10KSB/A 1 doc1.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A ________________________________________________________________________________ [ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BERENS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Commission file number: 000-22711 Nevada 87-05065948 ------ ----------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 701 N. Post Oak Road, Houston, Texas 77024 ------------------------------------------ ---------- (Address of Principal Executive Office) (Zip Code) 713-682-7400 ------------ (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_] Issuer's revenues for the 12 months ended December 31, 2000 were $102,167. The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the average bid and ask price on the OTC Electronic Bulletin Board on March 23, 2001 was $178,391. As of March 23, 2001, registrant had 24,611,855 shares of Common Stock outstanding. The registrant is incorporating by reference into Part III of this Form 10-KSB, certain information contained in the registrant's proxy statement for its fiscal 2000 annual meeting of stockholders. PART I This annual report contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward- looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any of the forward- looking statements after the date of this report to conform our prior statements to actual results. ITEM 1. DESCRIPTION OF BUSINESS BUSINESS CONCEPT Berens Industries, Inc., through its wholly owned subsidiaries, Artmovement.com, Inc., and BEII.Net, are developing streaming application servers that are deployable as rent-based solutions hosted by an Application Service Provider or ASP. Our product lines provide bundled packages of managed servers, global connectivity, scaleable bandwidth, applications, and transactional systems. These streaming application servers provide "tenant" licensing for businesses and "landlord" licensing for Web developers and ASP hosts. Our ongoing development is being conducted to deliver streaming application servers that bind relational databases and transactional systems with interactive streaming media. Our primary sources of revenue will consist of Business-to-Consumer and Business-to Business ("B2C" and "B2B") products and services that generate product-related subscriptions fees, service fees, transaction-related fees and advertising. We are a development stage company, and are in need of additional capital to fund our development and growth. Although we are actively seeking sources of financing, we do not presently have any commitments for additional financing, and may be unable to generate additional financing. Our ability to implement our business strategy as discussed in this report is dependent on our ability to raise additional capital, and the failure to raise such capital will curtail or stop our development and growth. OUR PRODUCTS STREAMING EXCHANGES(TM) - Version 1.0 has been completed. Streaming Exchanges is an ASP-based community network, instant eCommerce, total turnkey solution including escrow management for auctions and fixed price B2B exchanges and networks. A company affiliated with one of our directors, Auctionzplus.com, Inc., provides escrow management. Streaming Exchanges is being designed in two operating platforms, Lotus Domino Instant Host and IBM Websphere. Streaming Exchanges will also provide fixed price eCommerce shopping carts and multiple inventory lots. The software can be applied to a number of different industries. We are currently seeking consulting opportunities to showcase Streaming Exchanges. Vertical Market Penetration - Art & Antiques Industry. ------------------------------------------------------------- The first market we have chosen for deployment of Streaming Exchanges is the Fine Art & Antiques industry. Our primary approach to market penetration is two-fold: (1) attract business clients who have a long-standing reputation with art and antique patrons, and (2) develop a portal or joint venture with an existing recognized art and antiques market leader to become a conduit for Webcast events and Internet art performances that will attract more patrons. We believe these two strategies in the Art and Antique market, makes Artmovement one of the first Internet companies to network buyers and sellers through branded B2B solutions. Our goal is to become one of the leading providers of outsourced, networked e-commerce services. Key elements of our strategy include: - expanding the reach and scope of the Streaming Exchanges; - increasing traffic and transactions across our exchanges; - continuing to provide new service offerings; - expanding into international markets; and - leveraging our expertise to further penetrate other B2B markets. FUTURE PRODUCTS STREAMING REALTOR(TM) will be a Streaming Exchanges ASP-based community network, instant eCommerce, total turnkey solution including escrow management for B2B in fixed price or auction environments. Streaming Realtor is being designed for the real estate industry, and when completed will provide individual realtors and small real estate firms the ability to showcase their own inventory or network inventory from their own website. The advantage of Streaming Realtor is that realtors will not need to share their commissions with real estate companies or national associations, as they will now be able to do it themselves. In Development. ---------------- STREAMING FORUMS(TM) will be an ASP-based, community discussion group and chat-room product to be launched directly from the desktop. We believe that upon completion Streaming Forums will be one of the first fully integrated and community-networked forums with security access for invited participants. For example, if a music company wanted to inform only its forum members about an upcoming new music video release or product, it could send out a community-wide announcement to everyone allowed only into a specific discussion group at the same time. Everyone not in the specific discussion group would continue without interruption. STREAMING CALENDARS(TM) will be an ASP-based, community-streaming calendar, which can be instantly, downloaded onto desktops, laptops, and eventually WAP handheld devices. Streaming Calendars is based on the same idea as Streaming Forums, only now the messages show up in streaming versions on people's desktops. CONNECTIVITY SERVICES BEII.net has subleased its ISP backbone and Point-of-Presence (POP) to Crescent Services Corporation d/b/a Crescent Broadband, which together resells bandwidth for major connectivity providers. Crescent Broadband is owned by an affiliate of Berens Industries. In addition, Crescent provides complete turnkey web hosting, web design, consulting and custom design services, hardware sales, co-location services, and high-speed direct access from its corporate headquarters. Services include DSL, T-1, ISDN, and dial-up. Using ready-made solutions, we will allow clients to instantly stream custom-branded Internet solutions to their own websites with zero investment in installation, hardware, or bandwidth concerns. By aggregating all clients and registered patrons onto a centralized infrastructure, we intend to create a global affiliate network of consumers and viewership for both merchandising and entertainment events. CORPORATE HISTORY We were incorporated in January 1985 as a Nevada corporation under the name National Air Corporation. From 1985 until 1992, we engaged in the business of leasing and chartering aircraft to provide air transportation services. These operations were unsuccessful, and we ceased all activities in 1992. In June 1999, we acquired all of the issued and outstanding shares of capital stock of Berensgallery.com, Inc., a Nevada corporation in exchange for 2,893,250 shares of common stock to the shareholders of Berensgallery.com. Subsequent to this transaction, we changed our name to Berens Industries, Inc. In December 1999, we acquired all of the issued and outstanding shares of capital stock of Artmovement.com, Inc., a Nevada corporation in exchange for 12,960,000 shares of common stock to the shareholders of Artmovement.com. Berensgallery.com does not conduct any significant business operations. EMPLOYEES As of March 23, 2001, we employed five full-time employees and two part-time employees. No employees are covered by a collective bargaining agreement. We consider relations with are employees to be satisfactory. INTELLECTUAL PROPERTY We rely heavily on various types of intellectual property for our success and competitive positioning. We use trademarks, copyrights, trade secrets and the laws pertaining to them as well as contractual provisions to protect our intellectual property. Currently, our most important proprietary rights are those embodied in our exchange service offerings. We also license software from Microsoft for use in our development and production systems. Because our technology is located on our operating systems and we do not license our software to any customer or other third party, we believe that the risk of unauthorized use of our technology is small. However, no combination of intellectual property protections can guarantee the continued