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, 2004
[ ] 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]
The issuer had no revenues from operations for the fiscal year ended
September 30, 2004.
The aggregate market value of the issuer's common stock held by
non-affiliates of the issuer was approximately $146,000 as of December 31, 2004.
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 December 31, 2004.
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,
2004 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, 2004 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
Background:
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, 2004, 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.
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
expired on September 30, 2004. Subsequent to September 30, 2004, such facilities
will be occupied on a month-to-month basis. Effective January 1, 2005, the
Company will occupy new offices provided by an affiliate without charge on a
month-to-month basis at 11111 Santa Monica Boulevard, Suite 1250, Los Angeles,
California 90025.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any threatened or pending legal claims or
proceedings.
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, 2004.
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is 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, 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
Fiscal Year Ended September 30, 2004:
Three months ended -
December 31, 2003 $ 0.91 $ 0.25
March 31, 2004 0.55 0.25
June 30, 2004 0.35 0.30
September 30, 2004 0.30 0.25
(b) Holders
As of September 30, 2004, the Company had 41 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 630 common shareholders, including
shares held in street name, as of September 30, 2004.
(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
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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.
On June 25, 2004, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-8 for the purpose of registering
the common shares issuable under the Employee Stock Option Plan and the
Management Incentive Stock Option Plan Consultant Stock Plan under the
Securities Act of 1933.
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))
-------------- ----------------- ------------------------
(a) (b) (c)
353,318 $0.24 247,322 shares
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(1) Consists of vested stock options.
Sales of Unregistered Securities
The Company did not sell any unregistered securities during the fiscal
years ended September 30, 2004 or 2003.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General Overview:
As of September 30, 2004, 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.
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.
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.
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However, cash balances exceeded federally-insured levels at September 30, 2004
and 2003. 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.
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, 2004 and 2003:
General and Administrative. General and administrative expenses were
$342,525 and $398,962 for the fiscal years ended September 30, 2004 and 2003,
respectively. General and administrative expenses decreased by $56,437 or 14.1%
in 2004 as compared to 2003, primarily as a result of decreases in accounting
fees and insurance costs.
Effective January 1, 2005, the Company will relocate its offices to new
facilities in the Los Angeles area, as a result of which the Company expects to
incur substantially reduced office and occupancy expenses, as well as reduced
personnel-related costs, from that date forward.
Legal Fees. Legal fees decreased by $8,459 or 54.7%, to $7,000 for the
fiscal year ended September 30, 2004, as compared to $15,459 for the fiscal year
ended September 30, 2003.
Depreciation and Amortization. Depreciation and amortization was $506 and
$553 for the fiscal years ended September 30, 2004 and 2003, respectively.
Interest Expense. Interest expense was $768 and $1,289 for the fiscal years
ended September 30, 2004 and 2003, respectively.
Interest Income. Interest income decreased to $5,202 for the fiscal year
ended September 30, 2004, as compared to $19,452 for the fiscal year ended
September 30, 2003, as a result of decreased interest-bearing cash balances
during 2003.
State Income Taxes. State income taxes were $36,456 for the fiscal year
ended September 30, 2003, which consisted of the California alternative minimum
tax relating to the proceeds from the legal settlements received in September
2002, and which was paid in July 2003. The Company does not expect to be subject
to this tax in subsequent periods. The Company did not incur any state income
taxes in 2004.
Net Loss. The Company had a net loss of $345,597 for the fiscal year ended
September 30, 2004, as compared to $433,267 for the fiscal year ended September
30, 2003.
Consolidated Financial Condition - September 30, 2004:
Liquidity and Capital Resources:
Overview. The Company's cash and cash equivalents were $2,686,241 at
September 30, 2004, as compared to $4,345,513 at September 30, 2003, a decrease
of $1,659,272, primarily as a result of the Company expending $1,343,743 in
November 2003 to repurchase its securities, as described below at "Financing".
