FORM 10-QSB
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30, 2005
Commission file number: 000-29621
XSUNX, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1384159
------------------------ ------------------
(State of incorporation) (I.R.S. Employer Identification No.)
65 Enterprise, Aliso Viejo, CA 92656
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (949) 330-8060
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: None
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, 2005 the number of shares outstanding of the registrant's only
class of common stock was 123,854,733
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
1
Table of Contents
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Independent Auditor's Report................................................... F-1
Balance Sheets June 30, 2005 (unaudited) and September 30, 2004................ F-2
Statements of Operations for the Three Months and Nine Months ended
June 30, 2005 and 2004 (unaudited) and the period February 25, 1997
(inception) to June 30, 2005................................................... F-3
Statements of Cash Flows for the Nine Months ended June 30, 2005 and
2004 (unaudited) and the period February 27, 1997 (inception) to June
30, 2005....................................................................... F-4
Statements of Stockholders Equity for the period February 25, 1997
(inception) to June 30, 2005 unaudited)........................................ F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)............... F-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 3
Item 3. Controls and Procedures........................................................ 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................. 7
Item 2. Changes in Securities.......................................................... 7
Item 3. Defaults upon Senior Securities................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders............................ 8
Item 5. Other Information.............................................................. 8
Item 6. Exhibits and Reports on Form 8-K............................................... 8
Signatures.............................................................................. 9
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
XSUNX
(AN DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
SIX-MONTHS ENDED JUNE 30, 2005
(UNAUDITED)
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
9175 E. Kenyon Avenue, Suite 100
Denver, CO 80237
303-796-0099
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
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, 2005 and the related statements of operations for
the three and nine months ended June 30, 2005 and the period February 27, 1997
(inception) to June 30, 2005 and cash flows and stockholders' equity for the
nine-months ended June 30, 2005 and for February 25, 1997 (inception) to June
30, 2005. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). The 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 standards of the Public Company Accounting Oversight Board (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.
The financial statements for the year ended September 30, 2004 were audited by
other accountants, whose report dated December 3, 2004, expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date In our opinion, the information set forth in the accompanying
balance sheets as of June 30, 2005 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/ Jaspers + Hall, PC
Jaspers + Hall, PC
Denver, CO
July 27, 2005
F-1
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Balance Sheets
(Unaudited)
June 30, September 30,
2005 2004
------------- ----------------
ASSETS:
Current assets:
Cash $ 3,620 $37,344
Prepaid Expenses 43,500 20,000
------------- ----------------
Total current assets 47,120 57,344
------------- ----------------
Fixed assets:
Office Equipment (Net)
R&D Equipment 173,000 -
------------- ----------------
Total fixed assets 175,270 2,270
------------- ----------------
Other assets:
Patents
Deposit - Lease - 2,500
------------- ----------------
Total other assets 20,000 12,500
------------- ----------------
TOTAL ASSETS $ 242,390 $ 72,114
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 345,809 $ 89,030
Accrued Expenses
Notes Payable - 1,225
------------- ----------------
Total current liabilities 353,293 96,163
------------- ----------------
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;
121,196,239 shares issued and outstanding at June 30,
2005 and 114,036102 outstanding at September 30, 2004 3,669,791