security and availability of our intellectual property. Creation and implementation of our technology, business model, marketing research and plans, lead generation activities, customer lists, strategic plans, and similar proprietary assets are all protected at their inception and throughout their economic lifetimes by confidentiality and proprietary rights agreements which each of our employees is required to execute upon entering into employment with us. We also rely on confidentiality agreements entered into with contractors and vendors. In addition, we intend to file trademark applications on the service marks Streaming Auctions, Streaming Exchanges, Streaming Realtor, Streaming Forums, Streaming Calendars and Artmovement.com. We will rely on our marks to protect our domain and brand names. While we continue to evaluate the importance of patents to our business, we do not believe that our ability to obtain patents is material to the success of our business and results of operations. COMPETITION Competition in our industry is intense, and it should be expected that in the future additional competitors would form to compete in our target markets. Most of these competitors will have greater financial and other resources than we have, and there is no assurance that we will be able to successfully compete in our markets. We are a small development stage company with limited financial resources. RISK FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. BECAUSE WE HAVE A LIMITED OPERATING HISTORY, OUR FUTURE SUCCESS IS UNCERTAIN. We have a limited operating history for you to analyze or to aid you in making an informed judgment concerning the merits of an investment in our securities. Although we have begun to implement our business strategy, we have to date conducted limited revenue generating operations. Therefore, we can provide no assurance that we will be able to generate significant revenue from our proposed operations in the future. In addition, our business strategy requires significant capital, which we do not currently have. Although we are actively seeking additional funding, we have no commitments for such funding at this time, and there is no assurance that we will be able to raise additional funding in the future. WE EXPECT TO CONTINUE TO HAVE LOSSES AND WE MAY NEVER BECOME PROFITABLE. We cannot assure you that we will ever achieve profitability or, if we ever achieve profitability, that it will be sustainable. Since inception, we have experienced an accumulated net loss of $9,892,055. We anticipate increased expenses as we continue to: - expand and improve our infrastructure; - expand our sales and marketing efforts; and - pursue additional industry relationships. As an early-stage company, we do not have the operating experience to estimate what the extent of these expenditures will be at this time, but they will increase as we expand. WE DEPEND ON KEY PERSONNEL IN AN INDUSTRY THAT HAS A SHORTAGE OF QUALIFIED PERSONNEL. Our success is substantially dependent on the continued service and performance of our senior management and key personnel. The loss of the services of any of our key management could have a negative effect on our business. If we do lose any of these people, we will be required to hire new employees, which is time consuming and may not be possible due to the shortage of qualified personnel in our industry. Our future success also depends on our ability to attract, hire, and retain other highly skilled personnel. Competition for personnel in our industry is intense, and we may not be able to successfully attract, assimilate, or retain qualified personnel. OUR HARDWARE MAY BE DAMAGED, EITHER PHYSICALLY OR THROUGH COMPUTER VIRUSES. Our success largely depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our hardware, located in a leased facility in Houston, Texas, is vulnerable to: - computer viruses; - electronic break-ins; and - physical vulnerability to damage or interruption from fire, long-term power loss, and telecommunications failures. These events could lead to delays, loss of data, or interruptions in service, which could subject us to liability and harm our reputation. IF THE MARKET FOR DYNAMIC COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS MAY SUFFER. Our success is highly dependent upon the widespread acceptance and use of the Internet for dynamic commerce. In particular, the continued adoption by buyers and sellers of online auctions and other dynamic pricing models on the Internet is critical to our continued growth. Use of the Internet for auctions and other forms of dynamic commerce is still at an early stage of development. We cannot be certain that acceptance of online auctions and other forms of dynamic commerce will continue to develop. Any material reduction in the growth of acceptance and use of dynamic commerce could have a material adverse effect on our business. The continued growth of online dynamic commerce is dependent upon a number of factors, including the following: - continued growth in the number of buyers and sellers who use electronic commerce services; - continued market demand for dynamic pricing by buyers and sellers; and - continued growth in the number of businesses who desire online auction capabilities. OUR BUSINESS MAY BE HARMED BY THE LISTING OR SALE BY OUR USERS OF PIRATED ITEMS. We may receive communications alleging that certain items listed or sold through our service by our users infringe third-party copyrights, trademarks and trade names or other intellectual property rights. An allegation of infringement of third-party intellectual property rights may result in litigation against us. Any such litigation could be costly for us, could result in increased costs of doing business through adverse judgment or settlement, could require us to change our business practices in expensive ways, or could otherwise harm our business. OUR MARKET IS INTENSELY COMPETITIVE. The market for person-to-person trading over the Internet is new, rapidly evolving and intensely competitive, and we expect competition to intensify in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost using commercially available software. We currently or potentially compete with a number of other companies. We potentially face competition from a number of large online communities and services that have expertise in developing online commerce and in facilitating online person-to-person interaction. The principal competitive factors in our market include the following: - volume of transactions and selection of goods; - community cohesion and interaction; - system reliability; - customer service; - reliability of delivery and payment by users; - brand recognition; - website convenience and accessibility; and - level of service fees. Current and potential competitors have longer company operating histories, larger customer bases and greater brand recognition in other business and Internet markets than we do. Some of these competitors also have significantly greater financial, marketing, technical and other resources. Other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, well established and well financed companies. As a result, some of our competitors with other revenue sources may be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to website and systems development than we are able to. Increased competition may result in reduced operating margins, loss of market share and diminished value of our brand. We may be unable to compete successfully against current and future competitors. OUR BUSINESS IS SUBJECT TO ONLINE COMMERCE SECURITY RISKS. A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. Our security measures may not prevent security breaches. Our failure to prevent security breaches could harm our business. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication technology to effect secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography, or other developments may result in a compromise or breach of the technology used by us to protect customer transaction data. Any such compromise of our security could harm our reputation and, therefore, our business. In addition, a party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE. The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequent new service and product introductions and enhancements and changing customer demands. These market characteristics are worsened by the emerging nature of the Internet and the apparent need of companies from a multitude of industries to offer Web-based products and services. Our future success therefore will depend on our ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to continually improve the performance, features and reliability of our service. Our failure to adapt to such changes would harm our business. OUR STOCK PRICE IS VOLATILE. The market for our securities is highly volatile. The closing price of our common stock has fluctuated widely. The stock markets have in general, and technology companies in particular, experienced extreme stock price volatility. It is likely that the price of our common stock will continue to fluctuate widely in the future. ITEM 2. DESCRIPTION OF PROPERTY Our headquarters