10QSB/A 1 xml10qa.htm United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended September 30, 2002

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 0-23391

XML-GLOBAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Colorado	84-1434313
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1818 Cornwall Avenue - Suite 9
Vancouver, BC, Canada V6J 1C7
(Address of principal executive offices, including zip code)

Registrant's Telephone No., including area code: (800) 201-1848

_______________________________

Indicate by check mark 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 preceding 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

As of October 25, 2002, there were 38,339,680 shares of the issuer's Common Stock outstanding.

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial statements
	Unaudited Consolidated Balance Sheets - September 30, 2002 and June 30, 2002
	Unaudited Consolidated Statements of Operations - Three Months Ended September 30, 2002 and 2001
	Unaudited Consolidated Statements of Cash Flows - Three Months Ended September 30, 2002 and 2001
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Pending Legal Proceedings
Item 2.	Changes in Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits and Reports Filed on Form 8-K

PART I. FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

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XML-Global Technologies, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
At September 30, 2002 and June 30, 2002

		September 30, 2002			June 30, 2002
Assets
Current Assets
	Cash	$	586,181		$	369,617
	Trade accounts receivable	210,410			203,944
	Other receivable	24,299			21,617
	Prepaid expenses	214,363			303,486
	Deferred issue costs	12,675			4,004
		1,047,928			902,668
Property and Equipment, net		170,072			210,089
Intangible Assets
Intellectual property rights, net			457,388			513,758
Trademarks and patents, net		121,795			123,549
Total Assets		$ 1,797,183			$ 1,750,064
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities		$	408,543		$	298,612
Foreign income taxes payable		121,627			193,653
Unearned revenue		469,406			527,257
Total Liabilities		999,576			1,019,522
Deferred Income Taxes		2,250			-
		1,001,826			1,019,522
Stockholders' Equity
	Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding at September 30, 2002 and June 30, 2002			-	-
	Common stock, $.0001 par value, 500,000,000 shares authorized, 36,700,336 and 31,631,336 shares issued and outstanding at September 30, 2002 and June 30, 2002 respectively			3,670	3,163
	Convertible stock	100,000			100,000
	Additional paid-in capital	13,576,198			12,653,253
	Accumulated other comprehensive loss	(23,603)			(27,969)
	Accumulated deficit	(12,860,908)			(11,997,905)
Total Stockholders' Equity		795,357			730,542
Total Liabilities and Stockholders' Equity		$ 1,797,183			$ 1,750,064
See accompanying notes

XML-Global Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statement of Operations
For the Three Months Ended September 30, 2002 and 2001

		Three Months Ended September 30, 2002		Three Months Ended September 30, 2001
Revenue		$	318,766	$ 168,286
Cost of revenue		47,754		96,289
Gross profit		271,012		71,997
	Research and development	292,266		508,146
	Marketing and selling	283,553		354,856
	General and administrative	422,017		331,749
	Compensation expense for re-pricing of options to consultants	-		19,000
	Depreciation and amortization	106,408		137,817
	Total operating expenses	1,104,244		1,351,568
Operating loss		(833,232)		(1,279,571)
Other income (expense)
Interest income		120		25,930
Loss on disposal of fixed assets		-		(195)
Net loss before provision for income taxes		(833,112)		(1,253,836)
Provision for income taxes		29,892		39,383
Net loss		(863,004)		(1,293,219)
Accumulated deficit, beginning of period		(11,997,904)		(6,424,658)
Accumulated deficit, end of period		$ (12,860,908)		$ (7,717,877)
Net loss per share - basic and diluted		$ (0.03)		$ (0.05)
Weighted average number of shares		33,756,553		27,565,000

XML-Global Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statement of Cash Flow
For the Three Months Ended September 30, 2002 and 2001

