UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number: 0-18049
E*twoMedia.com
(Formerly Nerox Energy Corporation)
Nevada 91-1317131
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
53 West 23rd Street
11th Floor
New York, NY 10010
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: 212 590-2129
Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
COMMON STOCK ($0.004167)
Check whether the issuer (1) 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 [_] 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 issuer's revenues for its most recent fiscal year: $37,665.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 2,240,091 shares of the
Registrants Common Stock issued and outstanding as of May 12, 1999.
<PAGE>
PART I
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT E*TWOMEDIA.COM AND
OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
E*TWOMEDIA.COM'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. E*TWOMEDIA.COM
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR
ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN
THE FUTURE.
ITEM 1 DESCRIPTION OF BUSINESS
General
E*twoMedia.com was incorporated in the State of Nevada in 1985. Reference in
this Report to "E*twoMedia", "The Company", "The Registrant" " we", "our", and
"us" refer to E*twoMedia.com Up until December of 1998 the company's primary
activities had been directed towards the development of oil, gas and coal
properties. The Registrant on December 18,1998 completed a stock purchase
agreement selling all the outstanding stock it held in its subsidiary Nerox
Power Systems Inc. (NPSI) to Ross Production Company Inc. NPSI held all the
Coal, Oil and Gas interests of the company on a consolidated basis.
The Registrants primary activities are now directed towards developing online
publishing. The Registrant is constantly seeking business opportunities in the
online publishing industry and other means of revenue activities and financing
to enable it to complete its business plan.
Pending Transactions
The Company has entered into negotiations to acquire FPS a United Kingdom based
company. These transactions are described in Note 3 to the financial statements
included in this Report and are referred to herein as the "Pending
Transactions."
Investment Properties
As part of the Stock Purchase agreement entered into December 18,1998 the
company sold all its rights and obligations relating to oil, gas and coal
properties.
Revenues
The Registrant's revenues in 1998 were derived from its proportionate interest
in domestic oil and gas producing properties prior to the sale of all its rights
and obligations relating to the oil, gas and coal properties. The Registrant was
never the operator of any wells in which it owned interest.
<PAGE>
Competitive Conditions
Subsequent to the stock purchase agreement entered into December 18, 1998 the
company no longer expects to realize revenues from oil, gas and coal operations
which had contributed to over 90% of the Company's revenues and earnings stream.
The Company's operations currently are directed towards the online publishing
industry. The company has been in negotiations to acquire a United Kingdom based
publishing company.
E*twoMedia.com has developed a business plan including creating markets, namely
Internet advertising and related products and services, which are intensely
competitive. E*twoMedia.com expects such competition to continue to increase
because its markets pose no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. E*twoMedia.com believes that its
ability to compete depends on many factors both within and beyond its control,
including the following:
(i) the timing and market acceptance of new solutions and enhancements to
existing solutions developed by either E*twoMedia.com or its
competitors
(ii) customer service and support efforts
(iii) sales and marketing efforts
(iv) the ease of use, performance, price and reliability of solutions
developed either by E*twoMedia.com or its competitors.
E*twoMedia.com will compete for Internet Publishing revenues with large Web
publishers and Web search engine companies, such as America Online, Excite,
Lycos, Microsoft, Infoseek and Yahoo!. E*twoMedia.com will also encounter
competition from a number of other sources, including content aggregation
companies, companies engaged in advertising sales networks, advertising
agencies, and other companies which facilitate Internet publishing.
Many of E*twoMedia.com's future competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than does E*twoMedia.com. These factors allow them to
respond more quickly than E*twoMedia.com can to new or emerging technologies and
changes in customer requirements. They may also allow them to devote greater
resources than E*twoMedia.com can to the development, promotion and sale of
their products and services. Such competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners, advertisers and Web publishers. It is
possible that E*twoMedia.com's competitors will develop products or services
that are equal or superior to E*twoMedia.com's products or that achieve greater
market acceptance than E*twoMedia.com's products. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of E*twoMedia.com's prospective
advertising and Web publisher customers. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share. It is possible that E*twoMedia.com will not be able to
compete successfully or that competitive pressures will not materially and
adversely affect its results of operations or financial condition.
