-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UZ2ZjnDwkewZK2aQKMrGfrU6d3pfqPqUv5HU+55tHV8lyvonPi2ATG8s169IIBIP eSyXnMDOPXrw2r24IVWxrg== 0001079974-02-000195.txt : 20020416 0001079974-02-000195.hdr.sgml : 20020416 ACCESSION NUMBER: 0001079974-02-000195 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARETE INDUSTRIES INC CENTRAL INDEX KEY: 0000820901 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DIRECT MAIL ADVERTISING SERVICES [7331] IRS NUMBER: 841063149 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-16820-D FILM NUMBER: 02611521 BUSINESS ADDRESS: STREET 1: 2955 VALMONT RD STREET 2: STE 310 CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3032471313 MAIL ADDRESS: STREET 1: 2305 CANYON BLVD. STREET 2: SUITE 103 CITY: BOULDER STATE: CO ZIP: 80302 FORMER COMPANY: FORMER CONFORMED NAME: TRAVIS INDUSTRIES INC DATE OF NAME CHANGE: 19930614 FORMER COMPANY: FORMER CONFORMED NAME: TRAVIS INVESTMENTS INC DATE OF NAME CHANGE: 19890427 10KSB 1 arete10ksb_4152002.txt ANNUAL REPORT FOR YEAR ENDED DECEMBER 31, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB [X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001 Commission file No. 33-16820-D OR [] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. ARETE INDUSTRIES, INC. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Colorado 84-1508638 - ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2955 Valmont Road, Suite 300, Boulder, Colorado 80301 ---------------------------------------------------- --------------- (Address of Principal Executive Offices) (Zip Code) (303) 247-1313 --------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports(s), and, 2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB, or any amendment to this Form 10-KSB, [ X ]. State Issuer's revenues for the most recent fiscal year: $ ____________ On April 12, 2002, the Registrant had 498,101,528 shares of common voting stock held by non-affiliates. The aggregate market value of shares of common stock held by non-affiliates was $716,962 on this date. This valuation is based upon the average of the best bid and ask price for shares of common voting stock of the Registrant on the "Electronic Bulletin Board" of the National Associational of Securities Dealers, Inc., ("NASD") on April 12, 2002. ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS - -------------------------------------------------------------------------------- Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES [ X ] NO [ ] APPLICABLE ONLY TO CORPORATE REGISTRANTS - -------------------------------------------------------------------------------- On April 12, 2002, the issuer had 498,825,562 shares of no par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). None Transitional Small Business Disclosure Format: Yes [ ] No [ X ] 2 PART I Item 1- Description of Business - ------------------------------- Forward Looking Statements - -------------------------- This Annual Report on Form 10-KSB includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations of financial position, made in this Annual Report on Form 10-KSB are forward looking. We use words such as "anticipates," "believes," "expects," "future" and "intends" and similar expressions to identify forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. The Company's actual results may differ significantly from management's expectations. The following discussion includes forward-looking statements regarding expectations of future profitability of our business and the businesses we choose to invest in, gross margin, improvement in operating loss and sales, all of which are inherently difficult to predict. Actual results could differ significantly for a variety of reasons, including the accessibility to additional capital, the amount that the Company invests in new business opportunities and the timing of those investments, customer spending patterns, the mix of products sold to customers, the mix of revenues derived from product sales as compared to services, and risks of fulfillment throughout and productivity. These risks and uncertainties, as well as other risks and uncertainties, could cause the Company's actual results to differ significantly from management's expectations. Due to a recent settlement agreement with, and administrative order of the SEC against the Company, the Company cannot rely upon the safe harbor provided by the Private Securities Litigation Reform Act of 1995, without permission of the SEC. General Development of the Business - ----------------------------------- Arete Industries, Inc., (the "Company") was organized under the laws of the State of Colorado on July 21, 1987, under the name "Travis Investments, Inc." In late 1987 the company completed a blank check public offering and merged with a company named Vallarta, Inc., and its subsidiary Le Mail, Inc., whereafter the name was changed to Travis Industries, Inc. On September 1, 1998, the shareholders approved the name change of the Company to Arete Industries, Inc. From inception until early March 2000, the Company was conducting the business of cooperative direct mail coupon advertising. This business included a nationally franchised sales force and an in-house printing and mailing facility. Between the years 1995 to approximately May 1, 1998, the Company's former management sought the acquisition of an entirely new business while maintaining the coupon printing business. In May 1998, a change in control was implemented and its then officers and directors resigned and were replaced by the current 3 Chairman and CEO, and the former CFO and Director (who subsequently resigned in May of 2000). At that time a new subsidiary corporation, Aggression Sports, Inc. was formed to develop business opportunities in the outdoor sports industry. The company also formed a wholly owned subsidiary, Global Direct Marketing Services, Inc. to operate the printing and direct mail advertising business and transferred all operating assets, liabilities and its Council Bluffs operations into that corporation. From May 1998 until March 2000, management undertook several programs to turn the printing and direct mail operations around. The first program was to improve or maximize profitability of the existing operations, which, due to the poor condition of the operating equipment, a disadvantageous lease and inadequate skills of local management, ultimately was determined impossible. The second step was to preserve the existing franchise network and outsource printing and direct mail fulfillment for the network. The Company entered into a joint venture agreement with a printing and logistics business in Denver, Colorado, which undertook to provide these services on the Company's behalf. The Company's joint venture partner was unable to perform the services in a timely and cost effective manner and alienated most of the franchisees. The final program was to change fulfillment services directly to a third party coupon direct mail printing house and retain coupon franchise developers to rebuild the franchise network. The Company engaged in negotiations to sell an interest in the business to two individuals who specialized in selling coupon direct mail franchises and who had a direct connection to one of the most efficient coupon and print and direct mail operations in the country. In the spring of 2000, when these individuals could not agree between themselves about the relationship with the Company, these negotiations were terminated and the business was permanently discontinued. In 2000, a new course was plotted toward cultivating business start-ups, away from its roots in coop coupon printing. On May 2, 2000 new management joined the company. Joining Thomas P. Raabe, the CEO/Chairman were Thomas Y. Gorman, Jr., as Secretary-Treasurer and director. Mr. Gorman joined the Company as a board member in September of 1998, and joined the management team as CFO in May of 2000 with Lawrence P. Mortimer and Michael H. Parsons. This management team was assembled to offer quality young companies a strategic advantage in raising capital and receiving professional management assistance at a time when it is both most critical for their success and the most difficult for them to accomplish, given their limited revenue and operating history. In the last half of 2000 and the first half of 2001, the new management team rapidly transformed the Company with investments in, and management services contributed to the Arete Outdoors outdoors sports products venture; the Applied Behavior Systems' SpeechTeach project ("ABS") and the development of artificial intelligence applications through Seventh Generation Technologies, Inc. ("7GT"). 4 Arete Outdoors pursued the development, manufacture and sale of proprietary outdoor products designed by Mike Lowe as well as third party products for sale into the specialty outdoor retail market and through an extreme sports community and e-commerce web site. As of June, 2001 Arete Outdoors had developed and manufactured the first production run of a proprietary, high end snowshoe, trademarked the SnowFangs(TM) and a convertible summer and winter downhill gravity scooter, which it trademarked the Dirt Rush(TM) and Powder Rush(TM), respectively. Also, design work was completed for several other products and patent applications were filed for the snowshoes and Rush products, which patents are currently suspended. During the winter season of 2001, Arete Outdoors was able to distribute a small number of snowshoes to prospective dealers and purchasers over the internet. Also, the Winter Rush was test marketed at Copper Mountain Resort in its outdoor adventure rental program and was demonstrated at a number of winter resorts on the East and West Coast of the US, the Rocky Mountain region and British Columbia, Canada. Arete Outdoors also hired a sales manager to sell winter sports products he represented through an effort to gain licensing at the 2002 winter Olympic Games. Neither the internal marketing efforts nor those of the sales manager produced significant results and these efforts were severely cut back in the Spring of 2001 when the Company and Arete Outdoors were unable to secure additional funding for these efforts. While Arete Outdoors operations have been shut down to preserve its assets and resources, the Company believes that its products and philosophy have significant merit in terms of future market potential, provided new capital and management expertise can be obtained. The Company plans to initiate a capital raising program for Arete Outdoors including private placements of debt and/or equity and through a registered rights offering to the Company's shareholders in the near future, in which Arete Outdoors would become an independent publicly traded company. The proposed business plan for Arete Outdoors is to pursue a roll-up of young, aggressive and forward looking companies with skilled management, an existing product line with a track record of sales and good prospects of significant sales growth that have certain synergies with one another and can benefit from combined infrastructure, the Company's senior management and financial expertise, and by engaging in allegiances with Arete Outdoors as a publicly traded entity, will be able to attract the capital resources they need to sustain the growth typical of emerging companies in the specialty outdoors sports industry. The second project undertaken by the Company and its management team during 2000 and the first half of 2001, was a new venture management agreement with Applied Behavior Systems, LLC. (ABS) which sought the assistance of the Company with presenting its business plan to develop its SpeechTeach project to investors including Angel investors, Venture Capitalists and industry partners. This project was expanded to include and the development of artificial intelligence applications through Seventh Generation Technologies, Inc. ("7GT"). As previously reported, due to a lack of funding during the second quarter of 2001, the Company terminated its financial support of its new venture projects and two members of the management team resigned. During the rest of 2001, the Company continued to take measures to eliminate operating expenses and reduce its overhead to a minimum, to protect and preserve the assets and opportunities that it had developed through these ventures, and to put the Company in a position to pursue new ventures under its new vision to develop more promising business opportunities with immediate revenue potential. 