SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                Period from: September 1, 1996 to August 31, 1997
                  Commission File Number _____________________

                        North Atlantic Acquisition Corp.
             (Exact name of registrant as specified in its chapter)

        Delaware                                            13-3853272
  (State of Incorporation)                         I.R.S. (Employer I.D. Number)

                          5 East 59th Street, 3rd Floor
                            New York, New York 10022

       Registrant's telephone number, including area code: (212) 486-4444

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                 Class A Common Stock, $.01 par value per share
                                Class A Warrants
                        Class B Exchangeable Common Stock
                                      Units

     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 requirement for the past 90 days.

                  Yes _X_                      No___

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.


<PAGE>


                  Yes _X_                      No___

     As of December 1, 1997, the aggregate market value of the voting stock held
by nonaffiliates of the Registrant was $6,700,000.

     As of December 1, 1997, there were 590,000 shares of the Registrant's Class
A Common Stock, $.01 par value per share, outstanding.


                                     PART I.

     Item 1   BUSINESS

     General

     North Atlantic  Acquisition  Corp ("North  Atlantic" or the "Company") is a
"blank check" or "blind pool"  company,  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").

     Statements included in this Business Section, and in other sections of this
Report and in prior and future  filings by the company with the  Securities  and
Exchange  Commission,  in the Company's  prior and future press  releases and in
oral statements made with the approval of an authorized  executive which are not
historical or current facts are  "forward-looking  statements"  made pursuant to
the safe harbor  provisions of the Private  Securities  Litigation Reform Act of
1995 and are subject to certain risks and uncertainties  that could cause actual
results to differ materially from those presently anticipated or projected.  The
Company  wishes to  caution  readers  not to place  undue  reliance  on any such
forward-looking  statements,  which  speak only as of the date  made.  There are
important  risk factors that in some cases have affected and in the future could
affect  the  Company's  actual  results  and could  cause the  Company's  actual
financial and operating  performance to differ materially from that expressed in
any expressed in any  forward-looking  statement.  The following  discussion and
analysis should be read in conjunction  with the Financial  Statements and notes
thereto appearing elsewhere in this report.

     The Company is seeking to acquire a Target  Business  primarily  located in
the United  States or abroad and its efforts will not be limited to a particular
industry.  In seeking a Target  Business,  the  Company  will  consider  without
limitation,   businesses  which  (i)  offer  or  provide  services  or  develop,
manufacture  or  distribute  goods in the United  States or  abroad,  including,
without  limitation,  the  following  areas:  health  care and health  products,
educational  services,  environmental  services,  consumer-related  products and
services (including amusement and/or recreational services), personal


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<PAGE>


care  services,  voice and data  information  processing  and  transmission  and
related  technology  development  or (ii) are  engaged  in  wholesale  or retail
distribution.  The Company  will not acquire a Target  Business  unless the fair
market value of such business, as determined by the Company based upon standards
generally accepted by the financial  community,  including  revenues,  earnings,
cash flow and book value (the "Fair Market  Value"),  is at least 80% of the net
assets of the Company at the time of the consummation of a Business  Combination
(the "Fair Market Value  Test").  If the company  determines  that the financial
statements of a proposed Target  Business do not clearly  indicate that the Fair
Market Value Test has been satisfied, the Company will obtain an opinion from an
investment  banking  firm  which  is a member  of the  National  Association  of
Securities  Dealers,  Inc. (the "NASD") with respect to the satisfaction of such
criteria.  While the Company may,  under certain  circumstances,  seek to effect
Business Combinations with more than one Target Business, in all likelihood,  as
a result of its limited  resources,  the Company will have the ability to effect
only a single  Business  Combination.  To date, the Company has not entered into
any binding  agreements to effect a Business  Combination.  The Company does not
intend to  register as a  broker-dealer,  merge  with,  or acquire a  registered
broker-dealer, or otherwise become a member of the NASD.

     On August 27, 1997 (the "Closing Date") the Company consummated its initial
public offering (the  "Offering").  The Company sold 800,000 units ("Units") and
150,000 shares of Class B Exchangeable  Common Stock ("Class B Common Stock") in
the Offering. H.J. Meyers & Co., Inc. ("H.J. Meyers") is the representative (the
"Representative"),  of the several underwriters. Each Unit consists of one share
of the  Company's  Class A common  stock (the  "Class A Stock")  and one Class A
redeemable  common stock  purchase  warrant  ("Class A  Warrant").  Each Class A
Warrant  entitles  the holder to purchase  from the Company one share of Class A
Stock at an  exercise  price of $9.00  commencing  90 days  after  the date of a
Business  Combination,  or any  earlier  date on or after the date of a Business
Combination that the  Representative,  in its sole discretion,  so elects.  Each
share of Class B Common Stock  entitles the holder  thereof to receive two Units
in exchange therefor 90 days after the date of a Business Combination. The Class
A Warrants are redeemable, each as a class, in whole and not in part, at a price
of $.05 per warrant upon 30 days' notice at any time  provided  that the Company
has  consummated  a Business  Combination  and the last sale price of the Common
Stock,  if the common  stock is listed for trading on all 10 of the trading days
prior to the day on which  the  Company  gives  notice of  redemption,  has been
$11.00 or higher.

     After the Offering the  Registrant  received net proceeds of  approximately
$8,100,000 (the "Net Proceeds"),  after  non-accountable  expenses allowance and
offering expenses. Pursuant to the terms of the Offering,  $8,000,000 of the Net
Proceeds,  representing an amount approximately equal to the gross proceeds from
the sale of the Units,  was placed in escrow with The Chase Manhattan Bank, N.A.
(the  "Proceeds  Escrow  Agent"),  subject to release  upon the  earlier of: (i)
written notice


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<PAGE>


from the  Company of the  Company's  completion  of a  transaction  or series of
transactions  in which at least 50% of the gross  proceeds from the offering are
committed to a specific  line of business as a result of a Business  Combination
(including any redemption  payments),  (ii) a written  opinion of counsel of the
Company,  reasonably  acceptable to the Proceeds  Escrow Agent,  that a Business
Combination  was approved by a vote of  two-thirds of the shares of Common Stock
of the  Company,  (with  each share of Class B Stock  entitled  to two votes) as
required by the Prospectus dated August 22, 1997 (the "Prospectus"), and (iii) a
written certification from the Company that the fair market value (as determined
by the  Company,  based  upon  standards  generally  accepted  by the  financial
community,  including  revenues,  earnings,  cash flow,  and book  value) of the
Target  Business  exceeds  80% of the net value of the assets of the Company and
that all other  actions  required  by the  Company for the release of the escrow
proceeds have been met, or (2) either (i) after February 22, 1999 (or August 22,
1999 if the Proceeds  Escrow Agent has received notice by February 22, 1999 that
the Extension Criteria,  as herein defined, have been satisfied) if the Proceeds
Escrow Agent has not received  written  notice from the Company of the Company's
completion of a transaction or series of  transactions  in which at least 50% of
the gross  proceeds  from the  offering  are  committed  to a  specific  line of
business as a result of a Business Combination,  or (ii) receipt by the Proceeds
Escrow Agent of written  notification  to distribute the escrow  proceeds to the
holders of Class A Stock  purchased as part of the Units sold in the offering or
in the open  market  thereafter  in  redemption  of the Class A Stock,  or (iii)
receipt by the Proceeds Escrow Agent of written  notification to distribute part
of the escrow  proceeds to the holders of record of Class A Stock  purchased  as
part of the Units sold in this  offering  or in the open market  thereafter  who
elected to have their shares  redeemed in accordance with the terms set forth in
the Prospectus. The Company will notify the Representative and the NASD prior to
the release of funds from the escrow  account.  All proceeds  held in the escrow
account will be invested, until released, in short-term United States government
securities, including treasury bills, cash and cash equivalents.

     The Company's executive office is located at 5 East 59th Street, 3rd Floor,
New York, New York 10022 and its telephone number is (212) 486-4444.

Selection of a Target Business and Structuring of a Business Combination

     Management of the Company will have substantial  flexibility in identifying
and selecting a prospective  Target  Business  within the specified  businesses.
However, the Company's flexibility is limited to the extent that it must satisfy
the Fair  Market  Value  Test.  If the  Company  determines  that the  financial
statements of a proposed Target  Business do not clearly  indicate that the Fair
Market Value Test has been satisfied, the Company will obtain an opinion from an
investment  banking  firm  (which is a member of the NASD)  with  respect to the
satisfaction  of such  criteria.  As a result,  investors  are  almost  entirely
dependent on the judgment of management  in  connection  with the selection of a
Target Business.  In evaluating a prospective  Target Business,  management will
consider,  among  other  factors,  the  following:  (i)  costs  associated  with
effecting the Business Combination;  (ii) equity interest in and opportunity for
control of the Target  Business;  (iii) growth potential of the Target Business;
(iv) experience and skill of management and availability of additional personnel
of the Target Business;  (v) capital  requirements of the Target Business;  (vi)
competitive  position of the Target Business;  (vii) stage of development of the
Target Business;  (viii) degree of current or potential market acceptance of the
Target Business,  (ix) proprietary features and degree of intellectual  property
or other protection of the Target Business;  (x) the financial statements of the
Target  Business;  and (xi) the  regulatory  environment  in  which  the  Target
Business  operates.  The Company will retain an independent  investment  banking
firm which is a member in good  standing  of the NASD to assist  the  Company in
identifying,   evaluating,   structuring  and  negotiating   potential  Business
Combinations.

