-----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, CbP3pPWrfPKreUGJ2pklbgk0aflNi0MS1luXMCuxEHDoV6Oup1kJNxeA4dg8k/Av BW17+I5GcVeEKApANoMexg== 0000950137-02-002038.txt : 20020415 0000950137-02-002038.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950137-02-002038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVE IQ TECHNOLOGIES INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 412004369 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12401 FILM NUMBER: 02602528 BUSINESS ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 BUSINESS PHONE: 9524495000 MAIL ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 FORMER COMPANY: FORMER CONFORMED NAME: METEOR INDUSTRIES INC DATE OF NAME CHANGE: 19960313 10-K 1 c68476e10-k.txt FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 2001 Commission File Number: 1-12401 ACTIVE IQ TECHNOLOGIES, INC. -------------------------------------------------- (Exact Name of Issuer as Specified in its Charter) MINNESOTA 41-2004369 - ------------------------------- --------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 5720 SMETANA DRIVE, SUITE 101, MINNETONKA, MINNESOTA 55343 ---------------------------------------------------------- (Address of Principal Executive Offices) Issuer's telephone number including area code: (952) 345-6600 Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.01 PAR VALUE Title of Class Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K [ ] At March 25, 2002, 11,592,345 shares of Common Stock (the Registrant's only class of voting stock) were outstanding. The aggregate market value of the Common Stock on that date held by non-affiliates was approximately $16,032,174. ACTIVE IQ TECHNOLOGIES, INC. Annual Report on Form 10-K For the Year Ended December 31, 2001 Table of Contents
PART I Page ---- Item 1. Business........................................................... 4 Item 2. Properties......................................................... 14 Item 3. Legal Proceedings.................................................. 14 Item 4. Submission of Matters to a Vote of Security Holders................ 14 PART II Item 5. Market for Common Equity and Related Shareholder Matters........... 16 Item 6. Selected Financial Data............................................ 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......... 23 Item 8. Consolidated Financial Statements and Supplementary Data........... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 46 PART III Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act..... 47 Item 11. Executive Compensation............................................. 48 Item 12. Security Ownership of Certain Beneficial Owners and Management..... 53 Item 13. Certain Relationships and Related Transactions..................... 54 PART IV Item 14. Exhibits and Reports on Form 8-K. ................................. 56 Signatures.................................................................. 59
2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to us that is based on the current beliefs of our management as well as assumptions made by and information currently available to management, including statements related to the markets for our products, general trends in our operations or financial results, plans, expectations, estimates and beliefs. In addition, when used in this Annual Report, the words "may," "could," "should," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Annual Report with respect to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results or financial condition. Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. We undertake no obligation to update forward-looking statements. The risks identified in the section of Item 1 entitled "RISK FACTORS," among others, may impact forward-looking statements contained in this Annual Report. 3 PART I ITEM 1. BUSINESS OVERVIEW Active IQ Technologies, Inc. provides accounting software and eBusiness services solutions to the small to medium-sized business market, known as the "SME market." Our solutions address existing legacy applications, general business requirements and select vertical markets. We offer traditional accounting and financial management software solutions through Red Wing Business Systems, Inc., Champion Business Systems, Inc. and FMS Marketing, Inc. (which does business as FMS/Harvest, and as of December 31, 2001, we merged FMS/Harvest with and into Red Wing), its recently-acquired and wholly-owned subsidiaries. In addition to traditional accounting and financial management software solutions, we offer eBusiness applications and software solutions as part of its "Epoxy Network." The Epoxy Network offers an Internet merchandising system called "Storefront" and a tool for managing customer information named "Account Management." Through an exclusive worldwide-hosted licensing agreement with Stellent, Inc., we also develop hosted content management solutions in selected vertical markets using Stellent's Content Management software. Our objective is to become a leading provider of accounting software, eBusiness solutions and hosted solutions to small to medium-sized businesses (known as the "SME market"). To achieve this objective, we intend to pursue the following strategies: provide additional value-added products and services to our existing customers; acquire complimentary businesses; leverage our existing sales channels; and develop and market web-based content management solutions to selected vertical markets. We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. In April 2001 we reincorporated under Minnesota law. Our principal offices are located at 5720 Smetana Drive, Suite 101 Minnetonka, Minnesota 55343. Our telephone number is (952) 345-6000 and our Internet address is www.activeiq.com. 2001 CORPORATE DEVELOPMENTS Merger with activeIQ Technologies Inc. Until April 2001, we were engaged in the distribution of oil, gas and other refined petroleum products. On April 30, 2001, however, we completed a series of significant transactions resulting in the disposition of our historical operating assets and adoption of a business plan focused on providing business software and solutions. The primary reason we decided to exit our historical business operations was because our operations were no longer able to generate the cash flow needed to conduct our business. Historically, we had grown our business through acquisitions using either cash or our stock as consideration. As our business operations required more working capital to offset the increased price of petroleum products, we had less working capital to use toward acquisitions. Moreover, we were not able to generate sufficient interest in our stock to continue using it as attractive consideration. Our board of directors therefore determined that it was prudent to sell the operating assets since the company no longer had a means to fund the acquisitions that were central to our business development. 4 Accordingly, as the first step in the plan to shift our business operations, we sold all of the outstanding stock of our wholly-owned subsidiary, Meteor Enterprises, Inc., which directly or indirectly owned substantially all of our company's operating assets, to Capco Energy, Inc. At the time of the transaction, Capco was a significant shareholder of our company. In consideration for the sale of Meteor Enterprises, Capco Energy paid approximately $5.1 million consisting of $4.6 million in cash and a 9-month promissory note in the amount of $500,000, of which there remained a principal balance of approximately $290,000 as of February 28, 2002. In addition, Capco also surrendered for cancellation an aggregate of 100,833 shares of our common stock held by it. Immediately following the sale of Meteor Enterprises to Capco Energy, we completed a merger transaction in which activeIQ Technologies Inc., a privately-held Minnesota corporation ("Old AIQ"), merged with and into our newly-created wholly-owned subsidiary, AIQ, Inc., a Minnesota corporation, in a triangular merger transaction. In consideration for the merger, the former shareholders of Old AIQ received one share of our common stock for each share of common stock of Old AIQ held, which resulted in the former Old AIQ shareholders holding approximately 50 percent of our company's outstanding shares of common stock immediately following the transaction. In addition to the shares of our common stock, each former Old AIQ shareholder also received two Class B Redeemable Warrants for every three shares of Old AIQ common stock held at the time of the merger. Each Class B Warrant grants to the holder thereof the right to purchase one share of our common stock at a price of $5.50 per share. The Class B Warrants may be redeemed by us if the closing price of our common stock averages $7.50 per share for a 10-day period. Pursuant to the merger agreement, immediately following the merger all of the directors of our company resigned and were replaced by 6 new directors, five of whom were appointed by Old AIQ and the other appointed by our company. Old AIQ was a development stage company since its inception in April 1996 through its fiscal year ended December 31, 2000. For accounting purposes, however, Old AIQ was treated as the acquiring company. Accordingly, in this Annual Report on Form 10-K, when we discuss or refer to business and financial information relating to dates prior to the merger, we are referring to Old AIQ's business and financial information, unless otherwise indicated. Acquisition of Red Wing Business Systems, Inc. On June 6, 2001, we acquired all of the outstanding capital stock of Red Wing Business Systems, Inc. ("Red Wing"), based in Red Wing, Minnesota. Red Wing, which has since operated as our wholly-owned subsidiary, develops, markets and distributes accounting software applications to small to medium-sized businesses, primarily in the agricultural industry. In exchange for all of the outstanding shares of Red Wing's capital stock, we issued an aggregate of 400,000 shares of our common stock and paid at closing a total of $400,000. Pursuant to the purchase agreement, we were obligated to make three additional payments of $400,000 each to the former Red Wing shareholders on December 6, 2001, June 6, 2002 and December 6, 2002, respectively. We timely satisfied the December 6, 2001 payment. Acquisition of Champion Business Systems, Inc. On September 18, 2001, we acquired Champion Business Systems, Inc. ("Champion"), a Denver, Colorado-based accounting software company, in a merger transaction. Champion develops, integrates and supports accounting and business management software, focusing on small and growing businesses. As consideration for the merger, we paid at closing an aggregate of approximately $512,000 in cash to the former Champion shareholders; issued 299,185 shares of our common stock; and issued promissory notes in the aggregate amount of approximately $1 million. The notes are payable in equal installments on the four, eight, twelve and sixteen-month anniversaries of the merger, and to date, the first payment has been made. Acquisition of FMS/Harvest On October 10, 2001, we acquired all of the outstanding capital stock of FMS Marketing, Inc., a New Lennox, Illinois accounting software provider doing business as "FMS/Harvest." Like Red Wing, FMS/Harvest also serves primarily users in the agricultural and farming industries. In consideration for the purchase, we paid $300,000 in cash at closing; issued 6-month promissory notes in the total amount of $300,000; and issued 250,000 shares of our common stock. Effective December 31, 2001, we merged FMS/Harvest with and into Red Wing. 5 INDUSTRY BACKGROUND Businesses today are increasingly seeking to leverage their existing information technology infrastructures and to adopt new solutions to automate and improve fundamental business processes within the organization. Legacy applications of small to medium-sized businesses need to extend the reach of their existing systems by linking customers, business partners, suppliers and employees. Historically, these advanced solutions were available only to large enterprise-class software system users. The rapid growth of the Internet, however, has leveled the playing field in many respects. The requirements of the marketplace are driving purchasers to accounting and management solutions that provide the functionality of an enterprise Internet-capable system in a cost-effective manner. Additionally, hosted software solutions help organizations increase productivity and customer satisfaction, which results in increased profits. Hosted content management solutions provide organizations in select vertical markets an easy-to-use, affordable tool for publishing, managing, and sharing business content via the Internet. PRODUCTS AND SERVICES During fiscal 2001, we offered three types of business software and solutions for small to medium-sized business market, known as the SME market: traditional business and accounting software through our Red Wing and Champion subsidiaries; eBusiness solutions through our Epoxy Network; and hosted business solutions in selected vertical markets. For fiscal 2002, however, we intend to shift the focus of our efforts on the development of our hosted solutions business. Accounting/Business Solutions We design, develop, market and support accounting software products through our Red Wing and Champion business units. These products address the "gap market" - companies that have outgrown inexpensive, ultra-simple "starter" accounting software but do not require the significant complexity of high-end software. These products offer a stable, secure and flexible base for growing small business users. In fiscal 2001, revenues from our accounting software solutions were approximately $2,248,061, or 82.9% of total revenues. Our software product offering includes the following solutions: Red Wing Products and Solutions o Red Wing's TurningPoint Accounting Software was specifically designed for growing small businesses that need ease of use, flexibility, and expandability. General Ledger, Accounts Payable, and Accounts Receivable modules were released in September 2001. We intend to release additional modules throughout 2002. o AgCHEK Accounting, also from Red Wing, is designed for production-oriented agricultural operations, especially those needing crop and livestock management information. o Red Wing Windows Accounting Series is modular-based accounting software. o Red Wing Payroll software is a stand-alone system designed for ease of use and comprehensive employee pay processing and reporting. o Red Wing DOS Accounting Series is a solid, historically successful software solution. 6 Champion's Solutions and Products o Champion's PROFIT GOLD is designed for small and growing businesses needing solid bookkeeping and financial management. o PROFIT offers full-featured accounting functionality, multi-user support and ease of use - all at an affordable price. o PROFIT in the Classroom is an all-inclusive accounting software package that teaches students financial and managerial accounting principles and includes features for instructors as well. o Champion CONTROLLER is a DOS-based product that provides all of the features a small business needs to manage finances. FMS/Harvest Solutions and Products o Perception Accounting is a complete accounting software solution created especially for the unique needs of farmers. Epoxy Network In addition to traditional accounting solutions, we offer an eBusiness product for small to medium-sized businesses known as the "Epoxy Network." The Epoxy Network, which is offered to customers on a monthly subscription basis, includes eCommerce, Account Management, customer service and support, and trading partner connectivity. The Epoxy applications integrate with a customer's existing accounting software to quickly help get the customer online by accessing information that already exists in its accounting system. Leveraging the power of the Internet, these applications allow an organization to extend beyond the traditional "four walls" of their enterprise to integrate their operations with their customers, suppliers and partners. During the fiscal year ended December 31, 2001, revenues from Epoxy Network were $183,356, or 6.8% of our total sales. As a result of our decision to concentrate our business development efforts on our hosted solutions business, we entered into a license agreement in March 2002 in which we licensed our Epoxy Network applications and transferred our Epoxy customers to POSitive Software Company, an unaffiliated third party. Hosted Solutions As a result of a December 2001 agreement with Stellent, Inc., one of our shareholders, we have an exclusive worldwide license to distribute Stellent's enterprise content management software solutions to customers on a hosted basis. With this license, we have begun developing and offering Web-based content management solutions designed to improve the efficiency of business operations within selected vertical markets. By linking an organization's customers, partners, suppliers and employees, these hosted solutions are designed to enable an organization to improve its operational efficiency and maximize the potential of its content resources. Also, by focusing on industry-specific solutions, we believe we are able to more closely meet the particular needs of potential customers in those markets. Further, we believe a hosted solutions model will be attractive to customers in specific markets who demand quicker deployment of new applications and more predictable costs with less financial risk. We realized no revenues from our hosted solutions in fiscal 2001. In February 2002, we launched our first hosted solution offering in the real estate vertical market, called "SmartCabinet for RealEstate." SmartCabinet for Real Estate is an offering of Web-based solutions designed to allow property owners and managers to conduct their everyday business of content management via the Web. Users in this vertical market can organize their documents in e-file cabinets according to properties/buildings, tenants, transactions, etc., as they would with traditional document files. The efficiencies associated with SmartCabinet for RealEstate is intended to shorten the time to fill vacancies, shorten the length of lease negotiations, reduce document storage costs and improve landlord-tenant communications. 7 Through contacts we acquired as a result of our Red Wing and FMS/Harvest acquisitions, we entered a second vertical market in March 2002 with the launching of SmartCabinet for Agri Business. Farm Credit Services is a network of lenders and service providers in the agribusiness industry. The Farm Credit Services solution is designed to improve the efficiency of financial, tax, loan and insurance reporting workflow between financial institutions and their agribusiness customers. OUR GROWTH STRATEGY Our objective is to be a leading provider of accounting software, eBusiness and hosted solutions to small to medium-sized businesses. To achieve this objective, we intend to pursue the following strategies: o PROVIDE ADDITIONAL VALUE-ADDED PRODUCTS AND SERVICES TO OUR CUSTOMERS. We plan to enhance our core products to offer more value to existing and new customers by adding new business process applications and functionality. We believe there is a significant market opportunity for new and enhanced applications that can effectively automate and improve customer and supplier relationships. We expect to continue developing additional value-added products and services, principally by partnering with third parties. o PURSUE STRATEGIC ACQUISITIONS. An important element of our growth strategy is the acquisition and integration of complementary businesses in order to broaden product offerings, capture market share and improve profitability. We have made various acquisitions in the past and, to the extent suitable acquisition candidates, acquisition terms and financing are available, we intend to make acquisitions in the future. o LEVERAGING EXISTING SALES CHANNELS. Accounting software has traditionally been sold through a network of value-added resellers, or "VARs." As we access the existing sales channels through partnerships or acquisitions, an important part of our strategy is to train and support the channel to develop new customers and deliver vertical market solutions. SALES AND MARKETING Accounting Business Solutions Distribution of our Red Wing software applications is managed through a reseller partner organization. The Red Wing partners are the retail distribution arm for software applications to the customers. Along with the distribution of the software, our partners provide implementation and ongoing consulting services to the customers. Red Wing supports this partner organization by providing sales leads generated by our direct marketing efforts. Red Wings marketing and internal account management staff work with our partners to customize a unique marketing plan around the partners business and geographic area. Red Wing also continues to develop corporate distribution agreements for its vertical agriculture applications. Our corporate partners distribute our vertical applications to their existing clients and also use our software applications to provide additional services to their clients. Hosted Solutions Our sales strategy leverages proven methodologies that have been adapted to our unique market position. We believe we have unique competitive advantages not only in our solution but how we offer our solution to the marketplace. Our pricing and delivery model gives our customers the best of both worlds, low initial capital outlay and speed to market. We have built our sales model to support a high volume of transactions in the shortest period of time. We will support these initiatives through a direct sales model with a phased approach. o Phase 1 - Four (4) direct sales representatives across the United States, one each in the East, Midwest, South, West regions. We will also take steps to establish global reseller partnerships. o Phase 2 - Four (4) additional sales representative each with a vertical market focus. Our primary marketing objectives are to build awareness and continue to gain market share in select verticals. Accordingly, we will utilize a balanced mix of on and offline advertising and marketing efforts. On-line efforts will include web site, affiliate partner links, product demos and industry specific on-line advertising. Offline efforts will include industry specific tradeshows, conferences, publications and vertically specific direct mail campaigns. INTELLECTUAL PROPERTY We regard certain aspects of our internal operations, software and documentation as proprietary, and rely on a combination of contract, copyright, trademark and trade secret laws and other measures, including confidentiality agreements, to protect our proprietary information. Existing copyright laws afford us only limited protection. We believe that, because of the rapid pace of technological change in the computer software industry, trade secret and copyright protection is less significant than other factors such as the knowledge, ability and experience of our employees, frequent software product enhancements and the timeliness and quality of support services. We cannot guarantee that these protections will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. In addition, when we license our products to customers, we provide source code for most of our products. We also permit customers to possibly obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of misappropriation or other misuse of our intellectual property. In addition, the laws of certain countries in which our software products are or may be licensed do not protect our software products and intellectual property rights to the same extent as the laws of the United States. 8 Our license agreements with our customers contain provisions designed to limit the exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in these license agreements may not be valid as a result of future federal, state or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any material product liability claims to date, the license and support of our software for use in mission critical applications creates the risk of a claim being successfully pursued against us. Damages or injunctive relieve resulting from such a successful claim could seriously harm our business. We also license key components of the solutions we offer from a third party. In particular, we have an exclusive worldwide license from Stellent, Inc., one of our shareholders, to sell and distribute its content management software on a Web hosted basis. RESEARCH AND DEVELOPMENT Since inception, we have made substantial investments in research and software product development. We believe the timely development of additional services and enhancements to existing software products and the acquisition of rights to sell or incorporate complementary technologies and products into our software product offerings are essential to maintaining and increasing our competitive position in our market. The software services market is characterized by rapid technological change, frequent introductions of new products, changes in customer demands and rapidly evolving industry standards. Our total research and development expense was approximately $615,000 and $609,000 in fiscal 2001 and 2000, respectively. The Company estimates that research and development expenditures in 2002 will be approximately $400,000. COMPETITION The markets for our products are intensely competitive. Many of the world's largest software companies, including Microsoft Great Plains Software, Sage Software and Intuit, have developed software solutions addressing our target market. These companies are all substantially larger than we are, have greater brand recognition and substantially more financial and other resources. EMPLOYEES As of March 31, 2002, we employed 62 people, including employees of our subsidiaries. None of our employees are represented by a labor union and we consider our employee relations to be good. RISK FACTORS WE HAVE NO MEANINGFUL OPERATING HISTORY ON WHICH TO EVALUATE OUR BUSINESS OR PROSPECTS. We were a development stage company until January 2001 when we acquired Edge Technologies. Accordingly, we do not have a significant operating history on which you can base an evaluation of our business and prospects. Our business prospects must therefore be considered in the light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets, such as online commerce, using new and unproven business models. These risks include our: o substantial dependence on products with only limited market acceptance; o need to create sales and support organizations; o competition; o need to manage changing operations; o customer concentration; o reliance on strategic relationships; and o dependence on key personnel. We also depend heavily on the growing use of the Internet for commerce and communication and on general economic conditions. Our management cannot be certain that our business strategy will be successful or that it will successfully address these risks. 9 WE ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE. For the year ended December 31, 2001, we had a net loss of $9,446,808, and since our inception as Old AIQ in April 1996 through December 31, 2001, we have incurred an aggregate net loss of $12,922,239. As of December 31, 2001, we had total assets of $13,628,772. We expect operating losses to continue for the foreseeable future and there can be no assurance that we will ever be able to operate profitably. Furthermore, to the extent our business strategy is successful, we must manage the transition to higher volume operations, which will require us to control overhead expenses and add necessary personnel. OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITIONS WITH OUR BUSINESS PLAN AND TO SIGNIFICANTLY GROW EACH OF THESE BUSINESSES AS A PART OF OUR BUSINESS. From June 2001 to October 2001, we acquired Red Wing Business Systems, Inc., Champion Business Systems, Inc. and FMS Marketing, Inc. and we are currently integrating those businesses and products with ours. We may incur unanticipated costs in the course of integrating these businesses. In addition, the integration of Red Wing Business Systems, Champion Business Systems and FMS Marketing with our operations involves the following risks: o failure to develop complementary product offerings and marketing strategies; o failure to maintain the customer relationships of the acquired businesses; o failure to retain the key employees of the acquired businesses; o failure to effectively coordinate product development efforts; o diversion of our management's time and attention from other aspects of our business; and o failure to successfully manage operations that are geographically diverse. We cannot be sure that we will be successful in integrating and growing the businesses and products of Red Wing Business Systems, Champion Business Systems and FMS Marketing as part of our core business and products. If we are not, our business, operating results and financial condition may be materially adversely affected. BECAUSE WE ARE DEPENDENT UPON THIRD-PARTY SYSTEMS AND STRATEGIC RELATIONSHIPS, OUR BUSINESS MAY BE HARMED IF WE DO NOT MAINTAIN THOSE RELATIONSHIPS. We license key elements of our services from third parties, including Stellent, Inc. (f/k/a IntraNet Solutions, Inc.) from which we license, among other things, its Content Management solution. Termination of these licenses would adversely affect our business. We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain strategic relationships with key software vendors, distribution partners and customers. We believe these relationships are important in order to validate our technology, facilitate broad market acceptance of our products, and enhance our sales, marketing and distribution capabilities. If we are unable to develop key relationships or maintain and enhance existing relationships, we may have difficulty selling our products and services. WE WILL REQUIRE FUTURE FINANCINGS IN ORDER TO COMPLETE THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES AND TO IMPLEMENT OUR BUSINESS PLAN. THERE IS NO ASSURANCE THAT SUCH FINANCINGS WILL BE AVAILABLE ON ACCEPTABLE TERMS OR EVEN AT ALL. Further financing will be needed in order to complete development of our products, to develop our brand and services and to otherwise implement our business plan. Product development, brand development and other aspects of Internet-related businesses are extremely expensive, and there is no precise way to predict when further financing will be needed or how much will be needed. Moreover, we cannot guarantee that the additional financing will be available when needed. If it is not available, we may be forced to discontinue our business, and your investment in our securities may be lost. If the financing is available only at a low valuation of our Company, your investment may be substantially diluted. The continued health of the market for Internet-related securities and other factors beyond our control will have a major impact on the valuation of our Company when we raise capital in the future. 10 Potential fluctuations in our operating results and difficulty in predicting our operating results may adversely affect the market price of our securities. We expect our anticipated revenues and operating results to vary significantly from quarter to quarter. As a result, quarter-to-quarter comparisons of our revenues and operating results may not be meaningful. In addition, due to the fact that we have little or no operating history with our new and unproven technology, we may be unable to predict our future revenues or results of operations accurately. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenues relative to its planned expenditures could have an immediate adverse effect on our business and results of operations. Lack of operating history and rapid growth makes it difficult for us to assess the effect of seasonality and other factors outside our control. Nevertheless, we expect our business to be subject to fluctuations, reflecting a combination of various Internet-related factors. OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE. We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We face competition in the overall Internet, Corporate Intranet and Extranet infrastructure markets. We will experience increased competition from current and potential competitors, many of which have significantly greater financial, technical, marketing and other resources. We compete with a number of companies to provide intelligent software-based solutions, many of which have operated services in the market for a longer period, have greater financial resources, have established marketing relationships with leading online software vendors, and have secured greater presence in distribution channels. Our business does not depend on significant amounts of proprietary rights and, therefore, our technology does not pose a significant entry barrier to potential competitors. Additionally, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can. In addition, our current and potential competitors may bundle their products with other software or hardware, including operating systems and browsers, in a manner that may discourage users from purchasing services and products offered by us. Also, current and potential competitors have greater name recognition, more extensive customer bases that could be leveraged, and access to proprietary content. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share. BECAUSE THE MARKETS IN WHICH WE COMPETE ARE RAPIDLY CHANGING AND HIGHLY COMPETITIVE, OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO DEVELOP AND INTRODUCE SUCCESSFUL NEW APPLICATIONS AND SERVICES IN A TIMELY MANNER. The Internet, Corporate Intranet and Extranet infrastructure market is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete. Our future success will depend upon our ability to develop and introduce a variety of new products and product enhancements to address the increasingly sophisticated needs of our customers. We may be unable to develop any products on a timely basis, or at all, and we may experience delays in releasing new products and product enhancements. Material delays in introducing new products and enhancements may cause our customers to forego purchases of our products and purchase those of our competitors. 11 IF WE ARE UNABLE TO DEVELOP AND GROW OUR SALES AND SUPPORT ORGANIZATIONS, OUR BUSINESS WILL NOT BE SUCCESSFUL. We will need to create and substantially grow our direct and indirect sales operations, both domestically and internationally, in order to create and increase market awareness and sales. Our products and services will require a sophisticated sales effort targeted at several people within our prospective customers. Competition for qualified sales personnel is intense, and we might not be able to hire the kind and number of sales personnel we are targeting. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners, including value added resellers. We cannot be certain that we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. There is also no assurance that the pricing model relating to our Epoxy product will be accepted by our customers. Similarly, the anticipated complexity of our products and services and the difficulty of customizing them require highly trained customer service and support personnel. We will need to hire staff for our customer service and support organization. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet. IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING INEFFICIENCIES AND HAVE DIFFICULTY MEETING THE DEMAND FOR OUR PRODUCTS. Our ability to successfully offer products and services and implement our business plan in a rapidly evolving market requires an effective planning and management process. Rapid growth will place a significant strain on our management systems and resources. We expect that we will need to continually improve our financial and managerial controls and reporting systems and procedures, and will need to continue to expand, train and manage our work force. Furthermore, we expect that we will be required to manage multiple relationships with various customers and other third parties. POTENTIAL ACQUISITIONS MAY CONSUME SIGNIFICANT RESOURCES. We may continue to acquire businesses that we feel will complement or further our business plan. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired operations and products, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees of acquired businesses. No assurance can be given as to our ability to consummate any acquisitions or integrate successfully any operations, personnel, services or products that might be acquired in the future, and our failure to do so could have a material adverse effect on our business, financial condition and operating results. OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN AND RECRUIT KEY PERSONNEL. Our products and technologies are complex and we are substantially dependent upon the continued service of its existing engineering personnel. We also expect to continue to add other important personnel in the near future. The loss of any of those individuals may have a material adverse impact on our business. We intend to hire a significant number of sales, support, marketing, and research and development personnel in calendar 2002 and beyond. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain additional highly qualified personnel in the future. Further, some of these individuals may be either unable to begin or continue working for us because they may be subject to non-competition agreements with their former employers. 12 OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY. If we are unable to protect our intellectual property, or incur significant expense in doing so, our business, operating results and financial condition may be materially adversely affected. Any steps we take to protect our intellectual property may be inadequate, time consuming and expensive. We currently have no patents, registered trademarks or service marks, or pending patent, trademark or service mark applications. Without significant patent, trademark, service mark or copyright protection, we may be vulnerable to competitors who develop functionally equivalent products and services. We may also be subject to claims that our products infringe on the intellectual property rights of others. Any such claim may have a material adverse effect on our business, operating results and financial condition. Our success and ability to compete are substantially dependent upon our internally developed products and services, which we intend to protect through a combination of patent, copyright, trade secret and trademark law. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. As with any knowledge-based product, we anticipate that policing unauthorized use of our products will be difficult, and we cannot be certain that the steps we intend to take to prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, will be successful. Other businesses may also independently develop substantially equivalent information. OUR TECHNOLOGY MAY INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS. We anticipate that software product developers will be increasingly subject to infringement claims due to growth in the number of products and competitors in our industry, and the overlap in functionality of products in different industries. We also believe that many of our competitors in the intelligent applications business have filed or intend to file patent applications covering aspects of their technology that they may claim our technology infringes. We cannot be certain that these competitors or other third parties will not make a claim of infringement against us with respect to our products and technology. Any infringement claim, regardless of its merit, could be time-consuming, expensive to defend, or require us to enter into royalty or licensing agreements. Such royalty and licensing agreements may not be available on commercially favorable terms, or at all. We are not currently involved in any intellectual property litigation. Our products and services operate in part by making copies of material available on the Internet and other networks and making this material available to end users. This creates the potential for claims to be made against us (either directly or through contractual indemnification provisions with customers) for defamation, negligence, copyright or trademark infringement, personal injury, invasion of privacy or other legal theories based on the nature, content or copying of these materials. These claims have been brought, and sometimes successfully pressed, against online service providers in the past. Although we carry general liability insurance, that insurance may not cover potential claims of this type or may not be adequate to protect us from all liability that may be imposed. GOVERNMENT REGULATION OF E-COMMERCE IS INCREASING AND THERE ARE MANY UNCERTAINTIES RELATING TO THE LAWS OF THE INTERNET. Laws and regulations directly applicable to communications or commerce over the Internet are becoming more prevalent. Recent sessions of the United States Congress have resulted in Internet laws regarding children's privacy, copyrights, taxation and the transmission of sexually explicit material. The European Union recently enacted its own privacy regulations. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. In addition, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet could adversely affect our business. 13 ITEM 2. PROPERTIES As of December 31, 2001, our corporate offices were located at 601 Carlson Parkway, Suite 1550, Minnetonka, Minnesota 55305, which we occupied pursuant to a sublease agreement. We occupied approximately 6,555 square feet for a monthly sublease payment of $16,000. The sublease expired on February 28, 2002, but we extended it for one month to facilitate a move to a new location. In March 2002 we moved our corporate offices to 5720 Smetana Drive, Suite 101, Minnetonka, Minnesota 55343. Also as of December 31, 2001, we subleased approximately 2,951 square feet in Las Vegas, Nevada for $5,164 per month ($61,968 annually). The expiration date was October 31, 2004. During January 2002, we closed down operations being provided in our Las Vegas location. In February 2002, we entered into a sub-lease and received from our sub-tenant an agreement to indemnify us against claims from our sub-landlord. We currently lease office space in Red Wing, Minnesota (Red Wing Business Systems), Denver, Colorado (Champion Business Systems) and New Lenox, Illinois (FMS/Harvest). We plan to consolidate all operations of the accounting subsidiaries into one leased facility at Red Wing, Minnesota. The Red Wing location is approximately 12,000 square feet. Current rentals of $6,500 per month ($78,000 annually) are required under the lease, in addition to real estate taxes and nominal charges for common area maintenance. The lease expires October 1, 2008. The landlords were former shareholders in the privately held Red Wing business and current employees of the Company. The Denver location is approximately 11,736 square feet. Current rentals of $17,115 per month ($205,380 annually) are required under the lease, in addition to nominal charges for common area maintenance. The lease expires February 28, 2003. The New Lenox location is approximately 2,124 square feet. Current rentals of $3,000 per month ($36,000 annually) are required under the lease, in addition to nominal charges for common area maintenance. The lease expires February 28, 2003. We believe that our current facilities are adequate for the current level of our activities. In the event we were to require additional facilities, we believe that we could procure acceptable facilities. ITEM 3. LEGAL PROCEEDINGS We are not a party to any material litigation and are not aware of any threatened litigation that would have a material adverse effect on our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 30, 2001, we held our Annual Meeting of Shareholders. As of October 2, 2001, the record date for determining the shares of our stock outstanding and entitled to vote at the meeting, there were 10,277,227 shares of Common Stock and 365,000 shares of Series B Preferred Stock issued and outstanding. A total of 7,212,268 shares were represented at the meeting. The following matters were voted: (A) To elect six directors. All of the management's nominees for directors as listed in the proxy statement were elected with the following:
Shares Voted For Withheld ---------------- -------- Kenneth W. Brimmer 7,023,093 189,175 Ronald E. Eibensteiner 6,990,551 221,717 Kenneth S. Kaufman 7,095,551 116,717 Steven R. Levine 7,095,551 116,717 D. Bradly Olah 7,023,093 189,175 Steven A. Weiss 7,095,551 116,717
14 (B) Vote to approve an amendment to Active IQ Technologies 1999 Stock Option Plan to increase the number of shares of common stock issuable thereunder from 1,300,000 to 2,500,000 shares:
Shares Voted For Against Abstain Non-Vote ---------------- ------- ------- --------- 5,128,650 307,684 30,540 1,416,580
15 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's common stock trades on the Nasdaq Small Cap Market under the symbol "AIQT." Prior to May 1, 2001, our stock traded under the symbol "METR." As of March 28, 2002, the last sale price of our common stock as reported by Nasdaq was $2.10 per share. The following table sets forth for the periods indicated the range of high and low sale prices of the common stock as reported by Nasdaq:
Bid Period High Low Quarter Ended March 31, 2001. . . . . . $5.50 $2.38 Quarter Ended June 30, 2001 . . . . . . $6.00 $3.63 Quarter Ended September 30, 2001. . . . $5.99 $1.75 Quarter Ended December 31, 2001 . . . . $4.71 $2.55 Quarter Ended March 31, 2000. . . . . . $3.13 $2.25 Quarter Ended June 30, 2000 . . . . . . $4.88 $2.25 Quarter Ended September 30, 2000. . . . $7.63 $4.00 Quarter Ended December 31, 2000 . . . . $6.25 $2.88
As of the March 25, 2002, there were approximately 670 record holders of our common stock. Based on securities position listings, we believe that there are approximately 964 beneficial holders of our common stock. DIVIDENDS We have paid no cash dividends on our common stock and have no present intention of paying cash dividends in the foreseeable future. Rather, we intend to retain all earnings to provide for the growth of our Company. Payment of cash dividends in the future, if any, will depend, among other things, upon our future earnings, requirements for capital improvements and financial condition. RECENT SALES OF UNREGISTERED SECURITIES On December 1, 2001, the Company issued to a consultant a warrant to purchase 18,000 shares of common stock. The right to purchase the shares underlying the warrant vest in four (4) installments upon completion of certain performance criteria. The exercise price for the shares is the current market price at the time the installments become vested. The warrant was issued as payment for services rendered to the Company. The Company relied upon the exemption from federal registration under Section 4(2) of the Securities Act of 1933 (the "Securities Act"), based on its belief that the issuance did not involve a public offering, the consultant was sophisticated in financial and business matters and the consultant had access to information pertaining to the Company. On October 10, 2001, the Company completed its acquisition of FMS Marketing, Inc., an Illinois corporation doing business as "FMS/Harvest." In exchange for the sale of all of the outstanding shares of stock of FMS/Harvest, the former shareholders of FMS/Harvest received an aggregate of 250,000 shares of the Company's common stock, plus cash and notes totaling $600,000. The Company relied on the exemptions from federal registration under Section 4(2) and Rule 506 promulgated under the Securities Act, based on (i) its belief that the transaction did not involve a public offering (ii) the transaction involved fewer than 35 purchasers, and (iii) the Company had a reasonable basis to believe that all of such purchasers had sufficient knowledge and sophistication, either alone or together with a purchaser representative, to appreciate and evaluate the risks and merits associated with their investment in the Company's common stock. In connection with the Company's acquisition of Champion Business Systems, Inc., on September 18, 2001, the Company issued an aggregate of 299,185 shares of common stock to 21 former Champion shareholders. The Company relied on the exemptions from registration provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, as it had a reasonable basis for concluding that all but four of the former Champion shareholders receiving the Company's common stock were "accredited investors," and that all of such persons had sufficient knowledge and sophistication, either alone or together with a purchaser representative, to appreciate and evaluate the risks and merits associated with their investment in the Company's common stock. 16 On August 30, 2001, the Company issued to a consulting company two 5-year warrants to purchase an aggregate of 21,593 shares of common stock, of which 7,636 shares were exercisable at $2.75 per share and 13,957 shares were exercisable at $5.00 per share. On September 4, 2001, the Company issued to the same consulting company an additional warrant to purchase 35,000 shares of the Company's common stock at a price of $5.00 per share. All of the warrants were issued as payment for services rendered by the consulting company. The Company relied on the exemptions from registration under Sections 4(2) and 4(6) of the Securities Act, as well as Rule 506 promulgated thereunder, as the Company had a reasonable basis for concluding that the consultant was an accredited investor and that the issuances did not involve a public offering. On August 1, 2001, the Company issued 450,000 Class B Redeemable Warrants, each representing the right to purchase one share of common stock on or before April 30, 2006, at a price of $5.50 per share, and two 5-year warrants representing the right to purchase an aggregate of 250,000 shares of the Company's common stock at a price of $7.50 per share. The warrants were issued as payment for services rendered by a consultant. The Company relied on the exemptions from registration provided by Sections 4(2) and 4(6) of the Securities Act, and Rule 506 promulgated thereunder, as the Company had a reasonable basis for concluding that the consultant was an accredited investor. On June 15, 2001, the Company completed a private placement of 10 units, each unit consisting of 50,000 shares of common stock and a 5-year warrant to purchase 30,000 shares of common stock at a price of $5.50 per share. The units were purchased by two investors. The Company relied on the exemption from registration provided in Sections 4(2) and 4(6) and Rule 506 under the Securities Act, as the Company had a reasonable basis for concluding that the purchasers were accredited investors. On June 6, 2001, the Company completed its acquisition of all of the outstanding capital stock of Red Wing Business Systems, Inc. In consideration for their shares of Red Wing stock, the 27 former shareholders of Red Wing received an aggregate of 400,000 shares of the Company's common stock, plus cash of $1,600,000. The Company relied on the exemptions from registration provided by Section 4(2) and Rule 506, based on (i) the Company's belief that the transaction did not involve a public offering, (ii) the transaction involved fewer than 35 purchasers and (iii) because all of the investors were either accredited or otherwise had sufficient knowledge and sophistication, either alone or together with a purchaser representative, to appreciate and evaluate the risks and merits associated with their investment in the Company's common stock. On April 30, 2001, the Company completed its merger with Old AIQ. Pursuant to the merger agreement, the shareholders of Old AIQ received an aggregate of 4,385,911 shares of the Company's common stock and 2,935,979 Class B Redeemable Warrants, each warrant representing the right to purchase, on or before April 30, 2006, one share of the Company's common stock at a price of $5.50 per share. As a basis for a federal exemption, the Company relied on Rule 506 under the Securities Act, as the transaction involved fewer than 35 purchasers, excluding those with respect to whom the Company reasonably believed to be accredited investors, and all of such persons had sufficient knowledge and sophistication, either alone or together with a purchaser representative, to appreciate and evaluate the risks and merits associated with their investment in the Company's common stock and the Class B Warrants. 17 Upon the closing of the merger with Old AIQ, the Company issued to 6 persons warrants representing the aggregate right to purchase 1,500,000 shares of the Company's common stock, 1 million of which shares were purchasable at a price of $5.50 per share and the remaining 500,000 shares purchasable at a price of $3.00 per share. The warrants were issued as payment for financial advisory services rendered to the Company in connection with the merger. The Company relied on the exemptions from federal registration under Sections 4(2) and 4(6) of the Securities Act, as well as Rule 506 promulgated thereunder, as the Company had a reasonable basis to believe that all of the persons to whom warrants were issued were accredited investors and because the issuances did not involve a public offering. During August 2001, the $5.50 warrants were exchanged by each of the holders for 1 million of Class B Redeemable Warrants. In connection with the exchange, the Company also relied on the exemptions from registration under Sections 4(2), 4(6) and Rule 506. On March 8, 2001, the Company completed a private placement to five accredited investors. In the offering, the Company sold approximately 123,000 units of its securities, at a price of $15 per unit, for total proceeds of $1.9 million. Each unit consisted of 5 shares of common stock and 3 common stock purchase warrants, exercisable for 5 years at a price of $5.50 per share. The Company relied on the exemptions from federal registration provided by Sections 4(2) and 4(6) and Rule 506 under the Securities Act based on its belief that the sales did not involve a public offering, the Company had a reasonable basis to conclude that all of the purchasers were accredited investors, and all of the purchasers had such knowledge and experience in financial and business matters that they were capable of evaluating the merits and risks of their investment. The Company used $1.1 million of the proceeds to purchase a 10 percent interest in Old AIQ and the remainder for working capital. Pursuant to its 1999 Stock Option Plan and 2001 Employee Stock Option Plan, the Company issued to various employees options to purchase shares of common stock. All of the options were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act, based on the Company's belief that none of the issuances involved a public offering and because all of the employees to whom the options were issued had access to financial and business information concerning the Company. The table below summarizes the unregistered option grants made during 2001.
Vesting Exercise Price ------------------------------ Grant Date No. of Shares ($) Expiration Date Date No. of Shares ----------- ------------- -------------- --------------- ----------- ------------- 05/15/01 2,000 4.70 05/15/02 05/15/01 2,000 05/23/01 5,000 4.60 05/23/11 08/23/01 1,000 05/23/02 1,333 05/23/03 1,333 05/23/04 1,334 07/11/01 5,000 5.25 07/11/11 07/11/02 1,250 07/11/03 1,250 07/11/04 1,250 07/11/05 1,250 07/11/01 5,000 5.25 07/11/11 07/11/02 1,250 07/11/03 1,250 07/11/04 1,250 07/11/05 1,250 07/11/01 10,000 5.25 07/11/11 07/11/02 2,500 07/11/03 2,500 07/11/04 2,500 07/11/05 2,500 07/11/01 10,000 5.25 07/11/11 07/11/02 2,500 07/11/03 2,500 07/11/04 2,500 07/11/05 2,500 07/11/01 10,000 5.25 07/11/11 07/11/02 2,500 07/11/03 2,500 07/11/04 2,500 07/11/05 2,500 07/26/01 250,000 5.00 07/26/11 07/26/01 50,000 11/27/01 200,000 07/26/01 300,000 5.00 07/26/11 07/26/01 60,000 05/01/02 60,000 05/01/03 60,000 05/01/04 60,000 05/01/05 60,000 07/27/01 1,000 2.75 07/27/02 07/27/01 1,000 07/27/01 75,000 5.50 08/02/11 08/02/02 18,750 08/02/03 18,750 08/02/04 18,750 08/02/05 18,750 08/02/01 100,000 5.25 08/06/11 08/06/02 33,333 08/06/03 33,333 08/06/04 33,334 08/02/01 10,000 5.25 08/02/11 08/11/02 2,500 08/11/03 2,500 08/11/04 2,500 08/11/05 2,500
18
Vesting Exercise Price ------------------------------ Grant Date No. of Shares ($) Expiration Date Date No. of Shares ----------- ------------- -------------- --------------- ----------- ------------- 08/29/01 4,000 5.30 08/29/11 08/29/02 1,000 08/29/03 1,000 08/29/04 1,000 08/29/05 1,000 09/01/01 350,000 5.20 09/01/11 09/01/01 9,722 10/01/01 9,722 11/01/01 9,722 12/01/01 9,722 01/01/02 9,722 02/01/02 9,722 03/01/02 9,722 04/01/02 9,722 05/01/02 9,722 06/01/02 9,722 07/01/02 9,722 08/01/02 9,722 09/01/02 116,668 09/01/03 116,668 09/04/01 40,000 5.01 09/04/11 09/04/02 10,000 09/04/03 10,000 09/04/04 10,000 09/04/05 10,000 09/04/01 150,000 5.01 09/04/11 09/04/02 50,000 09/04/03 50,000 09/04/04 50,000 09/14/01 15,000 4.66 09/14/11 09/14/01 3,750 09/14/02 3,750 09/14/03 3,750 09/14/04 3,750 09/14/01 15,000 4.66 09/14/11 09/14/01 3,750 09/14/02 3,750 09/14/03 3,750 09/14/04 3,750 09/14/01 15,000 4.66 09/14/11 09/14/01 3,750 09/14/02 3,750 09/14/03 3,750 09/14/04 3,750 09/14/01 45,000 4.66 09/14/11 09/14/01 11,250 09/14/02 11,250 09/14/03 11,250 09/14/04 11,250 10/31/01 2,500 2.75 04/30/02 10/31/02 2,500 10/31/01 1,250 2.75 04/30/02 10/31/02 1,250 11/14/01 25,000 1.00 01/01/11 11/14/01 25,000 11/27/01 60,000 1.00 12/01/06 11/27/01 60,000 12/18/01 50,000 4.05 12/18/11 12/18/02 12,500 12/18/03 12,500 12/18/04 12,500 12/18/05 12,500
ITEM 6. SELECTED FINANCIAL DATA The selected financial data with respect to the statement of operations data for the year ended December 31, 2001 and the balance sheet data as of December 31, 2001 are derived from the Consolidated Financial Statements of the Company that have been audited by Virchow, Krause & Company, LLP, independent auditors. The data provided should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included in this Annual Report. The selected financial data presented below with respect to the statements of operations data for the years ended December 31, 2000, 1999 and 1998 and the balance sheet data as of December 31, 2000, 1999 and 1998 have been derived from the Consolidated Financial Statements of the Company that have been audited by Arthur Andersen LLP, independent public accountants. The statement of operations data for the year ended December 31, 1997 and the balance sheet data as of December 31, 1997, are derived from our unaudited financial statements. We believe the unaudited financial statements include all normal recurring adjustments that we consider necessary for a fair presentation of our operating results. 19 STATEMENT OF OPERATIONS DATA: (in thousands, except per share information)
For the Years Ended December 31, 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Revenue $ 2,711 $ -- $ -- $ -- $ -- Loss from operations (9,525) (2,806) (414) (12) (8) Other income (expense) 78 (34) (48) (132) 16 Net income (loss) $ (9,447) $ (2,840) $ (462) $ (144) 8 Basic and diluted net income (loss) per common share $ (1.15) $ (1.65) $ (1.92) $ (0.79) $ 0.04 Basic and diluted weighted average common shares outstanding 8,210 1,718 240 184 228
BALANCE SHEET DATA:
At December 31, 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Cash and equivalents $ 1,765 $ 1,349 $ 410 $ 39 $ 63 Total assets 13,629 2,672 474 72 422 Total liabilities 5,621 790 289 242 476 Shareholders' equity (deficit) 8,007 1,882 185 (170) (54) Common shares outstanding 10,731 3,836 374 152 228
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and notes thereto included elsewhere in this Annual Report. See Item 8. "Consolidated Financial Statements and Supplementary Data." Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this Annual Report. We are engaged in the design, development, marketing and support of accounting software and eBusiness services to the small to medium-sized business market, known as the "SME market." We provide solutions to address existing legacy applications, general business requirements and select vertical markets. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000. REVENUES Revenues were $2,710,861 for 2001 as compared to no revenue for 2000. Our revenues are as follows: Active IQ had software and miscellaneous incomes of $279,444, the Epoxy Network generated $183,356, and $2,248,061 from Red Wing, Champion and FMS/Harvest. The FMS/Harvest merger closed on October 10, 2001. During 2000, our company was in the development stage and had not yet generated any revenue. 20 Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during the next year of operations. COSTS AND EXPENSES Costs of goods sold represents labor and benefit expenses, overhead allocation and material costs for the development, production and sales of software. Cost of goods sold for 2001 was $595,080. There were no costs of goods sold in 2000. Selling, general and administrative expenses were $7,809,416 for 2001 as compared to $1,978,697 for 2000. The $5,830,719 increase in selling, general and administrative expenses was primarily due to the increased corporate overhead structure for the development of our eBusiness software and services and the costs associated with our acquisitions. Depreciation and amortization for 2001 was $3,161,492 as compared to $112,544 for 2000. Depreciation and amortization expense of property, equipment and other intangibles was $192,075 and goodwill and other acquisition related intangible amortization expense was $2,969,417. Goodwill and other acquisition related intangible amortization represents the excess of the purchase price and related costs over the fair value of the net assets that the Company acquires through its mergers and acquisitions. Through December 31, 2001, the Company amortized acquired goodwill and other intangibles on a straight-line basis on acquisitions that occurred prior to July 1, 2001. For the year 2002 and beyond, goodwill is evaluated on a yearly basis to determine if an impairment charge is necessary. Product development expenses for 2001 were $614,803 as compared to $609,344 for 2000. The $5,459 increase in product development expenses was due to acquisition related expenses. During 2001, the Company closed its office located in Boston, Massachusetts. With this closure the Company booked a loss on disposal of assets of $55,194 relating to the Boston office. In order to facilitate an early release from our office lease, the furniture and fixtures located within our space were given as consideration to the landlord and written off and recorded as loss on assets. The Company's other income and expense consists of interest income and interest expense. Interest income for 2001 was $163,834 as compared to $7,500 for 2000. This income represents interest earned on our short-term investments. The Company expects interest income to decrease in the future as cash is used to fund operations and for investments in infrastructure. Interest expense for 2001 was $85,356 as compared to $41,974 for 2000. This $43,382 increase in expense relates primarily to the amortization of the debt discount on the 7% notes payable to the old shareholders of Red Wing, Champion and FMS. The Company expects interest expense to remain consistent over the next year. FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999. REVENUES During 2000 and 1999, our company was in the development stage and had not yet generated any revenue. COSTS AND EXPENSES During 2000 and 1999, our company was in the development stage and had not yet generated any costs of goods. Selling, general and administrative expenses were $1,978,697 for 2000 as compared to $393,149 for 1999. The $1,585,548 increase in selling, general and administrative expenses was primarily due to the opening of a corporate location in Minneapolis, Minnesota. 21 Depreciation and amortization for 2000 was $112,544 as compared to $20,833 for 1999 of property, equipment and other intangibles. Product development expenses for 2000 were $609,344. There were no costs in 1999. The Company opened an office located in Boston, Massachusetts, and began to hire a staff of software engineers. The Company's other income and expense consists of interest income and interest expense. Interest income for 2000 was $7,500. No interest income was earned in 1999. This income represents interest earned on our short-term investments. Interest expense for 2000 was $41,974 as compared to $24,445 for 1999. This expense relates primarily to the $200,000 credit facility with a bank. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations and satisfied its capital expenditure requirements primarily through the sale of its common stock in private placements and the exercise of employee stock options, in addition to the cash received from the merger and acquisition of activeIQ and Meteor. Net cash used by operating activities was $3,843,954 for 2001 as compared to net cash used by operating activities of $2,236,896 for 2000 and $292,736 for 1999. The Company had a working capital deficit of $2,679,454 at December 31, 2001, compared to working capital of $643,505 on December 31, 2000. Cash and equivalents were $1,764,893 at December 31, 2001, representing an increase of $415,436 from the cash and equivalents of $1,349,457 at December 31, 2000. The Company's principal commitments consists of payments to the former shareholders at Red Wing Business Systems, Champion Business Systems and FMS/Harvest. The remaining notes payable to Red Wing of $800,000 (two payments of $400,000 each) are due June 2002 and December 2002. In January 2002, we paid the first payment of $250,000 to Champion and the remaining notes payable of $750,000 (three payments of $250,000 each) are due May 2002, September 2002 and January 2003. The remaining notes payable to FMS/Harvest of $300,000 are due April 2002. Although the Company has no material commitments for capital expenditures, it anticipates continued capital expenditures consistent with its anticipated growth in operations, infrastructure and personnel. In January 2001, the Company sold 400,000 shares of common stock for net proceeds of $1,100,000 as part of the Meteor merger. On January 16, 2001, the Company completed our merger with privately held Edge Technologies Incorporated, the creator of a fully integrated eBusiness website service called Account Wizard. The merger was accounted for under the purchase method of accounting with the operations of Edge included in our Company's financial statements as of that date. The former stockholders of Edge received $300,000 in cash and 325,000 shares of our common stock. Terms of the merger agreement required an additional cash payment and issuance of stock upon a capital raising event. With the completion of the Meteor Industries, Inc. merger on April 30, 2001, the former stockholders of Edge Technologies received the final consideration as specified in the merger agreement of 225,000 shares of our common stock on April 30, 2001, and $400,000 in cash on May 2, 2001, in settlement of the earnout provisions. With the completion of the Meteor merger and acquisition on April 30, 2001, (less closing fees), the Company received approximately $3,537,773 in cash and a secured promissory note of $500,000 due January 30, 2002. The promissory note accrues interest at a rate of 10% per annum, compounded annually. The note is secured by a stock pledge agreement dated April 27, 2001, by SEDCO INC., pledging 1,500,000 shares of common stock of Capco Energy, Inc. We received a principal and interest payment of $250,000 on February 28, 2002, the Company extended the term of the note. The remaining principal and interest balance of approximately $295,000 is due April 15, 2002. On June 6, 2001, the Company completed its acquisition of Red Wing Business Systems, Inc. ("Red Wing"), a Minnesota corporation. Red Wing, which operates as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small-to-medium sized businesses, farm and agricultural producers. Pursuant to a Stock Purchase Agreement (the "Agreement") dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing (the "Sellers"). The Sellers received an 22 aggregate of 400,000 shares of the Company's common stock and cash in the aggregate of $1,600,000, of which $400,000 was delivered at the closing. Under the Agreement, the Company is obligated to pay the remaining $1,200,000 of cash in three future payments of $400,000 due on the 6-, 12- and 18-month anniversaries of the closing date. As security for the Company's obligations to make the first two future cash payments of $400,000 each, the Company granted a security interest in the newly-acquired shares of Red Wing to the Sellers pursuant to a pledge agreement by and among the Company and the Sellers dated as of June 6, 2001. In June 2001, the Company raised cash proceeds of $1,500,000 from the private placement of 10 Units at a purchase price of $150,000 per Unit. Each Unit consisted of 50,000 shares of the Company's common stock, par value $.01 per share, and one five-year warrant to purchase 30,000 shares of the Company's common stock with an exercise price of $5.50. In December 2000, the Company entered into a subscription receivable for the purchase of 100,000 shares of common stock at a price of $2.75 per share with a director of the Company. On July 30, 2001, the director delivered to the Company a cash payment in the amount of $75,000 and a two-month promissory note in the principal amount of $200,000. Interest accrues on the principal balance of the prime rate as of the date of the note. The note has been extended due to market conditions and as of December 31, 2001, remains unpaid. On September 18, 2001, the Company completed its merger with privately held Champion Business Systems, Inc. ("Champion"), a Colorado corporation. Champion, which operates as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small to medium-sized businesses. The merger was accounted for under the purchase method of accounting with the operations of Champion included in the Company's consolidation as of that date. The former shareholders of Champion are divided into two groups: "Minority Shareholders" and "Majority Shareholders." At closing, the Majority Shareholders received an aggregate of 299,185 shares of the Company's common stock and all former Champion shareholders received their pro rata share of a $512,328 cash payment. Terms of the merger agreement required an additional cash payments of $1,000,000 payable in 4 equal installments, each due on the 4, 8, 12 and 16-month anniversaries. The Company granted a security interest in the newly-acquired shares of Champion to the former Champion shareholders pursuant to a pledge agreement dated as of September 14, 2001. On October 10, 2001, the Company completed its acquisition of FMS Marketing, Inc. ("FMS/Harvest"), an Illinois corporation. Pursuant to a Stock Purchase Agreement (the "Agreement"), the Company purchased all of the outstanding capital stock from the shareholders of FMS/Harvest (the "FMS Sellers"). The FMS Sellers received an aggregate of 250,000 shares of the Company's common stock and cash in the aggregate of $600,000, of which $300,000 was delivered at the closing. Under the Agreement, the Company is obligated to pay the remaining $300,000 of cash in six months of the closing date. As security for the Company's obligations to make the remaining cash payment, the Company agreed to grant a security interest in the assets of FMS/Harvest to the FMS Sellers. The Company anticipates that it will continue to experience growth in its operating expenses for the foreseeable future and that its operating expenses will be a material use of the Company's cash resources. The Company believes that it will require further sources of liquidity to fund its operations and the Company is seeking to raise additional capital. There can be no assurance that additional capital will be available on terms acceptable to the Company or on any terms whatsoever. See Note 1 Nature of Business regarding our going concern opinion. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Statements Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS No. 141 further clarifies the criteria to recognize intangible assets separately from goodwill. The requirements of SFAS No. 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. The Company applied this new accounting standard to business combinations that occurred after June 30, 2001. In June 2001, the FASB issued SFAS No. 142, "Goodwill and other Intangible Assets." SFAS No. 142 discontinues the amortization of recorded goodwill for fiscal years beginning after December 15, 2001. In the future, goodwill will be reduced based upon an impairment analysis of the amount recorded on the Company's books. To the extent it has been determined that the carrying value of goodwill is not recoverable and is in excess of fair value, an impairment loss will be recognized. Pursuant to SFAS No. 142, the Company is not amortizing the goodwill recorded on business combinations that occurred after June 30, 2001. Amortization expense for goodwill was $2,650,302, $0 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. As noted, amortization will not be recorded in the future beginning with the year ending December 31, 2002. In June 2001, the FASB issued SFAS No. 143. "Accounting for Asset Retirement Obligations." SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of SFAS No. 143 will not have a material effect on the Company's consolidated financial position or results of operations. In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121. SFAS No. 144 primarily addresses significant issues relating to the implementation of SFAS No. 121 and develops a single accounting model for long-lived assets to be disposed of, whether primarily held, used or newly acquired. The provisions of SFAS No. 144 will be effective for fiscal years beginning after December 15, 2001. The provisions of SFAS No. 144 generally are to be applied prospectively. The Company believes the adoption of SFAS No. 143 will not have a material effect on the Company's consolidated financial position or results of operations. During the years ended December 31, 2001, 2000 and 1999, the Company recorded charges of $0, $100,000, and $0, to impairment of long-lived assets and is included in loss on disposal of assets on the consolidated statements of operations. CRITICAL ACCOUNTING POLICIES Goodwill and other intangibles We periodically evaluate acquired businesses for potential impairment indicators. Our judgements regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill and other intangibles associated with our acquired businesses, which amounts to $7,965,476 (or 58% of total assets), is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. During the years ended December 31, 2001, 2000 and 1999, the Company did not record any impairment losses related to goodwill and other intangibles related to acquired businesses. Long-Lived Assets The Company's long-lived assets include property, equipment and acquired software developed. At December 31, 2001, the Company had net property and equipment and acquired software developed of $1,453,896, which represents approximately 11% of the Company's total assets. Our business acquisitions during the year ended December 31, 2001 resulted in acquired software developed to be recorded. Amortization of these costs is done on a straight-line method over the estimated useful life of two years. We continue to evaluate the recoverability of acquired software developed. The estimated fair value of these long-lived assets is dependent on the Company's future performance. In assessing for potential impairment for these long-lived assets, the Company considers future performance. If these forecasts are not met, the Company may have to record an impairment charge not previously recognized, which may be material. During the years ended December 31, 2001, 2000 and 1999, the Company recorded impairment losses related to long-lived assets of $0, $100,000 and $0, respectively. Revenue recognition Software license revenue is recognized when all of the following criteria have been met: there is an executed license agreement, software has been delivered to the customer, the license fee is fixed and payable within twelve months, collection is deemed probable and product returns are reasonably estimable. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value is determined based on vendor specific objective evidence. Maintenance revenues are recognized ratably over the term of the maintenance contract, typically 12 months. The Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition" provides guidance on the application of accounting policies generally accepted in the United States of America to selected revenue recognition issues. We have concluded that our revenue recognition policy is appropriate and in accordance with accounting principles generally accepted in the United States of America and SAB No. 101. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE EXPOSURE Based on our overall interest rate exposure during the year ended December 31, 2001 and assuming similar interest rate volatility in the future, a near-term (12 months) change in interest rates would not materially affect our consolidated financial position, results of operation or cash flows. Interest rate movements of 5% would not have a material effect on our financial position, results of operation or cash flows. FOREIGN EXCHANGE EXPOSURE We receive Canadian funds for the sale of certain software products. A 5% change in the foreign exchange rate would not have a material effect on our financial position, results of operation or cash flows. 23 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Table of Contents
Page ---- Report of Virchow, Krause & Company, LLP 25 Report of Arthur Andersen LLP 25A Consolidated Balance Sheets as of December 31, 2001 and 2000 26 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 27 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 32 Notes to Consolidated Financial Statements 33
24 INDEPENDENT AUDITORS' REPORT To Stockholders and Board of Directors Active IQ Technologies, Inc. and subsidiaries We have audited the accompanying consolidated balance sheet of Active IQ Technologies, Inc. and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Active IQ Technologies, Inc. and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had net losses for the years ended December 31, 2001, 2000 and 1999 and had an accumulated deficit and negative working capital at December 31, 2001. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Virchow, Krause & Company, LLP Minneapolis, Minnesota March 7, 2002 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Active IQ Technologies, Inc.: We have audited the accompanying balance sheets of Active IQ Technologies Inc. (formerly activeIQ Technologies, Inc.) (a Minnesota corporation formerly in the development stage) as of December 31, 2000, and the related statements of operations, stockholders' equity and cash flows for the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Active IQ Technologies, Inc. as of December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Arthur Andersen LLP Minneapolis, Minnesota, March 23, 2001 25A ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2001 2000 ------------ ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,764,893 $ 1,349,457 Accounts receivable, net 284,451 -- Note receivable 500,000 -- Inventories 60,121 -- Prepaid expenses 24,985 57,285 ------------ ----------- Total current assets 2,634,450 1,406,742 PROPERTY and EQUIPMENT, net 520,489 549,116 ACQUIRED SOFTWARE DEVELOPED, net 933,407 -- PREPAID ROYALTIES 1,500,000 500,001 OTHER ASSETS, net 74,950 216,072 GOODWILL, net 5,916,924 -- OTHER INTANGIBLES, net 2,048,552 -- ------------ ----------- $ 13,628,772 $ 2,671,931 ============ =========== LIABILITIES and SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank line of credit $ -- $ 97,529 Current portion notes payable - shareholders 2,791,521 -- Accounts payable 443,212 257,509 Deferred revenue 1,481,750 306,000 Accrued expenses 597,421 83,141 Current portion of capital lease obligations -- 19,058 ------------ ----------- Total current liabilities 5,313,904 763,237 NOTES PAYABLE SHAREHOLDERS AND CAPITAL LEASE OBLIGATIONS, less current portion 307,551 27,158 ------------ ----------- Total liabilities 5,621,455 790,395 ------------ ----------- COMMITMENTS and CONTINGENCIES SHAREHOLDERS' EQUITY Series B Convertible Preferred Stock, $1.00 par value, 365,000 shares authorized, issued and outstanding, liquidation preference of $730,000 365,000 -- Common stock, $.01 par value, 40,000,000 Shares authorized; 10,731,345 and 3,835,911 shares issued and outstanding 107,313 38,359 Additional paid-in capital 19,335,027 5,633,040 Stock subscription receivable (200,000) (312,500) Deferred compensation (311,701) (172,813) Warrants 1,633,917 170,881 Accumulated deficit (12,922,239) (3,475,431) ------------ ----------- Total shareholders' equity 8,007,317 1,881,536 ------------ ----------- $ 13,628,772 $ 2,671,931 ============ ===========
See accompanying notes to consolidated financial statements 26 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001 2000 1999 ---------- ---------- ---------- REVENUES $2,710,861 $ -- $ -- ---------- ---------- ---------- OPERATING EXPENSES: Costs of goods sold 595,080 -- -- Selling, general and administrative 7,809,416 1,978,697 393,149 Depreciation and amortization 3,161,492 112,544 20,833 Product development 614,803 609,344 -- Loss on disposal of assets 55,356 105,360 -- ---------- ---------- ---------- Total operating expenses 12,236,147 2,805,945 413,982 ---------- ---------- ---------- LOSS FROM OPERATIONS (9,525,286) (2,805,945) (413,982) ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest and dividend income 163,834 7,500 -- Interest expense (85,356) (41,974) (24,445) Loss on available-for-sale securities -- -- (23,554) ---------- ---------- ---------- Total other income (expense) 78,478 (34,474) (47,999) ---------- ---------- ---------- NET LOSS $(9,446,808) $(2,840,419) $ (461,981) ========== ========== ========== BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (1.15) $ (1.65) $ (1.92) ========== ========== ========== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 8,210,326 1,717,731 240,394 ========== ========== ==========
See accompanying notes to consolidated financial statements 27 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Common Preferred Additional Stock Deferred stock stock paid-in subscription compen- shares Amount shares Amount capital receivable sation ---------- --------- --------- -------- ------------ ------------- ---------- BALANCE, December 31, 1998 152,000 $ 1,520 -- $ -- $ 1,480 $ -- $ -- Issuance of common stock in May 1999 at $.75 per share in exchange for intellectual property 83,333 833 -- -- 61,667 -- -- Capital contribution from shareholders in August 1999 -- -- -- -- 47,180 -- -- Issuance of common stock in August through September 1999 at $1.50 per share 88,266 883 -- -- 131,517 -- -- Issuance of common stock in October 1999 for services at $1.50 per share 27,027 270 -- -- 40,271 -- -- Issuance of common stock in October and November 1999 at $37.50 per share 23,000 230 -- -- 862,270 (328,750) -- Unrealized loss on available-for- sale securities -- -- -- -- -- -- -- Net loss -- -- -- -- -- Comprehensive loss -- -- -- -- -- -- -- ---------- --------- -------- -------- ------------ ------------ ---------- BALANCE, December 31, 1999 373,626 3,736 -- -- 1,144,385 (328,750) -- Issuance of common stock in March 2000 at $37.50 per share 4,667 47 -- -- 174,953 -- -- Issuance of warrants to purchase common stock at $1.00 per share in June 2000 in payment of legal fees -- -- -- -- -- -- -- Issuance of common stock in June 2000 at $.38 per share (net of offering costs of $10,000) 1,856,634 18,567 -- -- 677,545 -- -- Repayment of stock subscription receivable -- -- -- -- -- 16,250 -- Conversion of accounts payable to common stock in June 2000 at $.38 per share 216,216 2,162 -- -- 78,919 -- -- Issuance of options to purchase 60,000 shares at an exercise price of $1.00 as part of severance in June 2000 -- -- -- -- 25,800 -- -- Issuance of common stock in July 2000 for assets at $2.50 per share 151,200 1,512 -- -- 376,488 -- -- Issuance of common stock in August through December 2000 at $2.75 per share (net of offering costs of $408,578) 956,780 9,568 -- -- 2,079,050 -- -- Issuance of common stock in September 2000 at $2.75 per share to director 100,000 1,000 -- -- 274,000 -- -- Issuance of warrants in August 2000 in conjunction with stockholder note payable -- -- -- -- -- -- -- Conversion of notes payable to common stock in September 2000 at $2.75 per share 20,000 200 -- -- 54,800 -- -- Deferred compensation related to September and November 2000 option grants -- -- -- -- 227,500 -- (227,500) Issuance of options to consultant exercisable at $1.00 per share in October 2000 -- -- -- -- 90,000 -- -- Issuance of common stock at $2.75 per share in December 2000 in payment of accounts payable 29,515 295 -- -- 80,871 -- -- Issuance of common stock in December 2000 for assets at $2.75 per share 127,273 1,272 -- -- 348,729 -- -- Deferred compensation expense -- -- -- -- -- -- 54,687 Net loss -- -- -- -- -- -- -- ---------- --------- -------- -------- ------------ ------------ ---------- BALANCE, December 31, 2000 3,835,911 38,359 -- -- 5,633,040 (312,500) (172,813)
28
Common Preferred Additional Stock Deferred stock stock paid-in subscription compen- shares Amount shares Amount capital receivable sation ---------- --------- --------- -------- ------------ ------------- ---------- Issuance of common stock in January 2001 at $2.75 per share 400,000 4,000 -- -- 1,096,000 -- -- Issuance of common stock in January and April 2001 for acquisition of Edge Technologies, Inc. 550,000 5,500 -- -- 1,507,000 -- -- Issuance of common stock for merger with activeIQ net of $1,000,000 costs 3,874,511 38,745 365,000 365,000 3,634,028 -- -- Cashless exercise of warrants issued in June 2000 17,976 180 -- -- 22,502 -- -- Employee and consultant stock option exercises from May through December 2001 605,496 6,055 -- -- 1,623,900 -- -- Surrender of common stock at $37.50 per share, in exchange for cancellation of promissory note (8,334) (83) -- -- (312,417) 312,500 -- Issuance of common stock in June 2001 for acquisition of Red Wing Business Systems, Inc. 400,000 4,000 -- -- 1,774,000 -- -- Issuance of common stock in June 2001 at $3.00 per share net of $82,500 costs 500,000 5,000 -- -- 1,373,500 -- -- Issuance of common stock in July 2001 to a director at $2.75 per share pledged with stock subscription 100,000 1,000 -- -- 274,000 (200,000) -- Issuance of consulting warrants in August 2001, 450,000 at $5.50 per share, 250,000 at $7.50 per share -- -- -- -- -- -- -- Conversion of accounts payable to common stock in September 2001 at $4.00 per share 16,667 167 -- -- 89,002 -- -- Issuance of common stock in September 2001 for acquisition of Champion Business Systems, Inc. 299,185 2,992 -- -- 1,460,023 -- -- Conversion of accounts payable to warrant in August and September 2001 -- -- -- -- -- -- -- Issuance of common stock in October 2001 for acquisition of FMS Marketing,Inc. 250,000 2,500 -- -- 752,500 -- -- Company's re-purchase of common stock in December 2001 (106,667) (1,067) -- -- (409,254) -- -- Cancellation of stock bonus shares in December 2001 (3,400) (34) -- -- 34 -- -- Deferred compensation related to options granted -- -- -- -- 817,169 -- (817,169) Deferred compensation expense -- -- -- -- -- -- 678,281 Net loss -- -- -- -- -- -- -- ---------- --------- -------- -------- ------------ ------------ ---------- BALANCE, December 31, 2001 10,731,345 $ 107,313 365,000 $365,000 $ 19,335,027 $ (200,000) $ (311,701) ========== ========= ======== ======== ============ ============ ==========
29 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Accumulated other Compre- Accumulated comprehensive hensive Warrants deficit income (loss) Total loss ------------ ------------ ------------- ------------ ------------ BALANCE, December 31, 1998 $ -- $ (173,031) $ 218 $ (169,813) $ Issuance of common stock in May 1999 at $.75 per share in exchange for intellectual property -- -- -- 62,500 Capital contribution from shareholders in August 1999 -- -- -- 47,180 Issuance of common stock in August through September 1999 at $1.50 per share -- -- -- 132,400 Issuance of common stock in October 1999 for services at $1.50 per share -- -- -- 40,541 Issuance of common stock in October and November 1999 at $37.50 per share -- -- -- 533,750 Unrealized loss on available-for- sale securities -- -- (218) (218) (218) Net loss -- (461,981) -- (461,981) (461,981) ------------ Comprehensive loss -- -- -- -- $ (462,199) ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1999 -- (635,012) -- 184,359 Issuance of common stock in March 2000 at $37.50 per share -- -- -- 175,000 Issuance of warrants to purchase common stock at $1.00 per share in June 2000 in payment of legal fees 22,682 -- -- 22,682 Issuance of common stock in June 2000 at $.38 per share (net of offering costs of $10,000) -- -- -- 696,112 Repayment of stock subscription receivable -- -- -- 16,250 Conversion of accounts payable to common stock in June 2000 at $.38 per share -- -- -- 81,081 Issuance of options to purchase 60,000 shares at an exercise price of $1.00 as part of severance in June 2000 -- -- -- 25,800 Issuance of common stock in July 2000 for assets at $2.50 per share -- -- -- 378,000 Issuance of common stock in August through December 2000 at $2.75 per share (net of offering costs of $408,578) 133,949 -- -- 2,222,567 Issuance of common stock in September 2000 at $2.75 per share to director -- -- -- 275,000 Issuance of warrants in August 2000 in conjunction with stockholder note payable 14,250 -- -- 14,250 Conversion of notes payable to common stock in September 2000 at $2.75 per share -- -- -- 55,000 Deferred compensation related to September and November 2000 option grants -- -- -- -- Issuance of options to consultant exercisable at $1.00 per share in October 2000 -- -- -- 90,000 Issuance of common stock at $2.75 per share in December 2000 in payment of accounts payable -- -- -- 81,166 Issuance of common stock in December 2000 for assets at $2.75 per share -- -- -- 350,001 Deferred compensation expense -- -- -- 54,687 Net loss -- (2,840,419) -- (2,840,419) ------------ ------------ ------------ ------------ BALANCE, December 31, 2000 170,881 (3,475,431) -- 1,881,536
30
Accumulated other Compre- Accumulated comprehensive hensive Warrants deficit income (loss) Total loss ------------ ------------ ------------- ------------ ------------ Issuance of common stock in January 2001 at $2.75 per share -- -- -- 1,100,000 Issuance of common stock in January and April 2001 for acquisition of Edge Technologies, Inc. -- -- -- 1,512,500 Issuance of common stock for merger with activeIQ net of $1,000,000 costs -- -- -- 4,037,773 Cashless exercise of warrants issued in June 2000 (22,682) -- -- -- Employee and consultant stock option exercises from May through December 2001 -- -- -- 1,629,955 Surrender of common stock at $37.50 per share, in exchange for cancellation of promissory note -- -- -- -- Issuance of common stock in June 2001 for acquisition of Red Wing Business Systems -- -- -- 1,778,000 Issuance of common stock in June 2001 at $3.00 per share net of $75,000 costs 114,000 -- -- 1,492,500 Issuance of common stock in July 2001 to a director at $2.75 per share pledged with stock subscription -- -- -- 75,000 Issuance of consulting warrants in August 2001, 450,000 at $5.50 per share, 250,000 at $7.50 per share 1,246,000 -- -- 1,246,000 Conversion of accounts payable to common stock in September 2001 at $4.00 per share -- -- -- 89,169 Issuance of common stock in September 2001 for acquisition of Champion Business Systems, Inc. -- -- -- 1,463,015 Conversion of accounts payable to warrant in August and September 2001 125,718 -- -- 125,718 Issuance of common stock in October 2001 for acquisition of FMS Marketing, Inc. -- -- -- 755,000 Company's re-purchase of common stock in December 2001 -- -- -- (410,321) Cancellation of stock bonus shares in December 2001 -- -- -- -- Deferred compensation related to options granted -- -- -- -- Deferred compensation expense -- -- -- 678,281 Net loss -- (9,446,808) (9,446,808) ------------ ------------ ------------ ------------ BALANCE, December 31, 2001 $ 1,633,917 $(12,922,239) $ -- $ 8,007,317 ============ ============ ============ ============
See accompanying notes to consolidated financial statements 31 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001 2000 1999 ----------- ----------- ----------- OPERATING ACTIVITIES: Net loss $(9,446,808) $(2,840,419) $ (461,981) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization 3,161,492 112,544 20,833 Realized loss on sale of available-for-sale Securities -- -- 23,554 Deferred compensation expense 678,281 54,687 -- Loss on disposal of assets 55,356 105,360 -- Issuance of warrants, options and common stock for services 1,436,392 320,000 40,541 Issuance of options in lieu of severance -- 25,800 -- Amortization of original issue discount 66,273 14,250 -- Amortization of acquired software developed 187,253 -- -- Forgiveness of note payable (63,677) -- -- Changes in operating assets and liabilities: Accounts receivable, net (164,287) -- -- Inventories 40,183 -- -- Prepaid expenses 26,155 20,715 -- Prepaid royalties -- (150,000) -- Other assets 175,084 (261,028) (4,988) Accounts payable 53,219 272,767 88,592 Deferred revenue (303,840) -- -- Accrued expenses 254,970 88,428 713 ----------- ----------- ----------- Net cash used in operating activities (3,843,954) (2,236,896) (292,736) ----------- ----------- ----------- INVESTING ACTIVITIES: Proceeds from sale of available-for-sale securities -- -- 1,750 Acquisition of Edge Technologies Incorporated (750,711) -- -- Acquisition of Red Wing Business Systems, Inc. - Net of cash acquired (421,031) -- -- Acquisition of Champion Business Systems, Inc. - Net of cash acquired (501,056) -- -- Acquisition of FMS Marketing, Inc. - Net of cash acquired (311,134) -- -- Payments for acquired software developed (189,290) -- -- Purchases of property and equipment (134,026) (267,103) (17,092) ----------- ----------- ----------- Net cash used in investing activities (2,307,248) (267,103) (15,342) ----------- ----------- ----------- FINANCING ACTIVITIES: Net decrease on bank line of credit (277,381) (102,471) (41,827) Payments on capital lease obligations (46,216) -- -- Payments on long-term debt (534,672) -- -- Common stock repurchased (410,321) -- -- Cash proceeds from issuance of common stock 6,205,273 3,191,010 666,150 Cash proceeds from exercise of options 1,629,955 -- -- Cash proceeds from short-term shareholder note payable -- 355,000 55,000 ----------- ----------- ----------- Net cash provided by financing activities 6,566,638 3,443,539 679,323 ----------- ----------- ----------- INCREASE IN CASH and EQUIVALENTS 415,436 939,540 371,245 CASH AND EQUIVALENTS, beginning of period 1,349,457 409,917 38,672 ----------- ----------- ----------- CASH AND EQUIVALENTS, end of period $ 1,764,893 $ 1,349,457 $ 409,917 =========== =========== ===========
See accompanying notes to consolidated financial statements 32 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Active IQ Technologies, Inc. ("Active IQ" or the "Company") provides accounting software and eBusiness services solutions to the small to medium-sized business market, known as the "SME market." The Company's solutions address existing legacy applications, general business requirements and select vertical markets. Active IQ offers traditional accounting and financial management software solutions through Red Wing Business Systems, Inc., Champion Business Systems, Inc. and FMS Marketing, Inc. (which does business as FMS/Harvestand as of December 31, 2001, we merged FMS/Harvest into Red Wing), its recently-acquired and wholly-owned subsidiaries. In addition to traditional accounting and financial management software solutions, the Company offers eBusiness applications and software solutions as part of its "Epoxy Network." The Epoxy Network offers an Internet merchandising system called "Storefront" and a tool for managing customer information named "Account Management." Through an exclusive worldwide-hosted licensing agreement with Stellent, Inc., Active IQ also develops hosted content management solutions in selected vertical markets using Stellent's Content Management software. We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. On April 30, 2001, the Company, activeIQ Technologies Inc. (Old AIQ) and a wholly-owned subsidiary of the Company closed a triangular reverse merger transaction whereby Old AIQ merged with and into the Company subsidiary. Immediately prior to the merger, the Company (i) sold all of its assets relating to its petroleum and gas distribution business, (ii) was reincorporated under Minnesota law, and (iii) changed its name to Active IQ Technologies, Inc. As a result of the sale of the Company's petroleum and gas distribution assets, it discontinued all operations in the petroleum and gas distribution business and has adopted the business plan of Old AIQ. Because Old AIQ was treated as the acquiring company in the merger, all financial and business information contained herein relating to periods prior to the merger is the business and financial information of Old AIQ. In April 2001 we reincorporated under Minnesota law. Old AIQ was incorporated in Minnesota on April 11, 1996, and was considered a development stage company until January 2001, when it began to recognize revenues as a result of an acquisition (see Note 2 - Business Combinations). Old AIQ was formed to develop and provide eBusiness application software and services for small-to-medium sized accounting software customers. Since its inception and up through the merger, Old AIQ's efforts have been devoted to the development of its principal product and raising capital. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the years ended December 21, 2001, 2000 and 1999, the Company incurred net losses of $9,446,808, $2,840,419 and $461,981, respectively. At December 31, 2001, the Company had an accumulated deficit of $12,922,239 and a negative working capital of $2,679,454. The Company's ability to continue as a going concern is dependent on it ultimately achieving profitability and/or raising additional capital. Management intends to obtain additional debt or equity capital to meet all of its existing cash obligations however, there can be no assurance that the sources will be available or available on terms favorable to the Company. Management anticipates that the impact of the actions listed below, will generate sufficient cash flows to pay current liabilities, long-term debt and fund the Company's future operations: - Continued reduction of operating expenses by controlling payroll and other general and administrative expenses. - Solicit additional equity investment in the Company. - Continue to expand software services for the small to medium-sized business market and develop and offer the Company's hosted software solutions using our exclusive worldwide license agreement we entered into in December 2001 with Stellent, Inc. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Active IQ Technologies, Inc. and its wholly owned subsidiaries, Red Wing Business Systems, Inc. and Champion Business Systems, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company includes as cash equivalents certificates of deposit and all other investments with maturities of three months or less when purchased which are readily convertible into known amounts of cash. The Company maintains its cash in high-quality financial institutions. The balances, at times, may exceed federally insured limits. 33 ACCOUNTS RECEIVABLE The Company provides an allowance for uncollectible accounts on accounts receivable. The allowance for uncollectible accounts was $55,000 and $0 at December 31, 2001 and 2000, respectively. The Company believes all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of the provided allowance are determined uncollectible, they are charged to expense in the year that determination is made. The Company extends unsecured credit to customers in the normal course of business. INVENTORIES Inventories consist principally of manuals for the various software modules, stocked software and shipping supplies. Inventory is recorded at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property, equipment and leasehold improvements are recorded at cost. Improvements are capitalized while repairs and maintenance costs are charged to operations when incurred. Property and equipment is depreciated or amortized using the straight-line method over estimated useful lives ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. SOFTWARE DEVELOPMENT COSTS Effective January 1, 1999, the Company implemented Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Pursuant to SOP 98-1, expenditures for internal use software are expensed during the preliminary project stage. For the years ended December 31, 2001, 2000 and 1999, the Company expensed all initial software costs as research and development expense since they were projects during the preliminary project stage. The Company did capitalize certain software development related to new product development, which was acquired as part of the Red Wing Business, Inc., the Champion Business Systems, Inc. and FMS Marketing, Inc. acquisitions. The Company has capitalized an additional $189,290 related to new project development during the year ended December 31, 2001, for certain developed software that has reached technological feasibility. Amortization was $187,253 and $0 for the years ended December 31, 2001 and 2000. PREPAID ROYALTIES The Company has a software license agreement with Stellent, Inc., a shareholder of the Company, which required advance royalty payments and certain minimum royalty fee. The prepaid royalties at December 31, 2001 of $1,500,000 relates to minimum fees required under the software license agreement that was entered into on December 28, 2001. See note 6 (related party transactions) related to prepaid royalties recorded at December 31, 2000. GOODWILL Goodwill recorded on the Edge Technologies and Red Wing Business Systems, Inc. business combination (see Note 2) represents the excess of acquisition costs over the fair value of identifiable net assets acquired before July 1, 2001 and is being amortized using the straight-line method over two years. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If the review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the assets acquired over the remaining amortization period, the Company's carrying value of goodwill is reduced by the estimated shortfall of cash flows. In June 2001, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 discontinues the amortization of recorded goodwill for fiscal years beginning after December 15, 2001. In the future, goodwill will be reduced based upon an impairment analysis of the amount recorded on the Company's books. To the extent it has been determined that the carrying value of goodwill is not recoverable and is in excess of fair value, an impairment loss will be recognized. Impairment will be reviewed on a periodic basis based on its fair value. The Company recorded approximately $1,562,000 and $683,000 of goodwill related to the Champion Business Systems, Inc. and FMS Marketing, Inc. business combinations that occurred after June 30, 2001, respectively (see Note 2). Pursuant to SFAS No. 142, the Company is not amortizing the goodwill recorded related to these business combinations. Accumulated amortization on all goodwill was $2,650,302 and $0 at December 31, 2001 and 2000, respectively. OTHER INTANGIBLES AND ACQUIRED SOFTWARE DEVELOPED As noted in Note 2, the Company recorded other intangibles assets related to the Champion Business Systems, Inc. and FMS Marketing, Inc. business combinations. The intangible assets relate to customer relationships, acquired software developed and noncompete agreements. Other intangible assets are being amortized over two years on a straight line basis. Accumulated amortization at December 31, 2001 and 2000 was $308,697 and $0, respectively. The Company does not expect to record an impairment charge based on SFAS No. 142. However, there can be no assurance that at the time the review of all intangible assets a material impairment charge will not be recorded. 