5 During the remainder of 2001, the Company focused on developing the spin off of at least two ventures, the outdoor sports venture and the artificial intelligence, speech teach and robotics venture to its shareholders. The plan was that Mr. Raabe would sponsor the outdoor sports venture and Mr. Gorman would work with Mr. Hutchison, the owner of the underlying intellectual property of ABS/7GT and others to pursue the Seventh Generation Technology venture through a new entity, shares of which would be spun off as a stock dividend to the Company's shareholders at a date in the future when such ventures were viable. The Company continued to seek suitable new ventures, new capital, reduce its overhead and to clean up its balance sheet by resolving outstanding debt. In April 2001, the Company secured an agreement in principal with Gerald J. Brandimarte to pursue capital funding projects initiated by Mr. Brandimarte through a new subsidiary, Eagle Capital Funding Corp., which would ultimately be spun off, along with Arete Outdoors and a new company to be formed by Mr. Gorman which would continue to pursue ventures stemming from the Seventh Generation Technologies project. Following the September 11, 2001 terrorist events, a number of individuals with whom Mr. Brandimarte was pursuing projects, which he agreed to contribute to the new subsidiary were killed or their organizations were destroyed in the terrorist attacks. Mr. Brandimarte was subsequently offered employment with a Wall Street investment banking firm and accepted a position. Mr. Brandimarte regretfully withdrew as a director and participant in the Eagle Capital venture. The board accepted Mr. Brandimarte's resignation from Eagle Capital and from the Company's board of directors and terminated the initiatives planned with Mr. Brandimarte but preserved the entity and the initiatives intended for the entity in order to find a suitable replacement for him. In December, Mr. Bill Stewart brought his initiative to acquire minor league sports franchises and certain capital raising initiatives to the Company for consideration, which was accepted in the form of a letter of intent to create a new subsidiary for the sports team venture and a private placement of $225,000 in a new series of the Class A Preferred Stock of the Company, to be placed by Eagle Capital to fund a subscription for such shares on the part of Eagle Capital. Certain of the contingencies for the private placement have not been met to date, but include settlement of outstanding debt with current and former employees and with two debt investors with the Company. Efforts by Mr. Gorman to reach a settlement and go forward plan with Mr. Bill Hutchison have been unsuccessful, resulting in the possibility that the Company would retain the right to pursue Mr. Hutchison and Applied Behavior Systems for monies due and owing to it for its financing and contribution of management services, rent, utilities and its share of equity in any new venture that Hutchison pursued using the technology employed by Applied Behavior Systems or other new entity created to do so, along with any rights to new technologies and/or applications that were developed with the Company's help and assistance. 6 In addition to these issues, the Company has reduced its overhead significantly and that its two current officers continued their agreement to accrue salaries through the end of this year. Mr. Raabe has and will continue to work full-time for the Company, and Mr. Gorman will remain a director through completion of the next annual meeting, but will not seek renomination as a director. Mr. Raabe has agreed to continue to accrue his salary for the first two quarters of next year. Mr. Gorman will be employed part-time to assist the Company with its annual report, shareholder's meeting and its first quarter 10Q as part-time CFO on an as needed basis. Upon approval by the board, Mr. Gorman may be paid by the subsidiary/spin-off candidates to develop their business plans and disclosure documents for the anticipated registered spin-offs, but will defer any salary while working on behalf of the Company through termination of his employment, on or before the end of the second quarter of 2002. Mr. Raabe and Mr. Gorman have been in the process of developing a settlement and walk away agreement to resolve the outstanding salary and bonuses payable to Mr. Gorman, Raabe, and the ex-managers from 2000 and 2001, and to provide an incentive for Mr. Gorman and the ex-managers to provide the Company with spin-off opportunities. Mr. Raabe and Mr. Stewart would remain with the Company to pursue its plan to become a registered Business Development Company (BDC), and Mr. Gorman would pursue his own independent BDC structure under a new public company to be spun-off from the Company in a registered stock dividend. In connection with the letter of intent with Bill Stewart and the subscription agreement of Eagle Capital for $200,000 in convertible preferred stock, as of this date, Eagle Capital has funded the Company $25,000 to pay for the audit and has committed another 25,000 to pay for the annual shareholder meeting and other specified expenses. In addition, Mr. Raabe has agreed to advance additional funds to the Company to cover overhead to be repaid in either cash or Series 1 Convertible Preferred Stock pursuant to the option and designation of Series 1 Convertible Preferred Stock made November 19, 2001. Current Business of the Company - ------------------------------- The next step in Arete Industries' development is to begin a program that management has coined as the `Dividend Program'. The Dividend Program is intended to provide an attractive investment vehicle for professional investors to invest in the Company's current development projects and in future portfolio companies the Company is seeking to acquire. The Dividend Program is also intended to distribute direct ownership to the shareholders in the Company's future mergers, acquisitions and investments. Management believes that the Program will also attract new acquisition opportunities by offering the entrepreneurs and investors a near-term path to liquidity in the public markets through a registered public spin-off and/or rights offering to Arete's shareholders. 7 Not all young companies can pursue a path of a series of venture capital investments to an initial public offering ("IPO"). However, many are potentially viable stocks in the public equity markets. In addition to distributing an equity interest in the Company's direct investments to the shareholders, Arete Industries is seeking to acquire interests in high quality growth companies and to pursue potential roll-up strategies with companies in growth markets. We believe that incorporating the Dividend Program into a strategic acquisition program that targets such opportunities will optimize growth of shareholder value, make the Company more attractive to investors and enhance our competitive position in attracting quality acquisition candidates away from more traditional forms of capital raising transactions. To summarize the current vision for the business of the Company, management intends to fashion itself as a business development company and is currently researching and taking initial steps to properly qualify as a registered Business Development Company under the Investment Company Act of 1940. In simple terms, the focus of the Company will be to acquire equity interests of various amounts in promising businesses and to provide these businesses with critical support in the form of financial management and corporate finance expertise. We intend to bring value to our shareholders through capital appreciation of our future assets as they grow and are taken public through our Dividend Program and by distribution of a portion of ownership in these assets directly to our shareholders. This form of business relies on the ability of our management to identify viable acquisition targets and to successfully close acquisition and capital funding transactions with the candidates that are selected as well as attracting outside capital to fund these transactions. We believe that the BDC structure is the correct way to achieve this objective. The Company intends to initiate the process of a dividend distribution of one or more companies in the near future beginning with the business opportunities generated by current management over the past two years. To properly complete a spin-off transaction, the subsidiary company will be required to file and have approved, a registration statement covering its business and financial matters with the Securities and Exchange Commission (the "SEC"). After the SEC declares the registration statement effective, the Company will declare the dividend and the record date for determining the shareholders entitled to receive the dividend. For an investor/shareholder to participate in the Dividend Program, they must hold Arete common stock on the record date of the dividend. The various equity holders of the Company will receive a pro-rata amount of the total stock dividend, subject to any outstanding preferential rights held by others that apply to the particular distribution. In the event that the Company completes a dividend distribution of subsidiary stock, there may be tax consequences to the recipient. Also, there may be statutory limitations or prohibitions, or financial limitations to the distribution by the Company of a stock dividend in a specific state or under specific circumstances. There are numerous possible structures of the public spin-off of a future Arete subsidiary and presently unknown potential risk factors including tax and financial accounting impacts, possible contractual and preferential rights granted to direct investors and the principals and employees of the spin-off company, which cannot be disclosed or foreseen at this time until a concrete situation arises. 