<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended September 30, 1999
----------------------------------------------------
OR
( ) TRANSITION PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- ----------------------------------
Commission File Number 0-2642
--------------- ------------------------------
TRIDENT ROWAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
---------------------------------------------- ---------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
Two Worlds Fair Drive, Somerset, NJ 08873
---------------------------------------------------
(Address of principal executive offices - Zip Code)
(732) 868-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark 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 X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by 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 $0.01
par value, 4,419,900 shares.
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets as of September 30, 1999 and December 31, 1998...................................4
Statements of Operations for the three months ended September 30, 1999 and 1998.................6
Statements of Operations for the nine months ended September 30, 1999 and 1998..................7
Statements of Cash Flows for the nine months ended September 30, 1999 and 1998..................8
Statements of Stockholders' Equity and Comprehensive Income/(Loss) for the
three months ended September 30, 1999...........................................................9
Notes to Financial Statements..................................................................10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................................13
PART II OTHER INFORMATION
ITEM 6. EXHIBITION AND REPORTS ON FORM 8-K.............................................................25
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
3
<PAGE>
TRIDENT ROWAN GROUP, INC.
Consolidated Condensed Balance Sheets
September 30, 1999
<TABLE>
<CAPTION>
SEPT. 30 SEPT. 30 DEC. 31
1999 1999 1998
US$'000 LIRE M. LIRE M.
UNAUDITED UNAUDITED NOTE
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS............................................. $ 4,240 LIT. 7,713 LIT. 3,436
MARKETABLE SECURITIES, AT COST....................................... - - 955
RECEIVABLES........................................................... 20,240 36,817 35,254
TRADE, LESS ALLOWANCE LIT. 2,205 (LIT. 2,037)....................... 15,137 27,535 24,881
RECEIVABLES FROM RELATED PARTIES.................................... 3,257 5,924 3,852
OTHER RECEIVABLES................................................... 1,846 3,358 6,521
INVENTORIES........................................................... 22,795 41,465 41,170
RAW MATERIALS, PARTS AND WORK-IN-PROCESS............................ 14,233 25,889 22,469
FINISHED PRODUCTS................................................... 8,563 15,576 18,701
PREPAID EXPENSES...................................................... 302 550 982
------------- ------------- -----------
TOTAL CURRENT ASSETS 47,577 86,545 81,797
------------- ------------- -----------
PROPERTY, PLANT AND EQUIPMENT......................................... 9,922 18,048 18,168
AT COST............................................................. 26,014 47,320 44,625
LESS ALLOWANCES FOR DEPRECIATION.................................... (16,092) (29,272) (26,007)
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET OF
AMORTIZATION OF LIT. 1,425 (1998 - LIT. 1,350)...................... 316 575 650
GOODWILL, NET OF AMORTIZATION OF LIT. 615 (1998 - LIT. 561)........... 100 182 236
REAL ESTATE FOR DEVELOPMENT, NET OF RESERVE OF LIT. 3,000 ............ 1,649 3,000 3,500
CONCESSION RIGHTS..................................................... - - 1,600
TAX RECEIVABLES....................................................... 1,688 3,071 9,185
OTHER ASSETS.......................................................... 663 1,206 1,579
------------- ------------- -----------
TOTAL ASSETS $ 61,915 LIT. 112,627 LIT. 117,165
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
Note: The balance sheet as at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
TRIDENT ROWAN GROUP, INC.
Consolidated Condensed Balance Sheets
September 30, 1999
<TABLE>
<CAPTION>
SEPT. 30 SEPT. 30 DEC. 31
1999 1999 1998
US$'000 LIRE M. LIRE M.