     The foregoing criteria are not intended to be exhaustive and any evaluation
relating to the merits of a particular  Target  Business  will be based,  to the
extent  relevant,  on the above factors as well as other  considerations  deemed
relevant by  management  in  connection  with  effecting a Business  Combination
consistent  with the  Company's  business  objectives.  In  connection  with its
evaluation of a prospective Target Business, management anticipates that it will
conduct a due diligence review which will encompass, among other things, meeting
with incumbent  management and inspection of facilities,  as well as a review of
financial,  legal and other  information  which  will be made  available  to the
Company.


                                        4

<PAGE>


     The time and  costs  required  to select  and  evaluate  a Target  Business
(including  conducting a due diligence  review) and to structure and  consummate
the  Business  Combination   (including   negotiating  relevant  agreements  and
preparing requisite documents for filing pursuant to applicable  securities laws
and state "blue sky" and corporation  laws) cannot presently be ascertained with
any degree of  certainty.  The  Company's  current  executive  officers  and its
directors  intend to devote only a small portion of their time to the affairs of
the Company,  including the  evaluation of potential  Target  Businesses and the
negotiation  of a  Business  Combination  and,  as a result,  the amount of time
devoted to the  business  and  affairs  of the  Company  may vary  significantly
depending upon, among other things,  whether the Company has identified a Target
Business  or is engaged in active  negotiation  of a Business  Combination.  Any
costs  incurred  in  connection  with the  identification  and  evaluation  of a
prospective Target Business with which a Business  Combination is not ultimately
consummated  will  result in a loss to the  Company  and  reduce  the  amount of
capital  available  to  otherwise  complete  a Business  Combination  or for the
resulting entity to utilize.

     The Company  anticipates that various prospective Target Businesses will be
brought  to  its  attention  from  various  non-affiliated  sources,   including
securities  broker-dealers,  investment bankers,  venture capitalists,  bankers,
other members of the  financial  community and  affiliated  sources,  including,
possibly, the Company's executive officer, directors and their affiliates. While
the  Company has not yet  ascertained  how,  if at all,  it will  advertise  and
promote  itself,  it may elect to publish  advertisements  in financial or trade
publications seeking potential business acquisitions. While the Company does not
presently anticipate engaging the services of professional firms that specialize
in finding business acquisitions on any formal basis (other than the independent
investment  banker),  the Company may engage such firms in the future,  in which
event the Company  may pay a finder's  fee or other  compensation.  In no event,
however,  will the  Company  pay a finder's  fee or  commission  to  officers or
directors of the Company or any entity with which they are  affiliated  for such
service.  Moreover, in no event shall the Company issue any of its securities to
any  officer,  director or promoter of the Company,  or any of their  respective
affiliates or associates,  in connection  with  activities  designed to locate a
Target  Business.  In addition,  the Company has agreed with the  representative
that  any  finder's  fee  in  connection   with  the  Company's  first  Business
Combination  will require  approval by the  Company's  Board of  Directors.  The
Representative  may act as finder in connection with a Business  Combination and
receive  compensation  for such  service,  the  amount and form of which will be
subject to negotiation at the time of the introduction of the Target Business to
the Company.

     As a  general  rule,  Federal  and state  tax laws and  regulations  have a
significant  impact upon the structuring of Business  Combinations.  The Company
will  evaluate  the  possible  tax  consequences  of  any  prospective  Business
Combination  and will  endeavor  to  structure a Business  Combination  so as to
achieve the most favorable tax


                                       5
<PAGE>


treatment to the Company, the Target Business and their respective stockholders.
There can be no  assurance  that the  Internal  Revenue  Service or any relevant
state tax authorities will ultimately assent to the Company's tax treatment of a
particular consummated Business Combination.  To the Internal Revenue Service or
any  tax  treatment  of  a  Business  Combination,  there  may  be  adverse  tax
consequences  to  the  Company,   the  Target  Business  and  their   respective
stockholders.  Tax  considerations  as well as other  relevant  factors  will be
evaluated  in  determining  the  precise  structure  of  a  particular  Business
Combination,  which  could  be  effected  through  various  forms  of a  merger,
consolidation or stock or asset acquisition.

     The Company may utilize cash derived from the Net Proceeds of the Offering,
equity securities,  debt securities or bank or other borrowings or a combination
thereof as  consideration  in  effecting a Business  Combination.  Although  the
Company's  Board of  Directors  will  have the  power to issue any or all of the
Offering,  the Company has agreed with the  Representative  that, until February
22, 1999,  or August 22, 1999 if the  Extension  Criteria  (see below) have been
satisfied,  it  will  not  issue  (other  than  pursuant  to the  Offering)  any
securities  or grant  options or  warrants  to purchase  any  securities  of the
Company or grant  options or warrants to purchase any  securities of the Company
without the consent of the Representative, except in connection with effecting a
Business  Combination.  Although the Company has no commitments to date to issue
any shares of Common Stock or options or warrants other than as described in the
Prospectus,  the Company will, in all likelihood,  issue a substantial number of
additional shares in connection with the consummation of a Business Combination.
To the extent that such additional shares are issued,  dilution to the interests
of the Company's stockholders will occur. Additionally,  if a substantial number
of shares of Common Stock are issued in connection  with the  consummation  of a
Business  Combination,  a change in  control of the  Company  may occur with may
affect,  among other things, the Company's ability to utilize net operating loss
carry forwards, if any.

     There currently are no limitations on the Company's ability to borrow funds
to effect a Business  Combination.  However, the Company's limited resources and
lack of operating  history may make it difficult to borrow funds. The amount and
nature of any borrowings by the Company will depend on numerous  considerations,
including the Company's capital  requirements,  potential lenders' evaluation of
the Company's ability to meet debt service on borrowings and the then prevailing
conditions in the financial markets, as well as general economic conditions. The
Company does not have any arrangements with any bank or financial institution to
secure additional financing and there can be no assurance that such arrangements
if required or otherwise in the best interests of the Company.  The inability of
the  Company  to  borrow  funds  required  to effect or  facilitate  a  Business
Combination,  or to provide funds for an  additional  infusion of capital into a
Target  Business,  may have material  adverse effect on the Company's  financial
condition  and  future  prospects,  including  the  ability to effect a Business
Combination.  To  the  extent  that  debt  financing  ultimately  proves  to  be
available, any borrowings may subject the Company to various risks traditionally
associated with indebtedness, including the risks of interest rate


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fluctuations  and  insufficiency  of cash flow to pay  principal  and  interest.
Furthermore,  a Target  Business may have already  incurred debt  financing and,
therefore, all the risks inherent thereto.

Stockholder Approval of Business Combinations

     The Company,  prior to the consummation of any Business  Combination,  will
submit such transaction to the Company's  stockholders for their approval,  even
if the  nature  of the  Business  Combination  is such as would  not  ordinarily
require stockholder approval under applicable state law. In connection with such
request,  the Company intends to provide  stockholders with complete  disclosure
documentation in accordance with the proxy  solicitation  regulations  under the
Securities  Exchange  Act of 1934,  as amended  (the "Proxy  Rules"),  including
audited financial statements concerning a Target Business.  All of the Company's
stockholders  immediately prior August 22, 1997, including all directors and the
Company's executive officers, have agreed to vote all their respective shares of
Class A Stock in accordance with the vote of the majority of the shares voted by
all other  stockholders of the Company  ("non-affiliated  public  stockholders")
with respect to any such Business  Combination.  A Business Combination will not
be consummated  unless  approved by a vote of two-thirds of the shares of Common
Stock voted by the stockholders  (in person or by proxy).  Each share of Class B
Stock is  entitled  to two votes,  representing  the two shares of Class A Stock
into  which  each  share of  Class B Stock is  exchangeable.  In  addition,  the
Delaware  General  Corporation  Law  requires  approval  of certain  mergers and
consolidations by a majority of the outstanding stock entitled to vote.  Holders
of Class A Warrants who otherwise do not own any shares of Common Stock will not
be entitled to vote on any Business Combination.

Redemption Rights

     At the  time  the  Company  seeks  stockholder  approval  of any  potential
Business Combination, the Company will offer (the "Redemption Offer") to each of
the non-affiliated public holders of Class A Stock of the Company the right, for
a  specified  period of time of not less than 20  calendar  days,  to redeem his
shares of Class A Stock at a price  equal to the  Liquidation  Value (as defined
below) of such  shares as of the record date  established  for  determining  the
stockholders  entitled  to vote  with  respect  to the  approval  of a  Business
Combination  (the "Record Date").  The Redemption Offer will be described in the
disclosure  documentation  relating to the proposed  Business  Combination.  The
"Liquidation Value" for each share of Class A Stock will be determined as of the
Record  Date by  dividing  (A) the  greater  of (i) the  Company's  net worth as
reflected in the Company's then current  financial  statements as audited by the
Company's  independent  accountants,  or (ii) the amount of the  proceeds of the
Company in the escrow account  (including  interest  earned  thereon) by (B) the
number of shares of Class A Stock held by  non-affiliated  public  stockholders;
however, in no event will the Liquidation Value of each share of Class


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A Stock be less than $10.00 plus interest earned thereon. In connection with the
Redemption Offer, if non-affiliated  public stockholders  holding 20% or less of
the shares of Class A Stock elect to redeem their  shares,  the Company will not
be required to proceed with such Business Combination and, if the Company elects
to so proceed,  will redeem  such  shares at their  Liquidation  Value as of the
Record Date. In any case, if  non-affiliated  public  stockholders  holding more
than 20% of the Class A Stock elect to redeem their shares, the Company will not
proceed  with such  potential  Business  Combination  and will not  redeem  such
shares.  All of the  holders  of  shares  of Class A Stock  and all  holders  of
Warrants  prior to the August  22,  1997 will be  allowed  to  participate  in a
Redemption  Offer only if they purchased shares of Class A Stock in the Offering
or on the open market  thereafter  and only as to any shares of Class A Stock so
purchased.

