UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2000
[ ] 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.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 84-0987840
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28720 Canwood Street, Suite 207
Agoura Hills, California 91301
----------------------------------------
(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
-----------------------------
(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 [ ] No [X]
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. [ ]
-1-
The issuer's revenues from continuing operations for the fiscal year ended
September 30, 2000 were $0.
The aggregate market value of the issuer's common stock held by
non-affiliates of the issuer was approximately $170,000 as of September 30,
2000.
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 3,533,177 shares of common stock issued and outstanding as
of September 30, 2000.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
-2-
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,
2000 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, 2000 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.
-3-
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
History of the Company:
Aries Ventures Inc. ("Aries") was incorporated in Nevada on April 21, 2000
as a wholly-owned subsidiary of Casmyn Corp. ("Casmyn"). On April 28, 2000,
Casmyn was merged with and into Aries, with Aries being the surviving
corporation, in conjunction with the reorganization of Casmyn (see "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Restructuring and
Reorganization"). Unless the context indicates otherwise, Aries and its
subsidiaries are collectively referred to herein as the "Company".
Casmyn was incorporated in Colorado on December 4, 1984 as Fintech, Inc.
and changed its name to Summa Metals Corporation on November 29, 1991. In August
1994, the Company acquired Casmyn USA in a transaction pursuant to which Casmyn
USA was deemed the predecessor entity. On September 14, 1994, the Company
changed its name to Casmyn Corp.
Business Overview:
As of September 30, 2000, the Company had no business operations. The
Company's efforts are focused on seeking a new business opportunity, seeking
recovery from its litigation and claims against former management and certain
other entities (see "ITEM 3. LEGAL PROCEEDINGS"), and maintaining the corporate
entity. The Company is seeking a new business opportunity that will allow it to
utilize its federal net operating loss carrryforwards and encourage shareholders
to exercise the outstanding Class A common stock purchase warrants, although
there can be no assurances that the Company will be successful in this regard.
The Company had approximately $1,000,000 of cash and marketable securities at
September 30, 2000. The acquisition of a new business opportunity may result in
a change in name and in control of the Company.
When new management was appointed on October 1, 1998, the Company had a
shareholders' deficiency of approximately $(21,600,000). Between October 1998
and September 2002, as a result of new management's successful efforts to
restructure and recapitalize the Company and to pursue various legal claims, the
Company's shareholders' equity increased by over $26,000,000, to approximately
$4,700,000 at September 30, 2002, which consists primarily of cash. In addition,
shareholders of record on July 1, 2000 received an identical equity interest in
the Company's former mineral assets, consisting primarily of the Zimbabwe gold
mining properties, through the spin-off of the Company's former Nevada
subsidiary.
-4-
During the fiscal years ended September 30, 1999 and 2000, the Company's
only operating activities were conducted through its former Zimbabwe subsidiary,
which is engaged in gold mining activities in Zimbabwe (a country located in
southern Africa) (see "ITEM 2. DESCRIPTION OF PROPERTY - Zimbabwe"). As a result
of the Zimbabwe subsidiary being spun-off to all of the Company's shareholders
effective July 1, 2000, the operations of the Zimbabwe subsidiary were
classified for accounting purposes as discontinued operations during the fiscal
years ended September 30, 1999 and 2000. The Zimbabwe subsidiary was owned by
the Company through June 30, 2000, and subsequently by a separate company,
Resource Ventures, Inc., a Nevada corporation, which was spun-off to all of the
Company's shareholders effective July 1, 2000 (see "ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION"). The Zimbabwe subsidiary, Casmyn
Mining Zimbabwe (Private) Ltd., is a wholly-owned subsidiary of Casmyn Mining
Corporation, a Nevada corporation, which was a wholly-owned subsidiary of the
Company.
On December 7, 1999, the Company filed a Chapter 11 bankruptcy proceeding
to effect an equity recapitalization, and successfully confirmed a plan of
reorganization on March 31, 2000 (see "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION").
During the fiscal years ended September 30, 1997 and 1998, the Company was
primarily engaged in the acquisition, exploration and operation of precious
mineral resource properties in Zimbabwe and base metal resource properties in
Zambia. The Company conducted such operations through various subsidiaries, most
of which have since been terminated.
Transactions Involving First Convertible Preferred Stock:
On April 14, 1997, the Company completed the placement of 751,200 shares of
First Convertible Preferred Stock. An additional 83,467 shares of First
Convertible Preferred Stock were issued to Societe Generale in exchange for a
previously issued convertible debenture. On September 2, 1997, the Company
completed the placement of an additional 533,885 shares of First Convertible
Preferred Stock.
Each share of First Convertible Preferred Stock had a stated value of
$25.00 per share and was entitled to a dividend of 8% per annum, payable
quarterly, to be paid in additional shares of First Convertible Preferred Stock,
and was convertible into shares of common stock over a five year period at an
increasing discount to the market price of the common stock at the time of
conversion, subject to certain adjustments. The number of shares that could be
converted by a holder over a ten-month period beginning in July 1997 was limited
to 10% per month on a cumulative basis.
-5-
The Company had 523,784 shares of First Convertible Preferred Stock issued
and outstanding on September 30, 1999. Pursuant to the Preferred Stock
Investment Agreements dated April 11, 1997 and September 2, 1997 (the
"Investment Agreements"), a technical default occurred when the Company's common
stock was delisted from the NASDAQ SmallCap Market on July 31, 1998. The
Investment Agreements obligated the Company to pay the holders of the First
Convertible Preferred Stock a cash penalty of 3% of the total purchase price of
the Preferred Stock during any period in excess of 30 days that the Company's
common stock was not listed and traded on NASDAQ or a national securities
exchange. The Investment Agreements provided the holders of the First
Convertible Preferred Stock with the right to have their shares redeemed by the
Company at the adjusted liquidation preference plus accrued but unpaid dividends
if the 3% penalty was not paid within 30 days of when due.
As a result of the default caused by the delisting of the Company's common
stock from the NASDAQ SmallCap Market on July 31, 1998, which occurred under the
auspices of former management, the Company recorded a penalty with respect to
the First Convertible Preferred Stock of $839,737, $5,626,118 and $798,771 for
the fiscal years ended September 30, 1998, 1999 and 2000, respectively, which
was not paid. The accrued liability with respect to the penalty on First
Convertible Preferred Stock was $4,917,207 at September 30, 1999.
Since the right to require the Company to redeem the shares of First
Convertible Preferred Stock outstanding at September 30, 1999 was outside the
control of the Company, the carrying value of the outstanding shares of First
Convertible Preferred Stock at such date was recorded in the financial
statements at their redemption liquidation preference of $21,466,557, and such
shares were reclassified out of the shareholders' deficiency section of the
balance sheet.
Under the auspices of new management, during the fiscal year ended
September 30, 1999, the Company repurchased 598,655 shares of First Convertible
Preferred Stock for $1,247,472 and the Company converted 1,924 shares of First
Convertible Preferred Stock into 25,826,432 shares of common stock, as a result
of which such holders waived their right to claim their proportionate share of
the redemption liquidation preference obligation and the penalty obligation.
Accordingly, new management was able to reduce the redemption liquidation
preference obligation and the penalty obligation, and increase shareholders'
equity, by $26,102,484 during the fiscal year ended September 30, 1999.
During September 1998, the Company repurchased and retired 19,948 shares of
First Convertible Preferred Stock for $25,753. The Company also converted
394,342 shares of First Convertible Preferred Stock into 204,889,060 shares of
common stock during the fiscal year ended September 30, 1998. These transactions
occurred under the auspices of former management.
-6-
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled share
of First Convertible Preferred Stock became convertible into 5.27 shares of
common stock.
WaterPur International Inc.:
Through September 30, 1997, under the direction of prior management, the
Company advanced approximately $9,000,000 to WaterPur International Inc., a
Delaware corporation ("WaterPur"). WaterPur was engaged in the development,
manufacture, sales and management of water treatment, purification and
depollution equipment and facilities worldwide. During this same period of time,
the Company provided additional consideration to WaterPur of approximately
$3,000,000, including marketable securities with a value at the time of transfer
of approximately $2,500,000. Through September 30, 1998, WaterPur was an
affiliated public company with certain common officers and directors.
Effective September 30, 1997, subject to certain conditions, the Company,
under the direction of prior management, entered into an agreement to
restructure essentially its entire investment in WaterPur in exchange for an
aggregate of 7,900,004 shares of convertible preferred stock of WaterPur. Also
effective September 30, 1997, the Company's Board of Directors approved the
spin-off of the 7,900,004 shares of convertible preferred stock to the common
and preferred shareholders of the Company of record on October 15, 1997, subject
to compliance with regulatory requirements and certain other conditions. The
consideration that the Company had transferred to WaterPur through September 30,
1997 was reflected for accounting purposes as an investment in WaterPur, and a
corresponding dividend payable, of $4,574,368 at September 30, 1997. New
management believes that this transaction may have been improper.
In conjunction with the September 30, 1997 restructuring, the Company
repurchased 150,000 shares of its common stock held by WaterPur for $750,000
cash, and WaterPur issued to the Company warrants to purchase 3,300,000 shares
of WaterPur common stock exercisable at $0.75 per share for a period of three
years.
During the fiscal year ended September 30, 1998, due to a significant and
prolonged decrease in the market value of WaterPur's common stock, WaterPur's
inability to repay amounts borrowed from the Company, and WaterPur's continuing
need for additional loans, management of the Company determined that there had
been an impairment in the value of the investment in WaterPur, and wrote off the
entire investment in WaterPur. Accordingly, at September 30, 1998, the Company's
investment in WaterPur, and the corresponding dividend payable, had been reduced
to zero. In December 1998, the Board of Directors determined not to effect the
-7-
spin-off of the Company's preferred stock investment in WaterPur for several
reasons, including material non-performance by WaterPur, WaterPur's inability to
obtain regulatory approval to date and in the foreseeable future, and WaterPur's
inability to complete its annual audit and to make its securities filings on a
timely basis.
During September 1998, the Company began implementation of a plan to
separate the operations, personnel and executive management of the Company and
WaterPur, which plan had been substantially completed by December 31, 1998.
Pursuant to a Share Exchange Agreement dated as of May 7, 1999 between
WaterPur and Gary T.C. Joice and Henriette Martinitz (collectively, the "ProSafe
Shareholders"), WaterPur acquired all of the outstanding capital stock of
ProSafe Fire Training Systems, Inc., an Ontario, Canada corporation ("ProSafe"),
in consideration for the issuance to the ProSafe Shareholders of an aggregate of
218,833 shares of the Series B Convertible Preferred Stock of WaterPur. Pursuant
to an Asset Purchase Agreement dated as of May 7, 1999 between WaterPur and Duck
Marine Systems, Inc. ("DMS"), WaterPur acquired from DMS substantially all of
the assets, properties and operating contracts of DMS, subject to certain
liabilities of DMS, in consideration of the issuance to DMS of an aggregate of
218,833 shares of the Series B Convertible Preferred Stock of WaterPur (the "DMS
Acquisition"). The closings of the ProSafe acquisition and the DMS acquisition
occurred simultaneously on May 10, 1999 and were conditional on each other. Each
share of Series B Convertible Preferred Stock is convertible into 1,000 shares
of common stock of WaterPur. As a result of these acquisition transactions, the
shareholders and management of Pro Safe and DMS effectively assumed the
management and control of WaterPur.
During February 2002, the Company settled all outstanding debts and claims
that it had against 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. The Company has not
ascribed any value to such securities because no fair market value was
ascertainable and the previous investments in WaterPur were written off in prior
years as the Company deemed such investments impaired. 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.
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's discontinued mining operations is presented
below (see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
Discontinued Operations").
-8-
Zimbabwe:
Casmyn Mining Zimbabwe (Private) Ltd. was organized and incorporated in
Zimbabwe to acquire mineral properties and mining operations, and was granted
approval by the Zimbabwe Investment Center to invest in mining operations in
Zimbabwe on May 23, 1995. Through September 30, 1999, the Company had expended
in excess of $24,000,000 to purchase, explore and develop its Zimbabwe gold
properties.
On January 31, 1996, the Company acquired 100% of the shares of a group of
five private mining companies (the "Zimbabwe Companies"). The total
consideration for this acquisition was $4,864,216. The funds used to conclude
this acquisition were obtained primarily from a combination of private
placements of common stock and the proceeds from a convertible debenture. The
purchase price was determined as a result of arm's-length negotiations between
E.W.B Properties (Private) Limited and the Company. The shafts, mining equipment
and mineral processing mills acquired in this transaction were used by the
Zimbabwe Companies to mine and process gold.
Through the acquisition of the Zimbabwe Companies, the Company acquired a
100% interest in 18 gold mines. As of September 30, 1999, the Company was
operating two of the 18 mines that it had acquired, the Turk and Lonely mines,
having shut-down the Queen's Group of Mines, which includes the Dawn mine, in
July 1999. In addition, during May 2000, the Company shut-down and abandoned the
Lonely mine.
The Company expanded and refurbished the mine and physical plant
infrastructure at a total cost of approximately $19,000,000 during the fiscal
year ended September 30, 1998. The expansion included refurbishment of two
existing mills and installation of a third new mill, installation of a new
sorting plant, new leach and gold recovery circuits, refurbishment of three
existing shafts at the Turk mine, sinking of a new shaft at the Turk mine
western extension, new tailings reprocessing plants at the Turk and Lonely
mines, construction of housing and infrastructure, and construction and
commissioning of new tailings disposal sites.
On January 31, 1996, the Company purchased the assets of the Queen's Group
of Mines, which includes the Dawn mine, in Zimbabwe from Olympus Gold Mines
Limited for approximately $455,000. The Queen's Group of Mines are located
approximately eleven kilometers south of the Turk mine and mill and were
operated under a mine plan which included the Turk mine and other mining
properties in the area owned by the Company. During July 1999, the Queen's Group
of Mines was permanently shut-down and abandoned.
As of September 30, 1999, the Company's Zimbabwe operations had 435
-9-
employees, of which 425 were mine workers covered by the Zimbabwe government and
Chamber of Mines labor agreements. The remaining employees were management and
professional staff who were not subject to any collective bargaining agreements
or union affiliations.
During August 2000, as part of an industry-wide union-led initiative, the
Company's Zimbabwe operations suffered a three-day strike, which was resolved
through negotiations. The Company has not suffered any other strikes or other
work stoppages, and management believes that it relations with its employees are
good.
Zambia:
During the fiscal year ended September 30, 1996, the Company purchased all
of the common shares of Copperbelt Associates Limited for $65,700, thereby
acquiring a full interest in a three-year prospecting license covering the
Luswishi Dome area, which covers approximately 4,388 square kilometers in the
Zambia Copperbelt. During the fiscal year ended September 30, 1998, the Company
changed the name of Copperbelt Associates Limited to Casmyn Mining (Zambia)
Limited. Previous exploration in this area has shown the presence of copper,
uranium and cobalt, and the Company's previous exploration on this property
yielded ore grade drill intercepts of copper together with uranium and cobalt,
but no economic mineralization. Through September 30, 1998, the Company had
expended approximately $800,000 on airborne and ground geophysics, geological
mapping, geochemical sampling, diamond drilling and percussion drilling.
On June 4, 1999, the Company entered into an Exploration Agreement with
Right to Acquire an Interest in Prospecting License (the "Exploration
Agreement") with Cyprus Amax Zambia Corporation ("Cyprus Amax"). The Exploration
Agreement requires Cyprus Amax to expend $3,000,000 to fund exploration,
development and other work on land covered by the Company's former prospecting
license in or near the Copper Belt Province in the Republic of Zambia (the
"Luswishi Dome Project"). Cyprus Amax is a significant operator in Zambia and
has substantial experience and financial resources. Upon the expenditure by
Cyprus Amax of $3,000,000 on or for the benefit of the Luswishi Dome Project,
the Company will have the right to acquire an undivided 15% interest in the
Luswishi Dome Project from Cyprus Amax for a nominal cost. At such time, Cyprus
Amax and the Company have agreed to enter into a contractual joint venture to
carry out further exploration and, if warranted, development and mining of the
Luswishi Dome Project. There can be no assurances that Cyprus Amax will expend
the $3,000,000, that the joint venture will ever be formed, or that if the joint
venture is formed, it will ever become economically viable. During January 2001,
the Exploration Agreement was transferred by Cyprus Amax to another company that
is a wholly-owned subsidiary of First Quantum Minerals Ltd. The Exploration
Agreement was transferred to Resource as part of the spin-off of Resource to the
-10-
Company's shareholders effective July 1, 2000.
Reserves:
The information set forth below presents the Company's interest in
estimated reserves of contained and recoverable ounces of gold in place at each
of the mining properties as of May 31, 2000. These estimates were prepared by
the Company's geologists at the mines and were independently verified by
Steffen, Robertson and Kirsten, specialists in the field of reserve validation,
in a report dated August 16, 2000. However, these estimates should not be
considered as an indication of future results of operations, and are subject to
adjustment based on additional information obtained in conjunction with
continuing mining activities on the respective mining properties.
The recovery of gold from the in-place contained gold reserves has been
measured, and it varies by location and type of material. Gold recoveries
resulting from the different mining methods and benefication processes are as
follows: milled sulphide ore gives gold recovery rates between 80% and 90% and
retreatment tailings (dump) gold recovery rates range from 49% to 75%. The
stated grade for the Proven and Probable categories is for recoverable grams of
gold per tonne of ore. The stated grade for the Measured, Indicated and Inferred
categories is for contained grams of gold per tonne of ore.
The categories are based on those recommended by the Australasian Code for
Reporting Identified Mineral Resources and Ore Reserves (JORC 1996), where an
Indicated Resource has the same level of confidence as a Probable Reserve, and
the confidence in a Measured Resource is equivalent to that of a Proven Reserve.
The cut-off grades used and the economic viability of each category has been
determined based on a gold price of $300 per ounce.
Proven (Measured) and Probable (Indicated) ore reserves were 156,500 ounces
and 786,900 ounces, respectively, at May 31, 2000, and 171,100 ounces and
787,800 ounces, respectively, at September 30, 1999. The total of all Proven
(Measured) and Probable (Indicated) ore reserves was 943,400 ounces at May 31,
2000, and 958,900 ounces at September 30, 1999. At May 31, 2000, an additional
362,000 ounces of gold were identified in the "Inferred" category (i.e.,
additional mineralized material), most of which are located underground at the
Turk mine.
Facilities:
During the fiscal year ended September 30, 1998, the Company maintained its
corporate offices in Vancouver, British Columbia, Canada. The Company shared
such office space with WaterPur, an affiliated company. The lease for the
Vancouver, British Columbia, Canada office space was terminated effective
December 14, 1998. Effective March 1, 1999, the Company entered into a two-year
-11-
lease in Los Angeles, California for its corporate offices at an initial cost of
$2,000 per month, which was subsequently extended. The lease expires on March
31, 2003.
In conjunction with the restructuring of the Company's operations and the
relocation of its corporate offices from Vancouver, British Columbia, Canada to
Los Angeles, California, the Company has significantly reduced corporate
operating costs by reducing its executive management and corporate staff from
nine to four people, eliminating standard employee benefits and utilizing
part-time personnel as necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company filed bankruptcy proceedings under Chapter 11 of the United
States Bankruptcy Code on December 7, 1999 (see "ITEM 6. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION - Restructuring and Reorganization").
In conjunction with the Company's bankruptcy proceedings, the Company
initiated litigation in courts in the United States, Canada and the Bahamas
against various members of former management and other persons and entities. The
Company also asserted claims against certain professional firms that had
previously provided legal and accounting services to the Company under the
auspices of former management.
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.
The completion of the legal settlements terminated all litigation and
claims that the Company has been asserting against all of the settling
defendants.
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. The Company has not ascribed any value to such securities
because no fair market value was ascertainable and the previous investments in
WaterPur were written off in prior years as the Company deemed such investments
impaired. In conjunction with this settlement, the acquisitions previously
effected by WaterPur on May 10, 1999 were rescinded, and WaterPur acquired
-12-
Aquentium, Inc., an investment and holding company incorporated in the state of
Nevada, in a reverse merger transaction.
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, 2000.
