UNITED STATES
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 September 30, 2002
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period _________ to
Commission File Number 000-49722
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X-NET SERVICES CORP.
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(Exact name of small Business Issuer as specified in its charter)
Nevada 87-0671807
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
7666 Keswick Road
Sandy, Utah 84093
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 801-947-1681
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Not Applicable
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(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 Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 1,500,000 Shares of Common Stock
outstanding as of September 30, 2002.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying un-audited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended September 30, 2002 are not necessarily indicative of the results
that can be expected for the year ending December 31, 2002.
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
September 30 September 30
2002 2001
--------- ---------
Cash in bank $221,024 $ 7,797
Accounts receivable 4,284 850
Note receivable 500 -
Computer equipment, less accumulated
depreciation of $1,502 and $455 respectively 4,557 3,429
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TOTAL ASSETS $230,365 $ 12,076
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Accrued payroll $ - $ 13,000
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Total Liabilities - 13,000
Stockholders' Equity
Common stock, authorized 25,000,000 shares
at $.001 par value,
issued and outstanding
1,500,000 and 500,000 shares
at September 30,
2002 and 2001 respectively 1,500 500
Additional paid-in capital 268,392 24,500
(Deficit) accumulated during
the development stage (39,527) (25,924)
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Total Stockholders' Equity 230,365 (924)
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $230,365 $ 12,076
========= =========
The accompanying notes are an integral part of these financial statements.
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
February February
16, 2001 16, 2001
(date of Nine Months date of
inception) to ended inception) to
September September September
30, 2001 30, 2002 30, 2002
---------- ----------- -------------
Income - - -
Contract Services $ 850 $ 18,370 $ 26,549
Expenses
Bank service charges - 6 6
Contracted services - 8,068 8,068
Depreciation 455 855 1,502
Office supplies 73 - 73
Professional fees 12,808 8,033 21,460
Salaries & wages 13,000 18,000 37,000
Taxes and licenses 438 - 482
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Total Expenses 26,774 34,962 68,591
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Net (loss) from operations (25,924) (16,592) (42,042)
Other Income (Expense)
Interest income - 2,515 2,515
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Net (loss) before income taxes (25,924) (14,077) (39,527)
Provision for income taxes - Note C - - -
---------- ----------- ---------
Net (loss) $(25,924) $ (14,077) $(39,527)
========== =========== =========
Net (loss) per common share:
Net (loss) $ (0.050) $ (0.01) $ (0.04)
========== =========== =========
Weighted average shares outstanding 500,000 1,500,000 786,420
========== =========== =========
The accompanying notes are an integral part of these financial statements.
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 16, 2001 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2002
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital (Deficit) Total
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Balance
February 16, 2001 - $ - $ - $ - $ -
Issuance of common stock
for cash @ .05 per share
on February 16, 2001 400,000 400 19,600 20,000
Issuance of common stock
for cash @ .05 per share
on June 26, 2001 100,000 100 4,900 5,000
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Net Income for period (25,924) (25,924)
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Balance,
September 30, 2001 500,000 500 24,500 (25,924) (924)
Net (loss) for period 474 474
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Balance,
December 31, 2001 500,000 500 24,500 (25,450) (450)
Issuance of common stock
for cash @ .25 per share
under public offering 1,000,000 1,000 243,892 244,892
Net (loss) for period (14,077) (14,077)
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Balance,
September 30, 2002 1,500,000 1,500 268,392 (39,527) 230,365
================================================================================
The accompanying notes are an integral part of these financial statements.
X- NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
February February
16, 2001 16, 2001
(date of Nine Months date of
inception) to ended inception) to
September September September
30, 2001 30, 2002 30, 2002
---------- ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (25,924) $ (14,077) $ (39,527)
Non-cash items included in net loss
Depreciation 455 855 1,502
(Increase) in accounts receivable - (4,284) (4,284)
(Increase) in notes receivable (850) (500) (500)
(Decrease) in accounts payable - (134) -
(Decrease) is accrued payroll 13,000 (19,000) -
---------- ----------- -----------
NET CASH FROM (USED) BY
OPERATING ACTIVITIES (13,319) (37,140) (42,809)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment (3,884) (2,175) (6,059)
---------- ----------- -----------
NET CASH (USED) BY INVESTING
ACTIVITIES (3,884) (2,175) (6,059)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 25,000 244,892 269,892
---------- ----------- -----------
NET CASH FROM FINANCING ACTIVITIES 25,000 244,892 269,892
NET INCREASE IN CASH 7,797 205,577 221,024
CASH AT BEGINNING OF PERIOD - 15,447 -
---------- ----------- -----------
CASH AT END OF PERIOD $ 7,797 $ 221,024 $ 221,024
========== ============ ===========
The accompanying notes are an integral part of these financial statements.
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business activity -
The Company was incorporated on February 16, 2001 under the laws of the state
of Nevada. The business purpose of the Company is to design and develop web
pages for internet applications.
The Company will adopt accounting policies and procedures based upon the nature
of future transactions.
Cash and cash equivalents -
The Company considers all certificates of deposit with maturity of three months
or less when purchased to be cash equivalents.
Revenue recognition -
The Company recognizes income from contracted services rendered at the time the
contracted services are completed
Organization costs -
The Company incurred costs in the organization of the Company. These costs have
been charged to current operations.
NOTE B: PUBLIC STOCK OFFERING
In January of 2002 the Company completed a public stock offering and sold
1,000,000 shares of it's common stock at $0.25 per share and received net
proceeds of $244,892 from that offering. The offering costs which were incurred
by the Company in connection with the public stock offering were offset against
the offering proceeds of the stock offering.
