The accompanying notes are an integral part of these unaudited condensed financial statements.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ended September 30, 2020. For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended September 30, 2019.
During the period ending June 30, 2020, the Company discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor “the Service Provider”. The Company’s intent is to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. The Company’s operations in future periods will be focused on generating a referral fee of 1% of any gross sales generated through these referrals. We anticipate that this change in operations, and delivery method, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended June 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.
Going Concern
The accompanying unaudited condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying unaudited condensed financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. The Company has obtained funds from its shareholders since its inception through the nine months ended June 30, 2020. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its business development efforts.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant accounting policies of XsunX, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, revenue recognition, the deferred tax valuation allowance, the fair value of stock options, and derivative liabilities. Actual results could differ from those estimates.
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.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Property and Equipment
Property and equipment are stated at cost, and are depreciated using straight line over its estimated useful lives:
Leasehold improvements
|
Length of the lease
|
Computer software and equipment
|
3 Years
|
Furniture & fixtures
|
5 Years
|
Machinery & equipment
|
5 Years
|
The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased.
During the six months ended June 30, 2020, the Company sold certain assets at net book value for $2,092.
The depreciation expense for the nine months ended June 30, 2020, and 2019, were $478 and $342, respectively. Which are now included in on the discontinued operations.
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of products, if evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.
Revisions in cost and profit estimates during the contract are reflected in the accounting period in which the facts, which require the revision, become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as any retentions, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.
Contract Receivable
The Company bills its customers in accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit is extended based on evaluation of clients’ financial condition and collateral is not required. The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative and qualitative review of the receivables past due from customers monthly. The Company records an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The contract receivable balance was $0 and $198,083 at June 30, 2020 and September 30, 2019, respectively.
Project Warranties
Customers in our target market of California who purchase solar energy systems are covered by a warranty of up to 10 years in duration for material defects and workmanship. In addition, we provide a pass-through of the major components such as module mounting, inverter and solar panel manufacturers’ warranties to our customers, which generally range from 10 to 25 years. The Company has a limited history of project installations and will access potential warranty costs, and other allowances, based on our experience in servicing warranty claims as they may arise in the future. During the nine months ended June 30, 2020, the Company did not experience costs related to warranty claims.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Stock-Based Compensation
Share-based Payment applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Binomial lattice valuation model, at the date of a stock option grant. The Company has 2,000,000,000 shares of outstanding options as of June 30, 2020.
Earnings Per Share
Basic loss per share is calculated of basic earnings by dividing the net profit (loss) for the three months by the weighted average number of ordinary shares outstanding during the financial periods held by the Company.
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from continuing operations to common shareholders (Numerator)
|
|
$
|
775,626
|
|
|
$
|
(562,336
|
)
|
|
$
|
423,728
|
|
|
$
|
930,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from discontinued operations to common shareholders (Numerator)
|
|
$
|
(67,525
|
)
|
|
$
|
101,896
|
|
|
$
|
221,252
|
|
|
$
|
497,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) to common shareholders (Numerator)
|
|
$
|
708, 101
|
|
|
$
|
(460,440
|
)
|
|
$
|
644,980
|
|
|
$
|
1,428,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (Denominator)
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,545,192,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,545,192,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
For the purpose of calculating diluted earnings per share, the profit attributable to equity holders and the weighted average number of ordinary shares outstanding during the financial period have been adjusted for the dilutive effects of all potential ordinary shares and shares issuable upon conversion of convertible notes. The dilutive earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of shares that would have been issued upon full conversion of the remaining convertible debt (Note 5), adjusted by the number of such shares that would have been issued at fair value as follows:
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from continuing operations to common shareholders (Numerator)
|
|
$
|
775,626
|
|
|
$
|
(562,336
|
)
|
|
$
|
423,728
|
|
|
$
|
930,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from discontinued operations to common shareholders (Numerator)
|
|
$
|
(67,525
|
)
|
|
$
|
101,896
|
|
|
$
|
221,252
|
|
|
$
|
497,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) to common shareholders (Numerator)
|
|
$
|
708,101
|
|
|
$
|
(460,440
|
)
|
|
$
|
644,980
|
|
|
$
|
1,428,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (Denominator)
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,601,887,744
|
|
|
|
1,545,192,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of convertible notes
|
|
|
4,476,978,032
|
|
|
|
-
|
|
|
|
4,476,978,032
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue
|
|
|
6,078,865,776
|
|
|
|
1,601,887,744
|
|
|
|
6,078,865,776
|
|
|
|
1,545,192,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
The Company has included shares issuable from convertible debt of $205,494 for the nine months ended June 30, 2020, because their impact on the loss per share is dilutive.
