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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number - 0-2642
TRIDENT ROWAN GROUP, INC
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
- --------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
299 Park Avenue, 16th Floor, New York, New York 10171
(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: (212) 644-4441
Former name, former address and former fiscal year, if changed since last
report.
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __ No X
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by checkmark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes __ No X
---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Common stock, par value $.01 per share, 4,064,900 shares outstanding as of March
31, 2004.
TRIDENT ROWAN GROUP, INC.
INDEX
Page
Item 1 Financial Statements.................................................3
Consolidated Balance Sheets at March 31, 2002 - Assets...............3
Consolidated Balance Sheets at March 31, 2002 - Liabilities and
Shareholders' Equity.................................................4
Consolidated Statements of Operations for the three months to
March 31, 2002.......................................................5
Consolidated Statements of Changes in Shareholders' Equity...........6
Consolidated Statements of Cash Flows................................7
Notes to Consolidated Financial Statements...........................8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................15
Item 3 Quantitative and Qualitative Disclosures about Market Risk..........17
Item 4 Controls and Procedures.............................................17
PART II OTHER INFORMATION...................................................17
Item 1 Legal Proceedings...................................................17
Item 2 Changes in Securities and Use of Proceeds...........................19
Item 3 Defaults upon Senior Securities.....................................19
Item 4 Submission of Matters to a Vote of Securities Holders...............19
Item 5 Other Information...................................................19
Item 6 Exhibit and Reports on Form 8-K.....................................19
SIGNATURES..................................................................20
2
Financial Information
Item 1 Financial Statements
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
March 31, 2002 and December 2001
March 31 March 31 Dec. 31
2002 2002 2001
US$'000 (euro)'000 (euro)'000
ASSETS
Cash and cash equivalents .................. $ 3,638 (euro) 4,173 (euro) 10,714
Marketable securities, at cost ............. - - -
Receivables................................. - - 27
Trade .................................... - - 13
Other receivables ........................ - - 14
Prepaid Expenses ........................... - - 62
----------- ---------- ----------
TOTAL CURRENT ASSETS 3,638 4,173 10,803
----------- ---------- ----------
Property, plant and equipment............... 15 18 19
At cost 25 29 88
Less allowances for depreciation (10) (11) (69)
Other assets - - -
Other receivables .......................... 136 156 172
Restricted cash - - -
...........................................
----------- ---------- ----------
TOTAL ASSETS $ 3,789 4,347 euro) 10,994
=========== ========== ==========
Note:.The balance sheet as at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles.
See Notes to Consolidated Financial Statements
3
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
March 31, 2002 and December 2001
March 31 March 31 Dec. 31
2002 2002 2001
US$'000 (euro)'000 (euro)'000
LIABILITIES
Accounts payable 108 124 235
Accrued expenses and other payables 510 585 1,530
------- -------
TOTAL CURRENT LIABILITIES 618 709 1,765
------- -------
Provision for claims 384 440 440
Minority interests 66 76 5,525
SHAREHOLDERS' EQUITY 2,721 3,122 3,264
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares, 48 55 55
4,064,900 shares outstanding,
Additional paid-in capital 48,042 55,114 55,114
Treasury stock, at cost (21,571) (24,746)
Cumulative translation adjustment (1,961) (2,250) (1,550)
Accumulated deficit (21,837) (25,609)
------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,789 (euro) 4,347 (euro) 10,994
======= ======= =======
Note:.The balance sheet as at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles.
See Notes to Consolidated Financial Statements
4
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
3 Months ended March 31, 2002 and 2001
March 31 March 31 March 31
2002 2002 2001
US$'000 (euro)'000 (euro)'000
Selling, general and administrative
expenses (324) (372) (467)
----------- ----------- -----------
Operating loss (324) (372) (467)
Interest expense (9) (10) (221)
Interest income 1 2 209
Other (expense)/income, net 911 1,044 88
----------- ----------- -----------
Gain/(Loss) from continuing
operations before income taxes and
minority interests 579 664 (391)
Income Taxes (87) (100) --
Minority interests (5) (6) (51)
----------- ----------- -----------
Net gain/(loss) from continuing
operations 486 558 (442)
----------- ----------- -----------
Net profit/(loss) $ 486 (euro) 558 (euro) (442)
=========== =========== ===========
PROFIT/(LOSS) PER SHARE US$ (euro) (euro)
BASIC
Continuing operations 0.11 0.14 (0.11)
----------- ----------- -----------
0.11 0.14 (0.11)
=========== =========== ===========
Weighted average number of common
shares
outstanding during the period:
Basic 4,064,900 4,064,900 4,064,900
=========== =========== ===========
Diluted 4,064,900 4,064,900 4,064,900
=========== =========== ===========
See Notes to Consolidated Financial Statements
5
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Shareholders' Equity
March 31, 2002
Additional Accumulated other TOTAL Comprehensive
Common paid-in Treasury Other Accumulate SHAREHOLDERS' income/
Comprehensive
(euro) thousands stock capital stock Income deficit EQUITY (loss)
------- -------- -------- ---------------- --------- ------------ ---------
At January 1, 2002 (euro)'000 55 55,115 (24,746) (1,550) (25,609) 3,264
Net profit/(loss) - - - - 558 558 558
Translation adjustment - - - (700) - (700) (700)
Vesting of shares subject
to forfeit - - - - - -
---------- ----------- ---------- ------------ -------------- ------------- -------------
At March 31, 2002 (euro)'000 55 55,115 (24,746) (2,250) (25,051) 3,122 (142)
At March 31, 2002 $'000 48 48,042 (21,570) (1,961) (21,837) 2,721 (124)
========== =========== ========== ============ ============= ============== =============
Accumulated other comprehensive income is represented by differences from the
change in exchange rates from period to period on translation of the financial
statements of non Italian subsidiaries.
