UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number: 0-14136
ARIES VENTURES INC.
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(Name of small business issuer in its charter)
Nevada 84-0987840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28720 Canwood Street, Suite 207
Agoura Hills, California 91301
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(Address of principal executive offices)
Issuer's telephone number: (818) 879-6501
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer 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 contained in this form, and no disclosure will be
contained, to the best of issuer'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. [X]
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The issuer had no revenues from operations for the fiscal year ended
September 30, 2003.
The aggregate market value of the issuer's common stock held by
non-affiliates of the issuer was approximately $345,000 as of November 30, 2003.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [X] No [ ]
The issuer had 2,032,226 shares of common stock issued and outstanding as
of November 30, 2003.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Annual Report on Form 10-KSB for the fiscal year ended September 30,
2003 contains "forward-looking statements" within the meaning of the Federal
securities laws. These forward-looking statements include, but are not limited
to, statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this Annual Report
on Form 10-KSB for the fiscal year ended September 30, 2003 are subject to risks
and uncertainties that could cause actual results to differ materially from
those results expressed in or implied by the statements contained herein.
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
History:
Aries Ventures Inc. ("Aries" or the "Company") was incorporated in Nevada
on April 21, 2000 as a wholly-owned subsidiary of Casmyn Corp., a Colorado
corporation ("Casmyn"). On April 28, 2000, Casmyn was merged with and into
Aries, with Aries being the surviving corporation.
Business Overview:
As of September 30, 2003, the Company had no business operations. The
Company is focused on maintaining the corporate entity and seeking a new
business opportunity. The Company is not restricting its search to any
particular business or industry, geographical area, or legal or business
structure.
The Company recognizes that the number of suitable business opportunities
that are available to it may be limited, and a transaction would likely result
in substantial dilution to the current equity holders, and a change in control
and name of the Company. The Company does not expect to present any such
transaction to its stockholders for consent or approval.
Management and/or principal stockholders may actively negotiate or
otherwise consent to the purchase of all or a portion of their securities as a
condition to, or in connection with, a proposed reorganization, merger or
acquisition, and such opportunity may or may not be afforded to other
stockholders.
The Company is unable to predict if and when it may actually accomplish a
transaction. The Company is not currently engaged in substantive negotiations
with any businesses or companies regarding the possibility of an acquisition,
reorganization, merger or other significant business opportunity.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate and administrative offices are located at 28720
Canwood Street, Suite 207, Agoura Hills, California 91301. Such facilities
consist of 1,847 square feet and are occupied under an operating lease that
expires on September 30, 2004.
ITEM 3. LEGAL PROCEEDINGS
During September 2002, the Company concluded legal settlements with respect
to all litigation and claims that it had been pursuing in various jurisdictions
against the Company's former officers, directors, auditors and legal counsel.
These legal settlements provided for aggregate lump-sum cash payments to the
Company of approximately $6,900,000, which resulted in net payments of
approximately $5,700,000, after deduction for contingency legal fees and other
related expenses.
During February 2002, the Company settled all outstanding debts and claims
that it had against WaterPur International, Inc. ("WaterPur") in exchange for
1,000,000 shares of WaterPur common stock and warrants to purchase 250,000
shares of WaterPur common stock, exercisable for a period of three years at
$1.00 per share. In conjunction with this settlement, the acquisitions
previously effected by WaterPur on May 10, 1999 were rescinded, and WaterPur
acquired Aquentium, Inc., an investment and holding company incorporated in the
state of Nevada, in a reverse merger transaction. The Company did not ascribe
any value to the WaterPur securities because the securities are illiquid, the
Company was unable to determine a fair market value for such securities, and the
previous investments in WaterPur were written off in prior years as the Company
deemed such investments impaired.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 2003.
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. Market Information
From July 14, 2000 through September 30, 2003, the Company's common stock
has been traded on the over-the-counter market under the symbol "ARVT".
The following table sets forth the range of closing prices of the Company's
common stock as quoted during the periods indicated. Such prices reflect prices
between dealers in securities and do not include any retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
Furthermore, such quotations should not be deemed to reflect an "established
public trading market". The information set forth below was obtained from
America Online.
High Low
---- ---
Fiscal Year Ended September 30, 2002:
Three months ended -
December 31, 2001 $ 0.51 $ 0.02
March 31, 2002 0.45 0.25
June 30, 2002 0.25 0.15
September 30, 2002 0.15 0.15
Fiscal Year Ended September 30, 2003:
Three months ended -
December 31, 2002 $ 0.11 $ 0.03
March 31, 2003 1.00 0.07
June 30, 2003 0.51 0.23
September 30, 2003 0.35 0.25
b. Holders
As of September 30, 2003, the Company had 39 shareholders of record with
respect to the Company's common stock, excluding shares held in street name by
brokerage firms and other nominees who hold shares for multiple investors. The
Company estimates that it had approximately 900 common shareholders, including
shares held in street name, as of September 30, 2003.
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c. Dividends
Holders of common stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that may
be issued and outstanding. The Company has never paid cash dividends on its
common stock and has no present intention of paying cash dividends in the
foreseeable future. It is the present policy of the Board of Directors to retain
all earnings to provide for the future growth and development of the Company.
However, such policy is subject to change based on current industry and market
conditions, as well as other factors beyond the control of the Company.
d. Securities Authorized for Issuance under Equity Compensation Plans
On November 1, 2000, the Company granted stock options under its Employee
Stock Option Plan and Management Incentive Stock Option Plan to management and
directors as summarized below (see "ITEM 10. EXECUTIVE COMPENSATION - Stock
Option Plans"). These stock option plans were approved by the United States
Bankruptcy Court as part of the Company's confirmed plan of reorganization. The
Company does not have any other stock option plans.
Number of
securities Number of securities
to be issued remaining available
upon exercise Weighted-average for future issuance
of outstanding exercise price under equity
options, of outstanding compensation plans
warrants and options, warrants (excluding securities
rights (1) and rights reflected in column (a))
-------------- ----------------- ------------------------
353,318 $0.24 247,322 shares
Sales of Unregistered Securities
The Company did not sell any unregistered securities during the fiscal
years ended September 30, 2003 or 2002.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General Overview:
As of September 30, 2003, the Company had no business operations. The
Company is focused on maintaining the corporate entity and seeking a new
business opportunity. The acquisition of a new business opportunity may result
in a change in name and in control of the Company.
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Critical Accounting Policies:
The Company prepared the financial statements in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Management
periodically evaluates the estimates and judgments made. Management bases its
estimates and judgments on historical experience and on various factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates as a result of different assumptions or conditions.
The following critical accounting policies affect the more significant
judgments and estimates used in the preparation of the Company's financial
statements.
Income Taxes:
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. In the event the
Company was to determine that it would be able to realize its deferred tax
assets in the future in excess of its recorded amount, an adjustment to the
deferred tax assets would be credited to operations in the period such
determination was made. Likewise, should the Company determine that it would not
be able to realize all or part of its deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to operations in the
period such determination was made.
Results of Operations - Fiscal Years Ended September 30, 2003 and 2002:
General and Administrative. General and administrative expenses were
$398,962 and $608,064 for the fiscal years ended September 30, 2003 and 2002,
respectively. General and administrative expenses decreased by $209,102 or 34.4%
in 2003 as compared to 2002, primarily as a result of decreases in management
and directors compensation.