The Company has excluded shares issuable from convertible debt of $201,024 for the nine months ended June 30, 2019, because their impact on the loss per share is anti-dilutive.
Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2020, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses approximate the fair value because of their short maturities.
We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
●
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
●
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
●
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2020:
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
748,255
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
748,255
|
|
Total Liabilities measured at fair value
|
|
$
|
748,255
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
748,255
|
|
The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
Balance as of September 30, 2019
|
|
$
|
1,945,650
|
|
Net Gain on change in derivative liability
|
|
|
(1,197,395
|
)
|
Ending balance as of June 30, 2020
|
|
$
|
748,255
|
|
Recent Accounting Pronouncements
In August 2016, FASB issued accounting standards update ASU-2016-15, “Statement of Cash Flows” (Topic 230) – Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2018, and interim periods with fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact of the adoption of ASU 2016-15 on the Company’s financial statements, and there was no material impact on the financial statements.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
In August 2017, FASB issued accounting standards update ASU-2017-12, “D” (Topic 815) – “Targeted Improvements to Accounting for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company has evaluated the impact of the adoption of ASU 2017-12 on the Company’s financial statements, and there was no material impact on the financial statements.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company has evaluated the impact of the adoption of ASU 2018-07 on the Company’s financial statements, and there was no material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify certain disclosure requirements of fair value measurements and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company has evaluated the impact of the adoption of ASU 2018-13 on the Company’s financial statements, and there was no material impact on the financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.
At December 31, 2019, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with no par value. The Company is also authorized to issue 50,000,000 shares of preferred stock with a par value of $0.01 per share of which 10,000 shares have been designated as Series A Preferred Stock. The rights, preferences and privileges of the holders of the preferred stock are determined by the Board of Directors prior to issuance of such shares.
Preferred Stock
As of June 30, 2020, the Company had 5,000 shares of issued and outstanding Series A Preferred Stock issued to the Company’s Chief Executive Officer and Director, Tom M. Djokovich. The shares were issued in consideration for the contribution of services by Mr. Djokovich to the Company valued at fifty dollars, which the Board deemed full and fair consideration. Because of such issuance, Mr. Djokovich has the ability to influence and determine stockholder votes. On March 18, 2020, XsunX, Inc. (the “Company”), Tom Djokovich, the President and Chief Executive Officer of the Company, and TN3, LLC, a Wyoming limited liability company owned by Daniel G. Martin (“TN3”) entered into a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, Mr. Djokovich agreed to sell his 5,000 shares of Series A Preferred Stock (“Stock”) of the Company to TN3 in a private sale for cash. The holder of the Series A Preferred Stock may cast votes equal to not less than 60% of the total outstanding voting power of the Company on all matters voted on by the shareholders of the Company. Completion of the sale of the Series A Preferred Stock is conditioned upon a number of events, including the filing by the Company of a Schedule 14F to disclose changes in the management of the Company that will occur in connection with the sale.
On May 13, 2020, the Company filed an information statement pursuant to Section 14(f) of the Securities exchange Act of 1934 and Rule 14f-1 thereunder providing further information related to the below proposed transaction, which the Company originally disclosed within its March 24, 2020 filing on Form 8K.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
3.
|
CAPITAL STOCK (Continued)
|
Common Stock
During the nine months ended June 30, 2020, the Company had no issuance of shares of common stock.
During the nine months ended June 30, 2019, the Company issued 133,780,925 shares of common stock upon conversion of principal in the amount of $55,000, plus accrued interest of $2,750, with an aggregate fair value loss on settlement of debt of $33,829.