UNAUDITED UNAUDITED NOTE
<S> <C> <C> <C>
LIABILITIES
ADVANCES FROM BANKS................................................... $ 17,141 LIT. 31,180 LIT. 32,619
Current portion of long-term debt.................................... 6,882 12,518 13,288
Loans due to related parties.......................................... 1,400 2,547 6,312
Accounts payable...................................................... 20,577 37,429 35,360
Accrued expenses and other payables................................... 5,606 10,197 9,715
------------- ------------- ----------
TOTAL CURRENT LIABILITIES 51,606 93,871 97,294
------------- ------------- ----------
Long-term debt, less current portion.................................. 1,745 3,175 4,257
Termination indemnities............................................... 4,910 8,932 8,581
Provision for claims.................................................. 1,715 3,120 3,120
Minority interests.................................................... 7,028 12,785 10,907
Preferred stock of subsidiary......................................... - - 13,132
SHAREHOLDERS' (DEFICIT)/EQUITY (5,089) (9,256) (20,126)
COMMON STOCK, PAR VALUE $0.01 PER SHARE:
AUTHORIZED 50,000,000 SHARES;
4,419,900 (1998 - 4,419,900) SHARES ISSUED AND 58 106 106
OUTSTANDING
ADDITIONAL PAID IN CAPITAL.......................................... 57,434 104,473 104,032
TREASURY STOCK, AT COST............................................. (25,214) (45,865) (45,865)
CUMULATIVE TRANSLATION ADJUSTMENT.................................. (215) (391) 24
DEFICIT............................................................. (37,152) (67,579) (78,423)
------------- ------------- ----------
$ 61,915 LIT. 112,627 LIT. 117,165
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
Note: The balance sheet as at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Operations
3 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.......................................................... $ 14,921 LIT. 27,142 LIT. 25,856
COST OF SALES...................................................... (12,942) (23,542) (22,206)
------------ ------------ ------------
1,979 3,600 3,650
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................... (3,288) (5,980) (6,248)
RESEARCH AND DEVELOPMENT........................................... (314) (572) (852)
REORGANIZATION EXPENSE............................................. - - (1,852)
IMPAIRMENT EXPENSE................................................. (275) (500) -
------------ ------------ ------------
(1,898) (3,452) (5,302)
INTEREST EXPENSE................................................... (509) (926) (1,159)
INTEREST INCOME.................................................... 17 31 150
OTHER INCOME, NET.................................................. 1 2 43
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS................... (2,389) (4,345) (6,268)
INCOME TAXES....................................................... (114) (207) (120)
MINORITY INTERESTS................................................. 1,030 1,874 587
AMORTIZATION OF PREMIUM FOR REDEMPTION OF
PREFERRED STOCK OF SUBSIDIARY.................................... - - 347
------------ ------------ ------------
NET LOSS .......................................................... $ (1,473)LIT. (2,678) LIT. (5,454)
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
LOSS PER SHARE US $ LIRE LIRE
<S> <C> <C> <C>
BASIC.............................................................. $ (0.34) LIT. (625) LIT. (1,304)
--------- ------------ ------------
--------- ------------ ------------
DILUTED............................................................ $ (0.34) LIT. (625) LIT. (1,304)
--------- ------------ ------------
--------- ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD
BASIC ............................................................. No. 4,283,233 NO. 4,283,233 NO. 4,182,900
---------- ------------ ------------
---------- ------------ ------------
DILUTED NO. 4,286,830 NO. 4,286,830 NO. 4,243,543
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Operations
9 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.......................................................... $ 44,622 LIT. 81,168 LIT. 88,175
COST OF SALES...................................................... (39,793) (72,384) (72,783)
------------ ------------ ------------
4,829 8,784 15,392
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................... (10,616) (19,310) (18,759)
RESEARCH AND DEVELOPMENT........................................... (1,167) (2,123) (3,078)
REORGANIZATION EXPENSE............................................. - - (1,852)
IMPAIRMENT EXPENSE................................................. (275) (500) -
------------ ------------ ------------
(7,229) (13,149) (8,297)
INTEREST EXPENSE................................................... (1,931) (3,512) (3,601)
INTEREST INCOME.................................................... 128 233 1,060
GAIN ON MERGER OF SUBSIDIARY 14,204 25,837 -
OTHER INCOME, NET.................................................. 37 68 66
------------ ------------ ------------
PROFIT/(LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS.......... 5,209 9,477 (10,772)
INCOME TAXES....................................................... (102) (186) (780)
MINORITY INTERESTS................................................. 854 1,553 983
AMORTIZATION OF PREMIUM FOR REDEMPTION OF
PREFERRED STOCK OF SUBSIDIARY.................................... - - (911)
------------ ------------ ------------
NET PROFIT/(LOSS) ................................................. $ 5,961 LIT. 10,844 LIT. (11,480)
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PROFIT/(LOSS) PER SHARE US $ LIRE LIRE
<S> <C> <C> <C>
BASIC.............................................................. $ 1.39 LIT. 2,532 LIT. (2,434)
------------ ------------ ------------
------------ ------------ ------------
DILUTED............................................................ $ 1.37 LIT. 2,499 LIT. (2,434)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD
BASIC ............................................................. NO. 4,283,233 NO. 4,283,233 NO. 4,716,538
------------ ------------ ------------
------------ ------------ ------------
DILUTED NO. 4,339,574 NO. 4,339,574 NO. 4,811,564
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
7
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