			Three Months Ended September 30, 2002		Three Months Ended September 30, 2001
Cash flows from operating activities
Net loss			$(863,004)		$(1,293,219)
Adjustments to reconcile net loss to net cash used in operating activities
	Depreciation and amortization		106,408		137,817
	Compensation expense for re-pricing of options to consultants		-		19,000
	Loss on disposal of fixed assets		-		195
	Changes in assets and liabilities
		Accounts receivable	(6,466)		18,422
		Other receivable	(2,682)		4,886
		Prepaid expenses	89,123		48,203
		Accounts payable and accrued liabilities	109,929		12,227
		Foreign income taxes payable	(72,026)		(119,142)
		Unearned revenue	(57,851)		(3,327)
		Deferred income taxes	2,250		-
Net cash used in operating activities			(694,319)		(1,174,938)
Cash flows from investing activities
	Proceeds from sale of investments		-		10,000
	Purchases of property and equipment (net of disposals)		486		(15,738)
	Acquisition of trademarks and patents		(80)		(6,861)
	Acquisition of intellectual property		(8,672)		-
Net cash used in investing activities			(8,266)		(12,599
Cash flows from financing activities
Deferred issue costs			(8,671)				-
Issuance of capital stock net of issue costs			923,452				-
Net cash from financing activities			914,781				-
Effect of changes in exchange rates			4,368				1,615
Increase (decrease) in cash			216,564		(1,185,922)
Cash, beginning of period			369,617			2,574,605
Cash, end of period			$ 586,181			$ 1,388,683

Supplemental disclosure of cash information
Interest paid			$ -	$ -
Income taxes paid			$ 94,590			$ 155,200

See accompanying notes.

XML-Global technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financing Statements
September 30, 2002 and 2001
(Unaudited)

Note 1 - Organization

Organization

The Company, which is a Colorado corporation, has two active subsidiaries, XML-Technologies, Inc. (a Nevada corporation) and XML-Global Research Inc. (a British Columbia, Canada corporation). The Company conducts most of its business activities through these corporations.

Going Concern

The Company has incurred significant losses since inception. Accordingly, the Company's ability to fulfill its business strategy and to ultimately achieve profitable operations is dependent on its capacity to execute its business plan and, if necessary, obtain additional financing or explore merger opportunities.

In an effort to generate revenues sufficient to fund future operations, the Company is not only actively marketing various software applications and consulting services, but is also developing new products and forming strategic business alliances. The Company's success is, however, dependent on the extent to which XML-based technologies are adopted by the business community, and there is no assurance that the Company will realize increased revenues.

In order to make best use of the Company's remaining resources, management has focused on product development in two primary areas, business-to-business information exchanges and intra-enterprise application-to-application integration software. The Company believes that the best business opportunities lie in areas related to data transformation, registry and messaging. As a result, the Company has transferred control of the subsidiary that owns the GoXML DB intellectual property to a third party and accordingly no longer incurs associated development costs. Effective June 30, 2002 the Company stopped providing government consulting services.

The Company has reduced its staff to match its available resources to immediate needs. In April 2002, certain employees and officers agreed to defer compensation or take stock in lieu of cash compensation. The salary deferral, which was in effect from April 2002 through August 2002, amounts to $71,600 and has been recorded as an accrued liability in the financial statements as of September 30, 2002. The Company is continually evaluating its operating plan in light of prevailing market conditions, sales forecasts and personnel needs and will make those changes to its operations that are necessary to extend the life of its cash resources. To date the Company has postponed planned hires, not replaced certain staff that have left, canceled or not implemented advertising and promotional campaigns, and generally limited discretionary expenses. Where practical, the Company will continue to limit its expenditures but believes that its scale of operations for the next three to six months will be substantially similar to that in effect at September 30, 2002. It is the Company's intention to improve its liquidity by focusing on increased sales rather than by reducing expenses.

Since operating cash flows have not met all the Company's cash requirements, management is actively pursuing additional financing to fund future operations. Success in raising additional financing is dependent on the Company's ability to demonstrate that it can fulfill its business strategy to sell XML-based e-commerce solutions. The Company has begun to demonstrate the viability of the XML technology and the success of it business strategy through the signing of a long-term contract with a major reseller of software products. In August 2002, the Company entered an agreement with Paradigm Millennium Fund, LP whereby the Company will issue stock and stock purchase warrants for net proceeds after offering costs of about $1,800,000. The Company received $915,000 in August 2002 and a further $300,000 in October 2002. Paradigm Millennium Fund, LP is in default under its agreement but has indicated that it will provide the remainder of the funds by October 31, 2002. In August, 2002, the Company entered into a letter of intent to sell its Xtract technology and customer relationships to SysCon Justice Systems Ltd. for C$500,000 (approximately $320,000 in US dollars at current exchange rates) over five years. Management believes that, if received, the additional funds will allow the Company to operate at its current level at least through June 2003.