Common stock warrants 1,200,000
Deficit accumulated during the exploratory stage (4,980,694) (4,328,445)
------------- ----------------
Total stockholders' equity (deficit) (110,903)
------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 242,390 $ 72,114
============= ================
See Accountants' Review Report
F-2
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
Feb. 25, 1997
Three-Months Ended Nine-Months Ended (Inception) to
June 30, June 30, June 30,
-------------------------------------- ---------------------------------
2005 2004 2005 2004 2005
------------------ ---------------- --------------- -------------- ------------------
Revenue $ - $ - $ - $ - $ -
Expenses:
Abandoned Equipment - - - - 808
Advertising 1,344 - 3,754 - 3,754
Bank Charges 71 193 372 255 2,485
Consulting 10,000 9,700 10,000 9,700 1,034,039
Contract R&D 144,310 61,645 357,646 74,495 487,139
Depreciation - - - - 3,178
Directors' Fees - 29 - 29 11,983
Due Diligence - - - - 45,832
Equipment Rental - - - - 6,295
Impairment loss - - - - 923,834
Legal & Accounting 31,150 6,462 49,783 21,807 238,143
Licenses & Fees - - 25 - 6,435
Meals & Entertainment 551 30 551 142 4,670
Office Expenses 587 4,488 3,135 7,247 22,334
Other Operating Expenses 2,098 - 2,098 - 2,098
Salaries 41,032 33,108 120,144 98,108 620,230
Postage & Shipping 377 122 849 424 4,066
Printing 1,219 57 1,721 191 7,301
Public Relations 42,645 350 81,871 1,190 192,837
Rent 3,290 2,250 7,040 7,423 24,003
Subscriptions 104 - 104 - 104
Taxes - - - - 4,657
Telephone 1,342 1,271 3,675 2,814 38,490
Transfer Agent Expense 319 843 3,413 2,643 19,738
Travel 1,904 1,665 6,584 1,887 69,517
Warrant Option Expense - - - - 1,200,000
------------ ------------ ----------- ----------- -------------
Total Operating Expenses 282,343 122,213 652,765 228,355 4,969,408
------------ ------------ ----------- ----------- -------------
Other Income (Expense)
Interest Expense - - 71,597
Returned Merchandise (98) - (516) - (516)
Interest Income - - (22)
Forgiveness of Debt - - (59,773)
------------ ------------ ----------- ----------- -------------
Net (Loss) $ (282,245) $ (122,213) $ (652,249) $ (228,355) $ (4,980,694)
------------ ------------ ----------- ----------- -------------
Per Share Information:
Weighted average number of
common shares outstanding 121,196,239 111,479,898
------------ ------------
Net Loss per Common Share * *
------------ ------------
See Accountants' Review Report
F-3
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Feb. 25, 1997
Nine-Months Ended (Inception) to
June 30, June 30,
--------------------------------------
2005 2004 2005
------------- ------------- ---------------
Cash Flows from Operating Activities:
Net Loss $ (652,249) $(228,355) $ (4,980,694)
Adjustments to reconcile net loss to cash used in
operating activities:
Issuance of Common Stock for Services
Issuance of Common Stock for Warrants
(Increase) Decrease in Deposits (22,500)
(Increase) in Prepaid Expenses (23,500)
Increase in Accrued Expenses & Taxes
Increase in Accounts Payable 256,779 39,608 345,809
------------- ------------- ---------------
Net Cash Flows Used for Operating Activities (380,894) (112,416) (2,175,344)
------------- ------------- ---------------
Cash Flows from Investing Activities:
Purchase of Fixed Assets (173,000)
Purchase of Intangible Assets (10,000) - (20,000)
------------- ------------- ---------------
Net Cash Flows Used for Investing Activities (183,000) - (195,270)
------------- ------------- ---------------
Cash Flows from Financing Activities:
Payment of Note Payable
Proceeds from Notes Payable
Issuance of Common Stock for cash 531,395 174,844 2,374,234
------------- ------------- ---------------
Net Cash Flows Provided by Financing Activities 530,170 179,212 2,374,234
------------- ------------- ---------------
Net Increase (Decrease) in Cash (33,724) 66,796 3,620
------------- ------------- ---------------
Cash and cash equivalents - Beginning of period 37,344 2,346 -
------------- ------------- ---------------
Cash and cash equivalents - End of period $ 3,620 $ 69,142 3,620
============= ============= ===============
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 $ 34,000 $ - $ 1,295,557
============= ============= ===============
See Accountants' Review Report
F-4
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Unaudited)
Deficit
Accumulated
Common During the
Common Stock Stock Exploration
# of Shares Amount Warrants Stage Totals
--------------- -------------- -------------- -------------- -------------
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)
