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:

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:

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:

Components of the net deferred income tax assets at March 31, 2017 and 2016 were as follows:

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.

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:

The following table summarizes the information about the stock options as of March 31, 2017:

The following table summarizes the information about the stock options as of March 31, 2016: