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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

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☒ Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For The Quarterly Period Ended: March 31, 2018

☐ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For The Transition Period From ___________ to _______________

Commission File Number: 000-29621

(Exact name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

Registrant’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, as amended, during the preceding twelve (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☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐          Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)                     Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

The number of shares of common stock issued and outstanding as of May 21, 2018 was 1,406,800,138

TABLE OF CONTENTS

 

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PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements. 

XSUNX, INC.

CONDENSED BALANCE SHEETS

 

		March 31, 2018				September 30, 2017
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	20,822			$	23,056
Contract receivables			8,841				17,125
Prepaid expenses			2,219				6,967
Total Current Assets			31,882				47,148
Net Property & Equipment			1,006				1,146
TOTAL ASSETS		$	32,888			$	48,294
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable		$	112,666			$	83,870
Credit card payable			65,969				67,521
Accrued expenses and interest on notes payable			45,072				39,206
Billings in excess of cost			36,474				14,955
Derivative liability			806,968				625,645
Promissory note, related party			31,500				31,500
Convertible promissory note, related party			12,000				12,000
Convertible promissory notes, current portion net of debt discount of $37,433 and $865, respectively			32,600				92,168
Total Current Liabilities			1,143,249				966,865
LONG TERM LIABILITIES
Convertible promissory notes, net of debt discount of $354 and $147, respectively			165,526				125,653
Total Long Term Liabilities			165,526				125,653
TOTAL LIABILITIES			1,308,775				1,092,518
SHAREHOLDERS’ DEFICIT
Preferred stock 50,000,000 shares authorized, shares issued and outstanding designated as follows:
Preferred Stock Series A, $0.01 par value, 10,000 authorized       5,000 shares issued and outstanding			50				50
Common stock, no par value;      2,000,000,000 authorized common shares      1,406,800,138 and 1,040,146,548 shares issued and outstanding, respectively			33,229,814				32,935,727
Additional paid in capital			5,335,398				5,335,398
Paid in capital, common stock warrants			3,811,700				3,811,700
Accumulated deficit			(43,652,849	)			(43,127,099	)
TOTAL SHAREHOLDERS’ DEFICIT			(1,275,887	)			(1,044,224	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT		$	32,888			$	48,294

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

XSUNX, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2018 AND 2017

(Unaudited)

		Three Months Ended								Six Months Ended
		March 31, 2018				March 31, 2017				March 31, 2018				March 31, 2017
SALES		$	51,222			$	537,909			$	131,097			$	931,611
COST OF GOODS SOLD			26,086				363,551				69,385				662,605
GROSS PROFIT			25,136				174,358				61,712				269,006
OPERATING EXPENSES
Selling, general and administrative expenses			95,708				114,132				213,173				241,052
Depreciation and amortization expense			70				32				140				63
TOTAL OPERATING EXPENSES			95,778				114,164				213,313				241,115
LOSS FROM OPERATIONS BEFORE  OTHER INCOME/(EXPENSES)			(70,642	)			60,194				(151,601	)			27,891
OTHER INCOME/(EXPENSES)
Penalties			-				-				-				(200	)
Loss on settlement of debt			(101,030	)			-				(207,190	)			(36,320	)
Gain (Loss) on conversion of debt and change in derivative liability			(260,508	)			(15,976	)			(131,225	)			28,990
Interest expense			(27,027	)			(11,246	)			(35,734	)			(22,900	)
TOTAL OTHER INCOME/(EXPENSES)			(388,565	)			(27,222	)			(374,149	)			(30,430	)
NET (LOSS) INCOME		$	(459,207	)		$	32,972			$	(525,750	)		$	(2,539	)
BASIC EARNING (LOSS) PER SHARE		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)
DILUTED EARNING (LOSS) PER SHARE		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC			1,386,356,282				895,278,221				1,277,180,433				869,114,613
DILUTED			1,386,356,282				1,266,192,697				1,277,180,433				869,114,613

The accompanying notes are an integral part of these unaudited condensed financial statements.

XSUNX, INC.