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As of September 30, 2004, the Company's working capital was $2,644,208, as
compared to $4,333,161 at September 30, 2003.
Operating. The Company's operations utilized cash resources of $342,304
during the fiscal year ended September 30, 2004, as compared to $446,017 during
the fiscal year ended September 30, 2003, primarily for various general and
administrative costs.
As of September 30, 2004, 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, 2005.
Investing. During the fiscal years ended September 30, 2004 and 2003, the
Company generated net cash from investing activities of $26,775 and $22,781,
respectively.
During the fiscal years ended September 30, 2004 and 2003, the Company
allocated certain common corporate services (consisting of rent, utilities,
common area services, insurance and other office services) to Resource Ventures,
Inc. ("Resource"), a related entity with certain common officers and directors,
aggregating $38,356 and $60,485, respectively. As of September 30, 2004 and
2003, amounts due from Resource aggregated $0 and $26,894, respectively. During
the fiscal years ended September 30, 2004 and 2003, Resource paid the Company
$65,250 and $84,666, respectively.
Financing. During the fiscal year ended September 30, 2004, the Company
utilized net cash in financing activities of $1,343,743, as described below. The
Company did not have any financing activities during the fiscal year ended
September 30, 2003.
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.
Commitments and Contingencies. At September 30, 2004, the Company did not
have any material commitments for capital expenditures or have any transactions,
obligations or relationships that could be considered off-balance sheet
arrangements.
Recent Accounting Pronouncements:
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 ("FIN 46"),
"Consolidation of Variable Interest Entities" ("FIN 46"), which clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", relating to consolidation of certain entities. In December 2003,
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the FASB issued a revised version of FIN 46 ("FIN 46R") that replaced the
original FIN 46. FIN 46R requires identification of a company's participation in
variable interest entities ("VIEs"), which are defined as entities with a level
of invested equity that is not sufficient to fund future activities to permit it
to operate on a standalone basis. For entities identified as a VIE, FIN 46R sets
forth a model to evaluate potential consolidation based on an assessment of
which party to the VIE (if any) bears a majority of the exposure to its expected
losses, or stands to gain from a majority of its expected returns. FIN 46R also
sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. The Company is not currently
participating in, or invested in any VIEs, as defined in FIN 46R. The
implementation of the provisions of FIN 46R did not have a significant effect on
the Company's financial statement presentation or disclosures.
ITEM 7. FINANCIAL STATEMENTS
The financial statements included herein are listed at the "Index to
Financial Statements".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A. 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.
ITEM 8B. OTHER INFORMATION
Not applicable.
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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 December 31, 2004. 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):
Robert N. Weingarten 52 December 31, 2004
Class II (term expired
April 11, 2002):
Divo Milan (1)(2) 48 August 21, 1998
Class III (term expired
April 11, 2003):
Selwyn Kossuth (1)(2) 67 September 26,1997
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(1) Member of the compensation committee.
(2) Member of the audit committee.
Effective December 31, 2004, Mark S. Zucker resigned from the Board of
Directors, and Robert N. Weingarten was appointed to the board of directors.
EXECUTIVE OFFICERS
Date First
Elected as
Name Age Position Officer
---- --- -------- ----------
Robert N. Weingarten 52 Chairman of the November 20,
Board of Directors, 1998
President, Chief
Financial Officer
and Secretary
Involvement in Certain Legal Proceedings:
None of the Company's directors or executive officers has, during the past
five years: (1) had any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
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of the bankruptcy or within two years prior to that time (except with respect to
the Company's bankruptcy reorganization in 2000); (2) been convicted in a
criminal proceeding or subject to a pending criminal proceeding; (3) been
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities, futures, commodities or banking activities; or (4) been
found by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodity Futures Trading Commission, to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.
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 wholly-owned by Aries Ventures Inc.
Divo Milan. Mr. Milan has been the Chief Executive Officer of Investigacion
Estrategica, a merchant banking firm 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
wholly-owned by Aries Ventures Inc.