9 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 PROFIT/(LOSS).................................................. $ 5,961 LIT. 10,844 LIT. (11,480)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:................................ (9,231) (16,792) (697)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES.............................. (3,270) (5,948) (12,177)
------------ ------------ ------------
INVESTING ACTIVITIES:
NET INCREASE IN INVESTMENTS AND SECURITIES......................... 525 955 16,099
SALE OF SUBSIDIARIES, NET OF CASH DISPOSED......................... 883 1,606 -
PROCEEDS ON DISPOSAL OF OPERATING ASSETS........................... 116 211 -
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT......................... (1,608) (2,925) (5,956)
------------ ------------ ------------
NET CASH (USED)/ PROVIDED BY INVESTING ACTIVITIES.................. (84) (153) 10,143
------------ ------------ ------------
FINANCING ACTIVITIES:
(DECREASE)/INCREASE IN ADVANCES FROM BANKS......................... (1,061) (1,930) 2,315
CASH FROM MERGER OF SUBSIDIARY..................................... 8,799 16,006 -
REPURCHASES OF SHARES.............................................. - - (15,978)
ADVANCES FOR SUBSCRIPTION TO SUBSIDIARY STOCK 1,250 2,274
PROCEEDS FROM LONG-TERM DEBT....................................... 191 348 10,103
PRINCIPAL PAYMENTS OF LOANS FROM RELATED PARTIES (2,244) (4,082) -
PRINCIPAL PAYMENTS OF LONG-TERM DEBT (1,244) (2,263) (1,989)
------------ ------------ ------------
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES................... 5,691 10,353 (5,549)
------------ ------------ ------------
INCREASE/(DECEASE) IN CASH AND CASH EQUIVALENTS.................... 2,337 4,252 (7,583)
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND
CASH EQUIVALENTS 14 25 (93)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................... 1,889 3,436 10,407
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................... $ 4,240 Lit. 7,713 LIT. 2,731
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
8
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Statements of Shareholders' Equity Comprehensive
Income/(Loss) 9 Months Ended September 30, 1999
<TABLE>
<CAPTION>
Additional Accretion Total
Common Paid-in Treasury Translation Expense, Accumulated Shareholders'
Lire Million Stock Capital Stock Adjustment Net Deficit Equity
-------- ----------- ----------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
AT JANUARY 1, 1998 Lit.m 88 90,357 (29,921) (154) (2,474) (53,404) 4,492
Net loss - - - - - (25,019) (25,019)
Translation adjustment - - - 178 - - 178
Accretion expense, net of exchange - - - - (253) - (253)
movements
Repurchase of shares 14 13,203 (15,944) - 2,727 - -
Issuance of shares 4 1,680 - - - - 1,684
Less: Shares not vested as at Dec. 31, - (1,208) - - - - (1,208)
1998
-------- ----------- ---------- ----------- ----------- ---------- ------------
AT DEC. 31, 1998 Lit.m 106 104,032 (45,865) 24 - (78,423) (20,126)
Net profit - - - - - 10,844 10,844
Translation adjustment - - - (415) - - (415)
Vesting of shares subject to forfeit - 441 - - - - 441
-------- ----------- ---------- ----------- ----------- ---------- ------------
AT JUNE 30, 1999 Lit.m 106 104,473 (45,865) (319) - (67,579) (9,256)
-------- ----------- ---------- ----------- ----------- ---------- ------------
-------- ----------- ---------- ----------- ----------- ---------- ------------
AT JUNE 30, 1999 $'000 58 57,434 (25,214) (215) - (37,152) (5,089)
-------- ----------- ---------- ----------- ----------- ---------- ------------
-------- ----------- ---------- ----------- ----------- ---------- ------------
<CAPTION>
Shares Comprehensive
Subject to Income/
Lire Million Repurchase (Loss)
-------------- ------------
<S> <C> <C>
AT JANUARY 1, 1998 15,691
Net loss - (25,019)
Translation adjustment - 178
Accretion expense, net of exchange 253 (253)
movements
Repurchase of shares (15,944) -
Issuance of shares - -
Less: Shares not vested as at Dec. 31, - -
1998
---------- ------------
AT DEC. 31, 1998 - (25,094)
Net profit - 10,844
Translation adjustment - (415)
Vesting of shares subject to forfeit - -
---------- ------------
AT JUNE 30, 1999 - 10,429
---------- ------------
---------- ------------
AT JUNE 30, 1999 - 5,823
---------- ------------
---------- ------------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
September 30, 1999
NOTE 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. For a summary of the Registrant's accounting principles, and other
footnote information, reference is made to the Registrant's 1998 Annual Report
on Form 10-K. 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 three months and 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
US dollar equivalents, can actually be realized in or extinguished by U.S.
dollars at that or any other rate.
NOTE 2 - LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share gives effect to
all potentially dilutive common shares that were outstanding during the period.
All loss per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements.
NOTE 3 - MERGER OF MOTO GUZZI SUBSIDIARY WITH NORTH ATLANTIC
On August 18, 1998, TRG's subsidiary, Moto Guzzi Corp., and for limited
purposes. TRG, entered into a merger agreement to merge with North Atlantic
Acquisition Corp. ("North Atlantic"). The merger consummated on March 5, 1999.
North Atlantic was organized in August 1995 as a specialized merger and
acquisition allocated risk company with the objective of acquiring an operating
business and had not engaged in any substantive commercial business. At the
effective time of the merger, North Atlantic had approximately $8.9 million
(Lit. 16.0 billion) in cash, from which merger expenses of $0.8 million (Lit.
1.4 billion) were subsequently paid, to finance the operations of Moto Guzzi. On
completion of the merger, North Atlantic changed its name to Moto Guzzi
Corporation and is listed on the over-the-counter market in New York under the
ticker "GUZI". TRG owns, through its 84.35% O.A.M. S.p.A. subsidiary,
approximately 60.1% of Moto Guzzi Corporation. As a result of the merger, TRG
recorded a gain of Lit. 25.8 billion (US$ 14.2 million) in the first quarter of
1999, including the effects of the exchange of redeemable preferred stock of
Moto Guzzi Corp. into common stock of North Atlantic. Through December 31, 1998,
TRG had accounted for the contingent redemption of such preferred stock and
included Lit. 13.1 billion in the balance sheet at December 31, 1998 to reflect
such contingent obligation.