CONDENSED STATEMENT OF SHAREHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2018

(Unaudited)

 

																		Additional				Stock Options/
		Preferred Stock								Common Stock								Paid-in				Warrants				Accumulated
		Shares				Amount				Shares				Amount				Capital				Paid-in-Capital				Deficit				Total
Balance at September 30, 2017			5,000			$	50				1,040,146,548			$	32,935,727			$	5,335,398			$	3,811,700			$	(43,127,099	)		$	(1,044,224	)
Common stock issued upon conversion of debt and accrued interest			-				-				366,653,590				294,087				-				-				-				294,087
Net Loss			-				-				-				-				-				-				(525,750	)			(525,750	)
Balance at March 31, 2018  (unaudited)			5,000			$	50				1,406,800,138			$	33,229,814			$	5,335,398			$	3,811,700			$	(43,652,849	)		$	(1,275,887	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

XSUNX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED MARCH 31, 2018

(Unaudited)

 

		Six Months Ended
		March 31, 2018				March 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(525,750	)		$	(2,539	)
Adjustment to reconcile net loss to net cash       (used in) provided by operating activities
Depreciation & amortization			140				63
(Gain)/Loss on conversion of debt and change in derivative liability			131,225				(28,990	)
Amortization of debt discount recorded as interest expense			14,880				9,697
Loss on settlement of debt			207,190				36,320
(Increase) Decrease in Change in Assets:
Contract receivables			8,284				(22,155	)
Contract assets			-				(88,723	)
Prepaid expenses			4,748				(10,900	)
Increase (Decrease) in Change in Liabilities:
Accounts payable			27,244				162,175
Accrued expenses			16,286				10,208
Billing in excess of cost			21,519				(18,636	)
NET CASH (USED IN) PROVIDED BY  OPERATING ACTIVITIES			(94,234	)			46,520
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible promissory notes			92,000				-
Payments on convertible promissory notes			-				(25,000	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			92,000				(25,000	)
NET INCREASE/(DECREASE) IN CASH			(2,234	)			21,520
CASH, BEGINNING OF PERIOD			23,056				22,172
CASH, END OF PERIOD		$	20,822			$	43,692
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	2,364			$	2,996
Taxes paid		$	-			$	-
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Fair value of issuance of common stock upon conversion of debt and accrued interest		$	294,087			$	48,955

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ended September 30, 2018.  For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended September 30, 2017.

The accompanying unaudited condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying unaudited condensed financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. During the six months ended March 31, 2018, the Company did not generate significant revenue, incurred a net loss of $525,750, and used cash in operations of $94,234. As of March 31, 2018, the Company had a working capital deficiency of $1,111,367, and a shareholders’ deficit of $1,275,887. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.  

The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception through the six months ended March 31, 2018. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its business development efforts in the solar PV industry. 

This summary of significant accounting policies of XsunX, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.  Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, revenue recognition, the deferred tax valuation allowance, the fair value of stock options, and derivative liabilities. Actual results could differ from those estimates.

 

For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.

 

Revenue Recognition (Continued)

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts, which require the revision, become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

 

The Asset, “Costs in excess of billing” represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billing in excess of costs”, represents billings in excess of revenues recognized on contracts in progress.

Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as any retentions, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.

 

Customers in our target market of California who purchase solar energy systems are covered by a warranty of up to 10 years in duration for material defects and workmanship. In addition, we provide a pass-through of the major components such as module mounting, inverter and solar panel manufacturers’ warranties to our customers, which generally range from 10 to 25 years. The Company has a limited history of project installations and will access potential warranty costs, and other allowances, based on our experience in servicing warranty claims as they may arise in the future. During the six months ended March 31, 2018, the Company did not experience costs related to warranty claims.

Net Earnings (Loss) per Share Calculations 

Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock based awards (Note 4), plus the assumed conversion of convertible debt (Note 5). 

 

For the six months ended March 31, 2018, the Company calculated the dilutive impact of the convertible debt of $247,913, which is convertible into shares of common stock. The convertible debt was not included in the calculation of net loss per share, because their impact was antidilutive. 

 

For the six months ended March 31, 2017, the Company calculated the dilutive impact of the convertible debt of $199,845, which is convertible into shares of common stock. The convertible debt was not included in the calculation of net loss per share, because their impact was antidilutive.

        Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of March 31, 2018, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses approximate the fair value because of their short maturities.

 

·	Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·	Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·	Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at  March 31, 2018:

 

		Total				(Level 1)				(Level 2)				(Level 3)
Liabilities
Derivative Liability		$	806,968			$	-			$	-			$	806,968
Total Liabilities measured at fair value		$	806,968			$	-			$	-			$	806,968

 

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:

 

 

 

In August 2016, FASB issued accounting standards update ASU-2016-15, “Statement of Cash Flows” (Topic 230) – Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2018, and interim periods with fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of ASU 2016-15 on the Company’s financial statements. 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.