-13-
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. Market Information
From February 24, 1997 through July 31, 1998, the Company's common stock
was traded on the NASDAQ SmallCap Market under the symbol "CMYN". From August 1,
1998 through April 13, 2000, the Company's common stock was traded on the
over-the-counter market under the symbol "CMYN". From July 14, 2000 through
September 30, 2000, the Company's common stock was 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". All of the share price information presented below has
been adjusted to reflect the 1-for-500 reverse split of the Company's
outstanding common stock effective April 11, 2000. The information set forth
below was obtained from FinancialWeb.com.
High Low
---- ---
Fiscal Year Ended September 30, 1999:
Three months ended -
December 31, 1998 $ 15.50 $ 5.00
March 31, 1999 60.00 5.00
June 30, 1999 12.50 5.00
September 30, 1999 7.50 5.00
Fiscal Year Ended September 30, 2000:
Three months ended -
December 31, 1999 5.00 0.50
March 31, 2000 20.00 0.50
June 30, 2000 7.50 5.00
September 30, 2000 1.00 0.18
b. Holders
As of September 30, 2000, the Company had 29 shareholders of record with
respect to the Company's common stock, excluding shares held in street name by
-14-
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, 2000.
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. Sales of Unregistered Securities
During the fiscal year ended September 30, 2000, the Company issued
securities in conjunction with the consummation of its confirmed Plan.
Information with respect to the issuance of such securities is provided at "ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Restructuring and
Reorganization". All such securities were issued without registration in
reliance upon the exemption afforded by Section 1145 of the United States
Bankruptcy Code.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General Overview:
As of September 30, 2000, the Company had no business operations. The
Company's efforts are focused on seeking a new business opportunity, seeking
recovery from its litigation and claims against former management and certain
other entities (see "ITEM 3. LEGAL PROCEEDINGS"), and maintaining the corporate
entity. The Company is seeking a new business opportunity that will allow it to
utilize its federal net operating loss carryforwards and encourage shareholders
to exercise the outstanding Class A common stock purchase warrants, although
there can be no assurances that the Company will be successful in this regard.
The Company had approximately $1,000,000 of cash and marketable securities at
September 30, 2000. The acquisition of a new business opportunity may result in
a change in name and in control of the Company.
During the fiscal years ended September 30, 1999 and 2000, the Company's
only operating activities were conducted through its Zimbabwe subsidiary, which
-15-
is engaged in gold mining activities Zimbabwe (a country located in southern
Africa) (see "ITEM 2. DESCRIPTION OF PROPERTY - Zimbabwe"). As a result of the
Zimbabwe subsidiary being spun-off to all of the Company's shareholders
effective July 1, 2000, the operations of the Zimbabwe subsidiary were
classified for accounting purposes as discontinued operations during the fiscal
years ended September 30, 1999 and 2000. The Zimbabwe subsidiary was owned by
the Company through June 30, 2000, and subsequently by a separate company,
Resource Ventures, Inc., a Nevada corporation, which was spun-off to all of the
Company's shareholders effective July 1, 2000. Accordingly, the Company's
results of operations for the fiscal year ended September 30, 2000 included the
results of operations of the Zimbabwe subsidiary for the nine months ended June
30, 2000. The Zimbabwe subsidiary, Casmyn Mining Zimbabwe (Private) Ltd., is a
wholly-owned subsidiary of Casmyn Mining Corporation, a Nevada corporation,
which was a wholly-owned subsidiary of the Company.
Financial information with respect to the Zimbabwe subsidiary for the
fiscal year ended September 30, 1999 and the nine months ended June 30, 2000 is
presented subsequently as part of the discussion of discontinued operations. The
Company maintains its corporate offices in the United States.
Restructuring and Reorganization:
During the fiscal year ended September 30, 1998, as a result of various
actions and transactions authorized by former management over the past few
years, the Company encountered severe financial difficulties. These financial
difficulties included significant losses, dissipation of the Company's working
capital and managerial resources, delisting of the Company's common stock from
the NASDAQ SmallCap Market, and the Company's defaulting on certain obligations
to the holders of the First Convertible Preferred Stock (see "Transactions
Involving First Convertible Preferred Stock"). As a result of these
developments, the Board of Directors was reconfigured and new management was
appointed to address and resolve these problems, as described below.
During August 1998, the Board of Directors of the Company was reconfigured,
with two members resigning and four new members being appointed. On October 1,
1998, Amyn S. Dahya resigned as President and Chief Executive Officer and was
replaced by Mark S. Zucker, one of the new directors.
During October and November 1998, the Company completely restructured its
management team, which then began a comprehensive review and evaluation of the
Company's existing business operations and capital structure, with the objective
of rationalizing the Company's capital structure and maximizing the entity value
for all of the Company's equity holders.
-16-
In October 1998, the Company began the implementation of a plan to
streamline its operations worldwide and divest all non-core business interests.
By that time, the Company's only significant remaining operations were its gold
mining operations in Zimbabwe. Accordingly, new management focused its
operational turnaround efforts on the Zimbabwe gold mining operations. The
Company implemented programs to evaluate ways to improve production and achieve
production efficiencies, increase gold reserves, reduce capital expenditures and
operating costs, maximize operating profits and operating cash flows, and
evaluate future opportunities. New management downsized the Company's executive
management and corporate staff, closed the Company's executive and
administrative offices in Vancouver, British Columbia, Canada, and relocated
them to Los Angeles, California, which resulted in substantial cost savings to
the Company.
On June 2, 1999, the holders of more than 10% of the outstanding shares of
common stock and the holders of more than 10% of the outstanding shares of First
Convertible Preferred Stock sent a letter to the Company's Board of Directors
proposing amendments to the Company's Articles of Incorporation and calling for
a special meeting of the Company's shareholders to consider a vote on such
amendments. The proposed amendments called for a 1-for-500 reverse stock split
of the common stock, a conversion of each share of First Convertible Preferred
Stock into 8.5 shares of post-reverse split common stock, and an increase in the
Company's authorized shares of capital stock. These amendments, had they been
approved by the Company's shareholders, would have resulted in the then current
holders of the First Convertible Preferred Stock owning approximately 90% of the
issued and outstanding shares of common stock following the completion of the
above-described reverse stock split and conversion. Management of the Company
responded to this proposal and engaged in extensive discussions with such
shareholders. The Company's Board of Directors ultimately made a determination
not to take a position or make a recommendation regarding this proposal.
On December 7, 1999, Casmyn filed for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Central District of California (the "Bankruptcy Court") in order to proceed with
an equity recapitalization. The Zimbabwe gold mining operations were owned by a
separate subsidiary of Casmyn which was not a part of the Chapter 11 bankruptcy
filing, and which continued to conduct business as usual during the bankruptcy
proceedings. Casmyn operated as debtor-in-possession during the bankruptcy
proceedings.
On March 31, 2000, the Bankruptcy Court confirmed the Debtor's Second
Amended Chapter 11 Plan of Reorganization (the "Plan"). The Bankruptcy Court
entered its Order Confirming Debtor's Second Amended Chapter 11 Plan of
Reorganization on March 31, 2000, resulting in the Plan becoming effective on
April 11, 2000. Pursuant to the Bankruptcy Court Order, the record date to
-17-
determine the distribution of cash and securities to common and preferred
shareholders entitled to receive consideration under the Plan was set as April
11, 2000. Creditors and shareholders voted overwhelmingly to approve the Plan.
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled share
of First Convertible Preferred Stock became convertible into 5.27 shares of
common stock. The shares of First Convertible Preferred Stock represented
substantially all of Casmyn's debt obligations, with aggregate claims in excess
of $27,000,000. In accordance with the Plan, creditors and preferred
shareholders received approximately 85% of the common equity, and existing
common shareholders received approximately 15% of the common equity, subject to
certain adjustments authorized by the Plan. Approximately 3,533,000 shares of
common stock were issued and outstanding upon implementation of the Plan.
The implementation of the Plan resulted in the Company's shareholders'
equity increasing by $11,361,875, from $(8,435,357) at December 31, 1999 to
$2,926,518 at March 31, 2000, in spite of write-downs of $17,604,326 resulting
from the adoption of "fresh-start reporting" as of March 31, 2000.
In accordance with the Plan, on April 11, 2000, the Company effected a
1-for-500 reverse split of its 243,578,132 shares of common stock outstanding.
Shareholders owning less than 50,000 shares of common stock on April 11, 2000
were entitled to receive a cash payment of $1.00 per share after adjusting for
the 1-for-500 reverse stock split. Any certificates for old common and preferred
stock not presented to the Company's transfer agent by the close of business on
April 10, 2001 were automatically cancelled without any further notice or action
by the Company. In conjunction with the shares of common stock being issued to
preferred and common shareholders pursuant to the Plan, the Plan also authorized
the issuance of certain common stock purchase warrants to such recipients.
Pursuant to the confirmed Plan, the Company's common and preferred
shareholders, individually and as classes, were deemed to have transferred to
the Company any and all rights that they may have had, known and unknown, to sue
the former or present officers, directors, professionals, and agents of the
Company for any causes of action whatsoever relating to their acts, conduct or
responsibilities with respect to the Company and arising from 1994 forward. In
addition, during March 2000, the Company acquired certain rights to assert
claims and to sue certain individuals and entities from the placement agent of
the Company's First Convertible Preferred Stock.
On April 28, 2000, in accordance with the Plan, Casmyn was merged with and
into Aries, with Aries being the surviving corporation. Aries was incorporated
-18-
in Nevada on April 21, 2000 as a wholly-owned subsidiary of Casmyn for this
purpose.
On May 18, 2000, the name of the Company's subsidiary incorporated in the
state of Nevada to own the Company's mining investments and properties was
changed from Goldco Ltd. to Resource Ventures, Inc. ("Resource").
On June 1, 2000, the Bankruptcy Court approved and entered an Order
Authorizing Non-Material Modification of Debtor's Second Amended Chapter 11 Plan
of Reorganization (the "Modification Order"). The Modification Order authorized
the Company to bypass the issuance of "New Goldco Warrants" as provided for in
the Plan, and instead to issue and distribute to its shareholders all or a
majority of the common stock of the Company's wholly-owned subsidiary that owns
the Company's mining investments and properties in Zimbabwe.
Pursuant to the Modification Order, effective July 1, 2000, the Company's
Board of Directors authorized the distribution of all of the shares of common
stock of Resource to the Company's shareholders of record on April 11, 2000.
Accordingly, shareholders entitled to exchange their old securities for new
securities pursuant to the Plan received one share of common stock and one
common stock purchase warrant (designated as the "Series A" warrants) in Aries
and Resource, respectively. Each Series A warrant entitled the holder to
purchase one share of common stock at $6.00 per share through April 11, 2001,
which was subsequently extended to October 11, 2003.
When new management was appointed on October 1, 1998, the Company had a
shareholders' deficiency of approximately $(21,600,000). Between October 1998
and September 2002, as a result of new management's successful efforts to
restructure and recapitalize the Company and to pursue various legal claims, the
Company's shareholders' equity increased by over $26,000,000, to approximately
$4,700,000 at September 30, 2002, which consists primarily of cash. In addition,
shareholders of record on July 1, 2000 received an identical equity interest in
the Company's former mineral assets, consisting primarily of the Zimbabwe gold
mining properties, through the spin-off of the Company's former Nevada
subsidiary.
Accounting Adjustments as a Result of Confirmation of Plan, Adoption of
Fresh-Start Reporting and Spin-off of Resource:
As a result of confirmation of the Plan on March 31, 2000, the Company
adopted "fresh-start reporting" pursuant to the guidance provided by the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
The Company adopted fresh-start reporting effective March 31, 2000. Fresh-start
reporting assumes that a new reporting entity has been created and requires that
assets and liabilities be adjusted to their "fair value" in conformity with the
-19-
procedures specified by Accounting Principles Board Opinion No. 16, "Business
Combinations". In conjunction with the revaluation of the assets and
liabilities, a reorganization value for the Company was determined which
generally approximated its fair value before considering any debt and
approximated the amount a willing buyer would pay for the assets of the Company
after reorganization. Under fresh-start reporting, the reorganization value of
the Company was allocated to all of its assets. The Company "pushed-down" the
impact of fresh-start reporting to the Zimbabwe subsidiary.
Significant adjustments to the Company's consolidated financial statements
as a result of confirmation of the Plan on March 31, 2000, adoption of
fresh-start reporting and distribution of all of the shares of Resource are as
follows: (i) all of the 523,784 shares of First Convertible Preferred Stock
outstanding were cancelled, and each cancelled share of First Convertible
Preferred Stock became convertible into 5.27 shares of common stock under the
Plan. Approximately $27,589,000 of liabilities, consisting of delisting charges
of $6,122,000 and contractual redemption amounts of $21,467,000 related to the
First Convertible Preferred Stock, were liquidated by the cancellation of the
outstanding shares of First Convertible Preferred Stock and their conversion
into common stock under the Plan; (ii) a 1-for-500 reverse split of the
243,578,142 shares of common stock outstanding was effected on April 11, 2000.
Shareholders owning less than 50,000 shares of common stock were entitled to
receive a cash payment of $1.00 per share after adjusting for the 1-for-500
reverse stock split. The Company disbursed $53,413 in this regard, of which
$48,909 was paid subsequent to September 30, 2000; (iii) accumulated deficit at
March 31, 2000 of $87,507,653 was eliminated against additional paid-in capital;
(iv) based in part on the advice of a mining consulting firm, the Company's
assets, consisting primarily of property and equipment owned by the Company's
Zimbabwe subsidiary and utilized in gold mining operations in Zimbabwe, were
reduced to a net fair value of approximately $1,000,000 at March 31, 2000,
resulting in a charge to operations of approximately $17,600,000 at March 31,
2000, as a result of various factors related to the operations of the Company's
subsidiary in Zimbabwe, including political instability, economic uncertainties,
operational difficulties, a lack of comparable transactions, and various other
risks. Subsequent to March 31, 2000, the political and economic environment in
Zimbabwe has continued to deteriorate; (v) direct incremental costs of the
bankruptcy reorganization aggregated approximately $931,000, consisting of legal
fees of $482,000 and administrative costs (including management bonuses) of
$449,000, which were charged to operations at March 31, 2000; (vi) effective
July 1, 2000, the Company's Board of Directors authorized the distribution of
all of the shares of common stock of Resource to the Company's shareholders of
record on April 11, 2000. Accordingly, shareholders entitled to exchange their
old securities for new securities pursuant to the Plan received one share of
-20-
common stock and one common stock purchase warrant (designated as the "Series A"
warrants) in Aries and Resource, respectively. Approximately 3,533,000 shares of
common stock and 3,533,000 Series A warrants were issued and outstanding in
Aries and in Resource upon implementation of the Plan; (vii) in conjunction with
the distribution of the shares of Resource on July 1, 2000, the Company
transferred all of its mining assets and operations, including related
liabilities, with an adjusted net book value of approximately $1,000,000, and
$250,000 cash to Resource. Aries retained cash and investments of approximately
$2,150,000 at June 30, 2000, as well as certain litigation rights; and (viii)
the implementation of the Plan resulted in the Company's shareholders' equity
increasing by $11,361,875, from $(8,435,357) at December 31, 1999 to $2,926,518
at March 31, 2000, in spite of write-downs of $17,604,326 resulting from the
adoption of "fresh-start reporting" as of March 31, 2000.
Transactions Involving First Convertible Preferred Stock:
On April 14, 1997, the Company completed the placement of 751,200 shares of
First Convertible Preferred Stock. An additional 83,467 shares of First
Convertible Preferred Stock were issued to Societe Generale in exchange for a
previously issued convertible debenture. On September 2, 1997, the Company
completed the placement of an additional 533,885 shares of First Convertible
Preferred Stock.
Each share of First Convertible Preferred Stock had a stated value of
$25.00 per share and was entitled to a dividend of 8% per annum, payable
quarterly, to be paid in additional shares of First Convertible Preferred Stock,
and was convertible into shares of common stock over a five year period at an
increasing discount to the market price of the common stock at the time of
conversion, subject to certain adjustments. The number of shares that could be
converted by a holder over a ten-month period beginning in July 1997 was limited
to 10% per month on a cumulative basis.
The Company had 523,784 shares of First Convertible Preferred Stock issued
and outstanding on September 30, 1999. Pursuant to the Preferred Stock
Investment Agreements dated April 11, 1997 and September 2, 1997 (the
"Investment Agreements"), a technical default occurred when the Company's common
stock was delisted from the NASDAQ SmallCap Market on July 31, 1998. The
Investment Agreements obligated the Company to pay the holders of the First
Convertible Preferred Stock a cash penalty of 3% of the total purchase price of
the Preferred Stock during any period in excess of 30 days that the Company's
common stock was not listed and traded on NASDAQ or a national securities
exchange. The Investment Agreements provided the holders of the First
Convertible Preferred Stock with the right to have their shares redeemed by the
Company at the adjusted liquidation preference plus accrued but unpaid dividends
-21-
if the 3% penalty was not paid within 30 days of when due.
As a result of the default caused by the delisting of the Company's common
stock from the NASDAQ SmallCap Market on July 31, 1998, which occurred under the
auspices of former management, the Company recorded a penalty with respect to
the First Convertible Preferred Stock of $839,737, $5,626,118 and $798,771 for
the fiscal years ended September 30, 1998, 1999 and 2000, respectively, which
was not paid. The accrued liability with respect to the penalty on First
Convertible Preferred Stock was $4,917,207 at September 30, 1999.
Since the right to require the Company to redeem the shares of First
Convertible Preferred Stock outstanding at September 30, 1999 was outside the
control of the Company, the carrying value of the outstanding shares of First
Convertible Preferred Stock at such date was recorded in the financial
statements at their redemption liquidation preference of $21,466,557, and such
shares were reclassified out of the shareholders' deficiency section of the
balance sheet.
Under the auspices of new management, during the fiscal year ended
September 30, 1999, the Company repurchased 598,655 shares of First Convertible
Preferred Stock for $1,247,472 and the Company converted 1,924 shares of First
Convertible Preferred Stock into 25,826,432 shares of common stock, as a result
of which such holders waived their right to claim their proportionate share of
the redemption liquidation preference obligation and the penalty obligation.
Accordingly, new management was able to reduce the redemption liquidation
preference obligation and the penalty obligation, and increase shareholders'
equity, by $26,102,484 during the fiscal year ended September 30, 1999.
During September 1998, the Company repurchased and retired 19,948 shares of
First Convertible Preferred Stock for $25,753. The Company also converted
394,342 shares of First Convertible Preferred Stock into 204,889,060 shares of
common stock during the fiscal year ended September 30, 1998. These transactions
occurred under the auspices of former management.
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled share
of First Convertible Preferred Stock became convertible into 5.27 shares of
common stock.
The Investment Agreements specified that the First Convertible Preferred
Stock was convertible into common stock at a discount to the common stock price
ranging from 8.5% to 39%, depending on the date on which such shares were
converted. This discount was considered to be an additional dividend (the
"Imputed Dividend") to the holders of the First Convertible Preferred Stock, and
was recorded as a charge to accumulated deficit and a corresponding increase to
-22-
additional paid-in capital over the period in which such shares of First
Convertible Preferred Stock could first be converted into common stock. The
Imputed Dividend was accounted for as a return on the First Convertible
Preferred Stock and as an increase in the net loss applicable to common
shareholders. During the fiscal years ended September 30, 1997 and 1998, the
Company recorded an Imputed Dividend of $3,825,676 and $13,884,075,
respectively. During the fiscal year ended September 30, 1999, the Company
recorded an Imputed Dividend of $809,907, representing the final portion of the
Imputed Dividend.
Discontinued Operations:
Current Status:
The Zimbabwe subsidiary is conducting mining operations under a plan to
produce gold from the tailings dumps and the surface materials, and to delay
most of the higher cost underground production until gold prices increase to a
level that can justify the requisite capital expenditures. The gold that is
mined occurs in sulfides, oxides and in old mill tailings. Gold sales from the
Zimbabwe subsidiary's mining operations exceeded direct mine operating
expenditures during the fiscal year ended September 30, 1999 and the nine months
ended June 30, 2000. The Zimbabwe subsidiary produced 8,195 ounces of gold
during the nine months ended June 30, 2000, which were sold at an average price
of $287 per ounce, as compared to producing 13,319 ounces of gold during the
fiscal year ended September 30, 1999, which were sold at an average price of
$279 per ounce. This decrease in gold production was a result of a continuing
decrease in the gold grade of the tailings dumps which the Company has been
mining, as well as the fact that certain mining operations were shut-down in
mid-1999. Over the near-term, the Zimbabwe subsidiary intends to focus on the
development of its existing properties and to minimize capital expenditures
funded from operating cash flow. Although the Zimbabwe subsidiary does not
currently expect to engage in any property acquisitions or exploration
activities, it will consider acquisition or exploration opportunities on a
case-by-case basis. The Zimbabwe subsidiary expects that continued development
of its existing mining properties will result in periodic adjustments to its
gold reserves and resources.
