As Filed with the Securities and Exchange Commission on January 17, 2003
Registration Statement No. 333-72332
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2/A
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT of 1933
BION ENVIRONMENTAL TECHNOLOGIES, INC.
(Exact Name of Registrant in its Charter)
Colorado 84-1176672
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
18 East 50th Street, 10th Floor
New York, New York 10022
(212) 758-6622
(Address and telephone number of principal
executive offices and principal place of business)
David J. Mitchell, Chairman of the Board
Bion Environmental Technologies, Inc.
18 East 50th Street, 10th Floor
New York, New York 10022
(212) 758-6622
(Name, address and telephone number of agent for service)
Copies to: Stanley F. Freedman, Esq.
Krys Boyle, P.C.
600 Seventeenth Street, Suite 2700 South
Denver, Colorado 80202-5427
(303) 893-2300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
=============================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount of
of Securities to be Amount to be Price Per Offering Registration
Registered Registered Share Price Fee
_____________________________________________________________________________
Common Stock, 879,299 $4.07 $3,578,746.93 $329.24(3)
no par value (1) (2) (2)
Class O Warrants(1) 100,000 $ -- $ -- $ -- (4)
=============================================================================
(1) To be offered by Selling Shareholders
(2) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) based on the average closing bid and ask
prices of our Common Stock on the OTC Bulletin Board on August 8, 2002
which was $4.07 per share.
(3) $2,602.58 was paid with the initial filing of this registration
statement.
(4) Pursuant to Rule 457(g) no registration fee is required for the Class O
Warrants since the shares of Common Stock underlying such warrants are
being registered.
PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 17, 2003
____________________________________________________________________________
The information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
879,299 Shares of Common Stock
100,000 Class O Warrants
The securities offered by this prospectus are being offered for resale by
the selling shareholders. A portion of the shares to be offered for resale
may be issued to the holders upon the exercise of warrants they hold. These
persons may be deemed to be "underwriters" within the meaning of the
Securities Act.
Our Common Stock is quoted on the OTC Bulletin Board under the symbol
"BNET." On January 16, 2003, the reported closing price for our Common Stock
was $3.10.
____________________________
This investment involves a high degree of risk. You should purchase
shares only if you can afford a complete loss. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is
a criminal offense.
We anticipate that sales may be effected from time to time, by or for the
accounts of the selling shareholders in the over-the-counter market, in
negotiated transactions or otherwise. Sales, if any, will be made through
broker-dealers acting as agent for the selling shareholders or to broker-
dealers who may purchase the Common Stock as principals and thereafter sell
the shares from time to time in the over-the-counter market, in negotiated
transactions or otherwise. Sales, if any, will be made at market prices
prevailing at the times of the sales or at negotiated prices. See "Plan of
Distribution" beginning on page 16.
The date of this Prospectus is __________, 2003
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY ......................................... 3
RISK FACTORS ............................................... 5
AVAILABLE INFORMATION ...................................... 11
COMPANY INFORMATION ........................................ 11
USE OF PROCEEDS ............................................ 12
RECENT MATERIAL CHANGES IN OUR BUSINESS ................... 12
SELLING SHAREHOLDERS ....................................... 13
PLAN OF DISTRIBUTION ....................................... 16
DESCRIPTION OF COMMON STOCK ................................ 17
DESCRIPTION OF THE CLASS O WARRANTS ........................ 18
EXPERTS .................................................... 18
LEGAL MATTERS .............................................. 18
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF
OFFICERS AND DIRECTORS ......... .......................... 19
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ............ 20
INDEX TO FINANCIAL STATEMENTS .............................. F-1
2
PROSPECTUS SUMMARY
The following is a summary of the pertinent information regarding this
offering. This summary is qualified in its entirety by the more detailed
information and financial statements and related notes incorporated by
reference in this Prospectus. The Prospectus should be read in its entirety,
as this summary does not contain all the facts necessary to make an
investment decision.
The Company
-----------
Bion Environmental Technologies, Inc. ("Bion," "we," "us" or "our")
provides waste management solutions to the agricultural industry, focusing on
livestock waste from confined animal feeding operations ("CAFOs"), such as
large dairy and hog farms. We are currently engaged in two main areas of
activity:
* waste stream remediation and reduction of atmospheric emissions, and
* organic soil and fertilizer production.
Our waste remediation and reduction of atmospheric emissions, service
business provides CAFOs (primarily in the swine and dairy industries) with
treatment for the animal waste outputs. In this regard, we microbiologically
treat their entire waste stream reducing air emissions and nutrient
discharges, while creating value-added organic soil and fertilizer products.
Bion's soil and fertilizer products are being used for a variety of
topdressing applications including school athletic fields, golf courses and
home and garden applications.
On July 8, 2002, we effected a one for ten reverse split of the
outstanding shares of our Common Stock. All share amounts in this prospectus
give effect to the reverse split.
Our principal offices are located at 18 East 50th Street, 10th Floor, New
York, New York 10022, and our phone number is (212) 758-6622.
The Offering
------------
Securities Offered: Included in the shares being offered hereby are 528,705
shares held by selling shareholders and 350,594
shares that may be issued to the selling shareholders
upon the exercise of warrants they currently hold.
Also included are 100,000 Class O Warrants to be
offered by OAM S.p.A. It is currently unknown how
many of the selling shareholders will exercise
their warrants to purchase shares of our Common Stock.
We also do not know whether any selling shareholders
will sell any of their shares into the market.
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Offering Price: The shares being offered by the selling shareholders who
decide to resell their shares into the marketplace from
time to time, will be sold at the then current market
price.
Common Stock to be 5,655,115 shares. The number of shares outstanding
Outstanding after after the offering assumes that the selling shareholders
Offering exercise all of their warrants to purchase shares of
our Common Stock. Prior to this offering, as of
December 31, 2002, we had 5,304,521 shares issued
and outstanding.
Dividend Policy We do not anticipate paying dividends on our Common
Stock in the foreseeable future.
Use of Proceeds The shares offered by this prospectus may be sold
by selling shareholders and we will not receive any
proceeds of the offering. However, we will receive
proceeds from any exercise of the warrants.
Risk Factors This offering involves a high degree of risk, elements
of which include:
- We Have a Very Limited Operating History
- We Have Incurred Substantial Losses and May Never
Achieve Profitability
- We May Need Additional Working Capital; The Report
of our Accountants Contains a "Going Concern"
Qualification
- Our Ability to Obtain Additional Funds May be
Limited by Some of Our Existing Contracts
- Our Future Operations Will Depend on the Efforts
of our Management Team and our Business
Will Suffer if We Lose the Services of Any
Key Employees
- Our Management Beneficially Owns a Substantial
Amount of our Stock and Can Control the Election
of All of our Directors
- Our Management has the Right to Receive Signifi-
cantly More of Our Stock in the Future, Which
May Hurt the Market Price
- The Development of our Technology Has Been Limited
to a Few Markets; We May Not Attract Enough
Customers to be Successful
- We Face Intense Competition Which Could Adversely
Affect our Financial Performance
- Our Products Could Become Obsolete; We May Not be
Able to Keep Up with Changes in Technology
- Our Patent and Trade Secret Protection Efforts May
Not be Adequate to Protect our Technology
- Our Business is Affected by Government Regulations
Which Change
- We Face Risks of Litigation Resulting from Improper
Operation of our Systems
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- Resales of Outstanding Restricted Shares Could Hurt
the Market Price of our Stock
- The Market for our Shares is Very Limited and May
Not be Maintained Which Could Make it
Difficult to Resell Shares
- Our Results of Operations May be Affected by Non-
cash Charges
- Exercise of Warrants Will Reduce the Ownership
Percentage of Existing Shareholders
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information in this Prospectus, the following:
The securities being offered hereby are speculative in nature and involve
a high degree of risk. Following is a summary discussion of the risk factors
applicable to an investment in the securities. Prospective investors should
thoroughly consider all of the risk factors discussed below and should
understand that there is substantial risk they will lose all or part of their
investment. No person should consider investing who cannot afford to lose his
entire investment or who is in any way dependent upon the funds that he is
investing.
1. WE HAVE A VERY LIMITED OPERATING HISTORY.
We have developed an innovative new wastewater treatment process that
still remains unproven in the marketplace. For the first several years of our
existence we stayed in the development stage while we were initially trying to
develop our wastewater treatment system to a point where it could be sold into
the agricultural market. We then marketed and sold some of our systems to
farmers for a short time and were able to generate some limited revenues, but
never at a level that was sufficient to pay our operating expenses. After we
received outside funding in late 1999, we decided to make several significant
improvements to our systems so that they would work better. In connection
with that decision, we essentially stopped our commercial operations to focus
on research and development activities associated with the development of our
second generation system. The second generation system now appears to be
completed and we are again attempting to commence marketing and selling
efforts. One problem we have encountered with our innovative new process is
that it is difficult for us to know when it is sufficiently developed because
it is unique in its operation and can be refined continuously. Another
problem we have encountered, which we believe is typical for many new
enterprises, is that it is difficult to move from the product development
stage to the stage of conducting successful commercial operations. Even today
we face intense competition from existing and more established companies in
the wastewater, waste management, environmental control and soils products
businesses as we attempt to enter the market to sell our second generation
systems. Investors are cautioned that we have never achieved successful
commercial operations or significant revenues, both of which will be necessary
in order for our stock to increase in value.
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2. WE HAVE INCURRED SUBSTANTIAL LOSSES AND MAY NEVER ACHIEVE
PROFITABILITY.
From inception to date, neither we nor our subsidiaries have ever
sustained any profitable operations. During the year ended June 30, 2002 we
had a net loss of $16,792,144 and through September 30, 2002 we had total
losses from our inception of $57,021,372 Although we expect to eventually
generate sufficient revenues from sales of our systems and the related
BionSoil(R) to pay our future operating expenses, there can be no assurance
that profitable operations will ever be achieved or sustained. We are still
dependent upon infusions of capital from investors and proceeds from loans to
enable us to continue in business. There is no assurance that these sources
of financing will continue to be available. Any failure on our part to do so
will have a material adverse impact on us and may cause us to cease
operations. In the event we are unable to achieve sustained profitable
operations in the future, it is likely that any investment in our Common Stock
will ultimately be lost.
3. WE MAY NEED ADDITIONAL WORKING CAPITAL; THE REPORT OF OUR ACCOUNTANTS
CONTAINS A "GOING CONCERN" QUALIFICATION.
We have incurred losses from our inception totaling $57,021,372 at
September 30, 2002, and we have thus far failed to generate adequate working
capital from operations. As of September 30, 2002, we had working capital of
$627,273. We believe that we have sufficient working capital to continue our
operations through the end of the calendar year 2002. However, we expect that
we will need to obtain additional working capital for future operations. Our
auditors have included an explanatory paragraph in their report, noting that
there is substantial doubt as to our ability to continue as a going concern.
Our audited financial statements for the fiscal year ended June 30, 2002 have
been prepared assuming that we will continue as a going concern. Our
continued losses without additional equity capital raise substantial doubt
about our ability to continue in business. We are currently engaged in
seeking additional capital to fund operations. We cannot assure you that we
will be able to locate such financing on acceptable terms or that such
financing would be sufficient for us to continue as a going concern.
4. OUR ABILITY TO OBTAIN ADDITIONAL FUNDS MAY BE LIMITED BY SOME OF OUR
EXISTING AGREEMENTS.
At the time we acquired control of Centerpoint Corporation, we issued
1,900,000 shares of our Common Stock to Centerpoint and 100,000 shares to
Centerpoint's former parent, OAM, S.p.A. at a value of $7.50 per share. Under
the terms of the related agreements, until such time as we receive cumulative
equity investments from third parties unaffiliated with either Centerpoint or
OAM equal to at least $5 million, we will be required to issue additional
shares to Centerpoint and OAM at no additional cost if we sell or transfer any
of our equity securities or securities convertible into or exchangeable for
equity securities, at a price which reflects or implies a price per share of
our Common Stock less than $7.50 per share, or if we amend, modify, or waive
any terms of any outstanding security to that security implies or reflects
that price. We also have outstanding warrants that contain similar
anti-dilution provisions using the $7.50 per share level. Our stock price is
currently substantially below $7.50 per share. The existence of these
contractual provisions was a significant factor in deterring us from
completing one financing because we did not want to suffer the dilution that
6
would result, and they may deter us from completing additional financings in
the future.
