SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
CIK NO.: 0001039466
For Quarter Ended June 30, 2004
Commission File Number: 000-29621
XSUNX, INC.
-------------------
(Name of Small Business Issuer in its charter)
COLORADO 84-1384159
------------------- -----------------
State of incorporation or organization IRS Employer ID Number
65 Enterprise, Aliso Viejo, CA 92656
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (949) 330-8060
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 the filing
requirements for at least the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 10, 2004 the number of shares outstanding of the registrant's only
class of common stock was 112,779,602
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of June 30, 2004 (unaudited)
and September 30, 2003......................................F-1
Statements of Operations for the Three and
Nine Months ended June 30, 2004 and 2003
(unaudited) and the period February 27,
1997 (inception) to June 30, 2004...........................F-2
Statements of Stockholders Equity for the period
February 27, 1997 inception) to June 30,
2004 (unaudited)............................................F-3
Statements of Cash Flows for the Nine Months
ended June 30, 2004 and 2003 (unaudited)
and the period February 27, 1997
(inception) to June 30, 2004................................F-4
Notes to Condensed Consolidated Financial
Statements (Unaudited)......................................F-5
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. Legal Proceedings .................................................
Item 2. Changes in Securities..............................................
Item 3. Defaults upon Senior Securities....................................
Item 4. Submission of Matters to a Vote of Security Holders................
Item 5. Other Information..................................................
Item 6. Exhibits and Reports on Form 8-K...................................
Signatures..................................................................
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
XSUNX
(FORMERLY SUN RIVER MINING, INC.)
(AN EXPLORATION STAGE COMPANY)
FINANCIAL STATEMENTS
NINE-MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
Michael Johnson & Co., LLC.
9175 Kenyon Ave., #100
Denver, CO 80237
Phone: 303-796-0099
Fax: 303-796-0137
ACCOUNTANTS' REVIEW REPORT
Board of Directors
XSUNX, Inc.
Denver, CO
We have reviewed the accompanying balance sheet of XSUNX, Inc. (An Exploration
Stage Company) as of June 30, 2004 and the related statements of operations for
the three and nine months ended June 30, 2004 and 2003 and the period February
27, 1997 (inception) to June 30, 2004 and cash flows and stockholders' equity
for the nine-months ended June 30, 2004 and 2003 and for February 25, 1997
(inception) to June 30, 2004 included in the accompanying Securities and
Exchange Commission Form 10-QSB for the period ended June 30, 2004. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of person responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States and standards
of the PCAOB.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet as of September 30, 2003, and
the related statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein). In our report dated December 13,
2003, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheets as of June
30, 2004 is fairly stated in all material respects in relation to the balance
sheet from which it has been derived.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, conditions exist which raise substantial doubt about the
Company's ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its obligations and sustain its operations.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, CO
August 9, 2004
F-1
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Balance Sheets
(Unaudited)
June 30, September 30,
2004 2003
----------------- -----------------
ASSETS:
Current assets:
Cash $ 69,142 $ 2,346
----------------- -----------------
Total current assets 69,142 2,346
----------------- -----------------
Other assets:
Patents 3 3
Deposit - Lease 22,500 -
----------------- -----------------
Total other assets 22,503 3
----------------- -----------------
TOTAL ASSETS $ 91,645 $ 2,349
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 39,608 $ -
Accrued Officers Salaries & Taxes 98,831 -
Notes Payable 4,368 -
