UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number - 000-22813
CENTERPOINT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3853272
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18 East 50th St. 10 Floor New York, New York 10022
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(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: (212) 758-6622
Former name, former address and former fiscal year, if changed since last
report.
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes ___ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by checkmark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Common stock, par value $.01 per share, 6,005,339 shares outstanding as of
August 19, 2002.
CENTERPOINT CORPORATION
INDEX TO FORM 10-QSB
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of June 30, 2002 3
Unaudited Consolidated Statements of Operations and
Comprehensive (Loss) Income for the three and six months
ended June 30, 2002 (unaudited) and June 30, 2001 (unaudited) 4
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 2002 5
Unaudited Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and June 30, 2001 6
Notes to consolidated financial statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
CENTERPOINT CORPORATION
Unaudited Consolidated Balance Sheet
June 30, 2002
(in thousands, except for share data)
ASSETS
Current assets:
Cash and cash equivalents $ 18
Prepaid expenses 40
Claim receivable 1,339
--------
Total current assets 1,397
Investment in Bion 14,250
--------
Total assets $ 15,647
========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued expenses 131
Convertible revolving promissory note with affiliate 186
--------
Total current liabilities 317
--------
Total liabilities 317
Commitments and Contingencies
Stockholders' equity:
Common stock, par value $0.01 per share; 20,250,000
shares authorized; 6,005,339 shares outstanding 50
Additional paid-in capital 19,116
Accumulated deficit (3,392)
Deferred unearned compensation (444)
--------
Total stockholders' equity 15,330
--------
Total liabilities and stockholders' equity $ 15,647
========
See Notes to Consolidated Financial Statements
3
CENTERPOINT CORPORATION
Unaudited Consolidated Statements of Operations and
Comprehensive (Loss) Income
(in thousands, except for per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
2002 2001 2002 2001
----------- ----------- ------------- ----------
Revenue (Expenses):
General and administrative expenses $ (104) $ (109) $ (391) $ (153)
Income from claim - - 3,826 -
Write-down of TRG loan - - (1,061) -
Loss on foreign currency translation - - (667) -
Interest (expense) income, net (4) 107 4 263
Other income - 20 - 20
----------- ----------- ------------- ----------
Net (loss) income $ (108) $ 18 $ 1,711 $ 130
----------- ----------- ------------- ----------
Basic and diluted (loss) earnings per
common share $ (0.02) $ 0.00 $ 0.28 $ 0.02
=========== =========== ============= ==========
Weighted average number of common shares
outstanding basic and diluted 6,005,339 5,999,089 6,004,130 5,999,089
=========== =========== ============= ==========
COMPREHENSIVE (LOSS) INCOME:
Net (loss) income $ (108) $ 18 $ 1,711 $ 130
Other comprehensive (loss) income:
Foreign currency translation adjustments - (239) 667 (235)
----------- ----------- ------------- ----------
Comprehensive (loss) income $ (108) $ (221) $ 2,378 $ (105)
=========== =========== ============= ==========
See Notes to Consolidated Financial Statements
4
CENTERPOINT CORPORATION
Unaudited Consolidated Statement of Changes in Stockholders' Equity
(in thousands, except for share data)
Accumulated
Common Stock Additional Other Deferred Total
----------------- Paid-In TRG Comprehensive Accumulated Unearned Stockholders'
Shares Amount Capital Loan Income Deficit Compensation Equity
----------------- ---------- --------- ------------- ----------- ------------ -------------
Balance January 1, 2002 5,999,089 $ 50 $18,635 $ (4,316) $ (667) $ (5,103) $ - $ 8,599
Realized loss on foreign
currency translation - - - - 667 - - 667
Shares issued for services 6,250 - 9 - - - - 9
Assignment of TRG Loan - - - 4,316 - - - 4,316
Issuance of warrants for
services - - 472 - - - (472) -
Amortization of deferred
unearned compensation - - - - - - 28 28
Net income - - - - - 1,711 - 1,711
-------------------------------------------------------------------------------------------