The financial statements are prepared on a going concern basis. No adjustments or presentation modifications have been made for potential effects on financial position or results of operations, should the Company not be able to continue as a going concern.

Note 2 - New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill, as well as intangible assets deemed to have indefinite lives, will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Currently, the Company has no intangible assets that are categorized as having indefinite lives and does not anticipate any changes in the estimated useful lives of its intangibles. Consequently, there was no material financial statement impact upon the adoption of SFAS No. 142.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. As used in SFAS No. 143, a legal obligation is an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. The Company had no transactions during the quarter ended September 30, 2002 that would fall under the guidance of SFAS No. 143.

In October 2001, the FASB issued Statement of Financial Accounting Standards No.144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 establishes a single accounting model, based on the framework established in Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, for long-lived assets to be disposed of by sale, and resolves significant implementation issues related to SFAS No. 121. The Company had no transactions during the quarter ended September 30, 2002 that would fall under the guidance of SFAS No. 144.

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds or amends various standards on accounting for debt extinguishments, intangible assets of motor carriers, and certain lease transactions. Additional technical corrections were made to various APB Opinions and FASB Statements. The Company had no transactions during the quarter ended September 30, 2002 that would fall under the guidance of SFAS No. 145.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The new standard is effective for exit or disposal activities initiated after December 31, 2002; as such, the Company will apply the new rules beginning in the third quarter of fiscal 2003. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Exit or disposal costs that do not involve a discontinued operation shall be included in income from continuing operations, while such costs that do involve a discontinued operation shall be included in results from discontinued operations. The Company is currently assessing the impact of SFAS No. 146 on its operating results and financial condition.

Note 3 - Basis of Presentation

These condensed consolidated financial statements are unaudited and reflect all adjustments that, in our opinion, are necessary for a fair presentation of the results for the interim period. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period.

These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended June 30, 2002 and notes thereto included in our 10-KSB/A as filed with the Securities and Exchange Commission on October 4, 2002.

Note 4 - Revenue Recognition

The Company recognizes revenue when earned, in accordance with American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition, SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions and SEC Staff Accounting Bulletin 101, Interpretive Guidance on Revenue Recognition." Royalties based upon licensees' revenues or usage are recognized as licensees' revenues are earned or usage occurs. Maintenance and subscription revenue is recognized ratably over the contract period. Revenue attributable to significant undelivered elements is recognized over the contract period as elements are delivered. Revenues from fixed-price service contracts and software development contracts requiring significant production, modification, or customization are recognized using the percentage-of-completion method. Revenue from service contracts that are based on time incurred is recognized as work is performed.

The Company entered into a software-licensing agreement under which the customer receives the exclusive right to include XML's technology in their suite of products. The term of the contract was for three years under which the Company received an up-front payment of $500,000. Annual royalty payments are based upon a percentage of sales for the customer's products for which XML's technology is embedded, however the Company will receive minimum royalty payments of $250,000 per year over the three-year period. Revenue from this contract, including the initial payment of $500,000, will be recorded ratably over the three-year period. Should the royalty payments based upon sales exceed the minimum payments on an annual basis, the Company will record those amounts as earned. The ratable amount of revenues recognized under this contract since inception of the contract through September 30, 2002 was $62,500 while actual revenues earned in the period have not yet been determined. The Company does not believe that it is currently probable that payments under the license agreement will exceed $250,000 for the contract year and accordingly recognized the rateable value of $62,500. The unearned portion of the $500,000 initial payment is included in unearned revenues on the consolidated balance sheet.

Note 5 - Major Customers

During the three months ended September 30, 2002 two customers accounted for 62% of total revenues. During the three months ended September 30, 2001, one customer accounted for 100% of revenues.