Proceeds from Legal Settlements. During September 2002, the Company
concluded legal settlements with respect to all litigation and claims that it
had been pursuing in various jurisdictions against the Company's former officers
and directors, auditors and legal counsel. These legal settlements provided for
aggregate lump-sum cash payments to the Company of $6,901,406, which resulted in
net payments of $5,676,406, after deduction for contingency legal fees and other
related expenses.
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Legal Fees. Legal fees were $15,459 and $1,264,984 for the fiscal years
ended September 30, 2003 and 2002. Included in legal fees for the fiscal year
ended September 30, 2002 were contingency legal fees of $1,225,000, equivalent
to 17.75% of the gross settlement proceeds of $6,901,406.
Depreciation and Amortization. Depreciation and amortization was $553 and
$7,727 for the fiscal years ended September 30, 2003 and 2002, respectively.
Loss from Write-Down of Marketable Securities. At September 30, 2002, the
Company recorded a write-down of $24,000 on its investment in corporate bonds to
reflect a permanent decline in market value.
Interest Expense. Interest expense decreased to $1,289 for the fiscal year
ended September 30, 2003, as compared to $54,858 for the fiscal year ended
September 30, 2002, as a result of the Company repaying $500,000 of notes
payable in August 2002 that it originally issued in October 2001.
Interest Income. Interest income increased to $19,452 for the fiscal year
ended September 30, 2003, as compared to $6,935 for the fiscal year ended
September 30, 2002, as a result of increased interest-bearing cash balances
during 2003.
State Income Taxes. State income taxes were $36,456 for the fiscal year
ended September 30, 2003, as compared to $1,670 for the fiscal year ended
September 30, 2002. State income taxes in 2003 consisted primarily of the
California alternative minimum tax relating to the proceeds from the legal
settlements received in September 2002, which was paid in July 2003. The Company
does not expect to be subject to this tax in subsequent periods.
Net Income (Loss). The Company had a net loss of $433,267 for the fiscal
year ended September 30, 2003. As a result of the conclusion of legal
settlements in 2002, the Company had net income of $4,947,038 for the fiscal
year ended September 30, 2002.
Consolidated Financial Condition - September 30, 2003:
Liquidity and Capital Resources:
Overview. The Company's cash and cash equivalents were $4,345,513 at
September 30, 2003, as compared to $4,768,749 at September 30, 2002, a decrease
of $423,236. As of September 30, 2003, the Company's working capital was
$4,333,161, as compared to $4,767,275 at September 30, 2002.
Subsequent to September 30, 2003, effective November 17, 2003, the Company
repurchased from an institutional shareholder 1,279,755 shares of common stock
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and 1,194,755 Series A common stock purchase warrants in a private transaction
for an aggregate cash purchase price of $1,343,743.
Operating. The Company's operations utilized cash resources of $446,017
during the fiscal year ended September 30, 2003, as compared to utilizing cash
resources of $785,724 during the fiscal year ended September 30, 2002 (exclusive
of the legal settlements received in 2002, net of the related contingency legal
fees, of $5,676,406), primarily for various general and administrative and legal
costs.
As of September 30, 2003, the Company had no business operations. The
Company is focused on maintaining the corporate entity and seeking a new
business opportunity. The Company believes that its working capital resources
are adequate to fund anticipated costs and expenses during the fiscal year
ending September 30, 2004.
Investing. During the fiscal years ended September 30, 2003 and 2002, the
Company generated net cash from investing activities of $22,781 and $26,318,
respectively.
During the fiscal years ended September 30, 2003 and 2002, the Company
allocated certain common corporate services to Resource Ventures, Inc.
("Resource"), a related entity with certain common officers and directors,
aggregating $60,485 and $51,075, respectively. As of September 30, 2003 and
2002, amounts due from Resource aggregated $26,894 and $51,075, respectively.
During the fiscal years ended September 30, 2003 and 2002, Resource paid the
Company $84,666 and $$77,393.
As of September 30, 2003, the Company did not have any outstanding
commitments for capital expenditures.
Financing. During the fiscal year ended September 30, 2002, the Company
utilized net cash in financing activities of $216,867. The Company did not have
any financing activities during the fiscal year ended September 30, 2003.
During October 2001, the Company borrowed $500,000 pursuant to unsecured
notes payable, with interest at 12% per annum, both principal and interest
payable on September 30, 2002. The lender also received 85,000 Series A common
stock purchase warrants that had been originally issued to an affiliate of the
Company. The Company was obligated to pay the notes from the net proceeds
received by the Company from the settlement of its legal claims against other
parties that aggregated in excess of $500,000. During August 2002, the notes
were paid in full, with interest. Since the exercise price of the Series A
common stock purchase warrants was substantially in excess of the market value
of the underlying common stock, the warrants had nominal intrinsic value, and
therefore no accounting value was ascribed to the warrants for financial
statement purposes.
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During September 2002, the Company repurchased and retired 282,196 shares
of common stock and 282,196 Series A common stock purchase warrants from an
institutional shareholder for a total consideration of $216,867. As a result of
the exercise price of the Series A common stock purchase warrants being
substantially in excess of the fair market value of the Company's common stock,
all of the consideration was allocated to the common shares.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements included herein are listed at the
"Index to Consolidated Financial Statements".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In February 2001, the Company's independent accountants, Hollander, Lumer &
Co., LLP, merged with Good Swartz Brown & Berns LLP ("GSBB") and HL's senior
partner joined GSBB, as a result of which GSBB became the successor entity to
HL. As a result of this merger, GSBB subsequently acquired most of the
accounting practice of HL and became the Company's independent accountants
effective March 29, 2001. The termination of HL and the retention of GSBB were
approved by the Company's Board of Directors.
Prior to GSBB becoming the independent accountants for the Company, neither
the Company, nor anyone on its behalf, consulted with GSBB regarding either the
application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on the
Company's financial statements, and no written or oral advice was provided that
was an important factor considered by the Company in reaching a decision on an
accounting, auditing or financial reporting issue; or any matter that was the
subject of a disagreement or event as defined at Item 304 (a)(1)(iv) of
Regulation S-B.
GSBB did not issue an audit opinion on the Company's financial statements
for any fiscal years or any interim periods. During the period from March 29,
2001 to October 31, 2002, there were no disagreements with GSBB any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
GSBB, would have caused it to make reference to the subject matter of the
disagreements in connection with any report it would have issued on the
Company's financial statements. In addition, there were no such events as
described under Item 304(a)(1)(iv)(B) of Regulation S-B during such period.
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Effective October 31, 2002, the Company terminated GSBB and retained
Weinberg & Company, P.A. ("W&C"). The Company changed accounting firms as a
result of one of GSBB's partners leaving GSBB and joining W&C. The termination
of GSBB and the retention of W&C were approved by the Company's Board of
Directors.
Prior to W&C becoming the independent accountants for the Company, neither
the Company, nor anyone on its behalf, consulted with W&C regarding either the
application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on the
Company's financial statements, and no written or oral advice was provided that
was an important factor considered by the Company in reaching a decision on an
accounting, auditing or financial reporting issue; or any matter that was the
subject of a disagreement or event as defined at Item 304 (a)(1)(iv) of
Regulation S-B.
