Click Here to Contents





|
|
|
|




SECURITIES  AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-KSB





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934





For the fiscal year  ended December 31, 2004





|NEUTRON ENTERPRISES, INC.                                
|---------------------------------------------------------
|                                                         
|(Exact    name of Registrant as specified in its Charter)




|Nevada                                               |  | 005-80243                |  | 98-0338100                             
|---------------------------------------------------- |  | ------------------------ |  | ---------------------------------------
|                                                     |  |                          |  |                                        
|(State or    other jurisdiction    of incorporation) |  | (Commission    File No.) |  | (IRS    Employer    Identification No.)




|1 Westmount Square, Suite 1660, Westmount, Quebec, H3Z 2P9, Canada    (514) 904-0293
|------------------------------------------------------------------------------------
|                                                                                    
|(Address    and telephone number of principal executive offices)                    




Securities registered  under Section 12(b) of the Exchange Act:





None





Securities registered  under Section 12(g) of the Exchange Act:





Common Stock, $.001 par value(Title of class)





Check whether the registrant  (1) has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the registrant was required to file such reports), and (2)  has been subject to such filing requirements for the past 90  days.  Yes     No





Check if disclosure of  delinquent filers pursuant to Item 405 of Regulation S-B is not 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.





State the aggregate market value  of the voting stock held by non-affiliates of the registrant on March 31, 2005  computed by reference to the average bid and asked prices of such stock as of  such date as reported on the NASDAQ OTC Bulletin Board: $82,224,000.  For record keeping purposes of the SEC  only.  The inclusion of shares in the  calculation of such market value should not be construed as an admission or  conclusion by the registrant that any shares held by a person excluded from the  calculation is in fact an affiliate of the registrant.





Indicate the number of shares  outstanding of each of the registrants classes of common stock, as of the  latest practicable date: 45,680,000 shares of Common Stock, $.001 par value (as  of March 31, 2005).





Transitional Small Business  Disclosure Format (check one):   Yes     No





DOCUMENTS INCORPORATED BY  REFERENCE: None.





|
|
|
|

---



Back  to Cover





Neutron Enterprises, Inc.


ANNUAL REPORT ON FORM 10-KSB


FOR THE YEAR ENDED DECEMBER 31, 2004





TABLE OF CONTENTS





---




|                              | Page       
|----------------------------- | -----------
|                              |            
|Forward    Looking Statements | 1          
|                              |            
|PART I                        |            
|                              |            
|                              | Item    1. 
|                              | Item    2. 
|                              | Item    3. 
|                              | Item    4. 
|                              |            
|PART II                       |            
|                              |            
|                              | Item    5. 
|                              | Item    6. 
|                              | Item    7. 
|                              | Item    8. 
|                              | Item    8A.
|                              |            
|PART III                      |            
|                              |            
|                              | Item    9. 
|                              | Item    10 
|                              | Item    11.
|                              | Item    12.
|                              | Item    13.
|                              | Item    14.
|                              |            
|                              | SIGNATURES 




---



Back to Contents





FORWARD-LOOKING STATEMENTS





Portions of this Form 10-KSB,  including disclosure under Managements Discussion and Analysis or Plan of  Operation, contain forward-looking statements within the meaning of Section  27A of the Securities Act of 1933, as amended (the Securities Act), Section  21E of the Securities and Exchange Act of 1934, as amended (the Exchange  Act), and the Private Securities Litigation Reform Act of 1995, as amended.  These forward-looking statements are subject to risks and uncertainties and  other factors that may cause our actual results, performance or achievements to  be materially different from the results, performance or achievements expressed  or implied by the forward-looking statements. You should not unduly rely on  these statements. Forward-looking statements involve assumptions and describe  our plans, strategies, and expectations. You can generally identify a  forward-looking statement by words such as may, will,
should, expect,  anticipate, estimate, believe, intend, contemplate or project. Factors, risks,  and uncertainties that could cause actual results to differ materially from  those in the forward-looking statements include, among others,





| |  | our ability    to raise capital,                                                                      
| | - | ------------------------------------------------------------------------------------------------------
| |   |                                                                                                       
| |  | our ability    to obtain and retain clients,                                                          
| |   |                                                                                                       
| |  | our ability    to provide our products and services at competitive rates,                             
| |   |                                                                                                       
| |  | our ability    to execute our business strategy in a very competitive environment,                    
| |   |                                                                                                       
| |  | our degree    of financial leverage,                                                                  
| |   |                                                                                                       
| |  | risks    associated with our acquiring and integrating companies into our own,                        
| |   |                                                                                                       
| |  | risks    relating to rapidly developing technology,                                                   
| |   |                                                                                                       
| |  | risks    related to international economies,                                                          
| |   |                                                                                                       
| |  | risks    related to market acceptance and demand for our services,                                    
| |   |                                                                                                       
| |  | the impact    of competitive services,                                                                
| |   |                                                                                                       
| |  | risks    associated with economic conditions and continued weakness in the U. S.    securities market,
| |   |                                                                                                       
| |  | other risks    referenced from time to time in our SEC filings.                                       




With respect to any  forward-looking statement that includes a statement of its underlying  assumptions or bases, we caution that, while we believe such assumptions or  bases to be reasonable and have formed them in good faith, assumed facts or  bases almost always vary from actual results, and the differences between  assumed facts or bases and actual results can be material depending on the  circumstances. When, in any forward-looking statement, we or our management  express an expectation or belief as to future results, that expectation or  belief is expressed in good faith and is believed to have a reasonable basis,  but there can be no assurance that the stated expectation or belief will result  or be achieved or accomplished. All subsequent written and oral forward-looking  statements attributable to us, or anyone acting on our behalf, are expressly  qualified in their entirety by the cautionary statements.  Except as required by law, we do not
undertake any obligations to publicly release any revisions to any  forward-looking statements to reflect events or circumstances after the date of  this report or to reflect unanticipated events that may occur.





PART I





Item 1 - Description of  Business





Certain terms used in this  Annual Report, such as we, us and our and words of similar import refer  to Neutron Enterprises, Inc. and its subsidiaries, including Digital Signage  Broadcast Network (DSBN) Inc. and Elumalite Technologies.





1


---



Back to Contents





Unless otherwise specifically  set forth to the contrary, all dollar amounts in this Annual Report refer to  United States Dollars.





Business Development





Neutron Enterprises, Inc.  (Neutron or the Company) was incorporated on December 28, 2000, in the  state of Nevada. Neutron has never declared bankruptcy, has never been in  receivership, and has never been the subject of any civil legal action or  proceeding.





Business of Issuer





Neutron originally intended to  operate as an online web based heavy equipment marketing company under the url  address www.bigticketitemsonline.com. The business plan was unsuccessful due to  the competitive nature of the industry and a commercial downturn in use of the  Internet for purchase of costly heavy equipment.





In February 2004, the Company  determined to abandon its former business plan and seek alternative business  opportunities. Since that time, management has been evaluating options for  preserving value for its shareholders. While the Company has had minimal cash  resources, management believes that as a public company it is possible to  attract and retain management and key employees, raise additional capital and  acquire operating assets or ongoing businesses.  After looking at a number of possible industries, the Company  initially identified the life sciences and nanotechnology industry as a  potential target.  The Company proceeded  to acquire University Medical Enterprises, Inc. (UMED), Nanosphere  Technologies Inc. (Nanosphere) and Life Sciences Private Equity Inc. (Life  Sciences).  UMED was acquired on March  1, 2004, had no assets or liabilities on that date, and is currently inactive. 
Nanosphere and Life Sciences were incorporated  on April 26, 2004 and are currently inactive.   The Company also entered into other letters of intent which were  subsequently abandoned.  Management has  determined to abandon its efforts to develop pursue these businesses based upon  the amount of capital that would be needed to pursue them and has written off  all costs and expenses related to them.





On September 15, 2004 the  Company entered into a letter of intent to acquire certain assets of The DVT  Group, Ownway, LED Media Group and Elumalite to enable the Company to enter  into the outdoor media market utilizing large scale full motion video display  screens using light emitting diode technology.   These assets did not constitute an ongoing business and it was necessary  for the Company to put in place the personnel and facilities to commence  operations.  On December 15, 2004 the  Company completed the asset purchase transactions and entered into an  employment agreement with G. Michael Singh to act as the Companys marketing  director.  Under the terms of the asset  purchase agreements, 4234251 Canada Inc., a wholly-owned subsidiary of the  Company, paid $407,068 in cash and issued 9,500,000 Class E exchangeable shares  (Exchangeable Shares) to the vendors.   The Exchangeable Shares can be converted, at the
option of the holders,  to 9,500,000 common shares of Neutron Enterprises Inc. with no additional  consideration given.





4234251 Canada Inc. has  executed a Put and Call Agreement with each vendor relating to the Exchangeable  Shares.  Pursuant to the respective  agreements, each vendor has the option, under certain circumstances including  the insolvency of the corporation, to cause the corporation to repurchase its  Exchangeable Shares in consideration of the delivery of common shares of  Neutron Enterprises, Inc., the whole or a one for one basis.  The agreement also gives Neutron  Enterprises, Inc. as well as 4234260 Canada Inc. an overriding call right to  purchase the Exchangeable Shares owned by each vendor should a vendor request  that the corporation repurchase the Exchangeable Shares, whether pursuant to  the Put and Call Agreement or pursuant to the articles of incorporation of the  corporation,  consideration in this  circumstance is the common shares of Neutron.   A total of 4,500,000 Exchangeable Shares are held in escrow until the  earlier of
i) 9 months after the completion of the assets acquisition or ii)  if, the vendor assists 4234251 Canada Inc. to enter into a Joint Venture  agreement with a third party.





2


---



Back to Contents





As a result of this acquisition  and the subsequent efforts to put together an organization, the Company has  begun to create an outdoor


broadcast media company, able  to run real-time, local or national ad campaigns similar to network and local  television stations.





The assets acquired in December  2004 form the basis of the Digital Signage Broadcast Network (DSBN) and  Elumalite Technologies (EL).  The  Companys L.E.D. (light emitting diode) sales company is based in Mississauga,  Ontario with a proprietary licensed product sub-assembly manufacturing contract  in Taipei, Taiwan. EL is a new electroluminescent point of sale technology sold  to multinational consumer products and packaged goods companies.  The company intends to manufacture, sell,  assemble and install custom modular, small to large format L.E.D. displays and  systems for indoor and outdoor digital video applications.  The Company is in various late stage  negotiations to secure contracts for major landmarks, venues and high traffic  locations for its DSBN L.E.D. screens which once installed, are expected to  generate recurring advertising revenues.





We have made significant  investments in acquisition of assets in order to establish an operating  business.  We are focused on building an  infrastructure to commence business operations, including leasing premises and  hiring a sales and support team. We offer our products for sale worldwide, but  expect the largest markets to be the United States, Canada and Europe.





Our four major business units  are listed below:





| |  | L.E.D. Video    Screens  we will sell to end users and to resellers both indoor and outdoor    L.E.D. Video screens and Message Center for the purpose of resale.  These screens will be built to clients    specifications.  We will utilize our    proprietary technology and will have them sub-assembled in Taiwan.             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | Media Boards     We will acquire premier locations and install L.E.D. screens for the    purpose of reselling advertising, creating a recurring revenue model. The    L.E.D. screens will utilize our proprietary technology and will be    sub-assembled to our own specific design.                                                
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | Elumalite -    Elumalites Elumasheet posters are a thin sheet of vinyl (2mm), flexible, and    can be designed in many custom shapes and sizes. The design provides the    client an animated point of sale poster bringing life to a static    design.  The primary use is for point    of sale and point of display advertisements.
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | Mobile    Screen Events - is a full service sales and marketing firm specializing in    electronic outdoor media.  We will utilize mobile screens and sale    advertising at outdoor events such as the McDonalds Air and Sea Show in Fort    Lauderdale.                                                                            




In order to capitalize on our  product mix, we continue to focus on our organization, management processes and  business relationships.





| |  | Organization
| | - | ------------
| |   |             
| |   |            
| |   |             
| |   |            




3


---



Back to Contents





| |   |                            |                                                                                                                                                                                                                                                                                 
| | - | -------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management    Process     
| |   |                            |                                                                                                                                                                                                                                                                                 
| |   |                           | In fiscal    2004, we continued to refine our sales/development process.  This process provides executive review of    each project at key phases within the sales/development cycle.  The goal is to ensure that our products    meet our cost, reliability and business goals.
| |   |                            |                                                                                                                                                                                                                                                                                 
| |   |                           | In 2005, we    intend to have our sub-assemblers begin the ISO 9001 certification process to    meet the needs of our customers.                                                                                                                                                
| |   |                            |                                                                                                                                                                                                                                                                                 
| |  | Business    Relationships:
| |   |                            |                                                                                                                                                                                                                                                                                 
| |   |                           | We will    continue to seek relationships with national or global partners for sales,    manufacturing and distribution to accelerate the worldwide adoption of our    products.                                                                                                
| |   |                            |                                                                                                                                                                                                                                                                                 
| |   |                           | We intend to    expand EL sales into Western Europe and Asia.  The Company intends to expand Screen Sales and other product    sales into Western Europe.                                                                                                                       




Recent Developments





On  January 11, 2005, we completed the acquisition of certain assets from Sharp  Marketing.  Under the terms of the  definitive asset acquisition agreement, the aggregate purchase price for the  acquired assets will be payable by the treasury issuance of 500,000 exchangeable  shares of 4234251 Canada Inc. and by paying $100,000 (cash).   The exchangeable shares can be exchanged to  the common shares of Neutron Enterprises, Inc. at no additional considerations  to the vendor.  300,000 of the  exchangeable shares may be exchanged into shares of Neutron Enterprises, Inc.  at any time.  The remaining 200,000  exchangeable shares are subject to earn out restrictions.





We will intend to create mobile L.E.D. divisions across  North America to support a network of outdoor events.  The Company will focus on securing new mobile events and  developing a recurring cash flow.