Escrow of Outstanding Shares

     Pursuant to the terms of the  Offering,  all of the shares of Class A Stock
and Series A Preferred Stock (the "Escrowed  Stock") of the Company  outstanding
immediately prior to August 22, 1997 were placed in escrow with Greenbaum, Rowe,
Smith,  Ravin,  Davis & Himmel (the "Share Escrow Agent"),  until the earlier of
(i) the occurrence of the consummation of the first Business  Combination,  (ii)
February 22, 1999, or (iii) prior to February 22, 1999, the Company has become a
party to a letter of  intent  or a  definitive  agreement  to effect a  Business
Combination  (the  "Extension  Criteria"),  in which case the February 22, 1999,
deadline  will be extended to August 22,  1999.  During the escrow  period,  the
holders of Escrowed  Stock will not be able to sell or otherwise  transfer their
respective shares of Escrowed Stock (with the exceptions  described below),  but
will retain all other rights as stockholders of the Company, including,  without
limitation, the right to vote escrowed shares of Class A Stock, subject to their
agreement  to vote their shares in  accordance  with a vote of a majority of the
non-affiliated public holders of Class A Stock with respect to a consummation of
a Business  Combination  or  liquidation  proposal,  but  excluding the right to
request the redemption of Escrowed Stock pursuant to a Redemption Offer. Subject
to compliance with applicable securities laws, any such holder may transfer his,
her,  or its Class A Stock to a family  member or to trust  established  for the
benefit or himself,  herself, or a family member or to another affiliated entity
(with the consent of the Representative which will not be unreasonably withheld)
or, in the event of the  holder's  death by will or  operation  of law or in the
case of  dissolution or merger,  provided that any such  transferee or successor
must agree as a condition to such  transfer to be bound by the  restrictions  on
transfer  applicable  to  the  original  holder  and  in  the  case  of  present
stockholders other than the holders of the 20,000 shares of Class A Stock issued
in a private  placement  by the Company in November  1995,  that the  transferor
(except in the case of death) or will continue to be deemed the beneficial owner
(as defined in Regulation 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act") of such transferred shares.


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<PAGE>


Redemption of Class A Stock if No Business Combination

     If the Company does not effect a Business Combination by February 22, 1999,
or August 22, 1999, if the Extension  Criteria have been satisfied,  the Company
will submit to the holders of Class A Stock for their  consideration  a proposal
to distribute to the then holders of Class A Stock acquired as part of the Units
sold in the Offering or in the open market  thereafter,  in  redemption  of such
shares, the amounts in the interest bearing escrow account,  including interest.
Following such a redemption of Class A Stock,  each outstanding share of Class B
Stock  will be  exchanged  for two  shares of Class A Stock.  The  assets of the
Company  (other  than the  escrowed  assets)  will be used to pay the  Company's
liabilities and to redeem the Company's  outstanding Series A Preferred Stock at
its liquidation  value,  $9,400.  The amount per share for distribution,  to the
holders of Class A Stock  acquired as part of the Units sold in the  Offering or
in the open  market  thereafter,  and  exclusive  of any  income  earned  on the
proceeds held in the escrow account,  will be approximately equal to the initial
price  offering  price per Unit in the Offering of $10.00 per Unit  (assuming no
value is  attributed  to the Class A  Warrants  included  in the  Units  offered
hereby).  All of Company's  stockholders  immediately  prior to August 22, 1997,
including  the  Company's  executive  officers  and  other  directors  and their
affiliates, are required by the escrow agreement to which their stock is subject
to vote  their  shares  of  Class A Stock  in  accordance  with  the vote of the
majority of all  non-affiliated  public  holders of Common Stock with respect to
any  redemption  proposal.  Holders of Class A Warrants,  however,  will only be
entitled to vote on any redemption  proposal,  and allowed to participate in any
redemption distribution if they purchased shares of Common Stock in the Offering
or on the open market  thereafter,  but only as to shares so purchased.  Present
stockholders,  including  officers,  directors  and their  affiliates,  will not
participate in any redemption  distribution with respect to the shares of Common
Stock owned by them as of August 22, 1997.

Competition

     The Company  encounters  intense  competition  from other  entities  having
business  objectives  similar to those of the Company.  Many of these  entities,
including  venture  capital  partnerships  and  corporations,  other  blind pool
companies,   large  industrial  and  financial   institutions,   small  business
investment  companies and wealthy  individuals,  are  well-established  and have
extensive  experience  in connection  with  identifying  and effecting  Business
Combinations  directly or through affiliates.  Many of these competitors possess
greater  financial,  technical,  human and other  resources than the Company and
there can be no assurance that the Company will have the



                                       9
<PAGE>


ability to compete  successfully.  The  Company's  financial  resources  will be
limited  in  comparison  to  those  of many of its  competitors.  This  inherent
competitive limitations may compel the Company to select certain less attractive
Business  Combination  prospects.  There can be no assurance that such prospects
will permit the Company to achieve its stated business objectives.

     In the event that the Company succeeds in effecting a Business Combination,
the Company will, in all likelihood,  become subject to intense competition from
competitors of the Target  Business.  In particular,  certain  industries  which
experience  rapid growth  frequently  attract an  increasingly  larger number of
competitors, including competitors with greater financial, marketing, technical,
human and other  resources  than the initial  competitors  in the industry.  The
degree of  competition  characterizing  the industry of any  prospective  Target
Business  cannot  presently  be  ascertained.  There can be no  assurance  that,
subsequent to a consummation  of a Business  Combination,  the Company will have
the  resources  to compete in the industry of the Target  Business  effectively,
especially to the extent that the Target Business is in a high-growth industry.


                                       10
<PAGE>


Employees

     The Company at August 31,  1997  employed  Mr.  David J.  Mitchell  and Mr.
Thomas  McMillen on a  part-time  basis.  Such  persons  serve as  officers  and
directors  without   compensation  at  least  until  completion  of  a  Business
Combination.


Item 2   DESCRIPTION OF PROPERTIES

     The  Company,  pursuant  to an oral  agreement,  utilizes  the  offices  of
Mitchell & Co. a corporation  controlled by David J. Mitchell,  a stockholder of
the Company and the Company's  Chairman and Chief Executive  Officer,  until the
acquisition  of a Target  Business.  Mitchell & Co.  has  agreed  that until the
acquisition of a Target Business by the Company,  it will make such office space
and office and secretarial services available to the Company, as may be required
by the Company from time to time at the rate of $2,500 per month.  Management is
unaware  of any  circumstances  under  which the  Company's  utilization  of the
offices, through management's own initiative may be changed.

     The Company  believes that this facility is well maintained and adequate to
meet its needs in the foreseeable  future pending the consummation of a Business
Combination.

ITEM 3   LEGAL PROCEEDINGS

     At this time,  the Company is not  involved  in any  pending or  threatened
legal proceedings involving it or any of its assets.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted  to a vote of the  Company's  security  holders
through the solicitation of proxies or otherwise since the date of the Offering.

ITEM 5   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since August 27, 1997, the Company's Units, Class A Stock, Class A Warrants
and Class B Stock have been quoted on the OTC  Bulletin  Board under the symbols
"NACOU", "NACO", "NACOW" AND "NACOL", respectively.



                                       11
<PAGE>



     Since the Company's  securities  were quoted on the OTC Bulletin  Board for
only three days prior to year-end, no meaningful trading history as of such date
is available.

     On  December  1, 1997,  there were  316,000,  590,000,  484,000 and 150,000
holders of record of the Company's  Units.  Class A Stock,  Class A Warrants and
Class B Stock, respectively. 


                                       12
<PAGE>


Since  certain of the shares of Class A are held in street name,  it is believed
that there are substantial additional beneficial holders of the Company's Common
Stock.

     The Company has paid no  dividends  on its shares of Common Stock since its
organization on August 9, 1995. The Company does not expect to pay any dividends
prior to the consummation of a Business Combination and anticipates that for the
foreseeable  future any earnings  will be retained for use in its business  and,
accordingly, does not anticipate the payment of cash dividends.


                                       13
<PAGE>


ITEM 6   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND 
         RESULTS OF OPERATIONS

     The Company is a development  stage  company,  and to date its efforts have
been limited to organizational activities, consummating the Offering and seeking
a  Business  Combination.  The  Company  has  not  yet  consummated  a  Business
Combination.  Accordingly,  the Company will not achieve any operating  revenues
(other than  investment  income) until, at the earliest,  the  consummation of a
Business Combination.

