SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 26, 2001 (June 20, 2000)
Empire Energy Corporation
-------------------------
(Exact Name of Registrant as specified in its charter)
Utah 1-10077 87-0401761
---- ------- ----------
(State or other jurisdiction) (Commission file number) (IRS Employer ID No.)
7500 College Boulevard, Suite 1215
Overland Park, Kansas 66210
---------------------------
(address of principal executive offices) (zip code)
(913) 469-5615
--------------
(Registrant's telephone number,
including area code)
Item 2. Acquisition or Disposition of Assets
On June 20, 2000, Empire acquired 71.43% of the outstanding common stock of One
E Group, Inc. in exchange for 846,675 shares of newly issued Empire common
stock and warrants to purchase eleven million shares of the Company's common
stock at a price of $3.00 per share. The market value of the common stock issued
by Empire was determined to be $2,116,688 based on the market closing price of
$2.50 per share on the date of the acquisition. The fair value of the warrants
was determined to be $11,000 based on the stated value of the warrants. The
warrants expire June 20, 2001 and are callable at $.001 per share if not
exercised within sixty days after the Company's common stock trades at $5.55 for
30 consecutive days. Fair values of the operating assets and assumed liabilities
were determined to be similar to their book values. This acquisition will be
accounted for as a purchase. It is a step to broaden the Company's businesses
from its dependency on the natural resources industry.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
Audited financial statements of One E Group, Inc. are filed herewith for the
period from inception ending December 31, 1999 and unaudited financial
statements are included for the three month periods ending March 31, 2000.
(b) Pro forma Financial Statements
Pro forma financial information of Registrant and One E Group, Inc. are filed
herewith.
(c) Exhibits
2.04 Asset acquisition agreement.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned duly authorized officer.
Empire Energy Corporation
(Registrant)
Dated: March 26, 2001 By: /s/ Norman L. Peterson
- --------------------- --------------------------
Norman L. Peterson, Chairman
EMPIRE ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Attached are the historical audited financial statements of One E Group, Inc.
(OEG) for the acquisition of 71.43% of the outstanding common stock of OEG by
Empire Energy Corporation ("Empire") (a development stage company). The
unaudited pro forma consolidated condensed financial statements have been
prepared utilizing the historical financial statements of Empire. The unaudited
pro forma consolidated condensed financial statements should be read in
conjunction with the historical financial statements of Empire on Form 10-KSB/A
and the attached historical financial statements of OEG.
The following unaudited pro forma consolidated condensed statements of
operations for the year ended December 31, 1999 and for the three months ended
March 31, 2000 and the unaudited pro forma consolidated condensed balance sheet
as of March 31, 2000 give effect to the acquisition of the majority of the stock
of OEG, including the related pro forma adjustments described in the notes
thereto. The unaudited pro forma consolidated condensed statements of operations
for the year ended December 31, 1999 and the three months ended March 31, 2000
give effect to the acquisition by Empire as if the acquisition, accounted for as
a purchase, had occurred on January 1, 1999 for the year ended December 31, 1999
and January 1, 2000 for the three months ended March 31, 2000. The unaudited pro
forma consolidated condensed balance sheet as of March 31, 2000 gives effect to
the acquisition as if it had occurred on March 31, 2000. The pro forma
financial statements reflect the preliminary allocation of the purchase price.
The purchase price will be finalized upon the completion of management's review
and resolution of the purchase contingencies.
The unaudited pro forma consolidated condensed financial statements may not be
indicative of the results that actually would have occurred if the acquisition
had been effective on the date indicated or which may be obtained in the
future.