Any purchase of shares in  Neutron should be considered highly speculative and involve a number of  financial and business risks. Shareholder value appreciation of the Companys  securities will depend upon successful investments being made. There can be no  assurance that the Companys investment objectives will be achieved.





Manufacturing  and Suppliers





We believe establishing and  maintaining quality manufacturing partners is essential to the performance of  our products and the growth of our business.





During fiscal 2004, we have  developed necessary relationship in order to spread our manufacturing amongst  several facilities. Elumalite manufacturing for both point of sale and point of  display will located in several locations in China and L.E.D. sub-assembly  occurs with our strategic partners facility in Taiwan.





All manufactured products will  either shipped directly to our customers or stored in our Ontario facility and  distributed as required. We believe this form of distribution flexibility best  serves our clients present and future needs.





We have refined our internal  business processes to improve how we design, test and qualify product  designs.  We will  implement  rigorous manufacturing and quality processes to track production and field  failures.   We expect Elumalite and L.E.D. screens ramp up production  during 2005.





4


---



Back to Contents





Selling,  Marketing and Customers





We will market and sell  products and services through our direct sales force based in Mississauga,  Ontario and our administrative offices are located in Montreal,  Quebec.  Our sales and marketing strategy is to secure orders for our  products and services by direct sales.  We utilize an established  channel of existing relationships to generate business leads.  For our L.E.D. Screens we will work directly  with the end users as well as with architects who specify design.  Elumalite sales will be generated through  direct marketing with end users as well as working with advertising agencies  and account executives.  Sales and  marketing expenses include commission expense for our in-house sales people and  the cost of  conferences, preparation of  marketing collateral materials, and the acquisition of studies and other  materials pertaining to our target markets and customers.





For fiscal year ended December  31, 2004, the Company did not have any sales.





Warranties





We generally warrant our  products to be free from defects in materials and workmanship for a period up  to one year from the date of purchase, depending on the product. The warranty  is generally a limited warranty, and in some instances imposes certain shipping  costs on the customer. To date, we anticipate providing direct warranty service  but in the future may establish warranty service, through outsourcing to  maintenance and service installers.





Competition





Our technologies and products  compete with those of other companies. All of our product markets are  fragmented and are competitive with numerous manufacturers with L.E.D. screens  on the basis of price, quality and distribution channels. Manufacturers of  L.E.D. screens include Barco, Mitsubishi, Yesgo, Daktronics and many others.  Suppliers of mobile screens include Large Screen Video Imaging, Innovision Media Group  and others. Most of our present and potential future competitors have  substantially greater resources to devote to further technological and new  product developments. We believe we compete primarily on the originality of our  concepts, the uniqueness and quality of our technology and designs, the ease  and cost of manufacturing and of implementing our technologies, the ability to  meet customer needs to differentiate their products, the strength of our intellectual  property and the strength of licensee and contract supply arrangements. We
may  not, however, be competitive with the existing or future products, technologies  or services of our competitors.





We believe our proprietary  technology and our direct sourcing and manufacturing of components will be a  barrier to entrants to penetrate.





We also believe our Elumalite  technology is novel and has distinct market attributes compared to existing and  competing translucent and neon point of sale and point of display signage. We  believe our Elumalite technology produces creative opportunities and visual  spectacular flash animation appeal of EL technology makes this product truly  unique and eye catching, and ELumalites production size capabilities provide  greater scope of use. We are not aware of companies offering our Elumalite  signs offering the same brightness and reliability of Elumalite, but others may  introduce products with features and performance competitive to our products.





Typically in the Mobile Screen  Special Event market we face numerous competitors.  We believe we compete primarily on the quality of our screens we  provide, our ability to sale and produce effective advertising messages, the  ability to meet customer needs to differentiate their products, and our ability  to enter into multiple year contracts with event organizers.





There are also continuing  attempts by a large number of competitors to innovate new methods of display  signage. It is possible that alternate technologies and systems that would be  directly competitive with our products have been developed but are unknown to  us. Such products may also currently be in development, and may be developed by  others in the future.





5


---



Back to Contents





Seasonality





We have not experienced any  significant seasonality trends to date. Seasonality trends may occur in the  future.





Government  Regulation and Environmental Matters





Certain of our electronic  products are subject to various regulations and are required to meet the  specifications of agencies such as the Federal Communications Commission (the  FCC). We believe we are in substantial compliance with all current applicable  regulations, and that we have all material governmental permits, licenses,  qualifications and approvals currently required for our operations.





Our products are being produced  to standard product safety requirements for sale in the United States and to  similar requirements for sale in Europe and Canada. We expect to meet the  electrical and other regulatory requirements for electronic systems or  components we sell throughout the world.





We intend to comply with all  applicable laws and regulations, as required, in the export of our  products.





We do not believe we are  materially affected, nor do we expect to be materially affected, by the costs  and effects of compliance with environmental laws.





Intellectual  Property Rights and Proprietary Information





We operate in an industry where  innovations, investment in new ideas and protection of resulting intellectual  property rights are important to success. We rely on a variety of intellectual  property protections for our products and technologies, including where  obtainable patent, copyright, trademark and trade secret laws, and contractual  obligations, and we pursue a policy of vigorously enforcing such rights.  As of the date of this Report, we hold no  patents.





Key  Employees





In addition to our directors  and executive officers described below in Item 9, we rely on the following key  employees are set forth below.





G.  Michael Singh- Director of Global Sales and Marketing.  Michael Singh is a 20 year  veteran of the LED sector, and has completed some of the worlds largest  installations, including among the first LED display in Las Vegas, worth $25  Million. Mr. Singh will spearhead international business development and sales.





Ray  Shapira  Vice President of Event and Screen Marketing.  Mr. Shapira has 25 years of sales and  marketing experience.  Mr. Shapira has  led the development of multi-million dollar sales initiatives and is considered  a pioneer in the mobile out of home advertising market.





Employees





At December 31, 2004, we  employed a total of four people. Of such employees, two were in marketing,  sales and licensing and two were in general and administrative   We  also lease technical personnel from time to time on an as needed basis and use  outside consultants for various services.  We have not experienced  any work stoppages and are not a party to a collective bargaining agreement,  and we consider our relations with our employees to be favorable.





6


---



Back to Contents





Item  2. Properties.





Our executive offices are  located at 1 Westmount Square, Westmount, Quebec.  In December 2004, we  entered into a five-year lease agreement for our office and warehouse space in  Mississauga to house our L.E.D. and Elumalite operations.  We occupy to 7,548 square feet and until the  term of the lease January 31, 2010 at an annual rent of  $51,750.  Our Mississaugua office  will also house our mobile screen and event operations.  We believe there  is adequate availability of office and development space in the general  vicinity to meet our future needs.





Item  3. Legal Proceedings.





None.





Item  4. Submission of Matters to a Vote of Security Holders.





None.





PART II





Item  5 - Market for Registrants Common Equity, Related Stockholder Matters and  Issuers Purchases of Equity Securities.





Market  Information





Our common stock is traded and  quoted on NASDAQ OTC Electronic Bulletin Board under the symbol NTRN. The  market for our common stock has often been sporadic and limited.





The following table sets forth  the high and low bid quotations for our common stock for the fiscal years ended  September 30, 2003 and 2004:





|                                        |  | Bid Quotations |      
|--------------------------------------- |  | -------------- | -----
|                                        |  |                |      
|                                        |  | High           |      
|                                        |  |                |      
|Fiscal Year    Ending December 31, 2003 |  |                |      
|First Quarter                           |  |                | 0.275
|Second Quarter                          |  |                | 0.45 
|Third Quarter                           |  |                | 3.95 
|Fourth Quarter                          |  |                | 3.25 
|Fiscal Year    Ending December 31, 2004 |  |                |      
|First Quarter                           |  |                | 3.65 
|Second Quarter                          |  |                | 2.8  
|Third Quarter                           |  |                | 2.2  
|Fourth Quarter                          |  |                | 2.47 




The above quotations reflect  inter-dealer prices, without retail markup, markdown or commission and may not  represent actual transactions.





We  had 46 holders of record of our common stock at Feburary 9, 2005 , 2004 with  42,080,000  shares issued and  outstanding. We have never paid a cash dividend on our common stock and do not  expect to pay dividends in the foreseeable future.





7


---



Back to Contents





Equity  Compensation Plan Information





At December 31, 2004, we have  not implemented an incentive plans under which equity securities are or have  been authorized for issuance to our employees, consultants or directors.  We intend to issue to employees, directors  and service providers special stock options, inducement grants and warrants to  purchase common shares, and these grants have not been approved by  stockholders.





Recent  Sales of Unregistered Securities





In December 2004, we completed  a private placement for $3,000,000 and have issued 3,000,000 shares of common  stock in February 2005 in reliance upon regulation D, Regulation S and /or  Section 4 (z) of the Securities Act of 1933, as amended.  No brokerage commission were paid in  connection with such sellers.  (note: we had a referral fee of $150K)





Item  6 - Selected Financial Data.





The following selected  financial data has been derived from our audited consolidated financial  statements and the related notes. This information should be read in  conjunction with Item 7 of this report - Managements Discussion and Analysis  or Plan of Operation, and with our consolidated financial statements and the  related notes set forth at the pages indicated in Item 15(a) of this report.





For the fiscal years ended  December 31,





|                                                       |  | 2004 |             | 2003 |   | 2002       |   | 2001 |           | 2000 |  
|------------------------------------------------------ |  | ---- | ----------- | ---- | - | ---------- | - | ---- | --------- | ---- | -
|                                                       |  |      |             |      |   |            |   |      |           |      |  
|Statement of Operations:                               |  |      |             |      |   |            |   |      |           |      |  
|Net revenues                                           |  | $    |            |      | $ |           |   | $    |          |      | $
|Gross profit    (loss)                                 |  | $    |            |      | $ |           |   | $    |          |      | $
|Net loss                                               |  | $    | (23,479,549 | )    | $ | (55,776    | ) | $    | (32,419   | )    | $
|Net loss    available to common stockholders           |  | $    | (23,479,549 | )    | $ | (55,776    | ) | $    | (32,419   | )    | $
|Net loss per    share-basic and diluted                |  | $    | (.72        | )    | $ | (0         | ) | $    | (.02      | )    | $
|Weighted    average number of shares-basic and diluted |  |      | 32,525,973  |      |   | 31,500,000 |   |      | 1,911,096 |      |  




As of December 31,





|                                |  | 2004 |           | 2003 |   | 2002    |   | 2001 |         | 2000 |  
|------------------------------- |  | ---- | --------- | ---- | - | ------- | - | ---- | ------- | ---- | -
|                                |  |      |           |      |   |         |   |      |         |      |  
|Working    capital (deficiency) |  | $    | 1,766,249 |      | $ | (77,228 | ) | $    | 17,416  |      | $
|Total assets                    |  | $    | 2,084,086 |      | $ | 1,910   |   | $    | 20,075  |      | $
|Long-term    obligations        |  | $    | 258,500   |      | $ |        |   | $    |        |      | $
|Total    stockholders deficit  |  | $    | (270,377  | )    | $ | (77,228 | ) | $    | (21,452 | )    | $

Item 7 - Managements Discussion and  Analysis or Plan of Operations.





This discussion should be read  in conjunction with the information presented in other sections of this report  on Form 10-KSB, including Item 1. Business, Item 6. Selected Financial  Data, and Item 8. Financial Statements and Supplementary Data. This  discussion contains forward-looking statements which are based on our current  expectations and industry experience, as well as our perception of historical  trends, current market conditions, current economic data, expected future  developments and other factors that we believe are appropriate under the  circumstances. These statements involve risks and uncertainties that could  cause actual results to differ materially from those suggested in the  forward-looking statements.





8


---



Back to Contents





We begin this discussion with  an overview to give you an understanding of our business and the markets we  serve. We then discuss our critical accounting policies. This is followed by a  discussion of our results of operations for the fiscal years ended December 31,  2004 and 2003. We discuss our financial condition at December 31, 2004 with a  comparison to December 31 2003. This section includes information regarding our  liquidity and capital resources, cash flows, and contractual obligations.  Finally, we provide a description of significant risk factors associated with  an Investment in our security at the end of this discussion.





Overview





The Company is a media company  that operates the Digital Signage Broadcast Network (DSBN).  The Companys L.E.D. (Light Emitting Diode)  sales company is based in Mississauga, Ontario with licensed proprietary  product sub-assembly manufacturing in Taipei, Taiwan. EL is a new  electroluminescent point of sale technology sold to multinational consumer  products and packaged goods companies.   The Company manufactures, sells, assembles and installs custom modular  small to large format L.E.D. displays and systems for indoor and outdoor  digital video applications.  The Company  is in various late stage negotiations to secure contracts for major landmarks,  venues and high traffic locations for its DSBN L.E.D. screens which once  installed, will generate recurring advertising revenues.





Fiscal 2004 was a pivotal year  for our company. We successfully acquired certain assets from DVT Group and  Elumalite Technologies which together with our business development activities  transitioned the Company into an operating company. To date we have incurred  operating losses, as we have not yet achieved any  revenues sufficient to support our  general and administrative department.





Our various operating units  have inherent risk. Our future is largely dependent upon the success in  building an infrastructure and executing our business plan.  We plan to further invest in development to  our proprietary technologies. Unanticipated technical or manufacturing  obstacles can arise at any time, disrupt sales or licensing activities, and  result in lengthy and costly delays. Our technologies may not achieve market  acceptance sufficient to sustain operations or achieve future profits. See  Risk Factors below.





We incurred net losses of  ($23,479,549), ($55,776), and ($32,419) in the fiscal years ended December 31,  2004, 2003 and 2002.  We may incur additional operating losses during  fiscal 2005, and we may need additional operating funds to support our  growth.  See Liquidity and Capital Resources below. Based on our current  plan, we anticipate that we will be able to meet our cash requirements for the  next twelve months.  We have significant flexibility to adjust the level  of research and development and selling and administrative expenses based on  the availability of resources.  However, reductions in expenditures could  delay development and adversely affect our ability to generate future revenues.





