FORM 10-Q
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, 2007
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 14, 2007 the number of shares outstanding of the registrant's only
class of common stock was 157,019,856.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
Table of Contents
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Independent Auditor's
Report................................................................................. F-1
Balance Sheets June 30, 2007 (unaudited) and September 30, 2006............... F-2
Statements of Operations for the Three Months ended June 30, 2007 and
2006 (unaudited) and the period February 25, 1997 (inception) to June
30, 2007...................................................................... F-3
Statements of Stockholders' Equity for the period February 25, 1997
(inception) to June 30, 2007 unaudited)....................................... F-4
Statements of Cash Flows for the Three Months and Nine Months ended
June 30, 2007 and 2006 (unaudited) and the period February 27, 1997
(inception) to December 31, 2006.............................................. F-6
Notes to Condensed Consolidated Financial Statements (Unaudited).............. F-7
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 1a. Risk Factors.................................................................. 7
Item 2. Changes in Securities......................................................... 10
Item 3. Defaults upon Senior Securities............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................... 10
Item 5. Other Information............................................................. 10
Item 6. Exhibits and Reports on Form 8-K.............................................. 10
Signatures............................................................................. 11
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
XSUNX, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
9175 E. Kenyon Avenue, Suite 100
Denver, CO 80237
303-796-0099
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
XSUNX, INC.
Aliso Viejo, CA
We have reviewed the accompanying balance sheet of XSUNX, INC. (a development
stage company) as of June 30, 2007, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the three and nine month
periods then ended. 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 persons 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
consolidated financial statements taken 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.
/s/ Jaspers + Hall, PC
Jaspers + Hall, PC
Denver, CO
August 13, 2007
F-1
XSUNX, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited) (Audited)
June 30, September 30,
2007 2006
------------------ ----------------
ASSETS:
Current assets:
Cash $ 1,363,815 $ 4,305,105
Prepaid Research and Development Expense - 3,200
Prepaid Research, Development and Professional Expense 291,088 330,918
Prepaid Legal Expense 25,167 15,000
------------------ ----------------
Total current assets 1,680,070 4,654,223
------------------ ----------------
Fixed assets:
Office & Misc. Equipment 36,034 9,774
Research and Development Equipment 502,153 392,301
Leasehold Improvement 89,825 80,492
------------------ ----------------
Total Fixed Assets 628,012 482,567
Less Depreciation (145,528) (84,941)
------------------ ----------------
Total fixed assets 482,484 397,626
------------------ ----------------
Other assets:
Patents 40,000 40,000
Security Deposit 5,815 2,615
Accrued Interest Receivable 68,493
Note Receivable 1,225,000
Marketable Prototype 1,765,000 1,765,000
------------------ ----------------
Total other assets 3,104,308 1,807,615
------------------ ----------------
TOTAL ASSETS $ 5,266,862 $ 6,859,464
================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 497,919 $ 582,161
Accrued Expenses 38,350 6,538
------------------ ----------------
Total current liabilities 536,269 588,699
------------------ ----------------
Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 50,000,000
shares authorized; no shares issued and outstanding - -
Treasury Stock, no par value; 26,798,418 issued and outstanding - -
Common Stock, no par value; 500,000,000 shares authorized;
157,019,856 shares issued and outstanding at June 30, 2007 13,278,869 13,290,869
and 157,169,856 shares were issued and outstanding at September 30, 2006
Common Stock Warrants 2,151,250 2,151,250
Deficit accumulated during the development stage (10,699,526) (9,171,354)
------------------ ----------------
Total stockholders' profit (deficit) 4,730,593 6,270,765
------------------ ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,266,862 $ 6,859,464
================== ================
See Accountants' Review Report
F-2
XSUNX, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Feb. 25, 1997
Three-Months Ended Nine-Months Ended (Inception) to
June 30th June 30th March 31,
---------------------------- ---------------------------
2007 2006 2007 2006 2007
------------- ------------- ------------- ------------ -------------
Revenue
Service Income $ - $ - $ 6,880 $ 8,000 $ 14,880
Other Income - - - - -
------------- ------------- ------------- ------------ -------------
Total Revenue - - 6,880 8,000 14,880
------------- ------------- ------------- ------------ -------------
Expenses:
Advertising 1,780 1,982 45,250 2,421 49,779
Bank Charges 663 78 892 244 3,799
Conferences & Seminars 1,125 7,040 10,495 8,540 21,762
Consulting 59,462 19,382 102,004 19,382 1,492,546
Depreciation 16,826 27,647 60,587 55,294 145,528
Directors' Fees - - - 11,983
Due Diligence - - 13,000 45,832
Dues and Subscriptions - - - -
Equipment Rental - - - 1,733
Filing Fees 1,079 - 3,576 4,625 7,504
Impairment loss - - - 924,642
Insurance 14,085 - 48,670 - 52,132
Legal & Accounting 84,501 21,244 194,078 89,853 639,073
Licenses & Fees 20 - 90 - 6,545
Loan Fees - - - 741,834
Meals & Entertainment - - - 4,119
Miscellaneous 1,170 832 1,198 1,632 9,900
Office Expenses 3,239 2,633 14,673 2,891 38,955
Patent Fees 625 - 625 2,469
Postage & Shipping 2,857 33 5,555 768 12,018
Printing 396 944 6,778 7,684 27,885
Public Relations 24,660 76,742 51,960 129,263 461,490
Recruitment Expenses 29,806 - 29,806 - 29,806
Research & Development 15,313 368,608 326,550 679,884 1,934,501
Rent 19,764 1,950 50,114 6,450 96,083
Salaries 220,736 87,152 578,616 172,050 1,507,867
Subscription Reports 6,093 2,594 6,093 2,787 9,858
Taxes 1,003 - 1,507 - 6,164
Telephone 5,543 1,961 17,831 5,292 71,805
