Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-148762
XSUNX,
INC.
48,650,000
Shares Of Common Stock
This
Prospectus relates to the sale of up to 48,650,000 shares of our common stock
of
which (i) 40,000,000 shares may be sold by Fusion Capital Fund II, LLC and
(ii)
8,650,000 shares may be sold by Cumorah Capital, Inc. Fusion Capital and Cumorah
Capital are sometimes referred to in this Prospectus as the selling
stockholders. The prices at which the selling stockholders may sell the shares
will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive proceeds from the sale of our
shares by Fusion Capital or Cumorah Capital.
Our
common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended and quoted on the Over-the-Counter Bulletin Board under
the symbol “XSNX”. On April 14, 2008, the last reported sale price for our
common stock as reported on the Over-the-Counter Bulletin Board was $0.44 per
share.
____________________
Investing
in our common stock involves certain risks. See “Risk Factors” beginning on page
6 for a discussion of these risks.
____________________
Fusion
Capital is an “underwriter” within the meaning of the Securities Act of 1933, as
amended. Cumorah Capital may be deemed to be an “underwriter” within the meaning
of the Securities Act of 1933, as amended.
____________________
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved of these securities or determined if this Prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
____________________
The
date
of this Prospectus is April 16, 2008.
TABLE
OF CONTENTS
|
Page
|
|
|
PROSPECTUS
SUMMARY
|
1
|
|
|
FORWARD-LOOKING
STATEMENTS
|
3
|
|
|
SUMMARY
FINANCIAL DATA
|
4
|
|
|
SUPPLEMENTARY
FINANCIAL INFORMATION
|
5
|
|
|
WHERE
YOU CAN FIND US
|
5
|
|
|
RISK
FACTORS
|
6
|
|
|
USE
OF PROCEEDS
|
13
|
|
|
SELLING
STOCKHOLDERS
|
14
|
|
|
THE
FUSION TRANSACTION
|
15
|
|
|
THE
CUMORAH CAPITAL TRANSACTION
|
19
|
|
|
PLAN
OF DISTRIBUTION
|
19
|
|
|
LEGAL
PROCEEDINGS
|
21
|
|
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|
22
|
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
25
|
|
|
DESCRIPTION
OF SECURITIES
|
26
|
|
|
INTERESTS
OF NAMED EXPERTS AND COUNSEL
|
27
|
|
|
DISCLOSURE
OF COMMISSION POSTION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
28
|
|
|
DESCRIPTION
OF BUSINESS
|
29
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
40
|
|
|
DESCRIPTION
OF PROPERTY
|
51
|
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
52
|
|
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
55
|
|
|
EXECUTIVE
COMPENSATION
|
60
|
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
67
|
|
|
AVAILABLE
INFORMATION
|
67
|
|
|
FINANCIAL
STATEMENTS
|
F-i
|
PROSPECTUS
SUMMARY
Business
We
are a
Colorado corporation. Our principal executive offices are located at 65
Enterprise, Aliso Viejo, California 92656. Our telephone number is (949)
330-8060. The address of our website is
www.xsunx.com
.
Information on our website is not part of this Prospectus.
XsunX
is
a development stage company with no significant sources of revenue to date.
We
are a thin-film photovoltaic (“
TFPV
”)
company that intends to grow its business by manufacturing TFPV amorphous solar
modules and selling them into what we believe is a high growth solar market
opportunity.
Our
decision to pursue this strategy is based on our three years of research in
the
design and use of technologies for the manufacture of TFPV solar cells utilizing
amorphous silicon.
During
this time we have developed the technical capabilities, qualified core staff,
and market understanding that we believe will be necessary to establish product
manufacturing infrastructure and take our product to market.
We
have
designed a TFPV solar module which we believe will deliver an average of 125
peak watts. To produce solar modules in commercial quantities we intend to
processes glass substrates within a proprietary semiconductor manufacturing
system which employs the design of a high-throughput, automated, continuous
process
.
We
believe that the design of our TFPV module and manufacturing system can deliver
per watt costs significantly less than those of traditional crystalline silicon
solar module manufacturers, and allow us to market TFPV modules that will be
highly competitive with other thin film offerings.
Currently,
we do not have a manufacturing facility. Our plan for growth is to build
and
operate a TFPV solar module manufacturing facility in the state of Oregon.
Employing a phased roll-out of manufacturing capacities, we anticipate
completing the assembly and installation of a small scale production research
and development system and initiating construction of our first full scale
25 MW
system in 2008. Barring assembly delays, we anticipate completing the assembly
of and commissioning our first 25MW line between December 2008 and February
2009. Near the end of the 2008 calendar year, we plan to launch the build-out
of
the first of three additional 25 MW systems necessary to eventually bring
our
capacity to 100 MW by early 2010.
On
April 1, 2008, the Company signed a sub-lease ("Lease Agreement") for
approximately Ninety Thousand (90,000) square feet of manufacturing facilities
located at 23365 NE Halsey Street, Wood Village, Oregon, U.S.A. The purpose
of
the Lease Agreement was to establish facilities necessary for the installation
and operation of the Company’s planned thin film solar module manufacturing
operations. The Lease Agreement requires that the Company post a security
deposit letter of credit in the amount of $106,000 and a letter of credit
in an
amount to be determined for 125% of the value for the removal of any
improvements performed to the structure by the Company.
Under
the
terms of Lease Agreement, and conditions precedent to the commencement
of the
lease, the parties will work together to finalize a scope of work for the
removal of certain current building improvements and negotiate for the
purchase
by the Company of certain industrial equipment by the 25
th
of
April, 2008, submit the sublease agreement to the master landlord for sublet
approval for which master landlord has fifteen (15) days to respond and
sub-landlord, from whom the Company will be leasing the premises, is required
to
provide an environmental site assessment report to the Company by May 15,
2008
to determine whether any environmental hazards are present requiring abatement.
In the event that environmental hazards are found, or if in the opinion
of the
Company that such hazards render the premises unsuitable for use, the Company
may terminate the Lease Agreement without obligation. There can be no assurance
that the above conditions precedent to the commencement of the lease will
be
completed to the satisfaction of the parties.
The
Lease Agreement provides for the sub-landlord to complete demolition of
demising
walls, fixtures, floor coverings, and general removal of mutually agreed
to
items by July 30, 2008. During this time, the Company will be allowed access
to
the premises to initiate preparation efforts for its manufacturing systems.
Completion of sub-landlord work and the commencement date of the lease
are
scheduled for on or before July 31, 2008. The term of the Lease Agreement
with
the sub-landlord provides for occupancy through July 31, 2011. Thereafter,
should the Company elect to continue to occupy the premises, the Company
will be
required to have established continued lease arrangements with the master
landlord. Specific term and lease payment schedule is as follows:
Each
Month During The Time Period:
|
|
Monthly
Basic Rent Payable With Respect To Each Month
During
The Subject Time Period:
|
|
|
|
Commencement
Date to July 31, 2009
|
|
$53,000.00
|
|
|
|
August
1, 2009 to July 31, 2010
|
|
$54,060.00
|
|
|
|
August
1, 2010 to July 31, 2011
|
|
$55,141.20
|
The
Offering
On
November 1, 2007, we entered into a Purchase Agreement with Fusion Capital,
an
Illinois limited liability company. Under the Purchase Agreement, Fusion
Capital
is obligated, under certain conditions, to purchase shares from us in an
aggregate amount of $21 million from time to time over a twenty-five (25)
month
period. We have sold 3,333,332 shares of common stock to Fusion Capital
(together with 3,333,332 shares issuable under an immediately exercisable
common
stock purchase warrant that is not part of this offering) under the Purchase
Agreement for total proceeds of $1,000,000. Under the terms of the Purchase
Agreement, Fusion Capital has received a commitment fee consisting of 3,500,000
shares of our common stock. As of April 16, 2008, there were 173,403,188
shares
outstanding (155,443,288 shares held by non-affiliates) excluding the
shares offered by Fusion Capital pursuant to this Prospectus which it has
not
yet purchased from us. If all of such 40,000,000 shares offered hereby by
Fusion
Capital were issued and outstanding as of the date hereof, the 40,000,000
shares
would represent approximately 23% of the total common stock outstanding or
26%
of the non-affiliates shares outstanding as of the date hereof.
The
number of shares ultimately offered for sale by Fusion Capital is dependent
upon
the number of shares purchased by Fusion Capital under the Purchase Agreement.
Under
the
Purchase Agreement and the Registration Rights Agreement we are required
to
register 6,833,332 shares which have already been issued and at least 20,000,000
shares which we may issue to Fusion Capital. We have chosen to register an
additional 13,166,668 shares more than we are obligated to under the Purchase
Agreement with Fusion in order to have additional shares available to sell
under
the Purchase Agreement so that the Company can raise funds to further implement
its business plan. We are registering under the Securities Act 40,000,000
shares
of our common stock, 6,833,332 shares which have already been issued and
33,166,668 shares (13,166,668 shares more than we are required to register
under
the agreements) which we may issue to Fusion Capital in the future. All
40,000,000 shares are being offered pursuant to this Prospectus. Under the
Purchase Agreement, we have the right but not the obligation to sell more
than
the 40,000,000 shares to Fusion Capital. As of the date hereof, we do not
have
any plans or intent to sell to Fusion Capital any shares beyond the 40,000,000
shares offered hereby. However, if we elect to sell more than the 40,000,000
shares (which we have the right but not the obligation to do), we must first
register under the Securities Act any additional shares we may elect to sell
to
Fusion Capital before we can sell such additional shares, which could cause
substantial dilution to our shareholders.
Generally
we have the right but not the obligation from time to time to sell our shares
to
Fusion Capital in amounts between $80,000 and $1.0 million depending on certain
conditions. We have the right to control the timing and amount of any sales
of
our shares to Fusion Capital. The purchase price of the shares will be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right or the
obligation to purchase any shares of our common stock on any business day
that
the price of our common stock is below $0.20. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the Purchase
Agreement or the Registration Rights Agreement. The Purchase Agreement may
be
terminated by us at any time at our discretion without any cost to us, however
the agreement provides that neither party has the ability to amend the Purchase
Agreement and the obligations of both parties are non-transferable. The
conditions to commence funding were satisfied on April 16,
2008.
We
believe that, if we choose to sell up to all of the 33,166,668 shares offered
hereby to Fusion Capital, we will have access to the remaining $20 million
of
funding potentially available to us as payment for purchases of our shares
pursuant to the Purchase
Agreement
.
However, no assurance can be given as to what shares we will actually sell
to
Fusion Capital. The Company and Fusion Capital agreed to $21 million because
it
was the maximum amount Fusion Capital would commit to the Company under the
agreement and was based on arms-length negotiations between the parties. Based
on the market price of our common stock as of April 14, 2008 ($0.44), proceeds
to us from the sale of the remaining 33,166,668 shares of common stock would
only be approximately $15,920,001. However, the market price of our common
stock
has been higher and lower than this amount during the past twelve months. We
believe that as we execute on our business plan, the market price of our stock
will increase and thereby allow us to realize the remaining $20 million under
the agreement by selling the 33,166,668 shares or possibly fewer shares.
However, no assurance can be given that this will occur.
On
January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the
Company’s restricted common stock in a private transaction for total proceeds of
$2,500,000.00. The Company agreed to register the 8,650,000 shares purchased
by
Cumorah Capital. Cumorah Capital is a Nevada corporation and an “accredited
investor” as such term is defined in Rule 501(a) of Regulation D as promulgated
by the U.S. Securities and Exchange Commission (“
SEC
”).
Common
Stock Offered
|
48,650,000
shares by the selling stockholders
|
|
|
Offering
Price
|
Market
price
|
|
|
Common
Stock Currently Outstanding
|
173,403,188
shares
as of April 16, 2008
|
|
|
Use
of Proceeds
|
We
will not receive any proceeds of the shares offered by the selling
stockholders. See “Use of Proceeds”.
|
|
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk. See “Risk
Factors”.
|
|
|
Over-the-Counter
Bulletin Board Symbol
|
XSNX.OB
|
FORWARD-LOOKING
STATEMENTS
This
Prospectus contains forward-looking statements. Such forward-looking statements
include statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may”, “will”, “should”, “expect”,
“anticipate”, “estimate”, “believe”, “intend” or “project” or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, performance, or achievements to
be
materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may
be
found under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business” as well as in this Prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under “Risk Factors” and matters described in
this Prospectus generally. In light of these risks and uncertainties, there
can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. In addition to the information expressly required to be
included in this filing, we will provide such further material information,
if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
SUMMARY
FINANCIAL DATA
The
following table
below
sets forth certain financial information derived from the Company’s audited
consolidated financial statements and interim unaudited financial statements
for
the
periods and at the dates indicated.
In
2003,
the Company completed a Plan of Reorganization and Asset Purchase Agreement
and
changed the name of the Company from Sun River Mining, Inc. to XsunX, Inc.
Due
to the Company’s change in primary focus in October of 2003 and the developing
nature of the 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. The historical trends reflect this change of primary focus and the
associated research and development period of the development stage company.
This change in primary focus is the largest factor in the comparability of
this
information over time.
The
information presented below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
our consolidated financial statements and the related notes.
|
|
Years Ended
|
|
Period Ended
|
|
|
|
Sept 30, 2007
|
|
Sept 30, 2006
|
|
Sept 30, 2005
|
|
Sept 30, 2004
|
|
Sept 30, 2003
|
|
Dec 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
6,880
|
|
|
8,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0
|
|
Research
and Development Expense
|
|
|
435,534
|
|
|
949,472
|
|
|
501,423
|
|
|
129,493
|
|
|
-
|
|
|
6,406
|
|
Loan
Fees
|
|
|
-
|
|
|
628,834
|
|
|
115,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Warrant
Expenses
|
|
|
325,303
|
|
|
951,250
|
|
|
-
|
|
|
1,200,000
|
|
|
-
|
|
|
1,308,865
|
|
Income(Loss)
from Continuing Operations
|
|
|
(1,289,497
|
)
|
|
(3,441,940
|
)
|
|
(1,400,839
|
)
|
|
(1,509,068
|
)
|
|
(145,868
|
)
|
|
(1,914,928
|
)
|
Income(Loss)
from Continuing Operations per Common Share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.
01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(843,416
|
)
|
|
(1,942,278
|
)
|
|
(1,049,650
|
)
|
|
(236,630
|
)
|
|
(27,372
|
)
|
|
(392,623
|
)
|
Net
cash used in investing activities
|
|
|
(1,822,942
|
)
|
|
(2,099,736
|
)
|
|
(191,995
|
)
|
|
(12,267
|
)
|
|
(3
|
)
|
|
(192,865
|
)
|
Net
cash provided by financing activities
|
|
|
135,000
|
|
|
8,171,250
|
|
|
1,380,170
|
|
|
1,483,895
|
|
|
29,721
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,773,748
|
|
|
4,305,105
|
|
|
175,869
|
|
|
37,344
|
|
|
2,346
|
|
|
2,188,260
|
|
Property
Plant and Equipment, Net
|
|
|
543,993
|
|
|
397,626
|
|
|
165,831
|
|
|
2,270
|
|
|
-
|
|
|
604,410
|
|
Note
Receivable
|
|
|
1,500,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,500,000
|
|
Marketable
Prototype
|
|
|
1,720,875
|
|
|
1,765,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,632,625
|
|
Total
Assets
|
|
|
5,742,260
|
|
|
6,859,464
|
|
|
441,684
|
|
|
72,114
|
|
|
2,349
|
|
|
6,171,783
|
|
Accounts
Payable
|
|
|
259,652
|
|
|
582,161
|
|
|
78,377
|
|
|
89,030
|
|
|
-
|
|
|
238,897
|
|
Note
Payable
|
|
|
-
|
|
|
-
|
|
|
850,000
|
|
|
1,225
|
|
|
-
|
|
|
-
|
|
Total
Liabilities
|
|
|
312,688
|
|
|
588,699
|
|
|
974,233
|
|
|
96,163
|
|
|
-
|
|
|
293,974
|
|
Total
Stockholders Equity (Deficit)
|
|
|
5,429,572
|
|
|
6,270,765
|
|
|
(532,549
|
)
|
|
(24,049
|
)
|
|
2,349
|
|
|
5,877,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Obligations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cash
Dividends Declared per Common Share
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
SUPPLEMENTARY
FINANCIAL INFORMATION
The
following table presents the Company’s condensed operating results for each of
the ten (10) fiscal quarters through the period ended December 31, 2007. The
information for each of these quarters is unaudited. In the opinion of
management, all necessary adjustments, which consist only of normal and
recurring accruals, have been included to fairly present the unaudited quarterly
results. This data should be read together with the Company’s consolidated
financial statements and the notes thereto, and Management’s Discussions and
Analysis of Financial Condition and Results of Operations.
|
|
Three (3) Months Ended (In Thousands)
|
|
|
|
Dec 31,
2007
|
|
Sept. 30,
2007
|
|
June 30,
2007
|
|
Mar. 31
2007
|
|
Dec. 31,
2006
|
|
Sept. 30,
2006
|
|
June 30,
2006
|
|
Mar. 31,
2006
|
|
Dec 31,
2005
|
|
Sept. 30,
2005
|
|
Net
Sales
|
|
0
|
|
0
|
|
0
|
|
7
|
|
0
|
|
0
|
|
0
|
|
0
|
|
8
|
|
0
|
|
Research
and Development Expense
|
|
|
6
|
|
|
102
|
|
|
15
|
|
|
109
|
|
|
210
|
|
|
67
|
|
|
369
|
|
|
238
|
|
|
275
|
|
|
143
|
|
Loan
Fees
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
213
|
|
|
115
|
|
Income
(loss) from Continuing Operations
|
|
|
(106
|
)
|
|
239
|
|
|
(496
|
)
|
|
(448
|
)
|
|
(584
|
)
|
|
(174
|
)
|
|
(1,121
|
)
|
|
(551
|
)
|
|
(1,596
|
)
|
|
(749
|
)
|
Income
(loss) from Continuing Operations per common share
|
|
$
|
(0.01
|
)
|
$
|
0.002
|
|
$
|
(0.003
|
)
|
$
|
(0.01
|
)
|
$
|
(0.003
|
)
|
$
|
(0.001
|
)
|
$
|
(0.008
|
)
|
$
|
(0.01
|
)
|
$
|
(0.013
|
)
|
$
|
(0.006
|
)
|
WHERE
YOU CAN FIND US
Our
principal executive offices are located at 65 Enterprise, Aliso Viejo,
California 92656. Our telephone number is (949) 330-8060 and our website is
www.xsunx.com.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
Prospectus before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. Please note that throughout this Prospectus, the words “we”,
“our” or “us” refer to the Company and not to the selling
stockholders.
We
Have Not Generated Any Significant Revenues And May Never Achieve Profitability.
We
are a
development stage company and, to date, have not generated any significant
revenues. From inception through December 31, 2007, we had an accumulated
deficit of $13,426,778. We cannot assure you that we can achieve or sustain
profitability in the future. Our operations are subject to the risks and
competition inherent in the establishment of a business enterprise. There can
be
no assurance that future operations will be profitable. Revenues and profits,
if
any, will depend upon various factors, including whether our product development
can be completed, and if it will achieve market acceptance. We may not achieve
our business objectives and the failure to achieve such goals would have an
adverse impact on us.
We
expect that we will need to obtain significant additional financing to continue
to operate our business, including significant capital expenditures to install
our initial 25MW per annum production capacity, and financing may be unavailable
or available only on disadvantageous terms.
We
have
in the past experienced substantial losses and negative cash flow from
operations and have required financing, including equity and debt financing,
in
order to pursue the commercialization of products based on our technologies.
We
expect that we will continue to need significant financing to operate our
business, including capital expenditures to install our planned production
capacity.
On
November 1, 2007, XsunX signed a $21 million Purchase Agreement with Fusion
Capital. Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. Concurrently with entering into the
Purchase Agreement, we entered into a registration rights agreement with Fusion
Capital and we are registering under the Securities Act 40,000,000 shares of
our
common stock, 6,833,332 shares which have already been issued and 33,166,668
shares which we may issue to Fusion Capital in the future. All 40,000,000 shares
are being offered pursuant to this Prospectus. Under the Purchase Agreement,
we
have the right but not the obligation to sell more than the 40,000,000 shares
to
Fusion Capital. As of the date hereof, we do not have any plans or intent to
sell to Fusion Capital any shares beyond the 40,000,000 shares offered hereby.
However, if we elect to sell more than the 40,000,000 shares (which we have
the
right but not the obligation to do), we must first register under the Securities
Act any additional shares we may elect to sell to Fusion Capital before we
can
sell such additional shares, which could cause substantial dilution to our
shareholders.
We have
the right over a 25-month period to receive $80,000 every two business days
under the Purchase Agreement with Fusion Capital unless our stock price equals
or exceeds $0.30, in which case we can sell greater amounts to Fusion Capital
as
the price of our common stock increases. Fusion Capital shall not have the
right
or the obligation to purchase any shares of our common stock on any business
day
that the market price of our common stock is less than $0.20. Assuming we sell
only the 33,166,668 shares offered pursuant to this Prospectus (which Fusion
Capital has not yet purchased from us), the selling price of these shares to
Fusion Capital will have to average at least $0.6030 per share for us to receive
the maximum remaining proceeds of $20.0 million. Assuming a purchase price
of
$0.44 per share (the closing sale price of the common stock on April 14, 2008)
and the purchase by Fusion Capital of 33,166,668 shares under the Purchase
Agreement, proceeds to us would be approximately $15,920,001.
Also,
On
January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Company’s
restricted common stock in a private transaction for total proceeds of
$2,500,000. The Company agreed to register the 8,650,000 shares purchased by
Cumorah Capital. Cumorah Capital is a Nevada corporation and an Accredited
Investor, as defined in Rule 501(a) of Regulation D as promulgated by the SEC.
The
extent we rely on Fusion Capital as a source of funding will depend on a number
of factors including, the prevailing market price of our common stock and the
extent to which we are able to secure working capital from other sources.
Specifically, Fusion Capital shall not have the right or the obligation to
purchase any shares of our common stock on any business days that the market
price of our common stock is less than $0.20. If obtaining sufficient financing
from Fusion Capital were to prove unavailable or prohibitively dilutive and
if
we are unable to commercialize and sell enough of our TFPV amorphous solar
modules, we will need to secure another source of funding in order to satisfy
our working capital needs. Even if we are able to access the full $21.0 million
under the Purchase Agreement with Fusion Capital, we may still need additional
capital to fully implement our business, operating and development plans. Should
the financing we require to sustain our working capital needs be unavailable
or
prohibitively expensive when we require it, the consequences could be a material
adverse effect on our business, operating results, financial condition and
prospects.
We
are working to establish our manufacturing capacity for TFPV products in order
to meet anticipated demand, and our revenues and profits will depend upon our
ability to successfully complete our initial 25MW of manufacturing capacity
and
then to sell our TFPV products at volumes to match our available production
capacity.
We
do not
currently have a manufacturing facility. We are working to establish initial
manufacturing capacity of 25MW per annum and plan to expand manufacturing
capacity to 100MW per annum by 2010. This plan includes establishing a new
facility in Oregon. We will be installing and testing the equipment for this
manufacturing facility internally and through third parties. We may experience
delays, additional or unexpected costs and other adverse events in connection
with our projects, including those associated with the equipment we purchase
from third parties. Additionally, there can be no assurance that market demand
will absorb our manufacturing capacity or that our marketing capabilities will
be successful. As a result, we may not be able to realize revenues and profits
based upon the expected capacity, or we may experience delays or reductions
in
these revenues and profits, and our business could be materially adversely
affected.
Continued
research and development efforts will be required to improve or maintain
competitiveness of our products, and there can be no assurance that such efforts
will be successful.
There
can
be no assurance that such research and development efforts will be successful
or
that we will be able to develop commercial applications for our products and
technologies. Further, the areas in which we are developing technologies and
products are characterized by rapid and significant technological change. Rapid
technological development may result in our products becoming obsolete or
noncompetitive. If future products based on our technologies cannot be developed
for manufacture and sold commercially or our products become obsolete or
noncompetitive, we may be unable to recover our investments or achieve
profitability. In addition, the commercialization schedule may be delayed if
we
experience delays in meeting development goals, if products based on our
technologies exhibit technical defects, or if we are unable to meet cost or
performance goals. In this event, potential purchasers of products based on
our
technologies may choose alternative technologies and any delays could allow
potential competitors to gain market advantages.
There
is no assurance that the market will accept our products once commercial-scale
manufacturing has been achieved.
There
can
be no assurance that products based on our technologies will be perceived as
being superior to existing products or new products being developed by competing
companies or that such products will otherwise be accepted by consumers. The
market prices for products based on our technologies may exceed the prices
of
competitive products based on existing technologies or new products based on
technologies currently under development by competitors. There can be no
assurance that the prices of products based on our technologies will be
perceived by consumers as cost-effective or that the prices of such products
will be competitive with existing products or with other new products or
technologies. If consumers do not accept products based on our technologies,
we
may be unable to recover our investments or achieve profitability.
Other
companies, many of which have greater resources than we have, may develop
competing products or technologies which cause products based on our
technologies to become noncompetitive.
We
will
be competing with firms, both domestic and foreign, that perform research and
development, as well as firms that manufacture and sell solar products. In
addition, we expect additional potential competitors to enter the markets for
solar products in the future. Some of these current and potential competitors
are among the largest industrial companies in the world with longer operating
histories, greater name recognition, access to larger customer bases,
well-established business organizations and product lines and significantly
greater resources and research and development staff and facilities. There
can
be no assurance that one or more such companies will not succeed in developing
technologies or products that will become available for commercial sale prior
to
our products, that will have performance superior to products based on our
technologies or that would otherwise render our products noncompetitive. If
we
fail to compete successfully, our business would suffer and we may lose or
be
unable to gain market share.
The
loss of strategic relationships used in the development of our products and
the
systems and components to our planned 25MW manufacturing system could impede
our
ability to complete our product and/or our initial manufacturing system and
result in a material adverse effect causing our business to
suffer.
We
have
established a plan of operations under which a portion of our operations rely
on
strategic relationships with third parties, to provide systems design, assembly
and support. The Company is not an affiliate of or to any of our strategic
relationships and we anticipate the use of written contracts to govern the
terms
of each service agreement, and the vendor customer relationship.A loss of any
of
our third party relationships for any reason could cause us to experience
difficulties in implementing our business strategy. The loss of any strategic
relationship could severely impede our ability to complete the assembly of
our
planned manufacturing facility causing, at minimum, delays and the need to
re-qualify suitable providers. There can be no assurance that we could establish
other relationships of adequate expertise in a timely manner or at
all.
The
loss of existing vendor relationships or inability to locate vendors with the
specific capabilities or capacities could significantly impede our ability
to
commercialize the Company’s technology resulting in a material adverse effect
causing the business to suffer
We
rely
on vendors to provide materials for use in our manufacturing process, component
parts, and equipment for use in the assembly of our manufacturing system. We
have selected a primary and secondary vendor for the supply of the various
materials, component parts, and equipment employed in our manufacturing process.
The Company is not affiliated with any of our vendors and we anticipate the
use
of written contracts to govern the terms of each purchase and supply commitment,
and the vendor customer relationship. The market for the materials, components,
and equipment employed by XsunX in the manufacture of our products are
developing rapidly and we anticipate that continued growth in the demand for
similar material and supplies may cause supplies to become limited or deliveries
delayed until such time that vendors can adjust to growth in the demand for
their products. There can be no assurance that vendors of sufficient
capabilities and/or capacities can adjust in a timely manner or at all to meet
any growth in demand for their products. A loss by the Company of any of these
vendor relationships or an inability to locate vendors with capabilities and
/or
capacities necessary to meet our manufacturing system assembly requirements
or
provide materials in sufficient quantities to support our product production
efforts could cause the Company to experience difficulties in implementing
our
business strategy. The loss of any vendor relationship could severely impede
our
ability to complete the assembly of our planned manufacturing facility and/or
impede or prevent us from producing products thereby causing, at minimum, delays
and the need to re-qualify vendors and materials. There can be no assurance
that
we could establish other relationships of adequate expertise or qualification
in
a timely manner or at all.
We
cannot guarantee you that our patents are broad enough to provide any meaningful
protection nor can we assure you that one of our competitors may not develop
more effective technologies, designs or methods without infringing our
intellectual property rights or that one of our competitors might not design
around our technologies.
We
have
been granted, and exclusively own, three patents from the United States Patent
and Trademark Office. We have also been granted a license to a patent and
technology portfolio relating to photovoltaic technology design, manufacturing
processes, and the development of technology. Under our current plans we intend
to leverage the technical experience and knowhow we have developed while working
to commercialize our patents and licensed technologies. However, our current
TFPV solar module design leverages our experience and knowhow but independently
is not the product of nor is it protected under any domestic or international
patent rights. Our patents and licenses, and our proprietary TFPV solar module
designs, may not protect us against our competitors, and patent litigation
is
very expensive. We may not have sufficient cash available to pursue any patent
litigation to its conclusion because currently we do not generate
revenues.
We
cannot
rely solely on our current patents or our proprietary TFPV solar module designs
to be successful. The standards that the U.S. Patent and Trademark Office and
foreign patent office’s use to grant patents, and the standards that U.S. and
foreign courts use to interpret patents are not the same and are not always
applied predictably or uniformly and can change, particularly as new
technologies develop. As such, the degree of patent protection obtained in
the
U.S. May differ substantially from that obtained in various foreign countries.
In some instances, patents have been issued in the U.S. while substantially
less
or no protection has been obtained in Europe or other countries.
We
cannot
be certain of the level of protection, if any, that will be provided by our
patents or our efforts to maintain the secrecy of our proprietary TFPV solar
module designs. If we attempt to enforce them and they are challenged in court
where our competitors may raise defenses such as invalidity, unenforceability
or
possession of a valid license. In addition, the type and extent of any patent
claims that may be issued to us in the future are uncertain. Our patents may
not
contain claims that will permit us to stop competitors from using similar
technology.
We
may suffer the loss of key personnel or may be unable to attract and retain
qualified personnel to maintain and expand our
business.
Our
success is highly dependent on the continued services of a limited number of
skilled managers, scientists and technicians. The loss of any of these
individuals could have a material adverse effect on us. In addition, our success
will depend upon, among other factors, the recruitment and retention of
additional highly skilled and experienced management and technical personnel.
There can be no assurance that we will be able to retain existing employees
or
to attract and retain additional personnel on acceptable terms given the
competition for such personnel in industrial, academic and nonprofit research
sectors.
Raw
Material Costs Could Impact Our Cost Of Goods And Our Ability To Successfully
Develop Our Products and Technologies.
Higher
costs for certain raw materials and commodities, principally glass, resin-based
polymers and industrial gases, as well as higher energy costs, could negatively
impact our cost of operations. While we have developed strategies to mitigate
or
partially offset the impact of higher raw material, commodity and energy costs,
there can be no assurances such measures will be successful. In addition, no
assurances can be given that the magnitude and duration of these cost increases
or any future cost increases will not have a larger adverse impact on our
profitability and consolidated financial position than currently anticipated.
As
part of our planned research and development activities, we are attempting
to
reduce costs through improved automation and substitution strategies. There
can
be no assurances that we will succeed in these future cost-reduction efforts,
which may be essential for the continued development of our competitive
presence.
Due
to our need to lease manufacturing facilities of suitable size we may encounter
difficulties in locating and qualifying for the necessary manufacturing space
we
need to effectuate our plan.
Our
current commercial research and development facilities, located in Golden
Colorado, are not sufficient in size to allow for our commercial TFPV module
production plans. We will need to secure at least 65,000 sq. ft. of additional
commercial space. There can be no assurance that we can locate facilities that
are appropriate for our operations, or that we can negotiate reasonable lease
terms, qualify, or find access to sufficient utility infrastructure Our failure
to secure suitable manufacturing facilities will have a material adverse effect
limiting and potentially prohibit our ability to successfully complete our
plan
to build and operate 25 MW of TFPV solar module manufacturing
capabilities.
Colorado
Law Provides Indemnification For Officers, Directors, Employees and Agents
of
The Company, Which Could Result in Substantial Expenditures By and Have An
Adverse Effect On Our Company.
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 may
be
unable to recoup and such expenditures could have an adverse effect on our
Company.
Colorado
Law Excludes Personal Liability of Our Directors To The Company Which Could
Limit Our Right To Recover Damages And Have An Adverse Effect On Our Company.
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, which could have an adverse effect on our Company. This
provision does not affect the liability of any director under federal or
applicable state securities laws.
Compliance
With Sarbanes-Oxley
Could Be Time Consuming and Costly, Which Could Cause Our Independent Registered
Public Accounting Firm To Conclude That Our Internal Control Over Financial
Reporting Is Not Effective.
As
a
public company, we are required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which will require annual management assessments of the
effectiveness of our internal control over financial reporting and a report
by
our independent registered public accounting firm that both addresses
management’s assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting.
During the course of our testing, we may identify deficiencies which we may
not
be able to remediate in time to meet our deadline for compliance with Section
404. Testing and maintaining internal controls can divert our management’s
attention from other matters that are important to our business. We also expect
the new regulations to increase our legal and financial compliance cost, make
it
more difficult to attract and retain qualified officers and members of our
Board
of Directors (particularly to serve on an audit committee) and make some
activities more difficult, time consuming and costly. We may not be able to
conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Our independent registered
public accounting firm may not be able or willing to issue an unqualified report
on the effectiveness of our internal control over financial reporting. If we
conclude that our internal control over financial reporting is not effective,
we
cannot be certain as to the timing of completion of our evaluation, testing
and
remediation actions or their effect on our operations since there is presently
no precedent available by which to measure compliance adequacy. If we are unable
to conclude that we have effective internal control over financial reporting
or
our independent auditors are unable to provide us with an unqualified report
as
required by Section 404, then we may be unable to continue to have our common
stock traded on the Over-the-Counter Bulletin Board and investors could lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our stock.
Our
Common Stock is deemed a low-priced “penny” stock, therefore an investment in
our common stock should be considered high risk and subject to marketability
restrictions.
Since
our
common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
Exchange Act of 1934, as amended (the “
Exchange
Act
”),
it
will be more difficult for investors to liquidate their investment. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in our common stock is subject to the penny stock rules of the Exchange Act
specified in rules 15g-1 through 15g-10. Those rules require broker-dealers,
before effecting transactions in any penny stock, to:
|
·
|
Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
|
|
·
|
Disclose
certain price information about the
stock;
|
|
·
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
|
·
|
Send
monthly statements to customers with market and price information
about
the penny stock; and
|
|
·
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
|
Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell our common stock and may affect the ability of holders to sell their
common stock in the secondary market and the price at which such holders can
sell any such securities. These additional procedures could also limit our
ability to raise additional capital in the future.
We
Do Not Anticipate Paying Any Cash Dividends, Which Could Reduce The Value Of
Your Stock.
We
have
never paid cash dividends on our common stock and do not anticipate paying
cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as our Board of Directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if our stock price
appreciates.
There
Is A Limited Public Market For Our Common Stock, Which Could Prevent You From
Liquidating Your Investment.
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 stockholder 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 our common stock. Due to the low price of the securities, many
brokerage firms may not be willing to effect transactions in our common stock.
Even if a purchaser finds a broker willing to effect a transaction in our common
stock, 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 our common stock as collateral for
any
loans.
The
sale of our Common Stock to Fusion Capital may cause dilution and the sale
of
the shares of Common Stock acquired by Fusion Capital could cause the price
of
our Common Stock to decline.
In
connection with entering into the Purchase Agreement, we are registering under
the Securities Act 40,000,000 shares of our common stock, 6,833,332 shares
which
have already been issued and 33,166,668 shares which we may issue to Fusion
Capital in the future. All 40,000,000 shares are being offered pursuant to
this
Prospectus. Under the Purchase Agreement, we have the right but not the
obligation to sell more than the 40,000,000 shares to Fusion Capital. As of
the
date hereof, we do not have any plans or intent to sell to Fusion Capital any
shares beyond the 40,000,000 shares offered hereby. However, if we elect to
sell
more than the 40,000,000 shares (which we have the right but not the obligation
to do), we must first register under the Securities Act any additional shares
we
may elect to sell to Fusion Capital before we can sell such additional shares,
which could cause substantial dilution to our shareholders.
The
number of shares ultimately offered for sale by Fusion Capital is dependent
upon
the number of shares purchased by Fusion Capital under the Purchase Agreement.
The purchase price for the common stock to be sold to Fusion Capital pursuant
to
the Purchase Agreement will fluctuate based on the price of our common stock.