See Notes to Consolidated Financial Statements
6
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
March 31, 2002 and 2001
March 31 March 31 March 31
2002 2002 2001
US$'000 (euro)'000 (euro)'000
Net gain/(loss) from continuing operations . 486 558 (442)
Adjustments to reconcile net loss to net
cash (used)/provided by continuing
operations:
Depreciation and amortization .............. 2 2 8
Amortization of debt charges - - 60
(Gain)/Loss on disposals of subsidiaries (1,298) (1,489)
Minority interests 5 6 50
Write off of investment 1,035 1,188
Other operating activities ................. 6 7 (41)
Changes in operating assets and liabilities:
Trade and other receivables ................ 34 40 (99)
Prepaid expenses ........................... 40 47 21
Accounts payable and accrued expenses ...... (126) (144) (1,657)
----------- ----------- -----------
Net cash (used)/provided by operating
activities ................................. 187 215 (2,100)
----------- ----------- -----------
Investing activities:
Net (increase)/decrease in investments ..... 2,100
Purchase of minorities in OAM - - (2,661)
Purchase of minority interest in Bion, net
of cash (8,319) (9,543) -
Proceeds from disposal of subsidiaries, net
of cash 5,652 6,484 -
Proceeds from disposal of other assets,net (3) (4) -
----------- ----------- -----------
Net cash (used)/provided by investing
activities ................................. (2,670) (3,063) (561)
----------- ----------- -----------
(Decrease)/increase in cash from continuing
operations ................................. (2,483) (2,848) (2,661)
Exchange movement on opening cash .......... (3,218) (3,693) 264
Cash, beginning of period .................. 9,339 10,714 6,578
----------- ----------- -----------
Cash, end of period ........................ $ 3,638 (euro)4,173 (euro) 4,181
=========== =========== ===========
See Notes to Consolidated Financial Statements
7
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. For a summary of the Registrant's accounting principles, and other
footnote information, reference is made to the Registrant's 2001 Annual Report
on Form 10-K. All adjustments necessary for the fair presentation of the results
of operations for the interim periods covered by this report have been included.
All of such adjustments are of a normal and recurring nature. The results of
operations for the three months ended March 31, 2002 are not necessarily
indicative of the operating results for the full year.
The consolidated financial statements through the date of the disposal of the
Company's operations were shown in Euro ("(euro)") because all of the Company's
material operating entities were based in and operated entirely in Italy.
Pending evaluation of its alternatives, following the disposal of its
operations, the Company invested the major part of the net proceeds from the
disposals of Euro-denominated cash and cash-equivalents, and then moved these
amounts to US$-denominated bank accounts. Accordingly, the consolidated
financial statements at March 31, 2002 continue to be shown in Euro. The
translation of Euro amounts into U.S. dollar amounts is included solely for the
convenience of the readers of the financial statements and has been calculated
at the rate of US$ 0.87 to (euro)1, the approximate exchange rate at March 31,
2002. 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 Euro unless specifically designated in other currencies.
When the actual currency of the transaction is denominated in US Dollars, then
the US Dollar amount has been shown in the relevant note and/or table and
indicated as "US Dollar, actual transaction currency".
NOTE 2 - DISCONTINUED OPERATIONS
Discontinued Motorcycle Operations
Sale of motorcycle operations
On September 7, 2000, Moto Guzzi Corporation ("Moto Guzzi"), a 62.7% owned
subsidiary, closed the sale of all its operating subsidiaries to Aprilia S.p.A.
("Aprilia"). On August 11, 2000, at a special meeting of stockholders, Moto
Guzzi's stockholders approved the sale of the operating subsidiaries and changed
the corporate name from Moto Guzzi to Centerpoint Corporation("Centerpoint").
This was approved by over two-thirds of the Company's Class A Common Stock
Stockholders.
Proceeds from the sale were (euro) 42,129,000. The Share Purchase Agreement
required the Company to place (euro) 4,841,000 of the total proceeds into
escrow in case of any breach of representations and warranties claims by
Aprilia. Funds from the escrow account were to be released to Centerpoint in two
payments, (euro) 3,615,000 was to be released on September 8, 2001 and up
to (euro) 1,226,000 to be released on September 8, 2007. Aprilia undertook
to evaluate, on a best efforts basis, an earlier resolution of the escrow
accounts. See Note 4, "Subsequent Events" for a discussion of subsequent claims
made by
8
Aprilia against the escrow accounts, release of escrow funds to Aprilia and
settlement of such matters in 2003.