Transfer Agent Expense 150 91 533 321 20,898
Travel, Meals & Entertainment 52,718 13,142 128,299 25,165 236,913
Utilities 3,815 - 3,815 - 3,815
Warrant Expense - 364 951,250 2,151,614
------------- ------------- ------------- ------------ -------------
Total Operating Expenses 566,804 634,680 1,689,334 2,179,421 10,770,852
------------- ------------- ------------- ------------ -------------
Other Income (Expense)
Interest Expense 651 515,555 1,015 567,999 248,014
Interest Income (71,820) (28,811) (156,589) (28,975) (244,681)
Forgiveness of Debt - - - - (59,773)
------------- ------------- ------------- ------------ -------------
Total Other Income/Expense (71,169) 486,744 (155,574) 539,024 (56,440)
------------- ------------- ------------- ------------ -------------
Net (Loss) $ (495,635) $ (1,121,424) $ (1,526,880) $(2,710,445) $ (10,699,532)
============= ============= ============= ============ =============
Per Share Information:
Basic
common shares outstanding 157,169,856 147,013,051 156,505,367 127,245,894
============= ============= ============= ============
Net Loss per Common Share $ (0.003) $ (0.008) $ (0.010) $ (0.021)
============= ============= ============= ============
See Accountants' Review Report
F-3
XSUNX, INC.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
June 30, 2007
(Unaudited)
Deficit
Accumulated
Common During the
Treasury Stock Common Stock Stock Exploration
---------------------- ------------------------
# of Shares Amount # of Shares Amount Warrants Stage Totals
---------------------- ------------------------ ----------------------- ----------
Inception February 25, 1997 - - - - - - -
Issuance of stock for cash - - 15,880 217,700 - - 217,700
Issuance of stock to Founders - - 14,110 - - - -
Issuance of stock for consolidation - - 445,000 312,106 - - 312,106
Net Loss for Year - - - - - (194,881) (194,881)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 1997 - - 474,990 529,806 - (194,881) 334,925
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for services - - 1,500 30,000 - - 30,000
Issuance of stock for cash - - 50,200 204,000 - - 204,000
Consolidation stock cancelled - - (60,000) (50,000) - - (50,000)
Net Loss for Year - - - - - (799,451) (799,451)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 1998 - - 466,690 713,806 - (994,332) (280,526)
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for cash - - 151,458 717,113 - - 717,113
Issuance of stock for services - - 135,000 463,500 - - 463,500
Net Loss for Year - - - - - (1,482,017) (1,482,017)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 1999 - - 753,148 1,894,419 - (2,476,349) (581,930)
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for cash - - 15,000 27,000 - - 27,000
Net Loss for year - - - - - (118,369) (118,369)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 2000 - - 768,148 1,921,419 - (2,594,718) (673,299)
---------- --------- ----------- ----------- --------- ----------- ----------
Extinguishment of debt - - - 337,887 - - 337,887
Net Loss for year - - - - - (32,402) (32,402)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 2001 - - 768,148 2,259,306 - (2,627,120) (367,814)
---------- --------- ----------- ----------- --------- ----------- ----------
Net Loss for year - - - - - (47,297) (47,297)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 2002 - - 768,148 2,259,306 - (2,674,417) (415,111)
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for Assets - - 70,000,000 3 - - 3
Issuance of stock for Cash - - 9,000,000 225,450 - - 225,450
Issuance of stock for Debt - 115,000 121,828 - - 121,828
Issuance of stock for Expenses - - 115,000 89,939 - - 89,939
Issuance of stock for Services - - 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 - (2,820,285) 1,441
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for cash - - 2,737,954 282,670 - - 282,670
Issuance of Common Stock Warrants - - - - 1,200,000 - 1,200,000
Net Loss for Year - - - - - (1,509,068) (1,509,068)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 2004 114,036,102 3,104,396 1,200,000 (4,329,353) (24,957)
---------- --------- ----------- ----------- --------- ----------- ----------
Issuance of stock for cash - - 6,747,037 531,395 - - 531,395
Issuance of stock for services - - 3,093,500 360,944 - - 360,944
Issuance of stock for collateral 26,798,418 - - - - - -
Net Loss for Year - - - (1,400,969) (1,400,969)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - September 30, 2005 26,798,418 - 123,876,639 3,996,735 1,200,000 (5,730,322) (533,587)
---------- --------- ----------- ----------- --------- ----------- ----------
See Accountants' Review Report
F-4
XSUNX, INC.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
June 30, 2007
(Unaudited)
Deficit
Accumulated
Common During the
Treasury Stock Common Stock Stock Exploration
---------------------- ------------------------
# of Shares Amount # of Shares Amount Warrants Stage Totals
---------------------- ------------------------ ----------------------- ----------
Issuance of stock for services - - 72,366 31,500 - - 31,500
Issuance of Common Stock Warrants - - - - 951,250 - 951,250
Issuance of stock for debenture
conversion - - 21,657,895 5,850,000
Issuance of stock for interest expense - - 712,956 241,383
Issuance of stock for warrant conversion - - 10,850,000 3,171,250
Net Loss for Year - - - - - (3,441,940) (3,441,940)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance September 30, 2006 26,798,418 - 157,169,856 13,290,868 2,151,250 (9,172,262) (2,992,777)
---------- --------- ----------- ----------- --------- ----------- ----------
Net Loss for Period - - - - - (583,680) (583,680)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance - December 31, 2006 26,798,418 - 157,169,856 13,290,868 2,151,250 (9,755,942) 5,686,176
Cancelation of Stock for Services Returned (150,000) (12,000) (12,000)
Release of Security Collateral (26,798,418)
Net Loss for Period (447,949) (447,949)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance March 31, 2007 - $ - 157,019,856 $ 13,278,868 $2,151,250 $(10,203,891) 5,226,228
========== ========= =========== =========== ========= =========== ==========
Net Loss for Period
(495,635) (495,635)
---------- --------- ----------- ----------- --------- ----------- ----------
Balance June 30, 2007 - $ - 157,019,856 $ 13,278,868 $2,151,250 $(10,699,526) 4,730,593
========== ========= =========== =========== ========= =========== ==========
all shares have been adjusted for the 1 for
20 reverse split.