10
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
September 30, 1999
NOTE 4 - LIQUIDITY AND BRIDGE LOANS FROM AFFILIATES
Moto Guzzi has suffered recurring losses from operations and negative cash flows
during the last three years. The merger with North Atlantic in March 1999 raised
approximately $8 million which 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 has been
classified as a current liability in the consolidated balance sheet. Moto Guzzi
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 Moto Guzzi. The foregoing information is incorporated by reference at Item 3
of Part II of this Report.
Moto Guzzi 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 Moto Guzzi 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 the Lit. 10,000 million loan facility on demand, management estimates that
Moto Guzzi's minimum financing requirements through the end of the first quarter
of 2000, if it is to continue to make minimum necessary investments, is
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 Moto Guzzi would no longer be able to operate as a going
concern. In early August 1999, certain Moto Guzzi directors and their affiliates
advanced approximately $1.25 million (Lit. 2.3 billion) to cover then immediate
needs. Such financing was advanced in anticipation of subscription to an issue
of preferred stock of up to US$ 5 million (Lit.9.2 billion), approved by the
Board of Moto Guzzi on July 30, 1999. Moto Guzzi is actively discussing equity
and debt financing options as well as potential business combinations with a
number of parties but there can be no assurance that it will be able to raise
finance on satisfactory terms, or at all. Any equity financing or business
combination would likely result in the Company owning less than 50% of Moto
Guzzi.
The Company is seeking to realize liquidity from certain non-strategic assets in
order to meet its commitments unrelated to Moto Guzzi. At the date of these
financial statements, the Company has sufficient liquidity to meet such other
commitments through available cash and expected further realizations, except for
full and timely repayment of a U.S. $2,000,000 bridge loan provided by Tamarix
Investors LDC in October 1998 which became due in accordance with its terms on
March 5, 1999. In May 1999, the Company repaid the Lit. 3,000 million bridge
loan provided by Dr. G. Bulgari, a former affiliate of Tamarix, and negotiated
an extension of the US$ 2 million Tamarix bridge loan until June 30, 1999,
making a partial repayment of principal of US$ 300,000. In July, 1999, a further
extension through November 30, 1999 was agreed and the Company made a further
partial repayment of principal of US$ 300,000.
Available cash and expected realization of TRG's non-strategic assets are not
expected to be sufficient to provide the financial support required by Moto
Guzzi Corporation. If revised terms of existing financing as well as additional
financing are not obtained in timely fashion, the Moto Guzzi creditors may look
to the Company to satisfy these obligations. As the Company does not have the
resources available to finance its consolidated obligations, there is
substantial doubt about its 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.
11
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
September 30, 1999
NOTE 5 - INDUSTRY SEGMENT ANALYSIS
<TABLE>
<CAPTION>
MANAGEMENT
THREE MONTHS ENDED SEPTEMBER 30, 1999 MOTOR- STEEL & CORPORATE
LIRE M. CYCLES TUBES SERVICES ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales..................................... 21,545 5,232 403 (38) 27,142
Cost of sales................................. (19,071) (4,247) (224) - (23,542)
----------- ---------- ---------- ---------- -----------
2,474 985 179 (38) 3,600
Selling, general and administrative expenses.. (4,469) (585) (959) 33 (5,980)
Research and development...................... (572) - - - (572)
Impairment expense............................ - - (500) - (500)
----------- ---------- ---------- ---------- -----------
Operating profit/(loss)....................... (2,567) 400 (1,280) (5) (3,452)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
<CAPTION>
MANAGEMENT
THREE MONTHS ENDED SEPTEMBER 30, 1998 MOTOR- STEEL & CORPORATE
LIRE M. CYCLES TUBES SERVICES ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales..................................... 19,633 5,420 900 (97) 25,856
Cost of sales................................. (16,936) (4,576) (694) - (22,206)
----------- ---------- ---------- ---------- -----------
2,697 844 206 (97) 3,650
Selling, general and administrative expenses.. (4,045) (503) (1,792) 92 (6,248)
Research and development...................... (852) - - - (852)
Reorganization expense........................ (1,852) - - - (1,852)
----------- ---------- ---------- ---------- -----------
Operating profit/(loss)....................... (4,052) 341 (1,586) (5) (5,302)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
<CAPTION>
MANAGEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1999 MOTOR- STEEL & CORPORATE
LIRE M. CYCLES TUBES SERVICES ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales 62,923 17,085 1,198 (38) 81,168
Cost of sales................................. (57,517) (14,224) (643) - (72,384)
----------- ---------- ---------- ---------- -----------
5,406 2,861 555 (38) 8,784
Selling, general and administrative expenses.. (13,923) (1,996) (3,414) 23 (19,310)
Research and development...................... (2,123) - - - (2,123)
Impairment expense............................ - - (500) (500)
----------- ---------- ---------- ---------- -----------
Operating profit/(loss)....................... (10,640) 865 (3,914) (15) (13,149)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
<CAPTION>
MANAGEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1998 MOTOR- STEEL & CORPORATE
LIRE M. CYCLES TUBES SERVICES ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales..................................... 67,622 17,845 2,919 (211) 88,175
Cost of sales................................. (55,691) (15,272) (1,820) - (72,783)
----------- ---------- ---------- ---------- -----------
11,931 2,573 1,099 (211) 15,392
Selling, general and administrative expenses.. (11,906) (1,822) (5,232) 201 (18,759)
Research and development...................... (3,078) - - - (3,078)
Reorganization expense........................ (1,852) - - - (1,852)
----------- ---------- ---------- ---------- -----------
Operating profit/(loss)....................... (4,905) 751 (4,133) (10) (8,297)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
</TABLE>
12
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
GENERAL
Since the first quarter of 1998, the Company has focused its energies and
resources on its Moto Guzzi subsidiary.