5. OUR FUTURE OPERATIONS WILL DEPEND ON THE EFFORTS OF OUR MANAGEMENT
TEAM AND OUR BUSINESS WILL SUFFER IF WE LOSE THE SERVICES OF ANY KEY
EMPLOYEES.
We are completely dependent upon the efforts and abilities of our team of
officers and directors to manage our business. We do not currently carry any
"key man" life insurance coverage on any of our employees. Although none of
our officers or directors has experience in the management of any profitable
entity that has engaged in our area of business, the loss of the services of
any of these persons could have a material adverse impact on our business,
results of operations and financial condition. We have lost several members
of our management team in the past year, including Jon Northrop, an officer
and director, Mark Smith, an officer and director, Bart Chilton, an officer,
and Joseph Wright, a director. However, Messrs. Northrop and Smith still
assist Bion on an advisory basis. We do not believe that the loss of these
persons has had a significant effect on our operations.
6. OUR MANAGEMENT BENEFICIALLY OWNS A SUBSTANTIAL AMOUNT OF OUR STOCK
AND CAN CONTROL OUR COMPANY, INCLUDING THE ELECTION OF OUR DIRECTORS.
Present management beneficially controls in excess of 33% of our
outstanding Common Stock and may be able to control the election of our
directors and control our affairs and operations. Such control by management
could result in management taking actions that are in the best interests of
management and not of all of the shareholders. Mark A. Smith and several
other principal shareholders are parties to a shareholders' agreement which,
among other things, allows D2 to designate three board members and, with our
consent, nominate a fourth. Our Articles of Incorporation do not provide for
cumulative voting. Mark Smith and certain entities related to him which own
shares of our Common Stock (the "Smith Shares") have entered into a voting
agreement that gives David Mitchell, our Chairman, President and CEO, the
power to vote all of the Smith Shares as to most matters. D2 is currently
deemed to be the beneficial owner of 1,908,603 shares as a result of its
direct and indirect ownership of shares and its right to make voting
decisions.
7. OUR MANAGEMENT HAS THE RIGHT TO RECEIVE SIGNIFICANTLY MORE OF OUR
STOCK IN THE FUTURE, WHICH MAY HURT THE MARKET PRICE.
On December 23, 1999, we entered into a management agreement with D2
pursuant to which D2 provides us with specific management and consulting
services and David J. Mitchell has been appointed to serve as our Chief
Executive Officer, Chairman of our Executive Committee and as one of our
Directors. Effective December 1, 2000, the Company amended the D2 management
agreement by, among other things, agreeing to pay an annual base compensation
of $500,000 in calendar year 2001, $600,000 in calendar year 2002, and
$750,000 in calendar year 2003, which will be paid in either shares of our
common stock or, during the "Adjustment Period" noted in the Centerpoint and
OAM Agreements, as convertible notes on a quarterly basis. In addition, as a
result of the transactions involving Centerpoint Corporation, in accordance
with the terms of an existing agreement with D2CO, LLC, Southview, Inc. and
7
Atlantic Partners, LLC, all of which are affiliates of David Mitchell, our
President and CEO, we amended the SV1 and SV2 Warrants held by D2 so that
warrants now provide for the purchase, in the aggregate, of 1,037,343 shares
of our common stock at a purchase price of $7.50. D2 also holds J Warrants to
purchase an additional 3,000 shares at $7.50 per share. The magnitude of the
possible issuances of Common Stock to D2 could be adversely perceived by
investors because of the potential resale of such shares in the future and
could hurt the market price of our shares.
8. THE DEVELOPMENT OF OUR TECHNOLOGY HAS BEEN LIMITED TO A FEW MARKETS;
WE MAY NOT ATTRACT ENOUGH CUSTOMERS TO BE SUCCESSFUL.
Our wastewater treatment systems to date have been developed and marketed
to certain agricultural and food processing applications and have not yet been
expanded into other markets. We have not yet completed the development of all
of the wastewater treatment system applications that will be necessary to
address targeted market applications and geographic areas and we anticipate a
continuing need for the development of additional applications. During the
fiscal year ended June 30, 2001, we invested substantially in developing our
second generation system. This upgraded system is designed to operate using
significantly lower water volume and less energy. Although management
believes that our existing technology is sufficient to support development of
additional commercial applications, no assurance can be given that new
applications can be developed or that existing and/or new applications will
achieve commercially viable sales levels. We have not conducted formal market
studies with respect to our technology and services. We anticipate that the
achievement of any significant degree of market acceptance for our wastewater
treatment systems and products will require substantial marketing efforts and
the expenditure of significant amounts of funds to inform potential customers
of the distinctive characteristics and benefits of such products. We cannot
give any assurances that our targeted customers will accept our proposed
products. We also cannot give any assurance that we will ever realize
substantial revenues from the sale of our products.
9. WE FACE INTENSE COMPETITION WHICH COULD ADVERSELY AFFECT OUR
FINANCIAL PERFORMANCE.
Although we believe that our systems offer many significant advantages
over other competing technologies/systems, competition in the biological
wastewater treatment industry is intense. We are in direct competition with
local, regional and national engineering and environmental consulting firms
and soils products companies. Some of our competitors may be capable of
developing soils products or waste and wastewater treatment systems similar to
ours or based on other competitive technologies. Many of our competitors are
well-established and have greater financial and other resources than we do.
10. OUR PRODUCTS COULD BECOME OBSOLETE; WE MAY NOT BE ABLE TO KEEP UP
WITH CHANGES IN TECHNOLOGY.
Our business is susceptible to changing technology. Although we intend
to continue to develop and improve our treatment systems, there is no
assurance that funds for such expenditures will be available or that our
competitors will not develop similar or superior capabilities.
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11. OUR PATENT AND TRADE SECRET PROTECTION EFFORTS MAY NOT BE ADEQUATE
TO PROTECT OUR TECHNOLOGY.
We have limited patent protection on our soils products and also on
certain aspects of our wastewater treatment systems technology. We also
possess certain proprietary processes. We intend to obtain additional patents
or other appropriate protection for our technology. Additionally, we use
nondisclosure contract provisions and license arrangements which prohibit the
disclosure of our proprietary processes. However, there can be no assurance
that we can effectively protect against unauthorized duplication or the
introduction of substantially similar products. Our ability to compete with
other companies is materially dependent upon the proprietary nature of our
patents and technologies. We cannot give assurances that we will be able to
obtain any additional key patents or other protection for our technology. In
addition, if any of our key patents or proprietary rights were invalidated,
there could be an adverse effect on our business, results of operations and
financial condition.
12. OUR BUSINESS IS AFFECTED BY GOVERNMENT REGULATIONS WHICH CHANGE.
We are a provider of systems and services that result in the reduction of
pollution and, therefore, we are not under direct enforcement or regulatory
pressure. We are involved, however, in waste and wastewater treatment and are
impacted by environmental regulations in at least three different ways: (1)
our marketing and sales success depends, to a substantial degree, on the
pollution clean-up requirements of various governmental agencies, from the
Environmental Protection Agency at the federal level to state and local
agencies; (2)our system design and performance criteria must be responsive to
the changes in federal, state and local environmental agencies' effluent
standards and other requirements; and (3) our system installations and
operations require governmental permits or approvals in many jurisdictions.
We are also a manufacturer and provider of BionSoil(R) products such as
potting soils, soil amendments and fertilizers. Some state and federal
regulatory agencies have standards these products must meet to be sold as soil
amendment or fertilizer products in various markets. The production and sales
of our BionSoil(R) products currently meet relevant federal and state
requirements. These regulations can change which creates a level of
unpredictability. We are continually reviewing current regulations and
potential changes that may affect our business and are making necessary
compliance efforts in all jurisdictions in which we do business. We believe
that Bion is currently in compliance with all applicable federal, state and
local regulations.
We are in the business of helping our customers solve problems associated
with their discharge of wastewater into the environment, and most of our
systems and services are subject to federal, state and local government
regulation, and many are subject to extensive testing procedures. The effects
of rulings of regulatory bodies could delay our marketing efforts for a long
time and ultimately could prevent the completion of projects. The regulations
pertaining to the environment which may impact our systems are continually
changing. While we believe that such regulatory changes are favorable to our
business since such regulations may require the use of our systems, there can
be no assurance that, in the future, such regulations will not cause us
9
additional economic expense or be a materially adverse effect on our business,
results of operations and financial condition.
13. WE FACE RISKS OF LITIGATION RESULTING FROM IMPROPER OPERATION OF OUR
SYSTEMS.
In order for our waste and waste water treatment systems to function
properly, the systems must be operated in accordance with our specifications.
In the event that our systems are not operated properly and environmental
violations or other problems occur as a result, it is possible that we could
be named as a defendant in litigation brought by governmental agencies and/or
individuals. Such litigation could seek, among other things, damages,
equitable remedies, punitive damages and penalties. In fact, we were named as
a defendant, along with the owners of one of our first generation systems, in
just such an action filed by the Attorney General of the State of Illinois
alleging environmental violations associated with the operation of a hog farm.
While we were able to settle that litigation for approximately $9,000, there
can be no assurance that similar litigation will not occur in the future.
Litigation of this nature could damage our reputation. In addition, in July
2002 Thomas Keith Barefoot filed a lawsuit against us seeking damages and
other relief for breach of contract and other claims related to the operation
of a first generation NMS system on his farm.
14. RESALES OF OUTSTANDING RESTRICTED SHARES COULD HURT THE MARKET PRICE
OF OUR STOCK.
A significant number of our outstanding shares are "restricted
securities" which may in the future be sold in compliance with Rule 144
adopted under the Securities Act of 1933, as amended. Generally, Rule 144
provides that a person holding "restricted securities" for a period of at
least one year may sell every three months, in brokerage transactions, an
amount equal to the greater of one percent of our outstanding shares of Common
Stock or the average weekly reported volume of trading for the securities.
There is no limitation on the amount of "restricted securities" which may be
sold by a person who has been the beneficial owner of such restricted
securities for more than two years, and has not been an "affiliate" for at
least 90 days prior to the date of such sales. Investors should be aware that
such sales under Rule 144 may, in the future, cause the price of our Common
Stock to drop, and the potential of such sales is expected to have a
depressive effect on the market for our Common Stock.
15. THE MARKET FOR OUR SHARES IS VERY LIMITED AND MAY NOT BE MAINTAINED
WHICH COULD MAKE IT DIFFICULT TO RESELL SHARES.
Investors should be aware that our Common Stock is quoted on the OTC
Bulletin Board and the Philadelphia Stock Exchange, that there is currently
only an extremely limited and "thin" trading market in our Common Stock, and
there is no assurance that it will continue or that any active trading will
occur. Holders of our shares may find it difficult to resell their shares if
they desire to do so.
16. OUR RESULTS OF OPERATIONS MAY BE AFFECTED BY NON-CASH CHARGES.
During the years ended June 30, 2002 and 2001 we recorded $13,272,830 and
$10,659,214 in non-cash charges, respectively. We may also incur such charges
in the future. These charges are related to transactions in which stock
options or warrants are used, and are likely to be incurred on a one-time or
10
sporadic basis. Results of operations could be materially adversely affected
by these non-cash charges.
17. EXERCISE OF WARRANTS AND OPTIONS WILL REDUCE THE OWNERSHIP
PERCENTAGE OF EXISTING SHAREHOLDERS.
The exercise of outstanding warrants will result in a significant
reduction in the respective percentage interests of Bion and voting power held
by the shareholders, other than those participating in the exercise. As of
December 31, 2002, we had outstanding warrants and options to purchase
1,393,393 and 199,027 shares of our Common Stock, respectively. We expect to
issue additional shares of our Common Stock, warrants and options in
connection with future financings and compensation grants.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith file reports and other
information with the Securities and Exchange Commission. Such reports and
other information filed by us can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Requests for copies should be
directed to the Commission's Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-
0330 for more information on the public reference rooms. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically.
We have filed with the Commission a Registration Statement on Form S-2 of
which this Prospectus constitutes a part, under the Securities Act of 1933, as
amended. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules of the Commission. For further information pertaining to us,
reference is made to the Registration Statement. Statements contained in this
Prospectus or any document incorporated herein by reference concerning the
provisions of documents are necessarily summaries of such documents, and each
such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. Copies of the Registration
Statement are on file at the offices of the Commission, and may be inspected
without charge at the offices of the Commission, the addresses of which are
set forth above, and copies may be obtained from the Commission at prescribed
rates. The Registration Statement has been filed electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval System and may
be obtained through the Commission's Web site (http://www.sec.gov).
