SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended December 31, 2002 Commission File Number: 0-31619 MILLENNIUM QUEST, INC. _______________________________ (Exact name of Registrant as specified in its Charter) DELAWARE 87-043032 _____________________________ _______________ (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 4089 Mount Olympus Way, Salt Lake City, Utah 84124 ______________________________________________________ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number including Area Code: (801) 278-6990 (Not applicable) ___________________ Former name, former address and former fiscal year, if changed since last report. Securities Registered Under Section 12(b) of the Exchange Act: None. Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001 Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, 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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year. $0. State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: The Company's stock has not traded on the over-the-counter market for over ten years. There has been, therefore, no market for the Company's common stock in the over-the-counter market. As of March 24, 2003, the Registrant had outstanding 1,961,643 shares of its common stock, par value $0.001. DOCUMENTS INCORPORATED BY REFERENCE: None. TABLE OF CONTENTS ITEM NUMBER AND CAPTION PART I Page No. Item 1. Description of Business.............................................1 Item 2. Description of Property.............................................8 Item 3. Legal Proceedings...................................................8 Item 4. Submission or Matters to a Vote of Security Holders.................8 PART II Item 5. Market for Common Equity and Related Stockholder Matters............8 Item 6. Management's Discussion and Analysis or Plan of Operation...........9 Item 7. Financial Statements...............................................10 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure...............................................10 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act..................10 Item 10. Executive Compensation.............................................11 Item 11. Security Ownership of Certain Beneficial Owners and Management.....12 Item 12. Certain Relationships and Related Transactions.....................13 Item 13. Exhibits and Reports on Form 8-K...................................13 Item 14. Controls and Procedures............................................13 Signatures..................................................................14 Certifications..............................................................15 The information contained in this Form 10-KSB for the fiscal year ended December 31, 2002, is as of the latest practicable date except for financial information, which relates to the fiscal year. PART I ITEM 1. DESCRIPTION OF BUSINESS General Millennium Quest, Inc. (the "Company"), a Delaware corporation, is a "blank check" company which is attempting to locate a business enterprise which it may acquire, merge or reorganize with, or become engaged in. The Company has been inactive for several years, and to date has not located any specific business enterprise for its involvement, nor has it entered into any arrangement or agreements with respect thereto. History Millennium Quest, Inc. (the "Company") was organized under the laws of the state of Delaware on February 4, 1986, under the name "Teracom, Inc.," for the purpose of seeking a business opportunity which the Company could acquire, merge with, or become engaged in. Immediately following the organization of the Company, it sold a total of 400,000 shares of common stock, as presently constituted, to its officers, directors and other shareholders for a total of $20,000 in cash. In order to provide the Company with additional capital to seek to acquire or enter into a business opportunity, in March, 1987, the Company completed an offering registered by qualification in the State of Utah, and offered pursuant to an exemption from registration under the Securities Act of 1933, as amended, as set forth in Rule 504 of Regulation D, as amended (the "offering"). In the offering, the Company sold a total of 806,750 shares of common stock at a sales price of $.20 per share, as presently constituted, after giving effect to a 1 for 10 reverse split effected by the Company in January, 1989, described below, or an aggregate offering of $161,350. Following the offering, the original officers, directors and shareholders contributed back to the Company a total of 58,750 shares of common stock, to meet certain dilution requirements of the Utah Securities Division, the state in which the offering was conducted. The Company received net proceeds from the offering of approximately $133,000 after offering costs. In December, 1988, the Company entered into a reorganization with Dix Hills Equities Group, Inc. ("Dix Hills"), a closely-held Delaware corporation, which transaction was later rescinded in May, 1994, as described below. Under the terms of the reorganization, the Company acquired all of the issued and outstanding shares of Dix Hills in exchange for the issuance of a total of 4,592,000 shares of restricted common stock, or a controlling interest of approximately 80%, to the Dix Hills shareholders. As a result of this transaction, Dix Hills, a company engaged in the air conditioning and heating business, became a wholly-owned subsidiary of the Company. In connection with the reorganization, the officers and directors of the Company resigned, and the designees of Dix Hills were appointed as the new directors and officers of the Company; the Company effected a 1-for-10 reverse split in its issued and outstanding shares; and the Company changed its name to "Dix Hills Equities Group, Inc." All share figures in this report give effect to the 1-for-10 reverse split described above. In connection with the reorganization, the Company spent several weeks reviewing the business and operating results of Dix Hills Equities Group, Inc. ("Dix Hills"). However, due to limited resources, the Company did not seek the assistance of experts in evaluating or assessing the business and financial condition of Dix Hills, or in verifying the information and representations provided by Dix Hills and its representatives. The reorganization was entered into in reliance upon numerous representations of management of Dix Hills, including representations that (a) that the surviving company would undertake a significant expansion plan, and (b) the surviving company had commitments from third parties to provide substantial additional capital to fund such expansion. Many of these representations were contained in the reorganization agreement. Following the reorganization, former management learned that management of the successor company, despite their representations to the contrary, were unable or unwilling to perform as represented. As a result, no expansion plan was implemented, and new management failed to keep the shareholders apprized of Company activities. This resulted in the lawsuit described below. Management has concluded that a number of measures could have been undertaken to reduce the possibility of similar mistakes in the future, including, a more thorough "due diligence" review of the merger candidate, and, where appropriate, the use of experts to assist in reviewing the proposed merger candidate; continuing participation on the board of directors of the successor company; penalty provisions and other