FORM 10-KSB
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to
the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2004
Commission file number: 000-29621
XSUNX, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1384159
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(State of incorporation) (I.R.S. Employer Identi-
fication No.)
65 Enterprise, Aliso Viejo, CA 92656
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(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 [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year. $0
Transitional Small Business Disclosure Format: Yes [_] No [X]
Aggregate market value of the authorized voting stock held by
non-affiliates of the registrant as of September 30, 2004: $41,420,791 based on
the last sale price at year end of $.45 as reported by OTCBB.
Number of authorized outstanding shares of the registrant's no par value
common stock, as of January 13, 2005: 119,577,012
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TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business 4
Item 2. Description of Property 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 14
Item 6. Management's Discussion and Analysis or Plan of Operation 17
Item 7. Financial Statements 21
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 21
Item 8A. Controls and Procedures 21
Item 8B. Subsequent Events 21
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 22
Item 10. Executive Compensation 24
Item 11. Security Ownership of Certain Beneficial Owners and Management 27
Item 12. Certain Relationships and Related Transactions 28
PART IV
Item 13. Exhibits and Reports on Form 8-K 30
Item 14. Principal Accountant Fees and Services 31
SIGNATURES 33
CERTIFICATES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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COMPANY HISTORY
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 Asset
Purchase Agreement (the "Plan") with Xoptix, Inc., a California corporation.
Pursuant to the Plan the Company acquire the following three patents
for Seventy Million (70,000,000) shares (post reverse split one for twenty): No.
6,180,871 for Transparent Solar Cell and Method of Fabrication (Device), granted
on January 30, 2001; No. 6,320,117 for Transparent Solar Cell and Method of
Fabrication (Method of Fabrication), granted on November 20, 2001; and No.
6,509,204 for Transparent Solar Cell and Method of Fabrication (formed with a
Schottky barrier diode and method of its manufacture), granted on January 21,
2003.
Pursuant to the Plan, the Company authorized the issuance of 110,530,000
(post reverse split) common shares. Prior to the Plan the Company had no
tangible assets and insignificant liabilities. Subsequent to the Plan the
Company completed its name change from Sun River Mining, Inc. to XsunX, Inc. The
transaction was completed on September 30, 2003.
GENERAL OVERVIEW
XsunX, Inc. is developing Power Glass(TM) - an innovative solar
technology that allows glass windows to produce electricity from the power of
the sun. This process for producing electricity is known as Photovoltaics.
Photovoltaic ("PV") is the science of capturing and converting solar energy into
electricity.
Using patented solar cell design and manufacturing processes, the
Company is focused on the development of very thin semi-transparent coatings on
thin-film flexible plastics that create large area monolithic solar cell
structures that you can see through. This semi-transparency makes Power
Glass(TM) glazing desirable for placing over glass, plastics, and other
see-through structures.
XsunX is leveraging its development efforts to commercialize Power
Glass(TM) technology as a solution for integrating renewable power generating
properties onto modern architectural glass and building facades. The process of
integrating renewable power generating properties into building materials and
onto buildings is know as Building Integrated Photovoltaics or "BIPV."
The Company believes that Power Glass(TM) technology can provide a
solution for the wide scale integration of BIPV energy producing products into
living and working environments - all without causing disruptive and costly
changes to lifestyles. Upon the completion of our commercialization process the
Company anticipates the majority of revenues to be derived from the licensing of
its technology.
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NATURE OF OPERATIONS
Management has established a plan under which the Company is
commercializing its Power Glass(TM) technology and developing new technology
through the contracting for research, development and commercialization
processes with certain qualified facilities that specialize in the Company's
target market segments. This product development process is anticipated to
provide the Company with the fastest path to marketable products, the
maximization of corporate resources, and, the broadest access to cutting edge
device, optical and material engineering facilities and technical expertise.
Although the Company faces many challenges in perfecting and
establishing viable commercial processes it is encouraged by its developments
efforts in which the production of working model samples of semi-transparent
photovoltaic glazing exceed 4% electrical conversion efficiencies. These working
models established the basis for process and cell refinement that the Company
believes will provide conversion efficiencies approaching 6% or greater. Through
the use of contracted facilities the Company is continuing to concentrate on the
refinement of cell structures, manufacturing processes, the balancing of light
transmittance and transparency, and conversion efficiencies.
In June 2004 XsunX established a strategic relationship with Colorado
based MVSystems, Inc. that designs, builds, and delivers state-of-the-art
manufacturing tools designed specifically for the thin film semiconductor
market. MVSystems, Inc. is equipped with both the technical staff and tools
necessary for the development and commercialization of the XsunX glazing
process. The terms of the working relationship provide XsunX with complete R&D
facilities without mark-up for profit on the use of staff and equipment. The
objective of the plan is to provide the Company with commercially viable
processes and manufacturing techniques necessary for the development of
demonstrable products.
XsunX, Inc. has increased its patent and technology assets by acquiring
an exclusive royalty free license to a suite of patents and technologies
specific to the design and manufacture of its semi-transparent solar electric
glazing initiative.
The patent portfolio and technologies of MVSystems, Inc., an
internationally recognized authority in the field of solar cell design and
manufacturing processes, are now part of the intellectual property assets of
XsunX. The technologies licensed encompass a wide spectrum of both material and
device sciences that the Company believes provides them with key aspects to the
commercial viability of integrating electrical power generating properties on to
millions of square feet of modern architectural glass facades.
The Company has and continues to make investments in the development of
intellectual property assets as part of a business-restructuring plan. The
purpose of these on going investments is to acquire, develop and market patented
and proprietary semi-transparent solar electric glazing processes.
PRODUCT STRATEGY
We anticipate that the primary product opportunity for Power Glass(TM)
technology will be in establishing a viable process for the commercial
manufacture of solar electric glass. This proprietary process will allow
manufacturers to apply a coating, film or glazing to glass, plastic and other
materials, which is semi-transparent and photovoltaic. Because XsunX Power
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Glass(TM) glazing is semi-transparent, the general appearance of products
manufactured using the XsunX process, which is in development, is not, or will
be minimally changed. When Power Glass(TM) is exposed to light, the light energy
is converted into electrical energy for use as a power source.
In today's, highly competitive, multi-billion dollar glass industry, XsunX hopes
Power Glass(TM) may become a source of competitive advantage for many glass
manufacturers - as solar glazing technology may become a competitive alternative
to non-energy producing coating and glazing.
GROWTH PLAN
The Company's strategy is to complete the development and
commercialization of its Power Glass(TM) process and enter into licensing
agreements with channel partners who would agree to manufacture and distribute
products made with the XsunX solar electric glass technology. We hope to have
glass manufactures incorporate the Power Glass(TM) technology into their
manufacturing process as an "original equipment manufacturer" (OEM) and sell the
finished product to their consumers.
The Company will offer non-exclusive licensing for a 3% royalty on
gross sales. By licensing the Power Glass(TM) technology to glass manufacturers,
the Company reduces operating expenses and saves capital in plant, property and
equipment. As a result, should the Company realize earnings it intends to
reinvest its retained earnings in R&D in an effort to continuously develop
related new technologies that will achieve sustainable competitive advantages
for the Company.
PROPRIETARY TECHNOLOGY AND PATENTS
XsunX has been awarded, and exclusively owns, the following three
patents from the United States Patent and Trademark Office for use in the
development and commercialization of Power Glass(TM):
o Transparent Solar Cell and Method of Fabrication - United States Patent
Number 6,180,871 - granted on January 30, 2001. (Device)
o Transparent Solar Cell and Method of Fabrication - United States Patent
Number 6,320,117 - granted on November 20, 2001. (Method of Fabrica-
tion)
o Transparent Solar Cell and Method of Fabrication - United States Patent
Number 6,509,204 - granted on January 21, 2003. (Formed with a Schottky
barrier diode and method of its manufacture)
In addition, XsunX licensed the patent and technology portfolio of
MVSystems, Inc., a Colorado corporation ("MVSystems") in September 2004. The
MVSystems portfolio represents over thirty years of photovoltaic technology
design, development, and best practices. Further, MVSystems provides XsunX with
expertise in the design of manufacturing systems necessary for the
commercialization of the Power Glass(TM) technology. The following are two of
the key patents licensed from MVSystems:
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o Semiconductor Vacuum Deposition System And Method Having A Reel-To-Reel
Substrate Cassette: US6, 258,408 B1: July 10th, 2001. (Method of
Fabrication)
o US Provisional Patent Application serial number 60/536,151- three
terminal and four terminal solar cells, solar cell panels, and method
of manufacture. (Device and Method of Fabrication); (Note: This is a
broad patent which covers the use of various approaches to lead to high
efficiency devices, whether they are semi transparent or opaque).
The Company intends to continue to develop additional processes,
techniques, and device designs. These research and development efforts may
provide the Company with additional proprietary technology that may lead to the
filing of new provisional and patent applications.
APPLICATIONS FOR SOLAR ELECTRIC GLASS AND GLAZINGS
Power Glass(TM) represents a new type of solar cell design that
balances solar cell efficiencies and manufacturing costs with broad applications
and uses. By balancing energy density and energy efficiency in product form
factors that cover large portions of our buildings, the Company anticipates that
the XsunX process may provide as much as a 100% efficiency-to-cost gain over
many conventional amorphous opaque solar cells. The Company anticipates that the
XsunX process may operate at up to 50%, or half, the efficiency of many
conventional amorphous opaque solar cells yet its preliminary manufacturing cost
estimates are anticipated to run at 25% of conventional solar cells. As a
result, Power Glass(TM) provides an opportunity for large portions of a
building's exterior surface to produce electricity. Power Glass(TM) has
ubiquitous applications -- including, but not limited to:
Large Buildings - Architectural Glass:
XsunX glazing could be applied to the windows of large buildings,
turning these structures into virtual power plants. Electrical power
generated can be used to run building systems augmenting other power
sources.