F-1
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
- ------------------------------------------------------------------------------------------------
ASSETS
------
Unaudited
Historical March 31, 2000 One E Group Pro Forma
-------------------------- Pro Forma March 31,
Empire One E Group Adjustments 2000
----------- ----------- ----------- -----------
CURRENT ASSETS
Cash $ 126,723 $ 164,160 $ -- $ 290,883
Accounts receivable, net 57,773 39,085 -- 96,858
Prepaids and deposits 18,500 47,396 -- 65,896
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 202,996 250,641 -- 453,637
PROPERTY AND EQUIPMENT, NET 8,462 95,146 -- 103,608
OIL AND GAS PROPERTIES, NET -- -- -- --
OTHER ASSETS:
Marketable securities -- -- -- --
Goodwill -- -- (b) 1,714,833 --
(c) (1,714,833)
Receivables - related party 101,675 327,717 -- 429,392
----------- ----------- ----------- -----------
TOTAL ASSETS $ 313,133 $ 673,504 $ -- $ 986,637
=========== =========== =========== ===========
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 17,745 $ 25,712 $ -- $ 43,457
Capital leases -- 29,807 -- 29,807
Notes payable - related parties 8,500 40,000 -- 48,500
Convertible debentures 25,000 -- -- 25,000
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 51,245 95,519 -- 146,764
----------- ----------- ----------- -----------
MINORITY INTERESTS -- -- (b) 165,130 165,130
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
Common stock 12,140 1,050 (a) (1,050) 12,987
(b) 847
Additional paid-in-capital 4,299,833 909,900 (a) (909,900) 6,426,674
(b) 2,126,841
Previous accumulated deficit (1,867,999) -- -- (1,867,999)
Accumulated deficit (2,182,086) (332,965)(a) 332,965 (3,896,919)
(c) (1,714,833)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 261,888 577,985 (165,130) 674,743
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 313,133 $ 673,504 $ -- $ 986,637
=========== =========== =========== ===========
See notes to unaudited pro forma consolidated condensed financial statements.
F-2
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
---------------------------------------------------------------
One E Group
Pro Forma Unaudited
Empire One E Group Adjustments Pro Forma
------------ ------------ ------------ ------------
OIL AND GAS SALES $ 69,401 $ -- $ 69,401
EXPENSES
Lease operating 1,100 -- -- 1,100
Depreciation, depletion, amortization
and impairment 90,802 4,396 (c) 1,714,833 1,810,031
Interest, net 76,750 (10,249) -- 66,501
General and administrative 570,838 183,512 -- 754,350
------------ ------------ ------------ ------------
TOTAL EXPENSES 739,490 177,659 1,714,833 2,631,982
------------ ------------ ------------ ------------
OPERATING LOSS (670,089) (177,659) (1,714,833) (2,562,581)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (670,089) $ (177,659) $ (1,714,833) $ (2,562,581)
============ ============ ============ ============
Net loss per common share $ (0.22)
============
Weighted Average Shares Outstanding 11,729,460
============
See notes to unaudited pro forma consolidated condensed financial statements.
F-3
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 2000
---------------------------------------------------------------
One E Group
Pro Forma Unaudited
Empire One E Group Adjustments Pro Forma
------------ ------------ ------------ ------------
OIL AND GAS SALES $ 122,053 $ -- $ -- $ 122,053
COMPUTER SERVICES REVENUE -- 44,770 -- 44,770
EXPENSES
Lease operating 2,032 -- -- 2,032
Cost of sales -- 6,751 -- 6,751
Depreciation, depletion, amortization
and impairment 1,682,822 3,324 (c) 1,714,833 3,400,979
Interest, net 6,700 (9,516) -- (2,816)
General and administrative 134,529 199,516 -- 334,045
------------ ------------ ------------ ------------
TOTAL EXPENSES 1,826,083 200,075 1,714,833 3,740,991
------------ ------------ ------------ ------------
OPERATING LOSS (1,704,030) (155,305) (1,714,833) (3,574,168)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (1,704,030) $ (155,305) $ (1,714,833) $ (3,574,168)
============ ============ ============ ============
Loss Per Share:
Net loss per common share $ (0.29)
============
Weighted Average Shares Outstanding 12,331,733
============
See notes to unaudited pro forma consolidated condensed financial statements.
F-4
EMPIRE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Acquisition of Investment in One E Group
On June 20, 2000, Empire acquired 71.43% of the outstanding common stock of One
E Group, Inc. in exchange for 846,675 shares of newly issued Empire common stock
and warrants to purchase 11,000,000 shares of the Company's common stock at
$3.00 per share.
The market value of the common stock issued by Empire was determined to be
$2,116,688 based on the closing price of $2.50 per share on the date of the
acquisition. The fair value of the warrants was determined to be $11,000 based
on the stated value of the warrants. The warrants expire June 20, 2001 and are
callable at $.001 per share if not exercised within sixty days after the
Company's common stock trades at $5.55 for 30 consecutive days. Fair values of
the operating assets and assumed liabilities were determined to be similar to
their book values. Due to the lack of historical profitability, the excess of
the market value of the common stock issued over the net fair value of the
assets acquired will not be capitalized as goodwill but will be impaired and
immediately charged to operations. Because of this immediate impairment, no
additional adjustments will be made to operations related to depreciation or
amortization of asset values.