----------------- -----------------
Total current liabilities 142,807 -
----------------- -----------------
Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 50,000,000
shares authorized; no shares issued and outstanding - -
Common Stock, no par value; 500,000,000 shares authorized;
112,646,953 shares issued and outstanding at June 30,
2004 and 111,298,148 outstanding at September 30, 2003 2,996,570 2,821,726
Deficit accumulated during the exploratory stage (3,047,732) (2,819,377)
----------------- -----------------
Total stockholders' profit (deficit) (51,162) 2,349
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 91,645 $ 2,349
================= =================
See Accountants' Review Report
F-2
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Feb. 25, 1997
Three-Months Ended Nine-Months Ended (Inception) to
June 30, June 30, June 30,
2004 2003 2004 2003 2004
------------ ----------- ------------ ----------- --------------
Revenue $ - $ - $ - $ -
Expenses:
Abandoned Equipment - - - - 808
Bank Charges 193 - 255 - 1,967
Consulting 9,700 - 9,700 - 1,013,839
Contract R&D 61,645 - 74,495 - 74,495
Depreciation - - - - 3,178
Directors' Fees 29 - 29 - 12,012
Due Diligence - - - - 45,832
Equipment Rental - - - - 1,733
Impairment loss - - - - 923,834
Legal & Accounting 6,462 13,186 21,807 14,070 182,964
Licenses & Fees - - - - 6,220
Meals & Entertainment 30 - 142 - 4,261
Office Expenses 4,219 - 6,978 - 20,959
Salaries 33,108 - 98,108 - 478,858
Postage & Shipping 122 - 424 - 3,641
Printing 57 - 191 - 5,771
Public Relations 350 - 1,190 - 105,516
Rent 2,250 - 7,423 - 15,481
Subscriptions 269 - 269 - 269
Taxes - - 4,657
Telephone 1,271 - 2,814 - 33,359
Transfer Agent Expense 843 - 2,643 375 15,971
Travel 1,665 - 1,887 - 61,180
------------ ----------- ------------ ----------- --------------
Total Operating Expenses 122,213 13,186 228,355 14,445 3,016,805
------------ ----------- ------------ ----------- --------------
Other Income (Expense)
Interest Expense - - 71,346
Interest Income - - (22)
Forgiveness of Debt - - (40,397)
------------ ----------- ------------ ----------- --------------
Net (Loss) $ (122,213) $ (13,186) $ (228,355) $ (14,445) $ (3,047,732)
============ =========== ============ =========== ==============
Per Share Information:
Weighted average number of
common shares outstanding 111,479,898 15,362,970
------------ -----------
Net Loss per Common Share * *
------------ -----------
* Less than $.01
See Accountants' Review Report
F-3
XSUNX INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Indirect Method
Feb. 25, 1997
Nine-Months Ended (Inception) to
June 30, June 30,
2004 2003 2004
-------------- -------------- -----------------
Cash Flows from Operating Activities:
Net Loss $(228,355) $(14,445) $ (3,032,315)
Adjustments to reconcile net loss to cash used in
operating activities:
Issuance of Common Stock for Services - 1,237,557
(Increase) in Deposits (22,500) - (22,500)
Increase in Accrued Expenses & Taxes 98,831 14,445 98,831
Increase in Accounts Payable 39,608 - 39,608
-------------- -------------- -----------------
Net Cash Flows Used for Operating Activities (112,416) - (1,678,819)
-------------- -------------- -----------------
Cash Flows from Investing Activities:
Purchase of Intangible Assets - - (3)
-------------- -------------- -----------------
Net Cash Flows Used for Investing Activities - - (3)
-------------- -------------- -----------------
Cash Flows from Financing Activities:
Proceeds from Notes Payable 4,368 - 4,368
Issuance of Common Stock 174,844 - 1,759,013
-------------- -------------- -----------------
Net Cash Flows Provided by Financing Activities 179,212 - 1,763,381
-------------- -------------- -----------------
Net Increase (Decrease) in Cash 66,796 - 84,559
-------------- -------------- -----------------
Cash and cash equivalents - Beginning of period 2,346 - -
-------------- -------------- -----------------
Cash and cash equivalents - End of period $ 69,142 $ - $ 84,559
============== ============== =================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ - $ - $ 71,346
============== ============== =================
Income Taxes $ - $ - $ -
============== ============== =================
NON-CASH TRANSACTIONS
Common stock issued in exchange for services $ - $ - $1,237,557
============== ============== =================
See Accountants' Review Report
F-4
XSUNX, INC. Continued...