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PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following tables and text set forth the names and ages of all directors
and executive officers of the Company as of November 30, 2003. Pursuant to the
Company's confirmed plan of reorganization, the Board of Directors of the
Company is comprised of three classes, with each class having a staggered
three-year term. All of the directors serve until their terms expire and until
their successors are elected and qualified, or until their earlier death,
retirement, resignation or removal. Also provided is a brief description of the
business experience of each director and executive officer during the past five
years and an indication of directorships held by each director in other
companies subject to the reporting requirements under the Federal securities
laws.
DIRECTORS
Date Elected
Name Age as Director
---- --- -----------
Class I (term expired
April 11, 2001):
Mark S. Zucker (1) 42 August 1, 1998
Class II (term expired
April 11, 2002):
Divo Milan (1)(2)(3) 47 August 21, 1998
Class III (term expired
April 11, 2003):
Selwyn Kossuth (1)(2)(3) 66 September 26, 1997
-------------------------
(1) Member of the executive committee.
(2) Member of the compensation committee.
(3) Member of the audit committee.
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EXECUTIVE OFFICERS
Date First
Elected as
Name Age Position Officer
---- --- -------- ----------
Mark S. Zucker 42 Chairman of the October 1,
Board of Directors 1998
Robert N. Weingarten 51 President, Chief November 20,
Financial Officer 1998
and Secretary
Biographies of Directors and Executive Officers:
Selwyn Kossuth. Mr. Kossuth's career has been in international mining finance
and the development of strategic marketing programs. During his career, Mr.
Kossuth has served as president and chief executive officer of the Investment
Funds Institute of Canada, as executive director and chief operating officer of
the Ontario Securities Commission, vice president and director of corporate
finance of Nesbitt Thomson, Inc., and president of the Canadian operations of
the Hochschild Group. He holds a Bachelor's Degree in Commerce from Stellenbosch
University, and a Master's Degree in Law from Oxford University. Mr. Kossuth is
an English barrister. Mr. Kossuth serves on the board of governors and audit
committee of Royal Bank of Canada Mutual Funds, and is a consultant to the
Investment Funds Institute of Canada and to Leon Frazer Associates, Inc. Mr.
Kossuth also serves on the board of directors of Resource Ventures, Inc., a
public company formerly owned by Aries Ventures Inc.
Divo Milan. Mr. Milan has been the Chief Executive Officer of Investigacion
Estrategica, a merchant banker located in Mexico City, Mexico, since 1987. He
has over 20 years experience in all aspects of corporate finance, investment
banking, merchant banking and venture capital in Mexico and South America. Mr.
Milan currently serves on the board of directors of Banca Quadrum and Banco
Bital, both of which are publicly-held companies. Mr. Milan also serves on the
board of directors of Resource Ventures, Inc., a public company formerly owned
by Aries Ventures Inc.
Mark S. Zucker. Mr. Zucker served as President and Chief Executive Officer of
the Company from October 1, 1998 through September 30, 2002. Mr. Zucker became a
member of the Board of Directors on August 1, 1998. In 2002, Mr. Zucker
co-founded and currently co-manages Dorchester Capital Advisors, LLC, an
investment advisory firm. From 1995 through 2000, Mr. Zucker was the founder and
managing partner of Anvil Investors, Inc., an investment advisory firm. From
1991 through 1996, Mr. Zucker was a founding partner and served as
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Senior Vice President of Libra Investments, Inc., an investment banking and
institutional brokerage firm. Mr. Zucker received a Bachelor of Science Degree
from the Wharton School and a Bachelor of Arts Degree from the University of
Pennsylvania in 1983. Mr. Zucker serves on the Board of Directors of Resource
Ventures, Inc., a public company formerly owned by Aries Ventures Inc.
Robert N. Weingarten. Mr. Weingarten was appointed Chief Financial Officer of
the Company on November 20, 1998, and President effective October 1, 2002. From
July 1992 to present, Mr. Weingarten has been the sole shareholder of Resource
One Group, Inc., a financial consulting and advisory company. Since 1979, Mr.
Weingarten has served as a consultant to numerous public companies in various
stages of development, operation or reorganization. Mr. Weingarten received an
M.B.A. Degree in Finance from the University of Southern California in 1975 and
a B.A. Degree in Accounting from the University of Washington in 1974. Mr.
Weingarten currently serves as an officer of Resource Ventures, Inc., a public
company formerly owned by Aries Ventures Inc., and YouthStream Media Networks,
Inc.
Family Relationships among Directors and Executive Officers:
There were no family relationships among directors and executive officers
during the fiscal year ended September 30, 2003.
Compliance with Section 16(a) of the Exchange Act:
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(e) during the fiscal year ended
September 30, 2003 and Form 5 and amendments thereto furnished to the Company
with respect to the fiscal year ended September 30, 2003, and any written
representations, no persons who were either a director, officer or beneficial
owner of more than 10% of the Company's common stock registered pursuant to
Section 12 at any time during the fiscal year ended September 30, 2003 failed to
file on a timely basis reports required by Section 16(a) during the fiscal year
ended September 30, 2003.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to the
named executive officers during the last three fiscal years. No other executive
officers received total annual compensation exceeding $100,000 during such
fiscal years.
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SUMMARY COMPENSATION TABLE
Fiscal
Year
Name and Ended
Principal September Other Annual
Positions 30, Salary Bonus Compensation
--------- ---- ------ ----- ------------
Mark S. Zucker 2003 $ 60,000
Chairman of 2002 125,000 $90,000 (1) $1,500 (2)
the Board of 2001 125,000
Directors
Robert N. 2003 60,000
Weingarten 2002 60,000 60,000 (1)
President and 2001 60,000
Chief Financial
Officer
---------------
(1) During the fiscal year ended September 30, 2002, the Company paid bonuses
to Mr. Zucker and Mr. Weingarten as a result of the successful conclusion
of the legal proceedings (see "ITEM 3. LEGAL PROCEEDINGS").
(2) Represents fair market value of 50,000 shares of common stock issued to Mr.
Zucker on November 1, 2001 as compensation for arranging a $500,000 loan
(see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION").
Compensation Agreements with Management:
The Company entered into three-year employment agreements dated September
1, 1999 with Mark S. Zucker, the Company's then President and Chief Executive
Officer, and with Robert N. Weingarten, the Company's then Chief Financial
Officer, with minimum annual compensation of $250,000 and $120,000,
respectively. Mr. Zucker and Mr. Weingarten do not receive perquisites or other
customary benefits such as medical, disability or life insurance, pension or
profit-sharing, or any other ancillary benefits. The employment agreements
provided that in the event of a change of majority ownership of the Company, Mr.
Zucker and Mr. Weingarten would each have the option to terminate their
employment with the Company and receive a payment equal to three times their
base annual salary. These employment agreements were approved and assumed
pursuant to the Company's confirmed plan of reorganization.
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Effective October 1, 2000, Mr. Zucker and Mr. Weingarten voluntarily agreed
to permanently reduce their base annual compensation by 50%, resulting in a
reduction in annual officers' compensation of $185,000 beginning with the fiscal
year ended September 30, 2001. Effective October 1, 2002, Mr. Zucker voluntarily
agreed to permanently reduce his base annual salary by an additional 52%,
resulting in a reduction in annual officers' compensation of $65,000 beginning
with the fiscal year ended September 30, 2003. The employment agreements of Mr.