Balance June 30, 2002 6,005,339 $ 50 $19,116 $ - $ - $ (3,392) $ (444) $ 15,330
===========================================================================================
See Notes to Consolidated Financial Statement
5
CENTERPOINT CORPORATION
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30,
-------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 1,711 $ 130
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Write-down of TRG loan 1,061 -
Interest on TRG loan (8) (10)
Common stock issuance for services 9 -
Claims receivable (3,826) -
Realized loss on foreign currency translation 667 -
Amortization of deferred compensation cost 28 -
Other operating activities - (116)
Changes in:
Prepaid expenses 3 27
Accounts payable and accrued expenses (34) (117)
Related party payables 146 (179)
---------- ----------
Net cash used in operating activities (243) (265)
---------- ----------
Cash flows from investing activities:
Investment in Bion (8,500) -
Sale of marketable securities - 12,409
Loan to TRG - (4,200)
---------- ----------
Net cash (used in) provided by investing activities (8,500) 8,209
---------- ----------
Net (decrease) increase in cash and cash equivalents (8,743) 7,944
Effects of exchange rate changes on cash and cash equivalents - 33
Cash and cash equivalents, beginning of period 8,761 1,055
---------- ----------
Cash and cash equivalents, end of period $ 18 $ 9,032
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ $
Supplemental information on non-cash investing activities:
Assignment of loan to TRG as consideration for the purchase
of Bion common stock $ 3,263 $ -
Assignment of claims receivable as consideration for the
purchase of Bion common stock $ 2,487 $ -
See Notes to Financial Statements
6
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of
Centerpoint Corporation (the Company") have been prepared in accordance with
the instructions to Form 10-QSB. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. For a
summary of the Registrant's accounting principles, and other footnote
information, reference is made to the Form 10-K for the year ended December
31, 2001. All adjustments necessary for the fair presentation of the results
of operations for the interim periods covered by this report have been
included. All of such adjustments are of a normal and recurring nature. The
results of operations for the six months ended June 30, 2002 are not
necessarily indicative of the operating results for the full year.
The Company was originally incorporated in Delaware on August 9, 1995 under
the name of North Atlantic Acquisition Corp. to serve as a vehicle to effect a
merger, exchange of capital stock, asset acquisition or other business
combination with an operating business. On August 27, 1997 the Company
consummated an initial public offering consisting of 800,000 Units and 150,000
shares of Class B Common Stock, with each Unit consisting of one share of
Class A Common Stock and one warrant to purchase shares of Class A Common
Stock, which resulted in net proceeds to the Company of approximately
$8,000,000.
On August 18, 1998, the Company and Trident Rowan Group, Inc. ("TRG" or
"Trident Rowan") entered into a definitive agreement and plan of merger and
reorganization, as amended (the "Merger Agreement"), pursuant to which Moto
Guzzi Corp. merged with and into the Company, with the Company as the
surviving corporation (the "Merger"). Prior to the Merger, TRG and its
majority-owned subsidiary, OAM S.p.A. ("OAM"), together owned all the
outstanding common stock of Moto Guzzi Corp. The Merger, which occurred on
March 5, 1999, was treated as a reverse acquisition of the Company. The
results of operations and cash flows prior to the date of the merger are those
of Moto Guzzi Corp. Following the Merger, the Company changed its name to
Moto Guzzi Corporation, adopted the December 31 financial reporting year of
Moto Guzzi Corp. and financial statements were prepared using the accounting
principles of Moto Guzzi Corp.
In September 2000, the Company sold all its operating subsidiaries to Aprilia
S.p.A. ("Aprilia") and changed its name to Centerpoint Corporation.
The financial statements for the period ended June 30, 2002 are shown in U.S.
dollars because all of the Company's material operating entities were based
and operated in the U.S. For the similar period ending June 30, 2001, the
Company's financial statements were translated to U.S. dollars since the
functional currency was the Italian lire.