In connection with the acquisition of One E Group, the Company received a note
receivable of $252,702 which was due from Talisman Marketing, Inc., and was
assumed by a subsidiary of Empire when assets of Talisman were acquired on April
11, 2000. Therefore, in the future, the note receivable and payable will
eliminate upon consolidation.
The unaudited pro forma adjustments are as follows:
a. To eliminate the equity of One E Group upon purchase.
b. To record the issuance of common stock to purchase 71.43% of the
outstanding common stock of OEG under the purchase method:
Net assets acquired at fair value:
Current assets $ 250,641
Property and equipment 95,146
Other assets 327,717
Goodwill 1,714,833
Minority interests (165,130)
Liabilities (95,519)
-----------
$ 2,127,688
===========
Consideration comprised of 846,675 common shares
of Empire at $2.50 per share $ 2,116,688
Fair value of warrants 11,000
-----------
$ 2,127,688
===========
c. To record and charge against operations the impairment of the excess
of the fair value of the common stock issued over the fair value of
the net assets acquired.
F-5
EMPIRE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Earnings per share:
The following is a reconciliation of historical to pro forma weighted average
shares outstanding:
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- --------------
Historical 10,882,785 11,485,058
Shares issued to acquire
One E Group (assumed to
be at beginning of period) 846,675 846,675
---------- ----------
Pro forma 11,729,460 12,331,733
========== ==========
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented because
all potential common shares are anti-dilutive.
F-6
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
- --------------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-8
Financial Statements:
Balance Sheet F-9
Statement of Operations F-10
Statement of Stockholders' Equity F-11
Statement of Cash Flows F-12
Notes to Financial Statements F-13 to F-18
Introduction to Interim Financial Statements F-19
Interim Financial Statements for the Period Ended
March 31, 2000 F-20 to F-25
F-7
Independent Auditors' Report
To the Board of Directors and Stockholders
One E Group, Inc.
Chandler, AZ
We have audited the accompanying balance sheet of One E Group, Inc. (a
development stage company) as of December 31, 1999, and the related statements
of operations, stockholders' equity, and cash flows for the period from October
7, 1999 (inception) to December 31, 1999. 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 One E Group, Inc. as of
December 31, 1999 and the results of its operations and its cash flows for the
period from October 7, 1999 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.
February 17, 2000 /s/ Sartain Fischbein & Co.
Tulsa, Oklahoma Sartain Fischbein & Co.
F-8
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
- -------------------------------------------------------------------------------
December 31, 1999
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 238,336
Notes receivable - related parties 403,652
Employee advance 2,000
Accrued interest receivable 6,700
---------
Total Current Assets 650,688
Furniture and Equipment, net of accumulated
depreciation of $4,396 49,786
---------
$ 700,474
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,881
Current portion of long-term debt 10,701
Finders fee payable 14,000
---------
Total Current Liabilities 36,582
Long-Term Debt 20,601
---------
Total Liabilities 57,183
---------
Stockholders' Equity
Preferred stock, $.0001 par value, 10,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $.0001 par value, 100,000,000 shares
authorized, 10,400,000 shares issued and outstanding 1,040
Additional paid-in capital 819,910
Deficit accumulated during development stage (177,659)
---------
Total Stockholders' Equity 643,291
---------
$ 700,474
=========
See notes to unaudited pro forma consolidated condensed financial statements.
F-9
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period from
October 7,
1999 (inception)
to
December 31,
1999
- --------------------------------------------------------------------------------
Revenue $ --
General and Administrative Expenses (187,908)
------------
Operating Loss (187,908)
Other Income (Expense):
Interest expense (423)
Interest income 10,672
------------
10,249
------------
Net Loss $ (177,659)
============
Basic Loss Per Share $ (0.02)
============
Basic Weighted Average Shares Outstanding $ 10,168,588
============
See notes to unaudited pro forma consolidated condensed financial statements.
F-10
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Period from October 7, 1999 (inception) to December 31, 1999
- --------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During
----------------------- Paid-in Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ---------- ----------
Balance at Inception,
October 7, 1999 -- $ -- $ -- $ -- $ --
Issue shares for cash at
$.0001 per share on 10/20/99 9,500,000 950 -- -- 950
Issue shares for cash at $1.00
per share in connection with
a private placement between
9/6/99 and 12/12/99. Net of
$80,000 of deferred offering
costs 900,000 90 819,910 -- 820,000
Net loss for period -- -- -- (177,659) (177,659)
---------- ---------- ---------- ---------- ----------
Balance, December 31,1999 10,400,000 $ 1,040 $ 819,910 $ (177,659) $ 643,291
========== ========== ========== ========== ==========
See notes to unaudited pro forma consolidated condensed financial statements.