Economically viable gold production from the Queen's Group of Mines (which
included the Dawn mine) and from the Lonely mine terminated during July 1999 and
May 2000, respectively. These mines represented approximately one-third of the
Zimbabwe subsidiary's current gold production during the fiscal year ended
September 30, 1999, but did not represent a significant portion of current
proven and probable gold reserves (see "ITEM 2. DESCRIPTION OF PROPERTY -
Reserves"). In order to maintain the economies of scale necessary to maintain a
positive cash flow from gold production, it will be necessary to replace this
production. Several options are being evaluated to replace such production,
-23-
including employing certain production techniques and entering into contracts
with owners of other tailings dumps, as well as developing plans to conduct
underground mining at the Turk mine.
If the Company were to attempt to expand gold production over the next few
years from underground mine development, it would be necessary to access proven
and probable gold reserves at the Turk mine. A major development of the Turk
mine is estimated to require a significant capital expenditure over an extended
period of time. Given currently available financial resources, as well as the
external factors that affect the values and financing of mineral producing
properties in third-world countries, and in particular the economic and
political instability in Zimbabwe, the Company does not believe that the
required capital would be available on a timely and cost effective basis to
implement a major mine development program. As an alternative to funding the
direct development of the Turk mine, a joint venture or sale of the mining
assets may also be considered in order to preserve capital and maximize
shareholder value, although there can be no assurances that the Company would be
successful in this regard.
Operating, Economic and Political Conditions in Zimbabwe:
The Company's gold mining assets and operations were located in Zimbabwe.
The Zimbabwe subsidiary is required to sell its gold production to the Reserve
Bank of Zimbabwe at the world spot gold price. Settlement of gold sales are in
Zimbabwe dollars at the equivalent of the United States gold trading rate on the
sale date. The London spot gold price at June 30, 2000 was $288.15 per ounce, as
compared to $299.00 per ounce at September 30, 1999, and as compared to $293.85
per ounce at September 30, 1998. The Company conducted its mining operations in
Zimbabwe through its indirect wholly-owned subsidiary, Casmyn Mining Zimbabwe
(Private) Ltd. The Zimbabwe subsidiary was owned by the Company through June 30,
2000, and by a separate company, Resource Ventures, Inc., a Nevada corporation,
commencing July 1, 2000. The laws of Zimbabwe require government approval to
conduct exploration and mining activities. Casmyn Mining Zimbabwe (Private) Ltd.
received the necessary approvals from the Zimbabwe Investment Center on May 23,
1995 and from the Reserve Bank of Zimbabwe in December 1995. The Zimbabwe
subsidiary believes that its relationship with the government of Zimbabwe is
satisfactory.
Zimbabwe's current regulations concerning the ability of foreign companies
to repatriate capital invested in Zimbabwe may limit the ability to repatriate
funds from Zimbabwe. Although the Zimbabwe subsidiary has in the past been able
to convert Zimbabwe dollars into United States dollars and repatriate such
amounts to the United States, subject to the Zimbabwe operations generating a
cash profit and the continuing availability of foreign exchange, there can be no
assurances that the Zimbabwe subsidiary will be able to continue to do so in the
future.
-24-
Since the Company's assets and operations were concentrated in Zimbabwe,
the Company was subject to foreign currency exchange risk. Zimbabwe has
experienced significant economic instability and turmoil in recent years, which
has had a negative impact on the Company's operations in Zimbabwe. The Zimbabwe
dollar has been fixed in relation to the United States dollar by the Zimbabwe
government. As a result, the Zimbabwe dollar's fixed exchange rate has not
reflected the significant devaluation of the Zimbabwe dollar against the United
States dollar during the past few years, which has had a material adverse effect
on the Company's financial position, results of operations and cash flows.
As of September 30, 1998 and 1999, and June 30, 2000, US$1.00 was
equivalent to ZIM$33.00, ZIM$38.60 and ZIM$38.35, respectively. During the
fiscal years ended September 30, 1999 and 2000, the average conversion rate of
US$1.00 was ZIM$36.00 and ZIM$40.37, respectively.
During the past few years, Zimbabwe has experienced annual inflation rates
ranging from 40% to 70%, and has generally pegged its currency exchange rate at
below market rates. Operating costs have been significantly affected by the high
rates of inflation in Zimbabwe. Since October 1998, costs in Zimbabwe for power,
labor and supplies have increased by more than 40% solely as a result of
inflation. In addition, certain costs are periodically subject to significant
increases mandated by the government of Zimbabwe and suppliers and vendors.
Costs such as labor and electricity, which are the two major operating costs
incurred in mining operations, have historically have been denominated in
Zimbabwe dollars and have accounted for approximately 30% and 25% of mine
operating costs, respectively. Commencing in August 1999, approximately
two-thirds of electricity costs were pegged to the United States dollar.
Approximately 80% of mine operating costs incurred in Zimbabwe are United
States dollar based. The remaining 20% of mine operating costs incurred in
Zimbabwe are denominated in Zimbabwe dollars, and are periodically subject to
significant increases mandated by the Zimbabwe government, including costs such
as wages and utilities, which are two of the major operating costs of the mines.
The conversion rate of the Zimbabwe dollar into the United States dollar is
fixed by the government of Zimbabwe, and the government's adjustment of the
currency conversion rate has not approached Zimbabwe's inflation rate.
Zimbabwe's inflation rate has greatly exceeded the change in Zimbabwe's currency
exchange rate versus the United States dollar, particularly during the fiscal
year ended September 30, 1999, when the annual inflation rate was approximately
70% but the exchange rate remained relatively stable.
-25-
In response to this situation, the government of Zimbabwe is considering
several actions, including reintroducing exchange controls, formally pegging the
exchange rate at below free market rates, and banning remittance of profits from
Zimbabwe. On an unofficial basis, the Zimbabwe government has also recently
implemented policies designed to restrict the ability of companies to convert
Zimbabwe dollars into foreign currencies and transfer such amounts out of
Zimbabwe.
The Zimbabwe dollar is not freely convertible into the United States
dollar. Without a free-floating currency exchange rate, foreign currency has
become scarcer in Zimbabwe. Vendors and suppliers have begun to require payment
in United States dollars and shortages of critical supplies have become more
commonplace. It is expected that inflation in Zimbabwe will continue to have a
material adverse impact on the operations of the Zimbabwe subsidiary.
The political situation in Zimbabwe, in which the government has played an
active role in the country's economy, has also exacerbated the economic risks to
the Zimbabwe subsidiary's operations. The government of Zimbabwe subsidizes
commodities that it deems important, such as gasoline and utilities, and
controls the currency exchange rate. The International Monetary Fund has refused
to advance certain loans to Zimbabwe unless it reduced such subsidies and moved
towards a free market economy. Relaxing controls on the cost of energy and the
exchange rate would be expected to increase energy costs and thus reduce the
potential profitability of the Zimbabwe subsidiary's mining operations.
Accordingly, the political situation in Zimbabwe has made it difficult to
generate profits, repatriate funds, establish a value and/or locate a buyer for
the mining operations and assets in Zimbabwe.
Zimbabwe has also recently experienced substantial social and political
instability, which could significantly disrupt mining operations. There has been
violence, primarily directed against white farmers, and the government of
Zimbabwe has allowed the seizure of white-owned farms by black "war veterans".
It has been reported that the government of Zimbabwe has publicly discussed the
expropriation of privately-owned mining properties in Zimbabwe.
For the foregoing reasons, the economy of Zimbabwe has experienced a
substantial contraction in recent years, resulting in a commensurate reduction
in foreign currency earned from Zimbabwe's major export products. Shortages of
energy, food and staples are becoming more commonplace.
The possibility of nationalization, asset expropriations, increased or
confiscating levels of taxation, and other unforeseen events may affect the
Zimbabwe subsidiary's ability to conduct or maintain its business operations. In
the event of nationalization, expropriation or other confiscation, the Zimbabwe
-26-
subsidiary may not be fairly compensated for its loss and it could lose its
entire investment in Zimbabwe.
Financial Information - Fiscal Years Ended September 30, 1999 and 2000:
During the fiscal year ended September 30, 1999 and 2000, the Company,
through its Zimbabwe subsidiary, operated in one business segment, gold mining,
which included exploration, extraction, processing, refining and reclamation.
The results of operations for the fiscal year ended September 30, 2000 included
the results of operations of the Zimbabwe subsidiary for the nine months ended
June 30, 2000. The Zimbabwe subsidiary's operations have been presented as a
discontinued operation in the financial statements. The Zimbabwe subsidiary's
mining operations produce gold that is required to be sold to the Reserve Bank
of Zimbabwe. During the fiscal year ended September 30, 1999, the Zimbabwe
subsidiary sold 13,319 ounces of gold, as compared to 8,195 ounces of gold
during the nine months ended June 30, 2000. The gold mining operations in
Zimbabwe as presented herein are a discrete business entity and do not include
the allocation of any expenses incurred by the Company's United States corporate
offices.
In conjunction with the spin-off of Resource effective July 1, 2000, the
Company capitalized Resource with $250,000 cash and provided a short-term
advance of $150,000. During the fiscal year ended September 30, 2000, subsequent
to the spin-off of the Zimbabwe subsidiary effective July 1, 2000, the Company
allocated certain common corporate services to Resource aggregating $76,244,
which has been reflected as due from Resource in the financial statements at
September 30, 2000. The aggregate amount due from Resource as of September 30,
2000 of $226,244 was received by the Company subsequent to September 30, 2000.
During the fiscal years ended September 30, 1999 and 2000, the Company
advanced $255,700 and $182,000, respectively, to or on behalf of the Zimbabwe
subsidiary's discontinued operations.
During the fiscal year ended September 30, 1999, the Zimbabwe subsidiary
transferred $685,000 to the Company.
Financial information with respect to the Zimbabwe subsidiary's operations
for the fiscal year ended September 30, 1999 and the nine months ended June 30,
2000 is presented below.
-27-
Casmyn Mining Corporation
Statements of Operations
Nine Months Fiscal Year
Ended Ended
June 30, September 30,
2000 1999
---------- ----------
Revenues:
Gold sales $ 2,349,834 $ 3,714,903
---------- ----------
Costs and Expenses:
Mineral production 2,296,234 2,805,946
Depreciation,
depletion and
amortization 933,944 975,527
General and
administrative 197,406 280,487
Provision for
reclamation
and remediation 24,585 233,300
Write-down of
impaired mining
assets - 2,227,206
---------- ----------
3,452,169 6,522,466
---------- ----------
Loss from operations (1,102,335) (2,807,563)
Other income
(expense), net 62,238 (96,045)
"Fresh-Start"
accounting
adjustments to
the carrying
value of assets
and liabilities (14,067,076) -
---------- ----------
Net loss $(15,107,173) $(2,903,608)
========== ==========
-28-
Casmyn Mining Corporation
Balance Sheets
June 30, September 30,
2000 1999
---------- ----------
ASSETS
Current Assets:
Cash $ - $ 7,857
Trade receivable 153,598 257,080
Mining supplies 510,463 521,414
Prepaid expenses and
other current assets 3,088 34,214
---------- ----------
667,149 820,565
---------- ----------
Property and Equipment 992,919 18,140,799
Less accumulated
depreciation,
depletion and
amortization (302,001) (2,811,242)
---------- ----------
690,918 15,329,557
---------- ----------
$ 1,358,067 $16,150,122
========== ==========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current Liabilities:
Bank overdraft $ 36,481 $ -
Accounts payable 369,880 250,081
Accrued liabilities 37,069 40,550
Reserve for
reclamation
and remediation 257,885 233,300
---------- ----------
701,315 523,931
---------- ----------
Investments and
advances by
parent company 26,940,198 26,734,886
---------- ----------
Shareholder's
deficiency, net (26,283,446) (11,108,695)
---------- ----------
$ 1,358,067 $16,150,122
========== ==========
-29-
Consolidated Results of Operations - Fiscal Years Ended September 30, 1999 and
2000:
The results of operations for the fiscal year ended September 30, 2000
included the results of operations of the Zimbabwe subsidiary for the nine
months ended June 30, 2000.
The gold mining operations in Zimbabwe are operated as a separate business
entity by local management and do not include the allocation of any expenses
incurred by the Company's United States corporate offices.
Revenues. Revenues from gold sales for the fiscal year ended September 30,
1999 were $3,714,903. Revenues from gold sales for the nine months ended June
30, 2000 were $2,349,834. During the fiscal year ended September 30, 1999,
13,319 ounces of gold were sold at an average price of $279 per ounce. During
the nine months ended June 30, 2000, 8,195 ounces of gold were sold at an
average price of $287 per ounce.
Mineral Production. Mineral production costs for the fiscal year ended
September 30, 1999 were $2,805,946 or 75.5% of revenues. Mineral production
costs for the nine months ended June 30, 2000 were $2,296,234 or 97.7% of
revenues. The average direct production cash cost per ounce of gold was $211 in
1999 and $280 in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense was $975,527 for the fiscal year ended September 30, 1999
and $933,944 for the nine months ended June 30, 2000.
General and Administrative. General and administrative expenses were
$280,487 for the fiscal year ended September 30, 1999 and $197,406 for the nine
months ended June 30, 2000.
Provision for Reclamation and Remediation. During the fiscal year ended
September 30, 1999, the Zimbabwe subsidiary conducted a comprehensive review of
its potential environmental liability in Zimbabwe and as a result recorded a
provision for reclamation and remediation of $233,300. During the nine months
ended June 30, 2000, the Zimbabwe subsidiary recorded a provision for
reclamation and remediation of $24,585. The Zimbabwe subsidiary records
additions to the provision for reclamation and remediation based on ounces of
gold produced.
Write-down of Mining Assets. The Zimbabwe subsidiary recorded a write-down
of mining assets of $2,227,206 during the fiscal year ended September 30, 1999,
primarily to reflect the write-off of certain impaired mining related assets,
the cost of which was determined not to be recoverable through expected future
mining operations.
-30-
Loss from Operations. The loss from operations was $2,807,563 for the
fiscal year ended September 30, 1999 and $1,102,335 for the nine months ended
June 30, 2000.
Other Income (Expense). Other income (expense) was $(96,045) for the fiscal
year ended September 30, 1999 and $62,238 for the nine months ended June 30,
2000.
"Fresh-Start" Accounting Adjustments to the Carrying Value of Assets and
Liabilities. As a result of confirmation of the Plan on March 31, 2000, the
Company adopted "fresh-start reporting" effective March 31, 2000, which resulted
in a charge to operations of $17,604,326, of which $14,067,076 was allocable to
the Zimbabwe subsidiary. The Company "pushed-down" the impact of fresh-start
reporting to the Zimbabwe subsidiary.
Net Loss. The net loss from the Zimbabwe subsidiary's mining operations was
$2,903,608 for the fiscal year ended September 30, 1999 and $1,040,097 for the
nine months ended June 30, 2000.
Continuing Operations:
Consolidated Results of Operations - Fiscal Years Ended September 30, 1999 and
2000:
General and Administrative. General and administrative expenses were
$810,217 and $817,438 for the fiscal years ended September 30, 1999 and 2000,
respectively.
Legal Fees. Legal fees were $397,593 and $602,520 for the fiscal years
ended September 30, 1999 and 2000, reflecting efforts to restructure the Company
and investigate and evaluate potential legal claims. Legal fees increased
substantially in 2000 as compared to 1999 as a result of the commencement of
litigation against various parties in several jurisdictions during 2000 (see
"ITEM 3. LEGAL PROCEEDINGS").
Stock Option Costs. Stock option costs were $187,335 for the fiscal year
ended September 30, 1999, and consisted of costs with respect to common stock
options issued at less than fair market value by prior management during the
fiscal year ended September 30, 1996 and the cashless exercise provision of an
option to acquire First Convertible Preferred Stock granted to an officer in
January 1999. Stock option costs were $49,975 for the fiscal year ended
September 30, 2000, reflecting the cost of the cashless exercise provision of
the option to acquire First Convertible Preferred Stock.
Depreciation and Amortization. Depreciation and amortization was $20,183
and $11,687 for the fiscal years ended September 30, 1999 and 2000,
respectively.
-31-
Income Tax Provision. During the fiscal year ended September 30, 1999, the
Company was advised of the results of an examination report prepared by the
Internal Revenue Service with respect to certain transactions during 1994
between a predecessor entity of the Company and a former officer of the Company.
The findings were preliminary in nature and indicated a tax liability in excess
of $2,000,000, including penalties and interest. During October 1999, under the
auspices of new management, the Company entered into a settlement agreement with
the Internal Revenue Service, which included making a nominal payment. As of
September 30, 1998, the Company recorded an income tax provision of $500,000. As
a result of the resolution of this matter, effective September 30, 1999, the
Company reversed the income tax provision in the financial statements.
Loss on Disposition and Write-Down of Marketable Securities. The Company
recorded a loss of $193,544 for the fiscal year ended September 30, 2000 with
respect to the disposition and write-down of marketable securities.
Interest Income. Interest income was $240,809 and $242,431 for the fiscal
years ended September 30, 1999 and 2000, respectively.
Other (Income) Expense. Other (income) expense was $(98,735) and $791 for
the fiscal years ended September 30, 1999 and 2000, respectively.
Loss From Continuing Operations. The loss from continuing operations was
$575,784 and $1,433,524 for the fiscal years ended September 30, 1999 and 2000,
respectively.
Reorganization Costs. Reorganization costs related to the bankruptcy
proceedings aggregated $18,535,444. These costs included an adjustment to reduce
the Company's assets, consisting primarily of property and equipment owned by
the Company's Zimbabwe subsidiary and utilized in gold mining operations in
Zimbabwe, to net fair value of approximately $1,000,000 at March 31, 2000 based
on "fresh-start accounting", which resulted in a charge to operations of
$17,604,326. These costs also included direct incremental costs of $931,118,
consisting of legal fees of $482,000 and administrative costs (including
management bonuses) of $449,000.
Loss From Discontinued Operations. The loss from discontinued operations
for the fiscal years ended September 30, 1999 and 2000, consisting of the
results of operations of the Zimbabwe subsidiary, was $2,903,608 and $1,040,097,
respectively. These losses do not include the allocation of any expenses
incurred by the Company's United States corporate offices.
Net Loss From Operations Before Charges Related to First Convertible
Preferred Stock. The net loss from operations before charges related to First
-32-
Convertible Preferred Stock for the fiscal years ended September 30, 1999 and
2000 was $3,479,392 and $21,009,065, respectively.
Net Loss Applicable to Common Shareholders. During the fiscal year ended
September 30, 1999, the Company recorded dividends on First Convertible
Preferred Stock of $1,000,400, a penalty on First Convertible Preferred Stock of
$5,626,118 related to the delisting of the Company's common stock from NASDAQ on
July 31, 1998, and the amortization of discount on First Convertible Preferred
Stock of $809,907, which was reflected as a return to the preferred shareholders
and as an increase in the loss to the common shareholders. During the fiscal
year ended September 30, 2000, the Company recorded a penalty on First
Convertible Preferred Stock of $798,771 related to the delisting of the
Company's common stock from NASDAQ on July 31, 1998. As a result, the net loss
applicable to common shareholders was $10,915,817 and $21,807,836 for the fiscal
years ended September 30, 1999 and 2000, respectively.
Consolidated Financial Condition - September 30, 2000:
Liquidity and Capital Resources:
Overview. The Company's cash and cash equivalents were $488,783 at
September 30, 2000, as compared to $2,276,351 at September 30, 1999, a decrease
of $1,787,568. The most significant component of the decrease in cash in 2000
was the net cash used in operations of $2,050,972. As of September 30, 2000, the
Company's working capital was $1,106,738, as compared to a working capital
deficit of $894,278 at September 30, 1999, reflecting current ratios of 5.09:1
and 0.83:1, respectively.
