U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 33-6505D
MORLEX, INC.
(formerly known as America Online, Inc.)
-----------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
Colorado 84-1028977
- -------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
P.O. Box 3755, Englewood, CO 80155
- -------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 699-8784
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock $.0001 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 preceding 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 No X.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: Unknown
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of April 23, 1998, there were 125,680,000 shares of the Issuer's common stock
issued and outstanding.
The Issuer had no revenues for the year ending December 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes ; No X
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
America Online, Inc. (the "Company" or the "Registrant") was incorporated
in the State of Colorado on April 23, 1986, under its former name, Morlex, Inc.
("Morlex"). The Company changed its name from Morlex to America Online, Inc. on
July 17, 1987 (the "Name Change").
In January 1987, Morlex, in a stock-for-stock exchange (the "Stock
Exchange"), acquired America OnLine, Inc. ("AOL#1"), a then wholly owned
subsidiary of InfoSource Information Service, Inc. ("InfoSource"). All
activities of the Company occurring prior to July 17, 1987 were under its former
name, Morlex, Inc., and shall, for purposes of this annual report, be referred
to as the "Company" and any reference to America Online, Inc. as it existed as a
wholly owned subsidiary of InfoSource prior to the Stock Exchange and the Name
Change, shall be herein referred to as AOL#1.
Prior to incorporation, the Company had no prior operating history and was
formed as what is commonly known as a blind pool. Since the termination of the
business of the former AOL#1, the Company has been seeking the acquisition of,
or merger with an existing company. The Company's business history since its
incorporation is as follows:
On September 10, 1986, the Company filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-18 under the
Securities Act of 1933, as amended (the "Securities Act"), relating to an
offering of up to 5,000,000 Units. In December 1986, the Company consummated the
offering, having received net offering proceeds aggregating $248,400.
In January 1987 the Company acquired AOL#1 in the Stock Exchange, as a
result of which AOL#1 became a wholly owned subsidiary of the Company in
exchange for 85,000,000 shares of Company stock which were issued to InfoSource
for all the shares of AOL#1.
On July 17, 1987 a special meeting of Stockholders of the Company was held
to change the name of Morlex to America Online, Inc. The proposal to change the
name was approved and the Company's name was thereupon changed.
On March 1, 1988 the Board of Directors approved the cancellation of a
$30,000 debt to InfoSource by issuing 30,000,000 shares of the Company to
InfoSource. All 115,000,000 shares previously issued to InfoSource (including
such 30,000,000 shares and the 85,000,000 shares above-referenced) were
returned to the Company's treasury as issued but no longer outstanding shares.
On December 28, 1992, the Company terminated the business of AOL#1 and a
Certificate of Dissolution of AOL#1 was filed with the Secretary of State of the
State of
2
<PAGE>
Colorado. Since that time, the Company has had no active business.
On April 24, 1998 the Board of Directors, by unanimous written consent in
lieu of a special meeting, resolved to amend the Company's Articles of
Incorporation to change the name of the Company back to Morlex, Inc. in order
to remove any confusion between the Company and the Internet company of the
same name.
On May 15, 1998, the shareholders of the Company, by majority vote,
approved the amendment and name change at a meeting called for that purpose.
The amendment was filed with the Secretary of State of Colorado on June 2,
1998, upon which the name of the Company became Morlex, Inc.
SELECTION OF OPPORTUNITIES
The analysis of new business opportunities has and will be undertaken by or
under the supervision of the officers and directors of the Registrant. The
Registrant has unrestricted flexibility in seeking, analyzing and participating
in potential business opportunities. In its efforts to analyze potential
acquisition targets, the Registrant will consider the following kinds of
factors:
(a) Potential for growth, indicated by new technology, anticipated
market expansion or new products;
(b) Competitive position as compared to other firms of similar size
and experience within the industry segment as well as within the
industry as a whole;
(c) Strength and diversity of management, either in place or
scheduled for recruitment;
(d) Capital requirements and anticipated availability of required
funds, to be provided by the Registrant or from operations,
through the sale of additional securities, through joint ventures
or similar arrangements or from other sources;
(e) The cost of participation by the Registrant as compared to the
perceived tangible and intangible values and potentials;
(f) The extent to which the business opportunity can be advanced;
(g) The accessibility of required management expertise, personnel,
raw materials, services, professional assistance and other
required items; and
(h) Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling,
management will attempt to analyze all factors in the circumstances and make a
determination based upon reasonable investigative measures and available data.