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 2 - DISCONTINUED OPERATIONS - continued
SIREF S.p.A. and San Paolo Finanziaria S.p.A. (both affiliates of
Intermediazione Mobiliare IMI S.p.A. ("IMI")) acted as fiduciary agents for the
closing. In accordance with invoices submitted to them, they paid IMI
(euro)5,888 thousand , in respect of fees and expenses claimed to be due to IMI,
paid (euro) 261 thousand to Studio Carnelutti, the Company's Italian counsel,
and then paid the remaining proceeds of (euro) 31,139,000 to Centerpoint.
Since early July 2000, the Company has disputed IMI's interpretation of the
calculation of the fee due to them based on their engagement letter. See Note 4,
"Subsequent Events" for further discussion regarding disputed fees.
Discontinued steel tube operations
The Company disposed of L.I.T.A. S.p.A. ("LITA") for (euro) 1,275 thousand in
July 2000 for a consideration of (euro)759,000. The Company also provided a
bank guarantee for (euro) 516,000 to secure any claims the purchaser may
have for breaches of representations and warranties given by the Company through
December 31, 2004. The bank guarantee is secured by an investment of the Company
held by the bank that issued the guarantee. The Company settled (euro) 85
thousand of claims by the purchaser in 2001 and recognized this expense in the
consolidated statements of operations.
NOTE 3 - PURCHASE OF MINORITY INTERESTS IN OAM SUBSIDIARY
On 1 March 2001, the Company purchased minority interests of 15.65% in its OAM
subsidiary from DaimlerChrysler for US$ 2.5 million (actual transaction
currency), equivalent to (euro) 2,661,000 at the effective accounting date for
this transaction of 1 January 2001. The fair value of the assets acquired was
(euro) 4,173,000. The resulting negative goodwill of (euro) 1,512,000 was
applied to write down non-current assets of OAM: tax receivables were written
down by (euro) 985,000, restricted investment (related to the sale of Lita, see
Note 2 above) by (euro) 516,000 and tangible fixed assets by (euro) 11,000.
NOTE 4 -BION TRANSACTION
Bion Transaction
The Board of Directors of Centerpoint met to evaluate the alternative strategies
and investments available to it. Investec Ernst & Co., who had been hired in
June 2001 to assist in this process, presented to the Centerpoint Board their
conclusions on a number of potential investments. In December 2001, the
Centerpoint Board resolved to approve the acquisition of 19,000,000 shares of
Bion, 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
9
fields, golf courses and home and garden applications. Unrestricted stock of
Bion is traded on the OTC/BB market under the ticker "BNET".
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 4 - BION TRANSACTION - continued
On January 15, 2002, Centerpoint closed the transaction with Bion by purchasing
19,000,000 shares of restricted stock of Bion in exchange for approximately
US$8.5 million (actual transaction currency) in cash (substantially all of
Centerpoint's cash), the US $4.2 million (actual transaction currency)
Centerpoint loan to TRG (including accrued interest), and the assignment of 65%
of Centerpoint's claims with respect to the escrow accounts from the sale of
Moto Guzzi to Aprilia and claims against IMI.
Immediately upon consummation of this transaction, Bion purchased a 57.7%
majority interest in Centerpoint from OAM. The total consideration paid by Bion
consisted of (i) US$3,700,000 (actual transaction currency) in cash, (ii) the
assignment of the US$4.2 million (actual transaction currency) Centerpoint loan
to TRG (including accrued interest) and related loan guarantees, (iii) the
assignment of the 65% interest in the Company's claims with respect to the
escrow accounts and claims against IMI, (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$0.90 (actual transaction
currency), with expiration date of January 10, 2007. Bion agreed among other
things (i) file a with SEC a Registration Statement with respect to the Bion
Shares issued in the transactions above, as soon as practicable, and within 90
days of Centerpoint's filing with the SEC of its December 31, 2001 Form 10-K,
and to use its best efforts to cause such Registration Statement to be declared
effective as soon as practicable thereafter.
David Mitchell, a director of Centerpoint, was the Chairman, President, Board
Member and a principal stock and warrant holder of Bion at the time of the
transaction. Additionally a portion of the proceeds of the Bion Investment was
used to pay off US$ 718,485 (actual transaction currency) of indebtedness of
Bion owed to Mr. Mitchell. Mr. Mitchell subsequently resigned from all his Bion
positions in January 2003.
On January 24, 2002, David Mitchell was elected as Centerpoint's President and
CEO. David Mitchell, a former CEO, a founder, a stockholder and option holder of
the Company, was the only director of Centerpoint until January 2003. Following
the Bion Investment and Bion acquisition of Centerpoint Shares, all of
Centerpoint's directors, other than David Mitchell, resigned from their
positions on the Company's Board of Directors. Bill Spier, one of Centerpoint's
Directors until he resigned on January 24, 2002, sits on Bion's Advisory Board.
