U.S. SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 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 000-49722
THIRD MILLENNIUM INDUSTRIES, INC.
-------------------------------------------------------------
(Exact name of small business issuer as specified in charter)
NEVADA 87-0671807
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4933 E. Highway 60, Rogersville, MO 65742
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(417) 890-6566
---------------------------
(Issuer's telephone number)
Not Applicable
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
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 [ ]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date As of November 14, 2003, the issuer
had outstanding 11,700,000 shares of common stock, par value $0.001.
Transitional Small Business Disclosure Format
(Check one): Yes [ ] No [X]
FORWARD LOOKING STATEMENTS
This report contains "forward-looking" statements including statements that
describe the proposed operations of the Company and its subsidiaries and
statements with respect to their future strategic plans, goals and objectives.
Any forward-looking statements, including those regarding the Company's or its
management's current beliefs, expectations, anticipations, estimations,
projections, proposals, plans or intentions, are not guarantees of future
performance or results and involve risks and uncertainties, such as those
discussed under the caption "Risk Factors" in the Company's current report on
Form 8-K filed September 4, 2003. The forward-looking statements are based on
present circumstances and on the Company's predictions respecting events that
have not occurred, that may not occur, or that may occur with different
consequences and timing than those now assumed or anticipated. Any
forward-looking statements are made only as of the date of this report and the
Company assumes no obligation to update or revise forward-looking statements to
reflect subsequent events or circumstances.
Part I--Financial Information
Item 1. Financial Statements
Third Millennium Industries, Inc. (the "Company" or the "Issuer"), files
herewith its unaudited consolidated balance sheets as of September 30, 2003 and
December 31, 2002, the related unaudited consolidated statements of operations
for the three and nine months ended September 30, 2003 and 2002, the
consolidated statement of stockholders' equity for the period from inception on
February 11, 2002 to September 30, 2003, and the related unaudited consolidated
statements of cash flows for the nine months ended September 30, 2003 and 2002.
The accompanying financial statements do not include all information and notes
to the financial statements necessary for a complete presentation of the
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company's
management, the accompanying financial statements reflect all adjustments, all
of which are normal recurring adjustments, necessary to fairly present the
financial condition of the Company for the interim periods presented. The
financial statements included in this report on Form 10-QSB should be read in
conjunction with the audited financial statements of the Company and its
subsidiaries included in its current report on Form 8-K, which was filed with
the Commission on September 4, 2003. Operating results for the quarter ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003.
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, 2003 December 31, 2002
------------------ -----------------
Current Assets
Cash $ 63,238 $ 7,204
Accounts receivable, net 408,301 -
Advances to stockholders 178,676 104,467
Inventories 4,349,548 -
--------------- ---------------
Total Current Assets 4,999,763 111,671
Property and equipment net of accumulated depreciation 666,994 5,876
Other long term assets, net 145,990 13,545
--------------- ---------------
Total Assets $ 5,812,747 $ 131,092
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 719,626 $ 20,216
Notes payable 3,669,615 2,000
Accrued salaries 365,787 75,000
Amounts payable to stockholders 96,253 79,253
Deposits 125,683 -
Current portion - long term debt 343,110 -
--------------- ---------------
Total Current Liabilities 5,320,074 176,469
Long term debt, less current portion 1,909,872 -
Stockholders' Equity (Deficit)
Common Stock, .001 par value, 25,000,000 shares
authorized, 11,700,000 shares issued and
outstanding at September 30, 2003 .0001 par
value, 50,000,000 shares authorized, 10,000,000
issued and outstanding at December 31, 2002 11,700 1,000
Paid in capital - 330,300
Retained earnings (deficit) (1,428,899) (376,677)
--------------- ---------------
Total Stockholders' Equity (Deficit) (1,417,199) (45,377)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 5,812,747 $ 131,092
=============== ===============
See Accompanying Notes to Unaudited Financial Statements
- 2 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the three months From date of
ended September 30, For the nine inception on
----------------------------- months ended February 11, 2002 through
2003 2002 September 30, 2003 September 30, 2002
------------ ------------- ------------------ --------------------------
Sales $ 3,193,610 $ - $ 3,193,610 $ -
Cost of sales 2,859,762 - 2,859,762 -
------------ ------------- ------------ ------------
Gross profit 333,848 - 333,848 -