Robert N. Weingarten. Mr. Weingarten was appointed Chief Financial Officer of
the Company on November 20, 1998, President effective October 1, 2002, and
Chairman of the Board of Directors effective December 31, 2004. 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 wholly-owned by Aries Ventures Inc., and YouthStream Media Networks,
Inc. and ARTISTdirect, Inc., both of which are public companies.
Audit Committee Financial Expert:
Selwyn Kossuth, by virtue of his background and experience, has been
designated as the audit committee's financial expert, and is considered
"independent", as that term is used in Item 7(d)(3)(iv) of Schedule 14A of the
Securities Exchange Act of 1934, as amended.
Family Relationships among Directors and Executive Officers:
There were no family relationships among directors and executive officers
during the fiscal years ended September 30, 2003 or 2004.
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Compliance with Section 16(a) of the Exchange Act:
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons or entities who own
more than 10% of a registered class of the Company's equity securities to file
various reports with the Securities and Exchange Commission concerning their
holdings of, and transactions in, securities of the Company. Copies of these
filings must be furnished to the Company.
To the Company's knowledge based solely on its review of the copies of the
Section 16(a) reports furnished to the Company and written representations to
the Company that no other reports were required, the Company believes that all
individual filing requirements applicable to the Company's directors and
executive officers were complied with under Section 16(a) during the fiscal year
ended September 30, 2004.
Code of Ethics:
The Company has adopted a written Code of Ethics that applies to its senior
management. A copy of the Company's Code of Ethics, executed by the Company's
President and Chief Financial Officer, has been filed as an exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 2004. A copy of the Company's Code of Ethics is available to any shareholder
by addressing a request to the attention of the Secretary of the Company and
mailing such request to the Company's corporate offices. Any amendment to the
Code of Ethics or any waiver of the Code of Ethics will be disclosed promptly
following the date of such amendment or waiver pursuant to a Form 8-K filing
with the Securities and Exchange Commission.
Changes in Procedures to Nominate Directors:
Since the date of the Company's last disclosures pursuant to Item
7(d)(s)(ii)(G) of Schedule 14A of the Securities Exchange Act of 1934, as
amended, there have been no material changes to the procedures by which security
holders may recommend nominees to the Company's Board of Directors.
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.
SUMMARY COMPENSATION TABLE
Fiscal
Year
Name and Ended
Principal September Other Annual
Positions 30, Salary Bonus Compensation
--------- ---- ------ ----- ------------
Mark S. Zucker 2004 $ 60,000
former Chairman 2003 60,000
of the Board of 2002 125,000 $90,000 (1) $1,500(2)
Directors
Robert N. 2004 60,000
Weingarten 2003 60,000
President and 2002 60,000 60,000 (1)
Chief Financial
Officer
---------------
(1) During the fiscal year ended September 30, 2002, the Company paid bonuses
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to Mr. Zucker and Mr. Weingarten as a result of the successful conclusion
of various 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.
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.
Effective October 1, 2000, Mr. Zucker and Mr. Weingarten voluntarily agreed
to reduce their annual compensation to $125,000 and $60,000, respectively.
Effective October 1, 2002, Mr. Zucker voluntarily agreed to reduce his base
annual compensation to $60,000.
The employment agreements of Mr. Zucker and Mr. Weingarten were 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 Mr. Zucker and Mr. Weingarten were each reduced to $60,000 per
year, and Mr. Zucker's position was designated as Chairman of the Board of
Directors and Mr. Weingarten's positions were designated as President and Chief
Financial Officer. Subsequently, effective October 1, 2004, Mr. Zucker and Mr.
Weingarten voluntarily agreed to reduce their annual compensation to $18,000 for
the remainder of the term of the respective employment agreements.
Effective December 31, 2004, Mr. Zucker resigned from the Board of
Directors, and his employment agreement was terminated.
Board of Directors Compensation:
Commencing October 1, 2002, 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.