On January 21, 2002, Howard Chase, a director of Centerpoint until he resigned
on January 15, 2002, joined the Board of Directors of Bion. In January 2003 Mr.
Mitchell resigned from his positions at Centerpoint and three new Directors were
elected.
NOTE 5 - THE CENTERPOINT LOAN
Centerpoint Loan; Early payoff of the Company's 5% Convertible Debentures
The 5% Convertible Debentures in an aggregate amount of US$ 6,250,000 (actual
transaction currency) were scheduled to come due in December 2001. On June 13,
2001 the Company, OAM and Centerpoint entered into a loan agreement (the
"Centerpoint Loan Agreement") wherein subject to the terms and certain
conditions set forth therein Centerpoint agreed to lend the Company US$
4,200,000 (actual transaction currency) (the "Centerpoint Loan"). On June 13,
2001 Centerpoint made the Centerpoint Loan and the Company issued Centerpoint
the Company's Promissory Note. On June 15, 2001 the
10
Company paid the holders of US$ 6,000,000 (actual transaction currency) of the
Debentures US$ 4,207,500 (actual transaction currency) in cash, which the
Debenture holders accepted as payment in full (including past due interest).
This was approximately a 29.3% discount from their face value, and a
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 5 - THE CENTERPOINT LOAN (continued)
31.5% discount on the total amount owed. In July 2001, Emanuel Arbib, the holder
of the remaining US$ 250,000 (actual transaction currency) of the Debentures
accepted US$ 218,750 (actual transaction currency), a 14.4% discount from its
face value, as payment in full on such Debentures.
The Centerpoint Loan bears interest at a rate of 5 % per annum, is repayable in
full on June 13, 2003 and was secured by the 300,000 shares of Centerpoint
common stock then owned by the Company. The Loan Agreement also provided that
the Centerpoint Loan was to be secured by 1,200,000 of the shares of Centerpoint
common stock owned by OAM and provided that OAM was to enter into a Limited
Recourse Guaranty Agreement wherein it was to guarantee the Company's
obligations under the Centerpoint Loan Agreement. OAM's liability under the
Limited Recourse Guaranty would have been limited to the value of the
Centerpoint shares to be pledged by OAM. OAM's pledge of the 1,200,000 shares of
Centerpoint common stock and the Limited Recourse Guaranty Agreement were in
fact, never executed. On January 15, 2002, Centerpoint assigned the Company's
Promissory Note and rights under the Centerpoint Loan Agreement to Bion as
partial consideration for the purchase of the Bion shares. Shortly thereafter,
Bion assigned the Company's Promissory Note and rights under the Centerpoint
Loan Agreement to OAM as partial consideration for the Centerpoint shares
acquired from OAM.
NOTE 6 -SUBSEQUENT EVENTS AND LEGAL PROCEEDINGS
Wilson Litigation: Settlement of Wilson litigation
In January, 2002, the judge in the Company's litigation against Travelers
Insurance Company ("Travelers") arising out of the Wilson litigation determined
that Travelers was liable to the Company for US$ 1,000,000 (actual transaction
currency), plus the Company's legal fees in connection with the litigation, less
a reasonable premium. Traveler's subsequently challenged the reasonableness of
the legal fees and the judge requested explanatory submissions from both
Travelers and the Company. In July, 2002 the judge ruled that the fees were
reasonable, but that certain duplications should be eliminated. In September
2002 the court rendered a judgment in favor of the Company against Travelers in
the amount of US$ 1,822,979 (actual transaction currency). Travelers appealed
the judgment and, in December 2003, the parties entered into a settlement
agreement which provided among other things for the payment of $1,450,000
(actual transaction currency) to the Company by Travelers, which amount was paid
in December 2003.
Rawlings Litigation
On February 11, 2002 the Company entered into a settlement agreement with
Rawlings Sporting Goods Company ("Rawlings") with respect to the Rawlings
litigation. Under the settlement agreement the Company agreed to transfer
160,000 shares of Centerpoint Common Stock to Rawlings and the Company and
Rawlings agreed to voluntarily dismiss the Rawlings litigation and to release
each other from all claims relating to the litigation, subject to the transfer
of the shares. The Centerpoint shares were transferred to Rawlings in May 2002,
and the claims against the Company have been dismissed with prejudice.
11
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 6 -SUBSEQUENT EVENTS AND LEGAL PROCEEDINGS (continued)
Dispute with IMI concerning its fees
On February 11, 2002 Centerpoint brought a suit against IMI before the Civil
Section of the Court of Milan, Italy seeking reimbursement of (euro) 4,527
thousand (approximately $4,253,000) of the (euro) 5,888,000 ($5,532,000)
paid to IMI at the closing. At the first hearing with respect to the claims, on
July 2, 2002, IMI's legal counsel filed a Defense Pleading requesting among
other things, the rejection of the claims, and the joining of the Company as a
party to the litigation. A hearing with respect to the case was held on November
15, 2002, at which time the judge determined that the parties were not amenable
to
settling the litigation. A further hearing was held on February 6, 2003, at
which time the judge fixed May 2, 2003 as the deadline for each party to file a
pleading summarizing the such party's requests for evidences, set June 2, 2003
as the date for each party to respond to the other party's pleading, and set
October 14, 2003 as the trial date for a decision on the case. On October
14,2003, the judge fixed a further hearing for March 2004, requesting again that
the parties consider settlement between them of the dispute.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request
for Arbitration; Settlement
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Moto Guzzi's
operating subsidiaries, (euro) 4,842,000 of the proceeds of the sale were
placed into escrow.
