SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-26454
OTHNET, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 98-0142664
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
1187 Coast Village Road
Suite 319
Santa Barbara, California 93108
(Address of Principal Executive Offices)
(805) 969-7482
(Issuer's Telephone Number, including Area Code)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 [X] No [ ]
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
Common, $.001 par value per share: 21,349,279 outstanding as of
August 31, 2003
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OTHNET, INC.
Index to Financial Information
Period Ended July 31, 2003
Item Page
Item 1 - Financial Statements
Unaudited Consolidated Balance Sheet 3
Unaudited Consolidated Statements of Expenses 4
Unaudited Statements of Cash Flows 5
Unaudited Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis
or Plan of Operation 7
Item 3 - Controls and Procedures 9
OTHNET, INC.
CONSOLIDATED BALANCE SHEET
July 31, 2003
ASSETS
Current Assets
Cash $ 733
------------
Total Assets $ 733
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 253,124
Accounts payable to related parties 113,651
Accrued expenses 69,000
Note payable 30,000
------------
Total Current Liabilities 465,775
------------
Stockholders' Deficit
Preferred stock, $.001 par, 2,000,000 shares authorized
Common stock, $.001 par value, 40,000,000 shares
authorized, 17,264,279 issued and outstanding 17,264
Additional paid in capital 12,597,591
Accumulated other comprehensive income 63,118
Retained deficit (13,143,015)
------------
Total Stockholders' Deficit ( 465,042)
------------
Total Liabilities and Stockholders' Deficit $ 733
============
OTHNET, INC.
CONSOLIDATED STATEMENTS OF EXPENSES
Three Months Ended July 31, 2003 and 2002
2003 2002
----------- -----------
Operating Expenses
Depreciation & amortization $ - $ 2,791
General and administrative (35,458) 4,766
----------- -----------
Net Loss (35,458) ( 7,557)
Other Comprehensive Income (Loss)
Foreign currency translation adjustment ( 42) 8
----------- -----------
Net Comprehensive Loss $ (35,500) $ (7,549)
=========== ===========
Basic and diluted net loss per common share $(0.00) $ (0.00)
Weighted average common shares outstanding 17,264,279 13,064,279
OTHNET, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended July 31, 2003 and 2002
2003 2002
----------- -----------
Cash Flows From Operating Activities
Net loss $ (35,458) $ (7,557)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization - 2,791
Changes in:
Accounts payable 12,250 (16,871)
Accrued expenses 23,250 -
----------- -----------
Net Cash Used In Operating Activities 42 (21,637)
----------- -----------
Cash Flows From Financing Activities
Repayment of note payable to related party - (72,000)
----------- -----------
Effect of exchange rate changes on cash (42) 8
----------- -----------
NET CHANGE IN CASH - (93,629)
Cash balance, beginning 733 105,563
----------- -----------
Cash balance, ending $ 733 $ 11,934
=========== ===========
OTHNET, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of
Othnet, Inc. ("Othnet") have been prepared in accordance with
accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited
financial statements and notes thereto contained in Othnet's
latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim
periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the
disclosure contained in the audited financial statements for the
most recent fiscal year 2003, as reported in the 10-KSB, have
been omitted.
Item 2. Management's Discussion and Analysis or Plan of
Operation.
The following discussion of the Company's financial
condition and results of operations is based on the Company's
Financial Statements and the related notes thereto.
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements
and information that reflect the Company's expectations about its
future operating results, performance and opportunities that
involve substantial risks and uncertainties. When used in this
Form 10-QSB, the words "anticipate", "believe", "estimate",
"plan," "intend" and "expect" and similar expressions, as they
relate to Othnet, Inc. for its management, are intended to
identify such forward-looking statements. These forward looking
statements are based on information currently available to the
Company and are subject to a number of risks, uncertainties, and
other factors that could cause the Company's actual results,
performance, prospects, and opportunities to differ materially
from those expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, the factors
discussed under the caption "Other Factors Affecting Our
Operating Results" in Part II, Item 6, "Management's Discussion
and Analysis or Plan of Operation" of the Company's Annual Report
on Form 10-KSB for the year ended April 30, 2003. Except as
required by the Federal Securities law, the Company does not
undertake any obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances
after the date of this Form 10-QSB or for any other reason.