are located in Houston, Texas at a leased facility that is approximately 6,032 square feet. We do not directly pay for the lease of this facility, but rather it is sub-leased to an affiliated party. The lease calls for payments of $6,786 per month for the leased space. At the present time, we consider this space to be adequate to meet our needs. ITEM 3. LEGAL PROCEEDINGS In December 2000, we filed suit in the 269th Judicial District Court of Harris County against Boom Vang, Inc. alleging in part breach of contract and negligence in connection with Boom Vang's development of certain technology for Berens Industries. This matter is currently in the discovery phase. In December 2000, we filed suit against Digital Media Resources, Ltd. and Interactive Collector, Ltd; cause No. H-00-4161; in the United States District Court for the Southern District of Texas, Houston Division. We are suing Digital Media Resources, Inc. ("DMR") and Interactive Collector, Inc. ("IC") in connection with an agreement we had with DMR to use the "Mayer Book," a unique resource for information on art sold at auction worldwide, on our website. After executing the agreement, however, DMR sold the rights to use the Mayer Book to IC, thus denying us access to the resource and seriously damaging our business. We have sued DMR for breach of contract and fraud, and IC for tortious interference with contract. The case is in its early stages and IC has filed a motion to dismiss for lack of personal jurisdiction. The court has not yet set a trial date. Based on the information we have at this time, we cannot express any opinion on the probable outcome of this litigation, or on the potential recovery. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Our common stock trades under the symbol "BEII" on the OTC Electronic Bulletin Board. The market for our common stock on the OTC Electronic Bulletin Board is limited, sporadic, and highly volatile. The following table sets forth the high and low bid prices per share of our common stock since August 27, 1999, the date a market for the common stock developed, as reported by the OTC Electronic Bulletin Board. Prior to this date, no public market for our common stock existed. These prices reflect inter-dealer prices, without retail mark-ups, mark-downs, or commissions, and may not necessarily represent actual transactions. HIGH LOW FISCAL 2000 ----------- First Quarter $4.00 $0.69 Second Quarter $3.34 $0.88 Third Quarter $1.00 $0.34 Fourth Quarter $0.53 $0.05 FISCAL 1999 ----------- Third Quarter $2.88 $1.50 Fourth Quarter $2.63 $0.90 On March 23, 2001, the last bid price of our common stock as reported by the OTC Electronic Bulletin Board was $0.03. We believe that as of March 23, 2001, there were approximately 354 record owners of our common stock. It is our present policy not to pay cash dividends and to retain future earnings to support our growth. Any payment of cash dividends in the future will be dependent upon the amount of funds legally available, our earnings, financial condition, capital requirements, and other factors that we may deem relevant. We have not paid any dividends during the last two fiscal years and we do not anticipate paying any cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES In December 2000, we issued a party related to our president 1,500,000 shares of common stock for consulting services, 500,000 shares of common stock for an aggregate purchase price of $25,000, and warrant to purchase 7,000,000 shares of common stock at an exercise price of $0.05 per share. We believe these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act, since the transactions were to an accredited investor. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS For a complete understanding, this "Management's Discussion and Analysis" should be read in conjunction with "Item 1. Description of Business" and "Item 7 - Financial Statements" of this Form 10-KSB. GENERAL We are a Nevada corporation that has been involved in the development of an online auction site for exclusive paintings and other art works. We are a development stage enterprise because we have not generated significant revenue from our business operations and because substantially all of our efforts are focused on website development activities and to the search for sources of capital to fund our efforts. In 2000, we began generating revenue from website hosting activities. On June 15, 1999, we were acquired by National Air Corporation in a recapitalization transaction accounted for similar to a reverse acquisition without recognition of goodwill. National Air Corporation was the "acquired" company in the transaction, but remains the surviving legal entity. Prior to the acquisition, National Air Corporation was a non-operating public shell corporation with no significant assets. Accordingly, the transaction was treated as an issuance of stock by us for National Air Corporation's net monetary assets, accompanied by a recapitalization. In connection with this transaction, we issued 3,755,745 shares of common stock in exchange for all outstanding shares of National Air Corporation. Since this transaction was, in substance, a recapitalization, and not a business combination, proforma information was not presented and a valuation of our company was not performed. During the year ended December 31, 2000, we generated $102,167 in revenue primarily from website hosting operations. The market for our Artmovement.com website has not developed to the extent that we had hoped and cash flow requirements have made it necessary for us to look for other sources of revenue. During 2000, substantially all revenue was generated from website hosting; however, we do not feel that this activity will sustain our business because low revenues and related liquidity problems have caused us to curtail our website hosting operations. We have developed what we believe to be useful Internet technologies that we hope to commercialize or sell to assist with our current liquidity problems, but the success or commercial viability of those technologies is not assured. We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in the new and rapidly evolving markets of online commerce. We have and will continue to encounter various risks in implementing and executing our business strategy. We can provide no assurance that we will be successful in addressing such risks, and the failure to do so could have a serious adverse effect on our business. RESULTS OF OPERATIONS During the year ended December 31, 2000, we generated service revenue of $102,167 from website hosting activities. Following is a description of the results of our operations. Year Ended December 31, 2000 Compared to the Period From Inception, February 26, -------------------------------------------------------------------------------- 1999, to December 31, 1999 ------------------------------ During the year ended December 31, 2000, we began generating revenues from website hosting activities and those revenues account for the entire increase in service revenue from $2,543 in 1999 to $102,167 in 2000. Our service revenues were offset by significant costs of services that include primarily the costs of staff and consultants hired to support both website operations and website hosting activities. We were unable to achieve the critical levels of service revenue that would have allowed us to cover fixed service costs and begin to offset the variable costs of providing website hosting services. Liquidity issues have now caused us to cut back our staff levels and focus on areas that we believe will provide profits with lower staff levels. Selling, general and administrative expenses increased by $300,522 in the year ended December 31, 2000 as compared to the period ended December 31, 1999. This increase was due to increases in employees and related salaries of approximately $110,000, travel costs, accounting fees, reporting costs, telephone and utilities costs and a significant overall increase in corporate activity. Management has now taken steps to make major reductions in selling, general and administrative expense, including staff reductions and reductions in all areas of corporate activity. We had previously attempted to curtail use of our common stock to settle corporate obligations and expenses. However, liquidity problems have caused us to resume use of our common stock to settle obligations because conserving cash is an important part of our current plans. During the year ended December 31, 2000 we used common stock valued at $794,015 for compensation and settlement of accounts payable as compared to $863,354 in the period ended December 31, 1999. We incurred website development costs of $5,263,157 during the period ended December 31, 1999, all as a result of our acquisition of Artmovement.com. We did not incur similar costs during the year ended December 31, 2000, nor do we expect to incur similar costs in the future. During the year ended December 31, 2000, we issued 2,000,000 shares of our common stock to obtain loan guarantees from stockholders and related parties for our $250,000 line of credit with a bank. Those shares had a value of $1,750,000 and