Operating. The Company's operations utilized cash resources of $2,050,972
during the fiscal year ended September 30, 2000, primarily for various general
and administrative costs, legal fees and reorganization costs, as compared to
utilizing cash resources of $1,031,478 during the fiscal year ended September
30, 1999 for various general and administrative costs and legal fees. The
increase in cash resources utilized in operations in 2000 as compared to 1999
reflected costs incurred in 2000 with respect to the successful bankruptcy
reorganization of the Company and the pursuit of litigation against various
parties.
As of September 30, 2000, the Company had no business operations. The
Company's efforts are focused on seeking a new business opportunity, seeking
recovery from its litigation and claims against former management and certain
other entities (see "ITEM 3. LEGAL PROCEEDINGS"), and maintaining the corporate
entity. As of September 30, 2000, the Company had cash and marketable securities
of $1,042,333 and net working capital of $1,106,738. Since the Company has no
borrowings and its major ongoing costs consist of legal fees and officer
compensation, the Company believes that it can reduce or defer such costs
consistent with the Company's available working capital resources. In that
-33-
regard, effective October 1, 2000, the Company's two officers voluntarily agreed
to permanently reduce their base annual compensation as provided for in their
respective employment agreements by 50%, resulting in a reduction in annual
officers' compensation of $185,000 beginning with the fiscal year ending
September 30, 2001. The Company believes that its working capital resources are
adequate to fund anticipated costs and expenses during the fiscal year ending
September 30, 2001.
Investing. During the fiscal years ended September 30, 1999 and 2000, the
Company generated net cash from investing activities of $629,721 and $273,404,
respectively. During the fiscal year ended September 30, 1999, the Company
received $685,000 from its Zimbabwe subsidiary. During the fiscal years ended
September 30, 1999 and 2000, the Company received $615,845 and $932,823,
respectively, from the disposition of marketable securities. During the fiscal
year ended September 30, 1999, the Company utilized $380,755 to purchase
marketable securities. During the fiscal years ended September 30, 1999 and
2000, the Company advanced $255,700 and $182,000, respectively, to or on behalf
of its Zimbabwe subsidiary prior to its spin-off effective July 1, 2000. During
the fiscal year ended September 30, 2000, the Company capitalized the spun-off
entity, provided an advance and allocated certain common corporate services to
the spun-off entity aggregating $476,244. The Company also purchased $1,175 and
$34,669 of property and equipment during the fiscal years ended September 30,
1999 and 2000, respectively.
As of September 30, 2000, the Company did not have any significant
outstanding commitments for capital expenditures.
Financing. During the fiscal year ended September 30, 1999, the Company
expended $1,247,472 to repurchase 598,655 shares of First Convertible Preferred
Stock. During the fiscal year ended September 30, 2000, the Company expended
$10,000 to repurchase its common stock pursuant to the confirmed Plan.
New Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), which, as amended, is effective for financial statements for all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. SFAS No. 133 also addresses the
accounting for hedging activities. The Company will adopt SFAS No. 133 for its
fiscal year beginning October 1, 2000, and does not anticipate that the adoption
of SFAS No. 133 will have a material effect on its financial statement
presentation or disclosures.
-34-
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
Effective August 18, 2000, the Company retained Hollander, Lumer & Co. LLP
("HL"), Los Angeles, California, as its new independent accountant to audit the
Company's financial statements. During the fiscal years ended September 30, 1998
and 1999, and the interim period from October 1, 1999 through August 18, 2000,
the Company did not consult with HL regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements; or any matter that was either the subject of a disagreement (as
defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or a reportable
event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
Deloitte & Touche LLP ("D&T"), Vancouver, British Columbia, Canada, audited
the Company's financial statements for the fiscal years ended September 30, 1997
and 1998. As a result of the retention of HL as the Company's new independent
accountant effective August 18, 2000, D&T was replaced as the Company's
independent accountant at that time. The decision to retain HL to replace D&T as
the Company's independent accountant was approved by the Company's Board of
Directors.
D&T's reports on the Company's financial statements for each of the fiscal
years ended September 30, 1997 and 1998 did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. However, D&T's report on the Company's
financial statements for the fiscal year ended September 30, 1998 contained
supplementary comments. These supplementary comments indicated that, although
United States reporting standards for auditors require the addition of an
explanatory paragraph following the opinion paragraph when the financial
statements are affected by a significant uncertainty such as referred to in the
notes to the consolidated financial statements regarding the Company's ability
to continue as a going concern, reporting standards in Canada do not permit a
reference to such uncertainties in the auditor's report when the uncertainties
are adequately disclosed in the financial statements.
Under the auspices of new management, which assumed control of the Company
effective October 1, 1998, the Company filed for protection under Chapter 11 of
the United States Bankruptcy Code on December 7, 1999, in order to implement a
-35-
financial restructuring. The Company's Second Amended Chapter 11 Plan of
Reorganization was confirmed by the United States Bankruptcy Court on March 31,
2000. During and immediately prior to the period that the Company was in
bankruptcy proceedings, complete financial statements of the Company were not
prepared. Accordingly, D&T did not issue a report on the Company's financial
statements for the fiscal year ended September 30, 1999.
With respect to D&T's report on the Company's financial statements for the
fiscal year ended September 30, 1998, there were no disagreements with D&T
through the date such financial statements were publicly disseminated on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of D&T, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with its report. However, subsequent
to the dissemination of D&T's report on the Company's financial statements for
the fiscal year ended September 30, 1998, and as part of the Company's
bankruptcy restructuring, the Company, in conjunction with its legal counsel,
commenced a review of the prior acts and conduct of D&T, which resulted in the
Company asserting certain legal claims against D&T. As a result, a potential
conflict of interest developed with respect to D&T continuing as the Company's
independent accountant.
-36-
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 September 30, 2000. Pursuant to the
confirmed Plan, 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 expires April 11, 2001):
Mark S. Zucker (1) 39 August 1, 1998
Class II (term expires April 11, 2002):
Divo Milan (1)(2)(3) 44 August 21, 1998
Class III (term expires April 11, 2003):
Selwyn Kossuth (1)(2)(3) 63 September 26, 1997
-------------------------
(1) Member of the executive committee.
(2) Member of the compensation committee.
(3) Member of the audit committee.
-37-
EXECUTIVE OFFICERS
Date First
Elected as
Name Age Position Officer
---- --- -------- ----------
Mark S. Zucker 39 President and October 1,
Chief Executive 1998
Officer
Robert N. Weingarten 48 Chief Financial November 20,
Officer and 1998
Secretary
Biographies of Directors and Executive Officers:
Selwyn Kossuth. Mr. Kossuth has had a career 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,
as a director of Glen Ardith Frazer Corp. and as a consultant to the
Investment Funds Institute of Canada. Mr. Kossuth also serves on the board
of directors of Resource Ventures, Inc., a publicly-held 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
publicly-held company formerly owned by Aries Ventures Inc.
Mark S. Zucker. Mr. Zucker was appointed President and Chief Executive
Officer of the Company on October 1, 1998. Mr. Zucker became a member of the
Board of Directors on August 1, 1998. From 1995 through 2000, Mr. Zucker was
the founder and managing partner of Anvil Investors, Inc., a financial
consulting and advisory firm. From 1991 through 1996, Mr. Zucker was a
founding partner and served as Senior Vice President of Libra Investments,
-38-
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 as an officer and director of Resource Ventures, Inc., a publicly-held
company formerly owned by Aries Ventures Inc.
Robert N. Weingarten. Mr. Weingarten was appointed Chief Financial Officer
of the Company on November 20, 1998. From July 1992 to present, Mr.
Weingarten has been the sole shareholder of Resource One Group, Inc., a
financial consulting and advisory company. From January 1, 1997 through July
31, 1997, Mr. Weingarten was a principal in Chelsea Capital Corporation, a
merchant banking firm. 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 a director of GolfGear International, Inc., a publicly-held company, and
as an officer of Resource Ventures, Inc., a publicly-held company formerly
owned by Aries Ventures 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, 2000.
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, 2000 and Form 5 and amendments thereto furnished to the Company
with respect to the fiscal year ended September 30, 2000, 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, 2000 failed to
file on a timely basis reports required by Section 16(a) during the fiscal year
ended September 30, 2000, except as follows: Forms 3 and 4 were not filed on a
timely basis for Kyneton Investments, Ltd. and SIL Nominees, Ltd. (joint filing)
and for Divo Milan, with respect to changes in the ownership of the Company's
common stock as a result of confirmation of the Plan.
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.
-39-
SUMMARY COMPENSATION TABLE
Fiscal
Year
Name and Ended
Principal September Other Annual
Position 30, Salary Bonus Compensation
-------- ---- ------ ----- ------------
Amyn S. Dahya 2000 $ $ $
President and 1999 100,000 (1)
Chief Executive 1998 224,700 49,495 (2)
Officer
Mark S. Zucker 2000 250,000 250,000 (6) 49,974 (4)
President and 1999 250,000 134,312 (4)
Chief Executive 1998 70,833 (3)
Officer
Robert N. 2000 120,000 60,000 (6)
Weingarten 1999 105,000 (5)
Chief Financial 1998
Officer
------------------
(1) Amyn S. Dahya resigned as President and Chief Executive Officer of the
Company effective October 1, 1998. Mr. Dahya's compensation for the
fiscal year ended September 30, 1998 consisted of compensation at the
rate of $150,000 per year for the period from October 1, 1997 through
December 31, 1997, and $249,600 per year for the period from January 1,
1998 through September 30, 1998. In conjunction with his resignation
effective October 1, 1998, Mr. Dahya's existing severance and
compensation agreements with the Company were terminated, and the Company
entered into a new one-year Services Agreement with Mr. Dahya's
corporation for $100,000 effective October 1, 1998. The Services
Agreement was terminated effective September 30, 1999.
(2) Consists of premiums paid by the Company on a life insurance policy for
Amyn S. Dahya, which has since lapsed.
(3) Mark S. Zucker was paid $70,833 during the fiscal year ended September
30, 1998 for consulting services rendered to the Company's Board of
Directors in conjunction with the Company's efforts to restructure its
operations and capital structure, prior to his appointment as President
and Chief Executive Officer of the Company effective October 1, 1998.
(4) Represents value for accounting purposes of cashless exercise provision
of option on First Convertible Preferred Stock granted to Mark S. Zucker.
-40-
(5) Represents compensation paid to Robert N. Weingarten from November 20,
1998, the date of his appointment as Chief Financial Officer of the
Company, through September 30, 1999.
(6) Pursuant to their respective employment agreements, Mark S. Zucker and
Robert N. Weingarten were paid reorganization bonuses during the fiscal
year ended September 30, 2000, which were reviewed and approved by the
Bankruptcy Court.
Compensation Agreements:
The Company entered into three-year employment agreements dated September
1, 1999 with Mark S. Zucker, the Company's President and Chief Executive
Officer, and with Robert N. Weingarten, the Company's Chief Financial Officer,
with minimum annual compensation of $250,000 and $120,000, respectively, as well
as certain reorganization bonuses. 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 provide that in the event of a change of majority
ownership of the Company, Mr. Zucker and Mr. Weingarten each have the option to
terminate their employment with the Company and receive a payment equal to three
times their base annual salary. 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 ending 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 ending September 30,
2003.
During the fiscal years ended September 30, 1998, 1999 and 2000, Selwyn
Kossuth, a director of the Company, was paid an annual board consulting fee of
CN$40,000 (approximately $26,000).
During the fiscal year ended September 30, 1998, prior to the appointment
of new management, Amyn S. Dahya entered in a Severance Agreement and Services
Agreement with the Company. The Severance Agreement provided for Mr. Dahya to
receive an amount equal to three times the average annual salary paid to him
during the five calendar years ending before a change in control of the Company.
The Services Agreement provided for Mr. Dahya to receive, through his
corporation, a base annual salary of $249,600 for a period of five years with
annual cost of living increases, a CN$5,000,000 life insurance policy, and
various incentive compensation and benefits. In conjunction with Mr. Dahya's
resignation as the Company's President and Chief Executive Officer effective
-41-
October 1, 1998, the Severance Agreement and the Services Agreement were
terminated, and the Company entered into a new one-year Services Agreement with
Mr. Dahya's corporation for $100,000 effective October 1, 1998. The Services
Agreement was terminated effective September 30, 1999.
Other Compensation Arrangements:
During the fiscal year ended September 30, 1998, the Company paid
consulting fees of $53,000 to Hanif S. Dahya, a director of the Company at that
time. Mr. Dahya resigned as a director of the Company on August 1, 1998.
During the fiscal year ended September 30, 1998, the Company paid
consulting fees of approximately $15,000 to Sandro Kunzle, a director of the
Company at that time. Mr. Kunzle resigned as a director of the Company on August
1, 1998.
During the fiscal year ended September 30, 1997, Al-Karim Haji, the
Company's former Chief Financial Officer, exercised a stock option to purchase
7,500 shares of common stock at $5.00 per share. The $37,500 exercise price was
loaned to Mr. Haji by the Company. On March 17, 1998, the Company forgave and
wrote off the $37,500 owed to the Company by Mr. Haji. Mr. Haji was the
Company's Chief Financial Officer from November 7, 1997 until his resignation on
April 9, 1998. Prior to his appointment as Chief Financial Officer, Mr. Haji was
the Company's Director of Finance.
During the fiscal year ended September 30, 2000, the Company paid
reorganization bonuses of $2,500 and $5,000 to Selwyn Kossuth and Divo Milan,
respectively, who are non-officer directors of the Company.
Board of Directors:
During the fiscal years ended September 30, 1998 and 1999, directors did
not receive any compensation for serving on the Board of Directors. Commencing
July 1, 2000, non-officer directors 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.
Stock Option Activity:
During October 1995, Amyn S. Dahya was granted a stock option exercisable
for five years to purchase 1,000,000 shares of common stock at an exercise price
of $7.00 per share, which was equal to the market price per share at the date of
grant. As of September 30, 1999, this stock option was fully vested, and had not
been exercised. This stock option was cancelled effective April 11, 2000 as a
result of the confirmation of the Plan (see "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION - Restructuring and Reorganization").
-42-
Effective January 18, 1999, the Board of Directors of the Company granted
Mark S. Zucker, the Company's President and Chief Executive Officer, a stock
option to purchase 75,807 shares of First Convertible Preferred Stock,
adjustable for the quarterly dividend, at an exercise price of $2.00 per share,
which in the judgement of the Board of Directors approximated fair market value
at the grant date. The stock option was vested and exercisable through December
23, 1999, and was subject to annual renewal if not terminated by the Board of
Directors. The stock option was exercised during April 2000 in conjunction with
the confirmation of the Plan (see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION - Restructuring and Reorganization"). As a result of the
cashless exercise provision of this stock option, the Company recorded a charge
to operations of $134,312 and $49,975 for the fiscal years ended September 30,
1999 and 2000.
There were no other stock options granted to or exercised by officers
during the fiscal years ended September 30, 1999 and 2000.
Long-Term Incentive Plans:
The Company does not have any long-term incentive plans.
Stock Option Plans:
1995 Incentive Stock Option Plan. During 1995, the Company adopted an
Incentive Stock Option Plan ("ISOP"), which provided that a maximum of 800,000
options to purchase the Company's common stock could be granted to officers,
employees and advisors of the Company. The total options available under the
ISOP were increased from 800,000 to 1,500,000 upon approval by the Company's
shareholders at the annual meeting held on June 16, 1997. Options granted under
the ISOP were intended to qualify as incentive stock options under the Economic
Recovery Tax Act of 1981 (the "1981 Act"), as amended by the Tax Reform Act of
1986.
Options must be granted within five years from the effective date of the
ISOP. As of September 30, 1995, options to purchase 765,000 shares of common
stock were granted under the ISOP. All options granted under the ISOP through
September 30, 1996 had an exercise price of $5.00 per share, which was equal to
the market price per share on the date of grant. All options granted through
September 30, 1995 were exercisable for a term of five years from the date of
vesting and vested at a rate of 25% per year over a period of four years. During
the fiscal year ended September 30, 1996, options to purchase 75,000 shares were
granted under the ISOP at prices ranging from $7.00 to $10.00 per share. These
options were exercisable for a term of five years from the date of vesting and
vested on varying terms of up to six years. Certain of the options granted under
the ISOP were compensatory in nature and resulted in aggregate compensation
-43-
expense of $576,250, of which $0, $74,040 and $85,471 was charged to operations
during the fiscal years ended September 30, 1996, 1997 and 1998, respectively.
During the fiscal year ended September 30, 1997, there were no options granted
under the ISOP and 60,000 options were cancelled. During the fiscal year ended
September 30, 1998, 182,500 options were granted under the ISOP exercisable at
$5.00 per share, and 260,000 options were cancelled. During the fiscal year
ended September 30, 1999, the Company did not grant any new options under the
ISOP, and no existing options were exercised.
1995 Non-Qualified Stock Option Plan. During 1995, the Company adopted a
Non-Qualified Stock Option Plan ("SOP"), which granted five-year options to
purchase a maximum of 250,000 shares of the Company's common stock at a price of
$0.04 per share to officers and key employees of the Company. Options granted
under the SOP were not intended to qualify as incentive stock options under the
1981 Act.
As of September 30, 1996, options to purchase 246,000 shares of common
stock were granted under the SOP. With the exception of 50,000 options granted
to a former officer, whose options vested 100% on the grant date, the options
vested over a one-year period with 50% vesting at the grant date and 50% on the
first anniversary of the grant date. Options granted under the SOP were
compensatory in nature and resulted in aggregate compensation expense of
$1,220,160, of which $855,600 and $364,560 were recorded as compensation expense
during the fiscal years ended September 30, 1995 and 1996, respectively. During
the fiscal years ended September 30, 1996, 1997 and 1998, 10,000 options,
116,000 options and 68,000 options, respectively, were exercised. During the
fiscal year ended September 30, 1999, the Company did not grant any new options
under the SOP, and no existing options were exercised.
1997 Directors Stock Option Plan. On January 17, 1997, the Company adopted
the 1997 Directors Stock Option Plan ("DSOP"), under which options to purchase a
maximum of 350,000 shares of the Company's common stock could be granted to
directors of the Company. The DSOP was approved by the Company's shareholders at
the annual meeting held on June 16, 1997. Options granted under the DSOP were
considered to be non-statutory stock options for tax purposes.
During the fiscal year ended September 30, 1997, 275,000 options were
granted and 100,000 options were cancelled under the DSOP. During the fiscal
year ended September 30, 1998, 100,000 options were granted and 175,000 options
were cancelled under the DSOP. The options granted during the fiscal years ended
September 30, 1997 and 1998 had an exercise price of $9.00 per share, which was
equal to the market price per share on the date of grant. During the fiscal year
ended September 30, 1999, no new options for common stock were granted under the
DSOP, and no existing common stock options were exercised. All options granted
under the DSOP were exercisable for a term of five years from the date of
vesting and vested at a rate of one-third per year.
-44-
At September 30, 1999, there were options outstanding to purchase a total
of 1,608,000 shares of common stock at exercise prices ranging from $0.04 to
$7.00 per share, of which an aggregate of 1,306,875 options were exercisable
under the Company's then-existing stock option plans, all of which were
cancelled effective April 11, 2000 as a result of the confirmation of the Plan
(see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
Restructuring and Reorganization").
Pursuant to the confirmed Plan, the Company was authorized to adopt an
Employee Stock Option Plan, providing for the granting of stock options for up
to 10% of the total outstanding shares of common stock of the Company (353,318
shares), and a Management Incentive Stock Option Plan, providing for the
granting of stock options for up to 7% of the total outstanding shares of common
stock of the Company (247,322 shares), as of April 11, 2000, the effective date
of the confirmed Plan, which represent stock options to acquire an aggregate of
600,640 shares of common stock. As of September 30, 2000, no options had been
granted under these stock option plans. 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 at $0.23 per share, which was fair market value on the date of grant. The
stock options vest in equal annual increments on September 30, 2001, 2002 and
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 September 30, 2000, 3,533,177 shares of common stock were issued and
outstanding, which was the only class of voting securities authorized or
outstanding.
The following table sets forth, as of September 30, 2000: (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
-45-
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.
Name and Address Amount and Nature of Percent of Shares
of Beneficial Owner Beneficial Ownership of Common Stock (7)
------------------- -------------------- -------------------
Kyneton Investments,
Ltd.
2 Jane Street, #501
Toronto, Canada M6S 4W3 593,710 (1) 15.5
Elliott Associates, L.P.