Potentially available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. Due to the Registrant's extremely limited
capital available for investigation and management's limited experience in
business analysis, the Registrant may not discover or adequately evaluate
adverse facts about the opportunity to be acquired.
3
<PAGE>
FORM OF ACQUISITION
The manner in which the Registrant participates in an opportunity will
depend upon the nature of the opportunity, the respective needs and desires of
the Registrant and the promoters of the opportunity, and the relative
negotiating strength of the Registrant and such promoters.
It is likely that the Registrant will acquire its participation in a
business opportunity through the issuance of common stock or other securities of
the Registrant. Although the terms of any such transaction cannot be predicted,
it should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
depends upon the issuance to the shareholders of the acquired company of at
least 80 percent common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other "tax free" provisions provided under the Code, all
prior shareholders would in such circumstances retain 20% or less of the total
issued and outstanding shares. This could result in substantial additional
dilution to the equity of those who were shareholders of the Registrant prior to
such reorganization.
The present shareholders of the Registrant will likely not have control of
a majority of the voting shares of the Registrant following a reorganization
transaction. As part of such a transaction, all or a majority of the
Registrant's directors may resign and new directors may be appointed without any
vote by shareholders.
In the case of an acquisition, the transaction may be accomplished upon the
sole determination of management without any vote or approval by shareholders.
In the case of a statutory merger or consolidation involving the Company, it
will likely be necessary to call a shareholders' meeting and obtain the approval
of the holders of a majority of the outstanding shares. The necessity to obtain
such shareholder approval may result in delay and additional expense in the
consummation of any proposed transaction and will also give rise to certain
appraisal rights to dissenting shareholders. Most likely, management will seek
to structure any such transaction so as not to require shareholder approval.
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial cost for accountants, attorneys and others. If a
decision is made not to participate in a specific business opportunity, the
costs theretofore incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached for the participation
in a specific business opportunity, the failure to consummate that transaction
may result in the loss to the Registrant of the related costs incurred.
4
<PAGE>
EMPLOYEES
The Registrant currently has no employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company neither rents nor owns any properties.
ITEM 3. LEGAL PROCEEDINGS
There are not presently any pending legal proceedings to which the
Registrant is a party or as to which any of its property is subject and no such
proceedings are known to the Registrant to be threatened or contemplated against
it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
A. Market for Common Stock. The Company is not aware of any market activity
in its stock during the fiscal year ended December 31, 1997.
B. Holders. As of April 23, 1998, there were approximately 275 holders of
125,680,000 shares of the Company's common stock.
C. Dividends. The Registrant has not paid any cash dividends during the
fiscal year ended December 31, 1997 to date and does not anticipate or
contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Registrant's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The Registrant was formed on April 23, 1986 for the purpose of investing in
any and all types of assets, properties and businesses. On September 10, 1986,
the Commission granted effectiveness to a Registration Statement on Form S-18,
filed by the Registrant in the Colorado Regional Office. The Plan of Operation
of the Registrant is further described in Item 1 of this Form 10-KSB.
5
<PAGE>
As of December 31, 1997, the Registrant had cash of $0 and no other assets.
As of December 31, 1997, the Registrant had total liabilities of $0 and total
stockholders equity of $0. As of December 31, 1996, the Registrant had cash of
$0 and no other assets. As of December 31, 1996, the Registrant had total
liabilities of $0 and total stockholders equity of $0. Prior to the consummation
of a potential business acquisition as described in Item 1 of this Form 10-KSB,
management does not expect that the Registrant will have any significant capital
requirements or that there will be significant changes in the number of
Registrant's employees.