safeguards in the merger or acquisition agreement in the event management failed to perform as represented, and the like. At the time of the transaction, management had relatively little business experience. Since 1988, management has acquired extensive experience in reviewing and evaluating companies, and in structuring transactions, which should reduce the likelihood of similar errors in the future. In October, 1991, a group of interested shareholders, consisting of Coombs & Company, a Washington state partnership, and the present officers and directors, filed a lawsuit in the United States District Court for the District of Utah, against Dix Hills and the new management of the Company (the "Dix Hills Group"), alleging a number of claims against the Dix Hills Group, including federal securities law claims. In September, 1993, the parties to the lawsuit entered into a settlement agreement, under the terms of which the Dix Hills Group agreed to rescind the reorganization agreement, and to return the control and status of the public company back to its pre-acquisition officers and directors. The settlement agreement provided for the payment by the Dix Hills Group to the Company of the sum of $80,000. In connection with the settlement, in May, 1994, the Dix Hills Group returned to the Company, for cancellation, all of the 4,592,000 post-split shares of common stock issued in the reorganization, together with an additional 186,360 shares of common stock owned by former management. As a result of the settlement agreement, the Dix Hills Group resigned as officers and directors of the Company, and present management was appointed. In April, 2000, the Company changed its name to "Millennium Quest, Inc." In February, 1999, the Company issued a total of 1,000,000 shares of restricted common stock, to its officers, directors and two other shareholders, in consideration of the efforts undertaken by these individuals to accomplish the rescission, described above, and to reactivate the business of the Company. Business - General As indicated, the Company is seeking a business enterprise for acquisition, reorganization or merger, or participation by the Company. The Company has not entered into any agreement, nor does it have any commitment or understanding to enter into or become engaged in a transaction as of the date of this filing. The Company will investigate, review, and evaluate business opportunities as they become available and will seek to acquire or become engaged in business opportunities at such time as specific opportunities warrant. It is anticipated that opportunities will be made available to the Company through its officers and directors and through professional advisors including securities broker-dealers and through members of the financial community. 2 To a large extent, a decision to participate in a specific business opportunity may be made upon management's analysis regarding the quality of the other firm's management and personnel, the asset base of such firm or enterprise, the anticipated acceptability of new products or marketing concepts, the merit of the firms business plan, and numerous other factors which are difficult, if not impossible, to analyze through the application of any objective criteria. For the past few years, the Company has had no active business operations. In recent months, the Company has been seeking to acquire an interest in a business with long-term growth potential. The Company currently has no commitment or arrangement to participate in a business and cannot now predict what type of business it may enter into or acquire. It is emphasized that the business objectives discussed herein are extremely general and are not intended to be restrictive on the discretion of the Company's management. There are no plans or arrangements proposed or under consideration for the issuance or sale of additional securities by the Company prior to the identification of an acquisition candidate. Consequently, management anticipates that it may be able to participate in only one potential business venture, due primarily to the Company's limited capital. This lack of diversification should be considered a substantial risk, because it will not permit the Company to offset potential losses from one venture against gains from another. Selection of a Business The Company anticipates that businesses for possible acquisition will be referred by various sources, including its officers and directors, professional advisors, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. The Company will not engage in any general solicitation or advertising for a business opportunity, and will rely on personal contacts of its officers and directors and their affiliates, as well as indirect associations between them and other business and professional people. By relying on "word of mouth," the Company may be limited in the number of potential acquisitions it can identify. While it is not presently anticipated that the Company will engage unaffiliated professional firms specializing in business acquisitions or reorganizations, such firms may be retained if management deems it in the best interest of the Company. Compensation to a finder or business acquisition firm may take various forms, including one-time cash payments, payments based on a percentage of revenues or product sales volume, payments involving issuance of securities (including those of the Company), or any combination of these or other compensation arrangements. Consequently, the Company is currently unable to predict the cost of utilizing such services. Management of the Company will not be paid a finder's fee for locating a business opportunity. The Company will not restrict its search to any particular business, industry, or geographical location, and management reserves the right to evaluate and enter into any type of business in any location. The Company may participate in a newly organized business venture or a more established company entering a new phase of growth or in need of additional capital to overcome existing financial problems. Participation in a new business venture entails greater risks since in many instances management of such a venture will not have proved its ability, the eventual market of such venture's product or services will likely not be established, and the profitability of the venture will be unproved and cannot be predicted accurately. If the Company participates in a more established firm with existing financial problems, it may be subjected to 3 risk because the financial resources of the Company may not be adequate to eliminate or reverse the circumstances leading to such financial problems. In seeking a business venture, the decision of management will not be controlled by an attempt to take advantage of any anticipated or perceived appeal of a specific industry, management group, product, or industry, but will be based on the business objective of seeking long-term capital appreciation in the real value of the Company. The Company will not acquire or merge with a business or corporation in which the Company's officers, directors, or promoters, or their affiliates or associates, have any direct or indirect ownership interest. The analysis of new businesses will be undertaken by or under the supervision of the officers and directors. In analyzing prospective businesses, management will consider, to the extent applicable, the available technical, financial, and managerial resources; working capital and other prospects for the future; the nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development, or