Note 6 - Income Taxes

Although the Company has incurred losses to date, it has been subject to income taxes. Taxes are payable by the Company's Canadian subsidiary on its operating profits, which cannot be offset against losses incurred by the Company.

Note 7 - 1999 Equity Incentive Plan

On October 19, 1999, the Company adopted the 1999 Equity incentive plan (the "1999 Plan") to provide incentives to employees, directors and consultants. Under the 1999 Plan, the Company has reserved a total of 6,000,000 shares of Common Stock for issuance with the maximum term of options being ten years. The Board of Directors has the exclusive power over the granting of options and their vesting provisions. All options granted to date have a seven-year term.

	2002		2001
		Weighted		Weighted
		Average		Average
	Number of	Exercise	Number of	Exercise
	Options	Price	Options	Price
Options outstanding at June 30	4,045,300	$ 0.31	3,173,000	$ 1.04
Granted	148,460	$ 0.18	154,500	$ 0.33
Exercised	-	-	-	-
Forfeited	(242,300)	0.36	(15,000)	0..35
Options outstanding at September 30	3,951,460	$ 0.30	3,312,500	$ 0.36
Options exercisable at September 30	2,570,760	$ 0.36	2,366,200	$ 0.36

The Company has committed to issuing a further 530,000 shares of common stock under the 1999 Plan.

During the quarter ended September 30, 2001, the Company's Board of Directors approved a reduction in the exercise price of previously granted options. The exercise price of 25,000 options was reduced from $3.00 to $1.50, the exercise price of 25,000 options was reduced from $2.00 to $0.70 and the exercise price of 3,244,000 options was reduced from between $1.00 and $0.37 to $0.35.

The reduction in the exercise price of these options had two effects on the Company's results of operations:

In the period ended September 30, 2001, the Company recognized a one-time expense of $19,000 relating to the increase in the fair value of options granted to contractors and non-elected advisory board members for which an expense was recognized in prior periods.

Option awards to employees and directors, for which no expense was previously recognized, are subject to variable accounting from the date of the modification. As a result, the excess of the Company's stock price over the option exercise price, as determined from time to time, is expensed over the then remaining life of the options. Since the Company's stock price at September 30, 2001 and 2002 was less than the exercise price of the options, no expense adjustment was required.

Note 8 - Lease Commitment

The Company leases its Vancouver, British Columbia operating facility under lease agreements that run through June 30, 2005. The Company also leases office space in New York City under an agreement expiring December 31, 2002. The Company was required to deposit $198,000 into an interest-bearing trust account from which the monthly lease payments for the New York offices are drawn; $76,000 of this amount remained in trust at September 30, 2002. The lease agreements for both locations require that the Company pay its proportional share of operating costs and property taxes.

Future minimum lease payments required under the leases, excluding the Company's share of operating costs and property taxes, are as follows:

	Period Ending June 30,
	2003		$ 76,500
	2004		70,200
	2005		64,400
			$ 211,100

The effect of scheduled rent increases and "rent holidays" included in the Company's leases are recognized on a straight-line basis over the term of the leases. During the three months ended September 2002 and 2001, rent expense was $56,780 and $56,600, respectively.

Note 9 - Stockholders' Equity

During the quarter ended September 30, 2002, the Company entered into the equity transactions described below. All issuances are exempt from registration in reliance on Rule 506 of Regulation D or Section 4(2) of the Securities Act of 1933.

	1.	On August 23, 2002, the Company issued 5,000,000 shares of common stock to Paradigm Millennium Fund, LP.
	2.	On July 12, 2002, the Company issued 69,000 shares of common stock to Huntleigh Securities Corporation.

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ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSYS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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From our formation until late 2001, we focused our efforts on technology development and commercialization. In the last year we have increasingly devoted our efforts to addressing those market segments that offer the greatest opportunities, namely the rapid implementation of data integration both in business-to-business and intra-enterprise application-to-application environments. Substantially all of our revenues are now derived from the sale of software and related services to those market segments. We no longer provide consulting services to government and have stopped funding the development of products such as GoXML DB that are not central to our main business focus. As a result of these changes, our development costs have decreased in the last year and our revenues and gross margins have improved. In the quarter ended September 30, 2002, we expanded our sales team by hiring individuals in California and the United Kingdom, and we entered into new partnerships, all with a view to increasing sales.

