XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
1
-
ORGANIZATION AND BASIS
OF PRESENTATION
The
condensed consolidated unaudited interim financial statements included herein
have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial
statements and notes are presented as permitted on Form 10-Q and do not contain
information included in the Company’s annual statements and notes. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the September 30, 2007 audited financial statements and the accompanying
notes thereto. While management believes the procedures followed in
preparing these condensed financial statements are reasonable, the accuracy of
the amounts are in some respects dependent upon the facts that will exist, and
procedures that will be accomplished by the Company later in the
year.
These
condensed consolidated unaudited financial statements reflect all adjustments,
including normal recurring adjustments which, in the opinion of management, are
necessary to present fairly the operations and cash flows for the periods
presented.
The
Company was incorporated on May 10, 1998, under the laws of the State of
Delaware. The business purpose of the Company was originally to
engage in environmental monitoring and testing. However, on December
31, 2001, the Company liquidated those operating assets. The Company
has adopted a fiscal year ending September 30.
On
February 3, 2005 the Company changed its name to Netchoice, Inc. On
December 19, 2005 the Company changed its name to Xstream Mobile Solutions Corp.
On January 1, 2006 the Company began operations in software acquisition,
development and marketing. The Company acquired a related company in October
2006 (see Note 7).
NOTE
2
-
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of
Consolidation
The
condensed consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
2
-
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
Cash and Cash
Equivalents/Investments
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents. There were no cash equivalents as of December 31, 2007 and
September 30, 2007.
The
Company maintains cash and cash equivalent balances at one financial institution
that is insured by the Federal Deposit Insurance Corporation up to
$250,000. At December 31, 2007, the Company had no funds in excess of
the insured limit.
Revenue and Cost
Recognition
Revenue
is recognized under the accrual method of accounting when the services are
rendered and the customer has been billed, rather than when cash is collected
for the services provided. Specifically, the terms of the contracts call for a
fixed set fees based on an hourly rate per individual.
Cost
is recorded on the accrual basis as well, when the services are incurred rather
than paid for.
Start-up
Costs
In
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, “Reporting on
the Costs of Start-up Activities,” the Company expenses all costs
incurred in connection with the start-up and organization of the
Company.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
2
-
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Common Stock Issued for
Other Than Cash
Services
purchased and other transactions settled in the Company’s common stock are
recorded at the estimated fair value of the stock issued if that value is more
readily determinable than the fair value of the consideration
received.
Equipment
The
cost of office and computer equipment is capitalized and depreciated over its
useful life using the straight-line method of depreciation. For all
equipment presently owned the estimated useful life is 60
months. Repairs that substantially extend the useful life of the
assets are capitalized and those that do not are charged to
operations. Depreciation expense for the three months ending December
31, 2007 and 2006 was $276 and $276, respectively.
Income
Taxes
The
income tax benefit is computed on the pretax loss based on the current tax law.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates. The Company has not established a provision due to the losses
sustained.
Earnings (Loss) Per Share of
Common Stock
Historical
net (loss) per common share is computed using the weighted average number of
common shares outstanding. Diluted earnings per share (EPS) include additional
dilution from common stock equivalents, such as stock issuable pursuant to the
exercise of stock options and warrants. Common stock equivalents were not
included in the computation of diluted earnings per share when the Company
reported a loss because to do so would be antidilutive for periods
presented.
The following is a
reconciliation of the computation for basic and diluted
EPS:
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
2
-
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share of
Common Stock (continued)
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(85,046 |
) |
|
$ |
(2,012,322 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (Basic)
|
|
|
4,774,140 |
|
|
|
3,557,189 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
common stock equivalents:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
- |
|
|
|
- |
|
Warrants
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (Diluted)
|
|
|
4,774,140 |
|
|
|
3,557,189 |
|
Options
and warrants outstanding to purchase stock were not included in the computation
of diluted EPS because inclusion would have been antidilutive.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and
140.” SFAS No. 155 resolves issues addressed in SFAS No. 133
Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets,” and permits fair value
re-measurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, establishes a requirement to evaluate
interests in securitized Financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarify that concentrations of
credit risk in the form of subordination are not embedded derivatives and amends
SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS
No. 155 is effective for all financial instruments acquired or issued after
the beginning of the first fiscal year that begins after September 15,
2006.