Operating expenses
Selling, general & administration 588,755 77,047 1,091,955 282,508
Other operating costs 116,488 - 116,488 -
------------ ------------- ------------ ------------
Total operating expenses 705,243 77,047 1,208,443 282,508
Other income (expense) 16,973 - 16,973 -
------------ ------------- ------------ ------------
Net income (loss) $ (354,422) $ (77,047) $ (857,622) $ (282,508)
============ ============= ============ ============
Net loss per common share $ (0.03) $ (0.01) $ (0.08) $ (0.03)
Weighted average shares outstanding 10,950,000 10,000,000 10,367,000 10,000,000
Fully diluted loss per common share $ (0.03) $ (0.01) $ (0.08) $ (0.03)
Fully diluted weighted average
shares outstanding 11,760,000 10,000,000 11,445,000 10,000,000
See Accompanying Notes to Unaudited Financial Statements
- 3 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity (Deficit)
From date of inception on February 11, 2002 to September 30, 2003
(Unaudited)
Common Stock Retained
----------------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
------------ ---------- ----------- ------------ ------------
Balance, February 11, 2002 - $ - $ - $ - $ -
Issuance of common stock for
cash 10,000,000 1,000 330,300 - 331,300
Net (loss) for period (282,508) (282,508)
------------ ---------- ----------- ------------ ------------
Balance, September 30, 2002 10,000,000 1,000 330,300 (282,508) 48,792
Net (loss) for period (94,169) (94,169)
------------ ---------- ----------- ------------ ------------
Balance, December 31, 2002 10,000,000 1,000 330,300 (376,677) (45,377)
Cancellation of shares issued
to officers and directors (1,583,200) (158) - - (158)
Issuance of common stock for
services 723,533 72 23,805 - 23,877
Issuance of common stock for 1,059,667 106 408,294 - 408,400
cash
Issuance of stock options for
services - - 189,491 - 189,491
Elimination of Third Millennium
Industries, Inc. private company stock (10,200,000) (1,020) (951,890) - (952,910)
Recapitalization of Third Millennium
Industries, Inc. with public company
stock at $0.001 per share 11,700,000 11,700 - (194,600) (182,900)
Net (loss) for period - - - (857,622) (857,622)
------------ ---------- ----------- ------------ ------------
Balance, September 30, 2003 11,700,000 11,700 - (1,428,899) (1,417,199)
============ ========== =========== ============ ============
See Accompanying Notes to Unaudited Financial Statements
- 4 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
From date of inception
For the nine months on February 11, 2002
ended September 30, 2003 through September 30, 2002
------------------------ --------------------------
Cash flows from operating activities
(Loss) from operating activities $ (857,622) $ (282,508)
Adjustment to reconcile net (loss) to net cash
used by operating activities:
Depreciation 32,231 327
Common stock issued for services 23,877 -
Stock options issued for services 189,491 -
(Increase) in assets
Accounts receivable (408,301) -
Inventories (4,349,548) -
Advances to stockholders (74,209) (85,115)
Increase in liabilities
Accounts payable 699,410 12,115
Notes payable 3,667,615 -
Accrued salaries 290,787 54,500
Amounts payable to stockholders 17,000 65,140
Deposits 125,683 -
---------------- ----------------
Net cash used by operating activities (643,586) (235,541)
Cash flows from financing activities
Borrowings from long term debt 639,221 50,000
Repayments of long term debt (348,001) (48,000)
Proceeds from issuance of common stock 408,400 331,300
---------------- ----------------
Net cash provided by financing activities 699,620 333,300
---------------- ----------------
Net increase in cash 56,034 97,759
Cash at beginning of period 7,204 -
---------------- ----------------
Cash at end of period $ 63,238 $ 97,759
================ ================
Supplemental disclosures:
Property and equipment acquired with debt $ 693,349 $ -
Cash paid during the year for interest $ 42,394 $ 666
See Accompanying Notes to Unaudited Financial Statements
- 5 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note A - Summary of Significant Accounting Policies
Nature of Business
The Company (Third Millennium Industries, Inc.) was incorporated in Nevada
on February 11, 2002. Since inception the Company has devoted substantially
all of its efforts to develop a vertically integrated structure of
manufacturing facilities and retail outlets for recreational vehicles, with
a primary emphasis on premium horse trailers.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three
months or less at the date acquired as cash equivalents in the statement of
cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes under the liability method of
accounting for income taxes. Under the liability method, deferred tax
assets and liabilities are determined from the expected future tax
consequences of temporary differences between the reported amounts of
assets and liabilities and their tax basis.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using both straight line and declining balance
methods. Estimated useful lives of the assets vary between 3 and 39 years.
Expenditures for repairs and maintenance that do not extend the useful
lives of the assets are charged as expense when incurred. Depreciation
expense for the nine months ended September 30, 2003 and 2002 was $ 32,231
and $327, respectively.