Zucker and Mr. Weingarten have been extended through September 30, 2005, under
the same terms and conditions as contained in the original employment
agreements, except that, effective October 1, 2002, the compensation of each
such person has been permanently reduced to $60,000 per year, and Mr. Zucker's
position has been designated as Chairman of the Board of Directors and Mr.
Weingarten's positions have been designated as President and Chief Financial
Officer.
Compensation Arrangements with Board of Directors:
During the fiscal years ended September 30, 2003, 2002 and 2001, Selwyn
Kossuth, a director of the Company, was paid an annual board consulting fee of
approximately $14,000.
Commencing July 1, 2000, non-officer directors receive $5,000 per year for
serving on the Board of Directors. Commencing October 1, 2002, only non-officer
directors who are not otherwise compensated by the Company receive $5,000 per
year for serving on the Board of Directors. Directors are reimbursed for
reasonable out-of-pocket expenses incurred in attending board meetings.
Independent Public Accountants:
Weinberg & Company, P.A. has served as the Company's independent auditors
for the fiscal years ended September 30, 2003, 2002 and 2001. Services provided
to the Company by Weinberg & Company, P.A. during such periods consisted of the
audit of the Company's financial statements and limited reviews of quarterly
reports. Charges by Weinberg & Company, P.A. with respect to the audit of the
Company's financial statements for the fiscal year ended September 30, 2002 and
for the reviews of the Company's unaudited quarterly financial statements during
such fiscal year were $22,500. Charges by Weinberg & Company, P.A. with respect
to the audit of the Company's financial statements for the fiscal year ended
September 30, 2003 and for the reviews of the Company's unaudited quarterly
financial statements during such fiscal year are expected to be approximately
$23,000.
Long-Term Incentive Plans:
The Company does not have any long-term incentive plans.
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Stock Option Plans:
Under the Company's Employee Stock Option Plan, the Company may issue stock
options to purchase a maximum of 353,318 shares of common stock of the Company
pursuant to incentive and non-qualified stock options to officers, management
and employees of the Company. Under the Company's Management Incentive Stock
Option Plan, the Company may issue stock options to purchase a maximum of
247,322 shares of common stock of the Company pursuant to incentive and
non-qualified stock options to officers, directors, employees, management and
consultants of the Company. Both stock option plans were adopted by the Board of
Directors on April 12, 2000, and are administered by the Board of Directors or,
in the discretion of the Board of Directors, by a committee of not less than two
individuals with authority to determine persons to whom options will be granted,
the timing and manner of grants of options, the exercise prices, the number of
shares covered by the options, the terms of the options, and all other
determinations necessary or advisable for administration of such stock option
plans. At September 30, 2003, there were 247,322 options issuable under the
Employee Stock Option Plan and no options issuable under the Management
Incentive Stock Option Plan.
The purchase price for the shares subject to any incentive stock option
granted under the Employee Stock Option Plan or the Management Incentive Stock
Option Plan shall not be less than 100% of the fair market value of the shares
of common stock of the Company on the date the option is granted (110% for
stockholders who own in excess of 10% of the outstanding common stock). No
options shall be exercisable after the earliest of the following: the expiration
of 10 years after the date the option is granted; three months after the date
the optionee's employment with the Company terminates if termination is for any
reason other than permanent disability or death; or one year after the date the
optionee's employment terminates if termination is a result of death or
permanent disability. Unless sooner terminated by the Board of Directors, both
option plans expire on April 11, 2010.
On November 1, 2000, the Company granted stock options under these stock
option plans to management and directors aggregating 353,318 shares of common
stock, exercisable for a period of five years. The exercise price of such
options was the fair market value on the date of grant ($0.23 per share), except
for Mr. Zucker, a more than 10% stockholder of the Company; the exercise price
of Mr. Zucker's option was 110% of the fair market value on the date of grant
($0.25 per share). The stock options vested in equal annual increments on
September 30, 2001, 2002 and 2003.
A summary of stock options issued to officers and directors as of September
30, 2003 (all issued pursuant to stock option plans) is presented below. No
stock options have been exercised.
-18-
STOCK OPTION VALUE TABLE
Value of
Unexercised
Number of Shares in-the-Money
of Common Stock Stock Options
Underlying Stock Weighted at Fiscal
Options Average Year-End (1)
----------------- Exercise -----------------
Name Unvested Vested Price Unvested Vested
---- -------- ------ ----- -------- ------
Mark S. Zucker - 176,659 $0.25 $ - $ -
Robert N.
Weingarten - 141,327 $0.23 - 2,827
Selwyn Kossuth - 17,666 $0.23 - 353
Divo Milan - 17,666 $0.23 - 353
------- ------- ------ -----
- 353,318 $0.24 $ - $3,533
======= ======= ==== ====== =====
--------------
(1) The dollar values are calculated by determining the difference between the
weighted average exercise price of the stock options and the market price
for the common stock of $0.25 per share at September 30, 2003.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including the
power to dispose of or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable.
As of November 30, 2003, the Company had 2,032,226 shares of common stock
issued and outstanding, which was the only class of voting securities authorized
or outstanding.
The following table sets forth, as of November 30, 2003: (a) the names and
addresses of each beneficial owner of more than five percent (5%) of the
Company's common stock known to the Company, the number of shares of common
stock beneficially owned by each such person, and the percent of the Company's
common stock so owned; and (b) the names and addresses of each director and
executive officer of the Company, the number of shares of common stock
-19-
beneficially owned, and the percentage of the Company's common stock so owned,
by each such person, and by all directors and executive officers of the Company
as a group. Each person has sole voting and investment power with respect to the
shares of common stock, except as otherwise indicated. Beneficial ownership
consists of a direct interest in the shares of common stock, except as otherwise
indicated.
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common
of Beneficial Owner Ownership Stock (8)
------------------- --------- ---------
Kyneton Investments, Ltd.
2 Jane Street, #501
Toronto, Canada M6S 4W3 593,710 (1) 25.5
Directors and Executive
Officers:
Mark S. Zucker (7) 2,007,149 (2) 64.8
Divo Milan (7) 253,682 (3) 11.7
Selwyn Kossuth (7) 17,666 (4) 0.9
Robert N. Weingarten (7) 141,327 (5) 6.5
All Directors and
Executive Officers as
a Group (4 persons) 2,419,824 (6) 71.3
------------------------
(1) Includes 296,855 shares of common stock issuable upon exercise of currently
exercisable Series A common stock purchase warrants.
(2) Includes 446,879 shares of common stock owned of record by Reflection
Partners, L.P., a California limited partnership, and 50,000 shares of
common stock owned by Anvil Claims, Inc. Mark S. Zucker, the Chairman of
the Board of Directors of the Company, is the general partner of Reflection
Partners, L.P. and the owner of Anvil Claims, Inc. Includes 890,245 shares
of common stock issuable upon exercise of currently exercisable Series A
common stock purchase warrants and vested options to purchase 176,659
shares of common stock.
(3) The securities with respect to Divo Milan are held by Karpnale Investment
PTE Ltd., the beneficiaries of which are the sons of Divo Milan. Mr. Milan
does not have investment or voting power with respect to such securities,
and accordingly, disclaims any beneficial interest in such securities.