     The Company  has used,  and will  continue  to use the net  proceeds of the
Offering,  excluding  the escrow  account  funds,  together  with the income and
interest  earned  thereon,  principally in connection  with effecting a Business
Combination.  Accordingly,  the Company will not achieve any operating  revenues
other than  investment  income) until,  at the earliest,  the  consummation of a
Business Combination.

     The Company  has used,  and will  continue  to use the net  proceeds of the
Offering,  excluding  the escrow  account  funds,  together  with the income and
interest  earned  thereon,  principally in connection  with effecting a Business
Combination,  including selecting and evaluating potential Target Businesses and
structuring and consummating a Business Combination  (including possible payment
of finder's  fees or other  compensation  to persons or entities  which  provide
assistance or services to the Company).  The Company does not have discretionary
access to the income on the monies in the escrow account and stockholders of the
Company will not receive any  distribution  of the income  (except in connection
with a  liquidation  of the  Company)  or have any  ability to direct the use or
distribution  of such income.  Thus, such income will cause the amount in escrow
to increase.  The Company  cannot use the  escrowed  amounts to pay the costs of
evaluating potential Business Combinations.

     As a result of the Offering,  the Company has sufficient  available  funds,
assuming that a Business  Combination  is not  consummated,  to operate until at
least August 22, 1999. To the extent that Common Stock is used as  consideration
to  effect a  Business  Combination,  the  balance  of the Net  Proceeds  of the
Offering not theretofore  expended will be used to finance the operations of the
Target  Business.  The Company has not incurred any debt in connection  with its
organizational  activities.  No cash compensation will be paid to any officer or
director until after the consummation of the first Business  Combination.  Since
the role of present  management after a Business  Combination is uncertain,  the
Company has no ability to determine what  remuneration,  if any, will be paid to
such persons after a Business Combination.


                                       14
<PAGE>


     In the event that the  Company  does not effect a Business  Combination  by
February  22,  1999 or  August  22,  1999 if the  Extension  Criteria  has  been
satisfied,  the Company will submit for stockholder  consideration a proposal to
liquidate  the  Company  and  distribute  to the then  holders  of Class A Stock
acquired  as part  of the  Units  sold in the  Offering  or in the  open  market
thereafter,  the amount held in the escrow  account  maintained  by the Proceeds
Escrow Agent.  Thereafter,  all remaining assets available for distribution will
be  distributed  to all holders of the  Company's  Common Stock after payment of
liabilities  and after  appropriate  provision  has been made for the payment of
liquidation  distributions  upon each class of stock, if any, having  preference
over the Common Stock. To the extent that a Business Combination is not effected
in the time allowed and the Company's stockholder determine not to liquidate the
Company,  the  Company  believes  that  income  from the escrow  account and the
interest  income derived from the  investment of these net proceeds  during such
period,  may be  sufficient  to  defray  continuing  expenses,  including  costs
relating to compliance  with securities  laws and  regulations,  for a period of
several additional years until the Company  consummates a Business  Combination.
Since all stockholders of the Company  immediately prior to August 22, 1997 have
agreed  to  waive  their  respective  rights  to  participate  in a  liquidation
distribution  occurring  prior to the  first  Business  Combination,  all of the
assets of the Company,  including any income and interest earned on the proceeds
of the  Offering,  which  may be  distributed  upon  such  liquidation  would be
distributed  to the  owners of the Class A Stock  issued as part of the Units in
the Offering of in the open market thereafter.

     All directors hold office until the next annual meeting of stockholders and
the  election  and  qualification  of their  successors.  Directors  receive  no
compensation for serving on the board of Directors other than the  reimbursement
of  reasonable  expenses  incurred in attending  meetings.  Officers are elected
annually by the Board of Directors and serve at the discretion of the Board. The
Company has not entered into any employment  agreements or other  understandings
with its  directors  or  executive  officers  concerning  compensation.  No cash
compensation  is or will be paid to any officer or director in their  capacities
as such until after the  consummation of the first Business  Combination.  Since
the role of present management after the consummation of a Business  Combination
is uncertain, the Company has no ability to determine what remuneration, if any,
will be paid to such persons after the consummation of a Business Combination.

     No family  relationships  exist  among any of the  named  directors  or the
Company's  officers.  No  arrangement or  understanding  exists between any such
director  or officer  and any other  person  pursuant  to which any  director or
officer was elected as a director or officer of the Company.

     There are no  agreements or  understandings  for any officer or director of
the Company to resign at the request of another  person and none of the officers
or


                                       15
<PAGE>


directors  of the Company are acting on behalf or, or will act at the  direction
of, any other person.

     The holder of the Company's  outstanding  Series A Preferred Stock is COIJ,
an indirect  affiliate of Bright,  a private  company which owns and licensed to
the Company, for the purpose of marketing the Offering,  the servicemarks SMA2RT
(Servicemark) and Specialized Merger and Acquisition  Allocated Risk Transaction
(servicemark).

     Other than as set forth in this Form 10-KSB, no other  relationships  exist
between  and among  management  stockholders  and  non-management  stockholders.
Moreover,  there  are no  arrangements,  agreements  or  understandings  between
non-management   stockholders   and   management   under  which   non-management
stockholders  may  directly  or  indirectly  participate  in  or  influence  the
management of the Company's affairs.  The Company has no knowledge of whether or
not non-management  stockholders will exercise their voting right to continue to
elect the current directors to the Company's board.

ITEM 7   FINANCIAL STATEMENTS

     The  financial  statements  listed in Item 13 are  included  in this report
beginning on page F-1.

ITEM 8   CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     None.


                                       16
<PAGE>


                                    PART III

ITEM 9   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The current directors and officers of the Company are as follows:

             Name                      Age                      Position
             ----                      ---                      --------
       David J. Mitchell               36                    Chairman of the
                                                              Board, Chief
                                                            Executive Officer
                                                                Director

      C. Thomas McMillen               44                 Secretary, Treasurer,
                                                                Director

          A.J. Nassar                  40                       Director


Management

     David J.  Mitchell  has been  President  of  Mitchell  & Co.,  Ltd.,  a New
York-based  merchant  banking company founded by him, since January 1991. He has
been  Chairman  of the Board,  Chief  Executive  Officer  and a director  of the
Company since October  1996.  Mr.  Mitchell has also been a partner of Petherton
Capital  Corporation,  a privately owned real estate investment  company,  since
March 1992.  Prior to 1991,  Mr.  Mitchell was employed in various  positions at
several  investment  banking  firms.  Mr.  Mitchell  is  a  director  of  Holmes
Protection  Group,  a  NASDAQ-listed  company,  Kellstrom  Industries,  Inc.,  a
NASDAQ-listed company, and Bogen Communications International, Inc., an American
Stock Exchange Company, as well as several private companies,  Mr. Mitchell also
serves as a director and/or officer of various  not-for-profit  universities and
foundations.

     C.  Thomas  McMillen  has been  Chairman  and Chief  Executive  Officer  of
Complete Wellness Centers, Inc., a physician practice management company founded
by him, since November 1994. He has been a director,  Treasurer and Secretary of
the Company since October 1996.  Mr.  McMillen has been  president of McMillen &
Company,  Inc., a health care consulting  firm, since January 1993. He served as
Chief Administrative Officer of CliniCorp, Inc. from November 1993 to March 1994
where he was  responsible  for a turnaround  effort that resulted in CliniCorp's
first profit for the quarter ended  November  1994.  Until  December  1994,  Mr.
McMillen was a director of Clinicorp,  which filed for  bankruptcy in June 1996.
Mr. McMillen serves on the Board of Directors of Commodore Applied Technologies,
Inc., Kellstrom, Inc., CHG, Inc. and UC Television Network Corp.


                                       17
<PAGE>


     Mr. McMillen served three  consecutive  terms in the United States House of
Representatives  from  1987  to  1993,  representing  the  Fourth  Congressional
District of Maryland.  Prior to serving in  Congress,  Mr.  McMillen  played for
eleven seasons in the National  Basketball  Association for the New York Knicks,
the Atlanta Hawks and the Washington Bullets.  Mr. McMillen was awarded a Rhodes
Scholarship  and was a member of the United States  Olympic  Basketball  Team in
1972.  He currently  serves as Co-chair of the  President's  Council on Physical
Fitness and Sports.

     A.J. Nassar has served as President, Chief Executive Officer, Treasurer and
a Director of The Maxim Group,  Inc. since December 1990. From 1986 to 1990, Mr.
Nassar served as Vice President and Chief Operating  Officer of Kenny Carpet and
Linoleum,  Inc., a multistore  retail  carpet chain in western New York.  He was
previously  employed by Trend Carpet Mills and Queen Carpet Mills, both of which
are carpet  manufacturers,  where he was responsible for cultivating new markets
in the  northeastern  United  States.  In addition,  Mr.  Nassar has served as a
managing partner of K.K.N.  Investment, a privately held real estate development
and holding company.

ITEM 10   EXECUTIVE COMPENSATION

     No cash compensation will be paid or accrued for any officer or director in
their  capacities  as such until after the  consummation  of the first  Business
Combination.

ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth  information as of December 1, 1997 based on
information  obtained  from  the  persons  named  below.  With  respect  to  the
beneficial  ownership of shares of the Company's Common Stock by (i) each person
known to be the owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director and (iii) all executive officers and directors as a group.