As a result of the merger of Moto Guzzi Corp. into North Atlantic Acquisition
Corp., which was consummated on March 5, 1999, all of the common stock and
preferred stock of Moto Guzzi Corp. was exchanged for newly issued shares of
common stock of North Atlantic. The Company's subsidiary, OAM S.p.A., which had
owned all of Moto Guzzi Corp.'s common stock before the merger, also contributed
a Lit. 13,362 million intercompany loan it had made to Moto Guzzi Corp. for
additional North Atlantic common stock, and holders of Moto Guzzi Corp. warrants
received additional shares of North Atlantic common stock when submitting their
warrants for cancellation. The aggregate ownership by the former Moto Guzzi
Corp. security holders immediately following the merger was approximately 75%,
while the security holders of the former North Atlantic retained an approximate
25% equity ownership interest in the merged entity, Moto Guzzi Corporation. The
Company owns approximately 60.1% of Moto Guzzi Corporation through its 84.35%
owned OAM S.p.A. subsidiary.
Approximately $8,150,000 (Lit. 14.6 billion) in cash owned by North Atlantic,
net of expenses of the merger, became available for Moto Guzzi capital needs, of
which approximately $7 million was used to pay supplier arrearages caused by
Moto Guzzi's liquidity shortage. The Company has accounted for the transaction
as a sale of shares in its Moto Guzzi Corp. subsidiary and recorded a gain of
Lit. 25.8 billion in the income statement in the first quarter of 1999 based on
such sale. Management believes that this transaction, which results in Moto
Guzzi being a separately traded public company, will enhance Moto Guzzi's
ability to raise further capital and that stock option incentives to Moto Guzzi
management and employees will provide further motivation to enhance the value of
the Moto Guzzi business.
The Company continues to seek to realize its non-strategic assets and to contain
corporate costs. In February 1999, the Company realized a Lit. 6.1 billion tax
receivable and, in July 1999, the Company sold its concession rights over
parking spaces in Genoa, Italy, for Lit. 1.6 billion. The Company's steel tube
business, L.I.T.A. has continued to expand export sales to offset falling demand
from the domestic (Italian) automobile sector and in the first nine months of
1999 has recorded increases in margins and operating profits, despite the
difficulties in its home market. The effects of containing corporate overheads
have resulted in a decrease in such expenses of 34.7% in the first nine months
of 1999 compared to the corresponding period in 1998.
RESULTS OF OPERATIONS - 3 MONTHS ENDED
SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998
OPERATING PROFIT/(LOSS)
Analysis of net sales, cost of sales and operating expenses by industry segment
is given in Note 5 to the condensed financial statements at September 30, 1999.
13
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
<TABLE>
<CAPTION>
MOTORCYCLE SEGMENT - MOTO GUZZI
THREE MONTHS ENDED SEPT. 30,
----------------------------
1999 1998
LIRE M. LIRE 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%)
Research & product development............................... (572) (2.7%) (852) (4.3%)
Reorganization expense....................................... - - (1,852) (9.4%)
---------- ----------
Operating loss............................................... (2,567) (11.9%) (4,052) (20.6%)
---------- ----------
---------- ----------
</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.
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.
STEEL TUBING SEGMENT - L.I.T.A.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
LIRE M. LIRE M.
<S> <C> <C> <C> <C>
Net sales ................................................... 5,232 100.0% 5,420 100.0%
Cost of sales................................................ (4,247) (81.2%) (4,576) (84.4%)
---------- ----------
985 18.8% 844 15.6%
Selling, general and administrative expenses ................ (585) (11.2%) (503) (9.3%)
---------- ----------
Operating profit............................................. 400 7.6% 341 6.3%
---------- ----------
---------- ----------
</TABLE>
14
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Net sales decreased by 3.5% reflecting decrease of 1.3%. Export sales volumes
were substantially unchanged and volumes decreased 2.2% in the domestic
(Italian) automobile market, representing an improvement in this market compared
to the first 6 months of 1999. Margins increased as a result of price increases.
MANAGEMENT AND CORPORATE SERVICES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
LIRE M. LIRE M.
<S> <C> <C> <C> <C>
Net sales .................................................. 403 100.0% 900 100.0%
Cost of sales................................................ (224) (55.6%) (694) (77.1%)
---------- ----------
179 44.4% 206 22.9%
Selling, general and administrative expenses ................ (959) (238.0%) (1,792) (199.1%)
Impairment expense .......................................... (500) (124.1%) - -
---------- ----------
Operating profit/(loss)...................................... (1,280) (317.6%) (1,636) (176.2%)
---------- ----------
---------- ----------
</TABLE>
Corporate costs and overheads decreased by 46.5% in the 3 months ended September
30, 1999 compared to the same period in 1998 as a result of the Company's focus
on cost reduction. The Company recorded impairment expense of Lit. 500 million
in respect of an option granted for purchase of its Sardinia property for Lit.