712 Fifth Avenue
36th Floor
New York, New York 10019 2,559,496 (2) 53.2
Mark S. Zucker (6) 1,780,490 (3) 40.3
Divo Milan (6) 236,002 (4) 6.5
Selwyn Kossuth (6) - -
Robert N. Weingarten (6) - -
All Directors and
Executive Officers as
a Group (4 persons) 2,016,492 (5) 44.4
----------------------
(1) Includes 296,855 shares of common stock issuable upon exercise of
currently exercisable Class A common stock purchase warrants issued
pursuant to the confirmed Plan.
(2) Includes securities owned by Elliott Associates, L.P. and its
subsidiaries. Includes 1,279,748 shares of common stock issuable upon
exercise of currently exercisable Class A common stock purchase warrants
issued pursuant to the confirmed Plan.
(3) Includes 446,879 shares of common stock owned of record by Anvil
Investment Partners, L.P., a Delaware limited partnership, of which Anvil
-46-
Investors, Inc., a Delaware corporation, is the general partner. Mark S.
Zucker, the President and Chief Executive Officer of the Company, is the
controlling shareholder of Anvil Investors, Inc. Includes 890,245 shares
of common stock issuable upon exercise of currently exercisable Class A
common stock purchase warrants issued pursuant to the confirmed Plan.
(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 118,001 shares of common stock issuable upon
exercise of currently exercisable Class A common stock purchase warrants
issued pursuant to the confirmed Plan.
(5) Includes 1,008,236 shares of common stock issuable upon exercise of
currently exercisable Class A common stock purchase warrants issued
pursuant to the confirmed Plan.
(6) The address of each such person is c/o the Company, 28720 Canwood Street,
Suite 207, Agoura Hills, California 91301.
(7) The calculation with respect to percent of shares of common stock
outstanding for each beneficial owner assumes that only the currently
exercisable Class A common stock purchase warrants owned by each such
beneficial owner are exercised.
Changes in Control:
As of September 30, 2000, 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 three months ended December 31, 1998, the Company advanced
$38,899 to or on behalf of WaterPur, which was charged to operations during the
fiscal year ended September 30, 1999 (see "ITEM 1. DESCRIPTION OF BUSINESS -
WaterPur International Inc." and "ITEM 3. LEGAL PROCEEDINGS").
In conjunction with the spin-off of Resource effective July 1, 2000 (see
"ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
Restructuring and Reorganization"), the Company capitalized Resource with
$250,000 cash and provided a short-term advance of $150,000. During the fiscal
year ended September 30, 2000, subsequent to the spin-off of the Zimbabwe
-47-
subsidiary effective July 1, 2000, the Company allocated certain common
corporate services to Resource aggregating $76,244, which has been reflected as
due from Resource in the financial statements at September 30, 2000. The
aggregate amount due from Resource as of September 30, 2000 of $226,244 was
received by the Company subsequent to September 30, 2000.
-48-
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, 2000, the Company filed the
following Current Reports on Form 8-K -
1. Effective August 18, 2000, the Company reported the retention of
Hollander, Lumer & Co. LLP as the Company's new independent accountant
to replace Deloitte & Touche LLP.
2. On August 30, 2000, the Company amended the Current Report on Form 8-K
dated August 18, 2000 reporting the change in independent accountants
to include the response letter from Deloitte & Touche LLP dated August
29, 2000.
-49-
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 23, 2002 By: /s/ MARK S. ZUCKER
-------------------------
Mark S. Zucker
Chairman of the Board of
Directors
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 23, 2002 By: /s/ MARK S. ZUCKER
-------------------------
Mark S. Zucker
Chairman of the Board of
Directors
Date: December 23, 2002 By: /s/ SELWYN KOSSUTH
-------------------------
Selwyn Kossuth
Director
Date: December 23, 2002 By: /s/ DIVO MILAN
-------------------------
Divo Milan
Director
Date: December 23, 2002 By: /s/ ROBERT N. WEINGARTEN
-------------------------
Robert N. Weingarten
President and Chief
Financial Officer
-50-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets - September 30,
2000 and 1999
Consolidated Statements of Operations -
Fiscal Years Ended September 30, 2000 and
1999
Consolidated Statements of Comprehensive
Loss - Fiscal Years Ended September 30,
2000 and 1999
Consolidated Statements of Shareholders'
Equity (Deficiency) - Fiscal Years Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows -
Fiscal Years Ended September 30, 2000 and
1999
Notes to Consolidated Financial Statements -
Fiscal Years Ended September 30, 2000 and
1999
-51-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Aries Ventures Inc. (formerly
Casmyn Corp.)
We have audited the accompanying consolidated balance sheets of Aries
Ventures Inc., a Nevada corporation (formerly Casmyn Corp., a Colorado
corporation), and subsidiaries (the "Company") as of September 30, 2000 and
1999, and the related consolidated statements of operations, comprehensive loss,
shareholders' equity (deficiency) 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 audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aries
Ventures Inc. and subsidiaries as of September 30, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
Our report with respect to the accompanying consolidated financial
statements as of and for the fiscal year ended September 30, 1999 originally
included an explanatory paragraph with respect to the Company's ability to
continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has resolved the uncertainties that existed at
September 30, 1999 by successfully completing an equity recapitalization and
restructuring during the fiscal year ended September 30, 2000. Accordingly, our
-52-
report on the consolidated financial statements as of and for the fiscal year
ended September 30, 1999 as included herein does not include an explanatory
paragraph.
Hollander, Lumer & Co., LLP
Los Angeles, California
December 13, 2000, except for Notes 1d, 6 and 7c, as to which the date is
September 10, 2002
-53-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Balance Sheets (Note 1)
September 30,
--------------------------
2000 1999
---------- ----------
ASSETS
CURRENT
Cash and cash equivalents $ 488,783 $ 2,276,351
Marketable securities
(Note 4) 553,550 1,917,243
Due from Resource
Ventures, Inc. (Note 3) 226,244 -
Accrued interest receivable 22,920 24,880
Prepaid expenses and other
current assets 86,072 -
---------- ----------
1,377,569 4,218,474
---------- ----------
PROPERTY AND EQUIPMENT (Note 5) 25,844 89,068
Less accumulated
depreciation and
amortization (5,908) (58,621)
---------- ----------
19,936 30,447
---------- ----------
OTHER
Investment in and advances
to discontinued subsidiary,
spun-off to shareholders
on July 1, 2000 (Note 3) - 15,643,825
Deposits 9,244 9,244
---------- ----------
9,244 15,653,069
---------- ----------
$ 1,406,749 $19,901,990
========== ==========
(continued)
-54-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Balance Sheets (continued)(Note 1)
September 30,
--------------------------
2000 1999
---------- ----------
LIABILITIES
CURRENT
Accounts payable $ 196,973 $ 112,212
Accrued liabilities 24,949 83,333
Common stock repurchase
obligation (Note 1) 48,909 -
Penalty on First Convertible
Preferred Stock (Notes 1
and 10) - 4,917,207
---------- ----------
270,831 5,112,752
---------- ----------
REDEMPTION LIQUIDATION
PREFERENCE OBLIGATION TO
HOLDERS OF FIRST
CONVERTIBLE PREFERRED STOCK
(in default at September
30, 1999) (Notes 1 and 10) - 21,466,557
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 2 and 7)
(continued)
-55-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Balance Sheets (continued)(Note 1)
September 30,
--------------------------
2000 1999
---------- ----------
SHAREHOLDERS' EQUITY
(DEFICIENCY) (Notes 1 and 10)
Preferred stock,
$0.01 par value
Authorized -
10,000,000 shares
Issued and outstanding -
0 shares and 523,784
shares of First
Convertible Preferred
Stock at September 30,
2000 and 1999,
respectively $ - $ -
Common stock,
$0.01 par value
Authorized -
50,000,000 shares
Issued and outstanding -
3,533,177 shares and
243,578,142 shares at
September 30, 2000 and
1999, respectively 35,332 9,743,126
Additional paid-in
capital 2,013,684 53,511,948
Accumulated deficit (1,082,898) (66,782,715)
Accumulated other
comprehensive income
(loss) 169,800 (3,149,678)
---------- ----------
1,135,918 (6,677,319)
---------- ----------
$ 1,406,749 $19,901,990
========== ==========
See accompanying notes to consolidated financial statements.
-56-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Operations
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
REVENUES $ - $ -
---------- ----------
COSTS AND EXPENSES
General and
administrative 817,438 810,217
Legal fees 602,520 397,593
Stock option costs
(Note 10) 49,975 187,335
Depreciation and
amortization (Note 5) 11,687 20,183
Reversal of income tax
provision (Note 8) - (500,000)
Loss on disposition
and write-down of
marketable securities
(Note 4) 193,544 -
Interest income (242,431) (240,809)
Other (income) expense 791 (98,735)
---------- ----------
1,433,524 575,784
---------- ----------
LOSS FROM CONTINUING
OPERATIONS (1,433,524) (575,784)
---------- ----------
REORGANIZATION COSTS (Note 1)
"Fresh-Start" accounting
adjustments to the
carrying value of
assets and liabilities (17,604,326) -
Legal fees (482,035) -
Administrative costs (449,083) -
---------- ----------
LOSS FROM REORGANIZATION (18,535,444) -
---------- ----------
(continued)
-57-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Operations (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
LOSS FROM DISCONTINUED
OPERATIONS (Note 3) (1,040,097) (2,903,608)
---------- ----------
NET LOSS FROM OPERATIONS
BEFORE CHARGES RELATED
TO FIRST CONVERTIBLE
PREFERRED STOCK (21,009,065) (3,479,392)
Less:
Dividends on First
Convertible
Preferred Stock
(Note 10) - (1,000,400)
Amortization of
discount on
First Convertible
Preferred Stock
(Note 10) - (809,907)
Penalty on First
Convertible
Preferred Stock
(Note 10) (798,771) (5,626,118)
---------- ----------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $(21,807,836) $(10,915,817)
========== ==========
(continued)
-58-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Operations (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 2f)
Loss from continuing
operations $ (0.71) $ (1.25)
Loss from discontinued
operations (0.52) (6.31)
Loss from reorganization (9.22) -
Loss from charges related
to First Convertible
Preferred Stock (0.40) (16.17)
----- -----
Loss applicable to common
shareholders $(10.85) $(23.73)
===== =====
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING - BASIC AND
DILUTED (Note 2f) 2,010,167 460,073
========= =======
See accompanying notes to consolidated financial statements.
-59-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Comprehensive Loss
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
NET LOSS FROM OPERATIONS
BEFORE CHARGES RELATED
TO FIRST CONVERTIBLE
PREFERRED STOCK $(21,009,065) $ (3,479,392)
Other comprehensive income
(loss):
Foreign currency
translation adjustment 315
Unrealized gain (loss) on
marketable securities (276,019) 562,797
----------- ----------
COMPREHENSIVE LOSS $(21,285,084) $ (2,916,280)
=========== ==========
See accompanying notes to consolidated financial statements.
-60-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency)
Fiscal Years Ended September 30, 1999 and 2000
First Convertible
Common Stock Preferred Stock Additional
------------------------- ------------------- Paid-in Accumulated
Shares Par Value Shares Par Value Capital Deficit
----------- ---------- --------- --------- ----------- ------------
Balance, October 1, 1998 217,751,710 $8,710,068 1,084,347 $ $29,272,294 $(55,866,898)
Dividends on First Convertible
Preferred Stock:
Issuance of dividends 40,016 4,002 996,398 (1,000,400)
Effect on redemption premium (1,635,998)
Penalty on First Convertible
Preferred Stock (5,626,118)
Repurchases of shares of First
Convertible Preferred Stock:
Shares repurchased (598,655) (59,866) (1,187,606)
Effect on redemption premium 24,475,175
Effect on penalty 1,537,702
Conversion of shares of First
Convertible Preferred Stock
into common stock:
Shares converted 25,826,432 1,033,058 (1,924) (192) (1,032,866)
Effect on redemption premium 78,661
Effect on penalty 10,946
Amortization of discount on First
Convertible Preferred Stock 809,907 (809,907)
Stock option costs 187,335
Reclassification of liquidation
preference of First Convertible
Preferred Stock 56,056
(continued)
-61-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency)
Fiscal Years Ended September 30, 1999 and 2000
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- ------------
Balance, October 1, 1998 $(3,712,790) $(21,597,326)
Dividends on First Convertible
Preferred Stock:
Issuance of dividends
Effect on redemption premium (1,635,998)
Penalty on First Convertible
Preferred Stock (5,626,118)
Repurchases of shares of First
Convertible Preferred Stock:
Shares repurchased (1,247,472)
Effect on redemption premium 24,475,175
Effect on penalty 1,537,702
Conversion of shares of First
Convertible Preferred Stock
into common stock:
Shares converted
Effect on redemption premium 78,661
Effect on penalty 10,946
Amortization of discount on First
Convertible Preferred Stock
Stock option costs 187,335
Reclassification of liquidation
preference of First Convertible
Preferred Stock 56,056
-62-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency) (continued)
Fiscal Years Ended September 30, 1999 and 2000
First Convertible
Common Stock Preferred Stock Additional
------------------------- ------------------- Paid-in Accumulated
Shares Par Value Shares Par Value Capital Deficit
----------- ---------- --------- --------- ----------- ------------
Comprehensive loss:
Net loss for the period (3,479,392)
Other comprehensive income:
Foreign currency translation
adjustment
Unrealized gain on investments
----------- ---------- --------- ------- ----------- ------------
Balance, September 30, 1999 243,578,142 9,743,126 523,784 53,511,948 (66,782,715)
Penalty on First Convertible
Preferred Stock (798,771)
Stock option costs 49,974
Exercise of option on First
Convertible Preferred Stock 84,130 8,413 (8,413)
1-for-500 reverse split of
common stock and change in
par value from $0.04 to $0.01 (243,090,986) (9,738,254) 9,738,254
Cancellation or conversion of
shares of First Convertible
Preferred Stock into common
Stock 3,203,707 32,037 (607,914) (8,413) 27,158,912
Common stock repurchase
obligation (53,413) (534) (52,879)
"Fresh-Start" accounting
adjustments (87,507,653) 87,507,653
(continued)
-63-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency) (continued)
Fiscal Years Ended September 30, 1999 and 2000
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- ------------
Comprehensive loss:
Net loss for the period (3,479,392)
Other comprehensive income:
Foreign currency translation
adjustment 315 315
Unrealized gain on investments 562,797 562,797
------------- ------------
Balance, September 30, 1999 (3,149,678) (6,677,319)
Penalty on First Convertible
Preferred Stock (798,771)
Stock option costs 49,974
Exercise of option on First
Convertible Preferred Stock
1-for-500 reverse split of
common stock and change in
par value from $0.04 to $0.01
Cancellation or conversion of
shares of First Convertible
Preferred Stock into common
Stock 27,182,536
Common stock repurchase
obligation (53,413)
"Fresh-Start" accounting
adjustments 3,595,497 3,595,497
(continued)
-64-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency) (continued)
Fiscal Years Ended September 30, 1999 and 2000
First Convertible
Common Stock Preferred Stock Additional
------------------------- ------------------- Paid-in Accumulated
Shares Par Value Shares Par Value Capital Deficit
----------- ---------- --------- --------- ----------- ------------
Shares not presented to transfer
agent for exchange (104,273) (1,043) 1,043
Spin-off of Resource Ventures,
Inc. to shareholders (877,502)
Comprehensive loss:
Net loss for the period (21,009,065)
Other comprehensive loss:
Unrealized loss on investments
----------- ---------- --------- ------- ----------- ------------
Balance, September 30, 2000 3,533,177 $ 35,332 - - $ 2,013,684 $ (1,082,898)
=========== ========== ========= ======= =========== ============
(continued)
-65-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency) (continued)
Fiscal Years Ended September 30, 1999 and 2000
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- ------------
Shares not presented to transfer
agent for exchange
Spin-off of Resource Ventures,
Inc. to shareholders (877,502)
Comprehensive loss:
Net loss for the period (21,009,065)
Other comprehensive loss:
Unrealized loss on investments (276,019) (276,019)
------------- ------------
Balance, September 30, 2000 $ 169,800 $1,135,918
============= ============
See accompanying notes to consolidated financial statements.
-66-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net loss from operations
before charges related
to First Convertible
Preferred Stock $(21,009,065) $(3,479,392)
Adjustments to reconcile
net loss to net cash
used in continuing
operating activities:
Loss from
discontinued
operations 1,040,097 2,903,608
"Fresh-Start"
accounting
adjustments to
the carrying
value of assets
and liabilities 17,604,326 -
Depreciation and
amortization 11,687 20,183
Stock option costs 49,974 187,335
Reversal of income
tax provision - (500,000)
Loss on disposition
and write-down
of marketable
securities 193,544 -
Amortization of
discount on
marketable
securities (38,692) -
(continued)
-67-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES (continued)
Changes in operating
assets and liabilities:
(Increase) decrease in:
Accrued interest
receivable $ 1,960 $ (4,768)
Prepaid expenses
and other
current assets (80,576) 7,383
Other assets - 13,018
Increase (decrease) in:
Accounts payable 121,574 (92,541)
Accrued
liabilities 54,199 (86,304)
---------- ----------
Net cash used in
continuing operating
activities (2,050,972) (1,031,478)
---------- ----------
(continued)
-68-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
INVESTING ACTIVITIES
Purchase of property
and equipment $ (1,175) $ (34,669)
Purchase of
marketable
securities - (380,755)
Advances to Resource
Ventures, Inc. (476,244) -
Advances to
discontinued
operations (182,000) (255,700)
Proceeds from
discontinued
operations - 685,000
Proceeds from
disposition
of marketable
securities 932,823 615,845
---------- ----------
Net cash provided by
investing activities 273,404 629,721
---------- ----------
(continued)
-69-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
FINANCING ACTIVITIES
Advances to transfer
agent to repurchase
common stock $ (10,000) $ -
Purchase and
retirement of
shares of First
Convertible
Preferred Stock - (1,247,472)
---------- ----------
Net cash used in
financing activities (10,000) (1,247,472)
---------- ----------
CASH AND CASH EQUIVALENTS:
Net decrease (1,787,568) (1,649,229)
At beginning of year 2,276,351 3,925,580
---------- ----------
At end of year $ 488,783 $ 2,276,351
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ - $ -
============ ==========
Cash paid for taxes $ 17,371 $ -
============ ==========
(continued)
-70-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of shares of
First Convertible
Preferred Stock
as payment of
dividends $ - $ 1,000,400
Amortization of
discount on First
Convertible
Preferred Stock - 809,907
Conversion of shares
of First Convertible
Preferred Stock
into shares of
common stock - 1,032,866
Penalty on First
Convertible
Preferred Stock 798,771 5,626,118
Reduction in penalty
on First Convertible
Preferred Stock
due to repurchases
and conversions into
common stock - 1,548,648
Reduction in redemption
premium on First
Convertible Preferred
Stock due to
repurchases and
conversions into
common stock - 24,553,836
(continued)
-71-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
(continued):
Increase in redemption
premium on First
Convertible Preferred
Stock due to issuance
of shares of First
Convertible Preferred
Stock as payment of
dividends $ - $ 1,635,998
Investment reclassified
to marketable securities - 1,000
Unrealized gain on
marketable securities 276,019 562,797
Foreign currency
translation adjustment - 315
Liabilities reclassified
from current to
"subject to compromise"
as a result of
bankruptcy proceeding 5,836,126 -
Adjustments relating
to implementation of
confirmed Plan of
Reorganization:
Shares of First
Convertible Preferred
Stock converted into
common stock 27,190,948 -
(continued)
-72-
Aries Ventures Inc. (formerly Casmyn Corp.)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Years Ended
September 30,
--------------------------
2000 1999
---------- ----------
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
(continued):
Adjustments to common
stock to reflect
1-for-500 reverse
stock split and
change in par value $ 9,738,254 $ -
Common stock repurchase
obligation 53,413 -
Transfer of accumulated
deficit to additional
paid-in capital 87,507,653 -
Common stock repurchased 4,504 -
Spin-off of Resource
Ventures, Inc. to
shareholders 877,502 -
Shares not presented to
transfer agent for
exchange 1,043
See accompanying notes to consolidated financial statements.