(Formerly Sun River Mining, Inc.)
(A Devlopment Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
June 30, 2004
(Unaudited)
Deficit
Accumulated
During the
Common Stock Exploration
# of Shares Amount Stage Totals
------------ ---------- ----------- ----------
Inception - February 25, 1997 - $ - $ - $ -
Issuance of stock for cash 3/97 5,000 100 - 100
Issuance of stock for cash 3/97 5,590 111,800 - 111,800
Issuance of stock to Founders 3/97 14,110 - - -
Issuance of stock for Consolidation 4/97 445,000 312,106 - 312,106
Issuance of stock for cash 8/97 2,900 58,000 - 58,000
Issuance of stock for cash 9/97 2,390 47,800 47,800
Net Loss for Year - - (193,973) (193,973)
------------ ---------- ----------- ----------
Balance - September 30, 1997 474,990 529,806 (193,973) 335,833
------------ ---------- ----------- ----------
Issuance of stock for services 11/97 1,500 30,000 - 30,000
Issuance of stock for cash 9/98 50,000 200,000 - 200,000
Consolidation stock cancelled 9/98 (60,000) (50,000) - (50,000)
Issuance of stock for cash 9/98 200 4,000 - 4,000
Net Loss for year - - (799,451) (799,451)
------------ ---------- ----------- ----------
Balance - September 30, 1998 466,690 713,806 (993,424) (279,618)
------------ ---------- ----------- ----------
Issuance of stock for cash 10/98 21,233 159,367 - 159,367
Issuance of stock for services 1/99 40,000 40,000 - 40,000
Issuance of stock for cash 1/99 37,500 296,125 - 296,125
Issuance of stock for services 1/99 25,000 276,500 - 276,500
Issuance of stock for cash 2/99 7,500 70,313 - 70,313
Issuance of stock for cash 4/99 45,225 122,108 - 122,108
Issuance of stock for salaries 6/99 70,000 147,000 - 147,000
Issuance of stock for cash 9/99 40,000 69,200 69,200
Net Loss for year - - (1,482,017) (1,482,017)
------------ ---------- ----------- ----------
Balance - September 30, 1999 753,148 1,894,419 (2,475,441) (581,022)
------------ ---------- ----------- ----------
Issuance of stock for cash 9/00 15,000 27,000 - 27,000
Net Loss for year - - (118,369) (118,369)
------------ ---------- ----------- ----------
Balance - September 30, 2000 768,148 1,921,419 (2,593,810) (672,391)
------------ ---------- ----------- ----------
Extinquishment of debt - 337,887 - 337,887
Net Loss for year - - (32,402) (32,402)
------------ ---------- ----------- ----------
Balance - September 30, 2001 768,148 2,259,306 (2,626,212) (366,906)
------------ ---------- ----------- ----------
Net Loss for year - - (47,297) (47,297)
------------ ---------- ----------- ----------
Balance - September 30, 2002 768,148 2,259,306 (2,673,509) (414,203)
------------ ---------- ----------- ----------
F-5
XSUNX, INC. Continued...
(Formerly Sun River Mining, Inc.)
(A Devlopment Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
June 30, 2004
(Unaudited)
Deficit
Accumulated
During the
Common Stock Exploration
# of Shares Amount Stage Totals
------------ ---------- ----------- ----------
Issuance of stock for Assets 7/03 70,000,000 3 - 3
Issuance of stock for Cash 8/03 9,000,000 225,450 - 225,450
Issuance of stock for Debt 9/03 115,000 121,828 - 121,828
Issuance of stock for Accruals 9/03 115,000 89,939 - 89,939
Issuance of stock for Services 9/03 31,300,000 125,200 - 125,200
Net Loss for year - - (145,868) (145,868)
------------ ---------- ----------- ----------
Balance - September 30, 2003 111,298,148 2,821,726 (2,819,377) 2,349
------------ ---------- ----------- ----------
Issuance of stock for 3/04 20,000 1,418 - 1,418
Issuance of stock for 3/04 80,750 9,811 - 9,811
Issuance of stock for 3/04 81,000 9,842 - 9,842
Issuance of stock for 4/04 217,450 22,598 - 22,598
Issuance of stock for 5/04 254,956 34,669 - 34,669
Issuance of stock for 6/04 694,649 96,506 - 96,506
Net Loss for period - - (228,355) (228,355)
------------ ---------- ----------- ----------
Balance - June 30, 2004 112,646,953 $2,996,570 $(3,047,732) $ (51,162)
============ ========== =========== ==========
All shares have been adjusted for the 1 for
20 reverse split.
See Accountants' Review Report
F-6
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC.)
Notes to Financial Statements
June 30, 2004
(Unaudited)
Note 1 - Presentation of Interim Information:
-----------------------------------
In the opinion of the management of XSUNX, Inc., the accompanying unaudited
financial statements include all normal adjustments considered necessary to
present fairly the financial position as of June 30, 2004 and the results of
operations for the three and nine-months ended June 30, 2004 and 2003 and for
the period February 25, 1997 (inception) to June 30, 2004, and cash flows for
the nine-months ended June 30, 2004 and 2003 and the for the period February 25,
1997 (inception) to June 30, 2004. Interim results are not necessarily
indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the Company's audited financial
statements and notes for the fiscal year ended September 30, 2003.
Note 2 - Going Concern:
-------------
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company is in the exploration state and has not earned any revenue from
operations. The Company's ability to continue as a going concern is dependent
upon its ability to develop additional sources of capital or locate a merger
candidate and ultimately, achieve profitable operations. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. Management is seeking new capital to revitalize
the Company.
Note 3 - Subsequent Event:
----------------
On May 13, 2004, the Company issued a letter of intent with MVSystems, to enter
into a definitive asset license and cooperative venture agreement for the
development and commercialization of cooperative uses of core technologies as
supplemental enhancements to the commercial application of their respective
technologies and business initiatives.
F-7
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC.)
Notes to Financial Statements
June 30, 2004
(Unaudited)
Note 4 - Stock Option Plan:
-----------------
Effective June 30, 2004, the Company adopted the 2004 Xsunx, Inc. Option Plan
(the "Plan") to provide incentives for obtaining and retaining the services of
eligible Employees, Consultants and Directors who are anticipated to contribute
to the Company's long range success and insure to the benefit of all
stockholders of the Company. The Plan authorizes the issuance of up to
30,000,000 shares of the Company's common stock pursuant to the grant and
exercise of up to 30,000,000 stock options. The Plan was approved by unanimous
written consent of the Board of Directors of Xsunx, Inc. The adoption of the
Plan is subject to ratification by a majority of the Company's stockholders,
which approval must be obtained within 12 months from the date the Plan was
adopted by the Board.
F-8
Item 2. MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary and Forward Looking Statements
In addition to statements of historical fact, this Form 10-QSB contains
forward-looking statements. The presentation of future aspects of XsunX, Inc.
("XsunX", the "Company" or "issuer") found in these statements is subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those reflected in such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Without limiting the
generality of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," or "could" or the negative variations thereof or
comparable terminology are intended to identify forward-looking statements.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties that may cause XsunX's actual results to be materially
different from any future results expressed or implied by XsunX in those
statements. Important facts that could prevent XsunX from achieving any stated
goals include, but are not limited to, the following:
Some of these risks might include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business, inability
to raise additional capital or financing to implement its
business plans;
(e) failure to commercialize its technology or to make sales;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by outside
parties;
(h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of warrants and stock
options, and other risks inherent in the Company's businesses.
The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the factors described in other
documents the Company files from time to time with the Securities and Exchange
Commission, including the Quarterly Reports on Form 10-QSB and Annual Report on
Form 10-KSB filed by the Company in 2004 and any Current Reports on Form 8-K
filed by the Company.