       Name or Group (1)          Amount and Nature of          Percentage of
                                   of Beneficial Owner        Outstanding Shares
                                        ship (2)               of Class A Stock
                                                                   (3) (4)
       David J. Mitchell                 12,500                      4.9%
      C. Thomas McMillen                 12,500                      4.9%
     Manhattan Associates,               12,500                      4.9%
            L.L.C.
          A.J. Nassar                    15,000                      1.7%


                                       18
<PAGE>


    All executive officers               52,500 (5)                 15.2%
   and directors as a group
        (four persons)

(1)  Each person and entity listed has an address in care of the Company.

(2)  Unless  otherwise noted, the Company believes that each person named in the
     table has sole voting and  investment  power with  respect to all shares of
     Class A Stock beneficially owned by him or it.

(3)  Includes options to purchase 50,000,  50,000 and 33,333.30 Units each to be
     identical to the Units issued in the offering, to each of Mr. Mitchell, Mr.
     McMillen and Manhattan Associates,  LLC, respectively.  Excludes options to
     purchase  15,000  shares  of  Class B Stock  held by Mr.  Mitchell  and Mr.
     McMillen.

(4)  Assumes no exercise of (i) the  Representative's  Unit  Purchase  Warrants;
     (ii) the  Representative's  Class B  Warrants;  (iii) the Class A  Warrants
     included in the Units offered hereby;  (iv) any other warrants owned by any
     of the named persons,  or (v) the Class B Options and assumes no conversion
     of the Series A Preferred Stock.

(5)  Excludes (i) options held by the Company's executive Officers and directors
     to purchase up to 100,000  Units in the  aggregate  for $12.50 per Unit and
     (ii)( the Class B Options.

     The  shares  of Class A Stock and  Series A  Preferred  Stock  owned by the
Company's  present  stockholders,  including  the  directors  and the  executive
officer of the Company, excluding the 20,000 Placement Shares issued in November
1995, have been be placed in escrow until the earlier of (i) the consummation of
the first Business  Combination,  or (ii) February 22, 1999 subject to extension
to August 22, 1999 if the Extension  Criteria have been  satisfied.  During such
period,  such  stockholders  are not able to sell or  otherwise  transfer  their
respective  shares of Class A Stock (with certain  exceptions),  but will retain
all other rights as stockholders of the Company, including,  without limitation,
the right to vote such shares of Class A Stock  (subject to their  agreement  to
vote their shares in accordance  with the vote of a majority of the shares voted
by  non-affiliated  public  stockholders  with respect to the  consummation of a
Business Combination or liquidation proposal) but excluding the right to request
the redemption of escrowed shares pursuant to a Redemption Offer.


                                       19
<PAGE>


ITEM 12   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In August 1995,  the Company  issued  52,500 shares of Class A Stock to its
directors and affiliates  for a purchase price of $.10 per share as follows:  to
Manhattan Associates,  LLC, an affiliate of Arthur H. Goldberg, Stanley Kreitman
and Marshall Manley (who were then directors of the Company), 37,500 shares, and
to A.J. Nassar,  15,000 shares.  In November 1995, the Company issued the 20,000
Placement  Shares to five accredited  investors at a purchase price of $0.50 per
share,  before deducting  offering  expenses).  These five investors also loaned
$100,000  to the  Company,  which  amount was repaid out of the  proceeds of the
Offering.

     As of May, 1997, the Company  redeemed  25,000 shares of Class A Stock held
by Manhattan  Associates,  LLC. Each of David J. Mitchell and Thomas C. McMillen
purchased  12,500 shares of Class A Stock for a purchase price of $.10 per share
or $2,500 in the aggregate from the Company. Both of such purchases agreed to be
bound by the  restrictions  on shares  held by  officers  and  directors  of the
Company in the aggregate from the Company.

     The Company has entered into an oral agreement with Mitchell & Co. to lease
office space and to be provided  with  secretarial  and office  services,  which
commenced  upon the closing of the  Offering.  The  Company  will pay $2,500 per
month to Mitchell & Co. for rent and such  services.  Management  believes  that
these terms  compare  favorably to any  arrangement  which might be made with an
unaffiliated party. See "Item 2. Description of Properties."

     In September 1995, Bright's predecessor granted the Company a non-exclusive
license  to  use  for  the  sole  purpose  of  the  Offering.   Bright's  SMA2RT
(Servicemark) and Specialized Merger and Acquisition  Allocated Risk Transaction
(Servicemark)   servicemarks.   In   consideration   of  Bright   granting   the
non-exclusive  license to the  Company,  the Company paid a total of $100,000 to
Bright. The value paid by the Company wa negotiated at arm's length, although no
objective criteria were used to measure the value of the license.  One important
consideration,  however,  is  that  Bright's  corporate  predecessor  previously
licensed the SMA2RT  (Servicemark) name and Initial structure  Acquisition Corp.
and  Bright  licensed  the  SMA2RT  (Servicemark)  name and  structure  to Orion
Acquisition Corp. II, which  successfully  completed initial public offerings in
May 1995 and July 1996, respectively.

     Mr. David Mitchell and Mr. Thomas McMillen,  directors of the Company, have
each received  options to purchase up to 15,000  shares,  or up to 30,000 in the
aggregate,  of the  Company's  Class  B  Stock  at an  exercise  price  of up to
$300,000.  The options will expire, if not sooner exercised upon consummation of
a  Business  Combination.  The  Company  has  agreed to use its best  efforts to
register  the  shares  of  Class  A  Stock  underlying  the  options  as soon as
practicable after their issuance.

     CDIJ,  an  indirect  affiliate  of Bright,  is the holder of the  Company's
outstanding 94 shares of Series A Preferred Stock, which it purchased for $9,400
and 1,000  shares of Class A Stock which it purchased  for $.10 per share.  CDIJ
paid cash for the Class A Stock and issued a promissory note at an interest rate
of 8% for the Series A Preferred Stock, which was satisfied simultaneously with
the closing of the Offering.


                                       20
<PAGE>


     The purchase  prices for all Class A Stock and Preferred  Stock sold by the
Company prior to August 22, 1997 were  established by  negotiations  between the
Board of Directors and the various investors.

     The Company will require that any future  transactions  between the Company
and its officers,  directors,  principal  stockholders and the affiliates of the
foregoing  persons  be on terms no less  favorable  to the  Company  than  could
reasonably  be obtained in arm's  length  transactions  with  independent  third
parties  and that any such  transactions  also be  approved by a majority of the
Company's directors disinterested in the transaction.  Management of the Company
has not yet ascertained  the amount of remuneration  that will be payable to the
Company's officers and directors following completion of a Business Combination.

     Mr.  Mitchell  and the other  directors  of the Company may be deemed to be
"promoters" of the Company.


ITEM 13   EXHIBITS, AND REPORTS ON FORM 8-K

          (a)  The following are filed as a part of this report:

     (1)  Financial Statements

                                                                            PAGE
                                                                            ----
Report of Independent Certified Public Accountants...........................F-3

Balance Sheet - August 31, 1997..............................................F-4

Statement of Operations  for the Year Ended August 31, 1997,  
     August 31, 1996 and for the period September 1, 1995
     (Date of inception) to August 31, 1996..................................F-5

Statements of Stockholders' Equity September 1, 1995
     (Date of inception) to August 31, 1997..................................F-6

Statements of Cash  Flows for the Year  Ended  August  31, 1997 
     and the  period September 1, 1995 (Date of inception) to
     August 31,1997..........................................................F-7

Notes to Financial Statements...........................................F-8-F-17


                                       21
<PAGE>


     (2)  Exhibits

 Exhibit No.                         Description
 -----------                         -----------

     1.1    Underwriting Agreement [incorporated by reference to Exhibit 1.1 to
            the Registrant's Re gistration Statement on Form SB-2 (Commission
            File No. 33-80647) filed on June 16, 1997].

     3.1    Amended and Restated Certificate of Incorporation of the Registrant
            [incorporated by reference to Exhibit 3.1 to the Registrant's
            Registration Statement on Form SB-2 (Commission File No. 33-80647)
            filed on February 6, 1996].

     3.2    By-laws of the Registrant [incorporated by reference to Exhibit 3.2
            to the Registrant's Registration Statement on Form SB-2 (Commission
            File No. 33-80647) filed on June 16, 1997].

     4.1    Form of Class A Common Stock Certificate of the Registrant
            [incorporated by reference to Exhibit 4.1 to the Registration
            Statement on Form SB-2 (Commission File No. 33-80647) filed on June
            16, 1997].

     4.2    Warrant Agency Agreement dated May 28, 1996 between American Stock
            Transfer & Company and the Registrant. [incorporated by reference to
            Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2
            (Commission File No. 33- 80647) filed on June 16, 1997].

     4.3    Form of Class A Common Stock Purchase Warrant of the Registrant
            [incorporated by reference to Exhibit 4.3 to the Registrant's
            Registration Statement on Form SB-2 (Commission File No. 33-80647)
            filed on June 16, 1997].

     4.4    Form of Class B Stock Certificate of the Registrant [incorporated by
            reference to Exhibit 4.4 to the Registrant's Registration Statement
            on Form SB-2 (Commission File No. 33-80647) filed on June 16, 1997].