Basis of Consolidation and Reporting Results of Operations
The Company is reporting the results of its operations for the three months
and the nine months ended September 30, 2003 and 2002 on a consolidated
basis. The balance sheet of the Company as of September 30, 2003 is a
consolidated balance sheet of Third Millennium Industries, Inc. and
subsidiaries that were acquired in August of 2003. Results of operations
are reported for the three months and the nine months ended September 30,
2003 and include the operations of Third Millennium Industries, Inc. (the
parent company) from July 1, 2003 and January 1, 2003 through September 30,
2003. The results of the operations of the subsidiaries are included in the
consolidated statement of operations for the period from the date of
acquisition in August of 2003 through September 30, 2003.
Note B - Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
requires that certain financial instruments, which under previous guidance could
be accounted for as equity, be accounted for as liabilities. Financial
instruments affected include mandatory redeemable securities, certain financial
instruments that require or may require the issuer to buy back some of its
shares in exchange for cash or their assets and certain obligations that can be
settled with shares of stock. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2002, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003 for all other financial instruments. The company adopted the provisions of
SFAS No. 150 on July 1, 2003. The adoption did not have a material impact on the
Company's consolidated financial statements, results of operations or liquidity.
- 6 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note C - Business Combinations
On August 20, 2003 Third Millennium Industries, Inc. (Millennium) acquired
Campers World, Inc. located in Tulsa, Oklahoma, Clear Lake Trailers, Inc.
located in Weatherford, Texas and Twister Trailer Manufacturing, Inc. located in
Fort Scott, Kansas. These acquisitions were made as part of the overall business
plan of Millennium to develop vertical integration of manufacturing and retail
sales of recreational vehicles and premium horse trailers. All of these
companies were financially distressed at the acquisition date and Millennium
believes it can improve operations by centralizing and standardizing operations.
These acquisitions were made as a prelude and a condition for the "reverse
merger acquisition" of X-Net Services Corporation (X-Net) on August 22, 2003. On
July 18, 2003, Millennium entered into an agreement and plan of reorganization
with X-Net. Pursuant to the terms of the agreement, X-Net acquired Millennium as
a wholly owned subsidiary in a reverse merger acquisition. In connection with
this transaction, X-Net issued 10,200,000 restricted shares of X-Net common
stock to Millennium's stockholders. As a result of this transaction, X-Net has a
total of 11,7000,000 shares of common stock issued and outstanding, of which
10,200,000 shares, or approximately 87.2% of its total issued and outstanding
shares are held by persons who were stockholders of Millennium prior to the
acquisition and 1,500,000 shares, or approximately 12.8% are held by the persons
who were shareholders of X-Net prior to the merger. Immediately after the
reorganization, X-Net changed its name to Third Millennium Industries, Inc. The
reorganization has been treated for accounting purposes as a reverse acquisition
of X-Net by Millennium.
Note D - Inventories
Inventories consist of the following items:
Recreational vehicles and horse trailers $3,656,510
Parts & supplies 693,038
----------
Total Inventories $4,349,548
==========
Note E - Income Taxes
No provision for income taxes has been recorded in the accompanying financial
statements, because the Company has incurred net operating losses since its
inception. At September 30, 2003, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $1,020,931 that
expires in 2018. Because of the uncertainty that the Company will be able to use
the tax benefit associated with its net operating losses to date, because its
planned acquisitions may impose annual limitations in accordance with Internal
Revenue Code Section 382 and there is no guarantee of future profitability of
the Company, no tax benefit has been included in these financial statements.
Note F - Stock Based Compensation
The Company accounts for stock options grants under variable plan accounting
whereby compensation expense or benefit is recorded each period from the date of
grant to the measurement date based on the fair value of the Company's common
stock at the end of the period. The Company also has options, which were granted
in 2002, which are accounted for in accordance with Accounting Principles Board
Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Under
APB No. 23, the Company measures compensation cost for stock-based employee
compensation plans based on the intrinsic value of the award at the date of
grant. Intrinsic value is the excess of the fair value of the underlying stock
over the amount an employee must pay to acquire the stock.
The following table illustrates the effect on net income and earnings per share
if compensation expense had been determined for fixed plan awards based on an
estimate of fair value of the option at the date of grant consistent with SFAS
NO. 123, "Accounting for Stock Based Compensation," as amended.