-20-
Includes 118,008 shares of common stock issuable upon exercise of currently
exercisable Series A common stock purchase warrants and vested options to
purchase 17,666 shares of common stock.
(4) Consists of vested options to purchase 17,666 shares of common stock.
(5) Consists of vested options to purchase 141,327 shares of common stock.
(6) Includes 1,008,253 shares of common stock issuable upon exercise of
currently exercisable Series A common stock purchase warrants and vested
options to purchase 353,318 shares of common stock.
(7) The address of each such person is c/o the Company, 28720 Canwood Street,
Suite 207, Agoura Hills, California 91301.
(8) The calculation with respect to percent of shares of common stock
outstanding for each beneficial owner assumes that the currently
exercisable Series A common stock purchase warrants and the vested stock
options owned by each such beneficial owner are exercised, and also assumes
that no warrants or options held by others are exercised at that time.
Changes in Control:
As of September 30, 2003, the Company is unaware of any contract or other
arrangement, the operation of which may at a subsequent date result in a change
in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended September 30, 2003 and 2002, the Company
allocated certain common corporate services to Resource Ventures, Inc.
("Resource"), a related entity with certain common officers and directors,
aggregating $60,485 and $51,075, respectively. As of September 30, 2003 and
2002, amounts due from Resource aggregated $26,894 and $51,075, respectively.
During the fiscal years ended September 30, 2003 and 2002, Resource paid the
Company $84,666 and $$77,393.
Information with respect to remuneration paid to officers and directors is
provided at "ITEM 10. EXECUTIVE COMPENSATION".
Information with respect to the transfer of Series A common stock purchase
warrants by a former affiliate of the Company to the Company's lender in
conjunction with a short-term loan during the fiscal year ended September 30,
2002 is provided at "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION".
-21-
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this report is set forth
in the Index to Exhibits, which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K
During the three months ended September 30, 2003, the Company did not file
any Current Reports on Form 8-K.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the reports filed under the Exchange Act of 1934 is accumulated and
communicated to management, including its principal executive and financial
officers, as appropriate, to allow timely decisions regarding required
disclosure.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including its principal executive and
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based upon and as of the date of that evaluation, the Company's
principal executive and financial officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports the Company files and submits under the
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) Changes in Internal Controls
There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.
-22-
SIGNATURES
In accordance with 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.
ARIES VENTURES INC.
-------------------
(Registrant)
Date: December 26, 2003 By: /s/ ROBERT N. WEINGARTEN
------------------------
Robert N. Weingarten
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.
Date: December 26, 2003 By: /s/ MARK S. ZUCKER
-------------------------
Mark S. Zucker
Chairman of the Board of
Directors
Date: December 26, 2003 By: /s/ SELWYN KOSSUTH
-------------------------
Selwyn Kossuth
Director
Date: December 26, 2003 By: /s/ DIVO MILAN
-------------------------
Divo Milan
Director
Date: December 26, 2003 By: /s/ ROBERT N. WEINGARTEN
-------------------------
Robert N. Weingarten
President and Chief
Financial Officer
-23-
Aries Ventures Inc.
Index to Financial Statements
Report of Independent Public Accountants
Balance Sheets - September 30, 2003 and 2002
Statements of Operations - Fiscal Years Ended September 30, 2003 and 2002
Statements of Shareholders' Equity - Fiscal Years Ended September 30, 2003 and
2002
Statements of Cash Flows - Fiscal Years Ended September 30, 2003 and 2002
Notes to Financial Statements - Fiscal Years Ended September 30, 2003 and 2002
-24-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Aries Ventures Inc.
We have audited the accompanying balance sheets of Aries Ventures Inc., a
Nevada corporation (the "Company") as of September 30, 2003 and 2002, and the
related statements of operations, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Aries Ventures Inc. as of
September 30, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Weinberg & Company, P.A.
Boca Raton, Florida
December 17, 2003
-25-
Aries Ventures Inc.
Balance Sheets
September 30,
--------------------------
2003 2002
---------- ----------
ASSETS
CURRENT
Cash and cash equivalents $ 4,345,513 $ 4,768,749
Due from related party 26,894 51,075
Prepaid expenses and
other current assets 43,744 46,235
---------- ----------
Total current assets 4,416,151 4,866,059
---------- ----------
PROPERTY AND EQUIPMENT 27,244 25,844
Less: accumulated
depreciation and
amortization (26,136) (25,583)
---------- ----------
1,108 261
---------- ----------
OTHER
Deposits 2,309 2,309
---------- ----------
2,309 2,309
---------- ----------
$ 4,419,568 $ 4,868,629
========== ==========
(continued) Aries
-26-
Ventures Inc.
Balance Sheets (continued)
September 30,
--------------------------
2003 2002
---------- ----------
LIABILITIES
CURRENT
Accounts payable $ 52,702 $ 68,847
Accrued liabilities 30,288 29,937
---------- ----------
Total current liabilities 82,990 98,784
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock,
$0.01 par value
Authorized -
10,000,000 shares
Issued and outstanding -
None - -
Common stock,
$0.01 par value
Authorized -
50,000,000 shares
Issued and outstanding -
3,311,981 shares at
September 30, 2003
and 2002 33,120 33,120
Additional paid-in
capital 1,800,859 1,800,859
Retained earnings 2,502,599 2,935,866
---------- ----------
4,336,578 4,769,845
---------- ----------
$ 4,419,568 $ 4,868,629
========== ==========
-27-
See accompanying notes to financial statements.
Aries Ventures Inc.
Statements of Operations
Fiscal Years Ended
September 30,
--------------------------
2003 2002
---------- ----------
REVENUES
$ - $ -
--------- ---------
COSTS AND EXPENSES
General and
administrative 398,962 608,064
Proceeds from legal
settlements - (6,901,406)
Legal fees 15,459 1,264,984
Depreciation and
amortization 553 7,727
Loss from write-down
of investment in
corporate bonds - 24,000
Interest expense 1,289 54,858
Interest income (19,452) (6,935)
--------- ---------
Net income (loss)
before income taxes (396,811) 4,948,708
State income taxes 36,456 1,670
--------- ---------
NET INCOME (LOSS) $ (433,267) $ 4,947,038
========= =========
INCOME (LOSS) PER COMMON
SHARE - BASIC AND
DILUTED $ (0.13) $ 1.38
========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING - BASIC
AND DILUTED 3,311,981 3,589,094
========= =========
See accompanying notes to financial statements.
-28-
Aries Ventures Inc.
Statement of Shareholders' Equity
Fiscal Years Ended September 30, 2003 and 2002
Common Stock Preferred Stock Additional Retained
---------------------- ----------------- Paid-in Earnings
Shares Par Value Shares Par Value Capital (Deficit) Total
---------- --------- ------ --------- ----------- ------------ ------------
Balance, October 1, 2001 3,533,177 $ 35,332 $ $ 2,013,684 $ (2,011,172) $ 37,844
Common stock issued
for services 61,000 610 1,220 1,830
Common stock
repurchased (282,196) (2,822) (214,045) (216,867)
Net income for the
fiscal year 4,947,038 4,947,038
--------- --------- ------ --------- ----------- ------------ ------------
Balance, September 30,
2002 3,311,981 33,120 1,800,859 2,935,866 4,769,845
Net loss for the
fiscal year (433,267) (433,267)
--------- --------- ------ --------- ----------- ------------ ------------
Balance, September 30,
2003 3,311,981 $ 33,120 $ $ 1,800,859 $ 2,502,599 $ 4,336,578
========= ========= ====== ========= =========== ============ ============
See accompanying notes to financial statements.
