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.
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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 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.
Critical Accounting Policies
The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods. Not all of the accounting policies require management to
make difficult, subjective or complex judgments or estimates. However, the
following policies could be deemed to be critical within the SEC definition.
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of
products, provided that evidence of an arrangement exists, title and risk of
loss have passed to the customer, fees are fixed or determinable, and collection
of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the
performance obligations for work are satisfied over time in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers. Under ASC 606, revenue and associated profit, will be recognized as
the customer obtains control of the goods and services promised in the contract
(i.e., performance obligations). All un-allocable indirect costs and corporate
general and administrative costs are charged to the periods as incurred.
However, in the event a loss on a contract is foreseen, the Company will
recognize the loss as it is determined.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates include estimates used
to review the Company's goodwill, impairments and estimations of long-lived
assets, revenue recognition on percentage of completion type contracts,
allowances for uncollectible accounts, inventory valuation, valuations of
non-cash capital stock issuances and the valuation allowance on deferred tax
assets. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable in the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
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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 December 31, 2019, the amounts
reported for cash, prepaid expenses, accounts payable and accrued expenses
approximate the fair value because of their short maturities.
Recently Issued Accounting Pronouncements
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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 2018.
Revenue and Cost of Sales:
The Company generated revenues in the three months ended December 31, 2019 and
2018 of $200,386 and $386,736 respectively. The decrease in revenue of $186,350
during the three months ended December 31, 2019 was attributable to delays in
procuring permits for the installation of sold commercial projects in the
period. We anticipate that through our marketing efforts that 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 three months ended December 31, 2019 and 2018
was $156,178 and $235,322, 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 $52,130 during
the three months ended December 31, 2019 to $121,606 as compared to $173,736 for
the three months ended December 31, 2018. 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 three months ended December 31, 2019 was $239,
compared to $92 for the three months ended December 31, 2018.
Other Income/(Expenses):
Other income and (expenses) decreased by $1,452,527 to $(24,027) for the three
months ended December 31, 2019, compared to $1,428,500 for the three months
ended December 31, 2018. The decrease was the result of a decrease in non-cash
gain on change of fair value of the derivative instruments of $1,489,136, a
decrease in loss on conversion of debt in the amount of $13,151, and a decrease
in interest expense of $23,458, which included a decrease in non-cash
amortization of debt discount in the amount of $21,947.
Net Income (Loss):
For the three months ended December 31, 2019, our net loss was $(101,664) as
compared to net income of $1,406,086 for the three months ended December 31,
2018. The majority of the decrease in net income of was due primarily to an
increase in other (expenses) associated with the net change in derivative
instruments estimated each period. These estimates are based on multiple inputs,
including the market price of our stock, interest rates, our stock price,
volatility, variable conversion prices based on market prices defined in the
respective agreements and probabilities of certain outcomes based on
managements' estimates. These inputs are subject to significant changes from
period to period, therefore, the estimated fair value of the derivative
liabilities will fluctuate from period to period, and the fluctuation may be
material. 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.
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Liquidity and Capital Resources
We had a working capital deficit at December 31, 2019 of $2,174,066, as compared
to a working capital deficit of $2,072,641 as of September 30, 2019. The
decrease in working capital deficit was the result of an increase in cash,
contract receivables, accrued expenses, contract liabilities, convertible notes
payable with a decrease in prepaid expenses, accounts payable, derivative
liability.
Cash flow provided by operating activities was $209,169 for the three months
ended December 31, 2019, as compared to cash flows provided by operating
activities of $45,095 for the three months ended December 31, 2018. The increase
in cash flow provided by operating activities was due to an increase in contract
liabilities.
Cash flow used in investing activities for the three months ended December 31,
2019 and 2018 were $0 and $647, respectively. The decrease was due to purchase
of fixed assets in the prior period.
Cash used in financing activities for the three months ended December 31, 2019
and 2018, was $7,200 and $0, respectively. Our capital needs have primarily been
met from the proceeds of private placements, convertible notes, and initial
revenues resulting from our change in business operations focused on the sale,
design, and installation of Solar Photovoltaic (PV), and managed Energy Storage
Systems (ESS) for commercial and industrial real-estate in in the period.
Our financial statements as of December 31, 2019 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, 2019, 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 three months ended December 31, 2019, the Company's capital needs have
been met from the use of working capital provided by the proceeds from revenues
in the amount of $200,386.
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.
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