue to make
minimum necessary investments, will be approximately Lit. 10,000 million
to Lit 12,000 million. A substantial part of this amount will be required
before the end of the third quarter of 1999 to finance working capital in
the seasonal liquidity lowpoint which is expected in August and September.
As described below in Note 5, in August, 1999, certain directors and their
affiliates agreed to subscribe to preferred stock raising US$ 1.7 million
(Lit. 3.0 billion) to finance immediate requirements. Moto Guzzi is
actively discussing equity and debt financing options with
10
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
3. Liquidity (continued)
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 and 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.
11
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
4. Stock Options (continued)
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.
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
par value of $.01, a liquidation preference of $8.25, and would be
convertible into Common Stock on a share for share basis, subject to
protection against dilutive events.
In early August 1999, certain directors and their affiliates paid to the
Company an aggregate of US$ 1.7 million (approximately Lit. 3.0 billion)
in anticipation of subscribing to definitive offering documentation. There
can be no assurance that an offering will in fact be made, 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. 1,220 million at the then prevailing
12
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Notes to Unaudited Condensed Financial Statements
exchange rate. The Company will account for these shares as finance
expense and has accrued Lit. 305 million as interest expense in the second
quarter of 1999.
13
<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 June 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.
14
<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".
15
<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 it is hoped, will enable the Company to return to current
employment levels with significantly increased productivity and volumes.
Results of Operations for the 3 Months Ended
June 30, 1999 compared to June 30, 1998
<TABLE>
<CAPTION>
3 Months 3 Months
June 30 June 30
1999 1998
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 23,805 100.0% 22,403 100.0%
Cost of sales (20,997) (88.2%) (17,883) (79.6%)
------- -------
2,808 11.8% 4,570 20.4%
Selling, general and administrative expenses (5,553) (23.2%) (4,548) (20.3%)
Research & development (1,085) (4.6%) (1,352) (6.0%)
------- -------
Operating (loss)/profit (3,810) (16.0%) (1,330) (5.9%)
Interest expense (1,221) (5.1%) (1,220) (5.4%)
Other income, net (37) (0.2%) 243 1.1%
------- -------
Loss before income taxes (5,068) (21.3%) (2,307) (10.3%)
Income tax expense (26) (0.1%) (264) (1.2%)
------- -------
Net loss (5,094) (21.4%) (2,571) (11.5%)
======= =======
</TABLE>
Net sales increased by Lit.1.4 billion or 6.3% from Lit. 22.4 billion to Lit.
23.8 billion while sales units increased 19.8% from 1,522 in 1998 to 1,823 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, sales were predominantly of the Company's
Jackal and Nevada models. 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
16
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
expensive Centauro and fully-equipped California models. Production of the
Centauro was terminated earlier in 1999.
Gross margins decreased from Lit. 4.6 billion or 20.4% in the second quarter of
1998 to Lit. 2.8 billion or 11.8% in the second 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.
Selling, general and administrative expenses increased by 21.7% to Lit. 5.5
billion in 1999 compared to Lit. 4.5 billion in 1998. Expenses at Moto America
increased by Lit. 402 million or 78% reflecting a new management team installed
in April 1999 and expenses related to building and motivating the sales network.
Expenses in Italy and corporate costs increased Lit 549 million or 14.7%
reflecting expenses in connection with the launch of the California Jackal and
costs connected with being a public company.
Interest expense was substantially unchanged at Lit. 1.2 billion. 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 June 30, 1999
increased to Lit. 5.1 billion compared to Lit. 2.6 billion in the comparable
1998 quarter.
Results of Operations for the 6 Months Ended
June 30, 1999 compared to June 30, 1998
<TABLE>
<CAPTION>
6 Months 6 Months
June 30 June 30
1999 1998
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 41,378 100.0% 47,989 100.0%
Cost of sales (38,466) (92.9%) (38,755) (80.8%)
-------- --------
2,932 7.1% 9,234 19.2%
Selling, general and administrative expenses (9,454) (22.8%) (7,861) (16.4%)
Research & development (1,551) (3.7%) (2,226) (4.6%)
-------- --------
Operating (loss)/profit (8,073) (19.5%) (719) (1.5%)
Interest expense (2,285) (5.5%) (2,206) (4.6%)
Other income, net 25 0.1% 134 0.3%
-------- --------
</TABLE>
17
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<S> <C> <C> <C> <C>
Loss before income taxes (10,333) (24.9%) (2,925) (6.1%)
Income tax expense (66) (0.2%) (481) (1.0%)
-------- --------
Net loss (10,094) (25.2%) (3,406) (7.1%)
======== ========
</TABLE>
Net sales for the six month period ending June 30, 1999 decreased by Lit. 6.6
billion or 13.8% from Lit. 48.0 billion in the corresponding 1998 period to Lit.
41.4 billion due to 1) changes in the sales mix, as described above; and 2) the
first half of 1998 included 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 difficulties. Sales units decreased 8.1% from 3,309 units in 1998
to 3,041 units in 1999. Excluding the exceptional 1998 public administration
order, sales units would have increased 1.5% in 1999 compared to 1998 and the
decrease in net sales would have been 6.3%.