exploration; the potential for growth and expansion; the potential for profit; the perceived public recognition or acceptance of products, services, or trade or service marks; name identification; and other relevant factors. The decision to participate in a specific business may be based on management's analysis of the quality of the other firm's management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, and other factors which are difficult, if not impossible, to analyze through any objective criteria. It is anticipated that the results of operations of a specific firm may not necessarily be indicative of the potential for the future because of the requirement to substantially shift marketing approaches, expand significantly, change product emphasis, change or substantially augment management, and other factors. The Company will analyze all available factors and make a determination based on a composite of available facts, without reliance on any single factor. The period within which the Company may participate in a business cannot be predicted and will depend on circumstances beyond the Company's control, including the availability of businesses, the time required for the Company to complete its investigation and analysis of prospective businesses, the time required to prepare appropriate documents and agreements providing for the Company's participation, and other circumstances. Acquisition of a Business In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, or other reorganization with another corporation or entity; joint venture; license; purchase and sale of assets; or purchase and sale of stock, the exact nature of which cannot now be predicted. Notwithstanding the above, the Company does not intend to participate in a business through the purchase of minority stock positions. On the consummation of a transaction, it is likely that the present management and shareholders of the Company will not be in control of the Company. In addition, a majority or all of the Company's directors may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a vote of the Company's shareholders. In connection with the Company's acquisition of a business, the present shareholders of the Company, including officers and directors, may, as a negotiated element of the acquisition, sell a portion or all of the Company's Common Stock held by them at a significant premium over their original investment in the Company. As a result of such sales, affiliates of the entity 4 participating in the business reorganization with the Company would acquire a higher percentage of equity ownership in the Company. Management does not intend to actively negotiate for or otherwise require the purchase of all or any portion of its stock as a condition to or in connection with any proposed merger or acquisition. Although the Company's present shareholders did not acquire their shares of Common Stock with a view towards any subsequent sale in connection with a business reorganization, it is not unusual for affiliates of the entity participating in the reorganization to negotiate to purchase shares held by the present shareholders in order to reduce the amount of shares held by persons no longer affiliated with the Company and thereby reduce the potential adverse impact on the public market in the Company's common stock that could result from substantial sales of such shares after the business reorganization. Public investors will not receive any portion of the premium that may be paid in the foregoing circumstances. Furthermore, the Company's shareholders may not be afforded an opportunity to approve or consent to any particular stock buy-out transaction. In the event sales of shares by present shareholders of the Company, including officers and directors, is a negotiated element of a future acquisition, a conflict of interest may arise because directors will be negotiating for the acquisition on behalf of the Company and for sale of their shares for their own respective accounts. Where a business opportunity is well suited for acquisition by the Company, but affiliates of the business opportunity impose a condition that management sell their shares at a price which is unacceptable to them, management may not sacrifice their financial interest for the Company to complete the transaction. Where the business opportunity is not well suited, but the price offered management for their shares is high, Management will be tempted to effect the acquisition to realize a substantial gain on their shares in the Company. Management does not anticipate obtaining an independent appraisal to determine whether any price that may be offered for their shares is fair. Stockholders must rely, instead, on the obligation of management to fulfill its fiduciary duty under state law to act in the best interests of the Company and its stockholders. However, the Company has adopted a policy for resolving the foregoing adopted a resolution for the purpose of addressing potential conflicts of interest between controlling shareholders and/or management and the other shareholders. Under this policy, management and controlling shareholders are prohibited from entering into any transaction which would be in their interests but be contrary to the best interests of the minority shareholders. While this policy does not prohibit transactions which would result in a personal benefit to management or controlling shareholders, the policy does require management to more carefully evaluate a proposed transaction to determine that the transaction is in the best interest of the Company. The officers and directors of the Company intend to conduct their business in the best interests of all the shareholders. Under Delaware Law, the officers and directors of a corporation have a fiduciary duty to a corporation and the stockholders of the corporation. In general, management of a Delaware corporation are held to two duties as fiduciaries: (a) the duty of remaining loyalty to the interests of the corporation, and (b) the duty of exercising due care. The duty of loyalty is the obligation of an officer or director to give primacy to the interests of the corporation rather than personal concerns - to avoid self-dealing at the corporation's expense. An officer and director can be held personally liable if it is found that he breached this duty by using his corporate position to make a personal profit or for other personal gain. The duty of care is the obligation of an officer and director to exercise reasonable prudence - to investigate and to deliberate adequately - in making business judgments for the corporation or its stockholders. These duties are owed personally by the officers and directors of the Company, and the officers and directors, or each of them, can be personally liable for any damages to the Company resulting from a breach of such fiduciary duties. 5 It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of the transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified times thereafter. Although the terms of such registration rights and the number of securities, if any, which may be registered cannot be predicted, it may be expected that registration of securities by the Company in these circumstances would entail substantial expense to the Company. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company's securities may have a depressive effect on such market. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to structure the acquisition as a so-called "tax-free" event under sections 351 or 368(a) of the Internal Revenue Code of 1986, (the "Code"). In order to obtain tax-free treatment under section 351 of the Code, it would be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company would retain less than 20% of the issued and outstanding shares of the surviving entity. Section 368(a)(1) of the Code provides for tax-free treatment of certain business reorganizations between corporate entities where one corporation is merged with or acquires the securities or assets of another corporation. Generally, the Company will be the acquiring corporation in such a business reorganization, and the tax-free status of the transaction will not depend on the issuance of any specific amount of the Company's voting securities. It is not uncommon, however, that as a negotiated element of a transaction completed in reliance on section 368, the acquiring corporation issue securities in such an amount that the shareholders of the acquired corporation will hold 50% or more of the voting stock of the surviving entity. Consequently, there is a substantial possibility that the shareholders of the Company immediately prior to the transaction would retain less than 50% of the issued and outstanding shares of the surviving entity. Therefore, regardless of the form of the business acquisition, it may be anticipated that stockholders immediately prior to the transaction will experience a significant reduction in their percentage of ownership in the Company. Notwithstanding the fact that the Company is technically the acquiring entity in the foregoing circumstances, generally accepted accounting principles will ordinarily require that such transaction be accounted for as if the Company had been acquired by the other entity owning the business and, therefore, will not permit a write-up in the carrying value of the assets of the other company. The manner in which the Company participates in a business will depend on the nature of the business, the respective needs and desires of the Company and other parties, the management of the business, and the relative negotiating strength of the Company and such other management. The Company will participate in a business only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to such closing, will outline the manner of bearing costs if the transaction is not closed, will set forth remedies on default, and will include miscellaneous other terms. 6 Operation of Business After Acquisition The Company's operation following its acquisition of a business will be dependent on the nature of the business and the interest acquired. The Company is unable to predict whether the Company will be in control of the business or whether present management will be in control of the Company following the acquisition. It may be expected that the business will present various risks, which cannot be predicted at the present time. Governmental Regulation It is impossible to predict the government regulation, if any, to which the Company may be subject until it has acquired an interest in a business. The use of assets and/or conduct of businesses which the Company may acquire could subject it to environmental, public health and safety, land use, trade, or other governmental regulations and state or local taxation. In selecting a business in which to acquire an interest, management will endeavor to ascertain, to the extent of the limited resources of the Company, the effects of such government regulation on the prospective business of the Company. In certain circumstances, however, such as the acquisition of an interest in a new or start-up business activity, it may not be possible to predict with any degree of accuracy the impact of government regulation. The inability to ascertain the effect of government regulation on a prospective business activity will make the acquisition of an interest in such business a higher risk. Competition The Company will be involved in intense competition with other business entities, many of which will have a competitive edge over the Company by virtue of their stronger financial resources and prior experience in business. There is no assurance that the Company will be successful in obtaining suitable investments. Employees The Company is a development stage company and currently has no employees. Executive officers, who are not compensated for their time contributed to the Company, will devote only such time to the affairs of the Company as they deem appropriate, until such time as the Company enters into active negotiations to acquire or reorganize with a business. Management of the Company expects to use consultants, attorneys, and accountants as necessary, and does not anticipate a need to engage any full-time employees so long as it is seeking and evaluating businesses. The need for employees and their availability will be addressed in connection with a decision whether or not to acquire or participate in a specific business industry. The officers have received no cash compensation, but each were issued 350,000 shares of common stock in February, 1999, for services rendered on behalf of the Company. Recent Developments Over the past year, the Company and its management have initiated efforts to locate an attractive enterprise with which the Company may acquire or become engaged in, or with which it may merge, or reorganize. These efforts include, but are not limited to, contacts with various professionals, including professional advisors, securities broker-dealers, lawyers and accountants, and other members of the financial community; and a preliminary review of certain business opportunities, all of which have been declined by the Company. 7 To date, as indicated above, the Company has not entered into any transaction, and does not have any specific commitments or business opportunities under review. The Company is undertaking efforts to have its stock quoted in the "pink sheets," in an attempt to establish a trading market in the common stock. Management believes it has been unsuccessful to date in locating a suitable business enterprise for acquisition, merger or reorganization due to a number of factors, including the absence of a trading market for the Company's securities; the very limited resources of the Company; a perceived decline in "reverse acquisition" transactions in recent years; an increase in regulatory requirements; the costs involved in connection with becoming a publicly-owned company; and general economic and market conditions. Management is hopeful that this situation will change at such time as it obtains a pink sheet listing and market conditions improve; however, there is no assurance that will occur. ITEM 2. DESCRIPTION OF PROPERTY The Company does not own any property. The Company uses offices and related clerical services at 4089 Mount Olympus Way, Salt Lake City, Utah 84124, provided by Terry Cononelos, the Secretary/Treasurer and a Director of the Company, at no charge. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings, and to the best of its knowledge, no such proceedings by or against the Company have been threatened. ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fiscal year covered by this report. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established trading market for the common stock, and there has not been a trading market in the Company's common stock for over ten (10) years. For the past several years, there have been no public transactions in the common stock of the Company, to the best knowledge of the Company. The Company's common stock is not quoted on the OTC Bulletin Board, the "pink sheets," or in any other quotation system. The Company is undertaking efforts to have its common stock quoted on the pink sheets; however, that has not been accomplished to date, and there can be no assurance the Company will be successful in accomplishing this objective. Since its inception, no dividends have been paid on the Company's common stock. The Company intends to retain any earnings for use in its business activities, so it is not expected that any dividends on the common stock will be declared and paid in the foreseeable future. At March 24, 2003, there were approximately 166 holders of record of the Company's Common Stock. 8 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Plan of Operation As of December 31, 2002, the Company had cash of $15,406, liabilities of $2,253, and no other liquid assets or resources. At present, the Company does not have adequate capital to conduct any significant operations. The Company is engaged in the search for potential business opportunities for acquisition or involvement with the Company, which activities are severely limited by the Company's lack of resources. Management believes that any business venture in which the Company becomes involved will be made by issuing shares of the Company's authorized but unissued common stock. It is anticipated that the Company's liquidity, capital resources and financial statements will be significantly different subsequent to the consummation of any such transaction. The Company has very limited liquid assets, and such assets may not be sufficient for the Company to meet its operating needs over the next twelve months, if the Company becomes engaged in a specific business endeavor. Until the Company finds a business to acquire or to become engaged in, the Company anticipates that it has sufficient capital through at least September 30, 2003. This may change, however, if the Company is actively reviewing business opportunities, with attendant travel and other costs, or other unforeseen expenses are incurred. If additional funds should become necessary for operations, the Company may be required to seek funds privately from shareholders and officers and directors. However, there is no legal obligation on the part of the officers, directors, or principal shareholders to advance or supply funds to the Company. Accordingly, the preservation of the corporate entity cannot be assured. In addition, the Company anticipates that if it enters into an acquisition transaction in the next twelve months, the surviving company may need additional capital for operations and expansion efforts. The Company will seek to enter into a business transaction with a company which either has sufficient operating capital for a period of at least one year, or which is capable of raising capital on terms favorable to the successor company. There is no assurance that the Company, or its successor, will be able to raise private capital when needed, or on favorable terms. The Company has no material revenues and its needs for capital will in all likelihood change dramatically if it acquires an interest in a business opportunity in the next twelve months. The Company's current operating plan is to (a) cover the administrative and reporting requirements of a public company; and (b) search for, and investigate, potential businesses, products, technologies and companies for acquisition. At present, the Company has no understandings, commitments or agreements with respect to the acquisition of any business, product, technology or company, and there can be no assurance that the Company will be able to identify any such business, product, technology or entity suitable for an acquisition or reorganization transaction. Moreover, there can be no assurance the Company will be successful in its efforts to enter into consummate an acquisition or reorganization transaction on terms favorable or beneficial to the Company and its shareholders, or that it, or its successor, will be able to effectively manage the business opportunity the Company acquires or becomes engaged in. The Company is dependent upon management and/or its principal shareholders to provide sufficient working capital to preserve the integrity of the corporate entity during this phase, and until the Company is in a position to enter into a business transaction, of which there can be no assurance. It is the intent of management and its principal shareholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, if the Company is in need of additional capital to enter into a business opportunity, the 9 Company may not have sufficient capital, or be able to obtain sufficient capital from management or its principal shareholders for such purpose. Results of Operations The Company had essentially no operations during the fiscal year ended December 31, 2002. The Company has had no revenue from continuing operations and incurred expenses during the year ended December 31, 2002, of $7,568, in accounting, legal and other general and administrative expenses in connection with the Company's continuing efforts to file necessary periodic reports during the fiscal year. For the years ended December 31, 2002 and 2001, the Company has incurred net losses of $7,425 and $8,434, respectively. As indicated, the Company will be dependent on management and its principal shareholders to provide sufficient capital to preserve the integrity of the corporate entity until the Company enters into a business enterprise. ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company appear at the end of this report beginning with the Index to Financial Statements on page 18. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants since the Company's organization. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT DIRECTORS AND OFFICERS The following table sets forth the names, ages, and positions with the Company for each of the directors and officers of the Company. Name Age Positions(1) Since ---- ---- ------------ ----- Dimitri Cocorinis 48 President and Director 1994 Terry Cononelos 49 Secretary/Treasurer and Director 1994 (1) All executive officers are elected by the Board and hold office until the next Annual Meeting of stockholders and until their successors are elected and qualify. 10 The following is information on the business experience of each director and officer. Dimitri Cocorinis, is the President and a director of the Company. Mr. Cocorinis has been a registered investment advisor for Wasatch Advisors, an investment advisory firm, for over ten (10) years. As an employee of Wasatch Advisors, Mr. Cocorinis is a senior trader and a money manager of mutual funds for institutional investors. From approximately 1980 until his current employment at Wasatch Advisors, Mr. Cocorinis was a real estate agent for Sugarhouse Realty, a Salt Lake City based real estate company. Mr. Cocorinis received his bachelor of arts degree from the University of Utah in philosophy. He also has a liberal arts degree from Franklin College in Lugano, Switzerland. Terry Cononelos, is the Secretary and a director of the Company. Mr. Cononelos has been a real estate agent with Chapman Richards, a Salt Lake City real estate firm, for the past eight years. From 1980 until his current position, he was a real estate agent at Sugarhouse Realty. Mr. Cononelos received his bachelor's degree in accounting from the University of Utah in 1977. Mr. Cocorinis and Mr. Cononelos are cousins. OTHER SHELL COMPANY ACTIVITIES Neither of the officers and directors are involved in any other shell corporations, as an officer, director or principal shareholder, and have not had any such involvement for over ten (10) years. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT To the best knowledge of the Company, there are no required reports that have not been filed or have been filed untimely during the most recent fiscal year ended December 31, 2002. ITEM 10. EXECUTIVE COMPENSATION During the past three fiscal years, no officer or director has received any compensation from the Company. The Company has no agreement or understanding, express or implied, with any officer, director, or principal stockholder, or their affiliates or associates, regarding employment with the Company or compensation for services. The Company has no plan, agreement, or understanding, express or implied, with any officer, director, or principal stockholder, or their affiliates or associates, regarding the issuance to such persons of any shares of the Company's authorized and unissued common stock. There is no understanding between the Company and any of its present stockholders regarding the sale of a portion or all of the common stock currently held by them in connection with any future participation by the Company in a business. There are no other plans, understandings, or arrangements whereby any of the Company's officers, directors, or principal stockholders, or any of their affiliates or associates, would receive funds, stock, or other assets in connection with the Company's participation in a business. No advances have been made or contemplated by the Company to any of its officers, directors, or principal stockholders, or any of their affiliates or associates. There is no policy that prevents management from adopting a plan or agreement in the future that would provide for cash or stock based compensation for services rendered to the Company. On acquisition of a business, it is possible that current management will resign and be replaced by persons associated with the business acquired, particularly if the Company 11 participates in a business by effecting a stock exchange, merger, or consolidation as discussed under "BUSINESS." In the event that any member of current management remains after effecting a business acquisition, that member's time commitment and compensation will likely be adjusted based on the nature and location of such business and the services required, which cannot now be foreseen. In February, 1999, the Company granted to its officers and directors, and two other shareholders, a total of 1,000,000 shares of restricted common stock, for services rendered on behalf of the Company over the preceding several years. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.") ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of the date of this report, the number and percentage of the outstanding shares of common stock which, according to the information supplied to the Company, were beneficially owned by (i) each person who is currently a director of the Company, (ii) each executive officer, (iii) all current directors and executive officers of the Company as a group and (iv) each person who, to the knowledge of the Company, is the beneficial owner of more than 5% of the outstanding common stock. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable. Common Percent Name and Address Shares Of Class(1) ---------------- ------------ ---------- Officers and Directors: Dimitri Cocorinis(2) 1346 East Harrison Avenue Salt Lake City, Utah 84105 436,925 22.27 Terry Cononelos(2) 4089 Mount Olympus Way Salt Lake City, Utah 84124 436,925 22.27 All Executive officers and Directors as a Group (2 persons) 873,850 44.55 Greater than 5% Beneficial Owners: Jack Coombs(2) 2581 East 1300 South Salt Lake City, Utah 84108 295,000 15.04 (1) All shares are held of record and beneficially. (2) These individuals were issued a total of 950,000 shares of restricted common stock in February, 1999, in consideration of services rendered to the Company. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"). 12 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In February, 1999, the Company issued a total of 1,000,000 shares of restricted common stock to its two officers and directors, and to two other shareholders for services rendered by these individuals over the preceding several years in effecting a rescission of the transaction with Dix Hills, described under "ITEM 1. BUSINESS," and in undertaking efforts to bring the Company current. These shares were issued as follows: Terry Cononelos and Dimitri Cocorinis (officers and directors) - 350,000 shares each; Jack Coombs - 250,000 shares; and Jeff Helotes - 50,000 shares. At the time of issuance of these shares, and since the date of issuance, there has been no market for the common stock of the Company. These shares were issued in reliance upon the exemption from registration set forth under Section 4(2) of the Securities Act of 1933, as amended, and applicable exemptions in the state of Utah. Except for the transaction described above, there are no proposed transactions and no transactions during the past two years to which the Company was (or is) a party, and in which any officer, director, or principal shareholder, or their affiliates or associates, was also a party. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-B. SEC Ref. No. Description/ Title of Document 3.1* Articles of Incorporation, as amended 3.2* Bylaws * Filed as Exhibit with corresponding number on Form 10-SB dated October 19, 2001. (b) Reports on Form 8-K. During the fiscal year ended December 31, 2002, the Company filed no reports on Form 8-K. ITEM 14. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. Based upon an evaluation under supervision and with the participation of our management, as of a date within 90 days of the filing date of this Annual Report on form 10-KSB, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, are effective to ensure that information required to be disclosed (in reports that we file or submit under that Exchange Act) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Changes in Internal Accounting. There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. However, the design of any system of controls is based in part upon the assumptions about the likelihood of future events, and there is no certainty that any design will succeed in achieving its stated goal under all potential future considerations, regardless of how remote. 13 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MILLENNIUM QUEST, INC. Date: March 24, 2003 /s/ Dimitri Cocorinis ------------------------------------------- By: Dimitri Cocorinis Its: President, Chief Executive Officer and Director Date: March 27, 2003 /s/ Terry Cononelos ------------------------------------------ By: Terry Cononelos Its: Chief Financial Officer, Secretary/Treasurer and Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 24, 2003 /s/ Dimitri Cocorinis ------------------------------------------ By: Dimitri Cocorinis Its: President, Chief Executive Officer and Director Date: March 27, 2003 /s/ Terry Cononelos ------------------------------------------ By: Terry Cononelos Its: Chief Financial Officer, Secretary/Treasurer and Director 14 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dimitri Cocorinis, Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-KSB of Millennium Quest, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c. presented in this annual 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 annual report whether there were significant changes in internal controls or in other factors 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. Date: March 24, 2003 /s/ Dimitri Cocorinis ------------------------------------------ Dimitri Cocorinis, Chief Executive Officer 15 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry Cononelos, Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-KSB of Millennium Quest, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c. presented in this annual 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 annual report whether there were significant changes in internal controls or in other factors 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. Date: March 27, 2003 /s/ Terry Cononelos ----------------------------------------- Terry Cononelos, Chief Financial Officer 16 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Millennium Quest, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Dimitri Cocorinis and Terry Cononelos, Chief Executive Officer and Chief Financial Officer of the Company, respectively, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 24, 2003 /s/ Dimitri Cocorinis ------------------------------------------- Dimitri Cocorinis, Chief Executive Officer Date: March 27, 2003 /s/ Terry Cononelos ------------------------------------------- Terry Cononelos, Chief Financial Officer 17 MILLENNIUM QUEST, INC. [A Development Stage Company] CONTENTS PAGE - Independent Auditors' Report 19 - Balance Sheet, December 31, 2002 20 - Statements of Operations, for the years ended December 31, 2002 and 2001 and for the period from the re-entering of development stage on May 4, 1994 through December 31, 2002 21 - Statement of Stockholders' Equity, from the re-entering of development stage on May 4, 1994 through December 31, 2002 22-23 - Statements of Cash Flows, for the years ended December 31, 2002 and 2001 and for the period from the re-entering of development stage on May 4, 1994 through December 31, 2002 24 - Notes to Financial Statements 25-27 18 INDEPENDENT AUDITORS' REPORT Board of Directors MILLENNIUM QUEST, INC. Salt Lake City, Utah We have audited the accompanying balance sheet of Millennium Quest, Inc. [a development stage company] at December 31, 2002, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2002 and 2001 and for the period from the re-entering of development stage on May 4, 1994 through December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements audited by us present fairly, in all material respects, the financial position of Millennium Quest, Inc. [a development stage company] as of December 31, 2002, and the results of its operations and its cash flows for the years ended December 31, 2002 and 2001 and for the period from the re-entering of development stage on May 4, 1994 through December 31, 2002, in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has incurred losses since its inception and has no on-going operations. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /S/ Pritchett, Siler & Hardy PC PRITCHETT, SILER & HARDY, P.C. February 20, 2003 Salt Lake City, Utah 19 MILLENNIUM QUEST, INC. [A Development Stage Company] BALANCE SHEET ASSETS December 31, 2002 ------------- CURRENT ASSETS: Cash $ 15,406 ------------- Total Current Assets 15,406 ------------- $ 15,406 ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,253 ------------- Total Current Liabilities 2,253 ------------- STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued and outstanding - Common stock, $.001 par value, 20,000,000 shares authorized, 1,961,643 shares issued and outstanding 1,962 Capital in excess of par value 161,088 Retained earnings (deficit) (106,991) Deficit accumulated during the development stage (42,906) ------------- Total Stockholders' Equity 13,153 ------------- $ 15,406 ============= The accompanying notes are an integral part of this financial statement. 20 MILLENNIUM QUEST, INC. [A Development Stage Company] STATEMENTS OF OPERATIONS From the re-entering of For the Development Year Ended Stage on May 4, December 31, 1994 Through --------------------------- December 31, 2002 2001 2002 ------------- ------------- ------------- REVENUE $ - $ - $ - ------------- ------------- ------------- OPERATING EXPENSES: General and administrative 7,568 9,078 51,830 ------------- ------------- ------------- LOSS FROM OPERATIONS (7,568) (9,078) (51,830) ------------- ------------- ------------- OTHER INCOME: Interest and other income 143 644 8,924 ------------- ------------- ------------- Total Other Income 143 644 8,924 ------------- ------------- ------------- LOSS BEFORE INCOME TAXES (7,425) (8,434) (42,906) CURRENT TAX EXPENSE - - - DEFERRED TAX EXPENSE - - - ------------- ------------- ------------- NET LOSS $ (7,425) $ (8,434) $ (42,906) ------------- ------------- ------------- LOSS PER COMMON SHARE $ (.00) $ (.00) $ (.03) ------------- ------------- ------------- The accompanying notes are an integral part of these financial statements. 22 MILLENNIUM QUEST, INC. [A Development Stage Company] STATEMENT OF STOCKHOLDERS' EQUITY FROM THE RE-ENTERING OF DEVELOPMENT STAGE ON MAY 4, 1994 THROUGH DECEMBER 31, 2002 Deficit Accumulated Preferred Stock Common Stock Capital in Retained During the --------------------- ------------------------ Excess of Earnings Development Total Shares Amount Shares Amount Par Value (Deficit) Stage Equity ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, May 4, 1994 - $ - 5,740,000 $ 5,740 $ 147,310 $(106,991) $ - $ 46,059 Cancellation of shares for rescission of previous acquisition agreement, at $.001 per share, May 1994 - - (4,778,360) (4,778) 4,778 - - - Other adjustments, rounding - - 3 - - - - - Net loss for the year ended December 31, 1994 - - - - - - (1,120) (1,120) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1994 - - 961,643 962 152,088 (106,991) (1,120) 44,939 Net loss for the year ended December 31, 1995 - - - - - - (5,040) (5,040) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1995 - - 961,643 962 152,088 (106,991) (6,160) 39,899 Net income for the year ended December 31, 1996 - - - - - - 991 991 ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1996 - - 961,643 962 152,088 (106,991) (5,169) 40,890 Net loss for the year ended December 31, 1997 - - - - - - (976) (976) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1997 - - 961,643 962 152,088 (106,991) (6,145) 39,914 Net loss for the year ended December 31, 1998 - - - - - - (761) (761) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1998 - - 961,643 962 152,088 (106,991) (6,906) 39,153 Shares issued for services rendered at $.01 per share, February 1999 - - 1,000,000 1,000 9,000 - - 10,000 Net loss for the year ended December 31, 1999 - - - - - - (15,932) (15,932) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 1999 - - 1,961,643 1,962 161,088 (106,991) (22,838) 33,221 Net loss for the year ended December 31, 2000 - - - - - - (4,209) (4,209) [CONTINUED] 22 MILLENNIUM QUEST, INC. [A Development Stage Company] STATEMENT OF STOCKHOLDERS' EQUITY FROM THE RE-ENTERING OF DEVELOPMENT STAGE ON MAY 4, 1994 THROUGH DECEMBER 31, 2002 [CONTINUED] Deficit Accumulated Preferred Stock Common Stock Capital in Retained During the --------------------- ------------------------ Excess of Earnings Development Total Shares Amount Shares Amount Par Value (Deficit) Stage Equity ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 2000 - - 1,961,643 1,962 161,088 (106,991) (27,047) 29,012 Net loss for the year ended December 31, 2001 - - - - - - (8,434) (8,434) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 2001 - - 1,961,643 1,962 161,088 (106,991) (35,481) 20,578 Net loss for the year ended December 31, 2002 - - - - - - (7,425) (7,425) ---------- ---------- ------------- ---------- ---------- ---------- ----------- ---------- BALANCE, December 31, 2002 - $ - 1,961,643 $ 1,962 $ 161,088 $(106,991) $ (42,906) $ 13,153 ========== ========== ============= ========== ========== ========== =========== ========== The accompanying notes are an integral part of this financial statement. 