By letter dated December 21, 2000, legal counsel for Aprilia asserted various
claims against Centerpoint relating to Centerpoint's representations and
warranties under the Share (the "Alleged Claims"). On July 13, 2001
Centerpoint's Italian counsel sent a letter to Aprilia's counsel contesting all
of the Alleged Claims.
By letter dated July 13, 2001 Aprilia requested that IMI, the escrow agent under
the Escrow Agreement, pay them (euro) 3,931,000 in respect of the Alleged
Claims. On July 26, 2001, in spite of being aware of Centerpoint contesting of
each of the Alleged Claims and its intention to seek arbitration, IMI advised
Centerpoint that it had paid (euro) 3,931,000 from the escrow account to
Aprilia in respect of the Alleged Claims. Pursuant to the Share Purchase
Agreement and Escrow Agreement, each of which provides that disputes among the
parties be arbitrated, the Company filed with the International Arbitration
Court of the International Chamber of Commerce a Request for Arbitration in
Accordance with Article 4 of the ICC Rules of Arbitration relating to the
Alleged Claims and the payment by IMI. Subsequent to the Company's filing, a
committee was formed in Milan, Italy to hear the case on 16 November 2001. The
company requested restitution of the (euro) 3,931,000 (approximately US$
3,692,000) paid to Aprilia, plus interest and costs.
In October 2003, following indications by the Arbitration committee of their
considerations regarding the claims, Centerpoint and Aprilia entered into
agreement to settle the matter with Aprilia paying (euro) 1,420,000 to
Centerpoint, of which (euro) 207,000 was designated to cover legal fees. Under
the terms of the Bion agreement, below, OAM has the right to 65% of the net
proceeds of this settlement
12
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Financial Statements March 31, 2002
NOTE 6 -SUBSEQUENT EVENTS AND LEGAL PROCEEDINGS (continued)
The residual balance of approximately (euro) 516 thousand remaining in the
escrow account relates to eventual claims regarding taxes and social security
contributions and such balance, if any after eventual successful claims by
Aprilia, will be released in September 2007. The Company is entitled to 65% of
amounts eventually released.
Bion transaction
On February 20, 2003 Bion filed a Form 8-K with the SEC stating among other
things, that (i) it had informed its employees that it does not have funds to
pay its employees beyond February 15, 2003, (ii) although Bion was seeking
outside sources of capital, it had not been able to secure financing necessary
for its current and future operations, (iii) there could be no assurance that
sufficient funds would be available from external sources, and (iv) it would be
forced to substantially curtail or cease its current business activities unless
it is able to immediately raise capital from outside sources.
In April 2003, Bion determined that the anti-dilution provisions in its
agreements with Centerpoint and OAM were preventing it from being able to raise
outside financing. In order to remedy this situation, and in anticipation of
receiving up to $1,925,000 in new financing, on April 23, 2003, Bion entered
into an agreement with Centerpoint providing that Centerpoint cancel all
antidilution and penalty provisions in existing agreements between Bion and
Centerpoint, and on May 23, 2003, OAM and Bion entered into an agreement
providing among other things: (i) that OAM waive the anti-dilution provisions
contained in its original agreement with Bion, (ii) for clarification of certain
reimbursements required to be made by Bion under the original agreement relating
to certain claims being handled by OAM on behalf of Centerpoint and OAM, (iii)
the payment by Bion to OAM of $80,000 (actual transaction currency) plus $10,000
(actual transaction currency) in legal expenses.
As noted in Bion's 10-Q for the quarter ended September 30, 2003, the $1,925,000
(actual transaction currency) financing was never completed and as of the date
of this report Bion does not have the capital necessary to continue operations.
In January 2004 Bion closed its New York office, and all remaining employees and
consultants are working from their homes. Bion needs additional funds to
continue its operations which it has severely limited. There can be no assurance
that Bion will be able to obtain such additional funds.
On January 14, 2004, Bion filed a Certification and Notice of Termination of
Registration with the SEC, and as a result is no longer a publicly held Company.
In January 2004 Centerpoint distributed all Bion shares owned by it pro-rata to
the holders of it's Common Stock. As a result, the Company received 44,240 Bion
shares, which are deemed to be of no value.
Release of LITA S.p.A. Guarantee
On March 31, 2004 the purchasers of LITA S.p.A. agreed to release the Company
from any other further obligations under its escrow pertaining to potential tax
liabilities, which had been due to expire on December 31, 2004. In connection
with this release, the Company paid (euro) 30,000 in 2004 and will record a gain
of (euro)486,000 in the first quarter of 2004.