Companies doing business on the Internet, including E*twoMedia.com must also
compete with television, radio, cable and print (traditional advertising media)
for a share of advertisers' total advertising budgets. Advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising if they perceive the Internet to be a limited or
ineffective advertising medium.
<PAGE>
INDUSTRY OVERVIEW
The online publishing industry is rapidly growing due in part to the ever
increasing need of businesses for specialized information. As a result of this
need for information, many publishers have oriented their business toward online
publishing.
The online publishing market is diverse, consisting of online trade journals,
newsletters, directories and magazines aimed at specific target markets such as
computers, sports fans, financial information, travel, and lifestyles, etc.
Online directories, including association directories and yellow page
directories, are just one part of the online publishing market. Advertisers are
increasingly seeking ways to channel their advertising dollars toward specific
target markets.
In 1999, the Registrant plans to expand its business to include electronic
publishing on the Internet for clients. The Registrant will provide hosting
services and maintain web sites.
Acquisition Strategy
In addition to online publishing the company expects to enter acquisitions which
will enable it to complete its business plan. The Company seeks to acquire
underperforming middle market media businesses whose acquisition costs are low
relative to potential revenues and cashflow. The Company focuses on developing
significant long-term franchises in middle markets. The Company then seeks to
improve revenues and cashflow, using its particular promotional, marketing,
sales, programming and editorial approaches. The Company targets businesses that
it believes operate in underdeveloped market segments with a low level of
competition and a strong economic base.
The Company believes that its acquisition strategy, properly implemented, has a
number of specific benefits, including
(i) diversification of revenues and cashflow across a broader base of
media industries, properties and markets,
(ii) geographic clustering which has allowed improved cashflow margins
through the consolidation of facilities, centralized newsgathering,
cross-selling of advertising and elimination of redundant expenses
(iii) improved access to consultants and other industry resources
(iv) greater appeal to qualified industry management talent and
(v) efficiencies from economies of scale.
If and when achieved, new acquisitions may adversely affect near-term operating
results due to increased capital requirements, transitional management and
operating adjustments, increased interest costs associated with acquisition
debt, and other factors. Any future acquisitions may be highly-leveraged, and
such acquisitions well may increase the Company's overall leveraged position.
There can be no assurance that debt or equity financing for such acquisitions
will be available on acceptable terms, or that the Company will be able to
identify or consummate any new acquisitions. Any failure to make necessary
acquisitions, or the making of unsuccessful acquisitions, could have a material,
adverse effect on the future financial condition and operating results of the
Company.
<PAGE>
GOVERNMENT REGULATION
The Company plans to be in the business of Online Publishing which is dependent
upon Internet access, in part, through transmissions over public telephone
lines. These transmissions are governed by regulatory policies establishing
charges and terms for communications. The Company, as an online publishing
company will depend upon Internet access providers, who are not currently
subject to direct regulation by the Federal Communications Commission (the
"FCC") or any other agency, other than regulations applicable to businesses
generally. However, the Company could become subject in the future to
regulations by the FCC and/or other regulatory commissions as a provider of
basic telecommunications services.
Such regulations could affect the charges that the Company pays to connect to
the local telephone network or for other purposes. Currently, Internet access
providers, are not required to pay carrier access charges. Access charges are
assessed by local telephone companies to long-distance companies for the use of
the local telephone network to originate and terminate long-distance calls,
generally on a per minute basis. Access charges have been a matter of continuing
dispute, with long-distance companies complaining that the rates are
substantially in excess of cost and local telephone companies arguing that
access rates are justified to subsidize lower local rates for end users and
other purposes. In May 1997, the FCC reaffirmed its decision that Internet
access providers should not be required to pay carrier access charges. In a
related order, the FCC also concluded that Internet access providers should not
be required to contribute to a new universal service fund established to replace
current local rate subsidies and to meet other public policy objectives, such as
enhanced communications systems for schools, libraries, and certain health care
providers. As a result, unlike telecommunications carriers and other
telecommunications providers, Internet access providers will not have to
contribute a percentage of their revenues to the federal universal service fund
and are not likely to be required to contribute to similar funds being
established at the state level. However, both the access charge and universal
service treatment of Internet access providers are the subjects of further
proceedings and could change. Telephone companies are actively seeking
reconsideration or reversal of the FCC decisions, and their arguments are
gaining more support as Internet-based telephony begins to compete with
conventional telecommunications companies.