All 40,000,000 shares being registered hereunder are expected to be freely
tradable. It is anticipated that the shares registered in this
offering will be sold over a period of up to twenty-five (25) months from
the date of such Prospectus. Depending upon market liquidity at the time, a
sale
of shares under such offering at any given time could cause the trading price
of
our common stock to decline. Fusion Capital may ultimately purchase all, some
or
none of the 33,166,668 shares of common stock being registered herewith which
have not already been purchased by Fusion Capital. After it has acquired such
shares, it may sell all, some or none of such shares. Therefore, sales to Fusion
Capital by us under the Purchase Agreement may result in substantial dilution
to
the interests of other holders of our common stock. The sale of a substantial
number of shares of our common stock under this offering, or anticipation of
such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish
to effect sales. However, we have the right to control the timing and amount
of
any sales of our shares to Fusion Capital and the Purchase Agreement may be
terminated by us at any time at our discretion without any cost to us.
The
Market Price Of Our Common Stock Is Highly Volatile, Which Could Adversely
Affect The Market Price Of Your Stock.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
|
·
|
technological
innovations or new products and services by us or our
competitors;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
sales
of our common stock;
|
|
·
|
our
ability to integrate operations, technology, products and
services;
|
|
·
|
our
ability to execute our business
plan;
|
|
·
|
operating
results below expectations;
|
|
·
|
loss
of any strategic relationship;
|
|
·
|
economic
and other external factors; and
|
|
·
|
period-to-period
fluctuations in our financial
results.
|
Because
we have a limited operating history with limited revenues to date, you may
consider any one of these factors to be material. Our stock price may fluctuate
widely as a result of any of the above listed factors.
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
An
Adverse Ruling in the Wharton Capital Litigation Could Reduce The Proceeds
Available To Us From Sales of Common Stock to Fusion Capital.
On
January 3, 2008, Wharton Capital Partners, Ltd, and Wharton Capital Markets
LLC,
filed an action in the U.S. District Court for the Southern District of New
York
against the Company pursuant to which plaintiffs seek fees in an amount equal
to
seven percent (7%) of the gross proceeds received by the Company under the
Purchase Agreement. Although the Company asserts that no fees are owed to
Wharton Capital Partners, Ltd, Wharton Capital Markets LLC or Capitoline
Financial Group LLC, an adverse ruling in favor of plaintiffs could reduce
the
amount of gross proceeds the Company would otherwise receive under the Purchase
Agreement by up to seven percent (7%).
USE
OF PROCEEDS
This
Prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders. We will receive no proceeds
from
the sale of shares of common stock in this offering. However, we have received
(a) $1,000,000 from Fusion Capital in connection with the initial sale of shares
under the Purchase Agreement and we may receive up to an additional $20 million
in proceeds from the sale of our common stock to Fusion Capital under the
Purchase Agreement and (b) $2.5 million in proceeds from the prior sale of
our
common stock to Cumorah Capital. Any proceeds from Fusion Capital we receive
under the Purchase Agreement will be used for working capital and general
corporate purposes.
The
proceeds received by the Company under the Purchase Agreement are expected
to be
used to build an initial base production system delivering full size commercial
quality solar modules, and initiate the manufacture of the first of
four (4) planned twenty-five (25) megawatt systems under the Company’s
planned one hundred (100) megawatt thin film solar module production facility.
Proceeds may also be used to lease and prepare manufacturing facilities with
the
necessary support systems for the manufacturing line, inventory, staff, and
general working capital. We have provided the table below which reflects the
receipt by the Company of an aggregate of $23,500,000 in proceeds from the
completed sales to both Fusion Capital and Cumorah Capital and which also
assumes the future sale to Fusion Capital of up to an additional $20,000,000
(the maximum possible) in shares of our common stock under the Purchase
Agreement. Please also note that if we are unsuccessful in defending the Wharton
Action described in the “Legal Proceedings” section of this Prospectus, each of
the figures set forth herein below would be reduced by up to seven percent
(7%):
Aggregate
Proceeds To Be Received by the Company (Fusion Capital and Cumorah
Capital)
|
Manufacturing
Equipment and Sub Systems
|
|
$
|
12,773,974
|
|
|
|
|
|
|
Working
Capital and General and Administrative
|
|
|
6,998,279
|
|
|
|
|
|
|
Lease
Payments and Manufacturing Leasehold Improvements
|
|
|
2,725,098
|
|
|
|
|
|
|
New
Manufacturing Devices, Techniques and R&D
|
|
|
1,002,649
|
|
|
|
|
|
|
Total:
|
|
$
|
23,500,000
|
|
The
table
below reflects our use of proceeds based on the issuance of 33,166,668 shares
to
Fusion Capital at the market price of our shares as of April 14, 2008 ($0.44
per
share) and also the floor price as set forth in the Purchase Agreement ($0.20
per share). The table also includes $1,000,000 in proceeds already received
by
the Company for the sale of 3,333,332 shares to Fusion under the Purchase
Agreement, and $2,500,000 in proceeds received by the Company from the sale
of
8,650,000 shares to Cumorah Capital. Please also note that if we are
unsuccessful in defending the Wharton Action described in the “Legal
Proceedings” section of this Prospectus, each of the figures set forth herein
below could be reduced by up to seven percent (7%):
Use Proceeds From Sale of Common Stock To Fusion Capital Only
(Including Previous Sales to Fusion Capital and Cumorah Capital)
|
|
Market Price
at April
14, 2008
($0.44)
|
|
Floor Price
($0.20)
|
|
|
|
|
|
|
|
|
|
Manufacturing
Equipment and Sub Systems
|
|
$
|
11,300,000
|
|
$
|
5,900,000
|
|
|
|
|
|
|
|
|
|
Working
Capital and General and Administrative
|
|
|
3,993,334
|
|
|
2,608,334
|
|
|
|
|
|
|
|
|
|
Lease
Payments and Manufacturing Leasehold Improvements
|
|
|
2,300,000
|
|
|
1,400,000
|
|
|
|
|
|
|
|
|
|
New
Manufacturing Devices, Techniques and R&D
|
|
|
500,000
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
18,093,334
|
|
$
|
10,133,334
|
|
SELLING
STOCKHOLDERS
The
following table presents information regarding the selling stockholders. Neither
the selling stockholders nor any of their affiliates has held a position or
office, or had any other material relationship, with us.
Selling Stockholder
|
|
Shares
Beneficially
Owned
Before
Offering
|
|
Percentage of
Outstanding Shares
Beneficially Owned
Before
Offering
(1)
|
|
Shares to be Sold in
the Offering
Assuming The
Company Issues All
33,166,668 Number
of Shares Offered
Hereby
|
|
Percentage of
Outstanding Shares
Beneficially Owned
After
Offering
(1)
|
|
Fusion
Capital Fund II, LLC
(2)
|
|
|
8,496,707
|
(3)
|
|
4.9%
|
(4)
|
|
40,000,000
|
(3)
|
|
0.02%
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumorah
Capital, Inc.
(5)
|
|
|
8,650,000
|
|
|
4.99
|
%
|
|
8,650,000
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
17,146,707
|
|
|
9.89
|
%
|
|
48,650,000
|
|
|
0.02
|
%
|
____________
(1)
|
Applicable
percentage of ownership is based on 173,403,188 shares of our common
stock
outstanding as of April 16, 2008, together with securities exercisable
or
convertible into shares of Common Stock within sixty (60) days
of April
16, 2008 for each selling stockholder. Beneficial ownership is
determined
in accordance with the rules of the SEC and generally includes
voting or
investment power with respect to securities. Shares of common stock
are
deemed to be beneficially owned by the person holding such securities
for
the purpose of computing the percentage of ownership of such person,
but
are not treated as outstanding for the purpose of computing the
percentage
ownership of any other person. Note that affiliates are subject
to Rule
144 and insider trading regulations, percentage computation is
for form
purposes only.
|
(2)
|
Steven
G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital,
are
deemed to be beneficial owners of all of the shares of common stock
owned
by Fusion Capital. Messrs. Martin and Scheinfeld have shared voting
and
disposition power over the shares being offered under this Prospectus.
|
(3)
|
Of
the 8,496,707 shares beneficially held by Fusion Capital, (a) 6,833,332
shares of our common stock have been acquired by Fusion Capital
under the
Purchase Agreement, consisting of (i) 3,333,332 shares purchased
by Fusion
Capital for $1,000,000 and (ii) 3,500,000 shares we issued to Fusion
Capital as a commitment fee and (b) up to 1,663,375 shares may
be
currently issued to Fusion Capital upon the exercise of up to 4.9%
of
3,333,332
shares underlying two (2) identical warrants (except for strike
price, one
at $0.50 and the other at $0.75 per share)
in
accordance with the terms of the
warrants
(1,666,666 shares underlie each warrant). Both warrants have a
provision
stating that in no event shall Fusion Capital be entitled to exercise
the
warrant for a number of shares in excess of that number of shares
which,
upon giving effect to such exercise, would cause the aggregate
number of
shares of common stock beneficially owned by Fusion Capital to
exceed 4.9%
of the then outstanding shares of common stock following such
exercise
.
The shares underlying the
warrants
are not part of this offering.
Without
giving effect to the 4.9% ownership cap in the warrants, Fusion
Capital
would beneficially own 10,166,664 shares, which would constitute
approximately 5.86% of the total number of shares outstanding as
of the
date of this Prospectus.
The
Company may elect in its sole discretion to sell to Fusion Capital
up to
an additional 33,166,668 shares under the Purchase Agreement but
Fusion
Capital does not presently beneficially own those shares as determined
in
accordance with the rules of the SEC.
If, as of the date of this Prospectus, Fusion Capital had purchased
and
held all of the 33,166,668 shares potentially available under the
Purchase
Agreement then, as of the date of this Prospectus, Fusion Capital
could
beneficially own 40,000,000 shares, which would constitute approximately
23% of the total number of shares of common stock outstanding as
of the
date of this Prospectus. Under these circumstances, Fusion Capital
would
be unable to exercise the warrants because of the 4.9% ownership
cap in
such warrants.
|
(4)
|
Fusion
Capital beneficially owns 3.94% of the outstanding shares not including
3,333,332
shares which may be issued to Fusion Capital upon
the
exercise of two (2) identical warrants (except for strike price,
one at
$0.50 and the other at $0.75 per share) of 1,666,666 shares
each
,
and 4.9% of the outstanding shares including such warrant shares
as a
result of a 4.9% ownership
cap
in
accordance with the terms of the
warrants
(and as summarized in footnote (3) herein above)
.
|
(5)
|
Mr.
William E. Beifuss, President of Cumorah Capital, is deemed to be
the
beneficial owner of all of the shares of common stock owned by Cumorah
Capital. Mr. William E. Beifuss has voting and disposition power
over the
shares being offered under this Prospectus. Cumorah Capital is not
a
broker dealer or an affiliate of a broker dealer.
|
(6)
|
Outstanding
shares beneficially owned after offering is based on 209,903,188
shares
(which includes the 33,166,668 shares to be sold in the offering
and the
3,333,332 shares which may be issued to Fusion Capital upon the
exercise
of two (2) identical warrants (except for strike price, one at
$0.50 and
the other at $0.75 per share) of 1,666,666 shares each). This percentage
represents Fusion Capital’s beneficial ownership of the 3,333,332 shares
underlying such warrants only.
|
THE
FUSION TRANSACTION
General
On
November 1, 2007, we entered into a Purchase Agreement with Fusion Capital,
an
Illinois limited liability company. Under the Purchase Agreement, Fusion
Capital
is obligated, under certain conditions, to purchase shares from us in an
aggregate amount of $21 million from time to time over a twenty-five (25)
month
period. We have sold 3,333,332 shares of common stock to Fusion Capital
(together with 3,333,332 shares issuable under an immediately exercisable
common
stock purchase warrant that is not part of this offering) under the Purchase
Agreement for total proceeds of $1,000,000. Under the terms of the Purchase
Agreement, Fusion Capital has received a commitment fee consisting of 3,500,000
shares of our common stock. As of April 16, 2008, there were 173,403,188
shares
outstanding (155,443,288
shares
held by non-affiliates) excluding the 33,166,668 shares offered by Fusion
Capital pursuant to this Prospectus which it has not yet purchased from us.
If
all of such 33,166,668 shares offered hereby were issued and outstanding
as of
the date hereof, the 33,166,668 shares would represent 19.12% of the total
common stock outstanding or 21.33% of the non-affiliates shares outstanding
as
of the date hereof.
The
number of shares ultimately offered for sale by Fusion Capital is dependent
upon
the number of shares purchased by Fusion Capital under the Purchase Agreement.
Under
the
Purchase Agreement and the Registration Rights Agreement we are required
to
register 6,833,332 shares which have already been issued and at least 20,000,000
shares which we may issue to Fusion Capital in the future. We have chosen
to
register an additional 13,166,668 shares more than we are obligated to under
the
Purchase Agreement with Fusion in order to have additional shares available
to
sell under the Purchase Agreement so that the Company can raise funds to
further
implement its business plan. We are registering under the Securities Act
40,000,000 shares of our common stock, 6,833,332 shares which have already
been
issued and 33,166,668 shares (13,166,668 shares more than we are required
to
register under the agreements) which we may issue to Fusion Capital in the
future. All 40,000,000 shares are being offered pursuant to this Prospectus.
Under the Purchase Agreement, we have the right but not the obligation to
sell
more than the 40,000,000 shares to Fusion Capital. As of the date hereof,
we do
not have any plans or intent to sell to Fusion Capital any shares beyond
the
40,000,000 shares offered hereby. However, if we elect to sell more than
the
40,000,000 shares (which we have the right but not the obligation to do),
we
must first register under the Securities Act any additional shares we may
elect
to sell to Fusion Capital before we can sell such additional shares, which
could
cause substantial dilution to our shareholders.
Generally
we have the right but not the obligation from time to time to sell our shares
to
Fusion Capital in amounts between $80,000 and $1.0 million depending on certain
conditions. We have the right to control the timing and amount of any sales
of
our shares to Fusion Capital. The purchase price of the shares will be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right or the
obligation to purchase any shares of our common stock on any business day
that
the price of our common stock is below $0.20. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the Purchase
Agreement or the Registration Rights Agreement. The Purchase Agreement may
be
terminated by us at any time at our discretion without any cost to us, however
the agreement provides that neither party has the ability to amend the Purchase
Agreement and the obligations of both parties are non-transferable. The
conditions to commence funding were satisfied on April 16,
2008.
We
believe that, if we choose to sell up to all of the 33,166,668 shares offered
hereby to Fusion Capital, we will have access to the remaining $20 million
of
funding potentially available to us as payment for purchases of our shares
pursuant to the Purchase Agreement. However, no assurance can be given as to
what shares we will actually sell to Fusion Capital. The Company and Fusion
Capital agreed to $21 million because it was the maximum amount Fusion Capital
would commit to the Company under
the
agreement and was based on arms-length negotiations between the parties. Based
on the market price of our common stock as of April 14, 2008 ($0.44), proceeds
to us from the sale of the remaining 33,166,668 shares of common stock would
only be approximately $15,920,001. However, the market price of our common
stock
has been higher and lower than this amount during the past twelve months. We
believe that as we execute on our business plan, the market price of our stock
will increase and thereby allow us to realize the remaining $20 million under
the agreement by selling the 33,166,668 shares or possibly fewer shares.
However, no assurance can be given that this will occur.
Purchase
of Shares Under the Purchase Agreement
Under
the
Purchase Agreement, on any business day selected by us, we may direct Fusion
Capital to purchase up to $80,000 of our common stock. The purchase price per
share is equal to the lesser of:
|
·
|
the
lowest sale price of our common stock on the purchase date;
and
|
|
·
|
the
average of the three (3) lowest closing sale prices of our common
stock
during the twelve (12) consecutive business days prior to the date
of a
purchase by Fusion Capital.
|
The
purchase price will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the business days used to compute the purchase price. We may
direct Fusion Capital to make multiple purchases from time to time in our sole
discretion; no sooner then every two (2) business days.
Our
Right to Increase the Amount to Be Purchased
In
addition to purchases of up to $80,000 from time to time, we may also from
time
to time elect on any single business day selected by us to require Fusion
Capital to purchase our shares in an amount up to $200,000 provided that our
share price is not below $0.30 during the three (3) business days prior to
and
on the purchase date. We may increase this amount to up to $400,000 if our
share
price is not below $0.50 during the three (3) business days prior to and on
the
purchase date. This amount may also be increased to up to $600,000 if our share
price is not below $0.80 during the three (3) business days prior to and on
the
purchase date. This amount may also be increased to up to $1.0 million if our
share price is not below $1.25 during the three (3) business days prior to
and
on the purchase date. We may direct Fusion Capital to make multiple large
purchases from time to time in our sole discretion; however, at least two (2)
business days must have passed since the most recent large purchase was
completed. The price at which our common stock would be purchased in this type
of larger purchases will be the lesser of (i) the lowest sale price of our
common stock on the purchase date and (ii) the lowest purchase price (as
described above) during the previous ten (10) business days prior to the
purchase date.
Minimum
Purchase Price
Under
the
Purchase Agreement, we have set a minimum purchase price (“
floor
price
”)
of
$0.20. However, Fusion Capital shall not have the right or the obligation to
purchase any shares of our common stock in the event that the purchase price
would be less the floor price. Specifically, Fusion Capital shall not have
the
right or the obligation to purchase shares of our common stock on any business
day that the market price of our common stock is below $0.20.
Events
of Default
Generally,
Fusion Capital may terminate the Purchase Agreement without any liability or
payment to the Company upon the occurrence of any of the following events of
default:
|
·
|
the
effectiveness of the registration statement of which this Prospectus
is a
part of lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to Fusion Capital for
sale of
our common stock offered hereby and such lapse or unavailability
continues
for a period of ten (10) consecutive business days or for more than
an
aggregate of thirty (30) business days in any 365-day
period;
|
|
·
|
suspension
by our principal market of our common stock from trading for a period
of
three (3) consecutive business
days;
|
|
·
|
the
de-listing of our common stock from our principal market provided
our
common stock is not immediately thereafter trading on the Nasdaq
Global
Market, the Nasdaq Capital Market, the New York Stock Exchange or
the
American Stock Exchange;
|
|
·
|
the
transfer agent’s failure for five (5) business days to issue to Fusion
Capital shares of our common stock which Fusion Capital is entitled
to
under the Purchase Agreement;
|
|
·
|
any
material breach of the representations or warranties or covenants
contained in the Purchase Agreement or any related agreements which
has or
which could have a material adverse effect on us subject to a cure
period
of five (5) business days; or
|
|
·
|
any
participation or threatened participation in insolvency or bankruptcy
proceedings by or against us.
|
Our
Termination Rights
We
have
the unconditional right at any time for any reason to give notice to Fusion
Capital terminating the Purchase Agreement without any cost to us.
No
Short-Selling or Hedging by Fusion Capital
Fusion
Capital has agreed that neither it nor any of its affiliates shall engage in
any
direct or indirect short-selling or hedging of our common stock during any
time
prior to the termination of the Purchase Agreement.
Effect
of Performance of the Common Stock Purchase Agreement on Our
Stockholders
All
40,000,000 shares registered on behalf of Fusion Capital in this offering are
expected to be freely tradable. It is anticipated that shares registered in
this
offering will be sold over a period of up to twenty-five (25) months from the
date of this Prospectus. The sale by Fusion Capital of a significant amount
of
shares registered in this offering at any given time could cause the market
price of our common stock to decline and to be highly volatile. Fusion Capital
may ultimately purchase all, some or none of the 33,166,668 shares of common
stock not yet issued but registered in this offering. After it has acquired
such
shares, it may sell all, some or none of such shares. Therefore, sales to Fusion
Capital by us under the Purchase Agreement may result in substantial dilution
to
the interests of other holders of our common stock. However, we have the right
to control the timing and amount of any sales of our shares to Fusion Capital
and the Purchase Agreement may be terminated by us at any time at our discretion
without any cost to us.
The
number of shares ultimately offered for sale by Fusion Capital under this
Prospectus is dependent upon the number of shares purchased by Fusion Capital
under the Purchase Agreement. The following table sets forth the amount of
proceeds we would receive from Fusion Capital from the sale of shares at varying
purchase prices:
Assumed Average
Purchase Price
|
|
Number of Shares to be
Issued if Full Purchase
(2)
|
|
Percentage of
Outstanding Shares After
Giving Effect to the
Issuance to Fusion
Capital
(1)
|
|
Proceeds from the Sale of
Shares to Fusion Capital
Under the Purchase
Agreement
(2)
|
|
$
|
0.20
|
|
|
33,166,668
|
|
|
16.06
|
%
|
$
|
6,633,334
|
|
$
|
0.30
|
|
|
33,166,668
|
|
|
16.06
|
%
|
$
|
9,950,000
|
|
$
|
0.40
|
|
|
33,166,668
|
|
|
16.06
|
%
|
$
|
13,266,667
|
|
$
|
0.44
|
(3)
|
|
33,166,668
|
|
|
16.06
|
%
|
$
|
14,593,334
|
|
$
|
0.50
|
|
|
33,166,668
|
|
|
16.06
|
%
|
$
|
16,583,334
|
|
$
|
0.75
|
|
|
26,666,667
|
|
|
13.33
|
%
|
$
|
20,000,000
|
|
$
|
1.00
|
|
|
20,000,000
|
|
|
10.34
|
%
|
$
|
20,000,000
|
|
$
|
2.00
|
|
|
10,000,000
|
|
|
5.45
|
%
|
$
|
20,000,000
|
|
________________
(1)
|
The
denominator is based on 173,403,188 shares outstanding as of April
16,
2008, which includes the 6,833,332 shares previously issued to
Fusion
Capital and the number of shares set forth in the adjacent column.
The
numerator is based on the number of shares issuable under the Purchase
Agreement at the corresponding assumed purchase price set forth
in the
adjacent column.
|
(2)
|
Includes
the 33,116,668 shares of common stock being purchased at the assumed
average purchase price. Does not include the 3,333,332 shares of
common
stock previously purchased by Fusion Capital under the Purchase Agreement
for $1,000,000 and 3,500,000 shares of our common stock issued to
Fusion
Capital as a commitment fee under the Purchase
Agreement.
|
(3)
|
Closing
sale price of our shares on April 14,
2008.
|
Under
the
Purchase Agreement, we have the right but not the obligation to sell more than
the 40,000,000 shares to Fusion Capital, which includes the 6,833,332 shares
previously issued to Fusion Capital. As of the date hereof, we do not have
any
plans or intent to sell to Fusion Capital any shares beyond the 40,000,000
shares offered hereby. However, if we elect to sell more than the 40,000,000
shares (33,166,668 shares not including the 6,833,332 shares previously issued
to Fusion Capital), which we have the right but not the obligation to do, we
must first register under the Securities Act any additional shares we may elect
to sell to Fusion Capital before we can sell such additional shares, which
could
cause substantial dilution to our shareholders.
Material
Terms of the Registration Rights Agreement
In
connection with the Purchase Agreement, the Company and Fusion Capital entered
into that certain Registration Rights Agreement, dated November 1, 2007,
pursuant to which the Company provided to Fusion Capital certain registration
rights under the Securities Act. Specifically, the Company was obligated to
and did file with the SEC a registration statement covering 6,833,332
initial shares issued by the Company to Fusion Capital on November 1, 2007
plus
20,000,000 additional shares which may be issued by the Company to Fusion
Capital from time to time after November 1, 2007 pursuant to the Purchase
Agreement (collectively, the “
Registrable
Securities
”).
Furthermore, the Company agreed to use its best efforts to and did have such
registration statement or amendment(s) declared effective by the SEC at the
earliest possible date, and the Company shall use reasonable best efforts to
keep such registration statement effective pursuant to Rule 415 promulgated
under the Securities Act and available for sales of all of the Registrable
Securities at all times until the earlier of (i) the date as of which Fusion
Capital may sell all of the Registrable Securities without restriction pursuant
to Rule 144(k) promulgated under the Securities Act (or successor thereto)
or
(ii) the date on which (A) Fusion Capital shall have sold all the Registrable
Securities and no available amount remains under the Purchase Agreement.
All
reasonable expenses, other than sales or brokerage commissions, incurred in
connection with registrations, filings or qualifications, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company, shall
be
paid by the Company.
Material
Terms of the Common Stock Purchase Warrants
In
connection with the Purchase Agreement, the Company issued two (2) immediately
exercisable common stock purchase warrants to Fusion Capital on November
1,
2007. The first warrant entitles Fusion Capital to purchase up to 1,666,666
shares of the Company’s common stock at a purchase price equal to $0.50 per
share and the second warrant entitles Fusion Capital to purchase 1,666,666
shares of the Company’s common stock at a purchase price equal to $0.75 per
share. Both warrants expire on October 31, 2012. If at any time the shares
of
common stock underlying the warrants are not registered and would not be
freely
tradable upon an exercise of the warrant and cash payment, then Fusion Capital
may elect to exercise the warrants via a “cashless” exercise in accordance with
the formula set forth in the warrants.
In no
event shall Fusion Capital be entitled to exercise the warrants for a number
of
shares in excess of that number of shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of common stock
beneficially owned by Fusion Capital to exceed 4.9% of the then outstanding
shares of the common stock following such exercise.
THE
CUMORAH CAPITAL TRANSACTION
On
January 17, 2008, Cumorah Capital purchased 8,650,000 shares of the
Company’s restricted common stock in a private transaction for total proceeds of
$2,500,000. The Company agreed to register the 8,650,000 shares purchased by
Cumorah Capital in this offering. Cumorah Capital is a Nevada corporation and
an
“accredited investor” as such term is defined in Rule 501(a) of Regulation D as
promulgated by the SEC. The Company accepted the Cumorah Capital investment
for
use in the support of efforts to build and operate a solar module manufacturing
facility. There is no relationship between Cumorah Capital and Fusion Capital.
PLAN
OF DISTRIBUTION
The
common stock offered by this Prospectus is being offered by the selling
stockholders. The common stock may be sold or distributed from time to time
by
the selling stockholders directly to one or more purchasers or through brokers,
dealers, or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
sale
of the common stock offered by this Prospectus may be effected in one or more
of
the following methods:
|
·
|
ordinary
brokers’ transactions;
|
|
·
|
transactions
involving cross or block trades;
|
|
·
|
through
brokers, dealers, or underwriters who may act solely as
agents;
|
|
·
|
“at
the market” into an existing market for the common
stock;
|
|
·
|
in
other ways not involving market makers or established business markets,
including direct sales to purchasers or sales effected through
agents;
|
|
·
|
in
privately negotiated transactions;
or
|
|
·
|
any
combination of the foregoing.
|
In
order
to comply with the securities laws of certain States, if applicable, the shares
may be sold only through registered or licensed brokers or dealers. In addition,
in certain States, the shares may not be sold unless they have been registered
or qualified for sale in the state or an exemption from the registration or
qualification requirement is available and complied with.
Brokers,
dealers, underwriters, or agents participating in the distribution of the shares
as agents may receive compensation in the form of commissions, discounts, or
concessions from the selling stockholders and/or purchasers of the common stock
for whom the broker-dealers may act as agent. The compensation paid to a
particular broker-dealer may be less than or in excess of customary
commissions.
Fusion
Capital is an “underwriter” within the meaning of the Securities Act. Cumorah
Capital may be deemed to be an “underwriter” within the meaning of the
Securities Act.
Neither
we nor the selling stockholders can presently estimate the amount of
compensation that any agent will receive. We know of no existing arrangements
between the selling stockholders, any other stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the shares offered
by this Prospectus. At the time a particular offer of shares is made, a
prospectus supplement, if required, will be distributed that will set forth
the
names of any agents, underwriters, or dealers and any compensation from the
selling stockholders, and any other required information.
We
will
pay all of the expenses incident to the registration, offering, and sale of
the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Fusion Capital
and
related persons against specified liabilities, including liabilities under
the
Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
Fusion
Capital and their affiliates have agreed not to engage in any direct or indirect
short selling or hedging of our common stock during the term of the Purchase
Agreement.
We
have
advised the selling stockholders that while it is engaged in a distribution
of
the shares included in this Prospectus it is required to comply with Regulation
M promulgated under the Exchange Act. With certain exceptions, Regulation M
precludes the selling stockholders, any affiliated purchasers, and any
broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase
any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order
to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the shares
offered hereby this Prospectus.
This
offering will terminate on the date that all shares offered by this Prospectus
have been sold by the selling stockholders.
LEGAL
PROCEEDINGS
In
the
ordinary conduct of our business, we are subject to periodic lawsuits,
investigations and claims, including, but not limited to, routine employment
matters. Although we cannot predict with certainty the ultimate resolution
of
lawsuits, investigations and claims asserted against us, we are
currently not aware of nor have any knowledge of any legal proceedings or claims
that we believe will have, individually or in the aggregate, a material adverse
affect on our business, financial condition or operating results.
On
December 7, 2007, the Company filed an action for breach of contract and
declaratory relief in the Superior Court of Orange County, California, against
Wharton Capital Partners, Ltd, Wharton Capital Markets LLC, and Capitoline
Financial Group LLC. The action is captioned XsunX, Inc. v. Wharton Capital
Partners, Ltd, et al., and is pending in the above Court as case no. 07CC12772
(“
XsunX
Action
”).
The
XsunX Action was brought to seek a court determination that the Company does
not
owe any fees to the above defendants by reason of the Fusion Capital
transaction. The Company believes that no agreement between Wharton and the
Company was executed and therefore no valid agreement between the parties
exists. The XsunX Action also seeks return of confidential materials from the
above defendants. On January 3, 2008, Wharton Capital Partners, Ltd, and Wharton
Capital Markets LLC, filed an action in the U.S. District Court for the Southern
District of New York against the Company stemming from the same matter. That
action is captioned Wharton Capital Partners Ltd, and Wharton Capital Markets
LLC v. XsunX, Inc., and is pending in the above Court as case no. 080CV0056
(“
Wharton
Action
”).
The
Wharton Action seeks fees in an amount equal to seven percent (7%) of the gross
proceeds received by the Company under the Fusion financing agreement. The
Company asserts that no fees are owed to Wharton Capital Partners, Ltd, Wharton
Capital Markets LLC, or Capitoline Financial Group LLC. The Company intends
to
vigorously prosecute the XsunX Action and to vigorously defend the Wharton
Action. In the event that the Company does not prevail we may be required to
provide Wharton a payment of up to seven percent (7%) of any proceeds received
by the Company under the Purchase Agreement with Fusion Capital.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table lists the executive offices and directors of the Company
as of
April 16, 2008:
Name
|
|
Age
|
|
Position
Held
|
|
Tenure
|
Tom
Djokovich
|
|
50
|
|
President,
CEO, Director
|
|
Since
October 2003
|
Joseph
Grimes
|
|
50
|
|
COO
|
|
Since
April 2006
|
Jeff
Huitt
|
|
46
|
|
CFO,
Secretary
|
|
Since
January 2007
|
Thomas
Anderson
|
|
42
|
|
Director
|
|
Since
August 2001
|
Oz
Fundingsland
|
|
64
|
|
Director
|
|
Since
November 2007
|
Dr.
Michael A. Russak
|
|
60
|
|
Director
|
|
Since
November 2007
|
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 our Board of Directors. 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 typically less than twenty (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
Tom
Djokovich, President and Chief Executive Officer since October 2003, and
Director
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.
Joseph
Grimes, Chief Operating Officer since April 2006
Mr.
Grimes brings to XsunX more than eight years direct experience in thin-film
technology and manufacturing. He was most recently Vice President, Defense
Solutions, for Envisage Technology Company, where he directed and managed the
defense group business development process, acquisition strategies and vision
for next generation applications from October 2005 to March 2006. Previously
he
was Co-Founder, President and CEO of ISERA Group, where he established the
company infrastructure and guided five development teams, finally selling the
company to Envisage from 1993 to 2005. His direct experience in thin-film
technology came with Applied Magnetics Corporation from 1985 to 1993 as manager
for thin-film prototype assembly. Mr. Grimes holds a Bachelor’s degree in
business economics and environmental studies, and a Master’s in computer
modeling and operation research applications, both from the University of
California at Santa Barbara.
Jeff
Huitt, Chief Financial Officer since January 2007, Secretary since April 30,
2007
Jeff
Huitt serves as Chief Financial Officer and Secretary at XsunX. Located in
the Golden, Colorado research facility, his responsibilities include operations
management and coordination of resources. He has over twenty (20) years
experience in leadership positions of both larger organizations and start ups,
most recently as President of Parking Stripes Advertising, a private start-up
media company from October 2006 to August 2007. Prior to that, he was COO/CFO
of
a startup defense contractor guiding the company through high growth and a
recapitalization from January 2004 to October 2006. His additional experience
includes CFO of iSherpa Capital, from October 2001 to January 2004 and
Controller of Qwest Wireless from 1996 to 2000. Mr. Huitt is a CPA and holds
two
degrees from the University of Denver: a Bachelor of Science in Accounting
and a
Master’s in Business Administration.
Thomas
Anderson, became a Director of the Company in August 2001
Mr.
Anderson presently works as the Managing Director of the Environmental Science
and Engineering Directorate of Qinetiq North America in Los Alamos, New Mexico.
He has been with Qinetiq North America, formerly Apogen Technologies, since
January, 2005. Mr. Anderson has worked for the past 18 years in the
environmental consulting field, providing consulting services in the areas
of
environmental compliance, characterization and remediation services to
Department of Energy, Department of Defense, and industrial clients. He formerly
worked as a Senior Environmental Scientist at Concurrent Technologies Corp.
from
November 2000 to December 2004. He earned his B.S. in Geology from Denison
University and his M.S. in Environmental Science and Engineering from Colorado
School of Mines.
Oz
Fundingsland, became a Director of the Company in November
2007
Mr.
Fundingsland brings over forty (40) years of sales, marketing, executive
business management, finance, and corporate governance experience to XsunX.
His
professional and business experience principally originated with his tenure,
commencing in 1964, at Applied Magnetics Corp., a disk drive and data storage
company. Prior to his retirement from Applied Magnetics in 1994, Mr.
Fundingsland served as an Executive Officer and Vice President of Sales and
Marketing for 11 years directing sales growth from $50 million to over $550
million. Commencing in 1993 through 2003 Mr. Fundingsland served as a member
of
the board of directors for the International Disk Drive Equipment Manufacturers
Association “IDEMA” where he retired emeritus, and continues to serve as an
advisor to the board. For the last thirteen (13) years, Mr. Fundingsland has
provided consulting services assisting with sales, marketing, and management
to
a host of companies within the disk drive, optical, software, and LED
industries.
Dr.
Michael A. Russak, became a Director of the Company November
2007
Dr.
Russak is also a member of the Company’s Scientific Advisory Board. Dr. Michael
A. Russak has been working as a consultant in the hard disk drive and
photovoltaic industries since Jan 2007. He is also currently the Executive
Director of IDEMA-U.S. (the hard disk drive industry trade association) and
a
member of the Board of Directors and Scientific Advisory Board of XsunX, Inc.
From 2001 to 2006 he was President and Chief Technical Officer of Komag, Inc.,
a
manufacturer of hard magnetic recording disks for hard disk drive applications.
From 1993 to 2001 he was Chief Technical Officer of HMT Technology, Inc. also
a
manufacturer of magnetic recording disks. From 1985 to 1993 he was a research
staff member and program manager in the Research Division of the IBM
Corporation. Dr. Russak has over thirty five years of industrial experience
progressing from a research scientist to senior executive officer of two public
companies. He has expertise in thin film materials and devices for
magnetic recording, photovoltaic, solar thermal applications, semiconductor
devices as well as glass, glass-ceramic and ceramic materials. He also has
over twelve years experience at the executive management level of public
companies with significant off shore development and manufacturing
functions. He received his B.S. in Ceramic Engineering in 1968 and Ph.D.
in Materials Science in 1971, both from Rutgers University in New Brunswick,
NJ. During his career, he has been a contributing scientist and program
manager at the Grumman Aerospace Corporation, a Research Staff Member and
technical manager in the areas of thin film materials and processes at the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His responsibilities included new product design and introduction. Dr. Russak
became Chief Technical Officer of HMT and held that position until 2000 when
HMT
merged with Komag Inc. Dr. Russak was appointed President and Chief
Technical Officer of the combined company. He continued to set technical,
operational and business direction for Komag until his retirement at the end
of
2006. He has published over 90 technical papers, and holds 23 U.S.
patents.
Board
Committees
As
of
September 30, 2007, our Board of Directors had one outside director and did
not
have any committees. Additional outside directors were appointed in November
of
2007. The newly expanded Board of Directors intends to appoint committees as
necessary.
Director
Independence
The
following directors are independent: Thomas Anderson, Oz Fundingsland and
Michael Russak.
The
following director is not independent: Tom Djokovich.