See Accountants' Review Report
F-5
XSUNX, INC.
(A Development Stage Company)
Statment of Cash Flows
(Unaudited)
Feb. 25, 1997
Nine-Months Ended (Inception) to
June 30, June 30,
-----------------------------------
2007 2006 2007
-------------- ---------------- ---------------
Cash Flows from Operating Activities:
Net Loss $(1,526,880) $(2,710,445) $(10,699,532)
Issuance of Common Stock for Services (12,000) 7,500 1,336,998
Issuance of Common Stock for Loan Inducement - - 310,117
Warrant Expense - 951,250 2,151,250
Amortization of Loan Fees - 316,666
Issuance of Stock for Interest - 10,550 241,383
Depreciation 60,587 55,294 145,528
Written Off Equipment - -
Adjustments to reconcile net loss to cash used in - -
operating activities: -
(Increase) Accounts Receivable - -
(Increase) Security Deposit (3,200) (2,615) (5,815)
(Increase) in Prepaid Expense 29,664 (253,445) (316,249)
(Decrease) in Accounts Payable (84,242) 207,800 497,919
Increase in Accrued Expenses 31,812 828,586 38,350
-------------- ---------------- ---------------
Net Cash Flows Used for Operating Activities (1,504,259) (588,859) (6,300,051)
-------------- ---------------- ---------------
Cash Flows from Investing Activities:
Purchase of Equipment (143,538) (307,232) (628,012)
Note Receivable (1,225,000) (1,225,000)
Accrued Interest earned (68,493) (68,493)
Purchase of Intangible Assets (1,775,000) (1,805,000)
-------------- ---------------- ---------------
Net Cash Flows Used for Investing Activities (1,437,031) (2,082,232) (3,726,505)
-------------- ---------------- ---------------
Cash Flows from Financing Activities:
Proceeds from Debenture Issue - 4,500,000 5,000,000
Issuance of Common Stock for Warrants 3,171,250
Issuance of Common Stock for cash - 3,171,250 3,219,121
-------------- ---------------- ---------------
Net Cash Flows Provided by Financing Activities - 7,671,250 11,390,371
-------------- ---------------- ---------------
Net Increase (Decrease) in Cash (2,941,290) 5,000,159 1,363,815
-------------- ---------------- ---------------
Cash and cash equivalents - Beginning of period 4,305,105 175,869 -
-------------- ---------------- ---------------
Cash and cash equivalents - End of period $ 1,363,815 $ 5,176,028 $ 1,363,815
============== ================ ===============
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 1,015 $ 160,500 $ 72,361
============== ================ ===============
Income Taxes $ - $ - $ -
============== ================ ===============
NON-CASH TRANSACTIONS
Common stock issued (returned) in exchange for services $ (12,000) $ 7,500 $ 1,225,557
============== ================ ===============
Conversion of debt for Stock $ 3,850,000
============== ================ ===============
See Accountants' Reivew Report
F-6
XSUNX, INC.
(A Development Stage Company
Notes to Financial Statements
June 30, 2007
(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, 2007 and the results of
operations for the three and nine-months ended June 30, 2007 and 2006 and for
the period February 25, 1997 (inception) to June 30, 2007, and cash flows for
the nine-months ended June 30, 2007 and 2006 and the for the period February 25,
1997 (inception) to June 30, 2007. 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, 2006.
Note 2 - Lease - Golden Suite:
--------------------
As of July 1, 2006 a new lease was signed for the Golden Office in the amount of
$1,687.50 per month plus a fee of $825.00 for utilities. This will increase to
$1,788 per month on July 1, 2007 and $1,790.00 per month on July 1, 2008. The
lease expires on June 30, 2009.