7
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation (continued)
In December 2001, the Board of the Company met to evaluate the alternative
strategies and investments available to the Company. Investec Ernst & Co.,
who had been hired in June 2001 to assist in this process, presented to the
Board their conclusions on a number of potential investments. After review of
the possible investments, the Board resolved to approve the acquisition of
19,000,000 shares of Bion Environmental Technologies, Inc., a publicly-held
Colorado corporation ("Bion"). Bion is an environmental service company
focused on the needs of confined animal feeding operations. Bion is engaged
in two main areas of activity: waste stream remediation and organic soil and
fertilizer production. Bion's waste remediation service business provides
confined animal feeding operations (primarily in the swine and dairy
industries) with treatment for the animal waste outputs. In this regard, Bion
treats their entire waste stream in a manner which cleans and reduces the
waste stream thereby mitigating pollution of the air, water (both ground and
surface) and soil, while creating value-added organic soil and fertilizer
products. Bion's soil and fertilizer products are being used for a variety of
applications including school athletic fields, golf courses and home and
garden applications.
On January 15, 2002, the Company closed the transaction with Bion by
purchasing 19,000,000 shares of restricted stock of Bion in exchange for
approximately $8.5 million in cash (substantially all of the Company's cash),
the TRG Promissory Note (including accrued interest and reduced by the
write-down - see below), and the assignment of 65% of the Company's claims
with respect to the escrow accounts and claims against IMI (see below). The
common stock of Bion is traded on the OTC Bulletin Board under the symbol
"BNET".
The 65% of the claims that were assigned to Bion from the Company are the
Company's claims against Aprilia, S.p.A., an Italian corporation ("Aprilia"),
the purchaser of the Company's motorcycle operations and Banca di
Intermediazione Mobiliare IMI S.p.A., an Italian corporation ("IMI"), the
investment banker for the Company in the transaction. The Aprilia claim is
for funds paid to Aprilia, though disputed by the Company, from an escrow
account set up for contingent liabilities related to the sale of the
motorcycle operations. The claim against IMI is with regard to a dispute in
calculating the fee they received as investment banker in the sale of the
motorcycle operations to Aprilia. The total of these two claims is
approximately $7,945,000. The 65% of these claims that Bion received for the
sale of its shares of common stock to the Company was valued in the Bion
transaction at $2,487,000. This represents a 52% discount from the full
amount of the claim for an aggregate discounted value of $3,826,154. The
$3,826,154 value ascribed to the claim was arrived at through an internal
allocation made by Bion management based on its own evaluation of the relevant
facts and circumstances and its review of a fairness opinion that was provided
by an investment banking firm with regard to the transaction as a whole.
8
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation (continued)
On January 15, 2002, effective immediately prior to the Company's transaction
with Bion, the Company recorded a gain of $3,826,154 for the outstanding
claims. The Company assigned $2,487,000, or 65% of these claims to Bion for
the purchase of the Bion's shares of common stock. The balance of $1,339,154
representing 35% of the claims remained with the Company and is included in
the financial statements of the Company. Additionally, the Company's note
receivable from TRG for $4,324,274 was written down, prior to the Bion
transaction, by $1,061,274 as part of the transaction. The Company also
assigned the entire loan of $3,263,000, after the write down, to Bion for the
purchase of Bion's shares of common stock by the Company. (See below and Form
8-K dated January 15, 2002).
In addition, an escrow account that was set up for contingent liabilities for
the sale of the motorcycle operations and eventual rights to the balance of
these funds amounting to approximately $875,000 which is not valued on the
Company's books.
Immediately upon consummation of this transaction, Bion purchased a 57.7%
majority interest in the Company from OAM. The total consideration paid by
Bion consisted of (i) $3,700,000 in cash, (ii) the assignment of the TRG
Promissory Note (including accrued interest and reduced by the write-down -
see above) and related loan guarantees, (iii) the assignment of the 65%
interest in the Company's claims with respect to the escrow accounts and
claims against IMI (see above), (iv) the issuance of 1,000,000 shares of
Bion's common stock, and (v) the issuance of a warrant to acquire 1,000,000
shares of Bion's common stock at a price of $0.90, with expiration date of
January 10, 2007.