 

At March 31, 2018, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with no par value.  The Company is also authorized to issue 50,000,000 shares of preferred stock with a par value of $0.01 per share of which 10,000 shares have been designated as Series A Preferred Stock.  The rights, preferences and privileges of the holders of the preferred stock are determined by the Board of Directors prior to issuance of such shares.

During the six months ended March 31, 2018, the Company issued 366,653,590 shares of common stock upon conversion of principal in the amount of $74,920, plus accrued interest of $11,977, with an aggregate fair value loss on settlement of debt of $207,190.

On May 20, 2014, the Company adopted the 2014 XSUNX, Inc. Stock Option and Award Plan (the “Plan”) to enable the Company to obtain and retain the services of the types of Employees, Consultants and Directors who will contribute to the Company’s long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company.  The 2007 Stock Option Plan is superseded by the newly adopted 2014 XSUNX, Inc. Stock Option and Award Plan. Options granted under the Plan may be either Incentive Options or Nonqualified Options and shall be administered by the Company’s Board of Directors (“Board”).  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified in the Option agreement. There are no stock options outstanding as of March 31, 2018.

5.    CONVERTIBLE PROMISSORY NOTES

 

        As of March 31, 2018, the outstanding convertible promissory notes are summarized as follows:

 

Convertible Promissory Notes, net of debt discount		$	198,126
Less current portion			32,600
Total long-term liabilities		$	165,526

 

Year Ending
September 30,
2019		$	-
2020			-
2021			50,880
2022			114,646
		$	165,526

         

At March 31, 2018, the $235,913 in convertible promissory notes has a remaining debt discount of $37,787, leaving a net balance of $198,126.

XSUNX, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2018

 

On October 20, 2015, the Company entered into a third extension of the Note originally issued September 30, 2013. The extension terms included mandatory payments of $10,000 per month beginning November 1, 2015 until the note in the amount of $143,033 is paid in full. The Note bears interest at 12% annum, and a conversion price of 60% of the lowest volume weighted average price (“VWAP”) occurring during the twenty trading days preceding any conversion date by Holder. The balance of the provisions of the Note remained substantially the same. As of March 31, 2018, the remaining balance of the Note is $18,033. As of March 31, 2018, the Note has matured and the Company and the Holder have entered into discussions for the repayment of the Note.

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “November Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The November Note matures eighteen months from each advance. The November Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or (b) fifty percent (50%) of the lowest trade prices following issuance of the November Note or (c) the lowest effective price per share granted to any person or entity. On November 20, 2014, the lender advanced $50,000 to the Company under the November Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the November Note. During the six months ended March 31, 2018, the Company issued 366,653,589 shares of common stock upon conversion of $74,920 in principal, plus accrued interest of $11,977, with a fair value loss of $207,190. As of March 31, 2018, there remains an aggregate outstanding principal balance of $50,880. During the six months ended March 31, 2018, the Company recognized debt amortization as interest expense in the amount of $142.

On May 10, 2017, the Company issued a 10% unsecured convertible promissory note (the “May Note”) for the principal sum of up to $150,000 plus accrued interest on any advanced principal funds. The Lender may pay additional consideration at the Lenders discretion. The Company received a tranche in the amount of $25,000 upon execution of the May Note. On various dates, the Company received additional tranches in the aggregate sum of $90,000. The principal balance at March 31,2018 was $115,000. The May Note matures twelve months from each tranche. Within thirty (30) days prior to the maturity date, the Lender may extend the maturity date to sixty (60) months. The May Note may be converted by the lender into shares of common stock of the Company at the lesser of $.01 per share or (b) fifty percent (50%) of the lowest trade price of common stock recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity. The Company recorded debt discount related to the conversion feature of the May Note, along with derivative liability at inception. During the six months ended March 31, 2018, the Company recognized debt amortization as interest expense in the amount of $609.

The Company issued an unsecured convertible promissory notes (the “Notes”), in the amount of $52,000 on date of January 11, 2018, which was funded on January 16, 2018. The Note matures on October 20, 2018, and bears interest at 10% per annum. The Note may be converted into shares of the Company’s common stock at a variable conversion price of 65% of the lowest two dollar volume weighted average price (“VWAP”) occurring during the fifteen trading days prior to conversion. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $14,567 during the six months ended March 31, 2018. 