- 7 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note F - Stock Based Compensation (continued)
Three months ended Nine months ended
September 30, 2003 September 30, 2003
------------------ ------------------
Net loss as reported (354,422) (857,622)
Deduct: total stock-based employee
compensation expense determined using a fair
value based method for fixed plan awards, net
of tax effect (17,156) (51,469)
--------------- ---------------
Pro forma net (loss) (337,266) (806,153)
=============== ===============
Basic (loss) per share $ (0.03) $ (0.08)
=============== ===============
Pro forma basic (loss) per share $ (0.03) $ (0.08)
=============== ===============
Diluted (loss) per share $ (0.03) $ (0.08)
=============== ===============
Pro forma diluted (loss) per share $ (0.03) $ (0.08)
=============== ===============
Note: Only 2003 pro-forma numbers are shown above as no options were issued
prior to September 30, 2002.
The Company recorded compensation expense related to its stock options of
$189,491 and $69,989 for the nine months and three months ended September 30,
2003, respectively.
The fair value of options was estimated at the grant date using a Black-Scholes
option pricing model, which requires the input of subjective assumptions.
Because the Company's common stock and stock options have characteristics
significantly different from listed securities and traded options, and because
changes in the subjective input assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable single
measure of the fair value of stock options. The weighted average fair values of
options granted during the nine months ended September 30, 2003 was $0.82.
Weighted average assumptions used in the valuation model include risk-free
interest rates of 4.00%, dividend yields of 0.00%, expected lives of options of
3.0 years, and expected stock price volatility of .001.
Note G - Related Party Transactions
The Company has advanced amounts to stockholders participating in the initial
operations of the Company in the amount of $178,676. Since the merger with X-Net
Services Corporation, the Company has not advanced any additional funds to its
stockholders. It is anticipated that these advances will be repaid when accrued
salaries due these individuals are paid after the Company becomes an operating
entity as described below.
The Company has employment agreements with certain officers and stockholders of
the Company to pay salaries and wages earned during the initial start up period
of the Company. The amount of salaries and wages accrued through September 30,
2003 is $306,000. This is less than amounts required to be paid under the
employment agreements. The balance has been forgiven by written agreement. The
Company anticipates that such salaries will continue to accrue until the Company
operations commence and cash flow is sufficient to pay these individuals.
In addition to the salaries due to the officers and shareholders, additional
amounts are due to them from travel and entertainment expenses, vehicle
allowances and relocation expenses. As of September 30, 2003 the total amount
due
- 8 -
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note G - Related Party Transactions (continued)
was $96,253. The Company anticipates that such expenses will continue to accrue
until the Company operations commence and cash flow is sufficient to pay these
individuals. This amount is recorded in the accounts payable of the company.
The Company presently leases the Campers World facility from the previous owners
of Campers World, Inc. The Company leases this space at lease rates that are
competitive with lease rates of similar facilities in the area.
The Company presently leases the Twister Trailer facility from the previous
owners of Twister Trailer Manufacturing, Inc. The Company leases this space at
lease rates that are competitive with lease rates of similar facilities in the
area.
The Company presently leases the Clear Lake Trailer facility from the previous
owners of Clear Lake Trailers, Inc. The Company leases this space at lease rates
that are competitive with lease rates of similar facilities in the area.
Note H - Contingencies
The Company has entered into non-binding letters of intent for the acquisition
of two other companies. The letters of intent are subject to the negotiation of
definitive agreements acceptable to both parties. No assurances can be given
that the Company will be successful in entering into definitive agreements with
either of such companies or that either acquisition will be completed.
In conjunction with the acquisition of Campers World, Inc. and Twister Trailer
Manufacturing, Inc., two officers and directors of the Company have committed to
purchase parcels of real estate from the previous owners and will lease back the
property where the Campers World and Twister Trailer facilities are located. The
leases will include a stipulation that lease rates will not exceed local lease
rates for similar properties. This purchase is expected to occur within six
months from the date of these acquisitions.
In October 2002, the Company entered into an agreement with a firm to provide
certain investment banking services. The agreement provides for the payment of
advisory fees in the amount of $10,000 per month and a $25,000 fee upon closing
of the reverse merger transaction, the issuance of 300,000 shares of common
stock with registration rights, and certain other fees based on services
performed by the investment banker. Such agreement may be renegotiated by the
parties as a result of changed circumstances and alleged deficiencies in
performance.
Note I - Equity Transactions
Stock Options
In conjunction with the acquisition of the entities described in Note C -
Business Combinations, the Company has granted the following options to purchase
common stock of the Company.