-73-
Aries Ventures Inc. (formerly Casmyn Corp.) and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Years Ended September 30, 2000 and 1999
1. Organization and Business
a. Organization
Aries Ventures Inc., a Nevada corporation ("Aries"), is the successor to
Casmyn Corp., a Colorado corporation ("Casmyn"). Unless the context
indicates otherwise, Aries and its subsidiaries are collectively referred
to herein as the "Company". At September 30, 2000, Aries had one
subsidiary, Auromar Development Corporation, a British Columbia
corporation.
Aries was incorporated in Nevada on April 21, 2000 as a wholly-owned
subsidiary of Casmyn. On April 28, 2000, Casmyn was merged with and into
Aries, with Aries being the surviving corporation, in conjunction with the
reorganization of Casmyn as described below.
b. Business
During the fiscal years ended September 30, 2000 and 1999, the Company's
only operating activities were conducted through its Zimbabwe subsidiary,
which is engaged in gold mining activities in Zimbabwe (a country located
in southern Africa). As a result of the Zimbabwe subsidiary being spun-off
to all of the Company's shareholders effective July 1, 2000, the Zimbabwe
subsidiary's operations were classified for accounting purposes as
discontinued operations during the fiscal years ended September 30, 2000
and 1999. The Zimbabwe subsidiary was owned by the Company through June 30,
2000, and subsequently by a separate company, Resource Ventures, Inc., a
Nevada corporation, which was spun-off to all of the Company's shareholders
effective July 1, 2000. The Zimbabwe subsidiary, Casmyn Mining Zimbabwe
(Private) Ltd., is a wholly-owned subsidiary of Casmyn Mining Corporation,
a Nevada corporation, which was a wholly-owned subsidiary of the Company.
The Company's financial statements for the fiscal year ended September 30,
2000 include the discontinued operations of the Zimbabwe subsidiary for the
nine months ended June 30, 2000. The Company maintains its corporate
offices in the United States. Financial
-74-
information with respect to the operations of the Zimbabwe subsidiary is
presented at Note 3.
c. Company Outlook
As of September 30, 2000, the Company had no business operations. The
Company's efforts were focused on seeking a new business opportunity,
seeking recovery from its litigation and claims against former management
and certain other entities (see Note 7), and maintaining the corporate
entity. The Company's working capital resources at September 30, 2000
consisted of cash and cash equivalents and marketable securities. Since the
Company has no borrowings and its major ongoing costs are legal fees and
officer compensation, the Company believes that it can reduce or defer such
costs consistent with the Company's available working capital resources.
The Company believes that its working capital resources are adequate to
fund anticipated costs and expenses during the fiscal year ending September
30, 2001.
d. Restructuring and Reorganization
The restructuring and reorganization of the Company is described below. In
conjunction with the restructuring and reorganization of the Company, the
Company effected an equity recapitalization, including a 1-for-500 reverse
split of its 243,578,142 shares of common stock outstanding on April 11,
2000, which has been reflected as indicated below in the consolidated
financial statements for the fiscal years ended September 30, 2000 and
1999.
During the fiscal year ended September 30, 1998, as a result of various
actions and transactions authorized by former management over the past few
years, the Company encountered severe financial difficulties. These
financial difficulties included significant losses, dissipation of the
Company's working capital and managerial resources, delisting of the
Company's common stock from the NASDAQ SmallCap Market, and the Company's
defaulting on certain obligations to the holders of the First Convertible
Preferred Stock (see Note 10). As a result of these developments, the Board
of Directors was reconfigured and new management was appointed to address
and resolve these problems, as described below.
-75-
During August 1998, the Board of Directors of the Company was reconfigured,
with two members resigning and four new members being appointed. On October
1, 1998, Amyn S. Dahya resigned as President and Chief Executive Officer
and was replaced by Mark S. Zucker, one of the new directors.
During October and November 1998, the Company completely restructured its
management team, which then began a comprehensive review and evaluation of
the Company's existing business operations and capital structure, with the
objective of rationalizing the Company's capital structure and maximizing
the entity value for all of the Company's equity holders.
In October 1998, the Company began the implementation of a plan to
streamline its operations worldwide and divest all non-core business
interests. By that time, the Company's only significant remaining
operations were its gold mining operations in Zimbabwe. Accordingly, new
management focused its operational turnaround efforts on the Zimbabwe gold
mining operations. The Company implemented programs to evaluate ways to
improve production and achieve production efficiencies, increase gold
reserves, reduce capital expenditures and operating costs, maximize
operating profits and operating cash flows, and evaluate future
opportunities. New management downsized the Company's executive management
and corporate staff, closed the Company's executive and administrative
offices in Vancouver, British Columbia, Canada, and relocated them to Los
Angeles, California, which resulted in substantial cost savings to the
Company.
On June 2, 1999, the holders of more than 10% of the outstanding shares of
common stock and the holders of more than 10% of the outstanding shares of
First Convertible Preferred Stock sent a letter to the Company's Board of
Directors proposing amendments to the Company's Articles of Incorporation
and calling for a special meeting of the Company's shareholders to consider
a vote on such amendments. The proposed amendments called for a 1-for-500
reverse stock split of the common stock, a conversion of each share of
First Convertible Preferred Stock into 8.5 shares of post-reverse split
common stock, and an increase in the Company's authorized shares of capital
stock. These amendments, had they been approved by the Company's
shareholders, would have resulted in the then current holders of the First
-76-
Convertible Preferred Stock owning approximately 90% of the issued and
outstanding shares of common stock following the completion of the
above-described reverse stock split and conversion. Management of the
Company responded to this proposal and engaged in extensive discussions
with such shareholders. The Company's Board of Directors ultimately made a
determination not to take a position or make a recommendation regarding
this proposal.
On December 7, 1999, Casmyn filed for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California (the "Bankruptcy Court") in order to
proceed with an equity recapitalization. The Zimbabwe gold mining
operations were owned by a separate subsidiary of Casmyn which was not a
part of the Chapter 11 bankruptcy filing, and which continued to conduct
business as usual during the bankruptcy proceedings. Casmyn operated as
debtor-in-possession during the bankruptcy proceedings.
On March 31, 2000, the Bankruptcy Court confirmed the Debtor's Second
Amended Chapter 11 Plan of Reorganization (the "Plan"). The Bankruptcy
Court entered its Order Confirming Debtor's Second Amended Chapter 11 Plan
of Reorganization on March 31, 2000, resulting in the Plan becoming
effective on April 11, 2000. Pursuant to the Bankruptcy Court Order, the
record date to determine the distribution of cash and securities to common
and preferred shareholders entitled to receive consideration under the Plan
was set as April 11, 2000. Creditors and shareholders voted overwhelmingly
to approve the Plan.
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled
share of First Convertible Preferred Stock became convertible into 5.27
shares of common stock. The shares of First Convertible Preferred Stock
represented substantially all of Casmyn's debt obligations, with aggregate
claims in excess of $27,000,000. In accordance with the Plan, creditors and
preferred shareholders received approximately 85% of the common equity, and
existing common shareholders received approximately 15% of the common
equity, subject to certain adjustments authorized by the Plan.
Approximately 3,533,000 shares of common stock were issued and outstanding
upon implementation of the Plan.
-77-
The implementation of the Plan resulted in the Company's shareholders'
equity increasing by $11,361,875, from $(8,435,357) at December 31, 1999 to
$2,926,518 at March 31, 2000, in spite of write-downs of $17,604,326
resulting from the adoption of "fresh-start reporting" as of March 31,
2000.
In accordance with the Plan, on April 11, 2000, the Company effected a
1-for-500 reverse split of its 243,578,142 shares of common stock
outstanding. Shareholders owning less than 50,000 shares of common stock on
April 11, 2000 were entitled to receive a cash payment of $1.00 per share
after adjusting for the 1-for-500 reverse stock split. Any certificates for
old common and preferred stock not presented to the Company's transfer
agent by the close of business on April 10, 2001 were automatically
cancelled without any further notice or action by the Company. In
conjunction with the shares of common stock being issued to preferred and
common shareholders pursuant to the Plan, the Plan also authorized the
issuance of certain common stock purchase warrants to such recipients.
Pursuant to the confirmed Plan, the Company's common and preferred
shareholders, individually and as classes, were deemed to have transferred
to the Company any and all rights that they may have had, known and
unknown, to sue the former or present officers, directors, professionals,
and agents of the Company for any causes of action whatsoever relating to
their acts, conduct or responsibilities with respect to the Company and
arising from 1994 forward. In addition, during March 2000, the Company
acquired certain rights to assert claims and to sue certain individuals and
entities from the placement agent of the Company's First Convertible
Preferred Stock.
On April 28, 2000, in accordance with the Plan, Casmyn was merged with and
into Aries, with Aries being the surviving corporation. Aries was
incorporated in Nevada on April 21, 2000 as a wholly-owned subsidiary of
Casmyn for this purpose.
On May 18, 2000, the name of the Company's subsidiary incorporated in the
state of Nevada to own the Company's mining investments and properties was
changed from Goldco Ltd. to Resource Ventures, Inc. ("Resource").
-78-
On June 1, 2000, the Bankruptcy Court approved and entered an Order
Authorizing Non-Material Modification of Debtor's Second Amended Chapter 11
Plan of Reorganization (the "Modification Order"). The Modification Order
authorized the Company to bypass the issuance of "New Goldco Warrants" as
provided for in the Plan, and instead to issue and distribute to its
shareholders all or a majority of the common stock of the Company's
wholly-owned subsidiary that owns the Company's mining investments and
properties in Zimbabwe.
Pursuant to the Modification Order, effective July 1, 2000, the Company's
Board of Directors authorized the distribution of all of the shares of
common stock of Resource to the Company's shareholders of record on April
11, 2000. Accordingly, shareholders entitled to exchange their old
securities for new securities pursuant to the Plan received one share of
common stock and one common stock purchase warrant (designated as the
"Series A" warrants) in Aries and Resource, respectively. Each Series A
warrant entitled the holder to purchase one share of common stock at $6.00
per share through April 11, 2001, which was subsequently extended to
October 11, 2003.
When new management was appointed on October 1, 1998, the Company had a
shareholders' deficiency of approximately $(21,600,000). Between October
1998 and September 2002, as a result of new management's successful efforts
to restructure and recapitalize the Company and to pursue various legal
claims, the Company's shareholders' equity increased by over $26,000,000,
to approximately $4,700,000 at September 30, 2002, which consists primarily
of cash (see Note 7c). In addition, shareholders of record on July 1, 2000
received an identical equity interest in the Company's former mineral
assets, consisting primarily of the Zimbabwe gold mining properties,
through the spin-off of the Company's former Nevada subsidiary.
e. Accounting Adjustments as a Result of Confirmation of Plan, Adoption
of Fresh-Start Reporting and Spin-off of Resource
As a result of confirmation of the Plan on March 31, 2000, the Company
adopted "fresh-start reporting" pursuant to the guidance provided by the
American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
-79-
Bankruptcy Code". The Company adopted fresh-start reporting effective March
31, 2000. Fresh-start reporting assumes that a new reporting entity has
been created and requires that assets and liabilities be adjusted to their
"fair value" in conformity with the procedures specified by Accounting
Principles Board Opinion No. 16, "Business Combinations". In conjunction
with the revaluation of the assets and liabilities, a reorganization value
for the Company was determined which generally approximated its fair value
before considering any debt and approximated the amount a willing buyer
would pay for the assets of the Company after reorganization. Under
fresh-start reporting, the reorganization value of the Company was
allocated to all of its assets. The Company "pushed-down" the impact of
fresh-start reporting to the Zimbabwe subsidiary.
Significant adjustments to the Company's consolidated financial statements
as a result of confirming the Plan on March 31, 2000, adopting fresh-start
reporting and distributing all of the shares of Resource are summarized as
follows: (i) all of the 523,784 shares of First Convertible Preferred Stock
outstanding were cancelled, and each cancelled share of First Convertible
Preferred Stock became convertible into 5.27 shares of common stock under
the Plan. Approximately $27,589,000 of liabilities, consisting of delisting
charges of $6,122,000 and contractual redemption amounts of $21,467,000
related to the First Convertible Preferred Stock, were liquidated by the
cancellation of the shares of First Convertible Preferred Stock and their
conversion into common stock under the Plan; (ii) a 1-for-500 reverse split
of the 243,578,132 shares of common stock outstanding was effected on April
11, 2000. Shareholders owning less than 50,000 shares of common stock were
entitled to receive a cash payment of $1.00 per share after adjusting for
the 1-for-500 reverse stock split. The Company disbursed $53,413 in this
regard, of which $48,909 was paid subsequent to September 30, 2000; (iii)
accumulated deficit at March 31, 2000 of $87,507,653 was eliminated against
additional paid-in capital; (iv) based in part on the advice of a mining
consulting firm, the Company's assets, consisting primarily of property and
equipment owned by the Company's Zimbabwe subsidiary and utilized in gold
mining operations in Zimbabwe, were reduced to a net fair value of
approximately $1,000,000 at March 31, 2000, resulting in a charge to
operations of approximately $17,600,000 at March 31, 2000, as a result of
various factors related to the operations of the Company's subsidiary in
Zimbabwe, including
-80-
political instability, economic uncertainties, operational difficulties, a
lack of comparable transactions, and various other risks. Subsequent to
March 31, 2000, the political and economic environment in Zimbabwe has
continued to deteriorate; (v) direct incremental costs of the bankruptcy
reorganization aggregated approximately $931,000, consisting of legal fees
of $482,000 and administrative costs (including management bonuses) of
$449,000, which were charged to operations at March 31, 2000; (vi)
effective July 1, 2000, the Company's Board of Directors authorized the
distribution of all of the shares of common stock of Resource to the
Company's shareholders of record on April 11, 2000. Accordingly,
shareholders entitled to exchange their old securities for new securities
pursuant to the Plan received one share of common stock and one common
stock purchase warrant (designated as the "Series A" warrants) in Aries and
Resource, respectively. Approximately 3,533,000 shares of common stock and
3,533,000 Series A warrants were issued and outstanding in Aries and in
Resource upon implementation of the Plan; (vii) in conjunction with the
distribution of the shares of Resource effective July 1, 2000, the Company
transferred all of its mining assets and operations, including related
liabilities, with an adjusted net book value of approximately $1,000,000,
and $250,000 cash to Resource. Aries retained cash and investments of
approximately $2,150,000 at June 30, 2000, as well as certain litigation
rights (see Note 8); and (viii) the implementation of the Plan resulted in
the Company's shareholders' equity increasing by $11,361,875, from
$(8,435,357) at December 31, 1999 to $2,926,518 at March 31, 2000, in spite
of write-downs of $17,604,326 resulting from the adoption of "fresh-start
reporting" as of March 31, 2000.
Due to the adoption of fresh-start reporting during the fiscal year ended
September 30, 2000, and the terms and structure of the recapitalization of
the Company pursuant to the Plan, the Company has elected not to restate
all common share amounts for the 1-for-500 reverse split of outstanding
shares of common stock effective April 11, 2000. However, all per share
amounts have been restated to reflect the reverse stock split.
Comparative financial statements that straddle a confirmation date normally
are not presented under fresh-start reporting, although the
-81-
Company has elected to present only one set of financial statements for the
fiscal year ended September 30, 2000. The Company believes that the
presentation of two separate financial statements for the six months ended
March 31, 2000 and the six months ended September 30, 2000 would not
provide more meaningful information on the financial effect of the
Company's bankruptcy reorganization. The Company believes that its
continuing operations for the fiscal year ended September 30, 1999 are
comparable to its continuing operations for the fiscal year ended September
30, 2000, since the mining operations of the Company's Zimbabwe subsidiary,
which were the only revenue-generating operations that the Company had
during such periods, were presented for accounting purposes as a
discontinued operation for all periods presented, and were spun-off to the
Company's shareholders on July 1, 2000. Reorganization costs have been
shown separately in the statement of operations for the fiscal year ended
September 30, 2000.
The Company has arrived at this determination based on several factors. New
management was appointed to replace former management on October 1, 1998,
and directed the operations of the Company for the fiscal years ended
September 30, 1999 and 2000. The gold mining operations conducted by the
Zimbabwe subsidiary were not included in the Company's Chapter 11
bankruptcy proceedings, and continued to operate as a separate entity under
the direction of local management during the reorganization period.
Exclusive of the fresh-start adjustment to the carrying value of the
Zimbabwe subsidiary's mining assets, there were no other significant
adjustments to the Company's assets and liabilities that would make the
statements of operations not comparable or the information contained
therein not meaningful.
2. Basis of Presentation
a. Principles of Consolidation
The consolidated financial statements include the operations of the Company
and its wholly-owned and controlled subsidiaries. As a result of the
Zimbabwe subsidiary being spun-off to the Company's shareholders effective
July 1, 2000, the operations of the Company's Zimbabwe subsidiary were
accounted for as a discontinued operation during the
-82-
fiscal years ended September 30, 2000 and 1999. All intercompany accounts
and transactions have been eliminated on consolidation. The consolidated
financial statements 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 revenues and 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. The Company believes that no concentration of credit
risk exists with respect to the investment of its cash and cash
equivalents.
d. Short-Term Investments
The Company classified all short-term investments in other companies with
original maturities in excess of three months as "available-for-sale"
securities, as defined by Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
Short-term investments consist of both equity securities and debt
securities. Debt securities consist primarily of corporate securities and
mortgage securities backed by the United States government. The Company
records such securities initially at cost, and subsequently adjusts the
carrying value of these securities for changes in the fair value at each
balance sheet date. Accordingly, these securities are reported at fair
value, with unrealized gains and losses on these securities recorded in
accumulated other comprehensive income (loss), a separate component of
shareholders' equity (deficiency), except that declines in market value
-83-
determined to be other than temporary are recognized in calculating net
income (loss). Fair values are determined by reference to quoted market
prices. In determining realized gains or losses, cost is determined by
specific identification.
e. Income Taxes
The Company accounts for income taxes using the liability method whereby
deferred income taxes are recognized for the tax consequences of temporary
differences by applying statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. Changes in deferred tax assets and
liabilities include the impact of any tax rate changes enacted during the
year.
f. Loss Per Common Share
Basic loss per share is calculated by dividing net loss available to common
shareholders 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
stock options and warrants. These potentially dilutive securities were not
included in the calculation of loss per share for the fiscal years ended
September 30, 2000 and 1999 because the Company incurred a loss during such
periods and thus their effect would have been anti-dilutive. Accordingly,
basic and diluted loss per share are the same for the fiscal years ended
September 30, 2000 and 1999. Loss per common share calculations for the
fiscal years ended September 30, 2000 and 1999 reflect the 1-for-500
reverse split of outstanding shares of common stock effective April 11,
2000.
g. Comprehensive Income (Loss)
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"). SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set
of general purpose financial statements. SFAS No. 130 defined comprehensive
income (loss) to include all changes in equity except those
-84-
resulting from investments by owners and distributions to owners, including
adjustments to minimum pension liabilities, accumulated foreign currency
translation, and unrealized gains or losses on marketable securities.
h. Fair Value of Financial Instruments
The Company believes that the carrying value of the its cash and cash
equivalents, marketable securities, account receivable, accounts payable
and accrued liabilities as of September 30, 2000 and 1999 approximates
their respective fair values due to the demand or short-term nature of
those instruments.
i. Stock-Based Compensation
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.
-85-
During the fiscal year ended September 30, 1995, the Company issued stock
options under its 1995 Incentive Stock Option Plan to certain employees at
below fair market value, resulting in the recognition of compensation
expense over the vesting period through September 30, 1999.
j. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which, as amended, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring
that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. SFAS No.
133 also addressed the accounting for hedging activities. The Company will
adopt SFAS No. 133 for its fiscal year beginning October 1, 2000. The
Company does not have any derivative instruments nor is it engaged in any
hedging activities, thus the Company does not anticipate that the adoption
of SFAS No. 133 will have a material effect on the Company's financial
statement presentation or disclosures.
3. Discontinued Operations; Segment and Geographic Information
During the fiscal years ended September 30, 2000 and 1999, the Company,
through its discontinued Zimbabwe subsidiary (which was spun-off to all of
the Company's shareholders on July 1, 2000), operated in one business
segment, gold mining. The Zimbabwe subsidiary's operations have been
presented as a discontinued operation in the financial statements. The
Zimbabwe subsidiary's mining operations produced gold that was required to
be sold to the Reserve Bank of Zimbabwe. During the nine months ended June
30, 2000 and the fiscal year ended September 30, 1999, the Zimbabwe
subsidiary sold 8,295 ounces and 13,319 ounces of gold, respectively. The
gold mining operations in Zimbabwe as presented herein are a discrete
business entity and do not include the allocation of any expenses incurred
by the Company's United States corporate offices.