As of March 31, 2018, the remaining unsecured Convertible Promissory Notes (the “Notes”) in the amount of $12,000 to a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $0.0045 per share. The Note matured on October 1, 2015, and bore a one-time interest charge of $1,200 which was applied to the principal on October 1, 2014. So long as any shares issuable under a conversion are subject to transfer and sale restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the Securities Act of 1933, the Company shall, upon written request by Holder, file Form S-8, if applicable, with the U.S. Securities and Exchange commission to register the issued.

For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

 

Risk free interest rate		Between 1.53% and 2.56%
Stock volatility factor		Between 38.0% and 179.0%
Months to Maturity		1 - 5 years
Expected dividend yield		None

At March 31, 2018, the fair value of the derivative liability was $806,968.

 6.    NOTE PAYABLE-RELATED PARTY

On August 5, 2014 the Company issued a 10% unsecured promissory note (the “Note”) to a related party in the aggregate principal amount of up to $80,000, plus accrued interest on any advanced principal funds.  The principal use of the proceeds from any advance under the Note are intended to assist in the purchase of materials, and services for the solar PV systems that we sell and install. Consideration advanced under the Note matures twenty-four (24) months from each advance. The balance as of March 31, 2018 was $31,500, plus accrued interest of $8,998.

 

7.    SUBSEQUENT EVENTS

Management has evaluated subsequent events as of the financial statement date according to the requirements of ASC TOPIC 855 and has the following subsequent events to report.

On May 7, 2018, XsunX, Inc. (the “Company”) issued a 10% unsecured convertible promissory note (the “Note”), with an accredited investor (the “Lender”) in the principal amount of $25,000 (the “Note”) which transactions closed upon the advanced of the principal amount on May 7, 2018. The Note matures on February 15, 2019, and bears interest of ten percent (10%) per annum. The Company has the right to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty-one days from issuance of the Note under a variable redemption rate premium. After one hundred and eighty days the holder may convert into shares of common stock at a conversion price to be 65% of the average of the two lowest dollar volume weighted average price (“VWAP”) occurring during the fifteen trading days preceding any conversion date by Holder. The Lender agreed that so long as the Note remains outstanding, the Lender, and the Lenders affiliates, will not enter into or effect “short sales” transactions of the common stock which would established a short position with respect to the common shares of the Company.

The convertible promissory note above was offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY AND FORWARD LOOKING STATEMENTS

In addition to statements of historical fact, this Quarterly Report on Form 10-Q 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. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A: Risk Factors” in the Company’s Annual Report on Form 10-K.

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-Q and Annual Reports on Form 10-K and Form 10-K/A filed by the Company and any Current Reports on Form 8-K filed by the Company.

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 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.

Organization

XsunX, Inc. (“XsunX,” the “Company” or the “issuer”) is a Colorado corporation formerly known as Sun River Mining Inc. “Sun River”). The Company was originally incorporated in Colorado on February 25, 1997. Effective September 24, 2003, the Company completed a plan of reorganization and name change to XsunX, Inc.

 

Business Overview/Summary

 

XsunX specializes in the sale, design, and installation of solar photovoltaic power generation (PV), energy storage in the form of managed battery systems (ESS), and energy use management technologies to provide our clients long term savings, predictability, and control of their energy costs. Making solar and managed energy solutions a sound investment for our clients is our mission.

 

We service the commercial self-generation energy market in California, and to a lesser extent the residential solar PV market where we see fewer barriers to entry and an overly competitive marketplace. We provide project assessment and installation services to our customers including technology selection, system engineering, procurement, permitting, construction, grid connection, warranty service, system monitoring and maintenance. We offer a wide variety of energy production and management technologies, design our systems in-house to ensure that the performance of the systems we deliver match the financial projections, and our full-time project management and licensed assembly crews ensure a seamless process, from start to finish.

The Company operates as licensed contractor in California, and our executive management provides over 30 years of extensive experience in all aspects of construction and project assembly to ensure the accuracy and quality of systems, the continued integrity of the improved building or site, and compliance with all construction codes.

We guide our performance by striving to deliver consistently on the following core objectives:

● Commitment – to keeping the customer’s best interests at the forefront at all times; and,

● Value – through a focus on performance and follow through that meets or exceeds customer expectations.