The
Company uses the following standards for determining independence of its
directors:
|
·
|
They
must not have been employed by the Company at anytime during the
past
three (3) years.
|
|
·
|
They
must not be a family member of anyone who is or who has been an executive
officer of the Company within the past three (3)
years.
|
|
·
|
They
or their family members must not have received in excess of $120,000
from
the Company, except for board fees, for the current fiscal year or
the
last three (3) fiscal years.
|
|
·
|
They
or their family members did not work on the Company’s audit as part of the
Company’s independent auditors in the current year or past three (3)
years.
|
|
·
|
They
or their family members must not in the current or past three years
be a
partner, controlling shareholder or executive officer of an organization
that receives more than $200,000 or five pecent (5%) of the Company’s
gross revenue.
|
|
·
|
They
or their family members must not be employed as an executive officer
of
another company on which any of the Company’s executive officers serve or
has served in the past three (3) years on the compensation
committee.
|
|
·
|
Additionally,
the independence of a director is evaluated by the Company based
on all
relationships that the director or family members have with the Company
and the executive officers. Transaction independence is evaluated
on a
case-by-case basis using these
criterions.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of the date of this Prospectus, the number
of
shares of common stock owned of record and beneficially by executive officers,
directors and persons who hold five percent (5%) or more of the outstanding
common stock of the Company as of April 16, 2008. Also included are the shares
held by all executive officers and directors as a group. Unless otherwise
indicated, the address of each beneficial owner listed below is c/o XsunX,
Inc.,
65 Enterprise, Aliso Viejo, California 92656.
Stockholders/
|
|
Number
Of
|
|
Ownership
|
|
Beneficial
Owners
|
|
Shares
|
|
Percentage
(1)
|
|
|
|
|
|
|
|
Tom
Djokovich
(2)
|
|
|
17,903,000
|
|
|
10.32
|
%
|
President
& Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Anderson
(3)
|
|
|
1,173,338
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oz
Fundingsland
(3)
|
|
|
87,671
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Russak
(3)
|
|
|
101,370
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Grimes
(3)
|
|
|
664,000
|
|
|
*
|
|
Chief
Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff
Huitt
(3)
|
|
|
200,000
|
|
|
*
|
|
Chief
Financial Officer, Secretary
|
|
|
|
|
|
|
|
All
directors and executive officers as a group of (6 persons) account for ownership
of 20,133,899 shares representing 11.62% of the issued and outstanding common
stock. Each principal stockholder, unless noted otherwise, has sole investment
power and sole voting power over the shares.
_______________
*
|
Represents
less than one percent (1%).
|
(1)
|
Applicable
percentage ownership is based on 173,403,188 shares of common stock
issued
and outstanding as of April 16, 2008. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes
voting or
investment power with respect to securities. Shares of common stock
that
are currently exercisable or exercisable within sixty (60) days
of April
16, 2008 are deemed to be beneficially owned by the person holding
such
securities for the purpose of computing the percentage of ownership
of
such person, but are not treated as outstanding for the purpose
of
computing the percentage ownership of any other
person.
|
(2)
|
Includes
16,978,000 shares owned by the Djokovich Limited Partnership. Mr.
Djokovich shares voting and dispositive power with respect to these
shares
with Mrs. Tamara Djokovich.
|
(3)
|
Includes
warrants/options that may vest and be exercised within sixty (60)
days of
the date of April 16, 2008.
|
DESCRIPTION
OF SECURITIES
General
Our
authorized capital stock consists of 500,000,000 shares of common stock at
a no
par value and 50,000,000 shares of preferred stock at a par value of $0.01
per
share (“
Preferred
Stock
”).
There
are no provisions in our Articles of Incorporation or Bylaws that would delay,
defer or prevent a change in our control.
Common
Stock
As
of
April 16, 2008, 173,403,188 shares of common stock are issued and outstanding
and held by approximately 1,456 stockholders. Holders of our common stock
are
entitled to one (1) vote for each share on all matters submitted to a
stockholder vote.
Holders
of common stock do not have cumulative voting rights. Therefore, holders of
a
majority of the shares of common stock voting for the election of directors
can
elect all of the directors. Holders of our common stock representing a majority
of the voting power of our capital stock issued and outstanding and entitled
to
vote, represented in person or by proxy, are necessary to constitute a quorum
at
any meeting of our stockholders. A vote by the holders of a majority of our
outstanding shares is required to effectuate certain fundamental corporate
changes such as liquidation, merger or an amendment to our Articles of
Incorporation.
Although
there are no provisions in our charter or Bylaws that may delay, defer or
prevent a change in control, we are authorized, without stockholder approval,
to
issue shares of preferred stock that may contain rights or restrictions that
could have this effect.
Holders
of common stock are entitled to share in all dividends that our Board of
Directors, in its discretion, declares from legally available funds. In the
event of liquidation, dissolution or winding up, each outstanding share entitles
its holder to participate pro rata in all assets that remain after payment
of
liabilities and after providing for each class of stock, if any, having
preference over the common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
Preferred
Stock
The
Company is authorized to issue up to 50,000,000 shares of Preferred Stock.
Dividends on the Preferred Stock may be declared from time to time by our
Board
of Directors. The Preferred Shares are entitled to a preference over holders
of
the Company’s common stock equal to the par value of the shares of Preferred
Stock held, plus any unpaid dividends declared. As of April 16, 2008, no
shares
of Preferred Stock had been issued.
Dividends
We
have
never declared or paid any cash dividends on shares of our capital stock. We
currently intend to retain earnings, if any, to fund the development and growth
of our business and do not anticipate paying cash dividends in the foreseeable
future. Our payment of any future dividends will be at the discretion of our
Board of Directors after taking into account various factors, including our
financial condition, operating results, cash needs and growth
plans.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
LEGAL
MATTERS
The
validity of the shares offered hereby has been opined on for us by Michael
Littman Esq. No expert or counsel named in this Prospectus as having prepared
or
certified any part of this Prospectus or having given an opinion upon the
validity of the securities being registered or upon other legal matters in
connection with the registration or offering of the common stock was employed
on
a contingency basis, or had, or is to receive, in connection with the offering,
a substantial interest, direct or indirect, in the registrant or any of its
parents or subsidiaries. Nor was any such person connected with the registrant
or any of its parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer or employee.
The
financial statements for the years ended September 30, 2007, 2006 and 2005
included in this Prospectus have been audited by Jaspers + Hall, PC, independent
registered public accounting firm, to the extent and for the periods set forth
in their report elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
DISCLOSURE
OF COMMISSION POSTION
OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Directors
and officers are indemnified as provided by the Colorado Statutes and our
Bylaws. We have been advised that in the opinion of the SEC indemnification
for
liabilities arising under the Securities Act is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities is asserted by one
of
our directors, officers, or controlling persons in connection with the
securities being registered, we will, unless in the opinion of our legal counsel
the matter has been settled by controlling precedent, submit the question
whether such indemnification is against public policy to a court of appropriate
jurisdiction. We will then be governed by the court’s decision.
DESCRIPTION
OF BUSINESS
Business
Overview
XsunX
is
a development stage company with no significant sources of revenue to date.
We
are a thin-film photovoltaic (“
TFPV
”)
company that intends to grow its business by manufacturing TFPV amorphous
solar
modules and selling them into what we believe is a high growth solar market
opportunity.
Our
decision to pursue this strategy is based on our three years of research
in the
design and use of technologies for the manufacture of TFPV solar cells utilizing
amorphous silicon.
During
this time we have developed the technical capabilities, qualified core staff,
and market understanding that we believe will be necessary to establish product
manufacturing infrastructure and take our product to market.
We
have
designed a TFPV solar module which we believe will deliver an average of
125
peak watts. To produce solar modules in commercial quantities we intend to
processes glass substrates within a proprietary semiconductor manufacturing
system which employs the design of a high-throughput, automated, continuous
process
.
We
believe that the design of our TFPV module and manufacturing system can deliver
per watt costs significantly less than those of traditional crystalline silicon
solar module manufacturers, and allow us to market TFPV modules that will
be
highly competitive with other thin film offerings.
Currently,
we do not have a manufacturing facility. Our plan for growth is to build
and
operate a TFPV solar module manufacturing facility in the state of Oregon.
Employing a phased roll-out of manufacturing capacities, we anticipate
completing the assembly and installation of a small scale production research
and development system and initiating construction of our first full scale
25 MW
system in 2008. Barring assembly delays, we anticipate completing the assembly
of and commissioning our first 25MW line between December 2008 and February
2009.
Near
the
end of the 2008 calendar year, we plan to launch the build-out of the first
of
three additional 25 MW systems necessary to eventually bring our capacity
to 100
MW by early 2010.
On
April 1, 2008, the Company signed a sub-lease ("Lease Agreement") for
approximately Ninety Thousand (90,000) square feet of manufacturing facilities
located at 23365 NE Halsey Street, Wood Village, Oregon, U.S.A. The purpose
of
the Lease Agreement was to establish facilities necessary for the installation
and operation of the Company’s planned thin film solar module manufacturing
operations. The Lease Agreement requires that the Company post a security
deposit letter of credit in the amount of $106,000 and a letter of credit
in an
amount to be determined for 125% of the value for the removal of any
improvements performed to the structure by the Company.
Under
the
terms of Lease Agreement, and conditions precedent to the commencement
of the
lease, the parties will work together to finalize a scope of work for
the
removal of certain current building improvements and negotiate for the
purchase
by the Company of certain industrial equipment by the 25
th
of
April, 2008, submit the sublease agreement to the master landlord for
sublet
approval for which master landlord has fifteen (15) days to respond and
sub-landlord, from whom the Company will be leasing the premises, is
required to
provide an environmental site assessment report to the Company by May
15, 2008
to determine whether any environmental hazards are present requiring
abatement.
In the event that environmental hazards are found, or if in the opinion
of the
Company that such hazards render the premises unsuitable for use, the
Company
may terminate the Lease Agreement without obligation. There can be no
assurance
that the above conditions precedent to the commencement of the lease
will be
completed to the satisfaction of the parties.
The
Lease Agreement provides for the sub-landlord to complete demolition
of demising
walls, fixtures, floor coverings, and general removal of mutually agreed
to
items by July 30, 2008. During this time, the Company will be allowed
access to
the premises to initiate preparation efforts for its manufacturing systems.
Completion of sub-landlord work and the commencement date of the lease
are
scheduled for on or before July 31, 2008. The term of the Lease Agreement
with
the sub-landlord provides for occupancy through July 31, 2011. Thereafter,
should the Company elect to continue to occupy the premises, the Company
will be
required to have established continued lease arrangements with the master
landlord. Specific term and lease payment schedule is as follows:
Each
Month During The Time Period:
|
|
Monthly
Basic Rent Payable With Respect To Each Month
During
The Subject Time Period:
|
|
|
|
Commencement
Date to July 31, 2009
|
|
$53,000.00
|
|
|
|
August
1, 2009 to July 31, 2010
|
|
$54,060.00
|
|
|
|
August
1, 2010 to July 31, 2011
|
|
$55,141.20
|
Markets
We
believe the solar market represents a high growth opportunity nationally
and
internationally, both currently and into the foreseeable future. The global
demand for electrical energy has experienced significant growth due to growth
in
populations and the economic vitality of emerging economies. This has created
a
growing need to diversify and establish new sources of electrical production,
and we believe has created tremendous opportunities for growth in the solar
market. Within the markets for solar products we anticipate that growth in
demand for solar products based on TFPV technologies will out perform the
balance of the solar market.
Macro
growth drivers for solar energy production products include political support
and government subsidies, high energy prices, technical progress having led
to
cost reductions in manufacturing techniques, and advantages over other renewable
energy sources including:
|
·
|
Proven,
commercialized and widely used solar technologies adapting to a
host of
applications
|
|
·
|
Negligible
environmental impact
|
|
·
|
Reliability,
little or no delivery risk
|
|
·
|
Maximum
power generation coincides with peak energy
demands
|
|
·
|
Potential
for distributed point of use
generation
|
|
·
|
Growth
drivers that we believe may allow TFPV to outpace the balance
of the solar
market include:
|
|
·
|
Highly
scalable and automated manufacturing
processes
|
|
·
|
Lower
material costs and fewer constraints to sufficient material
supplies
|
|
·
|
Lower
per watt production costs for solar cells and integrated solar
modules
|
Driving
our solar module manufacturing plan is what we believe to be the ability
to
capitalize on long term growth in solar spurred by increasing electrical
energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or
more.
While
we
believe that the market conditions are excellent for all producers of solar
products, we intend to deliver thin film solar products that provide extra
value
in performance and cost.
Products
Solar
Modules
In
designing our
XsunX
ASI
-120
module, we interviewed solar systems integrators and developed a design that
we
believe provides for a module delivering high power output (relative to other
thin films), and size and framing that would allow for the use of many existing
mounting systems. In doing so, we believe our modules strike a balance between
higher rated power silicon wafer modules and lower rated power thin film
modules. Further, we believe the market will dictate retail installed pricing.
Systems integrators will look to sell installed watts at market dictated
prices,
and after accounting for certain fixed installation costs inherent to each
of
the different solar technologies, they will drive pricing per watt for factory
delivered modules to compensate for any added installation costs when using
certain technologies.
We
have
focused on the development of thin film amorphous technologies and products
due
to what we perceive as inherent advantages of amorphous silicon over other
solar
absorbers in regards to conversion efficiencies. Amorphous silicon produces
more
power earlier in the day and later into the evening because it requires less
incident light than many other technologies. Amorphous silicon also exhibits
less thermal coefficient degradation effects when operating in hot climates.
In
contrast, other thin film and conventional silicon wafer technologies degrade
at
significant rates of approximately 10% to 20% conversion loss of peak rated
performance when operating at normal temperatures of 65 degrees
centigrade.
We
plan
to deposit two separate solar cell layers of a thin film solar absorbing
compound called amorphous silicon on to a glass substrate. We have designed
the
use of two layers of amorphous silicon to increase the amount of absorbed
and
converted solar energy in our modules.
Based
on
previous experimental and limited commercial use of our thin film deposition
recipes, we anticipate the finished solar module to produce 7.9% frame to
frame
efficiency delivering approximately 125 peak watts of direct current “DC” power.
We
believe that we may be able to improve conversion efficiencies through the
use
of derivative forms of amorphous and other proprietary cell
structures.
The
specific dimensions and characteristics of the solar module design are as
follows:
Physical
Characteristics of Modules
|
|
Dimensions
– 100 x 160 x 5cm (39 x 69 x 2in)
|
|
|
Weight
– 13.6 kg (30 lb.)
|
Maximum
Temperature Ratings of Modules
|
|
Operating
Temperature – -40 to 180°F
|
Electrical
Characteristics of Modules
|
|
Number
of Cells per Module – 82
|
|
|
Maximum
Power Point Voltage, Vmpp – 2 Strings, 50V ea or
100V
|
|
§
|
Maximum
Power Point Current, Impp – 1.27 A/string, 2.54
A/parallel
|
|
§
|
Maximum
Power, Pmax – 120 watts
|
|
§
|
Module
Efficiency, Total Area – 7.9%
|
We
anticipate that we can present the superior per-rated-watt-performance of
amorphous in “real world” operating conditions as a competitive strength over
the factory-rated performance of various other solar technologies.
We
believe these factors
will
influence the purchasing decision process of large solar power farms and
utility
size installations.
Product
Competitive Strengths
Other
product and manufacturing design strengths that may allow us to become a
competitive force within the solar energy industry and the broader electric
power industry include:
Cost-per-Watt
Advantage
.
We
contend the design of our solar module and our vertical, in-line, continuous
process production system may allow us to take advantage of economies of
scale
and accelerate development cycles, enabling possible further reductions in
our
manufacturing costs per watt. As we introduce planned manufacturing efficiency
gains, we anticipate our per watt production costs to fall from initially
$1.58
in 2008 to approximately $1.19 per watt by 2011. We believe this pricing
will
continue to be significantly less than the costs of crystalline silicon solar
modules. As we mature and integrate new cell designs and materials, we believe
the opportunity exists to drive cell performance above 8% and deliver wholesale
costs per watt approaching $1 per watt or less.
Stable
Material Availability
.
Our
planned operations are not impacted by the current shortage of polysilicon
(a
key raw material for conventional non thin film solar module products) that
is
affecting most of our competitors through higher costs and limited availability.
The key raw materials to be used in our solar module design are low iron
tempered glass, high purity industrial gases such as argon, nitrogen, hydrogen,
silane and germane, and extruded aluminum for module
framing
with
polymer materials employed in the encapsulation for weather proofing. We
believe
we have adequate sources for the supply of these key raw materials and
components for our manufacturing needs and in most instances, have selected
multiple source suppliers. As we begin to scale manufacturing efforts, we
may
single out certain key suppliers to enhance efficiency, cost and quality.
The
cost of certain raw materials may rise over the next several years and we
intend
to actively manage these costs through purchasing strategies, product design,
and operating improvements.
Non-Toxic
Finished Product
.
The
design of our amorphous solar module transfers no heavy metals or toxic
compounds in the finished product.
Conventional
polysilicon solar modules contain lead based cell interconnections and thin
films such as cadmium telluride (CdTe) and copper indium gallium selenide
(CIGS)
contain toxic materials in the finished product.
Large
Area, High Power Delivery Module Design
.
Our
intent and execution plan is to work on establishing the most efficient way
to
deliver a commercially viable solar module at competitive price points as
opposed to focusing strictly on how to increase energy conversion efficiencies
of the solar cell.
Our
solar
module is based on established module designs and well known manufacturing
processes necessary to deliver a large area, TFPV module producing what we
believe to be nearly twice the rated power delivery per module of other thin
film offerings. We believe this design will require fewer solar panels per
installation compared to the use of other thin film systems, thereby reducing
the overall costs associated with mounting, installation, wiring and
interconnection of fewer parts and pieces.
Knowledgeable
System Component Vendor Base
.
Amorphous TFPV benefits from nearly thirty years of process development and
research, which has produced a knowledgeable and experienced vendor base.
These
vendors provide access to improved semiconductor device technologies resulting
in improvements to manufacturing processes in related areas such as thin
film
transistors, memory devices, and high performance opto-electric coatings.
We
have engaged a select group of these vendors and established a primary and
secondary vendor for each major system component.
Certifications
We
have
selected components for use in our TFPV solar module that have previously
been
tested by Underwriters Laboratories (UL) and approved for use in the manufacture
of solar modules. We plan to submit these materials, and a full scale working
sample of our TFPV module, to UL for the purpose of receiving UL certification
1703 in the 2008 period. Upon completion of initial module production
capabilities we plan to submit modules for participation in laboratory and
field
tests with the National Renewable Energy Laboratory, the Fraunhofer Institute
for Solar Energy.
We
plan
to work to achieve and maintain all certifications required to sell solar
modules in the markets we plan or expect to serve, including UL 1703, IEC
61646,
TÜV Safety Class II and CE.
Planned
Manufacturing Capacities
Production
Line Features
The
core
feature of our plan revolves around the design of an efficient mass production
system. The design utilizes an in-line vertical glass coating system processing
two balanced and independent lines simultaneously. This design incorporates
material handling, cell deposition, laser segmentation, cleaning, and module
packaging functions necessary to convert an inexpensive piece of 100cm X
160cm
sheet glass into a complete solar module in less than three hours. Our process
uses only a fraction of the semiconductor material that would be necessary
to
produce crystalline silicon solar modules.
Planned
Manufacturing Facilities
We
plan
to assemble and operate our initial 25 MW production line within leased single
level, commercial manufacturing type facilities of approximately sixty five
thousand square feet (65,000 sq. ft.) or more. Our production line requires
that
we prepare and install service for electrical, water, compressed air, and
industrial gases to our machines. These improvements are specific to the
support
of our manufacturing systems. We plan to establish material and finished
product
shipping and receiving capabilities within the same facility to support the
material requirements for production, and the inventory and shipment of our
finished solar modules.
In
preparation for the establishment of our thin film solar module manufacturing
facility, we have been engaged in a detailed search for an appropriate
building.
On
April 1, 2008, the Company signed a sub-lease ("Lease Agreement") for
approximately Ninety Thousand (90,000) square feet of manufacturing facilities
located at 23365 NE Halsey Street, Wood Village, Oregon, U.S.A. The purpose
of
the Lease Agreement was to establish facilities necessary for the installation
and operation of the Company’s planned thin film solar module manufacturing
operations. The Lease Agreement requires that the Company post a security
deposit letter of credit in the amount of $106,000 and a letter of credit
in an
amount to be determined for 125% of the value for the removal of any
improvements performed to the structure by the Company.
Under
the
terms of Lease Agreement, and conditions precedent to the commencement
of the
lease, the parties will work together to finalize a scope of work for
the
removal of certain current building improvements and negotiate for
the purchase
by the Company of certain industrial equipment by the 25
th
of
April, 2008, submit the sublease agreement to the master landlord for
sublet
approval for which master landlord has fifteen (15) days to respond
and
sub-landlord, from whom the company will be leasing the premises, is
required to
provide an environmental site assessment report to the Company by May
15, 2008
to determine whether any environmental hazards are present requiring
abatement.
In the event that environmental hazards are found, or if in the opinion
of the
Company that such hazards render the premises unsuitable for use, the
Company
may terminate the Lease Agreement without obligation. There can be
no assurance
that the above conditions precedent to the commencement of the lease
will be
completed to the satisfaction of the parties.
The
Lease Agreement provides for the sub-landlord to complete demolition
of demising
walls, fixtures, floor coverings, and general removal of mutually agreed
to
items by July 30, 2008. During this time, the Company will be allowed
access to
the premises to initiate preparation efforts for its manufacturing
systems.
Completion of sub-landlord work and the commencement date of the lease
are
scheduled for on or before July 31, 2008. The term of the Lease Agreement
with
the sub-landlord provides for occupancy through July 31, 2011. Thereafter,
should the Company elect to continue to occupy the premises, the Company
will be
required to have established continued lease arrangements with the
master
landlord. Specific term and lease payment schedule is as follows:
Each
Month During The Time Period:
|
|
Monthly
Basic Rent Payable With Respect To Each Month
During
The Subject Time Period:
|
|
|
|
Commencement
Date to July 31, 2009
|
|
$53,000.00
|
|
|
|
August
1, 2009 to July 31, 2010
|
|
$54,060.00
|
|
|
|
August
1, 2010 to July 31, 2011
|
|
$55,141.20
|
In
addition to current efforts to finalize a manufacturing facility lease,
the
Company has also begun placing orders for the major system components
necessary
to build its planned solar module manufacturing line. To date, orders
have been
placed for plasma deposition systems, sputtering systems, and lasers
systems.
These major components, along with other minor subsystems, are scheduled
to
begin arriving later this year.
Phased
Production Build Out and Planned Capacities
In
the
2008 calendar year, we anticipate completing the assembly and installation
of a
small production research and development system and initiating construction
of
our first full scale 25 MW system. Barring assembly delays, we anticipate
completing the assembly of and commissioning our first 25MW line between
December 2008 and February 2009. Near the end of the 2008 calendar year,
we plan
to launch the build-out of the first of three additional 25 MW systems
necessary
to eventually bring our capacity to 100 MW. Barring assembly delays, we
anticipate completing the assembly of the first of these additional lines
in
November 2009, the second in January 2010, and the final 25 MW in March
2010. We
intend to use the balance of the 2010 year to continue to work to improve
system
utilization, add shifts, and increase module yields to bring our production
to
peak capacities of 100 MW or more of annualized solar module production.
To
complete each new production line, we plan to use a systematic replication
process that is designed to enable us to add production lines rapidly and
efficiently, and achieve operating metrics that are comparable to the
performance of our initial 25 MW system.
Production
Line Planned Utilization and Production Costs
Each
system, or line, has an estimated annualized initial module production capacity
of approximately 25 megawatts, “MW” per annum, based on an initial 58% system
utilization (the percentage of system utilization in each 7 day by 24 hour
period) and 80% yield (the percentage of product meeting saleable
specifications). We plan to ramp-up system utilization and yield to industry
standards of 80% & 85% respectively over the course of the first full year
of production in 2009, thereby increasing total production capacities per
line
to an anticipated 33MW. Initial per watt production costs during ramp-up
of
operations in the 2009 period are anticipated to be $1.58 per watt. As we
improve system utilization and production yield in 2009, we anticipate our
production costs will lower to $1.38 in 2010 and $1.19 in 2011. By continuing
to
expand production and improve solar energy conversion efficiencies and
manufacturing processes, we believe we can further reduce our manufacturing
costs per watt and improve our cost advantage over traditional crystalline
silicon solar module manufacturers.
At
present, the majority of our operations development efforts for the period
ending September 2008 and the foreseeable future thereafter will focus on
establishing and expanding facilities necessary to manufacture our TFPV solar
modules for commercial sale. Areas of specific focus and capital expenditures
include:
(a)
Lease
and
preparation of facilities necessary to house and operate, at minimum, our
first
of four proposed 25MW manufacturing lines; and
(b)
Establishment
of a baseline production system to produce full size (100cm x 160cm) sample
modules; and
(c)
The
placement of orders with selected vendors for the core and sub-system components
necessary to begin assembly leading to the commissioning of the first of
four
proposed 25MW manufacturing lines; and
(d)
Continued
R&D efforts to establish enhanced solar cell deposition methods and reduce
manufacturing costs.
The
purpose of these ongoing investments is to first establish a base TFPV solar
module manufacturing infrastructure necessary to produce approximately 25MW
of
annualized solar module production, and second, to establish a
replication
process designed to enable us to add the balance of our proposed three
additional production lines as rapidly and efficiently as possible.
The
following chart summarizes our planned initial production capacity and
installation timing:
Manufacturing
Facility
|
|
Number of
Production Lines
|
|
Initial Annualized
Solar Modules*
|
|
Initial Annualized
Watts*
|
|
Anticipated System
Commissioning
Date
|
|
1st
line
|
|
|
1
|
|
|
190,000
|
|
|
25MW
|
|
|
Dec
2008
|
|
Addition
of 2
nd
line
|
|
|
1
|
|
|
190,000
|
|
|
25MW
|
|
|
Nov
2009
|
|
Addition
of 3
rd
line
|
|
|
1
|
|
|
190,000
|
|
|
25MW
|
|
|
Jan
2010
|
|
Addition
of 4
th
line
|
|
|
1
|
|
|
190,000
|
|
|
25MW
|
|
|
Mar
2010
|
|
Total
Planned:
|
|
|
4
|
|
|
760,000
|
|
|
100MW
|
|
|
|
|
*Annualized
solar module production rates are based on an initial system utilization
rate of
58% (the percentage of system utilization in each 7 day by 24 hour period)
and
80% yield (the percentage of product meeting saleable specifications). We
plan
to ramp-up system utilization and yield to industry standards of 80% & 85%
respectively over the course of the first full year of production of each
system. We anticipate that due to normal production variables we will produce
on
average marketable solar modules ranging from between 115 to 130 watts each.
Sales
and Marketing
Driving
our solar module manufacturing plan is what we believe to be the ability
to
capitalize on long term growth in solar spurred by increasing electrical
energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or
more.
Solar
systems installers looking to satisfy the module needs of these large and
long
term projects are looking for opportunities to secure access to modules
supplies. We believe that the design and performance of our solar module
is
ideally suited for use in these project types, and we further believe that
our
module production capacities can be pre-sold well into the future.
Target
Markets
Our
primary target markets for our TFPV solar modules will be applications for
On-Grid (facilities tied to conventional power distribution infrastructure)
application of 1MW in size and above. Typical applications and buyers would
include:
|
–
|
License
Holders in Germany, Spain &
Canada
|
|
–
|
US
installers servicing commercial and utility scale installations
|
|
|
Government
Agencies (DOD)
|
|
–
|
Bureau
of Land Management
|
|
|
Power
Purchase Agreements
|
|
|
Large
Commercial Installations
|
Pricing
Our
analysis made in predicting the anticipated sales per watt for module production
in the years 2009, 2010, and 2011 was based on several factors. These factors
included a review of pricing of both crystalline and thin film per watt sales
trends for the previous several years including 2007 pricing trends. Trends
were
primarily derived from pricing surveys conducted by interviews and from an
industry watch firm named SolarBuzz.com. The following pricing of both
crystalline and thin film for September 2007 was produced by
SolarBuzz.com:
“The
lowest retail price for a multicrystalline solar module is $4.11 per watt
(€3.00
per watt) from a US retailer. The lowest retail price for a monocrystalline
module is $4.30 per watt (€3.14 per watt), also from a US retailer.”
And
“The
lowest thin film module price is at $3.49 per watt (€2.55/Wp) per watt from a
European retailer. As a general rule, it is typical to expect thin film modules
to be at a price discount to crystalline silicon (for like module powers).
This
thin film price is represented by a 60 watt module.”
The
pricing in the thin film category represents modules below 100 watts of stated
peak power. Specifically, modules producing total peak power of only 60 watts
were priced lowest at $3.49 per watt.
XsunX
determined that a key driver in the lower price point for most thin film
in
relation to crystalline modules was the discount value assigned to the lower
total power output per module requiring more modules per installation. As
an
example, if a 10 kW project were to employ the use of 65watt
cadmium
telluride (CdTe) or copper indium gallium selenide (CIGS)
modules
as opposed to 125 watt amorphous silicon (a-Si) modules, the required number
of
modules necessary for installation would be approximately 70 more units.
Additional units may also be necessary to compensate for thermal coefficient
performance loss of a CdTe or CIGS solar cell resulting in power production
loss
from heat at normal operating temperatures*. In our estimate, this may bring
the
total number of additional units to an excess of 70 more 65 watt modules
for the
same project than with the use of a 125 watt amorphous module. To an
installer/integrator, the use of more modules would increase overall balance
of
systems (BOS) cost due to increased labor, mounting hardware, and
interconnection cost. We believe that integrators may demand lower per watt
price points for certain modules over others as a result of these additional
system costs.
In
developing price points for the XsunX ASI-120 module, we determined that
the
rated power output of our device struck a balance between higher energy density
crystalline modules and the lower power 60 to 75 watt products offered by
other
TFPV manufactures such as First Solar, Sharp, and ECD. The following chart
reviews our factory per watt pricing assumptions based on integrator interviews,
industry publications, and our manufacturing cost assumptions.
Period
|
|
Crystalline
|
|
Thin-Film
<100 watt
|
|
XsunX
Thin Film >120 watt
|
|
2009
|
|
$
|
3.25
|
|
$
|
2.25
|
|
$
|
2.60
|
|
2010
|
|
$
|
3.00
|
|
$
|
2.00
|
|
$
|
2.40
|
|
2011
|
|
$
|
2.90
|
|
$
|
1.75
|
|
$
|
2.00
|
|
*
NOTE:
Solar
technologies such as silicon wafer, CdTe, and CIGS exhibit performance loss
due
to heat. While the factory rated “Peak” power is determined at 25 degrees
centigrade, real world operating temperatures average 65 degrees centigrade.
This potential 40 degree increase can affect different solar technologies
in
varying percentages of approximately ¼ to ½ percent per degree in conversion
efficiency. This results in an approximate reduction in efficiency at the
“Peak”
period (noon) of about 10% to 20%. To place this in perspective, a 100 watt
module (silicon wafer, CdTe, CIGS) would deliver approximately 90 to 80 watts
of
power during the peak periods while operating at 65 degrees centigrade.
Amorphous silicon does not experience the same degree of performance
degradation, realizing only about 3% or less performance loss.
Sales
& Distribution
In
anticipation of commercial production, we have developed a pre-sales reservation
program, based upon the solar module manufacturing industry’s policy of
pre-selling manufacturing capacity to system installers and large users of
solar. This is intended to aid in building a sales channel, loading that
channel
with customers interested in purchasing our future module production, and
developing brand presence and recognition as early as possible. The program
enables qualified, interested parties to specify the amount of solar module
capacity they anticipate purchasing at favorable per watt pricing. As of
the
date of this report, we have signed reservation agreements with five (5)
solar
system integrators indicating interest in 145 MW of production in calendar
2009,
2010 and 2011. Our agreements provide for the payment of a five percent (5%)
deposit based on the 2009 calendar year purchase commitment either prior
to, or
not later than, 30 days after the delivery by XsunX to the reserving party
of
commercial samples for evaluation. The information in this paragraph is designed
to summarize the general terms of the pre-sales reservation program and market
opportunities. It is not intended to provide guidance about our future operating
results, including revenues or profitability.
Product
and Technology Development
Since
our
initial reorganization in October 2003 through the second period ended March
2007, we have focused the majority of our operational budgets towards the
development of technological infrastructure, research and development of
solar
cell device types and manufacturing techniques, and the licensure of certain
patented and patent pending technologies related to solar cell devices and
manufacturing techniques. We focused on the solar cell structure and thin
film
manufacturing processes for amorphous and microcrystalline materials. The
primary business purpose for these efforts was to establish intellectual
property and “know how” that could be sold and/or licensed to third parties for
use in the development of their respective solar product businesses. Over
this
period, we committed approximately $4,069,981 towards the above product and
technical “know how” development.
In
March
2007, we re-evaluated our business development and technology plans and launched
efforts to prepare a plan to grow XsunX through the manufacturing and sales
of
TFPV solar modules. Our proposed expansion into solar module manufacturing
required that we develop additional technical expertise in the areas of large
area cell integration and packaging techniques necessary to produce commercially
viable solar modules. Between March 2007 and the period ended September 30,
2007 we focused on the development of a TFPV solar module design, an integrated
manufacturing and assembly line, attracting government incentive programs
to
offset start-up and initial operations costs of our proposed facilities,
and the
qualification of systems and material vendors to supply the manufacturing
equipment and materials necessary to establish and operate our proposed
manufacturing facilities.
We
anticipate that for the foreseeable future the core of our operations and
efforts will focus on the establishment of TFPV solar module manufacturing
capabilities. Separately, we continue to explore opportunities with parties
interested in the licensing and cooperative commercial development
and use
of our semi-transparent TFPV technologies.
The
Company continues 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.
Intellectual
Property
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.
XsunX
licensed the patent and technology portfolio of MVSystems, Inc., a Colorado
corporation (“
MVSystems
”)
in
September 2004 and then later expanded our use rights under the license in
October 2005. The patents acquired were 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). 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
TFPV
solar cells 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 the XsunX field of use as it pertains to the business
of developing, commercializing and licensing processes for the manufacture
of
solar cells or photovoltaic technologies.
Effective
January 1, 2007 we entered into a cooperative development agreement with
Sencera, LLC for the licensure and development of a Sencera patent pending
plasma source for use in the manufacture of deposited thin-film solar cells.
Under the terms of the agreement, XsunX and Sencera entered into a Technology
Development and License Agreement, providing for a phased program to further
develop and proof the Sencera plasma source for use in the manufacture of
deposited thin-film solar cells. In connection with the agreement, Sencera
issued XsunX a seven (7) year royalty based license that provides XsunX with
exclusivity in the area of the XsunX field of use as claimed in U.S. Patent
No. 6,180,871; 6,320,117; 6,509,204; 6,488,777; 6,258,408; 6,472,622; and
(b) as claimed in U.S. Provisional Application No. 60/536,151; and (c) for
use in semi-transparent photovoltaic devices, multi-terminal photovoltaic
devices, and cassette-based roll-to-roll manufacturing equipment.
The
Company continues 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.
Company
History
XsunX
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
”).
Pursuant
to the Plan, the Company acquired the following three patents from Xoptix,
Inc.,
a California corporation for Seventy Million (70,000,000) shares of common
stock
(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.
Government
Contracts
There
are
no government contracts at this time.
Competitive
Conditions
Currently,
management is aware of other amorphous silicon and thin film products similar
to
those proposed for manufacture by us on the market. Although similar in respect
to the operation and use of these technologies, the Company believes the
design
of our large area TFPV solar module delivering 125 watts of DC power provides
marketable improvements over other thin film products offering less total
power
output per module technologies. We believe our design will require fewer
TFPV
solar panels per installation compared to the use of other thin film systems,
thereby reducing the overall costs associated with mounting, installation,
wiring, and interconnection of fewer parts and pieces.
However,
a number of solar cell technologies have and are being developed by other
companies. Such technologies include amorphous silicon, cadmium telluride,
copper-indium-gallium-selenide (CIGS), and copper indium diselenide as well
as
advanced concepts in thin film crystalline silicon, and the use of organic
materials. Given the benefit of time, investment, and advances in manufacturing
technologies any of these competing technologies may be offered in formats
delivering power similar or greater to our design, and they may also achieve
manufacturing costs per watt lower than our cost per watt to manufacture
a TFPV
solar module.
In
accessing the principal competitive factors in the market for solar electric
power products, we use price per watt, stability and reliability, conversion
efficiency, diversity in use applications, and other performance metrics
such as
scalability of manufacturing processes and the ability to adapt new technologies
into cell designs and the manufacturing process without antiquation of existing
infrastructure. If we do not compete successfully with respect to these or
other
factors, it could materially and adversely affect our business, results of
operations, and financial condition.
A
number
of large companies are actively engaged in the development, manufacturing
and
marketing of solar electric power products. The five largest TFPV cell suppliers
are Q-Cells Shell Solar, Sharp Corporation, BP Solar, Kyocera Corporation,
First
Solar, and Energy Conversion Devices, which together supply the significant
portion of the current TFPV market. All of these companies have greater
resources to devote to research, development, manufacturing and marketing than
we do.