4.
|
CONVERTIBLE PROMISSORY NOTES
|
As of June 30, 2020, the outstanding convertible promissory notes are summarized as follows:
Convertible Promissory Notes
|
|
$
|
205,494
|
|
Less current portion
|
|
|
55,494
|
|
Total long-term liabilities
|
|
$
|
150,000
|
|
Maturities of long-term debt for the next three years are as follows:
Period Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2022
|
|
$
|
55,494
|
|
2023
|
|
|
60,000
|
|
2024
|
|
|
90,000
|
|
|
|
$
|
205,494
|
|
At June 30, 2020, the $205,494 in convertible promissory notes.
On October 20, 2015, the Company entered into a third extension of the Note originally issued September 30, 2013. The extension terms included mandatory payments of $10,000 per month beginning November 1, 2015 until the note in the amount of $143,033 is paid in full. The Note bears interest at 12% annum, and a conversion price of 60% of the lowest volume weighted average price (“VWAP”) occurring during the twenty trading days preceding any conversion date by Holder. The balance of the provisions of the Note remained substantially the same. As of December 31, 2019, the remaining balance of the Note was $36,217. As of June 30, 2020, the balance of the Note was $39,614, which includes capitalized interest for the period of $3,397. As of June 30, 2020, the Note has matured, and the Company and the Holder has entered into discussions for the repayment of the Note.
On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “November Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The November Note matures eighteen months from each advance. The Note was extended for each tranche with maturity dates of June 30, 2021 and August 18, 2021. The November Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or (b) fifty percent (50%) of the lowest trade prices following issuance of the November Note or (c) the lowest effective price per share granted to any person or entity. On November 20, 2014, the lender advanced $50,000 to the Company under the November Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the November Note. As of June 30, 2020, there remains an aggregate outstanding principal balance of $50,880.
On May 10, 2017, the Company issued a 10% unsecured convertible promissory note (the “May Note”) for the principal sum of up to $150,000 plus accrued interest on any advanced principal funds. The Lender may pay additional consideration at the Lenders discretion. The Company received a tranche in the amount of $25,000 upon execution of the May Note. On various dates, the Company received additional tranches in the aggregate sum of $90,000. The May Note matured twelve months from each tranche. Within thirty (30) days prior to the maturity date, the Lender may extend the maturity date to sixty (60) months. The May Note may be converted by the lender into shares of common stock of the Company at the lesser of $.01 per share or (b) fifty percent (50%) of the lowest trade price of common stock recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity. As of June 30, 2020, the balance remaining on the May Note was $115,000.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
4.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations based upon the Binomial lattice model calculation.
The convertible notes issued and described in Note 4 above, do not have fixed settlement provisions because their conversion prices are not fixed. The conversion feature has been characterized as a derivative liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
We record the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life of the Notes.
At June 30, 2020, the fair value of the derivative liability was $748,255.
For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivatives are as follows:
Risk free interest rate
|
|
Between 0.13% and 0.29%
|
Stock volatility factor
|
|
Between 119.0% and 207.0%
|
Months to Maturity
|
|
0 - 5 years
|
Expected dividend yield
|
|
None
|
5.
|
CONVERTIBLE PROMISSORY NOTES – RELATED PARTY
|
Issuance of Convertible Promissory Notes for Services to Related Party
As of March 31, 2016, the remaining unsecured Convertible Promissory Notes (the “Notes”) in the amount of $12,000 to a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $0.0045 per share. The Note matured on October 1, 2015 and bore a one-time interest charge of $1,200 which was applied to the principal on October 1, 2014. So long as any shares issuable under a conversion are subject to transfer and sale restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the Securities Act of 1933, the Company shall, upon written request by Holder, file Form S-8, if applicable, with the U.S. Securities and Exchange commission to register the issued. The convertible note has a fixed settlement provision and does not qualify as a derivative.