Results of Operations
In December 2001 and as a result of the Company's then
impaired cash position and failure to generate significant
revenues from its new business strategy, the Board of Directors
of the Company approved a plan to shut down all nonessential
functions of the Company and to reduce all expenses that were not
absolutely essential to maintaining the Company as a reporting
entity until the Company is able to obtain some type of cash
infusion. Additionally, the Company began pursuing the sale or
license of its technology. In carrying out this plan, the
Company received $300,000 in equity financing in April 2002 from
a private investor by selling 600,000 shares of its common stock
at a purchase price of $0.50 per share and the Company entered
into certain agreements and effected certain transactions in May
2002 described below.
The Company reported no revenue from operations for the
three months ended July 31, 2003 and July 31, 2002.
There were operating expenses for the three months ended
July 31, 2003 of approximately $35,000 compared to operating
expenses of approximately $8,000 for the three months ended July
31, 2002. Operating expenses for the three months ended July 31,
2003 were comprised of general and administrative expenses
primarily due to the salary amount accrued for the Company's
President and professional fees. Operating expenses for the
three months ended July 31, 2002 were comprised of the
recognition of depreciation and amortization expense of
approximately $3,000 and general and administrative expenses of
approximately $5,000. The Company had a net comprehensive loss of
approximately $36,000 for the three months ended July 31, 2003
compared to a net comprehensive loss of approximately $8,000 for
the three months ended July 31, 2002. The change in net loss is
primarily due to the changes in operating expenses discussed
above.
Liquidity and Capital Resources
During the quarter ended January 31, 2002, the Company
decided to shut down all nonessential functions of the Company
and to reduce all expenses that were not absolutely essential to
maintaining the Company as a reporting entity until the Company
is able to obtain some type of cash infusion. Additionally, the
Company began pursuing the sale or license of its technology.
In carrying out this plan, the Company received $300,000 in
equity financing in April 2002 from a private investor by selling
600,000 shares of its common stock at a purchase price of $0.50
per share and the Company entered into certain agreements and
effected the transactions described below in May 2002. See
"Redemption of Shares and Assignment of the Othnet Technology"
below. Although the aforesaid transactions were effected as of
May 9, 2002, said transactions were recorded as of the balance
sheet date of April 30, 2002 as the type of subsequent event that
requires adjustment to the balance sheet carrying values because
they affect the estimates used in preparing financial statements.
As a result of the foregoing, the Company has no current
business operations and its principal business purpose at this
time is to seek to extinguish much of its outstanding debt and to
locate and consummate a merger or acquisition with a private
entity. It should be noted that in June 2002 the Company entered
into a letter of intent with Kingdom Entertainment Group, LLC
("Kingdom") whereby the members of Kingdom would receive, either
through the sale of all of the assets of Kingdom to the Company
or through a merger of Kingdom into the Company, shares in the
Company. Kingdom is a company involved in the music and
entertainment industry. No assurance can be given, however, that
a definitive agreement relating thereto will be signed, or that
this or any other transaction will in fact be consummated.
On July 31, 2003, the Company had cash of approximately
$1,000 and a working capital deficit of approximately $465,000.
Our independent auditors have issued a "going concern"
opinion in their report to our financial statements for the year
ended April 30, 2003, citing the deficiency in working capital at
April 30, 2003 and the recurring operating losses. Accordingly,
those conditions raise substantial doubt about our ability to
continue as a going concern. With the assignment of the Othnet
Technology in May 2002, the Company's only operating division,
the Company has no current operations. As a result, the
Company's principal business purpose at this time is to seek to
extinguish much of its outstanding debt and to locate and
consummate a merger or acquisition with a private entity. There
can be no assurance, however, that the Company will be able to
acquire any business or business opportunity or that any business
or business opportunity the Company acquires will prove
successful or will be able to operate profitably.