8 Current Capitalization of the Company. - -------------------------------------- The Company currently has authorized 500,000,000 shares of Capital Stock, with 498,825,562 shares of common stock, no par value, currently issued and outstanding. The Company has 1,000,000 shares of $10 face value Class A Preferred Stock authorized pursuant to an Amended Certificate of Class A Preferred adopted by the board of directors on February 26, 2001. By Board resolution dated November 19, 2001, the board of directors designated 30,000 of such Class A Preferred as Series 1 Convertible Preferred Stock (Series 1 Convertible Preferred) as a means of repaying cash advances made by management through 2002. As of April 12, 2002 545 shares of Series 1 Convertible Preferred were outstanding. The Series 1 Convertible Preferred is designated as convertible into common stock of the Company at $0.001 in face value per common share. It carries voting rights equal to the number of common shares into which it converts and carries no dividend unless by on or before June 30, 2002, the Company has insufficient common shares to allow conversion of all such Series 1 Convertible Preferred outstanding on that date, into common stock, in which case it will accrue a cumulative dividend of 6% from such date, and accrue if not paid on a quarterly basis. Further, in the event that the Company has not made additional common stock available to convert the outstanding Series 1 Convertible Preferred by June 30, 2002, the holders thereof may exchange their preferred shares for promissory notes in the face amount with 6% interest, due 12 months thereafter. Additionally, on December 19, 2001, by Board resolution pursuant to a subscription agreement with Eagle Capital Funding Corp. and Mr. William W. Stewart, the board of directors designated 25,000 of such Class A Preferred Stock as Series 2 Convertible Preferred Stock (Series 2 Convertible Preferred), in a placement of up to $225,000 of such preferred at $10 per share face value. As of April 12, 2002, Eagle had funded an initial tranche of $25,000 of the subscription and 2,500 shares were issued and outstanding as of that date. The Series 2 Convertible Preferred is convertible into common stock of the Company at $0.0005 in face value per common share from the time when the Company has sufficient authorized but unissued common stock available for issuance to allow for the conversion of outstanding shares of the Series 1 and Series 2 Convertible Preferred. It carries voting rights equal to the number of common shares into which it converts and carries a dividend of 10% from the first day of the first fiscal quarter following the date of issuance, which shall accumulate if not paid for so long thereafter as the common stock conversion privilege is unavailable due to the lack of sufficient authorized but unissued common shares to convert all of the outstanding Series 2 Convertible Preferred into common stock of the Company. The Series 2 Convertible Preferred shareholders will participate pro-rata with any other conversion rights holders and common stockholders in any stock dividends or rights offerings of current and future subsidiaries of the Corporation on the basis of the number of common shares into which the Series 2 Convertible Preferred are entitled to convert. Also, the holders of Series 2 Convertible Preferred can demand redemption of the outstanding shares of Series 2 Convertible Preferred in the event that the Company has not taken action to make sufficient common shares available to allow 9 exercise of the conversion privilege on or before August 31, 2002 in an amount equal to the greater of the total face value of outstanding Series 2 Convertible Preferred plus accrued and unpaid dividends or an amount equal to the number of common shares into which the outstanding Series 2 Convertible Preferred converts times the average weekly closing bid for Company's common stock for the 8 week period preceding the date demand for redemption by holders of no less than 80% of the total face value of such Series 2 Convertible Preferred. Similarly, after the Company has made available sufficient shares of common stock to allow conversion of the Series 2 Convertible Preferred but before receipt of a proper demand for redemption by the holders of the Series 2 Convertible Preferred, the Company can redeem the Series 2 Convertible Preferred for an amount which is the lesser of the face value of the outstanding Series 2 Convertible Preferred plus accrued and unpaid dividends or an amount equal to the total number of common shares into which the outstanding Series 2 Convertible Preferred converts times the average weekly closing bid for the Company's common stock for the 8 week period preceding the date the Company gives the Series 2 Convertible Preferred holders notice of its intent to redeem. In the event that the Company gives notice of its intent to redeem the Series 2 Convertible Preferred, the holders will have 45 days from the date of such notice to convert all of their shares of Series 2 Convertible Preferred into common stock. Upon a default by the Company, the holders of 80% of outstanding shares of Series 2 Convertible Preferred have the right to call a special shareholders meeting of the Series 2 Convertible Preferred shareholders and are entitled to vote to remove some or all of the directors of the Company and to appoint new directors, or a receiver or trustee of trustee until such time as the Company has cured the default. Events of default include: (i) any event or action of the Company or any third party which would prevent or materially impair the ability of the Company to increase the authorized common stock of the Company or to recapitalize the Company to provide for sufficient common shares to allow the holders of the Series 2 Convertible Preferred Stock to convert their preferred shares into common shares; (ii) Failure of the Company to redeem the Series 2 Convertible Preferred on proper demand therefore; (iii) Failure of the Company to timely pay accrued dividends for more than a 12 month period from the date of issuance or failure to pay quarterly dividends for two consecutive quarters following expiration of the Redemption rights; (iv) filing a voluntary petition or court action to appoint a receiver, or to reorganize or liquidate the Company under Chapter 11 of the US Bankruptcy code; or (v) failure of the Company to maintain timely compliance with reporting obligations under the Securities Exchange Act of 1934. The Series 2 Convertible Preferred provides that the holders thereof shall be entitled to piggy-back registration rights to have their Series 2 Preferred Shares or the common shares into which they are entitled to convert into, registered under any future registration statement filed by the Company to register other shares of preferred or common stock of the Company. Intellectual Property - --------------------- There is no intellectual property of Arete Industries for its current business focus other than the intellectual property and trademarks developed in its subsidiaries and investments. The Company owns certain US registered trademarks associated primarily with its subsidiary, Aggression Sports, Inc., and certain trademarks associated with its discontinued print and direct mail operations, which, pending other decisions, it intends to maintain in full force and effect. The Aggression Sports, Inc. subsidiary has several patent applications in process but which it currently is not pursuing for lack of funding. 10 Seasonality of Business - ----------------------- There is little to no seasonality for Arete Industries in its current business focus. The primary external economic factor is the business cycle, which is not seasonal. Competition - ----------- Investment banking and the Business Development Company fields of business are highly competitive and Arete Industries will have a number of competitors as it searches for high quality investments, acquisition candidates and sources of capital. Sizes of competitors ranges from public shell corporations to large, well capitalized international corporations, with substantial operating histories. Arete Industries will address the competition by targeting a segment of the overall investment industry and establish a small profitable niche it can expand over time. Cost of Compliance with Environmental Laws - ------------------------------------------ In the business operations of the Company there are no significant waste by-products which are discharged into the environment or which require special handling or the incurring of additional costs for disposal. Accordingly, costs of compliance with environmental laws, rules and regulations have not been segregated and are believed to be nominal. The Company is unaware of any pending or proposed environmental laws, rules or regulations, the effect of which would be adverse to its contemplated operations. Employees - --------- Arete Industries has one full-time and one part-time executive employee. Item 2 - Description of Property - -------------------------------- Arete Industries Inc., currently leases approximately 1,200 square feet of office space located in Boulder, Colorado under a short term lease with the right to renew and/or renegotiate. The Company also rents certain off-site storage facilities. The total leased space costs approximately $1,968 per month plus utilities. It is anticipated this space will be sufficient for Arete's, business development operations for the foreseeable future. Item 3 - Legal Proceedings - -------------------------- As of the date of this Report, there were no material pending or contemplated legal proceedings against the Company or any of its subsidiaries, other than routine matters incidental to the business. Item 4-Submission of Matters to a Vote of Security Holders Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the fourth quarter of 2001. The Company plans to schedule its annual meeting during the second quarter of 2002. PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------------ The common stock of the Company is listed on the Over the Counter "Electronic Bulletin Board" of the National Association of Securities Dealers, Inc., ("NASD") under the symbol "OTCBB:AREE". The following table shows the range of quarterly high and low bid quotations for the Company's common stock for the past two fiscal years, as reported by NASDAQ's OTC Bulletin Board. Prices reflect inter-dealer prices and do not necessarily reflect actual transactions, retail mark-up, mark-down or commission. STOCK QUOTATIONS BID ----------------------------- Quarter Ending: High Low --------------- ---------- ----------- Fye 12/31/00 High Low 3/31/00 0.21 0.008 6/30/00 0.09 0.035 9/30/00 0.05 0.025 12/31/00 0.034 0.011 Fye 12/31/01 High Low 3/31/01 0.19 0.0051 6/30/01 0.047 0.002 9/30/01 0.005 0.0012 12/31/01 0.0039 0.001 As of April 12, 2002 number of record holders of the Company's common stock was 351. This number does not include the indeterminate number of stockholders whose shares are held by brokers as "nominees" or in street name. 12 Dividends - --------- The Company has not paid any dividends with respect to its common stock and it is not anticipated that the company will pay dividends in the foreseeable future. There are no accrued dividends outstanding on any class of Preferred Stock of the Company. Recent Sales of Unregistered Securities - --------------------------------------- Item 701 Reg. SB-During the period of January 1, 2001 through December 31, 2001, the Company sold the following unregistered securities. Other than as set forth below, there were no other sales of unregistered securities made during the period covered by this report.