Industrial and Public Facilities - Canopy, Skylight, Roof & Laminates:
XsunX glazing could be applied to the various transparent surfaces of
large manufacturing and public facilities to supply a clean and renewable
portion of electrical power. XsunX believes that these types of products
and applications will provide economic incentives for the wide scale
adoption of the integrated use of Power Glass(TM) technologies. Film
produced by major company licensees using the XsunX process could be
supplied to building material manufacturers worldwide for development and
use in numerous applications.
BUSINESS DEVELOPMENT MODEL
The Company's management believes that the primary target opportunity
for XsunX's technology is makers and fabricators of glass and optical films. The
Company's strategy is to complete the development and commercialization of the
XsunX process, and then enter into relationships with channel partners who will
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manufacture and distribute products made with XsunX solar electric glazing
technology. The Company's management believes that the most achiveable path for
the Company involves licensing the XsunX process to companies with established
manufacturing and distribution facilities.
REVENUE AND DISTRIBUTION MODEL
The Company's management believes that virtually all of the Company's
revenues will come from the licensing of its proprietary Power Glass(TM) solar
electric glazing technology to major manufacturers. The Company will offer
non-exclusive licensing rights for a 3% royalty on gross sales. In this manner,
it is anticipated that glass manufacturers will incorporate the Power Glass(TM)
technology into their manufacturing process as an "original equipment
manufacturer" (OEM) and sell the finished product(s) to their consumers. No
licenses or contracts now exist with any manufacturer.
MARKET
The Company's technology can be applied to the already quite large and
established glass industries. That is, transparent glazing may enable solar
energy-production to enter mainstream markets because it can readily become
integral to the designs of buildings. Builders and manufacturers already use
glass, plastic and other materials, so they may be especially attracted to the
economic benefits of using the same materials that also produce electrical
energy.
According to the US Department of Energy, the global photovoltaic
industry reached $4.7 billion in worldwide sales in 2003 and is expected to grow
at a rate in excess of 15-20% per year over the next several decades. Management
believes the most compelling aspect to the solar electric opportunity is the
shear size and scope of the present antiquated energy marketplace.
In the long view, solar energy production is intrinsically attractive,
not only environmentally but also economically. Sunlight is readily, regularly,
and widely available; it is renewable; and it is easily accessible without the
massive expense of mining, drilling, or constructing huge dams or other
facilities. Tapping the sun directly, rather than through the solar energy
stored in fossil fuels, wood, or ethanol, makes too much economic sense not to
be inevitable.
MARKETING STRATEGY
XsunX's marketing strategy is to create a favorable environment to
license its solar electric glass technology. The Company intends to enhance,
promote and support the fact that products produced with the Power Glass(TM)
process provide users with a best of class technology that spans and
interconnects glass, optical film and energy markets to provide substantial
economic and environmental benefits.
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ADVERTISING AND PROMOTION
XsunX recognizes that a key to success will be to undertake focused
advertising and promotion efforts aimed at developing product awareness within
the glass manufactures, fabricators, optical film, and building industries. This
campaign will be performed on a scale necessary to meet license sales goals. To
accomplish its licensing goals, the Company requires a capable advertising
agency and public relations firm. When the process is ready to market, subject
to the recommendation of a marketing director, an agency will be selected and,
with their assistance, a comprehensive advertising and promotion plan will be
drafted.
BACKLOG OF ORDERS
There are currently no orders for sales at this time.
GOVERNMENT CONTRACTS
None at this time.
COMPETITIVE CONDITIONS
Currently, management is not aware of other products substantially
similar to those of the company on the market. However, larger existing firms
may be developing competitive products and may have extensive capital for
development work.
COMPANY SPONSORED RESEARCH AND DEVELOPMENT
No research was done by the Company prior to September 30, 2003. After
acquiring the technology, subsequent to September 30, 2003 the Company has begun
research and commercialization development and planning efforts. With proceeds
of capital raising efforts, the Company has engaged in on going development of
its technology for the purpose of commercializing its proprietary process for
licensing to glass manufacturers.
COMPLIANCE WITH ENVIROMENTAL LAWS AND REGULATIONS
The operations of the Company are subject to local, state and federal
laws and regulations governing environmental quality and pollution control. To
date, compliance with these regulations by the Company has had no material
effect on the Company's operations, capital, earnings, or competitive position,
and the cost of such compliance has not been material. The Company is unable to
assess or predict at this time what effect additional regulations or legislation
could have on its activities.
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ADMINISTRATIVE OFFICES
As of September 30, 2004 the Company leased administrative office
facilities located at 65 Enterprise, Aliso Viejo CA 92656 for approximately $750
per month pursuant to a six month lease agreement and month to month thereafter.
EMPLOYEES
The Company is a development stage company and as of September 30, 2004
had one salaried employee. Upon the completion of its reorganization the Company
retained its current President and Chief Executive Officer, Mr. Tom M.
Djokovich, on October 1, 2003. The Company projects that during the next 12
months the Company's workforce is likely to increase to 8, with 3 of the new
employees being in Administrative and 4 in marketing and sales positions. In
addition to the retention of these new employees the Company expects to continue
to use consultants, subcontract labor, attorneys and accountants as necessary,
and may find a need to engage additional full-time employees as necessary.
ADVISORY BOARD
In September 2004 the Company established the XsunX Scientific Advisory
Board to attract qualified specialists from the fields of material and device
engineering, and, industry specialists representing expertise in manufacturing,
design, certification and applications associated with glass, plastics and
building materials. It is anticipated that panel members will be engaged for a
period of two years. The advisory board retained a chairman, Dr. Arun Madan to
lead the panel, advise the development process and recommend additional
candidates for inclusion on the panel.
BIOGRAPHICAL INFORMATION DR. ARUN MADAN
Dr. Madan is a Research Professor in the Department of Metallurgical
and Materials Engineering at The Colorado School of Mines, President of
MVSystems Inc. and an adjunct professor at The University of Waterloo, Canada.
He became one of the originators of Amorphous Silicon technologies in 1970 and
fabricated the first TFT (thin film transistor) as part of his Ph.D thesis. With
over 30 years of leading edge scientific accomplishments he has published well
over one hundred scientific papers, published a textbook now in use at several
universities and holds fourteen patents on thin film semiconductor technology as
well as advanced vacuum semiconductor deposition systems. In addition to his
recognized leadership in the fields of thin film semiconductors and solar cells,
he is the founder of two firms, Glasstech Solar Inc. in 1985 and MVSystems, Inc.
in 1989. As founder of these firms he has gained over twenty years of
international business, marketing and management experience successfully
establishing technology sales exceeding $150 million dollars. Leveraging his
extensive scientific, business and leadership capabilities he has led teams of
scientists/engineers in multi-disciplinary programs providing contract research
and development work for a multitude of domestic and international agencies and
firms including the National Renewable Energy Laboratory (USA), BP-Solar (USA),
Shell (The Netherlands), Kovio (USA), Zettacore (USA), QinetiQ (UK), ENEA
(Italy) and Pacific Solar (Australia) etc. Dr Madan received his Ph.D. - Physics
from the University of Dundee, Scotland.
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TRADEMARKS AND PATENTS
The Company entered into an agreement for the purchase of the U.S.
registered trademark "Power Glass(TM)" and Internet domain name PowerGlass.com
in May 2004 from Western Gas and Electric Company, a California corporation. The
Company has not been issued registered trademarks for its "XsunX" trade name.
The Company may file trademark and trade name applications with the United
States Office of Patents and Trademarks for its proposed trade names and
trademarks.
In September 2003 the Company was assigned the rights to three patents
as part of an Asset Purchase Agreement with Xoptix Inc., a California
corporation. The patents acquired were No. 6,180,871 for Transparent Solar Cell
and Method of Fabrication (Device), granted on January 30, 2001; No. 6,320,117
for Transparent Solar Cell and Method of Fabrication (Method of Fabrication),
granted on November 20, 2001; and No. 6,509,204 for Transparent Solar Cell and
Method of Fabrication (formed with a Schottky barrier diode and method of its
manufacture), granted on January 21, 2003. (See "Certain Relationships and
Related Party Transactions.")
In addition, XsunX licensed the patent and technology portfolio of
MVSystems, Inc., a Colorado corporation ("MVSystems") in September 2004. The
license granted XsunX the royalty free exclusive rights for use by XsunX in its
pursuit to establish a commercially viable process for the manufacture of
semi-transparent solar cells and solar electric glazing processes and,
accordingly, included all MVSystems technology, know how, and resources which
are part of or related to the licensed patents and technology that was then or
may become applicable or beneficial to the furtherance of the business
objectives of XsunX in the future. The license was exclusive as to technology
pertaining to XsunX field of use as it pertains to the business of developing,
commercializing and licensing processes for the manufacture of semi-transparent
(greater than 5% transparency) solar cells or photovoltaic glazing technologies.
The following are two of the patents licensed from MVSystems that are
management believes to be beneficial to the development of scalable
manufacturing processes for Power Glass(TM) technology. Semiconductor Vacuum
Deposition System And Method Having A Reel-To-Reel Substrate Cassette: US6,
258,408 B1: July 10th, 2001. (Method of Fabrication); and US Provisional Patent
Application serial number 60/536,151- three terminal and four terminal solar
cells, solar cell panels, and method of manufacture. (Device and Method of
Fabrication); (Note: This is a broad patent which covers the use of various
approaches to lead to high efficiency devices, whether they are semi transparent
or opaque). See "Certain Relationships and Related Party Transactions."
RISK FACTORS
Need For Additional Financing. The Company has very limited funds, and
such funds may not be adequate to develop the Company's current business plan.
The ultimate success of the Company may depend upon its ability to raise
additional capital. If additional capital is needed, there is no assurance that
funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital.