The Company is not in a position to predict how these matters will be resolved,
but it could be adversely affected if, in the future, it and other Internet
access providers are required to pay access charges or contribute to universal
service support.
The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. Although no claims seeking to impose such liability have
been asserted against the Company to date, there can be no assurance that such
claims will not be asserted in the future or, if asserted, will not be
successful. As the law in this area develops, the potential imposition of
liability upon the Company for information carried on and disseminated through
its network could require the Company to implement measures to reduce its
exposure to such liability, which may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of contesting any such asserted claims or
the consequent imposition of liability could materially adversely affect the
Company's business, financial condition, and results of operations.
Due to the increasing popularity and use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet,
covering issues such as content, user privacy, pricing, and copyright
infringement. The Company cannot predict the impact, if any, that any future
regulatory changes or developments may have on its business, financial
condition, and results of operations. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes that
directly or indirectly affect telecommunication, costs or increase the
likelihood or scope of competition from regional telephone companies or others,
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
<PAGE>
Insurance Coverage
None
Employees
At May 12, 1999, the Registrant had no employees. Currently, the Registrant is
charged for office space and clerical staff time through the offices of Michael
Cassin, President and CEO.
ITEM 2 DESCRIPTION OF PROPERTIES
None
ITEM 3 LEGAL PROCEEDINGS
The Company is currently in litigation due to a suit filed by debtors of the
companies former subsidiary. The potential liability of the suit is $146,000.
The attorney for the company Mr. William Artus has made representations that the
suit will have a favorable outcome on E*twoMedia.com's behalf. In addition, the
President of Ross Production Inc. has placed sufficient amounts of assets in an
escrow account with Mr. Artus' as security in the event of a unfavorable
judgement.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
High and Low Bid
The following table sets forth the high and low bid prices of the Common Stock
of the Registrant in the over-the-counter market (OTC Bulletin Board) by quarter
in 1997 and 1996. The information was provided by the market-maker in the
Registrant's stock and statistical reports by the NASD. Such over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
Mar 1998 Jun 1998 Sep 1998 Dec 1998
High 11/20 2/5 1/8 1/40
Low .7/25 2/25 1/25 .7/50
Mar 1997 Jun 1997 Sep 1997 Dec 1997
High 1 9/16 7/8 17/32 13/32
Low 11/16 17/32 3/8 1/8
<PAGE>
Holders
At the date of this filing there are approximately 439 holders of the Common
Stock of the Registrant.
Dividends
The Company has paid no dividends on its common stock and for the foreseeable
future has no plans to pay dividends. The Preferred shareholders elected to
convert accrued dividends into common stock in 1998.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following review of operations should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this document.
1998 compared to 1997
Total revenues from oil and gas sales for 1998 were $37,665, a decrease of 59%
from $90,875 in 1997. The decrease is due to the cessation of oil and gas
production. Oil production declined because the oil producing properties are
approaching the end of their productive lives. Oil and gas costs of $12,454 in
1998 decreased 81% from $65,645 in 1997 due to the decrease in activity in oil
and gas activities.
Mining costs of $17,039 in 1998 decreased 92% from $225,115 in 1997 due to a
decrease in mining activities.
General and administrative expenses of $545,272 in 1998 decreased 12% from
$617,801 in 1997 due to lower overhead in running the company.