Other
competitive factors lie in the current use of other clean, renewable energy
technologies such as wind, ocean thermal, ocean tidal, and geo-thermal power
sources and conventional fossil fuel based technologies for the production
of
electricity. We expect our primary competition will be within the solar cell
marketplace itself. Barriers to entering the solar cell manufacturing industry
include the technical know-how required to produce solar cells that maintain
acceptable efficiency rates, the design of efficient and scalable manufacturing
processes, and access to necessary manufacturing infrastructure.
Compliance
with Environmental 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.
Employees
and Consultants
The
Company is a development stage company and as of September 30, 2007 had 6
salaried employees. This represents an increase of 1 employee over the same
period ended 2006. The Company also engages several consultants to perform
specific functions that otherwise would require an employee. The Company
projects that during the next 12 months the Company’s workforce is likely to
increase to 22, with 2 of the new employees being in Administrative, 2 in
Marketing and Sales positions, 5 Scientific and Technical positions, 4 in
Manufacturing Technicians, and 3 in Administrative Support. In addition to
the
anticipated retention of new employees the Company expects to expand its
use of
strategic relationships to leverage industry expertise in areas of design,
systems automation, manufacturing and assembly to augment product
commercialization time lines and the delivery of technologies. The Company
may
find a need to engage additional full-time employees as necessary.
Scientific
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. During the fiscal year 2007, the membership of the advisory
board
was enhanced to reflect the current operational status of the Company. It
is
anticipated that panel members will be engaged for a period of two years.
The
qualifications and biographical information for the members of the panel
are as
follows:
Dr.
John J. Moore – Chairman Scientific Advisory Board
Dr.
John
J. Moore is a Materials Scientist who currently holds the position of Trustees’
Professor and Head of Department of Metallurgical and Materials Engineering
at
the Colorado School of Mines. Dr. Moore is also Director of the
interdisciplinary graduate program in Materials Science and Director of the
Advanced Coatings and Surface Engineering Laboratory, ACSEL, at the Colorado
School of Mines in Golden. He has been at the Colorado School of Mines since
1989.
Dr.
Moore
was awarded a B.Sc. in Materials Science and Engineering from the University
of
Surrey, UK, in 1966, a Ph.D. in Industrial Metallurgy from the University
of
Birmingham, UK, in 1969, and a D.Eng. from the School of Materials of the
University of Birmingham, UK, in 1996. Dr. Moore worked as a Student
Apprentice at Stewarts and Lloyds Ltd., UK, from 1962 to 1966, and as Manager
of
Industrial Engineering and Production Control at Birmid-Qualcast Industries
Ltd., UK, the largest die casters in Europe at the time, from 1969 to
1974.
Prior
to
his appointment at the Colorado School of Mines, Dr. Moore served as Professor
& Head, Department of Chemical and Materials Engineering, University of
Auckland, New Zealand, from 1986 to 1989; Professor of Metallurgical Engineering
at the University of Minnesota, USA, from 1979 to 1986, and Senior Lecturer
of
Chemical Metallurgy at Sandwell College, England, from 1974 to
1979.
Dr.
Moore
has published more than 500 papers in materials science and engineering
journals, holds13 patents, and has been the author or co-author/editor of
9
books. Dr. Moore is a Fellow of the Institute of Materials (UK), a Fellow
ASM International, a Fellow of the American Ceramic Society, and a Chartered
Engineer, (C.Eng.), in the UK. Dr. Moore is also an Honorary Professor and
has been awarded an Honorary Doctorate from the Moscow State Institute of
Steels
and Alloys, Russia.
Dr.
Richard K. Ahrenkiel, Member Scientific Advisory Board
Richard
K. Ahrenkiel is currently a Research Professor of Metallurgical and Materials
Engineering at the Colorado School of Mines in Golden, Colorado. He is also
a
Consultant and Research Fellow Emeritus at the National Renewable Energy
Laboratory (NREL), (formerly the Solar Energy Research Institute) Golden,
Colorado, where he worked from 1981 to 2005. He became a Research Fellow
at NREL
in 2000. His area of specialization is the measurement and characterization
of
photovoltaic cells and materials. He also works in photovoltaic device design
and modeling. He received a B.S. degree in Engineering Physics and the M.S.
and
Ph.D degrees in Physics at the University of Illinois, Urbana. He joined
the
staff of the Research Laboratories of the Eastman Kodak Company. From 1972-76,
he worked on the newly founded electronic photography project using silicon
charge coupled devices as sensing elements. He joined Laser Division of the
Los
Alamos National Laboratory in 1976 (then LASL), and in 1978, he became a
Group
Leader in the Electronics Division of LANL. He is a Fellow of the American
Physical Society, the Institute of Electrical and Electronic Engineers (IEEE),
the American Vacuum Society, and the Optical Society of America.
Edward
T. Yu, Member Scientific Advisory Board
Edward
T.
Yu is currently Professor of Electrical and Computer Engineering at the
University of California, San Diego (UCSD). He received his A.B. (summa cum
laude) and A.M. degrees in Physics from Harvard University in 1986, and his
Ph.D. degree in Applied Physics from the California Institute of Technology
in
1991. From 1986 to 1989 he was a National Science Foundation Doctoral Fellow,
and from 1989 to 1991 he was an AT&T Bell Laboratories Ph.D. Scholar,
holding both appointments at Caltech. From 1991 to 1992 he was a Postdoctoral
Fellow at the IBM Thomas J. Watson Research Center in Yorktown Heights, NY.
From
1992 to 1996 he was Assistant Professor of Electrical and Computer Engineering
at UCSD, and from 1996 to 1998 he was Associate Professor. He has held his
current appointment as Professor since 1998. Dr. Yu also serves currently
as a
member of the DARPA Defense Sciences Research Council.
At
UCSD
Professor Yu directs a research laboratory concerned generally with the
characterization, understanding, and application of physical phenomena and
of
solid-state material and device properties at nanometer to atomic length
scales.
Current research interests in his group include III-V nitride heterostructure
materials and device physics; scanning probe characterization of advanced
electronic materials and devices; solid-state nanoscience and nanotechnology;
and photovoltaics and other technologies for energy generation. The results
of
his research have been reported in over 120 refereed journal publications
and
over 175 conference and seminar presentations.
Dr.
Michael A. Russak, Member Scientific Advisory Board
Dr.
Michael A. Russak has been working as a consultant in the hard disk drive
and
photovoltaic industries since Jan 2007. He is also currently the Executive
Director of IDEMA-U.S. (the hard disk drive industry trade association) and
a
member of the Board of Directors and Scientific Advisory Board of XsunX,
Inc.
From 2001 to 2006 he was President and Chief Technical Officer of Komag,
Inc., a
manufacturer of hard magnetic recording disks for hard disk drive applications.
From 1993 to 2001 he was Chief Technical Officer of HMT Technology, Inc.
also a
manufacturer of magnetic recording disks. From 1985 to 1993 he was a research
staff member and program manager in the Research Division of the IBM
Corporation. Dr. Russak has over thirty five years of industrial experience
progressing from a research scientist to senior executive officer of two
public
companies. He has expertise in thin film materials and devices for
magnetic recording, photovoltaic, solar thermal applications, semiconductor
devices as well as glass, glass-ceramic and ceramic materials. He also has
over twelve years experience at the executive management level of public
companies with significant off shore development and manufacturing
functions. He received his B.S. in Ceramic Engineering in 1968 and Ph.D.
in Materials Science in 1971, both from Rutgers University in New Brunswick,
NJ. During his career, he has been a contributing scientist and program
manager at the Grumman Aerospace Corporation, a Research Staff Member and
technical manager in the areas of thin film materials and processes at the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His responsibilities included new product design and introduction. Dr. Russak
became Chief Technical Officer of HMT and held that position until 2000 when
HMT
merged with Komag Inc. Dr. Russak was appointed President and Chief
Technical Officer of the combined company. He continued to set technical,
operational and business direction for Komag until his retirement at the
end of
2006. He has published over 90 technical papers, and holds 23 U.S.
patents.
Available
Information
Our
website address is www.xsunx.com. We make available on our website access
to our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to these reports that we have filed with the SEC.
The
information found on our website is not part of this or any other report
we file
with, or furnish to, the SEC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Business
Overview
XsunX
is
a development stage company with no significant sources of revenue to date.
We
are a thin-film photovoltaic (“
TFPV
”)
company that intends to grow its business by manufacturing TFPV amorphous
solar
modules and selling them into what we believe is a high growth solar market
opportunity. Our decision to pursue this strategy is based on our three years
of
research in the design and use of technologies for the manufacture of TFPV
solar
cells utilizing amorphous silicon. During this time we have developed the
technical capabilities, qualified core staff, and market understanding that
we
believe will be necessary to establish product manufacturing infrastructure
and
take our product to market.
We
have
designed a 125 peak watt TFPV solar module utilizing glass substrates and
a
proprietary semiconductor manufacturing system which employs the design of
a
high-throughput, automated, continuous process to produce solar modules in
commercial quantities. We believe that these key processes can deliver per
watt
costs significantly less than those of traditional crystalline silicon solar
module manufacturers and allow us to market TFPV modules that will be highly
competitive with other thin film offerings.
Currently,
we do not have a manufacturing facility. Our plan for growth is to build
and
operate a TFPV solar module manufacturing facility in the state of Oregon.
Employing a phased roll-out of manufacturing capacities, we anticipate
completing the assembly and installation of a small scale production research
and development system and initiating construction of our first full scale
25 MW
system in 2008. Barring assembly delays, we anticipate completing the assembly
of and commissioning our first 25MW line between December 2008 and February
2009. Near the end of the 2008 calendar year, we plan to launch the build-out
of
the first of three additional 25 MW systems necessary to eventually bring
our
capacity to 100 MW by early 2010.
On
April 1, 2008, the Company signed a sub-lease ("Lease Agreement")
for
approximately Ninety Thousand (90,000) square feet of manufacturing
facilities
located at 23365 NE Halsey Street, Wood Village, Oregon, U.S.A. The
purpose of
the Lease Agreement was to establish facilities necessary for the
installation
and operation of the Company’s planned thin film solar module manufacturing
operations. The Lease Agreement requires that the Company post a
security
deposit letter of credit in the amount of $106,000 and a letter of
credit in an
amount to be determined for 125% of the value for the removal of
any
improvements performed to the structure by the Company.
Under
the
terms of Lease Agreement, and conditions precedent to the commencement
of the
lease, the parties will work together to finalize a scope of work
for the
removal of certain current building improvements and negotiate for
the purchase
by the Company of certain industrial equipment by the 25
th
of
April, 2008, submit the sublease agreement to the master landlord
for sublet
approval for which master landlord has fifteen (15) days to respond
and
sub-landlord, from whom the Company will be leasing the premises,
is required to
provide an environmental site assessment report to the Company by
May 15, 2008
to determine whether any environmental hazards are present requiring
abatement.
In the event that environmental hazards are found, or if in the opinion
of the
Company that such hazards render the premises unsuitable for use,
the Company
may terminate the Lease Agreement without obligation. There can be
no assurance
that the above conditions precedent to the commencement of the lease
will be
completed to the satisfaction of the parties.
The
Lease Agreement provides for the sub-landlord to complete demolition
of demising
walls, fixtures, floor coverings, and general removal of mutually
agreed to
items by July 30, 2008. During this time, the Company will be allowed
access to
the premises to initiate preparation efforts for its manufacturing
systems.
Completion of sub-landlord work and the commencement date of the
lease are
scheduled for on or before July 31, 2008. The term of the Lease Agreement
with
the sub-landlord provides for occupancy through July 31, 2011. Thereafter,
should the Company elect to continue to occupy the premises, the
Company will be
required to have established continued lease arrangements with the
master
landlord. Specific term and lease payment schedule is as follows:
Each
Month During The Time Period:
|
|
Monthly
Basic Rent Payable With Respect To Each Month
During
The Subject Time Period:
|
|
|
|
Commencement
Date to July 31, 2009
|
|
$53,000.00
|
|
|
|
August
1, 2009 to July 31, 2010
|
|
$54,060.00
|
|
|
|
August
1, 2010 to July 31, 2011
|
|
$55,141.20
|
In
anticipation of commercial production, we have begun to market our TFPV
solar
module under the brand name of the XsunX ASI-120. In anticipation of commercial
production, we have developed a pre-sales reservation program, based upon
the
solar module manufacturing industry’s policy of pre-selling manufacturing
capacity to system installers and large users of solar as is more fully
described in the “Sales & Distribution” subsection of the “Sales and
Marketing” section herein below. The Company’s program
enables
qualified, interested parties to specify the amount of solar module capacity
they anticipate purchasing at favorable per watt pricing. As of the date
of this
Prospectus, we have signed reservation agreements with
five
(5)
solar
system integrators indicating interest in 145 MW of production in
calendar
2009,
2010
and
2011.
Markets
We
believe the solar market represents a high growth opportunity nationally
and
internationally, both currently and into the foreseeable future. The global
demand for electrical energy has experienced significant growth due to growth
in
populations and the economic vitality of emerging economies. This has created
a
growing need to diversify and establish new sources of electrical production,
and we believe has created tremendous opportunities for growth in the solar
market. Within the markets for solar products we anticipate that growth in
demand for solar products based on TFPV technologies will out perform the
balance of the solar market.
Macro
growth drivers for solar energy production products include political support
and government subsidies, high energy prices, technical progress having led
to
cost reductions in manufacturing techniques, and advantages over other renewable
energy sources including:
|
·
|
Proven,
commercialized and widely used solar technologies adapting to a
host of
applications:
|
|
·
|
Negligible
environmental impact
|
|
·
|
Reliability,
little or no delivery risk
|
|
·
|
Maximum
power generation coincides with peak energy
demands
|
|
·
|
Potential
for distributed point of use generation
|
|
·
|
Growth
drivers that we believe may allow TFPV to outpace the balance of
the solar
market include:
|
|
·
|
Highly
scalable and automated manufacturing
processes
|
|
·
|
Lower
material costs and fewer constraints to sufficient material
supplies
|
|
·
|
Lower
per watt production costs for solar cells and integrated solar
modules
|
Driving
our solar module manufacturing plan is what we believe to be the ability
to
capitalize on long term growth in solar spurred by increasing electrical
energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or
more.
While
we
believe that the market conditions are excellent for all producers of solar
products, we intend to deliver thin film solar products that provide extra
value
in performance and cost.
Products
Solar
Modules
In
designing our
ASI-120
watt module, we interviewed solar systems integrators and developed a design
that we believe provides for a module delivering high power output (relative
to
other thin films), and size and framing that would allow for the use of many
existing mounting systems.
We
plan
to deposit two separate solar cell layers of amorphous silicon on to a one
meter
by one point six meter size (1m x 1.6m) glass substrate. This is to
increase the amount of absorbed and converted solar energy in our modules.
Based
on previous experimental and limited commercial use of our thin film deposition
recipes, we anticipate the finished solar module to produce 7.9% frame to
frame
efficiency delivering approximately 125 peak watts of direct current “DC” power.
We believe that we may be able to improve conversion efficiencies through
the
use of derivative forms of amorphous and other proprietary cell
structures.
Planned
Manufacturing Capacities
We
currently do not have a manufacturing facility. However, o
n
April 1, 2008, the Company signed a sub-lease ("Lease Agreement") for
approximately Ninety Thousand (90,000) square feet of manufacturing facilities
located at 23365 NE Halsey Street, Wood Village, Oregon, U.S.A. The purpose
of
the Lease Agreement was to establish facilities necessary for the installation
and operation of the Company’s planned thin film solar module manufacturing
operations. The Lease Agreement requires that the Company post a security
deposit letter of credit in the amount of $106,000 and a letter of credit
in an
amount to be determined for 125% of the value for the removal of any
improvements performed to the structure by the Company.
Under
the
terms of Lease Agreement, and conditions precedent to the commencement
of the
lease, the parties will work together to finalize a scope of work
for the
removal of certain current building improvements and negotiate for
the purchase
by the Company of certain industrial equipment by the 25
th
of
April, 2008, submit the sublease agreement to the master landlord
for sublet
approval for which master landlord has fifteen (15) days to respond
and
sub-landlord, from whom the company will be leasing the premises,
is required to
provide an environmental site assessment report to the Company by
May 15, 2008
to determine whether any environmental hazards are present requiring
abatement.
In the event that environmental hazards are found, or if in the opinion
of the
Company that such hazards render the premises unsuitable for use,
the Company
may terminate the Lease Agreement without obligation. There can be
no assurance
that the above conditions precedent to the commencement of the lease
will be
completed to the satisfaction of the parties.
The
Lease Agreement provides for the sub-landlord to complete demolition
of demising
walls, fixtures, floor coverings, and general removal of mutually
agreed to
items by July 30, 2008. During this time, the Company will be allowed
access to
the premises to initiate preparation efforts for its manufacturing
systems.
Completion of sub-landlord work and the commencement date of the
lease are
scheduled for on or before July 31, 2008. The term of the Lease Agreement
with
the sub-landlord provides for occupancy through July 31, 2011. Thereafter,
should the Company elect to continue to occupy the premises, the
Company will be
required to have established continued lease arrangements with the
master
landlord. Specific term and lease payment schedule is as follows:
Each
Month During The Time Period:
|
|
Monthly
Basic Rent Payable With Respect To Each Month
During
The Subject Time Period:
|
|
|
|
Commencement
Date to July 31, 2009
|
|
$53,000.00
|
|
|
|
August
1, 2009 to July 31, 2010
|
|
$54,060.00
|
|
|
|
August
1, 2010 to July 31, 2011
|
|
$55,141.20
|
In
the
2008 calendar year, we anticipate completing the assembly and installation of a
small production research and development system and initiating construction
of
our first full scale 25 MW system. Barring assembly delays, we anticipate
completing the assembly of our first 25MW line between December 2008 and
January
2009. Near the end of the 2008 calendar year, we plan to launch the build-out
of
the first of three additional 25 MW systems necessary to eventually bring
our
capacity to 100 MW. Barring assembly delays, we anticipate completing the
assembly of the first of these additional lines in November 2009, the second
in
January 2010, and the final 25 MW in March 2010. We intend to use the balance
of
the 2010 year to continue to work to improve system utilization, add shifts,
and
increase module yields to bring our production to peak capacities of 100
MW or
more of annualized solar module production. To complete each new production
line, we plan to use a systematic replication process that is designed
to enable
us to add production lines rapidly and efficiently, and achieve operating
metrics that are comparable to the performance of our initial 25 MW
system.
Sales
and Marketing
Target
Market
Our
primary target market for our TFPV solar modules will be applications for
On-Grid (facilities tied to conventional power distribution infrastructure)
application of 1MW in size and above. Typical applications and buyers would
include:
|
·
|
License
Holders in Germany, Spain &
Canada
|
|
·
|
US
installers servicing commercial and utility scale
installations
|
|
·
|
Government
Agencies (DOD)
|
|
·
|
Bureau
of Land Management
|
|
·
|
Power
Purchase Agreements
|
|
·
|
Large
Commercial Installations
|
Sales
& Distribution
In
anticipation of commercial production, we have developed a pre-sales reservation
program, based upon the solar module manufacturing industry’s policy of
pre-selling manufacturing capacity to system installers and large users of
solar. This is intended to aid in building a sales channel, loading that
channel
with customers interested in purchasing our future module production, and
developing brand presence and recognition as early as possible. The program
enables qualified, interested parties to specify the amount of solar module
capacity they anticipate purchasing at favorable per watt pricing. As of
the
date of this report, we have signed reservation agreements with five (5)
solar
system integrators indicating interest in over 145 MW of production in calendar
2009, 2010 and 2011. Our agreements provide for the payment of a 5% deposit
based on the 2009 calendar year purchase commitment either prior to, or not
later than, 30 days after the delivery by XsunX to the reserving party of
commercial samples for evaluation. The information in this paragraph is designed
to summarize the general terms of the pre-sales reservation program and market
opportunities. It is not intended to provide guidance about our future operating
results, including revenues or profitability.
Plan
of Operations
At
present, we anticipate the majority of our product and operations development
efforts for the period ending September 2008 and the foreseeable future
thereafter, will focus on establishing and expanding facilities necessary
to
manufacture our TFPV solar modules for commercial sale. Areas of specific
focus
and capital expenditures include:
(a)
Establishment
of a baseline production system to produce full size (100cm x 160cm) sample
modules; and
(b)
Lease
and
preparation of facilities necessary to house and operate, at minimum, our
first
of four proposed 25MW manufacturing lines; and
(c)
The
placement of orders with select vendors for the core and sub-system components
necessary to begin assembly leading to the commissioning of the first of
four
planned 25MW manufacturing lines; and
(d)
Continued
R&D efforts to establish enhanced solar cell deposition methods and reduce
manufacturing
costs.
We
rely
on vendors to provide materials for use in our manufacturing process, component
parts, and equipment for use in the assembly of our manufacturing system.
We
have selected a primary and secondary vendor for the supply of the various
materials, component parts, and equipment employed in our manufacturing process.
The Company is not affiliated with any of our vendors and we anticipate the
use
of written contracts to govern the terms of each purchase and supply commitment,
and the vendor customer relationship. The market for the materials, components,
and equipment employed by XsunX in the manufacture of our products are
developing rapidly and we anticipate that continued growth in the demand
for
similar material and supplies may cause supplies to become limited or deliveries
delayed until such time that vendors can adjust to growth in the demand for
their products. There can be no assurance that vendors of sufficient
capabilities and/or capacities can adjust in a timely manner or at all to
meet
any growth in demand for their products. A loss of any of any vendor
relationships or an inability to locate vendors with capabilities and /or
capacities necessary to meet our manufacturing system assembly requirements
or
provide materials in sufficient quantities to support our product production
efforts could cause the Company to experience difficulties in implementing
our
business strategy. The loss of any vendor relationship could severely impede
our
ability to complete the assembly of our planned manufacturing facility and/or
impede or prevent us from producing products thereby causing, at minimum,
delays
and the need to re-qualify vendors and materials. There can be no assurance
that
we could establish other relationships of adequate expertise or qualification
in
a timely manner or at all.
For
the
year ending September 30, 2008 the Company has developed a plan of operations
requiring approximately $20,080,316 that commits 38% of its budget or
$12,773,974 towards initial Manufacturing Equipment and Sub-systems, another
11%
of its budget or $3,578,594 to General and Administrative functions as well
as
working capital needs, another 8% of its budget or $2,725,098 to facilities
including lease payments and manufacturing lease hold improvements and another
3% of its budget or $1,002,649 to the development of new manufacturing devices,
techniques and other research and development. The planned expenditures are
consistent with our anticipated costs associated with the placement of equipment
order deposits, ongoing progress payments, facility lease hold improvements
for
general office facilities and manufacturing sub-system infrastructure, and
operations support for an approximate annual manufacturing capacity of
25MW.
The
Company may change any or all of the budget categories in the execution of
its
business attempts. None of the items is to be considered fixed or
unchangeable.
The
Company will need additional capital to fund its budget. To support the
completion of the our planned initial 25MW of manufacturing capacity, associated
production start-up costs, establish a replication process designed to enable
us
to add the balance of our proposed 75MW of additional production capacity,
and
fund operations as we attempt to generate initial sales and revenues, we
may
seek to obtain additional financing of approximately $25,000,000 from equity
and/or debt placements. To support these and future operational plans, we
may
elect to attempt to secure loans and/or grants offered by the State of Oregon
where we intend to establish our manufacturing facilities. No representation
is
made that any funds will be available when needed or on terms that acceptable
to
the Company. In the event funds cannot be raised when needed, the Company
may
not be able to carry out its business plan, may never achieve sales or income,
and could fail in business as a result of these uncertainties.
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 Three-Month Period Ended December 31, 2007 Compared
to the
Same Period in 2006
Sales
The
Company generated no revenues in the period ended December 31, 2007 as compared
to zero revenue in the same period in 2006. Additionally, there was no
associated cost of sales.
Operating
Expenses
Operating
Expenses for the three (3) month period ended December 31, 2007 totaled
$2,021,387. This represents an increase of $1,404,864 as compared to the
same
period in 2006 which totaled $616,523. The increase in operating expenses
between the periods is primarily attributable to the Company’s efforts to
establish manufacturing facilities to commercialize its technologies, and
the
associated financing costs to fund these activities. A comparative analysis
of
the period to period performance is provided below.
Option
and Warrant Expenses
Non-cash
expenses associated with the issuance of options and warrants totaled $1,308,865
for the period ended December 31, 2007. This total was $1,308,865 higher
than
the same period in 2006 when there were no expenses associated with options
and
warrants. This increase is primarily due to the Company’s adoption of SFAS No.
123(R). XsunX records the fair value of stock-based compensation grants as
an
expense. In order to determine the fair value of stock options on the date
of
grant, XsunX applies the Black-Scholes option-pricing model. Inherent in
this
model are assumptions related to expected stock-price volatility, option
life,
risk-free interest rate and dividend yield. While the risk-free interest
rate
and dividend yield are less subjective assumptions, typically based on factual
data derived from public sources, the expected stock-price volatility and
option
life assumptions require a greater level of judgment.
Commitment
Fees
The
Company paid $54,300 in the three (3) month period ended December, 31, 2007
as
compared to zero in the same period in 2006. This increase of $54,300 represents
the non cash commitment fees paid to Fusion Capital in the form of 3,500,000
shares of common stock valued at the issuance price of $0.30 per share, the
same
price that the initial $1,000,000 investment by Fusion Capital paid. The
total
commitment fee of $1,140,300 will be amortized ratably as additional equity
is
sold up to the remaining $20,000,000 available under the Purchase Agreement.
The
current expense of $54,300 relates to the $1,000,000 received under the Purchase
Agreement in the quarter. The remaining balance to be amortized in future
periods is $1,086,000.
Salaries
and Wages
Salaries
and wages for the three (3) month period ended December 31, 2007 were $235,585
as compared to $140,615 during the same period in 2006. The increase of $94,970
was driven by the addition of employees in marketing, finance and the
engineering and technical functions as part of a plan to increase internal
technical and scientific capabilities and reduce dependency on outside
parties.
Research
and Development
Research
and Development expense for the three (3) month period ended December 31,
2007
totaled $6,406 as compared to $209,945 for the same period in 2006. The decrease
of $203,539 reflects the completion of the Company’s outsourced research and
development efforts and new focus on the design and planned implementation
of
the facilities necessary to commercialize the Company’s technology. This
reduction is partially offset by the increase in salary and wages as the
Company
brings on staff to continue its research and development efforts.
Professional
Services
Public
relations and marketing expense for the three (3) month period ended December
31, 2007 totaled $68,674 as compared to $26,630 during this same period in
2006.
The increase of $42,044 represents an increased utilization of public relations
services to work towards establishing brand awareness during the
period.
Consulting
expenses for the three (3) month period ended December 31, 2007 totaled $27,277
as compared to $35,982 during the same period in 2006, a decrease of $8,705.
This decrease is largely due to lower utilization of consulting services.
The
Company compensated its Scientific Advisory Board $18,000 during the
quarter.
Legal
and
accounting fees for the three (3) month period ended December 31, 2007 totaled
$59,039 as compared to $77,418 during the same period in 2006. This represents
a
decrease of $18,379 largely driven by smaller expenditures for legal
services.
Recruiting
fees of $1,403 were paid during the three (3) month period ended December
31,
2007. This compared to no expenses during the same period in 2006. The increase
of $1,403 was driven by the hiring activity reflected in salary and wages.
We
anticipate that costs associated with recruiting employees may continue to
rise.
Travel
and Entertainment
Expenses
for travel and entertainment were $31,376 for the three (3) month period
ended
December 31, 2007. This compared to $29,829 for the same period in 2006.
The
increase of $1,547 was relatively flat versus the same period in the prior
year
and represents continued travel related expense for business development
activities.
The
net
loss for the three (3) month period ended December 31, 2007 was ($1,914,928)
as
compared to a net loss of ($583,680) for the same period 2006. The
increased net loss of $1,331,248 includes (i) The operating expense changes
discussed above including non-cash expenses associated with the issuance
of
options and warrants of $1,308,865 and $54,300 in financing commitment fees,
(ii) and an increase in interest income of $74,011 resulting from the investment
of cash balances in interest bearing accounts and the Sencera note.
The
Company incurred net losses of ($1,914,928) and ($583,680) in the three-month
period ended December 31, 2007 and 2006 respectively. The associated net
loss
per share was $(0.01) for the three (3) month period ended June 30, 2007
and
$(0.004) for the same period in 2006. The Company anticipates the trend of
losses to continue in future quarters until the Company can recognize sales
of
significance of which there is no assurance.
Results
of Operations for the Fiscal Year Ended September 30, 2007 Compared to Fiscal
Years Ended September 30, 2006 and 2005
Revenue,
Cost of Goods Sold
The
Company generated insignificant revenues in the period ended September 30,
2007
of $6,880. The Company generated revenue of $8,000 for the same period in
2006
and generated no revenue for the same period in 2005. There were no associated
costs of goods sold.
Operating
Expenses
The
Company incurred expenses totaling $2,648,359 in fiscal year 2007 as compared
to
$3,380,087 in 2006 and $1,383,406 in 2005. The decrease of $731,728 was
primarily driven by non-cash warrant expenses of $625,947 and loan fees of
$628,834 incurred in 2006 that were not incurred in 2007. For the year 2006
as
compared to 2005, the increase of $1,996,681 included a onetime non-cash
warrant
issuance expense of $951,250 for warrants issued in association with the
licensure of technologies and the sale by the Company of convertible debentures,
and a net increase of $486,833 in loan fee expenses associated with the sale
by
the Company of convertible dentures.
Excluding
these non-cash items, there was an increase in normal and customary operating
expense of $523,053 for the period ending September 30, 2007 as compared
to the
same period 2006. The primary drivers of this increased are discussed in
detail
below.
Salaries
and Wages
The
Company hired additional staff to implement its commercialization strategy
in
the fiscal year ended September 30, 2007. This increase in staffing resulted
in
a total expenditure of $828,711 which is an increase of $553,622 over the
same
period in 2006 and an increase of $119,853 from 2006 to the same period in
2005.
The company expects this trend to continue.
Research
and Development
The
Company spent $435,534 in research and development activities during the
fiscal
year ended September 30, 2007. This represented a decrease of $513,938 as
compared to the same period in 2006 and an increase of $448,049 for the year
2006 versus the same period in 2005. This illustrates the Company’s ramp up of
research and development expenditures during 2005 and 2006. As the Company
began
to focus on commercializing the technology, the related research and development
expenditures declined in 2007.
Professional
Services
Consulting
services were $117,751, an increase of $69,901 for the fiscal year ended
September 30, 2007 compared to the prior year. This increase was largely
driven
by the expansion of the Company’s Scientific Advisory Board and increased
contract engineering expenses related to the efforts to commercialization
of the
Company’s product. The decrease expenditures for the year ending September 30,
2006 versus the same period in 2005 was $273,094 which resulted primarily
from
the replacement of outside consultants with employees.
Legal
and
Accounting fees increased $162,185 to $302,478 for the fiscal year ended
September 30, 2007. This increase was primarily the result of legal work
relating to the Company’s attempted acquisition of manufacturing assets, and
from enforcing the Company’s contact rights with several vendors. Legal and
accounting fees were relatively flat for the year ending September 30, 2006
as
compared to the same period in 2005, an increase of $33,044.
Travel
Travel
and associated expenses were $158,503 for the fiscal year ended September
30,
2007. This represents an increase of $116,680 as compared to the same period
in
2006 and an increase of $30,589 for fiscal year 2006 as compared to the same
period in 2005. These increases are due to increased travel directed at sales
and business development efforts.
Other
Operating Expenses
Additionally,
advertising expenses were $47,573 for the fiscal year 2007, an increase of
$38,523 for the same period in 2006, an increase of $5,071 for the same period
in 2005. This increase resulted from the Company’s increased efforts to generate
sales.
Insurance
expenses were $66,856 for the fiscal year ended September 30, 2007, an increase
of $64,151 from the prior period. This increase was primarily caused by
increased coverage for general liability, workers compensation and health
insurance of $26,651 and the addition of a directors and officers insurance
package totaling $37,500. The increase of $1,947 between the fiscal years
2006
and 2005 was primarily driven by increase coverage levels.
For
the
fiscal year ended September 30, 2007, the Company’s consolidated net loss was
$(1,289,497) as compared to $(3,441,940) for the same period ended September
30,
2006 and $(1,400,839) for the same period ended September 30, 2005. The
decreased net loss in 2007 was primarily related to i) $1,100,000 non-operating
settlement of an asset purchase agreement which resulted in cash inflow and
a
non-operating income ii) a decreased operating expenses of $731,728 as discussed
above, iii) increased interest income of $164,699 resulting from a loan made
to
Sencera, LLC by the Company in the amount of $1,500,000 dollars bearing an
interest rate of 10% and used in calculating the increase to interest income
and
iv) decreased interest expense with the conversion of outstanding debentures
into equity in 2006. This resulted in a net loss per was of $(0.01) for the
twelve months ended September 30, 2007.
The
increase of $ 2,041,101 between the 2006 and 2005 periods resulted from a
one
time non-cash warrant issuance expense of $951,250 for warrant expenses
accounted for in the period ended September 30, 2006, and a net increase
of
$486,833 in loan fee expenses associated with the sale by the Company of
convertible dentures. Excluding the one time non-cash warrant expense and
net
loan fee expenses, in the comparative analysis between the periods, results
in
an increase of $578,017 in net loss for the period ended September 30, 2006
as
compared to the same period 2005. The net loss per share was less than $(0.02)
for the twelve month period ended September 30, 2006 and $(0.01) for the
same
period in 2005.
Due
to
the Company’s change in primary business focus in October 2003 and the
developing nature of its 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 an accumulated deficit totaling
($10,460,850) at September 30, 2007.
Liquidity
and Capital Resources
Working
Capital at September 30, 2007 was $1,515,437 as compared to $4,065,524 for
the
same period in 2006 and as compared to a working capital (deficit) of $(718,380)
at September 30, 2005. There were insignificant operating cash flows totaling
$6,880 during the twelve months ended September 30, 2007 and $8,000 in the
same
period in 2006 and zero in the same period in 2005.
Cash
and
cash equivalents at September 30, 2007 were $1,828,125 a decrease of
$(2,826,098) from the same period in 2006. Cash and cash equivalents at
September 30, 2006 were $4,654,223, an increase of $4,398,370 from September
30,
2005.
During
the year ended, September 30, 2007, the Company used $1,289,497 net cash
in
operating activities as compared to $1,942,278 net cash in operating activities
for the year ending September 30, 2006 and compared to using $1,049,650 net
cash
for the year ended, September 30, 2005.
The
Company used $843,416 for operating activities during the year ended September
30, 2007 as compared to $1,942,278 for the same period in 2006. The decrease
of
$1,098,862 resulted primarily from a reduced net loss of $2,152,443 offset
by
warrant expense and issuance of common stock for interest of $867,330, change
in
pre-paid expenses of $563,871 and to accounts payable of $826.293.
The
increase of $892,628 in use of cash for operating activities between the
2006
and 2005 periods resulted from onetime non-cash expenses for a warrant issuance
expense of $951,250, an expense of $31,500 for the issuance of stock in lieu
of
cash for services, and $241,383 in expenses for the issuance of stock in
lieu of
cash for the payment of accrued interest associated with the sale of debentures
by the Company accounted for in the period ended September 30, 2006. Excluding
these one time non-cash expenses, in the comparative analysis between the
period’s, results in a decrease of $331,505 in net cash used in operations for
the period ended September 30, 2006 compared to the same period 2005.This
decrease of net cash used in operations was primarily due to a decrease in
consulting expenses of $273,094 in the 2006 period.
For
the
twelve (12) months ended, September 30, 2007, the Company’s capital needs have
primarily been met from the proceeds of (i) the issuance of Common Stock
for
Debenture conversion and; (ii)
the
issuance of Common Stock for warrant conversion
.
Total
cash provided by financing activities for the period ended September 30,
2007
decreased to $135,000. For the period ended September 30, 2006 total cash
provided by financing activity increased to $8,171,250 from $1,380,170 for
the
same period ended September 30, 2005. The decrease of $8,036,250 is a result
of
financing activity in fiscal year 2006 that was not required to execute on
the
business plan in 20007. Additionally, $135,000 was received by the Company
for
900,000 warrants that were exercised by a consultant. The increase of $6,791,080
between the 2006 and 2005 periods was mainly attributable to an increase
of
$5,000,000 from the conversion of a debenture into common stock and $3,171,250
in the conversion of warrants for common stock.