6.
|
NOTE PAYABLE-RELATED PARTY
|
On August 5, 2014 the Company issued a 10% unsecured promissory note (the “Note”) to a related party in the aggregate principal amount of up to $80,000, plus accrued interest on any advanced principal funds. The principal use of the proceeds from any advance under the Note are intended to assist in the purchase of materials, and services for the solar PV systems that we sell and install. Consideration advanced under the Note matures twenty-four (24) months from each advance. During the nine months ended June 30, 2020, the Company paid off the principal in the amount of $5,000, plus accrued interest of $7,903. The balance as of June 30, 2020 was $0.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
7.
|
REVENUE FROM CONTRACTS WITH CUSTOMERS
|
Revenues and related costs on construction contracts were recognized as the performance of obligations were satisfied over time in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). The cost of uninstalled materials or equipment will generally be excluded from our recognition of profit, unless specifically produced or manufactured for a project, because such costs are not considered to be a measure of progress. As of June 2, 2020, the Company discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor.
The following table represents a disaggregation of revenue by customer type from contracts with customers for the nine months ended June 30, 2020 and 2019:
|
|
Nine Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Commercial
|
|
$
|
998,373
|
|
|
$
|
1,091,691
|
|
Residential
|
|
|
45,960
|
|
|
|
50,525
|
|
Management fees
|
|
|
-
|
|
|
|
17,250
|
|
|
|
$
|
1,044,333
|
|
|
$
|
1,159,466
|
|
Contract assets represents revenues recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. The contract asset for the nine months ending June 30, 2020 and the year ended September 30, 2019 was $0 and $0, respectively. The contract liability for the nine months ended June 30, 2020 and the year ended September 30, 2019 was $0 and $33,138, respectively.
8.
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
Accounts payable and accrued liabilities consisted of the following at June 30, 2020 and September 30, 2019:
|
|
6/30/2020
|
|
|
9/30/2019
|
|
Trade accounts payable
|
|
$
|
93,409
|
|
|
$
|
129,425
|
|
Credit cards payable
|
|
|
61,706
|
|
|
|
67,155
|
|
Accrued liabilities
|
|
|
53,558
|
|
|
|
54,478
|
|
|
|
$
|
208,673
|
|
|
$
|
251,058
|
|
On June 2, 2020, the Company issued 2,000,000,000 options to purchase common stock. These options will be exercisable on a cashless basis for a period of ten years from the effective date of the Stock Split at an exercise price of $0.00001 per share on a pre-Stock Split basis. The purpose of the options are to compensate our directors for serving on the Board without compensation in fiscal 2019. It is difficult to assess the value of the options given the highly limited trading in our Common Stock, the fact that the options shares have not been and are not expected to be registered for resale and will be restricted, and the speculative nature of the Company’s future business plans. However, we estimated the value of the services provided by each of our directors during 2019,and believe that the value of the options to be issued to each of our resigning directors approximates that amount.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
A summary of the Company’s options activity and related information follows for the nine months ended June 30, 2020:
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
Outstanding - beginning of period
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
2,000,000,000
|
|
|
$
|
.00001
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding - end of period
|
|
|
2,000,000,000
|
|
|
$
|
.00001
|
|
At June 30, 2020, the weighted average remaining contractual life of options outstanding:
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Exercisable
|
|
|
Options
|
|
|
Options
|
|
|
Contractual
|
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life (years)
|
|
$
|
.00001
|
|
|
|
2,000,000,000
|
|
|
|
2,000,000,000
|
|
|
|
9.93
|
|
For purpose of determining the fair market value of the options, the Company used the Black Scholes valuation model. The significant assumptions used in the Black Scholes valuation model for the warrants are as follows:
Risk Free Interest Rate
|
|
|
0.32
|
%
|
Stock Volatility Factor
|
|
|
146.0
|
%
|
Weighted Average Expected Option Life
|
|
5 Years
|
|
Expected Dividend Yield
|
|
None
|
|
The stock-based compensation expense recognized in the statement of operations during the nine months ended June 30, 2020 related to the granting of these warrants was $399,259.
During the period ended June 30, 2020, the Innovest Global, Inc. advanced funds to the Company for operating expenses in the amount of $68,312. As of June 30, 2020, the amount has not been reimbursed to Innovest Global, Inc.
