|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS.
This
Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Exchange Act which
represent the expectations or beliefs concerning future events that involve risks and uncertainties, including but not limited
to the demand for Company products and services and the costs associated with such goods and services. All other statements other
than statements of historical fact included in this Quarterly Report including, without limitation, the statements under “Management’s
Discussion and Analysis or Plan of Operations” and elsewhere in the Quarterly Report, are forward-looking statements. While
the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct.
The
following discussion of the results of operations and financial conditions should be read in conjunction with the financial statements
and related notes appearing in this report.
EnXnet,
Inc. was formed under the laws of the State of 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 initial goal
has been to lease the mineral rights 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 currently can satisfy its current cash requirements for approximately 90 days and has a plan to raise additional working
capital by the sale of shares of the Company common stock to select perspective individuals and from additional borrowings. This
plan should provide the additional necessary funds required to enable the Company to continue exploration and drilling program
until the Company can generate enough cash flow from sales to sustain its operations.
The
Company does not anticipate any significant cash requirements for the purchase of any facilities.
The
Company has no full-time employee and two consultants. The president and CEO of the Company is not receiving or accruing a salary
at this time.
Results
of Operations – Three months ended September 30, 2017 and 2016.
The
Company incurred operating expenses of $46,983 and $ 9,582 for the three months ended September 30, 2017 and 2016, respectively,
an increase of $37,401. The increase in operating expenses for the three months ended September 30, 2017 when compared to the
three-month period ended September 30, 2016 is attributed to an increase of $7,543 in professional services from our auditors
and SEC reporting service, an increase in consulting services of $12,196 and in payroll expenses of $17,498, related to the issuance
of common stock for compensation to our CFO and independent Board member and the extension of expiring stock options to our board
of directors, officers and consultants.
During
the three months ended September 30, 2017 and 2016 we incurred interest expenses of $15,056 and $10,477, respectively. The current
period expense includes $4,300 of interest expense from the issuance of 250,000 common shares as additional interest to the note
holder.
During
the three months ended September 30, 2017 and 2016 we incurred net losses of $62,039 and $20,059, respectively.
Results
of Operations – Six months ended September 30, 2017 and 2016.
The
Company incurred operating expenses of $57,210 and $26,268 for the six months ended September 30, 2017 and 2016, respectively,
an increase of $30,942. The increase in operating expenses for the six months ended September 30, 2017 when compared to the six
months ended September 30, 2016 is attributed to an increase of $12,196 consulting services and $17,498 in payroll expenses related
to the issuance of common stock for compensation to our CFO and independent Board member and the extension of expiring stock options
to our board of directors, officers and consultants.
During
the six months ended September 30, 2017 and 2016 we incurred interest expenses of $28,425 and $18,483, respectively. The current
period expense includes $8,300 of interest expense from the issuance of 350,000 common shares as additional interest to the note
holder.
During
the six months ended September 30, 2017 and 2016 we incurred net losses of $85,635 and $44,751, respectively.
Liquidity
and Capital Resources.
From
inception through September 30, 2017, the Company has issued 55,176,518 shares of its Common Stock to officers, directors and
outside shareholders. The Company has little operating history and no material assets other than cash and restricted cash
and the oil and gas properties that are unproven. The Company has $10,886 of unrestricted cash and $52,466 of restricted cash
as of September 30, 2017.
The
Company has incurred operating losses each year since its inception and has a working capital deficit at September 30, 2017. At
September 30, 2017 and March 31, 2017, the working capital deficit was $1,944,226 and $1,813,764, respectively. The working capital
deficit and operating losses raise substantial doubt about the Company’s ability to continue as a going concern. As
a result of these factors, the Company’s independent certified public accountants have included an explanatory paragraph
in their reports on the Company’s March 31, 2017 financial statements which expressed substantial doubt about the Company’s
ability to continue as a going concern.
Contractual
Obligations.
At
the present time, the Company has no material commitments for capital expenditures. If capital expenditures are required
after operations commence, the Company will pay for the same through the sale of common stock, or through loans from third parties. There
is no assurance, however, that such financing will be available and in the event such financing is not available, the Company
may have to cease operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES.
Management’s
discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements.
These statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
Use
of estimates in preparation of financial statements
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain
estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, based on historical experience,
and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions. The following critical accounting policies
rely upon assumptions, judgments and estimates and were used in the preparation of our consolidated financial statements:
Cash
and cash equivalents
Cash
equivalents are highly liquid investments with an original maturity of three months or less.
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
Under
FASB ASC 825 the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate
value.
The
Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and debt. The
Company believes that the carrying amounts approximate fair value for all such instruments.
FASB
ASC 820 defines fair value, establishes a framework for measurement, and expands disclosure about fair value measurements. Topic
No. 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (exit price). Topic No. 820 classifies the inputs used
to measure fair value into the following hierarchy:
|
Level 1:
|
Quoted prices for identical
assets or liabilities in active markets.
|
|
Level 2:
|
Quoted market prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are observable.
|
|
Level 3:
|
Pricing inputs are unobservable for the assets
and liabilities, including situations in which there is little to no market activity.
|
Stock
Based Compensation
FASB
ASC 718 requires that measurement of the cost of employee services received in exchange for an award of equity instruments be
based on the grant-date fair value of the award. Such costs are recorded over the periods employees are required to render services
in exchange for the awards.
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 periods
ended September 30, 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.
Unaudited
Financial Statements
The
accompanying unaudited financial statements for the six months ended September 30, 2017 have been prepared in accordance with
generally accepted accounting principles for interim financia1 information. In the opinion of management all adjustments
considered necessary for a fair presentation, which consist of normal recurring adjustments, have been included. The
accompanying unaudited financial statements should be read in conjunction with the financial statements and notes thereto included
in the Company’s March 31, 2017 Annual Report on Form 10-K.
Off
Balance Sheet Arrangements
We
currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
CURRENT
TRADING MARKET FOR THE COMPANY’S SECURITIES.
Currently
the Company’s stock is traded under the symbol “EXNT” on the OTC PINK. There can be no assurance that an active
or regular trading market for the common stock will develop or that, if developed, will be sustained. Various factors, such as
operating results, changes in laws, rules or regulations, general market fluctuations, changes in financial estimates by securities
analysts and other factors may have a significant impact on the market of the Company securities. The market price for the securities
of public companies often experience wide fluctuations that are not necessarily related to the operating performance of such public
companies such as high interest rates or impact of overseas markets.