During the fiscal years ended September 30, 2004, 2003 and 2002, Selwyn
Kossuth, a director of the Company, was paid an annual board committee fee of
approximately $14,000.
Committees of Board of Directors:
The Company does not have a nominating committee of the Board of Directors,
or any committee performing similar functions. Nominees for election as a
director are selected by the Board of Directors.
The Company does not have a stock option committee of the Board of
Directors, or any committee performing similar functions. The Board of Directors
is currently responsible for the operation and administration of the Company's
stock option plans, including the grants thereunder.
The compensation committee of the Board of Directors consists of Selwyn
Kossuth and Divo Milan, neither of whom is an employee of the Company. The
compensation committee reviews the performance of the executive officers of the
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Company and reviews the compensation programs for key employees, including
salary and bonus levels.
The audit committee of the Board of Directors consists of Selwyn Kossuth
and Divo Milan, neither of whom is an employee of the Company. The audit
committee reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's independent public accountants, the scope of the annual audits, the
nature of non-audit services, the fees to be paid to the independent public
accountants, the performance of the independent public accountants, and the
accounting practices of the Company. The audit committee held four meetings
during the fiscal year ended September 30, 2004.
Long-Term Incentive Plans:
The Company does not have any long-term incentive plans.
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, 2004, 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
option shall be exercisable after the expiration of 10 years after the date the
option is granted. In addition, subject to certain exceptions, no option shall
be exercisable after the expiration of 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, 2004 (all issued pursuant to stock option plans) is presented below. No
stock options have been exercised.
-13-
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, 2004.
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 December 31, 2004, 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 December 31, 2004: (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
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.
-14-
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common
of Beneficial Owner Ownership Stock (9)
------------------- --------- ---------
Kyneton Investments, Ltd.
2 Jane Street, #501
Toronto
Ontario
Canada M6S 4W3 593,710 (1) 25.5
David and Lily Marx
55 South La Cumbre Road
Suite #15
Santa Barbara
California 93105 167,300 (2) 8.2
Mark S. Zucker 2,007,149 (3) 64.8
11111 Santa Monica
Boulevard
Suite 1250
Los Angeles
California 90025
Directors and Executive
Officers:
Divo Milan (8) 253,682 (4) 11.7
Selwyn Kossuth (8) 17,666 (5) 0.9
Robert N. Weingarten (8) 141,327 (6) 6.5
All Directors and
Executive Officers as
a Group (3 persons) 412,675 (7) 17.7
------------------------
(1) Includes 296,855 shares of common stock issuable upon exercise of
currently exercisable Series A common stock purchase warrants.(1)
(2) Reflects shares of common stock reported in Schedule 13D filed with
Securities and Exchange Commission on January 30, 2004.
(3) 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 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)
(4) 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.
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.
(5) Consists of vested options to purchase 17,666 shares of common stock.
(6) Consists of vested options
to purchase 141,327 shares of common stock.
(7) Includes 118,008 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.
(8) The address of each such person is c/o the Company, 28720 Canwood Street,
Suite 207, Agoura Hills, California 91301.
-15-
(9) The calculation with respect to percent of shares of common stock
outstanding for each beneficial owner assumes that any 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 any warrants or options held by others are not exercised at
that time.
Changes in Control:
As of September 30, 2004, 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.
Information with respect to securities authorized for issuance under equity
compensation plans is provided at "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS - Securities Authorized for Issuance Under Equity
Compensation Plans".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended September 30, 2004 and 2003, the Company
allocated certain common corporate services (consisting of rent, utilities,
common area services, insurance and other office services) to Resource Ventures,
Inc. ("Resource"), a related entity with certain common officers and directors,
aggregating $38,356 and $60,485, respectively. As of September 30, 2004 and
2003, amounts due from Resource aggregated $0 and $26,894, respectively. During
the fiscal years ended September 30, 2004 and 2003, Resource paid the Company
$65,250 and $84,666, respectively.