23 MILLENNIUM QUEST, INC. [A Development Stage Company] STATEMENTS OF CASH FLOWS From the re-entering of For the Development Year Ended Stage on May 4, December 31, 1994 Through --------------------------- December 31, 2002 2001 2002 ------------- ------------- ------------- Cash Flows from Operating Activities: Net Income (loss) $ (7,425) $ (8,434) $ (42,906) Adjustments to reconcile net loss to net cash used by operating activities: Non-cash expenses - - 10,000 Changes in assets and liabilities: Increase (decrease) in accounts payable (7,524) 5,911 2,253 ------------- ------------- ------------- Net Cash (Used) by Operating Activities (14,949) (2,523) (30,653) ------------- ------------- ------------- Cash Flows from Investing Activities - - - ------------- ------------- ------------- Net Cash (Used) by Investing Activities - - - ------------- ------------- ------------- Cash Flows from Financing Activities - - - ------------- ------------- ------------- Net Cash (Used) by Financing Activities - - - ------------- ------------- ------------- Net Increase (decrease) in cash (14,949) (2,523) (30,653) Cash at Beginning of Period 30,355 32,878 46,059 ------------- ------------- ------------- Cash at End of Period $ 15,406 $ 30,355 $ 15,406 ============= ============= ============= Supplemental Disclosures of Cash Flow information: Cash paid during the period for: Interest $ - $ - $ - Income taxes $ - $ - $ - Supplemental schedule of Noncash Investing and Financing Activities: From the re-entering of development stage on May 4, 1994 through December 31, 2002: None The accompanying notes are an integral part of these financial statements. 24 MILLENNIUM QUEST, INC. [A Development Stage Company] NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Millennium Quest, Inc. ("the Company") was organized under the laws of the State of Delaware on February 4, 1986 as Teracom, Inc. The name was subsequently changed to Dix Hills Equities Group, Inc. in connection with an acquisition of a subsidiary in December 1988. As a result of a class action lawsuit and settlement agreement a rescission of the acquisition was completed during 1994. During April 2000, the name of the Company was changed to Millennium Quest, Inc. The Company currently has no on-going operations but is seeking potential business opportunities. As a result of the rescission agreement the Company is considered to have re-entered into the development stage on May 4, 1994 and is currently considered a development stage company as defined in Statement of Financial Accounting Standards No. 7. Cash and Cash Equivalents - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" which requires an asset/liability approach for the effect of income taxes [See Note 4]. Loss Per Share - The computation of loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" [See Note 6]. Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Recently Enacted Accounting Standards - Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", SFAS No. 142, "Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for Asset Retirement Obligations", SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", SFAS No. 147, "Acquisitions of Certain Financial Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9", and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123", were recently issued. SFAS No. 141, 142, 143, 144, 145, 146, 147 and 148 have no current applicability to the Company or their effect on the financial statements would not have been significant. 25 MILLENNIUM QUEST, INC. [A Development Stage Company] NOTES TO FINANCIAL STATEMENTS NOTE 2 - CAPITAL STOCK Reduction of Authorized Shares - During March 2000, the Company amended its Certificate of Incorporation to reduce its number of authorized common shares by 180,000,000 shares and its authorized preferred shares by 5,000,000. After the amendment there were 20,000,000 common and 5,000,000 preferred shares authorized. Preferred Stock - The Company has 5,000,000 shares of preferred stock authorized, $.001 par value with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors. No shares are issued and outstanding at December 31, 2002. Common Stock - On May 4, 1994, shareholders returned 4,778,360 shares of common stock for cancellation due to the rescission of the acquisition that had occurred in 1988. This resulted in a change in control of the Company and resulted in the Company entering into a new development stage. On February 26, 1999, the Company issued 1,000,000 shares of its previously authorized, but unissued common stock for services rendered valued at $10,000 (or $.01 per share). NOTE 3 - RELATED PARTY TRANSACTIONS Management Compensation - During the years ended December 31, 2002 and 2001 the Company did not pay any compensation to its officers or directors. Office Space - The Company has not had a need to rent office space. An officer/shareholder of the Company is allowing the Company to use his home as a mailing address, as needed, at no expense to the Company. NOTE 4 - INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS No. 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. At December 31, 2002 the Company has available unused operating loss carryforwards of approximately $129,000, which may be applied against future taxable income and which expire in various years through 2022. 26 MILLENNIUM QUEST, INC. [A Development Stage Company] NOTES TO FINANCIAL STATEMENTS NOTE 4 - INCOME TAXES [Continued] The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized in the financial statements for the loss carryforwards. The net deferred tax assets are approximately $19,400 and $18,300 as of December 31, 2002 and 2001, respectively, with an offsetting valuation allowance of the same amount, resulting in a change in the valuation allowance of approximately $1,100 during the year ended December 31, 2002. NOTE 5 - GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America which contemplate continuation of the Company as a going concern. However, the Company has incurred losses since its inception and has no on-going operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise additional funds through loans, or through additional sales of its common stock or through the acquisition of other companies. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. These financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 6 - LOSS PER SHARE The following data show the amounts used in computing loss per share for the periods presented: From the re-entering of For the Development Year Ended Stage on May 4, December 31, 1994 Through --------------------------- December 31, 2002 2001 2002 ------------- ------------- ------------- Loss from continuing operations available to common shareholders (numerator) $ (7,425) $ (8,434) $ (42,906) ------------- ------------- ------------- Weighted average number of common shares outstanding used in loss per share for the period (denominator) 1,961,643 1,961,643 1,406,158 ------------- ------------- ------------- Dilutive loss per share was not presented, as the Company had no common stock equivalent shares for all periods presented that would affect the computation of diluted loss per share. 27