The
Company had cash at December 31, 2007 of $2,188,260 and prepaid expenses
in the
amount of $6,481 as compared to cash of $1,773,748 and prepaid expenses in
the
amount of $54,377 as of September 30, 2007. The Company had a net working
capital of $1,900,767 as compared to a net working capital of $1,515,437
at
September 30, 2006. Cash flow used in operating activities during the three
(3)
month period ended, December 31, 2007, was ($392,636) as compared to a use
of
cash of ($584,606) for the same period 2006. The decrease in cash used in
operations of $191,970 included (i) the issuance of common stock for commitment
fees of $54,300 relating to Fusion Capital’s investment in the Company,
(ii) increased non-cash expense relating to option and warrant expenses of
$1,308,865 and (iii) an increase in non-cash interest income of $90,740 relating
to the Sencera note, and (iii) the operation changes discussed above. The
current period ended December 31, 2007 also included a non-cash depreciation
expense of $129,958 compared to $27,047 in the same period in 2006.
For
the
three (3) month period ended December 31, 2007, the Company’s capital needs have
been met from the use of working capital provided by the proceeds of (i)
the
issuance of common stock for cash which occurred in the three (3) month
period ended December 31, 2007 and other historical financings which occurred
in
the fiscal year ended September 30, 2006.
At
December 31, 2007, we had cash and cash equivalents of $2,188,260 and net
working capital of $1,515,437.
On
January 1, 2007, the Company issued a secured, seven (7) year, 10% note to
Sencera, LLC in the amount up to $1,500,000. The secured note was issued
by the
Company in connection with development and license agreements between Sencera,
LLC and the Company for the licensure and development of a Sencera patent
pending plasma source for use in the manufacture of deposited thin-film solar
cells. Under the terms of the, the Company provided Sencera with $400,000
at the
time of signing and $137,500 per month for up to eight (8) months. The note
may
be converted into a membership interest in Sencera, LLP and an extension
of the
license for a period of three (3) years. The security consists of the license
rights, the ability to exercise the conversion and all other rights and remedies
provided by law. On September 7, 2007, XsunX initiated the final funding
of
disbursements under the Sencera note. As of December 31, 2007, the current
balance of the note receivable was $1,500,000
plus
accrued interest earned of $234,192.
On
November 1, 2007, we entered into a Purchase Agreement with Fusion Capital,
an
Illinois limited liability company. Under the Purchase Agreement, Fusion
Capital
is obligated, under certain conditions, to purchase shares from us in an
aggregate amount of $21 million from time to time over a twenty-five (25)
month
period. We have sold 3,333,332 shares of common stock to Fusion Capital
(together with 3,333,332 shares issuable under an immediately exercisable
common
stock purchase warrant that is not part of this offering) under the Purchase
Agreement for total proceeds of $1,000,000. Under the terms of the Purchase
Agreement, Fusion Capital has received a commitment fee consisting of 3,500,000
shares of our common stock. As of April 16, 2008, there were 173,403,188
shares
outstanding (155,443,288
shares
held by non-affiliates) excluding the 33,166,668 shares offered by Fusion
Capital pursuant to this Prospectus which it has not yet purchased from
us. If
all of such 33,166,668 shares offered hereby were issued and outstanding
as of
the date hereof, the 33,166,668 shares would represent 19.12% of the total
common stock outstanding or 21.33% of the non-affiliates shares outstanding
as
of the date hereof.
The
number of shares ultimately offered for sale by Fusion Capital is dependent
upon
the number of shares purchased by Fusion Capital under the Purchase Agreement.
Under
the
Purchase Agreement and the Registration Rights Agreement we are required
to
register 6,833,332 shares which have already been issued and at least 20,000,000
shares which we may issue to Fusion Capital in the future. We have chosen
to
register an additional 13,166,668 shares more than we are obligated to
under the
Purchase Agreement with Fusion in order to have additional shares available
to
sell under the Purchase Agreement so that the Company can raise funds to
further
implement its business plan. We are registering under the Securities Act
40,000,000 shares of our common stock, 6,833,332 shares which have already
been
issued and 33,166,668 shares (13,166,668 shares more than we are required
to
register under the agreements) which we may issue to Fusion Capital in
the
future. All 40,000,000 shares are being offered pursuant to this Prospectus.
Under the Purchase Agreement, we have the right but not the obligation
to sell
more than the 40,000,000 shares to Fusion Capital. As of the date hereof,
we do
not have any plans or intent to sell to Fusion Capital any shares beyond
the
40,000,000 shares offered hereby. However, if we elect to sell more than
the
40,000,000 shares (which we have the right but not the obligation to do),
we
must first register under the Securities Act any additional shares we may
elect
to sell to Fusion Capital before we can sell such additional shares, which
could
cause substantial dilution to our shareholders.
Generally
we have the right but not the obligation from time to time to sell our shares
to
Fusion Capital in amounts between $80,000 and $1.0 million depending on certain
conditions. We have the right to control the timing and amount of any sales
of
our shares to Fusion Capital. The purchase price of the shares will be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right or the
obligation to purchase any shares of our common stock on any business day
that
the price of our common stock is below $0.20. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the Purchase
Agreement or the Registration Rights Agreement. The Purchase Agreement may
be
terminated by us at any time at our discretion without any cost to us, however
the agreement provides that neither party has the ability to amend the Purchase
Agreement and the obligations of both parties are non-transferable.
We
believe that, if we choose to sell up to all of the 33,166,668 shares offered
hereby to Fusion Capital, we will have access to the remaining $20 million
of
funding potentially available to us as payment for purchases of our shares
pursuant to the Purchase Agreement. However, no assurance can be given as
to
what shares we will actually sell to Fusion Capital. The Company and Fusion
Capital agreed to $21 million because it was the maximum amount Fusion Capital
would commit to the Company under the agreement and was based on arms-length
negotiations between the parties. Based on the market price of our common
stock
as of April 14, 2008 ($0.44), proceeds to us from the sale of the remaining
33,166,668 shares of common stock would only be approximately $15,920,001.
However, the market price of our common stock has been higher and lower than
this amount during the past twelve months. We believe that as we execute
on our
business plan, the market price of our stock will increase and thereby allow
us
to realize the remaining $20 million under the agreement by selling the
33,166,668 shares or possibly fewer shares. However, no assurance can be
given
that this will occur.
The
proceeds received by the Company under the Purchase Agreement are expected
to be
used to build an initial base production system delivering full size commercial
quality solar modules, and initiate the manufacture of the first of four
(4)
planned 25 megawatt systems under the Company’s planned 100 megawatt thin film
solar module production facility. Proceeds may also be used to lease and
prepare
manufacturing facilities with the necessary support systems for the
manufacturing line, inventory, staff, and general working capital.
Contractual
Obligations are shown in the following table.
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
Less than
1 Year
|
|
1 -
3 Years
|
|
3 - 5 Years
|
|
More Than
5 Years
|
|
Long
Term Obligations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
Lease
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Operating
Lease
(1)
|
|
|
37,118
|
|
|
21,008
|
|
|
16,110
|
|
|
-
|
|
|
-
|
|
Purchase
Obligations
(2,
3)
|
|
|
492,345
|
|
|
492,345
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
Long Term Liabilities Reflected on the Registrant’s Balance Sheet Under
GAAP
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
529,463
|
|
|
513,353
|
|
|
16,110
|
|
|
-
|
|
|
-
|
|
(1)
|
Operating
Lease Obligations consist of the lease on the Company’s Administrative and
Sales facility in Golden, CO.
|
(2)
|
Remaining
accounts payable associated with the production a roll to roll
cassette
cluster tool providing plasma enhanced chemical vapor deposition
(PECVD)
and sputtering system of $353,000.
|
(3)
|
Estimated
remaining amount due a third party research and development provider
of
$139,345.
|
The
estimated contract cost in item (2) and (3) above may be higher or lower
based
on final costs. The Company has not booked any contingency for cost
overruns.
During
the year ended, September 30, 2007, we used $1,822,942 for investing activities
as compared to $2,099,736 for the same period ended September 30, 2006. This
represents a decrease of $276,794 primarily related to the purchase of fewer
fixed assets in 2007 than in the previous year and the purchase of the
marketable manufacturing tool in 2006 which reduced 2007 expenditures. This
difference was offset by the investment of $1,500,000 and associated accrued
interest income in the Sencera note. During the year ended, September 30,
2006,
we used $2,099,736 for investing activities as compared to $191,995, for
the
year ended, September 30, 2005. The increased use of cash for investing
activities resulted from an increase in the acquisition of assets in the
form of
a marketable manufacturing tool and additional equipment.
We
had,
at September 30, 2007, working capital of $1,515,437. The Company has announced
plans to build its manufacturing facility which we anticipate will lead to
revenue after the close of fiscal year 2008. However the cash flow requirements
associated with the transition to revenue recognition may exceed cash generated
from operations in the current and future periods. We may seek to obtain
additional financing from equity and/or debt placements. 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 if
necessary.
Net
Operating Loss
For
federal income tax purposes, we have net operating loss carry forwards of
approximately $10,960,721 as of September 30, 2007. 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.
Quantitative
and Qualitative Disclosures About Market Risk
We
do not
have any market risk sensitive instruments. Since all operations are in U.S.
dollar denominated accounts, we do not have foreign currency risk. Our operating
costs are reported in U.S. dollars.
The
Company does not invest in term financial products or instruments or derivatives
involving risk other than money market accounts, which fluctuate with interest
rates at market.
Development
Stage Company
The
Company is currently working to transition from the development stage to
the
implementation phase and as of the period ended December 31, 2007, did not
have
any significant revenues. The transition to revenue recognition may exceed
cash
generated from operations in the current and future periods. We may seek
to
obtain additional financing from equity and/or debt placements. As such,
the
Company’s ability to secure additional financing on a timely basis is critical
to its ability to stay in business and to pursue planned operational
activities.
On
November 1, 2007, XsunX signed a $21 million Purchase Agreement with Fusion
Capital. Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. The shares were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act.
Concurrently with entering into the Purchase Agreement, we entered into a
registration rights agreement with Fusion Capital. Under the registration
rights
agreement, we agreed to file a registration statement related to the transaction
with SEC covering the shares that have been issued or may be issued to Fusion
Capital under the Purchase Agreement. We now have the right over a twenty-five
(25) month period to sell our shares of common stock to Fusion Capital, from
time to time, in amounts up to $1 million per sale, depending on certain
conditions as set forth in the agreement, up to the full aggregate commitment
of
$21 million.
Also,
On
January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Company’s
restricted common stock in a private transaction for total proceeds of
$2,500,000. The Company agreed to register the 8,650,000 shares purchased
by
Cumorah Capital. Cumorah Capital is a Nevada corporation and an “accredited
investor” as such term is defined in Rule 501(a) of Regulation D as
promulgated by the SEC.
While
we
have been able to raise capital in a series of equity and debt offerings
in the
past there can be no assurances that we will be able to obtain such additional
financing, on terms acceptable to us and at the times required, or at
all.
Irrespective
of whether the Company’s cash assets prove to be inadequate to meet the
Company’s operational needs, the Company might seek to compensate providers of
services by issuances of stock in lieu of cash.
DESCRIPTION
OF PROPERTY
As
of
April 16, 2008, the Company leases administrative office facilities located
at
65 Enterprise, Aliso Viejo CA 92656 for approximately $3,800 per
month.
In
April
2006 the Company entered into a three (3) year lease for technical and marketing
operations facilities in Golden, CO. The Company provided a $2,615 security
deposit and expensed $79,867 in costs associated with tenant improvements
to the
facilities in preparation for occupancy. The following is a schedule, by
years,
of the minimum base payments required under this operating lease for facilities.
An additional $905 monthly is also due as a pro rata share equaling 4.12%
of the
operating costs for real estate taxes, assessments, and the expenses of
operating and maintaining common areas within the commercial grounds surrounding
the leased facilities .
Annual
|
|
Annualized
|
|
Monthly
|
|
|
|
Rent
Schedule
|
|
Rate/sf
|
|
Rent
|
|
Rent
|
|
7/1/06-6/30/07
|
|
$
|
6.75
|
|
$
|
20,250.00
|
|
$
|
1,687.50
|
|
7/1/07-6/30/08
|
|
$
|
6.95
|
|
$
|
20,850.00
|
|
$
|
1,737.50
|
|
7/1/08-6/30/09
|
|
$
|
7.16
|
|
$
|
21,480.00
|
|
$
|
1,790.00
|
|
The
Company owns no real property.
To
support the Company’s plans to prepare TFPV solar module manufacturing
capabilities, we plan to lease suitable facilities of approximately 65,000
to
75,000 square feet in the 2008 fiscal year. We have selected the area
surrounding the Portland, Oregon area as the location of our facilities and
we
are working to complete site selection and lease negotiations.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
General
No
related party, officer, director or family member of an officer or director
of
the Company has been involved in any transaction with an aggregate amount
in
excess of $120,000 or in excess of one percent (1%) of the Company’s average
total assets for the past two (2) fiscal years. Additionally, 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.
Review,
Approval or Ratification of Transactions with Related
Persons
General
It
is the
policy of the Company that all Interested Transactions with Related Persons
will
be subject to the procedures summarized below. An “Interested Transaction” is
any transaction, arrangement or relationship or series of similar transactions,
arrangements or relationships (including any indebtedness or guarantee of
indebtedness) in which (a) the aggregate amount involved will or may reasonably
be expected to exceed $120,000 in any calendar year, (b) the Company or its
subsidiaries or affiliates is a participant and (c) any Related Person has
or
will have a direct or indirect interest (other than solely as a result of
being
a director or a less than 10% beneficial owner of another entity). A “Related
Person” is any (a) director, nominee for director or executive officer of the
Company and any Immediate Family Member of such person, and (b) any holder
of 5%
or more of any class of outstanding equity securities of the Company and
any
Immediate Family Member such person. “Immediate Family Member” means (a) any
child, stepchild, parent, stepparent, spouse, sibling, mother in law, father
in
law, son in law, daughter in law, brother in law or sister in law of the
person
in question and (b) any person (other than a tenant or employee) sharing
the
household of the person in question.
Procedures
As
a
general matter, prior to entering into Interested Transactions, the Board
will
review the material facts of all Interested Transactions that require the
Board’s approval and either approve or disapprove of the entry into the
Interested Transaction, subject to the exceptions described below.
If
advance approval of an Interested Transaction is not feasible or obtained:
(a)
If the transaction is pending or ongoing, it will be submitted to the Board
promptly, and the Board will consider the transaction and evaluate all options,
including but not limited to approval, ratification, amendment or termination
of
the Interested Transaction; and (b) If the transaction is completed, the
Board
will consider the transaction to determine if ratification or rescission
of the
transaction and/or any further action is appropriate, and will request that
Company counsel evaluate the Company’s controls and procedures to ascertain
whether any changes to these procedures are recommended.
In
determining whether to approve, disapprove or ratify an Interested Transaction,
the Board will take into account, among other factors it deems appropriate,
whether the Interested Transaction is on terms no less favorable than terms
generally available to an unaffiliated third-party under the same or similar
circumstances and the extent of the Related Person’s interest in the
transaction.
The
Board
has determined that each of the Interested Transactions described below in
“Standing Pre-Approval for Certain Interested Transactions” shall be deemed to
be pre-approved by the Board under the terms of this policy. In addition,
the
Board has delegated to the Chair of the Board the authority to approve,
disapprove or ratify (as applicable) any Interested Transaction with a Related
Person in which the aggregate amount involved is expected to be less than
$120,000.
No
director will participate in any discussion or approval of an Interested
Transaction for which he or she is a Related Person, except that the director
will provide all material information concerning the Interested Transaction
to
the Board.
If
an
Interested Transaction will be ongoing, the Board may establish guidelines
for
the Company’s management to follow in its ongoing dealings with the Related
Person. Thereafter, the Board, on at least an annual basis, shall review
and
assess ongoing relationships with the Related Person to see that the Company
is
in compliance with the Board’s guidelines and whether the Interested Transaction
should continue.
Standing
Pre-Approval for Certain Interested Transactions
The
Board
has determined that each of the following Interested Transactions shall be
deemed to be pre-approved by the Board, even if the aggregate amount involved
will exceed $120,000: (a) any employment by the Company of an executive officer
of the Company if (i) the related compensation is required to be reported
in the
Company’s proxy statement under Item 402 of Regulation S-K (generally applicable
to “named executive officers”) or (ii) the executive officer is not an immediate
family member of another executive officer or director of the Company, the
related compensation would be reported in the Company’s proxy statement under
Item 402 of Regulation S-K if the executive officer was a “named executive
officer”, and the Compensation/Nominating/Governance Board (or any subBoard
thereof) approved (or recommended that the Board approve) such compensation;
(b)
any compensation paid to a director if the compensation is required to be
reported in the Company’s proxy statement under Item 402 of Regulation S-K; (c)
a transaction with another company (the “Other Company”) at which a Related
Person’s only relationship is as an employee, director or beneficial owner of
less than 10% of that Other Company’s shares, if: (i) the transaction involves
the sale or purchase or goods or services and the annual sales to, or purchases
from, the Company (or its subsidiaries or affiliates) are less than 1% of
the
annual consolidated revenue of both the Company and the Other Company, and
(ii)
the transaction involves lending or borrowing the total amount of either
company’s consolidated indebtedness to the other is less than 1% of the total
consolidated assets of the indebted company; (d) any charitable contribution,
grant or endowment to a charitable organization, foundation or university
at
which a Related Person’s only relationship is as an employee, director or
trustee, if the aggregate amount involved does not exceed 1% of the charitable
organization’s total annual receipts, even if such charitable contribution,
grant or endowment would not require approval under clause (b) herein above;
(e)
any transaction where the Related Person’s interest arises solely from the
ownership of the Company’s common stock and all holders of the Company’s common
stock received the same benefit on a pro rata basis (e.g., dividends); (f)
any
transaction involving a Related Person where the rates or charges involved
are
determined by competitive bids; (g) any transaction with a Related Person
involving the rendering of services as a common or contract carrier, or public
utility, at rates or charges fixed in conformity with law or governmental
authority; and (h) any transaction with a Related Person involving services
as a
bank depositary of funds, transfer agent, registrar, trustee under a trust
indenture, or similar services.
Promoters
and Certain Control Persons
The
Company completed a Plan of Reorganization and Asset Purchase Agreement on
September 24, 2003 (the “
Plan
”)
pursuant to which the Company effected a reverse one (1) for twenty (20)
split
of the then issued capital stock of the Company (the “
Stock
Split
”),
a
name change, the purchase of three (3) patents pertaining to solar energy
technologies and a change in the Company’s business development efforts to the
commercialization of solar technologies.
The
following individuals assisted in the organizing and implementation of the
Plan,
and were compensated as follows:
|
·
|
Mr.
Brian Altounian, an individual, was issued 20,000,000 shares of
common
stock (post Stock Split). The issuance of shares were approved
as part of
the Plan for corporate development services rendered by Mr. Altounian
pursuant to the asset purchase and reorganization efforts and valued
at a
price of $0.004 per share for a total valuation of $83,200. Mr.
Altounian
was appointed as a Director and Secretary to the Company on September
29,
2003 and resigned as Director and Secretary on June 30, 2006.
|
|
·
|
Mr.
Thomas Anderson, the Chief Executive Officer, President, and a
Director of
the Company at the time of the Plan, was issued 45,000 shares of
common
stock (post Stock Split). These shares were issued in relation
to the
retirement of invoicing for director services carried on the books
as
accrued debt. Mr. Anderson resigned as CEO and President of the
Company
effective September 29, 2003.
|
|
·
|
Mr.
Steve Weathers, a Director of the Company at the time of the Plan,
was
issued 45,000 shares of common stock (post Stock Split). These
shares were
issued in relation to the retirement of invoicing for director
services
carried on the books as accrued debt. Mr. Weathers resigned as a
Director of the Company effective September 29,
2003.
|
|
·
|
Mr.
Randy McCall, a Director of the Company at the time of the Plan,
was
issued 25,000 shares of common stock (post Stock Split). These
shares were
issued in relation to the retirement of invoicing for director
services
carried on the books as accrued debt. Mr. McCall resigned as a
Director of the Company effective September 29,
2003.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
Company’s common stock trades on the Over-the-Counter 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 (2) fiscal years,
as reported by the National Quotation Bureau Incorporated, was as follows:
Year
Ended September 30, 2008
|
|
HIGH
|
|
LOW
|
|
CLOSE
|
|
|
|
|
|
|
|
|
|
First
Quarter ended December 31, 2007
|
|
|
0.55
|
|
|
0.29
|
|
|
0.55
|
|
Year
Ended September 30, 2007
|
|
HIGH
|
|
LOW
|
|
CLOSE
|
|
|
|
|
|
|
|
|
|
First
Quarter ended December 31, 2006
|
|
|
0.68
|
|
|
0.34
|
|
|
0.38
|
|
Second
Quarter ended March 31, 2007
|
|
|
0.64
|
|
|
0.40
|
|
|
0.49
|
|
Third
Quarter ended June 30, 2007
|
|
|
0.51
|
|
|
0.41
|
|
|
0.42
|
|
Fourth
Quarter ended September 30, 2007
|
|
|
0.44
|
|
|
0.30
|
|
|
0.39
|
|
Year
Ended September 30, 2006
|
|
HIGH
|
|
LOW
|
|
CLOSE
|
|
|
|
|
|
|
|
|
|
First
Quarter ended December 31, 2005
|
|
|
0.59
|
|
|
0.53
|
|
|
0.58
|
|
Second
Quarter ended March 31, 2006
|
|
|
2.24
|
|
|
2.08
|
|
|
2.13
|
|
Third
Quarter ended June 30, 2006
|
|
|
1.06
|
|
|
1.04
|
|
|
1.05
|
|
Fourth
Quarter ended September 30, 2006
|
|
|
0.55
|
|
|
0.52
|
|
|
0.54
|
|
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
April 16, 2008, there were approximately 1,456 record holders of the Company’s
common stock, not counting shares held in “street name” in brokerage accounts
which is unknown. As of April 16, 2008, there were approximately 173,403,188
shares of common stock outstanding on record with the Company’s stock transfer
agent, Mountain Share Transfer. On April 14, 2008 the last reported sales
price
of our common stock on the OTCBB was $0.44 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.
Stock
Option Plan
On
January 5, 2007, our Board of Directors resolved to establish the Company’s 2007
Stock Option Plan to enable the Company to obtain and retain the services
of the
types of employees, consultants and directors who could contribute to the
Company’s long range success and to provide incentives which are linked directly
to increases in share value which will inure to the benefit of all stockholders
of the Company. A total of 20,000,000 shares of common stock are authorized
under the plan.
Stock
Compensation, Issuance of Stock Purchase Options
During
the fiscal year ended September 30, 2007, our Board of Directors authorized
the
grant of options to purchase an aggregate of 2,200,000 shares of the Company’s
common stock of which 1,950,000 remain authorized. The options are exercisable
at prices ranging from $0.41 to $0.53 per share, and expire at various times
through August 2012.
Consulting
Incentive Options:
In
connection with entering into a Consulting and Advisory Agreement effective
January 26, 2007 with Dr. John Moore for two years service as Chairman of
the
Company’s Scientific Advisory Board, the Company issued to Dr. Moore 150,000
options under the terms of a Stock Option Agreement, with an exercise price
of
$0.46 per share. The options were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act. The options
have a
five (5) year exercise term and vest under the following
provisions:
(a)
The
Option became exercisable in the amount of 12,500 shares upon the First Vesting
Date of April 26, 2007. Thereafter, the Option shall vest become exercisable
at
the rate of 18,750 Shares per calendar quarter, or any apportioned amount
thereof, during the term of engagement of the Optionee by XsunX.
Employment
Incentive Options:
In
connection with entering into an Employment Agreement effective January 1,
2007
with Jeff Huitt for two years service as Chief Financial Officer, the Company
issued to Mr. Huitt 500,000 options under the terms of a Stock Option Agreement
effective January 26, 2007, with an exercise price of $0.46 per share. The
options were issued in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act. The options have a five (5) year
exercise term and vest under the following provisions:
(a)
The
Option became exercisable in the amount of 50,000 shares upon the First Vesting
Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable
at the rate of 50,000 Shares per calendar quarter up to a total of 400,000
shares.
(b)
This
Option shall also become exercisable in the amount of 50,000 shares for each
of
the first two (2) sales/licensure of an XsunX system.
Employment
Incentive Options:
In
connection with entering into an Employment Agreement effective January 1,
2007
with Robert Wendt for two years service as Vice President of Engineering,
the
Company issued to Mr. Wendt 500,000 options under the terms of a Stock Option
Agreement effective January 26, 2007, with an exercise price of $0.46 per
share.
The options were issued in a transaction exempt from registration pursuant
to
Section 4(2) of the Securities Act. The options have a 5 year exercise term
and
vest under the following provisions:
(a)
The
Option became exercisable in the amount of 50,000 shares upon the First Vesting
Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable
at the rate of 50,000 Shares per calendar quarter up to a total of 400,000
shares.
(b)
This
Option shall also become exercisable in the amount of 50,000 shares for each
of
the first two (2) sales/licensure of an XsunX system.
Employment
Incentive Options:
In
connection with entering into an Employment Agreement effective January 1,
2007
with Kurt Laetz for two years service as Vice President of Sales, the Company
issued to Mr. Laetz 250,000 options under the terms of a Stock Option Agreement
effective January 26, 2007, with an exercise price of $0.46 per share. The
options were issued in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act. As of September 30, 2007 Mr. Laetz no
longer worked for the Company and the above referenced option grant was
terminated and the available options were returned to the pool of available
options under the XsunX 2007 Stock Option Plan.
Employment
Incentive Options:
In
connection with entering into an Employment Agreement effective January 1,
2007
with Joseph Grimes for two (2) years service as Chief Operating Officer,
the
Company issued to Mr. Grimes 500,000 options under the terms of a Stock Option
Agreement effective January 26, 2007, with an exercise price of $0.46 per
share.
The options were issued in a transaction exempt from registration pursuant
to
Section 4(2) of the Securities Act. The options have a five (5) year exercise
term and vest under the following provisions:
(a)
The
Option became exercisable in the amount of 50,000 shares upon the First Vesting
Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable
at the rate of 50,000 Shares per calendar quarter up to a total of 400,000
shares.
(b)
This
Option shall also become exercisable in the amount of 50,000 shares for each
of
the first two (2) sales/licensure of an XsunX system.
Consulting
Incentive Options:
In
conjunction with entering into a Consulting and Advisory Agreement effective
February 22, 2007 with Dr. Edward Yu for two years service as a member of
the
Company’s Scientific Advisory Board, the Company issued to Dr. Yu 100,000
options under the terms of a Stock Option Agreement, with an exercise price
of
$0.53 per share. The options were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act. The options
have a
five (5) year exercise term and vest under the following
provisions:
(a)
The
Option became exercisable in the amount of 12,500 shares upon the First Vesting
Date of May 23, 2007. Thereafter, the Option shall vest become exercisable
at
the rate of 12,500 Shares per calendar quarter, or any apportioned amount
thereof, during the term of engagement of the Optionee by XsunX.
Consulting
Incentive Options:
In
conjunction with entering into a Consulting and Advisory Agreement effective
April 23, 2007 with Dr. Richard Ahrenkiel for two years service as a member
of
the Company’s Scientific Advisory Board, the Company issued to Dr. Yu 100,000
options under the terms of a Stock Option Agreement, with an exercise price
of
$0.45 per share. The options were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act. The options
have a
5 year exercise term and vest under the following provisions:
(a)
The
Option became exercisable in the amount of 12,500 shares upon the First Vesting
Date of July 24, 2007. Thereafter, the Option shall vest become exercisable
at
the rate of 12,500 Shares per calendar quarter, or any apportioned amount
thereof, during the term of engagement of the Optionee by XsunX.
Consulting
Incentive Options:
In
conjunction with entering into a Consulting and Advisory Agreement effective
August 28, 2007 with Dr. Michael Russak for two years service as a member
of the
Company’s Scientific Advisory Board, the Company issued to Dr. Russak 100,000
options under the terms of a Stock Option Agreement, with an exercise price
of
$0.41 per share. The options were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act. The options
have a
five (5) year exercise term and vest under the following
provisions:
(a)
The
Option became exercisable in the amount of 12,500 shares upon the First Vesting
Date of November 29, 2007. Thereafter, the Option shall vest become
exercisable at the rate of 12,500 Shares per calendar quarter, or any
apportioned amount thereof, during the term of engagement of the Optionee
by
XsunX.
Table
of Equity Compensation
The
following table sets forth summary information, as of September 30, 2007,
concerning securities authorized for issuance under all equity compensation
plans and agreements for the fiscal yeas ended September 30, 2005, 2006 and
2007
is as follows:
|
|
Number of
Options /
Warrants
|
|
Weighted-
Average
Exercise Price
|
|
Accrued
Options /
Warrants
Exercisable
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding,
September 30, 2004
|
|
|
8,000,000
|
|
$
|
0.15
|
|
|
5,500,000
|
|
$
|
0.15
|
|
Granted
2005
|
|
|
7,125,000
|
|
$
|
0.17
|
|
|
6,708,334
|
|
$
|
0.17
|
|
Exercisable
from 2004 in 2005
|
|
|
-
|
|
|
|
|
|
1,200,000
|
|
|
0.15
|
|
Outstanding,
September 30, 2005
|
|
|
15,125,000
|
|
$
|
0.16
|
|
|
13,408,334
|
|
$
|
0.16
|
|
Granted
2006
|
|
|
11,987,000
|
|
$
|
0.36
|
|
|
5,543,000
|
|
$
|
0.46
|
|
Exercised
2006
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
Exercised
from 2004 in 2006
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2006
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
Exercisable
from 2004 in 2006
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
$
|
0.15
|
|
Exercisable
from 2005 in 2006
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
$
|
0.20
|
|
Outstanding,
September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
8,701,334
|
|
|
|
|
Granted
2007
|
|
|
1,950,000
|
|
$
|
0.46
|
|
|
554,167
|
|
$
|
0.46
|
|
Exercised
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised
from 2004 in 2007
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
Number of
Options /
Warrants
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Accrued
Options /
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
Exercised
from 2006 in 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercisable
from 2004 in 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercisable
from 2005 in 2007
|
|
|
-
|
|
|
-
|
|
|
116,666
|
|
$
|
0.20
|
|
Exercisable
from 2006 in 2007
|
|
|
-
|
|
|
-
|
|
|
296,000
|
|
$
|
0.51
|
|
Outstanding,
September 30, 2007
|
|
|
17,312,000
|
|
$
|
0.33
|
|
|
8,768,167
|
|
$
|
0.22
|
|
At
September 30, 2007, the range of warrant/option prices for shares under
warrants/options not exercised and the weighted-average remaining contractual
life is as follows:
|
|
Options/Warrants Outstanding
|
|
Options/Warrants Exercisable
|
|
Range of
Option/Warrant
Prices
|
|
Number of
Options/Warrants
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining Contractual
Life(yr)
|
|
Number of
Options/Warrants
|
|
Weighted-Average
Exercise Price
|
|
$
|
0.15
|
|
|
7,000,000
|
|
$
|
0.15
|
|
|
1.9
|
|
|
6,000,000
|
|
$
|
0.15
|
|
$
|
0.20
|
|
|
750,000
|
|
$
|
0.20
|
|
|
0.3
|
|
|
750,000
|
|
$
|
0.20
|
|
$
|
0.25
|
|
|
7,000,000
|
|
$
|
0.25
|
|
|
3.0
|
|
|
1,000,000
|
|
$
|
0.25
|
|
$
|
0.41
|
|
|
100,000
|
|
$
|
0.41
|
|
|
4.9
|
|
|
4,167
|
|
$
|
0.41
|
|
$
|
0.45
|
|
|
100,000
|
|
$
|
0.45
|
|
|
4.6
|
|
|
20,833
|
|
$
|
0.45
|
|
$
|
0.46
|
|
|
1,650,000
|
|
$
|
0.46
|
|
|
4.3
|
|
|
500,000
|
|
$
|
0.46
|
|
$
|
0.51
|
|
|
500,000
|
|
$
|
0.51
|
|
|
3.8
|
|
|
352,000
|
|
$
|
0.51
|
|
$
|
0.53
|
|
|
100,000
|
|
$
|
0.53
|
|
|
4.4
|
|
|
29,167
|
|
$
|
0.53
|
|
$
|
1.69
|
|
|
112,000
|
|
$
|
1.69
|
|
|
3.5
|
|
|
112,000
|
|
$
|
1.69
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
Sales
or Transactions of Securities
The
authorized capital stock of the Company was established at 500,000,000 shares
with no par value.
In
the
fiscal year ended September 30, 2005, the Company issued a total of 9,818,631
shares of common stock as follows: 6,735,137 shares of common stock were
issued
pursuant to Regulation S promulgated under the Securities Act, raising gross
proceeds of $531,396; 474,231 shares of common stock were issued in transactions
exempt from registration pursuant to Section 4(2) of the Securities Act,
for
consulting services valued at $40,000; and 2,609,263 shares of common stock
were
issued pursuant to an exemption under Section 4(2) of the Securities Act,
in
connection with the sale of an $850,000 secured convertible debenture by
the
Company.
In
the
fiscal year ended September 30, 2006, the Company issued a total of 33,293,217
shares of common stock as follows: 33,120,851 shares of common stock registered
pursuant to an effective registration statement were issued pursuant to the
conversion of secured convertible debentures, raising gross proceeds of
$9,294,133; 72,366 shares of common stock were issued in transactions exempt
from registration pursuant to Section 4(2) of the Securities Act, for consulting
services valued at $31,500; and 100,000 shares of common stock were issued
pursuant to an exemption under Section 4(2) of the Securities Act, in connection
with the exercise of 100,000 warrants bearing an exercise price of $0.15
each.
In
December 2006, the Company entered into a settlement agreement with a service
provider in which the service provider returned to the Company 150,000 of
the
300,000 shares of common stock issued to the service provider in the period
ended March 31, 2005. The shares were originally issued in a transaction
exempt
from registration pursuant to Section 4(2) of the Securities Act. The returned
shares were received and cancelled effective January 2007. As a result of
the
return and cancellation of these shares, the Company recorded a credit to
expenses in the amount of $12,000 and a debit to paid in capital of $12,000
for
the period ending March 31, 2007.The $12,000 represents one half of the monetary
value expensed by the Company in the period in which the shares were
issued.
In
conjunction with the sale of convertible debentures in the amount of $850,000
and $5,000,000 in the fiscal periods ended December 31, 2005 and 2006
respectively, the Company issued and deposited into escrow 26,798,418 shares
of
common stock as part of a security structure for the above referenced
obligations. As of September 30, 2006, the principal balance of the debentures
had been reduced to $0.0. Subsequently the holder of the debentures provided
the
Company with a notice of release of its security interests and returned the
security shares to the Company for cancellation. On January 18, 2007 the
above
shares were cancelled on the Company’s books.
In
September 2007, a consultant exercised the remaining 900,000 of the 1,000,000
$0.15 warrants granted to the consultant in September 2004. The amount of
$135,000 dollars was paid to XsunX by the consultant and 900,000 shares of
unregistered common stock were issued. The shares were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities
Act.
On
November 1, 2007, XsunX signed its $21 million Purchase Agreement with Fusion
Capital pursuant to which XsunX received $1,000,000 from Fusion Capital as
an
initial purchase in exchange for 3,333,332 shares of our common stock.
Concurrently with entering into the Purchase Agreement, we entered into a
registration rights agreement with Fusion Capital pursuant to which we agreed
to
file a registration statement covering the shares that have been issued or
may
be issued to Fusion Capital under the Purchase Agreement. We now have the
right
over a twenty-five (25) month period to sell our shares of common stock to
Fusion Capital, from time to time, in amounts up to $1 million per sale,
depending on certain conditions as set forth in the agreement, up to the
full
aggregate commitment of $21 million.
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of
our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future fundings,
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock as financing commitment
shares which Fusion Capital has agreed to hold for the term of the Purchase
Agreement. Additionally, we granted Fusion Capital common stock purchase
warrants to purchase 1,666,666 shares of our common stock at $0.50, and
1,666,666 shares of our common stock at $0.75. The shares underlying the
warrant
grants do not carry mandatory registration requirements under the terms of
the
Purchase Agreement and registration rights agreement.
On
January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Company’s
restricted common stock in a private transaction for total proceeds of
$2,500,000.
Use
of Proceeds from the Sale of Securities
The
proceeds from the above sales of securities were used primarily to fund the
product developments efforts and day-to-day operations of the Company and
to pay
the accrued liabilities associated with these operations.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Summary
Compensation Table – Fiscal Year Ended September 30, 2007
Name &
Principal Position
|
|
Fiscal
Years
Ended
September 30
|
|
Salary
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
(S)
|
|
Nonqualified
Deferred
Compensation
(S)
|
|
All Other
Compensation (S)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Djokovich,
President
(1)
|
|
|
2007
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,800
|
|
$
|
154,800
|
|
|
|
|
2006
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
150,000
|
|
|
|
|
2005
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Grimes,
COO
(2)
|
|
|
2007
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
45,300
|
|
|
-
|
|
|
-
|
|
|
4,800
|
|
$
|
200,100
|
|
|
|
|
2006
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
154,267
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
304,267
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff
Huitt,
CFO
(3)
|
|
|
2007
|
|
$
|
135,000
|
|
|
-
|
|
|
-
|
|
|
45,300
|
|
|
-
|
|
|
-
|
|
|
4,800
|
|
$
|
185,100
|
|
|
|
|
2006
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Wendt,
VP
Engineering
(4)
|
|
|
2007
|
|
$
|
150,000
|
|
|
-
|
|
|
-
|
|
|
45,300
|
|
|
-
|
|
|
-
|
|
|
3,600
|
|
$
|
198,900
|
|
|
|
|
2006
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Guang Lin,
Chief
Scientist
(5)
|
|
|
2007
|
|
$
|
63,462
|
|
|
-
|
|
|
-
|
|
|
0
|
|
|
-
|
|
|
-
|
|
|
4,393
|
|
$
|
67,855
|
|
|
|
|
2006
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
(1)
|
In
the fiscal period ended September 30, 2007, the Company agreed to
pay Mr.