Information with respect to remuneration paid to officers and directors is
provided at "ITEM 10. EXECUTIVE COMPENSATION".
ITEM 13. 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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Audit-Related Fees:
Weinberg & Company, P.A. has served as the Company's independent accountant
for the fiscal years ended September 30, 2003 and 2004. Services provided to the
Company by Weinberg & Company, P.A. during such periods consisted of the audit
of the Company's annual financial statements and limited reviews of interim
unaudited financial statements included in quarterly reports pursuant to
Statement on Auditing Standards No. 100. Charges by Weinberg & Company, P.A.
with respect to these matters for the fiscal years ended September 30, 2003 and
2004 aggregated approximately $23,000 and $22,000, respectively.
Tax Fees:
Weinberg & Company, P.A. has not provided any services to the Company with
respect to the preparation of corporate income tax returns or tax planning
matters.
All Other Fees:
Weinberg & Company, P.A. has not provided any services with respect to any
matters other than those related to audit and audit-related matters.
-16-
Pre-Approval Policies and Procedures:
The Audit Committee meets periodically to review and approve the scope of
the services to be provided to the Company by its independent accountant, as
well to review and discuss any issues that may arise during an engagement. The
Audit Committee considers various issues with respect to the services to be
provided by its independent accountant, including the complexity of any
engagement, its expected cost, the knowledge and expertise of the independent
accountant's staff, any complex accounting or disclosure issues, new accounting
pronouncements, and the capability of the Company's financial staff.
-17-
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: January 10, 2005 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: January 10, 2005 By: /s/ ROBERT N. WEINGARTEN
-------------------------
Robert N. Weingarten
Chairman of the Board of
Directors, President
and Chief Financial
Officer
Date: January 10, 2005 By: /s/ SELWYN KOSSUTH
-------------------------
Selwyn Kossuth
Director
Date: January 10, 2005 By: /s/ DIVO MILAN
-------------------------
Divo Milan
Director
-18-
Aries Ventures Inc.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets - September 30, 2004 and 2003
Statements of Operations - Years Ended September 30, 2004 and 2003
Statements of Shareholders' Equity - Years Ended September 30, 2004 and 2003
Statements of Cash Flows - Years Ended September 30, 2004 and 2003
Notes to Financial Statements - Years Ended September 30, 2004 and 2003
-19-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, 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 the standards of the Public
Company Accounting Oversight Board (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, 2004 and 2003, 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, 2004
-20-
Aries Ventures Inc.
Balance Sheets
September 30,
--------------------------
2004 2003
---------- ----------
ASSETS
CURRENT
Cash and cash equivalents $ 2,686,241 $ 4,345,513
Due from related party - 26,894
Prepaid expenses and
other current assets 18,147 43,744
---------- ----------
Total current assets 2,704,388 4,416,151
---------- ----------
PROPERTY AND EQUIPMENT 27,363 27,244
Less: accumulated
depreciation and
amortization (26,642) (26,136)
---------- ----------
721 1,108
---------- ----------
OTHER
Deposits 2,309 2,309
---------- ----------
2,309 2,309
---------- ----------
$ 2,707,418 $ 4,419,568
========== ==========
(continued)
-21-
Aries Ventures Inc.
Balance Sheets (continued)
September 30,
--------------------------
2004 2003
---------- ----------
LIABILITIES
CURRENT
Accounts payable $ 50,045 $ 52,702
Accrued liabilities 10,135 30,288
---------- ----------
Total current liabilities 60,180 82,990
---------- ----------
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 -
3,311,981 shares at
September 30, 2004
and 2003 (outstanding -
2,032,226 shares at
September 30, 2004
and 3,311,981 shares
at September 30, 2003) 33,120 33,120
Less: securities held
in treasury at
September 30, 2004 -
1,279,755 shares of
common stock and
1,194,755 Class A
common stock purchase
warrants, at cost (1,343,743) -
Additional paid-in
capital 1,800,859 1,800,859
Retained earnings 2,157,002 2,502,599
---------- ----------
2,647,238 4,336,578
---------- ----------
$ 2,707,418 $ 4,419,568
========== ==========
See accompanying notes to financial statements.