Common Shares (Unregistered) ============================================================================================================= Date Registration Share Amount Consideration Description Exemption - ---------------- ---------------- ------------------- --------------------- --------------------------------- 3/25/99 4(2) of '33 Act 8,500,000 $49,997 Preferred Stock Conversion - ---------------- ---------------- ------------------- --------------------- --------------------------------- 3/21/00 4(2) of '33 Act 450,000 $31,500 Individual Private Placement - ---------------- ---------------- ------------------- --------------------- --------------------------------- 4/1/00 4(2) of '33 Act 1,288,660 $7,333 Preferred Stock Conversion - ---------------- ---------------- ------------------- --------------------- --------------------------------- 6/16/00 4(2) of '33 Act 500,000 $2,000 cash Part of Consulting fee with independent contractor - ---------------- ---------------- ------------------- --------------------- --------------------------------- 12/8/00 4(2) of '33 Act 2,000,000 $20,000 Ind. Contractor Consulting Fees - ---------------- ---------------- ------------------- --------------------- --------------------------------- 12/5/00 4(2) of '33 Act 6,000,000 Collateral Pledge D. L. Foster, pledged as collateral for $50,000 loan - ---------------- ---------------- ------------------- --------------------- --------------------------------- 12/5/00 4(2) of '33 Act 6,000,000 Collateral Pledge G. McMullen, pledged as collateral for $50,000 loan - ---------------- ---------------- ------------------- --------------------- --------------------------------- 3/12/01 4(2) of '33 Act 500,000 $5,000 Consulting Fee with independent Contractor - ---------------- ---------------- ------------------- --------------------- --------------------------------- =============================================================================================================
Preferred Shares (Unregistered) ============================================================================================================= Date Registration Share Amount Consideration Description Exemption - ---------------- ---------------- ------------------- --------------------- --------------------------------- 11/19/01 4(2) of '33 Act 545 $ 5,448 Series 1 Preferred Empl. Exp. Reimb. - ---------------- ---------------- ------------------- --------------------- --------------------------------- 4/12/02 4(2) of '33 Act 2,500 $25,000 First Tranche of Series 2 Preferred Private Placement - ---------------- ---------------- ------------------- --------------------- --------------------------------- 4/1/00 4(2) of '33 Act 1,288,660 $ 7,333 Preferred Stock Conversion - ---------------- ---------------- ------------------- --------------------- --------------------------------- 6/16/00 4(2) of '33 Act 500,000 $ 2,000 cash Part of Consulting fee with Rule 504 independent contractor =============================================================================================================
13 Item 6 - Management's Discussion and Analysis - --------------------------------------------- Critical accounting policies: - ----------------------------- The Company has identified the accounting policies described below as critical to its business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed throughout this section where such policies affect the Company's reported and expected financial results. The preparation of this Annual Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities of the Company, revenues and expenses of the Company during the reporting period and contingent assets and liabilities as of the date of the Company's financial statements. There can be no assurance that the actual results will not differ from those estimates. Stock issuances: The Company has relied upon the issuance of shares of its common stock, options to purchase its common stock and warrants to purchase its common stock to fund much of the Company's operations. The following describes the methods used to record various stock related transactions. Stock issued for services is valued at the market price of the Company's stock at the date of grant. Compensation related to the issuance of stock options to employees and Directors is recorded at the intrinsic value of the options, which is the market price of the Company's common stock less the exercise price of the option at the Company's common stock to consultants is recorded at the market price of the Company's common stock at the measurement date. The measurement date is generally the date the options are fully vested. Revenue recognition: The Company has provided management services to companies in the process of developing new products with no operations. These management fees have not been recorded as revenue at this time since collectibility is not reasonably assured. Research and development: The Company has also advanced funds to these start-up companies. As these advances have been used for research and development by the start-up companies, these amounts have been recorded as research and development expense in the Company's financial statements. Overview. - --------- As previously reported, by the end of the first quarter of fiscal 2000, operating losses, overhead and the burden on management resources associated with the Company's cooperative coupon franchised direct mail advertising business had been eliminated, leaving the parent company with nominal overhead expense. For the last of half of fiscal 2000 and the first half of fiscal 2001, the Company embarked on an entirely new business model, which included developing a revenue stream from management services and building equity 14 ownership in a portfolio of new entrepreneurial opportunities. Revenue and equity was created from the opportunities developed in-house, but the Company's projects ran out of money without the financial support from next round investors and neither the management of the Company nor the management of the individual companies could raise funds in time to continue operations. The Company's plan had been funded principally by cash infusions from insiders, by management deferring its salaries, management fees and issuances of common stock for services. In the end of the second quarter and the beginning of the third quarter of fiscal 2001, the Company could not secure the next round of financing for its incubated companies, nor could it reasonably hope to do so in the foreseeable future, and without additional funding for itself, it was forced to stop funding them. (See: Description of Business). Because of discontinued operations of the management services, the comparative numbers for financial condition and results of operations for the prior year would be meaningless. Therefore, only the current period results for fiscal 2000 are analyzed below. Financial Condition - ------------------- As of December 31, 2000, the Company had $205,965 in total assets and $1,153,757 in total liabilities, as compared to $85,219 and $497,711 at the end of fiscal year ended December 31, 1999, respectively. Accounts payable and accrued expenses at December 31, 2000 were $902,196 as compared to $384,857 at December 31, 1999. The Company had a revolving line of credit of $50,000 and the balance of that note on December 31, 1999 was $19,500 and $50,000 as of December 31, 2000. Subsequently, in February 2001, this note was paid off with the proceeds of two certificates of deposit that had been pledged as collateral against the note. The note was secured by two separate certificates of deposit in the amount of $25,000 each, one of which was pledged by the Company's CEO, the other was purchased with proceeds of a stock purchase by the CEO. Subsequently, the CEO contributed his certificate of deposit to the Company in exchange for shares of common stock. The Company's subsidiary, Global Direct Marketing Services, Inc., which is now inactive, has left an obligation of trade payables of $87,625 and unpaid 1999 payroll taxes of $46,897 remaining from its printing and direct mail advertising business. The Company owes approximately $79,000 in unpaid Federal payroll taxes for calendar years 1995 through 1997 including penalties and interest. The parent company remains obligated for certain claims of unsecured creditors due under its Chapter 11 Plan of Reorganization in the approximate amount of $62,316. (See Note 3 to Financial Statements.) During the period ended December 31, 2000, the Company continued to rely upon infusions of cash from loans and cash advances by executives of the Company. The proceeds were used for overhead, payment of corporate obligations, product development, salaries, patent applications and marketing of products. During this period, executive salaries of $100,500 and bonuses of $381,860 were accrued and unpaid. 15 Results of operations - --------------------- The Company's revenues from operations consisting principally of management fees and related services, for the fiscal year ended December 31, 2000 were $ 108,943. Operating expenses for the fiscal year ended December 31, 2000 were $1,335,532 resulting in an operating loss of $1,226,589. Significant operating costs for the year ended December 31, 2000 included salaries for Arete Industries of $882,677, of which $482,360 was deferred and unpaid salaries and bonuses. Additionally, research and development costs of $140,520 were incurred consisting of moneys advanced to ABS (Seventh Generation Technologies). In addition, management fees charged by the Company to ABS were $110,570. These management fees have not been recorded as revenue at this time due to the uncertainty that realization of the revenue from ABS, LLC is not reasonably assured. Such revenue will be recorded at such time as ABS/7GT either successfully acquires financing or achieves revenues from sales of products and/or services. Other Operating Expenses of $259,379 consisting of medical insurance, shareholder communication, consulting and legal fees, telephone, utilities and travel were incurred. The salary cost of the Company reflects an increase to eight from one employee compared to the prior year. Total other expenses of $202,054 included the Company's equity in loss of Arete Outdoors of $179,997 and interest expense of $25,077 resulting in a net loss from continuing operations of $1,428,643. Added to this was the net loss from discontinued operations of $60,520, which is net of $10,000 realized on the sale of equipment of the Global Direct Marketing Services, Inc., division, resulting in a net loss of $1,489,163. Liquidity and Capital Resources - ------------------------------- The Company had a working capital deficit as of December 31, 2000 of $1,061,963. This compares to a working capital deficit of $455,148 in the fiscal year ended December 31, 1999. The $608,815 increase in working capital deficit for the fiscal year 2000 is attributable from an increase in accrued expense from $34,409 (fye 1999) to $508,462 (fye 2000) and an increase in notes payable to related parties from $81,021 (fye 