Under the Subscription Agreement and related Registration Rights Agreement,
Bion agreed among other things (i) file a with SEC a Registration Statement
with respect to the Bion Shares, as soon as practicable, and within 90 days of
the Company's filing with the SEC of its December 31, 2001 Form 10-K, which
was filed on July 2, 2002 and to use its best efforts to cause such
Registration Statement to be declared effective as soon as practicable
thereafter, (ii) to use its best efforts to cause the Bion Shares to be
distributed to the Company's common stockholders in a tax efficient manner in
accordance with applicable law, and (iii) to use its best efforts to hold an
Annual Meeting of Bion Shareholders during 2002, in accordance with its
by-laws and applicable law (a meeting was held April 4, 2002). It is expected
that the distribution will occur during the second half of calendar 2002.
When that distribution occurs, approximately 11,000,000 of Bion's shares will
be distributed back to Bion. Bion has advised the Company that it intends to
cancel such shares.
David Mitchell, a director of the Company, is the Chairman, President, Board
member and a principal stock and warrant holder of Bion. Additionally a
portion of the proceeds of the Bion Investment were used to pay off $718,485
of indebtedness of Bion owed to Mr. Mitchell.
9
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation (continued)
On January 24, 2002, David Mitchell was elected as the Company's President and
CEO. David Mitchell is a founder, stockholder, option holder, former CEO of
the Company and currently is the only director of the Company. Following the
Bion Investment and Bion acquisition of Centerpoint Shares, all of the
Company's directors, other than David Mitchell, resigned from their positions
on the Company's Board of Directors. Bill Spier, one of the Company's
Directors until he resigned on January 24, 2002, sits on Bion's advisory
board. On January 21, 2002, Howard Chase, a director of the Company until he
resigned on January 15, 2002, joined the Board of Directors of Bion.
The Company has a cash flow deficit from operations and relies on the
financial support of Bion, its majority shareholder. Taking into consideration
that Bion has incurred operating losses and has, in addition, an accumulated
deficit and shortage of funds, there can be no assurance that any funds
required during the next twelve months or thereafter can be generated from
operations or that if such required funds are not internally generated that
such funds will be available from external sources.
Effect of Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 requires the use of the purchase method of accounting and prohibits
the use of pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 141 also requires that we recognize
acquired intangible assets apart from goodwill if the acquired intangible
assets meet certain criteria. SFAS No. 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS No. 142, that we reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS No. 141.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that we identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is
required to be applied in fiscal years beginning after December 15, 2001 to
all goodwill and other intangibles assets recognized at that date, regardless
of when those assets were initially recognized. The adoption of SFAS No. 144
did not have an effect on our financial condition or results of operations
10
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation (continued)
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets. SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount of fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not
occurred. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, is to be
applied prospectively. The adoption of SFAS No. 144 did not have an effect on
our financial condition or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring
Costs. SFAS No. 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived assets. Those
activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. Under
SFAS No. 146, a company will record a liability for a cost associated with an
exit or disposal activity when that liability is incurred and can be measured
at fair value. SFAS No. 146 will require a company to disclose information
about its exit and disposal activities, the related costs, and changes in
those costs in the notes to the interim and annual financial statements that
include the period in which an exit activity is initiated and in any
subsequent period until the activity is completed. SFAS No. 146 is effective
prospectively for exit or disposal activities initiated after December 31,
2002 with earlier adoption encouraged. Under SFAS No. 146, a company may not
restate its previously issued financial statements and the new Statement
grandfathers the accounting for liabilities that a company had previously
recorded under Emerging Issues task Force Issue 94-3.