RESULTS OF OPERATIONS

REVENUE. Revenue consists of fees received from the sale of e-business and data integration solutions and XML-related consulting services. Revenue was $318,800 for the three months ended September 30, 2002, compared to $168,300 for the three months ended September 30, 2001. In the current period all revenues are from the sale of our products and related services. In the prior year, all revenues were derived from government consulting. Effective June 30, 2002, we closed our consulting group, which was largely focused on providing software architecture services to government.

COST OF REVENUE. Cost of revenue includes salaries to employees and contractor fees that are directly attributable to services provided in the period, and license fees for software products that we license from third parties. For the three months ended September 30, 2002 and 2001 these costs were $47,800 and $96,300 respectively. Cost of revenue in the current period relates to license fees and the cost of installation and customization services relating to the sale of our software. In the prior period the cost of revenue related solely to the cost of consulting services. The proportionate decline in the cost of revenue in the current fiscal year, relative to revenues, reflects the greater proportion of software and on-line service revenues in the current period. Our own software products and on-line service have only a nominal cost of revenue.

RESEARCH AND DEVELOPMENT EXPENSES. Product and content development costs include expenses we incur to develop our technology. These costs consist primarily of salaries and fees paid to employees and consultants to develop and maintain software. Research and development expenses were $292,300 for the three months ended September 30, 2002, compared to $508,100 for the three months ended September 30, 2001. The decreased expenditures over the previous year reflect decreased staffing levels following completion of the main development cycle. We expect that future development efforts will be of a more incremental nature as we refine our product offerings to address market requirements.

MARKETING AND SELLING EXPENSES. Marketing, selling and client services costs include expenses we incur to obtain and maintain client relationships and manage product development. These costs include fees paid to contractors and consultants, related travel and incidental costs and advertising and promotion costs. For the three months ended September 30, 2002 and 2001, sales and marketing expenses were $283,600 and $290,000 respectively.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of salaries, contractor fees, and related costs for general corporate functions, including travel, rent, accounting and legal expenses. For the three months ended September 30, 2002, general and administrative expenses were $422,000, up from $331,700 in the three months ended September 30, 2001. The increase reflects increased investor relations and legal and accounting costs.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense reflects depreciation of computer hardware, software, equipment, leasehold improvements and amortization of intellectual property and completed patents over estimated useful lives of between two and five years. Depreciation and amortization expense was $106,400 and $137,800 respectively for the quarters ended September 30, 2002 and 2001. The decrease is due to a lower investment in intellectual property, which in turn is due to the write-off of our investment in GoXML ™ DB in June 2002.

INTEREST INCOME. During the three months ended September 30, 2002 and 2001, the Company earned interest income of $100 and $25,900 respectively. Changes in interest income generally reflect the balance of funds on hand which has varied depending on fundraising initiatives and spending patterns. Interest income has been earned on funds received from private equity placements, which have exceeded operating expenditures to date. The decrease reflects both a lower cash balance and lower interest rates on investments.

PROVISION FOR INCOME TAXES. Although the Company incurred a consolidated loss during the three months ended September 30, 2002 and 2001, it recorded $29,900 and $39,400 respectively of income tax expense relating to certain income attributable to taxing jurisdictions in Canada. Increases in deferred tax assets resulting from the foreign tax credits generated by these taxes have been offset completely by similar increases in the valuation allowance applied to the Company's net income tax expense or benefit.

LIQUIDITY AND CAPITAL RESOURCES

Our independent auditor's report states that our consolidated financial statements for the year ending June 30, 2002 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to our financial statements, we have incurred losses since inception and have an accumulated deficit. These conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

To date, we have experienced negative cash flows from operating activities. For the quarter ended September 30, 2002, net cash used in operating activities was $694,300 and was primarily attributable to our net loss of $863,000. The net loss for the year was partially offset by non-cash depreciation and amortization of $106,400 and a net cash inflow of $62,300 with respect to working capital changes. In the quarter ended September 30, 2001, net cash used in operating activities was $1,174,900.