Note 3 - Technology Development and Licensing Agreement
----------------------------------------------
On January 1, 2007, XSUNX, Inc. entered into a technology development program
with a private firm to obtain licensing rights to plasma technologies for
potential use in solar product manufacturing technologies. The technology
development program included a Secured Promissory Note in the amount of up to
$1,500,000 made by the private firm for the benefit of XsunX in conjunction with
a Loan Agreement and a Technology Development and License Agreement. The Note
was for a term of 7 years and provided interest to XsunX at the rate of 10% per
annum. Under the terms of the agreements, including the Note, XsunX provided the
private firm with a credit extension of $400,000 at the time of signing and was
to disburse further credit extensions in the sum of $137,500 per month for up to
eight months. These credit extension funds were to be used by the private firm
to develop technology to be licensed to XsunX under the terms of the Technology
Development and License Agreement. Upon the successful completion of the
technology development program, the Note could be converted into a membership
interest in the private firm and an extension of the license for a period of 3
years. The security for the Note consisted of an interest in certain tangible
and intangible assets of the private firm, the license rights, the ability to
exercise the conversion, and all other rights and remedies provided by law. As
of June 30, 2007, the current balance of the Note receivable was $1,225,000 plus
accrued interest earned in the amount of $68,493. Beginning in July, XsunX
suspended forwarding credit extension disbursements under the Note and requested
that the private firm provide more comprehensive reports associated with the
development of technology under the agreements. Each of the parties has now made
a claim for default under the terms of the Note, Loan Agreement, and Technology
Development Agreement. The parties are discussing mutually acceptable
resolutions to their differences. XsunX has established a segregated account in
which it has deposited funds sufficient to fund the maximum amount allowable
under the Note should resolution include such credit extension disbursements.
F-7
XSUNX, INC.
(A Development Stage Company
Notes to Financial Statements
June 30, 2007
(Unaudited)
Note 4 - Employment and Consulting Agreements
------------------------------------
Effective April 23, 2007, XSUNX, Inc. entered into a two year Consulting and
Advisory Agreement with Dr. Richard Ahrenkiel to become a member of the
Company's Scientific Advisory Board.
The company authorized the issuance of an option grant on April 23, 2007 to Dr.
Ahrenkiel in the amount of 100,000 option shares at an option exercise price of
$0.45 with a first vesting date of July 23, 2007 with following vesting
schedule:
(a) The Option shall become exercisable in the amount of
12,500 shares upon the First Vesting Date. Thereafter, the
Option shall vest become exercisable at the rate of 12,500
Shares per calendar quarter, or any apportioned amount
thereof, during the term of engagement by XsunX, Inc. of
the Optionee.
Note 5 - Agreement to Purchase Assets
----------------------------
Effective March 23, 2007 XsunX, Inc. entered into a binding letter of intent
with a manufacturer of photovoltaic products for the purchase of certain net
assets of the manufacturer for the amount of five million dollars ($5,000,000)
USD in a cash transaction. The purpose of the letter of intent, and interest in
the acquisition by XsunX, was driven by what XsunX anticipated was the
opportunity to expand its current operations to include technologies and
manufacturing capabilities for silicon wafer, conversion of wafers to solar
cells, complete solar module manufacturing, and module mounting components. The
operating assets are comprised of approximately twenty plus (20+) megawatts of
annual polysilicon wafer manufacturing capabilities, and approximately fifteen
(15) megawatts of solar cell and module manufacturing capabilities.
On or about April 27, 2007 the Company was notified by the seller of a change in
direction and decision not to honor the sales agreement. In response to the
sellers failure to honor the terms of the binding letter of intent the Company
filed a complaint against the seller and related entities in the United States
F-8
XSUNX, INC.
(A Development Stage Company
Notes to Financial Statements
June 30, 2007
(Unaudited)
Note 5 - Agreement to Purchase Assets Continued
--------------------------------------
District Court for the District of Massachusetts on May 10th, 2007, alleging
breach of contract and other claims. The Company continues to purse efforts to
enforce the terms and conditions of the binding letter of intent.
Note 6 - Planned Expansion of Business Operations
----------------------------------------
In April 2007, XsunX launched efforts to expand the scope of its business
development efforts to include the planned establishment of an XsunX solar
energy module manufacturing facility to be located in the United States. The
Company intends to employ the use of certain of its technologies, and those
under license, for use in the manufacture and sale of finished solar energy
products. In July, the Company updated these plans to reflect plans for a module
manufacturing line based on a dual 12.5 megawatt modular design delivering 25
megawatts of combined production capacity which the Company believes will allow
operations to scale incrementally from as little as 12.5 megawatts to 25 to 100
megawatts of production capacity. The Company is working to complete the
physical plans, complete site selection related to local and regional
governmental support programs, and reviewing appropriate financing opportunities
for the capital costs associated with the build out of the proposed new
facilities.
Note 7 - Agreement for the Sale of Equipment:
-----------------------------------
The Company has entered into agreements with a foreign based company for the
sale of certain vacuum deposition technology equipment valued at $41,800,000,
excluding royalty payments based on per watt annualized production totals. The
agreements, consisting of a systems sale and a royalty based manufacturing
license agreement, provide for thin film photovoltaic production equipment and
two product development tools specializing in the fabrication of
micro-crystalline and amorphous thin film silicon solar cells. Under the terms
of the agreement the buyer was to provide the Company with a cash initial
deposit payment of $2.5 million USD by June 30, 2007. In July, the buyer
notified XsunX that it is working with its investors to finalize financing and
facility requirements for the systems and requested an extension to its payment
terms. The Company has provided the buyer with a limited three month payment
extension and is continuing to work closely with the buyer providing technical
assistance as necessary.