Djokovich an annual salary of $150,000 for services provided as Chief
Executive Officer up to and until the Company determines executive
compensation pursuant to an employment agreement as determined by
our
Board of Directors. In addition to Mr. Djokovich’s base compensation the
Company also provides Mr. Djokovich with a $400 monthly health insurance
allowance. Effective November 2007 the Company agreed to increase
Mr.
Djokovich annual salary to $220,000. 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.
|
(2)
|
The
Company has agreed to pay Mr. Grimes an annual salary of $150,000
for
services provided as Chief Operating Officer under the terms of an
employment agreement effective January 1, 2007. The calculated value
of
Mr. Grimes stock options at September 30, 2007 is $214,668. In addition
to
Mr. Grimes base compensation the Company also provides Mr. Grimes
with a
$400 monthly health insurance allowance. Effective November 2007,
the
Company agreed to increase Mr. Grimes annual salary to
$210,000.
|
(3)
|
The
Company has agreed to pay Mr. Huitt an annual salary of $135,000
for
services provided as Chief Financial Officer under the terms of an
employment agreement effective January 1, 2007. The calculated value
of
Mr. Huitt’s stock options at September 30, 2007 is $60,400. In addition to
Mr. Huitt’s base compensation the Company also provides Mr. Huitt with a
$400 monthly health insurance allowance. Effective November 2007,
the
Company agreed to increase Mr. Huitt’s annual salary to
$155,000.
|
(4)
|
The
Company has agreed to pay Mr. Robert Wendt an annual salary of $150,000
for services provided as Vice –President of Engineering under the terms of
an employment agreement effective January 1, 2007. The calculated
value of
Mr. Wendt’s stock options at September 30, 2007 is $45,300. In addition to
Mr. Wendt’s base compensation the Company also provides Mr. Wendt with a
$300 monthly health insurance allowance. Effective November 2007,
the
Company agreed to increase Mr. Wendt’s annual salary to
$200,000.
|
(5)
|
The
Company has agreed to pay Dr. Guang Lin an annual salary of $100,000
for
services provided as Chief Scientist of which he received a prorate
amount
of $63,462 during the fiscal year ending September 30, 2007. Dr.
Lin did
not have any stock options vested as of September 30, 2007. In addition
to
Dr. Lin’s base compensation the Company also provides Dr. Lin with a $300
monthly health insurance allowance. The Company also provided a relocation
allowance to Dr. Lin of $2,293.
|
|
The
assumptions used in the calculation of the valuation of the options
reported in this table in the Company’s financial statements for the year
ended September 30, 2007 and included in footnotes 2, Summary of
Significant Accounting Policies and 6, Stock Options and Warrants
of our
financial statements.
|
Grants
of Plan-Based Awards Table
–
Fiscal Year Ended September 30, 2007
GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
|
|
Exercise
or Base
Price of
Option
Awards
|
|
Grant
Date
Fair
Value of
Stock and
Option
Awards
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
Awards
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
(k)
|
|
(l)
|
|
Tom
Djokovich,
CEO
|
|
n/a
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff
Huitt,
CFO
(2)
|
|
1/26/07
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
500,000
|
|
|
0.46
|
|
$
|
45,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe
Grimes,
COO
(1)
|
|
1/26/07
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
500,000
|
|
|
0.46
|
|
$
|
45,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Wendt,
VP Engineering
(3)
|
|
1/26/07
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
500,000
|
|
|
0.46
|
|
$
|
45,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guang
Lin,
Chief
Scientist
|
|
n/a
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
(1)
|
Employment
Incentive Options - In connection with the issuance of an employment
agreement to Joseph Grimes in January 2007, the Company granted 500,000
options effective January 1 at the then market price of $0.46. The
option
began vesting at the rate of 50,000 shares per calendar quarter up
to a
total of 400,000 shares. Another 50,000 shall vest and become exercisable
upon each of the first two sales/licensure of an XsunX
system.
|
(2)
|
Employment
Incentive Option - In connection with the issuance of an employment
agreement to Jeff Huitt in January 2007, the Company granted 500,000
options effective January 1 at the then market price of $0.46. The
option
began vesting at the rate of 50,000 shares per calendar quarter up
to a
total of 400,000 shares. Another 50,000 shall vest and become exercisable
upon each of the first two sales/licensure of an XsunX
system.
|
(3)
|
Employment
Incentive Option - In connection with the issuance of an employment
agreement to Robert Wendt in January 2007, the Company granted 500,000
options effective January 1 at the then market price of $0.46. The
option
began vesting at the rate of 50,000 shares per calendar quarter up
to a
total of 400,000 shares. Another 50,000 shall vest and become exercisable
upon each of the first two sales/licensure of an XsunX
system
|
Narrative
Disclosure to Summary Compensation Table and Grants of Plan-Based Awards
Table
The
Company currently offers several basic forms of compensation. Salary, stock
options, vacation and health care reimbursement. The compensation of executive
officers is approved by the disinterested members of the Board of Directors
and
offered in employment agreements. The material terms of each executive officer’s
employment agreement include:
Mr.
Tom
M. Djokovich, CEO & President: In the fiscal period ended September 30,
2007, the Company agreed to pay Mr. Djokovich an annual salary of $150,000
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. In addition to Mr. Djokovich’s base compensation the
Company also provides Mr. Djokovich with a $400 monthly health insurance
allowance. Effective November 2007, the Company agreed to increase Mr. Djokovich
annual salary to $220,000. Additionally, the Company has not provided to Mr.
Djokovich with cash or stock incentives or bonus payment rights related to
his
employment, or otherwise. This salary represents 97% of Mr. Djokovich’s 2007
fiscal year compensation.
Mr.
Jeff
Huitt, CFO: Mr. Huitt’s employment agreement is for two (2) years commencing on
January 1, 2007. It called for initial base salary of $135,000 with bonus
opportunities should revenue be achieved during the term of the agreement
ranging from $5,000 bonus for $5,000,000 in revenue to $15,000 bonus in excess
of $25,000,000 of revenue. Vacation is set at fifteen (15) paid days per year.
Health care reimbursement totals $400 per month. The agreement also contains
provisions for six (6) months of salary to be paid within sixty (60) days should
a sale of all or substantially all of the stock or assets of the company which
results in termination or relocation within one (1) year of the sale. The
agreement calls for termination without notice for good cause and includes
confidentiality provisions. Compensation increases, if any, during the term
of
this agreement are subject to approval by the Board of Directors. Additionally,
the Company granted Mr. Huitt 500,000 options effective January 1, 2007 at
the
then market price of $0.46. The option began vesting at the rate of 50,000
shares per calendar quarter up to a total of 400,000 shares. Another 50,000
shall vest and become exercisable upon each of the first two sales/licensure
of
an XsunX system. This salary represents 73% of Mr. Huitt’s 2007 fiscal year
compensation.
Mr.
Joseph Grimes, COO: The agreement is for two years commencing on January 1,
2007. It called for initial base salary of $150,000 with bonus opportunities
should revenue be achieved during the term of the agreement ranging from $5,000
bonus for $5,000,000 in revenue to $15,000 bonus in excess of $25,000,000 of
revenue. Vacation is set at fifteen (15) paid days per year. Health care
reimbursement totals $400 per month. The agreement contains provisions for
six
(6) months of salary to be paid within sixty (60) days should a sale of all
or
substantially all of the stock or assets of the company which results in
termination or relocation within one year of the sale. The agreement calls
for
termination without notice for good cause and includes confidentiality
provisions. Compensation increases, if any, during the term of this agreement
are subject to approval by the Board of Directors. Additionally, the Company
granted Mr. Grimes 500,000 options effective January 1, 2007 at the then market
price of $0.46. The option began vesting at the rate of 50,000 shares per
calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest
and
become exercisable upon each of the first two sales/licensure of an XsunX
system. This salary represents 42% of Mr. Grimes’ 2007 fiscal year
compensation.
Mr.
Robert Wendt, VP - Engineering: The agreement is for two (2) years commencing
on
January 1, 2007. It called for initial base salary of $150,000 with bonus
opportunities should revenue be achieved during the term of the agreement
ranging from $5,000 bonus for $5,000,000 in revenue to $15,000 bonus in excess
of $25,000,000 of revenue. Vacation is set at fifteen (15) paid days per year.
Health care reimbursement totals $300 per month. The agreement contains
provisions for six months of salary to be paid within sixty (60) days should
a
sale of all or substantially all of the stock or assets of the company which
results in termination or relocation within one year of the sale. The agreement
calls for termination without notice for good cause and includes confidentiality
provisions. Compensation increases, if any, during the term of this agreement
are subject to approval by the Board of Directors. Additionally, the Company
granted Mr. Wendt 500,000 options effective January 1, 2007 at the then market
price of $0.46. The option began vesting at the rate of 50,000 shares per
calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest
and
become exercisable upon each of the first two sales/licensure of an XsunX
system. This salary represents 75% of Mr. Wendt’s 2007 fiscal year
compensation.
Dr.
Guang
Lin, Chief Scientist: There is not an employment agreement with Dr. Lin, rather
a Memorandum of Understanding that details an accepted offer letter. Dr. Lin
is
an at-will employee. His employment commenced on April 18, 2007 with a base
salary of $100,000. There are no specific bonus opportunities currently offered.
He is entitled to seven (7) days of vacations plus normal approved company
holidays. Dr. Lin also receives a $300 per month allowance for health insurance.
Dr. Lin is subject to non-compete and confidentiality agreements. This salary
represents 94% of Dr. Lin’s 2007 fiscal year compensation.
Outstanding
Equity Awards at Fiscal Year-End Table
–
Fiscal Year Ended September 30, 2007
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
|
OPTION
AWARDS
|
|
STOCK
AWARDS
|
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number
of Shares
or
Units
of
Stock
That
Have Not
Vested
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
Name
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Djokovich,
CEO
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Grimes,
COO
(1)
|
|
|
112,000
352,000
150,000
|
|
|
0
148,000
350,000
|
|
|
0
0
0
|
|
$
$
$
|
1.69
0.51
0.46
|
|
|
4/5/2011
7/20/2011
1/26/2012
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
350,000
|
|
|
0
|
|
$
|
0.46
|
|
|
1/26/2012
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Jeff
Huitt, CFO (2)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Wendt,
VP
–
Engineering (3)
|
|
|
150,000
|
|
|
350,000
|
|
|
0
|
|
$
|
0.46
|
|
|
1/26/2012
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
0
0
0
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guang
Lin,
Chief
Scientist
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
(1)
|
Employment
Incentive Warrants - In connection with the issuance of an employment
agreement to Joseph Grimes in April 2006, the Company granted 500,000
warrants at the then market price of $1.69. On July 20, 2006 the
Company
and Mr. Grimes mutually agreed to the cancellation of the remaining
388,000 unvested balance of this warrant and to the grant of a new
warrant
agreement in the amount of 500,000 warrants at the then market price
of
$0.51. The warrant will expire five (5) years after the date of the
grant
and is subject to the following vesting
provisions:
|
(a)
The
Warrant shall become exercisable at the rate of Twenty-Eight Thousand (28,000)
shares per month up to and through the first nine (9) months of employment
of
Optionee by Company.
(b)
One
Hundred Thousand (100,000) shares shall become exercisable upon the completion
and delivery of a marketing plan by Optionee to the Board of
Directors.
(c)
One
Hundred Forty Eight Thousand (148,000) shares shall become exercisable upon
the
first sale or licensure of an XSUNX, Inc. technology under the marketing
plan.
Employment
Incentive Option — In connection with the issuance of an employment
agreement to Joseph Grimes in January 2007, the Company granted 500,000 options
effective January 1, 2007 at the then market price of $0.46. The option began
vesting at the rate of 50,000 shares per calendar quarter up to a total of
400,000 shares. Another 50,000 shall vest and become exercisable upon each
of
the first two sales/licensure of an XsunX system.
(2)
|
Employment
Incentive Option — In connection with the issuance of an
employment agreement to Jeff Huitt in January 2007, the Company granted
500,000 options effective January 1, 2007 at the then market price
of
$0.46. The option began vesting at the rate of 50,000 shares per
calendar
quarter up to a total of 400,000 shares. Another 50,000 shall vest
and
become exercisable upon each of the first two sales/licensure of
an XsunX
system.
|
(3)
|
Employment
Incentive Option — In connection with the issuance of an
employment agreement to Robert Wendt in January 2007, the Company
granted
500,000 options effective January 1, 2007 at the then market price
of
$0.46. The option began vesting at the rate of 50,000 shares per
calendar
quarter up to a total of 400,000 shares. Another 50,000 shall vest
and
become exercisable upon each of the first two sales/licensure of
an XsunX
system.
|
Option
Exercises and Stock Vested Table
–
Fiscal Year Ended September 30, 2007
OPTION
EXERCISES AND STOCK VESTED
|
|
|
|
OPTION
AWARDS
|
|
STOCK
AWARDS
|
|
Name
|
|
Number of
Shares Acquired
on Exercise
|
|
Value Realized
on Exercise
|
|
Number of
Shares Acquired
on Vesting
|
|
Value Realized
on Vesting
|
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
Tom
Djokovich, CEO
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Jeff
Huitt, CFO
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Joe
Grimes, COO
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Robert
Wendt, VP - Engineering
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Guang
Lin, Chief Scientist
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Pension
Benefits Table
None.
Nonqualified
Deferred Compensation Table
None.
Potential
Payments Upon Termination or Change-in-Control
The
Company does have change-in-control obligations to its two (2) executive
officers, Mr. Jeff Huitt and Mr. Joseph Grimes for six (6) months of base salary
should a sale of all or substantially all of the Company’s assets or stock
occurs that results in termination of relocation of the officers within one
year
of the transaction. The payment shall be made as a lump sum within sixty (60)
days of the transaction. Payment for accrued but unused vacation time would
be
made as well. Relocation is defined as requiring the executive officer to
relocate to a new work location, not in the same metropolitan areas of their
current work location, as a result of the transaction. The underlying employment
agreements of Mr. Huitt and Mr. Grimes contain a confidentiality clause that
does not expire and a two-year non-solicitation clause. Neither of these
contractual requirements is affected by the provisions of the change-in-control
obligations. All other benefits provided by the company terminate on the date
the executive leave the Company.
Compensation
of Directors
In
the
fiscal period ended September 30, 2007, directors received no cash compensation
for their service to the Company as directors, but were reimbursed for expenses
actually incurred in connection with attending meetings of our Board of
Directors.
On
October 23, 2007 and further amended on November 12, 2007, the Company issued
Mr. Anderson 1,500,000 if incentive stock options. On November 12, 2007, Mr.
Fundingsland was issued 500,000 incentive stock options and on November 28,
2007, the Company issued Mr. Russak 500,000. These grants were made for their
services on the Board of Directors. Additional information regarding these
grants and the associated vesting schedules are located in Note 12 –
Subsequent Events of the Financial Statements ending September 30,
2007.
Director
Compensation Table – Fiscal Year Ended September 30, 2007
Name
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All
Other
Compensation
(S)
|
|
Total
(S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Djokovich
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
N/A
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Anderson
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
N/A
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oz
Fundingsland
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
N/A
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Russak
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
N/A
|
|
|
0
|
|
|
0
|
|
Beginning
October 2007, the Company elected to provide its Board of Directors with a
monthly stipend of $1,500. The decision was driven by the Company’s efforts to
attract and retain qualified members, and provide compensation during a period
of expansion of operations while the Company works to establish manufacturing
facilities. The Company authorized incentive option grants to the following
Directors at an exercise price per share of $0.36. The options were issued
in a
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933. The options carry 5 year exercise terms and vest as described
below:
|
|
|
|
|
Thomas
Anderson
|
|
October
23, 2007
|
|
1,500,000
Option Shares*
|
Oz
Fundingsland
|
|
November
11, 2007
|
|
500,000
Option Shares
|
Dr.
Michael Russak
|
|
November
26, 2007
|
|
500,000
Option Shares
|
*
This
reflects an amendment to the Stock Option Grant made on November 12, 2007 of
the
original stock option grant dated October 23, 2007 between the Company and
Mr.
Thomas Anderson, a member of the Company’s Board of Directors. The amendment
provided for an increase of 250,000 options to the pool of options available
within the vesting provisions of the grant. All other provision of the stock
option grant remained the same.
The
vesting schedule for Mr. Anderson is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
·
|
The
option became exercisable in the amount of 1,000,000 shares upon
the
effective date of the grant for services rendered as a member of
the
Company’s Board of Directors from the period beginning October 1, 2003
through September 30, 2007.
|
|
·
|
Beginning
October 1, 2007, the option shall vest and become exercisable at
the rate
of 62,500 Shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
The
vesting schedule for Mr. Fundingsland is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
·
|
Beginning
November 12, 2007, the Option shall vest and become exercisable at
the
rate of 62,500 shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company’s Board of Directors up to a
total of 500,000 shares.
|
The
vesting schedule for Dr. Russak is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
·
|
Beginning
November 26, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company’s Board of Directors up to a
total of 500,000 shares.
|
Compensation
Committee Interlocks and Insider Participation
The
Company does not currently have a compensation committee. Furthermore, only
disinterested Directors participate in the compensation discussions and
decisions regarding executive compensation. Messrs. Tom Anderson (Director)
and
Tom Djokovich (President, CEO and Director) participated in executive
compensation decision during the previous fiscal year. Only Mr. Anderson made
compensation decisions regarding Mr. Djokovich. Please see the section above
entitled “Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table” for a complete description of all compensation
transactions by and between the Company and Mr. Djokovich.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
AVAILABLE
INFORMATION
We
have
filed a registration statement on Form S-1 under the Securities Act with the
SEC
with respect to the shares of our common stock offered through this Prospectus.
This Prospectus is filed as a part of that registration statement and does
not
contain all of the information contained in the registration statement and
exhibits. We refer you to our registration statement and each exhibit attached
to it for a more complete description of matters involving us, and the
statements we have made in this Prospectus are qualified in their entirety
by
reference to these additional materials. You may inspect the registration
statement and exhibits and schedules filed with the SEC at the SEC’s principal
office in Washington, D.C. Copies of all or any part of the registration
statement may be obtained from the Public Reference Section of the SEC,
Room 1580, 100 F Street NE, Washington DC 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC also maintains a web site at http://www.sec.gov that contains
reports, proxy statements and information regarding registrants that file
electronically with the SEC. In addition, we will file electronic versions
of
our annual and quarterly reports on the SEC’s Electronic Data Gathering Analysis
and Retrieval, or EDGAR System.
TABLE
OF CONTENTS
FINANCIAL
STATEMENTS FOR THE YEARS ENDED SEPTEMBER 31, 2007, 2006 AND
2005
|
|
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-1
- F-2
|
|
|
Balance
Sheet as of September 30, 2007
|
F-3
|
|
|
Statements
of Operations for the years ended September 30, 2007, 2006 and
2005
|
F-4
- F-5
|
|
|
Statements
of Stockholders Equity (Deficit) for the years ended September
30, 2007,
2006 and 2005
|
F-6
- F-7
|
|
|
Statements
of Cash Flows for the years ended September 30, 2007, 2006 and
2005
|
F-8
- F-9
|
|
|
Notes
to Financial Statements
|
F-10
- F-24
|
|
|
FINANCIAL
STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 2007 AND 2006
(UNAUDITED)
|
|
|
|
Balance
Sheet (Unaudited).
|
F-26
- F-27
|
|
|
Statements
of Operations (Unaudited).
|
F-28
- F-29
|
|
|
Statements
of Stockholders Deficit (Unaudited)
|
F-30
- F-32
|
|
|
Statements
of Cash Flows (Unaudited).
|
F-33
- F-34
|
|
|
Notes
to Financial Statements (Unaudited)
|
F-35
- F-41
|
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 the standards of the Public Company
Accounting Oversight Board (United States)” as outlined in PCAOB Auditing
Standard No. 1. 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, 2004 and 2003 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
February
24, 2005
May
5,
2005
JASPERS
+ HALL, PC
CERTIFIED
PUBLIC ACCOUNTANTS
9175
E. Kenyon Avenue, Suite 100
Denver,
CO 80237
303-796-0099
REPORT
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
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, 2005, 2006,
and
2007, and the related statements of operations, cash flows, and stockholders’
equity for the years then ended. 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 audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2005, 2006, and 2007 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
The
financial statements for the period February 25, 1997 (inception) to September
30, 2004, were audited by other accountants, whose report dated May 5, 2005
expressed an unqualified opinion on those statements. They have not performed
any auditing procedures since that date and our opinion, insofar as it relates
to those amounts, is based solely on the report of the other auditors.
.
Denver,
CO
December
28, 2007
/s/
Jaspers + Hall, PC
Jaspers
+
Hall, PC
Denver,
Colorado
December
28, 2007
XSUNX,
INC.
(A
Development Stage Co.)
BALANCE
SHEETS
|
|
(Audited)
|
|
(Audited)
|
|
(Audited)
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
ASSETS:
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,773,748
|
|
$
|
4,305,105
|
|
$
|
175,869
|
|
Prepaid
Expenses
|
|
|
54,377
|
|
|
349,118
|
|
|
79,984
|
|
Total
current assets
|
|
|
1,828,125
|
|
|
4,654,223
|
|
|
255,853
|
|
Fixed
assets:
|
|
|
|
|
|
|
|
|
|
|
Office
& Misc. Equipment
|
|
|
39,437
|
|
|
9,774
|
|
|
2,270
|
|
Research
and Development Equipment
|
|
|
532,795
|
|
|
392,301
|
|
|
181,995
|
|
Leasehold
Improvement
|
|
|
89,825
|
|
|
80,492
|
|
|
|
|
Total
Fixed Assets
|
|
|
662,057
|
|
|
482,567
|
|
|
184,265
|
|
Less
Depreciation
|
|
|
(118,064
|
)
|
|
(84,941
|
)
|
|
(18,434
|
)
|
Total
fixed assets
|
|
|
543,993
|
|
|
397,626
|
|
|
165,831
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
Patents/Trade
Marks
|
|
|
|
|
|
40,000
|
|
|
20,000
|
|
Security
Deposit
|
|
|
5,815
|
|
|
2,615
|
|
|
|
|
Accrued
Interest Receivable
|
|
|
143,452
|
|
|
|
|
|
|
|
Note
Receivable
|
|
|
1,500,000
|
|
|
|
|
|
|
|
Marketable
Prototype
(Net
of Accumulated Depreciation)
|
|
|
1,720,875
|
|
|
1,765,000
|
|
|
|
|
Total
other assets
|
|
|
3,370,142
|
|
|
1,807,615
|
|
|
20,000
|
|
TOTAL
ASSETS
|
|
$
|
5,742,260
|
|
$
|
6,859,464
|
|
$
|
441,684
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
259,652
|
|
$
|
582,161
|
|
$
|
78,377
|
|
Accrued
Expenses
|
|
|
53,036
|
|
|
6,538
|
|
|
45,856
|
|
Current
Portion of Note Payable
|
|
|
|
|
|
|
|
|
850,000
|
|
Total
current liabilities
|
|
|
312,688
|
|
|
588,699
|
|
|
974,233
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, par value $0.01 per share; 50,000,000 shares authorized; no
shares
issued and outstanding Treasury Stock, no par value; no shares where
issued or outstanding Common Stock, no par value; 500,000,000 shares
authorized; 157,919,856 shares issued and outstanding at September
30,
2007 and 157,019,856 shares were issued and outstanding at September
30,
2006
|
|
|
13,563,86
|
|
|
13,290,869
|
|
|
3,996,735
|
|
Paid
in Capital - Common Stock Warrants
|
|
|
2,326,553
|
|
|
2,151,250
|
|
|
1,200,000
|
|
Deficit
accumulated during the development stage
|
|
|
(10,460,850
|
)
|
|
(9,171,354
|
)
|
|
(5,729,284
|
)
|
Total
stockholders’ profit (deficit)
|
|
|
5,429,572
|
|
|
6,270,765
|
|
|
(532,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
5,742,260
|
|
$
|
6,859,464
|
|
$
|
441,684
|
|
XSUNX,
INC.
(A
Development Stage Co.)
STATEMENT
OF OPERATIONS
(Audited)
|
|
|
|
|
|
|
|
Feb.
25, 1997
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Years
Ended September 30th
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Service
Income
|
|
$
|
6,880
|
|
$
|
8,000
|
|
|
|
|
$
|
14,880
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Total
Revenue
|
|
|
6,880
|
|
|
8,000
|
|
|
-
|
|
|
14,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
47,573
|
|
|
9,050
|
|
|
3,979
|
|
|
60,602
|
|
Bank
Charges
|
|
|
973
|
|
|
294
|
|
|
500
|
|
|
3,880
|
|
Conferences
& Seminars
|
|
|
14,725
|
|
|
11,267
|
|
|
|
|
|
25,992
|
|
Consulting
|
|
|
117,751
|
|
|
47,850
|
|
|
320,944
|
|
|
1,510,584
|
|
Depreciation
|
|
|
77,248
|
|
|
82,941
|
|
|
18,435
|
|
|
181,802
|
|
Directors’
Fees
|
|
|
|
|
|
|
|
|
|
|
|
11,983
|
|
Due
Diligence
|
|
|
|
|
|
|
|
|
|
|
|
45,832
|
|
Equipment
Rental
|
|
|
|
|
|
|
|
|
|
|
|
1,733
|
|
Filing
Fees
|
|
|
2,185
|
|
|
4,625
|
|
|
1,800
|
|
|
8,610
|
|
Impairment
loss
|
|
|
|
|
|
|
|
|
|
|
|
923,834
|
|
Insurance
|
|
|
66,856
|
|
|
2,705
|
|
|
758
|
|
|
70,319
|
|
Legal
& Accounting
|
|
|
302,478
|
|
|
140,293
|
|
|
107,249
|
|
|
738,380
|
|
Licenses
& Fees
|
|
|
90
|
|
|
20
|
|
|
25
|
|
|
6,545
|
|
Loan
Fees
|
|
|
|
|
|
628,834
|
|
|
115,000
|
|
|
741,834
|
|
Meals
& Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
4,119
|
|
Miscellaneous
|
|
|
1,691
|
|
|
1,882
|
|
|
1,675
|
|
|
7,378
|
|
Office
Expenses
|
|
|
15,086
|
|
|
4,581
|
|
|
2,634
|
|
|
41,500
|
|
Patent
Fees
|
|
|
1,181
|
|
|
625
|
|
|
663
|
|
|
2,469
|
|
Postage
& Shipping
|
|
|
8,327
|
|
|
1,123
|
|
|
2,161
|
|
|
14,828
|
|
Printing
|
|
|
9,860
|
|
|
8,730
|
|
|
4,300
|
|
|
28,470
|
|
Public
Relations
|
|
|
79,831
|
|
|
182,151
|
|
|
116,413
|
|
|
489,361
|
|
Recruitment
Expenses
|
|
|
47,064
|
|
|
|
|
|
|
|
|
47,064
|
|
Research
& Development
|
|
|
435,534
|
|
|
949,472
|
|
|
501,423
|
|
|
2,015,922
|
|
Rent
|
|
|
66,702
|
|
|
19,858
|
|
|
9,000
|
|
|
112,523
|
|
Salaries
|
|
|
828,711
|
|
|
275,089
|
|
|
155,236
|
|
|
1,759,122
|
|
Subscription
Reports
|
|
|
6,103
|
|
|
2,895
|
|
|
860
|
|
|
9,858
|
|
Taxes
|
|
|
4,180
|
|
|
|
|
|
|
|
|
8,837
|
|
Telephone
|
|
|
22,301
|
|
|
12,318
|
|
|
5,489
|
|
|
74,923
|
|
Transfer
Agent Expense
|
|
|
|
|
|
411
|
|
|
3,628
|
|
|
20,365
|
|
|
|
|
|
|
|
|
|
Feb.
25, 1997
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Years
Ended September 30th
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Travel,
Meals & Entertainment
|
|
|
158,503
|
|
|
41,823
|
|
|
11,234
|
|
|
274,493
|
|
Utilities
|
|
|
8,103
|
|
|
|
|
|
|
|
|
8,103
|
|
Abandoned
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
808
|
|
Option
/ Warrant Expense
|
|
|
325,303
|
|
|
951,250
|
|
|
|
|
|
2,476,553
|
|
Total
Operating Expenses
|
|
|
2,648,359
|
|
|
3,380,087
|
|
|
1,383,406
|
|
|
11,728,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
1,197
|
|
|
158,333
|
|
|
17,433
|
|
|
248,560
|
|
Interest
Income
|
|
|
(253,179
|
)
|
|
(88,480
|
)
|
|
|
|
|
(341,682
|
)
|
Legal
Settlement
|
|
|
(1,100,000
|
)
|
|
|
|
|
|
|
|
(1,100,000
|
)
|
Forgiveness
of Debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(59,773
|
)
|
Total
Other Income/Expense
|
|
|
(1,351,982
|
)
|
|
69,853
|
|
|
17,433
|
|
|
(1,252,895
|
)
|
Net
(Loss)
|
|
$
|
(1,289,497
|
)
|
$
|
(3,441,940
|
)
|
$
|
(1,400,839
|
)
|
$
|
(10,460,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
common
shares outstanding
|
|
|
156,680,076
|
|
|
138,005,964
|
|
|
123,854,733
|
|
|
|
|
Net
Loss per Common Share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
|
|
|
XSUNX,
INC.
(A
Development Stage Company)
STATEMENT
OF STOCKHOLDERS EQUITY (DEFICIT)
September
30, 2007
(Audited)
|
|
|
|
|
|
|
|
|
|
Paid
in
Capital
|
|
Deficit
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
During
the
|
|
|
|
|
|
Treasury
Stock
|
|
Common
Stock
|
|
Stock
|
|
Exploration
|
|
|
|
|
|
# of Shares
|
|
Amount
|
|
#
of Shares
|
|
Amount
|
|
Warrants
|
|
Stage
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
February 25, 1997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
15,880
|
|
|
217,700
|
|
|
-
|
|
|
-
|
|
|
217,700
|
|
Issuance
of stock to Founders
|
|
|
-
|
|
|
-
|
|
|
14,110
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuance
of stock for consolidation
|
|
|
-
|
|
|
-
|
|
|
445,000
|
|
|
312,106
|
|
|
-
|
|
|
-
|
|
|
312,106
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(193,973
|
)
|
|
(193,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1997
|
|
|
-
|
|
|
-
|
|
|
474,990
|
|
|
529,806
|
|
|
-
|
|
|
(193,973
|
)
|
|
335,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
1,500
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
50,200
|
|
|
204,000
|
|
|
-
|
|
|
-
|
|
|
204,000
|
|
Consolidation
stock cancelled
|
|
|
-
|
|
|
-
|
|
|
(60,000
|
)
|
|
(50,000
|
)
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(799,451
|
)
|
|
(799,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1998
|
|
|
-
|
|
|
-
|
|
|
466,690
|
|
|
713,806
|
|
|
-
|
|
|
(993,424
|
)
|
|
(279,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
151,458
|
|
|
717,113
|
|
|
-
|
|
|
-
|
|
|
717,113
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
135,000
|
|
|
463,500
|
|
|
-
|
|
|
-
|
|
|
463,500
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,482,017
|
)
|
|
(1,482,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1999
|
|
|
-
|
|
|
-
|
|
|
753,148
|
|
|
1,894,419
|
|
|
-
|
|
|
(2,475,441
|
)
|
|
(581,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
27,000
|
|
|
-
|
|
|
-
|
|
|
27,000
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(118,369
|
)
|
|
(118,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2000
|
|
|
-
|
|
|
-
|
|
|
768,148
|
|
|
1,921,419
|
|
|
-
|
|
|
(2,593,810
|
)
|
|
(672,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
337,887
|
|
|
-
|
|
|
-
|
|
|
337,887
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(32,402
|
)
|
|
(32,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2001
|
|
|
-
|
|
|
-
|
|
|
768,148
|
|
|
2,259,306
|
|
|
-
|
|
|
(2,626,212
|
)
|
|
(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
|
|
|
-
|
|
|
-
|
|
|
70,000,000
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Issuance
of stock for Cash
|
|
|
-
|
|
|
-
|
|
|
9,000,000
|
|
|
225,450
|
|
|
-
|
|
|
-
|
|
|
225,450
|
|
Issuance
of stock for Debt
|
|
|
-
|
|
|
|
|
|
115,000
|
|
|
121,828
|
|
|
-
|
|
|
-
|
|
|
121,828
|
|
|
|
|
|
|
|
|
|
|
|
Paid
in
Capital
|
|
Deficit
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
During
the
|
|
|
|
|
|
Treasury
Stock
|
|
Common
Stock
|
|
Stock
|
|
Exploration
|
|
|
|
|
|
# of Shares
|
|
Amount
|
|
#
of Shares
|
|
Amount
|
|
Warrants
|
|
Stage
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for Expenses
|
|
|
-
|
|
|
-
|
|
|
115,000
|
|
|
89,939
|
|
|
-
|
|
|
-
|
|
|
89,939
|
|
Issuance
of stock for Services
|
|
|
-
|
|
|
-
|
|
|
31,300,000
|
|
|
125,200
|
|
|
-
|
|
|
-
|
|
|
125,200
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(145,868
|
)
|
|
(145,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2003
|
|
|
-
|
|
|
-
|
|
|
111,298,148
|
|
|
2,821,726
|
|
|
-
|
|
|
(2,819,377
|
)
|
|
2,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
2,737,954
|
|
|
282,670
|
|
|
-
|
|
|
-
|
|
|
282,670
|
|
Issuance
of Common Stock Warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,200,000
|
|
|
-
|
|
|
1,200,000
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,509,068
|
)
|
|
(1,509,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2004
|
|
|
|
|
|
|
|
|
114,036,102
|
|
|
3,104,396
|
|
|
1,200,000
|
|
|
(4,328,445
|
)
|
|
(24,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
6,747,037
|
|
|
531,395
|
|
|
-
|
|
|
-
|
|
|
531,395
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
3,093,500
|
|
|
360,945
|
|
|
-
|
|
|
-
|
|
|
360,945
|
|
Issuance
of stock for collateral
|
|
|
26,798,418
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,400,839
|
)
|
|
(1,400,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2005
|
|
|
26,798,418
|
|
|
-
|
|
|
123,876,639
|
|
|
3,996,735
|
|
|
1,200,000
|
|
|
(5,729,284
|
)
|
|
(532,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
72,366
|
|
|
31,500
|
|
|
-
|
|
|
-
|
|
|
31,500
|
|
Issuance
of Common Stock Warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
951,250
|
|
|
-
|
|
|
951,250
|
|
Issuance
of stock for debenture conversion
|
|
|
-
|
|
|
-
|
|
|
21,657,895
|
|
|
5,850,000
|
|
|
|
|
|
|
|
|
5,850,000
|
|
Issuance
of stock for interest expense
|
|
|
-
|
|
|
-
|
|
|
712,956
|
|
|
241,383
|
|
|
|
|
|
|
|
|
241,383
|
|
Issuance
of stock for warrant conversion
|
|
|
-
|
|
|
-
|
|
|
10,850,000
|
|
|
3,171,250
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,441,940
|
)
|
|
(3,441,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2006
|
|
|
26,798,418
|
|
|
-
|
|
|
157,169,856
|
|
|
13,290,869
|
|
|
2,151,250
|
|
|
(9,171,354
|
)
|
|
6,270,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of Stock for Services Returned
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
(12,000
|
)
|
Release
of Security Collateral
|
|
|
(26,798,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Stock for Warrants - Jim Bentley
|
|
|
|
|
|
|
|
|
900,000
|
|
|
285,000
|
|
|
(150,000
|
)
|
|
|
|
|
135,000
|
|
Stock
Option / Warrant Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,303
|
|
|
|
|
|
325,303
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289,497
|
)
|
|
(1,289,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2007
|
|
|
-
|
|
$
|
-
|
|
|
157,919,856
|
|
$
|
13,563,869
|
|
$
|
2,326,553
|
|
$
|
(10,460,850
|
)
|
|
5,429,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XSUNX,
INC.
(A
Development Stage Company)
STATEMENT
OF CASH FLOWS
(Audited)
|
|
|
|
|
|
|
|
Feb.