3,000 million compared to the carrying value of this property of Lit. 3,500
million.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME STATEMENT ITEMS
Income statement items below operating profit level are compared below on a
consolidated basis and not by industry segment as their incurrence and
allocation between segments is, in large part, determined by structural
decisions independent of stand-alone operating needs and performance.
INTEREST INCOME AND EXPENSE
Interest expense decreased by Lit. 0.2 billion from Lit. 1.2 billion to Lit. 1.0
billion in the three months ended September 30, 1999 compared to the
corresponding 1998 period principally due to lower interest rates in 1999
compared to 1998. The decrease in interest income in the 1999 compared to 1998
principally results from decreased liquidity. At the end of June 1998, the
Company utilized fixed interest securities it held to collateralize share
repurchase commitments and other cash, aggregating Lit. 15.9 billion, to satisfy
its repurchase obligations.
OTHER INCOME/(EXPENSE), NET
Other income/(expense) in the three months ended September 30, 1999 and 1998 is
principally comprised of exchange gains/(losses).
15
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
AMORTIZATION OF PREMIUM FOR REDEMPTION OF PREFERRED STOCK OF SUBSIDIARY
In the three months ended September 30, 1998, a non-cash credit of Lit. 347
million had been recorded as amortization of preferred stock redemption premium
relating to the Moto Guzzi Corp. preferred stock issued at the end of 1996 and
in early 1997. The credit resulted from exchange differences exceeding the
amortization amount: the contingent redemption obligation was denominated in
U.S. dollars. The issued and outstanding shares of Moto Guzzi Corp. preferred
stock were converted into shares of common stock of North Atlantic upon
consummation of the merger with North Atlantic (see Note 3 to Interim Financial
Statements), and the contingent obligation was accordingly eliminated .
RESULTS OF OPERATIONS - 9 MONTHS ENDED
SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998
OPERATING PROFIT/(LOSS)
Analysis of net sales, cost of sales and operating expenses by industry segment
is given in Note 5 to the condensed financial statements at September 30, 1999.
MOTORCYCLE SEGMENT - MOTO GUZZI
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
LIRE M. LIRE 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) (17.6%)
Research & product development............................... (2,123) (3.4%) (3,078) (4.6%)
Reorganization expense....................................... - - (1,852) (2.7%)
---------- ----------
Operating loss............................................... (10,640) (16.9%) (4,905) (7.3%)
---------- ----------
---------- ----------
</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 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
16
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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, Moto Guzzi recorded reorganization expense of Lit.1,852
million in 1998 which charge does not appear in 1999.
STEEL TUBING SEGMENT - L.I.T.A.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
LIRE M. LIRE M.
<S> <C> <C> <C> <C>
Net sales ................................................... 17,085 100.0% 17,845 100.0%
Cost of sales................................................ (14,224) (83.3%) (15,272) (85.6%)
---------- ----------
2,861 16.7% 2,573 14.4%
Selling, general and administrative expenses ................ (1,996) (11.7%) (1,822) (10.2%)
---------- ----------
Operating profit............................................. 865 5.1% 751 4.2%
---------- ----------
---------- ----------
</TABLE>
Net sales decreased by 4.3% reflecting difficult market conditions in the
domestic (Italian) automobile market in the first six months of 1999, offset by
increased export sales. Domestic volumes decreased by 11.3% in 1999 to 7,459
tons while export volumes increased 25% to 4,105 tons, representing 36% of total
volumes. Margin increases principally reflect increased prices from the third
quarter.
MANAGEMENT AND CORPORATE SERVICES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
LIRE M. LIRE M.
<S> <C> <C> <C> <C>
Net sales ................................................... 1,198 100.0% 2,919 100.0%
Cost of sales................................................ (643) (53.7%) (1,820) (62.4%)
---------- ----------
555 46.3% 1,099 37.6%
Selling, general and administrative expenses ................ (3,414) (285.0%) (5,232) (179.2%)
Impairment expense .......................................... (500) (41.7%) - -
---------- ----------
Operating profit/(loss)...................................... (3,359) (280.4%) (4,133) (126.2%)
---------- ----------
---------- ----------
</TABLE>
17
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Revenues had benefitted in the 1998 due to a management engagement in connection
with the acquisition of an Italian company by a Swiss acquiror. Corporate costs
and overheads decreased by 34.7% in the 9 months ended September 30, 1999
compared to the same period in 1998 as a result of the Company's focus on cost
reduction in connection. As noted above, the Company recorded impairment expense
of Lit. 500 million in the third quarter of 1999 respect of an option granted
for purchase of its Sardinia property for Lit. 3,000 million compared to the
carrying value of Lit. 3,500 million.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME STATEMENT ITEMS
Income statement items below operating profit level are compared below on a
consolidated basis and not by industry segment as their incurrence and
allocation between segments is, in large part, determined by structural
decisions independent of stand-alone operating needs and performance.