For the quarter ended September 30, 2002, net cash used in investing activities was $8,300, which was primarily spent on the purchase of intellectual property. In the quarter ended September 30, 2001, net cash used in investing activities was $12,600.

For the quarter ended September 30, 2002, financing activities generated $914,800 of cash. We raised $923,500 from the private placement of equity securities and incurred $8,700 in deferred issue costs. In the quarter ended September 30, 2001, we did not undertake any financing activities. As of September 30, 2002, we had $586,200 in cash and cash equivalents and no short-term investments, compared to $1,388,700 and $970,000 respectively at September 30, 2001.

Changes in exchange rates had a net effect of increasing our cash balance by $4,400 in the quarter ended September 30, 2002 compared to an increase of $1,600 in the prior year.

As of September 30, 2002, we had no contractual capital commitments outstanding.

We have incurred costs to design, develop and implement search engine and electronic commerce applications and to grow our business. As a result, we have incurred operating losses and negative cash flows from operations in each quarter since we commenced operations. As of September 30, 2002 we had an accumulated deficit of $12,860,900.

Our cash at September 30, 2002 is not sufficient to fund operations through the end of fiscal 2003 based on historical operating performance. In order for the Company to maintain its operations it will have to seek additional funding, generate additional sales or reduce its operating expenses, or some combination of these. At current and planned expenditure rates, taking into consideration cash received from the first part of the Paradigm financing, current reserves are sufficient to fund operations through December 2002.

In August, we closed the first part of a financing funded by Paradigm Millennium Fund, LP, described in Item 2 of Part II. This first part of the financing comprised the issuance of common stock and warrants for net proceeds of $915,000. Before the end of September, we expected that the second part of the Paradigm Millennium Fund, LP financing would contribute an additional $915,000 of cash. On October 1, 2002, Paradigm delivered an additional $300,000 and requested an extension of 30 days to fund the remaining balance of $615,000. If we are successful in closing the remainder of the second stage of the Paradigm financing, then we will have cash reserves sufficient to fund operations past June 2003. We expect to incur offering costs of about $30,000 for total net proceeds from this financing of $1,800,000. To the date of this Report on Form 10-QSB, we have not received the remaining balance of $615,000.

In November 2001 and April 2002, we reduced our staff to match our available resources to our immediate needs. In April 2002, certain of our employees and officers agreed to defer compensation or take stock in lieu of cash compensation. The salary deferral, which was in effect from April 2002 through August 2002, has been recorded as an accrued liability in the financial statements as of September 30, 2002. We are continually evaluating our operating plan in light of prevailing market conditions, sales forecasts and personnel needs and will make those changes to our operations that are necessary to extend the life of our cash resources. To date we have postponed planned hires, not replaced certain staff that have left, canceled or not implemented advertising and promotional campaigns, and generally limited discretionary expenses. Where practical, we will continue to limit our expenditures but we believe that our scale of operations for the next three to six months will be substantially similar to that in effect at June 30, 2002. It is our intention to improve our liquidity by focusing on increased sales rather than by reducing expenses.

We have discontinued development of GoXML™ DB and have consummated an agreement with a third-party individual that allows us to retain an ownership interest in this technology without being responsible to fund ongoing development. We do not expect that this transaction will generate cash in the short- or medium-term, if at all.

We have also entered in to a letter of intent with SysCon Justice Systems Ltd. relating to the sale of our Xtract technology and related customer relationship in exchange for cash in two equal installments over six months totaling $160,000 plus ongoing royalty payments.

By reducing the scope of our operations we are better able to focus our efforts and resources on our core products, particularly GoXML Transform. We are increasingly applying our efforts to marketing and sales and expect that most of our new hires in the next year will be for sales positions. We are continuing to develop strategic alliances with larger companies that can sell our products to their established customer bases. These alliances include iWay, Seagull Software and Sun Microsystems.