are presented as loan guarantee fees. Interest expense of $21,195 during the year ended December 31, 2000 is a result of such $250,000 line of credit. As a result of the factors discussed above, we incurred a net loss of $3,470,067 during the year ended December 31, 2000 as compared to a net loss of $6,421,988 for the period ended December 31, 1999. PLAN OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000 we had an accumulated deficit of $9,892,055 incurred entirely in 1999 and 2000 and funded by paid-in capital, debt, and use of our common stock in acquisitions and as a means of compensation. At December 31, 2000, we had cash and cash equivalents of only $23,968 and we are behind on certain vendor payments and payroll taxes. We do not expect to have the resources to make any major capital expenditures in the foreseeable future, but we do expect that operating losses will continue until such time as website operations or website hosting services generate better operating results. In the current climate for Internet related businesses we can make no prediction when, or if, better results will occur. We have financed our operations mainly through the sale of our common stock and we have been entirely dependent on outside sources of financing for continuation of our operations. During the year ended December 31, 2000, we raised approximately $768,594 in cash from a private placement of our common stock and collection on a subscription receivable. Our acquisition of Artmovement.com for $8,263,157 in common stock on December 31, 1999 was designed to give us a platform for better market penetration and access to additional capital. The potential we saw for Artmovement.com has not materialized and severe liquidity problems have resulted. As part of our acquisition of Artmovement, we obtained a $3,000,000 subscription receivable, of which $100,000 was received in 1999 and $200,000 in the first half of 2000. The remaining portion of the receivable was due June 30, 2000; however, the debtor terminated the obligation on September 1, 2000 without recourse under terms originally provided in the agreement. Failure to fund the remaining $2,700,000 resulted in the surrender of 7,000,000 shares of our common stock. As a result of the inability to obtain funding based on the subscription receivable, we have had to consider other means of raising capital and have curtailed our website hosting and other business operations. We currently do not generate significant revenues from the website hosting services that we provide and do not expect to generate significant revenues for the foreseeable future. We have no existing major commitments for capital and are considering a variety of alternatives, including merging with another company that compliments our current business activities, or raising additional capital to commercialize certain related services and technologies that we feel may generate reliable cash flows. Stockholders should assume that any additional funding that we obtain would cause substantial dilution to current stockholders. In addition, we may be unable to raise needed working capital on favorable terms, if at all. Our failure to successfully address our funding needs in the immediate future may cause us to sell assets or cease operations. Our capital requirements will depend on numerous factors, including, the cost of continued development of our Internet technologies, the success of our website, the cost of marketing efforts and the economic impact of competing websites and technologies. Our ability to achieve profitability will depend on our ability to overcome our current critical liquidity problems and our ability to successfully commercialize our Internet business or the Internet technologies we are developing. We can make no assurance that we will be able to successfully overcome our liquidity problems or ultimately achieve profitability. The report from our independent accountants, included in this Annual Report on Form 10-KSB, includes an explanatory paragraph that describes substantial doubt concerning our ability to continue as a going concern, without continuing additional contributions to capital. We may incur losses for the foreseeable future due to the significant costs associated with website development and marketing activities which will be necessary for successful commercialization of Artmovement.com. See "Financial Statements - Report of Independent Accountants" included elsewhere in this annual report on Form 10-KSB. ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS Our financial statements, commencing on page F-1, have been audited by Ham, Langston & Brezina, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This information was "previously reported," as defined in Rule 12b-2 of the Securities Exchange Act of 1934, in our Form 8-K dated June 30, 1999. PART III Items 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Our directors and executive officers are: Name Age Position ---- --- -------- Marc I. Berens 43 Director and Chief Executive Officer Jeffrey Hansen 48 Director Kurt Lovelace 41 Chief Technical Officer Marc I. Berens has served as our chief executive officer and has served as a director since we commenced our current operations in June 1999. In 1998, Mr. Berens co-founded Berensgallery.com, Inc., an online art gallery and auction website which was merged into Berens Industries in 1999. From 1997 to 1999, Mr. Berens was president of Crescent Partners, Ltd. and from 1991 to early 2000, M.I. Berens & Co., Inc., both debt financing firms. From 1991 until 1997, Mr. Berens served as chief executive officer of Mercosur Industries, Inc. Jeffrey Hansen has served as a director since July 2000. Mr. Hansen has owned and operated his own law practice for the past twenty years in Houston, Texas. Mr. Hansen has served as president of Simkova, LLC, general partner of Yolana Partnership, Ltd, since July 2000. Kurt Lovelace has served as our chief technology officer since August 2000. In addition, Mr. Lovelace is currently the chief executive officer of Mind Root Media, a privately held web design firm. From October 1999 to August 2000, Mr. Lovelace was the senior internet analyst at CNBC.com, working directly for the chief technology officer. While at CNBC.com, Mr. Lovelace developed the site's search engine, tax center, and instituted the use of cache engine technology to speed content delivery. From January 1999 to October 1999, Mr. Lovelace was a chief project manager for Panalpina, Inc., a Switzerland-based global shipping company. From March 1997 to January 1999, Mr. Lovelace was the senior manager of an intranet web development project for Disclosure, Inc. From August 1996 to January 1997, Mr Lovelace was a lead production analyst at Bell Atlantic, in Reston, Virginia. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Based solely on the reports we have received and on written representations from certain reporting persons, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements, except for a Form 4 for Mr. Berens for October 2000 reporting six transactions, which was filed in November 2000, and a Form 4 for Mr. Berens for November 2000 reporting six transactions, which was filed in January 2001, and a Form 4 for Mr. Berens for December 2000 reporting three transactions, which was filed in February 2000. Mr. Lovelace has not filed a Form 3, which should have been filed in September 2000. Mr. Hansen has not filed a Form 3, which should have been filed in August 2000. Item 10. Executive Compensation The following tables contain compensation data for our chief executive officer for the fiscal year ended December 31, 2000. No executive officer or director received in excess of $100,000 in compensation during the fiscal year ended December 31, 2000.
SUMMARY COMPENSATION TABLE -------------------------- Annual Long Term Compensation Compensation Awards Name and Restricted Securities Underlying All Other Principal Positions Year Salary ($) stock award(s) ($) Options/SARs (#) Compensation ($) ----------------------- ---- ---------- ------------------ ---------------- ---------------- Marc I. Berens, Chief Executive Officer 2000 $ 73,750 $ 31,000 -- -- 1999 $ 37,500 -- -- --
EMPLOYMENT AGREEMENTS In June 1999, Marc I. Berens entered into a three-year employment agreement with Berensgallery.com, Inc., a wholly-owned subsidiary of Berens Industries. The employment agreement provides for a monthly salary of $7,500 for the first year, $10,000 for the second year, and $12,500 for the third year, plus an annual bonus equal to 5% of our pretax operating profit. The employment agreement may be terminated by either party during the term of the agreement. We do not have any employment agreements with any other of its officers or directors. We maintain a life insurance policy for Mr. Berens in the amount of $500,000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of April 27, 2001 the number and percentage of outstanding shares of our common stock owned by: - each person known to beneficially own more than 5% of its outstanding common stock; - each director; - each named executive officer; and - all executive officers and directors as a group.