Recent  Developments





In January 2005 acquired  certain assets of Sharp Marketing.  This  provided the Company with a platform to display and sell advertising on mobile  screens.  Included in the asset purchase  is a database of advertisers which will provide sales and advertising leads for  our media board deployment.  In February  2005, the Company confirmed it has obtained an additional three year contract  valued at approximately $750,000 for its mobile screen division to sell  advertising at the McDonalds Air & Sea Show.





In March 2005, we received  pilot orders for our Elumalite point of display posters.  Field test have already began with an  international petrochemical company, and two international beverage companies.  Several other orders are currently in  production for Q2 05 delivery.


9


---



Back to Contents





Business  Outlook





In fiscal 2005, we believe  revenues will grow primarily due to increased acceptance of our product  mix.   The Company is in final stages in  negotiating several high traffic locations for its media boards.  The Company has several strong indications  that we have been selected as finalist for L.E.D. Screen sales. We are  expecting to add several new mobile events for 2005.  Our Elumalite point of Sale and Display posters are staring to  get traction in the marketplace and we will be focusing on a global sales  program. We are aggressively developing new versions of existing products and  new products based on our proprietary technologies to support future growth.





We believe the success of our  L.E.D. Screens and Mobile Events and new Elimalite products will provide a  solid foundation for business growth over the next several years. We also  believe that Media Boards are positioned for significant long term contracts  during fiscal 2005.





Critical  Accounting Policies and Estimates





We have identified the policies  below as critical to our business operations and the understandings of our  results of operations. Our accounting policies are more fully described in our  financial statements located in Item 7 of Part II, Financial Statements and  Supplementary Data. The impact and any associated risks related to these  policies on our business operations is discussed throughout Managements  Discussion and Analysis or Plan of Operation when such policies affect our  reported and expected financial results.





Use of Estimates.The methods, estimates and judgments we  use in applying our accounting policies, in conformity with generally accepted  accounting principles in the United States, have a significant impact on the  results we report in our financial statements. We base our estimates on  historical experience and on various other assumptions that we believe to be  reasonable under the circumstances. The estimates affect the carrying values of  assets and liabilities. Actual results may differ from these estimates under  different assumptions or conditions. We believe that the following discussion  addresses our most critical accounting policies, which are those that are most  important to the portrayal of our financial condition and results of operations  and require our most difficult, subjective, and complex judgments, often as a  result of the need to make estimates about the effect of matters that are  inherently uncertain.





Revenue Recognition. We currently derive  our revenue primarily from two sources: (i) component and product sale revenues  and associated engineering and installation, which we refer to collectively as  Product Sales and (ii) contract and license fee revenue.  Product Sales  revenues are recognized in the periods that products are shipped to customers,  FOB shipping point or destination, per contract, if a signed contract exists,  the fee is fixed and determinable, collection of resulting receivables is  probable and there are no remaining obligations. Revenues from engineering  contracts are recognized based on milestones or completion of the contracted  services. Revenues from ongoing per unit license fees are earned based on units  shipped incorporating our patented proprietary technologies and are recognized  in the period when the ultimate customer accepts the product and collectibility  is reasonably assured. Revenues from up-front
license and other fees and annual  license fees are generally recognized ratably over the specified term of the particular  license or agreement.





Valuation of Intangible Assets.  Intangible  assets include purchased technology and patents, which are amortized over their  estimated useful lives. We must make judgments and estimates regarding the  future utility and carrying value of intangible assets. The carrying values of  such assets are periodically reviewed and impairments, if any, are recognized  when the expected future benefit to be derived from an individual intangible  asset is less than its carrying value.  In fiscal 2004, we reviewed  the carrying value of our intangible assets and reduced the carrying value of  these assets. Our judgments and estimates regarding carrying value and  impairment of intangible assets have an impact on our financial statements.





Warranty Reserve.We will establish a warranty  reserve based on anticipated warranty claims at the time product revenue is  recognized. These warranties require us to make estimates regarding the amount  and costs of warranty repairs we expect to make over a period of time. Factors  affecting warranty reserve levels include the number of units sold and  anticipated cost of warranty repairs and anticipated rates of warranty claims.  We evaluate the adequacy of the provision for warranty costs each reporting  period. See Note 8 to our consolidated financial statements for additional  information regarding warranties. The estimates we use have an impact on our  financial statements.





10


---



Back to Contents





Guarantees and Indemnifications.  Under  our bylaws, we have agreed to indemnify our officers and directors for certain  events. We also enter into certain indemnification agreements in the normal  course of our business. We have no liabilities recorded for such indemnities.  This estimate has an impact on our financial statements.





Deferred Tax Asset.  We have provided a full valuation reserve related to our substantial deferred  tax assets. In the future, if sufficient evidence of our ability to generate  sufficient future taxable income in certain tax jurisdictions becomes apparent,  we may be required to reduce our valuation allowances, resulting in income tax  benefits in our consolidated statement of operations. We evaluate the  realizability of the deferred tax assets and assess the need for valuation allowance  quarterly. The utilization of the net operating loss carry forwards could be  substantially limited due to restrictions imposed under federal and state laws  upon a change in ownership. Congress passed the American Jobs Creation Act of  2004 in October 2004.  The new law contains numerous changes to existing  tax laws, including both domestic and foreign tax incentives.  We have not  yet determined what impact, if any, this new law may have on our deferred

tax  asset, or our future results of operations and financial condition.





Valuation of Inventory. Our inventory is comprised of raw materials, assemblies and finished  products that we intend to sell to our customers . We must periodically make  judgments and estimates regarding the future utility and carrying value of our  inventory.  The carrying value of our inventory is periodically  reviewed and impairments, if any, are recognized when the expected future  benefit from our inventory is less than its carrying value.





Results  of Operations





Revenues





Fiscal 2004 the Company did not  record any revenues. In late in fiscal 2004, with the addition of new  personnel, we began building the infrastructure to launch the Digital Signage  Broadcast Network.





General and Administrative Expenses





General and administrative  expenses were ($1,781,048) compared to fiscal 2003 of ($55,623).  The increase is mainly attributed to the  Company issuing 1,080,000 common shares of its capital stock in consideration  for services received.  The fair value  of the services received for purposes of the financial statements was  determined using the closing price of the Companys on June 8, 2004, being  $1.33 per share or ($1,436,400).  The  Company is currently seeking to cancel for no consideration 1,000,000 shares.





We may expend additional  resources on marketing our proprietary sound technologies in future periods,  which may increase selling, general and administrative expenses. We also expect  to incur additional costs in fiscal 2006 to comply with various sections of the  Sarbanes-Oxley Act, particularly those related to Section 404 concerning  management assessment of internal controls. We do not currently have an  estimate of these increased costs, but they are expected to include increased  staffing, outside consultants and increased legal and audit costs.





Net Loss





The net loss for fiscal 2004  was ($23,479,549) compared to the net loss of ($55,776) in fiscal 2003. The net  loss for fiscal 2002 was ($32,419). Of the net loss incurred we can attribute  ($23,091,786) to non cash items.($21,655,386 write off of intangible assets and  $1,436,400 for services rendered through issuance of Common Stock).   We had no tax expense for each of the last  three fiscal years due to net losses.





11


---



Back to Contents





Net Loss Available to Common Stockholders





Net loss available to common  stockholders for during fiscal 2004 was ($23,479,549) compared to the net loss  of ($55,776) in fiscal 2003. The net loss for fiscal 2002 was ($32,419).




Liquidity and Capital Resources





We continue to experience  negative cash flow from operating activities as the Company has been in  acquisition mode.  We have financed our working capital requirements  through short term borrowing and private placements of securities obtaining net  proceeds of $2,850,000 of which $850,000 was received after year end. Cash at  December 31 was $1,438,824 compared to $441 at December 31, 2003.   In December 2004, we sold for cash in a  private offering with gross proceeds of $3,000,000 of 3,000,000 restricted  common shares. As of December 31, 2004 the Company received  $2,150,000 The increase in cash was primarily the result of the success of  the private placement.





| |  | Principal    factors that could affect the availability of our internally generated funds    include:    product acceptance in new markets.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                            
| |  | introduction    of competing technologies;                                                                                                 
| |   |                                                                                                                                            
| |  | product mix    and effect on margins; and                                                                                                  




Principal factors that could  affect the availability to obtain cash from external sources include:





| |  | volatility    in the capital markets; and              
| | - | -------------------------------------------------------
| |   |                                                        
| |  | market price    and trading volume of our common stock.




Based on our current cash  position, and the private offering, and assuming currently planned expenditures  and level of operations, we believe we will have sufficient cash for operations  for the next twelve months. We believe sales of product groups will continue to  contribute cash in fiscal 2005. We believe that any investment capital we may  require will be available to us, but there can be no guarantee that we will be  able to raise funds on terms acceptable to us, or at all. We have flexibility  to adjust the level of research and development and selling and administrative  expenses based on the availability of resources. However, reductions in  expenditures could delay development and adversely affect our ability to  generate future revenues.





Cash Flows





Operating Activities





Our net cash used in operating  activities was $643,304  for the year  ended December 31, 2004 compared to $31,394 for the year ended December 31,  2003. For the year ended December 31, 2004, the net loss of ($23,479,549)  included certain expenses not requiring the use of cash totaling $23,091,786 or  a net of $387,763. In addition, in fiscal 2004, cash was used in operating  activities through the purchase of $419,233 in inventories, and an increase of  $24,072 in prepaid expenses.





As of December 31, 2004, we had  working capital of $1,766,249 compared to a working capital deficiency of (  $77,228) at December 31, 2003. Net working capital, excluding cash and  short-term debt, was $327,425 at December 31, 2004. This represents an increase  of $404,653 from the net working capital deficit at December 31, 2003.  The increase in net working capital  primarily resulted from increases in inventories as a result of the acquisition  of certain assets from DVT and Elumalite Technologies.  In fiscal 2005, we expect increases in  receivables and inventory balances as revenues occur.





12


---



Back to Contents





Investing Activities





For the year ended December 31,  2004,
    capital expenditures of  $5,874 were in  property and equipment. We
    anticipate continued capital expenditures for computer equipment, furniture
    and fixtures
    as continue to build our infrastructure in fiscal 2005.





Financing Activities





During  the year, the Company announced a $3,000,000 private placement.  As at December 31, 2004, the Company has  received $2,150,000 of share subscriptions in advance of shares being  issued.  Subsequent to December 31,  2004, the Company received the remaining share subscriptions of $850,000.  The Company is required to pay 5% of the  gross proceeds as agent fees.  As of  December 31, 2004, the Company has accrued $107,500 in liabilities and the  offsetting entry is to share subscription received in advance.





Off-Balance  Sheet Arrangements





We do not have any off-balance  sheet arrangements, financings or other relationships with unconsolidated  entities or other persons.





Contractual  Commitments and Commercial Commitments





The following table summarizes  our contractual obligations at December 31, 2004, and the effect such  obligations are expected to have on our liquidity and cash flow in future  periods:





|Contractual Obligations               |  | Total |         | Less than    1 Year |   | 1-3 Years |  | 4-5 Years |         | After 5     Years
|------------------------------------- |  | ----- | ------- | ------------------- | - | --------- |  | --------- | ------- | -----------------
|                                      |  |       |         |                     |   |           |  |           |         |                  
|Operating    leases                   |  | $     | 258,500 |                     | $ | 44,520    |  | $         | 154,710 |                  
|Employment    agreements              |  | $     | 726,250 |                     |   | 249,000   |  |           | 477,250 |                  
|                                      |  |       |         |                     |   |           |  |           |         |                  
|Total    contractual cash obligations |  | $     | 984,750 |                     | $ | 293,520   |  | $         | 631,960 |                  
|                                      |  |       |         |                     |   |           |  |           |         |                  




New  Accounting Pronouncements





In January 2003, the FASB  issued FASB Interpretation No. 46 (FIN 46), Consolidation  of Variable Interest Entities, an Interpretation of ARB No. 51.FIN 46 requires certain variable  interest entities to be consolidated by the primary beneficiary of the entity  if the equity investors in the entity do not have the characteristics of a  controlling financial interest or do not have sufficient equity at risk for the  entity to finance its activities without additional subordinated financial  support from other parties.  FIN 46 is  effective for all new variable interest entities created or acquired after  January 31, 2003.  For variable interest  entities created or acquired prior to February 1, 2003, the provisions of FIN  46 must be applied for the first interim or annual period beginning after June  15, 2003.  The Company adopted the  provisions of FIN 46, as required, on July 1, 2003 with no
material impact on  its financial statements.





On  April 30, 2003, the FASB issued SFAS No. 149, Amendment  of Statement 133 on Derivative Instruments and Hedging Activities..  SFAS No. 149 amends and clarifies accounting  for derivative instruments, including certain derivative instruments embedded  in other contracts, and for hedging activities under SFAS No. 133. The new  guidance amends SFAS No. 133 for decisions made as part of the Derivatives  Implementation Group (DIG)  process that effectively required amendments to SFAS No. 133, and decisions  made in connection with other FASB projects dealing with financial instruments  and in connection with implementation issues raised in relation to the  application of the definition of a derivative





13


---



Back to Contents





and  characteristics of a derivative that contains financing components. In  addition, it clarifies when a derivative contains a financing component that  warrants special reporting in the statement of cash flows. SFAS No. 149 is  effective for contracts entered into or modified after June 30, 2003 and for  hedging relationships designated after June 30, 2003. The Company adopted SFAS  149, as required, on July 1, 2003, with no material impact on its financial  statements.





In  May 2003, the FASB issued SFAS 150, Accounting  for Certain Financial Instruments with Characteristics of both Liabilities and  Equity. SFAS No. 150 establishes standards for classifying and  measuring as liabilities certain financial instruments that embody obligations  of the issuer and have characteristics of both liabilities and equity. SFAS No.  150 is effective for all financial instruments created or modified after May  31, 2003 and otherwise is effective at the beginning of the first interim  period beginning after June 15, 2003.   The Company adopted SFAS 150, as required, on July 1, 2003, with no  material impact on its financial statements.