XSUNX, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED
JUNE 30, 2020
On June 2, 2020, the Seller (Mr. Tom Djokovich) entered into a transition service agreement, with the Buyer (Mr. Daniel G. Martin), sole owner, president and chairman of the board of TN3. Mr. Martin is also the chief executive officer of Innovest Global, Inc., a diversified industrial company. The Buyer is in the process of ceasing the XsunX business to transition to the StemVax business. XsunX will discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor “the Service Provider”. The Company’s intent is to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. The Company’s operations in future periods will be focused on generating a referral fee of 1% of any gross sales generated through these referrals. We anticipate that this change in operations, and delivery method, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended June 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.
At the completion of the acquisition of the StemVax Business, Seller will withdraw his position as the qualifying individual for the XsunX contractor license for the XsunX Business, and upon completion of the withdrawal, XsunX and the Seller will terminate the Transition Services Agreement. Thereafter, the Seller may accept contracts initially marketed by XsunX with the Seller as the qualifying individual for the XsunX license, without obligation to XsunX for any cash flows therefrom. The timing and procedures for the transition of the XsunX Business is governed by the Transition Services Agreement. In the event of any contradiction or discrepancy between this Agreement and the Transition Services Agreement, the terms and provisions of the Transition Services Agreement will govern.
In connection with preparing for the transition, the Company paid Solar Energy Builders, Inc, a related party, $185,300 to serve as the outside contractor for the assumption of the jobs that were started, and completed. The Company recognized the expense in cost of sales for the period, and also deducted the net book value of certain assets (computer and small equipment) in the amount of $2,092, leaving a net amount paid of $183,208. As of June 30, 2020, the transition has not been completed.
Also, purchase options were issued to the board of directors as mentioned in Note 9 for payment of services.
In connection with closing the Transaction and transition into a new business plan, the Company will enter into a transition services agreement (the “Services Agreement”) with Tom Djokovich, our current President and Chief Executive Officer, and Solar Energy Builders, Inc., a company controlled by Mr. Djokovich (“Solar Energy”). Pursuant to the Services Agreement, we will engage Solar Energy to service our solar business customers or refer those customers to Solar Energy on an exclusive basis. For referrals, Solar Energy will pay us a referral fee of 1% of the gross amount paid by the referred customer to Solar Energy. We intend to continue to market our solar services while preparing to transition into the new business plan. As of June 30, 2020, no referral fees have been paid to Solar Energy.
12.
|
DISCONTINUED OPERATIONS
|
On June 2, 2020, the Company entered into a transition agreement, and will change their focus to a new line of business. As a result the Company will discontinue XsunX, Inc., and all related operations. Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company has determined that the business qualifies for presentation as a discontinued operation. Therefore, the Company has reclassified the business assets and liabilities as discontinued operations in the accompanying Balance Sheet and presented the operating results as discontinued operations in the accompanying statements of Operations and Statements of Cash Flows.
12.
|
DISCONTINUED OPERATIONS (Continued)
|
Financial information for XsunX Inc, for the three month and nine months ended June 30, 2020, are presented in the following table:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
218,311
|
|
|
$
|
296,237
|
|
|
$
|
1,044,333
|
|
|
$
|
1,159,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
285,836
|
|
|
|
194,193
|
|
|
|
822,603
|
|
|
|
661,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
(67,525
|
)
|
|
|
102,044
|
|
|
|
221,730
|
|
|
|
498,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
-
|
|
|
|
148
|
|
|
|
478
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES of DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
|
148
|
|
|
|
478
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS
|
|
$
|
(67,525
|
)
|
|
$
|
101,896
|
|
|
$
|
221,252
|
|
|
$
|
497,900
|
|
|
|
|
June 30, 2020
|
|
|
September 30, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract receivables of discontinued operations
|
|
|
-
|
|
|
|
198,083
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets of discontinued operations
|
|
|
-
|
|
|
|
198,083
|
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment of discontinued operations
|
|
|
-
|
|
|
|
2,570
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS of DISCONTINUED OPERATIONS
|
|
$
|
-
|
|
|
$
|
200,653
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities of discontinued operations
|
|
|
-
|
|
|
|
33,138
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities of discontinued operations
|
|
|
-
|
|
|
|
33,138
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES of DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
|
33,138
|
|
Management has evaluated subsequent events as of the financial statement date according to the requirements of ASC TOPIC 855 and has no events to report.