COMPANY INFORMATION
This Prospectus is accompanied by copies of our Annual Report on Form
10-KSB for our fiscal year ended June 30, 2002, and our Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2002, as amended. These
reports are incorporated by reference into this Prospectus in its entirety.
11
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Common Stock being
registered hereunder for sale by the selling shareholders. However, some of
the shares being registered may be issued to selling shareholders pursuant to
the terms of currently outstanding warrants. If any of these warrants are
exercised, we could receive proceeds of up to $2,804,907. Because we do not
know when or how many of the warrants will be exercised, we are not able to
determine how we would specifically use any proceeds. Any proceeds received
pursuant to the exercise of these warrants would be used for valid business
purposes.
RECENT MATERIAL CHANGES IN OUR BUSINESS
There have been no material changes in our business since June 30, 2002,
that have not been reported in our reports on Form 10-QSB, except as set forth
below:
Joint Venture
In July 2002, we entered into a non-binding agreement to form a joint
venture with Dr. Michael J. McCloskey and Timothy C. den Dulk with our
subsidiary, Dairy Parks, LLC, to develop, own and operate a number of large
dairy facilities. We anticipate that two to four complexes, ranging in size
from 10,000 to 50,000 animals, will be developed by the joint venture over the
next three years. The complexes will be turnkey, state-of-the-art facilities
and will be made available to dairy producers under terms of a 10-year,
triple-net lease. We will provide the technology for waste management, secure
financing for the facilities, develop the financial lease terms and provide
independent management. The primary responsibilities of the McCloskey/den Dulk
partnership will be site selection and development, negotiation of lease
terms, recruitment of tenants, and management of the facilities.
Employment of Chief Financial Officer.
Effective July 29, 2002, Lawrence R. Danziger became our Chief Financial
Officer. Mr. Danziger served as Corporate Controller of Internet Commerce
Corporation, a publicly-held company, from April 1999 to July 2002. Prior to
joining Internet Commerce Corporation, Mr. Danziger was Supervisor at the
accounting firm of Richard A. Eisner & Company L.L.P. Mr. Danziger received a
Bachelor of Science degree in Accounting from the Univerity of Albany, State
University of New York. Mr. Danziger is also a Certified Public Accountant.
Philadelphia Stock Exchange
On August 21, 2002, our common stock became listed on the Philadelphia
Stock Exchange.
California State University-Fresno
In December 2002, we announced that we will work with California State
University-Fresno to design, construct and operate a dairy waste treatment
system at the University's dairy. Construction is expected to begin during
the first calendar quarter of 2003. The project is intended to provide a
means to assess and document the NMS waste treatment process for nutrient
12
removal and air emission performance, as well as providing the University with
a waste management system for its dairy.
DeVries Dairy
In January 2003, we announced that we had entered into a letter of intent
to install and operate a second generation NMS system at the DeVries Dairy,
near Stephenville, Texas. The dairy has an existing herd of 1,200 animals.
The installation is expected to be completed during the first half of 2003.
Employment of President and Chief Operating Officer
On January 13, 2003, we announced that our Board of Directors had elected
Salvatore J. Zizza as the Company's President and Chief Operating Officer.
Mr. Zizza has been a Director of the Company since December 1999. Mr. Zizza's
duties will include overall management of system construction, as well as
identifying and negotiating with potential strategic partners.
SELLING SHAREHOLDERS
Included in the securities being offered hereby are 879,299 shares being
offered for resale by the selling shareholders. Of those shares, 710,498
shares are currently held by the selling shareholders. Up to 350,594 shares
are issuable upon exercise of warrants held by investors. The shares are being
offered for the account of the selling shareholders as set forth in the table
below.
The following table sets forth information concerning the selling
shareholders, including:
* the number of shares currently held;
* the number of shares issuable upon exercise of warrants;
* the number of shares offered by each selling shareholder;
* the number of shares held after the offering; and
* the percentage of the common stock outstanding held after the
offering.
Bion has no knowledge of the intentions of any selling shareholder to actually
sell any of the shares listed under the column "Shares Offered." There
are no material relationships between any of the selling security holders and
Bion other than those disclosed below:
13
Number Shares Percent of
Shares Issuable Number of Common Stock
Currently on Exercise Shares Shares held Held After
Selling Shareholder Held of Warrants Offered After Offering the Offering
------------------- ----------- ----------- ---------- -------------- ------------
2001 Bridge
Warrantholders (1):
Altbach, Ronald 1,415 293 1,708 0 *
Berkley Insurance Co. 141,297 30,000 171,297 0 *
Bistate Oil 35,370 7,388 42,758 0 *
Schuschny, Bruno 1,414 293 1,707 0 *
Codignotto, Donald 3,486 743 4,229 0 *
Cohen, Stanley 5,659 1,185 6,844 0 *
Fingerhut, Barry 35,864 7,500 43,364 0 *
Gottlieb, Steve 10,444 2,220 12,664 0 *
Gould, Andrew (A) 1,114 237 1,351 0 *
International Jumpers,
Ltd. 7,060 1,478 8,538 0 *
Kirshenbaum, Richard 3,547 750 4,297 0 *
Leiterdorf, Jonathan 28,253 5,910 34,163 0 *
Mitchell, Jan 29,907 5,910 35,817 0 *
Orphanos, Anthony 28,662 6,000 34,662 0 *
Zizza, Salvatore (B) 21,846 2,955 16,930 7,871 *
Wright, Joseph 13,975 2,955 16,930 0 *
J1 Warrantholders (2)
Arab Commerce Bank, LTD 50,330 3,000 3,000 50,330 *
J1-A Warrantholders (3)
Balmore, S.A. 31,482 6,000 6,000 31,482 *
Schaan, Austost Austalt 31,423 6,000 6,000 31,423 *
RG Capital Fund, LLC 39,599 7,500 7,500 39,599 *
Posner, Steven 15,805 3,000 3,000 15,805 *
Ablamsky, Linda 15,741 3,000 3,000 15,741 *
Basilice, Joseph P. 5,520 1,050 1,050 5,520 *
Battaglia, John L. 3,943 750 750 3,943 *
Berman, Richard J. 3,928 750 750 3,928 *
Bjorge, Victor and
Clark, Karen 3,936 750 750 3,936 *
Blitz, Harvey 7,903 1,500 1,500 7,903 *
Brosnan, Patrick J. 3,960 750 750 3,960 *
Burzotta, James 3,936 750 750 3,936 *
Casadonte, Donald A. 3,943 750 750 3,943 *
Casadonte, Renee S. 3,936 750 750 3,936 *
Casadonte, Virginia P. 15,741 3,000 3,000 15,741 *
Donnalley, Geralyn E. 3,943 750 750 3,943 *
Dosch, Michael Keith 3,943 750 750 3,943 *
Fleming, Kerry M. 158,393 30,000 30,000 158,393 3.0%
Foglia, Joseph A. 3,943 750 750 3,943 *
Frisa, Jean A. 39,599 7,500 7,500 39,599 *
Fusco, Joseph 3,943 750 750 3,943 *
Fusco, Robert 3,943 750 750 3,943 *
14
Growth Ventures, Inc.
Pension Plan & Trust 11,828 2,250 2,250 11,828 *
Investor Resource
Services, Inc. 7,885 1,500 1,500 7,885 *
JR Squared, LLC 23,655 4,500 4,500 23,655 *
Cogdinatto, Donald 1,972 375 375 1,972 *
Kirsch, Jodi 50,885 9,750 9,750 50,885 *
Lane, John D. 7,885 1,500 1,500 7,885 *
Lohmann, Robert B. 1,572 300 300 1,572 *
Nixon, J. Michael 7,871 1,500 1,500 7,871 *
Orphanos, Anthony G 15,805 3,000 3,000 15,805 *
Ponte, Vincent J. 7,885 1,500 1,500 7,885 *
Reiter, Michael M. and
Loreane M. 3,943 750 750 3,943 *
Santomauro, Angelo 3,928 750 750 3,928 *
Scibelli, James 21,772 4,125 4,125 21,772 *
Smith, Harry M. 3,936 750 750 3,936 *
Smith, James 3,936 750 750 3,936 *
Spartz, James G. 3,936 750 750 3,936 *
TCMP Capital, LLC 15,770 3,000 3,000 15,770 *
Weiss, Kenneth 3,960 750 750 3,960 *
Zizza, Salvatore J. (B) 21,846 1,500 1,500 7,871 *
J1-AA Warrantholders (4)
Morgan, Taylor &
Associates, Inc. 0 11,250 11,250 0 *
RG Capital Fund, LLC 39,599 2,025 2,025 39,599 *
Salomon Grey Financial, Inc. 0 225 225 0 *
Lane, John 0 810 810 0 *
Vaccaro, John A. 0 90 90 0 *
Slavney, David 0 2,025 2,025 0 *
Posner, Steven 15,805 1,170 1,170 15,805 *
J2 Warrantholders (5)
Rodgers, David 0 1,500 1,500 0 *
Slavney, David 0 5,000 5,000 0 *
J1-D Warrantholders (6)
Slavney, David 0 3,548 3,548 0 *
Scibelli, James 21,772 1,774 1,774 0 *
Scibelli, Robert 0 1,774 1,774 0 *
Posner, Steve 15,805 2,050 2,050 15,805 *
Grey, Salamon 0 395 395 0 *
Vaccaro, John 0 158 158 0 *
Lane, John 0 1,420 1,420 0 *
DePalma, Carmine 0 14,121 14,121 0 *
Sound Holdings, LLC 0 4,802 4,802 0 *
McAuliffe, John 0 395 395 0 *
Cella, Steve 0 395 395 0 *
O Warrantholder (7)
O.A.M., S.p.A. 100,000 100,000 200,000 0 *
Other selling shareholder:
Northrop, Jere (C) 141,297(8) 0 67,263 74,031 1.4%
--------- -------
Total 350,594 879,299
15
-------------------------
* Represents less than 1%.
(1) The 2001 Bridge warrants may be exercised to purchase shares of Common Stock at $6.00 per
share through December 31, 2005.
(2) J1 warrants may be exercised to purchase shares of common stock at $20.00 per share through
December 31, 2004.
(3) J1-A warrants may be exercised to purchase shares of common stock at $6.00 per share through
December 31, 2004.
(4) J1-AA warrants may be exercised to purchase shares of common stock at $7.50 per share through
December 31, 2004.
(5) J2 warrants may be exercised to purchase shares of common stock at $15.00 per share through
December 31, 2004.
(6) J1-D warrants may be exercised to purchase shares of common stock at $15.00 per share
through December 31, 2004.
(7) O warrants may be exercised to purchase shares of common stock at $9.00 per share through
January 10, 2007.
(8) Includes 75,396 shares held by Jere Northrop and 65,901 shares held by his wife.
------------------
(A) Andrew Gould is a Director of Bion.
(B) Salvatore J. Zizza is Secretary and a Director of Bion.
(C) Jere Northrop is a Director of Bion.
The following sets forth information with respect to OAM S.p.A.
concerning the Class O Warrants and the shares of common stock issuable upon
exercise of Class O Warrants that are being offered by this prospectus:
Number of Percentage of
Class O Total Shares Common Stock
Warrants that Beneficially Outstanding
Selling Shareholder May be Sold Owned After Offering
------------------- ------------- ------------ --------------
OAM S.p.A. 100,000 200,000 *
-----------------
* Less than 1%
PLAN OF DISTRIBUTION
The Common Stock registered hereunder may be sold from time to time by
the selling shareholders. Such sales may be made in the over-the-counter
market or otherwise at prices and at terms then prevailing or at prices
related to the then current market price, or in negotiated transactions. In
connection with such sales the selling shareholders may be deemed to be
"underwriters" within the meaning of the Securities Act. At the time of their
purchase of the securities, none of the selling shareholders had any
agreements or understandings, directly or indirectly, with any person to
distribute the securities.
16
The Common Stock may be sold by one or more of the following methods:
(i) a block trade in which the broker or dealer so engaged will attempt to
sell the Common Stock as agent for the selling shareholders; and (ii) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Converting
Holders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions from the Converting Holders in amounts to be
negotiated by the holders immediately prior to the sale. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
such sales.