     4.5    Form of Representatives' Warrant Agreement of the Registrant
            [incorporated by reference to Exhibit 4.5 to the Registrant's
            Registration Statement on Form SB-2 (Commission File No. 33- 80647)
            filed on June 16, 1997].
 
     4.6    Form of Representatives' Warrant [(included in Exhibit 4.5)
            incorporated by reference to Exhibit 4.6 to the Registrant's
            Registration Statement on Form SB-2 (Commission File No. 33- 80647)
            filed on June 16, 1997].


                                       22
<PAGE>


     4.7    Form of Unit Certificate [incorporated by reference to Exhibit 4.7
            to the Registrant's Registration Statement on Form SB-2 (Commission
            File No. 33-80647) filed on June 16, 1997].

     10.1   Form of Escrow Agreement for proceeds from sale of Units
            [incorporated by reference to Exhibit 10.1 to the Registrant's
            Registration Statement on Form SB-2 (Commission File No. 33- 80647)
            filed on June 16, 1997].

     10.2   Form of Escrow Agreement for outstanding Common stock [incorporated
            by reference to Exhibit 10.2 to the Registrant's Registration
            Statement on Form SB-2 (Commission File No. 33- 80647) filed on
            February 6, 1996].

     10.3   Amended and Restated License Agreement, dated May 9, 1997, between
            Bright and the Company [incorporated by reference to Exhibit 10.3 to
            the Registrant's Registration Statement on Form SB-2 (Commission
            File No. 33-80647) filed on June 16, 1997].

     10.4   Management Unit Purchase Option [incorporated by reference to
            Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2
            (Commission File No. 33-80647) filed on December 20, 1995].

     10.5   Class B Stock Option Agreement [incorporated by reference to Exhibit
            10.5 to the Registrant's Registration Statement on Form SB-2
            (Commission File No. 33-80647) filed on June 16, 1997].


     (b)  Reports on Form 8-K

          None


                                       23

<PAGE>













                        North Atlantic Acquisition Corp.
                             (formerly Orion Acquisition
                                                Corp. I)
                                   (a corporation in the
                                      development stage)

















                                                            Financial Statements
                                            Years Ended August 31, 1997 and 1996





<PAGE>


















                        North Atlantic Acquisition Corp.
                             (formerly Orion Acquisition
                                                Corp. I)
                                   (a corporation in the
                                      development stage)














================================================================================


                                                            Financial Statements
                                            Years Ended August 31, 1997 and 1996


                                                                             F-1


<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                                        Contents
================================================================================





Report of independent certified public accountants                          F-3

Financial statements:
   Balance sheet                                                            F-4
   Statements of operations                                                 F-5
   Statements of stockholders' equity                                       F-6
   Statements of cash flows                                                 F-7
   Notes to financial statements                                     F-8 - F-17



                                                                             F-2

<PAGE>



Report of Independent Certified Public Accountants


Board of Directors and Stockholders of
  North Atlantic Acquisition Corp.
New York, New York

We have audited the  accompanying  balance sheet of North  Atlantic  Acquisition
Corp.  (formerly  Orion  Acquisition  Corp. I) (a corporation in the development
stage)  as of  August  31,  1997,  and the  related  statements  of  operations,
stockholders'  equity,  and cash flows for the years  ended  August 31, 1997 and
1996,  and the period  September 1, 1995 (date of inception) to August 31, 1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of North  Atlantic  Acquisition
Corp.  as of August 31,  1997,  and the results of its  operations  and its cash
flows for the years ended August 31, 1997 and 1996, and the period  September 1,
1995 (date of  inception)  to August 31,  1997,  in  conformity  with  generally
accepted accounting principles.


BDO Seidman, LLP





New York, New York

November 4, 1997

                                                                             F-3

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                                   Balance Sheet
================================================================================
<TABLE>
<CAPTION>
August 31, 1997
-------------------------------------------------------------------------------------------
<S>                                                                             <C>        
Assets
Cash                                                                            $   400,535
Cash held in escrow                                                                   1,676
Investment in treasury securities held in escrow (Notes 2 and 4)                  7,998,324
-------------------------------------------------------------------------------------------
                                                                                $ 8,400,535
===========================================================================================
Liabilities and Stockholders' Equity
Liabilities:
   Accrued expenses                                                             $   182,431
   Notes payable (Note 6)                                                           100,000
-------------------------------------------------------------------------------------------
        Total liabilities                                                           282,431
-------------------------------------------------------------------------------------------
Commitments (Note 5)
Common stock subject to possible conversion, 160,000 shares at
   redemption value (Note 2)                                                      1,600,000
-------------------------------------------------------------------------------------------
Stockholders' equity (Notes 1, 2, 3 and 6):
   Convertible preferred stock, $.01 par value - shares authorized 1,000,000,
      outstanding none; subscribed 94; liquidation value - $9,400                         1
   Subscription receivable                                                           (9,400)
   Class A common stock, $.01 par value - shares authorized 10,000,000;
      outstanding 906,000                                                             9,060
   Class B common stock, $.01 par value - shares authorized 250,000;
      issued and outstanding 150,000                                                  1,500
   Additional paid-in capital                                                     6,586,948
   Deficit accumulated during the development stage                                 (70,005)
-------------------------------------------------------------------------------------------
        Total stockholders' equity                                                6,518,104
-------------------------------------------------------------------------------------------
                                                                                $ 8,400,535
===========================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                             F-4

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                        Statements of Operations
================================================================================
<TABLE>
<CAPTION>
                                                                        Period from                       
                                             Year ended August 31,   September 1, 1995                    
                                            ----------------------    (inception) to   
                                               1997         1996      August 31, 1997  
--------------------------------------------------------------------------------------
<S>                                         <C>          <C>            <C>                  
General and administrative expenses            
   and debt costs                           $  38,920    $  31,085      $  70,005            
--------------------------------------------------------------------------------------
Net loss                                    $ (38,920)   $ (31,085)     $ (70,005)
======================================================================================
Net loss per common share                   $    (.33)   $    (.29)  
======================================================================================
Weighted average common shares                                       
   outstanding                                119,014      106,000   
======================================================================================
</TABLE>
                                                                     
                                 See accompanying notes to financial statements.

                                                                             F-5

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                              Statements of Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
                                                                                   Class A                    Class B           
                                                                             ---------------------        -----------------  
                                       Preferred stock                            Common stock              Common stock        
                                      ------------------    Subscription     ---------------------        -----------------  
                                      Shares      Amount     receivable       Shares        Amount        Shares     Amount  
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>               <C>       <C>               <C>       <C>
Issuance of founders' shares            --        $   --    $    --            86,000   $  860                 --   $   --   
Sale of common stock                    --            --         --            20,000      200                 --       --   
Subscription receivable                 94             1     (9,400)               --       --                 --       --   
Net loss                                --            --         --                --       --                 --       --   
---------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996                94             1     (9,400)          106,000    1,060                 --       --   
Net loss                                --            --         --                --       --                 --       --   
Sale of common stock, net               --            --         --           800,000    8,000            150,000    1,500   
Reclassification to                                                                                    
   redeemable                                                                                          
   common stock                         --            --         --                --       --                 --       --   
---------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997                94        $    1    $(9,400)          906,000   $9,060            150,000   $1,500   
===========================================================================================================================
                                                                                                       
<CAPTION>                                                                                         
                                      
                                                      Deficit                   
                                                    accumulated                 
                                    Additional       during the        Total    
                                       paid-in      development    stockholders'
                                       capital         stage          equity    
--------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>            
Issuance of founders' shares       $     7,740    $     --       $     8,600    
Sale of common stock                    44,800          --            45,000    
Subscription receivable                  9,399          --                --    
Net loss                                    --     (31,085)          (31,085)   
--------------------------------------------------------------------------------
Balance, August 31, 1996                61,939     (31,085)           22,515    
Net loss                                    --     (38,920)          (38,920)   
Sale of common stock, net            8,125,009          --         8,134,509    
Reclassification to                                                             
   redeemable                                                                   
   common stock                     (1,600,000)         --        (1,600,000)   
--------------------------------------------------------------------------------
Balance, August 31, 1997           $ 6,586,948    $(70,005)      $ 6,518,104    
================================================================================
</TABLE>                                                      

                                 See accompanying notes to financial statements.