-22-
Aries Ventures Inc.
Statements of Operations
Years Ended September 30,
-------------------------
2004 2003
---------- ----------
REVENUES
$ - $ -
--------- ---------
COSTS AND EXPENSES
General and
administrative 342,525 398,962
Legal fees 7,000 15,459
Depreciation and
amortization 506 553
Interest expense 768 1,289
Interest income (5,202) (19,452)
--------- ---------
Net loss before
income taxes (345,597) (396,811)
State income taxes - 36,456
--------- ---------
NET LOSS $ (345,597) $ (433,267)
========= =========
NET LOSS PER COMMON
SHARE -
BASIC AND DILUTED $ (0.16) $ (0.13)
========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING -
BASIC AND DILUTED 2,200,063 3,311,981
========= =========
See accompanying notes to financial statements.
-23-
Aries Ventures Inc.
Statements of Shareholders' Equity
Years Ended September 30, 2004 and 2003
Common Stock Preferred Stock Securities Additional
---------------------- ----------------- Held in Paid-in Retained
Shares Par Value Shares Par Value Treasury Capital Earnings Total
---------- --------- ------ --------- ----------- ----------- ------------ -----------
Balance, October 1, 2002 3,311,981 $ 33,120 - $ - $ - $1,800,859 $ 2,935,866 $ 4,769,845
Net loss - - - - - - (433,267) (433,267)
--------- --------- ------ --------- --------- ----------- ------------ ------------
Balance, September 30, 2003 3,311,981 33,120 - - - 1,800,859 2,502,599 4,336,578
Common stock repurchased - - - - (1,343,743) - - (1,343,743)
Net loss - - - - - - (345,597) (345,597)
--------- --------- ------ --------- --------- ----------- ------------ ------------
Balance, September 30, 2004 3,311,981 $ 33,120 - $ - $(1,343,743) $1,800,859 $ 2,157,002 $ 2,647,238
========= ========= ====== ========= ========= =========== ============ ============
See accompanying notes to financial statements.
-24-
Aries Ventures Inc.
Statements of Cash Flows
Years Ended September 30,
-------------------------
2004 2003
---------- ----------
OPERATING ACTIVITIES
Net loss $ (345,597) $ (433,267)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization 506 553
Changes in operating
assets and liabilities:
(Increase) decrease in:
Prepaid expenses
and other current
assets 25,597 2,491
Increase (decrease) in:
Accounts payable (2,657) (16,145)
Accrued liabilities (20,153) 351
---------- ----------
Net cash used in operating
activities (342,304) (446,017)
---------- ----------
INVESTING ACTIVITIES
Payments from related
entity 65,250 84,666
Increase in amounts
due from related
entity (38,356) (60,485)
Purchase of property
and equipment (119) (1,400)
---------- ----------
Net cash provided by
investing activities 26,775 22,781
---------- ----------
(continued)
-25-
Aries Ventures Inc.
Statements of Cash Flows
Years Ended September 30,
-------------------------
2004 2003
---------- ----------
FINANCING ACTIVITIES
Repurchase of securities $(1,343,743) $ -
---------- ----------
Net cash used in
financing activities (1,343,743) -
---------- ----------
CASH AND CASH EQUIVALENTS:
Net decrease (1,659,272) (423,236)
Balance at beginning of
year 4,345,513 4,768,749
---------- ----------
Balance at end of year $ 2,686,241 $ 4,345,513
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 768 $ 1,289
========== ==========
Cash paid for income taxes $ - $ 36,456
========== ==========
See accompanying notes to financial statements.
-26-
Aries Ventures Inc.
Notes to Financial Statements
Years Ended September 30, 2004 and 2003
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, 2004, 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
year ending September 30, 2005.