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Regulation of Penny Stocks. The Company's securities, when available
for trading, will be subject to a Securities and Exchange Commission rule that
imposes special sales practice requirements upon broker-dealers who sell such
securities to persons other than established customers or accredited investors.
For purposes of the rule, the phrase "accredited investors" means, in general
terms, institutions with assets in excess of $5,000,000, or individuals having a
net worth in excess of $1,000,000 or having an annual income that exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their securities
in any market that might develop therefore.
In addition, the Securities and Exchange Commission has adopted a number
of rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1,
15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities
Exchange Act of 1934, as amended. Because the securities of the Company may
constitute "penny stocks" within the meaning of the rules, the rules would apply
to the Company and to its securities. The rules may further affect the ability
of owners of Shares to sell the securities of the Company in any market that
might develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
Company's management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in
the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to the
Company's securities.
Lack of Operating History. The Company was formed in 1997 and has had
an unsuccessful operating history. The re-organization of the Company and the
acquisition of solar electric glazing patents have provided the Company with a
new opportunity for business development which carries continued special risks
inherent in a new business opportunity. The Company must be regarded as a new or
start-up venture with all of the unforeseen costs, expenses, problems, and
difficulties to which such ventures are subject.
No Assurance of Success or Profitability. There is no assurance that
the Company will successfully commercialize its proprietary patented technology.
Even if the Company should successfully commercialize its proprietary patented
technology, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's common stock will be increased thereby.
12
Lack of Diversification. Because of the limited financial resources
that the Company has, it is unlikely that the Company will be able to diversify
its operations. The Company's probable inability to diversify its activities
into more than one area will subject the Company to economic fluctuations within
a particular business or industry and therefore increase the risks associated
with the Company's operations.
Dependence upon Management. The Company currently has only two (2)
individuals who are serving as its officers and three (3) as directors. The
Company will be heavily dependent upon their skills, talents, and abilities to
implement its business plan.
Indemnification of Officers and Directors. The Colorado Business
Corporation Act provides for the indemnification of its directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of the Company. The
Company will also bear the expenses of such litigation for any of its directors,
officers, employees, or agents, upon such person's promise to repay the Company
therefore if it is ultimately determined that any such person shall not have
been entitled to indemnification. This indemnification policy could result in
substantial expenditures by the Company which it will be unable to recoup.
Director's Liability Limited. The Colorado Business Corporation Act
excludes personal liability of its directors to the Company and its stockholders
for monetary damages for breach of fiduciary duty except in certain specified
circumstances. Accordingly, the Company will have a much more limited right of
action against its directors than otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
Dependence upon Outside Advisors. To supplement the business experience
of its officers and directors, the Company employ's accountants, technical
experts, appraisers, attorneys, or other consultants or advisors. The selection
of any such advisors will be made by the Company's President without any input
from stockholders. Furthermore, it is anticipated that such persons may be
engaged on an "as needed" basis without a continuing fiduciary or other
obligation to the Company. In the event the President of the Company considers
it necessary to hire outside advisors, he may elect to hire persons who are
affiliates, if they are able to provide the required services.
Competition. The Company expects to be at a disadvantage when competing
with many firms that have substantially greater financial and management
resources and capabilities than the Company.
No Foreseeable Dividends. The Company has not paid dividends on its
common stock and does not anticipate paying such dividends in the foreseeable
future.
Limited Public Market. There is only a limited public market for the
Company's common stock, and no assurance can be given that a market will
continue or that a shareholder ever will be able to liquidate his investment
without considerable delay, if at all. If a market should continue, the price
may be highly volatile. Factors such as those discussed in this "Risk Factors"
section may have a significant impact upon the market price of the securities
13
offered hereby. Due to the low price of the securities, many brokerage firms may
not be willing to effect transactions in the securities. Even if a purchaser
finds a broker willing to effect a transaction in these securities, the
combination of brokerage commissions, state transfer taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
ITEM 2. DESCRIPTION OF PROPERTY
--------------------------------
As of September 30, 2004 the Company leased administrative office
facilities located at 65 Enterprise, Aliso Viejo CA 92656 for approximately $750
per month pursuant to a six month lease agreement. The Company owns no real
property.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
The Company is not currently a party to any pending legal proceedings,
nor is its property subject to such proceedings, at January 14, 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None in fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------
The Company's common stock trades on the OTC Bulletin Board under the
symbol "XSNX." The range of high, low and close trade quotations for the
Company's common stock by fiscal quarter within the last two fiscal years, as
reported by the National Quotation Bureau Incorporated, was as follows:
Year Ended September 30, 2004 HIGH LOW CLOSE
-----------------------------
First Quarter ended December 31, 2003 $2.50 $.025 $.51
Second Quarter ended March 31, 2004 $1.25 $.25 $.465
Third Quarter ended June 30, 2004 $1.01 $.34 $.60
Fourth Quarter ended September 30, 2004 $ .75 $.30 $.45
Year Ended September 30, 2003
First Quarter ended December 31, 2002 $.017 $.005 $.006
Second Quarter ended March 31, 2003 $.012 $.007 $.007
Third Quarter ended June 30, 2003 $.025 $.01 $.01
Fourth Quarter ended September 30, 2003 $.07 $.007 $.03
14
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
NUMBER OF HOLDERS
As of September 30, 2004, there were approximately 536 record holders
of the Company's common stock, not counting shares held in "street name" in
brokerage accounts which is unknown. As of September 30, 2004, there were
approximately 114,036,102 shares of common stock outstanding on record with the
Company's stock transfer agent, Mountain Share Transfer. On September 30, 2004
the last reported sales price of our common stock on the OTCBB was $.45 per
share.
DIVIDENDS
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.
SALE OF UNREGISTERED SECURITIES
GRANT OF OPTIONS/WARRANTS
1. In September 2004 as part of a technology sharing and license
agreement the Company issued a total of 6,000,000 warrants with an exercise
price of $0.15 per share with a 5-year exercise term to MVSystems, Inc.
(beneficially Dr. Arun Madan. A License Stock Warrant in the amount of 5,000,000
shares was issued for a royalty free license in the exclusive use of certain
patents applicable to the Company's product development efforts. All warrants
associated with the License Stock Warrant vested upon issuance of the warrant. A
separate Technology Sharing Warrant in the amount of 1,000,000 shares was issued
as considerations for access to proprietary know how and the use of research and
development facilities at cost without mark-up for profit. The Technology
Sharing Warrant carries the following vesting provisions:
(i) 250,000 shares upon the satisfactory completion of Phase 2
under the Phase 2 development plan.
(ii) 250,000 shares upon the satisfactory completion, as
reasonably determined by the XsunX Board of Directors, of
any subsequent phase of development as may be defined under
a subsequent and future development proposal.
(iii) 500,000 shares upon the commercialization, meaning the
attainment of revenues exceeding $200,000, of an XsunX
process.
2. In September 2004 the Company issued a consultancy and advisory
warrant in the amount of 1,000,000 shares with an exercise price of $0.15 per
15
share. The warrant was issued as part of a Consultancy and Advisory Agreement
and carries a 5 year exercise term and the following vesting provisions:
(i) 25,000 Shares per month during and up to the first twenty-four
months (24) of engagement by XsunX, Inc. of consultant.
(ii) 150,000 shares upon the satisfactory completion of Phase 2 of
the XsunX, Inc. development proposal as defined under that
certain Phase 2 development plan.
(iii) 250,000 shares upon the sale and/or licensure of an XsunX
process.
3. In September 2004 the Company issued a consultancy and advisory
warrant in the amount of 1,000,000 shares with an exercise price of $0.15 per
share. The warrant was issued for the conversion of $15,000.00 dollars in
accrued consultancy fee's, and as part of a Consultancy and Advisory Agreement
and carries a 3 year exercise term and the following vesting provisions:
(i) 500,000 shares upon the effective date of the Warrant.
Thereafter, the Warrant shall become exercisable at the rate
of 125,000 Shares per calendar quarter up to the full amount
of the Warrant.
The following table sets forth information with respect to warrants for
the purchase of common stock of the Company granted during fiscal year ended
September 30, 2004. None of the Options were to officers, directors, or
affiliates.
Summary Non-Qualified Options
------------------------------------------------------------------------------------------
Number os shares to Weighted-average Number of shares Number of options
be issued upon exercise price of remaining or warrants vested
exercise of outstanding stock available for and available for
outstanding stock options or future issuance exercise as of
options or warrants warrants under the options September 30, 2004
------------------------------------------------------------------------------------------
8,000,000 $0.15 22,000,000 5,525,000
------------------------------------------------------------------------------------------
SALES OF SHARES
In a private placement of the Company's common stock made by the
Company that began on December 19, 2003 pursuant to Regulation S of the Act at a
variable price equal to 27% of the five (5) day average closing bid price, the
Company raised gross proceeds of $102,386.70 from the sale of 983,750 shares
during the quarter year ending September 30, 2004. The total gross proceeds rose
in this offering as of December 31, 2004 total $210,863.20 from the sale of
1,636,800 shares. The Company is offering a total of 3,000,000 shares pursuant
to this private placement, which has not been terminated and can be terminated
at the discretion of the Company with three (3) days prior written notice to the
purchaser.
16
In a private placement of the Company's common stock pursuant to
Regulation S of the Act that began on April 9, 2004 at a variable price equal to
30% of the closing bid price on the date of the purchase, the Company raised
gross proceeds of $105,802.67 from the sale 724,204 shares during the year
ending September 30, 2004. This offering was terminated on December 31, 2004.
In a private placement of the Company's common stock to accredited
investors on June 16, 2004 pursuant to Section 4(6) of Regulation D thereof, the
Company accepted an offer for the sale of 30,000 shares of common stock, at a
price of $.15 per share, which raised gross proceeds of $4,500.00. This offer
and sale was completed on June 16, 2004.