2. Related Party Transactions
On June 13, 2001 the Company, TRG and OAM entered into the TRG Loan Agreement
("TRG Loan") wherein subject to the terms and certain conditions set forth
therein the Company agreed to lend TRG $4,200,000. The loan bears interest at
a rate of 5% per annum, is repayable in full on the earlier of June 13, 2002
and the date on which the Company causes or permits a liquidation of the
Company, and was secured by the 300,000 shares of the Company common stock
currently owned by the TRG and 1,200,000 of the shares of the Company common
stock owned by OAM. In connection with the TRG Loan, OAM also entered into
the OAM Guaranty wherein it guaranteed TRG's obligations under the TRG Loan
Agreement. OAM's liability to the Company under the OAM Guaranty is limited
to the value of the Company shares pledged by OAM. On January 15, 2002, in
connection with the transaction with Bion, the Company assigned the loan to
Bion for the purchase of Bion's shares of common stock. Bion then assigned
the loan to OAM for the purchase of the Company's common stock. Prior to
these transactions, the Company wrote-off $1,061,274 of this loan (See Note 1
- - Basis of Presentation). For the six months ending June 30, 2002, interest
of $8,055 was recorded on the TRG Loan which represents interest accrued
through January 15, 2002, the date of the Bion transaction.
11
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
2. Related Party Transactions (continued)
On March 14, 2002, the Company and Bion entered in an agreement effective
January 15, 2002 where the Company will pay $12,000 a month for management
services, support staff and office space. In addition, Bion will advance to
the Company sums needed to bring its filings with the SEC current, distribute
Bion shares to its shareholders, to locate and acquire new business
opportunities and for on-going expenses. Bion shall have no obligation to
make any advances in excess of $500,000. All sums due Bion shall be evidenced
by a convertible revolving promissory note with interest accruing at one
percent (1%) per month and convertible at any time by Bion into shares of the
Company's common stock at a conversion price of $3.00 per share. As
additional consideration, Bion received a warrant to purchase 1,000,000 shares
of the Company's common stock at $3.00 per share until March 14, 2007. This
warrant was valued at $472,000 using the Black-Scholes pricing model and will
be amortized over the life of the warrant. As of June 30, 2002, Bion had
advanced the Company a total of $186,000.
3. Outstanding Claims
Aprilia Claims under the Share Purchase Agreement; Request for Arbitration
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Moto Guzzi's
operating subsidiaries, Lit. 9,375 million (approximately US$ 4,548,000) of
the proceeds of the sale were placed into escrow.
By letter dated December 21, 2000, legal counsel for Aprilia filed a claim
against Centerpoint under the Share Purchase Agreement alleging (i) that it
had failed to receive a resignation and release from Mr. Roeth, an executive
and director of MGI Motorcycle GmbH, a subsidiary of the Company before the
sale to Aprilia, and (ii) that the campaign recall with respect to certain
Moto Guzzi motorcycles was more critical than that forecast in the Management
Date Financial Statements and August 3, 2000 letter. By letter dated February
5, 2001 Centerpoint's Italian legal counsel responded to the December 21, 2000
letter specifically denying the alleged claims and requesting that the parties
meet to negotiate a release of the escrow funds, as provided for in the August
3, 2000 letter.
On June 4, 2001 Aprilia's legal counsel sent a letter to Centerpoint which
reiterated the claims in its December 21, 2000 letter and alleged the
following: (i) that the cost of the recall campaign was estimated by Aprilia
to be approximately Lit. 4,500 million (approximately US$ 2,183,000), which
exceeded the Management Date Financial Statement amount with respect to the
recall campaign by Lit. 2,676 million (approximately US$ 1,298,000), (ii) that
technical problems related to various motorcycles were likely to cost Aprilia
12
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
3. Outstanding Claims (continued)
approximately Lit. 5,308 million (approximately US$ 2,575,000), and that such
technical problems had not been disclosed to Aprilia in connection with the
sale of the Moto Guzzi operations to Aprilia, and that Aprilia was entitled to
reimbursement of such costs, (iii) that Aprilia was entitled to reimbursement
of Lit. 148.5 million (approximately US$ 72,000) incurred by Aprilia in
connection with the termination of Mr. Roeth, an executive of MGI Motorcycle
GmbH, (iv) that Aprilia was entitled to reimbursement of Lit. 378 million
(approximately US$ 183,000) in respect of unjustified credit notes issued by
MGI Motorcycle GmbH in favor of dealers and distributors, and (v) that
breaches of accounting principles by Moto Guzzi North America entitled it to
claims against Centerpoint in the amount of Lit. 1,100 million (approximately
US$ 534,000) (collectively with (i), (ii), (iii) and (iv), the "Alleged
Claims").