The Registrant has not commenced any active operations as of the date
hereof except for the registration and sale of its securities. The Registrant's
assets consist of a limited amount of cash. No revenue has been generated by the
Registrant since the termination of the business of AOL#1. The Registrant will
not have significant operations until, if ever, such time as it effects an
acquisition.
On December 31, 1997, the Company sold 35,970,000 shares of Common Stock to
Charles T. Gould, its Chairman and President, in exchange for the cancellation
of $49,191 of indebtedness of the Company to Mr. Gould.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company has no assets. The significant amount
of capital necessary to acquire and develop a successful business in today's
economy will limit the Company's ability to locate one suitable for acquisition
or merger. Given the limited amount of working capital, the potential venture is
likely to involve the acquisition of, or merger with a company which is not
seeking immediate substantial amounts of cash but one which desires to establish
a public trading market for its shares. There can be no assurance that the
Company will ever consummate such a transaction. It is possible that the Company
will require additional financing to expand and fund any business which it
acquires or establishes. If additional funds are required, there can be no
assurance given that additional financing will be available on commercially
reasonable terms or otherwise
6
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
-----------------------------
Independent Accountants' Report
Year ended December 31, 1997
Balance Sheets
Years ended December 31, 1997 and 1996
Statement of Changes in Shareholders' Equity
Years ended December 31, 1997 and 1996
Statement of Operations
Years ended December 31, 1997 and 1996
Statement of Cash Flows
Year ended December 31, 1997 and 1996
Notes to Financial Statements
Years ended December 31, 1997
7
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Registrant
and its accountants on any matter of accounting principles, practices or
financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Identification of Directors and Executive Officers. The current officers
and directors will serve for one year or until their respective successors are
elected and qualified. They are:
<TABLE>
<CAPTION>
NAME AGE DATE OF POSITION
ELECTION
- ----------------- ----- --------- --------------------------
<S> <C> <C> <C>
Charles T. Gould 46 4/5/91 Chairman of the Board of
4562 S. Ouray Way Directors, President and
Aurora, CO 80015 Treasurer
Lannelle Lancaster 46 5/15/89 Vice-President, Secretary
4562 S. Ouray Way and Director
Aurora, CO 80015
Kaylene Veron 48 5/15/89 Director
4915 Cornwall Drive
Boulder, CO 80301
</TABLE>
Charles T. Gould. Mr. Gould has been a director, President and Treasurer of
the Company since April 1991. He is presently a Stock Broker and Trader with
Charles Schwab in Denver, Colorado. Prior to Mr. Gould's employment with Charles
Schwab & Co., he served as an Environmental Production Worker with Interel
Environmental in Englewood, Colorado.
Lanne Lancaster. Ms. Lancaster has served as Vice President and Secretary
of the Company since March 1989. Presently, Ms. Lancaster is an Educator at the
Community College of Aurora, Colorado, where she has been employed the last 10
years.
8
<PAGE>
Kaylene Veron. Ms. Veron has served as a Director of the Company since
March 1989. Ms. Veron is a homemaker and a Realtor. She currently resides in
Boulder, Colorado.
B. Significant Employees. None.
C. Family Relationships. Charles T. Gould is the husband of Lanne Lancaster
and the brother of Kaylene Veron.
D. Involvement in Certain Legal Proceedings. There have been no events
under any bankruptcy act, no criminal proceedings and no judgments or
injunctions material to the evaluation of the ability and integrity of any
director, executive officer, promoter or control person of Registrant during the
past five years.
E. Compliance With Section 16(a). The Registrant is not subject to Section
16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
No compensation has been paid or accrued to any officer or director of the
Registrant since 1994. The current officers and directors are not being
compensated by the Registrant. The Registrant has no current intent to issue
shares of its common stock to management in connection with an acquisition.