F-9
XSUNX, INC.
(A Development Stage Company
Notes to Financial Statements
June 30, 2007
(Unaudited)
Note 8 - Subsequent Events:
-----------------
On July 3, 2007 the company issued a termination for cause notice to its vendor
working under a Phase 4 agreement for the development of commercially viable
methods to manufacture patent pending multi-terminal solar cell devices. The
decision to terminate was in part the result of an unsatisfactory review of the
performance of the vendor by the newly appointed XsunX Scientific Advisory
Board. The Company's modular 25MW system design does not incorporate the use of
this multi-terminal device and XsunX does not anticipate any disruption to its
current production plans from this change. XsunX plans to bring continued
product development efforts for the multi-terminal device in-house. The Company
anticipates that in addition to a reduction in direct costs associated with R&D,
it will also benefit from greater control over this development program.
F-10
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-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.
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 filed by the Company and any Current Reports on Form 8-K filed by the
Company.
3
CURRENT OVERVIEW
XsunX develops and markets proprietary Thin Film Photovoltaic (TFPV) solar cell
designs and core solar cell manufacturing systems focusing on both amorphous and
micro-crystalline silicon structures. These technologies represent
semi-transparent and opaque devices types used in the conversion of solar energy
into electrical power.
The product of the Company's development efforts are intended to deliver
licensable technologies in the form of an integrated solution providing, a)
commercially scalable manufactured processes and equipment designed for the
specific manufacture of the Company's thin film solar technologies, and, b)
proprietary thin film solar cell designs that address application opportunities
for use in products in the growing field of Building Integrated Photovoltaics
and conventional solar module production.
In October 2006 XsunX began sales and licensing efforts of its TFPV technologies
to a global group of existing and new entrant solar product manufacturers. This
effort was driven by what the Company perceived as a demand for new TFPV solar
technologies by manufacturers seeking opportunities to enhance their competitive
capabilities and better service their regional solar markets. Virtually all of
the interest in the Company's technologies has been generated from foreign based
companies seeking to capitalize on aggressive foreign government back subsidies
promoting investment in solar and other renewable technologies within those
regions.
In April 2007 XsunX launched efforts to expand the scope of its business
development efforts to include the planned establishment of an XsunX TFPV solar
energy module manufacturing facility to be located in the United States. The
intent of these business expansion efforts is to address what the Company
believes are growth opportunities within the domestic US market for solar energy
products with specific focus on solar modules for use in large scale commercial
projects, utilities, Power Purchase Agreements, and other on-grid applications.
The Company anticipates that key drivers associated with the projected growth in
demand for solar will be the adoption of Renewable Portfolio Standards (RPS)
within regional and state governments mandating minimum renewable energy
production quotas. XsunX believes that the use of tandem junction amorphous
technologies to manufacture TFPV solar modules, derived in part from its
multi-year development efforts with amorphous solar devices, provides XsunX
marketable opportunities addressing growth in domestic demand for solar
products.
The Company intends to employ the use of certain of its technologies, and those
under license, for use in the manufacture and sale of finished solar energy
products. In July 2007, the Company updated these plans to reflect plans for a
module manufacturing line based on a dual 12.5 megawatt modular design
delivering 25 megawatts of combined production capacity which the Company
believes will allow operations to scale incrementally from as little as 12.5
megawatts to 25 to 100 megawatts of production capacity . The Company is working
to complete the physical plans, complete site selection related to local and
regional governmental support programs, and reviewing appropriate financing
opportunities for the capital costs associated with the build out of the
proposed new facilities.
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, 2007 COMPARED TO
THE SAME PERIOD IN 2006
Sales:
-----
The Company generated no revenues in the period ended June 30, 2007 as compared
to zero revenue in the same period in 2006. Additionally, there was no
associated cost of sales.
Operating Expenses:
------------------
Operating Expenses for the three month period ending June 30, 2007 totaled
$566,804. This represents a reduction of $68,876 as compared to the same period
in 2006 which totaled $634,680. A comparative analysis of the period to period
performance is provided below.
Salaries and Wages:
------------------
Salaries and wages for the three month period ending June 30, 2007 were $220,736
as compared to $87,152 during the same period in 2006. The increase of $133,584
was driven by the addition of employees in marketing, finance and the
engineering and technical functions as part of a plan to increase internal
technical and scientific capabilities and reduce dependency on outside parties.
4
Research and Development:
------------------------
Research and Development expense for the three month period ending June 30, 2007
totaled $15,313 as compared to $368,608 for the same period in 2006. The
decrease of $353,295 reflects the winding down of the Company's outsourced
research and development efforts and new focus on the design and planned
implementation of the facilities necessary to commercialize the Company's
technology. This reduction is partially offset by the increase in salary and
wages and the company brings on staff to continue the research and development
efforts internally.
Professional Services:
---------------------
Public relations expense for the three month period ending June 30, 2007 totaled
$24,660 as compared to 76,742 during this same period in 2006. The reduction of
$52,082 represents a reduction in the utilization of public relations services
during the period due to reduced use of third party services.
