NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
NOTE
1 – DESCRIPTION OF BUSINESS AND GOING CONCERN
EnXnet,
Inc. (“we”, “our”, the “Company”) was formed in Oklahoma on March 30, 1999. On August 7, 2015,
the Company incorporated EnXnet Energy Company LLC. in the State of Colorado as a wholly owned subsidiary. EnXnet Inc. and its
wholly owned subsidiary, EnXnet Energy Company, LLC. (“the Company”) is a natural gas and petroleum exploitation,
development and production company engaged in locating and developing hydrocarbon resources, primarily in the Rocky Mountain region.
The Company’s principal business strategy is to enhance stockholder value by generating and developing high-potential exploitation
resources in these areas. The Company’s principal business is the acquisition of leasehold interests in petroleum and natural
gas rights, either directly or indirectly, and the exploitation and development of properties subject to these leases. The Company
has leased property in Colorado and is currently searching for additional opportunities in the natural gas and petroleum industry.
Our goal is to lease the oil and gas properties of acreage that has a high likelihood of becoming a producing property. We will
require additional funding to drill and complete a producing natural gas and petroleum well.
The Company
has a working capital deficit and has incurred losses since inception. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not include any adjustments that may be necessary if the Company
is unable to continue as a going concern.
Funds
required to carry out management’s plans are expected to be derived from future stock sales and borrowings from outside
parties. There can be no assurances that the Company will be successful in executing its plans.
NOTE
2 - SUMMARY OF ACCOUNTING POLICIES
Cash
and cash equivalents
Cash
equivalents are highly liquid investments with an original maturity of three months or less.
Restricted
Cash
The Company
has cash that is restricted for use in natural gas and petroleum exploration.
Use
of estimates
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires
management to make estimates and assumptions that affect the amounts reported in the financial statements. We regularly evaluate
estimates and judgments based on historical experience and other relevant facts and circumstances. Actual results could differ
from those estimates.
Fair
Value of Financial Instruments
The carrying
amounts reported in the consolidated balance sheets as of March 31, 2017 and 2016 for cash equivalents and accounts payable and
accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.
ENXNET, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
Oil
and gas properties, unproved (full cost method)
The Company
uses the full cost method of accounting for exploration and development activities as defined by the SEC. Under this method of
accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties
and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development
activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss
on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter
the relationship between capitalized costs and proved reserves. Oil and gas properties include costs that are excluded from costs
being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include
non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interests and exploration drilling
costs. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir.
All items
classified as unproved property are assessed on a quarterly basis for possible impairment or reduction in value. Properties are
assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration
of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; assignment of proved reserves; and economic viability of development if proved reserves
are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date
for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject
to amortization.
Impairment
of long-lived assets
The Company
reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the
historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing
the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds
the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured
as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either
discounted cash flow analysis or estimated salvage value. The Company did not recognized impairment expense in the years ended
March 31, 2017 and 2016.
ENXNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE YEARS ENDED March 31, 2017 and 2016
Stock
Based Compensation
The Company
records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity
Based Payments to Non-Employees, using the fair value method. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and
the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments
issued.
Income
taxes
Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
We have net operating loss carryforwards
available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the
extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future
tax benefit, a valuation allowance is established.
Basic
and diluted net loss per share
Basic
loss per share is computed using the weighted average number of shares of common stock outstanding during each period. Diluted
loss per share includes the dilutive effects of common stock equivalents on an “as if converted” basis. For the years
ended March 31, 2017 and 2016 potential dilutive securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share
Recent
Accounting Pronouncements
The Company does not expect the adoption of recently issued
accounting pronouncements to have a significant impact on the Company’s results of operation, financial position or cash
flows.
Reclassifications
Certain
prior year amounts have been reclassified to conform with the current year financial statements presentation.
Principles
of Consolidation
The consolidated
financial statements include the accounts of the Company and its subsidiary. All significant inter-company transactions and balances
have been eliminated in consolidation. References herein to the Company include the Company and its subsidiary, unless the context
otherwise requires.
NOTE
3 – OIL AND GAS PROPERTIES, UNPROVED
At March
31, 2017 and 2016, the Company had $66,396 and $20,108 in unproved oil and gas properties representing 17,306 and 960 acres in
the Rocky Mountain range located in the State of Colorado, respectively. In the years ended March 31, 2017 and 2016, the Company
paid $46,289 and $20,107 to lease 16,346 and 960 acres for a 5-year term, respectively. Initially the Company is required to pay
the first year’s lease plus any lease bonus payments. Thereafter, the Company is responsible for making annual lease payments
of $2.50 per acre to the State of Colorado for the next four years. Annual lease payments for future fiscal years are as follows:
ENXNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE YEARS ENDED March 31, 2017 and 2016
Fiscal
Year Ended March 31,
|
Acres
Leased
|
Annual
Lease Commitment
|
2018
|
17,306
|
$43,268
|
2019
|
17,306
|
$43,268
|
2020
|
17,306
|
$43,268
|
2021
|
17,306
|
$40,868
|
Annually,
the oil and gas properties are tested for impairment. The Company determined that there was no impairment of the unproved oil
and gas properties for the years ended March 31, 2017 and 2016.