NUMBER OF SHARES OF NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK BENEFICIALLY OWNED PERCENTAGE OF OWNERSHIP ------------------------------------------ ------------------------------- ----------------------- Marc I. Berens 18,388,000 74.7% Kurt Lovelace 100,000 < 1% Jeff Hansen 16,550,000 67.2% All executive officers and directors as a group (3 persons) 18,638,000 75.7%
Of the 18,388,000 shares beneficially owned by Mr. Berens, 16,400,000 shares are owned by the Yolana Partnership, Ltd., of which Mr. Berens is a beneficiary, 563,000 shares are owned by the Berens Foundation, a non-profit organization of which Mr. Berens is a trustee, and 1,383,000 shares are owned by Mr. Berens. Of the 16,550,000 shares beneficially owned by Mr. Hansen, 16,400,000 shares are owned by the Yolana Partnership, Ltd., of which Mr. Hansen is president of the general partner, and 150,000 shares are owned by Estelle Investments, of which Mr. Hansen is a principal. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In June 1999, we completed as reverse merger with Berensgallery.com, Inc. in which it issued 2,893,250 shares of our common stock to the shareholders of Berensgallery.com, Inc. Of these shares, an aggregate of 2,623,000 shares of our common stock were issued to Mr. Berens and family members of Mr. Berens. In December 1999, we acquired Artmovement.com, Inc. for 12,960,000 shares of our common stock. Of these shares, an aggregate of 5,460,000 shares of our common stock were issued to Messrs. Berens and Hansen, and family members of Mr. Berens. In February 2000, Mr. Berens was issued 250,000 shares of our common stock in exchange for his guarantee of a credit line for Berens Industries. In December 2000, we issued to Yolana Partnership, Ltd. 2,000,000 shares of common stock, of which 1,500,000 shares were issued in lieu of services rendered valued at $75,000, and 500,000 shares were issued for $25,000 cash. In December 2000, we issued to Mr. Lovelace 45,000 shares of common stock in lieu of services rendered valued at $3,000. In December 2000, we issued to Mr. Hansen 40,000 shares of common stock in lieu of services rendered at valued at $1,600. In January 2001, we issued to Mr. Berens 525,000 shares of common stock in lieu of services rendered in 2000 which were valued at $31,000. In March 2001, we issued to Mr. Berens 750,000 shares of common stock in lieu of services rendered valued at $36,000. In March 2001, Mr. Lovelace was issued 100,000 shares of common stock for services rendered valued at $16,000. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are to be filed as part of the annual report: EXHIBIT NO. IDENTIFICATION OF EXHIBIT Exhibit 2.1 Reorganization Agreement between National Air Corporation and Berensgallery.com, Inc. (filed previously on Form 8-K SEC File No.0-22711) Exhibit 3.1 Amended and Restated Articles of Incorporation of Berens Industries, Inc. (filed previously as Appendix A to our information statement filed July 13, 1999) Exhibit 3.2 Amended and Restated Bylaws of Berens Industries, Inc. (filed previously on Form 10-KSB for the year ended December 31, 1999, SEC File No.0-22711) Exhibit 4.1 Common Stock Certificate of Berens Industries, Inc. (filed previously on registration statement Form 10-SB SEC File No.0-22711) Exhibit 10.1 Employment Agreement between Marc I. Berens and Berensgallery.com, Inc. (filed previously on Form 10-KSB for the year ended December 31, 1999, SEC File No.0-22711) Exhibit 10.2* Digital Media Resources, Ltd. Database Access Agreement (filed previously on Form 10-KSB for the year ended December 31, 1999, SEC File No.0-22711) Exhibit 21.1 List of Subsidiaries (filed previously on Form 10-KSB for the year ended December 31, 1999, SEC File No.0-22711) Exhibit 23.1 Consent of Ham, Langston & Brezina * Portions of these exhibits are omitted and have received confidential treatment. (b) There were no reports filed on Form 8-K during the last quarter of the fiscal year ended December 31, 2000. SIGNATURES ---------- In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Berens Industries, Inc. By: /s/ Marc I. Berens -------------------------------- Marc I. Berens, President ___________________________ In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Marc I. Berens Chief Executive Officer April 30, 2001 ---------------------- and Director MARC I. BERENS /s/ Jeffrey Hansen Director April 30, 2001 --------------------- JEFFREY HANSEN BERENS INDUSTRIES, INC. ---------- CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM INCEPTION, FEBRUARY 26, 1999, TO DECEMBER 31, 1999 F-1 BERENS INDUSTRIES, INC. TABLE OF CONTENTS ---------- PAGE ---- Report of Independent Accountants F-3 Consolidated Financial Statements: Consolidated Balance Sheet as of December 31, 2000 F-4 Consolidated Statement of Operations for the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 1999 F-5 Consolidated Statement of Stockholders' Deficit for the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 1999 F-6 Consolidated Statement of Cash Flows for the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 1999 F-7 Notes to Consolidated Financial Statements F-8 F-2 REPORT OF INDEPENDENT ACCOUNTANTS ------------------------------------ To the Stockholders and Directors Berens Industries, Inc. We have audited the accompanying consolidated balance sheet of Berens Industries, Inc. as of December 31, 2000, and the related consolidated statements of operations, stockholders' deficit and cash flows for the year ended December 31, 2000 and for the period from inception, February 26, 1999, to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Berens Industries, Inc. as of December 31, 2000, and the consolidated results of their operations and their cash flows for the year ended December 31, 2000 and for the period from inception, February 26, 1999, to December 31, 1999, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements and discussed in Note 2, the Company has incurred significant recurring losses from operations since inception and is dependent on outside sources of financing for continuation of its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also discussed in Note 2. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Houston, Texas March 21, 2001 F-3 BERENS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 ---------- ASSETS ------ Current assets: Cash and cash equivalents $ 23,968 ------------ Total current assets 23,968 Furniture and equipment, net 157,527 ------------ Total assets $ 181,495 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT -------------------------------------- Current liabilities: Note payable to bank $ 250,000 Accounts payable 240,424 Accrued liabilities 114,258 ------------ Total current liabilities 604,682 Commitment and contingencies Stockholders' deficit: Common stock, $.001 par value, 50,000,000 shares authorized, 24,229,355 shares issued and outstanding 24,229 Additional paid-in capital 9,945,487 Receivables from stockholders (500,848) Accumulated deficit (9,896,055) ------------ Total stockholders' deficit (423,187) ------------ Total liabilities and stockholders' deficit $ 181,495 ============ See notes to consolidated financial statements. F-4
BERENS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM INCEPTION, FEBRUARY 26, 1999, TO DECEMBER 31, 1999 ---------- YEAR ENDED INCEPTION TO DECEMBER 31, DECEMBER 31, 2000 1999 -------------- ------------ Service revenue $ 102,167 $ 2,543 Cost of services 480,921 98,734 -------------- ------------ Gross margin (378,754) (96,191) Selling, general and administrative expenses 1,320,118 1,062,640 Website development costs - 5,263,157 -------------- ------------ Loss from operations (1,698,872) (6,421,988) Other expense: Loan guarantee fees 1,750,000 - Interest expense 21,195 - -------------- ------------ Other expense, net 1,771,195 - -------------- ------------ Net loss $ 3,470,067 $ 6,421,988 ============== ============ Basic and diluted net loss per common share $ (0.17) $ (1.39) ============== ============ Weighted average shares outstanding 20,724,204 4,632,881 ============== ============
See notes to consolidated financial statements. F-5