--------------- -------------- -------------- -------------- -------------
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 cash 181,750 21,071 - - 21,071
Issuance of stock for cash 217,450 22,598 - - 22,598
Issuance of stock for cash 254,956 34,669 - - 34,669
Issuance of stock for cash 694,649 96,306 - - 96,306
Issuance of stock for cash 157,649 21,421 - - 21,421
Issuance of stock for cash 57,000 5,133 - - 5,133
Issuance of stock for cash 1,174,500 81,472 - 81,472
Issuance of common stock warrants - - 1,200,000 - 1,200,000
Net Loss for period - - - (1,509,068) (1,509,068)
--------------- -------------- -------------- -------------- -------------
Balance - September 30, 2004 114,036,102 3,104,396 1,200,000 (4,328,445) (24,049)
--------------- -------------- -------------- -------------- -------------
Issuance of stock for cash 5,907,537 471,068 - - 471,068
Issuance of stock for cash 300,600 20,067 - - 20,067
Issuance of stock for services 300,000 24,000 - - 24,000
Issuance of stock for cash 527,000 40,260 - - 40,260
Issuance of stock for services 125,000 10,000 - - 10,000
Net Loss for Period - - - (652,249) (652,249)
--------------- -------------- -------------- -------------- -------------
Balance - June 30, 2005 121,196,239 $3,669,791 $1,200,000 $(4,980,694) $ (110,903)
=============== ============== ============== ============== =============
See Accountants' Review Report
F-5
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC.)
Notes to Financial Statements
June 30, 2005
(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, 2005 and the results of
operations for the three and nine-months ended June 30, 2005 and 2004 and for
the period February 25, 1997 (inception) to June 30, 2005, and cash flows for
the nine-months ended June 30, 2005 and 2004 and the for the period February 25,
1997 (inception) to June 30, 2005. 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, 2004.
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 - Commitment:
On September 17, 2004, the Company entered into a definitive asset license and
cooperative venture agreement with MVSystems, Inc. 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.
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. No shares of stock have been issued in Fiscal Year 2005.
The Plan was cancelled by the Board due to non-approval in August 2005.
Note 5 - Material Definitive Agreement:
On July 14, 2005, the Company issued a secured convertible debenture to Cornell
Capital Partners, LLP for aggregate proceeds of $850,000. In connection with
this transaction, the Company also issued 2,609,263 shares of common stock and
five-year warrants to purchase 4,250,000 shares and 2,125,000 shares at $0.15
and $0.20, respectively. All securities were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
F-6
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 relies substantially on outsourced and contracted strategic
relationships for service associated with the development of its technology and
products. A loss of strategic relationships used in the development of our
products and technology could impede our ability to complete our product and
result in a material adverse effect causing the business to suffer. We have
established a plan of operations under which we rely on a strategic relationship
with MVSystems, Inc. to provide general facilities, personnel, and expertise in
the research and development of the technology and manufacturing process
underlying our Power Glass (TM) product. A loss of this relationship for any
reason could cause us to experience difficulties in completing the development
of our product and implementing our business strategy. There can be no assurance
that we could establish other relationships of adequate expertise in a timely
manner or at all.
3
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 Reports on
Form 10-KSB filed by the Company and any Current Reports on Form 8-K filed by
the Company.
CURRENT OVERVIEW
XsunX, Inc. is developing Power Glass(TM) - an innovative solar
technology that allows glass windows to produce electricity from the power of
the sun. This process for producing electricity is known as Photovoltaics.
Photovoltaic ("PV") is the science of capturing and converting solar energy into
electricity.
Using patented solar cell design and manufacturing processes, the
Company is focused on the development of very thin semi-transparent coatings on
thin-film flexible plastics that create large area monolithic solar cell
structures that you can see through. This semi-transparency makes Power
Glass(TM) glazing desirable for placing over glass, plastics, and other
see-through structures.