Interest costs decreased from $203,287 to 0 as the Company was able to convert
the remainder of their debt into common stock in 1998 and all accrued interest
expense was assumed by Ross Production Company Inc. in the stock purchase
agreement entered into December 18, 1998. Depletion of $32,472 decreased 46%
from $60,000 in 1997. There was no impairment in 1998 as substantially all oil
and gas properties were written down in 1996.
All of The Company's largest coal, oil and gas holdings were sold on December
18, 1998.
Liquidity and Capital Resources
At December 31, 1998, the Company had current liabilities totaling $105,000 and
current assets of $10,000 for a working capital deficit of $95,000 due primarily
to professional fees accrued relating to the reorganization of the company at
the end of 1998 and compensated for in cash payments and in the form of stock
issued to the individuals listed in item 11.
Inflation
Inflation during the year ended December 31, 1998 has had little effect on the
Company's capital costs and results of operations.
<PAGE>
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Exhibit A, Auditor's Report, attached hereto and incorporated herein by this
reference.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 9, 1999, the Company filed an 8-K to report the appointment of
Nelson, Mayoka and Company CPA's as its new independent accountants.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Name Age Position with the Company Since
Michael Cassin 54 President/Secretary/Director November 3, 1998
Daniel Jefferies 35 Chief Executive Officer/Director May 10, 1999
Michael Cassin has served as the Director of Fermer do Brazil Investimentos
Ltda. A Brazilian management buy-out fund located in Sao Paulo, Brazil. Mr.
Cassin advises the Firm and its clients about dealing with institutional
investors, public offerings of securities, merger and acquisition financing and
management buy-out transactions, and public equity after market strategies. Mr.
Cassin has worked with Worcester Capital Corporation, Seacoast Communications
Group, Inc. Greenway Communications Inc. and other Corporations.
Daniel Jefferies has served as managing director and owner of FPS a United
Kingdom based publishing company. Mr. Jefferies has fourteen years of experience
in the media promotions and packaging industry. He set up Bolton Films in 1986
and developed a number of successful deals. He also was involved in the launch
of Maximize Media which specialized in repackaging and selling paid for
newspaper space in the form of advertorials and special features.
ITEM 10 EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1998, none of the Officers or
Directors of the Company had compensation with the exception of payments to
certain directors for professional services as described in Item 11.
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 12, 1999 as to each
person who is known to the Registrant to be the beneficial owner of more than 5%
of the common stock of the Registrant, and as to the security ownership of each
Director of the Registrant and all Officers and Directors of the Registrant as a
group. Except where specifically noted, each person listed in the table has sole
voting and investment power in the shares listed.
Name and Address Number of Shares Percent of
Of Beneficial Owner Beneficially Owned Shares Outstanding
Michael Cassin 700,000 31.25%
166 East 83rd Street
New York, NY 10028
William Bolles 700,000 31.25%
37 East 28th Street
New York, NY 10016
(1) A person is deemed to be the beneficial owner of securities than can be
acquired by such person within 60 days from May 12,1999 upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is determined
by assuming that options or warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days from May
12,1999 have been exercised.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, 955,000 shares of common stock were issued to consultants as
compensation for services from 1998 as follows.
Shares
Oram Ltd. 200,000
William W. Bolles 525,000
Michael A. Cassin 200,000
Marc A. Palazzo 30,000
-------
955,000
The company in the first quarter of 1999 began negotiations with FPS a United
Kingdom based company to be acquired.
<PAGE>
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT A Auditors' Report
FORM 8-K
On February 9, 1999 E*twoMedia.com filed an 8-K reporting the company filed a
Certificate of Amendment to the Certificate of Incorporation which changed the
name of the Company from Nerox Energy Corporation to E*twoMedia.com. In addition
the company reported the engagement of Nelson, Mayoka & Company as its new
independent accountant.