In
March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140.” SFAS
No. 156 requires an entity to recognize a servicing asset or liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract under a transfer of the servicer’s financial assets that
meets the requirements for sale accounting, a transfer of the servicer’s
financial assets to a qualified special-purpose entity in a guaranteed mortgage
securitization in which the transferor retains all of the resulting securities
and classifies them as either available-for-sale or trading securities in
accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” and an acquisition or assumption of an obligation to
service a financial asset that does not relate to financial assets of the
servicer or its consolidated affiliates.
Additionally,
SFAS No. 156 requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value, permits an entity
to choose either the use of an amortization or fair value method for subsequent
measurements, permits at initial adoption a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights and requires separate presentation of servicing assets and
liabilities subsequently measured at fair value and additional disclosures for
all separately recognized servicing assets and liabilities. SFAS No. 156 is
effective for transactions entered into after the beginning of the first fiscal
year that begins after September 15, 2006.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE 2
- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting
Pronouncements (Continued)
In
September 2006, the FASB issued SFAS No. 157 “Fair Value
Measurements,” which provides a definition of fair value, establishes a
framework for measuring fair value and requires expanded disclosures about fair
value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The provisions of SFAS No. 157
should be applied prospectively.
In
February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective
Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP
No. 157-2 defers the effective date of SFAS No. 157 to fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Examples of items within the scope of FSP
No. 157-2 are nonfinancial assets and nonfinancial liabilities initially
measured at fair value in a business combination (but not measured at fair value
in subsequent periods), and long-lived assets, such as property, plant and
equipment and intangible assets measured at fair value for an impairment
assessment under SFAS No. 144.
The
partial adoption of SFAS No. 157 on January 1, 2008 with respect to
financial assets and financial liabilities recognized or disclosed at fair value
in the financial statements on a recurring basis did not have a material impact
on the Company's financial statements. See Note 12 for the fair value
measurement disclosures for these assets and liabilities. The Company is in the
process of analyzing the potential impact of SFAS No. 157 relating to its
planned January 1, 2009 adoption of the remainder of the
standard.
In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans -- An Amendment of FASB
Statements No. 87, 88, 106, and 132R."This standard requires an employer to: (a)
recognize in its statement of financial position an asset for a plan's
overfunded status or a liability for a plan's underfunded status; (b) measure a
plan's assets and its obligations that determine its funded status as of the end
of the employer's fiscal year (with limited exceptions); and (c) recognize
changes in the funded status of a defined benefit postretirement plan in the
year in which the changes occur. Those changes will be reported in comprehensive
income. The requirement to recognize the funded status of a benefit plan and the
disclosure requirements are effective as of the end of the fiscal year ending
after December 15, 2006. The requirement to measure plan assets and benefit
obligations as of the date of the employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15,
2008.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE 2
- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting
Pronouncements (Continued)
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of SFAS
No. 115 (“SFAS No. 159”), which
provides all entities, including not-for-profit organizations, with an option to
report selected financial assets and liabilities at fair value. The objective of
SFAS No. 159 is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in earnings caused by measuring related
assets and liabilities differently without having to apply the complex
provisions of hedge accounting. Certain specified items are eligible for the
irrevocable fair value measurement option as established by SFAS No. 159.
SFAS No. 159 is effective as of the beginning of the Company’s year
beginning after January 1, 2008.
In
December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51” (“FAS
No. 160”). FAS No. 160 establishes accounting and reporting standards for
the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. FAS No. 160 is effective for the
Company in its fiscal year beginning January 1, 2010. The Company does not
believe this statement will have a material impact on its financial position and
results of operations upon adoption.
In December 2007, the FASB issued FAS No. 141 R
“Business Combinations” (“FAS No. 141R”). FAS No. 141R establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquire. FAS
No. 141R also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS No. 141R is effective for the
Company’s fiscal year beginning January 1, 2010.
NOTE
3
- DEPOSIT
The
deposit represents a potential future acquisition of a company that provides
financial services.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE 4
- FIXED
ASSETS
Fixed
assets consisted of the following:
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
Equipment
|
|
$ |
5,523 |
|
|
$ |
5,523 |
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Depreciation
|
|
|
(1,694 |
) |
|
|
(1,418 |
) |
Fixed
Assets - Net
|
|
$ |
3,829 |
|
|
$ |
4,105 |
|
NOTE
5
- STOCKHOLDERS’
EQUITY
Preferred
Stock
On
December 3, 2004 the Company changed the number of Preferred Stock from one
class of stock consisting of 10,000,000 shares with a par value of $0.01 to
three separate series of preferred stock and changed the par value to
$0.001. They are as follows:
Preferred
Stock Series A
990,000
shares with a par value of $0.001 per share, participating, voting and
convertible with a liquidation value of $1,000.