Nature of Operations
XsunX, Inc. (XsunX) is currently working to establish scalable
processes for the manufacture of photovoltaic technology in the mass production
of environmentally friendly semi-transparent photovoltaic glazing processes for
use in the glass, optical film and building materials industries.
Through the successful commercial development of its semi-transparent
solar electric glazing processes the Company anticipates being able to take
advantage of opportunities to provide a commercially viable method for
converting large areas of architectural glass into electrical power producing
systems. Upon the completion of our commercialization process the Company
anticipates the majority of revenues to be derived from the licensing of its
technology.
Management has established a plan under which the Company is
commercializing its patented technology and developing new technology through
the contracting for research, development and commercialization processes with
certain qualified facilities that specialize in the Company's target market
segments. This product development process is anticipated to provide the Company
with the fastest path to marketable products, the maximization of corporate
resources, and, the broadest access to cutting edge device, optical and material
engineering facilities and technical expertise.
Although the Company faces many challenges in perfecting and
establishing viable commercial processes it is encouraged by its developments
efforts in which the production of working model samples of semi-transparent
photovoltaic glazings approached 4% electrical conversion efficiencies. These
working models established the basis for process and cell refinement that the
Company believes will provide conversion efficiencies of 6% or greater. The
Company is continuing to concentrate on the refinement of cell structures,
manufacturing processes, the balancing of light transmittance and transparency,
and conversion efficiencies.
In June the Company entered into an agreement with a private research
and development firm, MVSystems, Inc., under a proposal and plan for the further
research and development of cell structure and manufacturing processes. The
objective of this plan is to provide the Company with commercially viable
processes and manufacturing techniques necessary for the development of
demonstrable products. Results under the plan have produced large area
manufacturing processes necessary for the manufacture of all layers of
semi-transparent solar cell design. On going development is now underway to
establish viable manufacturing techniques for increasing the active power
producing ratios of the glazing to as near 100% as possible (i.e. the percentage
of total area coated by the glazing that converts sunlight to usable electrical
energy as compared to the total size or area of glass or other transparent
substrates covered by the glazing).
The Company has and continues to make investments in the development of
intellectual property assets as part of a business-restructuring plan. The
purpose of these on going investments is to acquire, develop and market patented
and proprietary semi-transparent solar electric glazing processes.
Management believes the summary data presented herein is a fair
presentation of the Company's results of operations for the periods presented.
Due to a change in October 2003 of the Company's primary business focus and the
introduction of new business opportunities these results may not necessarily be
indicative of results to be expected for any future period. As such, results of
the Company may, in the future, differ significantly from previous periods.
Results of Operations for the Three-Month Period Ended June 30, 2004 Compared to
the Same Period in 2003
The Company generated no revenues in the period ended June 30, 2004 as well
as for the same period in 2003.
The Company incurred operating expenses totaling $122,213 for the three
months ending June 30, 2004 compared to $13,186 for the same period in 2003.
Primary sources for the increases to operating expenses include: an increase of
$61,644 in Research and Development activities, and an increase of $47,383 in
General and Administrative expenses which include new expenses associated with a
change in operations necessary for the development of the Company's new business
plan as a developer and provider of semi-transparent solar electric glazing
technologies.
The net loss for the three months ending June 30, 2004 was ($122,213) as
compared to a net loss of ($13,186) for the same period 2003. The large increase
of $109,027 was due to an increase in expenditures associated with the Company's
change in operations necessary for the development of the Company's new business
plan and is anticipated to increase for the foreseeable future as the Company
furthers efforts to complete the commercial development of a licensable process
for the manufacture of semi-transparent solar electric glazing technologies.