35 AVAILABLE-FOR-SALE SECURITIES During the year ended December 31, 1999, the Company sold certain available-for-sale securities, which consisted of publicly-traded equity securities. For purposes of determining gross realized losses, the cost of available-for-sale securities is based on specific identification. Proceeds from the sales of these securities totaled $1,750 for the year ended December 31, 1999. Gross realized losses were $23,554 for the year ended December 31, 1999. SEGMENT REPORTING The Company sells software in the United States within the agricultural and farm industry, providing similar products to similar customers. The software packages also possess similar pricing structures, resulting in similar long-term expected financial performance characteristics. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment. REVENUE RECOGNITION AND DEFERRED REVENUE The Company currently derives revenues from monthly subscribers of the Epoxy Network and through sales of accounting and financial management software and services of its subsidiaries. Epoxy Network subscription revenue is recognized monthly after the customer accepts the license agreement and the Company verifies that the customer has a version of software it interfaces with. After the initial period of set up and configuration, customers are invoiced at the beginning of each month for all services subscribed to. The Company, through its subsidiaries of Red Wing Business Systems and Champion Business Systems, recognizes the revenues derived from software sales after all of the following criteria have been met: there is an executed license agreement, software has been delivered to the customer, the license fee is fixed and payable within twelve months, collection is deemed probable and product returns are reasonably estimable. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value is determined based on vendor specific objective evidence. Service revenue is recognized ratably over the term of the agreement, which is typically one year. All service revenue invoiced in excess of revenue recognized is recorded as deferred revenue. At December 31, 2001, deferred revenue was $1,481,750. See note 6 (related party transactions) related to deferred revenue recorded at December 31, 2000. CREDIT RISK Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company's customer base. ADVERTISING Advertising costs are charged to expense as incurred. Advertising costs were $258,929, $54,045 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. STOCK BASED COMPENSATION In accordance with Accounting Principles Board (APB) Opinion No. 25, the Company uses the intrinsic value-based method for measuring stock-based compensation cost which measures compensation cost as the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. The Company's general policy is to grant stock options at fair value at the date of grant. Required pro forma disclosures of compensation expense determined under the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," are presented in Note 7. Options and warrants issued to nonemployees are recorded at fair value, as required by SFAS No. 123, using the Black Scholes model. FINANCIAL INSTRUMENTS The carrying amounts for all financial instruments approximates fair value. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The fair value of capital lease obligations and long-term debt approximates the carrying amounts based upon the Company's expected borrowing rate for debt with similar remaining maturities and comparable risk. NET LOSS PER COMMON SHARE Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive for all periods presented. Total options and warrants outstanding at December 31, 2001 were 4,055,341 and 7,779,456, respectively, and options and warrants outstanding at December 31, 2000 were 1,268,997 and 150,694, respectively, and options and warrants outstanding at December 31, 1999 were 46,997 and 10,000, respectively. 34 INCOME TAXES The Company accounts for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax rates. The Company has recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits. DERIVATIVES On January 1, 1999, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet at fair value. As the Company does not currently engage or plan to engage in derivative or hedging activities, the adoption of SFAS No. 133 had no impact to the Company's results of operations, financial position or cash flows. USE OF ESTIMATES Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS No. 141 further clarifies the criteria to recognize intangible assets separately from goodwill. The requirements of SFAS No. 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. The Company applied this new accounting standard to business combinations that occurred after June 30, 2001. In June 2001, the FASB issued SFAS No. 143. "Accounting for Asset Retirement Obligations." SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of SFAS No. 143 will not have a material effect on the Company's consolidated financial position or results of operations. In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121. SFAS No. 144 primarily addresses significant issues relating to the implementation of SFAS No. 121 and develops a single accounting model for long-lived assets to be disposed of, whether primarily held, used or newly acquired. The provisions of SFAS No. 144 will be effective for fiscal years beginning after December 15, 2001. The provisions of SFAS No. 144 generally are to be applied prospectively. The Company is evaluating the adoption of SFAS No. 143. During the years ended December 31, 2001, 2000 and 1999, the Company recorded charges of $0, $100,000, and $0, related to impairment of long-lived assets. 36 NOTE 2 - BUSINESS COMBINATIONS PRE JULY 1, 2001 COMBINATIONS EDGE TECHNOLOGIES, INC. On January 16, 2001, the Company completed its merger with privately held Edge Technologies, Incorporated (Edge), the creator of a fully integrated eBusiness website service called Account Wizard, which has been subsequently branded as part of the Epoxy Network. The merger was accounted for under the purchase method of accounting with the operations of Edge included in the Company's consolidation as of that date. The former stockholders of Edge received $300,000 in cash and 325,000 shares of the Company's common stock. Terms of the merger agreement required an additional cash payment and issuance of stock upon a capital raising event. With the completion of the Meteor Industries, Inc. merger on April 30, 2001, the former stockholders of Edge received the final consideration as specified in the merger agreement of 225,000 shares of the Company's common stock on April 30, 2001, and $400,000 in cash on May 2, 2001, in settlement of the earnout provisions. With closing costs, the total consideration plus the fair value of the net liabilities assumed was approximately $2,264,000, consisting primarily of goodwill. The Company is amortizing the acquired goodwill on a straight-line basis over 18 months. (See the table below for a condensed balance sheet summarizing the amounts assigned to assets acquired and liabilities assumed at the date of combination.) METEOR INDUSTIRES, INC. On April 30, 2001, the Company completed its merger with Meteor Industries, Inc. Pursuant to an Agreement and Plan of Merger dated as of January 11, 2001, as amended April 27, 2001 (the Merger Agreement), by and among Meteor Industries, Inc. (Meteor), activeIQ Technologies Inc., a Minnesota corporation (AIQ) and MI Merger, Inc., Minnesota corporation and a wholly-owned subsidiary of Meteor (Merger Sub), AIQ merged with and into Merger Sub (the Merger). The surviving corporation in the Merger was renamed AIQ, Inc. In addition, pursuant to the Merger Agreement, Meteor was reincorporated under Minnesota law by merging with and into AIQ Acquisition Corp., a Minnesota corporation (the Reincorporation Merger). The surviving corporation in the Reincorporation Merger was renamed Active IQ Technologies, Inc., a Minnesota corporation. Meteor's shareholders approved both the Merger and the Reincorporation Merger on March 27, 2001, and both transactions became effective on April 30, 2001. Since Meteor had only monetary assets and no operations, the merger was accounted for as the issuance of stock by AIQ in exchange for monetary assets of Meteor. Pursuant to the Merger Agreement, in exchange for shares of AIQ common stock, each shareholder of AIQ common stock was entitled to receive one share of Meteor's common stock (after giving effect to the reincorporation Merger). At the time of the Merger there were 4,385,911 shares of common stock of AIQ outstanding, excluding 400,000 shares held by Meteor, which were cancelled upon the effective time of the Merger. In addition to receiving shares of Meteor's common stock, each of the former AIQ shareholders was entitled to receive a warrant to purchase two shares of Meteor's common stock for every three shares of AIQ common stock held by such shareholder. The warrants, which expire on April 30, 2006, are exercisable at a price of $5.50 share upon notice to the holders thereof after the closing price of Meteor's common stock (as quoted on the Nasdaq Small Cap Market) has averaged $7.50 for 14 consecutive days. (See the table below for a condensed balance sheet summarizing the amounts assigned to assets acquired and liabilities assumed at the date of combination.) RED WING BUSINESS SYSTEMS, INC. On June 6, 2001, the Company completed its acquisition of Red Wing Business Systems, Inc. ("Red Wing"), a Minnesota corporation. Red Wing, which operates as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small and medium-sized businesses, farm and agricultural producers. Pursuant to a Stock Purchase Agreement (the "Agreement") dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing (the "Sellers"). The acquisition of Red Wing was accounted for under the purchase method of accounting. The Sellers received an aggregate of 400,000 shares of the Company's common stock and cash in the aggregate of $1,600,000, of which $400,000 was delivered at the closing. Under the Agreement, the Company is obligated to pay the remaining $1,200,000 of cash in three future payments of $400,000 due on the 6-, 12- and 18-month anniversaries of the closing date. As security for the Company's obligations to make the first two future cash payments of $400,000 each, the Company granted a security interest in the newly-acquired shares of Red Wing to the Sellers pursuant to a pledge agreement by and among the Company and the Sellers dated as of June 6, 2001. With closing costs, the total consideration plus the fair value of the net liabilities assumed is approximately $4,724,000, consisting primarily of goodwill and other intangibles. The other intangibles acquired consisted of acquired software developed. The Company is amortizing the acquired goodwill and other intangibles on a straight-line basis over a two-year period. (See the table below for a condensed balance sheet summarizing the amounts assigned to assets acquired and liabilities assumed at the date of combination.) 37 POST JUNE 30, 2001 COMBINATIONS CHAMPION BUSINESS SYSTEMS, INC. On September 18, 2001, the Company completed its merger with privately held Champion Business Systems, Inc. ("Champion"), a Colorado corporation. Champion, which operates as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small and medium-sized businesses. The merger was accounted for under the purchase method of accounting with the operations of Champion included in the Company's consolidated financial statements as of that date. The former shareholders of Champion are divided into two groups: Minority Shareholders and Majority Shareholders. At closing, the Majority Shareholders received an aggregate of 299,185 shares of the Company's common stock and all former Champion shareholders received their pro rata share of a $512,328 cash payment. Terms of the merger agreement required additional cash payments of $1,000,000 payable in 4 equal installments, each due on the 4, 8, 12 and 16-month anniversaries. The Company granted a security interest in the newly-acquired shares of Champion to the former Champion shareholders pursuant to a pledge agreement dated as of September 14, 2001. With closing costs, the total consideration plus the fair value of the net liabilities assumed is approximately $3,692,000, consisting primarily of goodwill and other intangibles. The primary reason for the acquisition of Champion was to expand the Company's software and service support customer base and business. The factors contributing to goodwill were principally based on the Company's belief that synergies would be generated through the combining of the Company's other software and service support with Champion's accounting packages. The total purchase included common stock issued of 299,185 valued at $4.89 per share, the average of the closing bid and ask price for the Company's common stock 10 trading days before September 18, 2001 (the effective date of the acquisition of Champion). In addition, the Company did not issue any options or warrants in conjunction with the Champion acquisition. The Company recorded goodwill and other intangibles allocated to customer relationships, non-compete agreements and acquired software developed of $1,318,700, $200,000 and $495,000, respectively. Other intangibles are being amortized on a straight-line basis over a two-year period and goodwill related to this acquisition has not been amortized (See Note 1). The amount allocated to goodwill is expected to be deductible for tax purposes. (See table below for a condensed balance sheet summarizing the amounts assigned to assets acquired and liabilities assumed at the date of combination). FMS MARKETING, INC. On October 10, 2001, the Company acquired all of the outstanding capital stock of FMS Marketing, Inc., a New Lennox, Illinois accounting software provider doing business as "FMS/Harvest." Like Red Wing, FMS/Harvest also serves primarily users in the agricultural and farming industries. In consideration for the purchase, the Company paid approximately $300,000 in cash at closing; issued 6-month promissory notes in the total amount of $300,000; and issued 250,000 shares of the Company's common stock. The common stock was valued at $3.02 per share, the average of the closing bid and ask price for the Company's common stock 10 trading days before October 10, 2001 (the effective date of acquisition). The primary reason for the acquisition of FMS/Harvest was to continue expanding the Company's software and service support customer base and business. The factors contributing to goodwill were principally based on the Company's belief that synergies would be generated through the combining of the Company's other software and service support with FMS/Harvest's accounting packages. The Company recorded approximately $694,000 as goodwill and approximately $418,000 and $420,000 as other intangibles allocated to customer relationships and non-compete agreements, respectively. Other intangibles are being amortized on a straight-line basis over a two-year period and goodwill related to this acquisition has not been amortized (See Note 1). The amount allocated to goodwill is expected to be deductible for tax purposes. (See table below for a condensed balance sheet summarizing the amounts assigned to assets acquired and liabilities assumed at the date of combination.) Effective December 31, 2001, the Company merged FMS/Harvest with and into Red Wing. Following are condensed balance sheets summarizing the amounts assigned to the assets acquired and liabilities assumed at the various dates of acquisition:
Edge Meteor Red Wing Champion FMS/Harvest ----------- ----------- ----------- ----------- ----------- Current assets $ 0 $ 3,538,000 $ 171,000 $ 91,000 $ 11,000 Property and equipment 0 0 58,000 25,000 2,000 Note receivable 0 500,000 0 0 0 Acquired software developed 0 0 436,000 495,000 0 Goodwill 2,264,000 0 4,059,000 1,562,000 694,000 Other intangible assets 0 0 0 1,519,000 838,000 ----------- ----------- ----------- ----------- ----------- Total assets $ 2,264,000 $ 4,038,000 $ 4,724,000 $ 3,692,000 $ 1,545,000 =========== =========== ============ =========== =========== Current liabilities $ 0 $ 0 $ 1,257,000 $ 709,000 $ 136,000 Note payable - former shareholders 0 0 1,122,000 956,000 290,000 Due to Active IQ Technologies, Inc. 2,264,000 0 2,200,000 1,964,000 1,066,000 Long-term debt 0 0 145,000 63,000 53,000 Shareholders' equity 0 4,038,000 0 0 0 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 2,264,000 $ 4,038,000 $ 4,724,000 $ 3,692,000 $ 1,545,000 =========== =========== =========== =========== ===========
The accompanying unaudited pro forma condensed results of operations for the years ended December 31, 2001 and 2000, give effect to the acquisitions of Meteor, Edge, Red Wing, Champion, and FMS/Harvest as if such transactions had occurred on January 1, 2000. The unaudited pro forma information does not purport to represent what the Company's results of operations would actually have been if such transactions in fact had occurred at such date or to project the Company's results of future operations:
Pro Forma for the year Years Ended December 31, 2001 2000 Revenues $ 5,382,906 $ 4,956,704 Loss from operations (9,491,914) (3,801,212) ---------- ---------- Net loss $(9,413,688) $(3,911,617) ========== ========== Basic and diluted net loss per common share $ ( .93) $ ( .55) ========== ==========
38 NOTE 3 - NOTE RECEIVABLE Based on the Meteor Industries, Inc. merger which occurred on April 30, 2001 the Company entered into a note receivable in the amount of $500,000. The note is due April 15, 2002. The note receivable accrues interest at 10% per annum. The note is secured by a stock pledge dated April 27, 2001 pledging 1,500,000 shares of common stock of Capco Energy, Inc. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consists of the following:
December 31, 2001 2000 -------- -------- Computer equipment $ 312,653 $ 158,928 Furniture and equipment 69,122 82,741 Software 393,056 383,128 Leasehold improvements 6,701 4,427 Less-accumulated depreciation and amortization (261,043) (80,108) --------- --------- Net property and equipment $ 520,489 $ 549,116 ========= =========
Depreciation expense for the years ended December 31, 2001, 2000 and 1999 was $192,075, $81,294 and $0, respectively. NOTE 5 - DEBT NOTES PAYABLE - SHAREHOLDERS Notes payable consist of the following:
December 31, 2001 2000 ----------- ---------- Notes Payable (a) $ 65,370 $ -- Notes Payable - former Red Wing shareholders (b) 759,879 -- Notes Payable - former Champion shareholders (c) 978,424 -- Notes Payable - former FMS/Harvest shareholders (d) 295,399 -- Note Payable - Stellent, Inc. (e) 1,000,000 -- ----------- ---------- 3,099,072 -- Less: current portion (2,791,521) -- ----------- ---------- Long-term debt, net of current portion $ 307,551 $ -- =========== ==========
(a) Two investors in Red Wing receive monthly principal and interest payments, ranging from 7% to 8 1/2%. The investors are current employees at Red Wing. Note balances as of December 31, 2001 were $13,074 and $52,296. The $13,074 note is due monthly principal and interest payments of $317 through December 2005 and the $52,296 is due monthly principal and interest payments of $1,267 through December 2005. (b) Pursuant to a Stock Purchase Agreement dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing. Under the Agreement, the Company is obligated to pay the remaining $800,000 of cash in two future payments of $400,000 due June 2002 and December 2002. The balance of the note is presented net of debt discount of 7% and is secured by a pledge of common stock. (c) Pursuant to the terms of the merger agreement dated August 30, 2001, the Company is obligated to pay the remaining $1,000,000 in four future payments of $250,000 due on the 4, 8, 12 and 16-month anniversaries of the closing date. The balance of the note is presented net of debt discount of 7% and is secured by a pledge of common stock. (d) Pursuant to the terms of the merger agreement dated October 10, 2001, the Company is obligated to pay the remaining $300,000 on April 10, 2002. The balance of the note is presented net of debt discount of 7% and is unsecured. (e) The Company entered in an application service provider (ASP) software license agreement in December 2001, with Stellent, Inc. a shareholder of the Company. The ASP agreement provides the Company with a three year worldwide exclusive license to be the hosted solution for Stellent's Content Management software. Pursuant to the software license agreement, the Company agreed to pay Stellent a royalty of 20% of net receipts, as defined in the license agreement, or $500 per month per customer, whichever is greater, with an aggregate minimum royalty payment of $2,000,000. The minimum royalty is payable as follows: a credit of $500,000 for existing prepaid royalties, a payment of $500,000 which was paid in December 2001 and $500,000 on each September 30, 2002 and December 15, 2002. 39 NOTE 6 - COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company has entered into various non-cancelable leases for land, buildings and equipment with terms ranging from 3 to 8 years. Under most leasing arrangements the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. Total rent expense under operating leases for the years ended December 31, 2001, 2000 and 1999, was $400,635, $55,913, and $6,596. Minimum future obligations on leases in effect at December 31, 2001, are approximately as follows:
2002 $ 409,600 2003 131,200 2004 89,000 2005 80,000 2006 78,000 Thereafter 136,500 -------- Total $ 924,300 ========
BANK LINE OF CREDIT The Company had a $200,000 revolving line of credit with a bank which expired in May 2000. Outstanding borrowings were $97,529 at December 31, 2000. The Company paid off this line of credit during 2001. CAPITAL LEASES The Company leased certain office equipment and furniture under capital lease obligations. Payments were $3,068 per month. The liability outstanding at December 31, 2000 was $46,216. The Company paid off these capital lease obligations during 2001. EMPLOYMENT AGREEMENTS The Company has an employment dated May 1, 2001 with Mr. Brimmer. In addition to his annual salary of $125,000, Mr. Brimmer was entitled to an annual bonus of up to 75 percent of his salary upon the achievement of certain corporate objectives and a $250,000 bonus when the Company raised an aggregate of $12 million in equity financings, which was reached in the fourth quarter of fiscal 2001. Approximately $12.7 million has been raised to date. Mr. Brimmer was also awarded an option to purchase up to 250,000 shares of Company common stock at a price of $5.00 per share, which option was to vest in equal installments over four years. Pursuant to an agreement dated November 27, 2001, and in accordance with Mr. Brimmer's Employment Agreement, the Company paid $250,000 to Brimmer Company, LLC in satisfaction of the bonus owed to Mr. Brimmer for achieving equity financings of at least $12 million. Although Mr. Brimmer resigned from his positions as Chief Executive Officer and Chief Financial Officer as of December 1, 2001, he agreed to remain as Chairman of the Board of Directors for the remainder of his term and to provide certain consulting services to the Company as requested. In connection with the termination, Mr. Brimmer agreed to waive any severance or any other payments under the remaining term of the Agreement. The Company agreed to immediate vesting of his existing options and to permit exercise of those options until December 1, 2006. In connection with the $250,000 payment to Brimmer Company, the Company recorded an expense of $250,000 in 2001. The Company also recorded aggregate expenses of $343,500 in connection with the agreement to immediately vest Mr. Brimmer's options and permit the exercise of such options until December 1, 2006 pursuant to APB Opinion No. 25 and related interpretations. The Company has an employment agreement dated May 1, 2001 with Mr. Olah, which was amended in January 2002. Pursuant to the terms of the agreement, Mr. Olah is entitled to an annual salary of $200,000 and is eligible for an annual bonus of up to 100 percent of his salary upon the achievement of certain corporate objectives. Mr. Olah was also awarded an option to purchase up to 300,000 shares of common stock at a price of $5.00 per share, which option vests in equal installments over four years. RELATED-PARTY TRANSACTIONS In July 2000, the Company acquired software and related maintenance from Stellent, Inc. (formerly IntraNet Solutions, Inc.), a shareholder of the Company, for 151,200 shares of common stock, valued at $2.50 per share, as consideration. On August 25, 2000, the Company received $300,000 from Stellent in connection with a bridge loan transaction with interest accruing at the rate of 8 percent per annum. The Company also issued a warrant to Stellent for the purchase of 20,000 shares of common stock at a price of $2.75 per share. In December 2000, the Company entered into a series of agreements with Stellent, including a reseller arrangement which allows the Company to sell Stellent's products. In connection with this transaction, the Company paid Stellent $150,000 in cash and issued 127,273 shares of common stock (valued at $2.75 per share) as consideration of a non-refundable, prepaid minimum royalty. This total amount of $500,001 is recorded as prepaid royalty in the accompanying consolidated balance sheet at December 31, 2000. Also in December 2000, the Company signed an agreement with Stellent to exchange the Company's $300,000 promissory note and $6,000 of accrued interest for an advance on fees payable upon the resale of the Company's products. Accordingly, such amounts have been recorded as deferred revenue in the accompanying consolidated balance sheet at December 31, 2000. Pursuant to an intellectual property purchase agreement dated April 27, 2001 between the Company and Stellent, the Company sold to Stellent our "Content Categorizer" product for $706,000. The Company received $400,000 in cash and the satisfaction of the $306,000 deferred revenue (discussed above). In connection with this agreement the Company netted the prepaid royalty against the sale transaction since the Company's management decided to terminate all selling efforts of the Xpedio software. The $500,000 asset write-off was recorded as a reduction of revenue since both transactions occurred simultaneously and were with a related party (Stellent). Pursuant to an Application Service Provider Software License Agreement dated December 28, 2001 (the "License Agreement"), between Stellent and the Company, Stellent has provided the Company with a 3-year worldwide exclusive license, subject to some exceptions, to become the hosted solution for Stellent's Content Management software. Pursuant to the License Agreement, the Company agreed to pay Stellent a royalty of 20 percent of net receipts or $500 per month per customer, whichever is greater, with an aggregate minimum royalty payment of $2,000,000. The minimum royalty will be satisfied as follows: a credit of $500,000 for existing prepaid royalties and 3 payments of $500,000 each, one of which was paid upon execution of the License Agreement, and the other two of which are to be paid on September 30, 2002 and December 15, 2002, respectively. The License Agreement is more fully described in the Company's Current Report on Form 8-K dated December 28, 2001 and filed with the SEC on January 4, 2002. 40 NOTE 7 - SHAREHOLDERS' EQUITY STOCK SPLITS In May 1999, the Company declared a 1,140-for-1 stock split. In June 2000, the Company declared a 1-for-15 reverse stock split. The stock splits have been retroactively reflected in the accompanying consolidated financial statements. COMMON STOCK ISSUANCES In May 1999, the Company issued 83,333 shares of common stock valued at $0.75 per share in exchange for intellectual property. The intellectual property was recorded in other assets in the accompanying consolidated balance sheet and was fully amortized at December 31, 2001. During August through September 1999, the Company sold 88,266 shares of common stock through a private placement, resulting in $132,400 of net proceeds. During November 1999 and March 2000, the Company sold an additional 14,667 and 4,667 shares of common stock, resulting in net proceeds of $533,750 and $175,000, respectively. In June 2000, the Company conducted a rights offering whereby existing shareholders purchased 1,856,634 shares of common stock for net proceeds of $712,362. During August through December 2000, the Company sold 956,780 shares of common stock in a private placement for net proceeds of $2,222,567. Meteor transaction As part of the merger with Meteor, the Company issued 3,874,511 shares of common stock and 365,000 shares of $1.00 Series Convertible B Preferred Stock as well as 365,000 Series B Preferred Warrants exercisable at $2.50 per share. There were also 4,483,101 Class B Warrants issued at an exercise price of $5.50 per share as part of the transaction exercisable through April 30, 2006. Additionally, the Company carried over 2,047,935 options to purchase common stock exercisable at $2.50 to $5.25 per share from Meteor as well as 690,000 warrants exercisable at $7.15 per share through May 31, 2002. During January 2001, the Company sold 400,000 shares of common stock at $2.75 per share to Meteor. The Company issued 550,000 shares of common stock in January and April 2001 to the former shareholders of Edge Technologies, Incorporated as part of the completion of the merger (see Note 2). In June 2001, the Company issued 400,000 shares of common stock valued at $4.45 per share as part of the purchase of Red Wing (see Note 2). In June 2001, the Company sold 500,000 shares of its common stock at $3.00 per share in a private placement. The private placement resulted in net proceeds of approximately $1.5 million. In September 2001, the Company issued 299,185 shares of common stock valued at $4.89 per share as part of the purchase of Champion (see Note 2). In October 2001, the Company issued 250,000 shares of common stock valued at $3.02 per share as part of the purchase of FMS Marketing, Inc. (see Note 2). During the year ended December 31, 2001, the Company received proceeds of $1,629,955 from the exercise of 605,496 options. Other Option grants During the year ended December 31, 2001, the Company granted 2,384,559 options to purchase common stock at prices ranging from $2.75 to $5.50 per share in addition to those options carried over from the Meteor merger. All options were granted with exercise prices equal to the fair market value of the Company's common stock on the date of grant with the exception of the following grants for which deferred compensation was recorded: In March 2001, an employee was granted options to purchase 25,000 shares of common stock at $1.00 per share at a time when the fair value of the Company's common stock was $2.75 per share. Deferred compensation of $43,750 was established and is being expensed over the vesting period of the options. In April 2001, one employee was granted options to purchase 40,000 options to purchase common stock at $1.00 per share and another was granted options to purchase 100,000 options at $2.00 per share at a time when the fair value of the Company's common stock was $2.75 per share. Deferred compensation of $145,000 was established and is being expensed over the vesting period of the options. In July 2001, 550,000 options were granted to two of the Company's executives with an exercise price of $5.00 per share when the fair market value of common stock was $5.87. Deferred compensation of $478,500 was established and is being expensed over the vesting period of the options. Deferred compensation was reversed by $35,000 in the year ended December 31, 2001 for prior deferred compensation established related to employees that left the Company as their options were cancelled prior to exercise. In October 2001 and November 2001, 28,750 options relating to three terminated employees were granted at an exercise price of $2.75 with immediate vesting. Deferred compensation of $19,750 was recorded. Compensation of the options relating to the resignation of Mr. Brimmer in November 2001, was recorded (see Note 6). With the resignation of two members of our board of directors in November and December 2001, 33,000 options were immediately vested at an exercise price of $1.00 and compensation expense of $29,040 was recorded. The total amount of compensation expense recorded for the year ended December 31, 2001 and 2000 was $678,281 and $54,687, respectively. Following is a roll forward of the deferred compensation account: Balance at December 31, 1999 $ 0 Additions 227,500 Terminations 0 Compensation expense (54,687) --------- Balance at December 31, 2000 $ 172,813 Additions 817,169 Compensation expense (678,281) --------- Balance at December 31, 2001 311,701 =========
Other Warrant Grants During June 2001 the Company issued 300,000 warrants to purchase common stock at $5.50 per share in conjunction with the private placement of common stock. The stock was sold in units of 50,000 shares with attached warrants to purchase 30,000 shares of common stock. The Company assigned $114,000 of the purchase price to warrants using the Black-Scholes pricing model. The Company also issued warrants totaling 450,000 with an exercise price of $5.50 per share and 250,000 with an exercise price of $7.50 per share exercisable through April 30, 2006 and August 1, 2006, respectively. The Company also issued 7,636 and 48,957 warrants to purchase common stock at $2.75 and $5.00, respectively, to a vendor in exchange for service completed. The warrants were valued at $125,718 using the Black-Scholes pricing model. The Company also recorded an expense of $1,246,000 related to the warrants issued to a non-employee using the Black-Scholes pricing model. For warrants issued to non-employees in exchange for services, the Company accounts for such warrants in accordance with Emerging Issue Task Force (EITF) Issue No. 96-18. The Company values the fair value of the equity instrument using the Black-Scholes pricing model unless the value of the services are more reliably measurable. The following assumptions were used to value the fair value of options and warrants given for which the fair value of the services were not more reliably measurable: dividend yield of 0%, risk-free interest rate of 4 to 6%, expected life equal to the contractual life of five years and volatility of 20 to 130%. Information regarding the Company's warrants is summarized below:
WEIGHTED AVG. RANGE OF NUMBER EXERCISE PRICE EXERCISE PRICE ---------------- ----------------- ----------------- Outstanding at December 31, 1998 Granted 10,000 $60.00 $60.00 Cancelled or expired 0 0.00 0.00 Exercised 0 0.00 0.00 ------------ ----------- ------------- Outstanding at December 31, 1999 10,000 60.00 60.00 Granted 140,694 3.04 1.00-37.50 Cancelled or expired 0 0.00 0.00 Exercised 0 0.00 0.00 ------------ ----------- ------------- Outstanding at December 31, 2000 150,694 $3.24 $1.00-$60.00 Granted-including warrants previously issued by Meteor before the merger 7,726,122 5.32 2.50- 7.50 Cancelled or expired 74,678 3.81 1.00- 37.50 Exercised 22,682 1.00 1.00 ------------ ----------- ------------- Outstanding at December 31, 2001 7,779,456 $5.28 $1.00-$60.00 ============ =========== ============= Warrants exercisable at December 31, 2001 7,779,456 $5.28 $1.00-$60.00 ============ =========== =============