In December 2004, the Financial  Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS)  123(R), Share Based Payment.  Statement 123(R) is effective for public  companies at the beginning of the first interim or annual period after June 15,  2005. This statement eliminates the ability to account for share-based  compensation using the intrinsic value-based method under APB Opinion No. 25,  Accounting for Stock Issued to Employees. Statement 123(R) would require the  Company to calculate equity-based compensation expense for stock options and  employee stock purchase plan rights granted to employees based on the fair  value of the equity instrument at the time of grant. Currently, the Company  discloses the pro forma net income (loss) and the related pro forma income  (loss) per share information in accordance with FAS 123 and FAS 148,  Accounting for Stock-Based Compensation Costs-Transition and
Disclosure. The  Company has not evaluated the impact that Statement 123(R) will have on its  financial position and results of operations.





In December 2003, the FASB  issued FIN 46-R, Consolidation of Variable Interest Entities - an  interpretation of ARB 51 (revised December 2003), which replaces  FIN 46.  FIN 46-R incorporates certain modifications to FIN 46  adopted by the FASB subsequent to the issuance of FIN 46, including  modifications of the scope of FIN 46.  For all non-special purpose  entities (SPE) created prior to February 1, 2003, public entities will  be required to adopt FIN 46-R at the end of the first interim or annual  reporting period ending after March 15, 2004.  For all entities  (regardless of whether the entity is an SPE) that were created subsequent to  January 31, 2003, public entities are already required to apply the  provisions of FIN 46, and should continue doing so unless they elect to adopt  the provisions of Fin 46-R early as of the first interim or annual reporting  period
ending after December 15, 2003.  If they do not elect to adopt  FIN 46-R early, public entities would be required to apply FIN 46-R  to those pos t-January 31, 2003 entities as of the end of the first  interim or annual reporting period ending after March 15, 2004. The  adoption of FIN 46-R for non-SPEs did not have a material impact on the  Companys financial position, results of operations or cash .





Risk  Factors





An investment in our company involves a high degree of risk.  In  addition to the other information included in this report, you should carefully  consider the following risk factors in evaluating an investment in our  company.  You should consider these matters in conjunction with the other  information included or incorporated by reference in this report. Our results  of operations or financial condition could be seriously harmed, and the trading  price of our common stock may decline due to any of these or other risks.





We  have a history of net losses. We expect to continue to incur net losses and we  may not achieve or maintain profitability.





14


---



Back to Contents





We have incurred significant  operating losses and anticipate continued losses in fiscal 2005. At December  31, 2004, we had an accumulated deficit of ($23,602,977).  In addition, for fiscal 2004, we incurred a  net loss of ($23,479,549) We need to generate sales and net income in order to  be sustainable in future periods. Failure to achieve profitability, or maintain  profitability if achieved, will cause our stock price to decline.





We  may need additional capital for growth.





Our current plans indicate that  depending on sales, we may need additional capital to support our growth.   We may generate a portion of these funds from operations.





The actual amount of funds that  we will need will be determined by many factors, some of which are beyond our  control, and we may need funds sooner than currently anticipated.   Principal factors that could affect the availability of our internally  generated funds include:


| |  | failure of    sales from our Business Units to meet planned projections;
| | - | ------------------------------------------------------------------------
| |   |                                                                         
| |  | product mix    and effect on margins;                                   
| |   |                                                                         
| |  | acceptance    of our products in new markets; and                       
| |   |                                                                         
| |  | introduction    of new competing technologies.                          




When we require additional  funds, general market conditions or the then-current market price of our common  stock may not support capital raising transactions.  If we require  additional funds and we are unable to obtain them on a timely basis or on terms  favorable to us, we may be required to scale back our research and development efforts,  sell or license some or all of our technology or assets or curtail or cease  operations.  If we raise additional funds by selling additional shares of  our capital stock or securities convertible into common stock, the ownership  interest of our stockholders will be diluted.





We  are an early stage company introducing new products and technologies. If  commercially successful products are not produced in a timely manner, we may be  unprofitable or forced to cease operations.





Our Elumalite technologies have  only recently been introduced to market and are still being improved.  Commercially viable point of sales systems may not be successfully and timely  produced by us due to the inherent risks of technology development, new product  introduction, limitations on financing, manufacturing problems, competition,  obsolescence, loss of key technical personnel and other factors. Revenues from  our  products have been limited to date  and we cannot guarantee significant revenues in the future. The development and  introduction of our products took longer than anticipated by management and the  introduction of new products could also be subject to delays. Customers may not  wait for newer versions of existing products or new products and may elect to  purchase products from competitors. We experienced quality control problems  with some of our initial commercial tests, and we may not be able to resolve  future similar problems in a

timely and cost effective manner. Products  employing our technology may not achieve market acceptance.





Our  products have never been produced in quantity, and we may incur significant and  unpredictable warranty costs as these products are mass produced.





15


---



Back to Contents





None of our products have been  produced in sufficient quantities to be considered mass produced. Our  technologies are substantially different from proven, mass produced sound  transducer designs. We may incur substantial and unpredictable warranty costs  from post-production product or component failures. We generally warrant our  products to be free from defects in materials and workmanship for a period up  to one year from the date of purchase, depending on the product.





Our  expenses may vary from period to period, which could affect quarterly results  and our stock price.





If we incur additional expenses  in a quarter in which we do not generate revenue, our results of operations  would be adversely affected and we may incur larger losses than anticipated for  that quarter. Factors that could cause our expenses to fluctuate from period to  period include:





| |  | the timing    and extent of our research and development efforts;                         
| | - | ------------------------------------------------------------------------------------------
| |   |                                                                                           
| |  | investments    and costs of maintaining or protecting our intellectual property;          
| |   |                                                                                           
| |  | the extent    of marketing and sales efforts to promote our products and technologies; and
| |   |                                                                                           
| |  | the timing    of personnel and consultant hiring.                                         




Many  potential competitors who have greater resources and experience than we do may  develop products and technologies that make ours obsolete.





Technological competition from  other and longer established outdoor and point of sale media manufacturers is  significant and expected to increase. Most of the companies with which we  expect to compete have substantially greater capital resources, research and  development staffs, marketing and distribution programs and facilities, and  many of them have substantially greater experience in the production and  marketing of products. In addition, one or more of our competitors may have  developed or may succeed in developing technologies and products that are more  effective than any of ours, rendering our technology and products obsolete or  noncompetitive.





Our  competitive position will be seriously damaged if our products are found to  infringe on the intellectual property rights of others.





Other companies and our  competitors may currently own or obtain patents or other proprietary rights  that might prevent, limit or interfere with our ability to make, use or sell  our products. As a result, we may be found to infringe the intellectual  property rights of others. The electronics industry is characterized by  vigorous protection and pursuit of intellectual property rights or positions,  which have resulted in significant and often protracted and expensive  litigation. In the event of a successful claim of infringement against us and  our failure or inability to license the infringed technology, our business and  operating results could be adversely affected. Any litigation or claims,  whether or not valid, could result in substantial costs and diversion of our  resources. An adverse result from intellectual property litigation could force  us to do one or more of the following:





| |  | cease    selling, incorporating or using products or services that incorporate the    challenged intellectual property;                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                            
| |  | obtain a    license from the holder of the infringed intellectual property right, which    license may not be available on reasonable terms, if at all; and
| |   |                                                                                                                                                            
| |  | redesign    products or services that incorporate the disputed technology.                                                                                 




If we are forced to take any of  the foregoing actions, we could face substantial costs and shipment delays and  our business could be seriously harmed.





In addition, it is possible  that our customers or end users may seek indemnity from us in the event that  our products are found or alleged to infringe the intellectual property rights  of others. Any such claim for indemnity could result in substantial expenses to  us that could harm our operating results.





16


---



Back to Contents





We  may face liability claims that harm our reputation and adversely affect our  sales and financial condition.





Some of our products may be  used for dishonest advertising.  The advertising may be displayed  without the control of the Company.    We may also be subject to lawsuits involving allegations of misuse  of our products. Product liability insurance may become too costly for us or  may become unavailable for us in the future.  We may not have  sufficient resources to satisfy any product liability claims not covered by  insurance which would materially and adversely affect our financial  position.  Significant litigation could also result in a diversion of  managements attention and resources, and negative publicity.





Our  operations could be harmed by factors including political instability, natural  disasters, fluctuations in currency exchange rates and changes in regulations  that govern international transactions.





We expect to sell our products  worldwide. The risks inherent in international trade may reduce our  international sales and harm our business and the businesses of our customers  and our suppliers. These risks include:





| |  | changes in    tariff regulations;                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                       
| |  | political    instability, war, terrorism and other political risks;                                                                   
| |   |                                                                                                                                       
| |  | foreign    currency exchange rate fluctuations;                                                                                       
| |   |                                                                                                                                       
| |  | establishing    and maintaining relationships with local distributors and dealers;                                                    
| |   |                                                                                                                                       
| |  | lengthy    shipping times and accounts receivable payment cycles;                                                                     
| |   |                                                                                                                                       
| |  | import and    export licensing requirements;                                                                                          
| |   |                                                                                                                                       
| |  | compliance    with a variety of foreign laws and regulations, including unexpected changes    in taxation and regulatory requirements;
| |   |                                                                                                                                       
| |  | greater    difficulty in safeguarding intellectual property than in the U.S.; and                                                     
| |   |                                                                                                                                       
| |  | difficulty    in staffing and managing geographically diverse operations.                                                             




These and other risks may  preclude or curtail international sales or increase the relative price of our  products compared to those manufactured in other countries, reducing the demand  for our products.





We  are dependent on third party manufacturers.





We do not have the capacity to  manufacture all of our products internally and we are therefore dependent on  third party manufacturers.  We are establishing a manufacturing  relationship with several manufacturers.  We do not have a formal  written agreement with OWNWAY, or any other contract manufacturing partner,  which may not be able or willing to manufacture products for us in the  quantities and at the level of quality that we require. If we need to seek  additional third party manufacturers for our products, we may not be able to  obtain acceptable replacement manufacturing sources on a timely basis. An  extended interruption in the supply of our products could result in a  substantial loss of sales. In addition, any actual or perceived degradation of  product quality as a result of our reliance on third party manufacturers may  have an adverse effect on sales or result in increased product returns and  buybacks.  Failure

to maintain quality contract manufacturing could  reduce future revenues, adversely affecting financial condition and results of  operations.





We  rely on outside suppliers to provide a large number of components incorporated  in our products.





Our products have a large  number of components produced by outside suppliers.  In addition, for  certain of these items, we qualify only a single source, which can magnify the  risk of shortages and decrease our ability to negotiate with our suppliers on  the basis of price.  In particular, we depend on our L.E.D.  supplier to provide expertise and materials  used in our proprietary L.E.D. Screens  If a shortage of L.E.D. parts  occurs, or if we experience quality problems with suppliers, then our  production schedules could be significantly delayed or costs significantly  increased, which would have a material adverse effect on our business,  liquidity, results of operation and financial position.





17


---



Back to Contents





If  our key employees do not continue to work for us, our business will be harmed  because competition for replacements is intense.





Our performance is  substantially dependent on the performance of our executive officers and key  technical employees, including, Andrew Gertler our C.E.O,  G. Michael Singh our Director of Global  Sales and Ray Shapira our Vice-President of Event and Marketing Sales.   We are dependent on our ability to retain  and motivate high quality personnel, especially highly skilled technical  personnel. Our future success and growth also depends on our continuing ability  to identify, hire, train and retain other highly qualified technical,  managerial and sales personnel. Competition for such personnel is intense, and  we may not be able to attract, assimilate or retain other highly qualified  technical, managerial or sales personnel in the future. The inability to  attract and retain the necessary technical, managerial or sales personnel could  cause our business, operating results or financial condition to suffer.





We  are subject to increased costs as a result of newly adopted accounting and SEC  regulations.





Pursuant to Section 404 of the  Sarbanes-Oxley Act of 2002, our management will be required by the end of  fiscal 2006 to perform an evaluation of our internal controls over financial  reporting and have our independent auditor attest to that evaluation. Compliance  with these requirements is expected to be expensive and time consuming. If we  fail to timely complete this evaluation, or if our independent registered  public accounting firm cannot timely attest to our evaluation, we could be  subject to regulatory scrutiny and a loss of public confidence in our internal  controls. In designing and evaluating our internal controls over financial  reporting, we recognize that any internal control or procedure, no matter how  well designed and operated, can provide only reasonable assurance of achieving  desired control objectives, and management is required to apply its judgment in  evaluating the cost-benefit relationship of possible controls and procedures.
No system of internal controls can be designed to provide absolute assurance of  effectiveness and any material failure of internal controls over financial  reporting could materially impact our reported financial results and the market  price of our stock could significantly decline. In addition, adverse publicity  related to a material failure of internal controls over financial reporting  would have a negative impact on our reputation and business.


We  may issue preferred stock in the future, and the terms of the preferred stock  may reduce the value of your common stock.


We are authorized to issue up  to 5,000,000 shares of common stock in one or more series. Our Board of  Directors may determine the terms of future common stock offerings without  further action by our stockholders. If we issue additional common stock, it  could affect your rights or reduce the value of your common stock. In  particular, specific rights granted to future holders of preferred stock could  be used to restrict our ability to merge with or sell our assets to a third  party. These terms may include voting rights, preferences as to dividends and  liquidation, conversion and redemption rights, and sinking fund provisions.


We  may issue additional common
      stock in the future and  this stock may reduce the value of your common
      stock.


As a result of the financings,  we may issue additional shares of common stock without further action by our  shareholders. Moreover, although the issuance of our common stock will have no  effect on the rights or privileges of existing holders of common stock, the  economic and voting interests of each stockholder will be diluted as a result  of such issuances. Although the number of shares of common stock that  stockholders presently own will not decrease, such shares will represent a  smaller percentage of our total shares that will be outstanding after such  events.





18


---



Back to Contents





Our  stock price is volatile and may continue to be volatile in the future.