On March 22,1999 the company filed an 8K reporting the Amendment of Article 4 of
the Articles of Incorporation, which superseded the Amendment of the Articles of
Incorporation file on an 8K on April 26, 1998 increasing the shares outstanding
to 12,000,000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 12, 1999 E*TWOMEDIA.COM
By: /s/ MICHAEL CASSIN
-----------------------------
Michael Cassin, President and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: May 12, 1999 By: /s/ MICHAEL CASSIN
-----------------------------
Michael Cassin, President and
Secretary
<PAGE>
Nelson, Mayoka & Company, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
551 5TH Avenue
New York, New York
10176-0001
Tel. (212) 697-7979
Fax (212) 697-8997
DIRECT LINE
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
E*twoMedia.com (Formerly Nerox Holding Corporation)
We have audited the accompanying balance sheet of E*twoMedia.com (Formerly Nerox
Holding Corporation), as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 E*twoMedia.com (Formerly Nerox
Holding Corporation), as of December 31, 1998, and the results of its operations
for the period then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company is a development stage enterprise.
The lack of sufficient working capital to operate as of December 31, 1998 raises
substantial doubt about is ability to continue as a going concern. Management's
plans concerning these matters are described in Note 4. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
May 4, 1999
New York, New York
Nelson, Mayoka and Company
CERTIFIED PUBLIC ACCOUNTANTS
1
<PAGE>
E*TWOMEDIA.COM
DECEMBER 31, 1998
<PAGE>
E*TWOMEDIA.COM
DECEMBER 31, 1998
PAGE
INDEPENDENT AUDITORS REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders Equity 4
Statement of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6-12
<PAGE>
E*twoMedia.com.
(Formerly Nerox Holding Corporation)
BALANCE SHEET
December 31, 1998
Current Assets:
Notes Receivable- Sale of Subsidiary $ 10,000
-------------
Total Current Assets 10,000
=============
Liabilities and Stockholders' Equity
Accrued Expenses 105,000
-------------
105,000
-------------
Total Current Liabilities $ 105,000
-------------
Stockholders' Equity
Common stock, par value $.004167; shares authorized
12,000,000, issued and outstanding 160,091
(net of 4,507 treasury shares) $ 667
Additional paid-in capital 13,426,432
Accumulated deficit (13,522,099)
-------------
Stockholders' equity (95,000)
-------------
Total Liabilities and Stockholders' equity $ 10,000
=============
See accompanying notes to the financial statements.
2
<PAGE>
E*twoMedia.com.
(Formerly Nerox Holding Corporation)
STATEMENT OF OPERATIONS
For the Year Ended
December 31,
1998
Revenues
Oil and gas sales $ 37,665
Loss on sale of subsidiary (1,245,935)
Gain on disposition of oil and gas properties -
--------------
$ (1,208,270)
--------------
Cost and expenses
Oil and gas costs 12,454
Coal mine costs 17,039
General and administrative 545,272
Depletion Expense 32,472
--------------
607,237
Net Loss $ (1,815,507)
==============
Basic and diluted net loss per common share $ (16.09)
==============
Basic and diluted weighted average number
of common shares outstanding 112,804
==============
See accompanying notes to the financial statements.
3
<PAGE>
E*twoMedia.com.
(Formerly Nerox Holding Corporation)
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Amount Amount Additional
Number of ------------------- Number of ------------------- Paid-in
Shares Per Share Total Shares Per Share Total Capital
--------- --------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 49,282 345,000 6,697,627 - 27,910 12,339,219
Stock issued for services 3,200,000 0.004 13,334 386,666
Reverse 1-125 stock split (9,818,446) (40,914) 40,914
Forgiveness of related party debt 10,196 0.004 42 314,928
Preferred stock conversion to Commo (49,282) (345,000) 70,714 0.004 295 344,705
------- -------- ---------- ----- ------- ----------
BALANCE, DECEMBER 31, 1998 - - 160,091 667 13,426,432
======= ======== ========== ======= ==========
Accumulated
Deficit
-----------
BALANCE, JANUARY 1, 1998 (11,706,592)
Net loss (1,815,507)
-----------
BALANCE, DECEMBER 31, 1998 (13,522,099)
===========
960,361
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
E*twoMedia.com.