13
CDS Srl
In 1999 CDS S.r.l. ("CDS") caused a leasing company to purchase from OAM real
estate in via Baronia, Rome and entered into a leasing arrangement with the
leasing company. Subsequently, on October 9, 1999, CDS brought a claim against
OAM in the Rome Civil Court alleging that the commercial designation of the
property in 1998 was not properly disclosed and consequently its lease payments
were excessive and sought reimbursement of the lease payments that it considered
excessive from OAM in an aggregate amount of approximately (euro)800 thousand.
The proceedings have continued intermittently over the years. On March 25, 2004,
the Court requested that the parties present their conclusions in order for it
to render a final verdict, presumably within 80 days. It is management's opinion
that the risk of a negative judgement is low and the potential liability remote.
Comtech Deal
Following a non-binding letter of intend dated December 30, 2003 between the
Company and Comtech Group, Inc., a Cayman Islands corporation, in May 2004, the
Company and Comtech entered into an agreement in principle pursuant to which
Comtech may transfer all of its equity to the Company and the Company, in turn
may issue to Comtech's shareholder 42,000,000 shares of the Company's stock.
Following the transaction, Comtech's shareholders may control approximately
91.2% of the Company's common stock (87.5% including options and warrants
outstanding). Comtech is in the business of distributing electronic component,
providing value added design services and developing manufacturing electronic
components for the telecommunications and electronic market and has a majority
of its operating subsidiaries located in China.
14
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Portions of the discussion and analysis below contain certain "forward looking"
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward looking
statements. Factors that might cause such a difference include, but are not
limited to, lack of adequate capital to continue operations, changes in currency
exchange rates, other factors discussed in the report as well as factors
discussed in other filings made with the Securities and Exchange Commission.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
prove inaccurate, and therefore, there can be no assurance that the forward
looking statements included herein will prove to be accurate.
Three months ended March 31, 2002 compared to three months ended March 31, 2001
- --------------------------------------------------------------------------------
Selling, general and administrative expenses of (euro) 372 thousand were 20.4%
lower than the same period of last year.
Other costs include rent and office expenses for the Company's offices in Milan,
Italy, tax, accounting and compliance costs in the U.S. and Italy, professional
fees in connection with the disposal of operations in Italy, public company
costs in the U.S. and certain statutory costs in Italy.
Other income of (euro) 1,044 thousand includes the gain on the sale of
Centerpoint of (euro)1,489 thousand and the cost of the write off of 140,000
Centerpoint shares.
Interest expense in the 3 months to 31 March 2002 was (euro)10 thousand compared
to (euro)221 thousand in 2001.
Interest income in 2002 amounted to (euro) 2 thousand whereas this was (euro)209
thousand in 2001.
As a result of the above items, in the quarter ended March 31, 2002 a gain from
continuing operations before taxes and minority interests of (euro)664 thousand
was recorded.
The Company recorded a net profit of (euro) 558 thousand in the three months to
March 31, 2002 compared to a net loss of (euro) 442 thousand in the
corresponding period of 2001.
Liquidity and Capital Resources
Significant cash activities in the three months ended March 31, 2002
The disposals of Moto Guzzi and LITA generated sufficient cash for the Company
to maintain operations which, following the disposal, related only to corporate
costs in winding down the companies activities and legal fees related to various
litigation described in Note 6.
Negative cashflows from investing activities principally arise from the Bion
transaction, as described in Note 4, net of the sale of Centerpoint.
In January 2002, OAM entered into agreements with Bion as described in Note 4.
The substantial effect of the transactions with Bion was that the Company
disposed of its controlling interest in Centerpoint.
15
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES (continued)
The Company received substantially the same value of proceeds it could have
received had it liquidated Centerpoint. Pursuant to these transactions, OAM
received the Company's US$ 4.2 million (actual transaction currency) Promissory
Note and approximately US$ 3.7 million (actual transaction currency) of the
approximately US$ 8.7 million (actual transaction currency) cash held by
Centerpoint at the date of the transaction with Bion.
Future liquidity needs
As of March 31, 2004, the Company has approximately (euro) 4.1 million (US$ 5.1
million at exchange rates prevailing in February 2004) in cash and marketable
securities. Management believes such amounts to be sufficient to fund the
Company's activities which principally reflect litigation which the Company has
commenced against IMI (see Note 5) and to fund corporate costs related to the
winding down of the Company's corporate structure in Italy, which is redundant
following the disposal of its Italian operations. In addition, the Company
continues to incur ongoing corporate overhead costs that include executive
salaries for Mark Hauser and Emanuel Arbib, D & O Insurance, and professional
fees to lawyers, accountants and bankers, principally in connection with the
Company's public filings.
Following a non-binding letter of intend dated December 30, 2003 between the
Company and Comtech Group, Inc., a Cayman Islands corporation, in May 2004, the
Company and Comtech entered into an agreement in principle pursuant to which,
Comtech may transfer all of its equity to the Company and the Company, in turn,
may issue to Comtech's shareholders 42,000,000 shares of the Company's stock.