The Company's strategy is to complete the development and
commercialization of its Power Glass(TM) process and enter into licensing
agreements with channel partners who will manufacture and distribute products
made with the XsunX solar electric glass technology. In this manner, it is
anticipated that glass manufactures will incorporate the Power Glass(TM)
technology into their manufacturing process as an "original equipment
manufacturer" (OEM) and sell the finished product to their consumers.
For the period ended June 30, 2005, the Company had and continues to
focus on the development and refinement of commercially appealing solar cell
designs, proprietary manufacturing processes and facilities design that could be
provided to our future licensees as turn-key solutions for the mass production
of Power Glass(TM) films. A large part of the Company's investment capital is
used for product development. However, this may begin to shift towards
marketing, sales, and business development in this new fiscal year ending
September 30, 2005.
The Company continues to develop and optimize the XsunX Power Glass(TM)
process for future commercial applications. Areas of current process development
include:
(a) Process development on thin-film sheet and rolled polymers and
plastics
(b) Characterize efficiency and transparency vs. thickness - curves
for applications
(c) Engineer the integration of reel-to-reel and laser scribing
process into manufacturing devices
In conjunction with on going R&D efforts the Company is working with
various manufactures to assist in the development of specific applications,
processes and manufacturing requirements.
The Company intends to continue to make investments in the commercial
development of its patents and evolving technologies through the course of the
next year. To finance these development efforts we are currently engaged in on
going capital formation efforts to fund the Company's projected deficits for
development costs in the current year. The Company intends to continue to
fulfill its working capital requirements through the sale of Common Stock. A
majority of the investment proceeds will be allocated for the commercial
development of its Power Glass(TM) product line.
4
Management believes the summary data presented herein is a fair
presentation of the Company's results of operations for the periods presented.
Due to the Company's change in primary business focus in October 2003 and new
business opportunities these historical results may not necessarily be
indicative of results to be expected for any future period. As such, future
results of the Company may differ significantly from previous periods.
Results of Operations for the Three-Month Period Ended June 30, 2005 Compared to
the Same Period in 2004
The Company generated no revenues in the period ended June 30, 2005 as
well as for the same period in 2004.
The Company incurred operating expenses totaling $282,343 for the three
months ended June 30, 2005 compared to $122,213 for the same period in 2004.
Primary sources for the increase to operating expense of $160,130 include: an
increase of $82,665 in Research and Development activities, an increase of
$42,295 in Public Relations activity, and an increase of $35,170 in General and
Administrative expenses related to an increase in legal, accounting and business
development expenses. The $282,343 operating expenses includes non-cash charges
of $22,950 for the issuance of unregistered stock for business development and
advisory services in lieu of cash payment for services.
The net loss for the three months ended June 30, 2005 was ($282,245) as
compared to a net loss of ($122,213) for the same period 2004. The increase of
$160,032 includes (i) an increase in research and development expenditures of
$82,665 which is anticipated to continue 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 and (ii) an increase of $77,367 in General and
Administrative expenses attributed to the Company's business development and
investor awareness efforts.
These expenses are anticipated to continue to increase as the Company
continues the development of its business plan as a developer and provider of
solar electric technologies.
Results of Operations for the Nine Month Period Ended June 30, 2005 Compared to
Same Period ended June 30, 2004
The Company had no revenues in the nine-month period ended June 30,
2005 as well as for the same period in 2004.
The Company incurred operating expenses totaling $652,765 in the
nine-month period ended June 30, 2005 compared to $228,355 in the same period
ended June 30, 2004. The major components of the expenses in the nine-month
period were Contract R&D of $357,646, salaries of $120,144, legal and accounting
fees of $49,783, public relations expenses of $81,871, and general and
administrative expenses of 43,312. 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 ($652,249) and
($228,355) in the nine-month period ended June 30, 2005 and 2004 respectively.