The selling shareholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the Common
Stock against certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 100,000,000 shares of our no par value Common
Stock, of which 5,304,521 shares were issued and outstanding as of December
26, 2002. Holders of Common Stock are entitled to cast one vote for each
share held of record on all matters presented to shareholders. Shareholders
do not have cumulative rights; hence, the holders of more than 50% of the
outstanding Common Stock can elect all directors.
We have reserved approximately 2,113,621 shares of our Common Stock for
issuance under outstanding options, warrants, rights and convertible
securities.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, holders of Common Stock will share pro rata in any
distribution of our assets after payment of all liabilities. We do not
anticipate that any dividends on Common Stock will be declared or paid in the
foreseeable future. Holders of Common Stock do not have any rights of
redemption or conversion or preemptive rights to subscribe to additional
shares if issued by us. All of the outstanding shares of our Common Stock are
fully paid and nonassessable.
Penny Stock and NASD Sales Practices Rules
Our Common Stock is currently defined as a "penny stock" under the
Exchange Act and rules of the Securities and Exchange Commission. The
Exchange Act and such penny stock rules generally impose additional sales
practices and disclosure requirements on broker-dealers who sell our
securities to persons other than "accredited investors" or in transactions not
recommended by the broker-dealer. For transactions covered by the penny stock
rules, the broker-dealer must make a written suitability determination for
17
each purchaser and receive the purchaser's written agreement prior to the
sale. In addition, the broker-dealer must make certain required disclosures
in penny stock transactions, including the actual sale or purchase price and
actual bid and offer quotations, and the compensation to be received by the
broker-dealer and certain associated persons, provide monthly account
statements showing the market value of each penny stock held in a customer's
account, and deliver certain standardized risk disclosures required by the
Securities and Exchange Commission. Consequently, the penny stock rules
affect the ability of broker-dealers to make a market in or trade our shares
and may also affect the ability of purchasers of shares to resell those shares
in the public market.
In addition to the "penny stock" rules described above, the NASD has
adopted rules that require that in recommending an investment to a customer, a
broker-dealer have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must take
reasonable efforts to obtain information about the customers' financial
status, tax status, investment objectives and other information. Under
interpretations of these rules, the NASD believes that there is a high
probability that speculative low priced securities will not be suitable for at
least some customers. The NASD requirements make it more difficult for
broker-dealers to recommend that their customers buy our Common Stock, and
this has an adverse effect on the market for our shares.
DESCRIPTION OF THE CLASS O WARRANTS
The Class O Warrants were issued to OAM S.p.A. in connection with the
offering of the 7% Convertible Subordinated Notes. The Class O Warrants are
exercisable to purchase up to 100,000 shares of common stock at an exercise
price of $9.00 per share during the period ending on January 10, 2007.
The Class O Warrants may be exercised upon surrender of the warrant
certificate prior to the expiration date at the offices of Bion with the form
of election to exercise completed and executed as indicated, accompanied by
payment of the full exercise price (by certified or bank check payable to the
order of Bion) for the number of shares with respect to which such warrant is
being exercised.
The exercise price of the Class O Warrants and the number of shares to be
obtained upon exercise of such warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the common stock. In the
even of a liquidation, dissolution or winding up of Bion, holders of the
placement agent warrants, unless exercised, will not be entitled to
participate in the assets of Bion. Holders of the Class O Warrants have no
voting, preemptive, liquidation or other rights of a shareholder, and no
dividends will be declared on the Warrants.
EXPERTS
The June 30, 2002 financial statements incorporated by reference in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
(which contains an explanatory paragraph regarding the Company's ability to
18
continue as a going concern) incorporated herein by reference, and are
incorporated herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Centerpoint Corporation as of
December 31, 2002, and for the periods then ended included in this prospectus
have been audited by Arthur Andersen SpA, independent public accountants, as
set forth in their report with respect thereto.
After reasonable efforts, the Company has been unable to obtain Arthur
Andersen SpA's written consent to the inclusion of their report in this
prospectus. Under these circumstances, Rule 437a under the Securities Act
permits a registration statement to be filed without a written consent from
Arthur Andersen SpA. The absence of such consent may limit your recovery on
certain claims. In particular, and without limitation, you will not be able
to assert claims against Arthur Andersen SpA under Section 11 of the
Securities Act for any untrue statement of material fact contained in
Centerpoint Corporation's consolidated financial statements for the year ended
December 31, 2001, or any omissions to state a material fact required to be
stated therein. In addition, the ability of Arthur Andersen SpA to satisfy
any claims (including claims arising from Arthur Andersen's provision of
auditing and other services to Centerpoint Corporation) may be limited as a
practical matter due to recent events involving Arthur Andersen SpA.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for us by Krys Boyle, P.C., Denver, Colorado. Officers, directors
and employees of this law firm own an aggregate of approximately 12,000 shares
of our Common Stock.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY COMMON STOCK IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the forgoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
19
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents that we have filed with the Commission shall be
deemed to be incorporated in this Prospectus and to be a part hereof:
1. Annual Report on Form 10-KSB for the fiscal year ended June 30,
2002.
2. Amendment No. 1 to Annual Report on Form 10-KSB/A for the
fiscal year ended June 30, 2002.
3. Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2002.
4. Amendment No. 1 to Quarterly Report on Form 10-QSB/A for the
quarter ended September 30, 2002.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent
that a statement contained in this Prospectus or in any other subsequently
filed document which is also incorporated herein by reference modifies or
replaces such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
We will provide without charge to each person to whom this Prospectus is
delivered, on written or oral request of such person, a copy of any or all
documents incorporated by reference in this Prospectus. Requests for such
copies should be directed to Bion Environmental Technologies, Inc., 18 East
50th Street, 10th Floor, New York, New York 10022, or (212) 758-6622.
20
INDEX TO FINANCIAL STATEMENTS
Page
CENTERPOINT CORPORATION
Report of Independent Public Accountants ......................... F-2
Consolidated Balance Sheets - December 31, 2001 and 2000........... F-3
Consolidated Statements of Operations - Years ended December 31,
2001, 2000 and 1999 ............................................... F-4
Consolidated Statements of Changes in the Shareholders'
Equity and Comprehensive Income/(Loss) - December 31,
2001, 2000 and 1999................................................ F-5
Consolidated Statements of Cash Flows - December 31, 2001, 2000
and 1999 .......................................................... F-6
Notes to Consolidated Financial Statements - December 31, 2001 .... F-8
F-1
Report of Independent Public Accountants
To the Shareholders and Board of Directors
Centerpoint Corporation:
We have audited the accompanying consolidated balance sheets of Centerpoint
Corporation (a Delaware corporation, known as Moto Guzzi Corporation through
September 19, 2000) (See Note 1) as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
2001, expressed in Italian Lire. 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 auditing standards generally
accepted in the United States. 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 Centerpoint Corporation and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the Unites States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Notes 1 and 13, in January
2002, the Company consummated a transaction with Bion in exchange for
essentially all of the Company's cash, receivables from related parties and
65% of rights on certain claims. Upon consummation of this transaction, Bion
became the majority shareholder of the Company. Furthermore, the Company has
incurred operating losses and relies on the financial support of 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. Consequently, this raises a substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements
do not include any adjustments that may result from the outcome of this
uncertainty.
Milan, Italy
May 29, 2002
Arthur Andersen SpA
This is a copy of the audit report provided by Arthur Andersen SpA. This
audit report has not been reissued by Arthur Andersen SpA in connection with
this Registration Statement on Form S-2. See "EXPERTS" for further
discussion.
F-2
CENTERPOINT CORPORATION
(Moto Guzzi Corporation through September 19, 2000)
CONSOLIDATED BALANCE SHEETS
December 31, 2001
Dec. 31 Dec. 31 Dec. 31
2001 2001 2000
ASSETS US$'000 Lit. m Lit. m
--------- ------------ ------------
Cash and cash equivalents $ 8,761 Lit. 19,046 Lit. 2,411
Short-term marketable securities
held to maturity, at cost - - 28,351
Prepaid expenses 43 93 154
--------- ------------ ------------
TOTAL CURRENT ASSETS 8,804 19,139 30,916
--------- ------------ ------------
TOTAL ASSETS $ 8,804 Lit. 19,139 Lit. 30,916
========= ============ ============
LIABILITIES
Accounts payable 8 17 91
Amounts due to related and affiliated
parties 40 88 390
Accrued expenses and other payables 157 342 361
--------- ------------ ------------
TOTAL CURRENT LIABILITIES 205 447 842
--------- ------------ ------------
SHAREHOLDERS' EQUITY 8,599 18,692 30,074
Common stock, par value $0.01 per
share:
Authorized 20,250,000 shares;
5,999,089 (2000 - 5,999,089)
shares outstanding 50 108 108
Additional paid-in capital 18,635 40,510 40,510
Loan to TRG (4,316) (9,383) -
Accumulated other comprehensive
Income(Loss) (667) (1,450) 242
Accumulated deficit (5,103) (11,093) (10,786)
--------- ------------ ------------
LIABILITIES & SHAREHOLDERS'
EQUITY $ 8,804 Lit. 19,139 Lit. 30,916
========= ============ ============
See Notes to Consolidated Financial Statements
F-3
CENTERPOINT CORPORATION
(Moto Guzzi Corporation through September 19, 2000)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001, 2000 and 1999
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2001 2001 2000 1999
US $'000 Lire m. Lire m. Lire m.
---------- -------------- -------------- --------------
Interest income (including intercompany of Lit. 253) 383 Lit. 832 Lit. 497 Lit. -
Selling, general and administrative expenses (545) (1,185) (245) -
Finance expense: shares issued to TRG - - (3,347) -
Other income, net 21 46 11 -
---------- -------------- -------------- --------------
Loss from continuing operations (141) (307) (3,084) -
Discontinued operations:
Loss from disposed motorcycle operations
(after tax of Lit. 514 and Lit. 88) - - (8,324) (22,976)
Gain on disposal of motorcycle operations - - 57,018 -
---------- -------------- -------------- --------------
Net profit/(loss) (141) (307) 45,610 (22,976)
Preferred stock dividends - - (1,089) -
---------- -------------- -------------- --------------
Profit/(loss) attributable to common
shareholders $ (141) Lit. (307) Lit. 44,521 Lit. (22,976)
========== ============== ============== ==============
BASIC EARNINGS/(LOSS) PER SHARE: US $ Lire Lire Lire
---------- -------------- -------------- --------------
Continuing operations $ (0.02) Lit. (51) Lit. (720) Lit. -
Discontinued operations $ - Lit. - Lit. 8,401 Lit. (4,440)
DILUTED EARNINGS/(LOSS) PER SHARE:
Continuing operations $ (0.02) Lit. (51) Lit. 720 Lit. -
Discontinued operations $ - Lit. - Lit. 8,401 Lit. (4,440)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD
Basic 5,999,089 5,999,089 5,796,106 5,174,481
========= ========= ========= =========
Diluted 5,999,089 5,999,089 5,796,106 5,226,852
--------- ========= ========= =========
See Notes to Consolidated Financial Statements
F-4
CENTERPOINT CORPORATION
(Moto Guzzi Corporation through September 19, 2000)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY/(DEFICIT) AND COMPREHENSIVE INCOME/(LOSS)
December 31, 2001, 2000 and 1999
Accumu-
lated
Other
Addi- Compre- Share- Compre-
Class A Class B tional hensive Accumu- holders' hensive
Common Stock Preferred Stock Preferred Stock Paid-In Income Loan lated Equity Income/
Shares Amount Shares Amount Shares Amount Capital (Loss) to TRG Deficit (Deficit) (Loss)
--------- ------ ------ ------ -------- ------ --------- ------- ------- ------- ------- -------
At December 31,
1999 Lit.m 3,327,139 59 - - - - 11,011 157 - (32,331) (21,104)
Net loss - - - - - - - - - (22,976) (22,976) (22,976)
Translation adjustment - - - - - - - (24) - - (24) (24)
Recapitalization -
parent company debt
exchange 871,950 16 - - - - 13,346 - - - 13,346 -
Issuance of shares in
merger 1,296,000 23 94 - - - 14,563 - - - 14,563 -
Conversion of preferred
stock 94,000 2 (94) - - - (2) - - - - -
Shares issuable for
renewal of parent
credit lines - - - - - - 1,222 - - - 1,222 -
Less: relating to
future finance expenses - - - - - - (306) - - - (306) -
--------- ------ ------ ------ -------- ------ --------- ------- ------- ------- ------- -------
At December 31,
1999 Lit.m 5,589,089 100 - - - - 39,834 133 - (55,307) (15,240) (23,000)
Net profit - - - - - - - - - 44,521 44,521 44,521
Translation adjustment - - - - - - - 109 - - 109 109
Issuance of Series B
Preferred Stock - - - - 123,500 2 23,980 - - - 23,982 -
Reclassification for
redemption of preferred
stock - - - - - - (23,982) - - - (23,982) -
Accretion expense for
preferred stock redemp-
tion and related
exchange movements - - - - - - - (3,062) - - (3,062) (3,062)
Redemption of Series
B Preferred Stock - - - - (123,500) (2) (3,060) 3,062 - - - -
Issuance of shares for
MGI purchase 10,000 - - - - - 91 - - - 91 -
Issuance of shares for
OAM warrant exercise 100,000 2 - - - - - - - - 2 -
Issuance of shares
to TRG 300,000 6 - - - - 3,341 - - - 3,347 -
Amortization of
non-cash finance
charges - - - - - - 306 - - - 306 -
--------- ------ ------ ------ -------- ------ --------- ------- ------- ------- ------- -------
At December 31, 2000
Lit.m 5,999,089 108 - - - - 40,510 242 - (10,786) 30,074 41,568
Net loss - - - - - - - - - (307) (307) (307)
Translation adjustment - - - - - - - (1,692) - - (1,692) (1,692)
TRG reclass as
deduction from equity - - - - - - - - (9,383) - - -
--------- ------ ------ ------ -------- ------ --------- ------- ------- ------- ------ -------
At December 31, 2001
Lit.m 5,999,089 108 - - - - 40,510 (1,450) (9,383) (11,093) 18,692 (1,999)
========= ====== ====== ====== ======== ====== ========= ======= ======= ======= ====== =======
At December 31,
2001 $'000 50 - - 18,635 (667) (4,316) (5,103) 8,599 (920)
====== ====== ====== ========= ======= ======= ======= ====== =======
See Notes to Consolidated Financial Statements
F-5
CENTERPOINT CORPORATION
(Moto Guzzi Corporation through September 19, 2000)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2001 2001 2000 1999
US $'000 Lire m. Lire m. Lire m.