In a private placement of the Company's common stock pursuant to
Regulation S of the Act that began on August 26, 2004 at a variable price equal
to 25% of the previous days closing bid price on the date of the purchase, the
Company raised gross proceeds of $70,000.00 from the sale 1,000,000 shares
during the year ending September 30, 2004. The total gross proceeds raised in
this offering as of December 31, 2004, total $162,966.84 from the sale of
2,294,110 shares. This offering was terminated on December 1, 2004.
In a private placement of the Company's common stock pursuant to
Regulation S of the Act on November 8, 2004, the Company accepted an offer for
the sale of 1,543,500 shares at a price of $.11 per share, which raised gross
proceeds of $169,785.00. This offer and sale was completed on November 8, 2004.
USES OF PROCEEDS FROM SALES OF UNREGISTERED SECURITIES
The proceeds from the above sales of unregistered securities were used
primarily to fund the research and developments efforts and day-to-day
operations of the Company and to pay the accrued liabilities associated with
these operations.
ITEM 6. 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 Form 10-KSB 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:
17
Some of these risks might include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business,
inability to raise additional capital or financing to
implement its business plans;
(e) failure to commercialize its technology or to make sales;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by outside
parties;
(h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of warrants and stock
options, and other risks inherent in the Company's businesses.
The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the factors described in other
documents the Company files from time to time with the Securities and Exchange
Commission, including the Quarterly Reports on Form 10-QSB and Annual Report on
Form 10-KSB filed by the Company in 2004 and any Current Reports on Form 8-K
filed by the Company.
CURRENT OVERVIEW
XsunX, Inc. is developing Power Glass(TM) - an innovative solar
technology that allows glass windows to produce electricity from the power of
the sun. This process for producing electricity is known as Photovoltaics.
Photovoltaic ("PV") is the science of capturing and converting solar energy into
electricity.
Using patented solar cell design and manufacturing processes, the
Company is focused on the development of very thin semi-transparent coatings on
thin-film flexible plastics that create large area monolithic solar cell
structures that you can see through. This semi-transparency makes Power
Glass(TM) glazing desirable for placing over glass, plastics, and other
see-through structures.
The Company's strategy is to complete the development and
commercialization of its Power Glass(TM) process and enter into licensing
18
agreements with channel partners who will manufacture and distribute products
made with the XsunX solar electric glass technology. In this manner, it is
anticipated that glass manufactures will incorporate the Power Glass(TM)
technology into their manufacturing process as an "original equipment
manufacturer" (OEM) and sell the finished product to their consumers.
For the year ended September 30, 2004, the Company had and continues to
focus on the development and refinement commercially appealing solar cell
designs, proprietary manufacturing processes and facilities design that could be
provided to our future licensees as turn-key solutions for the mass production
of Power Glass(TM) films. A large part of the Company's investment capital was
used for product development. However, this may begin to shift towards
marketing, sales, and business development in this new fiscal year ending
September 30, 2005.
The Company intends to continue to make investments in the commercial
development of its patents and evolving technologies through the course of the
next year. To finance these development efforts we are currently engaged in on
going capital formation efforts to fund the Company's projected deficits for
development costs in the current year.
Management believes the summary data and audit 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.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004, COMPARED TO
FISCAL YEAR ENDED SEPTEMBER 30, 2003
The Company incurred expenses totaling $1,528,193 in 2004 compared to
$145,890 in 2003. The increase of $1,382,303 resulted from an increase of
$482,303 in normal and customary operational expenses and $900,000 in
non-reoccurring one time expenses as follows; research and product development
expenses increased by $129,493 as compared to $0 expenses incurred for the same
period in 2003. Technical consulting expenses increase by $194,700 during the
twelve months ended September 30, 2004 to $319,900 from $125,200. This included
$300,000 in non-cash expenses associated with the grant of in-the-money warrants
as consideration for technical and scientific consulting services for which we
may make similar arrangements for in future periods (see "Item 12. Certain
Relationships and Related Party Transactions"). And, there was a one-time
expense of $900,000 associated with the grant of in-the-money warrants as
consideration for a technology sharing and license agreement granting a royalty
free license to the Company (see "Item 12. Certain Relationships and Related
Party Transactions"). General and administrative expenses increased by $138,734
in the twelve months ended September 30, 2004 to $178,800 from $20,690 in 2003.
The increase of $158,110 in general and administrative expenses was primarily
the result of an increase to operational expenses associated with the
development of the Company's business. The Company had no revenues in 2002 or
2003.
For the twelve months ended September 30, 2004, the Company's
consolidated net loss was $(1,509,068) as compared to a consolidated net loss of
$(145,868) for the same period ended September 30, 2003. $900,000 of this
consolidated net loss was attributable to a one-time expense associated with the
19
grant of in-the-money warrants as consideration for a technology sharing and
license agreement granting a royalty free license to the Company (see "Item 12.
Certain Relationships and Related Party Transactions"). The net loss per share
was less than $(0.01) for the twelve month period ended September 30, 2004.
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. Since inception in 1997
the Company has accumulated deficits totaling ($4,328,445) to September 30,
2004.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (deficit) at September 30, 2004 was $(38,819) as
compared to $2,346 at September 30, 2003. There were no cash flows provided by
operations during the twelve months ended September 30, 2004.
Cash and cash equivalents at September 30, 2004 were $57,344, an
increase of $54,998 from September 30, 2003. During the year ended, September
30, 2004, the Company used $1,436,630 net cash in operating activities as
compared to using $27,372 net cash for the year ended, September 30, 2003. This
increase of net cash used in operations of $1,409,258 was primarily a result of
an increase in operational costs associated with the development of the
Company's business plan and a one-time expense of $900,000 associated with the
grant of in-the-money warrants as consideration for a technology sharing and
license agreement granting a royalty free license to the Company (see "Item 12.
Certain Relationships and Related Party Transactions").
For the twelve months ended, June 30, 2004, the Company's capital needs
have primarily been met from the proceeds of (i) private placements of
unregistered common stock pursuant to Rule 506 of Regulation D of the Securities
Act of 1933, as amended (the "Act"), to accredited investors at $0.15 per share
which raised gross proceeds of $4,500; (ii) private placements of common stock
made by the Company pursuant to Regulation S of the Act, at a variable price
ranging from 25% to 30% of the closing bid price on the date of the purchase of
the stock, which raised gross proceeds of $278,170; and (iii) loans to the
Company with a remaining balance $1,225. Total cash provided by financing
activities during the year ended September 30, 2004 decreased to $283,895 from
$562,420 during the period ended September 30, 2003. The decrease of $278,525
was mainly attributable to a decrease of $336,970 in the use of stock for the
payment of services in non-cash transactions.
During the year ended, September 30, 2004, we used $12,267 for
investing activities as compared to $3, for the year ended, September 30, 2003.
The increased use of cash for investing activities resulted from an increase in
the acquisition of assets in the form of equipment and trademark rights.
We had, at September 30, 2003, working capital of $57,344. We
anticipate that there will not be sufficient cash generated from operations in
the current year necessary to fund our current and anticipated cash
requirements. We plan to obtain additional financing from equity and debt
placements. We have been able to raise capital in a series of equity and debt
offerings in the past. While 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, we believe that sufficient capital can be raised in the
foreseeable future.
20
NET OPERATING LOSS
For federal income tax purposes, we have net operating loss carry forwards
of approximately $4,328,445 as of September 30, 2004. These carry forwards will
begin to expire in 2010. The use of such net operating loss carry forwards to be
offset against future taxable income, if achieved, may be subject to specified
annual limitations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
Please refer to pages F-1 through F-10.
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
-----------------------------------------------------------------
Michael B. Johnson & Company, CPA's of Denver, Colorado was retained in
1997 as auditors for the Company for fiscal year 1997 and thereafter.
ITEM 8A. CONTROLS AND PROCEEDURES
-----------------------------------------------------------------------------
The management of the Company has evaluated the effectiveness of the
issuer's disclosure controls and procedures as of a date within 90 days prior to
the filing date of the report (evaluation date) and have concluded that the
disclosure controls and procedures are adequate and effective based upon their
evaluation as of the evaluation date.
There were no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the most recent evaluation of such, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 8B. SUBSEQUENT EVENTS
-------------------------------------------------------------------------------
None
21
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
WITH SECTION 16(a)
------------------
The following table lists the executive offices and directors of the
Company as of September 30, 2004:
NAME Age POSITION HELD TENURE
Brian Altounian 41 Secretary, Director Since September 2003
Tom Djokovich 47 President, CEO, CFO, Director Since September 2003
Thomas Anderson 38 Director Since August 2001
The directors named above will serve until the next annual meeting of
the Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement, of
which none currently exists or is contemplated. There is no arrangement or
understanding between the directors and officers of the Company and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
The directors of the Company will devote such time to the Company's
affairs on an "as needed" basis, but less than 20 hours per month. As a result,
the actual amount of time which they will devote to the Company's affairs is
unknown and is likely to vary substantially from month to month.
BIOGRAPHICAL INFORMATION
BRIAN ALTOUNIAN, age 41, Chairman of the Board, and Secretary as of September
30, 2003;
Mr. Altounian has over 16 years of experience in the area of finance,
administration and operations. Most recently, he served as Executive Vice
President of Plyent, Inc., a provider of a proprietary software solution that
allows dynamic wireless Web access by Web enabled wireless thin clients, such as
cell phones and personal digital assistants (PDAs). Mr. Altounian previously
served as the Vice President of Finance for Lynch Entertainment, a producer of
family television series' for the Nickelodeon and Disney Channels. While at
Lynch, he established subsidiary corporations, purchased and oversaw the
construction of a state-of-the-art television studio facility, and built the
infrastructure of the company. Prior to joining Lynch Entertainment, Mr.