Number
Of Shares Price Term *
--------- ----- -------
50,000 $ 0.75 2 Years
250,000 $ 1.00 3 Years
50,000 $ 0.75 2 Years
100,000 $ 0.75 3 Years
50,000 50% Mkt. Price 5 Years
100,000 50% Mkt. Price 5 Years
100.000 50% Mkt. Price 5 Years
150,000 50% Mkt. Price 5 Years
150,000 50% Mkt. Price 5 Years
100,000 $0.10 2 Years
100,000 $0.10 2 Years
-9-
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Stock Options (continued)
The option agreements specify that the options can be exercised 1 year after the
common stock of the Company becomes available for trading on a public stock
exchange. The optionable stock to be granted for $ .10 per share will be issued
from the stock holdings of two officers and directors of the Company. Note F
describes the Company's policy regarding the accounting for these stock options.
The two grants listed above for the option to purchase 150,000 shares each of
common stock at 50% of the market price are incentive-based options. The holders
of these options must achieve specified operating results in terms of gross
revenues and net income in order to have the right to exercise these options.
Convertible Notes
In March 2003, the Company issued a 90-day, 18% convertible note in the amount
of $75,000 to an accredited investor. The note provides that the holder may
convert the principle and interest of the note to shares of the Company's common
stock at a value of $.50 per share. The Company is currently in default on this
note but has been notified by the holder of the note that the holder intends to
exercise the conversion option before the end of the year. In August 2003, the
Company issued 180-day, 18% convertible notes in the amount of $550,000 to
accredited investors. The note provides that the holder may convert the
principle and interest of the note to shares of the Company's common stock at a
value of $.75 per share. The Company expects that these notes will be converted
to common stock prior to the end of the year.
Note J - Unaudited Pro-forma condensed, combined statements of operations
The following unaudited Pro-forma condensed, combined statements of operations
for the nine months ended September 30, 2003 and for the nine months ended
September 30, 2002 have been prepared to give affect to the recent merger
between X-Net Services Corporation (X-Net) and Third Millennium Industries, Inc.
(Millennium) which occurred on August 22, 2003. Shortly before the consummation
of X-Net's acquisition of Millennium, Millennium satisfied one of the conditions
of the acquisition by acquiring the outstanding common stock of the following
three companies, Campers World, Inc. (Campers World), Twister Trailer
Manufacturing, Inc. (Twister Trailer) and Clear Lake Trailers, Inc. (Clear
Lake). The unaudited pro-forma condensed, combined statements of operations are
presented assuming that the acquisition had taken place on January 1, 2003 and
January 1, 2002, respectively. These unaudited pro-forma condensed, combined
statements of operations are presented for information purposes only and do not
represent Millennium's results of operations had the acquisitions in fact
occurred on the dates assumed or that may result from future results of
operations. These unaudited pro-forma condensed, combined statements of
operations should be read in conjunction with the historical financial
statements included with X-Net's previous filings with the Securities and
Exchange Commission.
-10-
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note J - Unaudited Pro-forma condensed, combined statements of operations
(continued)
THIRD MILLENNIUM INDUSTRIES, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THROUGH SEPTEMBER 30, 2003
Third Clear Lake Twister
Millennium Campers World Trailers Trailers Adjustments Consolidated
---------- ------------- ---------- -------- ----------- ------------
REVENUES
Sales - 13,685,423 1,508,883 320,064 - 15,514,370
Cost of Sales - 12,235,129 1,226,606 191,334 - 13,653,069
Gross Profit - 1,450,294 282,277 128,730 - 1,861,301
OPERATING EXPENSES
Selling, general and administrative expenses 752,904 1,042,309 346,889 87,089 - 2,229,191
Other operating expenses 116,488 324,352 23,343 - - 464,183
Total Operating Expenses 869,392 1,366,661 370,232 87,089 - 2,693,374
Other Income (Expense) 404 (210,604) (10,790) (10,087) - (231,077)
Net (loss) income (868,988) (126,971) (98,745) 31,554 - (1,063,150)
Basic loss per common share (0.07) (0.09)
THIRD MILLENNIUM INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THROUGH SEPTEMBER 30, 2002
Third Clear Lake Twister
Millennium Campers World Trailers Trailers Adjustments Consolidated
---------- ------------- ---------- -------- ----------- ------------
REVENUES
Sales - 13,131,114 3,044,320 359,360 - 16,534,794
Cost of Sales - 11,745,916 2,617,944 285,150 - 14,649,010
Gross Profit - 1,385,198 426,376 74,210 - 1,885,784
OPERATING EXPENSES
Selling, general and administrative expenses - 1,402,392 - 88,430 - 1,490,822
Other operating expenses 282,508 20,239 615,901 - - 918,648
Total Operating Expenses 282,508 1,422,631 615,901 88,430 - 2,409,470
Other Income (Expense) - - (249,417) - - (249,417)
Net (loss) income (282,508) (37,433) (438,942) (14,220) - (773,103)
Basic loss per common share (0.03) (0.08)
-11-
THIRD MILLENNIUM INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note K - Going Concern
The Company has an equity deficit and its continued operations is dependent upon
obtaining additional debt financing and/or equity capital. The Company has not
entered into any agreement or arrangement to provide such additional financing
or equity capital and no assurances can be given that such financing or equity
capital will be available to the Company in the future.