---------- -------------- -------------- --------------
Net loss from continuing operations $ (141) Lit. (307) Lit. (3,084) Lit. -
Preferred stock dividends - - (1,089) -
Adjustments to reconcile net loss to net
cash used by operating activities:
Non cash finance expense:
Shares issued to TRG - - 3,347 -
Other operating activities - - 6 6
Changes in operating assets and liabilities:
Related party receivables (115) (251) 214 (215)
Prepaid expenses 32 70 (17) (95)
Accounts payable and accrued expenses (54) (117) (2,984) (451)
Related party payables (148) (322) 351 (1,348)
---------- -------------- -------------- --------------
Net cash used in
activities (426) (927) (3,256) (2,103)
---------- -------------- -------------- --------------
Investing activities:
Sale (Purchase) of marketable securities,
net of exchange differences 12,475 27,121 (27,998) -
Loan to TRG (4,414) (9,596) - -
---------- -------------- -------------- --------------
Net cash provided by/(used in)investing
activities 8,061 17,525 (27,998) -
---------- -------------- -------------- --------------
Financing activities
Proceeds from merger with NAAC - - - 16,006
Advance for subscription to preferred stock - - - 2,274
Proceeds from issuance of preferred stock - - 18,329 -
Redemption of preferred stock - - (27,044) -
---------- -------------- -------------- --------------
Net cash (used in)/provided by
financing activities - - (8,715) 18,280
---------- -------------- -------------- --------------
(Decrease)/increase in cash from
continuing activities 7,635 16,598 (39,969) 16,177
Net cash (used in)/provided by
discontinued motorcycle operations - - 42,377 (16,174)
Effect of exchange rate changes on cash - 17 37 -
Cash, beginning of year 109 2,411 3 -
---------- -------------- -------------- --------------
Cash, end of year $ 8,761 Lit. 19,046 Lit. 2,411 Lit. 3
========== ============== ============== ==============
Net cash (used in)/provided by
discontinued motorcycle operations
Net cash proceeds from sale - - 60,293 -
Financing of disposed operations - - (15,941) (13,863)
Other expenditures allocated to
discontinued operations - - (1,975) (2,311)
---------- -------------- -------------- --------------
- - 42,377 (16,174)
---------- -------------- -------------- --------------
See Notes to Financial Statements
F-6
Supplemental information on non-cash activities
Advances to the Company, made in 1999, in an aggregate amount of US$1.25
million (Lit. 2,479 million at the then prevailing exchange rate) by Wheatley
Partners, LP and Wheatley Foreign Partners, LP (each of which is an affiliate
of Barry Fingerhut, a Director of the Company through January 2002) and
William Spier, a director of the Company through January 2002 and a US$ 1.6
million (Lit. 3,174 million) loan due to OAM, respectively, were applied to
subscribe to the Series B preferred stock on February 25, 2000 See Notes 1
and 4.
The Company issued 10,000 shares with a fair value of Lit. 91 million in
connection with its purchase of the 75% of MGI Motorcycle GmbH that the
Company did not already own. MGI Motorcycle GmbH was disposed as part of the
sale of motorcycle operations.
In 2000, the Company issued 100,000 shares to OAM S.p.A. upon exercise of a
warrant held by OAM issued in 1999. The exercise price of US$1,000 was
settled by reduction of balances due by the Company to OAM. The fair value of
this warrant at the date of issuance of Lit. 1,222 million was amortized from
April 1, 1999 through March 31, 2000 as finance expense.
The Company issued 300,000 shares to TRG in connection with successful efforts
by TRG Inc to assist in raising bridge financing through the issuance of
Series B Preferred Stock of the Company in February 2000. See Notes 1 and 4.
The fair value of the 300,000 shares at the date of issuance of the Series B
Preferred Stock, which was redeemed in 2000, was Lit. 3,347 million and this
amount was expensed in 2000.
F-7
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. BACKGROUND AND ORGANIZATION
BACKGROUND OF THE COMPANY; MERGER WITH GUZZI CORP. IN 1999
Centerpoint Corporation ("the Company") was originally incorporated in
Delaware on August 9, 1995 under the name of North Atlantic Acquisition
Corporation ("NAAC") 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 US$8,000,000.
Moto Guzzi S.p.A., the Italian manufacturer of Moto Guzzi motorcycles, had
been a subsidiary of Trident Rowan Group, Inc. ("TRG") since 1972. Effective
January 1, 1996, TRG acquired 100% of the outstanding capital of Moto Guzzi
North America Inc., the exclusive importer of Moto Guzzi motorcycles in the
United States. On October 9, 1996, TRG formed Moto Guzzi Corp. ("Guzzi
Corp.") as a holding company for its interests in the Moto Guzzi motorcycle
operations and transferred its 100% interests in Moto Guzzi S.p.A. and Moto
Guzzi North America Inc. to Guzzi Corp.
On August 18, 1998, NAAC and TRG, entered into a definitive agreement and plan
of merger and reorganization, as amended (the "Merger Agreement"), pursuant to
which Guzzi Corp. merged with and into NAAC, with NAAC, which later changed
its name to Moto Guzzi Corporation and later became Centerpoint Corporation,
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 Guzzi Corp.
The Merger was approved on March 4, 1999 and consummated on March 5, 1999. As
part of the Merger Agreement, the Company's Class B shareholders also
eliminated authorization of NAAC's Class B Common Stock and approved
conversion of each share of Class B Common Stock into 2 shares of Class A
Common Stock and 2 Class A Warrants.
Upon the merger, shareholders of Guzzi Corp. received an aggregate of
4,199,089 shares or approximately 76.4% of the post-Merger shares of the
Company (excluding any shares of the Company's formerly designated Class A
Common Stock issuable upon exercise of any options or warrants) and Guzzi
Corp., was, therefore, the accounting acquirer. The cost of the acquisition
of NAAC was based on the fair value of the Company's assets and liabilities as
of the date of the Merger of Lit. 14,586 million (approximately US$8,153,000
at the then prevailing exchange rate), represented by Lit. 16,006 million in
cash (US$8,947,000) less Lit. 1,420 million (US$794,000) of payables and
F-8
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. BACKGROUND AND ORGANIZATION - Continued
accrued expenses, principally in respect of merger expenses. Additionally, an
aggregate of 30,000 shares of Class A Common Stock with a fair value of Lit.
591 million (US$330,000) were issued to Graubard, Mollen & Miller, counsel to
the Company, contingent upon consummation of the Merger in payment of fees
relating to the Merger and 350,000 Class A Warrants with an exercise price of
US$10.00 were issued to the Company's investment bankers.
Pursuant to the merger, NAAC changed its name to Moto Guzzi Corporation and
changed its common stock ticker symbol to "GUZI".
DISPOSAL OF OPERATING SUBSIDIARIES, DISPUTE OVER FINANCIAL ADVISORS FEES
In December 1999, the Company's parent, TRG, engaged IMI, a leading Italian
investment bank, to pursue strategic alternatives to enhance the Company's
shareholder value.
Pursuant to an April 14, 2000 Preliminary Sale and Purchase Agreement, on
August 11, 2000, at a special meeting of stockholders, the Company's
stockholders approved the sale of the operating subsidiaries and the change of
the corporate name from Moto Guzzi Corporation to Centerpoint Corporation,
with stockholders holding in excess of two-thirds of all outstanding shares of
Class A Common Stock voting for the sale and the name change. On September 7,
2000, the Company closed the sale of all its operating subsidiaries (see
below). To finance operations through the date of sale, the Company raised
bridge financing in February 2000 by way of issuance of Series B 7.0%
Preferred Stock, redeemable December 2001. This stock was subscribed for cash
by TRG for US$3,500,000 and by Fineco, a third party Italian institutional
investor group for US$6,000,000. Advances to the Company of US$1,600,000 by
OAM and US$1,250,000 by Barry Fingerhut and William Spier, directors of the
Company until January 2002, were also applied to subscribe to the Series B
Preferred Stock. The Company agreed with holders of the Series B Preferred
Stock to redeem such stock on September 30, 2000, following the closing of the
sale. See Note 4, below for further details of the issuance and redemption of
the Series B Preferred Stock.
Total proceeds from the sale of the motorcycle operations to Aprilia were Lit.
79,500 million. In accordance with the Share Purchase Agreement, Aprilia also
reimbursed the Company Lit. 2,074 million, the amount owed to the Company by
the operating subsidiaries pursuant to intercompany loans. Lit. 9,375 million
of the total proceeds was placed in escrow to cover any claims Aprilia might
have in the future in respect of the representations and warranties given by
the Company in the Share Purchase Agreement. Full allowance was made for
escrow receivables from Aprilia in accounting for the sale of the Company's
Moto Guzzi subsidiaries, thus charging such amounts against the gain on sale
F-9
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. BACKGROUND AND ORGANIZATION - Continued
included in the income statement. Funds from the escrow account were to be
released to the Company in two tranches, subject to any claims Aprilia may
have in respect of the Company's representations and warranties: up to Lit.
7,000 million was to be released on September 8, 2001; and up to Lit. 2,375
million is to be released on September 8, 2007. Aprilia undertook to
evaluate, on a best efforts basis, an earlier resolution of the escrow
accounts, though this has not occurred. See also Note 12 "Litigation: Aprilia
Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration" in respect of claims made by Aprilia in 2001 and the status of
arbitration procedures concerning such claims.
SIREF S.p.A. and San Paolo Finanziaria S.p.A. (both affiliates of IMI) acted
as fiduciary agents for the closing. In accordance with invoices submitted to
them, they paid IMI Lit. 11,401 million, in respect of fees and expenses
claimed to be due to IMI, paid Lit. 505 million to Carnelutti, the Company's
Italian counsel, and then paid the remaining proceeds of Lit. 60,293 million
to the Company. The Company has since early July 2000 disputed IMI's
interpretation of the calculation of the fee due to them under their
engagement letter, following indication by IMI of their basis of calculation
(see Note 12).
The Lit. 60,293 million received by the Company was applied first to pay
amounts due for transaction expenses and other payables and obligations
estimated in the aggregate to be approximately Lit. 2,700 million and to
redeem, prior to September 30, 2000, all outstanding shares of Series B
Preferred Stock for a price equal to US$100 per share plus any accrued and
unpaid dividends thereon, for a total of approximately US$ 12.6 million
(approximately Lit. 28,300 million at the then prevailing exchange rate). Cash
was invested in short-term fixed interest securities pending evaluation of the
alternatives available with respect to such funds.