In the event that future operating cash flows do not meet all our cash requirements, we will need additional financing. Success in raising additional financing is dependent on the Company's ability to demonstrate that it can fulfill its business strategy to sell XML-based e-commerce solutions. Should the Company need additional financing through debt or equity placements, there is no assurance that such financing will be available, if at all, at terms acceptable to the Company. If additional funds are raised by the issuance of equity securities, stockholders may experience dilution of their ownership interest and these securities may have rights senior to those of the holders of the common stock. If additional funds are raised by the issuance of debt, we may be subject to certain limitations on our operations, including limitations on the payment of dividends. If adequate funds are not available or are not available on acceptable terms, we may be unable to fund our expansion, successfully promote our brand name, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures, any of which could have a materially adverse effect on our business, financial condition and results of operations.

Our ability to generate significant revenue is uncertain. We incurred net losses of approximately $863,000 during the quarter ended September 30, 2002. We expect losses from operations and negative cash flow to continue for the foreseeable future since we have not yet built a sufficient sales network to support our operations. The rate at which these losses will be incurred may increase from current levels. If our revenue does not increase and if our spending levels are not adjusted accordingly, we may not generate sufficient revenue to achieve profitability, which would have a materially adverse effect on our business, financial condition and results of operations. Even if we achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future.

Our working capital requirements depend on numerous factors. We have experienced increased expenditures since inception, consistent with growth in our operations and staffing, and expect that this trend will continue for the foreseeable future. We anticipate incurring additional expenses to increase our marketing and sales efforts, for software and infrastructure development. Additionally, we will continue to evaluate possible investments in businesses, products and technologies, the expansion of our marketing and sales programs and brand promotions. If we experience a shortfall in revenue in relation to expenses, or if our expenses precede increased revenue, our business, financial condition and results of operations could be materially and adversely affected.

Some of our revenues are earned, and a substantial portion of our payroll and other expenses are paid, outside the United States in currencies other than US dollars. Because our financial results are reported in US dollars, they are affected by changes in the value of the various foreign currencies in which we make payments in relation to the US dollar. We do not cover known or anticipated currency fluctuation exposures through foreign currency exchange option or forward contracts. The primary currency for which we have foreign currency exchange rate exposure is the Canadian dollar. Our financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities are carried at cost which approximates their fair value because of the short-term maturity of these instruments.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 to our financial statements for the year ended June 30, 2002, included in our 10-KSB/A as filed with the Securities Exchange Commission on October 4, 2002. We believe our most critical accounting policies include revenue recognition, accounting for impairment of long-lived assets, and accounting for research and development expenses.

Revenue Recognition - The Company recognizes revenue when earned, in accordance with American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition, SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions and SEC Staff Accounting Bulletin 101, Interpretive Guidance on Revenue Recognition. Royalties based upon licensees' revenues or usage are recognized as licensees' revenues are earned or usage occurs. Maintenance and subscription revenue is recognized ratably over the contract period. Revenue attributable to significant undelivered elements is recognized over the contract period as elements are delivered. Revenues from fixed-price service contracts and software development contracts requiring significant production, modification, or customization are recognized using the percentage-of-completion method. Revenue from service contracts that are based on time incurred is recognized as work is performed.

Impairment of Long-Lived Assets - The Company accounts for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Long-lived assets such as intellectual property are recorded at cost and amortized over their estimated useful lives. The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be recoverable. Should the Company determine that a long-lived asset is impaired, an impairment loss is recognized in the amount the carrying amount of the asset exceeds its fair value.

Research and Development Costs - The Company accounts for research and development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SFAS No. 86 specifies that costs incurred internally in creating a computer software product should be charged to expense when incurred as research and development until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for release to customers. Judgment is required in determining when the technological feasibility of a product is established. The Company has determined that technological feasibility for its products is reached shortly before the products are released. Costs incurred after technological feasibility is established are not material, and accordingly, the Company expenses all research and development costs when incurred.

RECENT ACCOUNTING PRONOUNCEMENTS

FORWARD LOOKING STATEMENTS

When used in this Quarterly Report on Form 10-QSB, in documents incorporated herein and elsewhere by us from time to time, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements concerning our business operations, economic performance and financial condition, including in particular, our business strategy and means to implement the strategy, our objectives, the amount of future capital expenditures required, the likelihood of our success in developing and introducing new products and expanding the business, and the timing of the introduction of new and modified products or services. These forward looking statements are based on a number of assumptions and estimates which are inherently subject to significant risks and uncertainties, many of which are beyond our control and reflect future business decisions which are subject to change.