Altounian held key management positions at numerous entertainment companies
including Director of Finance and Administration at Time Warner Interactive;
Finance Manager for National Geographic Television; and Manager of Business
Services for WQED, the nation's first community-owned public television station.
He also founded his own consulting company, BKA Enterprises, a firm that
supported and advised entertainment and multimedia companies in the areas of
financial and business management. Mr. Altounian holds an undergraduate degree
from UCLA and an MBA from Pepperdine University.
TOM DJOKOVICH, age 47, President and Chief Executive Officer as of September 30,
2003, and Director;
22
Mr. Djokovich was the founder and served from 1995 to 2002 as the
Chief Executive Officer of Accesspoint Corporation, a vertically integrated
provider of electronic transaction processing and e-business solutions for
merchants. Under Mr. Djokovich's guidance, Accesspoint became a member of the
Visa/MasterCard association, the national check processing association NACHA,
and developed one of the payment industry's most diverse set of network based
transaction processing, business management and CRM systems for both Internet
and conventional points of sale. Prior to Accesspoint, Mr. Djokovich founded TMD
Construction and Development in 1979. TMD provided management for
multimillion-dollar projects incorporating at times hundreds of employees,
subcontractors and international material acquisitions for commercial,
industrial and custom residential construction services as a licensed building
firm in California. In 1995 Mr. Djokovich developed an early Internet based
business-to-business ordering system for the construction industry. Mr.
Djokovich also currently serves as a Director and Chairman of the Audit
Committee for Roaming Messenger, Inc., a publicly reporting company that
provides a breakthrough software solution for delivering real-time actionable
information for Homeland Security, emergency response, military and enterprise
applications.
THOMAS ANDERSON, age 38, became a director of the Company in August 2001;
Mr. Anderson has spent much of the last 10 years working as a
geologist in the environmental consulting field. His primary focus has been
stratigraphic, hydrogeologic, and geochemical characterization, and remediation
of hazardous waste sites. Mr. Anderson completed a M.S. in Environmental Science
and Engineering at the Colorado School of Mines in 1998. Since 1998, he has
provided consulting services to the Department of Energy and Department of
Defense for complex problems encountered during characterization and remediation
of radioactive and hazardous waste sites. He has been a Senior Environmental
Scientist at Concurrent Technologies Corp. from November 2000 to date. From
March 2000 to November 2000 he was employed as a hydrologist at Stone & Webster
Engineering, Inc. From July 1998 to March 2000 he was employed by advanced
Integrated Management Services as an Environmental Scientist/Engineer. From 1997
to 1998 he was a research assistant at Colorado School of Mines in Graduate
Program/Environmental Science.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC"). Reporting Persons are required
by the SEC to furnish the Company with copies of all Section 16 Reports they
file.
Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, the following persons were required to file forms pursuant to Section
16(a):
23
Name Form Filed
----------------------------------------------------------------
Tom Djokovich Form 3 October 24, 2003
Brian Altounian Form 3 October 22, 2003
Xoptix, Inc. Form 3* Did not file
* NOTE: Xoptix, Inc. was being liquidated pursuant to a Plan of Liquid
-ation, and the shares were distributed in December, 2003 pro rata to sharehold-
ers of Xoptix, Inc. in a liquidating distribution of assets in kind. Xoptix has
represented that no shareholder of Xoptix, Inc. receiving shares holds more than
10% of the issued and outstanding shares of Registrant.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
DIRECTOR COMPENSATION
Directors received no cash compensation for their service to the
Company as directors, but can be reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
SUMMARY COMPENSATION TABLE OF DIRECTORS
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Name Annual Meeting Fees Consulting Number of Number of
Retainer ($) Fees/Other Fees Shares (#) Securities
Fees ($) ($) Underlying
Options SARS (#)
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, Tom Djokovich $0 $0 $0 0 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, Brian Altounian $0 $0 $0 0 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, Thomas Anderson $0 $0 $0 0 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
EXCUTIVE OFFICER COMPENSATION
The annual compensation for the executive officers of the Company for the
post reorganization operations has not yet been determined, but is expected to
be established by a resolution of the Company's Board of Directors in the near
future. The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment agreements
with them in the future.
The following table and notes set forth the annual cash compensation
paid to officers of the Company.
24
SUMMARY COMPENSATION TABLE OF EXECUTIVES
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Name & Principal Position Fiscal Annual Annual Bonus Awards Other Restricted Securities
Year Salary ($) ($) Annual Stock Award(s) Underlying
Compensation ($) ($) Options/ SARS
(#)
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Tom Djokovich, President 2004 $130,000 0 0 0 0
2003 $0 0 0 0 0
2002 $0 0 0 0 0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Brian Altounian, Secretary 2004 $0 0 0 0 0
2003 $0 0 0 0 0
2002 $0 0 0 0 0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Thomas Anderson, Director 2004 $0 0 0 0 0
2003 $0 0 0 0 0
2002 $0 0 0 0 0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
(1) The Company has agreed to pay Mr. Djokovich $2,500 per week for
services provided as Chief Executive Officer up to and until the
Company determines executive compensation pursuant to an employment
agreement as determined by the Board. When necessitated by the
Company's adverse financial condition Mr. Djokovich has agreed to the
deferment of his monthly salary up to and until such time that the
Company can repay any such deferred amounts. In the period ended
September 30, 2004 Mr. Djokovich agreed to the deferment of $65,000
dollars of his salary until such time that the Company could begin to
repay him.
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)
Long Term Incentive Plans - Awards in Last Fiscal Year
(None)
WARRANTS
The following table sets forth information with respect to options to
purchase common stock of the Company granted during fiscal year ended September
30, 2004.
Non-Qualified Options
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
Name Date Issued Number Issued Exercise Expiration Date Consideration
Price
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
James (1) Bentley September 9, 1,000,000 $0.15 September 9, 2007 $15,000.00,
2004 consulting services
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
MVSystems, Inc. (2) September 17, 2004 5,000,000 $0.15 September 17, 2009 As part of a
technology license
agreement
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
MVSystems, Inc. (2) September 17, 2004 1,000,000 $0.15 September 17, 2009 As part of a
technology sharing
agreement
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
Dr. Arun Madan (3) September 17, 2004 1,000,000 $0.15 September 17, 2009 As part of a 5 year
consulting agreement
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
25
(1) Warrants granted to James Bentley shall become exercisable in the
amount of 500,000 shares upon the effective date of the Warrant. There
-after, the Warrant shall become exercisable at the rate of 125,000
Shares per calendar quarter up to the full amount of the Warrant.
(2) The Technology Sharing Warrant granted to MVSystems, Inc. in the amount
of 1,000,000 shares carries the following vesting provisions: The
Warrant shall become exercisable in the amount of 250,000 shares upon
the satisfactory completion of Phase 2 under the Phase 2 development
plan; 250,000 shares upon the satisfactory completion, as reasonably
determined by the XsunX Board of Directors, of any subsequent phase of
development as may be defined under a subsequent and future development
proposal; and, 500,000 shares upon the commercialization, meaning the
attainment of revenues exceeding $200,000, of an XsunX process.
(3) The Warrant granted to Dr. Arun Madan carries the following vesting
schedule: The Warrant shall become exercisable at the rate of 25,000
Shares per month during and up to the first twenty-four months (24) of
engagement by XsunX, Inc. of consultant; 150,000 shares upon the
satisfactory completion of Phase 2 of the XsunX, Inc. development
proposal as defined under that certain Phase 2 development plan; and,
250,000 shares upon the sale and/or licensure of an XsunX process.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR value
Name Shares Acquired Value Realized Number of Securities Value of Unexercised
on Exercise (#) ($) Underlying Unexercised In the Money
Option/SARs at FY-End (#) Options/SARs at
Exercisable / Unexercisable FY-End ($)
Exercisable /
Unexercisable
--------------------------------------------------------------------------------------------------------
None
No other compensation not described above was paid or distributed
during the last fiscal year to the executive officers of the Company. There are
no compensatory plans or arrangements, with respect to any executive office of
the Company, which result or will result from the resignation, retirement or any
other termination of such individual's employment with the Company or from a
change in control of the Company or a change in the individual's
responsibilities following a change in control.
26
INCENTIVE STOCK OPTIONS
Effective June 30, 2004, the Company adopted the 2004 Xsunx, Inc.
Option Plan (the "Plan") to provide incentives for obtaining and retaining the
services of eligible Employees, Consultants and Directors who are anticipated to
contribute to the Company's long range success and insure to the benefit of all
stockholders of the Company. The Plan authorizes the issuance of up to
30,000,000 shares of the Company's common stock pursuant to the grant and
exercise of up to 30,000,000 stock options. No options were issued to Employee's
or Directors under the Plan during the year ended September 30, 2004.
The Plan authorizes the issuance of up to 30,000,000 shares of the Company's
common stock pursuant to the grant and exercise of up to 30,000,000 stock
options. The Plan was approved by unanimous written consent of the Board of
Directors of Xsunx, Inc. The adoption of the Plan is subject to ratification by
a majority of the Company's stockholders, which approval must be obtained within
12 months from the date the Plan was adopted by the Board.
The Board of Directors administers the Plan or such committee or
committees as the Board may, from time to time, appoint to administer the Plan
("Administrator"). The Plan currently administered by the Board of Directors.
The Administrator selects the eligible persons to whom Awards may be granted and
the type of Award to be granted and determines, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determination, the Administrator takes into account the grantees'
present and potential contributions to the success of the Company and other
relevant factors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
The following table sets forth, as of the date of this Report, the
number of shares of common stock owned of record and beneficially by executive
officers, directors and persons who hold 5.0% or more of the outstanding common
stock of the Company as of December 31, 2004. Also included are the shares held
by all executive officers and directors as a group.
