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
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
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
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(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)
(212) 758-6622
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Registrant's telephone number, including area code
Securities registered under Section 12(b) and or 12(g) of the Exchange Act:
Common Stock, $.01 par value
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 X No ___
As of November 12, 2002 the issuer had outstanding 6,005,339 shares of common
stock.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
CENTERPOINT CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I .............................................................. 3
Item 1. Financial Statements .................................. 3
Unaudited consolidated balance sheet as of
September 30, 2002 .................................... 3
Unaudited consolidated statements of operations for
the three and nine months ended September 30, 2002
and 2001 .............................................. 4
Unaudited consolidated statements of cash flows for
the three and nine months ended September 30, 2002
and 2001 .............................................. 5
Notes to unaudited consolidated financial statements .. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 14
Item 3. Controls and Procedures ............................... 16
PART II ............................................................. 17
Item 6. Exhibits and Reports on Form 8-K ...................... 17
Signatures ..................................................... 18
Certifications .................................................. 18
2
PART I
Item 1. Financial Statements
CENTERPOINT CORPORATION
Unaudited Balance Sheet
As of September 30, 2002
ASSETS
Current assets:
Cash and cash equivalents $ 3,187
Prepaid expenses and other current assets 37,358
------------
Total current assets 40,545
Investment in Bion Environmental Technologies, Inc. 11,763,000
------------
Total assets $ 11,803,545
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 92,011
Convertible revolving promissory note with affiliate 267,320
------------
Total current liabilities 359,331
------------
Total liabilities 359,331
Commitments and contingencies
Stockholders' Equity:
Common stock, no par value, 20,250,000 shares
authorized, 6,005,339 shares issued and
outstanding 50,000
Additional paid-in capital 19,116,375
Accumulated deficit (7,301,297)
Deferred unearned compensation (420,864)
------------
Total stockholders' equity 11,444,214
------------
Total liabilities and stockholders' equity $ 11,803,545
============
See notes to consolidated financial statements
3
CENTERPOINT CORPORATION
Unaudited Statements of Operations and Comprehensive Loss
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenue $ 0 $ 0 $ 0 $ 0
Operating expenses:
General and administrative 75,985 102,764 466,185 266,994
Write down of TRG loan - - 1,061,759 -
----------- ----------- ----------- -----------
75,985 102,764 1,527,944 266,994
Operating loss (75,985) (102,764) (1,527,944 (266,994)
Other income (expenses):
Loss on foreign currency
Translation - - (668,494) -
Interest, net (6,725) 54,481 (1,913) 337,035
Other 48 21,783
----------- ----------- ----------- -----------
(6,725) 54,529 (670,407) 358,818
----------- ----------- ----------- -----------
Net (loss) income (82,710) (48,235) (2,198,351) 91,824
=========== =========== =========== ===========
Basic and diluted loss per common
Share $ (0.01) $ (0.01) $ (0.37) $ 0.02
=========== =========== =========== ===========
Weighted average number of
common share basic and diluted 6,005,339 5,999,089 6,004,538 5,999,089
=========== =========== =========== ===========
Comprehensive (loss) income:
Net (loss) income $ (82,710) $ (48,235) $(2,198,351) $ 91,824
Other comprehensive (loss) income:
Foreign currency translation
adjustments - (973,000) 668,494 (1,208,000)
----------- ----------- ----------- -----------
$ (82,710) $(1,021,235) $(1,529,857) $(1,116,176)
=========== =========== =========== ===========
See notes to consolidated financial statements
4
CENTERPOINT CORPORATION
Unaudited Statements of Cash Flows
Nine Months Ended
September 30,
---------------------------
2002 2001
------------ -----------
Cash flows from operating activities:
Net (loss) income $ (2,198,351) $ 91,824
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-down of TRG loan 1,061,274 -
Interest on TRG loan (8,055) (64,353)
Common stock issuance for services 9,991 -
Realized loss on foreign currency translation 666,806 -
Amortization of deferred compensation cost 51,136 -
Other operating activities - (764,604)
Changes in:
Prepaid expenses 5,413 30,867
Accounts payable and accrued expenses (113,557) (97,408)
Related party payables 267,320 (192,492)
------------ -----------
Net cash used in operating activities (258,023) (996,166)
------------ -----------
Cash flows from investing activities:
Investment in Bion Environmental Technologies, Inc. (8,500,000) -
Sale of marketable securities - 13,323,318
Loan to TRG - (4,509,629)
------------ -----------
Net cash provided by (used in) investing activities (8,500,000) 8,813,689
------------ -----------
Net increase (decrease) in cash and cash equivalents (8,758,023) 7,817,523
Effects of exchange rate changes on cash - 10,808
Cash and cash equivalents, beginning of period 8,761,210 1,132,937
------------ -----------
Cash and cash equivalents, end of period $ 3,187 $ 8,961,268
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 299 $ 24,560
============ ===========
Supplemental information on non-cash investing activities:
Assignment of loan to TRG as consideration for the purchase
of Bion common stock $ 3,263,000 $ -
============ ===========
See notes to consolidated financial statements
5