-29-
Aries Ventures Inc.
Statements of Cash Flows
Fiscal Years Ended
September 30,
--------------------------
2003 2002
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (433,267) $ 4,947,038
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization 553 7,727
Loss from write-down
of investment in
corporate bonds - 24,000
Common stock issued
for services - 1,830
Changes in operating
assets and liabilities:
(Increase) decrease in:
Prepaid expenses
and other current
assets 2,491 (2,857)
Increase (decrease) in:
Accounts payable (16,145) (94,954)
Accrued liabilities 351 7,898
---------- ----------
Net cash provided by (used
in) operating activities (446,017) 4,890,682
---------- ----------
INVESTING ACTIVITIES
Payments from related
entity 84,666 77,393
Increase in amounts
due from related
entity (60,485) (51,075)
Purchase of property
and equipment (1,400) -
---------- ----------
Net cash provided by
investing activities 22,781 26,318
---------- ----------
(continued)
-30-
Aries Ventures Inc.
Statements of Cash Flows
Fiscal Years Ended
September 30,
--------------------------
2003 2002
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance
of notes payable $ - $ 500,000
Repayment of notes
payable - (500,000)
Repurchase of securities (216,867)
---------- ----------
Net cash used in
financing activities - (216,867)
---------- ----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (423,236) 4,700,133
At beginning of year 4,768,749 68,616
---------- ----------
At end of year $ 4,345,513 $ 4,768,749
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 1,289 $ 54,858
========== ==========
Cash paid for taxes $ 36,456 $ 1,670
========== ==========
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued
for services $ - $ 1,830
========== ==========
See accompanying notes to financial statements.
-31-
Aries Ventures Inc.
Notes to Financial Statements
Fiscal Years Ended September 30, 2003 and 2002
1. Organization and Business
a. Organization
Aries Ventures Inc. ("Aries" or the "Company") was incorporated in Nevada
on April 21, 2000 as a wholly-owned subsidiary of Casmyn Corp., a Colorado
corporation ("Casmyn"). On April 28, 2000, Casmyn was merged with and into
Aries, with Aries being the surviving corporation.
b. Company Outlook
As of September 30, 2003, the Company had no business operations. The
Company is focused on maintaining the corporate entity and seeking a new
business opportunity. The Company believes that its working capital
resources are adequate to fund anticipated costs and expenses during the
fiscal year ending September 30, 2004.
2. Basis of Presentation
a. Presentation
The financial statements include the accounts of the Company and its
wholly-owned, inactive subsidiary (which has no assets or operations), and
have been prepared in accordance with accounting principles generally
accepted in the United States.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with an
original maturity of three months or less at the date of purchase. The
Company minimizes its credit risk by investing its cash and cash
equivalents with major banks and financial institutions located primarily
in the United States. However, cash balances exceeded federally-insured
levels at September 30, 2003 and 2002. Balances that exceed such limits are
separately insured through the commercial insurance carrier of the
financial institution. The Company believes that no risk exists with
respect to its concentration of balances in cash and cash equivalents.
d. Property and Equipment
Depreciation with respect to furniture, fixtures and office equipment is
provided on the straight-line method over the estimated useful lives of the
respective assets.
e. Income (Loss) Per Common Share
Basic income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding during the
period. Diluted income (loss) per share is calculated assuming the issuance
of common shares, if dilutive, resulting from the exercise of outstanding
stock options and warrants. These potentially dilutive securities were not
-32-
included in the calculation of loss per share for fiscal year ended
September 30, 2003 because the Company incurred a loss during such period
and thus their effect would have been anti-dilutive. These potentially
dilutive securities were not included in the calculation of income per
share for the fiscal year ended September 30, 2002 because the respective
exercise prices of the stock options and warrants were greater than the
average price of the Company's common stock during such period.
Accordingly, basic income (loss) per common share and diluted income (loss)
per common share are the same for the fiscal years ended September 30, 2003
and 2002.
As of September 30, 2003, potentially dilutive securities consisted of
outstanding Series A common stock purchase warrants and stock options to
acquire 3,250,981 shares and 353,318 shares, respectively.
f. Fair Value of Financial Instruments
The Company believes that the carrying value of the its cash and cash
equivalents, related party receivables, accounts payable and accrued
liabilities as of September 30, 2003 and 2002 approximates their respective
fair values due to the demand or short-term nature of those instruments and
their underlying liquidity.
g. Stock-Based Compensation
The Company may periodically issue shares of common stock for services
rendered or for financing costs. Such shares are valued based on the market
price on the transaction date.
The Company may periodically issue stock options and warrants to
management, employees and non-employees in non-capital raising transactions
for services and for financing costs.
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
establishes a fair value method of accounting for stock-based compensation
plans.
The provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of stock options or to continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", but to disclose the pro
forma effect on net loss and net loss per share had the fair value of the
stock options been exercised. The Company has elected to continue to
account for stock-based compensation plans utilizing the intrinsic value
method. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair market price of the Company's common stock at
the date of grant above the amount an employee must pay to acquire the
common stock.
In accordance with SFAS No. 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The value of
a stock-based award is determined using the Black-Scholes option pricing
model, whereby compensation cost is the fair value of the award as
determined by the pricing model at the grant date or other measurement
date. The resulting amount is charged to expense on the straight-line basis
over the period in which the Company expects to receive benefit, which is
generally the vesting period. Stock options issued to non-employee
directors at fair market value are accounted for under the intrinsic value
method.
h. Reclassification
Certain amounts have been reclassified in 2002 to conform to the
presentation in 2003.
-33-
i. Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. SFAS No. 148 is effective for fiscal years beginning
after December 15, 2002. The interim disclosure provisions are effective
for financial reports containing financial statements for interim periods
beginning after December 15, 2002. The adoption of SFAS No. 148 did not
have a significant effect on the Company's financial statement presentation
or disclosures.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments
meets the characteristics of a derivative and when a derivative contains a
financing component. SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003. The adoption of SFAS No. 149 did not have
a significant effect on the Company's financial statement presentation or
disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. SFAS No.
150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS No. 150 is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 did not have a
significant effect on the Company's financial statement presentation or
disclosures.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities (an Interpretation of ARB No. 51)" ("FIN 46").
FIN 46 requires that the primary beneficiary in a variable interest entity
consolidate the entity even if the primary beneficiary does not have a
majority voting interest. The consolidation requirements of FIN 46 are
required to be implemented for any variable interest entity created on or
after January 31, 2003. In addition, FIN 46 requires disclosure of
information regarding guarantees or exposures to loss relating to any
variable interest entity existing prior to January 31, 2003 in financial
statements issued after January 31, 2003. The implementation of the
provisions of FIN 46 effective January 31, 2003 did not have a significant
effect on the Company's consolidated financial statement presentation or
disclosures.
3. Due from Related Party
During the fiscal years ended September 30, 2003 and 2002, the Company
allocated certain common corporate services to Resource Ventures, Inc.