F-11
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Period from
October 7,
1999 (inception)
to
December 31,
1999
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $(177,659)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 4,396
Increase in employee advance (2,000)
Increase in accrued interest receivable (6,700)
Increase in accounts payable 11,881
---------
Net Cash Used in Operating Activities (170,082)
---------
Cash Flows from Investing Activities:
Advances on notes receivable (403,652)
Purchase of equipment (20,562)
---------
Net Cash Used in Investing Activities (424,214)
---------
Cash Flows From Financing Activities:
Repayments on long-term debt (2,318)
Proceeds from the sale of common stock 900,950
Deferred offering costs paid (66,000)
---------
Net Cash Provided By Financing Activities 832,632
---------
Net Increase in Cash 238,336
Cash, beginning of period --
---------
Cash, end of period $ 238,336
=========
Cash Paid During the Year For:
Interest $ 423
=========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment through capital lease $ 33,620
=========
Accrued commissions on private placement $ 14,000
=========
See notes to unaudited pro forma consolidated condensed financial statements.
F-12
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: One E Group, Inc. (the "Company") was incorporated in
October 1999 to be an e-commerce enabler, providing turn-key e-commerce
solutions for businesses. The Company is owned 53% by Torreon Holdings,
Inc. ("Torreon").
Cash: The Company maintains cash balances with a financial institution in
excess of FDIC limits.
Furniture and Equipment: Expenditures for furniture and equipment are
recorded at cost; equipment under capital lease is stated at the lower of
fair market value or net present value of minimum lease payments at
inception of the lease. Depreciation is provided on a straight-line basis
over the estimated useful life of the equipment or the lease term of 5-7
years.
Deferred Offering Costs: Deferred offering costs represents costs incurred
in connection with the Company's private placement. See Note 6.
Per Share Information: The computation of earnings per share is based on
the loss applicable to common stockholders, divided by the weighted average
number of common shares outstanding during the period.
Income Taxes: The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to difference between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
F-13
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amount 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.
2. DEVELOPMENT STAGE OPERATIONS
The Company was incorporated on October 7, 1999. The operations to date
have consisted primarily of developing a business plan, raising capital,
establishing key relationships with suppliers and resellers and creating
the operation infrastructure. The Company's business plan focuses primarily
on establishing an e-commerce presence for businesses with fewer than 500
employees. Additionally, the Company is in the process of raising an
additional $9,000,000 in a private placement. (See Note 9).
There can be no assurances the Company will be successful in development
and implementation of its business plan or raising additional capital.
3. NOTES RECEIVABLE
The Company loaned an entity related through common ownership $252,702 at
10%. The note is due on demand and is without collateral.
The Company loaned Torreon $150,950 at 10%. The note is due on demand and
is without collateral.
A summary of notes receivable at December 31, 1999 is as follows:
Note receivable - related entity $252,702
Notes receivable - Torreon 150,950
--------
Total notes receivable 403,652
Allowance for uncollectible notes --
--------
Net balance, December 31, 1999 $403,652
========
F-14
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
4. LONG-TERM DEBT
The Company leases computer and phone equipment under capital leases which
require monthly payments aggregating $1,176 per month including interest
and expire through September 2002. The following is a summary of assets
under capital leases at December 31, 1999:
Computer and phone equipment $ 33,620
Accumulated depreciation (3,438)
--------
$ 30,182
========
Maturities on the capital lease obligation, shown as long-term debt, are as
follows: 2000 - $10,701; 2001 - $11,723; 2002 - $8,878.
5. INCOME TAXES
Components of the net deferred tax asset at December 31, 1999 are as
follows:
Net operating loss carryforwards $ 66,000
Valuation allowance (66,000)
--------
Net deferred tax asset $ --
========
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $168,000 which expire through 2014. Due to uncertainty as to
realization, a deferred tax asset valuation allowance has been provided and
no net provision for income taxes is included in the statements of
operations.
6. STOCKHOLDERS' EQUITY
Sales of Common Stock
---------------------
At inception, the Company sold 9,500,000 shares of common stock for $.0001
share.