1999) to $201,561 (fye 2000) and an increase of accrued payroll taxes from $146,130 (fye 1999) to $191,755 (fye 2000). During the 12-month period ended December 31, 2000 an aggregate of 71,025,757 shares of common stock were issued for aggregate consideration of $1,101,113, (avg. $0.0155 per share) including the exercise of stock options granted. The two senior executive officers have accrued salaries and have advanced cash to the Company to fund operations, primarily for cash accruals and equity. As of December 31, 2000, the CEO directly and through an affiliated entity, had advanced an aggregate of $141,700 (less reimbursement of $2,768) in cash or cash equivalents to the Company and accrued $266,307 for 1999 and 2000 salary of which he used $84,385 to purchase 8,438,497 shares of common stock directly and through exercise of options and was issued 400,000 shares directly for $10,000 16 in salary. Following the 2000 year end, as of April 3, 2001, the CEO had advanced an additional $51,750 in cash, transferred $13,000 in value of his personal common stock for a company expense and accrued an additional $30,000 in salary. Also, in March 2001 the CEO exercised his conversion rights pursuant to his Convertible Note dated December 21, 1999 for accrued salary and interest of $84,912 into 16,649,367 shares of common stock. (See: Executive Compensation, Tables and Notes thereto). As of December 31, 2000, the CFO had advanced $68,300 in cash to the Company and accrued $186,517 in salary of which he used $87,500 to purchase 5,000,000 shares of common stock through exercise of options and a 3,750,000 share direct issuance for accrued salary. Following the 2000 year end, and as of April 3, 2001, the CFO personally advanced an additional $74,500 in cash and accrued an additional $30,000 in salary and used $65,000 of these accruals to purchase 6,500,000 shares of common stock through exercise of options. During January, the CFO exercised an incentive stock option for 5,000,000 common shares at $0.015 per share in exchange for a note in the amount of $75,000. (See: Executive Compensation, Tables and Notes thereto). During fiscal year ended December 31, 2000, including the issuances referred to in the previous two paragraphs, the Company issued 23,215,211 shares of its common stock valued at $306,228 for the exercise of employee stock options and an aggregate of 34,721,886 shares valued at $469,881 in lieu of salary and expenses. The Company requires additional infusions of equity capital for its business development operations described elsewhere in this report. The Company continues to seek sources of capital including venture capital, angel investors and through private placement of debt or equity; and is seeking strategic alliances with potential customers and partners. Due to the current financial condition of the Company and the volatility in the market for its common stock, no assurance can be made that the Company will be successful in raising any substantial amount of capital through the sale of equity or debt securities, or with bank debt on favorable terms in the near future. Due to such conditions the Company may continue to be required to issue further common stock to pay executives, consultants and other employees, which may have a continuing dilutive effect on other shareholders of the Company. Failure of the Company to acquire additional capital in the form of either debt or equity capital will most likely impair the ability of the company to meet its obligations in the near future or medium term. Item 7-Financial Statements - --------------------------- Financial Statements to be filed by amendment to this Report on Form 10K-SB. The financial statements listed in the accompanying index to financial statements are set forth under Part IV, Item 13 to this report and incorporated herein by reference. 17 Item 8 - Changes in Accountants. - -------------------------------- The Company's current auditors were retained subsequent to fiscal year ended December 31, 1999, to conduct an audit for the 1999 and thereafter. There are and were no disagreements with the Company's current or former auditors. PART III Item 9 - Directors, Executive Officers, Promoters and Control persons: - ------------------------------------------------------------------------ Compliance with Section 16(a) of the Exchange Act. (a) Officers and Directors - -------------------------- Thomas P. Raabe (48): Chairman and CEO - --------------- Mr. Raabe has served as Chief Executive Officer and a Director of the Company since May 1, 1998. Mr. Raabe formerly served as special securities and business counsel on specific projects from time to time for the Company since approximately 1994. Mr. Raabe has 18 years experience as an entrepreneurial attorney and business consultant, practicing law in Colorado and representing corporate clients in complex situations across the nation. As a solo practitioner, Mr. Raabe has specialized in securities transactions and compliance, entity formation and governance, business reorganizations, mergers and acquisitions, and technology protection and exploitation. Mr. Raabe has been a founder, director and/or counsel for a number of start-up and development stage companies including robotics, high technology, durable medical equipment, advanced composites, optics, engineering, film entertainment and most recently, outdoor and extreme sports ventures. Mr. Raabe has been involved as special counsel for a number of public and private companies with the responsibility to design and execute corporate finance transactions, capital restructuring projects and corporate securities compliance for several Securities Exchange Act reporting companies. During 1995 and 1996, Mr. Raabe served as Chairman of the Board and Chief Executive Officer of Quality Products, Inc., a $35 million formerly AMEX listed company ("Quality") as a member of a team installed by a dissident shareholder group to remove management and turn around three operating subsidiaries. Mr. Raabe served as CEO and director of the parent as well as senior executive officer and director of the subsidiaries for a period of 12 months during which two of the three subsidiaries were determined not capable of rehabilitation and liquidated to pay down the secured creditor. The remaining subsidiary company, a manufacturer of hydraulic presses in Columbus, Ohio was Quality's only profitable operation and was preserved. One subsidiary, a sports-related consumer products manufacturer, filed and completed a Liquidating Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code during Mr. Raabe's tenure there. Mr. Raabe completed the legal and transactional steps necessary and, in February, 1997, left the company on its way back to profitability. Mr. Raabe then formed Boulder Sports, LLC to pursue acquisitions and capital funding transactions, with principal focus on extreme and outdoor adventure sports related technologies and businesses. Prior to joining the Company as CEO in May of 1998, Mr. Raabe entered into a letter of intent with the Company to acquire an entity he controlled to pursue acquisitions of outdoor sports businesses through his contacts. In February 1998, a press release was issued concerning this transaction and a potential acquisition candidate, which was later made subject of an enforcement action against the Company by the Commission. This action has been settled as of October 2001 in which Mr. Raabe 18 and the Company agreed to consent to imposition of an administrative order against them, without Mr. Raabe or the Company admitting or denying the findings of fact contained therein, and without the imposition of any financial or other sanctions against them, to cease and desist from committing or causing any violations and any future violations of Sections 10(b), 15d-1 and 15d-3 of the Exchange Act and Rules 10b-5, 15d-1 and 15d-13, thereunder. Mr. Raabe received his undergraduate degree in political science from the University of Denver and his Juris Doctorate from the University of Denver College of Law, in 1981. In addition, Mr. Raabe pursued a graduate degree in Mineral Economics jointly with his law degree and completed three semesters graduate course work and comprehensive examinations toward a doctorate degree from the Colorado School of Mines. Thomas Y. Gorman (44): CFO/COO and Director. - ---------------- Mr. Gorman joined Arete Industries as a member of the Board of Directors in September of 1998, and became its CFO on May 2, 2000. Since June of 1998, and prior to joining the management team of Arete, Mr. Gorman was the CFO of In-Store Media Systems, Inc. In Store Media is an OTC:BB, publicly trading company that is completing the development of its in-lane, electronic coupon clearing system and a closed-loop coupon distribution system for supermarkets and other retail food outlets. While at In Store Media, he participated in the SEC compliance and reporting requirements, raising over $3 million from equity private placements and managing key vendor relationships during its development stage. From 1993 to June of 1998, Mr. Gorman was Director of Business Development for PAC Enterprises, Inc. PAC Enterprises represented a group of companies, which built turnkey beverage can manufacturing plants around the world. While at PAC Enterprises, he participated in a combined total of over $250 million of debt and equity financing for two-piece steel and aluminum can manufacturing plants in Asia, Africa, South America, Eastern Europe and Russia. From 1991 to 1993, Mr. Gorman was President of U-Choose-It, Inc., a television production company, with self-syndicated 30-minute programs that provided home health care patients more information about their equipment choices. The Company produced over a dozen TV shows, and at its peak, was airing in 32 markets. From 1988 to 1991, Mr. Gorman was vice president of marketing and a corporate director of Roman Labs, Inc. Roman Labs developed the first portable oxygen concentrator for home-bound patients suffering from chronic respiratory disease. Mr. Gorman earned his BA in Economics from DePauw University and his MBA from the Executive Program at the University of Colorado. William W. Stewart. (40) Director. - --------------------- Mr. Stewart joined the board of directors on December 19, 2001 at the time the Company entered into a Letter of Intent to form a subsidiary corporation to pursue acquisition and management of minor league sports franchises. He has agreed to take over operations and the business plan of a company formed by the Company in 2001, Eagle Capital Funding Corp. (Eagle Capital) to pursue capital funding projects including projects pursued by the Company and for other private and/or public ventures. In addition to serving as an outside director and developing the sports franchise venture, Mr. Stewart will provide consulting services to the Company relating to corporate finance, mergers and acquisitions. (See - Certain Transactions with Management and Others). From 1986 to 1994, Mr. 19 Stewart worked in the brokerage industry as an NASD licensed registered representative. He started his career with Boettcher and Company of Denver, Colorado and left the Principal Financial Group of Denver, Colorado in 1994 to open his own small-cap investment firm, S.W. Gordon Capital, Inc., where he has been its president since 1994 to the present. He has consulted with many small companies, both public and private, on capital formation and mergers and acquisitions. Mr. Stewart is on the board and an owner of Richmond Sports Partners, LLC, a Virginia Limited Liability Company in the business of acquiring and managing minor league sports franchises. Richmond Sports Partners owns the Richmond Renegades of the East Coast Hockey League. He is also the CEO and owner of Larimer County Sports, LLC, a Colorado Limited Liability Company, which is in the process of establishing a minor league hockey franchise in northern Colorado. Mr. Stewart was born in The Pas, Manitoba, Canada. Mr. Stewart attended the University of Denver on a full athletic scholarship where he played hockey from 1979 to 1983 as right wing and served as assistant captain during his senior year. Mr. Stewart graduated with a BS, Business Administration from the University of Denver in 1983, with honors as a Student Athlete. Compliance With Section 16(a) of the Exchange Act. The Company files reports under Section l5(d) of the Securities Exchange Act of 1934; accordingly, directors, executive officers and 10% stockholders are not required to make filings under Section 16 of the Securities Exchange Act of 1934. Item 10 - Executive Compensation - -------------------------------- Summary Compensation Table The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated: 20