(Formerly Nerox Holding Corporation)
STATEMENT OF CASH FLOWS
For the Year Ended
December 31,
1998
------------------
Cash flows from operating activities:
Net Loss $ (1,815,507)
Adjustments to reconcile net loss to net cash
used by operating activities
Loss on disposition of oil and gas properties
Depletion 32,472
Note Receivable (10,000)
Issuance of common stock for services (400,000)
Increase (decrease) in liabilities
Notes Payable Shareholders (145,000)
Notes Payable Placer Dome (158,463)
Accounts payable (482,497)
Accrued expenses 40,109
Settlement of shareholder contingency (314,970)
--------------
Net cash used by operating activities (3,253,856)
--------------
Cash flows from investing activities
Disposition of oil and gas properties 2,138,915.00
--------------
Net cash provided (used) by investing activities 2,138,915.00
--------------
Cash flows from financing activities
Conversion of Prefered Stock (345,000)
Conversion of Shareholder Contingency Debt to Equity 314,970
Proceeds from notes payable 85,000
Common Stock 13,672
Additional Paid In Capital 1,046,299
--------------
Net cash provided by financing activities 1,114,941
--------------
Net increase (decrease) in cash -
--------------
Cash, and cash equivalents, beginning of period -
--------------
Cash, and cash equivalents, end of period $ -
==============
See accompanying notes to the financial statements
.
5
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Note - 1 Nature of business
E*twoMedia.com was incorporated on September 26, 1985 as Gemini Energy
Corporation under the laws of the State of Nevada. On January 28,1994, the
Company's name was changed to Nerox Energy Corporation. On April 26,1998 the
company name was changed to Nerox Holding Corporation. On December 7, 1998 the
company name was changed to E*twoMedia.com. E*twoMedia.com is constantly seeking
business opportunities in the online publishing industry and other means of
financing to enable it to complete its business plan.
Note - 2 Sale of Subsidiary
On December 18th 1998, the company entered into a stock purchase agreement with
Ross Production Company Inc. to sell all of the two million shares of
(2,000,000) of Common Stock of its subsidiary Nerox Power Systems, Inc (NPSI).
NPSI had interests in Coal, Oil and Gas facilities with an aggregate net asset
value of $2,140,000. In consideration for this sale E*twoMedia received a Note
Receivable of $10,000 . In addition Ross Production Company Inc. assumed all the
liabilities of NPSI including but not limited to any environmental liabilities
detailed as follows:
Note Payable Placer Dome NA $230,000
Trade Debt Payable 562,000
--------
Total $792,000
========
As part of the stock purchase agreement Ross Production Company Inc. assumed all
the liabilities of NPSI including but not limited to any environmental
liabilities. The purchaser of NPSI, Ross Productions Inc. has confirmed that
they hold E*twoMedia.com harmless for the liabilities of NPSI. E*twoMedia.com's
counsel has also made representations that the litigation detailed below under
legal matters will have a favorable judgement on E*twoMedia.com's behalf.
Note - 3 Summary of significant accounting policies
Cash and cash equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less. Substantially all deposits are on
account with one institution.
Coal mine
During 1998 E*twoMedia. com Inc. recognized Costs associated with the ordinary
maintenance and repairs of the coal mines prior to the sale of NPSI shares to
Ross Production Company.
6
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Oil and gas properties
During 1998 E*twoMedia.com recognized costs associated with the ordinary
maintenance and repairs of the oil and gas properties prior to the sale of NPSI
shares to Ross Production Company.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset federal income taxes.
Due to the Company's net operating losses in the fiscal years ended December 31,
1998 and 1997 of $1,815,507 and $1,008,784 respectively, there are no income
taxes currently due. Due to recurring losses the company has a zero valuation
allowance.
Stock compensation
The Company accounts for compensation costs related to employee stock options
and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion 25 ("APB
25"). APB 25 requires compensation costs for stock based compensation plans to
be recognized based on the difference, if any, between the fair market value of
the stock on the date of the grant and the option exercise price. In October
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 123, Accounting for Stock-Based Compensation ("SFAS 123").