25, 1997
|
|
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Years
Ended September 30
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,289,497
|
)
|
$
|
(3,441,940
|
)
|
$
|
(1,400,839
|
)
|
$
|
(10,460,850
|
)
|
Issuance
of Common Stock for Services
|
|
|
(12,000
|
)
|
|
31,500
|
|
|
50,827
|
|
|
1,336,998
|
|
Issuance
of Common Stock for Loan Inducement
|
|
|
|
|
|
|
|
|
310,117
|
|
|
310,117
|
|
Option/Warrant
Expense
|
|
|
325,303
|
|
|
951,250
|
|
|
|
|
|
2,476,553
|
|
Issuance
of Stock for Interest
|
|
|
|
|
|
241,383
|
|
|
|
|
|
241,383
|
|
Depreciation
|
|
|
77,248
|
|
|
82,941
|
|
|
18,435
|
|
|
162,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(Increase)
in Deferred Financing Costs
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(Increase)
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(Increase)
Security Deposit
|
|
|
(3,200
|
)
|
|
(2,615
|
)
|
|
|
|
|
(5,815
|
)
|
(Increase)
in Prepaid Expense
|
|
|
294,741
|
|
|
(269,133
|
)
|
|
(60,115
|
)
|
|
(54,377
|
)
|
(Decrease)
in Accounts Payable
|
|
|
(322,509
|
)
|
|
503,784
|
|
|
(10,653
|
)
|
|
259,652
|
|
Increase
(Decrease) in Accrued Liabilities
|
|
|
86,498
|
|
|
(39,448
|
)
|
|
42,578
|
|
|
53,036
|
|
Net
Cash Flows Used for Operating Activities
|
|
|
(843,416
|
)
|
|
(1,942,278
|
)
|
|
(1,049,650
|
)
|
|
(5,681,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Fixed Assets
|
|
|
(179,490
|
)
|
|
(314,736
|
)
|
|
(181,995
|
)
|
|
(662,057
|
)
|
Purchase
of Marketable Prototype and Patent
|
|
|
-
|
|
|
(1,785,000
|
)
|
|
(10,000
|
)
|
|
(1,765,000
|
)
|
Note
Receivable
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
(1,500,000
|
)
|
Accrued
Interest earned
|
|
|
(143,452
|
)
|
|
|
|
|
|
|
|
(143,452
|
)
|
Net
Cash Flows Used for Investing Activities
|
|
|
(1,822,942
|
)
|
|
(2,099,736
|
)
|
|
(191,995
|
)
|
|
(4,070,509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Notes Payable - Stockholder
|
|
|
|
|
|
|
|
|
3,775
|
|
|
-
|
|
Payment
for Note Payable - Stockholder
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
-
|
|
Proceeds
from Warrant Conversion
|
|
|
|
|
|
3,171,250
|
|
|
|
|
|
3,171,250
|
|
Proceeds
from Debenture Conversion
|
|
|
|
|
|
5,000,000
|
|
|
|
|
|
5,000,000
|
|
Proceeds
from Convertible Debt
|
|
|
|
|
|
|
|
|
850,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Feb.
25, 1997
|
|
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Years
Ended September 30
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Warrants
|
|
|
135,000
|
|
|
|
|
|
|
|
|
135,000
|
|
Issuance
of Common Stock for cash
|
|
|
|
|
|
|
|
|
531,395
|
|
|
3,219,121
|
|
Net
Cash Flows Provided by Financing Activities
|
|
|
135,000
|
|
|
8,171,250
|
|
|
1,380,170
|
|
|
11,525,371
|
|
Net
Increase (Decrease) in Cash
|
|
|
(2,531,358
|
)
|
|
4,129,236
|
|
|
138,525
|
|
|
1,773,748
|
|
Cash
and cash equivalents - Beginning of period
|
|
|
4,305,105
|
|
|
175,869
|
|
|
37,344
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - End of period
|
|
$
|
1,773,748
|
|
$
|
4,305,105
|
|
$
|
175,869
|
|
$
|
1,773,748
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,197
|
|
|
|
|
|
|
|
$
|
72,543
|
|
Income
Taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued (returned) in exchange for services
|
|
$
|
(12,000
|
)
|
$
|
31,500
|
|
$
|
50,827
|
|
$
|
1,336,998
|
|
Conversion
of debt for Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Loan Inducement
|
|
|
|
|
|
|
|
$
|
310,117
|
|
$
|
310,117
|
|
Common
Stock Issued for Interest
|
|
|
|
|
$
|
241,383
|
|
|
|
|
$
|
241,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
Note
1 - Organization
XsunX,
Inc. (“XsunX,” the “Company” or the “issuer”) is a Colorado corporation formerly
known as Sun River Mining Inc. “Sun River”). The Company was originally
incorporated in Colorado on February 25, 1997. Effective September 24, 2003,
the
Company completed a Plan of Reorganization and Asset Purchase Agreement (the
“Plan”).
Pursuant
to the Plan the Company acquired the following three patents from Xoptix, Inc.,
a California corporation 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.
XsunX,
Inc. is a thin-film photovoltaic “TFPV” company that has spent the last three
years in focused research with a photovoltaic material called Amorphous Silicon.
During this time, the Company has developed the technical capabilities,
qualified core staff, and market understanding that it believes will be
necessary to complete the development of its products and establish product
manufacturing infrastructure. The products that the Company intends to produce
and market are amorphous silicon solar modules on glass panels.
Utilizing
this experience and the collective body of intellectual property we have
developed, or evaluated as suitable or advantageous for use, we have designed
a
125 watt thin film amorphous silicon solar module and a proprietary
semiconductor manufacturing system to produce these modules in commercial
quantities. We anticipate the manufacture of our solar modules, employing the
design of our high-throughput production lines in an automated continuous
process, will provide manufacturing costs significantly less than those of
traditional crystalline silicon solar module manufacturers, and be highly
competitive with other thin film offerings.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation - Development Stage Company
The
Company has not earned any revenues from operations. 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.
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. Significant
estimates made in preparing these financial statements include the estimate
for
the useful life of property and equipment, and the fair value of stock warrants.
Actual results could differ from those estimates
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Fair
Value of Financial Instruments
The
Company’s financial instruments, including cash and cash equivalents, accounts
payable and accrued liabilities are carried at cost, which approximates their
fair value, due to the relatively short maturity of these instruments. As of
September 30, 2007, 2006 and 2005, the Company’s notes payable have stated
borrowing rates that are consistent with those currently available to the
Company and, accordingly, the Company believes the carrying value of these
debt
instruments approximates their fair value.
Property
and Equipment
Property
and equipment are stated at cost, and are depreciated or amortized using the
straight-line method over the following estimated useful lives:
Furniture,
fixtures & equipment
|
|
|
5
years
|
|
Computer
equipment
|
|
|
3
years
|
|
Commerce
server
|
|
|
3
years
|
|
Computer
software
|
|
|
3
years
|
|
Leasehold
improvements
|
|
|
Length of the lease
|
|
The
Company capitalizes property and equipment over $500. Property and equipment
under $500 are expensed in the year purchased.
Net
Earnings (Loss) per Share
Basic
loss per share is computed on the basis of the weighted average number of common
shares outstanding. For all periods, all of the Company’s common stock
equivalents were excluded from the calculation of diluted loss per common share
because they were anti-dilutive, due to the Company’s net losses. There are
17,312,000 issued options / warrants outstanding as of September 30, 2007 that
are potentially dilutive of which 8,768,167 are currently vested.
Advertising
Advertising
costs are expensed as incurred. Total advertising costs were $47,573, $9,050
and
$3,979 for the years ended September 30, 2007, 2006 and 2005,
respectively.
Research
and Development
Research
and development costs are expensed as incurred. Total research and development
costs were $435,534, $949,472 and $501,423 for the years ended September 30,
2007, 2006 and 2005, respectively.
Other
Comprehensive Income
The
Company has no components of other comprehensive income (loss) and accordingly,
net loss is equal to comprehensive loss in all periods.
Stock
Based Compensation
XsunX
records the fair value of stock-based compensation grants as an expense. In
order to determine the fair value of stock options on the date of grant. XsunX
applies the Black-Scholes option-pricing model. Inherent in this model are
assumptions related to expected stock-price volatility, option life, risk-free
interest rate and dividend yield. While the risk-free interest rate and dividend
yield are less subjective assumptions, typically based on factual data derived
from public sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
XsunX
uses an expected stock-price volatility assumption that is based on historical
implied volatilities of the underlying stock which is obtained from public
data
sources. With regard to the weighted-average option life assumption. XsunX
considers the exercise behavior of past grants and models the pattern of
aggregate exercises. Patterns are determined on specific criteria of the
aggregate pool of optionees. Forfeiture rates are based on the Company’s
historical data and future estimates for stock option forfeitures. There are
17,312,000 options and warrants issued of which 8,768,167 are vested. The
exercise price range for the Company’s options and warrants are $0.15 to $1.69.
The weighted average remaining life of the option and warrant grants range
from
.3 years to 4.9 years. We have based our expected volatility on the historical
performance of our stock adjusted for extreme periods of volatility that
resulted from unusual events. The range of volatility for our options and
warrants is 53 to 86 based on the specific grant. The risk free interest rate
used in our calculation was 3.54%. Total net stock-based compensation expense
is
attributable to the granting of and the remaining requisite service periods
of
stock options previously granted. Compensation expense attributable to net
stock-based compensation in fiscal 2007 was $325,303, increasing basic loss
$.002 per share.
Note
3 — 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 carry forwards using enacted tax rates in effect for the year
in
which the differences are expected to reverse. The approximate tax effect used
in these calculations is 40%. Deferred tax assets are recognized if it is more
likely than not that the future tax benefit will be realized. The Company is
a
Development Stage Company and the likelihood of its ability to utilize the
deferred tax asset that arises from the operating loss carry forwards can’t be
reasonably estimated. The company has created a valuation allowance equal to
100% of the deferred tax asset arising from the operating loss carryforwards
as
a result of this inability to estimate whether or not the asset can be utilized
in future periods.
Significant
components of the Company’s deferred tax liabilities and assets are as follows:
The deferred tax assets are composed of the Company’s net operating loss carry
forwards of approximately $10,960,721 at the approximate tax effect of 40%.
There are no other material deferred tax assets or liabilities of the Company
as
of September 30, 2007.
|
|
2007
|
|
2006
|
|
2005
|
|
Deferred
Tax Assets
|
|
$
|
4,384,288
|
|
$
|
3,858,490
|
|
$
|
2,291,714
|
|
Deferred
Tax Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
4,384,288
|
|
$
|
3,858,490
|
|
$
|
2,291,714
|
|
Net
Deferred tax assets
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
At
September 30, 2007, the Company had net operating loss carry forwards of
approximately, $10,960,721 for federal income tax purposes. These carry forwards
if not utilized to offset taxable income will begin to expire in 2010.
Note
4 - Capital Stock Transactions
The
authorized capital stock of the Company was established at 500,000,000 shares
with no par value.
In
the
fiscal year ended September 30, 2005, the Company issued a total of 9,818,631
shares of common stock as follows: 6,735,137 shares of common stock were issued,
raising gross proceeds of $531,396; 474,231 shares of common stock were issued
in transactions for consulting services valued at $40,000; and 2,609,263 shares
of common stock were issued in connection with the sale of an $850,000 secured
convertible debenture by the Company.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
In
the
fiscal year ended September 30, 2006, the Company issued a total of 33,293,217
shares of common stock as follows: 33,120,851 shares of common stock registered
pursuant to an effective registration statement were issued pursuant to the
conversion of secured convertible debentures, raising gross proceeds of
$9,294,133; 72,366 shares of common stock were issued for consulting services
valued at $31,500; and 100,000 shares of common stock were issued in connection
with the exercise of 100,000 warrants bearing an exercise price of $.15 each.
The
following represents a detailed analysis of the 2007 capital stock
transactions.
Return
of
Shares for Services - In December 2006, the Company entered into a settlement
agreement with a service provider in which the service provider returned to
the
Company 150,000 of the 300,000 shares of common stock issued to the service
provider in the period ended March 31, 2005. The returned shares were received
and cancelled effective January 2007. As a result of the return and cancellation
of these shares, the Company recorded a credit to expenses in the amount of
$12,000 and a debit to paid in capital of $12,000 for the period ending March
31, 2007.The $12,000 represents one half of the monetary value expensed by
the
Company in the period in which the shares were issued.
Return
of
Security Shares - In conjunction with the sale of convertible debentures in
the
amount of $850,000 and $5,000,000 in the fiscal periods ended December 31,
2005
and 2006 respectively, the Company issued and deposited into escrow 26,798,418
shares of common stock as part of a security structure for the above referenced
obligations. As of September 30, 2006 the principal balance of the debentures
had been reduced to $0.0. Subsequently the holder of the debentures provided
the
Company with a notice of release of its security interests and returned the
security shares to the Company for cancellation. On January 18, 2007 the above
shares were cancelled on the Company’s books.
Issuance
of Shares - Warrant Conversion - In September 2007, a consultant exercised
the
remaining 900,000 of the 1,000,000 $.15 cent warrants granted to the consultant
in September 2004. The amount of $135,000 was paid to XsunX by the consultant
and 900,000 shares of unregistered common stock were issued.
Note
5 – Employment and Consulting Agreements
Effective
January 1, 2007, XSUNX, Inc. entered into two year Employment Agreements with
the following individuals:
Joseph
Grimes
|
|
|
Chief
Operating Officer
|
|
$
|
150,000.00
|
|
Jeff
Huitt
|
|
|
Chief
Financial Officer
|
|
$
|
135,000.00
|
|
Robert
Wendt
|
|
|
Vice
President of Engineering
|
|
$
|
150,000.00
|
|
Kurt
Laetz
|
|
|
Vice
President of Global Sales
|
|
$
|
120,000.00
|
(1)
|
(1)
|
Effective
September 2007 Kurt Laetz terminated his employment agreement and
employment with the Company.
|
Effective
January 26, 2007, XsunX entered into a two year Consulting and Advisory
Agreement with Dr. John Moore to become the Chairman of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,500 per month for his
services.
Effective
February 22, 2007, XsunX entered into a two year Consulting and Advisory
Agreement with Dr. Edward Yu to become a member of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,000 per month for his
services.
Effective
April 23, 2007, XsunX entered into a two year Consulting and Advisory Agreement
with Dr. Richard Ahrenkiel to become a member of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,000 per month for his
services.
Effective
August 28, 2007, XsunX entered into a two year Consulting and Advisory Agreement
with Dr. Michael Russak to become a member of the Company’s Scientific Advisory
Board. The Company compensates Dr. Moore $1,000 per month for his
services.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Note
6 - Stock Options and Warrants
Stock
Option Plan
On
January 5, 2007, the Board of Directors of XsunX resolved to establish the
Company’s 2007 Stock Option Plan to enable the Company to obtain and retain the
services of the types of employees, consultants and directors who could
contribute to the Company’s long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all stockholders of the Company. A total of 20,000,000 shares of common
stock
are authorized under the plan.
Stock-Based
Compensation
Effective
September 30, 2007, XsunX adopted SFAS No. 123(R), “Share-Based Payment” (SFAS
No. 123(R)). This statement replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS No. 123) and supersedes APB No. 25. SFAS No. 123(R) requires
that all stock-based compensation be recognized as an expense in the financial
statements and that such cost be measured at the fair value of the grant. This
statement was adopted using the modified prospective method of application,
which requires us to recognize compensation expense on a prospective basis.
Therefore, prior period financial statements have not been restated. Under
this
method, in addition to reflecting compensation expense for new share-based
grants, expense is also recognized to reflect the remaining service period
of
grants that had been included in pro-forma disclosures in prior
periods.
XsunX
records the fair value of stock-based compensation grants as an expense. In
order to determine the fair value of stock options on the date of grant, XsunX
applies the Black-Scholes option-pricing model. Inherent in this model are
assumptions related to expected stock-price volatility, option life, risk-free
interest rate and dividend yield. While the risk-free interest rate and dividend
yield are less subjective assumptions, typically based on factual data derived
from public sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment.
XsunX
uses an expected stock-price volatility assumption that is based on historical
implied volatilities of the underlying stock which is obtained from public
data
sources. With regard to the weighted-average option life assumption, XsunX
considers the exercise behavior of past grants and models the pattern of
aggregate exercises. Patterns are determined on specific criteria of the
aggregate pool of optionees. Forfeiture rates are based on the Company’s
historical data and future estimates for stock option forfeitures. There are
17,312,000 options and warrants issued of which 8,768,167 are vested. The
exercise price range for the Company’s options and warrants are $0.15 to $1.69.
The weighted average remaining life of the option and warrant grants range
from
.3 years to 4.9 years. We have based our expected volatility on the historical
performance of our stock adjusted for extreme period of volatility that resulted
from unusual events. The range of volatility for our options and warrants is
53
to 86 based on the specific grant. The risk free interest rate used in our
calculation was 3.54%. Total net stock-based compensation expense is
attributable to the granting of and the remaining requisite service periods
of
stock options previously granted. Compensation expense attributable to net
stock-based compensation in fiscal 2007 was $325,303, increasing basic loss
$.002 per share.
Warrant
Grants
There
were no Warrants issued by the Company in the year ended September 30,
2007.
Stock
Option Plan Grants
During
the year ended September 30, 2007 the board of directors authorized the grant
of
options to purchase an aggregate of 2,200,000 shares of the Company’s common
stock of which 1,950,000 remain authorized. Such options are exercisable at
prices ranging from $.41 to $.53 per share, and expire at various times through
August 2012.
The
following represents a detailed analysis of the 2007 stock option
grants.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Consulting
Incentive Options: In connection with entering into a Consulting and Advisory
Agreement effective January 26, 2007 with Dr. John Moore for two years service
as Chairman of the Company’s Scientific Advisory Board, the Company issued to
Dr. Moore 150,000 options under the terms of a Stock Option Agreement, with
an
exercise price of $.46 per share. The options have a 5 year exercise term and
vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of April 26, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 18,750 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Employment
Incentive Options - In connection with entering into an Employment Agreement
effective January 1, 2007 with Jeff Huitt for two years service as Chief
Financial Officer, the Company issued to Mr. Huitt 500,000 options under the
terms of a Stock Option Agreement effective January 26, 2007, with an exercise
price of $.46 per share. The options have a 5 year exercise term and vest under
the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options - In connection with entering into an Employment Agreement
effective January 1, 2007 with Robert Wendt for two years service as Vice
President of Engineering, the Company issued to Mr. Wendt 500,000 options under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options have a 5 year exercise term and
vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options - In connection with entering into an Employment Agreement
effective January 1, 2007 with Kurt Laetz for two years service as Vice
President of Sales, the Company issued to Mr. Laetz 250,000 options under the
terms of a Stock Option Agreement effective January 26, 2007, with an exercise
price of $.46 per share. As of September 30, 2007 Mr. Laetz no longer worked
for
the Company and the above referenced option grant was terminated and the
available options were returned to the pool of available options under the
XsunX
2007 Stock Option Plan.
Employment
Incentive Options - In connection with entering into an Employment Agreement
effective January 1, 2007 with Joseph Grimes for two years service as Chief
Operating Officer, the Company issued to Mr. Grimes 500,000 options under the
terms of a Stock Option Agreement effective January 26, 2007, with an exercise
price of $.46 per share. The options have a 5 year exercise term and vest under
the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective February 22, 2007 with Dr. Edward Yu for two years service
as a member of the Company’s Scientific Advisory Board, the Company issued to
Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an
exercise price of $.53 per share. The options have a 5 year exercise term and
vest under the following provisions:
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of May 23, 2007. Thereafter, the Option shall vest become
exercisable at the rate of 12,500 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective April 23, 2007 with Dr. Richard Ahrenkiel for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement,
with an exercise price of $.45 per share. The options have a 5 year exercise
term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of July 24, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 12,500 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective August 28, 2007 with Dr. Michael Russak for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Russak 100,000 options under the terms of a Stock Option
Agreement, with an exercise price of $.41 per share. The options have a 5 year
exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of November 29, 2007. Thereafter, the Option shall vest
become exercisable at the rate of 12,500 Shares per calendar quarter,
or
any apportioned amount thereof, during the term of engagement of
the
Optionee by XsunX.
|
The
total
charged in expense for the 2007 fiscal year was $325,303 for the issuance of
the
above described warrants and stock options.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
A
summary
of option and warrant activity for the years ended September 30, 2007, 2006
and
2005 is as follows:
|
|
Number
of
Options /
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Accrued
Options
/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding,
September 30, 2004
|
|
|
8,000,000
|
|
$
|
0.15
|
|
|
5,500,000
|
|
$
|
0.15
|
|
Granted
2005
|
|
|
7,125,000
|
|
$
|
0.17
|
|
|
6,708,334
|
|
$
|
0.17
|
|
Exercisable
from 2004 in 2005
|
|
|
-
|
|
|
|
|
|
1,200,000
|
|
|
0.15
|
|
Outstanding,
September 30, 2005
|
|
|
15,125,000
|
|
$
|
0.16
|
|
|
13,408,334
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
2006
|
|
|
11,987,000
|
|
$
|
0.36
|
|
|
5,543,000
|
|
$
|
0.46
|
|
Exercised
2006
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
Exercised
from 2004 in 2006
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2006
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
Exercisable
from 2004 in 2006
|
|
|
-
|
|
|
|
|
|
300,000
|
|
$
|
0.15
|
|
Exercisable
from 2005 in 2006
|
|
|
-
|
|
|
|
|
|
300,000
|
|
$
|
0.20
|
|
Outstanding,
September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
8,701,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
2007
|
|
|
1,950,000
|
|
$
|
0.46
|
|
|
554,167
|
|
$
|
0.46
|
|
Exercised
2007
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Exercised
from 2004 in 2007
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2007
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Exercised
from 2006 in 2007
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Exercisable
from 2004 in 2007
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Exercisable
from 2005 in 2007
|
|
|
-
|
|
|
|
|
|
116,666
|
|
$
|
0.20
|
|
Exercisable
from 2006 in 2007
|
|
|
-
|
|
|
|
|
|
296,000
|
|
$
|
0.51
|
|
Outstanding,
September 30, 2007
|
|
|
17,312,000
|
|
$
|
0.33
|
|
|
8,768,167
|
|
$
|
0.22
|
|
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
At
September 30, 2007, the range of option / warrant prices for shares under
options / warrants not exercised and the weighted-average remaining contractual
life is as follows:
|
|
Options
/ Warrants Outstanding
|
|
Options / Warrants Exercisable
|
|
Range of
Option /
Warrant
Prices
|
|
Number of
Options /
Warrants
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual
Life(yr)
|
|
Number of
Options /
Warrants
|
|
Weighted-
Average
Exercise Price
|
|
$
0.15
|
|
|
7,000,000
|
|
$
|
0.15
|
|
|
1.9
|
|
|
6,000,000
|
|
$
|
0.15
|
|
$
0.20
|
|
|
750,000
|
|
$
|
0.20
|
|
|
0.3
|
|
|
750,000
|
|
$
|
0.20
|
|
$
0.25
|
|
|
7,000,000
|
|
$
|
0.25
|
|
|
3.0
|
|
|
1,000,000
|
|
$
|
0.25
|
|
$
0.41
|
|
|
100,000
|
|
$
|
0.41
|
|
|
4.9
|
|
|
4,167
|
|
$
|
0.41
|
|
$
0.45
|
|
|
100,000
|
|
$
|
0.45
|
|
|
4.6
|
|
|
20,833
|
|
$
|
0.45
|
|
$
0.46
|
|
|
1,650,000
|
|
$
|
0.46
|
|
|
4.3
|
|
|
500,000
|
|
$
|
0.46
|
|
$
0.51
|
|
|
500,000
|
|
$
|
0.51
|
|
|
3.8
|
|
|
352,000
|
|
$
|
0.51
|
|
$
0.53
|
|
|
100,000
|
|
$
|
0.53
|
|
|
4.4
|
|
|
29,167
|
|
$
|
0.53
|
|
$
1.69
|
|
|
112,000
|
|
$
|
1.69
|
|
|
3.5
|
|
|
112,000
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
Note
7 - Marketable Production Machine Acquisition
Subject
to the terms of the Expanded Use License Agreement dated October 12, 2005
between XsunX and MVSystems, Inc. the parties are building a first run
production machine for the purpose of proofing and demonstrating certain
thin
film solar cell manufacturing technology
.
This
production machine is used to proof, develop, and prepare for market certain
thin film solar cell manufacturing technology.
The
initial cost of the machine was $1,765,000.
During this period of
use
,
the
production machine is being depreciated over five years using the straight
line
method. Depreciation on this production machine began
midway
through the quarter ending September, 30 2007. Depreciation expense for the
fourth quarter of 2007 was $44,125
for
a net
book value of $1,720,875
and depreciation expense for the first quarter
of 2008 was $88,250, total accumulated depreciation as of December 31, 2007
was
$132,375
for
a net
book value of $1,632,625
. There is no salvage value estimated for this
equipment as we believe that the machine will be sold prior to the end of
its
useful life.
Upon completion of this phase of the production machine
usage, the parties intend to sell this first machine and have agreed to a
50/50
split of the net proceeds of the sale of this machine excluding production
costs
and reasonable marketing expenses. Upon the sale of the production machine,
the
asset will be treated as inventory at the depreciated asset value at the
time of
the sale. The valuation of this asset is based on the contracted delivery
price
in the Expanded Use License Agreement dated October 12, 2005. The valuation
is
reviewed quarterly using replacement cost and estimated potential sales price
estimates. It is the policy of the Company to write down the value of this
asset
if these estimates are less than the current book value.
Note
8 - Notes, Commitments, and Contingencies
Trademark
Transfer Agreement
In
November 2007, the Company elected not to complete the trademark transfer
agreement for “POWER GLASS.” The value of the Trademark is minimal given the
Company’s expanded focus on manufacturing. As a result, $40,000 previous
recorded as an asset associated with this Trademark were written off effective
September 30, 2007 and recorded in research and development
expense.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Operating
Leases
In
April
2006 the Company entered into a three year lease for operations facilities
in
Golden, CO. The Company provided a $2,615 security deposit and expensed $79,867
in costs associated with tenant improvements to the facilities in preparation
for occupancy. The following is a schedule, by years, of the minimum base
payments required under this operating lease for facilities. An additional
$905
monthly is also due as a pro rata share equaling 4.12% of the operating costs
for real estate taxes, assessments, and the expenses of operating and
maintaining common areas within the commercial grounds surrounding the leased
facilities.
Rent
Schedule
|
|
Annual Rate/sf
|
|
Annualized Rent
|
|
Monthly Rent
|
|
|
|
|
|
|
|
|
|
7/1/06-6/30/07
|
|
$
|
6.75
|
|
$
|
20,250.00
|
|
$
|
1,687.50
|
|
7/1/07-6/30/08
|
|
$
|
6.95
|
|
$
|
20,850.00
|
|
$
|
1,737.50
|
|
7/1/08-6/30/09
|
|
$
|
7.16
|
|
$
|
21,480.00
|
|
$
|
1,790.00
|
|
Agreement
for the Sale of Equipment
The
Company has entered into agreements for the sale to a buyer of certain vacuum
deposition technology equipment valued at $41,800,000, excluding royalty
payments based on per watt annualized production totals. The agreements,
consisting of a systems sale and a royalty based manufacturing license
agreement, provide for thin film photovoltaic production equipment and two
product development tools specializing in the fabrication of micro-crystalline
and amorphous thin film silicon solar cells. Manufacture of the product
development tools was scheduled to begin in June 2007 upon receipt of initial
payments from the buyer. The Company extended the down payment requirement
by
three months on July 17, 2007. The down payment was not received by the due
date. As of the date of this report, the Company has notified the buyer of
the
termination of the purchase and license agreement.
Note
9 – Planned Expansion of Business Operations
In
March
XsunX launched efforts to expand the scope of business development efforts
to
include the planned establishment of a solar energy module manufacturing
facility to be located in Oregon, USA. The Company intends to finance the
associated costs for the build out of new facilities in a series of debt and/or
equity financings.
Note
10 – Note Receivable
On
January 1, 2007, XSUNX, Inc. issued a secured, seven year, 10% note to Sencera,
LLC in the amount up to $1,500,000. Under the terms, the Company provided
Sencera, LLC with $400,000 at the time of signing and $137,500 per month for
up
to eight months. These funds are to be used to develop technology and obtain
licenses in agreement with the Technology Development and License Agreement
between Sencera and XsunX, Inc also signed on January 1, 2007. The note may
be
converted into a membership interest in Sencera, LLP and an extension of the
license for a period of three years. The security consists of the license
rights, the ability to exercise the conversion and all other rights and remedies
provided by law.
On
September 7, 2007, XsunX initiated the final funding of disbursements under
a
Promissory Note and Loan Agreement dated January 1, 2007, between XsunX and
a
private technology development firm. Under the Promissory Note and Loan
Agreement XsunX has funded and extended the principal amount of $1,500,000
dollars to the private firm.
Use
of
the licensed plasma technology by XsunX in any of its planned or future
processes or products has and continues to be subject to completion of
development by Sencera, LLC, substantiation of intended performance criteria
under the agreements, and determination of commercial application suitability
by
XsunX.
As
of
September 30, 2007 the current balance of the note receivable was $1,500,000
plus accrued interest earned of $143,452.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Note
11 – Other Income – Legal Settlement
Effective
March 23, 2007 XsunX entered into a binding letter of intent (“LOI”) with a
manufacturer (the “Seller”) of photovoltaic products for the purchase of certain
net assets of the manufacturer for the amount of five million dollars
($5,000,000) USD in a cash transaction.
On
or
about April 27, 2007 the Company was notified by the Seller of a change in
direction and decision not to complete the sale of assets under the LOI
agreement. XsunX filed a complaint (“Lawsuit”) against the Seller and related
entities in the United States District Court for the District of Massachusetts
on May 10th, 2007, alleging breach of contract and other claims.
On
August
23, 2007 the Seller and XsunX entered into a settlement agreement
(“Settlement”). The Settlement became effective upon the transfer by the Seller
to XsunX of one million one hundred thousand dollars USD ($1,100,000) on August
27, 2007.
Upon
the
effectiveness of the Settlement counsel for each of the parties filed with
the
United States District Court for the District of Massachusetts a Stipulation
of
Dismissal with Prejudice thereby dismissing the Lawsuit with prejudice. Each
of
the parties has unconditionally and irrevocably released, waived, and forever
discharged each other from claims related to the LOI and the
Lawsuit.
Note
12 - Subsequent Events
Financing
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. Concurrently with entering into the common
stock purchase agreement, we entered into a registration rights agreement with
Fusion Capital. Under the registration rights agreement, we agreed to file
a
registration statement related to the transaction with the U.S. Securities
&
Exchange Commission (“SEC”) covering the shares that have been issued or may be
issued to Fusion Capital under the common stock purchase agreement. After the
SEC has declared effective the registration statement related to the transaction
we have the right over a 25-month period to sell our shares of common stock
to
Fusion Capital, from time to time, in amounts up to $1 million per sale,
depending on certain conditions as set forth in the agreement, up to the full
aggregate commitment of $21 million.
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future funding(s),
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock as financing commitment
shares which Fusion Capital has agreed to hold for the term of the common stock
purchase agreement. Additionally, under the stock purchase agreement we granted
Fusion Capital common stock purchase warrants to purchase 1,666,666 shares
of
our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75.
The shares underlying the warrant grants do not carry mandatory registration
requirements under the terms of the common stock purchase agreement and
registration rights agreement.
The
proceeds received by the Company under the common stock purchase agreement
are
expected to be used to build an initial base production system delivering full
size commercial quality solar modules, and initiate the manufacture of the
first
of four (4) planned 25 megawatt systems under the Company’s planned 100 megawatt
thin film solar module production facility. Proceeds may also be used to lease
and prepare manufacturing facilities with the necessary support systems for
the
manufacturing line, inventory, staff, and general working capital.
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Changes/Additions
to the Board of Directors
On
November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland
as Director, effective November 12, 2007. Mr. Fundingsland brings over forty
years of sales, marketing, executive business management, finance, and corporate
governance experience to XsunX. His professional and business experience
principally originated with his tenure, commencing in 1964, at Applied Magnetics
Corp., a disk drive and data storage company. Prior to his retirement from
Applied Magnetics in 1994, Mr. Fundingsland served as an Executive Officer
and
Vice President of Sales and Marketing for 11 years directing sales growth from
$50 million to over $550 million. Commencing in 1993 through 2003 Mr.
Fundingsland served as a member of the board of directors for the International
Disk Drive Equipment Manufacturers Association “IDEMA” where he retired
emeritus, and continues to serve as an advisor to the board. For the last 13
years, Mr. Fundingsland has provided consulting services assisting with sales,
marketing, and management to a host of companies within the disk drive, optical,
software, and LED industries.
On
November 28, 2007, the Company announced the appointment of Dr. Michael A.
Russak as a Director, effective November 26, 2007. Dr. Russak is also a member
of the Company’s Scientific Advisory Board. Dr. Russak has over thirty five
years of industrial experience progressing from a research scientist to senior
executive officer of two public companies. He has expertise in thin film
materials and devices for magnetic recording, photovoltaic, solar thermal
applications, semiconductor devices as well as glass, glass-ceramic and ceramic
materials. He also has over twelve years experience at the executive
management level of public companies with significant off shore development
and
manufacturing functions. He received his B.S. in Ceramic Engineering in
1968 and Ph.D. in Materials Science in 1971, both from Rutgers University in
New
Brunswick, NJ. During his career, he has been a contributing scientist and
program manager at the Grumman Aerospace Corporation, a Research Staff Member
and technical manager in the areas of thin film materials and processes at
the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His responsibilities included new product design and introduction. Dr. Russak
became Chief Technical Officer of HMT and held that position until 2000 when
HMT
merged with Komag Inc. Dr. Russak was appointed President and Chief
Technical Officer of the combined company. He continued to set technical,
operational and business direction for Komag until his retirement at the end
of
2006. Dr. Russak is currently Executive Director of IDEMA-US, the trade
association for the Hard Disk Drive Industry. He has published over 90 technical
papers, and holds 23 U.S. patents.
Executive
Compensation
The
Board
of Directors of the Company Authorized Salary Increases effective November
6,
2007 for the following individuals:
Tom
Djokovich
|
|
Chief
Executive Officer
|
|
$70,000.00 Increase to $220,000.00
|
Joseph
Grimes
|
|
Chief
Operating Officer
|
|
$60,000.00
Increase to $210,000.00
|
Jeff
Huitt
|
|
Chief
Financial Officer
|
|
$20,000.00
Increase to $155,000.00
|
As
part
of a plan for the Company to provide stock based incentives to employees and
consultants, and attract new employees and members to its board of directors,
the Company engages in a policy of providing stock option grants. Between the
period beginning October 1, 2007 and the date of this report, the board of
directors authorized the grant of options to purchase an aggregate of 3,800,000
shares of the Company’s common stock. Such options are exercisable at the price
of $.36 per share, and expire at various times through November 2012.
Employment
Incentive Option Grants - In connection with the start of the Company’s efforts
to prepare, install, and operate solar module manufacturing capabilities the
Company authorized employment incentive option grants to the following employees
on October 23rd 2007 at an exercise price per share of $0.36. The options were
issued in a transaction exempt from registration pursuant to Section 4(2) of
the
Securities Act of 1933. The options have a 5 year exercise term and vest in
conjunction with a performance milestone based vesting schedule as described
below:
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
Joseph
Grimes
|
|
|
500,000
Option Shares
|
|
Robert
G. Wendt
|
|
|
500,000
Option Shares
|
|
Dr.
Guang Lin
|
|
|
300,000
Option Shares
|
|
The
vesting schedule for Mr. Grimes and Mr. Wendt is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee(s) of the following performance milestones as
they may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
(a)
100,000
shares upon the assembly and commissioning of the base line production
system.
(b)
100,000
shares upon the production of a commercial size working sample of the Company’s
planned
tandem
junction amorphous silicon solar module.
(c)
300,000
shares upon the assembly and commissioning of the initial 25 mega watt
production system as
contemplated
within the Company’s phased build out plan for a solar module manufacturing
facility.
The
vesting schedule for Dr. Guang is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following performance milestones as they
may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
|
(a)
|
100,000
shares upon the assembly and commissioning of the base line production
system.
|
|
(b)
|
150,000
shares upon the production of a commercial size working sample of
the
Company’s planned
tandem
junction amorphous silicon solar
module.
|
|
(c)
|
50,000
shares upon the assembly and commissioning of the initial 25 mega
watt
production system as
contemplated
within the Company’s phased build out plan for a solar module
manufacturing facility.
|
Board
of
Directors Incentive Option Grants - In furtherance of the Company’s policy to
compensate current members, and attract new members, to its Board of Directors,
the Company authorized incentive option grants to the following Directors at
an
exercise price per share of $0.36. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.The options carry 5 year exercise terms and vest as described
below:
Thomas
Anderson
|
October
23, 2007
|
1,500,000
Option Shares (*)
|
Oz
Fundingsland
|
November
11, 2007
|
500,000
Option Shares
|
Dr.