A variety of factors could cause actual results to differ materially from those expected in our forward-looking statements, including the following factors: (a) our products and services may not be accepted in the market place; (b) XML may be adopted by the Internet community more slowly than projected; (c) our products may not be appropriately positioned within market segments; (d) the market which we serve is subject to rapid technological change and quick product obsolescence; (e) we are dependent on a limited number of products; (f) there are, and competitors may develop, functionally similar competitive products; (g) there is extreme competition in the software industry; and (h) those set forth from time to time in our press releases and reports and other filings made with the Securities and Exchange Commission. We caution that such factors are not exclusive. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-QSB. We undertake no obligation to publicly release the results of any revisions of such forward-looking statements that may be made to reflect events or circumstances after the date hereof, or thereof, as the case may be, or to reflect the occurrence of unanticipated events.

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ITEM 3

CONTROLS AND PROCEDURES

Peter Shandro, Chief Executive Officer of XML - Global, and Simon Anderson, Chief Financial Officer of XML - Global, have established and are currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to ensure that material information relating to the Company is made known to them as soon as it is known by others within the Company.

Our Chief Executive Officer and Chief Financial Officer conduct an update and a review and evaluation of the effectiveness of the Company's disclosure controls and procedures and have concluded, based on their evaluation within 90 days of the filing of this Report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.

PART II. - OTHER INFORMATION

Item 1. Pending Legal Proceedings

At the date of this report, there are no pending legal proceedings in which we are a party and we are not aware of any threatened legal proceedings, except as follows:

We have been named as a party defendant in a civil action filed on February 5, 2002, in the Federal Court of Canada, in Toronto, Ontario, by Datamirror Corporation, as plaintiff, alleging a claim of trademark infringement over the Company's use of the trademark "GoXML Transform Server." We have reached a tentative settlement with DataMirror that provides, among other things, that DataMirror will discontinue its lawsuit and that we will no longer use the trademark "GoXML Transform Server".

Item 2. Changes in Securities

There were no changes in the rights of our securities in the period.

<R>
During the period covered by this Report, we made the following sales of unregistered securities:

On August 23, 2002, Paradigm Millennium Fund, LP (Paradigm) purchased 5,000,000 shares of Common Stock and Class A Warrants exercisable to purchase an additional 3,000,000 shares of Common Stock, for an aggregate gross purchase price of $1,000,000. Subtracted from this amount was a placement agent's fee and non-accountable expense allowance of $85,000. Paradigm also received Class A Warrants that provide for the purchase of up to 3,000,000 shares of our common stock at an exercise price of $0.50 per share until December 31, 2005. We estimate that legal fees and other financing costs will be approximately $25,000 for aggregate net proceeds of $890,000.

Paradigm represented and the Company had a reasonable basis to believe that it qualified as an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). The securities, which were taken for investment and subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon an exemption set forth in Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.

As part of this transaction, we agreed to undertake reasonable efforts to register shares of Common Stock and the shares underlying the Class A Warrants by October 23, 2002. Paradigm is in default under its agreement with us and we have not yet begun the registration of securities.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted for the vote of security holders.

ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K

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On August 23, 2002 the Company filed a report on Form 8-K, pursuant to Items 2, 5 and 7 of such Form, regarding the proposed acquisition intellectual property from Vertaport, Inc. and a financing by Paradigm Millennium Fund, LP.
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SIGNATURES

<R>	XML-Global Technologies, Inc.
Date: November 1, 2002	Signature: /s/Peter Shandro Peter Shandro Chairman of the Board, Chief Executive Officer and President
Date: November 1, 2002 </R>	Signature: /s/Simon Anderson Simon Anderson Chief Financial Officer

CERTIFICATION

I, Peter Shandro, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of XML - Global Technologies, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other 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.

<R>
Date: November 1, 2002
</R>

/s/ Peter Shandro
Peter Shandro, Principal Executive Officer

CERTIFICATION

I, Simon Anderson, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of XML - Global Technologies, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other 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.

<R>
Date: November 1, 2002
</R>

/s/ Simon Anderson
Simon Anderson, Principal Financial Officer