SFAS 123 established a fair value-based method of accounting for compensation
costs related to stock options and other forms of stock-based compensation
plans. However, SFAS 123 allows an entity to continue to measure compensation
costs using the principles of APB 25 if certain pro forma disclosures are made.
The Company adopted the provisions of pro forma disclosure requirements of SFAS
123 in 1996. Options granted to non-employees are recognized at their estimated
fair value at the date of grant.
Fair value of financial instruments
The fair value of financial instruments, consisting principally of notes
payable, is based on interest rates available to the Company and comparison to
quoted prices. The fair value of these financial instruments approximated
carrying value.
7
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Basic and diluted net loss per share
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings Per Share ("SFAS 128"), which superseded
Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share for all
periods presented has been restated to reflect the adoption of SFAS 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues. Use of estimates and expenses
during the reporting period. Actual results could differ from those estimates.
Notes Receivable-Sale of Subsidiary
Pursuant to the sale of the subsidiary NPSI to Ross Production, Inc. on December
18, 1998 the company received a promissory note in the amount of $10,000.00,
which was paid in full in January 1999.
Property, Plant and Equipment
The company does not have title to any fixed assets nor does it participate in
any capital lease transactions.
Accrued Expenses
Accrued expenses include professional fees incurred aggregating $105,000.
Stockholders' equity
The company declared on November 20, 1998 a reverse 1 for 125 stock split
effective December 4, 1998.
On April 20, 1995, the Company's board of directors authorized two classes of no
par value preferred stock: Class A, 100,000 shares of 10% cumulative, non-voting
convertible preferred stock, and Class B, 100,000 shares of non-convertible,
non-voting shares. The Company amended its bylaws to combine the two classes of
stock to one class of 200,000 shares of cumulative, convertible, non-voting
preferred stock on April 20, 1996. After one year, the shares are convertible
into common shares on a one for one basis at the option of the holder. The
8
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Stockholders' equity Continued
Company issued 70,709 shares of preferred stock in 1995 for cash of $495,000. In
late 1997, in order to induce conversion due to the inability to pay dividends,
the Company offered to convert shares at 7 to 1.
The company in December of 1998, converted all the remaining shares of preferred
stock for 70,714 shares of post reverse common stock.
The Company in March of 1998 issued 3,200,000 shares of common stock for
compensation of services.
The Company in December of 1998 converted $1,274,550 of debt into 10,196 shares
of post reverse common stock.
Income taxes
Deferred tax assets and liabilities are recognized for temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate. The measurement of deferred tax assets and liabilities is
computed using applicable current tax rates (34%), and is based on provisions of
the enacted tax law; the effects of future changes in tax laws or rates are not
anticipated.
The Company has a Federal net operating loss carryforward of 2,824,591 that may
be offset against future taxable income.
The Company's deferred tax benefit, which has been offset entirely by a
valuation allowance, is comprised of the following at December 31, 1998:
1998
Loss carryforwards $ 2,824,291
Applicable tax rate 34%
-----------
960,361
Valuation allowance (960,361)
-----------
$ -
===========
9
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Basic and diluted net loss per share
The following table illustrates the required disclosure of the reconciliation of
the numerators and denominators of the basic and diluted earnings per share
computations.
December 31,
1998
Basic and diluted earnings per share:
Numerator
Net loss ($1,815,507)
Denominator
Basic and diluted weighted average number
of common shares
outstanding during the period 112,804
Basic and diluted net loss per share $ (16.09)
Note - 4 Commitments and Contingencies
The company on December 18,1998 completed a stock purchase agreement selling all
the outstanding stock it held in its subsidiary Nerox Power Systems Inc. (NPSI)
to Ross Production Company Inc. NPSI held all the Coal, Oil and Gas interests of
the company on a consolidated basis. All liabilities on NPSI were assumed by
Ross Production Company Inc.