AGREEMENT WITH TRG AND OAM TO HOLD SHAREHOLDER MEETING TO VOTE ON A PROPOSAL
TO LIQUIDATE
In connection with the execution and delivery of the Share Purchase Agreement
described above, the Company agreed with OAM and TRG, that it would, as
promptly as practicable after the closing of the sale of the operating
subsidiaries, hold a meeting of stockholders to consider and vote upon a
proposal to liquidate all the Company's assets and dissolve the Company. In
connection with the Bion transaction, (see Note 13 - Subsequent Events), OAM
and TRG waived their rights to cause a shareholders' meeting to vote on a
proposal to liquidate.
LIQUIDITY AND GOING CONCERN
The financial statements have been prepared assuming the Company will continue
as a going concern.
F-10
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. BACKGROUND AND ORGANIZATION - Continued
In January 2002, in connection with the Bion transaction, (see also Note 13 -
Subsequent Events), the Company purchased 19,000,000 shares of restricted
stock of Bion in exchange for approximately US$8.5 million in cash
(substantially all of its remaining funds at that date), the US$4.2 million
TRG Promissory Note (including accrued interest), and the assignment of 65% of
the Company's claims with respect to the escrow accounts and claims against
IMI. Immediately upon consummation of this transaction, Bion purchased a
57.7% majority interest in the Company from OAM.
On March 14, 2002, the Company and Bion entered in an agreement effective
January 15, 2002 whereby the Company will pay US$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, to
distribute Bion shares to its shareholders, to locate and acquire new business
opportunities and for ongoing expenses. Bion shall have no obligation to make
any advances in excess of US$500,000. All sums due Bion shall be evidenced by
a convertible revolving promissory note.
Upon consummation of the transaction with Bion, the Company has effectively
dispersed all of its cash. Furthermore, the Company has incurred operating
losses 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.
Consequently, this raises a substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that may result should the Company be unable to
continue as a going concern.
REPORTING CURRENCY
The primary financial statements through the disposal of the Company's
operations were shown in Italian Lire because all of the Company's material
operating entities were based and operated entirely in Italy. Following the
disposal of its operations, the Company invested the major part of the net
proceeds of disposal in Euro/Lire denominated short-term investments until
June 2001 when evaluation of its alternative investments concluded that any
investment would be made in the U.S. and therefore in U.S. dollars. At that
time all funds were converted to U.S. dollars and transferred to a U.S. bank.
However, the primary financial statements for all periods presented are shown
in Italian Lire.
F-11
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. BACKGROUND AND ORGANIZATION - Continued
The functional currency of the Company will change to U.S. Dollars following
the Bion transaction described in Note 13.
Translation of lire amounts into U.S. Dollar amounts is included solely for
the convenience of the readers of the financial statements and has been
calculated at the rate of Lit. 2,174 to US$1.00, the approximate exchange rate
at December 31, 2001. It should not be construed that the assets and
liabilities, expressed in U.S. dollar equivalents, can actually be realized in
or extinguished in U.S. dollars at that or any other rate. All currency
amounts in these financial statements are in Lire unless specifically
designated in other currencies.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
USE OF 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 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 these estimates.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's non-Italian entities have been
translated to Italian lire using the year-end exchange rate for balance sheet
items and the average exchange rate for the year for statement of operation
items. The translation differences resulting from the change in exchange
rates from year to year have been reported separately as a component of
shareholders' equity.
F-12
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
FOREIGN CURRENCY TRANSACTIONS
Transactions, receivables and payables denominated in currencies other than
the functional currency are recorded at the exchange rate in effect on the
transaction date. Such receivables and payables are adjusted to current
exchange rates as of the date paid or the balance sheet date, whichever is
earlier. Gains and losses are included in "other income, net" in the
statements of operations.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of variable rate fixed income investments, which
can be readily sold using established markets. As of December 31, 2001 there
were no marketable securities.
INCOME TAXES
Income taxes are provided in accordance with local laws. Deferred income
taxes have been provided using the liability method in accordance with FASB
Statement No. 109, "Accounting for Income Taxes."
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components in annual and interim financial statements. In the
Company's case comprehensive income (loss) includes net income (loss) and
translation differences from the conversion of balance sheets of non-Italian
entities. The Company has chosen to disclose comprehensive income in the
Consolidated Statements of Stockholders' Equity.
F-13
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
NEW ACCOUNTING STANDARD
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. SFAS No.
133 was required to be adopted by the Company in 2001. As the Company does
not enter into derivative or hedging operations, the adoption of the standard
had no effect.
3. DISCONTINUED MOTORCYCLE OPERATIONS
In September 2000, the Company closed its sale of all "Moto Guzzi" motorcycle
operations to Aprilia. From May 2, 2000 through the date of sale, Moto
Guzzi's operations were under the control of Aprilia management. The
measurement date of the disposal is July 1, 2000, reflecting the latest date
prior to sale for which the Company has complete financial information. Net
proceeds from the disposal exceeded the net assets of the operations sold and
the Company has recorded a gain on sale of Lit. 57,018 million. The Company
changed its name to Centerpoint Corporation on September 19, 2000 pursuant to
the sale, which is discussed in more detail in Note 1, above.
Results of the disposed motorcycle operations through the effective disposal
date of July 1, 2000 and for the year ended December 31, 1999 were as follows:
F-14
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
3. DISCONTINUED MOTORCYCLE OPERATIONS - Continued
To effective disposal Dec. 31
Date - July 1, 2000 1999
Lit. m Lit. m
-------------------- --------------
Net sales 50,994 86,232
Loss before taxes (7,810) (22,888)
Provisions for taxes (514) (88)
-------------------- --------------
Net loss from discontinued
motorcycle operations Lit. (8,324) Lit. (22,976)
==================== ==============
Net assets/(liabilities) of the discontinued motorcycle operations at the
effective date of disposal of July 1, 2000 and at December 31, 1999 were as
follows:
July 1 Dec. 31
2000 1999
Lit. m Lit. m
------------ --------------
Current assets 68,361 61,926
Current liabilities (72,844) (79,385)
------------ --------------
Net current liabilities (4,483) (17,459)
------------ --------------
Property, plant and equipment 12,792 14,638
Other long-term assets 2,510 889
Long-term liabilities (9,512) (10,000)
------------ --------------
Net non-current assets 5,790 5,527
------------ -------------
Net assets/liabilities of
discontinued operations Lit. 1,307 Lit. (11,932)
============ ==============
In 2000 the Company provided the disposed motorcycle subsidiaries with cash,
in the form of capital and advances, of Lit. 15,941 million (1999 - Lit.
13,863 million) to finance operations through disposal.
F-15
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
4. ISSUANCE AND REDEMPTION OF SERIES B PREFERRED STOCK
On February 25, 2000, the Company issued 123,500 shares of a new Series B
Preferred Stock to Fineco, and affiliates of Fineco, TRG, OAM, the majority
stockholder of the Company, and Messrs. Fingerhut and Spier, directors of the
Company until January 2002, for US$100 per share (an aggregate price of
US$12,350,000). Fineco and its affiliates purchased 60,000 shares and TRG
purchased 35,000 shares, for cash. Messrs. Fingerhut and Spier received a
total of 12,500 shares in satisfaction of advances they had made to the
Company in August 1999 and 16,000 shares were issued to OAM in partial
satisfaction of outstanding loans due to it.
The holders of the Series B Preferred Stock are entitled to receive dividends
at the rate of US$7 per share per year before any dividends may be paid with
regard to the Class A Common Stock, and to receive distribution of $100 per
share in liquidation of the Company before any liquidation distributions are
made with regard to the Class A Common Stock. The Company was required to
redeem the Series B Preferred Stock for $100 per share plus accrued dividends
on December 28, 2001. Holders of Series B Preferred Stock do not have voting
rights, except that they must approve issuance of securities which would
affect the Series B Preferred Stock and the incurrence of debt, other than
refinancing of existing debt or lines of credit used by the Company to finance
its day-to-day operations.
Each share of Series B Preferred Stock was convertible into Class A Common
Stock at a conversion price of US$5.00, based upon the liquidation preference
of the Series B Preferred Stock (US$100, plus accrued dividends, per share),
meaning each share of Series B Preferred Stock is convertible into
approximately 20 shares of Class A Common Stock.
The Company agreed with the Series B preferred stockholders that, following
the sale to Aprilia, it would redeem the Series B preferred stock on September
30, 2000 and they agreed not to convert their Series B stock if the Company
redeemed the stock by this date. Such redemption was effected, with
redemption payments made on the first business day of October 2000.
The Company received Lit. 18,329 million in cash, net of Lit. 516 million of
expenses in respect of the issue of the Series B Preferred Stock and also
recorded Lit. 2,479 million in respect of the William Spier and Barry
Fingerhut advances and Lit. 3,174 million in respect of the OAM loan for a
total of Lit. 23,982 million.
Upon issuance, the Company reclassified the Series B preferred stock outside
of shareholders equity and recorded accretion expense of Lit. 3,062 million in
respect of amortization of costs and exchange differences through redemption
which arose as the Company's obligation was denominated in U.S. Dollars.
F-16
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
4. ISSUANCE AND REDEMPTION OF SERIES B PREFERRED STOCK - Continued
In connection with issuance of the Series B preferred stock, the Company
agreed to issue 300,000 shares of Class A common stock to TRG for a purchase
price of US$.01 per share, in consideration of TRG's participation in the
Series B financing and their successful efforts to get Fineco, S.p.A. to
subscribe for Series B shares. These 300,000 shares were issued in July 2000
and the amount of Lit. 3,347 million, representing the fair value of the
shares has been charged to the income statement. Additionally, in connection
with Fineco's purchase of the Series B shares the Company paid a commission of
US$180,000 to Andrea delle Valle, a director of TRG, and paid US$80,000 to
Investec Ernst, an investment banking firm, where Mark Segall, a director of
TRG, is an executive officer.
5. AMOUNTS DUE FROM AND TO RELATED PARTIES
Dec. 31 Dec. 31 Dec. 31
2001 2001 2000
US$'000 Lit. m Lit. m
------- ------------ --------------
Amounts due from Related parties:
Trident Rowan Group, Inc. 4,316 9,383 -
------- ------------ --------------
$ 4,316 Lit. 9,383 Lit. -
======= ============ ==============
Amounts due to Related parties:
Trident Rowan Group, Inc. 40 88 172
OAM S.p.A. - - 218
------- ------------ --------------
$ 40 Lit. 88 it. 390
======= ============= ==============
The amounts due from TRG are in respect of the TRG loan (see Note 6 below) and
have been reclassified as a deduction from shareholders' equity in the balance
sheet as of December 31, 2001.
Balances due from TRG and OAM are in respect of various advances for expenses.
6. RELATED PARTY TRANSACTIONS
BION TRANSACTION
In a related party transaction, the Company purchased 19,000,000 shares of
restricted stock of Bion for substantially all of its assets and immediately
thereafter this, Bion purchased from OAM 3,459,997 shares of the Company,
which represents a controlling interest in the Company. In addition, on March
14, 2002, the Company and Bion entered into an agreement effective January 15,
2002 for certain services and advances provided to the Company by Bion (See
Note 13 - Subsequent Events).
F-17
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
6. RELATED PARTY TRANSACTIONS - CONTINUED
FINANCIAL SUPPORT OF THE COMPANY BY OAM S.P.A. AND TRG INC.
On October 1, 1998, a bridge loan of Lit. 3,000 million was made by Mr. Gianni
Bulgari a director of the Company until January 2002, to OAM S.p.A. who lent
the proceeds to Guzzi Corp. to provide financing in anticipation of the
consummation of the merger with NAAC. The loan by OAM S.p.A. to Guzzi Corp.
was made on the same terms and conditions as the loan by Mr. Bulgari to OAM
S.p.A. and bore interest at 10% and a flat fee of 1%, through March 31, 1999.
The Lit. 3,000 million loan from Mr. Bulgari was repaid in May 1999 by OAM
S.p.A.