F-6

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                        Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
                                                                                                                      Period from   
                                                                                    Year ended August 31,          September 1, 1995
                                                                         -------------------------------------      (inception) to  
                                                                                  1997                  1996        August 31, 1997 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>                   <C>         
Cash flows from operating activities:                                                                            
    Net loss                                                                $   (38,920)          $   (31,085)          $   (70,005)
    Adjustments to reconcile net loss to net
      cash provided by operating activities:
        Amortization of deferred debt costs                                          --                 9,800                 9,800
        Amortization of discount on notes
           payable                                                               17,088                17,912                35,000
        Changes in assets and liabilities-
           accrued expenses                                                      84,332                 8,099                92,431
------------------------------------------------------------------------------------------------------------------------------------
              Net cash provided by
                operating activities                                             62,500                 4,726                67,226
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
      Purchase of treasury securities in
        escrow                                                               (7,998,324)                   --            (7,998,324)
      Increase in cash held in escrow                                            (1,676)                   --                (1,676)
------------------------------------------------------------------------------------------------------------------------------------
              Net cash used in investing
                activities                                                   (8,000,000)                   --            (8,000,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
      Proceeds from sale of common stock,
        net                                                                   8,134,509                53,600             8,188,109
      Deferred costs:
        Registration                                                            177,792               (87,792)               90,000
        Debt                                                                         --                (9,800)               (9,800)
      Proceeds from issuance of notes
        payable                                                                      --                65,000                65,000
------------------------------------------------------------------------------------------------------------------------------------
              Net cash provided by financing
                activities                                                    8,312,301                21,008             8,333,309
------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash                                                            374,801                25,734               400,535
Cash, beginning of period                                                        25,734                    --                    --
------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period                                                         $   400,535           $    25,734           $   400,535
====================================================================================================================================
Supplemental disclosures for cash flow
    information:
      Cash paid for:
        Interest                                                            $        --           $        --           $        --
        Taxes                                                                        --                    --                    --
====================================================================================================================================
</TABLE>

In  fiscal 1996, the Company received a note for subscribed preferred stock
     amounting to $9,400, which is a noncash financing activity.

In  fiscal 1996, the Company has recorded a $90,000 liability relating to a
     license agreement (Note 1), which is a noncash financing activity.
================================================================================

                                 See accompanying notes to financial statements.

                                                                             F-7

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

1.   Summary of Significant Accounting Policies

     Deferred Debt Costs

     Net  unamortized  costs incurred in connection with the notes payable (Note
     5(a)) of $9,800 were  amortized  over six months (the estimated term of the
     debt) using the straight-line  method.  Amortization expense was $9,800 for
     the period from September 1, 1995 (inception) to August 31, 1996.

     Income Taxes

     The Company  follows the  Financial  Accounting  Standards  Board  ("FASB")
     Statement No. 109. This  statement  requires that deferred  income taxes be
     recorded  following  the  liability  method of  accounting  and be adjusted
     periodically when income tax rates change.

     As of August  31,  1997 and 1996,  the  Company  has a net  operating  loss
     carryforward  of  approximately  $70,000 and $31,000,  respectively,  which
     results in a  deferred  tax asset of  approximately  $27,000  and  $12,000,
     respectively, which has been offset by a valuation allowance.

     Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Earnings Per Share

     Earnings  per  share of  common  stock is  computed  based on the  weighted
     average  number  of  common  stock  and  common  stock  equivalent   shares
     outstanding  during  the  period.  Common  stock and  warrants  issued  for
     consideration  below the proposed  public offering price have been included
     as  if  they  had  been  outstanding  for  all  periods  presented.   Stock
     equivalents   have  not  been   included   since  their   effect  would  be
     antidilutive.


                                                                             F-8

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     Accounting for Stock-based Compensation

     In October 1995, the FASB issued SFAS No. 123,  "Accounting for Stock-based
     Compensation".   Beginning  in  1996,   SFAS  No.  123  requires   expanded
     disclosures of  stock-based  compensation  arrangements  with employees and
     encourages,  but does not require, the recognition of employee compensation
     expense related to stock compensation based on the fair value of the equity
     instrument granted.  Companies that do not adopt the fair value recognition
     provisions  of SFAS No. 123 and continue to follow the existing APB Opinion
     No. 25 rules to  recognize  and  measure  compensation  will be required to
     disclose  the pro forma  amounts of net income and  earnings per share that
     would have been  reported had the Company  elected to follow the fair value
     recognition  rules of SFAS No. 123.  The Company has elected to continue to
     use the intrinsic value-based method of APB Opinion No. 25, and has adopted
     the disclosure requirements of SFAS No. 123.

     Disclosure of Fair Value of Financial Instruments

     The  carrying  amount of financial  instruments  including  cash,  treasury
     securities  in escrow and accrued  expenses  approximated  fair value as of
     August  31,  1997  because  of  the  relatively  short  maturity  of  these
     instruments.


                                                                             F-9

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     Recent Accounting Pronouncements

     In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".  SFAS
     No. 128 is effective for  financial  statements  issued for periods  ending
     after  December  15,  1997.  SFAS No. 128  simplifies  the  computation  of
     earnings per share by replacing the  presentation  of primary  earnings per
     share with a  presentation  of basic  earnings per share,  as defined.  The
     statement  requires  dual  presentation  of basic and diluted  earnings per
     share by entities with complex capital structures. Basic earnings per share
     includes no dilution and is computed by dividing income available to common
     stockholders by the weighted  average number of shares  outstanding for the
     period.  Diluted  earnings  per share  reflects the  potential  dilution of
     securities  that could share in the earnings of an entity  similar to fully
     diluted  earnings  per  share.  SFAS  No.  128 is not  expected  to  have a
     significant impact on the Company's financial statements.

     In June 1997, SFAS No. 130, "Reporting  Comprehensive  Income" and SFAS No.
     131, "Disclosure about Segments of an Enterprise and Related  Information,"
     were issued.  SFAS No. 130 addresses standards for reporting and display of
     comprehensive   income  and  its  components  and  SFAS  No.  131  requires
     disclosure of reportable operating segments.  Both statements are effective
     for the Company's 1998 fiscal year. These  pronouncements  are not expected
     to affect the Company's financial statements.


2.   Organization and Business Operations

     The  Company was  incorporated  in Delaware on August 9, 1995 to acquire an
     operating business. Operations did not occur until September;  accordingly,
     financial  statements have been presented  commencing on September 1, 1995.
     At August 31, 1997,  the Company had not yet commenced any formal  business
     operations and all activity to date relates to the Company's  formation and
     fund raising.


                                                                            F-10

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     The Registration  Statement for the Company's  Initial Public Offering (the
     "Offering")  became effective August 22, 1997. The Company  consummated the
     Offering  on August  27,  1997 and  raised net  proceeds  of  approximately
     $8,100,000 (see Note 3). The Company's management has broad discretion with
     respect to the specific  application  of the net proceeds of this Offering,
     although  substantially  all of the  net  proceeds  of  this  Offering  are
     intended to be generally applied toward consummating a business combination
     with an operating business ("Business Combination").  Furthermore, there is
     no  assurance  that  the  Company  will be able to  successfully  effect  a
     Business  Combination.  An aggregate of  $8,000,000  of the net proceeds is
     being held in an escrow account which will be invested,  until released, in
     short-term United States Government  Securities,  including  treasury bills
     and cash and cash  equivalents  ("Proceeds  Escrow  Account"),  subject  to
     release  at  the  earlier  of  (i)   consummation  of  its  first  Business
     Combination  or  (ii)  distribution  of the  Class  A  stock  (see  below).
     Therefore, the remaining proceeds from the Offering will be used to pay for
     business, legal and accounting,  due diligence on prospective acquisitions,
     costs  relating  to  the  public   offering  and  continuing   general  and
     administrative expenses in addition to other expenses.

     The Company,  prior to the consummation of any Business  Combination,  will
     submit such  transaction to the Company's  stockholders for their approval,
     even if the  nature  of the  acquisition  is such as would  not  ordinarily
     require  stockholder  approval  under  applicable  state  law.  All  of the
     Company's  prior  stockholders,  including  all directors and the Company's
     executive  officer,  have agreed to vote their respective shares of Class A
     stock in  accordance  with the vote of the  majority of the shares voted by
     all other stockholders of the Company ("nonaffiliated public stockholders")
     with respect to any such Business Combination.  A Business Combination will
     not be consummated unless approved by a vote of two-thirds of the shares of
     common stock owned by nonaffiliated public stockholders.


                                                                            F-11

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     At the  time  the  Company  seeks  stockholder  approval  of any  potential
     Business  Combination,  the Company will offer ("Redemption Offer") each of
     the  nonaffiliated  public Class A stockholders  the right, for a specified
     period of time not less than 20  calendar  days,  to redeem  his  shares of
     Class A  stock.  The per  share  redemption  price  will be  determined  by
     dividing the greater of (i) the  Company's  net worth or (ii) the amount of
     assets of the Company in the escrow account  (including all interest earned
     thereon)   by  the  number  of  shares  of  Class  A  stock  held  by  such
     nonaffiliated public stockholders. In connection with the Redemption Offer,
     if nonaffiliated  public stockholders  holding less than 20% of the Class A
     stock  elect to redeem  their  shares,  the  Company  may,  but will not be
     required to,  proceed with such  Business  Combination  and, if the Company
     elects to so proceed,  will redeem such shares by dividing  (a) the greater
     of (i) the  Company's  net worth as  reflected in the  Company's  financial
     statements  or (ii) the amount of the proceeds of the Company in the escrow
     account by (b) the number of shares of Class A stock held by  nonaffiliated
     public stockholders  ("Liquidation Value").  Accordingly,  a portion of the
     net  proceeds  from the Offering  (20% of the cash and treasury  securities
     held in escrow) has been  classified  as common  stock  subject to possible
     redemption in the accompanying balance sheet at the estimated value. In any
     case, if nonaffiliated public stockholders holding 20% or more of the Class
     A stock elect to redeem  their  shares,  the Company  will not proceed with
     such potential Business Combination and will not redeem such shares.