The associated net loss per share was nominal in the nine-month period ended
June 30, 2005 and 2004. 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 June 30, 2005 of $3,620 and prepaid expenses in
the amount of $43,500 equaling total current assets of $47,120 as compared to
cash of $37,344 in cash and prepaid expenses in the amount of $20,000 equaling
total current assets of $57,344 as of September 30, 2004. The Company had a net
working capital (deficit) of ($306,173) as compared to a working capital
(deficit) of ($38,819) at September 30, 2004. 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.
5
Cash flow from financing activities used in operating activities during
the nine-month period ended, June 30, 2005, was ($380,894) as compared to using
($112,416) for the same period 2004. The increase of cash used in operations of
$268,478 included (i) an increase in research and development expenses of
$82,665 (ii) non-cash charges of $34,000 for un-registered stock issued for
investor relations and advisory services in lieu of cash payments (iii) and an
increase of $151,813 in general and administrative expenses in the commercial
development of the Company's new business objectives. The value of the stock
issued for services was determined by using the value of the last sale closing
price or a monthly average closing price as quoted on the OTCBB on the date of
issuance.
For the nine-months ended June 30, 2005, the Company's capital needs
have been met from 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 totaling $531,394.97 in the nine-months
ended June 30, 2005 of which $40,260 was completed in the quarter ended June 30,
2005 as compared to $179,212 for the nine-months ended June 30, 2004. The
proceeds from the above sales of unregistered securities were used to fund the
research and developments efforts and day-to-day operations of the Company and
to pay the accrued liabilities associated with these operations. See "Part II -
Item 2. Change in Securities" for a review of the sale or issuance of securities
in the three months ended June 30, 2005.
Cash and cash deposits at June 30, 2005 were $47,500, a decrease of
$125,494 from March 31, 2005. We had , at June 30, 2005, a working capital
(deficit) of ($306,173).We anticipate that there will not be sufficient cash
generated from operations in the current year necessary to fund our current and
anticipated cash requirements. The Company is currently engaged in efforts to
obtain additional financing from equity and debt placements.
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, 2005, did not have any products for sale, and had not generated any
revenue from sales or other operating activities. 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.
6
Based on the foregoing and the Company's history of losses, the
Company's financial statements for the nine-month period ended June 30, 2005
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 pursuant to Regulation S of
the Act on or about April 1, 2005, the Company accepted an offer for the sale of
327,000 shares at a price of $.0764 per share, which raised gross proceeds of
$24,980. This offer and sale was completed on April 1, 2005.
On or about May 5, 2005 the Company issued 125,000 shares of common stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services to be rendered to the company. The shares were valued at the market
price of the Company's common stock at the time of issuance which was $0.08 per
share for a total compensated value of $10,000.00.
In a private placement of the Company's common stock pursuant to Regulation S of
the Act on or about May 12, 2005, the Company accepted an offer for the sale of
200,000 shares at a price of $.0764 per share, which raised gross proceeds of
$15,280. This offer and sale was completed on May 12, 2005.
On or about July 21, 2005 the Company issued 49,231 shares of common stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services that had been rendered to the company. The shares were valued at the
average market price of the Company's common stock over the previous three month
period of services which was $0.1219 per share for a total compensated value of
$6,000.00.
In July 2005, the Company issued secured convertible debentures for aggregate
proceeds of $850,000. In connection with this transaction, the Company also
issued 2,609,263 shares of common stock and five-year warrants to purchase
4,250,000 shares and 2,125,000 shares at $0.15 and $0.20, respectively. All
securities were issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended.
7
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:
31 Sarbanes-Oxley Certification
32 Sarbanes-Oxley Certification
B. Reports on Form 8-K: None.
8
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 11, 2005 XSUNX, INC.
By: /s/ Tom M. Djokovich
----------------------------------------
Tom M. Djokovich, Chief Executive
Officer, President, and acting Chief
Financial Officer
9