Following the transaction, Comtech's shareholders may control approximately
91.2% of the Company's common stock (87.5% including options and warrants
outstanding). Comtech is in the business of distributing electronic components,
providing value added design services and developing and manufacturing
electronic components for the telecommunications and electronic market and has a
majority of its operating subsidiaries located in China.
16
Item 3 Quantitative and Qualitative Disclosures about Market Risk
The fair value of cash and cash equivalents approximates its carrying value.
Since, at March 31, 2004, 86% of the Company's cash is held in U.S. Dollars and
the functional currency is Euro, the Company is subject to exchange rate
fluctuations.
Fluctuations in the exchange rates between the Lira and the U.S. dollar affect
the U.S. dollar equivalents of the Company's reported revenues and earnings. The
Company, which no longer has any operations, believes that its exposure to
foreign currency exchange rate risk is not material and does not currently
engage in hedging activities to reduce its exposure to exchange rate
fluctuations.
The Company does not have any derivative financial instruments and believes its
exposure to interest rate risk and other relevant market risks is not material.
Item 4 Controls and Procedures
The Company maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of its published financial
statements and other disclosures included in this report. Based on its
evaluation, as of the end of the period covered by this Quarterly Report on Form
10-Q, its Co-Chief Executive Officers have concluded that its disclosure
controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended) are effective. There have been no
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company and its subsidiaries are involved in the following litigation:
Rawlings Litigation - settled in 2002
An action entitled "Rawlings Sporting Goods Co., Inc. v. Trident Rowan
Group, Inc. et al.," was filed in the United States District Court for the
Northern District of New York by Rawlings Sporting Goods Co ("Rawlings"), the
owner of property located in Salisbury, New York, in August 1998. The action
seeks to hold the Company liable for costs that Rawlings allegedly incurred
in response to the release or threatened release of allegedly hazardous
substances on land allegedly owned by the Company between 1948 and 1970, and
used by a third party. The compliant was amended in December 2000 to further
allege that the Company still owns a portion of the allegedly contaminated
land.
The Company settled the matter with Rawlings on February 11, 2002. The
Company, in May 2002, transferred to Rawlings 160,000 Centerpoint Class A Common
Stock pursuant to a term of a settlement agreement with the Company and Rawlings
voluntarily dismissing the action and released each other from all claims
relating to the action.
Wilson and Travelers Litigation - settled in 2003
The Company is the subject of an action in the Court of Common Pleas, a
Pennsylvania State Court situated in Philadelphia, entitled "John Wilson et al.
v. Trident Rowan Group, Inc. et al" (the "Wilson Litigation"). The Wilson
Litigation was an action eventually consolidated with a related, companion
action against other parties. The plaintiff (John Wilson) was seeking damages
for serious burn injuries he allegedly sustained in 1996 from working with a
starter unit claimed to have been manufactured in the 1950's by a company once
owned by a predecessor of the Company. The case was settled in 2000 with the
Company and Gould Electronics, Inc. ("Gould"), a co-defendant, each paying 50%
of the US$ 2,050,000 (actual transaction currency) settlement amount, subject to
resolution of certain issues between them.
In March 1999, the Company separately brought suit against Travelers, the
Company's insurer, who disclaimed coverage and defense of the suit, to compel it
to resume coverage of the underlying claim and to assume the costs of defense of
the Wilson Litigation. In May 2001, the United States District Court granted
summary judgment in favor of the Company, holding that Travelers must indemnify
the Company for liability incurred and attorney's fees paid in connection with
the Wilson Litigation, plus interest.
Pursuant to the May 2001 judgment, on June 11, 2001, the Company submitted
to the Court a proposed form of judgment requiring Travelers to (i) pay the
Company US$ 2,050,000 (actual transaction currency) plus interest, attributable
to the sums the Company has and will have to spend in settlement of the Wilson
Litigation, (ii) US$ 764,045 (actual transaction currency) plus interest,
representing costs and attorneys fees incurred in defending the Wilson
Litigation, and (iii) US$ 78,975 (actual transaction currency) plus interest,
representing costs and attorneys fees incurred by the Company in prosecuting its
claims against Travelers.
On June 11, 2001, Travelers filed with the Court a motion for
Reconsideration of Order or in the Alternative For Resolution of Certain
Undecided Issues, seeking reconsideration of the
17
judgment, or in the alternative asking the Court to confirm that Travelers
liability is limited to US$ 1,000,000 (actual transaction currency) and that
Travelers is entitled to charge the Company a reasonable premium for the
liability coverage
In January 2002, the judge in the Company's litigation against Travelers
determined that Travelers was liable to the Company for US$ 1,000,000 (actual
transaction currency), plus the Company's legal fees in connection with the
Wilson Litigation, less a reasonable premium. Travelers subsequently challenged
the reasonableness of the legal fees. In July 2002, the judge ruled that the
fees were reasonable provided certain duplications are eliminated. In September
2002, the Court rendered a judgment in favor of the Company in the amount of US$
1,822,979 (actual transaction currency). Travelers appealed the judgment and the
parties entered into a settlement agreement pursuant to which Travelers paid
US$1,450,000 (actual transaction currency) to the Company in December 2003.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI;
Request for Arbitration; Settlement
Aprilia asserted in 2000 various claims against Centerpoint relating to
Centerpoint's representations and warranties under the Share Purchase Agreement
(the "Alleged Claims") for the sale of the Moto Guzzi operations. In 2001, IMI,
the escrow agent under the Escrow Agreement, paid (euro) 3,931 thousand from the
escrow account (see Note 2) to Aprilia in respect of the Alleged
Claims. Centerpoint disputed the Alleged Claims and requested an arbitration.