-86-
During the fiscal year ended September 30, 1999, the Zimbabwe subsidiary
transferred $685,000 to the Company. During the fiscal years ended
September 30, 2000 and 1999, the Company advanced $182,000 and $255,700,
respectively, to or on behalf of the Zimbabwe subsidiary's discontinued
operations.
In conjunction with the spin-off of Resource effective July 1, 2000, the
Company capitalized Resource with $250,000 cash and provided a short-term
advance of $150,000. During the fiscal year ended September 30, 2000,
subsequent to the spin-off of the Zimbabwe subsidiary effective July 1,
2000, the Company allocatd certain common corporate services to Resource
aggregating $76,244, which has been reflected as due from Resource in the
financial statements at September 30, 2000. The aggregate amount due from
Resource as of September 30, 2000 of $226,244 was received by the Company
subsequent to September 30, 2000.
The accounting policies of the Zimbabwe subsidiary are presented below.
a. Certain Significant Estimates
The most significant estimates used by management in preparing the
consolidated financial statements include estimates of future gold prices,
recoverable reserves and estimated capital costs, which are utilized to
assess the carrying value of the mineral properties, plant and equipment,
and to calculate depreciation and depletion charges.
Gold produced by the Zimbabwe subsidiary's mining operations is required to
be sold to the Reserve Bank of Zimbabwe at the spot 2:00 p.m. London gold
price on the day of delivery. Accordingly, revenues from gold sales are
directly linked to the price of gold in world commodity trading markets.
Depending on fluctuations in the price of gold, it may not be commercially
feasible for the Zimbabwe subsidiary to continue to operate the mining
properties. Under such circumstances, the Zimbabwe subsidiary may be
required to recognize a charge to operations to reflect a write-down of the
carrying value of its mineral properties and fixed assets related to gold
production, and it may have to curtail or cease
-87-
mining operations for an indefinite period of time. If the Zimbabwe
subsidiary were to cease mining operations, it may not be able to restart
them.
The spot 2:00 p.m. London per ounce price of gold on October 1, 1998,
September 30, 1999 and June 30, 2000 was $297.60, $299.00 and $288.15,
respectively.
b. Current Vulnerability Due to Certain Concentrations and Risks
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls,
fluctuations in the relative values of currencies, the potential for
government instability, uncertainty of laws and legal enforcement and
compliance, defects in or uncertainty as to title to mining properties,
inflation and other general economic, social and political uncertainties.
The Company's gold mining assets and operations were located in Zimbabwe.
The Company conducted its mining operations in Zimbabwe through its
indirect wholly-owned subsidiary, Casmyn Mining Zimbabwe (Private) Ltd. The
laws of Zimbabwe require government approval to conduct exploration and
mining activities. Casmyn Mining Zimbabwe (Private) Ltd. received the
necessary approvals from the Zimbabwe Investment Center on May 23, 1995 and
from the Reserve Bank of Zimbabwe in December 1995. The Zimbabwe subsidiary
believes that its relationship with the government of Zimbabwe is
satisfactory. The Zimbabwe subsidiary is required to sell its gold
production to the Reserve Bank of Zimbabwe at the world spot gold price,
and during the fiscal years ended September 30, 2000 and 1999, it received
payment in Zimbabwe dollars.
Zimbabwe's current regulations concerning the ability of foreign companies
to repatriate capital invested in Zimbabwe may limit the Zimbabwe
subsidiary's ability to repatriate funds to the United States. Although the
Zimbabwe subsidiary has in the past been able to convert Zimbabwe dollars
into United States dollars and repatriate such amounts to the United
States, subject to the Zimbabwe subsidiary's operations generating
-88-
a cash profit and the continuing availability of foreign exchange, there
can be no assurances that the Zimbabwe subsidiary will be able to continue
to do so in the future.
Since the Company's gold mining assets and operations were concentrated in
Zimbabwe, the Company was subject to foreign currency exchange risk.
Zimbabwe has experienced significant economic instability and turmoil in
recent years, which has had a negative impact on the Zimbabwe subsidiary's
operations. The Zimbabwe dollar has been fixed in relation to the United
States dollar by the Zimbabwe government. As a result, the Zimbabwe
dollar's fixed exchange rate has not reflected the significant devaluation
of the Zimbabwe dollar against the United States dollar during the past few
years, which has had a material adverse effect on the Company's financial
position, results of operations and cash flows.
As of October 1, 1998, September 30, 1999 and June 30, 2000, US$1.00 was
equivalent to ZIM$33.00, ZIM$38.60 and ZIM$38.35, respectively. During the
fiscal years ended September 30, 1999 and 2000, the average conversion rate
for US$1.00 was approximately ZIM$36.00 and ZIM$40.37, respectively.
During the past few years, Zimbabwe has experienced annual inflation rates
ranging from 40% to 70%, and has generally pegged its currency exchange
rate at below market rates. Operating costs have been significantly
affected by the high rates of inflation in Zimbabwe. Since October 1998,
costs in Zimbabwe for power, labor and supplies have increased by more than
40% solely as a result of inflation. In addition, certain costs are
periodically subject to significant increases mandated by the government of
Zimbabwe and suppliers and vendors. Costs such as labor and electricity,
which are the two major operating costs incurred in mining operations, have
historically have been denominated in Zimbabwe dollars and have accounted
for approximately 30% and 25% of mine operating costs, respectively.
Commencing in August 1999, approximately two-thirds of electricity costs
were pegged to the United States dollar. Approximately 80% of the remaining
mine operating costs are sensitive to changes in the United States dollar.
The conversion rate of the Zimbabwe dollar into the United States dollar is
fixed by the government of Zimbabwe, and the government's adjustment of the
currency conversion rate has not approached Zimbabwe's inflation rate.
-89-
Zimbabwe's inflation rate has greatly exceeded the change in Zimbabwe's
currency exchange rate versus the United States dollar, particularly during
the fiscal years ended September 30, 2000 and 1999, when the annual
inflation rate was approximately 70% but the exchange rate remained
relatively stable.
The Zimbabwe dollar is not freely convertible into the United States
dollar. Without a free-floating currency exchange rate, foreign currency
has become scarcer in Zimbabwe. Vendors and suppliers have begun to require
payment in United States dollars and shortages of critical supplies have
become more commonplace. The Company expects that inflation in Zimbabwe
will continue to have a material adverse impact on the Zimbabwe operations.
The political situation in Zimbabwe, in which the government has played an
active role in the Zimbabwe economy, has also exacerbated the economic
risks associated with the Zimbabwe subsidiary's operations. The government
of Zimbabwe subsidizes commodities that it deems important, such as
gasoline and utilities, and controls the currency exchange rate. The
International Monetary Fund has refused to advance certain loans to
Zimbabwe unless it reduced such subsidies and moved towards a free market
economy. Relaxing controls on the cost of energy and the exchange rate
would be expected to increase energy costs and thus reduce the potential
profitability of the Zimbabwe subsidiary's mining operations. Accordingly,
the political situation in Zimbabwe has made it difficult for the Company
to generate profits, repatriate funds, establish a value and/or locate a
buyer for its mining operations and assets.
Zimbabwe has also recently experienced substantial social and political
instability, which could significantly disrupt the Zimbabwe subsidiary's
mining operations. There has been violence, primarily directed against
white farmers, and the government of Zimbabwe has allowed the seizure of
white-owned farms by black "war veterans". It has been reported that the
government of Zimbabwe has publicly discussed the expropriation of
privately-owned mining properties in Zimbabwe.
For the foregoing reasons, the economy of Zimbabwe has experienced a
substantial contraction in recent years, resulting in a commensurate
reduction in foreign currency earned from Zimbabwe's major export
-90-
products. Shortages of energy, food and staples are becoming more
commonplace.
The possibility of nationalization, asset expropriations, increased or
confiscating levels of taxation, and other unforeseen events may affect the
Zimbabwe subsidiary's ability to conduct or maintain its business
operations. In the event of nationalization, expropriation or other
confiscation, the Zimbabwe subsidiary may not be fairly compensated for its
loss and could lose its entire investment in Zimbabwe.
c. Foreign Currency Translation
Prior to October 1, 1997, the functional currency of the Zimbabwe
subsidiary's operations was the Zimbabwe dollar. Accordingly, balance sheet
accounts were translated into United States dollars using the exchange rate
in effect at the balance sheet date while revenue and expense accounts were
translated using the weighted average exchange rate prevailing during each
year. The gains or losses resulting from such translation were recorded in
the accumulated foreign currency translation account, which is included as
a component of accumulated other comprehensive loss in shareholders'
deficiency. During the three months ended December 31, 1997, the Zimbabwe
currency experienced devaluation in excess of 40%. As a result of the
significant devaluations during that period and for the fiscal year ended
September 30, 1998, and the resultant effect on the annual rate of
inflation in Zimbabwe, management determined that the Zimbabwe currency was
no longer appropriate as a functional currency. As a result, effective
October 1, 1997, the United States dollar was adopted as the functional
currency for the Zimbabwe subsidiary's operations. Non-monetary assets and
liabilities are translated into United States dollars at historical rates,
which for the pre-existing balances was the rate in effect at October 1,
1997 of approximately US$1.00 = ZIM$13.00. Amortization and other charges
related to non-monetary items are translated into United States dollars
using the same exchange rate. Revenue and expense accounts continue to be
translated using the weighted average exchange rate prevailing during the
reporting period. The average exchange rate for US$1.00 for the fiscal
years ended September 30, 1999 and 2000 was approximately ZIM$36.00 and
ZIM$40.37, respectively. As a
-91-
result of the change in functional currency from the Zimbabwe dollar to the
United States dollar effective October 1, 1997, translation adjustments
arising from the Zimbabwe operations since that date are reflected in the
statement of operations.
The Zimbabwe subsidiary does not currently engage in any foreign currency
hedging transactions, and does not intend to do so in the foreseeable
future.
d. Property and Equipment
Mineral properties owned by the Zimbabwe subsidiary are initially carried
at the cost of acquisition. Mineral exploration costs are expensed as
incurred. When it has been determined that a mineral property can be
economically developed, the costs incurred to develop such property,
including costs to further delineate the ore body and remove overburden to
initially expose the ore body, are capitalized. Acquisition and capitalized
costs are charged to future operations using a unit-of-production method
over the estimated life of the ore body as determined based upon proven and
probable ore reserves. If a property is determined not to be commercially
feasible, unrecoverable costs are expensed in the year such determination
is made. Ongoing development expenditures to maintain production are
charged to operations as incurred.
Gains or losses from normal sales or retirements of assets are included in
the statement of operations.
When the Zimbabwe subsidiary enters into agreements for the acquisition of
interests in mineral properties that provide for periodic payments, such
amounts are not recorded as a liability since they are payable entirely at
the Zimbabwe subsidiary's discretion. When such payments are made, they are
recorded as mineral acquisition costs. If such payments are not made, any
related capitalized costs are charged to operations.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", the Zimbabwe subsidiary reviews and
evaluates the carrying value of its properties for impairment annually, as
well as when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. When the carrying value of a
-92-
property is estimated to exceed its net recoverable value, the excess
amount is charged to operations. The estimate of net recoverable value
includes estimates of recoverable ounces, gold prices (considering current
and historical prices, price trends and related factors) and production,
capital and reclamation costs. As of September 30, 1999, the Zimbabwe
subsidiary estimated future net cash flows from its gold operations using a
gold price of $300 per ounce to perform an impairment review. The estimates
of future cash flows are subject to significant risks and uncertainties.
Any differences between significant assumptions and market conditions
and/or the Zimbabwe subsidiary's actual performance may affect the
recoverability of the Zimbabwe subsidiary's investment in mining properties
and related assets, and could have a material adverse effect on the
Zimbabwe subsidiary's financial position, results of operations and cash
flows.
Estimated future reclamation and remediation costs (undiscounted) and
related liabilities, which are based principally on the Company's
interpretation of current local environmental and regulatory requirements,
are accrued and expensed principally by the units-of-production method
based on estimated quantities of ore which can be recovered economically in
the future from known mineral deposits. Remediation liabilities are
recognized and expensed based upon the Zimbabwe subsidiary's determination
that a liability has been incurred and where a minimum cost or reasonable
estimate of the cost can be determined. Although the Zimbabwe subsidiary
updates these estimates regularly, the Zimbabwe subsidiary's estimates of
its ultimate reclamation liabilities could change significantly as a result
of changes in regulations or cost estimates. Changes in estimates are
reflected in the statement of operations in the period in which an estimate
is revised.
During the nine months ended June 30, 2000 and the fiscal year ended
September 30, 1999, the Zimbabwe subsidiary recognized a provision for
reclamation and remediation of $24,585 and $233,300, respectively.
Management of the Zimbabwe subsidiary believes that it is in full
compliance with all current environmental and regulatory requirements in
Zimbabwe.
Buildings are depreciated on the straight-line basis over their estimated
useful lives of eighteen years. Other property and equipment are recorded
at cost and are depreciated or amortized on a straight-line basis over
-93-
their estimated useful lives of three to seven years.
e. Revenue Recognition
The Zimbabwe subsidiary recognizes revenue from the sale of gold production
upon the sale and delivery of gold bullion to the Reserve Bank of Zimbabwe.
As a result of the Zimbabwe subsidiary being spun-off to the Company's
shareholders effective July 1, 2000, the Company's financial statements for
the fiscal year ended September 30, 2000 included the discontinued
operations of the Zimbabwe subsidiary only for the nine months ended June
30, 2000. Financial information with respect to the Zimbabwe subsidiary's
gold mining operations for the fiscal years ended September 30, 2000 and
1999 is presented below. The Company had no other significant operations
during the fiscal years ended September 30, 2000 and 1999.
As a result of confirmation of the Plan on March 31, 2000, the Company
adopted "fresh-start reporting" effective March 31, 2000 (see Note 1),
which resulted in a charge to operations of $17,604,326, of which
$14,067,076 was allocable to the Zimbabwe subsidiary. The Company
"pushed-down" the impact of fresh-start reporting to the Zimbabwe
subsidiary.
-94-
Casmyn Mining Corporation
Statements of Operations
Nine Months Fiscal Year
Ended Ended
June 30, September 30,
2000 1999
---------- ----------
Revenues:
Gold sales $ 2,349,834 $ 3,714,903
---------- ----------
Costs and Expenses:
Mineral production 2,296,234 2,805,946
Depreciation,
depletion and
amortization 933,944 975,527
General and
administrative 197,406 280,487
Provision for
reclamation
and remediation 24,585 233,300
Write-down of
impaired mining
assets - 2,227,206
---------- ----------
3,452,169 6,522,466
---------- ----------
Loss from operations (1,102,335) (2,807,563)
Other income
(expense), net 62,238 (96,045)
"Fresh-Start"
accounting
adjustments to
the carrying
value of assets
and liabilities (14,067,076) -
---------- ----------
Net loss $(15,107,173) $(2,903,608)
========== ==========
-95-
Casmyn Mining Corporation
Balance Sheets
June 30, September 30,
2000 1999
---------- ----------
ASSETS
Current Assets:
Cash $ - $ 7,857
Trade receivable 153,598 257,080
Mining supplies 510,463 521,414
Prepaid expenses and
other current assets 3,088 34,214
---------- ----------
667,149 820,565
---------- ----------
Property and Equipment 992,919 18,140,799
Less accumulated
depreciation,
depletion and
amortization (302,001) (2,811,242)
---------- ----------
690,918 15,329,557
---------- ----------
$ 1,358,067 $16,150,122
========== ==========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current Liabilities:
Bank overdraft $ 36,481 $ -
Accounts payable 369,880 250,081
Accrued liabilities 37,069 40,550
Reserve for reclamation
and remediation 257,885 233,300
---------- ----------
701,315 523,931
---------- ----------
Investments and
advances by
parent company 26,940,198 26,734,886
---------- ----------
Shareholder's
deficiency, net (26,283,446) (11,108,695)
---------- ----------
$ 1,358,067 $16,150,122
========== ==========
-96-
Discontinued operations also included the investment in Zambia as described
below.
Luswishi Dome Project:
During June 1999, the Company entered into an Exploration Agreement with
Right to Acquire an Interest in Prospecting License (the "Exploration
Agreement") with Cyprus Amax Zambia Corporation ("Cyprus Amax"). The
Exploration Agreement requires Cyprus Amax to expend $3,000,000 to fund
exploration, development and other work on land covered by the Company's
former prospecting license in or near the Copper Belt Province in the
Republic of Zambia (the "Luswishi Dome Project"). Cyprus Amax is a
significant operator in Zambia and has substantial experience and financial
resources. Upon the expenditure by Cyprus Amax of $3,000,000 on or for the
benefit of the Luswishi Dome Project, the Company will have the right to
acquire an undivided 15% interest in the Luswishi Dome Project from Cyprus
Amax for a nominal cost. At such time, Cyprus Amax and the Company have
agreed to enter into a contractual joint venture to carry out further
exploration and, if warranted, development and mining of the Luswishi Dome
Project. The Company's previous exploration of the Luswishi Dome Project
had yielded ore grade drill intercepts of copper together with uranium and
cobalt, but no economic mineralization. Since exploration costs previously
incurred by the Company with respect to the Luswishi Dome Project were
charged to operations prior to the fiscal year ended September 30, 1999,
the Company has not attributed any value to the Exploration Agreement in
the accompanying financial statements. There can be no assurances that
Cyprus Amax will expend the $3,000,000, that the joint venture will ever be
formed, or that if the joint venture is formed, it will ever become
economically viable. During January 2001, the Exploration Agreement was
transferred by Cyprus Amax to another company that is a wholly-owned
subsidiary of First Quantum Minerals Ltd. The Exploration Agreement was
transferred to Resource as part of the spin-off of Resource to the
Company's shareholders effective July 1, 2000.
-97-
4. Marketable Securities
The Company's marketable securities consisted of investments in common
stock, corporate bonds and government-backed mortgage securities. At
September 30, 2000 and 1999, the aggregate market value of such securities
was $553,550 and $1,917,243, respectively.
Pursuant to the requirements of fresh-start reporting, investments in
marketable securities were adjusted to fair market value at March 31, 2000.
During the fiscal year ended September 30, 2000, the Company sold 85,000
shares of common stock in an unaffiliated public company and realized a
gain of $4,537.
At September 30, 2000, the Company recorded a write-down of $193,345 on its
investment in corporate bonds to reflect a permanent decline in market
value.
5. Property and Equipment
Property and equipment at the Company's corporate offices consisted of the
following at September 30, 2000 and 1999:
2000 1999
------ ------
Furniture, fixtures and
office equipment $25,844 $89,068
Less accumulated depreciation
and amortization (5,908) (58,621)
------ ------
$19,936 $30,447
====== ======
Depreciation is provided on the straight-line method over the estimated
useful lives of the respective assets.
Pursuant to the requirements of fresh-start reporting, property and
equipment was adjusted to fair market value at March 31, 2000.
During the fiscal year ended September 30, 1999, the Company closed its
previous executive offices in Vancouver, British Columbia, Canada and
-98-
terminated the related long-term office lease in December 1998.
6. WaterPur International Inc.
Through September 30, 1997, under the direction of prior management, the
Company advanced approximately $9,000,000 to WaterPur International Inc., a
Delaware corporation ("WaterPur"). WaterPur was engaged in the development,
manufacture, sale and management of water treatment, purification and
depollution equipment and facilities worldwide. During this same time
period, the Company provided additional consideration to WaterPur of
approximately $3,000,000, including marketable securities with a value at
the time of transfer of approximately $2,500,000. Through September 30,
1998, WaterPur was an affiliated public company with certain common
officers and directors.
Effective September 30, 1997, subject to certain conditions and under the
direction of prior management, the Company entered into an agreement to
restructure essentially its entire investment in WaterPur in exchange for
an aggregate of 7,900,004 shares of convertible preferred stock of
WaterPur. Also effective September 30, 1997, the Company's Board of
Directors approved the spin-off of the 7,900,004 shares of the WaterPur
convertible preferred stock to the common and preferred stockholders of the
Company of record on October 15, 1997, subject to compliance with
regulatory requirements and certain other conditions. The consideration
that the Company had transferred to WaterPur through September 30, 1997 was
reflected for accounting purposes as an investment in WaterPur, and a
corresponding dividend payable, of $4,574,368 at September 30, 1997.