======================================================================================================================== SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------------------------------------ Long Term Compensation ------------------------------------ Annual Compensation Awards Payouts ----------------------------------------- ------------------------- ---------- (a) (b) (c) (d) (e) (f) (g) (h) (i) - --------------- ------------ -------------- ------------ ------------- ---------- -------------- ---------- ------------ Name and Year or Other Restricted All Other Principal Period $ $ Annual Stock Option/ SAR's LTIP Compensation Position Ended Salary Bonus Compensa-tion Awards (#) Payouts ($) ($) ($) - --------------- ------------ -------------- ------------ ------------- ---------- -------------- ---------- ------------ Thomas P. 12/31/01 $120,000(1) - - 60,000,000(2) Raabe, CEO, Chairman 12/31/00 $120,000 (1) $88,750 (2) - 7,500,000 (2) - 12/31/99 $90,000 (1) $43,875 (2) - 5,000,000(2) - (3) - --------------- ------------ -------------- ------------ ------------- ---------- -------------- ---------- ------------ Thomas Y. 12/31/01 $120,000(5) - 77,000,000(4) Gorman 12/31/00 $90,000 119,000 (4) 7,500,000(5) (4)(5) (5) 12/31/99 $27,125 (4) 3,000,000 (4) - - --------------- ------------ -------------- ------------ ------------- ---------- -------------- ---------- ------------ Lawrence P. 12/31/01 $50,000(6) 2,000,000 Mortimer 12/31/00 $75,000 (7) $147,250 11,000,000(7) (7) - --------------- ------------ -------------- ------------ ------------- ---------- -------------- ---------- ------------ Michael H. 12/31/01 30,513.50(7) - - Parsons 12/31/00 $75,000 (7) $73,750 (7) 7,500,000(7) ========================================================================================================================
(1) Effective November 1, 1999, Mr. Raabe's salary was increased to $120,000. Fiscal year 2000 salary was $120,000 including $81,500 paid of which the net pay was used to purchase common stock directly or by exercise of options and $38,500 was unpaid and accrued. During fye 12/31/99 the Company accrued $81,021 salary to Mr. Raabe and issued a convertible note in this amount which accrues interest at 10%. In March of 2001, the outstanding principal and interest of this note of $84,912 was converted to common stock at the contractual rate of $0.0051 per share for 16,649,367 shares. Mr. Raabe was paid $7,500 in face value of Series A Preferred Stock for January, 1999 salary. (See: Certain Transactions with Management and Others). (2) Under the 1999 Omnibus Stock Option Plan, the shareholders authorized a 3,000,000 share stock grant to Mr. Raabe. These shares issued were accepted in payment of other existing obligations for advances in the amount of $30,000 and the Company accrued a cash bonus of $30,000. Also, under the 1999 Plan, Mr. Raabe was granted an option to purchase 5,000 shares of Series A Preferred for $50,000. In December of 2000, this Option was amended to a common stock option for 5,000,000 shares at $0.01 per share and was partially exercised for 3,938,497 shares with 1,061,503 shares remaining available for purchase. Under the 2000 Omnibus Stock Option Plan, Mr. Raabe was granted a stock bonus of 1,500,000 shares valued at $15,000 and an Option to purchase 15,000 shares of Series A Preferred for $150,000, which vested after June 30, 2000. The shares issued for the stock Bonus were accepted in payment of other outstanding obligations for advances in the amount of $15,000 and the Company accrued a cash bonus for $15,000. Also, following the end of fiscal 2000, the referenced Class A Preferred Option was amended to entitle the CEO to purchase $125,000 in Common Stock at an exercise price of $0.025 per share, or 5,000,000 common shares. In addition, in December of 2000, Mr. Raabe was granted a compensatory common stock bonus of 2,500,000 shares valued at $0.0175 per share and an option to purchase 2,500,000 shares of common stock for $0.0175 per share or $43,750. The shares issued for the Bonus were accepted as partial exercise of a stock option paid with accrued salary and cash advances to the Company and the Company accrued a cash bonus for $43,750. During Fiscal 2001, Mr. Raabe was granted compensatory stock options for an aggregate of 60,000,000 shares at varying exercise prices, of which 20,000,000 of such options were exercised with conversion of outstanding notes payable from the Company for accrued cash advances and/or accrued salary, bonus and expenses; and a 40,000,000 share option at $0.001 per share for 2 years from November 19, 2001, remains outstanding. (See "Certain Transactions with Management and Others"). 21 (3) During the first quarter of 2000, Mr. Raabe converted 2,250 shares of Series A Preferred into 2,250,000 shares of common stock which was issued for November and December 1998 and January 1999 salary. (4) During fiscal year ended December 31, 1999, as compensation for his services during the fiscal year ended 12/31/98, Mr. Gorman was granted a 1,500,000 share stock bonus valued at $14,625 and a stock option to purchase up to 3,000,000 shares of common stock for $33,000. The option was exercised during 2000. Additionally, as a compensatory grant for services during fiscal year ended December 31, 1999, the board granted and then revised and repriced upward, a 3,500,000 common stock bonus valued at $35,000 and an option to purchase $50,000 in face value of Series A Preferred Stock with the common stock conversion rate for the preferred shares set at $0.01 per share. Of the latter grant, only a bonus of 1,250,000 was issued during fiscal year ended December 31, 1999 and during fiscal year 2000, the remaining Bonus shares were accepted in payment of other existing obligations for advances in the amount of $22,500 and the Company accrued a cash bonus for $22,500. During fiscal year ended 2000, the Option was amended to a common stock option for 5,000,000 shares at $0.01 per share and was exercised. During fiscal 2001, Mr. Gorman was granted compensatory stock options for an aggregate of 77,000,000 shares, of which 37,000,000 were exercised with conversion of outstanding notes payable from the Company and a Note to the Company of $75,000, and a 40,000,000 share option at $0.001 per share for 2 years from November 19, 2001, remains outstanding. (See "Certain Transactions with Management and Others"). (5) During fiscal year ended December 31, 2000, Mr. Gorman became a full time salaried employee initially at $108,00 per year adjusted to $120,000 per year effective 10/01/2000. Under the Company's 2000 Omnibus Stock Option and Compensation Plan, Mr. Gorman was granted a stock bonus of 1,500,000 shares valued at $15,000 and an option to purchase 12,500 shares of Series A Preferred for $125,000, which vested after June 30, 2000. The 1,500,000 shares issued were accepted in payment of other existing obligations for advances in the amount of $15,000 and the Company accrued a cash bonus of $15,000. Also, following the end of fiscal 2000, the Option was amended to entitle Mr. Gorman to purchase $125,000 in Common Stock at an exercise price of $0.025 per share, or 5,000,000 common shares. In addition, in December of 2000, Mr. Gorman was granted a compensatory stock bonus of 5,000,000 shares valued at $0.0165 per share and a common stock option to purchase 2,500,000 shares of common stock for $0.0175 per share or $43,750. The shares issued for the Bonus were accepted in exercise of a stock option paid with accrued salary and cash advances to the Company and the Company accrued a cash bonus for $81,500. (See "Certain Transactions with Management and Others") (6) During fiscal year ended December 31, 2000, Mr. Lawrence Mortimer became a full time salaried employee initially at $108,00 per year adjusted to $120,000 per year effective 10/01/2000. Under the Company's 2000 Omnibus Stock Option and Compensation Plan, Mr. Mortimer was granted a signing bonus of 1,500,000 shares and a further 1,500,000 share bonus which vested after June 30, 2000. The bonus shares were valued at $0.01 per share. Additionally, Mr. Mortimer was granted an option to purchase 12,500 shares of Series A Preferred for $125,000, which vested after June 30, an option to purchase 3,500,000 shares at $0.021 per share and an option to purchase 2,500,000 shares at $0.0175 per share, together with an additional stock bonus of 2,500,000 shares valued at $0.0175 per share. Of the aggregate bonuses granted, 3,723,286 shares valued at $32,657.50 were retained and 1,776,714 shares were accepted in exercise of a stock option paid for with accrued salary and cash advances to the Company in the amount of $31,092.50 and the Company accrued a cash bonus for $43,750. Mr. Mortimer exercised options for 5,276,714 common shares for consideration of $73,500 in a short-term note and $31,092.50 in accrued salary. In October 2000 the company awarded and accrued a cash bonus of $73,500 to Mr. Mortimer for selling the initial demonstration project for the Rush Downhiller at Copper Mountain Resort. Also, following the end of fiscal 2000, the Class A Preferred stock option was amended to entitle Mr. Mortimer to purchase $125,000 in Common Stock at an exercise price of $0.025 per share, or 5,000,000 common shares. Mr. Mortimer resigned from the Company in May 2001. He was granted a compensatory stock option for 2,000,000 shares of common stock which was exercised in exchange for accrued expenses and a note payable to the Company. (See "Certain Transactions with Management and Others"). 22 (8) During fiscal year ended December 31, 2000, Mr. Michael H. Parsons became a full time salaried employee initially at $108,00 per year adjusted to $120,000 per year effective 10/01/2000. Under the Company's 2000 Omnibus Stock Option and Compensation Plan, Mr. Parsons was granted a signing bonus of 1,500,000 shares and a further 1,500,000 share bonus which vested after June 30, 2000. The bonus shares were valued at $0.01 per share. Additionally, Mr. Parsons was granted an option to purchase 12,500 shares of Series A Preferred for $125,000, which vested after June 30, 2000 and an option to purchase 2,500,000 shares at $0.0175 per share, together with an additional stock bonus of 2,500,000 shares valued at $0.0175 per share. Of the aggregate bonuses granted, 423,218 shares valued at $4,232 were retained and the balance valued at $69,518 were accepted for payment of $25,768 in accrued salary, and the Company accrued a cash bonus for $43,750. Mr. Parsons exercised options for 2,500,000 common shares for consideration of $43,750 in a short-term note. Also, following the end of fiscal 2000, the Class A Preferred stock option was amended to entitle Mr. Parsons to purchase $125,000 in Common Stock at an exercise price of $0.025 per share, or 5,000,000 common shares (See "Certain Transactions with Management and Others") Option/SAR Grants Table - -----------------------