BERENS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM INCEPTION, FEBRUARY 26, 1999, TO DECEMBER 31, 1999 ---------- LOSSES ACCUMULATED COMMON STOCK ADDITIONAL RECEIVABLES DURING THE -------------------- PAID-IN FROM DEVELOPMENT TREASURY SHARES AMOUNT CAPITAL STOCKHOLDERS STAGE STOCK TOTAL ---------- -------- -------------- ------------ ------------ ------ ------------ Balance at inception, February 26, 1999 - $ - $ - $ - $ - $ - $ - Net proceeds from initial capital- ization 2,893,250 2,893 198,107 - - - 201,000 Recapitalization effective June 15, 1999 737,505 738 (738) - - - - Common stock issued as compensation to consultants 858,495 858 59,142 - - - 60,000 Stock options issued as employee compensation and for payment of legal fees - - 746,011 - - - 746,011 Issuance of common stock upon ex- ercise of stock options 659,250 659 5,934 - - - 6,593 Issuance of common stock for ac- quisition of Artmovement.com 12,960,000 12,960 8,250,197 (3,000,000) - - 5,263,157 Receipt of cash from stockholders under loan commitment - - - 100,000 - - 100,000 Loan to stockholder - - - (48,775) - - (48,775) Net loss - - - - (6,421,988) - (6,421,988) ---------- -------- -------------- ------------ ------------ ------ ------------ Balance at December 31, 1999 18,108,500 $ 18,108 $ 9,258,653 $(2,948,775) $(6,421,988) $ - $ (94,002) ========== ======== ============== ============ ============ ====== ============
See notes to consolidated financial statements. F-6
BERENS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM INCEPTION, FEBRUARY 26, 1999, TO DECEMBER 31, 1999 ---------- LOSSES ACCUMULATED COMMON STOCK ADDITIONAL RECEIVABLES DURING THE -------------------- PAID-IN FROM DEVELOPMENT TREASURY SHARES AMOUNT CAPITAL STOCKHOLDERS STAGE STOCK TOTAL ---------- -------- -------------- ------------ ------------ ------------ ----------- Balance at December 31, 1999 18,108,500 $ 18,108 $ 9,258,653 $(2,948,775) $(6,421,988) $ - $ (94,002) Collection of receivables from stockholders - - - 273,775 - - 273,775 Loans to stockholders - - - (175,848) - - (175,848) Default on subscription receivable - - - 2,700,000 - (2,700,000) - Treasury stock issued to a related party - - (2,350,000) (350,000) - 2,700,000 - Proceeds from private placements of common stock 759,280 759 438,926 - - - 439,685 Capital contribution by a stockholder for trading violations - - 55,893 - - - 55,893 Common stock issued as compensation 3,361,575 3,362 794,015 - - - 797,377 Common stock issued for loan guarantees 2,000,000 2,000 1,748,000 - - - 1,750,000 Net loss - - - - (3,470,067) - (3,470,067) ---------- -------- -------------- ------------ ------------ ------------ ----------- Balance at December 31, 2000 24,229,355 $ 24,229 $ 9,945,487 $ (500,848) $(9,892,055) $ - $ (423,187) ========== ======== ============== ============ ============ ============ ===========
See notes to consolidated financial statements. F-7
BERENS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM INCEPTION, FEBRUARY 26, 1999, TO DECEMBER 31, 1999 __________ YEAR ENDED INCEPTION TO DECEMBER 31, DECEMBER 31, 2000 1999 -------------- ------------ Cash flows from operating activities: Net loss $ (3,470,067) $(6,421,988) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 16,734 1,618 Website development cost - 5,263,157 Stock and stock option compensation expense 797,377 806,011 Provision for doubtful accounts 15,647 - Loan guarantee fees paid with common stock 1,750,000 - Changes in operating assets and liabilities: Increase in accounts receivable, trade (13,658) (1,989) Increase in prepaid license fees 69,300 (69,300) Decrease in other assets 1,259 (1,259) Increase in accounts payable 222,399 18,025 Increase in accrued liabilities 96,395 17,863 -------------- ------------ Net cash used in operating activities (514,614) (387,862) -------------- ------------ Cash flows from investing activities: Purchase of property and equipment (168,239) (7,640) Loan to stockholder (175,848) (48,775) Collections on loan to stockholder 48,775 - -------------- ------------ Net cash used in investing activities (295,312) (56,415) -------------- ------------ Cash flows from financing activities: Proceeds from note payable to bank 100,000 150,000 Proceeds from sale of common stock and other capital contributions 495,578 207,593 Proceeds from subscription receivable 225,000 100,000 -------------- ------------ Net cash provided by financing activities 820,578 457,593 -------------- ------------ Net increase in cash and cash equivalents 10,652 13,316 Cash and cash equivalents at beginning of period 13,316 - -------------- ------------ Cash and cash equivalents at end of period $ 23,968 $ 13,316 ============== ============ Supplemental disclosure of cash flow information: Cash paid for interest expense $ 21,195 $ - ============== ============
See notes to consolidated financial statements. F-8 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS __________ 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------------- Berens Industries, Inc. (the "Company") through its wholly-owned subsidiary, Artmovement.com, Inc. ("Artmovement), is involved in the development of an online auction site for sale of exclusive paintings, antiques and other art works and in internet hosting activities. Following is a description of its significant accounting policies: SIGNIFICANT ESTIMATES ---------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term. PRINCIPLES OF CONSOLIDATION ----------------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Artmovement, after elimination of all significant intercompany accounts and transactions. CASH AND CASH EQUIVALENTS ---------------------------- The Company considers all highly liquid short-term investments with an original maturity of three months or less when purchased, to be cash equivalents. OFFICE EQUIPMENT ----------------- Office equipment is recorded at cost and depreciated for financial statement purposes using the straight-line method over an estimated useful life of three years. Gains or losses on dispositions are included in the statement of operations in the period incurred. Maintenance and repairs are charged to expense as incurred. Continued F-9 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ------------------------------------------------------------------------- IMPAIRMENT OF LONG-LIVED ASSETS ---------------------------------- Periodically, the Company evaluates the carrying value of its computer and office equipment and other long-lived assets by comparing the anticipated future net cash flows associated with those assets to the related net book value. If an impairment is indicated as a result of such reviews, the Company would remove the impairment based on the fair market value of the assets, using techniques such as projected future discounted cash flows or third party valuations. INCOME TAXES ------------- The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value. FAIR VALUE OF FINANCIAL INSTRUMENTS --------------------------------------- The Company includes fair value information in the notes to financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made. CONCENTRATIONS OF CREDIT RISK -------------------------------- Cash and accounts receivable are the primary financial instruments that subject the Company to concentrations of credit risk. The Company maintains its cash in banks selected based upon management's assessment of the bank's financial stability. Cash balances periodically exceed the $100,000 federal depository insurance limit. Accounts receivable arise primarily from transactions with customers in the United States. The Company provides a reserve for accounts where collectibility is uncertain. Collateral is generally not required for credit granted. REVENUE RECOGNITION -------------------- Revenues from website and internet hosting service are recognized upon performance of the services. Continued F-10 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ------------------------------------------------------------------------- NET LOSS PER COMMON SHARE ----------------------------- Basic and dilutive net loss per common share for the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 1999 have been computed by dividing net loss by the weighted average number of shares of common stock outstanding during these periods. All common stock equivalents were antidilutive in both periods. COMPREHENSIVE INCOME --------------------- The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which requires a company to display an amount representing comprehensive income as part of the Company's basic financial statements. Comprehensive income includes such items as unrealized gains or losses on certain investment securities and certain foreign currency translation adjustments. The Company's financial statements include none of the additional elements that affect comprehensive income. Accordingly, comprehensive income and net income are identical. SEGMENT INFORMATION -------------------- The Company has adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS 131 requires a company to disclose financial and other information, as defined by the statement, about its business segments, their products and services, geographic areas, major customers, revenues, profits, assets and other information. The Company believes that it operates in only one business segment and does not have geographically diversified business operations. Accordingly, the adoption of SFAS 131 did not have a significant impact on the Company. Continued F-11 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ------------------------------------------------------------------------- RECENT PRONOUNCEMENTS ---------------------- In June 1998 and June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". These statements establish accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS Nos. 133 and 138 also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are effective for fiscal years beginning after June 15, 2000. The Company does not currently hold derivative instruments or engage in hedging activities and, accordingly, the adoption of these new standards is not expected to have a material impact on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies certain existing accounting principles for the timing of revenue recognition and its classification in the financial statements. In June 2000, the SEC delayed the required implementation date of SAB 101. As a result, SAB 101 will not be effective for the Company until the quarter ended September 30, 2001. In October 2000, the SEC issued further guidance on the interpretations included in SAB 101. The implementation of SAB 101 did not have a material impact on the Company's results of operations or financial position. 