NOTE
4 – INCOME TAXES
At March
31, 2017 and 2016, the Company had net deferred tax assets of approximately $2,177,000 and $2,150,000 principally arising from
net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely
than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred
tax asset has been established at March 31, 2017 and 2016. At March 31, 2017, the Company has net operating loss carry forwards
totaling approximately $6,403,000 which will begin to expire in the year 2020.
Income
tax provision (benefit) for the years ended March 31, 2017 and 2016 is summarized below:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total current
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(27,000
|
)
|
|
|
(33,000
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
Total deferred
|
|
|
(27,000
|
)
|
|
|
(33,000
|
)
|
Increase in valuation
allowance
|
|
|
27,000
|
|
|
|
33,000
|
|
The provision for income taxes
differs from the amount computed by applying the statutory federal income tax rate before provision for income taxes. The sources
and tax effect of the differences are as follows:
|
|
2017
|
|
2016
|
Income
tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes,
net of federal benefit
|
|
|
—
|
%
|
|
|
—
|
%
|
Effect
of net operating loss
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
|
|
|
—
|
%
|
|
|
—
|
%
|
Components of the net deferred
income tax assets at March 31, 2017 and 2016 were as follows:
|
|
2017
|
|
2016
|
Net operating
loss carryover
|
|
$
|
2,177,000
|
|
|
$
|
2,150,000
|
|
Valuation allowance
|
|
|
(2,177,000
|
)
|
|
|
(2,150,000
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
ENXNET, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
ASC 740
requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than
likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the evidence,
both positive and negative, management has determined that a $2,177,000 and $2,150,000 allowance at March 31, 2017 and 2016, respectively,
is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation
allowance for the current year is $27,000.
As of
March 31, 2017, we have a net operating loss carry forward of approximately $6,403,000. The loss will be available to offset future
taxable income. If not used, this carry forward will begin to expire in 2020 through 2037.
The Company
has identified its “major” tax jurisdictions to include the U.S. government. The Company's fiscal 2014 through 2016
federal tax returns remain open by statute.
ENXNET, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
NOTE
5 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable-related party consists of the following:
|
|
March
31,
|
|
|
2017
|
|
2016
|
2% convertible
notes payable to Ryan Corley, President of the Company, due on demand, convertible into a maximum of 35,878,984 common shares
|
|
|
719,455
|
|
|
|
704,455
|
|
2% convertible note
payable to an entity controlled by Ryan Corley, President of the Company, due on demand, convertible into a maximum of 978,000
common shares
|
|
|
48,900
|
|
|
|
48,900
|
|
3% convertible notes
payable to an entity controlled by Ryan Corley, President of the Company, due on demand, convertible into a maximum of 1,619,500
common shares
|
|
|
111,350
|
|
|
|
111,350
|
|
2%
convertible notes payable to Douglas Goodsell, a related party, due on demand, convertible into a maximum of 519,828 common
shares
|
|
|
10,396
|
|
|
|
10,396
|
|
Total
notes payable-related party
|
|
$
|
890,101
|
|
|
$
|
875,101
|
|
Convertible
notes payable consist of the following:
|
|
March 31,
|
|
|
2017
|
|
2016
|
7% convertible
notes payable to stockholders, which is past due, convertible into a maximum of 500,000 common shares,
|
|
|
100,000
|
|
|
|
100,000
|
|
7% convertible notes
payable to stockholders, due August 12, 2018 convertible into a maximum of 250,000 common shares,
|
|
|
50,000
|
|
|
|
—
|
|
4% convertible notes
payable to a stockholder, due on demand, convertible into a maximum of 350,000 common shares
|
|
|
175,000
|
|
|
|
175,000
|
|
2%
convertible notes payable to stockholders, due on demand, convertible into a maximum of 1,100,000 common shares
|
|
|
25,000
|
|
|
|
25,000
|
|
Total
notes payable
|
|
$
|
350,000
|
|
|
$
|
300,00
0
|
|
In August 2016, the Company issued a
conventional convertible note in the aggregate amount of $50,000 to a stockholder. The proceeds in the amount of $50,000 is
restricted and to be used to obtain natural gas and petroleum properties. In connection with the note, the Company issued
200,000 common shares, as additional interest, valued in the amount of $2,000. The notes is convertible into 250,000 common
stock shares and accrue interest at a 7% per year rate. The Company determined that the note did not contain a beneficial
conversion feature nor did the conversion option qualify for derivative accounting.
In
March 2015, the Company issued two conventional convertible notes in the aggregate amount of $125,000 to stockholders. A portion
of the proceeds in the amount of $100,000 is restricted and to be used to obtain natural gas and petroleum properties. In connection
with these notes, the Company issued 250,000 common shares valued in the amount of $4,250. During the year ended March 31, 2016,
$25,000 of these notes were treated as being repaid. The Company’s CEO transferred a private partnership interest to one
of the note holders and then contributed the $25,000 in a non-cash transaction back to the Company. The effect of the transaction
was that Convertible Notes payable were reduced by $25,000 and Advances from officer – related party was increased by $25,000.