Option/SAR Grants in Last Fiscal Year Individual Grants ========================================================================================================== (a) (b) (c) (d) (e) Number of % of Total Securites Options/SAR's Granted Exercise or Underlying to Employees in Fiscal Base Price Name Options/SAR's Year ($/Sh) Expiration Date Granted (#) ========================= =================== ========================= ================ ================= Thomas P. Raabe 2,500,000(1) 5.5% $0.0175 12/5/2001 - ------------------------- ------------------- ------------------------- ---------------- ----------------- " 5,000,000(2) 10.99% $0.025 12/31/01 - ------------------------- ------------------- ------------------------- ---------------- ----------------- Thomas Y. Gorman 2,500,000(1) 5.5% $0.0175 12/5/2001 - ------------------------- ------------------- ------------------------- ---------------- ----------------- " 5,000,000(2) 10.99% $0.025 12/31/01 - ------------------------- ------------------- ------------------------- ---------------- ----------------- Lawrence P. Mortimer 2,500,000(1) 5.5% $0.0175 12/5/2001 - ------------------------- ------------------- ------------------------- ---------------- ----------------- " 5,000,000(2) 10.99% $0.025 12/31/01 - ------------------------- ------------------- ------------------------- ---------------- ----------------- " 3,500,000 7.1% $0.021 10/20/01 - ------------------------- ------------------- ------------------------- ---------------- ----------------- Michael H. Parsons 2,500,000(1) 5.5% $0.0175 12/5/2001 - ------------------------- ------------------- ------------------------- ---------------- ----------------- " 5,000,000(2) 10.99% $0.025 12/31/01 - ------------------------- ------------------- ------------------------- ---------------- ----------------- ==========================================================================================================
(1) Shown in Common Stock equivalents. Option is to purchase $43,750 in face value of the Series A Preferred Stock that is convertible into common shares at $0.0175 per share. Option to purchase preferred expires 12 months from 12/5/2000, conversion privilege of Series A Preferred continues indefinitely. At the time of grant the exercise price exceeded the market price for the underlying common shares. The Class A Preferred Options were subsequently converted directly into Common Stock Options without effecting the economic terms thereof. (2) Shown in Common Stock equivalents. Option is to purchase $125,000 in face value of the Series A Preferred Stock which is convertible into common shares at $0.025 per share. The option to purchase preferred expires June 30, 2001, subject to extension. At the time of grant the exercise price exceeded the market price for the underlying common shares. The Class A Preferred Options were subsequently converted directly into Common Stock Options without effecting the economic terms thereof. 23
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table. Aggregated Option/SAR Exercises in Last Fiscal Year And FY-End Option/SAR Values ====================================================================================================================== (a) (b) (c) (d) (e) Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Acquired Options/SARs at Options/SARs at FY-End on Exercise (#) FY-End (#) ($) Exercisable/ Name Value Realized ($) Unexercisable Unexercisable ===================== =================== ======================= =========================== ======================== Thomas P. Raabe 3,938,497 $19,693 19,061,503 Exercisable $47,308 exercisable - --------------------- ------------------- ----------------------- --------------------------- ------------------------ Thomas Y. Gorman 8,000,000 $337,000 7,500,000 Exercisable N/A - --------------------- ------------------- ----------------------- --------------------------- ------------------------ Lawrence Mortimer 5,276,714 $0.00 5,723,286 Exercisable N/A - --------------------- ------------------- ----------------------- --------------------------- ------------------------ Michael Parsons 2,500,000 $0.00 5,000,000 Exercisable N/A ======================================================================================================================
(1) See notes 1 and 2 in prior table. Compensation of Directors. - -------------------------- There are no standard arrangements relating to compensation of directors for services provided as directors. Termination of Employment and Change of Control Arrangement. - ------------------------------------------------------------- Other than as set forth below, there are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Cash Compensation Tables set out above which would in any way result in payments to any such person because of his resignation, retirement or other termination of such person's employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a change in control of the Company. Also, the employment agreement between the Company and Mr. Raabe, provides for severance pay and vesting of benefits under circumstances of termination without cause. Employment Contracts of Executives with Company. - --------------------------------------------------- Mr. Raabe has an employment contract with the Company, executed in November of 1998 and renewed as of November 1, 1999 which provides for a base annual salary of $120,000 per year, plus standard employee benefits, reimbursement of business expenses including providing office, phone, secretarial assistance and other operating support. The term of the agreement is two years from this date or any renewal date. The agreement automatically renews for a successive two-year period on each anniversary date. The employment agreement provides that accrued and unpaid salary or incentive pay can be taken in the form of Series A Preferred Stock, common stock and/or notes convertible into Preferred or common stock. The employment agreement further provides for incentive and performance based compensation subject to good faith negotiation with the board of directors. The employment agreement incorporates certain terms of the referenced change in control agreement which provides that the employee will be paid success fees for closing transactions which either provide assets, revenue or relationships of substantial value to the Company, based on a modified Lehman's 24 formula. Termination without cause prior to the termination of the agreement, results in vesting of all contingent benefits, stock options and mandates severance pay in the amount of unpaid, unaccrued salary remaining under the full term of the employment agreement. The executive has been granted a security interest in certain assets of the Company to secure this obligation. Pursuant to the Change in Control Agreement, Mr. Raabe has certain rights to reacquire the Company's shares in Aggression Sports, Inc. d/b/a Arete Outdoors or to put his shares in Aggression Sports, Inc. to the Company at their fair market value. Contractual Arrangements Regarding Changes in Control. There are no arrangements known to management, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in the control of the Company. Pursuant to terms of the Series A Preferred, in the event that either, dividends are not paid or the stock is not redeemed within 12 months from the date issued, holders of Series A Preferred entitled by virtue of the Company's default of such provision, may call a special shareholders' meeting and elect a majority of the board of directors until such dividends are brought current or the shares are redeemed in full, plus accrued dividends. There are currently no shares of Series A Preferred outstanding. Item 11 - Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------- The following tables set forth the shareholdings of the Company's directors and executive officers and those persons who own more than 5% of the Company's common stock as of April 12, 2002.
(a) Stock Ownership of Certain Beneficial Owners - ----------------------------- -------------------------- --------------------------- -------------------------- (1) (2) (3) (4) - ----------------------------- -------------------------- --------------------------- -------------------------- Title of Class Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership - ----------------------------- -------------------------- --------------------------- -------------------------- 4,543,300 Shares - Common Stock Boulder Sports, LLC c/o Direct 2955 Valmont Road, Suite 88,992,237 Shares 310, Boulder, Colorado -Indirect (1)(2) 80301 17% (4) - ----------------------------- -------------------------- --------------------------- -------------------------- Common Stock Thomas P. Raabe Trust 10,399,367 Shares Direct c/o 2955 Valmont Road, 88,992,237 Shares, Suite 310, Boulder, Indirect (1)(3) 17%(4) Colorado 80301 - ----------------------------- -------------------------- --------------------------- --------------------------
(1) Including beneficial ownership of 27,031,367 shares attributed from the share holdings of the Company's CEO, plus 51,561,503 common shares, which the CEO has the right to acquire within 60 days from the date of this report. (2) Includes beneficial ownership of 10,399,367 shares attributed from the holdings of the Thomas P. Raabe Trust. (3) Includes beneficial ownership of 4,543,300 shares owned by Boulder Sports, LLC. (4) Percentage calculated based on 498,325,562 shares outstanding plus 51,561,503 shares subject to unexercised options and rights attributable to the CEO, or a total of 549,887,065 total shares.