2. GOING CONCERN CONSIDERATIONS ------------------------------ Since its inception, as a development stage enterprise, the Company has not generated significant revenue and has been dependent on debt and equity raised from individual investors to support its operations. During the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 1999, the Company incurred negative financial results as follows: Continued F-12 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 2. GOING CONCERN CONSIDERATIONS, CONTINUED ------------------------------------------ YEAR ENDED INCEPTION TO DECEMBER 31, DECEMBER 31, 2000 1999 -------------- ------------ Net loss $ (3,470,067) $(6,421,988) Negative cash flows from operations (514,614) (387,862) Negative working capital (580,714) (101,283) Stockholders' deficit (423,187) (94,002) These factors raise substantial doubt about the Company's ability to continue as a going concern. In order to address its financial situation, during 1999 management undertook private placements of its common stock, recapitalized its operations, and acquired Artmovement.com, Inc. (See Notes 3 and 4). The Company sold additional shares of its common stock in 2000; however, these steps have not resulted in any significant improvement in the Company's very tight cash flow situation. Accordingly, management is now reviewing its future alternatives. Management believes that its alternatives may include: - Merging the company with another business that compliments current activities. - Raising additional capital to complete development and commercialize certain internet related services and technologies that management feels may generate reliable cash flows for the Company. There can be no assurances that the Company's current cash reserves will be adequate to sustain its operations nor that the Company can raise adequate debt or equity to successfully commercialize its internet related technologies and services. The Company's long-term viability as a going concern is dependent upon three key factors, as follows: Continued F-13 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 2. GOING CONCERN CONSIDERATIONS, CONTINUED ------------------------------------------ - The Company's ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations. - The ability of the Company to complete the development and sale of commercially viable internet technologies. - The ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations. 3. RECAPITALIZATION ---------------- Effective June 15, 1999, National Air Corporation was acquired by Berensgallery.com, Inc. in a recapitalization transaction accounted for similar to a reverse acquisition without goodwill. National Air Corporation was the "acquired" company in the transaction, but remains the surviving legal entity. Prior to the acquisition National Air Corporation was a non-operating public shell corporation with no significant assets. Accordingly, the transaction was treated as an issuance of stock by Berensgallery.com, Inc. for National Air Corporation's net monetary assets, accompanied by a recapitalization. Since this transaction is, in substance, a recapitalization of Berensgallery.com, Inc. and not a business combination, proforma information is not presented. Subsequent to the recapitalization, the Company's stockholders approved: 1) changes in the Company's name from National Air Corporation to Berensgallery.com, Inc. and subsequently to Berens Industries, Inc.; 2) a change in the number of authorized shares of the Company's common stock from 20,000,000 to 50,000,000 shares; and 3) a change in the number of authorized shares of the Company's preferred stock from 2,000,000 shares with par values ranging from $0.10 to $0.25 to 10,000,000 shares with a par value of $0.001. 4. ACQUISITION OF ARTMOVEMENT.COM, INC. --------------------------------------- Effective December 31, 1999, the Company acquired 100% of the common stock of Artmovement from a company under common control with the Company. The purchase price of Artmovement was approximately $8,263,157 and was satisfied entirely through the issuance of 12,960,000 shares of the Company's common stock. The primary assets of Artmovement acquired in the transaction were as follows: Continued F-14 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 4. ACQUISITION OF ARTMOVEMENT.COM, INC., CONTINUED --------------------------------------------------- Notes receivable from stockholders $3,000,000 Website 5,263,157 ---------- $8,263,157 ========== Artmovement was formed in November 1999 and had no significant operating history. The Company exchanged 12,960,000 newly issued shares for all of the outstanding shares of Artmovement. Upon acquisition of Artmovement, the Website was written down to zero because the net realizable value of the website could not be demonstrated at the date of acquisition (See Note 13). 5. ACCOUNTS RECEIVABLE, NET -------------------------- Accounts receivable, net consists of the following at December 31, 2000: Trade accounts receivable $ 15,645 Allowance for doubtful accounts (15,645) ---------- $ - ========== 6. FURNITURE AND EQUIPMENT, NET ------------------------------- Furniture and equipment, net consists of the following at December 31, 2000: Office furniture and equipment $ 33,747 Computer and internet equipment 111,760 Telephone system 30,372 ---------- 175,879 Less accumulated depreciation (18,352) ---------- $ 157,527 ========== Depreciation expense for the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 2999 was $16,734 and $1,618, respectively. Continued F-15 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 7. NOTE PAYABLE TO A BANK -------------------------- The note payable to a bank at December 31, 2000 consists of amounts due under a $250,000 revolving line of credit bearing interest at the bank's prime rate (9.5% at December 31, 2000) plus 2.0% per year and maturing in June 2001. This note is collateralized by the guarantees of certain primary stockholders/officers of the Company. Subsequent to December 31, 2000, this note was assumed by a related Company controlled by the guarantors. 8. ACCRUED LIABILITIES -------------------- Accrued liabilities consists of the following at December 31, 2000: Accrued license fees $ 49,500 Accrued professional fees 20,000 Other accrued liabilities 44,758 ---------- $ 114,258 ========== 9. INCOME TAXES ------------- The composition of deferred tax assets and the related tax effects at December 31, 2000 were as follows: Liability --------- Basis of furniture and equipment $ 5,700 Assets ------ Benefit from carryforward of net operating loss 388,978 Allowance for doubtful accounts 5,689 Accrued license fees 16,830 ---------- Total assets 411,497 Less valuation allowance 405,797 ---------- 5,700 Net deferred tax asset $ - ========== Continued F-16 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 9. INCOME TAXES, CONTINUED ------------------------- The difference between the income tax benefit in the accompanying statement of operations and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows:
YEAR ENDED INCEPTION TO DECEMBER 31, 2000 DECEMBER 31, 1999 -------------------- --------------------- AMOUNT PERCENT AMOUNT PERCENT ----------- ------- ------------ ------- Benefit for income tax at federal statutory rate $1,179,823 34.0% $ 2,183,476 34.0% Non-deductible compensation expense (271,108) (7.8) (274,044) (4.3) Non-deductible loan guarantee fees (595,000) (17.1) - - Non-deductible meals and entertainment (1,668) (0.0) - - Non-deductible website devel- opment costs - - (1,789,473) (27.8) Increase in valuation allowance (312,047) (9.1) (119,959) (1.9) ----------- ------- ------------ ------- Total $ - -% $ - -% =========== ======= ============ =======