("Resource"), a related entity with certain common officers and directors.
Activity with respect to the allocation of such services is summarized as
follows:
-34-
Balance, October 1, 2001 $ 77,393
Amounts allocated to Resource 51,075
Payments by Resource to Company (77,393)
------
Balance, September 30, 2002 51,075
Amounts allocated to Resource 60,485
Payments by Resource to Company (84,666)
------
Balance, September 30, 2003 $ 26,894
======
4. Notes Payable
During October 2001, the Company borrowed $500,000 pursuant to unsecured
notes payable, with interest at 12% per annum, both principal and interest
payable on September 30, 2002. The lender also received 85,000 Series A
common stock purchase warrants that had been originally issued to an
affiliate of the Company. The Company was obligated to pay the notes from
the net proceeds received by the Company from the settlement of its legal
claims against other parties that aggregated in excess of $500,000. During
August 2002, the notes were paid in full, with interest. Since the exercise
price of the Series A common stock purchase warrants was substantially in
excess of the market value of the underlying common stock, the warrants had
nominal intrinsic value, and therefore no accounting value was ascribed to
the warrants for financial statement purposes.
5. Commitments and Contingencies
a. Operating Leases
The Company leases its executive and administrative offices under an
operating lease that expires on September 30, 2004. Future minimum lease
payments for the fiscal year ended September 30, 2004 under the existing
lease are approximately $22,500.
Related rent expense for the fiscal years ended September 30, 2003 and 2002
was $21,766 and $19,047, respectively.
b. Employment Agreements
The Company has employment agreements with its Chairman of the Board of
Directors (the "Chairman") and its President and Chief Financial Officer
(the "President"), providing for individual compensation of $60,000 per
year for the period from October 1, 2002 through September 30, 2005. The
employment agreements provide that in the event of a change in majority
ownership of the Company, each such person has the option to terminate his
employment with the Company and receive a payment equal to three times his
base annual compensation.
During the fiscal year ended September 30, 2002, the Chairman and the
President were paid $125,000 and $60,000, respectively, pursuant to their
employment agreements, and bonuses aggregating $150,000 as a result of the
successful conclusion of the legal proceedings, as described below. No
bonuses were paid during the fiscal year ended September 30, 2003.
c. Legal Proceedings
During September 2002, the Company concluded legal settlements with respect
to all litigation and claims that it had been pursuing in various
jurisdictions against the Company's former officers, directors, auditors
and legal counsel. These legal settlements provided for aggregate lump-sum
cash payments to the Company of approximately $6,900,000, which resulted in
net payments of approximately $5,700,000, after deduction for contingency
legal fees and other related expenses.
-35-
During February 2002, the Company settled all outstanding debts and claims
that it had against WaterPur International, Inc. ("WaterPur") in exchange
for 1,000,000 shares of WaterPur common stock and warrants to purchase
250,000 shares of WaterPur common stock, exercisable for a period of three
years at $1.00 per share. In conjunction with this settlement, the
acquisitions previously effected by WaterPur on May 10, 1999 were
rescinded, and WaterPur acquired Aquentium, Inc., an investment and holding
company incorporated in the state of Nevada, in a reverse merger
transaction. The Company did not ascribe any value to the WaterPur
securities because the securities are illiquid, the Company was unable to
determine a fair market value for such securities, and the previous
investments in WaterPur were written off in prior years as the Company
deemed such investments impaired.
6. Income Taxes
As of September 30, 2003, the Company had federal net operating loss
carryforwards of approximately $70,500,000 expiring in various years
through 2023, which can be used to offset future taxable income, if any. No
deferred asset benefit for these operating losses has been recognized in
the Company's financial statements due to the uncertainty as to their
realizability in future periods.
State income taxes were $36,456 for the fiscal year ended September 30,
2003, as compared to $1,670 for the fiscal year ended September 30, 2002.
State income taxes in 2003 consisted primarily of the California
alternative minimum tax relating to the proceeds from the legal settlements
received in September 2002, which was paid in July 2003. The Company does
not expect to be subject to this tax in subsequent periods.
Due to the restrictions imposed by the Internal Revenue Code regarding
substantial changes in ownership of companies with loss carryforwards, the
utilization of a portion of the Company's federal net operating loss
carryforwards may be limited as a result of changes in stock ownership in
prior fiscal years.
During the fiscal year ended September 30, 1999, the Company identified
specific losses occurring in prior fiscal years that were caused by the
improper and fraudulent actions and activities of former management. These
losses aggregated approximately $55,120,000 and were recognized as
deductions on the Company's federal income tax return for the fiscal year
ended September 30, 1999. The Company's federal net operating loss
carryforwards and the benefits deriving therefrom may be subject to audit
by the Internal Revenue Service.
The Company's net deferred tax assets (using a federal corporate income
rate of 34%) consisted of the following at September 30, 2003 and 2002:
September 30,
------------------------------
2003 2002
------------ ------------
Deferred tax assets:
Operating loss carryforwards $ 26,275,000 $ 26,301,000
Valuation allowances 180,000 172,000
Depreciation 2,000 2,000
---------- ----------
26,457,000 26,475,000
Less: Valuation allowance (26,457,000) (26,475,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
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As a result of the Company's significant operating loss carryforwards and
the corresponding valuation allowance, no income tax expense (benefit) has
been recorded at September 30, 2003 and 2002. The provision for income
taxes using the statutory federal tax rate as compared to the Company's
effective tax rate is summarized as follows:
September 30,
------------------------------
2003 2002
------------ ------------
Tax expense (benefit) at
statutory rate (34.0%) 34.0%
State income taxes 6.2% -
Adjustments to change in
valuation allowance 37.0% (34.0%)
---- ----
9.2% 0.0%
==== ====
7. Related Party Transactions
In addition to the related party transactions described at Notes 3, 4, 8
and 9, the Company had the following related party transactions during the
fiscal years ended September 30, 2003 and 2002:
a. During the fiscal years ended September 30, 2003 and 2002, the Company
paid a non-employee director of the Company an annual board consulting
fee of approximately $14,000.
b. During the fiscal years ended September 30, 2003 and 2002, the Company
paid a fee to a non-officer director not otherwise compensated of
$5,000.
8. Shareholders' Equity
a. Common Stock
As of September 30, 2003, the Company had authorized 50,000,000 shares of
common stock with a par value of $0.01 per share.
On November 1, 2001, the Company issued 61,000 shares of its common stock
to three individuals for services, including 50,000 shares to the Company's
Chairman for arranging the $500,000 loan (see Note 4). Accordingly, during
the fiscal year ended September 30, 2002, the Company recorded general and
administrative expense of $1,830 with respect to the issuance of such
shares, based on their market value of $0.03 per share on the issuance
date.
During September 2002, the Company repurchased and retired 282,196 shares
of common stock and 282,196 Series A common stock purchase warrants from an
institutional shareholder for a total consideration of $216,867. As a
result of the exercise price of the Series A common stock purchase warrants
being substantially in excess of the fair market value of the Company's
common stock, all of the consideration was allocated to the common shares.
During November 2003, the Company also repurchased shares of common stock
and Series A common stock purchase warrants as described at Note 9.
-37-
b. Preferred Stock
As of September 30, 2003, the Company had authorized 10,000,000 shares of
preferred stock with a par value $0.01 per share.