The loan was, however, not repaid to OAM S.p.A. by the Company on its
expiration of March 31, 1999 and in July 1999, the Company agreed to issue a
warrant to purchase 100,000 shares to OAM S.p.A. at a subscription price of
$0.01 each on condition that OAM S.p.A. reduced the interest rate on this loan
to 4% and maintained both this loan and collateral of Euro 2,050,000 deposited
as security for a bank credit line of Moto Guzzi S.p.A. through March 31,
2000. The Company accounted for the fair value of the 100,000 shares issuable
to OAM S.p.A. of Lit. 1,222 million as finance expense, which was amortized
over the period for which OAM S.p.A. agreed to maintain in place its loans and
funds deposited as collateral. OAM exercised this warrant in 2000 and
continued to provide the financial support from the expiration on March 31,
2000 until the sale of Moto Guzzi operations in September 2000, without any
additional expense.
ISSUANCE OF 5% DEBENTURES BY TRIDENT ROWAN AND LENDING OF PROCEEDS
On December 28, 1999, TRG issued US$6,000,000 of 5% Convertible Debentures Due
December 28, 2001 to provide funds for the Company and for its general
corporate purposes. These debentures were issued to third party institutional
fund managers. In connection with raising these funds, TRG also issued a
US$250,000 5% Convertible Debenture to Emanuel Arbib, co-CEO of TRG and a
Director of the Company, for his efforts in connection with such placement,
and agreed to issue TRG 300,000 shares of Common Stock of the Company in
connection with its efforts to place the Debentures. Such shares were issued
in July 2000. As discussed below under Centerpoint Loan to TRG, in June
2001, Centerpoint loaned US$ 4.2 million to TRG to fund TRG's settlement of
this obligation.
F-18
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
6. RELATED PARTY TRANSACTIONS - CONTINUED
ISSUANCE AND REDEMPTION OF SERIES B PREFERRED STOCK
On February 25, 2000, the Company issued 123,500 shares of a new Series B
Preferred Stock to Fineco Sim S.p.A., an Italian institutional investor
("Fineco"), and affiliates of Fineco, TRG, OAM, S.p.A., and William Spier, a
director of the Company through January 2002, and Wheatley Partners LP and
Wheatley International Partners LP, each of which is an affiliate of Barry
Fingerhut, a director of the Company through January 2002, for US$100 per
share (an aggregate price of US$12,350,000). The Company closed on the sale
of its operating subsidiaries on September 6, 2000 and in the last week of
September 2000 it redeemed in full all outstanding shares of Series B
Preferred Stock for a price equal to US$100 per share plus accrued dividends
thereon, for a total of approximately US$ 12.6 million (approximately Lit.
28,300 million at the prevailing exchange rate). For further details on the
issuance and redemption of the Series B Preferred Stock, see Note 4 above.
APRIL 14TH SHARE PURCHASE AGREEMENT
The Share Purchase Agreement providing for the sale of the Company's operating
subsidiaries to Aprilia contained a condition that OAM (the holder of
approximately 58% of the issued and outstanding shares of the Company's Class
A common stock, and a subsidiary of TRG) agree to vote its capital stock for
the sale, and by letter to Aprilia dated April 14, 2000, OAM agreed, among
other things, to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, the Company agreed
with OAM and TRG by letter dated April 14, 2000 that, among other things, it
would pay IMI's fees in connection with the sale. The April 14th letter was
amended on June 8, 2000 to provide, among other things, that the Company
would, as promptly as practicable after the closing of the sale, but in no
event later than 90 days following the closing, hold a meeting of stockholders
to consider and vote upon a proposal to liquidate all of the Company's assets
and dissolve itself. The date for proceeding to propose a liquidation was
subsequently extended by TRG and OAM to July 15, 2001. In connection with the
Bion transactions described in Note 13 below, OAM and TRG released the Company
from its obligations to proceed to propose a liquidation. In connection with
the sale, Aprilia required the terminations of certain of the Company's
executives and further required that the Company pay all costs of such
terminations. Accordingly, the Company agreed to pay severance to two of its
directors, Mark S. Hauser and Howard E. Chase, and to Emanuel Arbib, one of
its former directors, of US$169,500, US$51,400 and US$37,900, respectively, in
exchange for termination of their employment and consulting agreements with
the Company. The Company also paid Nick Speyer, the CFO of the Company,
US$125,000 in connection with the termination of his employment agreement with
the Company.
F-19
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
6. RELATED PARTY TRANSACTIONS - CONTINUED
CENTERPOINT LOAN TO TRIDENT ROWAN
TRG's 5% Convertible Debentures in an aggregate amount of US$6,250,000 were
scheduled to come due in December 2001. In order for TRG to pay off the
Debentures, on June 13, 2001 the Company, Trident Rowan and OAM entered into
the Centerpoint Loan Agreement. Pursuant to the terms and conditions of this
agreement, the Company agreed to loan Trident Rowan US$4,200,000. On June 13,
2001 the Company made the Centerpoint Loan and on June 15, 2001 TRG paid the
holders of the US$6,000,000 Debentures US$4,207,500 in cash, which the
Debenture holders accepted as payment in full on the Debentures (including
past due interest), representing a 31.5% discount from their face value. The
Centerpoint Loan bears interest at a rate of 5 % per annum, is repayable in
full on the earlier of June 13, 2002 or the date on which the TRG causes or
permits a liquidation of the Company, and is secured by the 300,000 shares of
the Company's common stock currently owned by TRG. In connection with the
Centerpoint Loan, OAM also entered into the OAM Guaranty wherein it guaranteed
TRG's obligations under the Centerpoint Loan Agreement. OAM's liability under
the OAM Guaranty was limited to the value of the 1,200,000 shares of the
Company's common stock held by OAM. The TRG Promissory Note was used by the
Company as partial consideration in its acquisition of the Bion shares, and in
Bion's acquisition of the Company's shares from OAM (See Note 13 Subsequent
Events). In light of the transaction with Bion, and because the loan was with
TRG, the indirect parent of the Company, this loan was reclassified to a
contra equity account in the balance sheet as of December 31, 2001.
Each of Mark S. Hauser and Nick Speyer is an officer or Director of OAM, which
held approximately 57% of the Company's Common Stock until January 15, 2002.
Each of the following directors and former directors of the Company is also an
Officer or Director of TRG: Howard E. Chase, Mark S. Hauser, Gianni Bulgari
and Emmanuel Arbib (former Director). Additionally, each of Mark Hauser,
Gianni Bulgari and Emmanuel Arbib are principal stockholders of TRG.
F-20
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
7. INCOME TAXES
TAX RECONCILIATION TO CREDIT AT STATUTORY U.S. FEDERAL RATE
The effective provision for income taxes varied from the income tax credit
calculated at the statutory U.S. federal income tax rate on losses from
continuing operations as follows:
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2001 2001 2000 1999
US $'000 Lit. m Lit. m Lit. m
---------- -------------- -------------- --------------
Computed tax credit at U.S. Federal rate (49) (107) (1,079) -
Losses and timing differences for which
valuation allowance provided 49 107 1,079 -
---------- -------------- -------------- --------------
$ - Lit. - Lit. - Lit. -
========= ============== ============== ==============
TAX LOSSES
At December 31, 2001 the Company had net operating loss carry-forwards for
U.S. federal income tax purposes which expire as follows:
Dec. 31 Dec. 31
2001 2001
US$'000 Lit. m
------- ------------
2021 141 307
2020 1,497 3,254
2019 1,620 3,522
------- ------------
$3,258 Lit. 7,083
======= ============
In addition to the operating loss above, the Company has a capital loss
carry-forward of US $14,370,000 from the sale of the motorcycle operations.
This loss can be carried forward to 2005.
DEFERRED TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances
have been recorded for the deferred tax assets in respect of net operating
loss carry forwards, above, as management believes it more likely than not
that these assets will not be realized.
F-21
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income, translation difference from
the conversion of balance sheets of non-Italian entities and accretion expense
and related exchange differences related to its redeemable Series B preferred
stock. The Company has chosen to disclose comprehensive income in the
Consolidated Statements of Stockholders' Equity. Changes in components of
accumulated other comprehensive income in the 3 years to December 31, 2001 are
as follows.
Accretion Accumulated
Cumulative expense and other
translation related exchange comprehensive
adjustment movements income(loss)
----------- ---------------- -------------
Balance January 1, 1999 157 - 157
Movement for period (24) - (24)
------ ------ ------
Balance January 1, 2000 133 - 133
Movement for period 109 (3,062) (2,953)
Redemption of Series B
Preferred Stock - 3,062 3,062
------ ------ ------
Balance January 1, 2001 242 - 242
Movement for period (1,692) - (1,692)
------ ------ ------
Balance December 31, 2001 (1,450) - (1,450)
====== ====== ======
9. EARNINGS/LOSS PER SHARE
The numerator for the calculation of loss per common share have been
calculated as follows:
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2001 2001 2000 1999
$'000 Lit. m Lit. m Lit. m
------- ------- ------- -------
Loss from continuing
operations (141) (307) (3,084) -
Series B Preferred
Stock dividends - - (1,089) -
------- ------- ------- -------
Loss from continuing
operations attributable
to common shareholders (141) (307) (4,173) -
======= ======= ======= =======
Series B Convertible Preferred stock, issued and redeemed in 2000 - See Note 4
- was not dilutive.
F-22
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
10. STOCK OPTIONS
CLASS A WARRANTS TRADED ON THE OTC/BB MARKET UNDER THE TICKER "CPTXW"
On August 27, 1997, NAAC sold 800,000 units ("units") and 150,000 shares of
Class B exchangeable common stock in a public offering. Each unit consisted of
one share of the Company's Class A Common Stock and one Class A Warrant. Each
Class A Warrant entitles the holder to purchase from the Company one share of
Class A Common Stock at an exercise price of US$9.00; each share of Class B
Common Stock entitled the holder to receive two units in exchange for each
Class B share 90 days after the date of a business combination. The Class A
Warrants expire in August 2002 and are redeemable, as a class, in whole and
not in part, at a price of US$.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 Class A Common Stock has been US$11.00 or
higher for 10 of the trading days prior to the day on which the Company gives
notice of redemption.
Also, as part of the Merger, certain directors of NAAC subscribed for 30,000
Class B options prior to the closing of the Merger. The 180,000 shares of
Class B Common Stock were eliminated on the consummation of the Merger and
each share of Class B Common Stock was converted to two shares of Class A
Common Stock and two Class A Warrants, resulting in the issue of 360,000 Class
A Warrants. The 1,160,000 Class A Warrants resulting from NAAC's public
offering and the conversion of Class B Common Stock are traded on the OTC/BB
market under the ticker "CPTXW."
UNDERWRITER WARRANTS AND OPTIONS AND OTHER NAAC OPTIONS AND WARRANTS PRIOR TO
MERGER
In October 1996, NAAC granted options to purchase 133,333.3 units (units
consisting of one share of Class A Common Stock and one Class A Warrant) to
the Company's two then 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 US$12.50 per unit. 50,000 of such options
are held by David Mitchell, a director of the Company and the President and
CEO since January 24, 2002.
The underwriters engaged by NAAC in its public offering received a warrant to
purchase 80,000 shares of Class A Common Stock and 80,000 Class A Warrants, at
an exercise price of US$11.00 per share and a warrant and to purchase 15,000
shares of Class B Common Stock for US$11.00 per share (the "Class B Warrant").
Pursuant to the elimination of Class B Common Stock on March 4, 1999, the
Class B Warrant now entitles the holder to purchase 30,000 shares of Class A
Common Stock and 30,000 Class A Warrants for an exercise price of US$5.50 for
each unit consisting of one share of Class A Common Stock and one Class A
Warrant.
F-23
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
10. STOCK OPTIONS - CONTINUED
OTHER WARRANTS
In connection with the Merger, the Company issued 800,000 "Nominal Warrants"
to the Guzzi Corp. shareholders. Such warrants to subscribe the shares of
Class A Common Stock would be exercisable at US$0.01 each only if the Company
achieved certain operating income in 1999, or a revised target in 2000. In
July 1999, OAM cancelled 100,000 of such warrants that it held in connection
with agreements for providing ongoing financing to the Company and for which
it received a separate warrant. The Company did not reach the operating income
target in 1999 or 2000 and the nominal warrants have lapsed.
Upon closing of the Merger, the Company issued warrants to Allen & Company
Incorporated and EBI Securities Corporation ("EBI") to purchase 315,000 shares
of Class A Common Stock, and 35,000 shares of Class A Common Stock,
respectively, each at an exercise price of $10.00 per share. The warrants may
be exercised at any time prior to July 1, 2003.