At December 31, 1999, for federal income tax and alternative minimum tax reporting purposes, the Company has approximately $1,144,000 of unused net operating losses available for carryforward to future years. The benefit from carryforward of such net operating losses will expire in 2019. The benefit from utilization of such net operating loss carryforwards incurred prior to December 31, 2000 was significantly limited in connection with the Company's merger with National Air Corporation, Inc. (See Note 3). The benefit could be subject to further limitations if significant future ownership changes occur in the Company. 10. STOCKHOLDERS' EQUITY --------------------- COMMON STOCK ------------- During the year ended December 31, 2000 and the period from inception to December 31, 1999, the Company issued 18,108,500 shares and 6,120,855 shares, respectively, of its common stock to acquire businesses, raise money under private placements, compensate employees, obtain loan guarantees and satisfy obligations. Continued F-17 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 10. STOCKHOLDERS' EQUITY, CONTINUED --------------------------------- During the year ended December 31, 2000, in addition to sales and issuances of its common stock, the Company also assessed a $55,893 penalty against a former director/major stockholder of the Company for profits made on improper trades of the Company's stock. The penalty has been treated as additional paid-in capital. STOCK OPTIONS -------------- The Company periodically issues incentive stock options to key employees, officers, and directors to provide additional incentives to promote the success of the Company's business and to enhance the ability to attract and retain the services of qualified persons. The issuance of such options are approved by the Board of Directors. The exercise price of an option granted is determined by the fair market value of the stock on the date of grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options is greater than or equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized. Proforma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the period ended December 31, 1999: risk-free interest rate of 6%; no dividend yield; weighted average volatility factor of the expected market price of the Company's common stock of 70%; and a weighted-average expected life of the options of 3 years. No options were granted in 2000; therefore, no assumptions for the year ended December 31, 2000 are presented. Continued F-18 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 10. STOCKHOLDERS' EQUITY, CONTINUED --------------------------------- The Black-Scholes option valuation model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of proforma disclosures, the estimated fair value of the options is included in expense over the option's vesting period or expected life. The Company's proforma information for the period ended December 31, 1999 follows: Net loss as reported $(6,421,988) Proforma net loss (6,433,854) Proforma basic and dilutive loss per share $ (1.39) A summary of the Company's stock option activity and related information for the period ended December 31, 2000 follows:
NUMBER OF WEIGHTED- SHARES AVERAGE UNDER EXERCISE OPTIONS PRICE ---------- ---------- Outstanding - at inception, February 26, 1999 - $ - Granted 709,250 0.08 Exercised (659,250) 0.01 Forfeited - - ---------- ---------- Outstanding - December 31, 1999 and 2000 50,000 $ 1.00 ========== ==========
The weighted-average fair value of options granted during the period from inception to December 31, 1999 was $1.05 and all of the options granted expire in 2004. Continued F-19 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 11. LEASE COMMITMENT ----------------- Effective July 28, 2000, the Company entered into a sixty month lease for office space. The lease is for a term of five years and includes no provisions for extension. the lease includes lease payments escalation and provisions for other increases to rental payments should certain costs of the landlord increase. Effective February 1, 2001, the Company subleased the office space to a company with certain common ownership with the Company. The sublease is under the same terms as the original lease and the Company is currently operating in office space rent free. Following is a summery of future annual lease payments and sublease receipts at December 31, 2000: YEAR ENDING LEASE SUBLEASE NET DECEMBER 31, PAYMENTS RECEIPTS PAYMENTS ------------ --------- --------- --------- 2001 $ 81,432 $ 74,646 $ 6,786 2002 82,437 82,437 - 2003 93,496 93,496 - 2004 93,496 93,496 - 2005 54,539 54,539 - --------- --------- --------- Total $ 405,400 $ 398,614 $ 6,786 ========= ========= ========= Rent expense for the year ended December 31, 2000 and for the period from inception, February 26, 1999, to December 31, 1999 was $47,234 and $-0-, respectively. 12. RECEIVABLES FROM STOCKHOLDERS ------------------------------- Receivables from stockholders at December 31, 2000 represent amounts due from stockholders of Yolana Partnership, Ltd. ("YPL"), a company under common control with the Company. The receivables were acquired in connection with the Company's acquisition of Artmovement (See Note 4). Receivables from stockholders are non-interest bearing, have no formal repayment schedule. The subscription receivable for common stock acquired from Artmovement had an original balance of $3,000,000 and $300,000 of the balance was collected in 1999 and 2000. However, the subscribers defaulted on the remaining subscription amount and the 7,000,000 shares of common stock represented by the receivable Continued F-20 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 12. RECEIVABLES FROM STOCKHOLDERS, CONTINUED ------------------------------------------- were returned to the Company as treasury stock. YPL obtained an option to purchase the treasury stock at the same price as the previous subscriber. However, due to a major decline in the market value of the Company's common stock, the option price was decreased to $0.05 per share or a total exercise price of $350,000. The Company actually issued the shares to YPL and, accordingly, the option price has been treated as a subscription receivable at December 31, 2000. The Company collected $25,000 of the $350,000 subscription receivable in 2000. 13. DATABASE ACCESS AGREEMENT --------------------------- In August 1999, the Company entered into a database access agreement with a foreign corporation (the "Owner"). The agreement has a 36 month term and requires monthly payments through August 2002. At December 31, 2000, the Company had recorded a $49,500 accrual under this database access agreement; however, the Company has filed a lawsuit against the Owner for breach of contract. Management believes that the Company may never pay the amounts accrued and should ultimately recover damages from the Owners for breach of contract. Subsequent to year end the Company filed legal actions against the Owner for breach of contract. 14. RELATED PARTY TRANSACTIONS ---------------------------- As described in Note 4 to the financial statements, in December 1999 the Company acquired Artmovement. Artmovement's primary asset is a website that provides an auction network for buyers and sellers of art and antiques. Artmovement had previously been spun-off from Mercosur Industries, Inc. ("Mercosur"), a company that was once under common control and management with the Company. Mercosur was dissolved in 2000. Prior to the spin-off of Artmovement, Mercosur received a $3,000,000 investment commitment from certain foreign investors. In connection with the spin-off of Artmovement, Mercosur entered into an agreement with Artmovement under which it assigned the $3,000,000 subscription receivable from such foreign investors to Artmovement. Continued F-21 BERENS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED __________ 15. LEGAL PROCEEDINGS ------------------ The Company is involved in various litigation incidental to its business, which at times may involve claims for significant monetary amounts. However, in all present litigation, the Company is the plaintiff and management believes that any counterclaims that may arise will not result in significant liability to the Company, if any. 16. NON-CASH INVESTING AND FINANCING ACTIVITIES ----------------------------------------------- During the year ended December 31, 2000 and the period from inception, February 26, 1999, to December 31, 2000, the Company engaged in non-cash investing and financing transactions as follows: YEAR ENDED INCEPTION TO DECEMBER 31, DECEMBER 31, 2000 1999 ------------- ----------- Common stock issued for note receivable $ 350,000 $ - Common stock issued to acquire Artmovement.com, Inc. - 8,263,157 F-22