Our common stock trades on the  NASDAQ OTC Electronic Bulletin Board. The market price of our common stock has  fluctuated significantly to date. In the future, the market price of our common  stock could be subject to significant fluctuations due to general market  conditions and in response to quarter-to-quarter variations in:





| |  | our    anticipated or actual operating results;                       
| | - | ----------------------------------------------------------------------
| |   |                                                                       
| |  | developments    concerning our sound reproduction technologies;       
| |   |                                                                       
| |  | technological    innovations or setbacks by us or our competitors;    
| |   |                                                                       
| |  | conditions    in the advertising market;                              
| |   |                                                                       
| |  | announcements    of merger or acquisition transactions;               
| |   |                                                                       
| |  | changes in    personnel within our company; and                       
| |   |                                                                       
| |  | other events    or factors and general economic and market conditions.




The stock market in recent  years has experienced extreme price and volume fluctuations that have affected  the market price of many technology companies, and that have often been  unrelated or disproportionate to the operating performance of companies.





Item  7 - Financial Statements and Supplementary Data.





The financial statements  required by this item begin on page F-1 with the index to financial statements  followed by the financial statements.


Item 8 - Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure.





None





Item 8A  Controls and  Procedures





The Companys disclosure  controls and procedures have been evaluated by our principal executive officer  and principal financial officer as of the end of the period covered by this  report.  It is the conclusion of our  principal executive officer and principal financial officer that our disclosure  controls and procedures are effective to ensure that information required to be  disclosed by us in reports that we file or submit under the Securities and  Exchange Act of 1934 as amended, is recorded, processed, summarized and  reported within the time periods specified in the rules and forms of the  SEC.  Our controls and procedures  require that such information is accumulated and communicated to our  management, including our principal executive officer and principal financial  officer as appropriate to allow timely decisions regarding required disclosure.





In designing and evaluating the  disclosure controls and procedures, management recognized that any controls and  procedures, no matter how well designed and operated, can provide only  reasonable, not absolute, assurance of achieving the desired control  objectives, and management necessarily was required to apply its judgment in  evaluating the cost-benefit relationship of possible controls and  procedures.  No evaluation of controls  and procedures can provide absolute assurance that all the control issues  within a company have been detected.





It is the conclusion of our  principal executive officer and principal financial officer that our disclosure  controls and procedures were effective to ensure that information required to  be disclosed by us in our reports filed or submitted under the Securities  Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized,  and reported within the time periods specified in the rules and forms of the  SEC, and there have been no other changes in our internal controls over  financial reporting during our most recent fiscal period that have materially  affected, or are reasonably likely to materially affect, our internal controls  over financial reporting.





19


---



Back to Contents





The auditors did not test the  effectiveness of nor relied on the internal controls of the Company for the  fiscal year ended December 31, 2004





Item 8B Other Information





None.





PART III





Item 9  Directors, Executive  Officers, Promoters and Control Persons; Compliance With Section 16(a) of the  Exchange Act





On December 31, 2004, the  Company had four directors and executive officers as follows:





Date First





|Name              |  | Age |  | Position                                                        |  | Elected      |  | Term    Expiry
|----------------- |  | --- |  | --------------------------------------------------------------- |  | ------------ |  | --------------
|                  |  |     |  |                                                                 |  |              |  |               
|Andrew    Gertler |  | 44  |  | President,    Chief Executive    Officer, Director              |  | July 9, 2004 |  | None          
|Paul    Denommee  |  | 48  |  | Secretary,    Treasurer, Chief    Financial Officer    Director |  | July 9, 2004 |  | None          




There are no family  relationships among the directors, executive officers, or persons nominated or  chosen by the Company to become directors or executive officers.





Andrew M. Gertler,age  44, has been Chairman, President and member of the Board of  Director of our company since August 2004.  From 2001 to March 2004, he was Managing Director of Gestion Jean-Paul Auclair  Inc. a private equity firm. From 1997 to April 2001, he served as director and  held various executive officer positions with Hudson Advisors Canada, a private  Company which acted Real Estate Advisory Company provided asset management  services across Canada and the United States to both the Lone Star Opportunity  Fund (LSOF) and the Brazos Opportunity Fund.   He has also served as director of ProMetic Life Science, Inc., a  biopharmaceutical company and Avicena Group, Inc., a biopharmaceutical  company.  Mr. Gertler holds a B.Comm  from McGill University and a M.B.A. from the Richard Ivey School of Business at  the University of Western Ontario.





Paul Denommee-,  age 48 Secretary/Treasurer and member of the Board of Directors of  Neutron. Paul Denommee has been in the insurance and mortgage brokerage  business for over 25 years, with a special focus on insurance fraud. Mr.  Denommee is past President of the Mortgage Association for the Province of  Quebec, and Vice President for Cimble Canadian Institute of Mortgage Lenders  and Brokers, which is comprised of over 5,000 mortgage lenders across Canada.  Prior experience includes Andrew Hamilton Insurance, based in Ottawa, Canada,  where he was the Senior Analyst for Canadian Fraud Investigation Claims, and  had similar responsibilities for The Guarantee Company of North America.





20


---



Back to Contents





Compliance with Section 16(a) of the Exchange  Act





Messrs Gertler and Denommee  failed to timely file a Form 3 within ten days of assuming their roles with the  Company based upon a mistaken assumption that they were not required to file  due to the lack of ownership to report.





Audit Committee. The  Board of Directors has not yet established an audit committee, and the  functions of the audit committee are currently performed by the entire Board of  Directors. We will establish an audit committee in 2005.





Board of Directors Independence.  Our Board of Directors consists of two members. None of our directors are  independent within the meaning of definitions established by the Securities  and Exchange Commission or any self-regulatory organization. The Company  intends on adding independent directors to the board in 2005.





Audit Committee Financial Expert.  We do not yet have an audit committee and, therefore, we have no audit  committee financial expert within the meaning of Item 401(e) of Regulation  S-B. In general, an audit committee financial expert is an individual member  of the audit committee who (a) understands generally accepted accounting  principles and financial statements, (b) is able to assess the general  application of such principles in connection with accounting for estimates,  accruals and reserves, (c) has experience preparing, auditing, analyzing or  evaluating financial statements comparable to the breadth and complexity to the  Companys financial statements, (d) understands internal controls over  financial reporting and (e) understands audit committee functions.  When the Audit Committee is formed an  appropriate financial expert will be added.





Code of Ethics. We  have not yet adopted a Code of Ethics applicable to our Chief Executive  Officer, principal financial and accounting officers and persons performing  similar functions. A Code of Ethics is a written standard designed to deter  wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair,  accurate, timely and understandable disclosure in regulatory filings and public  statements, (c) compliance with applicable laws, rules and regulations, (d) the  prompt reporting violation of the code and (e) accountability for adherence to  the Code. We have not yet adopted a Code of Ethics, nor are we under any legal  obligation to do so. When we adopt a Code of Ethics, we will file a copy of the  Code of Ethics with the Securities and Exchange Commission, and will provide a  copy, without charge, to any person desiring a copy of the Code of Ethics, by  written request to the Company at its principal offices.





Item 10  Executive  Compensation





The Companys current officers  and directors receive no compensation, except the following:





SUMMARY COMPENSATION TABLE





|Name and
      principal
position |  | Year |  | Salary
    $ |  | Bonus
    $ |  | Other Annual
Compensation
($) |  | Restricted
      Stock
Award(s)
($) |  | Securities
Underlying
Options/
SARs (#) |  | LTIP
Payouts
($) |  | All Other
Compensation
($)
|--------------------------------- |  | ---- |  | ------------ |  | ----------- |  | ----------------------------- |  | ----------------------------------- |  | --------------------------------------- |  | ---------------- |  | --------------------------
|                                  |  |      |  |              |  |             |  |                               |  |                                     |  |                                         |  |                  |  |                           
|Andrew Gertler                    |  |      |  |              |  |             |  |                               |  |                                     |  |                                         |  |                  |  |                           
|President, Chief Executive        |  | 2004 |  | CDN 50,000   |  | 0           |  | 0                             |  | 0                                   |  | 0                                       |  | 0                |  | 0                         
|                                  |  |      |  |              |  |             |  |                               |  |                                     |  |                                         |  |                  |  |                           
|Russell Hoffman                   |  |      |  |              |  |             |  |                               |  |                                     |  |                                         |  |                  |  |                           
|Chief Executive Officer           |  | 2004 |  | 0            |  | 0           |  | 0                             |  | 0                                   |  | 0                                       |  | 0                |  | 0                         
|                                  |  | 2003 |  | 0            |  | 0           |  | 0                             |  | 0                                   |  | 0                                       |  | 0                |  | 0                         
|                                  |  | 2002 |  | 0            |  | 0           |  | 0                             |  | 0                                   |  | 0                                       |  | 0                |  | 0                         
|                                  |  |      |  |              |  |             |  |                               |  |                                     |  |                                         |  |                  |  |                           

Andrew Gertler is presently acting
    as President of our Company pursuant to an offer letter which provides for
    payment of Cdn$10,000 per month and a six month termination pay if terminated
    by the Company. The Company and Mr. Gertler are in discussions regarding
    a new employment agreement.





There are no annuities,  pensions or retirement benefits proposed to be paid to officers, directors or  employees of the corporation in the event of retirement at a normal retirement  date pursuant to any presently existing plan provided or contributed to by the  Company. As of the date hereof, the Company has no outstanding
    stock option or other equity compensation plan, nor are there any outstanding
    stock options granted to our executive officers.





21


---



Back to Contents





Item 11  Security Ownership  of Certain Beneficial Ownership and Management and Related Stock Matters





The following table sets forth  certain information, to the knowledge of management, concerning the beneficial  ownership of shares of our common stock as of March 31, 2005 by:





| |  | each person    who is the beneficial owner of more than 5% of our outstanding shares of    common stock;
| | - | --------------------------------------------------------------------------------------------------------
| |   |                                                                                                         
| |  | each of our    directors;                                                                               
| |   |                                                                                                         
| |  | each of our    executive officers; and                                                                  
| |   |                                                                                                         
| |  | all of our    executive officers and directors as a group.                                              




Beneficial ownership is generally  attributed to person(s) who have the right to vote or dispose of securities.  Under securities laws, a person is considered to be the beneficial owner of  securities owned by him (or certain persons whose ownership is attributed to  him) and that can be acquired by him within 60 days from the date of this  report, including upon the exercise of options, warrants or convertible  securities. We determine a beneficial owners percentage ownership by assuming  that options, warrants or convertible securities that are held by him, but not  those held by any other person, and which are exercisable within 60 days of the  date of this prospectus, have been exercised or converted.





Unless otherwise indicated,  each person in the table has sole investment and voting power with respect to  all shares shown as beneficially owned. Unless otherwise indicated the address  of each beneficial owner is 21218 St Andrews Boulevard #509, Boca Raton, Fl  33433





|NAME AND    ADDRESS                            |  | NUMBER OF    SHARES |        | PERCENT OF        BENEFICIALLY    OWNED    OUTSTANDING    SHARES | 
|---------------------------------------------- |  | ------------------- | ------ | ---------------------------------------------------------------- | 
|                                               |  |                     |        |                                                                  | 
|Andrew    Gertler                              |  |                     | 0      |                                                                  | 
|Paul Denomme                                   |  |                     | 20,000 |                                                                  | 
|Officers and Directors as a group (2) persons) |  |                     | 20,000 |                                                                  | 
|* Less than 1%                                 |  |                     |        |                                                                  | 




CHANGES IN CONTROL





As of the date covered in this  report, there are no arrangements in place that will result in a change of  control in the Company.





22


---



Back to Contents





ITEM 12  Certain  Relationships and Related Party Transactions





As  of December 31, 2004, the Company is obligated to a former director and officer  on an interest bearing promissory note in the amount of $67,186 due on demand  with interest calculated at a rate of 10% per annum (compounded annually).  Current year interest expense on this loan  was $4,909 (2003  $Nil).





As  of December 31, 2004, the Company wrote off a receivable from a former director/officer  in the amount of $30,680.  This loan  receivable was non-interest bearing and due on demand.





As  of December 31, 2004, the Company is obligated to a shareholder in the amount  of $25,000.  This loan is unsecured,  non-interest bearing and due on demand.





As  of December 31, 2004, the Company is obligated to a shareholder in the amount  of $6,948, which represents the accrued interest on the principal.  The principal had an interest rate of 8% per  annum and was due on demand, and it has been paid off as of December 31,  2004.  Current year interest expense on  this loan was $6,948 (2003 - $Nil).





During the year, the Company  paid management fees of $40,237 (2003 - $Nil) to a director of the  Company.  As of December 31, 2004, no  amount was owing to this director for unpaid management fees and travel  expenses paid on behalf of the Company.   In addition, the Company issued 20,000 common shares to a director for  services received.  The common shares  had been valued at $1.33 per share.





During the year, the Company  paid severance costs of $50,000 to a former officer.





Item 13 - Exhibits





EXHIBITS





The exhibits required by Item  601
    of Regulation S-B are listed on the Exhibit Index attached.





None





Item 14  Principal  Accountant Fees and Services





Audit Fees: $18,000. Aggregate fees billed  for the last fiscal year for professional services  rendered by the principal accountant for the audit of the registrants annual  financial statements and review of financial statements included in  registrants Form 10-QSB or services that are normally provided by the  accountant in connection with statutory and regulatory filings or engagements  for those fiscal years.





Audit-Related Fees: $10,480  Aggregate fees billed for the last fiscal year for assurance and related services  by the principal accountant that are reasonably related to the performance of  the audit or review of the registrants financial statements and are not  reported above. Registrant shall describe the nature of the services comprising  the fees disclosed under this category.





Tax Fees: $0.00 Aggregate fees  billed for the last fiscal year for professional services rendered by the  principal accountant for tax compliance, tax advice, and tax planning.  Registrants shall describe the nature of the services comprising the fees  disclosed under this category.





All Other Fees: $0.00.  Aggregate fees billed for the last fiscal year for products and services  provided by the principal accountant, other than the services reported above.  Registrant shall describe the nature of the services comprising the fees  disclosed under this category.





23


---



Back to Contents





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.