In January 2000, the Company completed a private placement for 1,000,000
shares of the Company's common stock at $1.00 per share. As of December 31,
1999 the Company had sold and issued 900,000 shares of the common stock
under this private placement for $820,000 (net of $80,000 of costs - see
Note 7). The remaining 100,000 shares were sold for $90,000 (net of $10,000
of costs) in January 2000.
F-15
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
7. AGREEMENTS
Reseller Agreement
------------------
The Company has entered into a three (3) year agreement with a provider of
internet access, who owns proprietary technology, software, systems and
engineering. The agreement provides the Company access to nationwide
communication networks and preferential pricing. These networks will allow
subscribers to obtain internet service and access to the e-commerce
services nationwide without use of long distance connections. The Company
will pay various monthly charges based on usage but has no minimum usage
commitment. The Company was required to pay a $25,000 set-up charge and
will pay various monthly charges per user once they begin providing the
internet access. The initial set-up charge was paid and expensed in 1999.
Finders Fee Agreement
---------------------
The Company entered into a finders fee agreement with a minority
shareholder (under 5% ownership) in conjunction with the $1,000,000 private
placement. Under the agreement the minority shareholder received a fee of
10% of the proceeds of any stock sale the Company made to potential
investors that he introduced to the Company. As of December 31, 1999, the
Company had paid $66,000 and accrued an additional $14,000 in finders fees
to this individual. An additional $10,000 fee was paid to this individual
when the private placement was completed in January 2000. All fees paid are
included as a reduction of additional paid-in capital in the accompanying
balance sheet.
Office Lease
------------
The Company leases office space from an entity related through common
ownership on a month-to-month basis. During the period ended December 31,
1999, the Company paid $1,840 of rent under the lease agreement.
F-16
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
8. STOCK OPTION PLAN
Effective October 20, 1999, the Company adopted a Stock Option Plan ("the
Plan") that provides for qualified and non-qualified plans. The Plan covers
an aggregate 2,000,000 shares of common stock of which the Incentive plan
(the qualified plan) is limited to 1,000,000 of the shares. The Incentive
plan is administered by a committee appointed by the Board of Directors
(Committee), and requires that options be granted at an exercise price of
100% of the fair value of the common stock of the Company on the date of
the grant. Options granted to stockholders who possess more than 10% of the
outstanding common stock have a required exercise price of 110% of the fair
value of the common stock on the date of grant. The options are exercisable
six months after the date of grant and expire up to ten years from date of
grant or up to five years from the date of grant for options to
stockholders who possess more than 10% of the outstanding common stock.
The non-qualified Plan is also administered by the Committee and is covered
by the same 2,000,000 shares pool as the Incentive plan. The Non-Qualified
Plan provides that options may be granted at exercise prices and terms as
determined by the Committee.
No options have been granted under the Plan.
9. SUBSEQUENT EVENTS
Acquisition
-----------
On January 10, 2000, the Company established a newly formed company in
which it owns a 51% ownership interest. In conjunction with the newly
formed subsidiary, the Company acquired computer equipment from a company
owned by the minority shareholders of the newly formed company for $65,000,
$25,000 in cash and the remaining $40,000 to be paid over the next 18
months. Simultaneously, the Company sold the equipment to its newly formed
subsidiary for a $65,000 demand note receivable with interest at 10%. No
gain or loss was recorded on the transaction and the assets will be
recorded on the subsidiary's balance sheet.
F-17
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 7, 1999 (INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS (CONTINUED)
Proposed Private Placement
--------------------------
In January 2000, the Company entered into an agreement with a placement
agent to sell up to 4,500,000 shares of the Company's common stock for
$2.00 per share. The Company is required to pay the agent 5% of the gross
proceeds from the offering. The Company paid $25,000 in non-reimbursable
retainers in January 2000, of which $10,000 will be applied against the fee
upon a successful offering.
In addition, in January 2000, the Company entered into an agreement with an
entity, which is a minority stockholder, to identify the placement agent
and to assist in the private placement. The Company is required to pay the
entity $450,000 upon successful completion of the offering and the Company
paid the entity a non-refundable deposit of $2,500 in January 2000, which
will be applied against the fee upon a successful offering.
F-18
Introduction to Unaudited Financial Statements
In the opinion of management, the following unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of One E Group at March 31, 2000 and
the results of its operations and changes in cash flows for the three months
then ended.
F-19
One E Group, Inc.