The weighted average fair value of warrants granted was $0 in 1999 as the warrants' exercise price significantly exceeded fair value, $1.21 in 2000 and $1.41 in 2001. SERIES B CONVERTIBLE PREFERRED STOCK Part of the monetary assets acquired with Meteor, were 365,000 shares of convertible preferred stock. Meteor issued these shares in June 2000. Each share was: (1) not entitled to dividends, (2) entitled to a liquidation preference of $2.00 per share, (3) entitled to one vote, (4) not redeemable, and (5) convertible. Holders of the Series B Convertible Preferred Stock had the right to convert all or a portion of their shares into units, each unit consisting of one share of Common Stock and one warrant to purchase Common Stock. The warrants to be issued as part of the units upon conversion were to be in a form determined by the Board of Directors and were to be exercisable until May 15, 2005, at an exercise price of $2.50 per share. All 365,000 shares of the Series B Convertible Preferred Stock was converted in February 2002. 41 STOCK SUBSCRIPTION RECEIVABLE In December 2000, the Company entered into a subscription receivable for the purchase of 100,000 shares of common stock at a price of $2.75 per share with a director of the Company. On July 30, 2001, the director delivered to the Company a cash payment in the amount of $75,000 and a two-month promissory note in the principal amount of $200,000. Interest accrues on the principal balance of the prime rate as of the date of the note. The note has been extended and as of December 31, 2001, remains unpaid. During the year ended December 31, 2001, the stock subscription receivable in the amount of $312,500 that was outstanding at December 31, 2000 was cancelled and the common shares were surrendered. STOCK OPTION PLANS The Company has five stock option plans. The Company has the 1994 Stock Option Plan and the 1998 Incentive Equity Plan. With the completion of the activeIQ merger, the Company adopted the activeIQ 1999 Stock Option Plan and the activeIQ 2000 Director Stock Option Plan. At a regular meeting of the board of directors on July 20, 2001, the Company approved and adopted the 2001 Non-Executive Stock Option Plan. As of December 31, 2001, an aggregate of 6,450,000 shares of the Company's common stock may be granted under these plans as determined by the board of directors. Stock options, stock appreciation rights, restricted stock and other stock and cash awards may be granted under the plans. In general, options vest over a period of approximately 3 years and expire 10 years from the date of grant. The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, the Company accounts for its stock option plan in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no compensation expense is recognized if the exercise price of the employee stock option or warrant equals the market price on the grant date. The Company recorded compensation expense pursuant to APB Opinion No. 25 and related interpretations on options granted and due to modifications of options of $678,281, $54,687 and $0, for the years ended December 31, 2001, 2000 and 1999, respectively. The Company recorded expense related to warrants issued to non-employees in accordance with SFAS No. 123 in the amount of $1,371,718, $0 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. Had compensation costs for employees been recognized based upon the fair value of options at the grant date consistent with the provisions of SFAS No. 123, the Company's results would have been as follows:
Years ended December 31, ----------------------------------------- 2001 2000 1999 Net loss: As reported $ (9,446,808) $(2,840,419) $(461,981) Pro forma (13,062,595) (2,968,959) (475,480) Basic and diluted net loss per share: As reported (1.15) (1.65) (1.92) Pro forma (1.59) (1.73) (1.98)
42 Information regarding the Company's stock options is summarized below:
Weighted Average Number of Exercise Options Price ---------- -------- Options outstanding - December 31, 1998 -- -- Granted 46,997 29.52 Canceled or expired -- -- Exercised -- -- ---------- -------- Options outstanding - December 31, 1999 46,997 $ 29.52 Granted 1,277,000 1.34 Canceled or expired (55,000) 14.27 Exercised -- -- ---------- -------- Options outstanding - December 31, 2000 1,268,997 $ 2.07 Grants related to Meteor merger 2,047,935 3.32 Granted 2,384,559 4.16 Canceled or expired (1,004,805) 2.65 Exercised (641,345) 2.79 ---------- -------- Options outstanding - December 31, 2001 4,055,341 $ 3.57 ========== ======== Options exercisable - December 31, 2001 2,625,679 $ 3.10 ========== ======== Weighted average fair value of options granted during the year ended December 31, 2001 $ 4.21 ======== Weighted average fair value of options granted during the year ended December 31, 2000 $ 0.31 ======== Weighted average fair value of options granted during the year ended December 31, 1999 $ 1.15 ========
Options outstanding under the plans as of December 31, 2001, have exercise prices ranging from $1.00 per share to $37.50 per share and a weighted average remaining contractual life of 6.5 years. The following information summarizes information about stock options outstanding at December 31, 2001:
Options Outstanding Options Exercisable ------------------------------------- ----------------------- Weighted Average Weighted Weighted Weighted Range of Number Remaining Average Average Exercise Out- Contractual Exercise Number Exercise Prices standing Life Price Exercisable Price - --------- ---------- ------------ -------- ----------- -------- $1.00 to $2.87 1,690,115 6.1 years $ 2.03 1,419,565 $ 2.03 $3.00 to $5.50 2,348,225 7.1 years $ 4.54 1,189,113 $ 4.10 $15.00 to $37.50 17,001 2.7 years $ 22.06 17,001 $ 22.06 - --------- ---------- ------------ -------- ----------- -------- $1.00 to $37.50 4,055,341 6.5 years $ 3.57 2,625,679 $ 3.10
In determining the compensation cost of the options granted during fiscal 2001, 2000, and 1999, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized below: 43
December 31, 2001 2000 1999 -------- -------- -------- Risk free interest rate 5% 6.1% 6.1% Expected life of options granted 10 years 5 years 5 years Expected volatility range 130.0% 0% 0% Expected dividend yield 0% 0% 0%
NOTE 8 - INCOME TAXES The Company has generated net operating losses of approximately $9,175,000 which, if not used, will begin to expire in 2019. These net operating losses may currently be limited due to past changes in ownership of the Company. Future changes in the ownership of the Company may place limitations on the use of these net operating loss carryforwards. The benefit from income taxes consists of the following:
Year Ended December 31, 2001 2000 1999 -------- -------- -------- Current income tax expense $ -- $ -- $ -- Deferred income tax benefit -- -- -- --------- --------- --------- Total benefit from income taxes $ -- $ -- $ -- ========= ========= =========
The Company's deferred tax assets are as follows:
December 31, 2001 2000 ---------- ---------- Net operating loss carryforwards $ 3,760,000 $ 1,100,000 Property and equipment basis difference 1,217,000 9,000 Less: valuation allowance (4,977,000) (1,109,000) ----------- ----------- Net deferred tax asset $ -- $ -- =========== ===========
Reconciliation between the statutory rate and the effective tax rate for the fiscal years is as follows:
December 31, 2001 2000 1999 ------- ------- ------- Federal statutory tax rate (35.0%) (35.0%) (35.0%) State taxes, net of federal benefit (6.0%) (6.0%) (6.0%) Change in valuation allowance 41.0% 41.0% 41.0% ------- ------- ------- Effective tax rate 0.0% 0.0% 0.0% ======= ======= =======
44 NOTE 9 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
For the Years Ended December 31, 2001 2000 1999 ---------- ---------- ---------- Cash paid for interest $ 19,083 $ 37,517 $ 24,445 NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of warrants in payment of legal fees and accounts payable 175,718 22,682 -- Issuance of stock in payment of accounts payable -- 162,247 -- Conversion of notes payable to common stock -- 55,000 -- Issuance of common stock for equipment -- 378,000 -- Issuance of common stock for license fees -- 350,001 -- Conversion of notes payable on advance on product purchases -- 306,000 -- Issuance of common stock in exchange for intellectual property -- -- 62,500 Issuance of common stock to director -- 225,000 -- Issuance of common stock with non-recourse note receivable 200,000 -- 312,500 Acquisition of certain assets and goodwill recorded and assumption of certain liabilities on Edge Technologies, Incorporated merger 1,512,500 -- -- Issuance of note receivable in connection with the Meteor merger 500,000 -- -- Surrender of common stock on stock subscription receivable canceled 312,500 -- -- Acquisition of certain assets and goodwill recorded and assumption of certain liabilities on Red Wing Business Systems, Inc. acquisition 4,302,430 -- -- Acquisition of certain assets and goodwill recorded and assumption of certain liabilities on Champion Business Systems, Inc. acquisition 3,191,375 -- -- Acquisition of certain assets and goodwill recorded and assumption of certain liabilities on FMS Marketing, Inc. acquisition 1,234,594 -- -- Prepaid royalties financed with note payable shareholder 1,000,000 -- --
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED) On March 29, 2002 the Company paid to Stellent, Inc. $950,000 for the balance due on the note payable pertaining to our license agreement. In consideration of the early payment, the Company received a discount of five percent, or $50,000. On March 29, 2002, the Company borrowed $450,000 from Blake Capital Partners, LLC, an entity wholly-owned by Mr. Mills who currently is one of the Company's director. The loan is evidenced by a 90-day promissory note and accrues interest at the rate of 7 percent per annum. The Company used the proceeds of the loan to pay the remaining balance it owed to Stellent pursuant to the December 2001 License Agreement. In connection with the loan, the Company also issued to Blake Capital Partners, LLC a 5-year warrant to purchase 25,000 shares of common stock at a price of $3.00 per share. NOTE 11 - Quarterly Data (UNAUDITED) The following is the unaudited quarterly financial data for the years ended December 31, 2001 and 2000:
YEAR ENDED DECEMBER 31, 2001 --------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------- March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001 --------------------------------------------------------------------------------------- Revenues $ 35 $ 373 $ 645 $ 1,658 Operating expenses (1,169) (2,238) (3,871) (4,958) (Loss) from operations (1,134) (1,865) (3,226) (3,300) Other income (expense) 18 21 47 (8) Net (loss) (1,116) (1,844) (3,179) (3,308) Basic and diluted Net (Loss) per common share $ (0.25) $ (0.25) $ (0.31) $ (0.34)
YEAR ENDED DECEMBER 31, 2000 --------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------- March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000 --------------------------------------------------------------------------------------- Revenues $ - $ - $ - $ - Operating expenses (661) (374) (836) (935) (Loss) from operations (661) (374) (836) (935) Other income (expense) (6) (5) (131) 108 Net (loss) (667) (379) (967) (827) Basic and diluted Net (Loss) per common share $ (1.78) $ (0.95) $ (0.37) $ (0.24)
45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On May 9, 2001, following the date of the merger transaction between Meteor Industries and Old AIQ, the Company dismissed PricewaterhouseCoopers LLP as its independent public accountants. The Company's Board of Directors participated in and approved the decision to change public accountants. The reports of PricewaterhouseCoopers LLP on the Company's financial statements for the past two fiscal years (i.e., the financial statements of Meteor Industries, Inc. for the years ended December 31, 1999 and 2000) contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principle. In connection with its audits for the two most recent fiscal years and through May 9, 2001, there had been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference thereto in their report on the financial statements for such years. On May 9, 2001, the Company's board of directors retained Arthur Andersen LLP to be its principal independent accountants. During the two most recent fiscal years and through May 9, 2001, the Company had not consulted with Arthur Andersen LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and either a written report was provided to the Company or oral advice was provided that Arthur Andersen LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or(ii) any matter that was the subject of a "disagreement," as that term is defined in Item 304(a)(1)(v) of Regulation S-K promulgated by the Securities and Exchange Commission and the related instructions to Item 304 of Regulation S-K, or a "reportable event," as that term is defined in Item 304(a)(1)(v). On December 20, 2001, the Company and Arthur Andersen LLP agreed to terminate their relationship. The Company's Audit Committee and Board of Directors participated in and approved the decision to change independent accountants on December 18, 2001. In connection with its audit of the Company's financial statements for the 2000 and 1999 fiscal years (i.e., the financial statements of Old AIQ for the years ended December 31, 1999 and 2000) and through December 20, 2001, there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP to make reference to such disagreements in their report on the financial statements for such year. On December 21, 2001, the Company engaged Virchow, Krause & Company, LLP as its new independent accountants. The engagement was approved by the Company's Audit Committee and Board of Directors on December 20, 2001. 46 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Set forth below are the names of all directors and executive officers of the Company, their respective ages and all positions and offices with the Company held by each person as of December 31, 2001:
NAME AGE POSITIONS WITH THE COMPANY Kenneth W. Brimmer ................. 46 Chairman of the Board D. Bradly Olah ..................... 37 President, Chief Executive Officer, Chief Financial Officer and Director Philip C. Rickard .................. 33 Vice President Ronald E. Eibensteiner ............. 51 Director and Secretary Wayne W. Mills ..................... 47 Director
Kenneth W. Brimmer currently serves as our Chairman of the Board. Until November 30, 2001 Mr. Brimmer was Chief Executive Officer and Chief Financial Officer. Having been appointed to the board of directors of Old AIQ in 1999, Mr. Brimmer served that company as its Chairman and Chief Executive Officer until its merger with our company on April 30, 2001. Mr. Brimmer was president of Rainforest Cafe, Inc. from April 1997 until April 2000 and was Treasurer from its inception in 1995. Mr. Brimmer is also Chairman of both Hypertension Diagnostics, Inc., and Sterion, Inc. (formerly known as Oxboro Medical, Inc.), both of which are NASDAQ listed companies. Since February 2002, Mr. Brimmer has served as a director of Metalclad Corporation (Nasdaq: MTLC). D. Bradly Olah, one of the co-founders of Old AIQ, is currently our President, Chief Executive Officer, Chief Financial Officer and a member of our board of directors. He formerly served Old AIQ as its Executive Vice President from November 1999 to March 2001 and as Chief Executive Officer from April 1996 to November 1999. Mr. Olah was also a member of Old AIQ's board of directors from its inception in April 1996 and has been actively involved in its business development. He was a director of Natural Resources Geophysical Corporation from 1996 until 1998, when it was sold to Eagle Geophysical of Houston, Texas. He was also the founder/Chairman and Chief Executive Officer and a director of Innovative Gaming Corporation of America from 1991 through February 1996 and also served as the Chief Financial Officer of that company from 1991 to 1993. Philip C. Rickard has been Executive Vice President of our company since the merger with Old AIQ on April 30, 2001. Prior to that time, he served in the same position with Old AIQ from May 1999 until the Old AIQ merger. Prior to joining Old AIQ, Mr. Rickard served for five years as Director and VP of International Development for Ariobimo, an Asian-based group of companies. He initiated and directly managed the group's creation and development of various companies in Internet technologies, Internet service provision and wireless communications. Ronald E. Eibensteiner has been a director of our company since April 30, 2001, the effective date of our merger with Old AIQ and Secretary since December 1, 2001. He was initially appointed to the board of directors of Old AIQ in September 2000. Mr. Eibensteiner is the president of Wyncrest Capital, Inc. and has been a seed investor in several early stage technology companies. Since May 1996, Mr. Eibensteiner has been chairman of the board of directors of OneLink, Inc., a provider of Internet-delivered business intelligence services to the telecommunications industry. From March 1996 until March 2001, he served as a director of IntraNet Solutions, Inc. (now known as Stellent, Inc.), a provider 47 of Web-based document management solutions for corporate intranets. Mr. Eibensteiner co-founded Diametrics Medical, Inc., a manufacturer of blood gas diagnostic systems, and was chairman of Prodea Software Corporation, a data warehousing software company, until its sale to Platinum technology, inc., in January 1996. Wayne W. Mills was appointed to our board of directors on November 20, 2001. Since February 2002, Mr. Mills has served as Chief Executive Officer and director of Metalclad Corporation. Mr. Mills is also the owner and president of Blake Capital Partners, LLC, a company that provides capital and consulting services to early stage businesses. Prior to forming Blake Capital Partners in 1999, Mr. Mills was employed for more than 18 years by R.J. Steichen & Co., where he was an investment banker and stockbroker. There is no family relationship between any director or executive officer of the Company. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who own more than 10% of our outstanding common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish copies of these reports to us. Based solely on a review of the copies of the Forms 3, 4 and 5 and amendments that we have received, we believe that all such forms required during 2001 were filed on a timely basis. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following information sets forth information with respect to the compensation of our Chief Executive Officer and our other executives whose total compensation for the fiscal years ended December 31, 2001, 2000 and 1999 that exceeded $100,000. No other executive officer received salary and bonus in excess of $100,000 during such periods.
Long-Term All Other Annual Compensation Compensation Compensation ----------------------- ------------ ------------ Securities Underlying Name and Principal All Options Position Year Salary Bonus (Number) Payouts - ----------------- ---- -------- ----- ------------ ------------ Kenneth W. Brimmer 2001 $125,000 -- 250,000 $ 250,000(e) Chairman of the 2000 -- -- -- -- Board (a)(d) 1999 -- -- -- -- D. Bradly Olah 2001 $150,000 -- 300,000 -- Chief Executive Officer, 2000 75,000 -- -- -- Chief Financial Officer, 1999 -- -- -- -- and President (b) Philip C. Rickard 2001 $100,000 -- 75,000 -- Vice President (c) 2000 25,000 -- -- -- 1999 -- -- -- --
(a) Kenneth W. Brimmer currently serves as our Chairman of the Board. Until November 30, 2001 Mr. Brimmer was Chief Executive Officer and Chief Financial Officer. Having been appointed to the board of directors of Old AIQ in 1999, Mr. Brimmer served that company as its Chairman and Chief Executive Officer until its merger with our company on April 30, 2001. 48 (b) D. Bradly Olah currently serves as our President, Chief Executive Officer, Chief Financial Officer and a member of our board of directors. He formerly served Old AIQ as its Executive Vice President from November 1999 to March 2001 and as Chief Executive Officer from April 1996 to November 1999. Mr. Olah was also a member of Old AIQ' board of directors from its inception in April 1996. (c) Philip C. Rickard has been Executive Vice President of our company since the merger with Old AIQ on April 30, 2001. Prior to that time, he served in the same position with Old AIQ from May 1999 until the Old AIQ merger. (d) Mr. Brimmer was the Company's Chief Executive Officer from April 30, 2001 until December 1, 2001. (e) The terms and conditions of Mr. Brimmer's employment with us were set forth in a May 1, 2001 employment agreement. In addition to his annual salary of $125,000, Mr. Brimmer was entitled to a $250,000 fee when our Company raised an aggregate of $12 million in equity financings. Approximately $12.7 million had been raised by December 31, 2001. The $250,000 fee was recorded as an operating expense in 2001, and payment was made in January 2002. OPTION GRANT TABLE The following information sets forth information with respect to the grants of options by us during 2001 to our Chief Executive Officer and our other most highly compensated executive officers as of December 31, 2001.
Potential Realizable Percent Value at Assumed Number of Of Total Annual Rates Securities Options/SARs Exercise Of Stock Price Underlying Granted To Or Base Appreciation Options/SARs Employees In Price Expiration For Option Term Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($) - ------------ ------------ ------------ -------- ---------- ------- ---------- Kenneth W. Brimmer 250,000 11.4 5.00 5/1/2011 625,000 1,250,000 D. Bradly Olah 300,000 13.6 5.00 5/1/2011 750,000 1,500,000 Philip C. Rickard 75,000 3.4 5.50 8/2/2011 259,500 519,000
AGGREGATED OPTION EXERCISES in 2001 AND YEAR-END OPTION VALUE TABLE Shown below is information relating to (i) the exercise of stock options during 2001 by our Chief Executive Officer and each of our other most highly compensated executive officers as of December 31, 2001 and (ii) the value of unexercised options for each of the Chief Executive Officer and such executive officers as of December 31, 2001:
No. of shares underlying Value of unexercised in-the-money unexercised options at options at No. of Dec. 31, 2001 Dec. 31, 2001 (1) shares ------------------------------- --------------------------------- acquired Value Name on exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---------------------- ----------- ---------- ----------- ------------- ----------- ------------- Kenneth W. Brimmer -- $ -- 250,000 -- $ -- $ -- 200,000 -- 710,000 -- D. Bradly Olah -- $ -- 60,000 240,000 $ -- $ -- 70,000 30,000 248,500 106,500 Philip C. Rickard -- $ -- 75,000 -- $ 266,250 $ -- 18,750 56,250 -- --
(1) The value of unexercised in-the-money options is based on the difference between the exercise price of the options and $4.55, the fair market value of the Company's common stock on December 31, 2001. 49 EMPLOYMENT AGREEMENTS Mr. Brimmer served as the Company's chief executive officer from April 30, 2001 until December 1, 2001. The terms and conditions of Mr. Brimmer's employment with the Company were governed by a May 1, 2001 employment agreement. In addition to his annualized salary of $125,000, Mr. Brimmer was entitled to an annual bonus of up to 75 percent of his salary upon the achievement of certain corporate objectives and a $250,000 bonus when our company raised an aggregate of $12 million in equity financings, which was reached in the fourth quarter of fiscal 2001. Approximately $12.7 million has been raised to date. Mr. Brimmer was also awarded an option to purchase up to 250,000 shares of our common stock at a price of $5.00 per share, which option vests in equal installments over four years. Pursuant to an agreement dated November 27, 2001, and in accordance with Mr. Brimmer's May 1 employment agreement, we agreed to pay $250,000 to Brimmer Company, LLC in satisfaction of the bonus owed to Mr. Brimmer for achieving equity financings of at least $12 million. Although Mr. Brimmer resigned from his positions as Chief Executive Officer and Chief Financial Officer as of December 1, 2001, he continued as Chairman of the Board of Directors for the remainder of his term and to provide certain consulting services our company as requested. In connection with the termination, Mr. Brimmer agreed to waive any severance or any other payments under the remaining term of his employment agreement. We also agreed to immediate vesting of his existing options and to permit exercise of those options until December 1, 2006. In connection with the $250,000 payment to Brimmer Company, we recorded an expense of such amount in the fourth quarter of fiscal 2001. We also recorded aggregate expenses of $343,500 in connection with our agreement to immediately vest Mr. Brimmer's options and permit the exercise of such options until December 1, 2006. Mr. Olah's employment with our company is also pursuant to a May 1, 2001 employment agreement, which was amended as of January 1, 2002 in order to increase his base salary from $150,000 to $200,000 and to reflect his appointment as chief executive officer. In addition to his annual base salary, Mr. Olah is eligible for an annual bonus of up to 100 percent of his salary upon the achievement of certain corporate objectives. The agreement also contains non-competition and non-solicitation covenants, prohibiting Mr. Olah from engaging in a competing activity or soliciting company employees or customers for a 12-month period following the termination of his employment. In the event Mr. Olah's employment with the Company is terminated without cause (as defined therein), Mr. Olah is entitled to a lump sum severance payment equal to his then-current base salary. In the event Mr. Olah's employment is terminated within one year of a change of control of our company, he is entitled to receive his base salary for a 24-month period. In connection with the employment agreement, Mr. Olah was also awarded options to purchase up to 300,000 shares of our common stock at a price of $5.00 per share, which option vests in equal installments over four years. Following the amendment of his employment agreement in January 2002, Mr. Olah was awarded an option to purchase an additional 500,000 shares at $4.00 per share. On January 14, 2002, Mr. Olah exercised his right to acquire all 500,000 shares subject to the option, though none had yet vested, by delivering a promissory note to us in the amount of $2,000,000 and pledging all 500,000 shares acquired as security for the repayment of the note, all in accordance with the terms of the option agreement. Mr. Olah cannot sell or otherwise transfer any of the shares acquired under this option agreement until such time as the shares would have vested in accordance with the vesting schedule provided in the option agreement and the note has been repaid. 50 DIRECTOR COMPENSATION Outside Directors of the Company are reimbursed for all reasonable and necessary costs and expenses incurred as a result of being a Director of the Company. In addition, the Company issues options to its Directors as determined by the Board. Such options vest over a period of years earlier upon a change of control. During 2001, the Company issued 60,000 options to two (2) directors, of which options to purchase 30,000 shares are exercisable at $3.00 per share and vest immediately, and the remaining 30,000 options are exercisable at $5.00 per share, vesting ratably over four years. These options are non-qualified options granted pursuant to the Company's 2000 Directors Stock Option Plan. During November and December 2001, the Company accelerated the vesting on 33,000 options, with an exercise price of $2.75, for two different directors who resigned as board members. Members of the Board who are also employees of the Company receive no options for their services as directors. BOARD COMMITTEES The Company has an Audit Committee and a Compensation Committee. The Audit Committees oversee the activities of the independent auditors and internal controls. The members of the Audit Committee are Messrs. Brimmer, Eibensteiner and Mills. The Compensation Committee makes recommendations to the Board of Directors of the Company concerning salaries and incentive compensation for executive officers of the Company. Messrs. Eibensteiner and Mills serve on the Compensation Committee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee during the fiscal year ended December 31, 2001, consisted of Messrs. Eibensteiner and Mills. Neither Mr. Eibensteiner nor Mr. Mills have served as an executive officer or employee of the Company. Mr. Eibensteiner currently serves as the Company's secretary, however, a position for which he receives no additional compensation. No executive officer or director of the Company served as a member of the compensation committee or board of directors of another entity, one of whose executive officers or directors served on the Company's compensation committee or board of directors. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Decisions on compensation of the Company's executives generally have been made by the Compensation Committee. Each member of the Compensation Committee is a non-employee director. All decisions by the Compensation Committee relating to the compensation of the Company's executive officers are reviewed by the full Board. Pursuant to rules designed to enhance disclosure of the Company's policies toward executive compensation, set forth below is a report prepared by the Compensation Committee addressing the compensation policies for the Company and its subsidiaries for the fiscal year ended December 31, 2001 as they affected the Company's executive officers. The Compensation Committee's executive compensation policies are designed to provide competitive levels of compensation that integrate pay with the Company's annual objectives and long-term goals, reward above-average corporate performance, recognize individual initiative and achievements, and assist the Company in attracting and retaining qualified executives. Executive compensation is set at levels that the Compensation Committee believes to be consistent with others in the Company's industry. There are three elements in the Company's executive compensation program, all determined by individual and corporate performance. - - Base salary compensation - - Annual incentive compensation - - Stock options Total compensation opportunities are competitive with those offered by employers of comparable size, growth and profitability in the Company's industry. 51 Base salary compensation is determined by the potential impact the individual has on the Company, the skills and experiences required by the job, and the performance and potential of the incumbent in the job. Annual incentive compensation for executives of the Company is based primarily on corporate operating earnings and revenue growth and the Company's positioning for future results, but also includes an overall assessment by the Compensation Committee of executive management's performance, as well as market conditions. Awards of stock grants under the 1999 Stock Option Plan are designed to promote the identity of long-term interests between the Company's executives and its shareholders and assist in the retention of executives. Mr. Olah received an annualized base salary of $150,000 until January 2002, at which time the Compensation Committee increased Mr. Olah's annualized base salary to $200,000 for the remainder of the 2002. This increase resulted from the Committee's assessment of the complexity of the Company's operations. Mr. Olah received no cash incentive compensation award for the fiscal year ended December 31, 2001. In lieu of a cash incentive compensation, the Company granted Mr. Olah an option to purchase up to 300,000 shares of the our common stock at a price of $5.50 per share (with the closing sale price of the Company's common stock on the date of grant being $5.87). Following the amendment of his employment agreement in January 2002, Mr. Olah was awarded an option to purchase an additional 500,000 shares at $4.00 per share, the closing sale price of the Company's common stock on the date of the grant. The Compensation Committee surveys employee stock option programs of companies with similar capitalization to the Company prior to recommending the grant of options to executives. While the value realizable from exercisable options is dependent upon the extent to which the Company's performance is reflected in the market price of the Company's common stock at any particular point in time, the decision as to whether such value will be realized in any particular year is determined by each individual executive and not by the Compensation Committee. Accordingly, when the Committee recommends that an option be granted to an executive, that recommendation does not take into account any gains realized that year by that executive as a result of his or her individual decision to exercise an option granted in a previous year. Submitted by the Compensation Committee of the Company's Board of Directors: Ronald E. Eibensteiner Wayne W. Mills STOCK PERFORMANCE GRAPH The following presentation compares the Company's common stock price in the period from May 1, 2001 (the date of which we completed our merger with activeIQ Technologies and adopted their business model) through December 31, 2001, to the Nasdaq Composite Index and to the S&P Small Cap Internet Software and Services Index. 52 COMPARISON OF RETURN AMONG ACTIVE IQ TECHNOLOGIES, INC., THE NASDAQ COMPOSITE INDEX, AND THE S&P SMALL CAP INTERNET SOFTWARE AND SERVICES INDEX [PERFORMANCE GRAPH]
4/30/01 5/31/01 6/30/01 7/31/01 8/31/01 9/30/01 10/31/01 11/30/01 12/31/01 -------- ------- -------- ------- ------- ------- -------- -------- -------- Active IQ Technologies $ 100.00 $ 82.41 $ 110.19 $101.85 $ 94.26 $ 57.41 $ 69.44 $ 66.67 $ 84.26 S&P SC Internet Software & Services Index 100.00 80.38 74.76 74.76 60.05 39.37 49.02 55.15 43.97 Nasdaq Composite 100.00 98.08 98.62 94.29 82.38 68.39 79.66 88.09 93.97
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following information sets forth the number and percentage of shares of the Company's common stock owned beneficially, as of March 25, 2002, by any person, who is known to the Company to be the beneficial owner of 5 percent or more of the Company's common stock, and, in addition, by each director and each executive officer of the Company, and by all directors and executive officers as a group. Information as to beneficial ownership is based upon statements furnished to the Company by such persons.