SHAREHOLDERS/ NUMBER OF SHARES OWNERSHIP
BENEFICIAL OWNERS PERCENTAGE
---------------------------------------------------------------------------
Tom Djokovich 17,903,000 14.97%
President & Director
65 Enterprise
Aliso Viejo, CA 92656
Brian Altounian 4,000,000 3.34%
Secretary
65 Enterprise
Aliso Viejo, CA 92656
Thomas Anderson 11,900 >.01%
1020 21st Street
Golden, Colorado 80401
All directors and executive
officers as a group (3 persons) 21,914,900 18.32%
27
Each principal shareholder has sole investment power and sole voting power over
the shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
-------------------------------------------------------------
No officer or director of the Company has or proposes to have any direct
or indirect material interest in any asset proposed to be acquired by the
Company through security holdings, contracts, options, or otherwise.
The Company has adopted a policy under which any consulting or finder's
fee that may be paid to a third party for consulting services to assist
management in evaluating a prospective business opportunity would be paid in
stock, stock purchase options or in cash. Any such issuance of stock or stock
purchase options would be made on an ad hoc basis. Accordingly, the Company is
unable to predict whether or in what amount such a stock issuance might be made.
TRADEMARK PURCHASE
On May 6, 2004 the Company entered into an agreement for the purchase
of the U.S. registered trademark "Power Glass(TM)" and the Internet domain name
"PowerGlass.com." The terms of the agreement provided that the purchase price
for the Trademark shall be: (i) the sum of $10,000.00 if paid within one (1)
year from the effective date of this Agreement; (ii) the sum of $20,000.00 if
paid after the conclusion of the first (1st) year but prior to the conclusion of
the second (2nd) year after the effective date of this Agreement; (iii) the sum
of $35,000.00 if paid after the conclusion of the second (2nd) year but prior to
the conclusion of third (3rd) year after the effective date of this Agreement;
or (iv) the sum of $50,000.00 if paid after the conclusion of the third (3rd)
year but prior to the conclusion of three (3) years and six (6) months after the
effective date of this Agreement. If payment is not made prior to the conclusion
of three (3) years and six (6) months after the effective date of this
Agreement, XsunX shall re-assign the Trademark back to Western as set forth
herein. As of the date of this report the Company has not paid any amounts
against the purchase of the trademark and domain name.
CONSULTANCY WARRANT, JAMES BENTLEY
In September 2004 the Company granted Mr. James Bentley a consultancy
and advisory warrant in the amount of 1,000,000 shares with an exercise price of
$0.15 per share. Mr. Bentley has worked with the Company in its initial stage
helping to establish a plan for the development of working samples and the
review and selection process for engaging qualified research and development
firms to initiate development efforts. Mr. Bentley has also assisted the Company
in continued efforts to expand research efforts and business development
opportunities. The warrant was issued for the conversion of $15,000.00 dollars
in accrued consultancy fee's, and as part of a Consultancy and Advisory
Agreement and carries a 3 year exercise term and the following vesting
provisions:
28
(i) 500,000 shares upon the effective date of the Warrant.
Thereafter, the Warrant shall become exercisable at the rate
of 125,000 Shares per calendar quarter up to the full amount
of the Warrant.
TECHNOLOGY SHARING AND LICENSE AGREEMENT
In September 2004 XsunX licensed the patent and technology portfolio of
MVSystems, Inc., a Colorado corporation ("MVSystems." The license granted XsunX
the royalty free exclusive rights for use by XsunX in its pursuit to establish a
commercially viable process for the manufacture of semi-transparent solar cells
and solar electric glazing processes and, accordingly, included all MVSystems
technology, know how, and resources which are part of or related to the licensed
patents and technology that was then or may become applicable or beneficial to
the furtherance of the business objectives of XsunX in the future. The license
was exclusive as to technology pertaining to XsunX field of use as it pertains
to the business of developing, commercializing and licensing processes for the
manufacture of semi-transparent (greater than 5% transparency) solar cells or
photovoltaic glazing technologies.
The following are two of the patents licensed from MVSystems that
management believes to be beneficial to the development of scalable
manufacturing processes for Power Glass(TM) technology. Semiconductor Vacuum
Deposition System And Method Having A Reel-To-Reel Substrate Cassette: US6,
258,408 B1: July 10th, 2001. (Method of Fabrication); and US Provisional Patent
Application serial number 60/536,151- three terminal and four terminal solar
cells, solar cell panels, and method of manufacture. (Device and Method of
Fabrication); (Note: This is a broad patent which covers the use of various
approaches to lead to high efficiency devices, whether they are semi transparent
or opaque).
In September 2004 as part of the above-described transaction the
Company issued a total of 6,000,000 warrants with an exercise price of $0.15 per
share with a 5-year exercise term. A License Stock Warrant in the amount of
5,000,000 shares was issued for a royalty free license in the exclusive use of
certain patents applicable to the Company's product development efforts. All
warrants associated with the License Stock Warrant vested upon issuance of the
warrant. A separate Technology Sharing Warrant in the amount of 1,000,000 shares
was issued as considerations for access to proprietary know how and the use of
research and development facilities at cost without mark-up for profit. The
Technology Sharing Warrant carries the following vesting provisions:
(i) 250,000 shares upon the satisfactory completion of Phase 2
under the Phase 2 development plan.
(ii) 250,000 shares upon the satisfactory completion, as
reasonably determined by the XsunX Board of Directors, of
any subsequent phase of development as may be defined under
a subsequent and future development proposal.
(iii) 500,000 shares upon the commercialization, meaning the
attainment of revenues exceeding $200,000, of an XsunX
process.
29
ADDITION OF CHAIRMAN TO SCIENTIFIC ADVISORY BOARD
In September 2004 Dr. Arun Madan was appointed as Chairman of
XsunX's Scientific Advisory Board. Dr. Madan has worked with the Company in its
initial phase helping to establish working models and a foundation of research
and development on which XsunX recently launched phase two of its development
efforts to bring innovative semi-transparent photovoltaic technologies to
market. The Board of Directors unanimously approved the appointment of Dr. Arun
Madan to chair the advisory board under the terms of a 5-year consulting
agreement. As compensation for services rendered under the terms of the
agreement Dr. Madan was granted a Consulting and Advisory Warrant for the
purchase of up to 1,000,000 shares with an exercise price of $0.15 per share, a
5-year exercise term the following vesting provisions:
(i) 25,000 Shares per month during and up to the first twenty-
four months (24) of engagement by XsunX, Inc. of consultant.
(ii) 150,000 shares upon the satisfactory completion of Phase 2
of the XsunX, Inc. development proposal as defined under
that certain Phase 2 development plan.
(iii) 250,000 shares upon the sale and/or licensure of an XsunX
process.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
The following documents are filed as part of this report:
1. Reports on Form 8-K:
8-K filed 5/28/03
8-K filed 7/16/03
8K/A filed 7/25/03
8-K filed 7/25/03
8-K filed 10/2/03
8-K/A filed 10/29/03
2. Exhibits:
10.1 Technology Sharing and License Agreement
10.2 Consultancy and Advisory Warrant to Purchase Common Stock of
XsunX, Inc. (MVSystems, Inc.)
10.3 Consultancy and Advisory Warrant to Purchase Common Stock of
XsunX, Inc. (James Bentley)
10.4 Consulting and Advisory Agreement (Dr. Arun Madan)
10.5 License Agreement Warrant to Purchase Common Stock of XsunX, Inc
10.6 Technology Sharing Warrant to Purchase Common Stock of XsunX,
Inc.
10.7 Transfer of Trademark Agreement
32 Sarbanes-Oxley Certification
33 Sarbanes-Oxley Certification
30
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------------------------------------------------------
The Company's Board acts as the audit committee and had no
"pre-approval policies and procedures" in effect for the auditors' engagement
for the audit year 2003 and 2004.
All audit work was performed by the auditors' full time employees.
Michael Johnson & Co., LLC, CPAs ("MJC") is the Company's principal
auditing accountant firm. The Company's Board of Directors has considered
whether the provision of the audit services is compatible with maintaining MJC's
independence.
AUDIT FEES 2004:
MJC billed the Company $5,900 for the following professional services:
audit of the annual financial statement of the Company for the fiscal year ended
September 30, 2003, and review of the interim financial statements included in
quarterly reports on Form 10-QSB for the periods ended December 31, 2003, March
31, 2004, and June 30, 2004.
AUDIT FEES 2003:
MJC billed the Company $3,000 for the following professional services:
audit of the annual financial statement of the Company for the fiscal year ended
September 30, 2003, and review of the interim financial statements included in
quarterly reports on Form 10-QSB for the periods ended December 31, 2002, March
31, 2003, and June 30, 2003. MJC billed the Company $4,250 for the 2002 audit.
The Company's Board acts as the audit committee and had no
"pre-approval policies and procedures" in effect for the auditors' engagement
for the audit year 2002 and 2003.
ALL OTHER FEES
MJC billed the Company $200 for other services, including preparation
of the tax returns for the Company for 2003, during the fiscal year ended
September 30, 2004.
31
INDEX
Form 10-KSB
Regulation Consecutive
S-K Number Exhibit Page Number
3.1 Articles of Incorporation Incorporated by reference
to Registration Statement
Form 10SB12G #000-29621
3.2 Bylaws Incorporated by Reference
to Registration Statement
Form 10SB12G #000-29621
32
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: January 18, 2005
XsunX, INC.
/s/ Tom Djokovich
---------------------------------
Tom Djokovich
President
DIRECTORS:
/s/ Tom Djokovich
--------------------------------
/s/ Brian Altounian
--------------------------------
/s/ Thomas Anderson
--------------------------------
33
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
September 30, 2004 and 2003
Michael Johnson & Co., LLC.
9175 Kenyon Ave., #100
Denver, CO 80237
303-796-0099
303-796-0137 - Fax
INDEPENDENT AUDITOR'S REPORT
Board of Directors
XSUNX, INC.