-12-
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the Company's
financial statements, which are included elsewhere in this report. The following
information contains forward-looking statements.
Overview
Third Millennium Industries, Inc., formerly named X-Net Services Corp. (the
"Company"), acquired Third Millennium Industries, Inc. ("TMI") as a wholly owned
subsidiary on August 22, 2003 in a transaction treated for accounting purposes
as a "reverse acquisition." Accordingly, the historical results presented in the
accompanying financial statements are those of TMI through August 22, 2003,
after which the historical results are those of the combined entities. TMI was
incorporated on February 11, 2002, and any reference in this report to "the nine
months ended 2002" shall be deemed to refer to the period from TMI's inception
on February 11, 2002 through September 30, 2002.
On October 30, 2003, TMI was merged with and into the Company, its parent
corporation, and the name of the Company was changed to Third Millennium
Industries, Inc.
From its inception in February 2002 through August 22, 2003, TMI conducted
research in the aluminum trailer industry, developed a business plan, assembled
an experienced management team, raised working capital, and entered into
acquisition agreements and then acquired three companies engaged in business in
the aluminum horse trailer industry.
In August 2003, prior to its acquisition by the Company, TMI implemented the
first phase of its business plan by acquiring: Camper's World, Inc. ("Camper's
World"), a retail recreational vehicle and horse trailer facility in Oklahoma;
Clear Lake Trailer, Inc. ("Clear Lake"), a retail horse trailer facility in
Texas; and Twister Trailer Manufacturing, Inc. ("Twister"), a horse trailer
manufacturer in Kansas. Camper's World, Clear Lake and Twister are referred to
collectively in this report as the "Subsidiaries."
The Company plans to further expand its business operations through acquisitions
and internal growth in the near future, subject to its ability to obtain the
additional debt or equity financing it requires to continue its operations and
the implementation of its business plan. The Company has not entered into any
agreement or arrangement for the provision of such additional debt or equity
financing and no assurances can be given that such financing will be available
to the Company on terms acceptable to it or at all.
Periods Compared
The comparison of financial results in 2003 and 2002 is complicated by the fact
that TMI was incorporated on February 11, 2002 so the results for the first nine
months of 2002 include a period of approximately seven and one-half months,
while the 2003 results include a full nine month period. In addition, from its
inception in February 2002 through August 2003, TMI focused its efforts on
developing its business plan and negotiating its initial acquisitions and did
not conduct any active business operations. As a result of its acquisition of
the Subsidiaries in August 2003, the nine months ended September 30, 2003
include the results of operations of the Subsidiaries from August 20 through
September 30, 2003, but the results of the Subsidiaries' operations are not
included in the corresponding period of 2002 because the Subsidiaries had not
been acquired by TMI at that time.
-13-
Results of Operations
Sales
Sales for both the three month and nine month periods ended September 30, 2003,
were $3,193,610 compared to $0 in sales during the corresponding periods of the
prior year. All sales for the third quarter of 2003 were generated by the
Company's subsidiaries during the period from August 20, 2003 (the date of their
acquisition by the Company) through September 30, 2003. Of the total sales,
$743,205 or 23% were new motor homes, $415,191 or 13% were trailers, including
aluminum horse trailers, $771,413 or 24% were other recreational trailers,
$924,754 or 29% were used vehicles and $184,000 or 6% were from service
activities.
Gross Profit / Loss
Gross profit for both the three and nine month periods ended September 30, 2003
was $333,848, compared to gross profit of $0 for the corresponding periods of
the prior year. Gross profit of $334,848 is 10.5% of sales
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $588,755 and
$1,091,955, respectively, for the three month and nine periods ended September
30, 2003. Other operating costs were $116,488 for the three months ended
September 30, 2003 and the nine months ended September 30, 2003. These other
operating costs include one-time costs associated with acquisition of the
Subsidiaries. Selling, general and administrative ("SG&A") expenses were $77,047
and $282,508, respectively, for the three month and nine periods ended September
30, 2002.