                                                                            F-12

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     All shares of the escrowed stock outstanding  immediately prior to the date
     of the  Offering  will be  placed in escrow  until the  earlier  of (i) the
     occurrence  of the first  Business  Combination,  (ii) 18  months  from the
     effective  date of the Offering or (iii) 24 months from the effective  date
     of the  Offering  if prior to the  expiration  of such 18 month  period the
     Company has become a party to a letter of intent or a definitive  agreement
     to  effect a  Business  Combination,  in which  case such  period  shall be
     extended  six  months.  During the escrow  period,  the holders of escrowed
     shares of common stock will not be able to sell or otherwise transfer their
     respective  shares of common  stock  (with  certain  exceptions),  but will
     retain all other rights as stockholders of the Company, including,  without
     limitation,  the right to vote escrowed shares of Class A stock, subject to
     their  agreement  to  vote  their  shares  in  accordance  with a vote of a
     majority of the shares  voted by  nonaffiliated  public  stockholders  with
     respect to a Business Combination or liquidation proposal.

     If the Company does not effect a Business Combination within 18 months from
     the effective  date or 24 months from the  effective  date if the extension
     criteria  have been  satisfied,  the Company  will  submit for  stockholder
     consideration a proposal to distribute to the then holders of Class A stock
     (issued in the  Offering  or acquired  in the open  market  thereafter)  in
     redemption  of such shares,  the amounts in the escrow  account.  Following
     such redemption of Class A stock,  each outstanding  share of Class B stock
     will be exchanged for two shares of Class A stock.

     In the event of  liquidation,  it is likely that the per share value of the
     residual  assets  remaining  available for  distribution  to the holders of
     common stock  purchased in the Offering  (including  escrow account assets)
     will approximately  equal the initial public offering price per unit in the
     Offering.




                                                                            F-13

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

3.   Public Offering

     On August 27,  1997,  the  Company  sold  800,000  units  ("Units")  in the
     Offering and 150,000 shares of Class B exchangeable common stock. Each Unit
     consists of one share of the Company's Class A common stock and one Class A
     redeemable common stock purchase warrant ("Class A Warrant").  Each Class A
     Warrant  entitles  the holder to  purchase  from the  Company  one share of
     common stock at an exercise price of $9.00; each Class B Stock entitles the
     holder  to  receive  two  Units in  exchange  90 days  after  the date of a
     Business Combination.

     Concurrent  with  the  Offering,  the  Company  amended  and  restated  its
     certificate of  incorporation  to increase its  authorized  common stock to
     10,250,000  shares, of which 10,000,000 shares are designated Class A stock
     and 250,000 shares are designated Class B stock. The Company also increased
     its  authorized   preferred  stock  to  1,000,000  shares.   The  financial
     statements have been retroactively adjusted for this change for all periods
     presented.



4.   Treasury Securities Held in Escrow

     On August 28, 1997, the Company invested the cash held in escrow into three
     treasury  securities  for a total of  $7,998,324,  with the excess  cash of
     $1,676  remaining  in the  escrow  account.  The  treasury  securities  are
     summarized below:

<TABLE>
<CAPTION>
                                          Maturity       Interest         Maturity
                              Cost         amount          rate             date
-----------------------------------------------------------------------------------------
<S>                        <C>            <C>               <C>      <C>
Treasury bill              $3,999,718     $4,106,000        5.12%    February 26, 1998

Treasury bill               1,999,514      2,109,000        5.23     August 20, 1998
-----------------------------------------------------------------------------------------
   Total treasury bills     5,999,232      6,215,000

Treasury note               1,999,092      2,018,000        5.00     February 15, 1999
-----------------------------------------------------------------------------------------
   Total treasury
      securities held
      in escrow            $7,998,324     $8,233,000
=========================================================================================
</TABLE>



     At  August  31,  1997,  the  cost  of  each  of the  above-listed  treasury
     securities approximated its market value.


                                                                            F-14

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

5.   Commitments

     The Company  has entered  into an oral  agreement  with David J.  Mitchell,
     Chairman and Chief  Executive  Officer,  to lease office space,  as well as
     certain office and  secretarial  services,  commencing  upon the closing of
     this  Offering.  The Company will pay $2,500 per month to Mr.  Mitchell for
     such services.


6.   Stockholders' Equity

     (a)  Private Placement

          In  November  1995,  the  Company  completed  a private  offering to a
          limited  group of investors  which  consisted,  in the  aggregate,  of
          $100,000 in  unsecured  promissory  notes  bearing  interest at 8% per
          annum.  The  notes are  payable  upon the  earlier  of May 1998 or the
          completion of an initial public  offering.  As of August 31, 1997, the
          notes,  together with accrued interest,  were not repaid. In addition,
          the  Company  also issued to the private  placement  investors  20,000
          shares of common stock for $10,000.  The notes were discounted $35,000
          for financial  reporting purposes as a result of additional fair value
          attributed  to  the  common  stock  issued  to the  private  placement
          shareholders. The effective rate on the notes is approximately 45%.

     (b)  Preferred Stock

          The Company is authorized to issue  1,000,000  shares of "blank check"
          preferred  stock with such  designations,  voting and other rights and
          preferences  as may be  determined  from  time to time by the Board of
          Directors.


                                                                            F-15

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

          The Company  has  outstanding  94 shares of Series A preferred  stock,
          owned by CDIJ Capital Partners,  L.P., an indirect affiliate of Bright
          Licensing Corp. (Note 1). The purchase price for such shares,  $100.00
          per share or $9,400  in the  aggregate,  is  payable  to the  Company,
          without interest, upon the earlier of November 15, 1996 or the closing
          of the Offering. As of August 31, 1997, the $9,400 was not received by
          the Company. The Series A preferred stock is nonvoting,  does not bear
          a dividend  and has a  liquidation  value of $100.00  per share.  Each
          share of Series A  preferred  stock  will be  convertible  into  1,000
          shares  of  common  stock  for  a  period  one  year   following   the
          consummation of a Business  Combination.  In the event that a Business
          Combination does not occur within 18 months from the effective date or
          24  months  from the  effective  date if the  extension  criteria  are
          satisfied,  the  Series A  preferred  stock  will be  redeemed  by the
          Company for its liquidation value.

     (c)  Options

          The Company granted options to purchase 100,000 Units to the founders,
          in consideration  for their service as directors,  and officers of the
          Company.  The options are exercisable for a period of three years from
          the date of a Business  Combination at an exercise price of $12.50 per
          Unit. The options are fully vested.  The shares issuable upon exercise
          of the options and  underlying  warrants  may not be sold or otherwise
          transferred until 120 days after the first Business Combination.

          In October 1996, the Company cancelled the 100,000 options and granted
          additional  options to purchase  133,333.3  Units to the Company's two
          new  directors  and to a founder.  The options are  exercisable  for a
          period of three (3) years from the date of a Business  Combination  at
          an exercise price of $12.50 per Unit.

          The  Company  has granted  options to  purchase  30,000  shares of the
          Company's  Class B Stock  to two  directors  at an  exercise  price of
          $10.00 per share.  The options will expire,  if not sooner  exercised,
          upon consummation of a Business Combination.


                                                                            F-16

<PAGE>



                                                North Atlantic Acquisition Corp.
                                            (formerly Orion Acquisition Corp. I)
                                        (a corporation in the development stage)

                                                   Notes to Financial Statements
================================================================================

     (d)  Warrants

          In connection with the Offering  described in Note 3, the Company sold
          800,000  Class A Warrants  which  entitle the holder to  purchase  one
          share of Class A common stock at a price of $9.00 per share. The Class
          A Warrants are redeemable,  each as a class, in whole and not in part,
          at a price  of $.05  per  warrant  upon 30  days'  notice  at any time
          provided  that the  Company's  stockholders  have  approved a Business
          Combination and the last sale price of the common stock, if the common
          stock is listed for trading on all 10 of the trading days prior to the
          day on which the Company gives notice of  redemption,  has been $11.00
          or  higher.  The Class A  Warrants  will  become  exercisable  90 days
          following  a  Business  Combination  and  will  expire  on  the  fifth
          anniversary of the Offering.

          In  addition,  the Company sold to the  underwriters  80,000 Units and
          15,000 Class B Warrants for $15.00 (the "Representative's  Warrants").
          The Representative's Warrants are exercisable at a price of $11.00 per
          Unit  and  $11.00  per  Class B  Warrant  for a period  of four  years
          commencing one year from the date of the Offering. The Units and Class
          B  Warrants,  issuable  upon  the  exercise  of  the  Representative's
          Warrants,  are the same as the Units and  Class B stock  described  in
          Note 3.





                                                                            F-17

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Section 13 or 15 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
12th day of December, 1997.


                                             NORTH ATLANTIC ACQUISITION CORP. II

Date: December 12, 1997                       By:  /s/ David J. Mitchell
                                                   -----------------------------
                                              David J. Mitchell
                                              Chairman of the Board
                                              Chief Executive Officer
                                              (Principal Executive Officer)


Date: December 12, 1997                       By:  /s/ Thomas McMillen
                                                   -----------------------------
                                              Thomas McMillen
                                              Secretary, Treasurer & Director
                                              (Principal Accounting Officer)

Date: December __, 1997                       By:  
                                                   -----------------------------
                                              A.J. Nassar, Director


Date: December 12, 1997                       By:  /s/ David J. Mitchell
                                                   -----------------------------
                                              David J. Mitchell
                                              Chairman of the Board,
                                              Chief Executive Officer