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
By letter dated July 13, 2001 Aprilia requested that IMI, the escrow agent
under the Escrow Agreement, pay them Lit. 7,611 million (approximately US$
3,692,000) in respect of the Alleged Claims. On July 26, 2001, in spite of
being aware of Centerpoint contesting of each of the Alleged Claims and its
intention to seek arbitration, IMI advised Centerpoint that it had paid Lit.
7,611 million (approximately US$ 3,692,000) from the escrow account to Aprilia
in respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, each of which
provides that disputes among the parties be arbitrated, the Company filed with
the International Arbitration Court of the International Chamber of Commerce a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI. Subsequent
to the Company's filing, a committee was formed in Milano, Italy to hear the
case. The Company is requesting restitution of the Lit. 7,611 million
(approximately US$ 3,692,000) paid to Aprilia, plus interest and costs. The
Arbitration committee was constituted on November 16, 2001, and a decision is
expected to be rendered within twelve to eighteen months of the original
filing date.
Dispute with IMI Regarding its Fee
IMI, the Company's investment adviser in connection with the sale of the
operating subsidiaries, acted as fiduciary for the closing. At the Closing,
but without the prior approval, knowledge or consent of the Company, IMI was
paid Lit. 11,401 million, (approximately US$ 5,532,000) in respect of fees and
expenses claimed by IMI to be due it under its engagement letter with TRG and
OAM. Since early July 2000, the Company and TRG have disputed IMI's
interpretation of the calculation of the fee due it under its engagement
letter, following indication by IMI of its basis of calculation. The dispute
13
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
3. Outstanding Claims (continued)
relates to the respective interpretations of the Company, TRG and IMI of the
term "Total Transaction Value" as that term is used in the engagement letter.
Since that time, the Company and TRG discussed and sought to negotiate with
IMI concerning its alleged amount of the fee. IMI refused to engage in
negotiations and did not present any calculation of the fee to the Company or
TRG prior to the closing. After the closing and actual payment to IMI of the
alleged fee, IMI then presented a calculation and an invoice to the Company
for fees and expenses alleged by IMI to be due it under the engagement letter
in the amount of Lit. 11,401 million (approximately US$ 5,532,000). In
addition to disputing the amount of the fee paid to IMI, the Company believes
that IMI had no right to cause its fee to be deducted from the sale proceeds,
as the Company was not a party to the engagement letter, and did not consent
to any such deduction. On February 11, 2002 the Company brought a suit
against IMI before the Civil Section of the Court of Milano, seeking
reimbursement of Lit. 8,766 million (approximately US$ 4,253,000) of the Lit.
11,401 million (US$ 5,532,000) paid to IMI at the closing. The first hearing
in the case, originally scheduled for May 27, 2002, was postponed to July 2,
2002 and as at May 15, 2002 IMI has not yet filed its defenses. On July 2,
2002, IMI and an attorney for the Company appeared before the Examining Judge
of the Civil Section of the Court of Milano. IMI filed a defense plea asking
for the rejection of the Company's claim. No discussion was made on the merit
of the case and the Judge fixed the next hearing for November 15, 2002 at
which time the Judge will interrogate both parties and see if it is possible
for a settlement.
4. Stockholders' Equity
During the six months ended June 30, 2002 the following transactions occurred:
On February 5, 2002 the Company issued 6,250 shares of the Company's common
stock to an individual for legal services provided to the Company. Equity was
increased by $9,375 for the value of the shares issued based on the closing
price of the stock of $1.50 on the date of issuance.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 2002 Compared with Three Months Ended June 30,
2001.