In conjunction with the September 30, 1997 restructuring, the Company
repurchased 150,000 shares of its common stock held by WaterPur for
$750,000 cash, and WaterPur issued to the Company warrants to purchase
3,300,000 shares of WaterPur common stock exercisable at $0.75 per share
for a period of three years.
During the fiscal year ended September 30, 1998, due to a significant and
prolonged decrease in the market value of WaterPur's common stock,
WaterPur's inability to repay amounts borrowed from the Company, and
WaterPur's continuing need for additional loans, management of the Company
-99-
determined that there had been an impairment in the value of the investment
in WaterPur, and wrote off the Company's entire investment in WaterPur.
Accordingly, at September 30, 1998, the Company's investment in WaterPur,
and the corresponding dividend payable, had been reduced to zero. In
December 1998, the Board of Directors determined not to effect the spin-off
of the Company's preferred stock investment in WaterPur for several
reasons, including material non-performance by WaterPur, WaterPur's
inability to obtain regulatory approval to date and in the foreseeable
future, and WaterPur's inability to complete its annual audit and to make
its securities filings on a timely basis.
During September 1998, the Company began implementation of a plan to
separate the operations, personnel and executive management of the Company
and WaterPur, which plan had been substantially completed by December 31,
1998.
Pursuant to a Share Exchange Agreement dated as of May 7, 1999 between
WaterPur and Gary T.C. Joice and Henriette Martinitz (collectively, the
"ProSafe Shareholders"), WaterPur acquired all of the outstanding capital
stock of ProSafe Fire Training Systems, Inc., an Ontario, Canada
corporation ("ProSafe"), in consideration for the issuance to the ProSafe
Shareholders of an aggregate of 218,833 shares of the Series B Convertible
Preferred Stock of WaterPur. Pursuant to an Asset Purchase Agreement dated
as of May 7, 1999 between WaterPur and Duck Marine Systems, Inc. ("DMS"),
WaterPur acquired from DMS substantially all of the assets, properties and
operating contracts of DMS, subject to certain liabilities of DMS, in
consideration of the issuance to DMS of an aggregate of 218,833 shares of
the Series B Convertible Preferred Stock of WaterPur (the "DMS
Acquisition"). The closings of the ProSafe acquisition and the DMS
acquisition occurred simultaneously on May 10, 1999 and were conditional on
each other. Each share of Series B Convertible Preferred Stock is
convertible into 1,000 shares of common stock of WaterPur. As a result of
these acquisition transactions, the shareholders and management of Pro Safe
and DMS effectively assumed the management and control of WaterPur.
During February 2002, the Company settled all outstanding debts and claims
that it had against WaterPur in exchange for 1,000,000 shares of WaterPur
-100-
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. The
Company has not ascribed any value to such securities because no fair
market value was ascertainable and the previous investments in WaterPur
were written off in prior years as the Company deemed such investments
impaired. 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.
7. Commitments and Contingencies
a. Operating Leases
The Company leases its executive and administrative offices and certain
office equipment under non-cancelable operating leases with initial terms
in excess of one year. Future minimum lease payments required under these
leases were as follows at September 30, 2000:
Fiscal Year
Ending September 30,
--------------------
2001 $28,818
2002 11,544
-------
$40,362
=======
Related rent expense for the fiscal years ended September 30, 2000 and 1999
was $27,061 and $15,057, respectively.
b. Employment Agreements
The Company entered into three-year employment agreements dated September
1, 1999 with Mark S. Zucker, the President and Chief Executive Officer, and
with Robert N. Weingarten, the Chief Financial Officer, with minimum annual
compensation of $250,000 and $120,000, respectively, as well as certain
reorganization bonuses. The employment agreements provide that in the event
of a change in majority ownership of the Company, each employee has the
option to terminate his employment with the Company and receive a
-101-
payment equal to three times his base annual salary. Effective October 1,
2000, Mr. Zucker and Mr. Weingarten voluntarily agreed to permanently
reduce their annual compensation by 50%, equivalent to $185,000. Effective
October 1, 2002, Mr. Zucker voluntarily agreed to permanently reduce his
annual compensation by an additional 52%, equivalent to $65,000.
During the fiscal year ended September 30, 2000, in conjunction with
confirmation of the Plan (see Note 1), the Company paid bonuses of
$321,000, including $310,000 to officers pursuant to their employment
agreements and $7,500 to non-officer directors. The reorganization bonuses
paid to officers were reviewed and approved by the Bankruptcy Court.
c. Legal Proceedings
In conjunction with the Company's bankruptcy proceedings, the Company
initiated litigation in courts in the United States, Canada and the Bahamas
against various members of former management and other persons and
entities. The Company also asserted claims against certain professional
firms that had previously provided legal and accounting services to the
Company under the auspices of former management.
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.
The completion of the legal settlements terminated all litigation and
claims that the Company has been asserting against all of the settling
defendants.
8. Income Taxes
The Company and its subsidiaries do not file consolidated tax returns. As
of September 30, 2000, the Company had federal net operating loss
carryforwards of approximately $75,000,000 expiring in various years
-102-
through 2020, which can be used to offset future taxable income, if any. No
deferred asset benefit for these operating losses has been recognized in
the financial statements due to the uncertainty as to their realizability
in future 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.
During the fiscal year ended September 30, 1999, the Company was advised of
the results of an examination report prepared by the Internal Revenue
Service with respect to certain transactions during 1994 between a
predecessor entity of the Company and a former officer of the Company. The
findings were preliminary in nature and indicated a tax liability in excess
of $2,000,000, including penalties and interest. During October 1999, new
management entered into a settlement agreement with the Internal Revenue
Service, which included making a nominal payment. As of September 30, 1998,
the Company recorded a provision for tax liability of $500,000. As a result
of the resolution of this matter, effective September 30, 1999, the Company
reversed such provision for tax liability in the financial statements.
9. Related Party Transactions
Related party transactions for the fiscal years ended September 30, 2000
and 1999 are summarized as follows:
-103-
a. On October 1, 1998, the Company entered into a services agreement with
a company controlled by a former officer and director of the Company.
The agreement provided for annual payments of $100,000 and was for an
initial term of one year. The agreement was terminated effective
September 30, 1999.
b. During the fiscal years ended September 30, 2000 and 1999, a director
of the Company received an annual consulting fee of approximately
$26,000.
c. During the three months ended December 31, 1998, the Company advanced
$38,899 to or on behalf of WaterPur (see Note 6), which was included
in general and administrative expenses in the statement of operations
for the fiscal year ended September 30, 1999.
d. During the fiscal year ended September 30, 2000, directors fees to
non-officer directors aggregated $2,500.
10. Shareholders' Equity (Deficiency)
a. Common Stock
As of September 30, 2000, the Company had authorized 50,000,000 shares of
common stock with a par value of $0.01 per share.
During the fiscal year ended September 30, 1999, the Company issued
25,826,432 shares of common stock upon conversion of 1,924 shares of First
Convertible Preferred Stock.
b. Preferred Stock
As of September 30, 2000, 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.
-104-
In January 1997, the Board of Directors authorized the creation of a series
of 2,500,000 shares of First Convertible Preferred Stock.
On April 14, 1997, the Company completed the placement of 751,200 shares of
First Convertible Preferred Stock for net cash proceeds of approximately
$16,759,000, after the payment of cash fees to the placement agent and
other issue expenses. An additional 83,467 shares of First Convertible
Preferred Stock were issued to Societe Generale in exchange for $2,086,675
principal amount, less $84,000 unamortized debt issue costs, of a
previously issued convertible debenture. Societe Generale also converted
the remaining $2,913,325 principal balance, less unamortized debt issue
costs of $116,000, of its convertible debenture in exchange for 594,856
shares of common stock. The Company also issued 3,637 shares of common
stock for accrued interest on the convertible debenture through the date of
conversion.
The Company issued an additional 11,686 shares of First Convertible
Preferred Stock to participants in the April 14, 1997 placement as a
penalty for the Company's failure to have a registration statement declared
effective by the Securities and Exchange Commission within 90 days of the
funding date, as was provided in the subscription agreement.
On September 2, 1997, the Company completed the placement of an additional
533,885 shares of First Convertible Preferred Stock for net cash proceeds
of approximately $12,423,000, including accrued interest at 8% per annum
from April 14, 1997 to the date of closing, after cash fees to the
placement agent and other issue expenses.
Each share of First Convertible Preferred Stock had a stated value of
$25.00 per share and was entitled to a dividend of 8% per annum, payable
quarterly, to be paid in additional shares of First Convertible Preferred
Stock, and was convertible into shares of common stock over a five year
period at an increasing discount to the market price of the common stock at
the time of conversion, subject to certain adjustments. The Company had the
right to require mandatory conversion if the shares of common stock
exceeded a certain trading price and trading volume targets. The number of
shares that could be converted by a holder over a ten-month period
beginning in July 1997 was limited to 10% per month on a cumulative basis.
-105-
The Preferred Stock Investment Agreements dated April 11, 1997 and
September 2, 1997 (the "Investment Agreements") specified that the First
Convertible Preferred Stock was convertible into common stock at a discount
to the common stock price ranging from 8.5% to 39%, depending on the date
on which such shares were converted. This discount was considered to be an
additional dividend (the "Imputed Dividend") to the holders of the First
Convertible Preferred Stock, and was recorded as a charge to accumulated
deficit and a corresponding increase to additional paid-in capital over the
period in which such shares of First Convertible Preferred Stock could
first be converted into common stock. The Imputed Dividend was accounted
for as a return on the First Convertible Preferred Stock and as an increase
in the net loss applicable to common shareholders. During the fiscal year
ended September 30, 1999, the Company recorded an Imputed Dividend of
$809,907, representing the final portion of the Imputed Dividend.
The placement agent's fee included warrants exercisable for a period of
five years to purchase 172,725 shares of First Convertible Preferred Stock
at $25.00 per share, which were cancelled in conjunction with the
confirmation of the Plan (see Note 1).
During the fiscal year ended September 30, 1998, the Company issued 91,675
shares of First Convertible Preferred Stock as payment of the 8% annual
dividend. The aggregate value of such shares of First Convertible Preferred
Stock, calculated at the stated value of $25.00 per share, was $2,291,875.
During September 1998, the Company repurchased and retired 19,948 shares of
First Convertible Preferred Stock for $25,753. The Company also converted
394,342 shares of First Convertible Preferred Stock into 204,889,060 shares
of common stock during the fiscal year ended September 30, 1998. These
transactions occurred under the auspices of former management.
During the fiscal year ended September 30, 1999, the Company issued 40,016
shares of First Convertible Preferred Stock as payment of the 8% annual
dividend. The aggregate value of such shares of First Convertible Preferred
Stock, calculated at the stated value of $25.00 per share, was
-106-
$1,000,400. As a result of the issuance of the shares of First Convertible
Preferred Stock as payment of the 8% annual dividend, the redemption
liquidation preference obligation increased by $1,635,998.
Pursuant to the Investment Agreements, a technical default occurred when
the Company's common stock was delisted from the NASDAQ SmallCap Market on
July 31, 1998. The Investment Agreements obligated the Company to pay the
holders of the First Convertible Preferred Stock a cash penalty of 3% of
the total purchase price of the Preferred Stock during any period in excess
of 30 days that the Company's common stock was not listed and traded on
NASDAQ or a national securities exchange. The Investment Agreements
provided the holders of the First Convertible Preferred Stock with the
right to have their shares redeemed by the Company at the adjusted
liquidation preference plus accrued but unpaid dividends if the 3% penalty
was not paid within 30 days of when due.
As a result of the default caused by the delisting of the Company's common
stock from the NASDAQ SmallCap Market on July 31, 1998, which occurred
under the auspices of former management, the Company recorded a penalty
with respect to the First Convertible Preferred Stock of $5,626,118 and
$798,771 for the fiscal years ended September 30, 1999 and 2000,
respectively, which was not paid.
During the fiscal year ended September 30, 1999, the Company repurchased
and retired 598,655 shares of First Convertible Preferred Stock for
$1,247,472. The Company also converted 1,924 shares of First Convertible
Preferred Stock into 25,826,432 shares of common stock during the fiscal
year ended September 30, 1999. These repurchases and conversions, which
occurred under the auspices of new management, and the attendant waivers by
the holders of the First Convertible Preferred Stock of an accrued penalty
obligation of $1,548,648 and the redemption liquidation preference
obligation of $24,553,836, were reflected by the Company as an increase to
additional paid-in capital of $26,102,484 during the fiscal year ended
September 30, 1999.
Since the right to require the Company to redeem the shares of First
Convertible Preferred Stock outstanding at September 30, 1999 was outside
the control of the Company, the carrying value of the outstanding shares of
First Convertible Preferred Stock at such date was recorded in the
-107-
financial statements at their redemption liquidation preference of
$21,466,557, and such shares were reclassified out of the shareholders'
deficiency section of the balance sheet.
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled
share of First Convertible Preferred Stock became convertible into 5.27
shares of common stock (see Note 1).
c. Adjustments to Common Stock and Preferred Stock Resulting from
Confirmation of Plan on March 31, 2000
Pursuant to the confirmed Plan, all of the 523,784 shares of First
Convertible Preferred Stock outstanding were cancelled, and each cancelled
share of First Convertible Preferred Share became convertible into 5.27
shares of common stock. The shares of First Convertible Preferred Stock
represented substantially all of Casmyn's debt obligations, with aggregate
claims in excess of $27,000,000. In accordance with the Plan, creditors and
preferred shareholders received approximately 85% of the common equity, and
existing common shareholders received approximately 15% of the common
equity, subject to certain adjustments authorized by the Plan.
Approximately 3,533,000 shares of common stock were issued and outstanding
upon implementation of the Plan.
In accordance with the Plan, on April 11, 2000, the Company effected a
1-for-500 reverse split of its 243,578,142 shares of common stock
outstanding. Shareholders owning less than 50,000 shares of common stock on
April 11, 2000 were entitled to receive a cash payment of $1.00 per share
after adjusting for the 1-for-500 reverse stock split. Any certificates for
old common and preferred stock not presented to the Company's transfer
agent by the close of business on April 10, 2001 were automatically
cancelled without any further notice or action by the Company. In
conjunction with the shares of common stock being issued to preferred and
common shareholders pursuant to the Plan, the Plan also authorized the
issuance of certain common stock purchase warrants to such recipients.
-108-
d. Stock Options
During 1995, the Company adopted an Incentive Stock Option Plan ("ISOP"),
which provided for the granting of a maximum of 800,000 options to purchase
common stock to officers, employees and advisors of the Company. The total
options available under the ISOP were increased from 800,000 shares to
1,500,000 shares upon approval by the Company's shareholders at the annual
meeting held on June 16, 1997. Options must be granted within five years
from the effective date of the ISOP. Options granted under the ISOP were
intended to qualify as incentive stock options for tax purposes.
Certain of the options granted under the ISOP during the fiscal year ended
September 30, 1995 were compensatory and resulted in compensation expense
of $53,023 during the fiscal year ended September 30, 1999.
During 1995, the Company also adopted a Non-Qualified Stock Option Plan
("SOP"), which provided for the granting of five year options to purchase a
maximum of 250,000 shares of common stock at a price of $0.04 per share to
officers and key employees of the Company. Options granted under the SOP
were considered to be non-statutory stock options for tax purposes.
During 1997, the Company adopted the 1997 Directors Stock Option Plan
("DSOP"), which provided for the granting of options to purchase a maximum
of 350,000 shares of common stock to directors of the Company. Options
granted under the DSOP were considered to be non-statutory stock options
for tax purposes.
During the year ended September 30, 1996, the Company granted the Company's
President at that time a non-statutory stock option to purchase 1,000,000
shares of common stock at $7.00 per share, which was the market price at
the date of grant. This option vested over a two year period, with
one-third vesting at the grant date, and one-third vesting on each of the
subsequent two anniversaries of the grant date, and expires five years from
the date of vesting.
At September 30, 1998, there were options outstanding to purchase 1,608,000
shares of common stock at exercise prices ranging from $0.04 to $7.00 per
share, of which an aggregate of 1,306,875 options were exercisable under
the Company's then-existing stock option plans. During
-109-
the fiscal year ended September 30, 1999, the Company did not grant any new
options, and no existing options were exercised, with respect to common
stock. All of the options to acquire common stock were cancelled effective
April 11, 2000 as a result of the confirmation of the Plan (see Note 1).
The fair value of the stock options granted during the fiscal years ended
September 30, 1996, 1997 and 1998 was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 5%; dividend yield of 0%; stock
price volatility of 37%, 37% and 65%, respectively; and expected lives
ranging from three to ten years. No stock options for common stock were
issued during the fiscal year ended September 30, 1999. Had compensation
costs for grants made under the SOP, ISOP, DSOP and the other stock options
been determined under SFAS No. 123, the Company would have recorded
approximately $95,000 as additional compensation expense during the fiscal
year ended September 30, 1999, resulting in a net loss of $3,574,392 for
the fiscal year ended September 30, 1999. Had the Company recorded
compensation expense related to the stock options under SFAS No. 123, the
net loss per common share applicable to common shareholders would have been
$23.93 for the fiscal year ended September 30, 1999. As a result of the
cancellation of all common stock options effective April 11, 2000 upon
confirmation of the Plan and the impracticality of estimating the fair
value of the preferred stock option, pro forma financial information has
not been presented for the fiscal year ended September 30, 2000.
Effective January 18, 1999, the Board of Directors of the Company granted
the Company's current President and Chief Executive Officer a stock option
to purchase 75,807 shares of First Convertible Preferred Stock, adjustable
for the quarterly dividend, at an exercise price of $2.00 per share, which
in the judgement of the Board of Directors approximated fair market value
at the grant date. The stock option was vested and exercisable immediately
through December 23, 1999, and was subject to annual renewal if not
terminated by the Board of Directors. The stock option was exercised in
April 2000 in conjunction with the confirmation of the Plan (see Note 1).
As a result of the cashless exercise provision of this stock option, the
Company recorded a charge to operations of $49,975 and $134,312 for the
-110-
fiscal years ended September 30, 2000 and 1999, respectively.
Pursuant to the confirmed Plan, the Company was authorized to adopt an
Employee Stock Option Plan, providing for the granting of stock options for
up to 10% of the total outstanding shares of common stock of the Company
(353,318 shares), and a Management Incentive Stock Option Plan, providing
for the granting of stock options for up to 7% of the total outstanding
shares of common stock of the Company (247,322 shares), as of April 11,
2000, the effective date of the confirmed Plan, which represent stock
options to acquire an aggregate of 600,640 shares of common stock. As of
September 30, 2000, no options had been granted under these stock option
plans. 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 at $0.23 per share,
which was fair market value on the date of grant. The stock options vest in
equal annual increments on September 30, 2001, 2002 and 2003.
-111-
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 Matabeleland Minerals, Private Limited, Zimbabwe purchase
agreement, previously filed as an exhibit to the Company's Current
Report on Form 8-K dated February 15, 1996, and incorporated herein
by reference. (P)
-112-
10.2 Form of Preferred Stock Investment Agreement dated April 11, 1997,
previously filed as an exhibit to the Company's Registration
Statement on Form S-3 dated July 24, 1997, and incorporated herein
by reference.
10.3 Form of Preferred Stock Investment Agreement dated September 2,
1997, previously filed as an exhibit to the Company's Registration
Statement on Form S-3 dated September 22, 1997, and incorporated
herein by reference.
10.4 Exploration Agreement with Right to Acquire an Interest in
Prospecting License between Cyprus Amax Zambia Corporation and
Casmyn Corp. dated June 4, 2000, 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.
10.5 Services Agreement between Casmyn Corp. and Eaglescliff Corporation
effective October 1, 1998, 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)
10.6 Stock Option Agreement between Casmyn Corp. and Mark S. Zucker
dated January 18, 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)
10.7 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)
10.8 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)
21 Subsidiaries of the registrant.
-113-
99 Certification - Section 906 of the Sarbanes-Oxley Act of 2002.
---------------------
(P) Indicates that the document was originally filed with the Securities and
Exchange Commission in paper form and that there have been no changes or
amendments to the document which would require filing of the document
electronically with this Annual Report on Form 10-KSB.
(C) Indicates compensatory plan, agreement or arrangement.
-114-