Aliso Viejo, CA
We have audited the accompanying balance sheets of XSUNX, Inc., (formerly Sun
River Mining, Inc). (A Development Stage Company) as of September 30, 2004 and
2003, and the related statements of operations, cash flows, and stockholders'
equity for the years ended September 30, 2004 and 2003 and for the period from
February 25, 1997 (inception) to September 30, 2004. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States.and standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XSUNX, INC., (formerly Sun
River Mining, Inc.) at September 30, 2004 and 2003 and the results of their
operations and their cash flows for the years ended September 30, 2003 and 2002
and for the period from February 25, 1997 (inception) to September 30, 2004 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, conditions exist which raise substantial doubt about the
Company's ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its obligations and sustain its operations.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
January 13, 2005
F-1
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
September 30,
2004 2003
---------------- ----------------
ASSETS:
Current assets:
Cash $ 37,344 $ 2,346
Prepaid Expense 20,000 -
---------------- ----------------
Total current assets 57,344 2,346
---------------- ----------------
Fixed Assets:
Office Equipment 2,270 -
---------------- ----------------
Total Fixed Assets 2,270 -
---------------- ----------------
Other Assets:
Patents 10,000 3
Deposits 2,500 -
---------------- ----------------
Total other assets 12,500 3
---------------- ----------------
TOTAL ASSETS $ 72,114 $ 2,349
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts Payable $ 89,030 $ -
Accrued Expenses 5,908 -
Note Payable - Stockholder 1,225 -
---------------- ----------------
Total current liabilities 96,163 -
---------------- ----------------
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 50,000,000
shares authorized; no shares issued and outstanding - -
Common Stock, no par value; 500,000,000 shares authorized;
114,036102 shares issued and outstanding in 2004, and 111,298,148 3,104,396 2,821,726
shares issued and outstanding in 2003.
Common Stock Warrants 1,200,000 -
Deficit accumulated during the development stage (4,328,445) (2,819,377)
---------------- ----------------
Total stockholders' deficit (24,049) 2,349
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 72,114 $ 2,349
================ ================
The accompanying notes are an integral part of these financial statements.
F-2
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
February 25, 1997
Year Ended (Inception) to
September 30, September 30,
---------------------------------------
2004 2003 2004
---------------- --------------- -------------------
Revenue $ - $ - $ -
Expenses:
Abandoned Equipment - - 808
Bank Charges 401 45 2,113
Consulting 19,900 125,200 1,024,039
Depreciation - - 3,178
Directors' Fees - - 11,983
Due Dilgence - - 45,832
Equipment Rental - - 1,733
Impairment loss - - 923,834
Legal and Accounting 27,203 18,320 188,360
Licenses & Fees 190 - 6,410
Meals & Entertainment - - 4,119
Office Expenses 5,218 - 19,199
Salaries 119,336 - 500,086
Postage - - 3,217
Printing - - 5,580
Public Relations 6,640 - 110,966
Rent 8,905 - 16,963
Research & Development 129,493 129,493
Taxes - - 4,657
Telephone 4,270 - 34,815
Transfer Agent Expense 2,997 2,325 16,325
Travel 3,640 - 62,933
Warrant Option Expense 1,200,000 - 1,200,000
---------------- --------------- -------------------
Total Expenses 1,528,193 145,890 4,316,643
---------------- --------------- -------------------
Other Income and Expense
Interest Expense 251 - 71,597
Interest Income - (22) (22)
Forgiveness of Debt (19,376) - (59,773)
---------------- --------------- -------------------
Net Loss $ (1,509,068) $ (145,868) $ (4,328,445)
================ =============== ===================
Per Share Information:
Weighted average number of
common shares outstanding 114,036,102 111,298,148
---------------- ---------------
Net Loss per Common Share $ (0.01) (*)
======== ===
* Less than $.01
The accompanying notes are an integral part of these financial statements.
F-3
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Indirect Method)
February 25, 1997
Year Ended (Inception) to
September 30, September 30,
------------------------------------
2004 2003 2004
-------------- --------------- -------------------
Cash Flows from Operating Activities:
Net Loss $ (1,509,068) $ (145,868) $ (4,328,445)
Issuance of Common Stock for Services - 336,970 1,237,557
Adjustments to reconcile net loss to net
net cash used in operations.
(Increase) in Deposits (22,500) - (22,500)
Increase (Decrease) in Accounts Payable 89,030 (199,616) 89,030
Increase (Decrease) in Accrued Liabilities 5,908 (18,858) 5,908
-------------- --------------- -------------------
Net Cash Flows Used by Operations (1,436,630) (27,372) (3,018,450)
-------------- --------------- -------------------
Cash Flows from Investing Activities:
Purchae of Equipment (2,270) - (2,270)
Purchase of Intangible Assets (9,997) (3) (10,000)
-------------- --------------- -------------------
Net cash used by investing activities (12,267) (3) (12,270)
-------------- --------------- -------------------
Cash Flows from Financing Activities:
Proceeds from Notes payable 1,225 - 1,225
Payments on Notes payable - (195,729) -
Issuance of Common Stock Warrants 1,200,000 - 1,200,000
Issuance of Common Stock 282,670 225,450 1,866,839
-------------- --------------- -------------------
Net Cash Flows Provided by Financing Activities 1,483,895 29,721 3,068,064
-------------- --------------- -------------------
Net Increase (Decrease) in Cash 34,998 2,346 37,344
-------------- --------------- -------------------
Cash at Beginning of Period 2,346 - -
-------------- --------------- -------------------
Cash at End of Period $ 37,344 $ 2,346 $ 37,344
============== =============== ===================
Supplemental Disclosure of Cash Flow Information
Cash paid for Interest $ - $ - $ 71,346
============== =============== ===================
Cash paid for income taxes $ - $ - $ -
============== =============== ===================
NON-CASH TRANSACTIONS
Stock issued for compensation $ - $ 336,970 $ 1,237,557
============== =============== ===================
The accompanying notes are an integral part of these financial statements.
F-4
XSUNX, INC.
(Formerly Sun River Mining, Inc.)
(A Development Stage Company)
Consolidated Stockholders' Equity (Deficit)
September 30, 2004
Deficit
Accumulated
Common During
Common Stock Stock Development
-----------------------
# of Shares Amount Warranties Stage Totals
----------- ------ ----------- ------------ -----------
Inception February 25, 1997 - $ - $ - $ - $ -
Issuance of stock for cash 3/97 5,000 100 - - 100
Issuance of stock for cash 3/97 5,590 111,800 - - 111,800
Issuance of stock to Founders 3/97 14,110 - - - -
Issuance of stock for Consolidation 4/97 445,000 312,106 - - 312,106
Issuance of stock for cash 8/97 2,900 58,000 - - 58,000
Issuance of stock for cash 9/97 2,390 47,800 - 47,800
Net Loss for year - - - (193,973) (193,973)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 1997 474,990 529,806 - (193,973) 335,833
----------- ---------- ----------- ------------ -----------
Issuance of stock for services 11/97 1,500 30,000 - - 30,000
Issuance of stock for cash 9/98 50,000 200,000 - - 200,000
Consolidation stock cancelled 9/98 (60,000) (50,000) - - (50,000)
Issuance of stock for cash9/98 200 4,000 - - 4,000
Net Loss for year - - - (799,451) (799,451)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 1998 466,690 713,806 - (993,424) (279,618)
----------- ---------- ----------- ------------ -----------
Issuance of stock for cash 10/98 21,233 159,367 - - 159,367
Issuance of stock for services 1/99 40,000 40,000 - - 40,000
Issuance of stock for cash 1/99 37,500 296,125 - - 296,125
Issuance of stock for services 1/99 25,000 276,500 - - 276,500
Issuance of stock for cash 2/99 7,500 70,313 - - 70,313
Issuance of stock for cash 4/99 45,225 122,108 - - 122,108
Issuance of stock for services 6/99 70,000 147,000 - - 147,000
Issuance of stock for cash 9/99 40,000 69,200 - - 69,200
Net Loss for year - - - (1,482,017) (1,482,017)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 1999 753,148 1,894,419 - (2,475,441) (581,022)
----------- ---------- ----------- ------------ -----------
Issuance of stock for cash 9/00 15,000 27,000 - - 27,000
Net Loss for year - - - (118,369) (118,369)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 2000 768,148 1,921,419 - (2,593,810) (672,391)
----------- ---------- ----------- ------------ -----------
Extinquishment of debt - 337,887 - - 337,887
Net Loss for year - - - (32,402) (32,402)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 2001 768,148 2,259,306 - (2,626,212) (366,906)
----------- ---------- ----------- ------------ -----------
Net Loss for year - - - (47,297) (47,297)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 2002 768,148 2,259,306 - (2,673,509) (414,203)
----------- ---------- ----------- ------------ -----------
Issuance of stock for Assets 7/03 70,000,000 3 - - 3
Issuance of stock for Cash 8/03 9,000,000 225,450 - - 225,450
Issuance of stock for Debt 9/03 115,000 121,828 - - 121,828
Issuance of stock for Accruals 9/03 115,000 89,939 - - 89,939
Issuance of stock for Services 9/03 31,300,000 125,200 - - 125,200
Net Loss for year - - - (145,868) (145,868)
----------- ---------- ----------- ------------ -----------
Balance - September 30, 2003 111,298,148 2,821,726 - (2,819,377) 2,349
----------- ---------- ----------- ------------ -----------
Issuance of stock for 3/04 181,750 21,071 - - 21,071
Issuance of stock for 4/04 217,450 22,598 - - 22,598
Issuance of stock for 5/04 254,956 34,669 - - 34,669
Issuance of stock for 6/04 694,649 96,306 - - 96,306
Issuance of stock for 7/04 157,649 21,421 - - 21,421
Issuance of stock for 8/04 57,000 5,133 - - 5,133
Issuance of stock for 9/04 1,174,500 81,472 - - 81,472
Issuance of Common Stock Warranties - - 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 $ (4,328,445) $ (24,049)
Figures reflect a 20-1 reverse split =========== ========== =========== ============ ===========
The accompanying notes are integral part of these financial statements.