NAME AND ADDRESS AMOUNT OF BENEFICIAL PERCENTAGE OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS Boston Financial Partners, Inc. 1,180,000 (2) 9.5 17 Bayns Hill Road Boxford, MA 01921 Gulfstream Financial Partners, LLC 855,000 (3) 7.0 2401 PGA Boulevard, Ste 190 Palm Beach Gardens, FL 33410 Stellent, Inc. 952,453 (4) 8.0 7777 Golden Triangle Drive Eden Prairie, MN 55344 Kenneth W. Brimmer 987,835 (5) 8.1 5720 Smetana Drive, Ste 101 Minnetonka, MN 55343 Ronald E. Eibensteiner 690,834 (6) 5.8 800 Nicollet Mall, Ste 2690 Minneapolis, MN 55402 D. Bradly Olah 1,440,334 (7) 11.9 5720 Smetana Drive, Ste 101 Minnetonka, MN 55343 Wayne W. Mills 2,187,834 (8) 17.5 5020 Blake Road Edina, MN 55436 Philip C. Rickard 111,055 (9) 1.0 5720 Smetana Drive, Ste 101 Minnetonka, MN 55343 All directors and officers as a group 5,417,892 46.7
(1) Except as otherwise indicated, each person possesses sole voting and investment power with respect to the shares shown as beneficially owned. 53 (2) Includes 700,000 shares issuable upon the exercise of warrants issued to Thomas Brazil, president of Boston Financial Partners, Inc., in connection with a financial advisory services agreement with our Company. Of the 700,000 shares, 450,000 shares are exercisable at a price of $5.50 per share and 250,000 shares are exercisable at a price of $7.50 per share, except that the Company has offered to reduce the exercise price of the $7.50 warrants to $2.50 if such warrants were exercised by April 29, 2002. (3) Includes 615,000 shares issuable upon the exercise (at a price of $5.50 per share) of a warrant issued upon the Meteor Industries-activeIQ Technologies merger in consideration of financial advisory services rendered and 90,000 shares issuable upon the exercise (at a price of $5.50 per share) of a warrant . (4) Includes 320,982 shares issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share) and 20,000 shares issuable upon the exercise (at a price of $2.75 per share) of a warrant issued in connection with an August 2000 financing arrangement. (5) Includes (i) 200,000 shares issuable upon the exercise (at a price of $1.00 per share) of options, (ii) 250,000 shares issuable upon the exercise (at a price of $5.00 per share) of options, (iii) 1,167 shares issuable upon the exercise (at a price of $37.50 per share) of a warrant, and (iv) 206,667 shares issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share). (6) Includes 233,334 shares issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share) and an option to purchase 50,000 shares (at an exercise price of $1.00 per share). (7) Includes (i) 203,334 shares issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share), (ii) 275,000 shares held by Mr. Olah's spouse, of which 110,000 shares are issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share), (iii) 25,000 shares held by the D. Bradly Olah Irrevocable Trust, of which 10,000 shares are issuable upon the exercise of Class B Redeemable Warrants (at a price of $5.50 per share), (iv) 90,000 shares issuable upon the exercise (at a price of $1.00 per share) of an option, (v) 3,333 shares issuable upon the exercise (at a price of $15.00 per share) of an option, and (vi) 120,000 shares issuable upon the exercise (at a price of $5.00 per share) of an option. (8) Includes 30,000 shares owned by Sea Spray, Ltd., a foreign corporation of which Mr. Mills is the sole shareholder, 150,000 shares owned by Mr. Mills' spouse. Mr. Mills disclaims beneficial ownership of his spouse's shares. Also includes 100,000 shares issuable upon the exercise (at a price of $2.50 per share) of a warrant issued in connection with the Series B Preferred Stock; 90,000 shares issuable upon the exercise (at a price of $5.50 per share) of warrants issued in connection with a January 2001 private placement and exchanged for Class B Redeemable Warrants; 208,334 shares issuable upon the exercise (at a price of $5.50 per share) of Class B Redeemable Warrants and the warrant to purchase 25,000 shares (at an exercise price of $3.00 per share) issued in connection with a loan to the Company. Also includes a warrant to purchase 500,000 shares owned by Blake Capital Partners, LLC, a limited liability company whose sole director is Wayne Mills, issuable upon exercise (at a price of $3.00 per share) of warrants issued to financial advisors in connection with our merger with active IQ Technologies, Inc. Also includes 67,500 shares owned by Blake Capital and publicly traded warrants to purchase 15,000 shares (at an exercise price of $7.15 per share). (9) Includes 75,000 shares issuable upon the exercise of options at a price of $1.00 per share and 18,750 shares issuable upon the exercise of options at a price of $5.50 per share. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following describes certain relationships and related transactions that we have with persons deemed to be affiliates of our company. We believe that each of the transactions described below were on terms at least as favorable to our company as we would have expected to negotiate with unaffiliated third parties. 54 TRANSACTIONS WITH STELLENT, INC. Pursuant to an intellectual property purchase agreement dated April 27, 2001 between our company and Stellent, we sold to Stellent our "Content Categorizer" product for $706,000. We received $400,000 in cash and the satisfaction of a $300,000 note, plus $6,000 of accrued interest. Pursuant to an Application Service Provider Software License Agreement dated December 28, 2001 (the "License Agreement"), between Stellent and us, Stellent has provided our company with a 3-year worldwide exclusive license, subject to some exceptions, to become the hosted solution for Stellent's Content Management software. Pursuant to the License Agreement, we agreed to pay Stellent a royalty of 20 percent of net receipts or $500 per month per customer, whichever is greater, with an aggregate minimum royalty payment of $2,000,000. The License Agreement provided that the minimum royalty was to be satisfied as follows: a credit of $500,000 for existing royalties that we prepaid in June 2000; and 3 payments of $500,000 each, one of which was paid upon execution of the License Agreement, and the other two were to be paid on September 30, 2002 and December 15, 2002, respectively. The License Agreement is more fully described in our Current Report on Form 8-K dated December 28, 2001 and filed with the SEC on January 4, 2002. On March 29, 2002 we paid in full the balance due to Stellant under the License Agreement. In consideration of the early payment, we received a discount of five percent, or $50,000. TRANSACTIONS IN CONNECTION WITH METEOR INDUSTRIES, INC. MERGER In connection with the consummation of the merger of Old AIQ and Meteor Industries on April 30, 2001, we paid Blake Capital Partners, LLC, an entity owned and controlled by Wayne W. Mills, an aggregate fee of $250,000 pursuant to financial advisory agreements. In addition, upon the completion of the merger, Blake Capital Partners received a warrant to purchase 500,000 shares of our common stock at a price of $3.00 per share. At the time of the Merger, Mr. Mills was one of our significant shareholders, but he did not become a director until December 2001. Also in connection with the Old AIQ-Meteor Industries merger, pursuant to an agreement between Meteor Industries and Gulfstream Financial Partners, LLC, an entity owned and controlled by Henry Fong, we were obligated to issue to Gulfstream Financial Partners a warrant to purchase 615,000 shares of our common stock at a price of $5.50 per share upon the consummation of the merger. Gulfstream Financial Partners is one of our significant shareholders. OTHER TRANSACTIONS In December 2000, Old AIQ entered into a subscription receivable for the purchase of 100,000 shares of common stock at a price of $2.75 per share with Mr. Eibensteiner, a director of our Company. On July 30, 2001, Mr. Eibensteiner delivered to our company a cash payment in the amount of $75,000 and a 2-month promissory note in the principal amount of $200,000. No payments have been made in satisfaction of the note, which accrues interest at the rate of 6.75 percent per annum, the prime rate in effect on the date of the note. On March 29, 2002, Mr. Mills loaned the Company $450,000, which is payable in 90 days and accrues interest at the rate of seven percent per annum. The proceeds of the loan were used to prepay the fees payable to Stellent under the December 2001 License Agreement. For consideration for this loan the Company issued a five year Warrant to purchase 25,000 shares at $3.00 per share. 55 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are filed as part of this Annual Report on Form 10-K, or are incorporated herein by reference.
Exhibit Number Description Location - ------- ----------- -------- 2.1 Stock Purchase Agreement Incorporated by reference to Form between Meteor 8-K dated February 13, 2001 (SEC Industries, Inc. and File No. 0-27968) Capco Energy, Inc. dated January 30, 2001. 2.2 First Amendment to Stock Incorporated by reference to Purchase Agreement by and Exhibit 2.2 to Form 8-K dated between Capco Energy, April 30, 2001 and filed on Inc. and Meteor May 14, 2001 (SEC File No. 01-12401) Industries, Inc. dated April 27, 2001. 2.3 Agreement and Plan of Incorporated by reference to Form Merger by and among 8-K dated February 13, 2001 (SEC Meteor Industries, File No. 0-27968) Inc., its wholly owned subsidiary, MI Merger, Inc. and ActiveIQ Technologies, Inc. 2.4 First Amendment to Incorporated by reference to Agreement and Plan of Exhibit 2.4 to Form 8-K dated Merger by and among April 30, 2001 and filed on Meteor Industries, Inc., May 14, 2001 (SEC File No. 01-12401) activeIQ Technologies, Inc. and MI Merger, Inc. dated April 27, 2001. 2.5 Agreement and Plan of Incorporated by reference to Merger by and between Exhibit 2.5 to Form 8-K dated Meteor Industries, Inc. April 30, 2001 and filed on and AIQ Acquisition Corp. May 14, 2001 (SEC File No. 01-12401) dated April 27, 2001. 2.6 Stock Purchase Agreement Incorporated by reference to by and between Active IQ Exhibit 2.1 to Registrant's Form 8-K Technologies, Inc., Red fled on June 15, 2001 Wing Business Systems, Inc. and the several shareholders of Red Wing Business Systems, Inc. dated June 6, 2001. 2.7 Agreement and Plan of Incorporated by reference to Merger by and among Active Exhibit 2.1 to Registrant's Form 8-K IQ Technologies, Inc., CBS filed on September 21, 2001 Acquisition, Inc. and Champion Business Systems, Inc. dated August 30, 2001. 2.8 Stock Purchase Agreement Incorporated by reference to by and among Active IQ Exhibit 2.1 to Registrant's Form 8-K Technologies, Inc., filed on October 28, 2001 Kenneth Hilton, Richard Moore, Gale Saint and Kenneth Hofer dated October 10, 2001. 3.1 Articles of Incorporation Incorporated by reference to of AIQ Acquisition Corp. Exhibit 3.1 to Registrant's Form 8-K filed on May 14, 2001 3.2 Articles of Merger Incorporated by reference to relating to the merger of Exhibit 3.2 to Registrant's Form 8-K Meteor Industries, Inc. filed on May 14, 2001 with and into AIQ Acquisition Corp.
56
Exhibit Number Description Location - ------- ----------- -------- 3.3 Bylaws Incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 4.3 Warrant Agreement dated Incorporated by reference to August 1, 2001 Exhibit 4.3 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 4.4 Form of Class B Redeemable Incorporated by reference to Warrant Certificate Exhibit 4.4 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 10.1 Stock Option Plan Incorporated by reference to Exhibit 6.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.2 Pledge Agreement by and Incorporated by reference to between Active IQ Exhibit 10.1 to Registrant's Form 8-K Technologies, Inc. and the filed on June 15, 2001 several shareholders of Red Wing Business Systems, Inc. dated June 6, 2001 10.3 Employment agreement by Incorporated by reference to and between Kenneth W. Exhibit 10.1 to Registrant's Brimmer and the Company Registration Statement on Form S-3 filed on dated as of May 1, 2001. August 21, 2001 (SEC File No. 333-68088) 10.4 Employment agreement by Incorporated by reference to and between D. Bradly Olah Exhibit 10.2 to Registrant's and the Company dated as of Registration Statement on Form S-3 filed on May 1, 2001. August 21, 2001 (SEC File No. 333-68088) 10.5 The Company's 2000 Incorporated by reference to Director Stock Option Exhibit 4.1 to Registrant's Plan. Registration Statement on Form S-8 filed on August 22, 2001 (SEC File No. 333-68166) 10.6 Registration Rights Incorporated by reference to Agreement by and between Exhibit 10.1 to Registrant's Form 8-K Active IQ Technologies, Inc. filed on September 21, 2001 and the several shareholders of Champion Business Systems, Inc. dated September 14, 2001. 10.7 Form of Promissory Note Incorporated by reference to dated September 14, 2001 Exhibit 10.2 to Registrant's Form 8-K filed on September 21, 2001 10.8 Form of Promissory Note Incorporated by reference to dated October 10, 2001 Exhibit 10.1 to Registrant's Form 8-K filed on October 28, 2001
57
Exhibit Number Description Location - ------- ----------- -------- 10.9 Agreement dated November Incorporated by reference to 27, 2001 by and between Exhibit 10.3 to Registrant's Kenneth W. Brimmer and the Amendment No. 1 to Registration Company. Statement on Form S-3 filed on December 10, 2001 (SEC File No. 333-68088) 10.10 Application Incorporated by reference to Service Provider Exhibit 10.1 to Registrant's Form 8-K Software License filed on January 4, 2002 Agreement dated December 28, 2001 between Stellent, Inc. and Active IQ Technologies, Inc. 10.11 Employment Filed herewith electronically Agreement effective August 1, 2001 by and between Philip C. Rickard and the Company 10.12 First Amendment to Filed herewith electronically Employment Agreement dated January 1, 2002 by and between D. Bradly Olah and the Company 10.13 Employee Stock Filed herewith electronically Option Agreement dated January 7, 2002 between D. Bradly Olah and the Company 10.14 Restricted Stock Filed herewith electronically Purchase Agreement dated January 14, 2002 by and between D. Bradly Olah and the Company 10.15 Form of Pledge Filed herewith electronically Agreement 10.16 Form of Non-Recourse Filed herewith electronically Promissory Note 10.17 1997 Incentive Plan Incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K dated December 31, 1996 (SEC File No. 0-27968) 10.18 2001 Employee Stock Option Plan Filed herewith electronically 21 Subsidiaries of the Filed herewith electronically Registrant 23.1 Consent of Virchow Krause Filed herewith electronically 23.2 Consent of Arthur Andersen, LLP Filed herewith electronically
(b) REPORTS ON FORM 8-K During the quarter ended December 31, 2001 the Company filed the following reports on Form 8-K: On October 18, 2001, the Company filed a Current Report on Form 8-K dated October 10, 2001, under items 5 and 7 announcing the acquisition of FMS Marketing Inc. On November 13, 2001, the Company filed a Current Report on Form 8-K/A dated September 18, 2001, under items 2 and 7. The Company previously filed an 8-K on September 21, 2001 to announce the completion of a merger by and among the Company, CBS Acquisition Inc. and Champion Business Systems. The Company filed this Amendment to Form 8-K to include the financial statements and proforma financial information required by item 7 of Form 8-K. On December 27, 2001, the Company filed a Current Report on Form 8-K dated December 20, 2001, under items 4 and 7, announcing a change in accountants from Arthur Andersen, LLP to Virchow, Krause & Company, LLP. 58 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACTIVE IQ TECHNOLOGIES, INC. ("REGISTRANT") Dated: April 3, 2002 By /s/ D. Bradly Olah ----------------------------------- D. Bradly Olah Chief Executive Officer, Chief Financial Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 29, 2002 by the following persons on behalf of the Registrant, in the capacities indicated.
Signatures Title - ----------------------------- -------------------------------------------- /s/ Kenneth W. Brimmer Chairman of the Board - ----------------------------- Kenneth W. Brimmer /s/ D. Bradly Olah Chief Executive Officer, Chief Financial - ----------------------------- Officer, President and Director (principal D. Bradly Olah executive and financial officer) /s/ Mark D. Dacko Controller (principal accounting officer) - ----------------------------- Mark D. Dacko /s/ Ronald E. Eibensteiner Director and Secretary - ----------------------------- Ronald E. Eibensteiner /s/ Wayne W. Mills Director - ----------------------------- Wayne W. Mills
59
Exhibit Number Description Location - ------- ----------- -------- 2.1 Stock Purchase Agreement Incorporated by reference to Form between Meteor 8-K dated February 13, 2001 (SEC Industries, Inc. and File No. 0-27968) Capco Energy, Inc. dated January 30, 2001. 2.2 First Amendment to Stock Incorporated by reference to Purchase Agreement by and Exhibit 2.2 to Form 8-K dated between Capco Energy, April 30, 2001 and filed on Inc. and Meteor May 14, 2001 (SEC File No. 01-12401) Industries, Inc. dated April 27, 2001. 2.3 Agreement and Plan of Incorporated by reference to Form Merger by and among 8-K dated February 13, 2001 (SEC Meteor Industries, File No. 0-27968) Inc., its wholly owned subsidiary, MI Merger, Inc. and ActiveIQ Technologies, Inc. 2.4 First Amendment to Incorporated by reference to Agreement and Plan of Exhibit 2.4 to Form 8-K dated Merger by and among April 30, 2001 and filed on Meteor Industries, Inc., May 14, 2001 (SEC File No. 01-12401) activeIQ Technologies, Inc. and MI Merger, Inc. dated April 27, 2001. 2.5 Agreement and Plan of Incorporated by reference to Merger by and between Exhibit 2.5 to Form 8-K dated Meteor Industries, Inc. April 30, 2001 and filed on and AIQ Acquisition Corp. May 14, 2001 (SEC File No. 01-12401) dated April 27, 2001. 2.6 Stock Purchase Agreement Incorporated by reference to by and between Active IQ Exhibit 2.1 to Registrant's Form 8-K Technologies, Inc., Red fled on June 15, 2001 Wing Business Systems, Inc. and the several shareholders of Red Wing Business Systems, Inc. dated June 6, 2001. 2.7 Agreement and Plan of Incorporated by reference to Merger by and among Active Exhibit 2.1 to Registrant's Form 8-K IQ Technologies, Inc., CBS filed on September 21, 2001 Acquisition, Inc. and Champion Business Systems, Inc. dated August 30, 2001. 2.8 Stock Purchase Agreement Incorporated by reference to by and among Active IQ Exhibit 2.1 to Registrant's Form 8-K Technologies, Inc., filed on October 28, 2001 Kenneth Hilton, Richard Moore, Gale Saint and Kenneth Hofer dated October 10, 2001. 3.1 Articles of Incorporation Incorporated by reference to of AIQ Acquisition Corp. Exhibit 3.1 to Registrant's Form 8-K filed on May 14, 2001 3.2 Articles of Merger Incorporated by reference to relating to the merger of Exhibit 3.2 to Registrant's Form 8-K Meteor Industries, Inc. filed on May 14, 2001 with and into AIQ Acquisition Corp.