However, the Registrant may subsequently deem the issuance of shares to
management for services rendered in connection with an acquisition to be fair
and reasonable to the Registrant and its public shareholders in light of the
services rendered. In the event any shares are issued for services rendered by
management they shall be issued in such an amount as the Board of Directors
deems fair and reasonable to the Registrant and its public shareholders and in
compliance with management's fiduciary duties under state law. Officers and
directors will be reimbursed for actual out-of-pocket expenses incurred on
behalf of the Registrant as approved by the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. Security Ownership of Certain Beneficial Owners. The following persons
are known to the Registrant to be officers, directors and beneficial owners of
more than five percent of the Registrant's common stock as of April 20, 1998:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of
of Beneficial Owner Beneficial Ownership (1) Percent of Class
- ------------------- ------------------------ ----------------
<S> <C> <C>
Charles T. Gould(2) 93,470,000 74.37%
4562 S. Ouray Way
Aurora, CO 80015
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of
of Beneficial Owner Beneficial Ownership (1) Percent of Class
- ------------------- ------------------------ ----------------
<S> <C> <C>
Lanelle Lancaster(2) 790,000 *
4562 S. Ouray Way
Aurora, CO 80015
Kaylene Veron 0 0%
4915 Cornwall Drive
Boulder, CO 80301
- ---------------------
ALL OFFICERS AND
DIRECTORS AS A
GROUP (3 Individuals) 94,260,000 75.00%
- ---------------------
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated herein and subject to applicable community
property laws, each stockholder has sole voting and investment power with
respect to all shares of Common Stock beneficially owned by such
stockholder and directly owns all such shares in such stockholder's sole
name.
(2) Shares owned of record by each such individual. Excludes shares owned of
record by each such individual's spouse, which are reported herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had accrued certain amounts due to Charles T. Gould, its
Chairman and President, for payment of consulting fees, rent and other
administrative expenses. In December, 1997, these amounts ($49,191) were
converted to 35,970,000 shares of common stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
3.1 Certificate of Incorporation - incorporated by reference
to Exhibit 3.1 to Registration Statement on Form S-18.
3.2 Bylaws - incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-18.
10.1 Stock Purchase Agreement by and between the Registrant
and Charles T. Gould.
27.1 Financial Data Schedule.
B. Reports on Form 8-K. No Reports on Form 8-K were filed by the Registrant
during the fourth quarter of or at any time during its fiscal year.
10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICA ONLINE, INC.
By: /s/ Charles T. Gould
-----------------------
President and Treasurer
Date: June 10, 1998.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
TITLE DATE
By: /s/Charles T. Gould President, June 10, 1998
--------------------- Director
By: /s/ Lanne Lancaster Secretary, June 10, 1998
--------------------- Director
By: /s/ Kaylene Veron Director June 10, 1998
----------------------
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d) of the Exchange Act
by Non-reporting Issuers
No annual report to security holders or proxy material has been sent to security
holders of the Registrant.
11
<PAGE>
Exhibit Index
3.1 Registrant's Certificate of Incorporation filed as Exhibit 3.1 to
Registrant's Registration Statement on Form S-18.
3.2 Registrant's By-Laws filed as Exhibit 3.2 to Registrant's Registration
Statement on Form S-18.
10.1 Stock Purchase Agreement by and between the Registrant and Charles T.
Gould.
27.1 Financial Data Schedule.
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICA ONLINE, INC.
By:
-----------------------
Charles T. Gould
President and Treasurer
Date: June 10, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
TITLE DATE
By: President, June 10, 1998
----------------------------- Treasurer
Charles T. Gould and Director
By: Director June 10, 1998
-----------------------------
Kaylene Veron
By: Secretary/ Juen 10, 1998
----------------------------- Director
Lanne Lancaster
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d) of the Exchange Act
by Non-reporting Issuers
No annual report to security holders or proxy material has been sent to security
holders of the Registrant.
13
<PAGE>
AMERICA ONLINE, INC.