Consulting expenses for the three month period ending June 30, 2007 totaled
$59,462 as compared to $19,382 during the same period in 2006, an increase of
$40,080. This increase is largely due to the establishment of a compensated
scientific advisory board and the use of professional engineering services
Legal and accounting fees for the three month period ending June 30, 2007
totaled $84,501 as compared to $21,244 during the same period in 2006. The
increase of $63,257 is largely due to legal services associated with enforcing
an agreement to acquire assets.
Recruiting fees of $29,806 were paid during the three month period ending June
30, 2007. This compared to no expenses during the same period in 2006. The
increase of $29,806 was driven by the hiring activity reflected in salary and
wages. We anticipate that costs associated with recruiting employees may
continue to rise in future periods.
Travel and Wages:
----------------
Expenses for travel and wages were $52,718 for the three month period ending
June 30, 2007. This compared to $13,412 for the same period in 2006. The
increase of $39,576 resulted from increase travel for sales and business
development opportunities in the normal course of business
The net loss for the three months ending June 30, 2007 was ($495,635) as
compared to a net loss of ($1,121,424) for the same period 2006. The decreased
net loss of $625,789 includes (i) The operating expense changes discussed above,
(ii) a decrease in interest expense of $514,904 related to the conversion of a
debenture in the prior period to common stock, and (iii) an increase in interest
income of $43,009 resulting from the investment of cash balances in interest
bearing accounts and the Sencera note.
The Company incurred net losses of ($495,635) and (1,121,424) in the three-month
period ended June 30, 2007 and 2006 respectively. The associated net loss per
share was $(0.003) for the three month period ended June 30, 2007 and $(0.008)
for the same period in 2006. The Company anticipates the trend of losses to
continue in future quarters until the Company can recognize sales of
significance of which there is no assurance.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED JUNE 30, 2007 COMPARED TO
THE SAME PERIOD IN 2006
Sales:
-----
The Company generated no revenues in the period ended June 30, 2007 as compared
to $6,880 in the same period in 2006.
Operating Expenses:
------------------
Operating Expenses for the nine months ending June 30, 2007 totaled $1,689,334.
This represents a reduction of $490,087 as compared to the same period in 2006
which totaled $2,179,421. A comparative analysis of the period to period
performance is provided below.
Salaries and Wages:
------------------
Salaries and wages for the nine month period ending June 30, 2007 were $578,616
as compared to $172,050 during the same period in 2006. The increase of $406,566
was driven by the addition of employees in marketing, finance and the
engineering and technical functions as part of a plan to increase internal
technical and scientific capabilities and reduce dependency on outside parties.
Research and Development:
------------------------
Research and Development expense for the nine month period ending June 30, 2007
totaled $326,550 as compared to $679,884 for the same period in 2006. The
decrease of $353,335 reflects the winding down of the Company's outsourced
research and development efforts and new focus on the design and planned
implementation of the facilities necessary to commercialize the Company's
technology This reduction is partially offset by the increase in salary and
wages and the company brings on staff to continue the research and development
efforts.
Professional Services:
---------------------
Public relations expense for the nine month period ending June 30, 2007 totaled
$51,960 as compared to 129,263 during this same period in 2006. The reduction of
$77,303 represents a reduction in the utilization of public relations services
during the period due to reduced use of third party services.
Consulting expenses for the nine month period ending June 30, 2007 totaled
$102,004 as compared to $19,382 during the same period in 2006, an increase of
$82,622. This increase is largely due to the establishment of a compensated
scientific advisory board and the use of professional engineering services
Legal and accounting fees for the nine month period ending June 30, 2007 totaled
$194,078 as compared to $89,853 during the same period in 2006. The increase of
$48,670 is largely due to legal services associated with enforcing an agreement
to acquire assets.
Recruiting fees of $29,806 were paid during the nine month period ending June
30, 2007. This compared to no expenses during the same period in 2006. The
increase of $29,806 was driven by the hiring activity reflected in salary and
wages. We anticipate that costs associated with recruiting employees may
continue to rise in furutre periods.
Travel and Wages:
----------------
Expenses for travel and wages were $128,299 for the nine month period ending
June 30, 2007. This compared to $25,165 for the same period in 2006. The
increase of $103,134 resulted from increase travel for sales and business
development opportunities in the normal course of business.
Facilities:
----------
Rent for Company facilities totaled $50,114 for the nine month period ending
June 30, 2007. This compares to $6,450 for the same period in 2006. The creation
5
of the research and development center in Golden, Colorado accounts for the
majority of the $43,664 increase in rent expense.
Telephone and internet expenses for the nine month period ending June 30, 2007
totaled $17,831. The total for the same period in 2006 was $5,292. The increase
of $12,539 is due largely to the creation of the research and development center
in Golden, Colorado.
Utilities for the nine month period ending June 30, 2007 were $3,815 as compared
to zero for the same period in 2006. The increase of $3,815 was due to the
creation of the research and development center in Golden, Colorado
The net loss for the nine months ending June 30, 2007 was ($1,526,880) as
compared to a net loss of ($2,710,445) for the same period 2006. The decreased
net loss of $1,183,565 includes (i) The operating expense changes discussed
above, (ii) a decrease in interest expense of $566,984 related to the conversion
of a debenture in the prior period to common stock, and (iii) an increase in
interest income of $127,614 resulting from the investment of cash balances in
interest bearing accounts and the Sencera note.