In February 2000, the Board of Directors granted options to purchase 50,000
shares of the Company's Common Stock, at an exercise price of US$7.00 per
share, to Dr. Peter Hobbins, who was a Director of the Company from March 1999
to July 1999. The options were exercisable immediately and for ten years
following the date of grant. The options were issued in consideration of Mr.
Hobbins' prior service to the Company as a Director.
On March 25, 1999, the Company issued a warrant to Elliott Broidy, a principal
of EBI, to purchase 25,000 shares of Class A Common Stock at an exercise price
of US$9.00 per share. The warrant terminates on March 24, 2003. On March 31,
1999, pursuant to an investment banking agreement between the Company and EBI,
the Company issued a warrant to EBI to purchase 225,000 shares of Class A
Common Stock at an exercise price of US$9.00 per share. In connection with
this agreement, EBI agreed to the cancellation of its 35,000 warrants referred
to above.
As described in Note 6, in July 1999 the Company issued OAM a warrant to
purchase 100,000 shares of Class A Common Stock at an exercise price of
US$0.01 per share in consideration for financing provided by OAM. The warrant
was exercised in 2000.
STOCK OPTION PLAN
On July 23, 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") and the 1998 Plan for Outside Directors. Both Option Plans were
subject to stockholder approval and consummation of the Merger which duly
occurred in March 1999.
F-24
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
10. STOCK OPTIONS - CONTINUED
The 1998 Plan provides for the grant of options to purchase up to an aggregate
of 1,250,000 shares of the Company's Common Stock to be made to employees,
officers, directors and consultants of the Company and its subsidiaries after
the Merger. The 1998 Plan provides both for incentive stock options
("Incentive Options"), and for options not qualifying as Incentive Options
("Non Qualified Options"). The Company's Board or the Committee will determine
the exercise price for each share of the Company's Common Stock purchasable
under an Incentive or Non Qualified Option (collectively "Options"). The
exercise price of a Non Qualified Option may be less than 100% of the fair
market value on the last trading day before the date of the grant. The
exercise price of an Incentive Option may not be less than 100% of the fair
market value on the last trading day before the date of grant (or, in the case
of an Incentive Option granted to a person possessing at the time of grant
more than 10% of the total combined voting power of all classes of stock of
the Company, not less than 110% of such fair market value). Options may only
be granted within a ten-year period which commenced on July 23, 1998 and
Incentive Options may only be exercised within ten years of the date of the
grant (or within five years in the case of an Incentive Option granted to a
person who, at the time of the grant, owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of
its parent or any subsidiary). Options to purchase an aggregate of 255,000
shares of Class A Common Stock at an exercise price of US$10.8675 were issued
to certain officers (directors in their capacity as management) of the Company
at the closing of the Merger. Options to purchase an aggregate of 625,000
shares at an exercise price of US$9.50 were approved by the Board of Directors
on March 8, 1999 for grant to operational management employees, though none of
these options were ever granted.
The 1998 Plan for Outside Directors provides for the grant of non-incentive
options to purchase up to an aggregate of 400,000 shares of the Company's
Class A Common Stock, to the non-employee directors of the Company, each grant
to be on the effective date of the Merger and on each January 2, beginning
January 2, 2000, of options to purchase 12,500 shares of Company's Class A
Common Stock. The options will expire upon the earlier of ten years following
date of grant or three months following the date on which the grantee ceases
to serve as a director. Options to purchase an aggregate of 100,000 shares of
Class A Common Stock at an exercise price of US$10.8675 were granted to
directors on the closing of the Merger. On January 3, 2000, 12,500 options
with an exercise price of US$3.719 were issued to each of the four Outside
Directors under this Plan and on January 2, 2001, 12,500 options with an
exercise price of US$1.375 were issued to each of the three Outside Directors
at such date.
F-25
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
10. STOCK OPTIONS - CONTINUED
The following is a summary of options outstanding under the plans.
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000)'s Price (000)'s Price (000)'s Price
------- -------- ------- -------- -------- --------
Outstanding, January 1 400 $ 9.49 355 $10.87 - -
Granted 37 $ 1.38 100 $ 5.36 355 $10.87
Exercised - - - - - -
Forfeited or exchanged (25) $ 7.29 (55) $10.87 - -
------ ------- ------- -------- -------- --------
Outstanding, December 31 412 $ 8.89 400 $ 9.49 355 $10.87
====== ======= ======= ======== ======== ========
Options Exercisable,
December 31 412 $ 8.89 400 $ 9.49 355 $10.87
====== ======= ======= ======== ======== ========
Stock Options Outstanding Stock Options Exercisable
------------------------------ -------------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Shares Exercise Contractual Shares Exercise
Price (000)'s Price Life (000)'s Price
-------- ------- -------- ----------- ------- ---------
$10.87 287.5 $10.87 7.18 years 287.5 $10.87
$ 7.00 50.0 $ 7.00 8.15 years 50.0 $ 7.00
$ 3.72 37.5 $ 3.72 8 years 37.5 $ 3.72
$ 1.38 37.5 $ 1.38 9 years 37.5 $ 1.38
------- -------- ------- ---------
412.5 $ 8.89 412.5 $ 8.89
EARNINGS PER SHARE
As the Company has incurred losses from continuing operations in 2001 and had
no earnings from continuing operations in 2000 all warrants and options
described above are considered antidilutive. No options and warrants were
issued prior to 1999.
F-26
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
ACCOUNTING FOR STOCK OPTIONS
The Company has elected the disclosure-only provisions of FASB Statement No.
123, "Accounting for Stock Based Compensation" and applies APB Opinion No. 25
and related interpretations in accounting for their stock option plans.
If the Company had elected to recognize compensation cost based on the fair
value of awards of options and warrants at grant dates, the pro forma net loss
from operations and loss per share for 1999 would have been Lit. 24,970
million and Lit. 4,826 per share. The fair value of options issued in 2001 and
2000 would not have been significant.
11. FINANCIAL INSTRUMENTS
The Company does not enter into foreign exchange contracts in the normal
course of its operating activities. The Company has not hedged against
foreign exchange risk on its marketable securities, which are denominated in
Euro.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments.
CASH AND CASH EQUIVALENTS: the carrying amount of cash and cash equivalents
reported by the Company approximates their fair value.
FIXED INTEREST MARKETABLE SECURITIES: fair value for marketable quoted
securities is based on market price and for non-marketable securities, is
estimated using discounted cash flow analysis based on similar investments
available as at the balance sheet date. There are no significant differences
between fair value and carrying value.
F-27
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
12. LITIGATION
APRILIA CLAIMS UNDER THE SHARE PURCHASE AGREEMENT; PAYMENT BY IMI; REQUEST FOR
ARBITRATION
In June 2001 Aprilia's legal counsel sent a letter to Centerpoint which
alleged that it had various claims under the Share Purchase Agreement
aggregating approximately Lit. 9,600 million. On July 13, 2001 Centerpoint's
Italian counsel sent a letter to Aprilia's counsel contesting all of the
Alleged Claims.
On July 13, 2001 Aprilia requested that IMI, the escrow agent under the Escrow
Agreement, pay them Lit. 7,611 million 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 from the escrow account to
Aprilia in respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, which provides
that disputes among the parties be arbitrated, the Company filed with 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 and requesting restitution of the funds paid to Aprilia.
The Arbitration committee was constituted on November 16, 2001.
DISPUTE OVER IMI FEE
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.
F-28
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
12. LITIGATION - CONTINUED
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.
13 - SUBSEQUENT EVENTS
BION TRANSACTION - CHANGE OF CONTROL OF THE COMPANY
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 US$8.5 million in cash (substantially all of the Company's
cash), the US$4.2 million TRG Promissory Note (including accrued interest),
and the assignment of 65% of the Company's claims with respect to the escrow
accounts and claims against IMI. Unrestricted stock of Bion is quoted on the
OTC Bulletin Board under the ticker symbol "BION".
Immediately upon consummation of this transaction, Bion purchased a 57.7%
majority interest in the Company from OAM. The total consideration paid by
Bion to OAM consisted of (i) US$3,700,000 in cash, (ii) the assignment to OAM
of the US$4.2 million TRG Promissory Note (including accrued interest) and
related loan guarantees (See Note 6 Related Party Transactions), (iii) the
assignment of the 65% interest in the Company's claims with respect to the
escrow accounts and claims against IMI, (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 US$0.90, with an expiration date
of January 10, 2007.
F-29
CENTERPOINT CORPORATION AND SUBSIDIARIES
(Moto Guzzi Corporation through September 19, 2000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
13. SUBSEQUENT EVENTS - CONTINUED
Under the Subscription Agreement and related Registration Rights Agreement,
Bion agreed among other things (i) to file with the 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, 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 (a meeting was held April 4, 2002), in accordance with its by-laws
and applicable law. 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.
On March 14, 2002, the Company and Bion entered in an agreement effective
January 15, 2002 where the Company will pay US$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, to
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 US$500,000. All sums due Bion shall be
evidenced by a convertible revolving promissory note. As additional
consideration, Bion shall receive a warrant to purchase 1,000,000 shares of
the Company's common stock at $3.00 per share until March 14, 2007.
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 was used to pay off US$718,485
of indebtedness of Bion owed to Mr. Mitchell.
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.
F-30
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
______________________________________
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes our estimated expenses in connection with
the issuance and distribution of the securities being registered hereby.
SEC Registration Fee.................... $ 2,603
Transfer Agent Fees..................... 1,000
Legal Fees and Expenses................. 10,000
Accounting Fees and Expenses............ 5,000
Miscellaneous........................... 2,397
--------
Total .............................. $ 21,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Business Corporation Act generally provides that a
corporation may indemnify its directors, officers, employees and agents
against liabilities and reasonable expenses (including attorneys' fees)
incurred in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal (a "Proceeding"), by reason of being or having been
a director, officer, employee, fiduciary or agent of the Corporation, if such
person acted in good faith and reasonably believed that his conduct in his
official capacity with the Corporation was in the best interests of the
Corporation (or, with respect to employee benefit plans, was in the best
interests of the participants in or beneficiaries of the plan), and in all
other cases his conduct was at least not opposed to the Corporation's best
interests. In the case of a criminal proceeding, the director, officer,
employee or agent must have had no reasonable cause to believe his conduct was
unlawful. The Corporation may not indemnify a director, officer, employee or
agent in connection with a proceeding by or in the right of the Corporation if
such person is adjudged liable to the Corporation, or in a proceeding in which
such person is adjudged liable for receipt of an improper personal benefit.
Unless limited by the Corporation's Articles of Incorporation, the Corporation
shall be required to indemnify a director or officer of the Corporation who is
wholly successful, on the merits or otherwise, in defense of any proceeding to
which he was a party, against reasonable expenses incurred by him in
connection with the proceeding. The foregoing indemnification is not exclusive
of any other rights to which those indemnified may be entitled under
applicable law, the Corporation's Articles of Incorporation, Bylaws,
agreement, vote of shareholders or disinterested directors, or otherwise.
The Corporation's Articles of Incorporation and Bylaws generally provide
for indemnification of directors, officers, employees and agents to the
fullest extent allowed by law.
II-1
ITEM 16. EXHIBITS
Exhibit
Number Description of Exhibit
------- ----------------------
5.1 Opinion of Krys Boyle, P.C. regarding legality. (1)
23.1 Consent of BDO Seidman, LLP. (2)
23.2 Consent of Krys Boyle, P.C. - Contained in Exhibit 5.1. (1)
----------------
(1) Previously filed.
(2) Filed herewith electronically.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-2
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Amendment No. 3 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on January 17, 2003.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
By: /s/ David J. Mitchell
----------------------------------
David J. Mitchell, Chief Executive
Officer and Chairman
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the date(s) indicated.
Signatures Title Date
/s/ David J. Mitchell
------------------------- Chief Executive Officer January 17, 2003
David J. Mitchell and Chairman
/s/ David Fuller
------------------------- Principal Accounting January 17, 2003
David Fuller Officer
/s/ Lawrence R. Danziger
------------------------- Chief Financial Officer January 17, 2003
Lawrence R. Danziger (Principal Financial
Officer)
/s/ Jere Northrop
------------------------- Director January 17, 2003
Jere Northrop
/s/ Salvatore J. Zizza
------------------------- Director January 17, 2003
Salvatore J. Zizza
/s/ Andrew G. Gould
------------------------- Director January 17, 2003
Andrew G. Gould
/s/ Howard E. Chase
------------------------- Director January 17, 2003
Howard E. Chase