INTEREST INCOME AND EXPENSE
Interest expense increased by Lit. 0.1 billion from Lit. 3.5 billion to Lit. 3.6
billion in the nine months ended September 30, 1999 compared to the
corresponding 1998 period. This was principally due to decreased indebtedness in
the first quarter of 1998 before the Company drew down a Lit. 10 billion long
term credit line which offset the benefits of lower interest rates in 1999
compared to 1998. The decrease in interest income in the 1999 compared to 1998
principally results from decreased liquidity. At the end of June 1998, the
Company utilized fixed interest securities it held to collateralize share
repurchase commitments and other cash, aggregating Lit. 15.9 billion, to satisfy
its repurchase obligations.
GAIN ON MERGER OF SUBSIDIARY
As a result of the merger of Moto Guzzi into North Atlantic as described in Note
3 to the Interim Financial Statements, TRG recorded a gain of Lit. 25.8 billion
(US$ 14.2 million) in the first quarter of 1999, including the effects of the
exchange of redeemable preferred stock of Moto Guzzi Corp. into common stock of
North Atlantic. Through December 31, 1998, TRG had accounted for the contingent
redemption of such preferred stock and included Lit. 13.1 billion in the balance
sheet at December 31, 1998 to reflect such contingent obligation.
OTHER INCOME, NET
Other income in the nine months ended September 30, 1999 and 1998 is principally
comprised of exchange gains.
AMORTIZATION OF PREMIUM FOR REDEMPTION OF PREFERRED STOCK OF SUBSIDIARY
In the nine months ended September 30, 1998, a non-cash expense of Lit. 911
million had been recorded as amortization of preferred stock redemption premium
relating to the Moto Guzzi Corp. preferred stock issued at the end of 1996 and
in early 1997. A significant element of the charge resulted from exchange
differences as the contingent redemption obligation was denominated in U.S.
dollars. The issued and outstanding shares of Moto Guzzi Corp. preferred stock
were converted into shares of common stock of North Atlantic upon consummation
of the merger, and the contingent obligation was accordingly eliminated .
18
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
OPERATIONS AND WORKING CAPITAL
The principal components which determine net cash used by operations of Lit. 5.9
billion compared to net profit of Lit. 10.8 billion are as follows:
<TABLE>
<S> <C> <C>
Net profit ....................................... 10.8
Gain on merger of subsidiary ..................... (25.8)
Minority interests ............................... (1.6)
Depreciation ..................................... 3.6
Other ............................................ 1.2
------
(11.8)
Receipt of tax receivable ........................ 6.1
Trade and related party receivables .............. (1.2)
Inventories ...................................... (0.2)
Accounts payable ................................. 1.0
Other balances ................................... (0.2)
------
Total working capital changes .................... 5.9
------
(5.9)
------
------
</TABLE>
The gain on merger of subsidiary relates to the merger of Moto Guzzi Corp. and
North Atlantic as described above and in Note 3 to the Interim Financial
Statements.
The Company received Lit. 6.1 billion in February 1999 in respect of a tax
receivable acquired in 1995 for Lit. 5.0 billion. The difference reflects
interest, accrued at legal rates, since the receivable was acquired.
The increase in accounts payable principally reflects payments to Moto Guzzi's
suppliers made from the proceeds of the merger, as well as payment of merger
expenses, offset by higher levels of payables in the third quarter due to non
payment of suppliers consequent to seasonal liquidity shortages, as described
further below.
INVESTING ACTIVITY
Expenditure on plant and equipment principally relates to Moto Guzzi.
Expenditure is primarily in respect of the California Jackal model, introduced
in April 1999, and the V-11 Sport model, to be introduced in September 1999.
Sale of subsidiaries, net of cash disposed reflects the sale of Patorino Strade
S.r.l. which company owned concession rights over parking spaces in Genova,
Italy. Disposal proceeds were Lit. 1,621 million and cash disposed of was Lit.
15 million.
19
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
FINANCING ACTIVITIES
The decrease in advances from banks of approximately Lit. 2.0 billion is
principally due to reduced financing of accounts receivable at Moto Guzzi. The
Lit. 16.0 billion of cash acquired in the merger reflects the approximately $8.9
million of cash in North Atlantic at the date of merger, of which approximately
Lit. 1.4 billion was applied to pay North Atlantic's merger expenses. Principal
repayments of loans from related parties refer to Lit. 3.0 billion and Lit.
1,082 million (US$ 600,000) repayments of bridge loans that had been made in
anticipation of the closing of the North Atlantic merger. See Note 4 to the
interim financial statements. Advances for subscription for subsidiary stock
relates to advances made by certain directors of Moto Guzzi in August 1999 - See
Note 4.
FUTURE LIQUIDITY REQUIREMENTS
Moto Guzzi has suffered recurring losses from operations and negative cash flows
during the last three years. The merger with North Atlantic 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. 10.0 billion credit facility
which facility has been classified as a current liability in the consolidated
balance sheet. Moto Guzzi 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 Moto Guzzi.