The increase in SG&A expenses and other operating costs for 2003 over 2002 is
due primarily to the Company's acquisition of the Subsidiaries and the inclusion
of their SG&A expenses from the date of their acquisition through the end of the
quarter. In addition, SG&A expenses for the nine months ended September 30, 2003
includes $189,491 in non-cash compensation expense related to stock options
issued for services.
Total operating expenses for the nine months ended September 30, 2003 were
$1,208,443 or 38% of sales. This amount includes eight months of development
stage costs of the Company and approximately one month of combined activity of
the Company and the Subsidiaries.
Interest Expense, Net
The Interest expense component, which is included in total expenses, for the
three month and nine month periods ended September 30, 2003, was $40,931 and
$42,394, respectively, as compared to interest expense during the corresponding
three and nine month periods of 2002 of $74 and $666, respectively. The increase
is primarily attributable to the floor plan financing at the Subsidiaries, which
constituted $26,148 of the interest expense incurred during the third quarter of
2003.
Net Income / Loss
Net loss for the three months ended September 30, 2003, was $354,422 or $0.03
per share, compared to a net loss of $77,047, or $0.01 per share for the third
quarter of 2002. Net loss for the nine months ended September 30, 2003 was
$857,622 or $0.08 per share, compared to $282,508 or $0.03 per share for the
first nine months of 2002.
The Company did not generate any revenues prior to its acquisition of the
Subsidiaries. Management does not expect the Company to be profitable during the
fourth quarter of 2003.
-14-
Liquidity and Capital Resources
General
As of September 30, 2003, the Company had total assets of $5,812,747 and total
liabilities of $7,229,946, a difference of $1,417,199. At such date, the
Company's total current assets were $4,999,763 and its total current liabilities
were $5,320,074, a difference of $320,311. The Company and the Subsidiaries are
currently in default in the payment of various items of indebtedness and are
negotiating with lenders to attempt to consolidate the various lines of credit
and financing arrangements previously entered into by the Subsidiaries into a
master line of credit between the Company and one or more lenders. The Company
is in urgent need of additional debt or equity financing in order to pay down
and restructure existing debt, reopen the operations of Clear Lake as discussed
below, provide the Company with the additional resources it requires to
implement best practices at the Subsidiaries, and continue the Company's
business plan of acquiring other companies in the aluminum horse trailer
industry. The Company has not entered into any agreement or arrangement for the
provision of such additional financing and no assurances can be given that such
financing will be available to the Company on terms acceptable to it or at all.
If the Company is unable to obtain additional financing and/or equity within the
next 12 months, it may be forced to discontinue its operations.
Following the acquisition of TMI on August 22, 2003, the Company began the
process of settling the outstanding liabilities for each of the Subsidiaries. In
some cases, insufficient working capital was available to pay all liabilities.
The operations of Clear Lake were temporarily suspended until sufficient working
capital becomes available to continue that operation. The reopening of this
facility is dependent on receiving adequate funding to satisfy outstanding
liabilities. Management believes it can execute its business plan without the
Clear Lake Trailer facility if necessary.
The Company has outstanding convertible debt in the aggregate amount of
approximately $625,000, which is convertible into shares of the Company's common
stock at conversion prices ranging from $0.50 to $0.75 per share. The Company is
hopeful that such debt will be converted to common stock, which would eliminate
a significant portion of the Company's indebtedness although it would also
increase the number of the Company's issued and outstanding shares of Common
Stock.
The State of Kansas has approved a $500,000 loan to the Company through the
Community Development Block Grant Program. The money will be a 1:1 match to the
Company and loaned at 4% interest by Bourbon County. The funds will be used to
expand operations at the Twister facility. The term of the loan is 10 years with
a principle moratorium for the first 18 months. Other economic incentives such
as tax abatements and training grants may also be obtained. The Company expects
the loan to fund during the fourth quarter of 2003. The loan proceeds will be
restricted as to use with requirements that all loan proceeds be expended for
business expansion in Bourbon County and that the Company invest a matching
amount in that area within two years.
The Company has limited operating lines of credit available at each of the
acquired companies; however, these lines are inadequate to support growth of the
business. No other lines of credit are currently in place. In order to execute
its business plan, the Company will need to consolidate and expand its available
lines of credit, which will in turn require the Company to obtain additional
debt or equity capital. There are no assurances that such additional funding
will be available to the Company and the failure to secure additional funding
could have a material adverse affect on the Company's business and financial
condition and could cause it to terminate its operations.