Coal mine and related equipment
On August 10, 1995, the Company agreed to acquire certain mining equipment and
other related items valued at $1,355,000 in exchange for 19% of NPSI, resulting
in a minority interest of $454,757. Subsequently the new minority shareholders,
Austin R. Hobbs and Hobbs, Industries, Inc. ("Hobbs"), filed suit against the
Company to rescind the transaction and Hobbs refused to deliver most of the
mining equipment. Due to these circumstances, the Company initially recorded
$295,000 of equipment and $411,000 of related items which are in its possession.
The remaining $649,000 was recorded as a receivable offsetting the Company's
equity by $525,690 and the minority interest by $123,310. In September 1996, the
Company reached a settlement with Hobbs whereby Hobbs relinquished its 19%
ownership in NPSI in exchange for $.40 per ton of coal extracted and sold by
Nerox from its Alaska coal mine up to a maximum amount of $1,000,000.
On October 27, 1995 NPSI entered into an agreement with Placer Dome U.S. Inc.
("PDUS") to assume all obligations of PDUS under an Alaska State Coal Lease
covering approximately 1,410 acres on the site known as the Evan Jones coal
mine. The purchase price for the assignment of this lease was $980,943 to PDUS,
of which $150,000 is still payable, and $40,000 to the State of Alaska. The
lease allows NPSI the exclusive right to mine coal in the leased area for an
10
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Coal mine and related equipment Continued
indefinite period of time and calls for a 5% royalty on all production to be
paid to the State of Alaska. No royalties were paid in 1997 and 1996.
The company on December 18,1998 sold its coal mine and related equipment to Ross
Production Company, Inc., selling its rights and obligations.
Oil and gas Interests
In September 1994, the Company acquired proved oil and gas properties in Alaska
from individuals through the issuance of 108,394 shares of common stock valued
at $3,871,198. The agreement included the Company's promise that the stock would
reach $35.71 per share stock value at the end of two years. If the common stock
had a value of less than $35.71 per share two years from the date of transfer,
then, at the Company's option, the Company may buy back the stock for $35.71 per
share, issue additional stock representing the difference between market value
and $35.71 per share or pay cash to shareholders representing the difference
between market value and $35.71 per share. In late 1996, the Company had a
liability of over $3.7 million which it could not satisfy. The Company was able
to reach an agreement with the shareholders for $1,274,550, which was converted
into common stock as of December 31, 1998. The company as of December 31, 1998
had not issued the 10,196 shares to the individuals but plans to in 1999. The
shares were included as shares issued and outstanding.
The company on December 18,1998 sold its oil and gas interests, selling all its
rights and obligations in these interests to Ross Production Company Inc.
Note - 5 Legal Matters
The Company is currently in litigation due to a suit filed by debtors of the
companies former subsidiary. The potential liability of the suit is $146,000.
The attorney for the company Mr. William Artus has made representations that the
suit will have a favorable outcome on E*twoMedia.com's behalf. In addition, the
President of Ross Production Inc. has placed assets in an escrow account with
Mr. Artus' as security in the event of a unfavorable judgement.
Note - 7 Subsequent events
During 1999, 955,000 shares of common stock were issued to consultants as
compensation for services as follows.
Shares
Oram Ltd. 200,000
William W. Bolles 525,000
Michael A. Cassin 200,000
Marc A. Palazzo 30,000
-------
955,000
The company in the first quarter of 1999 began negotiations with FPS a United
Kingdom based company to be acquired.
12
<PAGE>
E*TWOMEDIA.COM
Notes to Financial Statements
December 31, 1998
Note - 8 Going concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. As shown in the financial statements, the Company
has incurred a net loss of $1,815,507 during the year ended December 31, 1998
and, as of that date, had a working capital deficiency of approximately $95,000.
Additional capital infusion is necessary to continue general and administrative
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management is currently seeking new business opportunities. The company is in
discussions regarding a reverse merger with the FPS company a United Kingdom
based company with online publishing operations.
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