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Centerpoint
Corporation (the "Company" or "Centerpoint") have been prepared in
accordance with accounting principles generally accepted in the United
States of America ("GAAP") for interim financial information. In the
opinion of management, such statements include all adjustments (consisting
only of normal recurring adjustments) necessary for the fair presentation of
the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated. Pursuant to the requirements of the
Securities and Exchange Commission applicable to Quarterly Reports on Form
10-QSB, the accompanying financial statements do not include all the
disclosures required by GAAP for annual financial statements. While the
Company believes that the disclosures presented are adequate to make the
information not misleading, these interim consolidated financial
statements should be read in conjunction with the audited financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001. Operating results for the
three and nine month periods ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2002.
Certain 2001 items have been reclassified to conform to their 2002
presentation.
2. ORGANIZATION AND NATURE OF BUSINESS
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") 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.
6
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
2. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
The financial statements for the period ended September 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 September 30,
2001, the Company's financial statements were translated to U.S. dollars since
the functional currency was the Italian lire.
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 (1,900,000 post reverse-split) 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 (1,900,000 post reverse-split) 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" and on the Philadelphia Stock
Exchange under the symbol "BNO".
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
7
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
2. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
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.
On January 15, 2002, effective immediately prior to the Company's transaction
with Bion, 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 of which the Company assigned
65% of the rights to these funds to Bion, 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 (100,000 post
reverse-split) shares of Bion's common stock, and (v) the issuance of a
warrant to acquire 1,000,000 (100,000 post reverse-split) shares of Bion's
common stock at a price of $0.90 ($9.00 post reverse-split), with an
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 last quarter of calendar 2002.
When that distribution occurs, approximately 11,000,000 (1,100,000 post
reverse-split) 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 founder and director of the Company at the time of the above
transaction, is the Chairman, President, Chief Executive Officer 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.
8
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
2. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
On January 24, 2002, David Mitchell was elected as the Company's President and
Chief Executive Officer and is currently 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
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
9
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
2. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
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.
3. INVESTMENT
On January 15, 2002 the Company acquired 1,900,000 shares of Bion stock (Bion
currently owns 57.6% of Centerpoint). The Company has accounted for this
investment using the cost method since the shares are restricted and thus not
readily marketable. The Company intends to distribute the investment to its
stockholders. Upon distribution the Company will record a gain or loss for
the difference between the carrying amount and the market value of
approximately 800,000 shares distributed. The 800,000 shares represent that
portion of the 1,900,000 shares which will not be distributed to Bion. If the
investment is not distributed in the fourth quarter, the Company will assess
the investment to determine if an impairment exists. As of September 30, 2002
no impairment losses have been recorded. The market value of 1,900,000 shares
of unrestricted common stock of Bion at September 30, 2002 was $6,175,000.
4. 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
10
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
4. RELATED PARTY TRANSACTIONS (CONTINUED)
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 2
- - Organization and Nature of Business). For the nine 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.
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 September 30, 2002, Bion had
advanced the Company a total of $267,320, including interest.
5. OUTSTANDING CLAIMS
Aprilia Claims under the Share Purchase Agreement; Request for Arbitration
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Moto Guzzi's
operating subsidiaries, Lit. 9,375 million (approximately US$ 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.
11
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
5. OUTSTANDING CLAIMS (CONTINUED)
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
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
12
CENTERPOINT CORPORATION
Notes to Consolidated Financial Statements
September 30, 2002
5. OUTSTANDING CLAIMS (CONTINUED)
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
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. 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.
6. STOCKHOLDERS' EQUITY
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.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 2002 Compared with Three Months Ended
September 30, 2001.