-15-
Certain Other Obligations
Under the terms of the acquisition agreements for each of the Subsidiaries, the
Company is required to satisfy certain liabilities and/or cause the prior owners
to be released from personal liability on certain notes. Although the Company is
in the process of completing these transactions, several notes either have not
been paid or the prior owners have not been released from personal liability.
The Company expects each of these notes to be either paid in full or to be
assumed by the Company. In the event the Company cannot fulfill its obligation,
the lenders could accelerate maturity of the notes and demand immediate payment
in full for the debts, and the former owners of the Subsidiaries may have
recourse against the Company. Should this occur, there may not be adequate cash
available to meet operating needs.
Outlook
The Company remains cautiously optimistic about future sales. Recreational
vehicle sales from Campers World operation have been strong throughout the third
quarter, offsetting some lost horse trailer sales caused by lack of available
inventory. Management expects recreational vehicle sales to follow the typical
seasonal pattern and slow going into the fourth quarter. The Company has secured
trade show space in the fourth quarter primarily to display its horse trailer
products and expects a positive response from potential customers at these
shows, however, there is no assurance that the Company will generate adequate
interest in its product to generate the needed cash flow to support the cash
needs of the Company in the short-term.
As discussed above, the Company temporarily shut down its Clear Lake facility
shortly after its acquisition. It has not incurred any additional liabilities in
connection with this operation other than those that were on Clear Lake's books
at the time of its acquisition. The Company is formulating a plan to use this
facility once debts are satisfied. In the event a decision is made not to reopen
this facility, management does not predict it would have an adverse impact on
the Company.
The Company plans to establish a facility at its Springfield, Missouri location
to construct, mill and install living quarters in the aluminum horse trailers
manufactured by the Subsidiaries. The Company has hired a limited number of
additional employees to staff this facility. In order to be successful, this
operation must be able to attract and retain the skilled personnel required to
deliver the quality product required to satisfy the target market segment and
also operate efficiently.
The Company is continuing to pursue other acquisitions in the upper-end segment
of the horse trailer market as well as acquisitions that expand the product
line. There are no assurances that the Company will be successful at making such
acquisitions, as they are dependent on available financial resources as
described herein. The Company believes it is strategically well-positioned to
continue to benefit from these acquisitions and the synergies they will bring.
The Company's future operating results are subject to a number of risks,
including those discussed in the current report on Form 8-K filed September 4,
2003 and the following additional factors:
1. The infusion of additional debt or equity will be necessary to
completely fulfill the terms of acquisitions and pay certain
liabilities created as part of each acquisition.
2. The Company will need a sufficient line of credit to meet the
financial needs of the operation in the short-term and
additional equity to complete the next acquisition necessary
to implement its business plan.
-16-
Item 3. Controls and Procedures
The Company's President and CEO and its Secretary and Treasurer (the "Certifying
Officers") are responsible for establishing and maintaining disclosure controls
and procedures for the Company. The Certifying Officers have concluded (based on
their evaluation of these controls and procedures as of the end of the period
covered by this report) that the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934) are effective. No significant changes were made
in the Company's internal controls or in other factors that could significantly
affect those controls during the most recent fiscal quarter, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
-17-
Part II--Other Information
Item 1. Legal Proceedings
The Issuer is not a party to any material pending legal proceedings and, to the
best of its knowledge, its properties are not the subject of any such
proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Not Applicable.
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.
The following documents are included as exhibits to this report:
SEC
Exhibit Ref.
No. No. Title of Document Location
--- --- ------------------ --------
31.1 31 Section 302 Certification of Chief Executive Officer This Filing
31.2 31 Section 302 Certification of Chief Financial Officer This Filing
32.1 32 Section 1350 Certification of Chief Executive Officer This Filing
32.2 32 Section 1350 Certification of Chief Financial Officer This Filing
(b) Reports on Form 8-K.
On September 4, 2003, the Company filed a current report on Form 8-K
with respect to its acquisition of Third Millennium Industries, Inc. and
subsidiaries, which report was amended on November 11, 2003. Except for the
foregoing, no reports on Form 8-K were filed during the quarter for which this
report is filed.
-18-
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.
Third Millennium Industries, Inc.
Date: November 25, 2003 By /s/ Dennis K. DePriest
----------------------------------
Dennis K. DePriest, President and
CEO (Principal Executive Officer)
Date: November 25, 2003 By /s/ George G. Spencer
----------------------------------
George G. Spencer, Secretary and
Treasurer (Principal Financial
Officer)
-19-