Three Months Ended
June 30,
----------------------
Results of Operations: 2002 2001
--------- --------
General and administrative expenses $ (104) $ (109)
Interest (expense) income, net (4) 107
Other income - 20
--------- --------
Net income (loss) $ (108) $ 18
========= ========
General and administrative expenses - During the three months ended June 30,
2002 (the "2002 Quarter") general and administrative expenses decreased to
$104,000 from $109,000 during the three months ended June 30, 2001 (the "2001
Quarter"). In the 2002 Quarter, general and administrative expenses included
legal fees in the amount of $24,000, which were primarily related to the
Aprilia claim. General and administrative expenses also included management
fees of $64,000, which was comprised of $36,000 for services provided by Bion
pursuant to an agreement where the Company pays Bion $12,000 a month for
management services and $28,000 which related to the amortization of deferred
compensation costs related to a warrant to purchase 1,000,000 shares of the
Company issued to Bion also for management services. The warrant is
exercisable at $3.00 per warrant and expires March 14, 2007. In the 2001
Quarter, general and administrative expenses were principally incurred in
connection with compliance costs.
Interest income, net - In the 2002 Quarter, the Company did not record any
interest income as a result of low average monthly cash balances. Also, in
the 2002 Quarter, the Company incurred $4,000 in interest on the revolving
promissory note due Bion. In the 2001 Quarter, the Company recorded interest
income in the amount of $107,000 principally on Euro denominated fixed
interest securities.
Other (expense) income - The Company did not have other income in the 2002
Quarter. In the 2001 Quarter, the Company recognized positive exchange
differences of $20,000.
15
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001.
Six Months Ended June 30,
(in thousands)
-------------------------
Results of Operations: 2002 2001
--------- --------
General and administrative expenses $ (391) $ (153)
Income from claim 3,826 -
Write-down of TRG loan (1,061) -
Loss on foreign currency translation (667) -
Interest income, net 4 263
Other income - 20
--------- --------
Net income $ 1,711 $ 130
========= ========
General and administrative expenses - During the six months ended June 30,
2002 (the "2002 Six Months"), general and administrative expenses increased to
$391,000 from $153,000 during the six months ended June 30, 2001 (the "2001
Six Months"). In the 2002 Six Months, general and administrative expenses
included $134,000 in fees paid to an investment banker in connection with the
Bion transaction. In the 2002 Six months the Company also incurred legal fees
in the amount of $96,000, which primarily related to the Aprilia claim, the
Bion transaction and filings made to the Securities and Exchange Commission.
General and administrative expenses also included management fees of $94,000,
which was comprised of $66,000 for services provided by Bion pursuant to an
agreement where the Company pays Bion $12,000 a month for management services
and $28,000 which related to the amortization of deferred compensation costs
related to a warrant to purchase 1,000,000 shares of the Company issued to
Bion also for management services. The warrant is exercisable at $3.00 per
warrant and expires March 14, 2007. General and administrative expenses also
included consulting fees of $30,000 that were related to the Bion transaction.
In the 2001 Six Months, general and administrative expenses were principally
incurred in connection with compliance costs.
Income from claim - The Company recognized income of $3,826,000 for claims
against Aprilia and IMI in the 2002 Six Months. This income was recorded in
connection with the assignments made to Bion in connection with the Company's
acquisition of Bion's common stock in January 2002 (See Note 1 to the
financial statements). There was no such claim income recognized in the 2001
Six Months.
Write-down of TRG loan - The Company wrote-down its loan receivable with TRG
by $1,061,000 in the 2002 Six Months. This write-down was recorded in
connection with the assignments made to Bion in connection with the Company's
acquisition of Bion's common stock in January 2002 (See Note 1 to the
financial statements). No such write-down was taken in the 2001 Six Months.
Loss on foreign currency translation - The Company realized a $667,000 loss on
foreign currency translation in the 2002 Six Months. No such loss was
recognized in the 2001 Six Months.
16
Interest income, net - In the 2002 Six Months, the Company recorded interest
income of $8,000 during the period, primarily from interest earned on the TRG
loan. This was offset by interest expense of $4,000 on the revolving
promissory note due Bion. In the 2001 Six Months, the Company recorded
interest income in the amount of $263,000 principally on Euro denominated
fixed interest securities.
Other income - The Company did not have other income in the 2002 Six Months.