Centerpoint and Aprilia, in October 2003, entered into agreement to settle the
matter with Aprilia paying (euro) 1,420,000 including (euro) 207,000 of legal
fees. The right to 35% of the net proceeds of this settlement is owned by
Centerpoint (which is no longer a related party of the Company at the time of
the settlement).
Pending
IMI Fees
In connection with the sale of Moto Guzzi to Aprilia, IMI was paid (euro)
5,888 thousand in fees and expenses it claimed under its engagement letter with
the Company. The Company disputed the calculation of IMI's fees and on February
7, 2002 brought a suit in the Milan Court in Italy seeking reimbursement of
(euro) 4,527,000 (approximately US$ 5.7 million at 2003 year-end exchange
rates). The judge handling the lawsuit has heard the case several times in 2002
and 2003. As of March 31, 2004, the lawsuit is still pending. However, the
Company is in discussions with IMI for an eventual out-of-court settlement.
CDS Srl
In 1999 CDS S.r.l. ("CDS") caused a leasing company to purchase from OAM
real estate in via Baronia, Rome and entered into a leasing arrangement with the
leasing company. Subsequently, on October 9, 1999, CDS brought a claim against
OAM in the Rome Civil Court alleging that the commercial designation of the
property in 1998 was not properly disclosed and consequently its lease payments
were excessive and sought reimbursement of the lease payments that it considered
excessive from OAM in an aggregate amount of approximately (euro)800,000.
The proceedings have continued intermittently over the years. On March 25,
2004, the Court requested that the parties present their conclusions in order
for it to render a final verdict, presumably within 80 days. It is management's
opinion that the risk of a negative judgment is low and the potential liability
remote.
18
The proceedings have continued intermittently over the years. On March 25,
2004, the Court requested that the parties present their conclusions in order
for it to render a final verdict, presumably within 80 days. It is management's
opinion that the risk of a negative judgment is low and the potential liability
remote.
Item 2 Changes in Securities and Use of Proceeds
None.
Item 3 Defaults upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Securities Holders
None.
Item 5 Other Information
None.
Item 6 Exhibit and Reports on Form 8-K
A. Exhibits required by Item 601 of Regulation S-K:
31.1. Certification of the Joint Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Joint Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Joint Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of the Joint Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
B. Reports on Form 8-k
None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIDENT ROWAN GROUP, INC.
Dated: May 25, 2004 By: /s/ Mark S. Hauser
----------------------------
Mark S. Hauser
President/Joint Chief Executive Officer
Dated: May 25, 2004 By: /s/ Emanuel M Arbib
---------------------------
Emanuel M. Arbib,
Joint Chief Executive Officer
20
Appendix A to Item 601(c) of Regulation S-K
(Article 5 of Regulation S-X)
Commercial and Industrial Companies
This schedule contains summary financial information extracted from the
unaudited financial statements dated, March 31, 2002 and is qualified in its
entirety by reference to such financial statements.
Item No. Item Description Amount*
US$
5-01(1) Cash and cash items 3,638,000
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 0
5-02(3)(a)(4) Notes and accounts receivable - 0
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 0
5-02(9) Total current assets 3,638,000
5-02(13) Property, plant and equipment 25,000
5-02(14) Accumulated depreciation (10,000)
5-02(18) Total assets 3,789,000
5-02(21) Total current liabilities 618,000
5-02(22) Bonds, mortgages and similar debt 0
5-02(28) Preferred stock - mandatory redemption 0
5-02(29) Preferred stock - non-mandatory redemption 0
5-02(31) Common stock 48,000
5-02(32) Other stockholders equity 2,673,000
5-03(b)(1)(a) Net sales of tangible products 0
5-03(b)(1) Total revenues 0
5-03(b)(2)(a) Cost of tangible goods sold 0
5-03(b)(2) Total costs and expenses applicable to sales and revenue 324,000
5-03(b)(3) Other income/(expense) 911,000
5-03(b)(5) Provision for doubtful accounts and notes 0
5-03(b)(8) Interest and amortization of debt discount 0
5-03(b)(10) Income before taxes and other items 579,000
5-03(b)(11) Income tax expense 87,000
5-03(b)(14) Income/loss continuing operations 486,000
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect - changes in accounting principles 0
5-03(b)(19) Net income or loss 486,000
5-03(b)(20) Earnings per share - primary 0.11
5-03(b)(20) Earnings per share - fully diluted 0.11
* Dollar amounts are based on conversion rate of U.S.$0.8718 = (euro)1
which prevailed on March 31, 2002.
21