 

Net Income (Loss):

For the three months ended March 31, 2018, our net loss was $(459,207) as compared to net income of $32,972 for the three months ended March 31, 2017. This increase in net loss primarily stems from the increase in other income (expenses) associated with the derivative instruments, and an overall decrease in operating expenses, with a decrease in gross profit due to a decrease in revenue. While management is working to increase sales and revenues as it matures the scope of the Company’s capabilities and brand awareness for its commercial and residential solar PV systems, the Company anticipates there is no assurance that any continued trend in sales growth will continue.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2018 COMPARED TO SIX MONTHS ENDED MARCH 31, 2017.

Revenue and Cost of Sales:

The Company generated revenues in the six months ended March 31, 2018 and 2017 of $131,097 and $931,611 respectively. The decrease in revenue during the six months ended March 31, 2018 was attributable to delays in revenue recognition for several commercial projects sold in the period that were due to time requirements in the permitting processes, and customer project financing.  We can often encounter these types of delays in commercial solar energy project delivery that can result in revenue recognition spanning reporting periods. We anticipate that through our marketing efforts purchase interest, and sales, for our solar carport and energy storage systems will continue to improve and provide us with increased project flow that may result in more consistent period to period revenue growth results.

The costs of goods sold for the six months ended March 31, 2018 and 2017 was $69,385 and $662,605, respectively. The Company to date has had minimal revenue and cost of sales and anticipates continuing to generate revenues while working to increase sales volumes as it matures the scope of the Company’s capabilities and brand awareness.

Selling, General and Administrative Expenses:

Selling, General and Administrative (SG&A) expenses decreased by $27,879 during the six months ended March 31, 2018 to $213,173 as compared to $241,052 for the six months ended March 31, 2017. The decrease in SG&A expenses was related primarily due to the Company experiencing a decrease in administrative costs. Management expects SG&A expenses to increase in future periods as the Company continues to expand its marketing, sales, and service efforts.

Depreciation Expense:

Depreciation expense for the six months ended March 31, 2018 was $140, compared to $63 for the six months ended March 31, 2017.

Other Income/(Expenses):

Other income and (expenses) increased by $343,719 to $(374,149) for the six months ended March 31, 2018, compared to $(30,430) for the six months ended March 31, 2017. The increase in income (expenses) was the result of an increase in non-cash loss on conversion of debt and change of fair value of the derivative instruments of $160,215, and an increase in fair value of loss on settlement of debt of $170,870, an increase in interest expense of $12,834, which included a decrease in non-cash amortization of debt discount in the amount of $5,626, with a decrease in penalties of $200.

 

 

 

Our financial statements as of March 31, 2018 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated December 20, 2017, that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For the six months ended March 31, 2018, the Company’s capital needs have been met from the use of working capital provided by the proceeds of (i) the convertible notes and (ii) revenues in the amount of $131,097.

Capital Resources

We have only common and preferred stock as our capital resources. We have no material commitments for capital expenditures within the next year, however as we work to market and make sales of our commercial solar PV system services, substantial capital may be needed to expand and pay for these activities.

Need for Additional Financing

We do not have capital sufficient to meet our cash needs.  We will have to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made by our management or other stockholders.  Accordingly, there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We do not have any market risk sensitive instruments. Since all operations are in U.S. dollar denominated accounts, we do not have foreign currency risk. Our operating costs are reported in U.S. dollars.

The Company does not invest in term financial products or instruments or derivatives involving risk other than money market accounts, which fluctuate with interest rates at market.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 

Changes in Internal Control over Financial Reporting

There was no change to our internal control over financial reporting that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

None

Item 1A.  Risk Factors

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed with the Securities and Exchange Commission dated December 20, 2017. 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2018, the Company issued 92,951,726 shares of common stock upon partial conversion of a convertible note in principal in the amount of $16,060, plus the accrued interest of $2,530.

The Company relied on an exemption pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, in connection with the foregoing issuance.

Use of Proceeds from the Sale of Securities

The proceeds from the above sales of securities were and are being used primarily to fund efforts by the Company to market its solar PV and energy storage systems to potential customers, and in the day-to-day operations of the Company, and to pay the accrued liabilities associated with these operations.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mining and Safety Disclosures

None.

Item 5.  Other information

 

None

Item 6.  Exhibits

The following is a complete list of exhibits filed as part of this Form 10-Q.  Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

 

 

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.