Redemption of Shares and Assignment of the Othnet Technology
As mentioned above, in December 2001, the Board of Directors
of the Company approved a plan to shut down all nonessential
functions of the Company and to reduce all expenses that were not
absolutely essential to maintaining the Company as a reporting
entity until the Company is able to obtain some type of cash
infusion. Additionally, the Company began pursuing the sale or
license of its technology. In carrying out this plan, the
Company entered into agreements and effected the transactions
described below.
Pursuant to a Redemption Agreement dated May 9, 2002 (the
"PPP Redemption Agreement") by and between the Company and People
to People Publishing, Inc., a Delaware corporation ("PPP") and
an Assignment and Assumption Agreement dated May 9, 2002 between
the Company and PPP, the Company has agreed to redeem 4,085,000
shares of its common stock held of record by PPP in consideration
(i) for the assignment (the "Othnet Technology Assignment") by
the Company to PPP of the Company's current principal technology
consisting primarily of the Company's peer to peer file sharing
software, including without limitation, the technology with
respect to digital rights management technology which is subject
of the Company's patent application (the "Othnet Technology"),
and (ii) a payment of $32,500. Such amount was paid on May 9,
2002 (the "Initial Closing"). In connection with the Othnet
Technology Assignment, PPP has agreed to assume all liabilities
or obligations in connection with the Othnet Technology whether
such liabilities were incurred prior to or after the date of the
assignment, except with respect to legal fees or other trade
creditor debt associated with the development of the Othnet
Technology.
PPP is a corporation formed in January 2002 by Christopher
J. Pearson and certain other former stockholders of the Company
(the "PPP Founders") to effect the transactions contemplated by
the PPP Redemption Agreement and the Othnet Technology
Assignment. Subsequent to the formation of PPP and prior to May
9, 2002, each of the PPP Founders transferred the shares each of
them then owned in the Company to PPP. As a result, PPP became
the owner of 4,085,000 shares (the "PPP Shares") of common stock
of the Company. Prior to May 9, 2002, Christopher J. Pearson was
the Vice President and a director of the Company.
The Othnet Technology Assignment is subject to the Company
obtaining shareholder approval (the "Shareholder Approval").
Pursuant to a Supplemental Agreement dated June 2, 2003, the
parties have agreed to extend the date for obtaining Shareholder
Approval to March 31, 2004. In the event Shareholder Approval
is not obtained on or before March 31, 2004, then PPP shall be
granted a non-exclusive worldwide license in perpetuity (the
"License") to use any part of the Othnet Technology or patent
application related thereto upon payment to Othnet of a fee of
$5,000 and all of the PPP Shares shall be redeemed and
immediately canceled. Pending Shareholder Approval or the
License, all of the PPP Shares being redeemed are being held in
escrow and will maintain voting rights although PPP has agreed to
vote all of the shares in favor of the Othnet Technology
Assignment.
In addition to the foregoing, the Company has transferred
ownership of its web sites www.oth.net and www.othnet.com to Joel
Pearson, one of the PPP Founders and the father of Christopher J.
Pearson, in consideration for the assumption of all liabilities
associated with such sites.
Item 3. Controls and Procedures.
The Company's Chief Executive Officer and Principal
Financial Officer has reviewed the Company's disclosure controls
and procedures as of the end of the period covered by this
report. Based upon this review, such officer believes that the
Company's disclosure controls and procedures are effective in
timely alerting him to material information required to be
included in this report. There have been no significant changes
in internal control over financial reporting that occurred during
the fiscal quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of
the Exchange Act)
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and
15d-14 of the Exchange Act)
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the
quarter for which this report is filed:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OTHNET, INC.
(Registrant)
Dated: September 15, 2003 By: /s/ Jeffrey Wattenberg
Jeffrey Wattenberg,
President, Chief Executive
Officer and Secretary
(Principal Executive Officer and
Principal Accounting and
Financial Officer)