NEUTRON ENTERPRISES, INC.





|/s/ ANDREW GERTLER                          | 
|------------------------------------------- | 
|                                            | 
|Andrew    Gertler, Chief Executive Producer | 




Dated: April 15, 2005





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.





|/s/ ANDREW GERTLER                     | 
|-------------------------------------- | 
|                                       | 
|Andrew    Gentler, President, Director | 




Dated: April 15, 2005





|/s/  PAUL DENOMMEE                                                              | 
|------------------------------------------------------------------------------- | 
|                                                                                | 
|Paul    Denommee , Secretary/Treasurer, Director, 
    Chief Financial Officerr | 




Dated: April 15, 2005





24


---



Back to Contents


EXHIBIT INDEX

|Exhibit No. |  |  | Exhibit Description                                                         | 
|----------- |  |  | --------------------------------------------------------------------------- | 
|3.1         |  |  | Articles of Incorporation(1)                                                | 
|3.2         |  |  | By-Laws (1)                                                                 | 
|31.1        |  |  | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 
|31.2        |  |  | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 
|32.1        |  |  | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 
|32.2        |  |  | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 
|            |  |  |                                                                             | 

(1)  Previously filed in connection with the Registrant’s Registration Statement on Form SB-2, Commission File No. 333-56516.

25

---



Back to Contents





| | 
| | 




REPORT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTING FIRM





To the Directors and Stockholders of Neutron Enterprises,  Inc.:





We have audited the accompanying consolidated  balance sheet of Neutron Enterprises, Inc. (A Development Stage Company) as of  December 31, 2004, and the related consolidated statements of operations,  changes in stockholders deficiency, and cash flows for the years ended  December 31, 2004 and 2003.  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  the Standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable  assurance about whether the financial statements are free of material  misstatement.  The Company is not  required to have, nor were we engaged to perform an audit of its internal  control over financial reporting.  Our  audit included consideration of internal control over financial reporting as a  basis for designing audit procedures that are appropriate in the circumstances,  but not for the purpose of expressing an opinion on the effectiveness of the  Companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test  basis, evidence supporting the amounts and disclosures in the financial  statements, assessing the accounting principles used and significant
estimates  made by management, as well as evaluating the overall financial statements  presentation.  We believe that our audit  provides a reasonable basis of our opinion.





In our opinion, the financial statements  referred to above present fairly, in all material respects, the financial  position of the Company as of December 31, 2004, and the results of its  operations and its cash flows for the years ended December 31, 2004 and 2003,  in conformity with U.S. generally accepted accounting principles.





|                   |  |                            
|------------------ |  | ---------------------------
|                   |  |                            
|Vancouver,    B.C. |  | STALEY,    OKADA & PARTNERS
|March 22,    2005  |  | CHARTERED    ACCOUNTANTS   




---

Staley Okadia &
Partners is a members of MSI a network of Independent professional firms
    a member of the Institute of Chartered Accountants
of British Columbia A partnership of Incorporated professionals. L.M. Okada,
Ltd., C.N. Chandler, Ltd., K.A.Scott Ltd. J.M.Bhaginath Ltd, LW.D. Vickars Ltd.,
G.S. Traber Inc. D. Larooque Ltd.







F-1


---



Back to  Contents





NEUTRON ENTERPRISES, INC.





(A Development Stage Company)





CONSOLIDATED FINANCIAL STATEMENTS





(US Dollars)





DECEMBER 31, 2004





F-2


---



Back to Contents





|NEUTRON ENTERPRISES, INC.       
|--------------------------------
|(A development stage enterprise)
|Consolidated Balance Sheet      
|December 31, 2004               
|(US Dollars)                    




|ASSETS                                                                                                   |  |   |             |  
|-------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Current assets:                                                                                          |  |   |             |  
|Cash and cash equivalents                                                                                |  | $ | 1,438,824   |  
|Inventory                                                                                                |  |   | 613,847     |  
|Prepaid expenses                                                                                         |  |   | 25,541      |  
|                                                                                                         |  |   |             |  
|Total current assets                                                                                     |  |   | 2,078,212   |  
|Property and equipment
    (Note 3)                                                                      |  |   | 5,874       |  
|                                                                                                         |  |   |             |  
|Total assets                                                                                             |  | $ | 2,084,086   |  
|                                                                                                         |  |   |             |  
|LIABILITIES                                                                                              |  |   |             |  
|Current liabilities:                                                                                     |  |   |             |  
|Accounts payable                                                                                         |  | $ | 48,329      |  
|Accrued liabilities                                                                                      |  |   | 164,500     |  
|Due to related parties (Note 6)                                                                          |  |   | 99,134      |  
|                                                                                                         |  |   |             |  
|Total current liabilities                                                                                |  |   | 311,963     |  
|Share subscriptions received in advance, net (Note 4e)                                                   |  |   | 2,042,500   |  
|                                                                                                         |  |   |             |  
|Total liabilities                                                                                        |  |   | 2,354,463   |  
|                                                                                                         |  |   |             |  
|STOCKHOLDERS DEFICIENCY                                                                                 |  |   |             |  
|Common stock,
    $ 0.001 par    value, 100,000,000 authorized, 42,080,000 shares issued and outstanding |  |   | 42,080      |  
|Capital in excess of par    value                                                                        |  |   | 23,290,520  |  
|Deficit accumulated    during the development stage                                                      |  |   | (23,602,977 | )
|                                                                                                         |  |   |             |  
|Total stockholders    deficiency                                                                        |  |   | (270,377    | )
|                                                                                                         |  |   |             |  
|Total liabilities and    stockholders deficiency                                                        |  | $ | 2,084,086   |  
|                                                                                                         |  |   |             |  




The accompanying notes are an  integral part of these statements.





F-3


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                               
|--------------------------------------------------------
|(A development stage enterprise)                        
|Consolidated Statements of Loss For    The Periods Ended
|December 31, 2004 and 2003                              
|(US Dollars)                                            




|                                                     |  | Cumulative, Inception    December 28, 2000    Through
  December 31,    2004 |                          |   |  
|---------------------------------------------------- |  | ---------------------------------------------------------------------------- | ------------------------ | - | -
|                                                     |  |                                                                              |                          |  
|                                                     |  |                                                                              | Years Ended December 31, |  
|                                                    
|2004                                                 |  | 2003                                                                        
|                                                     |  |                                                                              |                          |   |  
|Revenues                                             |  | $                                                                            |                         |   | $
|                                                     |  |                                                                              |                          |   |  
|General and administrative expenses                  |  |                                                                              | 1,903,830                |   |  
|                                                     |  |                                                                              |                          |   |  
|Operating loss                                       |  |                                                                              | (1,903,830               | ) |  
|                                                     |  |                                                                              |                          |   |  
|Other expenses:                                      |  |                                                                              |                          |   |  
|Write off of loan receivable
    (Note 6)            |  |                                                                              | (30,680                  | ) |  
|Write off of intangible assets
    (Note 4a)         |  |                                                                              | (21,655,386              | ) |  
|Interest expense                                     |  |                                                                              | (13,081                  | ) |  
|                                                     |  |                                                                              |                          |   |  
|                                                     |  |                                                                              | (21,699,147              | ) |  
|                                                     |  |                                                                              |                          |   |  
|Net loss                                             |  | $                                                                            | (23,602,977              | ) | $
|                                                     |  |                                                                              |                          |   |  
|Loss per common share  Basic and diluted            |  |                                                                              |                          |   | $
|                                                     |  |                                                                              |                          |   |  
|Weighted average number of common shares outstanding |  |                                                                              |                          |   |  
|                                                     |  |                                                                              |                          |   |  




The accompanying notes are an  integral part of these statements.





F-4


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                                                            
|-------------------------------------------------------------------------------------
|(A development stage enterprise)                                                     
|Consolidated Statements of    Stockholders Deficiency For The Period From Inception,
|December 28, 2000 through December    31, 2004                                       
|(US Dollars)                                                                         




|                                |  |              |            |        |   |        |  | Capital in    Excess of    Par Value |            | Deficit    Accumulated    During the    Development    Stage |   |             |   |  
|------------------------------- |  | ------------ | ---------- | ------ | - | ------ |  | ------------------------------------ | ---------- | ------------------------------------------------------------ | - | ----------- | - | -
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |            
|                                |  | Common Stock |            |        |   |        |  |                                     
|                                |  |              |            |        |   |        |  |                                     
|                                |  | Shares       |            | Amount |   |        |  | Total                                |           
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |  
|Inception, December 28,    2000 |  |              |           |        | $ |       |  | $                                    |           |                                                              | $ |            |   | $
|Stock issued for cash           |  |              | 1,000,000  |        |   | 1,000  |  |                                      |           |                                                              |   |            |   |  
|Development stage net    loss   |  |              |           |        |   |       |  |                                      |           |                                                              |   | (1,435      | ) |  
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  
|Balances, December 31,    2000  |  |              | 1,000,000  |        |   | 1,000  |  |                                      |           |                                                              |   | (1,435      | ) |  
|Development stage net loss      |  |              |           |        |   |       |  |                                      |           |                                                              |   | (33,798     | ) |  
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  
|Balances, December 31,    2001  |  |              | 1,000,000  |        |   | 1,000  |  |                                      |           |                                                              |   | (35,233     | ) |  
|Stock issued for cash           |  |              | 30,500,000 |        |   | 30,500 |  |                                      | 14,700     |                                                              |   |            |   |  
|Development stage net loss      |  |              |           |        |   |       |  |                                      |           |                                                              |   | (32,419     | ) |  
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  
|Balances, December 31,    2002  |  |              | 31,500,000 |        |   | 31,500 |  |                                      | 14,700     |                                                              |   | (67,652     | ) |  
|Development stage net loss      |  |              |           |        |   |       |  |                                      |           |                                                              |   | (55,776     | ) |  
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  
|Balances, December 31,    2003  |  |              | 31,500,000 |        |   | 31,500 |  |                                      | 14,700     |                                                              |   | (123,428    | ) |  
|Stock issued for services       |  |              | 1,080,000  |        |   | 1,080  |  |                                      | 1,435,320  |                                                              |   |            |   |  
|Stock issued for assets         |  |              | 9,500,000  |        |   | 9,500  |  |                                      | 21,840,500 |                                                              |   |            |   |  
|Development stage net loss      |  |              |           |        |   |       |  |                                      |           |                                                              |   | (23,479,549 | ) |  
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  
|Balances, December 31,    2004  |  |              | 42,080,000 |        | $ | 42,080 |  | $                                    | 23,290,520 |                                                              |   | (23,602,977 | ) | $
|                                |  |              |            |        |   |        |  |                                      |            |                                                              |   |             |   |  




The accompanying notes are an  integral part of these statements.





F-5


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                                     
|--------------------------------------------------------------
|(A development stage enterprise)                              
|Consolidated Statements of Cash    Flows For The Periods Ended
|December 31, 2004 and 2003                                    
|(US Dollars)                                                  
|                                                              




|                                                                                      |  | Cumulative, Inception    December 28,    2000    Through
  December 31,    2004 |             |   |  
|------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----------- | - | -
|                                                                                      |  |                                                                                 |             |  
|                                                                                      |  |                                                                                 |             |  
|Years Ended December 31,                                                             
|                                                                                     
|2004                                                                                  |  | 2003                                                                           
|                                                                                      |  |                                                                                 |             |   |  
|Cash flows from operating    activities:                                              |  |                                                                                 |             |   |  
|Net loss                                                                              |  | $                                                                               | (23,602,977 | ) | $
|Adjustments to reconcile net loss to cash flows from development stage    operations: |  |                                                                                 |             |   |  
|Depreciation                                                                          |  |                                                                                 |            |   |  
|Shares issued for services received                                                   |  |                                                                                 | 1,436,400   |   |  
|Write off of intangibles assets                                                       |  |                                                                                 | 21,655,386  |   |  
|Write off of website development costs                                                |  |                                                                                 |            |   |  
|Changes in operating assets and liabilities:                                          |  |                                                                                 |             |   |  
|Inventory                                                                             |  |                                                                                 | (419,233    | ) |  
|Prepaid expenses                                                                      |  |                                                                                 | (25,541     | ) |  
|Accounts payable                                                                      |  |                                                                                 | 155,829     |   |  
|Accrued liabilities                                                                   |  |                                                                                 | 57,000      |   |  
|                                                                                      |  |                                                                                 |             |   |  
|Net cash flows from operating activities                                              |  |                                                                                 | (743,136    | ) |  
|                                                                                      |  |                                                                                 |             |   |  
|Cash flows from investing    activities:                                              |  |                                                                                 |             |   |  
|Disposal (acquisition) of property and equipment                                      |  |                                                                                 | (5,874      | ) |  
|                                                                                      |  |                                                                                 |             |   |  
|Net cash flows from investing activities                                              |  |                                                                                 | (5,874      | ) |  
|                                                                                      |  |                                                                                 |             |   |  
|Cash flows from financing    activities:                                              |  |                                                                                 |             |   |  
|Due to related parties                                                                |  |                                                                                 | 99,134      |   |  
|Share subscriptions received in advance, net                                          |  |                                                                                 | 2,042,500   |   |  
|Proceeds from sale of common stock                                                    |  |                                                                                 | 46,200      |   |  
|                                                                                      |  |                                                                                 |             |   |  
|Net cash flows from financing activities                                              |  |                                                                                 | 2,187,834   |   |  
|                                                                                      |  |                                                                                 |             |   |  
|Net cash flows                                                                        |  |                                                                                 | 1,438,824   |   |  
|Cash and cash    equivalents:                                                         |  |                                                                                 |             |   |  
|Beginning                                                                             |  |                                                                                 |            |   |  
|                                                                                      |  |                                                                                 |             |   |  
|Ending                                                                                |  | $                                                                               | 1,438,824   |   | $
|                                                                                      |  |                                                                                 |             |   |  
|Supplemental cash flow    disclosures:                                                |  |                                                                                 |             |   |  
|Cash paid for interest                                                                |  | $                                                                               | 13,081      |   | $
|Cash paid for income taxes                                                            |  | $                                                                               |            |   | $
|Supplemental disclosure    for non-cash transactions:                                 |  |                                                                                 |             |   |  
|Shares issued for services received                                                   |  | $                                                                               | 1,436,400   |   | $
|Shares issued for assets                                                              |  | $                                                                               | 21,850,000  |   | $




The accompanying notes are an  integral part of these statements.