Moto Guzzi 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 Moto Guzzi 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 the Lit. 10,000 million loan facility on demand, management estimates that
Moto Guzzi's minimum financing requirements through the end of the first quarter
of 2000, if it is to continue to make minimum necessary investments, is
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. In early August 1999, certain Moto Guzzi directors and their affiliates
advanced approximately $1.25 million (Lit. 2.3 billion) to cover immediate
needs. Such financing was advanced in anticipation of subscription to an issue
of preferred stock of up to US$ 5 million (Lit.9.2 billion), approved by the
Board of Moto Guzzi on July 30, 1999. Moto Guzzi is actively discussing equity
and debt financing options as well as potential business combinations with a
number of parties but there can be no assurance that it will be able to raise
finance on satisfactory terms, or at all. Any equity financing or business
combination would likely result in the Company owning less than 50% of Moto
Guzzi.
To enable substantial further growth in production and sales, Moto Guzzi'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
20
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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
Moto Guzzi to increase production and sales rapidly enough to generate the
remaining needed capital. Moreover, in the four years ended December 31, 1998,
and in the nine months to September 30, 1999, Moto Guzzi has not generated cash
from operations.
The Company is seeking to realize liquidity from certain non-strategic assets in
order to meet its commitments unrelated to Moto Guzzi. At the date of these
financial statements, the Company has sufficient liquidity to meet such other
commitments through available cash and expected further realizations, except for
full and timely repayment of the $1.4 m outstanding balance of a U.S. $2 million
bridge loan provided by Tamarix Investors LDC in October 1998 which became due
in accordance with its terms on March 5, 1999. In May 1999, the Company repaid a
Lit. 3.0 billion bridge loan provided by Dr. G. Bulgari, a former affiliate of
Tamarix, and negotiated extensions of the US$ 2 million Tamarix bridge loan
until November 30, 1999 against two partial repayments, totalling US$ 0.6
million, of the loan.
Available cash and expected realization of TRG's non-strategic assets are not
expected to be sufficient to provide the financial support required by Moto
Guzzi Corporation. If revised terms of existing financing as well as additional
financing are not obtained in timely fashion, the Moto Guzzi creditors may look
to the Company to satisfy these obligations. As the Company does not have the
resources available to finance its consolidated obligations, there is
substantial doubt about its 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.
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.
21
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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 will be upgraded during the
summer of 1999 to Year 2000 compliant status. Appropriate vendors have already
been secured for this purpose.
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 analysis of production plant and effected
upgrades to approximately 90% of plant requiring intervention. Moto Guzzi
expects to complete upgrades of remaining plant before 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 is being
completed in November 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
22
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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.
POTENTIAL EFFECTS OF THE PROPOSED 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 a 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 proposed 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.
23
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
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.
PORTIONS OF THIS REPORT CONTAIN CERTAIN "FORWARD LOOKING" STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES, CHANGES IN CURRENCY
EXCHANGE RATES, LACK OF ADEQUATE CAPITAL TO MAINTAIN OPERATIONS, OTHER FACTORS
DISCUSSED IN THE REPORT AS WELL AS FACTORS DISCUSSED IN OTHER FILINGS MADE WITH
THE SECURITIES AND EXCHANGE COMMISSION. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE INACCURATE, AND THEREFORE, THERE
CAN BE NO ASSURANCE THAT THE FORWARD LOOKING STATEMENTS INCLUDED HEREIN WILL
PROVE TO BE ACCURATE.
24
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
25
<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.
TRIDENT ROWAN GROUP, INC.
Dated: November 23, 1999 By: /s/ Mark S. Hauser
----------------------------------------
Mark S. Hauser
President and Chief Executive Officer
Dated: November 23, 1999 By: /s/ Emanuel Arbib
----------------------------------------
Emanuel Arbib
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<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> 4,240,000<F1>
<SECURITIES> 0<F1>
<RECEIVABLES> 16,350,000<F1>
<ALLOWANCES> 1,212,000<F1>
<INVENTORY> 22,795,000<F1>
<CURRENT-ASSETS> 47,578,000<F1>
<PP&E> 26,014,000<F1>
<DEPRECIATION> 16,092,000<F1>
<TOTAL-ASSETS> 61,915,000<F1>
<CURRENT-LIABILITIES> 51,606,000<F1>
<BONDS> 1,745,000<F1>
0<F1>
0<F1>
<COMMON> 58,000<F1>
<OTHER-SE> (5,147,000)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 61,915,000<F1>
<SALES> 44,622,000<F1>
<TOTAL-REVENUES> 44,622,000<F1>
<CGS> 39,793,000<F1>
<TOTAL-COSTS> 11,783,000<F1>
<OTHER-EXPENSES> (14,241,000)<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 1,931,000<F1>
<INCOME-PRETAX> 5,209,000<F1>
<INCOME-TAX> 102,000<F1>
<INCOME-CONTINUING> 5,961,000<F1>
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 5,961,000<F1>
<EPS-BASIC> 1.39<F1>
<EPS-DILUTED> 1.37<F1>
<FN>
<F1>DOLLAR AMOUNTS ARE BASED ON CONVERSION RATE OF 1,819 LIRE TO THE DOLLAR WHICH
PREVAILED ON SEPTEMBER, 30 1999.
</FN>
</TABLE>