NOTE C: INCOME TAXES
No provision for income taxes has been recorded in the financial statements as
the Company has incurred net operating losses from the date of inception through
the current year. The Company has net operating losses totaling $39,527 and
$25,924 at September 30, 2002 and 2001 respectively that may be used to offset
future taxable income.
The Company provides for income taxes based on the liability method which
requires recognition of deferred tax assets and liabilities based on the
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse. It is uncertain as to whether the
Company will be able to utilize the net operating losses to offset future
income.
X-NET SERVICES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE D: COMPUTER EQUIPMENT AND DEPRECIATION
Computer equipment is carried at cost. Expenditures for the maintenance and
repair are charged against operations. Renewals and betterments that materially
extend the life of the asset are capitalized.
Depreciation of the equipment is provided for using the straight-line method
over the estimated useful lives for both federal income tax and financial
reporting.
NOTE E: PAYROLL
The Company entered into an employment agreement with an individual on February
16, 2001. The provisions of the agreement are that the Company will accrue a
monthly salary of $2,000 per month that will be payable only when revenues from
operations are available for payment of the salary or when funding is received
from a public offering to be conducted by the Company. The public offering was
completed in January of 2002 at which time the individual was paid the amount of
$25,000 for services rendered to March 31, 2002.
NOTE F: 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 financials statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Item 2. Management's Discussion and Analysis or Plan of Operations
The Company provides technological solutions for emerging businesses. These
solutions include technological support for:
- - Internal operations and data base support;
- - Web site design and maintenance; and
- - E-commerce solutions necessary for a client to advertise products and/or
sell products over the web including shopping carts, real-time card
processing and online catalogs.
Calendar Year Ended December 31, 2001
For the year ended December 31, 2001, we earned revenues of $8,179. During the
year we incurred expenses of $33,629. Of these expenses, $13,427 were
professional fees associated with the formation of the Company and the
registration of our initial public offering. We incurred a net loss from
operations of $25,450 for the fiscal year.
Nine Month Period Ended September 30, 2002
For the nine month period ended September 30, 2002, we earned revenues of
$18,370. During the period we incurred expenses of $34,962. The Company was
incorporated on February 16, 2001, and did not commence business operations
until late in the fiscal year ended December 31, 2001. Accordingly, there can
be no meaningful comparison between the nine months ended September 30, 2002 and
the nine months ended September 30, 2002. We note, however, that during the
nine months ended September 30, 2001, we incurred expenses totalling $26,774
which were predominately professional fees associated with the formation of the
Company and the registration of our initial public offering. Accordingly, these
expenses will not be recurring. Our expenses incurred during the nine months
ended September 30, 2002, are predominately recurring operating expenses
including salaries. We incurred a net loss from operations of $16,592 for the
nine month period ended September 30, 2002.
Liquidity and Capital Resources
At September 30, 2002, we had cash on hand totalling $221,024. This will meet
the marketing and operational needs of the Company for the next 12 months. We
believe through the use of this operating capital we will be able to grow the
business of the Company and that the Company will be able to meet its expenses
from operating revenues 12 months from now. If this is not the case, the
Company will need to raise additional capital. It is unknown at the present
time from what source or sources that capital may be available or if capital
will be available at all.
Recent Developments
The Company has entered into an Agreement in Principle with Millennium
Industries, Incorporated, a Nevada corporation ("Millennium") whereby the
Company will acquire 100% of the issued and outstanding stock of Millennium in
exchange for shares of the Company. Following the acquisition the current
shareholders of Millennium will own 87.2% of the Company. The Agreement in
Principle is not legally binding. The parties are currently negotiating a
definitive agreement which will be subject to certain contingencies which must
be met by January 31, 2003. Upon consummation of any transaction anticipated by
the Agreement in Principle, Millennium will own at least two companies engaged
in manufacturing aluminum horse trailers. The Company believes the acquisition
provides a greater opportunity for future growth than its current business
prospects.
3
FORWARD LOOKING STATEMENTS
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, including statements
regarding the Company's capital needs, business strategy and expectations. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "intend", "anticipate", "believe", "estimate", "predict",
"potential" or "continue", the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined
below, and, from time to time, in other reports the Company files with the SEC.
These factors may cause the Company's actual results to differ materially from
any forward-looking statement. The Company disclaims any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements. The information constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, Mr. Stephen B. Utley. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting management to material
information relating to us required to be included in our periodic SEC filings.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed our reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings and to our knowledge, no
such proceedings
4
are threatened or contemplated.
Item 2. Changes in Securities
We did not complete any sales of our securities during the fiscal quarter ended
September 30, 2002.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to our security holders for a vote during the fiscal
quarter ended September 30, 2002.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS REQUIRED BY ITEM 601 OF FORM 8-K
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Exhibit Number Description of Exhibit
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99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
- --------------------------------------------------------------------------------
(1) Filed as an Exhibit to this Quarterly Report on Form 10-QSB
- --------------------------------------------------------------------------------
REPORTS ON FORM 8-K
We did not file any Current Reports on Form 8-K during the fiscal quarter ended
September 30, 2002.
5
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
X-NET SERVICES CORP.
Date: November 14, 2002
By: /s/ Stephen B. Utley
---------------------------------------
Stephen B. Utley
President, Secretary, Treasurer and Director
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer)
(Principal Accounting Officer)
6
CERTIFICATIONS
I, STEPHEN B. UTLEY, Chief Executive Officer and Chief Financial Officer of
X-NET SERVICES CORP. (the "Registrant"), certify that;
(1) I have reviewed this quarterly report on Form10-QSB of X-NET SERVICES
CORP.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Stephen B. Utley
Date: November 14, 2002 ___________________________________
(Signature)
President, Secretary and Treasurer
Chief Executive Officer and
Chief Financial Officer
___________________________________
(Title)