F-6


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                  
|-------------------------------------------
|(A development stage enterprise)           
|Notes to Consolidated  Financial Statements
|December 31, 2004 and 2003                 
|(US Dollars)                               




Note 1 -  Nature of Operation





Following is a summary of  the Companys organization and significant accounting policies:





Organization  and nature of business Neutron Enterprises, Inc. (the Company) is a Nevada corporation  incorporated on December 28, 2000. It was based in Vancouver, British Columbia,  Canada until February 2004.  In February  2004, the Company moved its office to Los Angeles, California, U.S.A.  In February 2005, the Company opened offices  in Mississauga, Ontario, Canada.





During the current year,  the Company acquired certain assets of 2024069 Ontario Inc. and Elumalite  Technologies Inc.to enable the Company to enter into the outdoor media market  utilizing large scale full motion video display screens using light emitting  diode technology and point of sale and point of display markets. As part of the  acquisition, the Company incorporated two Canadian companies, 4234260 Canada  Inc. and 4234251 Canada Inc, to purchase the target assets.  4234260 Canada Inc. is a wholly-owned  subsidiary of the Company.  4234251  Canada Inc. is a subsidiary of 4234260 Canada Inc.  On the basis of these acquisitions, the Company intends to create  an outdoor broadcast media company, able to run real-time, local or national ad  campaigns similar to network and local television stations.





Neutron is a media company  that operates the Digital Signage Broadcast Network (DSBN) and Elumalite  Technologies (EL).  DSBNs L.E.D. (Light  Emitting Diode) sales company is based in Mississauga, Ontario with proprietary  product sub-assembly manufacturing in Taipei.   The Company manufactures, sells, assembles and installs custom modular  small to large format L.E.D. displays and systems for indoor and outdoor  digital video applications.   EL is a  new electroluminescent point of sale and point of display technology sold to  multinational consumer products and packaged goods companies.  ELumasheet signs are  a thin sheet of vinyl (2mm), flexible, and can be designed in many custom  shapes and sizes. The design provides the client an animated point of sale  poster bringing life to a static design. At the clients request, ELumalite  will provide its graphics & animation departments input as part of its  turn
key solution.





Note 2  Significant  Accounting Policies





a)     Basis of Presentation





These  consolidated financial statements, presented in U.S. dollars and in accordance  with generally accepted accounting principles in the United States, include the  accounts of Neutron Enterprises Inc. and its wholly owned subsidiaries, 4234260  Canada Inc. and 4234251 Canada Inc.  All  inter-company transactions and balances have been eliminated on consolidation.





b)     Use of  Estimates





The preparation of financial statements in  conformity with accounting principles generally accepted in the United States  requires management to make certain estimates and assumptions that affect the  reported amounts and timing of revenues and expenses, the reported amounts and  classification of assets and liabilities, and disclosure of contingent assets  and liabilities.  These estimates and  assumptions are based on the Companys historical results as well as managements  future expectations.  The Companys  actual results could vary materially from managements estimates and  assumptions.





F-7


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 2  Significant  Accounting Policies - continued





c)     Cash and Cash Equivalents





For purposes of the  statement of cash flows, the Company considers all cash in banks, money market  funds, and certificates of deposit with a maturity of less than three months to  be cash equivalents.





d)       Inventory





Inventory is stated at the  lower of cost or market. Cost includes all costs of purchase, cost of  conversion and other costs incurred in bringing the inventory to its present  location and condition, and is calculated using the weighted average method.  Market value is determined by reference to the sales proceeds of items sold in  the ordinary course of business after the balance sheet date or to management  estimates based on prevailing market conditions.





e)     Property and Equipment and Depreciation





Property and equipment are  stated at cost.  Depreciation is  computed using the declining method to allocate the cost of depreciable assets  over the estimated useful lives of the assets as follow:





| | Computer equipment | 30% - declining method
| | ------------------ | ----------------------
| | Office equipment   | 20% - declining method




Depreciation commences at  the time when the assets are substantially being used.





f)     Long-Lived Assets





Long-lived assets are  reviewed for impairment whenever events or changes in circumstances indicate  that the carrying amount of the assets might not be recoverable or at least at  the end of each reporting period.   Conditions that would necessitate an impairment assessment include a  significant decline in the observable market value of an asset, a significant  change in the extent or manner in which an asset is used, or a significant  adverse change that would indicate that the carrying amount of an asset or  group of assets is not recoverable.  For  long-lived assets to be held and used, management measures fair value based on  quoted market prices or based on discounted estimates of future cash flows.





g)     Revenue Recognition





Revenues are recognized  when all of the following criteria have been met: persuasive evidence for an  arrangement exists; delivery has occurred; the fee is fixed or determinable; and collection is  reasonably assured.  Revenue derived  from the sale of services is initially recorded as deferred revenue on the balance  sheet.  The amount is recognized as  income over the term of the contract.





Revenue from time and  material service contracts is recognized as the services are provided.  Revenue from fixed price, long-term service  or development contracts is recognized over the contract term based on the  percentage of services that are provided during the period compared with the  total estimated services to be provided over the entire contract.  Losses on fixed price contracts are  recognized during the period in which the loss first becomes apparent.  Payment terms vary by contract.





During the current year,  the Company did not receive any sales contracts.





F-8


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 2  Significant  Accounting Policies - continued





h)     Foreign Currency Transactions





The Companys reporting currency is the U.S. dollar.  All transactions initiated in foreign  denominations are translated into U.S. dollars as follows:





| | i)   | Monetary assets and liabilities at the rate of exchange in effect    at the balance sheet date,
| | ---- | -----------------------------------------------------------------------------------------------
| | ii)  | All other assets and liabilities at historical    rates, and                                   
| | iii) | Revenue and expense items at the average rate of    exchange prevailing during the period.     




Exchange gains and losses  arising from such translations are deferred until realization and are included  as a separate component of shareholders equity as a component of comprehensive  income or loss.  Upon realization, the  amount deferred is recognized in income in the period when it is realized.





i)     Income Taxes





Income taxes are accounted  for using the asset and liability method.   Deferred tax assets and liabilities are recognized for the future tax  consequences attributable to differences between the financial statement  carrying amounts of existing assets and liabilities and their respective tax  bases and operating loss and tax credit carry forwards.  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.  The effect on deferred tax  assets and liabilities of a change in tax rates is recognized in income in the  period that includes the enactment date.   A valuation allowance is provided for significant deferred tax assets  when it is more likely than not that such assets will not be recovered.





k)     Fair Value of Financial Instruments





The carrying values of the  Companys financial instruments, consisting of its cash and cash equivalents,  accounts payable, accrued liabilities, amounts due to related parties and share  subscriptions received in advance, materially approximate their respective fair  values at each balance sheet date due to the immediate or short-term maturity  of these instruments.





l)     Concentrations of Credit Risk





The Companys financial  instruments that are exposed to concentrations of credit risk primarily consist  of its cash and cash equivalents and amounts due to related parties.  The Company places its cash and cash  equivalents with financial institutions of high credit worthiness.  At times, its cash and cash equivalents with  a particular financial institution may exceed any applicable government  insurance limits.  The Companys  management also routinely assesses the financial strength and credit worthiness  of any parties to which it extends funds, and as such, it believes that any associated  credit risk exposures are limited.





m)     Derivative Financial Instruments





The  Company was not a party to any derivative financial instruments during any of  the reported fiscal periods.





F-9


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 2  Significant  Accounting Policies - continued





n)     Segment Reporting





SFAS No. 131, Disclosures about Segments of an Enterprise and  Related Information, changed the way public companies report  information about segments of their business in their quarterly reports issued  to stockholders. It also requires entity-wide disclosures about the products  and services the entity provides, the material countries in which it holds  assets and reports revenues and its major customers.  The Company currently operates in Canada and United States, as  disclosed in the accompanying statements of operations.





o)     Stock-Based Compensation





The Company accounts for  stock-based compensation issued to employees using the intrinsic value method  as prescribed by Accounting Principles Board Opinion (APB) No. 25 Accounting for Stock Issued to Employees.  Under the intrinsic value method,  compensation is the excess, if any, of the fair value of the stock at the grant  date or other measurement date over the amount an employee must pay to acquire  the stock.  Compensation, if any, is  recognized over the applicable service period, which is usually the vesting  period.  The Financial Accounting  Standards Board (FASB) has  issued SFAS No. 123 Accounting for  Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation  - Transition and Disclosure, an amendment of  FASB Statement No. 123 and interpreted by FASB Interpretation No. (FIN) 44,
Accounting for Certain Transactions Involving Stock Compensation, an  Interpretation of APB 25.This  standard, if fully adopted, changes the method of accounting for all  stock-based compensation to the fair value method.  For stock options and warrants, fair value is determined using an  option pricing model that takes into account the stock price at the grant date,  the exercise price, the expected life of the option or warrant and the annual  rate of quarterly dividends.   Compensation expense, if any, is recognized over the applicable service  period, which is usually the vesting period.





The adoption of the accounting methodology of SFAS No.  123 for employees is optional and the Company has elected to continue  accounting for stock-based compensation issued to employees using APB 25;  however, pro forma disclosures, as if the Company had adopted the cost  recognition requirements under SFAS No. 123, are required to be presented.





During the current year, the Company did not issue  stock options to its directors, officers and employees and it has no  outstanding stock options and warrant as of the fiscal year end.





p)     Comprehensive Income





SFAS No. 130, Reporting Comprehensive Income,  establishes standards for reporting and display of comprehensive income and its  components in a full set of general-purpose financial statements.





There is no material impact  on the financial statements resulting from the application of SFAS No. 130 in  the current or prior years presented.





F-10


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 2  Significant  Accounting Policies - continued





q)     Loss per Share





The Company computes net  loss per common share using SFAS No. 128 Earnings  Per Share.  Basic loss per  common share is computed based on the weighted average number of shares  outstanding for the period. Diluted loss per share is computed by dividing net  loss by the weighted average common shares outstanding assuming all dilutive  potential common shares were issued. There were no dilutive potential common  shares at December 31, 2004 and 2003.   Because the Company has incurred net losses and has no potentially  dilutive common shares, basic and diluted loss per share are the same.  Additionally, for the purposes of  calculating diluted loss per share, there were no adjustments to net loss.





r)     Treasury Stock





The Company accounts for  acquisitions of treasury stock under the cost method. Treasury stock is  recorded as a separate component of stockholders equity at cost, and paid-in  capital accounts are not adjusted until the time of sale, retirement or other  disposition.





s)     Recently Adopted Accounting Standards





In January 2003, the FASB issued FASB Interpretation  No. 46 (FIN 46), Consolidation of  Variable Interest Entities, an Interpretation of ARB No. 51.FIN 46 requires certain variable  interest entities to be consolidated by the primary beneficiary of the entity  if the equity investors in the entity do not have the characteristics of a  controlling financial interest or do not have sufficient equity at risk for the  entity to finance its activities without additional subordinated financial  support from other parties.  FIN 46 is  effective for all new variable interest entities created or acquired after  January 31, 2003.  For variable interest  entities created or acquired prior to February 1, 2003, the provisions of FIN  46 must be applied for the first interim or annual period beginning after June  15, 2003.  The Company adopted the  provisions of FIN 46, as required, on July 1, 2003 with no
material impact on  its financial statements.





On April 30, 2003, the FASB  issued SFAS No. 149, Amendment of Statement  133 on Derivative Instruments and Hedging Activities..  SFAS No. 149 amends and clarifies accounting  for derivative instruments, including certain derivative instruments embedded  in other contracts, and for hedging activities under SFAS No. 133. The new  guidance amends SFAS No. 133 for decisions made as part of the Derivatives  Implementation Group (DIG)  process that effectively required amendments to SFAS No. 133, and decisions  made in connection with other FASB projects dealing with financial instruments  and in connection with implementation issues raised in relation to the  application of the definition of a derivative and characteristics of a  derivative that contains financing components. In addition, it clarifies when a  derivative contains a financing component that warrants special reporting in  the statement of cash flows. SFAS
No. 149 is effective for contracts entered  into or modified after June 30, 2003 and for hedging relationships designated  after June 30, 2003. The Company adopted SFAS 149, as required, on July 1,  2003, with no material impact on its financial statements.





In May 2003, the FASB  issued SFAS 150, Accounting for Certain  Financial Instruments with Characteristics of both Liabilities and Equity.  SFAS No. 150 establishes standards for classifying and measuring as liabilities  certain financial instruments that embody obligations of the issuer and have  characteristics of both liabilities and equity. SFAS No. 150 is effective for  all financial instruments created or modified after May 31, 2003 and otherwise  is effective at the beginning of the first interim period beginning after June  15, 2003.  The Company adopted SFAS 150,  as required, on July 1, 2003, with no material impact on its financial  statements.





F-11


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 2  Significant  Accounting Policies - continued





In November 2004,  the FASB also issued SFAS No. 151, Inventory  Costs, an amendment of ARB No. 43, Chapter 4, which will become  effective for the Company beginning January 1, 2006. This standard clarifies  that abnormal amounts of idle facility expense, freight, handling costs and  wasted material should be expensed as incurred and not included in overhead. In  addition, this standard requires that the allocation of fixed production  overhead costs to inventory be based on the normal capacity of the production  facilities. The Company is currently evaluating the potential impact of this  standard on its financial position and results of operations, but does not  believe the impact of the change will be material.





In December 2004, FASB  issued SFAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB  Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for  Nonmonetary Transactions, is based on the principle that exchanges of  nonmonetary assets should be measured based on the fair value of the assets  exchanged. The guidance in that Opinion, however, included certain exceptions  to that principle.  SFAS No. 153 amends  Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar  productive assets and replaces it with a general exception for exchanges of  nonmonetary assets that do not have commercial substance. A nonmonetary  exchange has commercial substance if the future cash flows of the entity are  expected to change significantly as a result of the exchange.  The provisions of SFAS No. 153 are effective  for nonmonetary asset exchanges occurring in fiscal periods beginning after  June 15,
2005. Early application is permitted and companies must apply the  standard prospectively. The adoption of this standard is not expected to have a  material effect on the Companys results of operations or financial position.