The Board of Directors is vested with the authority to divide the
authorized shares of preferred stock into series and to determine the
relative rights and preferences at the time of issuance of the series.
c. Stock Option Plans
Under the Company's Employee Stock Option Plan, the Company may issue stock
options to purchase a maximum of 353,318 shares of common stock of the
Company pursuant to incentive and non-qualified stock options to officers,
management and employees of the Company. Under the Company's Management
Incentive Stock Option Plan, the Company may issue stock options to
purchase a maximum of 247,322 shares of common stock of the Company
pursuant to incentive and non-qualified stock options to officers,
directors, employees, management and consultants of the Company. Both stock
option plans were adopted by the Board of Directors on April 12, 2000, and
are administered by the Board of Directors or, in the discretion of the
Board of Directors, by a committee of not less than two individuals with
authority to determine persons to whom options will be granted, the timing
and manner of grants of options, the exercise prices, the number of shares
covered by the options, the terms of the options, and all other
determinations necessary or advisable for administration of such stock
option plans. At September 30, 2003, there were 247,322 options issuable
under the Employee Stock Option Plan and no options issuable under the
Management Incentive Stock Option Plan.
The purchase price for the shares subject to any incentive stock option
granted under the Employee Stock Option Plan or the Management Incentive
Stock Option Plan shall not be less than 100% of the fair market value of
the shares of common stock of the Company on the date the option is granted
(110% for stockholders who own in excess of 10% of the outstanding common
stock). No options shall be exercisable after the earliest of the
following: the expiration of 10 years after the date the option is granted;
three months after the date the optionee's employment with the Company
terminates if termination is for any reason other than permanent disability
or death; or one year after the date the optionee's employment terminates
if termination is a result of death or permanent disability. Unless sooner
terminated by the Board of Directors, both option plans expire on April 11,
2010.
On November 1, 2000, the Company granted stock options under these stock
option plans to management and directors aggregating 353,318 shares of
common stock, exercisable for a period of five years. The exercise price of
such options was the fair market value on the date of grant ($0.23 per
share), except for the Chairman, a more than 10% stockholder of the
Company; the exercise price of the Chairman's option was 110% of the fair
market value on the date of grant ($0.25 per share). The stock options
vested in equal annual increments on September 30, 2001, 2002 and 2003.
Option activity under these stock option plans for the fiscal years ended
September 30, 2002 and 2003 is summarized as follows:
-38-
Remaining
Contractual
Number of Exercise Life
Options Price (in years)
--------- ---------- ----------
Balance outstanding,
October 1, 2001 353,318 $0.23-0.25
Options granted - -
Options exercised - -
Options expired - -
-------
Balance outstanding,
September 30, 2002 353,318 $0.23-0.25
Options granted - -
Options exercised - -
Options expired - -
-------
Balance outstanding,
September 30, 2003 353,318 $0.23-0.25 1.9
=======
Options exercisable
at September 30, 2003 353,318 $0.23-0.25 1.9
=======
The fair value of the stock options granted on November 1, 2000 were
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rate
5%; dividend yield of 0%; stock price volatility of 100%; and expected life
of five years. Had compensation cost for stock option grants made under the
Employee Stock Option Plan and the Management Incentive Stock Option Plan
been determined under SFAS No. 123, the Company's net income (loss) and net
income (loss) per common share for the fiscal years ended September 30,
2003 and 2002 would have been as follows:
Fiscal Years Ended September 30,
--------------------------------
2003 2002
------------ ------------
Net income (loss), as reported $(433,267) $4,947,038
Additional compensation expense
pursuant to SFAS No. 123 (20,124) (20,124)
------- ---------
Net income (loss), as adjusted $(453,391) $4,926,914
======= =========
Net income (loss) per common
share (basic and diluted),
as adjusted $ (0.14) $ 1.37
======= =========
d. Warrants
Warrant activity for the fiscal years ended September 30, 2002 and 2003 is
summarized below. The Series A warrants entitle the holders to purchase one
share of common stock at $6.00 per share, and are currently exercisable
through October 11, 2004.
-39-
Remaining
Contractual
Number of Exercise Life
Warrants Price (in years)
--------- -------- -----------
Balance outstanding,
October 1, 2001 3,533,177 $6.00
Warrants granted - -
Warrants exercised - -
Warrants expired - -
Warrants repurchased (282,196) -
---------
Balance outstanding,
September 30, 2002 3,250,981 $6.00
Warrants granted -
Warrants exercised -
Warrants expired -
Warrants repurchased -
---------
Balance outstanding,
September 30, 2003 3,250,981 $6.00 1.0
=========
Warrants exercisable
at September 30, 2003 3,250,981 $6.00 1.0
=========
9. Subsequent Events
Effective November 17, 2003, the Company repurchased from an institutional
shareholder 1,279,755 shares of common stock and 1,194,755 Series A common
stock purchase warrants in a private transaction for an aggregate cash
purchase price of $1,343,743. Accordingly, the Company's issued and
outstanding shares of common stock were reduced to 2,032,226 shares and the
Company's shareholders' equity was reduced by $1,343,743.
-40-
INDEX TO EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
2.1 Debtor's Second Amended Chapter 11 Plan of Reorganization,
previously filed as an exhibit to the Company's Current Report on
Form 8-K dated March 31, 2000, and incorporated herein by
reference.
2.2 Order Confirming Debtor's Second Amended Chapter 11 Plan of
Reorganization, previously filed as an exhibit to the Company's
Current Report on Form 8-K dated March 31, 2000, and incorporated
herein by reference.
2.3 Order Authorizing Non-Material Modification of Debtor's Second
Amended Chapter 11 Plan of Reorganization, previously filed as an
exhibit to the Company's Current Report on Form 8-K dated June 1,
2000, and incorporated herein by reference. 3.1 Articles of
Incorporation of Aries Ventures Inc., a Nevada corporation, as
filed with the State of Nevada on April 21, 2000, previously filed
as an exhibit to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference.
3.2 Articles and Plan of Merger of Casmyn Corp., a Colorado
corporation, and Aries Ventures Inc., a Nevada corporation, as
filed with States of Nevada and Colorado on April 28, 2000,
previously filed as an exhibit to the Company's Current Report on
Form 8-K dated April 28, 2000, and incorporated herein by
reference.
3.3 Bylaws of Aries Ventures Inc., a Nevada corporation, as adopted on
April 28, 2000, previously filed as an exhibit to the Company's
Current Report on Form 8-K dated April 28, 2000, and incorporated
herein by reference.
3.4 Articles of Amendment of Articles of Incorporation of Casmyn Corp.,
as filed with the State of Colorado, previously filed as an exhibit
to the Company's Current Report on Form 8-K dated March 31, 2000,
and incorporated herein by reference.
10.1 Employment Agreement between Casmyn Corp. and Mark S. Zucker dated
September 1, 1999, previously filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended September
30, 1999, and incorporated herein by reference. (C)
10.2 Employment Agreement between Casmyn Corp. and Robert N. Weingarten
dated September 1, 1999, previously filed as an exhibit to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1999, and incorporated herein by reference. (C)
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (1)
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (1)
---------------------
(1) Filed herewith.
(C) Indicates compensatory plan, agreement or arrangement.
-41-