The Company incurred Research and Development expenses totaling $61,645 for
the period ending June 30, 2004 and a cumulative total of $74,494 for the
nine-month period ending June 30, 2004 as compared to $0.00 for the same periods
in 2003. This increase in Research and Development expenses is anticipated to
increase for the foreseeable future as the Company furthers efforts to complete
the commercial development of a licensable process for the manufacture of
semi-transparent solar electric glazing technologies.
Results of Operations for the Nine Month Period Ended June 30, 2004 Compared to
Same Period ended June 30, 2003
The Company had no revenues in the nine-month period ended June 30,
2004 as well as for the same period in 2003.
The Company incurred operating expenses totaling $228,355 in the
nine-month period ended June 30, 2004 compared to $14,446 in the same period
ended June 30, 2003. The major components of the expenses in the nine-month
period were Contract R&D of $74,495, salaries of $17,691, accrued deferred
salaries of $80,417, legal and accounting fees of $21,807, consulting fees of
$9,700, rent of $7,423, office and telephone expenses of $9,792. These expenses
were all incurred in preparing to commercialize a licensable process for the
manufacture of semi-transparent solar electric glazing technologies.
The Company incurred consolidated net loses of ($228,355) and ($14,445)
in the nine-month period ended June 30, 2004 and 2003 respectively. The
associated net loss per share was nominal in the nine-month period ended June
30, 2004 and 2003.
The Company expects the trend of losses to continue at an accelerated
rate in future quarters until the Company is able to begin sales of significance
of which there is no assurance.
Liquidity and Capital Resources
The Company had cash at the end of the period of $69,142, total assets of
$91,645, and current liabilities of $142,807 for a working capital (deficit) of
($51,162) as compared to a working capital (deficit) of ($39,286) at December
31, 2003 and working capital of $2,346 at September 30, 2003. There were no cash
flows provided from operations during the nine-month period ended June 30, 2004
and increases to general, administrative, research and development expenses in
these periods resulted in an overall increase to working capital deficits. Cash
flow from financing activities was $174,844 for the nine-months ended June 30,
2004 as compared to $0.00 for the same period 2003.
For the nine months ended June 30, 2004, the Company's capital needs have
been met from the issuance of notes to principal executives of the company and
the proceeds of a series of private placements of Common Stock made by the
Company. The Company completed private placements of its common stock pursuant
to Regulation S and Regulation D totaling $153,572 in the quarter ended June 30,
2004. See "Part II - Item 2. Changes in Securities."
When necessitated by the Company's financial condition a principal
executive of the Company has agreed to the deferment of monthly salary up to
such time that the Company can repay any such deferred amounts. For the
nine-month period ended June 30, 2004 the total accrued salary and taxes total
$80,417.
Cash and deposits at June 30, 2004 were $91,645, an increase of $82,996
from March 31, 2004. During the three-month period ended, June 30, 2004, the
Company used $122,416 net cash in operating activities as compared to using
$0.00 for the same period 2003. This increase of cash used in operations of
$122,416 was entirely a result of an increase in research and development,
general and administrative expenses in the commercial development of its new
business objectives.
NEED FOR ADDITIONAL FINANCING
The Company anticipates that there will be no cash generated from
operations in the current year necessary to fund its anticipated cash
requirements. The Company has incurred operating deficits since its
reorganization in October 2003, which are expected to continue until its new
business model is fully developed. Accordingly, the Company is dependent on
raising additional capital necessary to meet the Company's cash needs for
Research, Development, General and Administrative expenses including the costs
of compliance with the continuing reporting requirements of the Securities
Exchange Act of 1934.
The Company has been able to raise capital in a series of equity and debt
offerings in the past and is actively pursuing additional financing in the form
of loans or equity placements to cover on going cash needs. There can be no
assurances that the Company will be able to obtain such additional financing, on
terms acceptable to it and at the times required, or at all. Lack of capital may
be a sufficient impediment to prevent it from accomplishing the goal of
commercializing a licensable process for the manufacture of semi-transparent
solar electric glazing technologies.