These notes are convertible into 500,000 common stock shares and accrue interest at a 7% per year rate. The Company determined
that the notes did not contain a beneficial conversion feature. These notes were due March 16, 2017.
ENXNET, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
NOTE
6 – ADVANCES FROM OFFICER AND STOCKHOLDER
Advances
from Stockholder:
Advances
from a stockholder at March 31, 2017 and 2016 were $31,000 and $31,000, respectively.
Advances
from Officer:
Our CEO,
Ryan Corley, has made advances to the Company in prior years. During the years ended March 31, 2017 and 2016, the CEO made additional
unsecured advances totaling $21,000 and $5,000, respectively. During the years ended March 31, 2017 and 2016, the Company made
payments on these advances of $-0- and $-0-, respectively. Also during the years ended March 31, 2017 and 2016, the Company converted
$15,000 and $40,000 of the advances into notes payable, respectively. At March 31, 2017 and 2016, advances from the CEO were $6,000
and $-0- respectively.
The Company
has notes payable to the CEO in the aggregate amount of $719,455 and $704,455 as of March 31, 2017 and 2016, respectively. Accrued
interest owed on these notes at March 31, 2017 and 2016 amounted to $190,007 and $175,759, respectively. These notes and accrued
interest are convertible into 38,901,957 and 37,535,471 shares of restricted common stock of the Company, respectively.
At March
31, 2017 and 2016, advances from the entity controlled by the CEO were $10,500 and $10,500, respectively, and notes payable totaled
$160,250 and $160,250, respectively. Accrued interest owed on these notes at March 31, 2017 and 2016 amounted to $32,449 and $29,711,
respectively. These notes and accrued interest are convertible into 3,104,417 and 3,059,127 shares of restricted common stock
of the Company, respectively.
The Company
conducts its business from the office of its CEO, Ryan Corley, rent free.
NOTE
7 - COMMON STOCK TRANSACTIONS
The Company
issued 200,000 common shares with the issuance of a note payable in the aggregate of $50,000 during the year ended March 31, 2017.
The Company recorded additional interest of $2,000.
The Company
issued 1,600,000 common shares during the years ended March 31, 2016 for services valued at $18,500. Of these shares, 500,000
were issued to the CFO and to a director.
ENXNET, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
THE
YEARS ENDED March 31, 2017 and 2016
NOTE
8 – STOCK OPTIONS
On July
24, 2001, the Company filed with the SEC Form S-8, for its 2002 Stock Option Plan, (the Plan). An aggregate amount of common stock
that may be awarded and purchased under the Plan is 3,000,000 shares of the Company’s common stock.
A summary
of the status of the Company’s stock options as of March 31, 2017 and 2016 is presented below:
|
|
2017
|
|
2016
|
Options
outstanding at beginning of year
|
|
|
2,390,000
|
|
|
|
2,590,000
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
Options
canceled/expired
|
|
|
(800,000
|
)
|
|
|
(200,000
|
)
|
Options
outstanding at end of year
|
|
|
1,590,000
|
|
|
|
2,390,000
|
|
The following table summarizes
the information about the stock options as of March 31, 2017:
Range
of
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
Years
|
|
Number
Exercisable
|
$
|
0.12
|
|
|
|
1,590,000
|
|
|
|
0.30
|
|
|
|
1,590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following
table summarizes the information about the stock options as of March 31, 2016:
Range
of
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
Years
|
|
Number
Exercisable
|
$
|
0.12
|
|
1,590,000
|
|
1.30
|
|
1,590,000
|
|
0.15
|
|
500,000
|
|
0.65
|
|
500,000
|
|
0.
50
|
|
300,000
|
|
0.25
|
|
300,000
|
$
|
0.12
– 0.50
|
|
2,390,000
|
|
1.03
|
|
2,390,000
|
NOTE
9 – SUBSEQUENT EVENTS
On April
1, 2017, the Company converted $6,000 of the advances from officer into a convertible note payable. The note bears interest of
2% and is convertible with the accrued interest into common shares of the Company at a rate of $.05 per share.
In May
2017, the Company paid $9,030 to lease an additional 2,881 acres in the Rocky Mountain range located in the state of Colorado
for a 5-year term. Each year, the Company is responsible for making additional lease payments of $2.50 per acre to keep the lease.
On May
30, 2017, the Company’s subsidiary, EnXnet Energy Company, LLC, entered into a loan agreement with an individual to borrow
$100,000 for an initial term of 6 months with the option to extend the note for an additional 6 months. The note is due November
30, 2017 with interest of 5.5% in the amount of $2,750 which was paid in June 30 2017. The Company will issue 100,000 shares of
Common Stock. The loan is to be used to secure a one hundred thousand ($100,000) Cash Oil and Gas Blanket Activity Bond with the
State of Colorado.
On June
16, 2017, the Company borrowed $16,000 from our CEO, Ryan Corley. The note bears interest of 2% and is convertible with the accrued
interest into common shares of the Company at a rate of $.016 per share.