In December 2004, the  Financial Accounting Standards Board (FASB) issued Statement of Financial  Accounting Standard (SFAS) No. 123R, Share Based Payment. SFAS 123R is a  revision of SFAS No. 123 Accounting for Stock-Based Compensation, and  supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and  its related implementation guidance. SFAS 123R establishes standards for the  accounting for transactions in which an entity exchanges its equity instruments  for goods or services. It also addresses transactions in which an entity incurs  liabilities in exchange for goods or services that are based on the fair value  of the entitys equity instruments or that may be settled by the issuance of  those equity instruments. SFAS 123R focuses primarily on accounting for  transactions in which an entity obtains employee services in share-based  payment transactions. SFAS 123R does not change the accounting
guidance for  share-based payment transactions with parties other than employees provided in  SFAS 123 as originally issued and Emerging Issues Task Force Issue No. 96-18,  Accounting for Equity Instruments That Are Issued to Other Than Employees for  Acquiring, or in Conjunction with Selling, Goods or Services.  SFAS 123R does not address the accounting  for employee share ownership plans, which are subject to AICPA Statement of  Position 93-6, Employers Accounting for Employee Stock Ownership Plans.  SFAS 123R requires a public entity to  measure the cost of employee services received in exchange for an award of  equity instruments based on the grant-date fair value of the award (with  limited exceptions). That cost will be recognized over the period during which  an employee is required to provide service in exchange for the award  the  requisite service period (usually the vesting period). SFAS 123R requires that  the compensation cost relating to
share-based payment transactions be  recognized in financial statements. That cost will be measured based on the  fair value of the equity or liability instruments issued. The scope of SFAS  123R includes a wide range of share-based compensation arrangements including  share options, restricted share plans, performance-based awards, share  appreciation rights, and employee share purchase plans. Public entities (other  than those filing as small business issuers) will be required to apply SFAS  123R as of the first interim or annual reporting period that begins after June  15, 2005. Public entities that file as small business issuers will be required  to apply SFAS 123R in the first interim or annual reporting period that begins  after December 15, 2005. For nonpublic entities, SFAS 123R must be applied as  of the beginning of the first annual reporting period beginning after December  15, 2005. The adoption of this standard is not expected to have a material  effect on the Companys results of
operations or financial position.





F-12


---



Back to  Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 3  Property and  Equipment





Details  are as follows:





|                              |  | Cost |       | Accumulated    Depreciation |   | Net Book    Value    2004 |  | Net Book    Value    2003 |      
|----------------------------- |  | ---- | ----- | --------------------------- | - | ------------------------- |  | ------------------------- | -----
|                              |  |      |       |                             |   |                           |  |                           |      
|Office and computer equipment |  | $    | 5,874 |                             | $ |                          |  | $                         | 5,874
|                              |  |      |       |                             |   |                           |  |                           |      




Note 4 -  Capital Stock





a)     On December 15, 2004, the Company through its wholly owned subsidiaries, 4234260 Canada  Inc. and 4234251 Canada Inc., acquired certain assets from two unrelated  companies.   Under the terms of the  assets purchase agreements, 4234251 Canada Inc. paid $407,068 in cash and  issued 9,500,000 Class E exchangeable shares (Exchangeable Shares) to the vendors.  The Exchangeable Shares can be converted, at  the option of the holders, to 9,500,000 common shares of Neutron Enterprises  Inc. with no additional consideration given.





The Exchangeable Shares have been valued at $2.3 per  share, based on the closing price on December 15, 2004.  A total consideration paid to acquire these  assets is $22,257,068.  Based on the  fair values at the date of acquisition, the amounts of $595,808 and $5,874 were  allocated to inventory and to property and equipment respectively, and the  remaining balance of $21,655,386 was allocated to intangible assets.  As of December 31, 2004, management  re-valued the benefits of the intangible assets and determined a write down of  the value to $Nil.   The write down  amount was charged to the current year.





4234251 Canada Inc. has executed a Put and Call  Agreement with each vendor relating to the Exchangeable Shares.  Pursuant to the respective agreements, each  vendor has the option, under certain circumstances including the insolvency of  the corporation, to cause the corporation to repurchase its Exchangeable Shares  in consideration of the delivery of common shares of Neutron Enterprises, Inc.,  the whole or a one for one basis.  The  agreement also gives Neutron Enterprises, Inc. as well as 4234260 Canada Inc.  an overriding call right to purchase the Exchangeable Shares owned by each  vendor should a vendor request that the corporation repurchase the Exchangeable  Shares, whether pursuant to the Put and Call Agreement or pursuant to the  articles of incorporation of the corporation.   Consideration in the circumstance is the common shares of Neutron  Enterprises Inc.





Accordingly, in these consolidated financial  statements the Exchangeable Shares have been shown as equity.





A total of 4,500,000 Exchangeable Shares are held in  escrow until the earlier of i) 9 months after the completion of the assets  acquisition or ii) the vendor assist 4234251 Canada Inc. to enter into a Joint  Venture agreement with a third party.





b)     On June 8, 2004, the  Company issued 1,080,000 common shares of its capital stock in consideration  for services received.  The fair value  of the services received for purposes of these financial statements was  determined using the closing trading price of the Companys shares on June 8,  2004, being $1.33 per share.





c)     Effective  30 June 2003, the Company effected a 10 for 1 forward split of its common  stock, under which each shareholder of record on June 6, 2003, received 10 new  shares of the Corporations $0.001 par value stock for every one share  outstanding.  All share figures in these  financial statements have been adjusted to give effect to the 10 for 1 split.





F-13


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 4 -  Capital Stock - continued





d)     Since  its inception, the Company has issued shares of its common stock as follows:





|Description                     |  |  | Date             |  |  | Shares     |  |   | Price Per    Share |  |   | Amount     |  
|------------------------------- |  |  | ---------------- |  |  | ---------- |  | - | ------------------ |  | - | ---------- | -
|                                |  |  |                  |  |  |            |  |   |                    |  |   |            |  
|Shares    issued for cash       |  |  | Dec.    28, 2000 |  |  | 1,000,000  |  | $ | 0.001              |  | $ | 1,000      |  
|Shares    issued for cash       |  |  | May    28, 2002  |  |  | 22,500,000 |  |   | 0.001              |  |   | 22,500     |  
|Shares    issued for cash       |  |  | May    29, 2002  |  |  | 8,000,000  |  |   | 0.003              |  |   | 24,000     |  
|Shares    issued for services   |  |  | June    8, 2004  |  |  | 1,080,000  |  |   | 1.330              |  |   | 1,436,400  |  
|Less:    Related issuance costs |  |  |                  |  |  |            |  |   |                    |  |   | (1,300     | )
|Shares    issued for assets     |  |  | Dec.    15, 2004 |  |  | 9,500,000  |  |   | 2.300              |  |   | 21,850,000 |  
|                                |  |  |                  |  |  |            |  |   |                    |  |   |            |  
|Cumulative Totals               |  |  |                  |  |  | 42,080,000 |  |   |                    |  | $ | 23,332,600 |  
|                                |  |  |                  |  |  |            |  |   |                    |  |   |            |  




e)  During the year, the Company announced a  $3,000,000 private placement.  As at  December 31, 2004, the Company has received $2,150,000 of share subscriptions  in advance of shares being issued.   Subsequent to December 31, 2004, the Company received the remaining  share subscriptions of $850,000.  The  Company is required to pay 5% of the gross proceeds as agent fees.  As of December 31, 2004, the Company has  accrued $107,500 in liabilities and the offsetting entry is to share  subscription received in advance.





Note 5 -  Federal Income Tax





The Company follows  Statement of Financial Accounting Standards Number 109 (SFAS 109), Accounting for Income Taxes. Deferred  income taxes reflect the net effect of (a) temporary differences between  carrying amounts of assets and liabilities for financial purposes and the  amounts used for income tax reporting purposes, and (b) net operating loss  carry forwards. No net provision for refundable Federal income tax has been  made in the accompanying statement of loss because no recoverable taxes were  paid previously. Similarly, no deferred tax asset attributable to the net  operating loss carry forward has been recognized, as it is not deemed likely to  be realized.





The provision for  refundable Federal income tax consists of the following:





Refundable Federal income  tax attributable to:





|                                                             |  | 2004 |          | 2003 |  
|------------------------------------------------------------ |  | ---- | -------- | ---- | -
|                                                             |  |      |          |      |  
|Current operations                                           |  | $    | (600,000 | )    | $
|Net refundable amount                                        |  |      | 600,000  |      |  
|                                                             |  |      |          |      |  
|Deferred tax asset    attributable to: Net refundable amount |  | $    |         |      | $
|                                                             |  |      |          |      |  




The cumulative tax effect  at the expected rate of 34% of significant items comprising the Companys net  deferred tax amounts as of December 31, 2004 and 2003 are as follows:





Deferred tax asset attributable  to:





|                                |  | 2004 |          | 2003 |  
|------------------------------- |  | ---- | -------- | ---- | -
|                                |  |      |          |      |  
|Net operating loss    carryover |  | $    | 643,000  |      | $
|Less:  Valuation allowance      |  |      | (643,000 | )    |  
|                                |  |      |          |      |  
|Net deferred tax asset          |  | $    |         |      | $
|                                |  |      |          |      |  




F-14


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 5 -  Federal Income Tax - continued





At December 31, 2004, the  Company had unused net operating loss carryovers which may be used to offset  future taxable income and which expire as follows:





|Expiry                                |  |   | Amount    | 
|------------------------------------- |  | - | --------- | 
|                                      |  |   |           | 
|December 31, 2020                     |  | $ | 1,435     | 
|December 31, 2021                     |  | $ | 33,798    | 
|December 31, 2022                     |  | $ | 32,419    | 
|December 31, 2023                     |  | $ | 55,776    | 
|December 31, 2024                     |  | $ | 1,767,046 | 
|                                      |  |   |           | 
|Total Net Operating Loss    Carryover |  | $ | 1,890,474 | 
|                                      |  |   |           | 




As  of December 31, 2004, the Canadian subsidiaries also have approximately $21,000  (Cdn. $25,000) of non-capital losses, which are not included in the figures  above, that can be used to reduce future taxable income.





Note 6 -  Related Party Balances and Transactions





As of December 31, 2004,  the Company is obligated to a former director and officer on an interest  bearing promissory note in the amount of $67,186 due on demand with interest  calculated at a rate of 10% per annum (compounded annually).  Current year interest expense on this loan  was $4,909 (2003  $Nil).





As of December 31, 2004,  the Company wrote off a receivable from a former director/officer in the amount  of $30,680.  This loan receivable was  non-interest bearing and due on demand.





As of December 31, 2004,  the Company is obligated to a shareholder in the amount of $25,000.  This loan is unsecured, non-interest bearing  and due on demand.





As of December 31, 2004,  the Company is obligated to a shareholder in the amount of $6,948, which  represents the accrued interest on the principal.  The principal had an interest rate of 8% per annum and was due on  demand, and it has been paid off as of December 31, 2004.  Current year interest expense on this loan  was $6,948 (2003 - $Nil).





During the year, the Company paid management fees of  $40,237 (2003 - $Nil) to a director of the Company.  As of December 31, 2004, no amount was owing to this director for  unpaid management fees and travel expenses paid on behalf of the Company.  In addition, the Company issued 20,000  common shares to a director for services received.  The common shares had been valued at $1.33 per share, see note  4(b).





During the year, the Company paid severance costs of  $50,000 to a former officer.





F-15


---



Back to Contents





|NEUTRON ENTERPRISES, INC.                    
|---------------------------------------------
|(A development stage enterprise)             
|Notes to Consolidated Financial    Statements
|December 31, 2004 and 2003                   
|(US Dollars)                                 




Note 7   Commitments





a)     The Company, through  its subsidiary 4234251 Canada Inc., has entered into an operating lease for  office premises in Canada.  Minimum  lease payments are as follows:





|2005       |  | $ | 44,520 | 
|---------- |  | - | ------ | 
|2006       |  |   | 50,000 | 
|2007       |  |   | 51,570 | 
|2008       |  |   | 53,140 | 
|2009       |  |   | 54,700 | 
|Thereafter |  |   | 4,570  | 




In addition to the basic rent, the Company is  responsible for its proportionate share of property taxes and operating costs  for the office premises.





b)     The Company, through  its subsidiary 4234251 Canada Inc., offered and completed an employment  contract with an unrelated individual.   Under the terms of the employment contract, the Company will pay a  monthly salary of Cdn. $15,000 and a monthly expense allowance of Cdn. $10,000.  The contract expires in November 30, 2007  and is renewable for a period of one year after November 30, 2007 and for a  further one year period thereafter.





Note 8   Segmented Information





|Geographic              |  | U.S. |           | Canada |   | Total      | 
|----------------------- |  | ---- | --------- | ------ | - | ---------- | 
|                        |  |      |           |        |   |            | 
|Net loss for the period |  | $    | 1,768,079 |        | $ | 21,711,470 | 
|Property and equipment  |  | $    |          |        | $ | 5,874      | 
|Inventory               |  | $    |          |        | $ | 613,847    | 
|Identifiable assets     |  | $    | 1,402,271 |        | $ | 681,815    | 




Note 9  Subsequent Events





On January 11, 2005, the Company completed the  acquisition of certain assets from an unrelated company.  Under the terms of the definitive asset  acquisition agreement, the aggregate purchase price for the acquired assets  will be payable by the treasury issuance of 500,000 exchangeable shares of  4234251 Canada Inc. and by paying $100,000 (cash).   The exchangeable shares can be exchanged to the common shares of  Neutron Enterprises, Inc. at no additional considerations to the vendor.  300,000 of the exchangeable shares may be  exchanged into shares of Neutron Enterprises, Inc. at any time.  The remaining 200,000 exchangeable shares  are subject to earn out restrictions.





F-16


---