Gross margins decreased from Lit.9.2 billion or 19.2% in the second quarter of
1998 to Lit. 2.9 billion or 7.1% in the second quarter 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 20.3% to Lit. 9.5
billion in 1999 compared to Lit. 7.9 billion in 1998. Expenses at Moto America
increased by Lit. 0.4 billion or 36.6% 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 1.1 billion or 18.5% reflecting expenses in connection with the
launch of the California Jackal and costs connected with being a public company.
Interest expense increased from Lit. 2.2 billion to Lit. 2.3 billion as a result
of the effects of lower interest rates being offset by a Lit. 0.3 billion charge
on parent company debt, as described above.
As a result of the above factors, net loss for the six month period ended June
30, 1999 increased to Lit. 10.4 billion compared to Lit. 3.4 billion in the
comparable 1998 quarter.
18
<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 6 months ended June 30, 1999 were Lit. 20.0
billion compared to Lit. 9.54 billion in the corresponding 1998 period. In
addition to losses from operations, significant working capital movements
contributed to outflows. Receivables increased Lit. 8.3 billion (1998 - Lit. 6.5
billion) due to seasonal factors, with the second quarter being the strongest
quarter for sales. Inventories increased Lit. 1.5 billion (1998 increase Lit.
5.8 billion) principally due to increases in components in Italy more than
offsetting reduction of finished goods inventory in the U.S. and France. Trade
and other payables decreased Lit. 1.4 billion (compared to a 1998 increase of
Lit. 5.2 billion) principally reflecting seasonal increases offset by payments
of arrears made from the proceeds of the March 1999 merger as well as payment of
merger expenses.
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
Increases in advances from banks represent advances against increased levels of
trade receivables, as described above. In addition, the Company had Lit. 4.0
billion of bank credit lines in 1999 which are secured by similar amounts
deposited as collateral by O.A.M. S.p.A.. 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.
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 or four years and is not actively seeking any other alternatives
at the present time. Moto Guzzi will have to make significant investments in
19
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
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.
Additionally, management estimates that Moto Guzzi requires approximately Lit.
10,000 - 12,000 million of additional capital within the next 12 months to fund
operations and if it is to continue to make minimum necessary investments. The
seasonality of Moto Guzzi's business is such that the substantial part of such
capital will be required before the end of the third quarter of 1999. In August,
1999, certain directors and their affiliates paid a total of US$ 1.7 million
(Lit. 3.0 billion) to the Company to finance immediate requirements in
anticipation of subscribing to a contemplated preferred stock and warrant
offering approved by the Board of Directors. The Company hopes to raise up to
US$ 5 million of financing through this potential offering to provide coverage
of further short-term cash needs. There can be no assurance that an offering
will in fact be made or that, if made, it will be fully subscribed for.
Management is actively exploring a variety of debt and equity financing options,
though no arrangements have been made for any form of longer-term financing. No
assurances can be given that such financing will be obtained on acceptable
terms, or at all. Additionally, the Company is actively exploring possible
business combinations with larger entities which could result in a change in
control of the Company. No agreement has been reached in respect of any such
possible transaction, nor can there be any assurance that any such agreement
will be reached on acceptable terms, or on any terms at all.
20
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company also has outstanding warrants which could provide some of this
further capital. In particular, certain warrants can be redeemed for a nominal
sum in the event of the achievement of certain share price performance criteria
and which could potentially provide further cash of approximately $10.4 million.
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 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 are not
currently 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 are being upgraded during the
summer of 1999 to Year 2000 compliant status. Appropriate vendors have already
been secured for this purpose.
22
<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 is engaged in analyzing those systems and is preparing
an action plan to enable it to complete any required upgrade or workaround 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, a process which it expects to
complete during the third quarter of 1999, and will at that time 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.
23
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Management's Discussion and Analysis of
Financial Condition and Results of 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.
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.
24
<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.
25
<PAGE>
Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
Part II - Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
26
<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: August 13, 1999 Moto Guzzi Corporation
By /s/ Mark S. Hauser
------------------------------------
Mark S. Hauser
Executive Chairman
By /s/ 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 June 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 429,000
<SECURITIES> 0
<RECEIVABLES> 18,760,000
<ALLOWANCES> 1,078,000
<INVENTORY> 21,212,000
<CURRENT-ASSETS> 39,609,000
<PP&E> 23,467,000
<DEPRECIATION> 14,642,000
<TOTAL-ASSETS> 49,069,000
<CURRENT-LIABILITIES> 45,243,000
<BONDS> 1,535,000
0
0
<COMMON> 52,000
<OTHER-SE> (1,918,000)
<TOTAL-LIABILITY-AND-EQUITY> 49,069,000
<SALES> 22,010,000
<TOTAL-REVENUES> 22,010,000
<CGS> 20,449,000
<TOTAL-COSTS> 5,855,000
<OTHER-EXPENSES> (13,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,215,000
<INCOME-PRETAX> (5,496,000)
<INCOME-TAX> 35,000
<INCOME-CONTINUING> (5,531,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,531,000)
<EPS-BASIC> (1.17)
<EPS-DILUTED> (1.17)
<FN>
* Dollar amounts are based on conversion rate of 1,880 Lire to the Dollar which
prevailed on June 30, 1999
</FN>
</TABLE>