Preferred
Stock Series B
9,000,000
shares with a par value of $0.001 per share, participating; voting and
convertible with a liquidation value of $3 each.
Preferred
Stock Series C
10,000
shares with a par value of $0.001 per share, with a liquidation value of $10
each.
All
preferred stock series A, B and C are convertible to 4,000 common shares as well
as 4,000 votes for each share held. In addition, in all cases, the
holders of the Preferred Stock C will vote cumulatively at least fifty-one
percent (51%) of all votes cast regardless of the amount of series C shares
issued, at any meeting of shareholders or any major issue put before the Company
for voting of shareholders.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
5
- STOCKHOLDERS’ EQUITY
(CONTINUED)
Common
Stock
On
December 3, 2004, the Company increased the authorized number of shares of
common stock from 30,000,000 shares to 90,000,000 shares and also changed the
par value from $0.01 to $0.001.
On
January 31, 2006, the Company effectuated a reverse split of 1 for 8 shares of
its common stock. The 89,709,000 shares issued became 11,213,625 issued with
10,913,772 shares outstanding.
Subsequently
10,000,000 shares issued for Software licenses were cancelled.
As
of September 30, 2006 there were 90,000,000 shares authorized, 2,018,222 shares
issued and 1,623,370 shares outstanding of the Company’s common stock with a par
value of $0.001.
On
October 9, 2006 the Company issued 600,000 shares for services. The
value was $1,950,000.
On
October 9, 2006 the Company approved 1,517,992 shares of its common stock to
acquire Xstream Mobile Solutions, Inc., an Illinois company. The Company
acquired Xstream Mobile Solutions Inc. from a related party.
The
following is a list of the common stock transactions during the period ended
December 31, 2008:
On
December 19, 2007 the company repurchased 1,250 shares and refunded cash of $
1,250.
As
of December 31, 2007, there were 90,000,000 shares authorized and 4,773,067
shares issued and 4,378,215 shares outstanding of the Company’s common stock
with a par value of $0.001.
NOTE
6- INCOME
TAXES
There
was no income tax benefit recognized at December 31, 2007 and 2006.
The
net deferred tax assets in the accompanying balance sheet include benefit of
utilizing net operating losses of approximately $5,695,813 (at December 31,
2007). However due to the uncertainty of utilizing the net operating losses, an
offsetting valuation allowance has been established.
XSTREAM
MOBILE SOLUTIONS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2007 AND 2006
(UNAUDITED)
NOTE
7-- RELATED PARTY
TRANSACTIONS
On
October 9, 2006 the Company approved 1,517,992 shares of its common stock to
acquire Xstream Mobile Solutions, Inc., an Illinois company. The Company
acquired Xstream Mobile Solutions Inc. from a related party. Under FASB 141
Business Combinations, when accounting for a transfer of assets or exchange of
shares between entities under common control, the entity that receives the net
assets or the equity interests shall initially recognize the assets and
liabilities transferred at their carrying amounts in the accounts of the
transferring entity at the date of transfer
Certain
stockholders provide leased space to the Company for office and computer
operations. The rental expense for the three months ended December
31, 2007 and 2006 is $-0-, and $3,600, respectively.
An
affiliated company of which a stockholder is a principal has contracted with the
Company to provide programming services and technical communications support for
its operations. The total charged to the Company for these services
for three months ended December 31, 2007 and 2006 is $50,754 and $ -0-,
respectively.
NOTE
8- GOING
CONCERN
As
shown in the accompanying condensed consolidated financial statements, the
Company incurred substantial net losses for the three months ended December 31,
2007 and 2006 and for the years ended September 30, 2007 and 2006, respectively.
There is no guarantee whether the Company will be able to generate enough
revenue and/or raise capital to support those operations. This raises
substantial doubt about the Company’s ability to continue as a going
concern. Management believes the Company’s capital requirement will
depend on many factors, including the success of the Company to raise
money. The Company continues to search for acquisition candidates to
fund operations. The condensed consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.