Exhibit Number Description Location - ------- ----------- -------- 3.3 Bylaws Incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 4.3 Warrant Agreement dated Incorporated by reference to August 1, 2001 Exhibit 4.3 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 4.4 Form of Class B Redeemable Incorporated by reference to Warrant Certificate Exhibit 4.4 to Registrant's Registration Statement on Form S-3 filed on August 21, 2001 (SEC File No. 333-68088) 10.1 Stock Option Plan Incorporated by reference to Exhibit 6.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.2 Pledge Agreement by and Incorporated by reference to between Active IQ Exhibit 10.1 to Registrant's Form 8-K Technologies, Inc. and the filed on June 15, 2001 several shareholders of Red Wing Business Systems, Inc. dated June 6, 2001 10.3 Employment agreement by Incorporated by reference to and between Kenneth W. Exhibit 10.1 to Registrant's Brimmer and the Company Registration Statement on Form S-3 filed on dated as of May 1, 2001. August 21, 2001 (SEC File No. 333-68088) 10.4 Employment agreement by Incorporated by reference to and between D. Bradly Olah Exhibit 10.2 to Registrant's and the Company dated as of Registration Statement on Form S-3 filed on May 1, 2001. August 21, 2001 (SEC File No. 333-68088) 10.5 The Company's 2000 Incorporated by reference to Director Stock Option Exhibit 4.1 to Registrant's Plan. Registration Statement on Form S-8 filed on August 22, 2001 (SEC File No. 333-68166) 10.6 Registration Rights Incorporated by reference to Agreement by and between Exhibit 10.1 to Registrant's Form 8-K Active IQ Technologies, Inc. filed on September 21, 2001 and the several shareholders of Champion Business Systems, Inc. dated September 14, 2001. 10.7 Form of Promissory Note Incorporated by reference to dated September 14, 2001 Exhibit 10.2 to Registrant's Form 8-K filed on September 21, 2001 10.8 Form of Promissory Note Incorporated by reference to dated October 10, 2001 Exhibit 10.1 to Registrant's Form 8-K filed on October 28, 2001
Exhibit Number Description Location - ------- ----------- -------- 10.9 Agreement dated November Incorporated by reference to 27, 2001 by and between Exhibit 10.3 to Registrant's Kenneth W. Brimmer and the Amendment No. 1 to Registration Company. Statement on Form S-3 filed on December 10, 2001 (SEC File No. 333-68088) 10.10 Application Incorporated by reference to Service Provider Exhibit 10.1 to Registrant's Form 8-K Software License filed on January 4, 2002 Agreement dated December 28, 2001 between Stellent, Inc. and Active IQ Technologies, Inc. 10.11 Employment Filed herewith electronically Agreement effective August 1, 2001 by and between Philip C. Rickard and the Company 10.12 First Amendment to Filed herewith electronically Employment Agreement dated January 1, 2002 by and between D. Bradly Olah and the Company 10.13 Employee Stock Filed herewith electronically Option Agreement dated January 7, 2002 between D. Bradly Olah and the Company 10.14 Restricted Stock Filed herewith electronically Purchase Agreement dated January 14, 2002 by and between D. Bradly Olah and the Company 10.15 Form of Pledge Filed herewith electronically Agreement 10.16 Form of Non-Recourse Filed herewith electronically Promissory Note 10.17 1997 Incentive Plan Incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K dated December 31, 1996 (SEC File No. 0-27968) 10.18 2001 Employee Stock Option Plan Filed herewith electronically 21 Subsidiaries of the Filed herewith electronically Registrant 23.1 Consent of Virchow Krause Filed herewith electronically 23.2 Consent of Arthur Andersen, LLP Filed herewith electronically
EX-10.11 3 c68476ex10-11.txt EMPLOYMENT AGREEMENT - PHILIP C. RICKARD EXHIBIT 10.11 PHILIP C RICKARD ACTIVE IQ TECHNOLOGIES, INC. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective the 1st day of August 2001 by and between Philip C Rickard, a Minnesota resident ("Employee") and ACTIVE IQ TECHNOLOGIES, INC., a Minnesota corporation (the "Company"). WHEREAS, Employee desires to provide his services to the Company upon the terms and conditions hereinafter set forth; and WHEREAS, the Company desires to employ Employee upon the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of these premises and the mutual promises made herein and the mutual benefits to be derived here from, Employee and the Company, intending to be legally bound, hereby agree as follows: 1. Employment . The Company hereby employs Employee as Executive Vice President (EVP), and Employee hereby accepts employment with the Company upon the terms and conditions hereinafter set forth. 2. Term. Employment shall be for an initial term of Two (2) years commencing on August 1, 2001 and continuing until the earlier of (i) July 31, 2003; or (ii) the date Employee's employment terminates pursuant to Section 10 hereof. Unless Executive's employment has been terminated pursuant to Section 10, the term of this Agreement shall be automatically renewed and extended for an additional one year period (in addition to any remaining term) on each anniversary date hereof unless, at least sixty (60) days prior to such extension date, the Company provides written notice of its decision to not extend. 3. Duties. Employee shall report to and take direction from the President. Employee shall perform those duties that are usual and customary for an EVP of a software sales, service and development enterprise. He shall perform his duties in a manner reasonably expected of an EVP of such a company. 4. Compensation. During the term of his employment, Employee shall receive the following (collectively, the "Compensation"): (a) An initial annual base salary of $100,000, commencing upon the execution of this agreement and subject to increase by the President of the Company. Payments will be made in equal installments in accordance with the Company's payment policy (subject to standard withholding amounts for local, state and federal taxes); and 1 (b) An annual bonus of up to Fifty percent (50%) of the Employee's base salary, dependent upon the achievement of corporate objectives established by the Company's Board of Directors; (c) The Company also agrees to grant Employee, immediately following execution of this Agreement, an additional stock option for 75,000 shares of Company Common Stock (as attached in a separate agreement) with an exercise price of $5.50 with 25% vesting immediately and the balance vesting equally over a three-year period on each successive May 1, 2002, 2003 and 2004. This option grant is conditioned upon shareholder approval of an amendment to the Company's 1999 Stock Option Plan (the "Plan") increasing the number of shares reserved and available under the Plan; provided, however, that in the event such shareholder approval is not obtained, then this option will nonetheless be valid with respect to that number of shares available under the Plan without such amendment. 5. Expenses. Employee shall be reimbursed for travel and other out-of-pocket business expenses, provided they have been reasonably incurred in the performance of Employee's duties for the Company. Employee shall submit to the Company an itemized account detailing the expenses on a form provided to Employee by the Company, accompanied by receipts. The Company reserves the right to reject reimbursement of expense submissions not in compliance with the terms set forth in this Section or which are not in compliance with Internal Revenue Service statutes, rules, regulations or other controlling or interpretive authority. 6. Benefits. The Company shall provide Employee with full participation in the Company's employee benefit plans under the same terms as provided to other similarly positioned employees of the Company from time to time. Such benefits are subject to change at any time without notice. Employee is entitled to four (4) weeks of vacation per year upon the same terms and conditions as provided to the other employees of the Company. Vacation time will be scheduled taking into account the Employee's duties and obligations at the Company. Sick leave, holiday pay and all other leaves of absence also will be in accordance with the Company's stated personnel policies. 7. Confidential Information. Employee acknowledges and agrees that in the course of, or incident to, his employment as an employee hereunder, the Company may provide to Employee, or Employee may otherwise be exposed to or obtain, confidential information. Without the prior written consent of the President of the Company, except as shall be necessary in the performance of Employee's assigned duties, Employee shall not disclose or use for Employee's direct or indirect benefit or the direct or indirect benefit of any third party, and Employee shall maintain, both during and after Employee's employment by the Company, the confidentiality of any Confidential Information (as hereinafter defined) of the Company. In general, "Confidential Information" means any and all information of the Company, including, but not limited to, any information relating to: research; processes; inventions; products; methods; computer codes or instructions and related documentation; and materials prepared by Employee in the course of, relating to or arising out of his employment by the Company, or prepared by any other employee or contractor for the Company or the Company's customers or clients; cost data; business and financial studies; business procedures; financial information; financial forecasts and projections; marketing and business development data, methods, plans and efforts; the identities of customers or clients, contractors and suppliers and prospective customers or clients, contractors and suppliers; the terms of contracts and agreements with customers or clients, contractors and suppliers; the Company's relationship with actual and prospective customers or clients, contractors and suppliers and the needs and requirements of, and the Company's course of dealing with, any such actual or prospective customers or clients, contractors and suppliers; personnel information; customer and vendor credit information; and any other materials that have not been made available to the general public. Failure to mark any of the Confidential Information as confidential or proprietary shall not affect its status as Confidential Information under the terms of this Agreement. The obligations of this Section shall survive the termination of this Agreement. 2 8. Inventions or Discoveries. Employee acknowledges that inventions, other discoveries, innovations, designs, improvements and software (whether or not they are in writing or reduced to practice) or works of authorship (whether or not they can be patented or copyrighted) may be developed, conceived or otherwise made by Employee during the term of this Agreement (collectively, "Inventions"). Employee agrees that all Inventions shall be the exclusive property of Company. With respect to all Inventions, Employee agrees to: (a) Keep accurate, complete and timely records, which shall be Company's property and shall be retained on Company's premises; and (b) Promptly and fully disclose and describe all Inventions to Company; and (c) Assign (and Employee does hereby assign) to Company all of Employee's rights to the Inventions, and to application for letters patent or copyrights in all countries and to letters patent or copyrights granted upon these Inventions in all countries; and (d) To do such other acts as may be necessary or helpful in the opinion of Company to preserve property rights to these Inventions against forfeiture, abandonment or loss and to obtain and maintain letters patent or copyrights and to vest the entire right and title thereto exclusively in Company. The obligations of this Section shall continue beyond the termination of this Agreement with respect to Inventions conceived or otherwise developed during the term of this Agreement and for the one-year period following the termination of this Agreement and shall be binding upon assigns, executors, administrators and other legal representatives. Notwithstanding anything to the contrary contained herein, the foregoing Section 8 shall not apply to Employee's rights in any invention that the Employee developed entirely on his own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrable anticipated research or development of the Company; or (2) result from any work performed by Employee for the Company. 9. Property. During the term of this Agreement and thereafter, Employee shall not remove from the Company's offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda, computer tapes, computer disks or similar materials of or containing confidential information of the type identified in Section 7 hereof, or other materials or property of any kind, unless necessary in accordance with Employee's duties and responsibilities of employment, and in the event that any of such material or property is removed, all of the foregoing shall be returned to their proper files or places of safekeeping as promptly as possible after the removal shall have served its specific purpose; nor shall Employee make, retain, remove or distribute any copies of any of the foregoing for any reason whatsoever, except as may be necessary in the discharge of Employee's assigned duties; and upon the termination of Employee's employment by the Company, Employee shall leave with or return to the Company all originals and copies of the foregoing, then in Employee's possession, whether prepared by Employee or by others. 3 10. Termination of Employment. (a) Termination for Cause. The Company may terminate employment under this Agreement only for Cause. For the purposes of this Agreement, "Cause" shall mean (i) willful misconduct that is injurious to the Company monetarily or otherwise, including, but not limited to, misappropriation of funds; (ii) conviction of a crime punishable by imprisonment for a term in excess of one (1) year or involving moral turpitude; or (iii) failure of Employee to perform the duties assigned to Employee by the President or their assignee, provided, however, that the Company shall have detailed in writing the specific duties the Employee has failed to perform and shall have provided Employee with a ninety (90) day period to cure such failure. Notwithstanding the foregoing, this Agreement shall terminate in its entirety immediately upon death of Employee. (b) Disability. If Employee has become disabled such that he cannot perform the essential functions of his job with or without reasonable accommodation, and the disability continues for a period of more than ninety (90) days, the Board may, in its discretion, terminate his employment under this Agreement. 11. Effect of Termination of Employment. Except as expressly set forth herein, upon the termination of Employee's employment hereunder in accordance with Section 10, neither the Employee nor his beneficiary or estate shall have any further rights or claims against the Company under this Agreement or otherwise. 12. Covenant Not to Compete. (a) Prohibition on Direct Competition. Regardless of whether or not this Agreement or the Employee's employment is terminated, for the duration of Employee's employment and for the twelve (12) month period following the termination of Employee's employment (hereinafter, the "Restricted Period"), Employee shall not compete, directly or indirectly, in any geographic area in which the Company conducts business within the six (6) month period following the termination of this Agreement, with the day-to-day business activities of the Company, which shall include, but shall not be limited to, the offering of services and/or products and/or other deliverables similar to products or services or other deliverables sold, offered, or proposed to be sold in the twelve (12) month period prior to the Restricted Period. For purposes of this Section 12, the term "Company" shall include all subsidiaries of the Company. (b) Prohibition on Indirect Competition. Employee shall be deemed to be competing (for the purposes of this Section 12), if Employee shall engage, directly or indirectly, in any business offering products or services similar to those offered or proposed to be offered by the Company in its day-to-day business, whether for his own account or that of any other person, firm, corporation, partnership or other business entity, and whether his participation shall be as a stockholder, general or limited partner, or investor possessing an ownership interest exceeding one percent (10%) in any such entity, or as a principal agent, proprietor, officer, director, employee, sales representative, consultant, lender or in any other capacity. (c) Non-Solicitation of Customers. Regardless of whether or not this Agreement or the Employee's employment is terminated, during the Restricted Period, neither Employee or his Affiliate shall directly or indirectly, solicit, divert, take away or induce customers or clients (wherever located) of the Company to avail themselves of the services or products of others that are competitive with any of the Company's services or products, it being agreed that such actions would require Employee to violate the Company's right to its secret or proprietary information. For purposes of this Agreement, "Affiliate" shall mean any person or entity controlled by Employee. 4 (d) Non-Solicitation of Employees and Consultants. Regardless of whether or not this Agreement or the Employee's employment is terminated, during the Restricted Period, neither Employee or his Affiliate shall: (i) solicit, divert, take away or induce any employee or consultant of the Company to leave the employ of or sever the relationship with the Company; or (ii) employ or hire any person who was an employee or consultant of the Company at any time during the past twelve (12) rolling months. (e) Consideration. Employee agrees that the restrictions set forth in this Section 12 are given in consideration for Company's selection of Employee as EVP, Employee's continued employment and his being granted access to Confidential Information. Employee agrees that these restrictions are reasonable under the circumstances, and Employee understands that the Company would not agree to employment without Employee's agreement to the restrictions set forth in this Section 12. Furthermore, in connection with Employees' employment with the Company, the restrictions set forth in this Section 12 are designed to protect the Company's proprietary rights and property rights including, but not limited to, customer lists and trade secrets. (f) Enforcement. If the scope of the restrictions in this Section 12 is determined by a court of competent jurisdiction to be too broad to permit enforcement of such restrictions to their full extent, then such restrictions shall be construed or rewritten so as to be enforceable to the maximum extent permitted by law, and Employee hereby consents, to the extent he may lawfully do so, to the judicial modification of the scope of such restrictions in any proceeding brought to enforce them. (g) Enforcement where Termination of Employment. The restrictions of this Section 12 shall be enforceable provided this Agreement terminates through expiration or if the Company terminates Employee for Cause pursuant to Section 10 hereof. In the event that Employee's employment is terminated at any time prior to the expiration of the term of this Agreement without Cause, however, then the restrictions of this Section 12 shall be unenforceable. 13. Severance and Change in Control. (a) Termination for Cause. In the event that Employee is terminated for Cause pursuant to Section 10 hereof, Employee shall not be entitled to severance. (b) Termination Without Cause. In the event that Employee is terminated without Cause at any time (other than expiration of this Agreement by its own terms), then Employee shall be entitled to a lump sum payment equal to his most recent base salary. (c) Change in Control. In the event of any termination of the Employee's employment by the Company in connection with or within one year after a Change in Control or in the event of resignation by Employee following a change in Control under Section 13 (c) (v) below, Employee shall receive his then-current base salary for a Twenty-four month period. If the Employee is still employed by the Company on the first anniversary of a Change in Control, then the Employee shall be entitled to a bonus equal to the Employee's then-current base salary in addition to any other bonuses that the Employee may have earned. This Section 13(c) does not apply to Company's proposed merger with Meteor Industries, Inc. or any other subsidiary thereof. 5 As used in this Agreement, "Change in Control" shall mean a change in control which would be required to be reported in response to item 6(e,) on Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, including, without limitation, if: (i) any person (as such term is used in Sections 13(d) and l4(d) of the Exchange Act, including any affiliate or associate as defined in Rule 12(b)-2 under the Exchange Act of such person, other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) less than a majority of the Board of Directors is comprised of the individuals described below; or (iii) the stockholders of the Company approve a definitive agreement to merge or consolidate the Company with or into another corporation or other enterprise in which the holders of outstanding stock of the Company entitled to vote in elections of directors immediately before such merger or consolidation hold less than 50% of the voting power of the survivor of such merger or consolidation or its parent, or approve a plan of liquidation; or (iv) at least 80% of the Company's assets are sold and transferred to another corporation or other enterprise that is not a subsidiary, direct or indirect, or other affiliate of the Company. (v) The assignment to Employee of any duties inconsistent in any respect with the EVP position (including status, offices, titles, and reporting requirements), authorities, duties, or other responsibilities or any other action of the Company which results in a diminishment of Employee's position, authority, compensation, duties, or responsibilities, other than a insubstantial and inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by Employee. "Board of Directors", for purposes of this Section 12(h), shall mean individuals who on the date hereof constituted the Board of the Company, and any new director who subsequently was elected or nominated for election by a majority of the individuals who on the date hereof constituted the Board of Directors and those individuals, if any, who were previously elected or nominated as provided for in this Section. 14. Intellectual Property. (a) Employee acknowledges that any and all writings, documents, inventions, discoveries, computer programs or instructions (whether in source code, object code, or any other form), algorithms, plans, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, and/or techniques (whether reduced to written form or otherwise) that Employee makes, conceives, discovers or develops, either solely or jointly with any other person, at any time during the term of Employee's employment, whether during working hours or at the Company's facility or at any other time or location, and 6 whether upon the request or suggestion of the Company or otherwise, that relate to or are useful in any way in connection with any business now or hereafter carried on by the Company (collectively, "Intellectual Work Product") shall be the sole and exclusive property of the Company. Employee shall promptly disclose to the Company all Intellectual Work Product, and Employee shall have no claim for additional compensation for the Intellectual Work Product. (b) Employee acknowledges that all the Intellectual Work Product that is copyrightable shall be considered a work made for hire under United States copyright law. To the extent that any copyrightable Intellectual Work Product may not be considered a work made for hire under the applicable provisions of copyright law, or to the extent that, notwithstanding the foregoing provisions, Employee may retain an interest in any Intellectual Work Product that is not copyrightable, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee may have in the Intellectual Work Product under copyright, patent, trade secret and trademark law in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration. The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, and trademarks with respect thereto. (c) At the request and sole expense of the Company, either before or after the termination of Employee's employment, Employee shall assist the Company in acquiring and maintaining copyright, patent, trade secret, and trademark protection upon, and confirming the Company's title to, any Intellectual Work Product. Employee's assistance will include signing all applications for copyrights and patents and other papers, cooperating in legal proceedings, and taking any other steps considered desirable by the Company, provided however that the Employee shall be entitled to reasonable reimbursement for his time, efforts and expenses following the termination of his employment. 15. Indemnification. During the term of this Agreement, the Company shall indemnify the Employee against all judgments, penalties, fines, amounts paid in settlement and reasonable expenses (including, but not limited to, attorneys' fees) relating to his employment by the Company to the fullest extent permissible by law. 16. Disclosure. Employee hereby represents that Employee is not subject to any other agreement that Employee will violate by signing this Agreement. Employee shall disclose the existence and terms of this Agreement to any employer that Employee may work for after the termination of Employee's employment at the Company. 17. Conflicting Business. Employee agrees that he will not transact business with the Company personally, or as agent, owner, partner, or shareholder of any other entity. Employee further agrees that he will not engage in any business activity or outside employment that may be in conflict with the Company's proprietary or business interests. 18. Successors and Assigns. The Company may assign this Agreement to, and this Agreement shall bind and inure to the benefit of, any parent, subsidiary, affiliate or successor of the Company. This Agreement shall not be assignable by Employee. 7 19. Entire Agreement; Amendments. This Agreement contains the entire agreement and understanding of the parties relating to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of every nature between them other than the Merger Agreement. This Agreement may not be changed or modified, except by an agreement in writing signed by both of the parties hereto. 20. Waiver. The waiver of the breach of any term or provision of this Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement. Failure of a party to enforce any provision hereof shall not be deemed a waiver of such party's right to enforce such provision in the future. 21. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Minnesota, without regard to conflicts of law principles of Minnesota or any other jurisdiction. 22. Invalidity. In case any one or more of the provisions or portions of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision or portion of any provision of this Agreement, and any such provision or any such portion of any provision shall be deemed modified to the extent necessary to make it enforceable. In the event that a court of competent jurisdiction determines that one or more of the provisions or portions of the provisions contained in this Agreement is over broad or over reaching, such provision or portion thereof shall be deemed modified to the extent necessary to make it enforceable to the maximum extent allowed by law. If any provision herein is not enforceable as written, the parties hereto agree that such court shall reform the provision to provide the maximum restriction enforceable against Employee and that the provision, as reformed, shall be enforceable. 23. Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 24. Gender; Number. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 25. Enforcement. Employee acknowledges that it is impossible to measure fully, in money, the injury that will be caused to the Company in the event of a breach or threatened breach of this Agreement, and Employee waives the claim or defense that the Company has an adequate remedy at law. Employee shall not, in any action or proceeding to enforce the provisions of this Agreement, assert the claim or defense that such a remedy at law exists. The Company shall be entitled to injunctive relief to enforce the provisions of this Agreement, without prejudice to any other remedy the Company may have at law or in equity. 8 26. Consent to Suit. Except as otherwise provided by the last sentence of this Section 24, each of the Company and Employee irrevocably and unconditionally (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Agreement brought by either of them or any of their affiliates or any combination thereof, shall only be instituted in Minneapolis, Minnesota; (b) consents and submits to the jurisdiction of such courts in any suit, action or other legal proceeding arising out of or related to this Agreement; (c) consents to personal jurisdiction in such court and further agrees that service of process upon Employee may be effected by certified mail or by any other means permitted by law; (d) waives any objection which Employee may have to the laying of venue of any such suit, action or proceeding in any such court; and (e) waives any claim or defense of inconvenient forum. This Section 24 shall not prevent the Company from seeking to enforce this Agreement in any other court of competent jurisdiction. 27. Notices. All notices or other communications hereunder shall be in writing and shall be deemed given (i) on the same day if given in person; (ii) the next business day if sent by overnight courier service to the parties at the addresses set forth below or to such other addresses as shall be specified by notice to the other parties hereunder or (iii) the next business day if sent by telefax, electronic confirmation requested: If to the Company: with a copy to: Active IQ Technologies, Inc. William M. Mower 601 Carlson Parkway, Suite 1500 Maslon Edelman Borman & Brand, LLP Minnetonka, MN 55305 3300 Wells Fargo Center Attention: Executive Vice President 90 South 7th Street Telefax No: 952 449 5001 Minneapolis, MN 55402 Telephone No.: (612) 672-8358 Telefax No.: (612) 672-8397 9 To Employee: Philip C Rickard 12500 Marion Lane #4304 Minnetonka, MN 55305 Tel. 952.544.0258 Social Security #: ###-##-#### 28. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 29. Survival of Provisions. Sections 7 through 27 shall survive the termination of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed the day and year first above written. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ D. Bradly Olah ----------------------------------- /s/ Philip C. Rickard Title: President - --------------------------------- -------------------------------- Philip C Rickard 10 EX-10.12 4 c68476ex10-12.txt 1ST AMENDMENT TO EMPLOYMENT AGMNT - D. BRADLY OLAH Exhibit 10.12 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement (the "Amendment") is made as of January 1, 2002, by and between D. Bradly Olah (the "Employee") and Active IQ Technologies, Inc., a Minnesota corporation (the "Company"). WHEREAS, the Company and Employee are parties to that certain Employment Agreement effective as of May 1, 2001 (the "Employment Agreement"), pursuant to which the Company employed Employee as its President and Chief Operating Officer (COO); and WHEREAS, since the execution of the Employment Agreement, Employee has been appointed Chief Executive Officer, in addition to his positions as President and COO; and WHEREAS, the Company and Employee now desire to amend the Employment Agreement in order to increase Employee's salary. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Employment as Chief Executive Officer. Sections 1 and 3 of the Employment Agreement shall be amended and restated in their entirety to read as follows: " 1. Employment. The Company hereby employs Employee as Chief Executive Officer, President and COO, and Employee hereby accepts employment with the Company upon the terms and conditions hereinafter set forth." " 3. Duties. Employee shall report to and take direction from the Board of Directors. Employee shall perform those duties that are usual and customary for a Chief Executive Officer, President and COO of a software sales, service and development enterprise. He shall perform his duties in a manner reasonably expected of a Chief Executive Officer, President and COO of such a company." 2. Compensation. Notwithstanding anything to the contrary contained in the Employment Agreement, Employee's annual base salary shall be $200,000, subject to increase by the Company's Board of Directors. 3. Except as expressly amended hereby, all other terms and conditions of the Employment Agreement shall remain in full force and effect. 4. This Amendment may be executed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Employment Agreement effective as of the date first set forth above. EMPLOYEE: COMPANY: ACTIVE IQ TECHNOLOGIES, INC. /s/ D. Bradly Olah By: /s/ Kenneth W. Brimmer - --------------------------------- ----------------------------------- D. Bradly Olah Its: Chairman of the Board EX-10.13 5 c68476ex10-13.txt EMPLOYEE STOCK OPTION AGREEMENT - D. BRADLY OLAH Exhibit 10.13 [LOGO] ACTIVE IQ TECHNOLOGIES, INC. EMPLOYEE STOCK OPTION AGREEMENT This STOCK OPTION AGREEMENT is made and entered into as of January 7, 2002 between D. Bradly Olah ("Employee") and Active IQ Technologies, Inc., a Minnesota corporation (the "Company"). BACKGROUND Employee has either been hired to serve as an employee of the Company or the Company desires to induce Employee to continue to serve the Company as an employee, and the Company desires to issue to Employee an option to purchase common stock of the Company pursuant to the Company's 1999 Stock Option Plan (the "Plan"). NOW, THEREFORE, the parties hereto agree as follows: 1. Incorporation by Reference. The terms and conditions of the Plan, a copy of which has been delivered to Employee, are hereby incorporated herein and made a part hereof by reference as if set forth in full. In the event of any conflict or inconsistency between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall govern and control. 2. Grant of Option; Purchase Price. Subject to the terms and conditions herein set forth, the Company hereby irrevocably grants from the Plan to Employee the right and option, hereinafter called the "Option", to purchase all or any part of an aggregate of the number of shares of common stock, $.01 par value, of the Company (the "Shares") set forth at the end of this Agreement after "Number of Shares:" at the price per Share set forth at the end of this Agreement after "Purchase Price." 3. Exercise and Vesting of Option. The Option shall be exercisable only to the extent that all, or any part thereof, has vested in the Employee. Except as provided in Paragraph 4 hereof, the Option shall vest on a pro rata basis in installments over a three (3) year period, beginning on the first anniversary of the date hereof and continuing on each anniversary date of this Agreement until the Option is fully vested (hereinafter referred to singularly as a "Vesting Date" and collectively as "Vesting Dates"). 4. Early Exercise of Option. Notwithstanding the provisions of Section 3, Employee may exercise all of the Option, whether or not vested pursuant to Section 3, at any time following the date hereof. In the event Employee exercises the Option with respect to any portion thereof that has yet to vest in accordance with the provisions of Section 3, Employee shall be required to execute and deliver to the Company a Restricted Stock Purchase Agreement in the form attached hereto as EXHIBIT A. 5. Termination of Employment. In the event that the Employee ceases to be employed by the Company, for any reason or no reason, with or without cause, prior to any Vesting Date, that part of the Option scheduled to vest on such Vesting Date, and all parts of the Option scheduled to vest in the future, shall not vest and all of Employee's rights to and under such non-vested parts of the Option shall terminate. 6. Term of Option. To the extent vested, and except as otherwise provided in this Agreement, the Option shall be exercisable for ten (10) years from the date of this Agreement; provided, however, that in the event Employee ceases to be employed by the Company, for any reason or no reason, with or without cause, Employee or his/her legal representative shall have ninety (90) days from the date of such termination of his/her position as an employee to exercise any part of the Option vested pursuant to Section 3 of this Agreement. Upon the expiration of such 90-day period, or, if earlier, upon the expiration date of the Option as set forth above, the Option shall terminate and become null and void. 7. Method of Exercising Option. Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by written notice to the Company. Such notice shall state the election to exercise the Option and the number of Shares in respect of which it is being exercised, and shall be signed by the person or persons so exercising the Option. Such notice shall either: (a) be accompanied by payment of the full purchase price of such Shares, in which event the Company shall deliver a certificate or certificates representing such Shares as soon as practicable after the notice shall be received; or (b) fix a date not less than five (5) nor more than ten (10) business days from the date such notice shall be received by the Company for the payment of the full purchase price of such Shares against delivery of a certificate or certificates representing such Shares. Payment of such purchase price shall be made by delivery of a promissory note, the form of which shall be substantially similar to EXHIBIT B attached hereto (the "Note"), in favor of the Company in a principal amount equal to the total purchase price. The Note shall be secured pursuant to the terms of a pledge agreement in substantially the form attached hereto as EXHIBIT C. Any such notice shall be deemed given when received by the Company at its principal place of business. All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 8. Rights of Option Holder. Employee, as holder of the Option, shall not have any of the rights of a shareholder with respect to the Shares covered by the Option except to the extent that one or more certificates for such Shares shall be delivered to him or her upon the due exercise of all or any part of the Option. 9. Non-Transferability. The Option shall not be transferable otherwise than as stated in the Plan. 10. Securities Law Matters. Employee acknowledges that the Shares to be received by him or her upon exercise of the Option may have not been registered under the Securities Act of 1933 or the Blue Sky laws of any state (collectively, the "Acts"). If such Shares have not been so registered, Employee acknowledges and understands that the Company is under no obligation to register, under the Acts, the Shares received by him or her or to assist him or her in complying with any exemption from such registration if he or she should at a later date wish to dispose of the Shares. Employee understands that the exercise of the Option and the sale of the common stock issuable upon exercise of such option must be done in compliance with federal and state securities laws. 11. Incentive Stock Option. The Company intends that the Option shall be an incentive stock option governed by the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The terms of the Plan and the Option shall be interpreted and administered so as to satisfy the requirements of the Code. 12. Acceleration. The vesting of the Options granted hereunder shall accelerate, if at all, as stated in the Plan. 13. Employee Representations. Employee hereby represents and warrants that Employee has reviewed with his or her own tax advisors the federal, state, and local tax consequences of the transactions contemplated by this Agreement. Employee is relying solely on such advisors and not on any statements or representation of the Company or any of its agents. Employee understands that he or she will be solely responsible for any tax liability that may result to him or her as a result of the transactions contemplated by this Agreement. The Option, if exercised, will be exercised for investment and not with a view to the sale or distribution of the Shares to be received upon exercise thereof. 14. Notices. All notices and other communications provided in this Agreement will be in writing and will be deemed to have been duly given when received by the party to whom it is directed at the following addresses: ACTIVE IQ TECHNOLOGIES, INC. CONFIDENTIAL 2 If to the Company: If to Employee: Active IQ Technologies, Inc. D. Bradly Olah 601 Carlson Parkway, Suite 1550 5950 County Road 101 Minnetonka, MN 55305 Plymouth, MN 55446 Attn: Chairman 14. General. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. This Agreement, in its interpretation and effect, shall be governed by the laws of the State of Minnesota applicable to contracts executed and to be performed therein. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. NUMBER OF SHARES: EMPLOYEE: 500,000 - ----------------- EXERCISE PRICE: /s/ D. Bradly Olah --------------------------------------- $4.00 (Signature) - ----------------- ACTIVE IQ TECHNOLOGIES, INC. By /s/ Kenneth W. Brimmer ----------------------------------- Its Chairman of the Board ACTIVE IQ TECHNOLOGIES, INC. CONFIDENTIAL 3 EX-10.14 6 c68476ex10-14.txt RESTRICTED STOCK PURCHASE AGREEMENT Exhibit 10.14 RESTRICTED STOCK PURCHASE AGREEMENT THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 14th day of January, 2002, by and between D. Bradly Olah (the "Purchaser") and Active IQ Technologies, Inc., a Minnesota corporation (the "Company"). RECITALS WHEREAS, pursuant to the Company's 1999 Stock Option Plan (as amended) (the "Plan"), the Company granted to Purchaser the right to purchase up to 500,000 shares of the Company's Common Stock, which option grant was made pursuant to that certain Option Agreement dated as of January 7, 2002 (the "Option Agreement") by and between Purchaser and the Company, which Option Agreement and Plan are hereby incorporated by reference; WHEREAS, Purchaser has elected to purchase 500,000 of those shares of Common Stock which have not become vested under the vesting schedule set forth in the Option Agreement ("Unvested Shares"). The Unvested Shares and the shares subject to the Option Agreement which have become vested are sometimes collectively referred to herein as the "Shares;" and WHEREAS, as required by the Option Agreement, as a condition to Purchaser's election to exercise the option, Purchaser must execute this Agreement, which sets forth the rights and obligations of the parties with respect to Unvested Shares acquired upon exercise of the Option pursuant to Section 4 of the Option Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. Repurchase Option. (a) If Purchaser's continuous status as an employee of the Company is terminated for any reason, including for cause, death or Disability, or for no reason (an "Employment Termination"), the Company shall have the right and option to purchase from Purchaser, or Purchaser's personal representative, as the case may be, all of the Purchaser's Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Shares (the "Repurchase Option"). (b) Upon the occurrence of an Employment Termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to Purchaser (or his transferee or legal representative, as the case may be), within ninety (90) days of the termination, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty (30) days from the mailing of such notice. The closing shall take place at the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor. (c) At its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and waiving the closing at the Company's office. (d) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase Option shall terminate. (e) The Repurchase Option shall terminate in accordance with the vesting schedule contained in the Option Agreement. 2. Transferability of the Shares; Escrow. (a) Purchaser hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company. (b) To insure the availability for delivery of Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the Secretary, or any other person designated by the Company as escrow agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the Secretary of the Company, or such other person designated by the Company, the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as Annex A. The Unvested Shares and stock assignment shall be held by the Secretary in escrow until the Company exercises its Repurchase Option, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares in the escrow agent's possession belonging to the Purchaser, and the escrow agent shall be discharged of all further obligations hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement. (c) The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment. (d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Option Agreement with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement. 3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein. 4. Legends. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable federal and state securities laws): 2 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 5. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company pursuant to Section 11.6 of the Plan after the date of this Agreement. 6. Notices. Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at their respective principal executive offices. 7. Survival of Terms. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors. 8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Option for Unvested Shares, an election (the "Election") may be filed for U. S. tax purposes by the Purchaser with the Internal Revenue Service, within 30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code, to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value (as defined in the Plan) on the date of purchase. In the case of a non-qualified stock option, this will result in a recognition of taxable income to the Purchaser on the date of exercise, measured by the excess, if any, of the Fair Market Value of the Shares, at the time the Option is exercised over the purchase price for the Shares. Absent such an Election, taxable income will be measured and recognized by Purchaser at the time or times on which the Company's Repurchase Option lapses. In the case of an incentive stock option, such an Election will result in a recognition of income to the Purchaser for alternative minimum tax purposes on the date of exercise, measured by the excess, if any, of the Fair Market Value of the Shares, at the time the option is exercised, over the purchase price for the Shares. Absent such an Election, alternative minimum taxable income will be measured and recognized by Purchaser at the time or times on which the Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached hereto as Annex B for reference. PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MARE THIS FILING ON PURCHASERS BEHALF. 9. Representations. Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. 3 10. Governing, Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Minnesota, without regard to conflict of law principles of the State of Minnesota or any other jurisdiction. Purchaser represents that he has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement. IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above. PURCHASER: ACTIVE IQ TECHNOLOGIES, INC. /s/ D. Bradly Olah By: /s/Philip C. Rickard - --------------------------------- ----------------------------------- D. Bradly Olah Its: E VP SSN: ---------------------------- Address: 5950 County Road 101 Plymouth, MN 55446 4 EX-10.15 7 c68476ex10-15.txt FORM OF PLEDGE AGREEMENT Exhibit 10.15 EXHIBIT C PLEDGE AGREEMENT THIS PLEDGE AGREEMENT dated __________, 200__ is entered into by and between D. Bradly Olah, a resident of the State of Minnesota (the "Pledgor") and Active IQ Technologies, Inc., a Minnesota corporation (the "Pledgee"). WHEREAS, Pledgor and Pledgee have entered into that certain Stock Option Agreement (the "Option Agreement") dated January 7, 2002, pursuant to which Pledgor was granted an option to purchase up to 500,000 shares of Pledgee's common stock; WHEREAS, Pledgor has borrowed from Pledgee the sum of $_______ to purchase shares of Pledgee's common stock in connection with the Option Agreement; WHEREAS, Pledgee's loan to Pledgor is evidenced by Pledgor's promissory note of even date herewith (the "Note"); and WHEREAS, the terms and conditions of the Option Agreement provide that Pledgor shall secure any loan issued in connection with an exercise under the Option Agreement with an interest in the securities purchased with the loan proceeds. NOW, THEREFORE, in order to secure payment of the Note, and any and all amounts that may become owing thereunder (the "Obligations"), and in consideration of the premises and the mutual covenants of the parties hereinafter set forth, it is agreed: 1. Pledge. As collateral for the payment of the Obligations, Pledgor hereby grants a security interest to Pledgee and deposits with Pledgee (accompanied by a Medallion guaranteed stock power executed in blank) 500,000 shares of common stock of Active IQ Technologies, Inc. issued to Pledgor bearing certificate number(s) ______ (which shares shall hereinafter be referred to as the "Pledged Stock") and agrees to perform the obligations set forth herein. The Pledged Stock shall be held and disposed of pursuant to the terms of this Agreement. 2. Further Assurances. Pledgor agrees at any time, and from time to time, to execute such other instruments as Pledgee may reasonably request to establish, maintain, and perfect the security interest in the Pledged Stock conveyed by this Agreement. 3. Rights of Pledgor. Prior to the occurrence of an Event of Default: (a) Pledgor shall have the right to exercise all voting and other powers pertaining to the Pledged Stock for all purposes; (b) All dividends or other distributions with respect to the Pledged Stock shall be payable to Pledgor; provided, however, that following an Event of Default, Pledgor shall have no right to dividends or other distributions with respect to the Pledged Stock. 4. Representations and Warranties. Pledgor represents and warrants as follows: (a) Pledgor has good and marketable title to the Pledged Stock, free and clear of all security interests, liens, and encumbrances, except the security interest granted hereunder and will defend the Pledged Stock against all claims or demands of all persons other than the Pledgee. (b) Pledgor will not sell or otherwise dispose of any Pledged Stock or any interest therein without the prior written consent of the Pledgee; -1- (c) Pledgor will keep the Pledged Stock free and clear of all security interests, liens, and encumbrances, except the security interest granted hereunder. 5. Adjustment. In the event that during the term of this Agreement any share dividend, reclassification, readjustment, or other change is declared or made in the capital structure of Pledgee, all new, substituted, and additional shares, or other securities issued by reason of original issuance of the Pledged Stock shall be subject to the terms of this Agreement in the same manner as, and as a part of, the Pledged Stock. 6. Termination. Upon full performance of all of the Obligations, Pledgee shall transfer to Pledgor all of the Pledged Stock and deliver any assignments separate from certificate for cancellation, and all rights received by Pledgee under this Agreement shall terminate. 7. Events of Default. An event of default under this Agreement ("Event of Default") shall occur when an Event of Default shall occur under the Note or when Pledgor shall fail to observe or perform any covenant or agreement herein binding on Pledgor as set forth in the Option Agreement, this Agreement or the Note; provided, however, that as to any default due to failure to observe or perform any covenant or agreement hereunder, Pledgor shall have thirty (30) days from the date of written notice by Pledgee of such default to cure such default. 8. Remedies. Upon the occurrence of an Event of Default and at any time thereafter, Pledgee may exercise any one or more of the following rights or remedies: (a) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand; (b) exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code, including the right to offer and sell the Pledged Stock privately to purchasers who will agree to take the Pledged Stock for investment and not with a view to distribution and who will agree to the imposition of restrictive legends on any certificates representing the Pledged Stock, and the right to arrange for a sale which would otherwise qualify as exempt from registration under the Securities Act of 1933, as amended, and if notice to Pledgor of any intended disposition of the Pledged Stock or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least ten (10) calendar days prior to the date of intended disposition or other action; or (d) exercise or enforce any or all other rights or remedies available to Pledgee by law or agreement against the Pledged Stock, against Pledgor or against any other person or property. 9. Application of Proceeds. The proceeds of any sale of all or a part of the Pledged Stock shall be applied as follows: (a) First, to the payment of all costs and expenses incurred by Pledgee in enforcing Pledgee's rights under this Agreement, including without limitation, the fees of attorneys or other agents employed by Pledgee in connection therewith; (b) Second, to the payment of all of the Obligations; (c) Third, any surplus remaining after application of the proceeds pursuant to subsections (a) and (b) above shall be paid to Pledgor or the successors or assigns thereof. Pledgor shall remain liable to Pledgee for any deficiency. -2- 10. Miscellaneous. The parties agree as follows: (a) No waiver of any of the provisions or conditions of this Agreement shall be effective unless such waiver is in writing and signed by the party claimed to have given, or consented to, such waiver; (b) No failure on the part of Pledgee to exercise, and no delay on the part of Pledgee in exercising, any right, power, or remedy pursuant to this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by Pledgee of any right, power, or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The remedies herein provided are cumulative and shall not be exclusive of any other remedies provided by law or agreement; (c) The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective legal representatives, successors, and assigns of the parties; provided, however, that Pledgor may not assign this Agreement or Pledgor's obligations, duties, or liabilities hereunder without the express prior written consent of Pledgee; (d) This Agreement is delivered and is intended to be performed in the State of Minnesota and should be construed and enforced in accordance with the laws of such state (without regard to laws governing the conflict of laws); (e) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; (f) This Agreement may not be amended except by written agreement executed by all parties hereto; (g) If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby; (h) All representations and warranties contained in this Agreement shall survive the execution, delivery, and performance of this Agreement and any other documents or instruments executed or delivered in connection with or pursuant to any of the foregoing. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. PLEDGOR: --------------------------------------- D. Bradly Olah ACTIVE IQ TECHNOLOGIES, INC. By: ----------------------------------- Its: ---------------------------------- -3- EX-10.16 8 c68476ex10-16.txt FORM OF NON-RECOURSE PROMISSORY NOTE Exhibit 10.16 EXHIBIT B NON-RECOURSE PROMISSORY NOTE $ .00 Minneapolis, Minnesota ----------------- ____________ __, 2000__ FOR VALUE RECEIVED, the undersigned, D. Bradly Olah (the "Debtor"), promises to pay to the order of Active IQ Technologies, Inc. (the "Payee"), at its offices at 601 Carlson Parkway, Suite 1550, Minnetonka, Minnesota 55305 or at such other place as the holder of this Note may designate from time to time, the principal sum of __________________________________ Dollars and no cents ($_______________.00) (the "Principal Sum"). This Note has been issued pursuant to that certain Pledge Agreement of even date herewith by and between Debtor and Payee. 1. The Principal Sum shall be due and payable in full, together with interest accruing at the rate of five percent (5%) per annum, within one hundred eighty (180) days of the date that Debtor's employment with Active IQ Technologies, Inc. is terminated for any reason or no reason. 2. If any amount due hereunder remains unpaid ten (10) days after payment is due, interest at the rate of eight percent (8%) per annum shall accrue on the unpaid amount, commencing on the due date and shall continue until all amounts due are paid in full. 3. This Note is without recourse to Debtor except to the extent secured by that certain Pledge Agreement, of even date herewith, by and between Debtor and Lender, pursuant to which Debtor has granted to Lender a security interest in _______ shares of Active IQ Technologies, Inc. common stock owned by Debtor. Lender shall not take any action against Debtor, or Debtor's assets, except to the extent necessary to exercise Debtor's remedies under the Pledge Agreement. 4. The undersigned waives demand, presentment, protest, notice of protest, notice of dishonor and notice of nonpayment of this Note; agrees to pay on demand all costs and expenses of the holder of this Note in connection with this Note and any security for this Note, including without limitation reasonable attorneys fees, plus interest on such amounts at the rate set forth in this Note. Interest on any amount due under this Note shall continue to accrue, at the option of the holder of this Note, until such holder receives final payment of such amount in collected funds in form and substance acceptable to such holder. No waiver of any right or remedy under this Note shall be valid unless in writing executed by the holder of this Note, and any such waiver shall be effective only in the specific instance and for the specific purpose given. All rights and remedies of the holder of this Note shall be cumulative and may be exercised singly, concurrently, or successively. This Note shall be governed by and construed in accordance with the laws of the State of Minnesota without regard to laws governing the conflict of laws. --------------------------------------- D. Bradly Olah EX-10.18 9 c68476ex10-18.txt 2001 EMPLOYEE STOCK OPTION PLAN ACTIVE IQ TECHNOLOGIES, INC. 2001 EMPLOYEE STOCK OPTION PLAN 1. Purpose. The purpose of the 2001 Employee Stock Option Plan (the "Plan") of Active IQ Technologies, Inc. (the "Company") is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives ("Incentives") designed to attract, retain and motivate employees. Incentives may consist of opportunities to purchase or receive shares of common stock, $0.01 par value, of the Company ("Common Stock"), monetary payments or both on terms determined under this Plan. 2. Administration. The Plan shall be administered by the Board of Directors or by a stock option committee (the "Committee") of the Board of Directors of the Company. The Committee shall consist of not less than two directors of the Company and shall be appointed from time to time by the board of directors of the Company. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and the regulations promulgated thereunder (the "1934 Act"). The board of directors of the Company may from time to time appoint members of the Committee in substitution for, or in addition to, members previously appointed, and may fill vacancies, however caused, in the Committee. The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable. A majority of the Committee's members shall constitute a quorum. All action of the Committee shall be taken by the majority of its members. Any action may be taken by a written instrument signed by majority of the members and actions so taken shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary, shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. The Committee shall have complete authority to award Incentives under the Plan, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan. The Committee's decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants. 3. Eligible Participants. Employees of the Company or its subsidiaries or affiliates and consultants or other independent contractors who provide services to the Company or its subsidiaries or affiliates shall become eligible to receive Incentives under the Plan when designated by the Committee. Notwithstanding the foregoing, executive officers and directors of the Company who are employees of the Company or its subsidiaries or affiliates are not eligible to participate in the Plan. Participants may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated. 4. Types of Incentives. Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory stock options (Section 6); (b) stock appreciation rights ("SARs") (Section 7); (c) stock awards (Section 8); (d) restricted stock (Section 8); (e) performance shares (Section 9); and (f) cash awards (Section 10). -1- 5. Shares Subject to the Plan. 5.1. Number of Shares. Subject to adjustment as provided in Section 11.6, the number of shares of Common Stock which may be issued under the Plan shall not exceed 500,000 shares of Common Stock. 5.2. Cancellation. To the extent that cash in lieu of shares of Common Stock is delivered upon the exercise of an SAR pursuant to Section 7.4, the Company shall be deemed, for purposes of applying the limitation on the number of shares, to have issued the greater of the number of shares of Common Stock which it was entitled to issue upon such exercise or on the exercise of any related option. In the event that a stock option or SAR granted hereunder expires or is terminated or canceled unexercised as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options, SARs or otherwise. In the event that shares of Common Stock are issued as restricted stock or pursuant to a stock award and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan, either as restricted stock, pursuant to stock awards or otherwise. The Committee may also determine to cancel, and agree to the cancellation of, stock options in order to make a participant eligible for the grant of a stock option at a lower price than the option to be canceled. 5.3. Type of Common Stock. Common Stock issued under the Plan in connection with stock options, SARs, performance shares, restricted stock or stock awards, may be authorized and unissued shares. 6. Stock Options. A stock option is a right to purchase shares of Common Stock from the Company. Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions: 6.1. Price. The option price per share shall be determined by the Committee, subject to adjustment under Section 11.6. 6.2. Number. The number of shares of Common Stock subject to the option shall be determined by the Committee, subject to adjustment as provided in Section 11.6. The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises a SAR if any SAR is granted in conjunction with or related to the stock option. 6.3. Duration and Time for Exercise. Subject to earlier termination as provided in Section 11.4, the term of each stock option shall be determined by the Committee but shall not exceed ten years and one day from the date of grant. Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant. The Committee may accelerate the exercisability of any stock option. Subject to the foregoing and with the approval of the Committee, all or any part of the shares of Common Stock with respect to which the right to purchase has accrued may be purchased by the Company at the time of such accrual or at any time or times thereafter during the term of the option. -2- 6.4. Manner of Exercise. A stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The option price shall be payable (a) in United States dollars upon exercise of the option and may be paid by cash; uncertified or certified check; bank draft; (b) at the discretion of the Committee, by delivery of shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; or (c) at the discretion of the Committee, by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may be authorized from time to time by the Committee. The shares of Common Stock delivered by the participant pursuant to Section 6.4(b) must have been held by the participant for a period of not less than six months prior to the exercise of the option, unless otherwise determined by the Committee. Prior to the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a shareholder. 6.5. Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")): (a) The aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year (under all of the Company's plans) shall not exceed $100,000. (b) Any Incentive Stock Option certificate authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as Incentive Stock Options. (c) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by board of directors or the date this Plan was approved by the shareholders. (d) Unless sooner exercised, all Incentive Stock Options shall expire no later than 10 years after the date of grant. (e) The option price for Incentive Stock Options shall be not less than the Fair Market Value of the Common Stock subject to the option on the date of grant. (f) No Incentive Stock Options shall be granted to any participant who, at the time such option is granted, would own (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation. -3- 7. Stock Appreciation Rights. An SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, cash or any combination thereof, the amount of which is determined pursuant to the formula set forth in Section 7.4. An SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option. Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions: 7.1. Number. Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 11.6. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR pertains shall be reduced in the same proportion that the holder of the option exercises the related stock option. 7.2. Duration. Subject to earlier termination as provided in Section 11.4, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the date of grant. Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is exercisable. The Committee may in its discretion accelerate the exercisability of any SAR. 7.3. Exercise. An SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise. Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.4. 7.4. Payment. Subject to the right of the Committee to deliver cash in lieu of shares of Common Stock (which, as it pertains to officers and directors of the Company, shall comply with all requirements of the 1934 Act), the number of shares of Common Stock which shall be issuable upon the exercise of an SAR shall be determined by dividing: (a) the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the "appreciation" shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of an SAR related to a stock option, the purchase price of the shares of Common Stock under the stock option or (2) in the case of an SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 11.6); by (b) the Fair Market Value of a share of Common Stock on the exercise date. -4- In lieu of issuing shares of Common Stock upon the exercise of a SAR, the Committee may elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date of any or all of the shares which would otherwise be issuable. No fractional shares of Common Stock shall be issued upon the exercise of an SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise. 8. Stock Awards and Restricted Stock. A stock award consists of the transfer by the Company to a participant of shares of Common Stock, without other payment therefor, as additional compensation for services to the Company. A share of restricted stock consists of shares of Common Stock which are sold or transferred by the Company to a participant at a price determined by the Committee (which price shall be at least equal to the minimum price required by applicable law for the issuance of a share of Common Stock) and subject to restrictions on their sale or other transfer by the participant. The transfer of Common Stock pursuant to stock awards and the transfer and sale of restricted stock shall be subject to the following terms and conditions: 8.1. Number of Shares. The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock shall be determined by the Committee. 8.2. Sale Price. The Committee shall determine the price, if any, at which shares of restricted stock shall be sold to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale. 8.3. Restrictions. All shares of restricted stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation any or all of the following: (a) a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise); (b) a requirement that the holder of shares of restricted stock forfeit, or (in the case of shares sold to a participant) resell back to the Company at his or her cost, all or a part of such shares in the event of termination of his or her employment or consulting engagement during any period in which such shares are subject to restrictions; (c) such other conditions or restrictions as the Committee may deem advisable. 8.4. Escrow. In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock shall enter into an agreement with the Company setting forth the conditions of the grant. Shares of restricted stock shall be -5- registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend in substantially the following form: The transferability of this certificate and the shares of Common Stock represented by it are subject to the terms and conditions (including conditions of forfeiture) contained in the 2001 Stock Option Plan of Lightica, Inc., (the "Company"), and an agreement entered into between the registered owner and the Company. A copy of the Plan and the agreement is on file in the office of the secretary of the Company. 8.5. End of Restrictions. Subject to Section 11.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant's legal representative, beneficiary or heir. 8.6. Shareholder. Subject to the terms and conditions of the Plan, each participant receiving restricted stock shall have all the rights of a shareholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares. Dividends paid in cash or property other than Common Stock with respect to shares of restricted stock shall be paid to the participant currently. 9. Performance Shares. A performance share consists of an award which shall be paid in shares of Common Stock, as described below. The grant of performance share shall be subject to such terms and conditions as the Committee deems appropriate, including the following: 9.1. Performance Objectives. Each performance share will be subject to performance objectives for the Company or one of its operating units to be achieved by the end of a specified period. The number of performance shares granted shall be determined by the Committee and may be subject to such terms and conditions, as the Committee shall determine. If the performance objectives are achieved, each participant will be paid in shares of Common Stock or cash. If such objectives are not met, each grant of performance shares may provide for lesser payments in accordance with formulas established in the award. 9.2. Not Shareholder. The grant of performance shares to a participant shall not create any rights in such participant as a shareholder of the Company, until the payment of shares of Common Stock with respect to an award. 9.3. No Adjustments. No adjustment shall be made in performance shares granted on account of cash dividends which may be paid or other rights which may be issued to the holders of Common Stock prior to the end of any period for which performance objectives were established. 9.4. Expiration of Performance Share. If any participant's employment or consulting engagement with the Company is terminated for any reason other than normal retirement, death or disability prior to the achievement of the participant's stated performance objectives, all the participant's rights on the performance shares shall expire and terminate unless otherwise determined by the Committee. In the event of termination of employment or consulting by reason of death, disability, or normal retirement, the Committee, in its own discretion may determine what portions, if any, of the performance shares should be paid to the participant. -6- 10. Cash Awards. A cash award consists of a monetary payment made by the Company to a participant as additional compensation for his or her services to the Company. Payment of a cash award will normally depend on achievement of performance objectives by the Company or by individuals. The amount of any monetary payment constituting a cash award shall be determined by the Committee in its sole discretion. Cash awards may be subject to other terms and conditions, which may vary from time to time and among participants, as the Committee determines to be appropriate. 11. General. 11.1. Effective Date. The Plan will become effective on August 1, 2001. 11.2. Duration. The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed. No Incentives may be granted under the Plan after the tenth anniversary of the date the Plan is approved by the shareholders of the Company. 11.3. Non-transferability of Incentives. No stock option may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder's death, by will or the laws of descent and distribution to the limited extent provided in the Plan or in the stock option) or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder, and the Company shall not be required to recognize any attempted assignment of such rights by any participant. Notwithstanding the preceding sentence, stock options may be transferred by the holder thereof to Employee's spouse, children, grandchildren or parents (collectively, the "Family Members"), to trusts for the benefit of Family Members, to partnerships or limited liability companies in which Family Members are the only partners or shareholders, or to entities exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. During a participant's lifetime, a stock option may be exercised only by him or her, by his or her guardian or legal representative or by the transferees permitted by the preceding sentence. 11.4. Effect of Termination or Death. In the event that a participant ceases to be an employee of or consultant to the Company for any reason, including death, any Incentives may be exercised or shall expire at such times as may be determined by the Committee. 11.5. Additional Condition. Notwithstanding anything in this Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his or her own account for investment and not for distribution; and (b) if at any time the Company further -7- determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 11.6. Adjustment. In the event of any merger, consolidation or reorganization of the Company with any other corporation or corporations, there shall be substituted for each of the shares of Common Stock then subject to the Plan, including shares subject to restrictions, options, or achievement of performance share objectives, the number and kind of shares of stock or other securities to which the holders of the shares of Common Stock will be entitled pursuant to the transaction. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to restrictions, options or achievements of performance shares, shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment. 11.7. Incentive Plans and Agreements. Except in the case of stock awards or cash awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee. The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options. 11.8. Withholding. (a) The Company shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR, the participant may satisfy this obligation in whole or in part by electing (the "Election") to have the Company withhold from the distribution shares of Common Stock having a value up to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined ("Tax Date"). -8- (b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive. An Election is irrevocable. 11.9. No Continued Employment, Engagement or Right to Corporate Assets. No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company for any period of time or to any right to continue his or her present or any other rate of compensation. Nothing contained in the Plan shall be construed as giving an employee, a consultant, such persons' beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person. 11.10. Deferral Permitted. Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive. Payment may be deferred at the option of the participant if provided in the Incentive. 11.11. Amendment of the Plan. The Board may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall, subject to adjustment under Section 11.6, (a) change or impair, without the consent of the recipient, an Incentive previously granted, (b) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (c) change or expand the types of Incentives that may be granted under the Plan, (d) change the class of persons eligible to receive Incentives under the Plan, or (e) materially increase the benefits accruing to participants under the Plan. 11.12. Immediate Acceleration of Incentives. Notwithstanding any provision in this Plan or in any Incentive to the contrary, (a) the restrictions on all shares of restricted stock award shall lapse immediately, (b) all outstanding options and SAR's will become exercisable immediately, and (c) all performance shares shall be deemed to be met and payment made immediately, if subsequent to the effective date of the Plan, any of the following events occur unless otherwise determined by the board of directors and a majority of the "Continuing Directors" (as defined below): (1) any person or group of persons becomes the beneficial owner of 50% or more of the aggregate number of all equity securities of the Company entitled to vote for the election of directors; (2) a majority of the members of the board of directors of the Company is replaced within the period of less than two years by directors not nominated and approved by the board of directors; or -9- (3) the shareholders of the Company approve an agreement to merge or consolidate with or into another corporation (unless, after such merger or consolidation, the former shareholders of the Company own 50% or more of the successor entity's voting equity securities) or an agreement to sell or otherwise dispose of all or substantially all of the Company's assets (including a plan of liquidation). For purposes of this Section 11.12, beneficial ownership by a person or group of persons shall be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the 1934 Act. Beneficial ownership of more than 50% of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership. If the restrictions and forfeitability periods are eliminated by reason of clause (1) of this Section 11.12, the limitations of this Plan shall not become applicable again should the person cease to own 50% or more of any equity security of the Company. For purposes of this Section 11.12, "Continuing Directors" are directors (a) who were in office prior to the time any of the events described in clauses (1), (2) or (3) of this Section 11.12 occurred or any person publicly announced an intention to acquire 25% or more of any equity security of the Company, (b) directors in office for a period of more than two years, and (c) directors nominated and approved by the Continuing Directors. 11.13. Definition of Fair Market Value. For purposes of this Plan, the "Fair Market Value" of a share of Common Stock at a specified date shall, unless otherwise expressly provided in this Plan, be the amount which the Committee or the board of directors of the Company determines in good faith to be 100% of the fair market value of such a share as of the date in question; provided, however, that notwithstanding the foregoing, if such shares are listed on a U.S. securities exchange or are quoted on the Nasdaq National Market or Nasdaq Small Cap Stock Market Systems ("Nasdaq"), then Fair Market Value shall be determined by reference to the last sale price of a share of Common Stock on such U.S. securities exchange or Nasdaq on the applicable date. If such U.S. securities exchange or Nasdaq is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on such U.S. securities exchange or Nasdaq. -10- EX-21 10 c68476ex21.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF REGSTRANT (1) AIQ, Inc., a Minnesota corporation, 100% owned by Active IQ Technologies, Inc. (2) Red Wing Business Systems, Inc., a Minnesota corporation, 100% owned by Active IQ Technologies, Inc. (3) Champion Business Systems, Inc., a Colorado corporation, 100% owned by Active IQ Technologies, Inc. EX-23.1 11 c68476ex23-1.txt CONSENT OF VIRCHOW KRAUSE & COMPANY, LLP Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement (File No.'s 333-68166, 333-54584, 333-54582). /s/ VIRCHOW, KRAUSE & COMPANY, LLP Minneapolis, Minnesota April 3, 2002 EX-23.2 12 c68476ex23-2.txt EXHIBIT 23.2 Exhibit 23.2 Consent of independent public accountants As independent public accountants, we hereby consent to the incorporation of our report dated March 23, 2001 included in this Form 10-K into the Company's previously filed Registration Statement File. No.'s 333-68166, 333-54584 and 333-54582. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota April 3, 2002 -----END PRIVACY-ENHANCED MESSAGE-----