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 December 31,
2016 and 2015.
The Company incurred operating expenses
of $8,067 and $16,126 for the three months ended December 31, 2016 and 2015, respectively, a decrease of $8,059 or 50%. The decrease
in operating expenses for the three months ended December 31, 2016 when compared to the three-month period ended December 31,
2015 is attributed to a decrease of $7,500 in payroll expenses associated with the issuance of common stock as compensation.
During the three months ended December
31, 2016 and 2015 we incurred interest expenses of $8,777 and $8,614, respectively.
During the three months ended December
31, 2016 and 2015 we incurred net losses of $16,844 and $24,740, respectively.
Nine months ended December 31,
2016 and 2015.
The Company incurred operating expenses
of $34,335 and $55,842 for the nine months ended December 31, 2016 and 2015, respectively, a decrease of $21,507 or 39%. The decrease
in operating expenses for the nine months ended December 31, 2016 when compared to the nine-month period ended December 31, 2015
is attributed to a decrease of $10,550 in consulting fees associated with our oil and gas operations and a decrease of $8,500
in payroll expenses associated with the issuance of common stock as compensation.
During the nine months ended December
31, 2016 and 2015 we incurred interest expenses of $27,260 and $25,711, respectively.
During the nine months ended December
31, 2016 and 2015 we incurred net losses of $61,595 and $81,553, respectively.
Liquidity and Capital Resources.
From inception through December 31,
2016, the Company has issued 54,401,518 shares of its Common Stock to officers, directors and outside shareholders. The
Company has little operating history and no material assets other than cash, restricted cash and unproven mineral rights. The
Company has $10,539 of unrestricted cash and $65,545 of restricted cash as of December 31, 2016.
The Company has incurred operating
losses each year since its inception and has had a working capital deficit at December 31, 2016. At December 31, 2016 and March
31, 2016 the working capital deficit was $1,783,445 and $1,740,325, respectively. The working capital deficit and cash balance
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 report on the Company’s
March 31, 2016 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 Nine 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:
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Level 1:
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Quoted prices for identical
assets or liabilities in active markets.
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Level 2:
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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.
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Level 3:
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Pricing inputs are unobservable for the assets
and liabilities, including situations in which there is little to no market activity.
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Research and Development Costs
Research and development costs are
charged to expense as incurred.
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 December 31, 2016
and 2015, 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 nine months ended December 31, 2016 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 financial statements should be
read in conjunction with the financial statements and notes thereto included in the Company’s March 31, 2016 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.