Irrespective of whether the Company's cash assets prove to be
inadequate to meet the Company's operational needs, the Company might seek to
compensate providers of services by issuances of stock in lieu of cash.
GOING CONCERN
The Company is in the development stage, and as of the period ending
June 30, 2004, did not have any products for sale, and had not generated any
revenue from sales or other operating activities. Furthermore, the Company does
not anticipate having any products for sale or generating any revenues in this
calendar year. To date the Company's principal source of liquidity has been the
private placement of equity securities and the issuance of notes payable. As
such, the Company's ability to secure additional financing on a timely basis is
critical to its ability to stay in business and to pursue planned operational
activities.
Based on the foregoing and the Company's history of losses and current
negative working capital balance, the Company's financial statements for the
nine-month period ended June 30, 2004 include a going concern opinion from its
outside auditors, which stated there "is substantial doubt" about our ability to
continue operating as a "going concern."
Item 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chairman have evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this quarterly report and, based
on this evaluation, have concluded that the disclosure controls and procedures
are effective.
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's first fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in securities -
.........In a private placement of the Company's common stock made by
the Company that began on December 19, 2003 pursuant to Regulation S of the Act
at a variable price equal to 27% of the five (5) day average closing bid price,
the Company raised gross proceeds of $59,624.16 from the sale of 521,500 shares
during the quarter ending June 30, 2004. The total gross proceeds raised in this
offering as of August 9, 2004 total $86,526.95 from the sale of 757,250 shares.
The Company is offering a total of 3,000,000 shares pursuant to this private
placement, which has not been terminated and can be terminated at the discretion
of the Company with three (3) days prior written notice to the purchaser.
In a private placement of the Company's common stock pursuant to
Regulation S of the Act that began on April 9, 2004 at a variable price equal to
30% of the closing bid price on the date of the purchase, the Company raised
gross proceeds of $89,448.49 from the sale 615,555 shares during the quarter
ending June 30, 2004. The total gross proceeds raised in this offering as of
August 9, 2004 total $105,802.70 from the sale of 724,204 shares. The Company is
offering a total of 10,000,000 shares pursuant to this private placement, which
has not been terminated and can be terminated at the discretion of the Company
with two (2) week prior written notice to the purchaser.
In a private placement of the Company's common stock to accredited
investors on June 16, 2004 pursuant to Section 4(6) of Regulation D thereof, the
Company accepted an offer for the sale of 30,000 shares of common stock, at a
price of $.15 per share, which raised gross proceeds of $4,500.00.
Effective June 30, 2004, the Company adopted the 2004 XsunX, Inc.
Option Plan (the "Plan") to provide incentives for obtaining and retaining the
services of eligible Employees, Consultants and Directors who are anticipated to
contribute to the Company's long range success and inure to the benefit of all
stockholders of the Company. The Plan authorizes the issuance of up to
30,000,000 shares of the Company's common stock pursuant to the grant and
exercise of up to 30,000,000 stock options. The Plan was approved by unanimous
written consent of the Board of Directors of Xsunx, Inc. The adoption of the
Plan is subject to ratification by a majority of the Company's stockholders,
which approval must be obtained within 12 months from the date the Plan was
adopted by the Board.
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None
Item 6. Exhibits and reports on Form 8-K -
A. Exhibits: 10.1 2004 XsunX, Inc. Option Plan
32 Sarbanes-Oxley Certification
33 Sarbanes-Oxley Certification
B. Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: August 19, 2004 XSUNX, INC.
By: /s/ Tom M. Djokovich
----------------------------------------
Tom M. Djokovich, Chief Executive
Officer, President, and acting Chief
Financial Officer
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Directors
By: /s/ Brian Altounian Dated: August 19, 2004
---------------------------------------
Chairman of the Board, Secretary
By: /s/ Tom Djokovich Dated: August 19, 2004
---------------------------------------
Director, President, CEO and acting CFO
By: /s/ Thomas Anderson Dated: August 19, 2004
---------------------------------------
Director