(b) Stock Ownership of Management (1) (2) (3) (4) - ----------------------- ------------------------------- --------------------------- --------------------------- Title of Class Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership Directors - ----------------------- ------------------------------- --------------------------- --------------------------- Common Stock Thomas P. Raabe 78,592,870 direct c/o 2955 Valmont Road, Suite 14,942,667 indirect (1) 14.4%(1) 310, Boulder, Colorado 80301 - ----------------------- ------------------------------- --------------------------- --------------------------- Common Stock Thomas Y. Gorman c/o 2955 47,500,000 direct (2) 8.7%(2) Valmont Road, Suite 310, Boulder, Colorado 80301 - ----------------------- ------------------------------- --------------------------- --------------------------- Executive Officers - ----------------------- ------------------------------- --------------------------- --------------------------- Common Stock Lawrence P. Mortimer c/o 2955 -0- 0% Valmont Road, Suite 310 Boulder, Colorado 80301 - ----------------------- ------------------------------- --------------------------- --------------------------- Common Stock Michael H. Parsons c/o 2955 -0- 0% Valmont Road, Suite 310 Boulder, Colorado 80301 - ----------------------- ------------------------------- --------------------------- --------------------------- Directors and Executive 141,035,537 (3) 23.9% Officers as a Group - ----------------------- ------------------------------- --------------------------- ---------------------------
(1) See footnotes 1 through 4 to previous table. (2) Includes direct ownership of 7,500,000 shares plus 40,000,000 unexercised options, which the Director has the right to acquire within 60 days from the date of this report. Percentage calculated based on 545,325,562 shares outstanding including 40,000,000 unexercised stock options. (3) Percentage calculated based on 589,887,065 shares outstanding including 91,561,503 unexercised stock options, which officers and directors have the right to acquire within 60 days from the date of this report. Item 12 - Certain Relationships and Related Transactions. - ---------------------------------------------------------- Transactions with Management and Others During the fiscal years ended December 31, 2000 and December 31, 2001, transactions occurred with directors and executive officers relating to cash and non-cash compensation which are disclosed in the discussion and footnotes to Item 10 of this Report, Executive Compensation, which are incorporated herein by reference. As of the fiscal year ended December 31, 2001, Aggression Sports, Inc., was owned 62% by the Company (2,000,000 common shares) and 38% by Boulder Sports, LLC (1,250,000 common shares) an affiliate of the CEO. In May of 2001, the Company bought out the interest of the Aggression Sports, Inc. President in exchange for settlement of outstanding compensation and rights to certain designs and pending patent applications. The Company has agreed to indemnify and advance legal fees and expenses to the CEO in connection with his personal defense of the referenced SEC enforcement action. The CEO has personally advanced these fees and expenses to date, but they have been submitted and included in the current balance of the Note Payable for expenses and advances from the CEO for fiscal 2001. In April of 1998, the Company, its former officers and directors, and its current and former CFO entered into a Change in Control Agreement which provided in part for the resignation of the first mentioned former officers and directors and for indemnification of these individuals from the 100% penalty for trust fund taxes arising from outstanding unpaid federal and state withholding taxes owed by the Company for tax years 1995 through 1997, and to indemnify and advance expenses for defense of any suits brought against them in their capacity as officers and directors of the Company, provided that the provisions of the Colorado Corporation Act, the Company's charter and by-laws and other laws relating to indemnification were complied with. In October of 2000, the Company, the Company's CEO and the two former officers and directors entered into a Settlement Agreement and Mutual General Release in which both parties agreed to resolve, waive and release each other from all claims and disputes between them with respect to all matters of dealings between them through and including the date of their resignations in April of 1998 and including all matters related to the Securities and Exchange Commission enforcement action described in Item 3 to this report. The Agreement left in place the general indemnification provisions set forth in the referenced Change in Control Agreement, with respect to any other action brought against them not otherwise resolved in the Settlement Agreement. Pursuant to this settlement, the two former officers and directors agreed to execute in their individual capacity, a settlement agreement with the Commission, to sign a Consent Order to the entry of an injunction against them for the matters set forth in the Complaint against them without admitting or denying the allegations thereof, and payment of $20,000 in civil penalties to the Commission. In exchange, the Company agreed to pay approximately $9,000 in their attorney's fees plus $10,000 of their civil penalties and the CEO agreed to loan them $10,000 to be applied to pay the civil penalties. In addition, the Company reaffirmed its obligation to pay the outstanding referenced federal and state withholding taxes and to indemnify the former officers and directors from any assessments and levies for such taxes enforced against them by the Internal Revenue Service (the "IRS") for these taxes. To date the Company has not made payment to the IRS toward this obligation in the approximate amount of $79,000 including principal and interest, but has issued 395,000 common shares to the law firm for the former officers and directors in partial payment of their outstanding legal fees. During 1999, the Company issued a convertible promissory note to its CEO in consideration for accrued salary of $81,021. The note bears 10% simple interest and is payable December 21, 2000. The note and accrued interest are convertible into shares of common stock or Series A Preferred at the CEO's option. The conversion price is determined as a fraction of the total principal and accrued interest divided by an amount equal to 85% of the average weekly closing bid price for common shares on the OTC bulletin board on the date of the note or $0.0051 per share as of the date of the Note, December 21, 1999. At December 31, 2000 the balance due under this note was $66,904 and subsequent to December 31, 2000 the Company borrowed additional funds from the CEO increasing the balance of the note to $84,912 as of March 9, 2001. On March 9, 2001 the CEO converted the note into 16,649,367 shares of common stock. (See - Executive Compensation, Managements Discussion and Analysis, Liquidity and Capital Resources, and Notes 4 and 10 to Financial Statements). Item 13 - Exhibits and Reports on Form 8-K - ------------------------------------------ There were filed no Form 8-K reports for the fourth quarter of the fiscal year 2000. PART IV Exhibit No. Description Ref. No - ----------- ----------- ------- EX-2.1 Plan of Reorganization and First Addendum to 1 Plan of Reorganization, Chapter 11 Case No. BK94-81544, US Bankruptcy Court District of Nebraska, confirmed on September 25, 1995, effective November 6, 1995. Incorporated by reference from exhibits to Form10-KSB for fiscal year ended March 31, 1996. EX-2.2 Disclosure Statement and First Addendum to Disclosure Statement in above Bankruptcy Matter. Incorporated by reference from 1 exhibit to Form 10-KSB for fiscal year ended March 31, 1996. EX-3.1 Restated Articles of Incorporation with 2 Amendments adopted by shareholders on September 1, 1998. EX-3.2 Bylaws adopted by the Board of Directors 2 on October 1, 1998. EX-4.1 Designation of Class A Preferred Stock. 2 EX-10.1 2000 Omnibus Incentive Stock Compensation Plan Adopted, June 2, 2000. 3 1 These documents and related exhibits have been previously filed with the Securities and Exchange Commission, and by this reference are incorporated herein. 2. These documents and related exhibits have been previously filed under the Company's Form 10-KSB for the fiscal year ended 12/31/99 and by this reference after incorporated herein. 3. These documents and related exhibits have been previously filed under the Company's quarterly reports for periods ended during fiscal year 12/31/00 and by this reference are incorporated herein. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 0(pound) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARETE INDUSTRIES, INC. Date: April 15, 2002 By: /s/ THOMAS P. RAABE ------------------------ Thomas P. Raabe, President, Chief Executive Officer, and Chairman of the Board of Directors Date: April 15, 2002 By: /s/ THOMAS Y.GORMAN, JR. --------------------------- Thomas Y. Gorman, Jr., Chief Financial Officer, Treasurer, Secretary and Director Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: ARETE INDUSTRIES, INC. Date: April 15, 2002 By: /s/ THOMAS P. RAABE ----------------------- Thomas P. Raabe Board Member Date: April 15, 2002 By: /s/ THOMAS Y. GORMAN, JR., ------------------------------ Thomas Y. Gorman, Jr. Board Member Date: April 15, 2002 By: /s/ WILLIAM W. STEWART -------------------------- William W. Stewart Board Member SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS, WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT For information forwarded to of the Company during the period covered by this Report, see the Exhibit Index of this Report. As of the date of this report no annual report for the fiscal year ended December 31, 2001 or proxy material for the 2002 annual shareholders meeting has been sent to security holders. Registrant intends to send proxy information to its security holders for its regular Annual Meeting to be scheduled shortly, but does not intend to send an annual report with such materials. Registrant undertakes to forward any annual report or proxy material delivered to securities holders to the Securities and Exchange Commission on the date such information is forwarded to stockholders. -----END PRIVACY-ENHANCED MESSAGE-----