F-5
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC.)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2004
Note 1 - Organization and Summary of Significant Accounting Policies:
------------------------------------------------------------
Organization:
On February 25, 1997, Sun River Mining, Inc. (the Company) was
incorporated under the laws of Colorado. The Company is in the
business of raising capital to acquire or merge with any entity which
has an interest in being acquired by, or merging into the company. In
May 1999 management decided to write-off the Sun River Bolivian
subsidiaries and to take the subsequent loss, of all investments
associated with the subsidiaries. On July 9, 2003 Sun River Mining,
Inc. signed a Plan of Reorganization and Asset Purchase with Xoptix,
Inc.. This was a purchase agreement for the intangible assets of
Xoptix, Inc. and the name was then changed to Xsunx, Inc.
Basis of Presentation - Development Stage Company:
The Company has not earned significant revenues from planned principal
operations or raising capital for exploration and acquisition of
mining property. Accordingly, the Company's activities have been
accounted for as those of a "Development Stage Enterprise" as set
forth in Financial Accounting Standards Board Statement No. 7 ("SFAS
7"). Among the disclosures required by SFAS 7 are that the Company's
financial statements be identified as those of a development stage
company, and that the statements of operations, stockholders' equity
(deficit) and cash flows disclose activity since the date of the
Company's inception.
Basis of Accounting:
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with accounting principles
generally accepted in the United States.
Cash and Cash Equivalents:
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.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those
estimates.
Net Loss Per Share:
Net loss per share is based on the weighted average number of common
shares and common shares equivalents outstanding during the period.
F-6
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2004
Note 1 - Organization and Summary of Significant Accounting Policies (cont):
-------------------------------------------------------------------
Other Comprehensive Income
The Company has no material components of other comprehensive income
(loss) and accordingly, net loss is equal to comprehensive loss in all
periods.
Note 2 - Federal Income Tax:
------------------
The Company accounts for income taxes under SFAS No. 109, which
requires the asset and liability approach to accounting for income
taxes. Under this approach, deferred income taxes are determined based
upon differences between the financial statement and tax bases of the
Company's assets and liabilities and operating loss carryforwards
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are
recognized if it is more likely than not that the future tax benefit
will be realized.
Significant components of the Company's deferred tax liabilities and
assets are as follows:
2004 2003
-------- -------
Deferred Tax Liability $ 4,328,445 $ 2,829,377
Deferred Tax Assets
Net Operating Loss Carryforwards
Book/Tax Differences in Bases of Assets 0 0
--------------- -----------------
Valuation allowance $ 4,328,445 $ 2,829,377
--------------- -----------------
Net Deferred tax assets $ 0 $ 0
=============== =================
At September 30, 2004, the Company had net operating loss carryforwards of
approximately, $4,328,445 for federal income tax purposes. These carryforwards
if not utilized to offset taxable income will begin to expire in 2010.
F-7
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2004
Note 3 - Going Concern:
-------------
The financial statements of the Company have been presented on the
basis that they are a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has no assets, generated no
revenue and has an accumulated deficit at September 30, 2004 of
$4,328,445.
The future success of the Company is likely dependent on its ability
to attain additional capital, or to find an acquisition to add value
to its present shareholders and ultimately, upon its ability to attain
future profitable operations. There can be no assurance that the
Company will be successful in obtaining such financing, or that it
will attain positive cash flow from operations. Management believes
that actions presently being taken to revise the Company's operating
and financial requirements provide the opportunity for the Company to
continue as a going concern.
The Company has made substantial investments this last year in the
development of intellectual property assets as part of a business-
restructuring plan. The purpose of these investments was to acquire
patented solar electric glass technology. The Company believes that
its patented solar electric glass technology has a number of market
opportunities in the multi-billion dollar worldwide architectural
glass markets.
Note 4 - Capital Stock Transactions:
--------------------------
The authorized capital stock of the Company was established at
500,000,000 with no par value. On September 29, 2003 the Board of
Directors authorized a reverse split of 1 for 20 shares of stock. The
stocks issued in 2003 were for accrued directors fees and salaries and
to paid off past debt to investors. 70,000,000 shares of stock were
issued to obtain the patent rights from Xoptix, Inc. Also shares of
stock were issued in 2003 for consulting fees in arranging the
formation of the new Corporation. In 2004 2,737,954 shares of stock
were issued for cash and consulting fees.
Note 5 - Trademark Transfer Agreement:
----------------------------
On May 6, 2004 a Trademark transfer agreement was signed with Western
Gas and Electric Company of California. Western solely owns all rights
and interest in and to the registered trademark consisting of printed
words styled as "POWERGLASS' as more fully set forth herein
("Trademark") and desires to assign and transfer, subject to the terms
and conditions set forth herein, all rights and interest in the
Trademark to XsunX in exchange for the payment set forth in this
Agreement. The purchase price for the Trademark shall be: (1) the sum
of $10,000 if paid within one (1) year from the effective date; (2)
the sum of $20,000 if paid after the conclusion of the first (1st)
year but prior to the conclusion of the second (2nd) year after the
effective date of this Agreement; (3) the sum of $35,000 if paid after
the conclusion of the second (2nd) year but prior to the conclusion of
the third (3rd) year after the effective date of this Agreement; or
(4) the sum of $50,000 if paid after the conclusion of the third (3rd)
year but prior to the conclusion of three (3) years and six (6) months
after the effective date of this Agreement. If payment is not made
prior to the conclusion of three (3) years and six (6) months after
the effective date of this Agreement, XsunX shall re-assign the
Trademark back to Western as set forth herein.
F-8
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2004
Note 6 - Warrant for Purchase of Shares:
------------------------------
License stock warrant - As consideration for the grant of the License,
XsunX shall, grant MVS a warrant ("License Stock Warrant") for the
purchase of up to Five Million (5,000,000) shares of common stock of
XsunX (the "License Stock Warrant Shares"), the warrant to expire five
(5) years after the date of the grant. The License Stock Warrant shall
be in the form of that Warrant to Purchase Common Stock of XsunX, Inc.
instrument attached hereto as Exhibit "D" and incorporated herein by
this reference.
Technology Sharing Warrant - As consideration for access to MVS know
how and Service at Cost pursuant to the technology sharing set forth
above, XsunX shall grant to MVS a warrant to purchase up to One
Million shares (1,000,000) of common stock of XsunX ("Technology
Sharing Warrant Shares"). The Technology Sharing Warrant shall be in
the form of that Warrant Purchase Common Stock of XsunX, Inc.
instrument attached hereto as Exhibit "E" and incorporated herein by
this reference. The Technology Sharing Warrant shall be for a five (5)
year term and subject to conditional vesting in accordance with the
following provisions:
(1) The Technology Sharing Warrant shall become exercisable in the
amount of 250,000 shares upon the satisfactory completion of
Phase 2 under the MVS Phase 2 Development Agreement.
(2) The Technology Sharing Warrant shall become exercisable in the
amount of 250,000 shares upon the satisfactory completion, as
reasonably determined by the XsunX Board of Directors, of any
subsequent phase of development as may be defined under the MVS
future development proposal.
(3) The Technology Sharing Warrant shall become exercisable in the
amount of 500,000 shares upon the Commercialization of an XsunX
process.
Consultancy Warrant - In September 2004, the Company granted James
Bentley a consultancy and advisory warrant in the amount of 1,000,000
shares with an exercise price of $.15 per share. Mr. Bentley has
worked with the Company in its initial stage helping to establish a
plan for the development of working samples and the review and
selection process for engaging qualified research and development
firms to initiate development efforts. Mr. Bentley has also assisted
the Company in continued efforts to expand research efforts and
business development opportunities. The warrant was issued for the
conversion of $15,000 in accrued consultancy fees and as part of a
Consultancy and Advisory Agreement and caries a 3 year exercise term
and the following vesting provisions:
(1) 500,000 shares upon the effective date of the warrant.
Thereafter, the warrant shall become exercisable at the rate of
125,000 shares per calendar quarter up to the full amount of the
warrant.
F-9
XSUNX, INC.
(FORMERLY SUN RIVER MINING, INC)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2004
Note 6 - Warrant for Purchase of Shares (Cont):
-------------------------------------
Consultancy and Advisory Warrant - Pursuant to the offer of
consultancy and advisory services for the position of Chairman of the
XsunX Scientific Advisory Board as set forth herein, XsunX shall, as
compensation for Dr. Madan's advice and consultation efforts in the
furtherance of XsunX business initiatives, offer to Dr. Madan the
grant of a warrant ("Consultancy and Advisory Warrant") to purchase up
to One Million (1,000,000) shares of common stock of XsunX
("Consultancy and Advisory Stock Warrant Shares") in the form attached
hereto as Exhibit "G" and incorporated herein by this reference. This
Warrant shall be for a five (5) year term and shall be subject to
conditional vesting in accordance with the following provisions:
(1) The Consultancy and Advisory Warrant shall become exercisable at
the rate of 250,000 Shares per month during and up to the first
twenty-four months (24) of services.
(2) The Consultancy and Advisory Warrant shall become exercisable in
the amount of 150,000 shares upon the satisfactory completion of
Phase 2 under the MVS Phase 2 Development Agreement.
(3) The Consultancy and Advisory Warrant shall become exercisable in
the amount of 250,000 shares upon the Commercialization of an
XsunX process.
Note 7 - Stock Option Plan:
-----------------
On July 15, 2004,the Board of Directors of XsunX resolved to establish
the 2004 Stock Option Plan. The plan was adopted to provide equity
incentives to employees, consultants and suppliers of the Company.
F-10