In the 2001 Six Months, the Company recognized positive exchange differences
of $20,000.
Liquidity and Financial Resources
As of June 30, 2002, the Company had approximately $18,000 of cash. In order
to meet future costs, such as sums needed to distribute Bion shares to its
shareholders, to locate and acquire new business opportunities and for ongoing
expenses, loans from Bion will need to be made to the Company. Bion has
advanced the Company 186,000 as of June 30, 2002. Bion has no obligation to
make any advances in excess of $500,000 under its management agreement with
the Company. All sums due Bion are to be evidenced by a convertible revolving
promissory note. Taking into consideration that Bion has incurred operating
losses and has, in addition, an accumulated deficit and limited funds, there
can be no assurance that funds required during the next twelve months or
thereafter will be available from external sources.
17
Part II - Other Information
Item 1. Legal Proceedings
Pursuant to the Share Purchase Agreement and the Escrow Agreement relating to
the sale of Moto Guzzi's operating subsidiaries, Lit. 9,375 million of the
proceeds of the sale were placed into escrow.
In December 21, 2000 and June 2001, legal counsel for Aprilia filed claims
against the Company under the Share Purchase Agreement alleging various
breaches of representations and warranties by Company.
On July 23, 2001, in spite of being aware of the Company contesting of each of
the alleged claims and its intention to seek arbitration, IMI advised the
Company that it had paid Lit. 7,610 million from the escrow account to Aprilia
in respect of the alleged claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, each of which
provides that disputes among the parties be arbitrated, the Company filed with
the International Arbitration Court of the International Chamber of Commerce a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI. Subsequent
to the Company's filing, a committee was formed in Milano, Italy to hear the
case. The company is requesting restitution of the Lit. 7,610 million
(approximately US$3,692,000) paid to Aprilia, plus interest and costs. The
Arbitration committee was constituted on November 16, 2001, and a decision is
expected to be rendered within twelve to eighteen months of the original
filing date.
Further details concerning the alleged claims and proceedings are set forth
under "Aprilia Claims Under the Stock Purchase Agreement" above, which is
incorporated herein by reference.
At the September 7, 2000 closing of the sale of the subsidiaries, in
accordance with an invoice previously submitted to them by IMI, but without
the prior approval, knowledge or consent of the Company, IMI was paid Lit.
11,401 million, in respect of fees and expenses claimed by IMI to be due it
under its engagement letter with TRG and OAM. Since early July 2000, the
Company and TRG have disputed IMI's interpretation of the calculation of the
fee due it under its engagement letter, following initial indication by IMI of
its basis of calculation.
On February 11, 2002 the Company brought a suit against IMI before the Civil
Section of the Court of Milano, seeking reimbursement of Lit. 8,766 million
(approximately US$4,253,000) of the Lit. 11,401 million (US$5,532,000) paid to
IMI at the closing. The first hearing in the case, originally scheduled for
May 27, 2002, was postponed to July 2, 2002. On July 2, 2002, IMI and an
attorney for the Company appeared before the Examining Judge of the Civil
Section of the Court of Milano. IMI filed a defense plea asking for the
rejection of the Company's claim. No discussion was made on the merit of the
case and the Judge fixed the next hearing for November 15, 2002 at which time
the Judge will interrogate both parties and see if it is possible for a
settlement.
18
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
--------
None
Reports on Form 8-K
-------------------
None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTERPOINT CORPORATION
August 20, 2002 By: /s/ David Mitchell
-------------------------------
David Mitchell
President
August 20, 2002 By: /s/ David Fuller
-------------------------------
David Fuller
Principal Accounting Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER OF
CENTERPOINT CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350
We certify that, to the best of our knowledge, the Quarterly Report on Form
10-QSB of Centerpoint Corporation for the period ending June 30, 2002:
(1) complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material aspects, the financial condition and results of operations of
Centerpoint Corporation.
/s/ David Mitchell /s/ David Fuller
- --------------------------------- -------------------------------
David Mitchell David Fuller
Chief Executive Officer Chief Financial Officer
August 20, 20002 August 20, 2002
20