The Company incurred net losses of ($1,526,880) and (2,710,445) in the
nine-month period ended June 30, 2007 and 2006 respectively. The associated net
loss per share was $(0.01) for the three month period ended June 30, 2007 and
$(0.02) for the same period in 2006. The Company anticipates the trend of losses
to continue in future quarters until the Company can recognize sales of
significance of which there is no assurance.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at June 30, 2007 of $1,363,815 and prepaid expenses in the
amount of $316,255 as compared to cash of $4,305,105 and prepaid expenses in the
amount of $349,117 as of September 30, 2006. The Company had a net working
capital of $1,143,801 as compared to a working capital of $4,065,523 at
September 30, 2006. Cash flow used in operating activities during the nine-month
period ended, June 30, 2007, was ($1,502,352) as compared to a use of cash of
($588,859) for the same period 2006. The increase of cash used in operations of
$913,493 included (i) the decrease in net loss resulting primarily from
decreased interest expense of $566,984 relating to the conversion of a debenture
in prior periods to common stock, (ii) increased cash flow on interest income of
$156,589 of which $68,493 was a non-cash accrual of interest relating to the
Sencera note, and (iii) the operation changes discussed above. The current
period ending June 30, 2007 also included a non-cash depreciation expense of
$60,587 compared to $55,294 in the same period in 2006. Additionally, a non-cash
reduction to expense of $12,000 was realized in the period associated with the
return of common shares for services that were not performed.
For the six-months ended March 31, 2007, the Company's capital needs have been
met from the use of working capital provided by the proceeds of (i) the issuance
of Common Stock for Debenture conversion and; (ii) the issuance of Common Stock
for warrant conversion which both occurred in the fiscal year ended September
30, 2006.
We had, at June 30, 2007, cash and cash equivalents of $1,680,070 and net
working capital of $1,143,801.
DEVELOPMENT STAGE COMPANY
The Company is to currently working to transition from the development stage to
the implementation phase and as of the period ending June 30, 2007, did not have
any significant revenues. We have begun marketing efforts and anticipate the
sale of licenses in the 2007 or 2008 period, however the cash flow requirements
associated with the transition to revenue recognition may exceed cash generated
from operations in the current and future periods. We may seek to obtain
additional financing from equity and/or debt placements. As such, the Company's
ability to secure additional financing on a timely basis may be critical to its
ability to stay in business and to pursue planned operational activities.
While we have been able to raise capital in a series of equity and debt
offerings in the past there can be no assurances that we will be able to obtain
such additional financing, on terms acceptable to us and at the times required,
or at all.
6
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.
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
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.
The Company is currently not aware of nor has any knowledge of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.
Item 1A. RISK FACTORS
An investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described on
this Form 10-Q and Annual Reports on Form 10-K and Form 10KSB previously filed
by the Company and any Current Reports on Form 8-K filed by the Company. If any
of the risks discussed in these reports actually occur, our business, financial
condition and results of operations could be materially and adversely affected.
If this were to happen, the price of our shares could decline significantly and
you may lose all or a part of your investment. The risk factors described below
are not the only ones that may affect us. Our forward-looking statements in this
prospectus are subject to the following risks and uncertainties. Our actual
results could differ materially from those anticipated by our forward-looking
statements as a result of the risk factors below. See "Cautionary and
Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
-----------------------------
WE HAVE NOT GENERATED ANY SIGNIFICANT REVENUES AND MAY NEVER ACHIEVE
PROFITABILITY
We are a development stage company and, to date, have not generated any
significant revenues. From inception through June 30, 2007, we had an
accumulated deficit of $10, 699,526. For the quarter ended June 30, 2007 and
2006, we incurred net losses of $495,635 and $1,121,424 respectively. We cannot
assure you that we can achieve or sustain profitability in the future. Our
7
operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether our product development can be completed, and
if it will achieve market acceptance. We may not achieve our business objectives
and the failure to achieve such goals would have an adverse impact on us.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE
TERMS OR AT ALL
In the future, we may be required to raise additional funds, particularly if we
are unable to generate positive cash flow as a result of our operations. There
can be no assurance that financing will be available in amounts or on terms
acceptable to us, if at all. The inability to obtain additional capital may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
research and development plans. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR TECHNOLOGIES WHICH WOULD
RESULT IN CONTINUED LOSSES AND MAY REQUIRE US TO CURTAIL OR CEASE OPERATIONS
As is the case with any new technology, we expect the development process to
continue. We cannot assure that our engineering resources will be able to modify
the product fast enough to meet market requirements. We can also not assure that
our product will gain market acceptance and that we will be able to successfully
commercialize the technologies. The failure to successfully commercialize the
technologies would result in continued losses and may require us to curtail or
cease operations
OUR REVENUES ARE DEPENDENT UPON ACCEPTANCE OF OUR PRODUCTS BY LICENSEES; THE
FAILURE OF WHICH WOULD CAUSE TO CURTAIL OR CEASE OPERATIONS
We believe that virtually all of our revenues will come from the licensing of
our proprietary technologies to major manufacturers. We intend to offer
non-exclusive licensing rights. As a result, we will continue to incur
substantial operating losses until such time as we are able to generate revenues
from licensing and service fees for our products through our distribution
partners. There can be no assurance that businesses and customers will adopt our
technology and products, or those businesses and prospective customers will
agree to pay the licensing and service fees for our products. In the event that
we are not able to significantly increase the number of customers that license
our products, or if we are unable to charge the necessary license fees, our
financial condition and results of operations will be materially and adversely
affected.