CONTENTS
----------------------------------------
Page
----
Independent Auditors' Report 3
Balance Sheets, Years Ended December 31, 1997 and 1996 4
Statements of Operations for the Years
Ended December 31, 1997 and 1996 5
Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997 and 1996 6
Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996 7
Notes to Financial Statements 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
America OnLine, Inc.
We have audited the accompanying balance sheets of America OnLine, Inc. as of
December 31, 1997 and 1996 and the statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred above present fairly, in all
material respects, the financial position of America OnLine, Inc., at December
31, 1997 and 1996, and the related statements of operations, changes in
shareholders' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.
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 suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Spicer, Jeffries & Co.
Denver, Colorado
March 3, 1998
<PAGE>
AMERICA ONLINE, INC.
BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
ASSETS
<S> <C> <C>
TOTAL ASSETS $ - $ -
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued payroll taxes $ - $ 2 556
Accrued expenses - shareholder (Note 2) - 41 283
--------------- ---------------
TOTAL CURRENT LIABILITIES - 43 839
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value - shares authorized,
1,000,000,000; shares issued and outstanding,
125,680,000 and 89,710,000, respectively 12 568 8 971
Additional paid-in capital 291 728 246 134
Deficit (304 296) (298 944)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY - (43 839)
--------------- ---------------
$ - $ -
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
AMERICA ONLINE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- -----------------
<S> <C> <C>
REVENUES $ - $ -
--------------- ---------------
EXPENSES:
Consulting 3 300 3 600
General and administrative 2 052 2 161
--------------- ---------------
5 352 5 761
--------------- ---------------
NET LOSS $ (5 352) $ (5 761)
=============== ===============
NET LOSS PER COMMON SHARE $ NIL $ NIL
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 92 476 923 89 710 000
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
AMERICA ONLINE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid in
Share Amount Capital (Deficit)
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1995 89 710 000 $ 8 971 $ 246 134 $ (293 183)
Net loss - - - (5 761)
---------------- ---------------- ---------------- --------------
BALANCES, December 31, 1996 89 710 000 8 971 246 134 (298 944)
Issuance of common stock 35 970 000 3 597 45 594 -
Net loss - - - (5 352)
---------------- ---------------- ---------------- --------------
BALANCES, December 31, 1997 125 680 000 $ 12 568 $ 291 728 $ (304 296)
================ ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
AMERICA ONLINE, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (5 352) $ (5 761)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder advances 5 352 5 761
--------------- ---------------
NET INCREASE (DECREASE) IN CASH $ - $ -
CASH, beginning of year - -
--------------- ---------------
CASH, end of year $ - $ -
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Issuance of common stock for debt $ 49 191 $ 49 191
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-7-
<PAGE>
AMERICA ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Company, formerly Morlex Inc., was incorporated under the laws of the State
of Colorado on April 23, 1986. The primary activity of the Company was to seek
merger or acquisition candidates.
As shown in the financial statements, the Company incurred net losses for the
last several years and has no working capital and has accumulated a deficit of
$304,296; it is management's assertion that these circumstances may hinder the
Company's ability to continue as a going concern. As of the date of this report,
management has not developed a formal plan to raise funds for neither the
Company's short or long term needs.
The Company successfully completed a public stock offering in December 1986.
Proceeds to the Company, net of direct registration and underwriting fees,
amounted to $248,400. It has had minimal operations over the last several years.
Net Loss Per Share
Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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 form those estimates.
Income taxes
The Company has a remaining net operating loss carryforward of approximately
$300,000 expiring principally in 2002 and 2003. However, the Company's ability
to utilize such losses to offset future taxable income is subject to various
limitations imposed by the rules and regulations of the Internal Revenue
Service. A portion of the Company's net operating losses are limited each year
to offset future taxable income, if any, due to the change of ownership in the
Company's outstanding shares of common stock.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company had accrued certain amounts due to one of its major shareholders for
payment of consulting fees, rent and other administrative expenses. In December,
1997, these amounts ($49,191) were converted to 35,970,000 shares of common
stock.
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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0
0
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</TABLE>