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, 2004 and 2003. 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. Loss Per Common Share
Basic loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted 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 included in the
-27-
calculation of loss per share for the years ended September 30, 2004 and
2003 because the Company incurred a loss during such periods and thus their
effect would have been anti-dilutive. Accordingly, basic and diluted loss
per common share are the same for the years ended September 30, 2004 and
2003.
As of September 30, 2004, potentially dilutive securities consisted of
outstanding Series A common stock purchase warrants and stock options to
acquire 2,056,226 shares and 353,318 shares, respectively.
f. Fair Value of Financial Instruments
The Company believes that the carrying value of its cash and cash
equivalents, related party receivables, accounts payable and accrued
liabilities as of September 30, 2004 and 2003 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 2003 to conform to the
presentation in 2004.
i. Recent Accounting Pronouncements
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
-28-
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 ("FIN 46"),
"Consolidation of Variable Interest Entities" ("FIN 46"), which clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements", relating to consolidation of certain entities. In
December 2003, the FASB issued a revised version of FIN 46 ("FIN 46R") that
replaced the original FIN 46. FIN 46R requires identification of a
company's participation in variable interest entities ("VIEs"), which are
defined as entities with a level of invested equity that is not sufficient
to fund future activities to permit it to operate on a standalone basis.
For entities identified as a VIE, FIN 46R sets forth a model to evaluate
potential consolidation based on an assessment of which party to the VIE
(if any) bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth
certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. The Company is not
currently participating in, or invested in any VIEs, as defined in FIN 46R.
The implementation of the provisions of FIN 46R did not have a significant
effect on the Company's financial statement presentation or disclosures.
3. Due from Related Party
During the years ended September 30, 2004 and 2003, the Company allocated
certain common corporate services (consisting of rent, utilities, common
area services, insurance and other office 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:
Balance, October 1, 2002 $ 51,075
Amounts allocated to Resource 60,485
Payments by Resource to Company (84,666)
------
Balance, September 30, 2003 26,894
Amounts allocated to Resource 38,356
Payments by Resource to Company (65,250)
------
Balance, September 30, 2004 $ -
======
4. Commitments and Contingencies
a. Operating Leases
During the years ended September 30, 2004 and 2003, the Company leased its
executive and administrative offices under an operating lease that expired
on September 30, 2004. Subsequent to September 30, 2004, the Company will
occupy office space on a month-to-month basis.
Related rent expense for the years ended September 30, 2004 and 2003 was
$22,441 and $21,766, respectively.
b. Employment Agreements
-29-
At September 30, 2004, the Company had 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 also 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.
Effective October 1, 2004, the Chairman and the President each agreed to
reduce their compensation to $18,000 per year for the remainder of the term
of the respective employment agreements.
Effective December 31, 2004, the Chairman resigned from the Board of
Directors, and his employment agreement was terminated.
5. Income Taxes
As of September 30, 2004, the Company had federal net operating loss
carryforwards of approximately $70,900,000 expiring in various years
through 2024, 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 year ended September 30, 2003,
which consisted of the California alternative minimum tax relating to the
proceeds from legal settlements received in September 2002, and which was
paid in July 2003. The Company does not expect to be subject to this tax in
subsequent periods. The Company did not incur any state income taxes in
2004.
Due to the restrictions imposed by the Internal Revenue Code regarding
substantial changes in ownership of companies with loss carryforwards, the
utilization of the Company's federal net operating loss carryforwards will
likely be limited as a result of cumulative changes in stock ownership.