IF WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN
QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
Our success is highly dependent on our ability to attract and retain qualified
scientific and management personnel. We are highly dependent on our management,
including Mr. Tom Djokovich who has been critical to the development of our
technologies and business. The loss of the services of Mr. Djokovich could have
a material adverse effect on our operations. We do not have an employment
agreement with Mr. Djokovich. Accordingly, there can be no assurance that he
will remain associated with us. His efforts will be critical to us as we
continue to develop our technology and as we transition from a development stage
company to a company with commercialized products and services. If we were to
lose Mr. Djokovich, or any other key employees or consultants, we may experience
difficulties in competing effectively, developing our technology and
implementing our business strategies.
THE LOSS OF EXSISTING VENDOR RELATIONSHIPS OR INABILITY TO LOCATE VENDORS WITH
THE SPECIFIC CAPABILITEIS OR CAPACITIES COULD SIGNIFICANLTY IMPEEDE OUR ABILITY
TO COMMERCIALIZE THE COMPANY'S TECHNOLOGY RESULITNG IN A MATERIAL ADVERSE EFFECT
CASUING THE BUSINESS TO SUFFER.
We have established a plan of operations under which a portion of our operations
rely on vendors to provide components of the manufacturing process, system
design, assembly, component parts or other equipment or expertise. A loss of any
of these relationships or an inability to locate vendors with capabilities and
/or capacities as required by the company could cause the Company to experience
difficulties in implementing our business strategy. There can be no assurance
that we could establish the necessary vendor relationships in a timely matter if
at all.
THE 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 a portion of our operations
rely on strategic relationships with third parties, to provide general
facilities, personnel, and expertise in research, development, systems design,
8
assembly and support. A loss of any of our third party relationships for any
reason could cause us to experience difficulties in 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.
WE CANNOT GUARANTEE YOU THAT OUR PATENTS ARE BROAD ENOUGH TO PROVIDE ANY
MEANINGFUL PROTECTION NOR CAN WE ASSURE YOU THAT ONE OF OUR COMPETITORS MAY NOT
DEVELOP MORE EFFECTIVE TECHNOLOGIES, DESIGNS OR METHODS WITHOUT INFRINGING OUR
INTELLECTUAL PROPERTY RIGHTS OR THAT ONE OF OUR COMPETITORS MIGHT NOT DESIGN
AROUND OUR PROPRIETARY TECHNOLOGIES.
We have been granted, and exclusively own, three patents from the United States
Patent and Trademark Office. We have also been granted a license to a patent and
technology portfolio relating to photovoltaic technology design, manufacturing
processes, and the development of technology. These patents and licenses may not
protect us against our competitors, and patent litigation is very expensive. We
may not have sufficient cash available to pursue any patent litigation to its
conclusion because currently we do not generate revenues.
We cannot rely solely on our current patents to be successful. The standards
that the U.S. Patent and Trademark Office and foreign patent office's use to
grant patents, and the standards that U.S. and foreign courts use to interpret
patents, are not the same and are not always applied predictably or uniformly
and can change, particularly as new technologies develop. As such, the degree of
patent protection obtained in the U.S. May differ substantially from that
obtained in various foreign countries. In some instances, patents have been
issued in the U.S. while substantially less or no protection has been obtained
in Europe or other countries.
We cannot be certain of the level of protection, if any, that will be provided
by our patents. If we attempt to enforce them and they are challenged in court
where our competitors may raise defenses such as invalidity, unenforceability or
possession of a valid license. In addition, the type and extent of any patent
claims that may be issued to us in the future are uncertain. Our patents may not
contain claims that will permit us to stop competitors from using similar
technology.
THE FOLLOWING RISKS RELATE PRINCIPALLY TO OUR COMMON STOCK AND ITS MARKET VALUE:
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK WHICH MAY MAKE IT MORE DIFFICULT
FOR YOU TO DISPOSE OF YOUR STOCK
Our common stock is quoted on the OTC Bulletin Board under the symbol "XSNX."
There is a limited trading market for our common stock. Accordingly, there can
be no assurance as to the liquidity of any markets that may develop for our
common stock, the ability of holders of our common stock to sell our common
stock, or the prices at which holders may be able to sell our common stock.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
o technological innovations or new products and services by us or our
competitors;
o additions or departures of key personnel;
o sales of our common stock;
9
o our ability to integrate operations, technology, products and services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments;
o economic and other external factors; and
o period-to-period fluctuations in our financial results.
Because we have a limited operating history with limited revenues to date, you
may consider any one of these factors to be material. Our stock price may
fluctuate widely as a result of any of the above listed factors.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
WE HAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS IN THE
FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
Item 2. Changes in Securities - None.
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:
32 Sarbanes-Oxley Certification
33 Sarbanes-Oxley Certification
B. Reports on Form 8-K:
None
10
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: Auguest 14, 2007 XSUNX, INC.
By: /s/ Tom M. Djokovich
----------------------------
Tom M. Djokovich, Chief
Executive Officer, President
11