Three Months Ended
September 30, 2002
------------------------
2002 2001
--------- ---------
Revenue $ 0 $ 0
--------- ---------
Operating expenses:
General and administrative 75,985 102,764
--------- ---------
75,985 102,764
--------- ---------
Operating loss (75,985) (102,764)
Other income (expenses):
Interest, net (6,725) 54,481
Other - 48
--------- ---------
(6,725) 54,529
--------- ---------
Net (loss) income $ (82,710) $ (48,235)
========= =========
General and administrative expenses - During the three months ended September
30, 2002 (the "2002 Quarter") general and administrative expenses decreased to
$76,000 from $103,000 during the three months ended September 30, 2001 (the
"2001 Quarter"). In the 2002 Quarter, general and administrative expenses
included legal fees in the amount of $8,000, which were primarily for filings
made with the Securities and Exchange Commission. General and administrative
expenses also included management fees of $60,000, 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 $24,000 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, net - During 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 $8,000 in interest on the revolving
promissory note due Bion. In the 2001 Quarter, the Company recorded interest
income in the amount of $55,000 principally on Euro denominated fixed interest
securities.
14
Nine Months Ended September 30, 2002 Compared with Nine Months Ended September
30, 2001.
Nine Months Ended
September 30, 2002
----------------------------
2002 2001
----------- -----------
Revenue $ 0 $ 0
----------- -----------
Operating expenses:
General and administrative 466,185 266,994
Write down of TRG loan 1,061,759 -
----------- -----------
1,527,944 266,994
----------- -----------
Operating loss (1,527,944) (266,994)
Other income (expenses):
Loss on foreign currency translation (668,494) -
Interest, net (1,913) 337,035
Other - 21,783
----------- -----------
(670,407) 358,818
----------- -----------
Net (loss) income $(2,198,351) $ 91,824
=========== ===========
General and administrative expenses - During the nine months ended September
30, 2002 (the "2002 Nine Months"), general and administrative expenses
increased to $466,000 from $267,000 during the nine months ended September 30,
2001 (the "2001 Nine Months"). In the 2002 Nine Months, general and
administrative expenses included $134,000 in fees paid to an investment banker
in connection with the Bion transaction. In the 2002 Nine months the Company
also incurred legal fees in the amount of $104,000, 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 $153,000, which was comprised of $102,000 for services
provided by Bion pursuant to an agreement where the Company pays Bion $12,000
a month for management services and $51,000 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 Nine Months, general
and administrative expenses were principally incurred in connection with
compliance costs.
Write-down of TRG loan - The Company wrote-down its loan receivable with TRG
by $1,061,000 in the 2002 Nine 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 2 to the
financial statements). No such write-down was taken in the 2001 Nine Months.
15
Loss on foreign currency translation - The Company realized a $668,000 loss on
foreign currency translation in the 2002 Nine Months. No such loss was
recognized in the 2001 Nine Months.
Interest, net - In the 2002 Nine 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 $10,000 on the revolving promissory
note due Bion. In the 2001 Nine Months, the Company recorded interest income
in the amount of $337,000 principally on Euro denominated fixed interest
securities.
Other - The Company did not have other income in the 2002 Nine Months. In the
2001 Nine Months, the Company recognized positive exchange differences of
$22,000.
Liquidity and Financial Resources
As of September 30, 2002, the Company had approximately $3,000 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 $267,000, including interest, as of September 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.
Item 3. Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and, based on their evaluation, our principal executive officer and
principal financial officer have concluded that these controls and procedures
are effective. There were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under
the Exchange Act is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as exhibits to this Form 10-QSB, including
those exhibits incorporated in this Form 10-QSB by reference to a prior filing
of Bion under the Securities Act or the Exchange Act as indicated in
parenthesis:
Exhibit No. Description
99.1 Certification by David J. Mitchell pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by David Fuller pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
None.
17
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: November 12, 2002
CENTERPOINT CORPORATION
by: /s/ David J. Mitchell
-----------------------------------------
David J. Mitchell
President and Chief Executive Officer
by: /s/ David Fuller
-----------------------------------------
David Fuller
Chief Accounting Officer
CERTIFICATIONS PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, David J. Mitchell, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Centerpoint
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
18
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ David J. Mitchell
----------------------------------------
Name: David J. Mitchell
Title: Principal Executive Officer
CERTIFICATIONS PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, David Fuller, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Centerpoint
Corporation.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
19
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ David Fuller
--------------------------------------
Name: David Fuller
Title: Principal Accounting Officer
20