Michael Russak
|
November
26, 2007
|
500,000
Option Shares
|
The
vesting schedule for Mr. Anderson:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
The
Option became exercisable in the amount of 1,000,000 shares upon
the
effective date of the grant for
services
rendered as a member of the Company Board of Directors from the period
beginning
October
1, 2003 through September 30, 2007.
|
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
|
(b)
|
Beginning
October 1, 2007, the Option shall vest and become exercisable at
the rate
of 62,500 Shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 250,000 shares.
|
The
vesting schedule for Mr. Fundingsland is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 12, 2007, the Option shall vest and become exercisable at
the
rate of 62,500 Shares upon the anniversary of each calendar quarter
of continuous service as a Director, or prorated portion
thereof, for services rendered as a member of the Company Board of
Directors up to a total of 500,000
shares.
|
The
vesting schedule for Dr. Russak is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 26, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 Shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
(*)
Amendment
to Stock Option Grant - On November 12, 2007 the Company entered into an
agreement amending the terms of a stock option grant dated October 23, 2007
between the Company and Mr. Thomas Anderson, a member of the XsunX Board of
Directors. The amendment provided for an increase of 250,000 options to the
pool
of options available within the vesting provisions of the grant. All other
provision of the stock option grant remained the same. The vesting schedule
for
item (b) was amended as follows:
|
(b)
|
Beginning
October 1, 2007 the Option shall vest and become exercisable at the
rate
of 62,500 Shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
Note
13 - Financial Accounting Developments
Recently
Issued Accounting Pronouncements
SFAS
155
– ‘Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140’
This
Statement, issued in February 2006, amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” This Statement:
|
(a)
|
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation
|
|
(b)
|
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133
|
XSUNX,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(CONTINUED)
|
(c)
|
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation
|
|
(d)
|
Clarifies
that concentrations of credit risk in the form of subordination
are not
embedded derivatives
|
|
(e)
|
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
|
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15,
2006.
The
fair
value election provided for in paragraph 4(c) of this Statement may also
be
applied upon adoption of this Statement for hybrid financial instruments
that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our
fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
The
Company is currently reviewing the effects of adoption of this statement
but it
is not expected to have a material impact on our financial
statements.
SFAS
156
– ‘Accounting for Servicing of Financial Assets—an amendment of FASB Statement
No. 140’
This
Statement, issued in March 2006, amends FASB Statement No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
with respect to the accounting for separately recognized servicing assets
and
servicing liabilities. This Statement:
(1)
Requires
an entity to recognize a servicing asset or servicing liability each time
it
undertakes an obligation to service a financial asset by entering into a
servicing contract in certain situations.
(2)
Requires
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.
(3)
Permits
an entity to choose either the amortization method or the fair value measurement
method for each class of separately recognized servicing assets and servicing
liabilities.
(4)
At
its
initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights,
without calling into question the treatment of other available-for-sale
securities under Statement 115, provided that the available-for-sale securities
are identified in some manner as offsetting the entity’s exposure to changes in
fair value of servicing assets or servicing liabilities that a servicer elects
to subsequently measure at fair value.
(5)
Requires
separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing
liabilities.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on our financial statements.
JASPERS
+ HALL, PC
CERTIFIED
PUBLIC ACCOUNTANTS
9175
E. Kenyon Avenue, Suite 100
Denver,
CO 80237
303-796-0099
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
XSUNX,
INC.
Aliso
Viejo, CA
We
have
reviewed the accompanying balance sheet of XSUNX, INC. (a development stage
company) as of December 31, 2007, and the related statements of operations,
stockholders’ equity (deficit), and cash flows for the three-month period then
ended. These financial statements are the responsibility of the Company’s
management.
We
conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). The review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based
on
our review, we are not aware of any material modifications that should be
made
to the accompanying financial statements for them to be in conformity with
accounting principles generally accepted in the United States.
Jaspers
+
Hall, PC
Denver,
CO
February
14, 2008
/s/
Jaspers + Hall, PC
Jaspers
+ Hall, PC
Denver,
Colorado
February
14, 2008
XSUNX,
INC.
(A
Development Stage Company)
Balance
Sheets
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
December
31,
|
|
September
30,
|
|
|
|
2007
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
2,188,260
|
|
$
|
1,773,748
|
|
Prepaid
Expenses
|
|
|
6,481
|
|
|
54,377
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,194,741
|
|
|
1,828,125
|
|
|
|
|
|
|
|
|
|
Fixed
assets:
|
|
|
|
|
|
|
|
Office
& Misc. Equipment
|
|
|
39,450
|
|
|
39,437
|
|
Research
and Development Equipment
|
|
|
634,907
|
|
|
532,795
|
|
Leasehold
Improvement
|
|
|
89,825
|
|
|
89,825
|
|
Total
Fixed Assets
|
|
|
764,182
|
|
|
662,057
|
|
Less
Depreciation
|
|
|
(159,7727
|
)
|
|
(118,064
|
)
|
|
|
|
|
|
|
|
|
Total
fixed assets
|
|
|
604,410
|
|
|
543,993
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Patents/Trade
Marks
|
|
|
|
|
|
-
|
|
Security
Deposit
|
|
|
5,815
|
|
|
5,815
|
|
Accrued
Interest Receivable
|
|
|
234,192
|
|
|
143,452
|
|
Note
Receivable
|
|
|
1,500,000
|
|
|
1,500,000
|
|
Marketable
Prototype
(Net
of Accumulated Depreciation)
|
|
|
1,632,625
|
|
|
1,720,875
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
3,372,632
|
|
|
3,370,142
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
6,171,783
|
|
$
|
5,742,260
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
238,897
|
|
$
|
259,652
|
|
Accrued
Expenses
|
|
|
55,077
|
|
|
53,036
|
|
Current
Portion of Note Payable
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
293,974
|
|
|
312,688
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
December
31,
|
|
September
30,
|
|
|
|
2007
|
|
2007
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
Preferred
Stock, par value $0.01 per share; 50,000,000 shares authorized;
no
shares issued and outstanding
|
|
|
|
|
|
|
|
Treasury
Stock, no par value; no shares where issued or outstanding
|
|
|
|
|
|
|
|
Common
Stock, no par value; 500,000,000 shares authorized;
164,753,188
shares issued and outstanding at December 31, 2007 and
157,919,856
shares were issued and outstanding at September 30, 2007
|
|
|
15,669,169
|
|
|
13,563,869
|
|
Paid
in Capital - Common Stock Warrants & Fees
|
|
|
3,635,418
|
|
|
2,326,553
|
|
Deferred
Stock Compensation
|
|
|
(1,051,000
|
)
|
|
|
|
Deficit
accumulated during the development stage
|
|
|
(12,375,778
|
)
|
|
(10,460,850
|
)
|
Total
stockholders’ profit (deficit)
|
|
|
5,877,809
|
|
|
5,429,572
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
6,171,783
|
|
$
|
5,742,260
|
|
See
Accountants’ Review Report.
XSUNX,
INC.
(A
Development Stage Company)
Statement
of Operations
(Unaudited)
|
|
|
|
|
|
Feb. 25, 1997
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Three Months Ended December 31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
Revenue:
|
|
|
|
|
|
|
|
Service
Income
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,880
|
|
Other
Income
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
-
|
|
|
-
|
|
|
14,880
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
4,530
|
|
|
16,747
|
|
|
65,132
|
|
Bank
Charges
|
|
|
531
|
|
|
25
|
|
|
4,411
|
|
Conferences
& Seminars
|
|
|
3,715
|
|
|
9,271
|
|
|
29,707
|
|
Consulting
|
|
|
27,277
|
|
|
35,982
|
|
|
1,537,861
|
|
Depreciation
|
|
|
129,958
|
|
|
27,047
|
|
|
311,760
|
|
Directors’
Fees
|
|
|
|
|
|
|
|
|
11,983
|
|
Due
Diligence
|
|
|
|
|
|
|
|
|
45,832
|
|
Dues
and Subscriptions
|
|
|
|
|
|
|
|
|
-
|
|
Equipment
Rental
|
|
|
|
|
|
|
|
|
1,733
|
|
Filing
Fees
|
|
|
|
|
|
|
|
|
8,610
|
|
Impairment
loss
|
|
|
|
|
|
|
|
|
923,834
|
|
Insurance
|
|
|
22,164
|
|
|
3,535
|
|
|
92,483
|
|
Legal
& Accounting
|
|
|
59,039
|
|
|
77,418
|
|
|
797,419
|
|
Licenses
& Fees
|
|
|
618
|
|
|
20
|
|
|
7,163
|
|
Commitment
and Loan Fees
|
|
|
89,300
|
|
|
|
|
|
831,134
|
|
Meals
& Entertainment
|
|
|
|
|
|
|
|
|
4,119
|
|
Miscellaneous
|
|
|
100
|
|
|
2,135
|
|
|
7,478
|
|
Office
Expenses
|
|
|
3,794
|
|
|
6,229
|
|
|
45,294
|
|
Patent
Fees
|
|
|
|
|
|
1,181
|
|
|
2,469
|
|
Postage
& Shipping
|
|
|
1,375
|
|
|
688
|
|
|
16,203
|
|
Printing
|
|
|
408
|
|
|
6,911
|
|
|
28,878
|
|
Public
Relations
|
|
|
68,674
|
|
|
26,630
|
|
|
558,035
|
|
Recruitment
Expenses
|
|
|
1,403
|
|
|
|
|
|
48,467
|
|
Research
& Development
|
|
|
6,406
|
|
|
209,945
|
|
|
2,022,328
|
|
Rent
|
|
|
17,208
|
|
|
14,860
|
|
|
129,731
|
|
Salaries
|
|
|
235,585
|
|
|
140,615
|
|
|
1,994,707
|
|
Subscription
Reports
|
|
|
|
|
|
10
|
|
|
9,858
|
|
Taxes
|
|
|
1,666
|
|
|
|
|
|
10,503
|
|
Telephone
|
|
|
4,987
|
|
|
7,162
|
|
|
79,910
|
|
Transfer
Agent Expense
|
|
|
|
|
|
283
|
|
|
20,365
|
|
Travel,
Meals & Entertainment
|
|
|
31,376
|
|
|
29,829
|
|
|
305,869
|
|
Utilities
|
|
|
2,408
|
|
|
|
|
|
10,511
|
|
|
|
|
|
|
|
Feb. 25, 1997
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Three Months Ended December 31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
Abandoned
Equipment
|
|
|
|
|
|
|
|
|
808
|
|
Option
/ Warrant Expense
|
|
|
1,308,865
|
|
|
|
|
|
3,785,418
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
2,021,387
|
|
|
616,523
|
|
|
13,750,013
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(Income) Expense
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
395
|
|
|
|
|
|
248,955
|
|
Interest
Income
|
|
|
(106,854
|
)
|
|
(32,843
|
)
|
|
(448,536
|
)
|
Legal
Settlement
|
|
|
|
|
|
|
|
|
(1,100,000
|
)
|
Other
|
|
|
|
|
|
|
|
|
-
|
|
Forgiveness
of Debt
|
|
|
|
|
|
|
|
|
(59,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income/Expense
|
|
|
(106,459
|
)
|
|
(32,843
|
)
|
|
(1,359,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
$
|
(1,914,928
|
)
|
$
|
(583,680
|
)
|
$
|
(12,375,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Information:
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
163,724,263
|
|
|
157,169,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share
|
|
$
|
(0.01
|
)
|
$
|
(0.004
|
)
|
|
|
|
See
Accountants’ Review Report.
XSUNX,
INC.
(A
Development Stage Company)
Statement
of Stockholders’ Equity (Deficit)
December
31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Capital
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
During the
|
|
|
|
|
|
Treasury Stock
|
|
Common Stock
|
|
Stock
|
|
Exploration
|
|
|
|
|
|
# of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Warrants
|
|
Stage
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
February 25, 1997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
15,880
|
|
|
217,700
|
|
|
-
|
|
|
-
|
|
|
217,700
|
|
Issuance
of stock to Founders
|
|
|
-
|
|
|
-
|
|
|
14,110
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuance
of stock for consolidation
|
|
|
-
|
|
|
-
|
|
|
445,000
|
|
|
312,106
|
|
|
-
|
|
|
-
|
|
|
312,106
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(193,973
|
)
|
|
(193,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1997
|
|
|
-
|
|
|
-
|
|
|
474,990
|
|
|
529,806
|
|
|
-
|
|
|
(193,973
|
)
|
|
335,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
1,500
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
50,200
|
|
|
204,000
|
|
|
-
|
|
|
-
|
|
|
204,000
|
|
Consolidation
stock cancelled
|
|
|
-
|
|
|
-
|
|
|
(60,000
|
)
|
|
(50,000
|
)
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(799,451
|
)
|
|
(799,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1998
|
|
|
-
|
|
|
-
|
|
|
466,690
|
|
|
713,806
|
|
|
-
|
|
|
(993,424
|
)
|
|
(279,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
151,458
|
|
|
717,113
|
|
|
-
|
|
|
-
|
|
|
717,113
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
135,000
|
|
|
463,500
|
|
|
-
|
|
|
-
|
|
|
463,500
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,482,017
|
)
|
|
(1,482,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 1999
|
|
|
-
|
|
|
-
|
|
|
753,148
|
|
|
1,894,419
|
|
|
-
|
|
|
(2,475,441
|
)
|
|
(581,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
27,000
|
|
|
-
|
|
|
-
|
|
|
27,000
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(118,369
|
)
|
|
(118,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2000
|
|
|
-
|
|
|
-
|
|
|
768,148
|
|
|
1,921,419
|
|
|
-
|
|
|
(2,593,810
|
)
|
|
(672,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
337,887
|
|
|
-
|
|
|
-
|
|
|
337,887
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(32,402
|
)
|
|
(32,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2001
|
|
|
-
|
|
|
-
|
|
|
768,148
|
|
|
2,259,306
|
|
|
-
|
|
|
(2,626,212
|
)
|
|
(366,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(47,297
|
)
|
|
(47,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Capital
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
During the
|
|
|
|
|
|
Treasury Stock
|
|
Common Stock
|
|
Stock
|
|
Exploration
|
|
|
|
|
|
# of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Warrants
|
|
Stage
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2002
|
|
|
-
|
|
|
-
|
|
|
768,148
|
|
|
2,259,306
|
|
|
-
|
|
|
(2,673,509
|
)
|
|
(414,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for Assets
|
|
|
-
|
|
|
-
|
|
|
70,000,000
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Issuance
of stock for Cash
|
|
|
-
|
|
|
-
|
|
|
9,000,000
|
|
|
225,450
|
|
|
-
|
|
|
-
|
|
|
225,450
|
|
Issuance
of stock for Debt
|
|
|
-
|
|
|
|
|
|
115,000
|
|
|
121,828
|
|
|
-
|
|
|
-
|
|
|
121,828
|
|
Issuance
of stock for Expenses
|
|
|
-
|
|
|
-
|
|
|
115,000
|
|
|
89,939
|
|
|
-
|
|
|
-
|
|
|
89,939
|
|
Issuance
of stock for Services
|
|
|
-
|
|
|
-
|
|
|
31,300,000
|
|
|
125,200
|
|
|
-
|
|
|
-
|
|
|
125,200
|
|
Net
Loss for year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(145,868
|
)
|
|
(145,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2003
|
|
|
-
|
|
|
-
|
|
|
111,298,148
|
|
|
2,821,726
|
|
|
-
|
|
|
(2,819,377
|
)
|
|
2,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
2,737,954
|
|
|
282,670
|
|
|
-
|
|
|
-
|
|
|
282,670
|
|
Issuance
of Common Stock Warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,200,000
|
|
|
-
|
|
|
1,200,000
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,509,068
|
)
|
|
(1,509,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2004
|
|
|
|
|
|
|
|
|
114,036,102
|
|
|
3,104,396
|
|
|
1,200,000
|
|
|
(4,328,445
|
)
|
|
(24,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
-
|
|
|
-
|
|
|
6,747,037
|
|
|
531,395
|
|
|
-
|
|
|
-
|
|
|
531,395
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
3,093,500
|
|
|
360,945
|
|
|
-
|
|
|
-
|
|
|
360,945
|
|
Issuance
of stock for collateral
|
|
|
26,798,418
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,400,839
|
)
|
|
(1,400,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2005
|
|
|
26,798,418
|
|
|
-
|
|
|
123,876,639
|
|
|
3,996,735
|
|
|
1,200,000
|
|
|
(5,729,284
|
)
|
|
(532,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
-
|
|
|
-
|
|
|
72,366
|
|
|
31,500
|
|
|
-
|
|
|
-
|
|
|
31,500
|
|
Issuance
of Common Stock Warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
951,250
|
|
|
-
|
|
|
951,250
|
|
Issuance
of stock for debenture conversion
|
|
|
-
|
|
|
-
|
|
|
21,657,895
|
|
|
5,850,000
|
|
|
|
|
|
|
|
|
5,850,000
|
|
Issuance
of stock for interest expense
|
|
|
-
|
|
|
-
|
|
|
712,956
|
|
|
241,383
|
|
|
|
|
|
|
|
|
241,383
|
|
Issuance
of stock for warrant conversion
|
|
|
-
|
|
|
-
|
|
|
10,850,000
|
|
|
3,171,250
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Net
Loss for Year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,441,940
|
)
|
|
(3,441,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2006
|
|
|
26,798,418
|
|
|
-
|
|
|
157,169,856
|
|
|
13,290,869
|
|
|
2,151,250
|
|
|
(9,171,354
|
)
|
|
6,270,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of Stock for Services Returned
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
(12,000
|
)
|
Release
of Security Collateral
|
|
|
(26,798,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Stock for Warrants - Jim Bentley
|
|
|
|
|
|
|
|
|
900,000
|
|
|
285,000
|
|
|
(150,000
|
)
|
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Capital
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
During the
|
|
|
|
|
|
Treasury Stock
|
|
Common Stock
|
|
Stock
|
|
Exploration
|
|
|
|
|
|
# of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Warrants
|
|
Stage
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option / Warrant Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,303
|
|
|
|
|
|
325,303
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289,497
|
)
|
|
(1,289,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2007
|
|
|
-
|
|
$
|
-
|
|
|
157,919,856
|
|
$
|
13,563,869
|
|
$
|
2,326,553
|
|
$
|
(10,460,850
|
)
|
|
5,429,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Stock for Cash
|
|
|
|
|
|
|
|
|
3,333,332
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
1,000,000
|
|
Issuance
of Common Stock for Services
|
|
|
|
|
|
|
|
|
3,500,000
|
|
$
|
1,105,300
|
|
$
|
1,308,865
|
|
|
|
|
|
2,414,165
|
|
Deferred
Stock Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,051,000
|
)
|
Net
Loss for the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,914,928
|
)
|
|
(1,914,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007
|
|
|
-
|
|
$
|
-
|
|
|
164,753,188
|
|
$
|
15,669,169
|
|
$
|
3,635,418
|
|
$
|
(12,375,778
|
)
|
|
5,877,809
|
|
See
Accountants’ Review Report.
XSUNX,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
(Unaudited)
|
|
|
|
|
|
Feb. 25, 1997
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Three Months Ended December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,914,928
|
)
|
$
|
(583,680
|
)
|
$
|
(12,375,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Services
|
|
|
|
|
|
|
|
|
1,336,999
|
|
Issuance
of Common Stock for Commitment Fee
|
|
|
|
|
|
|
|
|
310,117
|
|
Amortization
of Common Stock for Commitment Fee
|
|
|
54,300
|
|
|
|
|
|
54,300
|
|
Option
/ Warrant Expense
|
|
|
1,308,865
|
|
|
|
|
|
3,785,418
|
|
Issuance
of Stock for Interest
|
|
|
|
|
|
|
|
|
241,383
|
|
Depreciation
|
|
|
129,958
|
|
|
27,047
|
|
|
292,147
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
in Deferred Financing Costs
|
|
|
|
|
|
|
|
|
-
|
|
(Increase)
Accounts Receivable
|
|
|
|
|
|
|
|
|
-
|
|
(Increase)
Security Deposit
|
|
|
-
|
|
|
(1,700
|
)
|
|
(5,815
|
)
|
(Increase)
in Prepaid Expense
|
|
|
47,896
|
|
|
|
|
|
(6,481
|
)
|
(Decrease)
in Accounts Payable
|
|
|
(20,755
|
)
|
|
449,880
|
|
|
238,897
|
|
Increase
(Decrease) in Accrued Liabilities
|
|
|
2,041
|
|
|
(476,153
|
)
|
|
55,077
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows Used for Operating Activities
|
|
|
(392,623
|
)
|
|
(584,606
|
)
|
|
(6,073,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Fixed Assets
|
|
|
(102,125
|
)
|
|
(28,360
|
)
|
|
(764,183
|
)
|
Purchase
of Marketable Prototype and Patent
|
|
|
-
|
|
|
|
|
|
(1,765,000
|
)
|
Note
Receivable
|
|
|
-
|
|
|
|
|
|
(1,500,000
|
)
|
Accrued
Interest earned
|
|
|
(90,740
|
)
|
|
|
|
|
(234,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows Used for Investing Activities
|
|
|
(192,865
|
)
|
|
(28,360
|
)
|
|
(4,263,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Warrant Conversion
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Proceeds
from Debenture Conversion
|
|
|
|
|
|
|
|
|
5,000,000
|
|
Proceeds
from Convertible Debt
|
|
|
|
|
|
|
|
|
-
|
|
Issuance
of Common Stock for Warrants
|
|
|
|
|
|
|
|
|
135,000
|
|
Issuance
of Common Stock for cash
|
|
|
1,000,000
|
|
|
|
|
|
4,219,121
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows Provided by Financing Activities
|
|
|
1,000,000
|
|
|
-
|
|
|
12,525,371
|
|
|
|
|
|
|
|
Feb. 25, 1997
|
|
|
|
|
|
|
|
(Inception)
to
|
|
|
|
Three Months Ended December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash
|
|
|
414,512
|
|
|
(612,966
|
)
|
|
2,188,260
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - Beginning of period
|
|
|
1,773,748
|
|
|
4,305,105
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - End of period
|
|
$
|
2,188,260
|
|
$
|
3,692,139
|
|
$
|
2,188,260
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Period:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
395
|
|
|
|
|
$
|
72,938
|
|
Income
Taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued (returned) in exchange for services
|
|
|
|
|
|
|
|
$
|
1,336,998
|
|
Conversion
of debt for Stock
|
|
|
|
|
|
|
|
$
|
-
|
|
Common
Stock Issued for Commitment Fee
|
|
$
|
54,300
|
|
|
|
|
$
|
364,417
|
|
Common
Stock Issued for Interest
|
|
|
|
|
|
|
|
$
|
241,383
|
|
See
Accountants’ Review Report.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
Note
1 – Presentation of Interim Information
In
the
opinion of the management of XSUNX, Inc., (the “Company”) the accompanying
unaudited financial statements include all normal adjustments considered
necessary to present fairly the financial position as of December 31, 2007
and
the results of operations for the three months ended December 31, 2007 and
2006
and for the period February 25, 1997 (inception) to December 31, 2007, and
cash flows for the three-months ended December 31, 2007 and 2006 and for the
period February 25, 1997 (inception) to December 31, 2007. Interim results
are
not necessarily indicative of results for a full year.
The
financial statements and notes are presented as permitted by Form 10-Q, and
do
not contain certain information included in the Company’s audited financial
statements and notes for the fiscal year ended September 30, 2007.
Note
2 – Lease - Golden Suite
As
of
July 1, 2006 a new lease was signed for the Golden Office in the amount of
$1,687.50 per month plus a fee of $825.00 for utilities. The rent increased
to
$1,738 per month on July 1, 2007 and will increase to$1,790.00 per month on
July
1, 2008. The lease expires on June 30, 2009.
Note
3 – Financing
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. Concurrently with entering into the common
stock purchase agreement, we entered into a registration rights agreement with
Fusion Capital. Under the registration rights agreement, we agreed to file
a
registration statement related to the transaction with the U.S. Securities
&
Exchange Commission (“SEC”) covering the shares that have been issued or may be
issued to Fusion Capital under the common stock purchase agreement. After the
SEC has declared effective the registration statement related to the transaction
we have the right over a 25-month period to sell our shares of common stock
to
Fusion Capital, from time to time, in amounts up to $1 million per sale,
depending on certain conditions as set forth in the common stock purchase
agreement, up to the full aggregate commitment of $21 million.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future funding(s),
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock, valued at $1,105,300 or
approx. $0.32 per share as financing commitment shares which Fusion Capital
has
agreed to hold for the term of the common stock purchase agreement. This
commitment fee will be amortized ratably as the Company sells additional shares.
The commitment fee related to the first $1,000,000 sale is $54,300. Should
the
agreement be terminated, the remaining unamortized portion of the commitment
fee
will be expensed. Additionally, under the stock purchase agreement we granted
Fusion Capital common stock purchase warrants to purchase 1,666,666 shares
of
our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75.
The shares underlying the warrant grants do not carry mandatory registration
requirements under the terms of the common stock purchase agreement and
registration rights agreement.
The
proceeds received by the Company under the common stock purchase agreement
are
expected to be used to build an initial base production system delivering full
size commercial quality solar modules, and initiate the manufacture of the
first
of four (4) planned 25 megawatt systems under the Company’s planned 100 megawatt
thin film solar module production facility. Proceeds may also be used to lease
and prepare manufacturing facilities with the necessary support systems for
the
manufacturing line, inventory, staff, and general working capital.
Note
4 – Technology Development and Licensing Agreement
On
January 1, 2007, XsunX, Inc. issued a secured, seven year, 10% note to Sencera,
LLC in the amount up to $1,500,000. Under the terms, the Company provided
Sencera, LLC with $400,000 at the time of signing and $137,500 per month for
up
to eight months. These funds are to be used to develop technology and obtain
licenses in agreement with the Technology Development and License Agreement
between Sencera and XsunX, Inc also signed on January 1, 2007. The License
Agreement provides XsunX with licensing rights to plasma deposition technologies
for future use by XsunX in solar product manufacturing technologies. The note
may be converted into a membership interest in Sencera, LLP and an extension
of
the license for a period of three years. The security consists of the license
rights, the ability to exercise the conversion and all other rights and remedies
provided by law.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
On
September 7, 2007, XsunX initiated the final funding of disbursements under
the
Promissory Note and Loan Agreement dated January 1, 2007, between XsunX and
Sencera, LLC. Under the Promissory Note and Loan Agreement, XsunX has funded
and
extended the principal amount of $1,500,000 dollars to Sencera,
LLC.
Use
of
the licensed plasma technology by XsunX in any of its planned or future
processes or products has and continues to be subject to completion of
development by Sencera, LLC, substantiation of intended performance criteria
under the agreements, and determination of commercial application suitability
by
XsunX.
As
of
December 31, 2007, the current balance of the note receivable was $1,500,000
plus accrued interest earned of $234,192.
Note
5 – Employment and Consulting Agreements
The
Company authorized employment incentive option grants to the following employees
on October 23rd 2007 at an exercise price per share of $0.36 in conjunction
with
a performance milestone based vesting schedule as described below:
Joseph
Grimes
|
500,000
Option Shares
|
Robert
G. Wendt
|
500,000
Option Shares
|
Dr.
Guang Lin
|
300,000
Option Shares
|
The
vesting schedule for Mr. Grimes and Mr. Wendt is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee(s) of the following performance milestones as
they may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
(a)
100,000 shares upon the assembly and commissioning of the base line production
system.
(b)
100,000 shares upon the production of a commercial size working sample of the
Company’s planned tandem junction amorphous silicon solar module.
(c)
300,000 shares upon the assembly and commissioning of the initial 25 mega watt
production system as contemplated within the Company’s phased build out plan for
a solar module manufacturing facility.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
The
vesting schedule for Dr. Guang is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following performance milestones as they
may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
(a)
100,000 shares upon the assembly and commissioning of the base line production
system.
(b)
150,000 shares upon the production of a commercial size working sample of the
Company’s planned tandem junction amorphous silicon solar module.
(c)
50,000 shares upon the assembly and commissioning of the initial 25 mega watt
production system as contemplated within the Company’s phased build out plan for
a solar module manufacturing facility.
Note
6 – Changes/Additions to the Board of Directors
Addition
- Mr. Oz Fundingsland as Director
On
November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland
as Director, effective November 12, 2007. Mr. Fundingsland brings over
forty years of sales, marketing, executive business management, finance, and
corporate governance experience to XsunX. His professional and business
experience principally originated with his tenure, commencing in 1964, at
Applied Magnetics Corp., a disk drive and data storage company. Prior to his
retirement from Applied Magnetics in 1994, Mr. Fundingsland served as an
Executive Officer and Vice President of Sales and Marketing for 11 years
directing sales growth from $50 million to over $550 million. Commencing in
1993
through 2003 Mr. Fundingsland served as a member of the board of directors
for
the International Disk Drive Equipment Manufacturers Association “IDEMA” where
he retired emeritus, and continues to serve as an advisor to the board. For
the
last 13 years, Mr. Fundingsland has provided consulting services assisting
with
sales, marketing, and management to a host of companies within the disk drive,
optical, software, and LED industries.
Addition
- Dr. Michael A. Russak as Director
On
November 28, 2007, the Company announced the appointment of Dr. Michael A.
Russak as a Director, effective November 26, 2007. Dr. Russak is also a member
of the Company’s Scientific Advisory Board. Dr. Russak has over thirty five
years of industrial experience progressing from a research scientist to senior
executive officer of two public companies. He has expertise in thin film
materials and devices for magnetic recording, photovoltaic, solar thermal
applications, semiconductor devices as well as glass, glass-ceramic and ceramic
materials. He also has over twelve years experience at the executive management
level of public companies with significant off shore development and
manufacturing functions. He received his B.S. in Ceramic Engineering in 1968
and
Ph.D. in Materials Science in 1971, both from Rutgers University in New
Brunswick, NJ. During his career, he has been a contributing scientist and
program manager at the Grumman Aerospace Corporation, a Research Staff Member
and technical manager in the areas of thin film materials and processes at
the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His
responsibilities included new product design and introduction. Dr. Russak became
Chief Technical Officer of HMT and held that position until 2000 when HMT merged
with Komag Inc. Dr. Russak was appointed President and Chief Technical Officer
of the combined company. He continued to set technical, operational and business
direction for Komag until his retirement at the end of 2006. Dr. Russak is
currently Executive Director of IDEMA-US, the trade association for the Hard
Disk Drive Industry. He has published over 90 technical papers, and holds 23
U.S. patents.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
Board
of
Directors Incentive Option Grants — In furtherance of the Company’s
policy to compensate current members, and attract new members, to its Board
of
Directors, the Company authorized incentive option grants to the following
Directors at an exercise price per share of $0.36. The options were issued
in a
transaction exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. The options carry 5 year exercise terms and vest as
described below:
Thomas
Anderson
|
October
23, 2007
|
1,500,000
Option Shares (*)
|
Oz
Fundingsland
|
November
11, 2007
|
500,000
Option Shares
|
Dr.
Michael Russak
|
November
26, 2007
|
500,000
Option Shares
|
The
vesting schedule for Mr. Anderson is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
(a)
|
The
Option became exercisable in the amount of 1,000,000 shares upon
the
effective date of the grant for services rendered as a member of
the
Company Board of Directors from the period beginning October 1, 2003
through September 30, 2007.
|
(b)
|
Beginning
October 1, 2007, the Option shall vest and become exercisable at
the rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company’s Board of Directors up to a
total of 250,000 shares.
|
(*)
Amendment to Stock Option Grant — On November 12, 2007 the Company
entered into an agreement amending the terms of a stock option grant dated
October 23, 2007 between the Company and Mr. Thomas Anderson, a member of the
XsunX Board of Directors. The amendment provided for an increase of 250,000
options to the pool of options available within the vesting provisions of the
grant. All other provision of the stock option grant remained the same. The
vesting schedule for item (b) was amended as follows:
(b)
|
Beginning
October 1, 2007 the Option shall vest and become exercisable at the
rate
of 62,500 Shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
The
vesting schedule for Mr. Fundingsland is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
(a)
|
Beginning
November 12, 2007, the Option shall vest and become exercisable at
the
rate of 62,500 shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company’s Board of Directors up to a
total of 500,000 shares.
|
The
vesting schedule for Dr. Russak is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
(a)
|
Beginning
November 26, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company’s Board of Directors up to a
total of 500,000 shares.
|
Note
7 – Legal
On
December 7, 2007, the Company filed an action for breach of contract and
declaratory relief in the Superior Court of Orange County, California, against
Wharton Capital Partners, Ltd, Wharton Capital Markets LLC, and Capitoline
Financial Group LLC. The action is captioned XsunX, Inc. v. Wharton Capital
Partners, Ltd, et al., and is pending in the above Court as case no. 07CC12772
(“XsunX Action”). The XsunX Action was brought to seek a court determination
that the Company does not owe any fees to the above defendants by reason of
the
Fusion Capital transaction, (see Note. 3 - Financing). The Company believes
that
no agreement between Wharton and the Company was executed and therefore no
valid
agreement between the parties exists. The XsunX Action also seeks return of
confidential materials from the above defendants. On January 3, 2008, Wharton
Capital Partners, Ltd, and Wharton Capital Markets LLC, filed an action in
the
U.S. District Court for the Southern District of New York against the Company
stemming from the same matter. That action is captioned Wharton Capital Partners
Ltd, and Wharton Capital Markets LLC v. XsunX, Inc., and is pending in the
above
Court as case no. 080CV0056 (“Wharton Action”). The Wharton Action seeks fees in
an amount equal to 7% of the gross proceeds received by the Company under the
Fusion financing agreement. The Company asserts that no fees are owed to Wharton
Capital Partners, Ltd, Wharton Capital Markets LLC, or Capitoline Financial
Group LLC. The Company intends to vigorously prosecute the XsunX Action and
to
vigorously defend the Wharton Action. In the event that the Company does not
prevail we may be required to provide Wharton a payment of up to 7% of any
proceeds received by the Company under the Fusion financing
agreement.
XSUNX,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2007
(Unaudited)
Note
8 – Subsequent Events
Executive
Compensation
The
Board
of Directors of the Company Authorized Salary Increases in January 2008 for
the
following individuals:
Tom
Djokovich
|
Chief
Executive Office
|
$70,000
Increase to $220,000
|
Joseph
Grimes
|
Chief
Operating Officer
|
$60,000
Increase to $210,000
|
Jeff
Huitt
|
Chief
Financial Officer
|
$20,000
Increase to $155,000
|
Robert
Wendt
|
Vice
President of Engineering
|
$50,000
Increase to $200,000
|
Directors
Compensation
Beginning
October 2007, the Company elected to provide its Board of Directors with a
monthly stipend of $1,500. The decision was driven by the Company’s efforts to
attract and retain qualified members, and provide compensation during a period
of expansion of operations while the Company works to establish manufacturing
facilities.
Financing
On
January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Company’s
restricted common stock in a private transaction for total proceeds of
$2,500,000. The Company agreed to register the 8,650,000 shares purchased by
Cumorah Capital. Cumorah Capital is a Nevada corporation and an Accredited
Investor, as defined in Rule 501(a) of Regulation D as promulgated by the
SEC.
Form
S-1 Registration Statement
On
January 18, 2008, XsunX, Inc. filed a Registration Statement on Form S-1 with
the Securities and Exchange Commission as required in our financing agreements
with Fusion Capital Fund II, LLC and Cumorah Capital.
We
have not authorized any dealer, salesperson or other person to provide
any
information or make any representations about XsunX, Inc. except
the
information or representations contained in this Prospectus. You
should
not rely on any additional information or representations if
made.
This
Prospectus does not constitute an offer to sell, or a solicitation
of an
offer to buy any securities:
·
except the common stock offered by this Prospectus;
·
in
any jurisdiction in which the offer or solicitation is not
authorized;
·
in
any jurisdiction where the dealer or other salesperson is not qualified
to
make the offer or solicitation;
·
to
any person to whom it is unlawful to make the offer or solicitation;
or
·
to
any person who is not a United States resident or who is outside
the jurisdiction of the United States.
The
delivery of this Prospectus or any accompanying sale does not imply
that:
|
|
PROSPECTUS
48,650,000
Shares of Common Stock
XSUNX
INC.
|
·
there
have been no
changes in the affairs of XsunX, Inc. after the date of this
Prospectus; or
|
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|
·
the
information contained in this Prospectus is correct after the date
of this
Prospectus.
|
|
|
|
|
|
All
dealers effecting transactions in the registered securities, whether
or
not participating in this distribution, may be required to deliver
a
Prospectus. This is in addition to the obligation of dealers to deliver
a
Prospectus when acting as underwriters.
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