Balance Sheet
March 31, 2000 (Unaudited)
Assets
Current assets
Cash $ 164,160
Accounts receivable 39,085
Prepaid expenses 1,263
Loans to related companies 327,515
---------
Total Current assets 532,023
Property plant and equipment 95,146
Other assets 46,334
---------
Total Assets $ 673,504
=========
Liabilities and Stockholders Equity
Current liabilities
Accounts payable - trade $ 8,711
Accrued expenses 17,001
---------
Total Current liabilities 25,712
Long-term liabilities
Long-term debt 69,807
Stockholders Equity
Common stock 1,050
Additional paid in capital 909,900
Retained earnings (332,965)
Total Stockholders Equity 577,985
---------
Total Liabilities and Stockholders Equity $ 673,504
=========
The accompanying notes are an integral part of the financial statements.
F-20
One E Group, Inc.
Statement of Income (Loss)
For the period ending March 31, 2000 (Unaudited)
Operating revenue $ 44,770
Cost of goods sold 6,751
---------
Gross profit/(loss) 38,019
Operating expenses 203,591
---------
Income/(loss) from operations (165,572)
Other income
Interest income 10,267
---------
Net income/(loss) $(155,305)
=========
The accompanying notes are an integral part of the financial statements.
F-21
One E Group, Inc.
Statement of Stockholders' Equity
For the period ending March 31, 2000 (Unaudited)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 10,400,000 $ 1,040 $ 819,910 $ (177,659) $ 643,291
Issue shares for cash at $1.00
per share, net of $10,000
of offering costs 100,000 10 89,990 -- 90,000
Net loss for period -- -- -- (155,305) (155,305)
---------- ---------- ---------- ---------- ----------
Balance, March 31, 2000 10,500,000 $ 1,050 $ 909,900 $ (332,964) $ 577,986
========== ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-22
One E Group, Inc.
Statement of Cash Flows
For the period ending March 31, 2000 (Unaudited)
Cash flows from operating activities:
Net Income/(Loss) $(155,305)
Adjustments to reconcile net income/(loss) to
net cash provided by (used in) operations:
Depreciation and amortization expense 3,324
Decrease/(increase) in accounts receivable (37,085)
Decrease/(increase) in prepaid expenses (1,263)
Increase/(decrease) in accounts payable (3,170)
Increase/(decrease) in accrued expenses 17,001
Increase/(decrease) in other current liabilities (14,000)
---------
Net cash provided by (used in) operating activities (190,499)
Cash flows from investing activities:
Investment in lease deposit (18,633)
Change in loans to related companies 82,837
Investment in fixed assets (8,685)
Investment in subsidiaries (201)
---------
Net cash provided by (used in) investing activities 55,318
Cash flows from financing activities:
Prepaid offering costs (27,500)
Repayments on long-term debt (1,495)
Proceeds of common stock sales 90,000
---------
Net cash provided by (used in) financing activities 61,005
---------
Net Increase(Decrease) in Cash (74,176)
Cash at Beginning of Period 238,336
---------
Cash at End of Period $ 164,160
=========
The accompanying notes are an integral part of the financial statements.
F-23
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PERIOD ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information,
refer to the audited financial statements for December 31, 2000 included
herein. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 2000, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
Nature of Operations: One E Group, Inc. (the "Company") was incorporated in
October 1999 to be an e-commerce enabler, providing turn-key e-commerce
solutions for businesses. The Company is owned 53% by Torreon Holdings,
Inc. ("Torreon").
Cash: The Company maintains cash balances with a financial institution in
excess of FDIC limits.
Furniture and Equipment: Expenditures for furniture and equipment are
recorded at cost; equipment under capital lease is stated at the lower of
fair market value or net present value of minimum lease payments at
inception of the lease. Depreciation is provided on a straight-line basis
over the estimated useful life of the equipment or the lease term of 5-7
years.
Deferred Offering Costs: Deferred offering costs represents costs incurred
in connection with the Company's private placement.
Per Share Information: The computation of earnings per share is based on
the loss applicable to common stockholders, divided by the weighted average
number of common shares outstanding during the period.
F-24
ONE E GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PERIOD ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to difference between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
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 amount 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.
2. DEVELOPMENT STAGE OPERATIONS
The Company was incorporated on October 7, 1999. The operations to date
have consisted primarily of developing a business plan, raising capital,
establishing key relationships with suppliers and resellers and creating
the operation infrastructure. The Company's business plan focuses primarily
on establishing an e-commerce presence for businesses with fewer than 500
employees. Additionally, the Company is in the process of raising an
additional $9,000,000 in a private placement.
There can be no assurances the Company will be successful in development
and implementation of its business plan or raising additional capital.
F-25