During the year ended September 30, 1999, the Company identified specific
losses occurring in prior 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 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, 2004 and 2003:
September 30,
------------------------------
2004 2003
------------ ------------
Deferred tax assets:
Operating loss carryforwards $ 26,412,000 $ 26,275,000
Valuation allowances 180,000 180,000
Depreciation 1,000 2,000
---------- ----------
26,593,000 26,457,000
Less: Valuation allowance (26,593,000) (26,457,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
-30-
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, 2004 and 2003. 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,
------------------------------
2004 2003
------------ ------------
Tax expense (benefit) at
statutory rate 34.0% (34.0%)
State income taxes - 6.2%
Adjustments to change in
valuation allowance (34.0) 37.0%
---- ----
- 9.2%
==== ====
6. Related Party Transactions
In addition to the related party transactions described at Notes 3 and 4,
the Company had the following related party transactions for the years
ended September 30, 2004 and 2003:
a. During the years ended September 30, 2004 and 2003, the Company paid
an annual board committee fee of approximately $14,000 to a
non-employee director.
b. During the years ended September 30, 2004 and 2003, the Company paid a
fee of $5,000 to a non-employee director who was not otherwise
compensated.
7. Shareholders' Equity
a. Preferred Stock
As of September 30, 2004, the Company had authorized 10,000,000 shares of
preferred stock with a par value of $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.
b. Common Stock
As of September 30, 2004, the Company had authorized 50,000,000 shares of
common stock with a par value of $0.01 per share.
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. 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. These securities have
been classified as treasury securities and recorded at cost as a reduction
to shareholders' equity in the Company's balance sheet at September 30,
2004.
c. Stock Option Plans
-31-
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, 2004, 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 option shall be exercisable after the expiration of 10 years
after the date the option is granted. In addition, subject to certain
exceptions, no option shall be exercisable after the expiration of 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 years ended
September 30, 2003 and 2004 is summarized as follows:
Remaining
Contractual
Number of Exercise Life
Options Price (in years)
--------- ---------- ----------
Balance outstanding,
October 1, 2002 353,318 $0.23-0.25
Options issued - -
Options exercised - -
Options expired - -
-------
Balance outstanding,
September 30, 2003 353,318 $0.23-0.25
Options issued - -
Options exercised - -
Options expired - -
-------
Balance outstanding,
September 30, 2004 353,318 $0.23-0.25 1.1
=======
Options exercisable
at September 30, 2004 353,318 $0.23-0.25 1.1
=======
-32-
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
loss and net loss per common share for the years ended September 30, 2004
and 2003 would have been as follows:
Years Ended September 30,
------------------------------
2004 2003
------------ ------------
Net loss, as reported $(345,597) $(433,267)
Additional compensation expense
pursuant to SFAS No. 123 (1,662) (20,124)
------- -------
Net loss, as adjusted $(347,259) $(453,391)
======= =======
Net loss per common share
(basic and diluted), as
adjusted $ (0.16) $ (0.14)
======= =======
d. Warrants
Warrant activity for the fiscal years ended September 30, 2003 and 2004 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, 2005.
-33-
Remaining
Contractual
Number of Exercise Life
Warrants Price (in years)
--------- -------- -----------
Balance outstanding,
October 1, 2002 3,250,981 $6.00
Warrants issued -
Warrants exercised -
Warrants expired -
Warrants repurchased -
---------
Balance outstanding,
September 30, 2003 3,250,981 $6.00
Warrants issued -
Warrants exercised -
Warrants expired -
Warrants repurchased (1,194,755) $6.00
---------
Balance outstanding,
September 30, 2004 2,056,226 $6.00 1.0
=========
Warrants exercisable
at September 30, 2004 2,056,226 $6.00 1.0
=========
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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.
4.1 Management Incentive Stock Option Plan, previously filed as an exhibit to
the Company's Registration Statement on Form S-8 dated June 25, 2004, and
incorporated herein by reference. (C)
4.2 Employee Incentive Stock Option Plan, previously filed as an exhibit to the
Company's Registration Statement on Form S-8 dated June 25, 2004, and
incorporated herein by reference. (C)
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)
14 Code of Ethics, previously filed as an exhibit to the Company's March 31,
2004 Form 10-QSB Quarterly Report, and incorporated herein by reference.
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.
-35-